As filed with the Securities and Exchange Commission on June 26, 1998
Registration No. 333-51609
- ----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
Amendment No. 1 to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
IndyMac ABS, Inc.
(Exact name of registrant as specified in its charter)
------------------
Delaware Applied For
(State or Other Jurisdiction of
Incorporation or Organization) (I.R.S. Employer Identification No.)
155 NORTH LAKE AVENUE
PASADENA, CALIFORNIA 91101
(800) 669-2300
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------
Michael W. Perry
IndyMac, Inc.
155 North Lake Avenue
Pasadena, California 91101
(800) 669-2300
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
------------------
With a copy to:
Edward J. Fine, Esq.
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
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Approximate date of commencement of proposed sale to the public: From
time to time on or after the effective date of the registration statement, as
determined by market conditions.
------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. ( )
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. (x)
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
registration statement for the same offering. ( )
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
of the same offering. ( )
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. ( )
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED PROPOSED
SECURITIES TO BE REGISTERED REGISTERED(1)(2) MAXIMUM MAXIMUM AMOUNT OF
OFFERING PRICE AGGREGATE REGISTRATION
PER UNIT(2) OFFERING PRICE(2) FEE(4)
<S> <C> <C> <C> <C>
Asset Backed Certificates
and Asset Backed Notes $2,000,000,000(3) 100% $2,000,000,000 $590,000.00
</TABLE>
(1) This Registration Statement relates to the offering from time to time
of $2,000,000,000 aggregate principal amount of asset backed securities
and to any resales thereof in market making transactions by Countrywide
Securities Corporation, an affiliate of the registrant, to the extent
required.
(2) Estimated for the purpose of calculating the registration fee.
(3) Not specified as to each class of Asset Backed Securities to be
registered pursuant to General Instruction II.D of Form S-3.
(4) Includes $295 previously paid.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
SUBJECT TO COMPLETION, DATED ____________ __, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED __________, 1998)
$-----------
(Approximate)
INDYMAC ABS, INC.
DEPOSITOR
[INDYMAC, INC.]
SELLER AND MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 19__-__
DISTRIBUTIONS PAYABLE ON THE ____THE DAY OF
EACH MONTH, COMMENCING IN _____ 19__
--------------------
The Mortgage Pass-Through Certificates, Series 199__-__ (collectively,
the "Certificates") will represent the entire beneficial interest in a Trust
Fund consisting primarily of a pool (the "Mortgage Pool") of [fixed-rate]
Mortgage Loans secured by first liens on one- to four-family residential
properties. Only the Classes identified in the table below (collectively, the
"Offered Certificates") are offered hereby.
THE CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST FUND ONLY
AND WILL NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, THE
SELLER, THE MASTER SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE
AFFILIATES. NEITHER THE CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL ENTITY, THE DEPOSITOR, THE SELLER, THE MASTER
SERVICER, THE TRUSTEE OR ANY OF THEIR AFFILIATES OR ANY OTHER PERSON.
DISTRIBUTIONS ON THE CERTIFICATES WILL BE PAYABLE SOLELY FROM THE ASSETS
TRANSFERRED TO THE TRUST FUND FOR THE BENEFIT OF CERTIFICATEHOLDERS.
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
==============================================================================
[INITIAL CLASS CERTIFICATE PASS-THROUGH RATE
BALANCE (1)
- ------------------------------------------------------------------------------
Class A - $ %
- ------------------------------------------------------------------------------
Class $ %
- ------------------------------------------------------------------------------
Class PO $ (2)
- ------------------------------------------------------------------------------
Class X (3) (4)
- ------------------------------------------------------------------------------
Class A-R $ %
- ------------------------------------------------------------------------------
Class B - $ %
- ------------------------------------------------------------------------------
Class $ %
- ------------------------------------------------------------------------------
Class $ %
==============================================================================
(1) Subject to the permitted variance described herein.
(2) The Class PO Certificates will be Principal Only Certificates and will
not bear interest.
(3) The Class X Certificates will be Notional Amount Certificates, will have
no principal balance and will bear interest on their Notional Amount
(initially expected to be approximately $____________).
(4) The Pass-Through Rate for the Class X Certificates for any Distribution
Date will be equal to the excess of (a) the weighted average of the Net
Mortgage Rates of the Non-Discount Mortgage Loans over (b) % per annum.
The Pass-Through Rate for the Class X Certificates for the first
Distribution Date is expected to be approximately % per annum.]
[The Senior Certificates, other than the Class PO and Class X
Certificates (the "Underwritten Senior Certificates"), will be purchased by
_______ and the Class ____ Certificates (together with the Underwritten Senior
Certificates, the "Underwritten Certificates") offered hereby will be
purchased by ______ (each, an "Underwriter") from the Depositor and will be
offered by the Underwriters from time to time in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. Proceeds to
the Depositor from the sale of the Underwritten Certificates are expected to
be approximately $_______ , plus accrued interest, before deducting issuance
expenses payable by the Depositor. The Class , Class PO and Class X
Certificates will be issued to the Depositor on or about _________, 19__ as
partial consideration for the sale of the Mortgage Loans to the Trust Fund.]
[The Underwritten Certificates are offered by the respective
Underwriters, subject to prior sale, when, as and if delivered to and accepted
by the Underwriters and subject to their right to reject orders in whole or in
part. It is expected that delivery of the Underwritten Senior Certificates,
other than the Class A-R Certificates, will be made in book-entry form only
through the facilities of The Depository Trust Company, that the Class A-R
Certificates will be delivered at the offices of _________________ in New
York, New York and that the Class Certificates will be delivered at the
offices of _______________ in New York, New York, in each case on or about
_________, 19__.]
[THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS ARE TO BE USED BY
COUNTRYWIDE SECURITIES CORPORATION, AN AFFILIATE OF INDYMAC ABS, INC. AND
INDYMAC, INC., IN CONNECTION WITH OFFERS AND SALES RELATED TO MARKET MAKING
TRANSACTIONS IN THE OFFERED CERTIFICATES IN WHICH COUNTRYWIDE SECURITIES
CORPORATION ACTS AS PRINCIPAL. COUNTRYWIDE SECURITIES CORPORATION MAY ALSO ACT
AS AGENT IN SUCH TRANSACTIONS. SALES WILL BE MADE AT PRIES RELATED TO
PREVAILING PRICES AT THE TIME OF SALE.]
[Underwriters]
The Mortgage Loans will be sold to the Depositor by [IndyMac, Inc.
("IndyMac")].
An election will be made to treat the Trust Fund as a "real estate
mortgage investment conduit" (the "REMIC") for federal income tax purposes. As
described more fully herein and in the Prospectus, the Offered Certificates,
other than the Class A-R Certificates, will constitute "regular interests" in
the REMIC. The Class A-R Certificates will constitute the sole class of
"residual interest" in the REMIC. Prospective investors are cautioned that a
Class A-R Certificateholder's REMIC taxable income and the tax liability
thereon will exceed cash distributions in certain periods, in which event such
holder must have sufficient alternative sources of funds to pay such tax
liability. See "Certain Federal Income Tax Consequences" herein and in the
Prospectus.
The Class A-R Certificates will be subject to certain transfer
restrictions. See "Description of the Certificates -- Restrictions on Transfer
of the Class A-R Certificates" herein.
THE YIELD TO INVESTORS ON EACH CLASS OF OFFERED CERTIFICATES WILL BE
SENSITIVE IN VARYING DEGREES TO, AMONG OTHER THINGS, THE RATE AND TIMING OF
PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) OF THE MORTGAGE LOANS, WHICH MAY
VARY SIGNIFICANTLY OVER TIME. THE YIELD TO MATURITY OF A CLASS OF OFFERED
CERTIFICATES PURCHASED AT A DISCOUNT OR PREMIUM WILL BE MORE SENSITIVE TO THE
RATE AND TIMING OF PAYMENTS THEREON. HOLDERS OF THE OFFERED CERTIFICATES
SHOULD CONSIDER, IN THE CASE OF ANY SUCH CERTIFICATES PURCHASED AT A DISCOUNT,
AND PARTICULARLY THE PRINCIPAL ONLY CERTIFICATES, THE RISK THAT A SLOWER THAN
ANTICIPATED RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS COULD RESULT IN
AN ACTUAL YIELD THAT IS LOWER THAN THE ANTICIPATED YIELD AND, IN THE CASE OF
ANY OFFERED CERTIFICATES PURCHASED AT A PREMIUM AND PARTICULARLY THE INTEREST
ONLY CERTIFICATES, THE RISK THAT A FASTER THAN ANTICIPATED RATE OF PRINCIPAL
PAYMENTS ON THE MORTGAGE LOANS COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER
THAN THE ANTICIPATED YIELD. HOLDERS OF THE INTEREST ONLY CERTIFICATES SHOULD
CAREFULLY CONSIDER THE RISK THAT A RAPID RATE OF PRINCIPAL PAYMENTS ON THE
MORTGAGE LOANS COULD RESULT IN THE FAILURE OF SUCH HOLDERS TO RECOVER THEIR
INITIAL INVESTMENTS. THE YIELD TO INVESTORS IN THE OFFERED CERTIFICATES, AND
PARTICULARLY THE CLASS ____ CERTIFICATES, ALSO WILL BE ADVERSELY AFFECTED BY
NET INTEREST SHORTFALLS AND BY REALIZED LOSSES. NO REPRESENTATION IS MADE AS
TO THE ANTICIPATED RATE OF PREPAYMENTS ON THE MORTGAGE LOANS, THE AMOUNT AND
TIMING OF NET INTEREST SHORTFALLS OR REALIZED LOSSES, OR AS TO THE RESULTING
YIELD TO MATURITY OF ANY CLASS OF CERTIFICATES.
Each Underwriter intends to make a secondary market in the Classes of
Underwritten Certificates being purchased by it, but no Underwriter has an
obligation to do so. There is currently no secondary market for the Offered
Certificates and there can be no assurance that such a market will develop or,
if it does develop, that it will continue or that it will provide
Certificateholders with a sufficient level of liquidity of investment.
--------------------
This Prospectus Supplement does not contain complete information about
the offering of the Offered Certificates. Additional information is contained
in the Prospectus of the Depositor dated ____________, 1998 (the "Prospectus")
and purchasers are urged to read both this Prospectus Supplement and the
Prospectus in full. Sales of the Offered Certificates may not be consummated
unless the purchaser has received both this Prospectus Supplement and the
Prospectus.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
SUMMARY OF TERMS
THIS SUMMARY OF TERMS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND IN
THE ACCOMPANYING PROSPECTUS. CERTAIN CAPITALIZED TERMS USED IN THIS SUMMARY OF
TERMS ARE DEFINED ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT OR IN THE
PROSPECTUS. [TO THE EXTENT STATEMENTS CONTAINED HEREIN DO NOT RELATE TO
HISTORICAL OR CURRENT INFORMATION, THIS PROSPECTUS SUPPLEMENT MAY BE DEEMED TO
CONSIST OF FORWARD-LOOKING STATEMENTS. ANY SUCH STATEMENTS, WHICH MAY INCLUDE
BUT ARE NOT LIMITED TO STATEMENTS CONTAINED IN "RISK FACTORS" AND "PREPAYMENT
AND YIELD CONSIDERATIONS," INHERENTLY ARE SUBJECT TO A VARIETY OF RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
PROJECTED. SUCH RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHERS, GENERAL
ECONOMIC AND BUSINESS CONDITIONS, COMPETITION, CHANGES IN FOREIGN POLITICAL,
SOCIAL AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE WITH
GOVERNMENTAL REGULATIONS, CUSTOMER PREFERENCES AND VARIOUS OTHER MATTERS, MANY
OF WHICH ARE BEYOND THE DEPOSITOR'S CONTROL. THESE FORWARD-LOOKING STATEMENTS
SPEAK ONLY AS OF THE DATE OF THIS PROSPECTUS SUPPLEMENT. AS A CONSEQUENCE, NO
ASSURANCE CAN BE GIVEN AS TO THE ACTUAL PAYMENTS ON, OR THE YIELD OF, ANY
CLASS OF OFFERED CERTIFICATES. THE DEPOSITOR EXPRESSLY DISCLAIMS ANY
OBLIGATION OR UNDERTAKING TO RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO ANY
FORWARD-LOOKING STATEMENT CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE
DEPOSITOR'S EXPECTATIONS WITH REGARD THERETO OR ANY CHANGE IN EVENTS,
CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED.]
Title of Certificates................. Mortgage Pass-Through Certificates,
Series 199__-__ (the "Certificates").
Offered Certificates.................. Class A-____, Class ____, Class PO,
Class X, Class A-R, Class B-___ and
Class ____ Certificates. Only the
Offered Certificates are offered
hereby. The aggregate initial Class
Certificate Balances of the
Certificates will be subject to a
permitted variance in the aggregate
of plus or minus __%. Variances in
the Class Certificate Balances may
result in variances in the Notional
Amount of the Class of Notional
Amount Certificates.
The Notional Amount of the Class X
Certificates for any Distribution
Date will be equal to the aggregate
of the Stated Principal Balances of
the Non-Discount Mortgage Loans with
respect to such Distribution Date.
The initial Notional Amount of the
Class X Certificates will be equal to
the aggregate of the Stated Principal
Balances of the Non-Discount Mortgage
Loans as of the Cut-off Date.
Certificates other than the
Offered Certificates................ In addition to the Offered
Certificates, the following Classes
of Certificates will be issued in the
indicated approximate initial Class
Certificate Balances and will bear
interest at the indicated
Pass-Through Rates, but are not
offered hereby:
INITIAL
CLASS PASS-
CERTIFICATE THROUGH
BALANCE RATE
------- ----
Class (1)....... $ %
Class (1)....... $ %
Class (1)....... $ %
---------------
(1) The Class ____, Class____ and
Class ____ Certificates will provide
limited credit support to the Senior
Certificates and the other
Subordinated Certificates, as
described herein.
Any information contained herein with
respect to the Class ___ , Class ____
and Class _____ Certificates is
provided only to permit a better
understanding of the Offered
Certificates.
Designations
REGULAR CERTIFICATES................ All Classes of Certificates other
than the Class A-R Certificates.
RESIDUAL CERTIFICATES............... Class A-R Certificates.
SENIOR CERTIFICATES................. Class A- , Class _____, Class PO,
Class X and Class A-R Certificates.
SUBORDINATED CERTIFICATES........... Class B- , Class _____, and Class
____ Certificates.
PRINCIPAL ONLY CERTIFICATES......... Class PO Certificates.
INTEREST ONLY CERTIFICATES.......... Class X Certificates.
NOTIONAL AMOUNT CERTIFICATES........ Class X Certificates.
FIXED RATE CERTIFICATES............. All Classes of Certificates other
than the Class PO and Class X
Certificates.
VARIABLE RATE CERTIFICATES.......... Class X Certificates.
PHYSICAL CERTIFICATES............... Class PO, Class X and Class A-R
Certificates and the Subordinated
Certificates.
BOOK-ENTRY CERTIFICATES............. All Classes of Certificates other
than the Physical Certificates.
Trust Fund............................ The Certificates will represent the
entire beneficial ownership interest
in the Trust Fund, which will consist
primarily of the Mortgage Pool.
Pooling and Servicing
Agreement........................... The Certificates will be issued
pursuant to a Pooling and Servicing
Agreement dated as of ____, 19__ (the
"Agreement"), among the Depositor,
the Seller, the Master Servicer and
the Trustee.
Depositor............................. IndyMac ABS, Inc. (the "Depositor"),
a Delaware corporation and a limited
purpose finance subsidiary of
IndyMac, Inc. See "The Depositor" in
the Prospectus.
Seller and Master Servicer............ [IndyMac, Inc. ("IndyMac")] or the
"Seller" and, in its capacity as
master servicer of the Mortgage
Loans, the "Master Servicer"). See
"Servicing of Mortgage Loans -- The
Master Servicer" herein. The Mortgage
Loans were originated or acquired in
the normal course of its business by
the Seller and will be acquired by
the Depositor in a privately
negotiated transaction. The Master
Servicer will be responsible for the
servicing of the Mortgage Loans and
will receive the Master Servicing Fee
from interest collected on the
Mortgage Loans. See "Servicing of
Mortgage Loans - Servicing
Compensation and Payment of Expenses"
herein.
Trustee............................... ________________, a ________________
organized under the laws of
________________ the "Trustee").
Cut-off Date.......................... _________, 19__.
Closing Date.......................... On or about ____________, 19__.
Determination Date.................... The ______ day of each month or, if
such day is not a business day, the
preceding business day; provided that
the Determination Date in each month
will be at least two business days
prior to the related Distribution
Date.
Mortgage Loans........................ The Mortgage Pool will consist
primarily of 30-year conventional
[fixed-rate] mortgage loans secured
by first liens on one- to four-family
residential properties. Distributions
of principal and interest on the
Certificates will be based solely on
payments received on the Mortgage
Loans, as described herein. See "The
Mortgage Pool" herein.
Distribution Date..................... The ____ day of each month or, if
such day is not a business day, on
the first business day thereafter,
commencing in ___________ 19 (each, a
"Distribution Date"). Distributions
on each Distribution Date will be
made to Certificateholders of record
as of the related Record Date, except
that the final distribution on the
Certificates will be made only upon
presentment and surrender of the
Certificates at the Corporate Trust
Office of the Trustee.
Record Date........................... The Record Date for each Distribution
Date will be the last business day of
the month preceding the month of such
Distribution Date.
Priority of Distributions............. Distributions will be made on each
Distribution Date from Available
Funds in the following order of
priority: (i) to interest on each
interest bearing Class of Senior
Certificates; (ii) to principal on
the Classes of Senior Certificates
then entitled to receive
distributions of principal, in the
order and subject to the priorities
set forth herein under "Description
of the Certificates -- Principal," in
each case in an aggregate amount up
to the maximum amount of principal to
be distributed on such Classes on
such Distribution Date; (iii) to any
Class PO Deferred Amounts with
respect to the Class PO Certificates,
but only from amounts that would
otherwise be distributable on such
Distribution Date as principal of the
Subordinated Certificates; and (iv)
to interest on and then principal of
each Class of Subordinated
Certificates, in the order of their
numerical Class designations,
beginning with the Class __
Certificates, in each case subject to
the limitations set forth herein
under "Description of the
Certificates -- Principal."
Under certain circumstances _____
described herein, distributions from
Available Funds for a Distribution
Date that would otherwise be made on
the Subordinated Certificates may be
distributed instead on the Senior
Certificates. See "Description of the
Certificates -- Allocation of Losses"
herein.
Distributions of Interest............. To the extent funds are available
therefor, each interest bearing Class
of Certificates will be entitled to
receive interest in the amount of the
Interest Distribution Amount for such
Class. The Class PO Certificates are
Principal Only Certificates and will
not bear interest. See "Description
of the Certificates -- Interest"
herein.
A. Interest Distribution Amount..... For each interest bearing Class of
Certificates, the amount of interest
accrued during the related Interest
Accrual Period at the applicable
Pass-Through Rate on the related
Class Certificate Balance or Notional
Amount, as the case may be.
B. Pass-Through Rate................ The Pass-Through Rate for each
interest bearing Class of Offered
Certificates for each Distribution
Date will be as set forth or
described on the cover page hereof.
The Pass-Through Rate for the Class X
Certificates for any Distribution
Date will be equal to the excess of
(a) the weighted average of the Net
Mortgage Rates of the Non-Discount
Mortgage Loans over (b)____ % per
annum. The Pass-Through Rate for the
Class X Certificates for the first
Distribution Date is expected to be
approximately ___% per annum.
With respect to each Distribution
Date, the "Interest Accrual Period"
for each interest bearing Class of
Certificates will be the calendar
month preceding the month of such
Distribution Date.
Distributions of Principal............ On each Distribution Date, to the
extent funds are available therefor,
principal distributions in reduction
of the Class Certificate Balances of
each Class of Certificates (other
than the Notional Amount
Certificates) will be made in the
order and subject to the priorities
set forth herein under "Description
of the Certificates -- Principal" in
an aggregate amount equal to such
Class' allocable portion of the
Senior Principal Distribution Amount,
the Class PO Principal Distribution
Amount or the Subordinated Principal
Distribution Amount, as applicable.
The Notional Amount Certificates do
not have principal balances and are
not entitled to any distributions in
respect of principal of the Mortgage
Loans. See "Description of the
Certificates -- Principal" herein.
Credit Enhancement -- General......... Credit enhancement for the Senior
Certificates will be provided by the
Subordinated Certificates and credit
enhancement for each Class of
Subordinated Certificates will be
provided by the Class or Classes of
Subordinated Certificates with higher
numerical Class designations, as
described below. The aggregate of the
initial Class Certificate Balances of
the Class ___ , Class _____ and Class
___ Certificates, which are the only
Certificates supporting the Class
Certificates, is expected to be
approximately $_______ .
Subordination......................... The rights of holders of the
Subordinated Certificates to receive
distributions with respect to the
Mortgage Loans in the Trust Fund will
be subordinated to such rights of
holders of the Senior Certificates,
and the rights of the holders of each
Class of Subordinated Certificates
(other than the Class ______
Certificates) to receive such
distributions will be further
subordinated to such rights of the
Class or Classes of Subordinated
Certificates with lower numerical
Class designations, in each case only
to the extent described herein.
The subordination of the Subordinated
Certificates to the Senior
Certificates, and the further
subordination within the Subordinated
Certificates, is intended to increase
the likelihood of timely receipt by
the holders of Certificates with
higher relative payment priority of
the maximum amount to which they are
entitled on any Distribution Date and
to provide such holders protection
against losses on the Mortgage Loans
to the extent described herein. The
Subordinated Certificates also
provide protection, to a lesser
extent, against Special Hazard
Losses, Bankruptcy Losses and Fraud
Losses. However, in certain
circumstances the amount of available
subordination (including the limited
subordination provided for certain
types of losses) may be exhausted and
shortfalls in distributions on the
Certificates could result. Holders of
the Senior Certificates will bear
their proportionate share of any
losses realized on the Mortgage Loans
in excess of the available
subordination amount. See
"Description of the Certificates --
Priority of Distributions Among
Certificates," " -- Allocation of
Losses," and "Credit Enhancement --
Subordination of Certain Classes"
herein.
Advances.............................. The Master Servicer is obligated to
make cash advances ("Advances") with
respect to delinquent payments of
[principal of and interest] on any
Mortgage Loan to the extent described
herein. [The Master Servicer will not
make any Advances with respect to
delinquent principal payments on the
Mortgage Loans.] The Trustee will be
obligated to make any such Advance if
the Master Servicer fails in its
obligation to do so, to the extent
provided in the Agreement. See
"Servicing of Mortgage Loans --
Advances" herein.
Prepayment Considerations and
Risks; Reinvestment Risk............ The rate of principal payments on the
Offered Certificates, the aggregate
amount of distributions on the
Offered Certificates and the yield to
maturity of the Offered Certificates
will be related to the rate and
timing of payments of principal on
the Mortgage Loans.
Since the rate of payment of
principal on the Mortgage Loans will
depend on future events and a variety
of factors, no assurance can be given
as to such rate or the rate of
principal prepayments. The extent to
which the yield to maturity of a
Class of Offered Certificates may
vary from the anticipated yield may
depend upon the degree to which it is
purchased at a discount or premium,
and the degree to which the timing of
payments thereon is sensitive to
prepayments, liquidations and
purchases of the Mortgage Loans.
Further, an investor should consider
the risk that, in the case of the
Principal Only Certificates and any
other Offered Certificate purchased
at a discount, a slower than
anticipated rate of principal
payments (including prepayments) on
the Mortgage Loans could result in an
actual yield to such investor that is
lower than the anticipated yield and,
in the case of the Interest Only
Certificates and any other Offered
Certificate purchased at a premium, a
faster than anticipated rate of
principal payments could result in an
actual yield to such investor that is
lower than the anticipated yield.
Investors in the Interest Only
Certificates should carefully
consider the risk that a rapid rate
of principal payments on the Mortgage
Loans could result in the failure of
such investors to recover their
initial investments.
Because the Mortgage Loans may be
prepaid at any time, it is not
possible to predict the rate at which
distributions of principal of the
Offered Certificates will be
received. Since prevailing interest
rates are subject to fluctuation,
there can be no assurance that
investors in the Offered Certificates
will be able to reinvest the
distributions thereon at yields
equaling or exceeding the yields on
such Offered Certificates. It is
possible that yields on any such
reinvestments will be lower, and may
be significantly lower, than the
yields on the Offered Certificates.
See "Yield, Prepayment and Maturity
Considerations" herein.
Optional Termination.................. On any Distribution Date on which the
Pool Principal Balance is less than
10% of the Cut-off Date Pool
Principal Balance, the Master
Servicer will have the option to
purchase, in whole, the Mortgage
Loans and the REO Property, if any,
remaining in the Trust Fund. See
"Description of the Certificates --
Optional Termination" herein.
Federal Income Tax Consequences....... An election will be made to treat the
Trust Fund as a "real estate mortgage
investment conduit" ("REMIC") for
federal income tax purposes. The
Regular Certificates will constitute
"regular interests" in the REMIC and
the Residual Certificates will
constitute the sole class of
"residual interest" in the REMIC. The
Class A-_, Class PO and Class X
Certificates will, and depending on
their respective issue prices certain
other Classes of Offered Certificates
may, be issued with original issue
discount ("OID") for federal income
tax purposes. See "Certain Federal
Income Tax Consequences" herein and
in the Prospectus.
The holders of the Class A-R
Certificates will be subject to
special federal income tax rules that
may significantly reduce the
after-tax yield of such Certificates.
Further, significant restrictions
apply to the transfer of the Class
A-R Certificates. See "Description of
the Certificates--Restrictions on
Transfer of the Class A-R
Certificates" herein.
ERISA Considerations.................. The acquisition of an Offered
Certificate by a pension or other
employee benefit plan (a "Plan")
subject to the Employee Retirement
Income Security Act of 1974, as
amended ("ERISA"), could, in some
instances, result in a prohibited
transaction or other violation of the
fiduciary responsibility provisions
of ERISA and Section 4975 of the
Internal Revenue Code of 1986, as
amended (the "Code").
Subject to the considerations and
conditions described under "ERISA
Considerations" herein, it is
expected that the Senior Certificates
(other than the Class PO, Class X and
Class A-R Certificates) may be
purchased by a Plan.
Any Plan fiduciary considering
whether to purchase any Offered
Certificates on behalf of a Plan
should consult with its counsel
regarding the applicability of the
provisions of ERISA and the Code. See
"ERISA Considerations" herein.
Legal Investment...................... The Senior Certificates and the Class
____ Certificates will constitute
"mortgage related securities" for
purposes of the Secondary Mortgage
Market Enhancement Act of 1984
("SMMEA") so long as they are rated
in one of the two highest rating
categories by at least one nationally
recognized statistical rating
organization and, as such, are legal
investments for certain entities to
the extent provided for in SMMEA.
It is anticipated that the Class ____
and Class ____ Certificates will not
be rated in one of the two highest
rating categories by a nationally
recognized statistical rating
organization and, therefore, will not
constitute "mortgage related
securities" for purposes of SMMEA.
Institutions whose investment
activities are subject to review by
federal or state regulatory
authorities should consult with their
counsel or the applicable authorities
to determine whether an investment in
the Offered Certificates complies
with applicable guidelines, policy
statements or restrictions. See
"Legal Investment" in the Prospectus.
Ratings...............................0 It is a condition to the issuance of
the Senior Certificates that they be
rated _____ by ("________") and
_______ by ("_______" and, together
with _____, the "Rating Agencies").
See "Ratings" herein. It is a
condition to the issuance of the
Class _____ , Class ______ and Class
_____ Certificates that they be rated
at least _____ ,_____ and ______ ,
respectively, by ______. The ratings
of the Offered Certificates of any
Class should be evaluated
independently from similar ratings on
other types of securities. A rating
is not a recommendation to buy, sell
or hold securities and may be subject
to revision or withdrawal at any time
by either of the Rating Agencies. See
"Ratings" herein.
RISK FACTORS
INVESTORS SHOULD CONSIDER THE FOLLOWING RISKS IN CONNECTION WITH THE
PURCHASE OF THE OFFERED CERTIFICATES.
BOOK-ENTRY CERTIFICATES MAY REDUCE LIQUIDITY OF THE CERTIFICATES.
Issuance of the Offered Certificates in book-entry form may reduce the
liquidity of the Offered Certificates in the secondary trading market since
investors may be unwilling to purchase Offered Certificates for which they
cannot obtain physical certificates. See ["Description of the
Certificates--Book-Entry Certificates" herein and] "Risk Factors--Book-Entry
Registration" in the Prospectus.
Since transactions in the Offered Certificates can be effected only
through DTC, CEDEL, Euroclear, participating organizations, indirect
participants and certain banks, the ability of a Certificate Owner to pledge
an Offered Certificate to persons or entities that do not participate in the
DTC, CEDEL or Euroclear system may be limited due to lack of a physical
certificate representing the Offered Certificates. See ["Description of the
Certificates--Book-Entry Certificates" herein and] "Risk Factors--Book-Entry
Registration" in the Prospectus.
Certificate Owners may experience some delay in their receipt of
distributions of interest and principal on the Offered Certificates since such
distributions will be forwarded by the Trustee to DTC and DTC will credit such
distributions to the accounts of its Participants (as defined herein) which
will thereafter credit them to the accounts of Certificate Owners either
directly or indirectly through indirect participants. Certificate Owners will
not be recognized as Certificateholders of the Offered Certificates as such
term is used in the Pooling and Servicing Agreement, and Certificate Owners
will be permitted to exercise the rights of Offered Certificateholders only
indirectly through DTC and its Participants. See "Description of the
Certificates--Book-Entry Certificates" herein and "Risk Factors--Book-Entry
Registration" in the Prospectus.
DELAYS DUE TO LIQUIDATION OF 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
Mortgage Loans that are delinquent and resulting shortfalls in distributions
to the Certificateholders could occur.
DISPROPORTIONATE EFFECT OF LIQUIDATION EXPENSES. Further, liquidation
expenses (such as legal fees, real estate taxes, and maintenance and
preservation expenses) will reduce the security for such Mortgage Loans and
thereby reduce the proceeds payable to the Certificateholders. In the event
any of the Mortgaged Properties fail to provide adequate security for the
related Mortgage Loans, the Offered Certificates (particularly the most
subordinate Classes) could experience a loss.
SUBORDINATION--LIMITED PROTECTION AFFORDED TO OFFERED CERTIFICATES. The
rights of the Class B-1 Certificates to receive distributions will be
subordinate to the rights of the Class A Certificates to receive such
distributions. The subordination of the Subordinated Certificates relative to
the Class A Certificates (and of the more lower-ranking Classes of the
Subordinated Certificates to the higher-ranking Classes) is intended to
enhance the likelihood of regular receipt by each Class A Certificate of the
full amount of the monthly distributions allocable to them, and to afford
protection against losses.
SUBORDINATION-ALLOCATION OF LOSSES TO SUBORDINATED CERTIFICATES. If
Realized Losses are incurred with respect to the Mortgage Loans to the extent
that the aggregate Certificate Principal Balances of the Offered Certificates
exceed the Stated Principal Balances of the Mortgage Loans, the Certificate
Principal Balances of the Subordinated Certificates will be reduced in reverse
order of seniority by the amount of the excess. Consequently, the yields to
maturity on the Subordinates 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 Subordinates
Certificates, including the possibility that such investors may not fully
recover their initial investment as a result of Realized Losses.
PREPAYMENT CONSIDERATIONS AND RISKS. The Mortgage Pool's prepayment
experience may be affected by a wide variety of factors, including general
economic conditions, interest rates, the availability of alternative financing
and homeowner mobility. In addition, substantially all of the Mortgage Loans
contain due-on-sale provisions and the Master Servicer intends to enforce such
provisions unless (i) such enforcement is not permitted by applicable law or
(ii) the Master Servicer, in a manner consistent with reasonable commercial
practice, permits the purchaser of the related Mortgaged Property to assume
the Mortgage Loan.] To the extent permitted by applicable law, such assumption
will not release the original borrower from its obligation under any such
Mortgage Loan. See "Yield, Prepayment and Maturity Considerations" herein and
"Certain Legal Aspects of the Loans--Due-on-Sale Clauses" in the Prospectus
for a description of certain provisions of the Mortgage Loans thaT may affect
the prepayment experience thereof. The yield to maturity and weighted average
life of the Offered Certificates will be affected primarily by the rate and
timing of principal payments (including prepayments) of, and losses on, the
Mortgage Loans.
[The yield to investors on the Adjustable Rate Certificates will also be
sensitive to the level of One-Month LIBOR, the level of the Mortgage Index and
the additional limitations on the Pass-Through Rate as described herein. In
addition, the yield to maturity of the Offered Certificates purchased at a
discount or premium will be more sensitive to the rate and timing of payments
thereon. Certificateholders should consider, in the case of the Offered
Certificates purchased at a discount, the risk that a lower than anticipated
rate of principal payments could result in an actual yield that is lower than
the anticipated yield and, in the case of the Offered Certificates purchased
at a premium, the risk that a faster than anticipated rate of principal
payments could result in an actual yield that is lower than the anticipated
yield. Because certain of the Mortgage Loans contain prepayment penalties, the
rate of principal payments may be less than the rate of principal any payments
for mortgage loans which do not contain prepayment penalties. No
representation is made as to the anticipated rate of prepayments on the
Mortgage Loans, the amount and timing of losses thereon, the level of
One-Month LIBOR or the Mortgage Index or the resulting yield to maturity of
any Offered Certificates. Any reinvestment risks resulting from a faster or
slower incidence of payments on the Mortgage Loans will be borne entirely by
the Offered Certificateholders as described herein. See "Yield, Prepayment and
Maturity Considerations" herein and "Yield and Prepayment Considerations" in
the Prospectus.]
CERTIFICATE RATING-LIMITATIONS. The rating of each Class of the Offered
Certificates will depend primarily on an assessment by the Rating Agencies of
the Mortgage Loans as well as the structure of the transaction. The rating by
the Rating Agencies of 0ny Class of Offered Certificates is not a
recommendation to purchase, hold or sell any Offered Certificates, inasmuch as
such rating does not comment as to the market price or suitability for a
particular investor. There is no assurance that the ratings will remain in
place for any given period of time or that the ratings will not be lowered or
withdrawn by the Rating Agencies. In general, the ratings address credit risk
and do not address the likelihood of prepayments. The ratings of each Class of
the Offered Certificates do not address the possibility of the imposition of
United States withholding tax with respect to non-U.S. persons.
BANKRUPTCY OR INSOLVENCY OF THE SELLER, THE DEPOSITOR OR THE MASTER
SERVICER COULD LEAD TO DELAY OR REDUCTION OF AMOUNTS PAYABLE TO THE OFFERED
CERTIFICATES. The sale of the Mortgage Loans from the Seller to the Depositor
will be treated as a sale of the Mortgage Loans. However, in the event of an
insolvency of the Seller, the trustee in bankruptcy of the Seller may attempt
to recharacterize the sale of the Mortgage Loans as a borrowing by the Seller,
secured by a pledge of the applicable Mortgage Loans. If the trustee in
bankruptcy decided to challenge such transfer, delays in payments of the
Offered Certificates and reductions in the amounts thereof could occur. The
Depositor will warrant in the Pooling and Servicing Agreement that the
transfer of the Mortgage Loans by it to the Trust Fund is either a valid
transfer and assignment of such Mortgage Loans to the Trust Fund or the grant
to the Trust Fund of a security interest in such Mortgage Loans.
In the event of a bankruptcy or insolvency of the Master Servicer, the
bankruptcy trustee or receiver may have the power to prevent the Trustee or
the Class A Certificateholders from appointing a successor Master Servicer.
SUBPRIME MORTGAGE LOANS SUBJECT TO GREATER RISK OF DELINQUENCY AND LOSS.
The Mortgage Loans in the Mortgage Pool were made to borrowers with prior
credit difficulties and do not satisfy the underwriting guidelines for
mortgage loans eligible for sale to the Federal National Mortgage Association
("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC"). It is
expected that the rates of delinquency, bankruptcy and foreclosure for the
Mortgage Loans will be higher, and may be substantially higher, than that of
mortgage loans underwritten in accordance with FNMA and FHLMC standards. See
"The Mortgage Pool--Underwriting Standards."
IndyMac began purchasing subprime mortgage loans in April 1995. As a
result, the Seller has only limited delinquency, foreclosure and loss
experience with respect to the subprime mortgage loans that it has purchased.
Although the Depositor believes that the Seller's underwriting standards and
the Master Servicer's servicing practices are consistent with industry
standards, there can be no assurance that the foreclosure and loss experience
on the Mortgage Loans will be consistent with industry norms.
GEOGRAPHIC CONCENTRATION. As of the Statistic Calculation Date,
approximately [--] (by Cut-off Date Principal Balance of the Mortgage Loans)
of the Mortgaged Properties were located in the State of California. An
overall decline in the California residential real estate market could
adversely affect the values of the Mortgaged Properties securing such Mortgage
Loans such that the Principal Balances of the related Mortgage Loans could
equal or exceed the value of such Mortgaged Properties. As the residential
real estate market is influenced by many factors, including the general
condition of the economy and interest rates, no assurances may be given that
the California residential real estate market will not weaken. If the
California residential real estate market should experience an overall decline
in property values after the dates of origination of such Mortgage Loans, the
rates of losses on such Mortgage Loans would be expected to increase, and
could increase substantially.
DELINQUENT MORTGAGE LOANS. The Trust Fund may include Mortgage Loans
which are 59 or fewer days delinquent as of the Cut-off Date. It is expected
that not more than 1% of the Mortgage Loans (by Cut-off Date Principal
Balance) will be between 30 days and 59 days delinquent. None of the Mortgage
Loans is more than 59 days delinquent as of the Cut-off Date. If there are not
sufficient funds from amounts collected on the Mortgage Loans, the aggregate
amount of principal returned to any Class of Offered Certificateholders may be
less than the Certificate Principal Balance thereof on the day the such Class
of Offered Certificates were issued.
For a discussion of additional risks pertaining to the Offered
Certificates, see "Risk Factors" in the Prospectus.
THE MORTGAGE POOL
GENERAL
The Depositor will purchase the Mortgage Loans from [IndyMac] pursuant to
the Pooling and Servicing Agreement dated as of the Cut-off Date among
[IndyMac], as Seller and Master Servicer, the Depositor and the Trustee (the
"Agreement") and will cause the Mortgage Loans to be assigned to the Trustee
for the benefit of the holders of the Certificates (the "Certificateholders").
Under the Agreement, the Seller will make certain representations,
warranties and covenants to the Depositor relating to, among other things, the
due execution and enforceability of the Agreement and certain characteristics
of the Mortgage Loans and, subject to the limitations described below under
"-- Assignment of the Mortgage Loans," will be obligated to repurchase or
substitute a similar mortgage loan for any Mortgage Loan as to which there
exists deficient documentation or an uncured breach of any such
representation, warranty or covenant, if such breach of such representation,
warranty or covenant materially and adversely affects the Certificateholders'
interest in such Mortgage Loan; provided, however, that the Seller will not be
obligated to make any such repurchase or substitution (or cure such breach) if
such breach constitutes fraud in the origination of the affected Mortgage Loan
and the Seller did not have knowledge of such fraud. The Seller will represent
and warrant to the Depositor in the Agreement that the Mortgage Loans were
selected from among the outstanding one- to four-family mortgage loans in the
Seller's portfolio as to which the representations and warranties set forth in
the Agreement can be made and that such selection was not made in a manner
that would adversely affect the interests of the Certificateholders. See "Loan
Program -- Representations by Sellers; Repurchases" in the Prospectus. Under
the Agreement, the Depositor will assign all its right, title and interest in
and to such representations, warranties and covenants (including the Seller's
repurchase obligation) to the Trustee for the benefit of Certificateholders.
The Depositor will make no representations or warranties with respect to the
Mortgage Loans and will have no obligation to repurchase or substitute
Mortgage Loans with deficient documentation or which are otherwise defective.
[IndyMac] is selling the Mortgage Loans without recourse and will have no
obligation with respect to the Certificates in its capacity as Seller other
than the repurchase obligation described above. The obligations of [IndyMac],
as Master Servicer, with respect to the Certificates are limited to the Master
Servicer's contractual servicing obligations under the Agreement.
Certain information with respect to the Mortgage Loans expected to be
included in the Mortgage Pool is set forth below. Prior to the Closing Date,
Mortgage Loans may be removed from the Mortgage Pool and other Mortgage Loans
may be substituted therefor. The Depositor believes that the information set
forth herein with respect to the Mortgage Pool as presently constituted is
representative of the characteristics of the Mortgage Pool as it will be
constituted at the Closing Date, although certain characteristics of the
Mortgage Loans in the Mortgage Pool may vary. Unless otherwise indicated,
information presented herein expressed as a percentage (other than rates of
interest) are approximate percentages based on the Stated Principal Balances
of the Mortgage Loans as of the Cut-off Date.
As of the Cut-off Date, the aggregate of the Stated Principal Balances of
the Mortgage Loans is expected to be approximately $_______ (the "Cut-off Date
Pool Principal Balance"). The Mortgage Loans provide for the amortization of
the amount financed over a series of substantially equal monthly payments. All
the Mortgage Loans provide for payments due as of the first day of each month
(the "Due Date"). At origination, substantially all of the Mortgage Loans had
stated terms to maturity of 30 years. The Mortgage Loans to be included in the
Mortgage Pool were purchased by [IndyMac] and were originated substantially in
accordance with [IndyMac's] underwriting criteria for conventional
non-conforming mortgage loans described herein. Sub-prime mortgage loans are
generally first mortgage loans.
Each Mortgage Loan was originated after ____________.
The latest stated maturity date of any Mortgage Loan is _________. The
earliest stated maturity date of any Mortgage Loan is ___________.
As of the Cut-off Date, no Mortgage Loan was delinquent more than 30
days.
[No] Mortgage Loan will be subject to a buydown agreement. [No] Mortgage
Loan provides for deferred interest or negative amortization.
[No Mortgage Loan had a Loan-to-Value Ratio at origination of more than
95%. Each Mortgage Loan with a Loan-to-Value Ratio at origination of greater
than 80% is covered by a primary mortgage guaranty insurance policy issued by
a mortgage insurance company acceptable to FNMA or FHLMC, which policy
provides coverage in an amount equal to the excess of the original principal
balance of the related Mortgage Loan over 75% of the value of the related
Mortgaged Property, plus accrued interest thereon and related foreclosure
expenses.
The Loan-to-Value Ratio of a Mortgage Loan is equal to (i) the principal
balance of such Mortgage Loan at the date of origination, divided by (ii) the
Collateral Value of the related Mortgaged Property. The Collateral Value of a
Mortgaged Property is the lesser of (x) the appraised value based on an
appraisal made for [IndyMac] by an independent fee appraiser at the time of
the origination of the related Mortgage Loan, and (y) the sales price of such
Mortgaged Property at such time of origination. With respect to a Mortgage
Loan the proceeds of which were used to refinance an existing mortgage loan,
the Collateral Value is the appraised value of the Mortgaged Property based
upon the appraisal obtained at the time of refinancing. No assurance can be
given that the values of the Mortgaged Properties have remained or will remain
at their levels as of the dates of origination of the related Mortgage Loans.
If the residential real estate market should experience an overall decline in
property values such that the outstanding balances of the Mortgage Loans
become equal to or greater than the value of the Mortgaged Properties, actual
losses on the Mortgage Loans could be higher than losses now generally
experienced in the mortgage lending industry.
The following information sets forth in tabular format certain
information, as of the Cut-off Date, as to the Mortgage Loans. Other than with
respect to rates of interest, percentages (approximate) are stated by Stated
Principal Balance of the Mortgage Loans as of the Cut-off Date and have been
rounded in order to total 100%.
<TABLE>
<CAPTION>
MORTGAGE RATES(1) CURRENT MORTGAGE LOAN PRINCIPAL BALANCES(1)
- ------------------------------------------------------- ----------------------------------------------------
MORTGAGE RATES (%) NUMBER OF AGGREGATE PERCENT OF CURRENT MORTGAGE NUMBER OF AGGREGATE PERCENT OF
MORTGAGE PRINCIPAL MORTGAGE LOAN AMOUNTS MORTGAGE PRINCIPAL MORTGAGE
LOANS BALANCE POOL LOANS BALANCE POOL
OUTSTANDING OUTSTANDING
- ------------------------------------------------------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
6.250........... $ % .................... $ %
6.750........... ....................
6.875........... ....................
7.000........... ....................
7.125........... ....................
7.250........... ....................
7.375........... ....................
7.500........... ....................
7.625........... ....................
7.750........... $450,001-$ 500,000..
7.875........... $500,001-$ 550,000..
8.000........... $550,001-$ 600,000..
8.125........... $600,001-$ 650,000..
8.250........... $650,001-$ 700,000..
8.375........... $700,001-$ 750,000..
8.500........... $750,001-$1,000,000.
8.625........... --- ---------- ----------
8.750........... Total............... 100%
8.875........... ==================== === ========== ==========
(1) As of the Cut-off Date, the average current
9.000........... Mortgage Loan principal balance is expected
9.125........... to be approximately $_____
9.250...........
9.375...........
9.500...........
9.875...........
10.00...........
--- ---------- -----------
--- ---------- -----------
$ 100%
- ----------------- === ========== ===========
DOCUMENTATION PROGRAM FOR MORTGAGE LOANS
----------------------------------------------------
(1) The Lender PMI Mortgage Loans are shown at the TYPE OF PROGRAM NUMBER AGGREGATE PERCENT OF
Mortgage Rates net of the interest premium OF PRINCIPAL MORTGAGE
charged by the related lenders. As of the MORTGAGE BALANCE POOL
Cut-off Date, the weighted average Mortgage Rate LOANS OUTSTANDING
of the Mortgage Loans (as so adjusted) is
expected to be approximately %. without
such adjustment, the weighted average Mortgage
Rate of the Mortgage Loans is expected to be
approximately % per annum.
----------------------------------------------------
Full................ $ %
Alternative.........
Reduced.............
Streamlined.........
Totals.............. $
------- ---------- ----------
------- ---------- ----------
$ 100%
========== ==========
ORIGINAL LOAN-TO-VALUE RATIOS(1) Types of Mortgaged Properties
- ------------------------------------------------------- ----------------------------------------------------
ORIGINAL NUMBER OF AGGREGATE PERCENT OF Property Type Number Aggregate Percent of
LOAN-TO-VALUE MORTGAGE PRINCIPAL MORTGAGE of Principal Mortgage
RATION (%) LOANS BALANCE POOL Mortgage Balance Pool
OUTSTANDING Loans Outstanding
- ------------------------------------------------------- ----------------------------------------------------
50.00 and below. Single Family....... $ %
50.01 to 55.00.. Condominium.........
55.01 to 60.00.. Two- to Four- Family
60.01 to 65.00.. Planned Unit
65.01 to 70.00.. Development.......
70.01 to 75.00.. ------- ---------- ----------
75.01 to 80.00.. Totals $ 100%
80.01 to 85.00.. ======= ========== ==========
85.01 to 90.00..
90.01 to 95.00.. OCCUPANCY TYPES(1)
--- ---------- ----------- ----------------------------------------------------
--- ---------- ----------- OCCUPANCY TYPE NUMBER AGGREGATE PERCENT OF
Totals.......... $ 100% OF PRINCIPAL MORTGAGE
- ---------------- === ========== =========== MORTGAGE BALANCE POOL
LOANS OUTSTANDING
(1) The weighted average original Loan-to-Value
Ratio of the Mortgage Loan is expected to be ----------------------------------------------------
approximately _____% Primary Residence... $ %
Investor Property...
Second Residence....
------- ---------- ----------
Totals.............. $ 100%
-------------------- ======= ------------ ---------
(1) Based upon representations of the related
mortgagors at the time of origination.
</TABLE>
<TABLE>
<CAPTION>
STATE DISTRIBUTION PROPERTIES(1) REMAINING TERMS TO MATURITY(1)
- ------------------------------------------------------- ----------------------------------------------------
STATE NUMBER OF AGGREGATE PERCENT OF REMAINING TERM TO NUMBER AGGREGATE PERCENTAGE
MORTGAGE PRINCIPAL MORTGAGE MATURITY (MONTHS) OF PRINCIPAL OF
LOANS BALANCE POOL MORTGAGE BALANCE MORTGAGE
OUTSTANDING LOANS OUTSTANDING POOL
- ------------------------------------------------------- ---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
360.................
Arizona......... $ % 359................. $ %
California...... 358.................
Colorado........ 357.................
Florida......... 356.................
Georgia......... 355.................
Hawaii.......... 354.................
Illinois........ 353.................
Maryland........ 352.................
Massachusetts... 351.................
New Jersey...... 349.................
New York........ 348.................
Pennsylvania.... 347.................
Texas........... 345.................
Utah............ 344.................
Washington...... 343.................
Other (less 342.................
than 2%)...... 341.................
------ ------------- ----------- 338.................
Totals.......... $ 100% 335.................
- ----------------- ====== ============= ===========
(1) Other includes other states with under (2)%
concentration individually. No more than
approximately % of the Mortgage Loans will be
secured by Mortgaged properties located in any 334.................
one postal zip code area. 333.................
332.................
328.................
Purpose of Mortgage Loans 326.................
- ------------------------------------------------------- 325.................
Loan Purpose Number Aggregate Percentage
of Principal of
Mortgage balance Mortgage
Loans Outstanding Pool
321.................
320.................
- ------------------------------------------------------- 319.................
Purchase........ $ % 318.................
Refinance 314.................
(rate/term)... 297.................
Refinance (cash 293.................
out).......... 259.................
------ ------------- ----------- 240.................
Totals.......... $ 100% 238.................
====== ============= =========== 237.................
-------- ----------- ----------
Total............... $ 100%
======== =========== ==========
(1) As of the Cut-Off Date, the weighted average
remaining term to maturity of the Mortgage Loans
is expected to be approximately months.
</TABLE>
ASSIGNMENT OF THE MORTGAGE LOANS
Pursuant to the Agreement, the Depositor on the Closing Date will sell,
transfer, assign, set over and otherwise convey without recourse to the
Trustee in trust for the benefit of the Certificateholders all right, title
and interest of the Depositor in and to each Mortgage Loan and all right,
title and interest in and to all other assets included in the Trust Fund,
including all principal and interest [received] [due] on or with respect to
the Mortgage Loans after the Cut-off Date [, exclusive of principal and
interest due on or prior to the Cut-off Date].
In connection with such transfer and assignment, the Depositor will
deliver or cause to be delivered to the Trustee, or a custodian for the
Trustee, among other things, the original promissory note (the "Mortgage
Note") (and any modification or amendment thereto) endorsed in blank without
recourse, the original instrument creating a first lien on the related
Mortgaged Property (the "Mortgage") with evidence of recording indicated
thereon, an assignment in recordable form of the Mortgage to the Trustee
(which may be a blanket assignment if permitted in the applicable
jurisdiction), the title policy with respect to the related Mortgaged Property
and, if applicable, all recorded intervening assignments of the Mortgage and
any riders or modifications to such Mortgage Note and Mortgage (except for any
such documents not returned from the public recording office, which will be
delivered to the Trustee as soon as the same is available to the Depositor)
(collectively, the "Mortgage File"). Assignments of the Mortgage Loans to the
Trustee (or its nominee) will be recorded in the appropriate public office for
real property records[, except in states such as California where in [the
opinion of counsel such recording is not required] to protect the Trustee's
interests in the Mortgage Loan against the claim of any subsequent transferee
or any successor to or creditor of the Depositor or the Seller].
The Trustee will review each Mortgage File within 90 days of the Closing
Date (or promptly after the Trustee's receipt of any document permitted to be
delivered after the Closing Date) and if any documents in a Mortgage File are
found to be missing or defective in a material respect and the Seller does not
cure such defect within 90 days of notice thereof from the Trustee (or within
such longer period not to exceed ___ days after the Closing Date as provided
in the Agreement in the case of missing documents not returned from the public
recording office), the Seller will be obligated to repurchase the related
Mortgage Loan from the Trust Fund. Rather than repurchase the Mortgage Loan as
provided above, the Seller may remove such Mortgage Loan (a "Deleted Mortgage
Loan") from the Trust Fund and substitute in its place another mortgage loan
(a "Replacement Mortgage Loan"); however, such substitution is permitted only
within two years of the Closing Date and may not be made unless an opinion of
counsel is provided to the Trustee to the effect that such substitution will
not disqualify the REMIC or result in a prohibited transaction tax under the
Code. Any Replacement Mortgage Loan generally will, on the date of
substitution, among other characteristics set forth in the Agreement, (i) have
a principal balance, after deduction of all Scheduled Payments due in the
month of substitution, not in excess of, and not more than 10% less than, the
Stated Principal Balance of the Deleted Mortgage Loan (the amount of any
shortfall to be deposited by the Seller in the Certificate Account and held
for distribution to the Certificateholders on the related Distribution Date (a
"Substitution Adjustment Amount")), (ii) have a Mortgage Rate not lower than,
and not more than 1% per annum higher than, that of the Deleted Mortgage Loan,
(iii) have a Loan-to-Value Ratio not higher than that of the Deleted Mortgage
Loan, (iv) have a remaining term to maturity not greater than (and not more
than one year less than) that of the Deleted Mortgage Loan, and (v) comply
with all of the representations and warranties set forth in the Agreement as
of the date of substitution. This cure, repurchase or substitution obligation
constitutes the sole remedy available to Certificateholders or the Trustee for
omission of, or a material defect in, a Mortgage Loan document.
UNDERWRITING STANDARDS
IndyMac began operating a mortgage conduit program in 1993 and began in
April 1995 to purchase mortgage loans made to borrowers with prior credit
difficulties (so-called "subprime mortgage loans"). All of the subprime
mortgage loans purchased by IndyMac are "conventional non-conforming mortgage
loans" (I.E., loans which are not insured by the FHA or partially guaranteed
by the VA and which do not qualify for sale to FNMA or FHLMC) secured by first
liens on one- to four-family residential properties.
IndyMac purchases all of its subprime mortgage loans from unaffiliated
sellers either under flow or bulk purchase arrangements, the terms of which
may vary from seller to seller. Such sellers are required to be HUD approved
mortgagees.
IndyMac's underwriting standards are primarily intended to evaluate the
value and adequacy of the mortgaged property as collateral for the proposed
mortgage loan, as well as the type and intended use of the mortgaged property.
Its underwriting standards are less stringent than the standards generally
acceptable to FNMA and FHLMC with regard to the borrower's credit standing and
repayment ability. Borrowers who qualify under the IndyMac underwriting
standards generally have payment histories and debt-to-income ratios that
would not satisfy FNMC and FHLMC underwriting guidelines and may have a record
of major derogatory credit items, such as outstanding judgments or prior
bankruptcies, or lower credit scores. As a result, the rates of delinquency,
bankruptcy and foreclosure for such mortgage loans could be higher, and may be
substantially higher, than that of mortgage loans underwritten in accordance
with FNMA and FHLMC standards.
Each of the subprime mortgage loans purchased by IndyMac is assigned to
one of six credit levels based on the prospective mortgagor's mortgage payment
history within the preceding twelve months, retail and installment debt credit
history, judgements, charge-offs and accounts assigned for collection. IndyMac
also accepts loans underwritten under one of four documentation programs:
Full/Alternate Documentation, Reduced Documentation, No Ratio Documentation
and No Income/No Asset. For each credit level and documentation program,
IndyMac has a maximum permitted loan amount, a maximum Loan-to-Value Ratio
and, in some cases, a limitation on the loan purpose. The maximum debt to
income ratio for all loans, other than those with primary mortgage insurance,
is 55%. Such limitation, however, may be waived on a case by case basis.
Under the Full/Alternate Documentation Program, the prospective
borrower's employment, income and assets are verified through written or
telephonic communications. Mortgage loans in all six credit levels may be
submitted under this program. Under each of the Reduced Documentation Program
and the No Ratio Program, more emphasis is placed on the value and adequacy of
the mortgaged property as collateral and other assets of the borrower than on
credit underwriting. Under the No Income/No Asset Program, credit underwriting
documentation concerning income, employment verification and asset
verification is waived and income ratios are not calculated. Under each of
these programs, certain credit underwriting documentation concerning income or
income verification and/or employment verification is waived.
Only mortgage loans for primary residences in credit Levels 0 and I+ may
be submitted under the No Income/No Asset Program, and the maximum
Loan-to-Value Ratios under this program is less than those under the Full
Documentation, Alternative Documentation, Reduced Documentation and No Ratio
Programs.
Set forth below are the maximum loan amounts and Loan-to-Value Ratios for
purchase money mortgage loans and refinance mortgage loans for each credit
level and documentation program:
PRIMARY RESIDENCE -- PURCHASE MONEY AND RATE/TERM REFINANCES
CREDIT MAXIMUM NO INCOME/
LEVEL LOAN AMOUNT FULL/ALT. DOC. REDUCED DOC. NO RATIO NO ASSET
- ------ ----------- -------------- ------------ -------- ----------
0
I+
I
II
III
IV
PRIMARY RESIDENCE-CASH OUT REFINANCES
CREDIT MAXIMUM NO INCOME/
LEVEL LOAN AMOUNT FULL/ALT. DOC. REDUCED DOC. NO RATIO NO ASSET
- ------ ----------- -------------- ------------ -------- ----------
0
I+
I
II
III
IV
SECOND HOME AND INVESTOR PROPERTIES-PURCHASE MONEY AND RATE/TERM REFINANCES
CREDIT MAXIMUM
LEVEL* LOAN AMOUNT FULL/ALT. DOC. REDUCED DOC. NO RATIO
- ------ ----------- -------------- ------------ --------
0
I+
I
II
III
- ------------
* No Credit Level IV allowed for this product.
SECOND HOME AND INVESTOR PROPERTIES-CASH-OUT REFINANCES
CREDIT MAXIMUM
LEVEL LOAN AMOUNT FULL/ALT. DOC. REDUCED DOC. NO RATIO
- ------ ----------- -------------- ------------ --------
0
I+
I
II
- ------------
* No Credit Level III or IV allowed for this product.
Such limits may be waived, however, on a case by case basis if it is
determined, based on compensating factors, that an underwriting exception is
warranted. Compensating factors may include stable employment, time in the
same residence, cash reserves and savings.
SERVICING OF MORTGAGE LOANS
GENERAL
The Master Servicer will service the Mortgage Loans in accordance with
the terms set forth in the Pooling and Servicing Agreement. The Master
Servicer may perform any of its obligations under the Pooling and Servicing
Agreement through one or more subservicers. Notwithstanding any such
subservicing arrangement, the Master Servicer will remain liable for its
servicing duties and obligations under the Pooling and Servicing Agreement as
if the Master Servicer alone were servicing the Mortgage Loans.
The information set forth in the following section through and including
the section captioned "Delinquency Status as of _____________, 199_" has been
provided by [IndyMac]. No representation is made by the Depositor or any of
its affiliates as to the accuracy or completeness of any such information.
THE MASTER SERVICER
[IndyMac, Inc. ("IndyMac"), a Delaware corporation, will act as the
Master Servicer of the Mortgage Loans pursuant to the Pooling and Servicing
Agreement.
As of __________, 199_, IndyMac provided servicing for approximately
$__________ million in conventional mortgages.
The principal executive offices of IndyMac are located at 155 North Lake
Avenue, Pasadena, California 91101.]
SERVICING AND COLLECTION PROCEDURES
IndyMac has entered into contracts (each a "Servicer Contract") with each
Servicer to perform, as independent contractors, servicing functions for
IndyMac subject to its supervision. Such servicing functions include
collection and remittance of principal and interest payments, administration
of mortgage escrow accounts, collection of certain insurance claims and, if
necessary, foreclosure. IndyMac may permit the Servicers to contract with
subservicers to perform some or all of Servicer's servicing duties, but such
Servicer will not thereby be released from its obligations under the Servicer
Contract. IndyMac also may enter into servicing contracts directly with an
affiliate of a Servicer or permit a Servicer to transfer its servicing rights
and obligations to a third party. In such instances, the affiliate or third
party, as the case may be, will perform servicing functions comparable to
those normally performed by the Servicer as described above, and the Servicer
will not be obligated to perform such servicing functions. When used herein
with respect to servicing obligations, the term Servicer includes any such
affiliate or third party. IndyMac may perform certain supervisory functions
with respect to servicing by the Servicers directly or through an agent or
independent contractor and will be responsible for administering and servicing
the Mortgage Loans pursuant to the Agreement. On or before the Closing Date,
IndyMac will establish one or more accounts (the "Collection Account") into
which each Servicer will remit collections on the mortgage loans serviced by
it (net of its related servicing compensation). For purposes of the Agreement,
IndyMac, as Master Servicer, will be deemed to have received any amounts with
respect to the Mortgage Loans that are received by a Servicer regardless of
whether such amounts are remitted by the Servicer to IndyMac. IndyMac has
reserved the right to remove the Servicer servicing any Mortgage Loan at any
time and will exercise that right if IndyMac considers such removal to be in
the best interest of the Certificateholders. In the event that IndyMac removes
a Servicer, IndyMac will continue to be responsible for servicing the related
Mortgage Loans.
FORECLOSURE AND DELINQUENCY [AND LOSS] EXPERIENCE
The following table summarizes the delinquency experience of subprime
loans master serviced by IndyMac. A mortgage loan is characterized as
delinquent if the borrower has not paid the minimum payment due by the due
date. The table below excludes mortgage loans where the mortgage loan is in
foreclosure or the borrower has filed for bankruptcy. Since IndyMac began
master servicing subprime mortgage loans in April 1995, the delinquency
percentages may be affected by the size and relative lack of seasoning of the
servicing portfolio because many of such loans were not outstanding long
enough to give rise to some or all of the periods of delinquency indicated in
the chart below. Accordingly, the information should not be considered as a
basis for assessing the likelihood, amount, or severity of delinquency or
losses on the Mortgage Loans, and no assurances can be given that the
foreclosure experience presented in the second paragraph below the table will
be indicative of such experience on the Mortgage Loans.
<TABLE>
<CAPTION>
-----------------------------------
AT DECEMBER 31,
-----------------------------------
----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C>
Delinquent Mortgage Loans and Pending Foreclosures at Period
end(1):
30-59 days.................................................... % % % % %
60-89 days....................................................
90 days or more (excluding pending foreclosures)..............
----- ------ ----- ------ ------
Total of delinquencies % % % % %
===== ====== ===== ====== ======
Foreclosures pending.............................................. % % % % %
===== ====== ===== ====== ======
Total delinquencies and foreclosures pending...................... % % % % %
===== ====== ===== ====== ======
[Net Gains/(Losses) on liquidated loans $ $ $ $ $
===== ====== ===== ====== ======
[Percentage of Net Gains/(Losses) on liquidated loans(2) % % % % %
===== ====== ===== ====== ======
[Percentage of Net Gains/(Losses) on liquidated loans % % % % %
(based on average outstanding principal balance)
===== ====== ===== ====== ======
- ------------------------------------------------------------------
</TABLE>
(1) As a percentage of the total number of loans master serviced.
(2) Based upon the total outstanding principal balance at the
end of the indicated period.
Delinquencies are reported on a contractual basis. As of _____________,
199_, __________ mortgage loans with an aggregate principal balance of
$______________ were in foreclosure and, there were ___________ loans in
bankruptcy with a combined loan balance of $______________.
[Over the last several years, there has been a general deterioration of
the real estate market and weakening economy in many regions of the country,
including __________. The general deterioration of the real estate market has
been reflected in increases in delinquencies of loans secured by real estate,
slower absorption rates of real estate into the market and lower sales prices
for real estate. The general weakening of the economy has been reflected in
decreases in the financial strength of borrowers and decreases in the value of
collateral serving as security for loans. If the real estate market and
economy continue to decline, IndyMac may experience an increase in
delinquencies on the loans it services and higher net losses on liquidated
loans.]
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
[The Master Servicer will be paid a monthly fee from interest collected
with respect to each Mortgage Loan (as well as from any liquidation proceeds
from a Liquidated Mortgage Loan that are applied to accrued and unpaid
interest) equal to one-twelfth of the Stated Principal Balance thereof
multiplied by the Servicing Fee Rate (such product, the "Servicing Fee"). The
Servicing Fee Rate for each Mortgage Loan will equal ________% per annum. The
amount of the monthly Servicing Fee is subject to adjustment with respect to
prepaid Mortgage Loans, as described herein under "--Adjustment to Master
Servicing Fee in Connection with Certain Prepaid Mortgage Loans." The Master
Servicer is also entitled to receive, as additional servicing compensation,
amounts in respect of interest paid on Principal Prepayments (as defined
below) received from the 2nd day through the 15th day of a month ("Prepayment
Interest Excess"), all late payment fees, assumption fees, prepayment
penalties and other similar charges and all reinvestment income earned on
amounts on deposit in the Certificate Account and Distribution Account. The
Master Servicer is obligated to pay certain ongoing expenses associated with
the Mortgage Loans and incurred by the Trustee in connection with its
responsibilities under the Pooling and Servicing Agreement.]
ADJUSTMENT TO MASTER SERVICING FEE IN CONNECTION WITH
CERTAIN PREPAID MORTGAGE LOANS
[When a borrower prepays a Mortgage Loan between Due Dates, the borrower
is required to pay interest on the amount prepaid only to the date of
prepayment and not thereafter. Except with respect to the month of the Cut-off
Date, principal prepayments by borrowers received by the Master Servicer from
the first day through the fifteenth day of a calendar month will be
distributed to Certificateholders on the Distribution Date in the same month
in which such prepayments are received and, accordingly, no shortfall in the
amount of interest to be distributed to Certificateholders with respect to the
prepaid Mortgage Loans results. Conversely, principal prepayments by borrowers
received by the Master Servicer from the sixteenth day (or, in the case of the
first Distribution Date, from the Cut-off Date) through the last day of a
calendar month will be distributed to Certificateholders on the Distribution
Date in the month following the month of receipt and, accordingly, a shortfall
in the amount of interest to be distributed to Certificateholders with respect
to such prepaid Mortgage Loans would result. Pursuant to the Agreement, the
Master Servicing Fee for any month will be reduced, but not by more than
[_____] of such Master Servicing Fee, by an amount sufficient to pass through
to Certificateholders the full amount of interest to which they would be
entitled in respect of each such prepaid Mortgage Loan on the related
Distribution Date. If shortfalls in interest as a result of prepayments in any
Prepayment Period exceed an amount equal to one-half of the Master Servicing
Fee otherwise payable on the related Distribution Date, the amount of interest
available to be distributed to Certificateholders will be reduced by the
amount of such excess. See "Description of the Certificates -- Interest"
herein.]
ADVANCES
Subject to the following limitations, the Master Servicer will be
required to advance prior to each Distribution Date, from its own funds or
funds in the Certificate Account that do not constitute Available Funds for
such Distribution Date, an amount equal to the aggregate of payments of
[principal and interest] on the Mortgage Loans (net of the Master Servicing
Fee with respect to the related Mortgage Loans) which were due on the related
Due Date and which were delinquent on the related Determination Date, together
with an amount equivalent to interest on each Mortgage Loan as to which the
related Mortgaged Property has been acquired by the Trust Fund through
foreclosure or deed-in-lieu of foreclosure ("REO Property") (any such advance,
an "Advance").
Advances are intended to maintain a regular flow of scheduled [interest
and principal payments] on the Certificates rather than to guarantee or insure
against losses. The Master Servicer is obligated to make Advances with respect
to delinquent [payments of principal of or interest] on each Mortgage Loan to
the extent that such Advances are, in its reasonable judgment, recoverable
from future payments and collections or insurance payments or proceeds of
liquidation of the related Mortgage Loan. If the Master Servicer determines on
any Determination Date to make an Advance, such Advance will be included with
the distribution to Certificateholders on the related Distribution Date. Any
failure by the Master Servicer to make an Advance as required under the
Agreement with respect to the Certificates will constitute an Event of Default
thereunder, in which case the Trustee or the successor master servicer will be
obligated to make any such Advance, in accordance with the terms of the
Agreement.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Agreement. Set forth
below are summaries of the specific terms and provisions pursuant to which the
Certificates will be issued. The following summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the provisions of the Agreement. When particular provisions or terms used
in the Agreement are referred to, the actual provisions (including definitions
of terms) are incorporated by reference.
The Mortgage Pass-Through Certificates, Series 199_ - __ will consist of
the Class A- , Class ___ , Class PO, Class X and Class A-R Certificates
(collectively, the "Senior Certificates") and the Class B- , Class ___ and
Class ____ Certificates (collectively, the "Subordinated Certificates"). The
Senior Certificates and Subordinated Certificates are collectively referred to
herein as the "Certificates." Only the Classes of Certificates listed on the
cover page hereof (collectively, the "Offered Certificates") are offered
hereby. The Classes of Offered Certificates will have the respective initial
Class Certificate Balances or initial Notional Amounts (subject to the
permitted variance) and Pass-Through Rates set forth or described on the cover
hereof.
The Class Certificate Balance of any Class of Certificates as of any
Distribution Date is the initial Class Certificate Balance thereof (A) reduced
by the sum of (i) all amounts previously distributed to holders of
Certificates of such Class as payments of principal, (ii) the amount of
Realized Losses (including Excess Losses) allocated to such Class and (iii) in
the case of any Class of Subordinated Certificates, any amounts allocated to
such Class in reduction of its Class Certificate Balance in respect of
payments of Class PO Deferred Amounts, as described below under "--Allocation
of Losses". In addition, the Class Certificate Balance of the Class of
Subordinated Certificates then outstanding with the highest numerical Class
designation will be reduced if and to the extent that the aggregate of the
Class Certificate Balances of all Classes of Certificates, following all
distributions and the allocation of Realized Losses on a Distribution Date,
exceeds the Pool Principal Balance as of the Due Date occurring in the month
of such Distribution Date. The Notional Amount Certificates do not have
principal balances and are not entitled to any distributions in respect of
principal of the Mortgage Loans.
The Notional Amount of the Class X Certificates for any Distribution Date
will be equal to the aggregate of the Stated Principal Balances of the
Non-Discount Mortgage Loans with respect to such Distribution Date. The
initial Notional Amount of the Class X Certificates will be equal to the
aggregate of the Stated Principal Balance of the Non-Discount Mortgage Loans
as of the Cut-off Date.
The Senior Certificates will have an initial aggregate principal balance
of approximately $_____ and will evidence in the aggregate an initial
beneficial ownership interest of approximately ____% in the Trust Fund. The
Class B- , Class B- , Class B- , Class B- , Class B- and Class B- Certificates
will each evidence in the aggregate an initial beneficial ownership interest
of approximately ___%,___%,___%, ___%,___%, and ___%, respectively, in the
Trust Fund.
The Book-Entry Certificates will be issuable in book-entry form only. The
Physical Certificates will be issued in fully registered certificated form.
The Physical Certificates (other than Class A-R Certificates) offered hereby
will be issued in minimum dollar denominations of $25,000 and integral
multiples of $1,000 in excess thereof. A single Certificate of each such Class
may be issued in an amount different than described above. The Class A-R
Certificates will be issued as a single Certificate in a denomination of
$1,000.
BOOK-ENTRY CERTIFICATES
Each Class of Book-Entry Certificates will be issued in one or more
certificates which equal the aggregate initial Class Certificate Balance of
each such Class of Certificates and which will be held by a nominee of The
Depository Trust Company (together with any successor depository selected by
the Depositor, the "Depository"). Beneficial interests in the Book-Entry
Certificates will be held indirectly by investors through the book-entry
facilities of the Depository, as described herein. Investors may hold such
beneficial interests in the Book-Entry Certificates in minimum denominations
representing an original principal amount of $25,000 and integral multiples of
$1,000 in excess thereof. One investor of each Class of Book-Entry
Certificates may hold a beneficial interest therein that is not an integral
multiple of $1,000. The Depositor has been informed by the Depository that its
nominee will be CEDE & Co. ("CEDE"). Accordingly, CEDE is expected to be the
holder of record of the Book-Entry Certificates. Except as described in the
Prospectus under "Description of the Certificates -- Book-Entry Certificates,"
no person acquiring a Book-Entry Certificate (each, a "beneficial owner") will
be entitled to receive a physical certificate representing such Certificate (a
"Definitive Certificate").
Unless and until Definitive Certificates are issued, it is anticipated
that the only "Certificateholder" of the Book-Entry Certificates will be CEDE,
as nominee of the Depository. Beneficial owners of the Book-Entry Certificates
will not be Certificateholders, as that term is used in the Agreement.
Beneficial owners are only permitted to exercise the rights of
Certificateholders indirectly through Financial Intermediaries and the
Depository. Monthly and annual reports on the Trust Fund provided to CEDE, as
nominee of the Depository, may be made available to beneficial owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting the Depository, and to the Financial Intermediaries to whose
Depository accounts the Book-Entry Certificates of such beneficial owners are
credited.
For a description of the procedures generally applicable to the
Book-Entry Certificates, see "Description of the Securities -- Book-Entry
Registration of Securities" in the Prospectus.
PAYMENTS ON MORTGAGE LOANS; ACCOUNTS
On or prior to the Closing Date, the Master Servicer will establish an
account (the "Certificate Account"), which will be maintained in trust for the
benefit of the Certificateholders. Funds credited to the Certificate Account
may be invested for the benefit and at the risk of the Master Servicer in
Permitted Investments, as defined in the Agreement, that are scheduled to
mature on or prior to the business day preceding the next Distribution Date.
On or prior to the business day immediately preceding each Distribution Date,
the Master Servicer will withdraw from the Certificate Account the amount of
Available Funds and will deposit such Available Funds in an account
established and maintained with the Trustee on behalf of the
Certificateholders (the "Distribution Account").
DISTRIBUTIONS
Distributions on the Certificates will be made by the Trustee on the __th
day of each month, or if such day is not a business day, on the first business
day thereafter, commencing in ____ 199_ (each, a "Distribution Date"), to the
persons in whose names such Certificates are registered at the close of
business on the last business day of the month preceding the month of such
Distribution Date (the "Record Date").
Distributions on each Distribution Date will be made by check mailed to
the address of the person entitled thereto as it appears on the applicable
certificate register or, in the case of a Certificateholder who holds 100% of
a Class of Certificates or who holds Certificates with an aggregate initial
Certificate Balance of $1,000,000 or more or who holds an Interest Only
Certificate and who has so notified the Trustee in writing in accordance with
the Agreement, by wire transfer in immediately available funds to the account
of such Certificateholder at a bank or other depository institution having
appropriate wire transfer facilities; provided, however, that the final
distribution in retirement of the Certificates will be made only upon
presentment and surrender of such Certificates at the Corporate Trust Office
of the Trustee.
PRIORITY OF DISTRIBUTIONS AMONG CERTIFICATES
As more fully described herein, distributions will be made on each
Distribution Date from Available Funds in the following order of priority: (i)
to interest on each interest bearing Class of Senior Certificates; (ii) to
principal on the Classes of Senior Certificates then entitled to receive
distributions of principal, in the order and subject to the priorities set
forth herein under " -- Principal," in each case in an aggregate amount up to
the maximum amount of principal to be distributed on such Classes on such
Distribution Date; (iii) to any Class PO Deferred Amounts with respect to the
Class PO Certificates, but only from amounts that would otherwise be
distributed on such Distribution Date as principal of the Subordinated
Certificates; and (iv) to interest on and then principal of each Class of
Subordinated Certificates, in the order of their numerical Class designations,
beginning with the Class ____ Certificates, in each case subject to the
limitations set forth herein under "Description of the Certificates --
Principal."
"Available Funds" with respect to any Distribution Date will be equal to
the sum of (i) all scheduled installments of interest (net of the related
Expense Fees) and principal due on the Due Date in the month in which such
Distribution Date occurs and received prior to the related Determination Date,
together with any Advances in respect [thereof [in respect of interest]]; (ii)
all proceeds of any primary mortgage guaranty insurance policies and any other
insurance policies with respect to the Mortgage Loans, to the extent such
proceeds are not applied to the restoration of the related Mortgaged Property
or released to the Mortgagor in accordance with the Master Servicer's normal
servicing procedures (collectively, "Insurance Proceeds") and all other cash
amounts received and retained in connection with the liquidation of defaulted
Mortgage Loans, by foreclosure or otherwise ("Liquidation Proceeds") during
the calendar month preceding the month of such Distribution Date (in each
case, net of unreimbursed expenses incurred in connection with a liquidation
or foreclosure and unreimbursed Advances, if any); (iii) all partial or full
prepayments received during the month preceding the month of such Distribution
Date; and (iv) amounts received with respect to such Distribution Date as the
Substitution Adjustment Amount or purchase price in respect of a Deleted
Mortgage Loan or a Mortgage Loan repurchased by the Seller as of such
Distribution Date, reduced by amounts in reimbursement for Advances previously
made and other amounts as to which the Master Servicer is entitled to be
reimbursed from the Certificate Account pursuant to the Agreement.
INTEREST
The Classes of Offered Certificates will have the respective Pass-Through
Rates set forth or described on the cover hereof.
The Pass-Through Rate for the Class X Certificates for any Distribution
Date will be equal to the excess of (a) the average of the Net Mortgage Rates
of the Non-Discount Mortgage Loans, weighted on the basis of the Stated
Principal Balances thereof, over (b)___% per annum. The Pass-Through Rate for
the Class X Certificates for the first Distribution Date is expected to be
approximately ___% per annum. The Net Mortgage Rate for each Mortgage Loan is
the Mortgage Rate thereof less the Expense Fee Rate for such Mortgage Loan.
On each Distribution Date, to the extent of funds available therefor,
each interest bearing Class of Certificates will be entitled to receive an
amount allocable to interest (as to each such Class, the "Interest
Distribution Amount") with respect to the related Interest Accrual Period. The
Interest Distribution Amount for any interest bearing Class will be equal to
the sum of (i) interest at the applicable Pass-Through Rate on the related
Class Certificate Balance or Notional Amount, as the case may be, and (ii) the
sum of the amounts, if any, by which the amount described in clause (i) above
on each prior Distribution Date exceeded the amount actually distributed as
interest on such prior Distribution Dates and not subsequently distributed
("Unpaid Interest Amounts"). The Class PO Certificates are Principal Only
Certificates and will not bear interest.
With respect to each Distribution Date, the "Interest Accrual Period" for
each interest bearing Class of Certificates will be the calendar month
preceding the month of such Distribution Date.
The interest entitlement described above for each Class of Certificates
for any Distribution Date will be reduced by the amount of "Net Interest
Shortfalls" for such Distribution Date. With respect to any Distribution Date,
the "Net Interest Shortfall" is equal to (i) the amount of interest that would
otherwise have been received with respect to any Mortgage Loan that was the
subject of (x) a Relief Act Reduction or (y) a Special Hazard Loss, Fraud
Loss, Debt Service Reduction or Deficient Valuation, after the exhaustion of
the respective amounts of coverage provided by the Subordinated Certificates
for such types of losses and (ii) any Net Prepayment Interest Shortfalls with
respect to such Distribution Date. A "Relief Act Reduction" is a reduction in
the amount of monthly interest payment on a Mortgage Loan pursuant to the
Soldiers' and Sailors' Civil Relief Act of 1940. See "Certain Legal Aspects of
the Loans -- Soldiers' and Sailors' Civil Relief Act" in the Prospectus. With
respect to any Distribution Date, a "Net Prepayment Interest Shortfall" is the
amount by which the aggregate of Prepayment Interest Shortfalls during the
calendar month preceding the month of such Distribution Date exceeds the
aggregate amount payable on such Distribution Date by the Master Servicer as
described under "Servicing of Mortgage Loans -- Adjustment to Master Servicing
Fee in Connection with Certain Prepaid Mortgage Loans." A "Prepayment Interest
Shortfall" is the amount by which interest paid by a borrower in connection
with a prepayment of principal on a Mortgage Loan is less than one month's
interest at the related Mortgage Rate on the Stated Principal Balance of such
Mortgage Loan. Each Class' pro rata share of such Net Interest Shortfalls will
be based on the amount of interest such Class otherwise would have been
entitled to receive on such Distribution Date.
Accrued interest to be distributed on any Distribution Date will be
calculated, in the case of each interest bearing Class of Certificates, on the
basis of the related Class Certificate Balance or Notional Amount, as
applicable, immediately prior to such Distribution Date. Interest will be
calculated and payable on the basis of a 360-day year divided into twelve
30-day months.
In the event that, on a particular Distribution Date, Available Funds in
the Certificate Account applied in the order described above under " --
Priority of Distributions Among Certificates" are not sufficient to make a
full distribution of the interest entitlement on the Certificates, interest
will be distributed on each Class of Certificates of equal priority based on
the amount of interest each such Class would otherwise have been entitled to
receive in the absence of such shortfall. Any Unpaid Interest Amount will be
carried forward and added to the amount holders of each such Class of
Certificates will be entitled to receive on the next Distribution Date. Such a
shortfall could occur, for example, if losses realized on the Mortgage Loans
were exceptionally high or were concentrated in a particular month. Any Unpaid
Interest Amount so carried forward will not bear interest.
PRINCIPAL
GENERAL. All payments and other amounts received in respect of principal
of the Mortgage Loans will be allocated between (i) the Senior Certificates
(other than the Notional Amount Certificates and the Class PO Certificates)
and the Subordinated Certificates and (ii) the Class PO Certificates, in each
case based on the applicable Non-PO Percentage and the applicable PO
Percentage, respectively, of such amounts.
The Non-PO Percentage with respect to any Mortgage Loan with a Net
Mortgage Rate ("NMR") less than ___% (each such Mortgage Loan, a "Discount
Mortgage Loan") will be equal to NMR/___%. The Non-PO Percentage with respect
to any Mortgage Loan with a Net Mortgage Rate equal to or greater than ___%
(each such Mortgage Loan, a "Non-Discount Mortgage Loan") will be 100%. The PO
Percentage with respect to any Discount Mortgage Loan will be equal to (___% -
NMR)/___%. The PO Percentage with respect to any Non-Discount Mortgage Loan
will be 0%.
NON-PO FORMULA PRINCIPAL AMOUNT. On each Distribution Date, the Non-PO
Formula Principal Amount will be distributed as principal of the Senior
Certificates (other than the Notional Amount Certificates and the Class PO
Certificates) and the Subordinated Certificates, to the extent of the amount
available from Available Funds for the distribution of principal on such
respective Classes, as described below.
The Non-PO Formula Principal Amount for any Distribution Date will equal
the sum of the applicable Non-PO Percentage of (a) all monthly payments of
principal due on each Mortgage Loan on the related Due Date, (b) the principal
portion of the purchase price of each Mortgage Loan that was repurchased by
the Seller or another person pursuant to the Agreement as of such Distribution
Date, (c) the Substitution Adjustment Amount in connection with any Deleted
Mortgage Loan received with respect to such Distribution Date, (d) any
Insurance Proceeds or Liquidation Proceeds allocable to recoveries of
principal of Mortgage Loans that are not yet Liquidated Mortgage Loans
received during the calendar month preceding the month of such Distribution
Date, (e) with respect to each Mortgage Loan that became a Liquidated Mortgage
Loan during the calendar month preceding the month of such Distribution Date,
the amount of the Liquidation Proceeds allocable to principal received with
respect to such Mortgage Loan and (f) all partial and full principal
prepayments by borrowers received during the related Prepayment Period.
SENIOR PRINCIPAL DISTRIBUTION AMOUNT. On each Distribution Date prior to
the Senior Credit Support Depletion Date, the Non-PO Formula Principal Amount,
up to the amount of the Senior Principal Distribution Amount for such
Distribution Date, will be distributed as principal of the following Classes
of Senior Certificates in the following order of priority:
(i) to the Class A-R Certificates until the Class Certificate Balance
thereof has been reduced to zero;
(ii) concurrently, to the Class ____ and Class _____ Certificates, pro
rata based on their respective Class Certificate Balances, until the Class
Certificate Balances thereof have been reduced to zero;
(iii) sequentially, to the Class ___ and Class ____ Certificates, in that
order, until the respective Class Certificate Balances thereof have been
reduced to zero;
(iv) sequentially, to the Class ____ and Class ____ Certificates, in that
order, until the respective Class Certificate Balances thereof have been
reduced to zero; and
(v) to the Class ____ Certificates until the Class Certificate Balance
thereof has been reduced to zero.
Notwithstanding the foregoing, on each Distribution Date on and after the
Senior Credit Support Depletion Date, the Non-PO Formula Principal Amount will
be distributed, concurrently as principal of the Classes of Senior
Certificates (other than the Notional Amount Certificates and the Class PO
Certificates), pro rata, in accordance with their respective Class Certificate
Balances immediately prior to such Distribution Date.
The Senior Credit Support Depletion Date is the date on which the Class
Certificate Balance of each Class of Subordinated Certificates has been
reduced to zero.
The Senior Principal Distribution Amount for any Distribution Date will
equal the sum of (i) the Senior Percentage of the applicable Non-PO Percentage
of all amounts described in clauses (a) through (d) of the definition of
"Non-PO Formula Principal Amount" for such Distribution Date, (ii) with
respect to each Mortgage Loan that became a Liquidated Mortgage Loan during
the calendar month preceding the month of such Distribution Date, the lesser
of (x) the Senior Percentage of the applicable Non-PO Percentage of the Stated
Principal Balance of such Mortgage Loan and (y) either (A) the Senior
Prepayment Percentage or (B) if an Excess Loss was sustained with respect to
such Liquidated Mortgage Loan during such preceding calendar month, the Senior
Percentage of the applicable Non-PO Percentage of the amount of the
Liquidation Proceeds allocable to principal received with respect to such
Mortgage Loan, and (iii) the Senior Prepayment Percentage of the applicable
Non-PO Percentage of amounts described in clause (f) of the definition of
"Non-PO Formula Principal Amount" for such Distribution Date; provided,
however, that if a Bankruptcy Loss that is an Excess Loss is sustained with
respect to a Mortgage Loan that is not a Liquidated Mortgage Loan, the Senior
Principal Distribution Amount will be reduced on the related Distribution Date
by the Senior Percentage of the applicable Non-PO Percentage of the principal
portion of such Bankruptcy Loss.
"Stated Principal Balance" means as to any Mortgage Loan and Due Date,
the unpaid principal balance of such Mortgage Loan as of such Due Date, as
specified in the amortization schedule at the time relating thereto (before
any adjustment to such amortization schedule by reason of any moratorium or
similar waiver or grace period), after giving effect to any previous partial
prepayments and Liquidation Proceeds received and to the payment of principal
due on such Due Date and irrespective of any delinquency in payment by the
related Mortgagor. The Pool Principal Balance with respect to any Distribution
Date equals the aggregate of the Stated Principal Balances of the Mortgage
Loans outstanding on the Due Date in the month preceding the month of such
Distribution Date.
The Senior Percentage for any Distribution Date is the percentage
equivalent of a fraction the numerator of which is the aggregate of the Class
Certificate Balances of each Class of Senior Certificates (other than the
Class PO Certificates) immediately prior to such date and the denominator of
which is the aggregate of the Class Certificate Balances of all Classes of
Certificates, other than the Class PO Certificates, immediately prior to such
date.
The Senior Prepayment Percentage for any Distribution Date occurring
during the ____ years beginning on the first Distribution Date will equal
100%. Thereafter, the Senior Prepayment Percentage will, except as described
below, be subject to gradual reduction as described in the following
paragraph. This disproportionate allocation of certain unscheduled payments in
respect of principal will have the effect of accelerating the amortization of
the Senior Certificates which receive these unscheduled payments of principal
(other than the Class PO Certificates) while, in the absence of Realized
Losses, increasing the interest in the Pool Principal Balance evidenced by the
Subordinated Certificates. Increasing the respective interest of the
Subordinated Certificates relative to that of the Senior Certificates is
intended to preserve the availability of the subordination provided by the
Subordinated Certificates.
The Senior Prepayment Percentage for any Distribution Date occurring on
or after the _____ anniversary of the first Distribution Date will be as
follows: for any Distribution Date in the _____ year thereafter, the Senior
Percentage plus __% of the Subordinated Percentage for such Distribution Date;
for any Distribution Date in the ______ year thereafter, the Senior Percentage
plus __% of the Subordinated Percentage for such Distribution Date; for any
Distribution Date in the _____ year thereafter, the Senior Percentage plus __%
of the Subordinated Percentage for such Distribution Date; for any
Distribution Date in the ______ year thereafter, the Senior Percentage plus
__% of the Subordinated Percentage for such Distribution Date; and for any
Distribution Date thereafter, the Senior Percentage for such Distribution Date
(unless on any of the foregoing Distribution Dates the Senior Percentage
exceeds the initial Senior Percentage, in which case the Senior Prepayment
Percentage for such Distribution Date will once again equal 100%).
Notwithstanding the foregoing, no decrease in the Senior Prepayment Percentage
will occur if (i) the outstanding principal balance of all Mortgage Loans
delinquent __ days or more (averaged over the preceding _________ period), as
a percentage of the aggregate principal balance of the Subordinated
Certificates (averaged over the preceding _________ period), is equal to or
greater than __%, or (ii) cumulative Realized Losses with respect to the
Mortgage Loans exceed (a) with respect to the Distribution Date on the _____
anniversary of the first Distribution Date, __% of the aggregate of the
principal balances of the Subordinated Certificates as of the Cut-off Date
(the "Original Subordinated Principal Balance"), (b) with respect to the
Distribution Date on the _____ anniversary of the first Distribution Date, __%
of the Original Subordinated Principal Balance, (c) with respect to the
Distribution Date on the _______ anniversary of the first Distribution Date,
__% of the Original Subordinated Principal Balance, (d) with respect to the
Distribution Date on the ______ anniversary of the first Distribution Date,
__% of the Original Subordinated Principal Balance, and (e) with respect to
the Distribution Date on the _____ anniversary of the first Distribution Date,
__% of the Original Subordinated Principal Balance. The Subordinated
Prepayment Percentage as of any Distribution Date will be calculated as the
difference between 100% and the Senior Prepayment Percentage for such date.
If on any Distribution Date the allocation to the Class of Senior
Certificates then entitled to distributions of principal of full and partial
principal prepayments and other amounts in the percentage required above would
reduce the outstanding Class Certificate Balance of such Class below zero, the
distribution to such Class of Certificates of the Senior Prepayment Percentage
of such amounts for such Distribution Date will be limited to the percentage
necessary to reduce the related Class Certificate Balance to zero.
SUBORDINATED PRINCIPAL DISTRIBUTION AMOUNT. On each Distribution Date, to
the extent of Available Funds therefor, the Non-PO Formula Principal Amount,
up to the amount of the Subordinated Principal Distribution Amount for such
Distribution Date, will be distributed as principal of the Subordinated
Certificates. Except as provided in the next paragraph, each Class of
Subordinated Certificates will be entitled to receive its pro rata share of
the Subordinated Principal Distribution Amount (based on its respective Class
Certificate Balance), in each case to the extent of the amount available from
Available Funds for distribution of principal. Distributions of principal of
the Subordinated Certificates will be made sequentially to the Classes of
Subordinated Certificates in the order of their numerical Class designations,
beginning with the Class ___ Certificates, until the respective Class
Certificate Balances thereof are reduced to zero. The Subordinated Percentage
for any Distribution Date will be calculated as the difference between 100%
and the Senior Percentage.
With respect to each Class of Subordinated Certificates, if on any
Distribution Date the sum of the related Class Subordination Percentages of
such Class and all Classes of Subordinated Certificates which have higher
numerical Class designations than such Class (the "Applicable Credit Support
Percentage") is less than the Applicable Credit Support Percentage for such
Class on the date of issuance of the Certificates (the "Original Applicable
Credit Support Percentage"), no distribution of partial principal prepayments
and principal prepayments in full will be made to any such Classes (the
"Restricted Classes") and the amount of partial principal prepayments and
principal prepayments in full otherwise distributable to the Restricted
Classes will be allocated among the remaining Classes of Subordinated
Certificates, pro rata, based upon their respective Class Certificate
Balances, and distributed in the sequential order described above.
The Class Subordination Percentage with respect to any Distribution Date
and each Class of Subordinated Certificates, will equal the fraction
(expressed as a percentage) the numerator of which is the Class Certificate
Balance of such Class of Subordinated Certificates immediately prior to such
Distribution Date and the denominator of which is the aggregate of the Class
Certificate Balances of all Classes of Certificates immediately prior to such
Distribution Date.
The approximate Original Applicable Credit Support Percentages for the
Subordinated Certificates on the date of issuance of the Certificates are
expected to be as follows:
Class .............................................. %
Class .............................................. %
Class .............................................. %
Class .............................................. %
Class .............................................. %
Class .............................................. %
The Subordinated Principal Distribution Amount for any Distribution Date
will equal (A) the sum of (i) the Subordinated Percentage of the applicable
Non-PO Percentage of all amounts described in clauses (a) through (d) of the
definition of "Non-PO Formula Principal Amount" for such Distribution Date,
(ii) with respect to each Mortgage Loan that became a Liquidated Mortgage Loan
during the calendar month preceding the month of such Distribution Date, the
applicable Non-PO Percentage of the Liquidation Proceeds allocable to
principal received with respect to such Mortgage Loan, after application of
such amounts pursuant to clause (ii) of the definition of Senior Principal
Distribution Amount, up to the Subordinated Percentage of the applicable
Non-PO Percentage of the Stated Principal Balance of such Mortgage Loan and
(iii) the Subordinated Prepayment Percentage of the applicable Non-PO
Percentage of the amounts described in clause (f) of the definition of "Non-PO
Formula Principal Amount" for such Distribution Date reduced by (B) the amount
of any payments in respect of Class PO Deferred Amounts on the related
Distribution Date.
RESIDUAL CERTIFICATES. The Class A-R Certificates will remain outstanding
for so long as the Trust Fund shall exist, whether or not they are receiving
current distributions of principal or interest. In addition to distributions
of interest and principal as described above, on each Distribution Date, the
holders of the Class A-R Certificates will be entitled to receive any
Available Funds remaining after payment of interest and principal on the
Senior Certificates and Class PO Deferred Amounts on the Class PO Certificates
and interest and principal on the Subordinated Certificates, as described
above. It is not anticipated that there will be any significant amounts
remaining for any such distribution.
CLASS PO PRINCIPAL DISTRIBUTION AMOUNT. On each Distribution Date,
distributions of principal of the Class PO Certificates will be made in an
amount (the "Class PO Principal Distribution Amount") equal to the lesser of
(x) the PO Formula Principal Amount for such Distribution Date and (y) the
product of (i) Available Funds remaining after distribution of interest on the
Senior Certificates and (ii) a fraction, the numerator of which is the PO
Formula Principal Amount and the denominator of which is the sum of the PO
Formula Principal Amount and the Senior Principal Distribution Amount.
If the Class PO Principal Distribution Amount on a Distribution Date is
calculated as provided in clause (y) above, principal distributions to holders
of the Senior Certificates (other than the Class PO Certificates) will be in
an amount equal to the product of (i) Available Funds remaining after
distribution of interest on the Senior Certificates and (ii) a fraction, the
numerator of which is the Senior Principal Distribution Amount and the
denominator of which is the sum of the Senior Principal Distribution Amount
and the PO Formula Principal Amount.
The PO Formula Principal Amount for any Distribution Date will equal the
sum of the applicable PO Percentage of (a) all monthly payments of principal
due on each Mortgage Loan on the related Due Date, (b) the principal portion
of the purchase price of each Mortgage Loan that was repurchased by the Seller
or another person pursuant to the Agreement as of such Distribution Date, (c)
the Substitution Adjustment Amount in connection with any Deleted Mortgage
Loan received with respect to such Distribution Date, (d) any Insurance
Proceeds or Liquidation Proceeds allocable to recoveries of principal of
Mortgage Loans that are not yet Liquidated Mortgage Loans received during the
calendar month preceding the month of such Distribution Date, (e) with respect
to each Mortgage Loan that became a Liquidated Mortgage Loan during the
calendar month preceding the month of such Distribution Date, the amount of
Liquidation Proceeds allocable to principal received with respect to such
Mortgage Loan and (f) all partial and full principal prepayments by borrowers
received during the related Prepayment Period; provided, however, that if a
Bankruptcy Loss that is an Excess Loss is sustained with respect to a Discount
Mortgage Loan that is not a Liquidated Mortgage Loan, the PO Formula Principal
Amount will be reduced on the related Distribution Date by the applicable PO
Percentage of the principal portion of such Bankruptcy Loss.
ALLOCATION OF LOSSES
On each Distribution Date, the applicable PO Percentage of any Realized
Loss, including any Excess Loss, on a Discount Mortgage Loan will be allocated
to the Class PO Certificates until the Class Certificate Balance thereof is
reduced to zero. The amount of any such Realized Loss, other than an Excess
Loss, allocated on or prior to the Senior Credit Support Depletion Date will
be treated as a Class PO Deferred Amount. To the extent funds are available on
such Distribution Date or on any future Distribution Date from amounts that
would otherwise be allocable to the Subordinated Principal Distribution
Amount, Class PO Deferred Amounts will be paid on the Class PO Certificates
prior to distributions of principal on the Subordinated Certificates. Any
distribution of Available Funds in respect of unpaid Class PO Deferred Amounts
will not further reduce the Class Certificate Balance of the Class PO
Certificates. The Class PO Deferred Amounts will not bear interest. The Class
Certificate Balance of the Class of Subordinated Certificates then outstanding
with the highest numerical Class designation will be reduced by the amount of
any payments in respect of Class PO Deferred Amounts. After the Senior Credit
Support Depletion Date, no new Class PO Deferred Amounts will be created.
On each Distribution Date, the applicable Non-PO Percentage of any
Realized Loss, other than any Excess Loss, will be allocated first to the
Subordinated Certificates, in the reverse order of their numerical Class
designations (beginning with the Class of Subordinated Certificates then
outstanding with the highest numerical Class designation), in each case until
the Class Certificate Balance of the respective Class of Certificates has been
reduced to zero, and then to the Senior Certificates (other than the Notional
Amount Certificates and the Class PO Certificates) pro rata, based upon their
respective Class Certificate Balances.
On each Distribution Date, the applicable Non-PO Percentage of Excess
Losses will be allocated pro rata among the Classes of Senior Certificates
(other than the Notional Amount Certificates and the Class PO Certificates)
and the Subordinated Certificates based upon their respective Class
Certificate Balances.
Because principal distributions are paid to certain Classes of
Certificates (other than the Class PO Certificates) before other Classes of
Certificates, holders of such Certificates that are entitled to receive
principal later bear a greater risk of being allocated Realized Losses on the
Mortgage Loans than holders of Classes that are entitled to receive principal
earlier.
Realized Losses allocated to a Class of Certificates comprised of
multiple payment Components will be allocated pro rata among the Components of
such Class of Certificates based on their respective Component Balances.
In general, a "Realized Loss" means, with respect to a Liquidated
Mortgage Loan, the amount by which the remaining unpaid principal balance of
the Mortgage Loan exceeds the amount of Liquidation Proceeds applied to the
principal balance of the related Mortgage Loan. "Excess Losses" are (i)
Special Hazard Losses in excess of the Special Hazard Loss Coverage Amount,
(ii) Bankruptcy Losses in excess of the Bankruptcy Loss Coverage Amount and
(iii) Fraud Losses in excess of the Fraud Loss Coverage Amount. "Bankruptcy
Losses" are losses that are incurred as a result of Debt Service Reductions
and Deficient Valuations. "Special Hazard Losses" are Realized Losses in
respect of Special Hazard Mortgage Loans. "Fraud Losses" are losses sustained
on a Liquidated Mortgage Loan by reason of a default arising from fraud,
dishonesty or misrepresentation. See "Credit Enhancement -- Subordination of
Certain Classes" herein.
A "Liquidated Mortgage Loan" is a defaulted Mortgage Loan as to which the
Master Servicer has determined that all recoverable liquidation and insurance
proceeds have been received. A "Special Hazard Mortgage Loan" is a Liquidated
Mortgage Loan as to which the ability to recover the full amount due
thereunder was substantially impaired by a hazard not insured against under a
standard hazard insurance policy of the type described in the Prospectus under
"Credit Enhancement -- Special Hazard Insurance Policies." See "Credit
Enhancement -- Subordination of Certain Classes" herein.
STRUCTURING ASSUMPTIONS
Unless otherwise specified, the information in the tables in this
Prospectus Supplement has been prepared on the basis of the following assumed
characteristics of the Mortgage Loans and the following additional assumptions
(collectively, the "Structuring Assumptions"): (i) the Mortgage Pool consists
of Mortgage Loans with the following characteristics:
<TABLE>
<CAPTION>
REMAINING
ORIGINAL TERM TERM
NET TO MATURITY TO MATURITY
PRINCIPAL BALANCE MORTGAGE RATE MORTGAGE RATE (IN MONTHS) (IN MONTHS) LOAN AGE
- ----------------- ------------- ------------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ % %
$ % %
</TABLE>
(ii) the Mortgage Loans prepay at the specified constant percentages of SPA,
(iii) no defaults in the payment by Mortgagors of principal of and interest on
the Mortgage Loans are experienced, (iv) scheduled payments on the Mortgage
Loans are received on the first day of each month commencing in the calendar
month following the Closing Date and are computed prior to giving effect to
prepayments received on the last day of the prior month, (v) prepayments are
allocated as described herein without giving effect to loss and delinquency
tests, (vi) there are no Net Interest Shortfalls and prepayments represent
prepayments in full of individual Mortgage Loans and are received on the last
day of each month, commencing in the calendar month of the Closing Date, (vii)
the scheduled monthly payment for each Mortgage Loan has been calculated such
that each Mortgage Loan will amortize in amounts sufficient to repay the
current balance of such Mortgage Loan by its respective remaining term to
maturity, (viii) the initial Class Certificate Balance or Notional Amount, as
applicable, of each Class of Certificates is as set forth on the cover page
hereof and under "Summary of Terms -- Certificates other than the Offered
Certificates", (ix) interest accrues on each interest bearing Class of
Certificates at the applicable interest rate set forth or described on the
cover hereof and as described herein, (x) distributions in respect of the
Certificates are received in cash on the ____ day of each month commencing in
the calendar month following the Closing Date, (xi) the closing date of the
sale of the Offered Certificates is the date set forth under "Summary of Terms
- -- Closing Date," (xii) the Seller is not required to repurchase or substitute
for any Mortgage Loan, (xiii) the Master Servicer does not exercise the option
to repurchase the Mortgage Loans described herein under " -- Optional Purchase
of Defaulted Loans" and " -- Optional Termination" and (xiv) no Class of
Certificates becomes a Restricted Class. While it is assumed that each of the
Mortgage Loans prepays at the specified constant percentages of SPA, this is
not likely to be the case. Moreover, discrepancies may exist between the
characteristics of the actual Mortgage Loans which will be delivered to the
Trustee and characteristics of the Mortgage Loans used in preparing the tables
herein.
Prepayments of mortgage loans commonly are measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement is
the Standard Prepayment Assumption ("SPA"), which represents an assumed rate
of prepayment each month of the then outstanding principal balance of a pool
of new mortgage loans. SPA does not purport to be either a historical
description of the prepayment experience of any pool of mortgage loans or a
prediction of the anticipated rate of prepayment of any pool of mortgage
loans, including the Mortgage Loans. 100% SPA assumes prepayment rates of 0.2%
per annum of the then unpaid principal balance of such pool of mortgage loans
in the first month of the life of such mortgage loans and an additional 0.2%
per annum in each month thereafter (for example, 0.4% per annum in the second
month) until the 30th month. Beginning in the 30th month and in each month
thereafter during the life of such mortgage loans, 100% SPA assumes a constant
prepayment rate of 6% per annum. Multiples may be calculated from this
prepayment rate sequence. For example, ___% SPA assumes prepayment rates will
be ___% per annum in month one, ___% per annum in month two, and increasing by
___% in each succeeding month until reaching a rate of ___% per annum in month
30 and remaining constant at %___ per annum thereafter. 0% SPA assumes no
prepayments. There is no assurance that prepayments will occur at any SPA rate
or at any other constant rate.
OPTIONAL PURCHASE OF DEFAULTED LOANS
The Master Servicer may, at its option, purchase from the Trust Fund any
Mortgage Loan which is delinquent in payment by 91 days or more. Any such
purchase shall be at a price equal to 100% of the Stated Principal Balance of
such Mortgage Loan plus accrued interest thereon at the applicable Mortgage
Rate from the date through which interest was last paid by the related
mortgagor or advanced (and not reimbursed) to the first day of the month in
which such amount is to be distributed.
OPTIONAL TERMINATION
The Master Servicer will have the right to repurchase all remaining
Mortgage Loans and REO Properties in the Mortgage Pool and thereby effect
early retirement of the Certificates, subject to the Pool Principal Balance of
such Mortgage Loans and REO Properties at the time of repurchase being less
than or equal to 10% of the Cut-off Date Pool Principal Balance. In the event
the Master Servicer exercises such option, the purchase price distributed with
respect to each Certificate will be 100% of its then outstanding principal
balance plus any Class PO Deferred Amounts in the case of the Class PO
Certificates and, in the case of an interest bearing Certificate, any unpaid
accrued interest thereon at the applicable Pass-Through Rate (in each case
subject to reduction as provided in the Agreement if the purchase price is
based in part on the appraised value of any REO Properties and such appraised
value is less than the Stated Principal Balance of the related Mortgage
Loans). Distributions on the Certificates in respect of any such optional
termination will first be paid to the Senior Certificates and then to the
Subordinated Certificates. The proceeds from any such distribution may not be
sufficient to distribute the full amount to which each Class of Certificates
is entitled if the purchase price is based in part on the appraised value of
any REO Property and such appraised value is less than the Stated Principal
Balance of the related Mortgage Loan.
THE TRUSTEE
______________________ will be the Trustee under the Agreement. The
Depositor and the Master Servicer may maintain other banking relationships in
the ordinary course of business with ___________________. Offered Certificates
may be surrendered at the Corporate Trust Office of the Trustee located at
_______________________________, Attention: _____________________ or at such
other addresses as the Trustee may designate from time to time.
RESTRICTIONS ON TRANSFER OF THE CLASS A-R CERTIFICATES
The Class A-R Certificates will be subject to the restrictions on
transfer described in the Prospectus under "Certain Federal Income Tax
Consequences -- REMIC Certificates -- Tax-Related Restrictions on Transfers of
Residual Certificates -- Disqualified Organizations," " -- Noneconomic
Residual Interests" and " -- Foreign Investors." The Agreement provides that
the Class A-R Certificates (in addition to certain other Classes of
Certificates) may not be acquired by an ERISA Plan. See "ERISA Considerations"
herein. Each Class A-R Certificate will contain a legend describing the
foregoing restrictions.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
GENERAL
The effective yield to the holders of the interest bearing Certificates
will be lower than the yield otherwise produced by the applicable rate at
which interest is passed through to such holders and the purchase price of
such Certificates because monthly distributions will not be payable to such
holders until the ____ day (or, if such day is not a business day, the
following business day) of the month following the month in which interest
accrues on the Mortgage Loans (without any additional distribution of interest
or earnings thereon in respect of such delay).
Delinquencies [in respect of interest] on the Mortgage Loans which are
not advanced by or on behalf of the Master Servicer (because amounts, if
advanced, would be nonrecoverable) will adversely affect the yield on the
Certificates. Because of the priority of distributions, shortfalls resulting
from delinquencies [in respect of interest] not so advanced will be borne
first by the Subordinated Certificates, in the reverse order of their
numerical Class designations, and then by the Senior Certificates. If, as a
result of such shortfalls, the aggregate of the Class Certificate Balances of
all Classes of Certificates exceeds the Pool Principal Balance, the Class
Certificate Balance of the Class of Subordinated Certificates then outstanding
with the highest numerical Class designation will be reduced by the amount of
such excess.
Net Interest Shortfalls will adversely affect the yields on the Offered
Certificates. In addition, although all losses initially will be borne by the
Subordinated Certificates, in the reverse order of their numerical Class
designations (either directly or through distributions in respect of Class PO
Deferred Amounts on the Class PO Certificates), Excess Losses will be borne by
all Classes of Certificates (other than the Notional Amount Certificates) on a
pro rata basis. Moreover, since the Subordinated Principal Distribution Amount
for each Distribution Date will be reduced by the amount of any distributions
on such Distribution Date in respect of Class PO Deferred Amounts, the amount
distributable as principal on each such Distribution Date to each Class of
Subordinated Certificates then entitled to a distribution of principal will be
less than it otherwise would be in the absence of such Class PO Deferred
Amounts. As a result, the yields on the Offered Certificates will depend on
the rate and timing of Realized Losses, including Excess Losses. Excess Losses
could occur at a time when one or more Classes of Subordinated Certificates
are still outstanding and otherwise available to absorb other types of
Realized Losses.
PREPAYMENT CONSIDERATIONS AND RISKS
The rate of principal payments on the Offered Certificates, the aggregate
amount of distributions on the Offered Certificates and the yield to maturity
of the Offered Certificates will be related to the rate and timing of payments
of principal on the Mortgage Loans. The rate of principal payments on the
Mortgage Loans will in turn be affected by the amortization schedules of the
Mortgage Loans and by the rate of principal prepayments (including for this
purpose prepayments resulting from refinancing, liquidations of the Mortgage
Loans due to defaults, casualties, condemnations and repurchases by the
Seller). The Mortgage Loans may be prepaid by the Mortgagors at any time
without a prepayment penalty. The Mortgage Loans are subject to the
"due-on-sale" provisions included therein. See "The Mortgage Pool" herein.
Prepayments, liquidations and purchases of the Mortgage Loans (including
any optional purchase by the Master Servicer of a defaulted Mortgage Loan and
any optional repurchase of the remaining Mortgage Loans in connection with the
termination of the Trust Fund, in each case as described herein) will result
in distributions on the Offered Certificates of principal amounts which would
otherwise be distributed over the remaining terms of the Mortgage Loans. Since
the rate of payment of principal of the Mortgage Loans will depend on future
events and a variety of factors, no assurance can be given as to such rate or
the rate of principal prepayments. The extent to which the yield to maturity
of a Class of Offered Certificates may vary from the anticipated yield will
depend upon the degree to which such Offered Certificate is purchased at a
discount or premium, and the degree to which the timing of payments thereon is
sensitive to prepayments, liquidations and purchases of the Mortgage Loans.
Further, an investor should consider the risk that, in the case of the
Principal Only Certificates and any other Offered Certificate purchased at a
discount, a slower than anticipated rate of principal payments (including
prepayments) on the Mortgage Loans could result in an actual yield to such
investor that is lower than the anticipated yield and, in the case of the
Interest Only Certificates and any other Offered Certificate purchased at a
premium, a faster than anticipated rate of principal payments could result in
an actual yield to such investor that is lower than the anticipated yield.
Investors in the Interest Only Certificates should carefully consider the risk
that a rapid rate of principal payments on the Mortgage Loans could result in
the failure of such investors to recover their initial investments.
The rate of principal payments (including prepayments) on pools of
mortgage loans may vary significantly over time and may be influenced by a
variety of economic, geographic, social and other factors, including changes
in mortgagors' housing needs, job transfers, unemployment, mortgagors' net
equity in the mortgaged properties and servicing decisions. In general, if
prevailing interest rates were to fall significantly below the Mortgage Rates
on the Mortgage Loans, the Mortgage Loans could be subject to higher
prepayment rates than if prevailing interest rates were to remain at or above
the Mortgage Rates on the Mortgage Loans. Conversely, if prevailing interest
rates were to rise significantly, the rate of prepayments on the Mortgage
Loans would generally be expected to decrease. No assurances can be given as
to the rate of prepayments on the Mortgage Loans in stable or changing
interest rate environments.
As described herein under "Description of the Certificates -- Principal,"
the Senior Prepayment Percentage of the applicable Non-PO Percentage of all
principal prepayments will be initially distributed to the Classes of Senior
Certificates (other than the Class PO Certificates) then entitled to receive
principal prepayment distributions. This may result in all (or a
disproportionate percentage) of such principal prepayments being distributed
to holders of such Classes of Senior Certificates and none (or less than their
pro rata share) of such principal prepayments being distributed to holders of
the Subordinated Certificates during the periods of time described in the
definition of "Senior Prepayment Percentage."
The timing of changes in the rate of prepayments on the Mortgage Loans
may significantly affect an investor's actual yield to maturity, even if the
average rate of principal payments is consistent with an investor's
expectation. In general, the earlier a prepayment of principal on the Mortgage
Loans, the greater the effect on an investor's yield to maturity. The effect
on an investor's yield as a result of principal payments occurring at a rate
higher (or lower) than the rate anticipated by the investor during the period
immediately following the issuance of the Offered Certificates may not be
offset by a subsequent like decrease (or increase) in the rate of principal
payments.
The tables below indicate the sensitivity of the pre-tax corporate bond
equivalent yields to maturity of certain Classes of Certificates to various
constant percentages of SPA. The yields set forth in the tables were
calculated by determining the monthly discount rates that, when applied to the
assumed streams of cash flows to be paid on the applicable Classes of
Certificates, would cause the discounted present value of such assumed streams
of cash flows to equal the assumed aggregate purchase prices of such Classes
and converting such monthly rates to corporate bond equivalent rates. Such
calculations do not take into account variations that may occur in the
interest rates at which investors may be able to reinvest funds received by
them as distributions on such Certificates and consequently do not purport to
reflect the return on any investment in any such Class of Certificate when
such reinvestment rates are considered.
SENSITIVITY OF THE INTEREST ONLY CERTIFICATES
As indicated in the table below, the yield to investors in the Class X
Certificates will be sensitive to the rate of principal payments (including
prepayments) of the Non-Discount Mortgage Loans (particularly those with high
Net Mortgage Rates), which generally can be prepaid at any time. On the basis
of the assumptions described below, the yield to maturity on the Class X
Certificates would be approximately 0% if prepayments were to occur at a
constant rate of approximately % SPA. If the actual prepayment rate of the
Non-Discount Mortgage Loans were to exceed the foregoing level for as little
as one month while equaling such level for the remaining months, the investors
in the Class X Certificates would not fully recoup their initial investments.
As described above under "Description of the Certificates -- General,"
the Pass-Through Rate of the Class X Certificates in effect from time to time
is calculated by reference to the Net Mortgage Rates of the Non-Discount
Mortgage Loans. The Non-Discount Mortgage Loans will have higher Net Mortgage
Rates (and higher Mortgage Rates) than the other Mortgage Loans. In general,
mortgage loans with higher mortgage rates tend to prepay at higher rates than
mortgage loans with relatively lower mortgage rates in response to a given
change in market interest rates. As a result, the Non-Discount Mortgage Loans
may prepay at higher rates, thereby reducing the Pass-Through Rate and
Notional Amount of the Class X Certificates.
The information set forth in the following table has been prepared on the
basis of the Structuring Assumptions and on the assumption that the purchase
price of the Class X Certificates (expressed as a percentage of initial
Notional Amount) is as follows:
Class Price*
Class X................. %
- ---------
* The price does not include accrued interest. Accrued interest has
been added to such price in calculating the yields set forth in the
table below.
SENSITIVITY OF THE INTEREST ONLY CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
SPA Prepayment/Assumption
Class 0% % % % % %
- --------- ---------- -------- -------- -------- -------- ------
Class X % % % % % %
It is unlikely that the Non-Discount Mortgage Loans will have the precise
characteristics described herein or that the Non-Discount Mortgage Loans will
all prepay at the same rate until maturity or that all of the Non-Discount
Mortgage Loans will prepay at the same rate or time. As a result of these
factors, the pre-tax yields on the Class X Certificates are likely to differ
from those shown in the table above, even if all of the Mortgage Loans prepay
at the indicated percentages of SPA. No representation is made as to the
actual rate of principal payments on the Mortgage Loans for any period or over
the lives of the Class X Certificates or as to the yield on the Class X
Certificates. Investors must make their own decisions as to the appropriate
prepayment assumptions to be used in deciding whether to purchase the Class X
Certificates.
SENSITIVITY OF THE PRINCIPAL ONLY CERTIFICATES
The Class PO Certificates will be "principal only" certificates and will
not bear interest. As indicated in the table below, a lower than anticipated
rate of principal payments (including prepayments) on the Discount Mortgage
Loans will have a negative effect on the yield to investors in the Principal
Only Certificates.
As described above under "Description of the Certificates -- Principal,"
the Class PO Principal Distribution Amount is calculated by reference to the
principal payments (including prepayments) on the Discount Mortgage Loans. The
Discount Mortgage Loans will have lower Net Mortgage Rates (and lower Mortgage
Rates) than the other Mortgage Loans. In general, mortgage loans with higher
mortgage rates tend to prepay at higher rates than mortgage loans with
relatively lower mortgage rates in response to a given change in market
interest rates. As a result, the Discount Mortgage Loans may prepay at lower
rates, thereby reducing the rate of payment of principal and the resulting
yield of the Class PO Certificates.
The information set forth in the following table has been prepared on the
basis of the Structuring Assumptions and on the assumption that the aggregate
purchase price of the Principal Only Certificates (expressed as a percentage
of initial Class Certificate Balance) is as follows:
Class Price
----- -----
Class PO............. %
SENSITIVITY OF THE PRINCIPAL ONLY CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
SPA Prepayment/Assumption
Class 0% % % % % %
- ----------- ---------- -------- -------- -------- -------- ------
Class PO % % % % % %
Class PO... % % % % % %
It is unlikely that the Discount Mortgage Loans will have the precise
characteristics described herein or that the Discount Mortgage Loans will all
prepay at the same rate until maturity or that all of such Discount Mortgage
Loans will prepay at the same rate or time. As a result of these factors, the
pre-tax yield on the Principal Only Certificates is likely to differ from
those shown in the table above, even if all of the Mortgage Loans prepay at
the indicated percentages of SPA. No representation is made as to the actual
rate of principal payments on the Mortgage Loans for any period or over the
life of the Principal Only Certificates or as to the yield on the Principal
Only Certificates. Investors must make their own decisions as to the
appropriate prepayment assumptions to be used in deciding whether to purchase
the Principal Only Certificates.
ADDITIONAL INFORMATION
The Depositor intends to file certain additional yield tables and other
computational materials with respect to one or more Classes of Underwritten
Certificates with the Commission in a report on Form 8-K to be dated _____,
19__. Such tables and materials were prepared by each Underwriter at the
request of certain prospective investors, based on assumptions provided by,
and satisfying the special requirements of, such prospective investors. Such
tables and assumptions may be based on assumptions that differ from the
Structuring Assumptions. Accordingly, such tables and other materials may not
be relevant to or appropriate for investors other than those specifically
requesting them.
WEIGHTED AVERAGE LIVES OF THE OFFERED CERTIFICATES
The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of the net reduction, if any, of the Class Certificate
Balance of such Certificate on each Distribution Date by the number of years
from the date of issuance to such Distribution Date, (b) summing the results
and (c) dividing the sum by the aggregate amount of the net reductions in
Class Certificate Balance of such Certificate referred to in clause (a).
For a discussion of the factors which may influence the rate of payments
(including prepayments) of the Mortgage Loans, see " -- Prepayment
Considerations and Risks" herein and "Yield and Prepayment Considerations" in
the Prospectus.
In general, the weighted average lives of the Offered Certificates will
be shortened if the level of prepayments of principal of the Mortgage Loans
increases. However, the weighted average lives of the Offered Certificates
will depend upon a variety of other factors, including the timing of changes
in such rate of principal payments and the priority sequence of distributions
of principal of the Classes of Certificates and the distribution of principal
of the Planned Principal Classes and the Targeted Principal Classes in
accordance with the Principal Balance Schedules herein. In particular, if the
amount available for distribution as principal of the Senior Certificates
(other than the Class PO Certificates) on any Distribution Date exceeds the
amount required to reduce the principal balances of the Planned Principal
Classes and the Targeted Principal Classes then entitled to receive a
distribution of principal to their respective scheduled balances as set forth
in the Principal Balance Schedules, such excess principal will be distributed
on the remaining Classes of Senior Certificates (other than the Class PO
Certificates) on such Distribution Date. Conversely, if the amount available
for distribution of principal of the Senior Certificates (other than the Class
PO Certificates) on any Distribution Date is less than the amount so required
to reduce the Planned Principal Classes and the Targeted Principal Classes
then entitled to receive a distribution of principal to their respective
scheduled balances, no principal will be distributed on such other Classes of
Senior Certificates on such Distribution Date. Accordingly, the rate of
principal payments on the Mortgage Loans is expected to have a greater effect
on the weighted average life of the Support Classes and under certain
prepayment scenarios, the weighted average lives of the Targeted Principal
Classes, than on the weighted average lives of the Planned Principal Classes.
The interaction of the foregoing factors may have different effects on
various Classes of Offered Certificates and the effects on any Class may vary
at different times during the life of such Class. Accordingly, no assurance
can be given as to the weighted average life of any Class of Offered
Certificates. Further, to the extent the prices of the Offered Certificates
represent discounts or premiums to their respective original Class Certificate
Balances, variability in the weighted average lives of such Classes of Offered
Certificates will result in variability in the related yields to maturity. For
an example of how the weighted average lives of the Classes of Offered
Certificates may be affected at various constant percentages of SPA, see the
Decrement Tables below.
DECREMENT TABLES
The following tables indicate the percentages of the initial Class
Certificate Balances of the Classes of Offered Certificates (other than the
Notional Amount Certificates) that would be outstanding after each of the
dates shown at various constant percentages of SPA and the corresponding
weighted average lives of such Classes. The tables have been prepared on the
basis of the Structuring Assumptions. It is not likely that (i) the Mortgage
Loans will have the precise characteristics described herein or (ii) all of
the Mortgage Loans will prepay at a constant percentage of SPA. Moreover, the
diverse remaining terms to maturity of the Mortgage Loans could produce slower
or faster principal distributions than indicated in the tables, which have
been prepared using the specified constant percentages of SPA, even if the
remaining term to maturity of the Mortgage Loans is consistent with the
remaining terms to maturity of the Mortgage Loans specified in the Structuring
Assumptions.
PERCENT OF INITIAL CLASS CERTIFICATE
BALANCES OUTSTANDING*
Class A-
--------
<TABLE>
<CAPTION>
Distribution Date 0% % % % % % %
- -------------------- -------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Initial............ % % % % % %
19.............
19.............
19.............
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20.............
20.............
20.............
--- --- --- --- --- ---
Weighted Average
Life (in years)**.......
</TABLE>
Class A-
--------
<TABLE>
<CAPTION>
Distribution Date 0% % % % % % %
- -------------------- -------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Initial............ % % % % % %
19.............
19.............
19.............
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20.............
--- --- --- --- --- ---
Weighted Average
Life (in years)**.......
</TABLE>
- -----------
* Rounded to the nearest whole percentage.
** Determined as specified under "Weighted Average Lives of the Offered
Certificates" herein.
LAST SCHEDULED DISTRIBUTION DATE
The Last Scheduled Distribution Date for each Class of Offered
Certificates is the Distribution Date in _____, 20__, which is the
Distribution Date in the ____ month following the latest scheduled maturity
date for any of the Mortgage Loans. Since the rate of distributions in
reduction of the Class Certificate Balance or Notional Amount of each Class of
Offered Certificates will depend on the rate of payment (including
prepayments) of the Mortgage Loans, the Class Certificate Balance or Notional
Amount of any such Class could be reduced to zero significantly earlier or
later than the Last Scheduled Distribution Date. The rate of payments on the
Mortgage Loans will depend on their particular characteristics, as well as on
prevailing interest rates from time to time and other economic factors, and no
assurance can be given as to the actual payment experience of the Mortgage
Loans. See "Yield, Prepayment and Maturity Considerations -Prepayment
Considerations and Risks" and " -- Weighted Average Lives of the Offered
Certificates" herein and "Yield and Prepayment Considerations" in the
Prospectus.
THE SUBORDINATED CERTIFICATES
The weighted average life of, and the yield to maturity on, the
Subordinated Certificates, in increasing order of their numerical Class
designation, will be progressively more sensitive to the rate and timing of
mortgagor defaults and the severity of ensuing losses on the Mortgage Loans.
If the actual rate and severity of losses on the Mortgage Loans is higher than
those assumed by a holder of a Subordinated Certificate, the actual yield to
maturity of such Certificate may be lower than the yield expected by such
holder based on such assumption. The timing of losses on Mortgage Loans will
also affect an investor's actual yield to maturity, even if the rate of
defaults and severity of losses over the life of the Mortgage Pool are
consistent with an investor's expectations. In general, the earlier a loss
occurs, the greater the effect on an investor's yield to maturity. Realized
Losses on the Mortgage Loans will reduce the Class Certificate Balances of the
applicable Class of Subordinated Certificates to the extent of any losses
allocated thereto (as described under "Description of the Certificates --
Allocation of Losses" herein), without the receipt of cash attributable to
such reduction. In addition, shortfalls in cash available for distributions on
the Subordinated Certificates will result in a reduction in the Class
Certificate Balance of the Class of Subordinated Certificates then outstanding
with the highest numerical Class designation if and to the extent that the
aggregate of the Class Certificate Balances of all Classes of Certificates,
following all distributions and the allocation of Realized Losses on a
Distribution Date, exceeds the Pool Principal Balance as of the Due Date
occurring in the month of such Distribution Date. As a result of such
reductions, less interest will accrue on such Class of Subordinated
Certificates than otherwise would be the case. The yield to maturity of the
Subordinated Certificates will also be affected by the disproportionate
allocation of principal prepayments to the Senior Certificates, Net Interest
Shortfalls, other cash shortfalls in Available Funds and distribution of funds
to Class PO Certificateholders otherwise available for distribution on the
Subordinated Certificates to the extent of reimbursement for Class PO Deferred
Amounts. See "Description of the Certificates -- Allocation of Losses" herein.
If on any Distribution Date, the Applicable Credit Support Percentage for
any Class of Subordinated Certificates is less than its Original Applicable
Credit Support Percentage, all partial principal prepayments and principal
prepayments in full available for distribution on the Subordinated
Certificates will be allocated solely to such Class and all other Classes of
Subordinated Certificates with lower numerical Class designations, thereby
accelerating the amortization thereof relative to that of the Restricted
Classes and reducing the weighted average lives of such Classes of
Subordinated Certificates receiving such distributions. Accelerating the
amortization of the Classes of Subordinated Certificates with lower numerical
Class designations relative to the other Classes of Subordinated Certificates
is intended to preserve the availability of the subordination provided by such
other Classes.
CREDIT ENHANCEMENT
SUBORDINATION OF CERTAIN CLASSES
The rights of the holders of the Subordinated Certificates to receive
distributions with respect to the Mortgage Loans will be subordinated to such
rights of the holders of the Senior Certificates and the rights of the holders
of each Class of Subordinated Certificates (other than the Class B-1
Certificates) to receive such distributions will be further subordinated to
such rights of the Class or Classes of Subordinated Certificates with lower
numerical Class designations, in each case only to the extent described
herein. The subordination of the Subordinated Certificates to the Senior
Certificates and the subordination of the Classes of Subordinated Certificates
with higher numerical Class designations to those with lower numerical Class
designations is intended to increase the likelihood of receipt, respectively,
by the Senior Certificateholders and the holders of Subordinated Certificates
with lower numerical Class designations of the maximum amount to which they
are entitled on any Distribution Date and to provide such holders protection
against Realized Losses, other than Excess Losses. In addition, the
Subordinated Certificates will provide limited protection against Special
Hazard Losses, Bankruptcy Losses and Fraud Losses up to the Special Hazard
Loss Coverage Amount, Bankruptcy Loss Coverage Amount and Fraud Loss Coverage
Amount, respectively, as described below. The applicable Non-PO Percentage of
Realized Losses, other than Excess Losses, will be allocated to the Class of
Subordinated Certificates then outstanding with the highest numerical Class
designation. In addition, the Class Certificate Balance of such Class of
Subordinated Certificates will be reduced by the amount of distributions on
the Class PO Certificates in reimbursement for Class PO Deferred Amounts.
The Subordinated Certificates will provide limited protection to the
Classes of Certificates of higher relative priority against (i) Special Hazard
Losses in an initial amount expected to be up to approximately $____ (the
"Special Hazard Loss Coverage Amount"), (ii) Bankruptcy Losses in an initial
amount expected to be up to approximately $____ (the "Bankruptcy Loss Coverage
Amount") and (iii) Fraud Losses in an initial amount expected to be up to
approximately $_____ (the "Fraud Loss Coverage Amount").
The Special Hazard Loss Coverage Amount will be reduced, from time to
time, to be an amount equal on any Distribution Date to the lesser of (a) the
greatest of (i) __% of the aggregate of the principal balances of the Mortgage
Loans, (ii) _____ the principal balance of the largest Mortgage Loan and (iii)
the aggregate principal balances of the Mortgage Loans secured by Mortgaged
Properties located in the single California postal zip code area having the
highest aggregate principal balance of any such zip code area and (b) the
Special Hazard Loss Coverage Amount as of the Closing Date less the amount, if
any, of losses attributable to Special Hazard Mortgage Loans incurred since
the Closing Date. [All principal balances for the purpose of this definition
will be calculated as of the first day of the month preceding such
Distribution Date after giving effect to scheduled installments of principal
and interest on the Mortgage Loans then due, whether or not paid.]
The Fraud Loss Coverage Amount will be reduced, from time to time, by the
amount of Fraud Losses allocated to the Certificates. In addition, on each
anniversary of the Cut-off Date, the Fraud Loss Coverage Amount will be
reduced as follows: (a) on the _____, ______, _____ and ______ anniversaries
of the Cut-off Date, to an amount equal to the lesser of (i) __% of the then
current Pool Principal Balance and (ii) the excess of the Fraud Loss Coverage
Amount as of the preceding anniversary of the Cut-off Date over the cumulative
amount of Fraud Losses allocated to the Certificates since such preceding
anniversary and (b) on the _____ anniversary of the Cut-off Date, to zero.
The Bankruptcy Loss Coverage Amount will be reduced, from time to time,
by the amount of Bankruptcy Losses allocated to the Certificates.
The amount of coverage provided by the Subordinated Certificates for
Special Hazard Losses, Bankruptcy Losses and Fraud Losses may be cancelled or
reduced from time to time for each of the risks covered, provided that the
then current ratings of the Certificates assigned by the Rating Agencies are
not adversely affected thereby without regard to the guaranty provided by the
Policy. In addition, a reserve fund or other form of credit enhancement may be
substituted for the protection provided by the Subordinated Certificates for
Special Hazard Losses, Bankruptcy Losses and Fraud Losses.
As used herein, a "Deficient Valuation" is a bankruptcy proceeding
whereby the bankruptcy court may establish the value of the Mortgaged Property
at an amount less than the then outstanding principal balance of the Mortgage
Loan secured by such Mortgaged Property or may reduce the outstanding
principal balance of a Mortgage Loan. In the case of a reduction in the value
of the related Mortgaged Property, the amount of the secured debt could be
reduced to such value, and the holder of such Mortgage Loan thus would become
an unsecured creditor to the extent the outstanding principal balance of such
Mortgage Loan exceeds the value so assigned to the Mortgaged Property by the
bankruptcy court. In addition, certain other modifications of the terms of a
Mortgage Loan can result from a bankruptcy proceeding, including the reduction
(a "Debt Service Reduction") of the amount of the monthly payment on the
related Mortgage Loan. Notwithstanding the foregoing, no such occurrence shall
be considered a Debt Service Reduction or Deficient Valuation so long as the
Master Servicer is pursuing any other remedies that may be available with
respect to the related Mortgage Loan and (i) such Mortgage Loan is not in
default with respect to payment due thereunder or (ii) scheduled monthly
[payments of principal and interest] are being advanced by the Master Servicer
without giving effect to any Debt Service Reduction or Deficient Valuation.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the sale of the Certificates
against the purchase price of the Mortgage Loans.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, an election will be made to treat the
Trust Fund as a REMIC. The Regular Certificates will constitute the regular
interests in the REMIC. The Residual Certificates will constitute the sole
class of "residual interest" in the REMIC.
The Regular Certificates generally will be treated as debt instruments
issued by the REMIC for federal income tax purposes. Income on the Regular
Certificates must be reported under an accrual method of accounting.
The Principal Only Certificates will be treated for federal income tax
purposes as having been issued with an amount of Original Issue Discount
("OID") equal to the difference between their principal balance and their
issue price. Although the tax treatment is not entirely certain, Notional
Amount Certificates will be treated as having been issued with OID for federal
income tax purposes equal to the excess of all expected payments of interest
on such Certificates over their issue price. Although unclear, a holder of a
Notional Amount Certificate may be entitled to deduct a loss to the extent
that its remaining basis exceeds the maximum amount of future payments to
which such Certificateholder would be entitled if there were no further
prepayments of the Mortgage Loans. The remaining Classes of Regular
Certificates, depending on their respective issue prices (as described in the
Prospectus under "Certain Federal Income Tax Consequences"), may be treated as
having been issued with OID for federal income tax purposes. For purposes of
determining the amount and rate of accrual of OID and market discount, the
Trust Fund intends to assume that there will be prepayments on the Mortgage
Loans at a rate equal to ___% SPA (the "Prepayment Assumption"). No
representation is made as to whether the Mortgage Loans will prepay at the
foregoing rate or any other rate. See "Yield, Prepayment and Maturity
Considerations" herein and "Certain Federal Income Tax Consequences" in the
Prospectus. Computing accruals of OID in the manner described in the
Prospectus may (depending on the actual rate of prepayments during the accrual
period) result in the accrual of negative amounts of OID on the Certificates
issued with OID in an accrual period. Holders will be entitled to offset
negative accruals of OID only against future OID accrual on such Certificates.
If the holders of any Regular Certificates are treated as holding such
Certificates at a premium, such holders should consult their tax advisors
regarding the election to amortize bond premium and the method to be employed.
As is described more fully under "Certain Federal Income Tax
Consequences" in the Prospectus, the Offered Certificates will represent
qualifying assets under Sections 593(d), 856(c)(5)(A) and 7701(a)(19)(C) of
the Code, and net interest income attributable to the Offered Certificates
will be "interest on obligations secured by mortgages on real property" within
the meaning of Section 856(c)(3)(B) of the Code, to the extent the assets of
the Trust Fund are assets described in such sections. The Regular Certificates
will represent qualifying assets under Section 860G(a)(3) if acquired by a
REMIC within the prescribed time periods of the Code.
The holders of the Residual Certificates must include the taxable income
of the REMIC in their federal taxable income. The resulting tax liability of
the holders may exceed cash distributions to such holders during certain
periods. All or a portion of the taxable income from a Residual Certificate
recognized by a holder may be treated as "excess inclusion" income, which with
limited exceptions, is subject to U.S. federal income tax.
Prospective purchasers of a Residual Certificate should consider
carefully the tax consequences of an investment in Residual Certificates
discussed in the Prospectus and should consult their own tax advisors with
respect to those consequences. See "Certain Federal Income Tax Consequences --
REMIC Certificates -b. Residual Certificates" in the Prospectus. Specifically,
prospective holders of Residual Certificates should consult their tax advisors
regarding whether, at the time of acquisition, a Residual Certificate will be
treated as a "noneconomic" residual interest, a "non-significant value"
residual interest and a "tax avoidance potential" residual interest. See
"Certain Federal Income Tax Consequences -- Tax-Related Restrictions on
Transfer of Residual Certificates -- Noneconomic Residual Certificates --
Residual Certificates -- Mark to Market Rules -- Residual Certificates --
Excess Inclusions and -- Tax-Related Restrictions on Transfers of Residual
Certificates -- Foreign Investors" in the Prospectus. Additionally, for
information regarding Prohibited Transactions and Treatment of Realized
Losses, see "Certain Federal Income Tax Consequences -- Prohibited
Transactions and Other Taxes" and " -- REMIC Certificates -- a. Regular
Certificates -Treatment of Realized Losses" in the Prospectus.
ERISA CONSIDERATIONS
Any Plan fiduciary which proposes to cause a Plan (as defined below) to
acquire any of the Offered Certificates should consult with its counsel with
respect to the potential consequences under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and/or the Code, of the Plan's
acquisition and ownership of such Certificates. See "ERISA Considerations" in
the Prospectus. Section 406 of ERISA prohibits "parties in interest" with
respect to an employee benefit plan subject to ERISA and/or the excise tax
provisions set forth under Section 4975 of the Code (a "Plan") from engaging
in certain transactions involving such Plan and its assets unless a statutory
or administrative exemption applies to the transaction. Section 4975 of the
Code imposes certain excise taxes on prohibited transactions involving Plans
and other arrangements (including, but not limited to, individual retirement
accounts) described under that Section; ERISA authorizes the imposition of
civil penalties for prohibited transactions involving Plans not subject to the
requirements of Section 4975 of the Code.
Certain employee benefit plans, including governmental plans and certain
church plans, are not subject to ERISA's requirements. Accordingly, assets of
such plans may be invested in the Offered Certificates without regard to the
ERISA considerations described herein and in the Prospectus, subject to the
provisions of other applicable federal and state law. Any such plan that is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the
Code may nonetheless be subject to the prohibited transaction rules set forth
in Section 503 of the Code.
Except as noted above, 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. A fiduciary that
decides to invest the assets of a Plan in the Offered Certificates should
consider, among other factors, the extreme sensitivity of the investment to
the rate of principal payments (including prepayments) on the Mortgage Loans.
The U.S. Department of Labor has granted an individual administrative
exemption to ____(Prohibited Transaction Exemption ____, Exemption Application
No. D-___ , Fed. Reg.____ (__)(___)(the "Exemption") from certain of the
prohibited transaction rules of ERISA and the related excise tax provisions of
Section 4975 of the Code 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 Exemption. The Exemption applies to
mortgage loans such as the Mortgage Loans in the Trust Fund.
For a general description of the Exemption and the conditions that must
be satisfied for the Exemption to apply, see "ERISA Considerations" in the
Prospectus.
It is expected that the Exemption will apply to the acquisition and
holding by Plans of the Senior Certificates (other than the Class , Class PO,
Class X and Class A-R Certificates) and that all conditions of the Exemption
other than those within the control of the investors will be met. In addition,
as of the date hereof, there is no single Mortgagor that is the obligor on
five percent (5%) of the Mortgage Loans included in the Trust Fund by
aggregate unamortized principal balance of the assets of the Trust Fund.
Because the Class , Class PO and Class X Certificates are not being purchased
by either Underwriter, such Classes of Certificates do not currently meet the
requirements of the Exemption or any comparable individual administrative
exemption granted to either Underwriter. Consequently, the sale or exchange of
the Class , Class PO and Class X Certificates may be made only under the
conditions set forth for the Class B- , Class B- and Class B- Certificates
below.
Because the characteristics of the Class B- , Class B- , Class B- and
Class A-R Certificates may not meet the requirements of PTCE 83-1, the
Exemption or any other issued exemption under ERISA, the purchase and holding
of the Class B- , Class B- , Class B- and Class A-R Certificates by a Plan or
by individual retirement accounts or other plans subject to Section 4975 of
the Code may result in prohibited transactions or the imposition of excise
taxes or civil penalties. Consequently, transfers of the Class B- , Class B- ,
Class B- and Class A-R Certificates will not be registered by the Trustee
unless the Trustee receives: (i) a representation from the transferee of such
Certificate, acceptable to and in form and substance satisfactory to the
Trustee, to the effect that such transferee is not an employee benefit plan
subject to Section 406 of ERISA or a plan or arrangement subject to Section
4975 of the Code, nor a person acting on behalf of any such plan or
arrangement nor using the assets of any such plan or arrangement to effect
such transfer; (ii) if the purchaser is an insurance company, a representation
that the purchaser is an insurance company which is purchasing such
Certificates with funds contained in an "insurance company general account"
(as such term is defined in Section V(e) of Prohibited Transaction Class
Exemption 95-60 ("PTCE 95-60")) and that the purchase and holding of such
Certificates are covered under PTCE 95-60; or (iii) an opinion of counsel
satisfactory to the Trustee that the purchase or holding of such Certificate
by a Plan, any person acting on behalf of a Plan or using such Plan's assets,
will not result in the assets of the Trust Fund being deemed to be "plan
assets" and subject to the prohibited transaction requirements of ERISA and
the Code and will not subject the Trustee to any obligation in addition to
those undertaken in the Agreement. Such representation as described above
shall be deemed to have been made to the Trustee by the transferee's
acceptance of a Class B- , Class B- or Class B- Certificate. In the event that
such representation is violated, or any attempt to transfer to a plan or
person acting on behalf of a Plan or using such Plan's assets is attempted
without such opinion of counsel, such attempted transfer or acquisition shall
be void and of no effect.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of PTCE 83-1
described in the Prospectus and the Exemption, and the potential consequences
in their specific circumstances, prior to making an investment in any of the
Offered Certificates. Moreover, each Plan fiduciary should determine whether
under the general fiduciary standards of investment prudence and
diversification, an investment in any of the Offered 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.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement between the Depositor and the Underwriters, the Depositor has agreed
to sell to the Underwriters, and each Underwriter has agreed to purchase from
the Depositor the respective Classes of Underwritten Certificates indicated on
the cover page hereof to be purchased by it. Distribution of the Underwritten
Certificates will be made by the respective Underwriters in each case from
time to time in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. In connection with the sale of the
Underwritten Certificates, the Underwriters may be deemed to have received
compensation from the Depositor in the form of underwriting discounts.
Each Underwriter intends to make a secondary market in the Classes of
Underwritten Certificates being purchased by it, but no Underwriter has any
obligation to do so. There can be no assurance that a secondary market for the
Offered Certificates will develop or, if it does develop, that it will
continue or that it will provide Certificateholders with a sufficient level of
liquidity of investment.
The Depositor has agreed to indemnify the Underwriters against, or make
contributions to the Underwriters with respect to, certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
The Class X and Class PO Certificates may be offered by the Depositor
from time to time directly or through underwriters or agents (either of which
may include IndyMac Securities Corporation, an affiliate of the Depositor and
the Master Servicer) in one or more negotiated transactions, or otherwise, at
varying prices to be determined at the time of sale, in one or more separate
transactions at prices to be negotiated at the time of each sale. Proceeds to
the Depositor from any sale of the Class X or Class PO Certificates will equal
the purchase price paid by the purchaser thereof, net of any expenses payable
by the Depositor and any compensation payable to any such underwriter or
agent. Any underwriters or agents that participate in the distribution of the
Class X or Class PO Certificates may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933 and any profit on the sale of such
Certificates by them and any discounts, commissions, concessions or other
compensation received by any such underwriter or agent may be deemed to be
underwriting discounts and commissions under such Act. [THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS ARE TO BE USED BY COUNTRYWIDE SECURITIES
CORPORATION, AN AFFILIATE OF INDYMAC ABS, INC. AND INDYMAC, INC., IN
CONNECTION WITH OFFERS AND SALES RELATED TO MARKET MAKING TRANSACTIONS IN THE
OFFERED CERTIFICATES IN WHICH COUNTRYWIDE SECURITIES CORPORATION ACTS AS
PRINCIPAL. COUNTRYWIDE SECURITIES CORPORATION MAY ALSO ACT AS AGENT IN SUCH
TRANSACTIONS. SALES WILL BE MADE AT PRICES RELATED TO THE PREVAILING PRICES AT
THE TIME OF SALE.]
LEGAL MATTERS
The validity of the Certificates, including certain federal income tax
consequences with respect thereto, will be passed upon for the Depositor by
Brown & Wood LLP, New York, New York. _________________, ________, ________,
will pass upon certain legal matters on behalf of the Underwriters.
RATINGS
It is a condition to the issuance of the Senior Certificates that they be
rated ___ by ____ ("____") and, ____ by ____ ("____" and, together with
______, the "Rating Agencies"). It is a condition to the issuance of the Class
B- , Class B- and Class B- Certificates that they be rated at least ______,
_____ and ____, respectively, by _____.
The ratings assigned by ____ to mortgage pass-through certificates
address the likelihood of the receipt of all distributions on the mortgage
loans by the related certificateholders under the agreements pursuant to which
such certificates are issued. ____'s ratings take into consideration the
credit quality of the related mortgage pool, including any credit support
providers, structural and legal aspects associated with such certificates, and
the extent to which the payment stream on the mortgage pool is adequate to
make the payments required by such certificates. ____ ratings on such
certificates do not, however, constitute a statement regarding frequency of
payments of the mortgage loans.
The ratings assigned by _____ to mortgage pass-through certificates
address the likelihood of the receipt of all distributions on the mortgage
loans by the related certificateholders under the agreements pursuant to which
such certificates are issued. _____'s ratings take into consideration the
credit quality of the related mortgage pool, including any credit support
providers, structural and legal aspects associated with such certificates, and
the extent to which the payment stream on such mortgage pool is adequate to
make payments required by such certificates. ____'s ratings on such
certificates do not, however, constitute a statement regarding frequency of
prepayments on the related mortgage loans.
The ratings of the Rating Agencies do not address the possibility that,
as a result of principal prepayments, Certificateholders may receive a lower
than anticipated yield.
The security ratings assigned to the Offered Certificates should be
evaluated independently from similar ratings on other types of securities. A
security rating is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time by the Rating Agencies.
The Depositor has not requested a rating of the Offered Certificates by
any rating agency other than the Rating Agencies; there can be no assurance,
however, as to whether any other rating agency will rate the Offered
Certificates or, if it does, what rating would be assigned by such other
rating agency. The rating assigned by such other rating agency to the Offered
Certificates could be lower than the respective ratings assigned by the Rating
Agencies.
<TABLE>
<S> <C>
=================================================================== ============================================================
No person has been authorized to give any information or to
make any representations other than those contained in this
Prospectus Supplement or the Prospectus and, if given or made,
such information or representations must not be relied upon.
This Prospectus Supplement and the Prospectus do not constitute
an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby, nor an offer of Offered Certificates
in any state or jurisdiction in which, or to any person to whom,
such offer would be unlawful. The delivery of this Prospectus
Supplement or the Prospectus at any time does not imply that the
information contained herein or therein is correct as of any
time subsequent to its date; however, if any material change
occurs while this Prospectus Supplement or Prospectus is
required by law to be delivered, this Prospectus Supplement or
the Prospectus will be amended or supplemented accordingly.
--------------
TABLE OF CONTENTS
PAGE $[_____________]
---- (Approximate)
PROSPECTUS SUPPLEMENT INDYMAC ABS, INC.
Depositor
Summary Of Terms........................................ S-3
Risk Factors............................................. S-11 [INDYMAC, INC.]
The Mortgage Pool........................................ S-14 Seller and Master Servicer
Servicing of Mortgage Loans.............................. S-21
Description of the Certificates.......................... S-24 MORTGAGE PASS-THROUGH
Yield, Prepayment and Maturity Considerations............ S-34 CERTIFICATES,
Credit Enhancement....................................... S-41 SERIES 199_ - _
Use of Proceeds.......................................... S-43
Certain Federal Income Tax Consequences.................. S-43 -------------------------
Erisa Considerations..................................... S-44 PROSPECTUS SUPPLEMENT
Method of Distribution................................... S-45 [_________, 199_]
Legal Matters............................................ S-46 -------------------------
Ratings.................................................. S-46
PROSPECTUS
Prospectus Supplement or Current Report on Form 8-K....... 2
Incorporation of Certain Document by Reference............ 2
Available Information..................................... 2
Reports to Securityholders................................ 3
Summary of Terms.......................................... 4
Risk Factors ............................................. 11
The Trust Fund ........................................... 16
Use of Proceeds .......................................... 20
The Depositor ............................................ 20
Loan Program ............................................. 21
Description of the Securities ............................ 23
Credit Enhancement ....................................... 39
Yield and Prepayment Considerations ...................... 43
The Agreements............................................ 45
Certain Legal Aspects of the Loans ....................... 61
Certain Federal Income Tax Consequences .................. 75
State Tax Considerations ................................. 94
ERISA Considerations ..................................... 94
Legal Investment ......................................... 99
Method of Distribution ................................... 99
Legal Matters ............................................ 100
Financial Information..................................... 100
Rating ................................................... 100
=================================================================== ============================================================
</TABLE>
SUBJECT TO COMPLETION, DATED _______, 1998
PROSPECTUS SUPPLEMENT
(To Prospectus dated ___________, 1998)
$-----------
INDYMAC ABS, INC.
DEPOSITOR
[INDYMAC, INC.]
SELLER AND MASTER SERVICER
HOME EQUITY LOAN TRUST 199__
$___________ HOME EQUITY LOAN ASSET BACKED NOTES, SERIES 199__-__
$________ HOME EQUITY LOAN ASSET BACKED CERTIFICATES, SERIES 199__-__
The Home Equity Loan Trust 199__ (the "Trust") will be formed
pursuant to a trust agreement to be dated as of ______, 199__ (the "Trust
Agreement") and entered into by IndyMac ABS, Inc. (the "Depositor"),
________________ and _____________, as owner trustee (the "Owner Trustee").
The Trust will issue $___________ aggregate principal amount of Home Equity
Loan Asset Backed Notes (the "Notes"). The Notes will be issued pursuant to an
indenture to be dated as of __________ __, 199__ (the "Indenture"), between
the Trust and ____________, as indenture trustee (the "Indenture Trustee").
The Trust will also issue $____________ aggregate principal amount of Home
Equity Loan Asset Backed Certificates, Series 199_-_ (the "Certificates" and,
together with the Notes, the "Securities").
The property of the Trust will include a pool of [(I)] [adjustable
rate] home equity revolving credit line loans made or to be made in the future
(the "Mortgage Loans") under certain home equity revolving credit line loan
agreements [AND (II) RETAIL INSTALLMENT SALES CONTRACTS AND PROMISSORY NOTES
FINANCING HOME IMPROVEMENTS (THE "HOME IMPROVEMENT CONTRACTS"). The Mortgage
Loans AND THE HOME IMPROVEMENT CONTRACTS ARE SOMETIMES REFERRED TO
COLLECTIVELY AS THE "LOANS"]. THE MORTGAGE LOANS [LOANS] are secured primarily
by first and second deeds of trust or mortgages on one- to four-family
residential properties. [In addition, the Securities will have the benefit of
an irrevocable and unconditional limited financial guaranty insurance policy
(the "Policy") issued by ______________ (the "Certificate Insurer") covering
[describe].]
Distributions of principal and interest on the Notes will be made on
the _________ day of each month or, if such date is not a Business Day, then
on the succeeding Business Day (each a "Distribution Date"), commencing on
________, 199_ to the extent described herein. Interest will accrue on the
Notes at a rate (the "Note Rate") equal to ___% per annum from the Closing
Date to the first Distribution Date and at [a floating rate equal to [LIBOR]
(as defined herein) plus ___% per annum] [___% per annum] thereafter.
The Certificates will represent fractional undivided interests in the
Trust. Distribution of principal and interest on the Certificates will be made
on each Distribution Date to the extent described herein. Interest will accrue
on the Certificates at a rate (the "Pass-Through Rate") equal to ___% per
annum from the Closing Date to the first Distribution Date and at [a floating
rate equal to [LIBOR] plus ___% per annum] [___% per annum] thereafter.
Payments of interest and principal on the Notes will have equal
priority with payments of principal and interest (and will be made pro rata)
on the Certificates.
[THE UNDERWRITER INTENDS TO MAKE A SECONDARY MARKET IN THE SECURITIES
BUT HAS NO OBLIGATION TO DO SO. There is currently no market for the
Securities offered hereby and there can be no assurance that such a market
will develop or if it does develop that it will continue OR THAT IT WILL
PROVIDE SECURITYHOLDERS WITH A SUFFICIENT LEVEL OF LIQUIDITY OF INVESTMENT.
See "Risk Factors" herein.]
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET
FORTH UNDER "RISK FACTORS" ON PAGE S-10 HEREIN AND
ON PAGE 16 IN THE ACCOMPANYING PROSPECTUS.
---------------------
THE SECURITIES REPRESENT INTERESTS IN OR OBLIGATIONS OF THE TRUST ONLY
THE SECURITIES REPRESENT INTERESTS IN OR OBLIGATIONS OF THE TRUST ONLY
AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR,
OWNER TRUSTEE, INDENTURE TRUSTEE OR ANY AFFILIATE THEREOF,
EXCEPT TO THE EXTENT PROVIDED HEREIN. THE SECURITIES
ARE NOT 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. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
[The Securities offered hereby will be purchased by [______] (the
"Underwriter") from the Depositor and will, in each case, be offered by the
Underwriter from time to time to the public in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. The
aggregate proceeds to the Depositor from the sale of the Notes are expected to
be $__________ and from the sale of the Certificates are expected to be
$__________ before deducting expenses payable by the Depositor of $_______.]
[THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS ARE TO BE USED BY COUNTRYWIDE
SECURITIES CORPORATION, AN AFFILIATE OF INDYMAC ABS, INC. AND INDYMAC, INC.,
IN CONNECTION WITH OFFERS AND SALES RELATED TO MARKET MAKING TRANSACTIONS IN
THE SECURITIES IN WHICH COUNTRYWIDE SECURITIES CORPORATION ACTS AS PRINCIPAL.
COUNTRYWIDE SECURITIES CORPORATION MAY ALSO ACT AS AGENT IN SUCH TRANSACTIONS.
SALES WILL BE MADE AT PRICES RELATED TO THE PREVAILING PRICES AT THE TIME OF
SALE.]
[The Securities are offered subject to prior sale and subject to the
Underwriters' right to reject orders in whole or in part. It is expected that
the Notes will be delivered in book-entry form through the facilities of The
Depository Trust Company, [Cedel, S.A. and the Euroclear System] on or about
_______, 199_.
The Securities will be offered in [Europe and] the United States of America.]
- --------------------------------------------------------------------------------
[Until ninety days after the date of this Prospectus Supplement, all
dealers effecting transactions in the Securities, whether or not participating
in this distribution, may be required to deliver a Prospectus Supplement and
Prospectus to investors. This is in addition to the obligation of dealers
acting as Underwriters to deliver a Prospectus Supplement and Prospectus with
respect to their unsold allotments or subscriptions.]
- --------------------------------------------------------------------------------
[Each Series of Securities offered hereby constitute part of a
separate Series of Asset Backed Securities being offered by the Underwriter
from time to time pursuant to the Prospectus dated ____________, 199_. This
Prospectus Supplement does not contain complete information about the offering
of the Securities. Additional information is contained in the Prospectus and
investors are urged to read both this Prospectus Supplement and the Prospectus
in full. Sales of the Securities may not be consummated unless the purchaser
has received both this Prospectus Supplement and the Prospectus.]
- --------------------------------------------------------------------------------
[UNDERWRITER]
_______________, 199__
SUMMARY OF TERMS
The following summary of certain pertinent information is qualified
in its entirety by reference to the detailed information appearing elsewhere
in this Prospectus Supplement and in the accompanying Prospectus. Certain
capitalized terms used herein are defined elsewhere in the Prospectus
Supplement or in the Prospectus. [TO THE EXTENT STATEMENTS CONTAINED HEREIN DO
NOT RELATE TO HISTORICAL OR CURRENT INFORMATION, THIS PROSPECTUS SUPPLEMENT
MAY BE DEEMED TO CONSIST OF FORWARD-LOOKING STATEMENTS. ANY SUCH STATEMENTS,
WHICH MAY INCLUDE BUT ARE NOT LIMITED TO STATEMENTS CONTAINED IN "RISK
FACTORS" AND "PREPAYMENT AND YIELD CONSIDERATIONS," INHERENTLY ARE SUBJECT TO
A VARIETY OF RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE PROJECTED. SUCH RISKS AND UNCERTAINTIES INCLUDE, AMONG
OTHERS, GENERAL ECONOMIC AND BUSINESS CONDITIONS, COMPETITION, CHANGES IN
FOREIGN POLITICAL, SOCIAL AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND
COMPLIANCE WITH GOVERNMENTAL REGULATIONS, CUSTOMER PREFERENCES AND VARIOUS
OTHER MATTERS, MANY OF WHICH ARE BEYOND THE DEPOSITOR'S CONTROL. THESE
FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS PROSPECTUS
SUPPLEMENT. AS A CONSEQUENCE, NO ASSURANCE CAN BE GIVEN AS TO THE ACTUAL
PAYMENTS ON, OR THE YIELD OF, ANY CLASS OF SECURITIES. THE DEPOSITOR EXPRESSLY
DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO RELEASE PUBLICLY ANY UPDATES OR
REVISIONS TO ANY FORWARD-LOOKING STATEMENT CONTAINED HEREIN TO REFLECT ANY
CHANGE IN THE DEPOSITOR'S EXPECTATIONS WITH REGARD THERETO OR ANY CHANGE IN
EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED.]
Title of Securities.....................
Home Equity Loan Asset Backed
Notes, Series 199__-__(the "Notes")
and Home Equity Loan Asset Backed
Certificates, Series 199__-__ (the
"Certificates" and, together with
the Notes, the "Securities").
Securities Offered......................
All of the Securities, including
the Class ___, Class __ and Class
__ Notes and the Class __, Class __
and Class __ Certificates. Each
Security represents the right to
receive payments of interest at the
variable rate described below,
payable monthly, and payments of
principal at such time and to the
extent provided below.
Trust...................................
Home Equity Loan Trust 199_-_ (the
"Trust" or the "Issuer"), a
Delaware business trust established
pursuant to the Trust Agreement (as
defined herein), dated as of ___,
199_ (the "Cut-off Date"). The
property of the Trust will include:
a pool of [adjustable rate] home
equity revolving credit line loans
made or to be made in the future
(the "Mortgage Loans"), under
certain home equity revolving
credit line loan agreements (the
"Credit Line Agreements") and
secured by either first or second
mortgages on residential properties
that are primarily one- to
four-family properties (the
"Mortgaged Properties") [AND RETAIL
INSTALLMENT SALES CONTRACTS AND
PROMISSORY NOTES FINANCING HOME
IMPROVEMENTS (THE "HOME IMPROVEMENT
CONTRACTS")]; the collections in
respect of the Mortgage Loans
[LOAN] [received] after the Cut-off
Date (exclusive of payments in
respect of accrued interest [due]
on or prior to the Cut-off Date or
due in the month of _____________);
property that secured a Mortgage
Loan [LOAN] which has been acquired
by foreclosure or deed in lieu of
foreclosure; [an irrevocable and
unconditional limited financial
guaranty insurance policy (the
"Policy")]; an assignment of the
Depositor's rights under the
Purchase Agreement (as defined
herein); rights under certain
hazard insurance policies covering
the Mortgaged Properties; and
certain other property, as
described more fully herein.
The Trust will include the unpaid
principal balance of each Mortgage
Loan [LOAN] as of the Cut-off Date
(the "Cut-off Date Principal
Balance") plus any additions TO THE
PRINCIPAL BALANCE OF THE MORTGAGE
LOANS as a result of new advances
made pursuant to the applicable
Credit Line Agreement (the
"Additional Balances") during the
life of the Trust. With respect to
any date, the "Pool Balance" will
be equal to the aggregate of the
Principal Balances of all Mortgage
Loans [LOAN] as of such date. The
"Principal Balance" of a Loan
(other than a Liquidated Loan) on
any day is equal to its Cut-off
Date Principal Balance, plus [IF
SUCH LOAN IS A MORTGAGE LOAN] (i)
any Additional Balances in respect
of such Mortgage Loan, minus (ii)
all collections credited against
the Principal Balance of such
Mortgage Loan in accordance with
the related Credit Line Agreement
prior to such day. The Principal
Balance of a Liquidated Loan after
the final recovery of related
Liquidation Proceeds shall be zero.
Indenture...............................
The Notes will be issued pursuant
to an indenture dated as of
_________, 199_ (the "Indenture")
between the Trust and the Indenture
Trustee. The Indenture Trustee will
allocate distributions of principal
and interest to holders of the
Notes (the "Noteholders") in
accordance with the Indenture.
Trust Agreement.........................
Pursuant to a trust agreement dated
as of ________ 1, 199_ (the "Trust
Agreement"), among the Depositor,
________ and the Owner Trustee, the
Trust will issue the Certificates
in an initial aggregate amount of
$__________. The Certificates will
represent fractional undivided
interests in the Trust.
Depositor...............................
IndyMac ABS, Inc. a Delaware
corporation and a limited purpose
finance subsidiary of IndyMac,
Inc., a Delaware corporation.
Master Servicer ........................
[IndyMac, Inc. ("IndyMac") and, in
its capacity as Master Servicer of
the Mortgage Loans, the "Master
Servicer".
Indenture Trustee.......................
_______________ (the "Indenture
Trustee").
Owner Trustee...........................
_______________ (the "Owner
Trustee").
Cut-off Date............................
__________ 1, 199__.
Closing Date............................
On or about __________ __, 199__.
Determination Date......................
The ___ business day, but no later
than the ___ calendar day, of each
month (the "Determination Date").
The Mortgage Loans [LOANS]..............
The Mortgage Loans [LOANS] are
secured by first and second
mortgages on Mortgaged Properties.
The Mortgage Loans [LOANS] were
acquired in the normal course of
its business by [IndyMac] (in such
capacity, the "Seller"). On the
Closing Date, [IndyMac] will sell
the Mortgage Loans [LOANS] to the
Depositor, pursuant to a purchase
agreement (the "Purchase
Agreement"). The aggregate
Principal Balance of the Mortgage
LOANS [LOANS] as of the Cut-off
Date is $___________ (the "Cut-off
Date Pool Principal Balance").
The percentage of the Cut-off Date
Principal Balance of the Mortgage
Loans secured primarily by
Mortgaged Properties located in the
states of [__________, _________,
_________, _______, ______ and
________] is approximately ____%,
____%, ____%, ____%, ____% and
____%, respectively. The "Combined
Loan-to-Value Ratio" of each
Mortgage Loan is the ratio of (A)
the sum of (i) the maximum amount
the borrower was permitted to draw
down under the related Credit Line
Agreement (the "Credit Limit") and
(ii) the amounts of any related
senior mortgage loans (computed as
of the date of origination of each
such Mortgage Loans) to (B) the
lesser of (i) the appraised value
of the Mortgaged Property or (ii)
in the case of a Mortgaged Property
purchased within one year of the
origination of the related Mortgage
Loan, the purchase price of such
Mortgaged Property. As of the Cut-
off Date the Combined Loan-to-Value
Ratios ranged from ____% to ______%
and, as of the Cut-off Date, the
weighted average Combined
Loan-to-Value Ratio of the Mortgage
Loans was approximately ____%.
Interest on each Mortgage Loan is
payable monthly and computed on the
related daily outstanding Principal
Balance for each day in the billing
cycle at a variable rate per annum
(the "Loan Rate") equal at any time
(subject to maximum rates, as
described herein under "The Home
Equity Lending Program--Mortgage
Loan Terms," and further subject to
applicable usury limitations) to
the sum of [(i) the highest prime
rate published in the "Money Rates"
section of The Wall Street Journal]
and (ii) a Margin within the range
of ___% to ____%. As of the Cut-off
Date, the weighted average Margin
was approximately ___%. Loan Rates
are adjusted monthly on the first
business day of the calendar month
preceding the Due Date. As to each
Mortgage Loan, the "Due Date" is
the ___ day of each month. The
Cut-off Date Principal Balances
ranged from zero to $____ and
averaged approximately $___. Credit
Limits under the Mortgage Loans as
of the Cut-off Date ranged from
$___ to $___ and averaged
approximately $___ . Each Mortgage
Loan was originated in the period
from __________ __, 19__ to
__________ __, 19__. As of the
Cut-off Date, the maximum Credit
Limit Utilization Rate (as defined
herein) was 100% and the weighted
average Credit Limit Utilization
Rate was approximately ____%. As of
the Cut-off Date, approximately
____% by Cut-off Date Principal
Balance of the Mortgage Loans
represented first liens on the
related Mortgaged Properties, while
approximately ____% of the Mortgage
Loans represented second liens. As
of the Cut-off Date, the Mortgage
Loans had remaining terms to
scheduled maturity ranging from ___
months to ____ months and had a
weighted average of approximately
___ months. See "The Home Equity
Lending Program" and "Description
of the Mortgage Loans" herein.
Distribution Date....................... The ____ day of each month or, if
such day is not a Business Day, the
next succeeding Business Day,
commencing with _______, 199_. A
"Business Day" is any day other
than a Saturday or Sunday or
another day on which banking
institutions in New York, New York
[and ____________] are authorized
or obligated by law, regulations or
executive order to be closed.
Final Scheduled
Distribution Dates...................... With respect to the Certificates,
___________________. To the extent
not previously paid, the Security
Principal Balance of the Notes will
be due on the Distribution Date in
_______, 199_. Failure to pay the
full principal balance of Notes on
or before the applicable final
scheduled payment dates constitutes
an Event of Default under the
Indenture.
Record Date............................. The last day preceding a
Distribution Date or, if the
Securities are no longer Book-Entry
Securities, the last day of the
month preceding a Distribution
Date.
Collections............................. All collections on the Mortgage
Loans will be allocated by the
Master Servicer in accordance with
the Loan Agreements between amounts
collected in respect of interest
("Interest Collections") and
amounts collected in respect of
principal ("Principal Collections"
and collectively with Interest
Collections, the "Collections").
The Master Servicer will generally
deposit Collections distributable
to the Holders in an account
established for such purpose under
the Servicing Agreement (the
"Collection Account"). See
"Description of the Master
Servicing Agreement--Allocations
and Collections" herein and "The
Agreements--Payments on Loans;
Deposits to Security Account" and
"--Collection Procedures" in the
Prospectus.
Description of the Securities...........
A. Distributions........... On each Distribution Date,
collections on the Mortgage Loans
will be applied in the following
order of priority:
(i) to the Master Servicer, the
Servicing Fee;
(ii) as payment for the
accrued interest due and
any overdue accrued
interest (with interest
thereon) on the
respective Security
Principal Balances of the
Notes and the
Certificates;
(iii) as principal on the
Securities, the excess of
Principal Collections
over Additional Balances
created during the
preceding Collection
Period, such amount to be
allocated between the
Notes and Certificates,
pro rata, based on their
respective Security
Principal Balances;
(iv) as principal on the
Securities, as payment
for any Liquidation Loss
Amounts on the Mortgage
Loans;
(v) as payment for the premium
on the Policy;
(vi) to reimburse prior draws
made on the Policy; and
(vii) any remaining amounts to
the Seller.
As to any Distribution Date, the
"Collection Period" is the
calendar month preceding the
month of such Distribution Date.
"Liquidation Loss Amount" means
with respect to any Liquidated
Mortgage Loan, the unrecovered
Principal Balance thereof at the
end of the related Collection
Period in which such Mortgage
Loan became a Liquidated Mortgage
Loan after giving effect to the
Net Liquidation Proceeds in
connection therewith.
B. Note Rate............... Interest will accrue on the
unpaid Security Principal Balance
of the Notes at the per annum
rate (the "Note Rate") equal to
___% per annum from the Closing
Date to the first Distribution
Date and thereafter interest will
accrue on the Notes from and
including the preceding
Distribution Date to but
excluding such current
Distribution Date (each, an
"Interest Accrual Period") at [a
floating rate equal to LIBOR (as
defined herein) plus ___%]
[___%]. [Interest will be
calculated on the basis of the
actual number of days in each
Interest Accrual Period divided
by 360.] A failure to pay
interest on any Notes on any
Distribution Date that continues
for five days constitutes an
Event of Default under the
Indenture.
C. Pass-Through Rate....... Interest will accrue on the
unpaid Principal Balance of the
Certificates at the per annum
rate (the "Pass-Through Rate")
equal to ___% per annum from the
Closing Date to the first
Distribution Date and thereafter
interest will accrue on the
Certificates for each Interest
Accrual Period at [a floating
rate equal to LIBOR (as defined
herein) plus ___%] [___%].
[Interest will be calculated on
the basis of the actual number of
days in each Interest Accrual
Period divided by 360.] A failure
to pay interest on any
Certificates on any Distribution
Date that continues for five days
constitutes an Event of Default
under the Trust Agreement.
D. Form and Registration... The Securities will initially be
delivered in book-entry form
("Book-Entry Securities").
Holders of such Securities may
elect to hold their interests
through The Depository Trust
Company ("DTC"), [in the United
States, or Centrale de Livraison
de Valeurs Mobilieres S.A.
("Cedel") or the Euroclear System
("Euroclear"), in Europe].
Transfers within DTC [, Cedel or
Euroclear, as the case may be,]
will be in accordance with the
usual rules and operating
procedures of the relevant
system. So long as the Securities
are Book-Entry Securities, such
Securities will be evidenced by
one or more securities registered
in the name of Cede & Co.
("Cede"), as the nominee of DTC
[or one of the relevant
depositaries (collectively, the
"European Depositaries")].
Cross-market transfers between
persons holding directly or
indirectly through DTC[, on the
one hand, and counterparties
holding directly or indirectly
through Cedel or Euroclear, on
the other,] will be effected in
DTC through Citibank N.A.
("Citibank") or The Chase
Manhattan Bank ("Chase") the
relevant depositaries of Cedel
and Euroclear, respectively, and
each a participating member of
DTC. The Securities will
initially be registered in the
name of Cede. The interests of
such Holders will be represented
by book entries on the records of
DTC and participating members
thereof. No Holder of a Security
will be entitled to receive a
definitive note representing such
person's interest, except in the
event that Securities in fully
registered, certificated form
("Definitive Securities") are
issued under the limited
circumstances described in
"Description of the
Securities--Book-Entry
Registration of Securities" in
the Prospectus. All references in
this Prospectus Supplement to
Securities reflect the rights of
Holders of such Notes only as
such rights may be exercised
through DTC and its participating
organizations for so long as such
Securities are held by DTC. See
"Risk Factors--Book-Entry
Securities" herein.
E. Denominations........... The Securities will be issued in
minimum denominations of
$[________] and integral
multiples thereof.
[Final Payment of Principal;
Termination ........................ The Trust will terminate on the
Distribution Date following the
earlier of (i) _________________
and (ii) the final payment or
other liquidation of the last
Mortgage Loan in the Trust. The
Mortgage Loans will be subject to
optional repurchase by the Master
Servicer on any Distribution Date
after the Principal Balance is
reduced to an amount less than or
equal to $_____ (____% of the
initial Principal Balance). The
repurchase price will be equal to
the sum of the outstanding
Principal Balance and accrued and
unpaid interest thereon at the
weighted average of the Loan
Rates through the day preceding
the final Distribution Date. See
"Description of the
Securities--Optional Termination"
herein and "The
Agreements--Termination; Optional
Termination" in the Prospectus.
[Letter of Credit]
[Surety Bond]
Issuer......................... _________________ (the "[Letter
of Credit] [Surety Bond]
Issuer"). See "The [Letter of
Credit] [Surety Bond] Issuer"
herein.
[Letter of Credit]
[Surety Bond]................... On the Closing Date, the [Letter
of Credit] [Surety Bond] Issuer
will issue a [letter of credit]
[surety bond] (the "[Letter of
Credit] [Surety Bond]") in favor
of the Owner Trustee on behalf of
the Trust. In the event that, on
any Distribution Date, available
amounts on deposit in the
Collection Account with respect
to the preceding Collection
Period are insufficient to
provide for the payment of the
amount required to be distributed
to the Holders and the Master
Servicer on such Distribution
Date, the Trustee will draw on
the [Letter of Credit] [Surety
Bond], to the extent of the
[Letter of Credit] [Surety Bond]
Amount for such Distribution
Date, in an amount equal to such
deficiency. See "Description of
the Securities--Distributions"
herein and "Credit Enhancement"
in the Prospectus.
[[Letter of Credit]
[Surety Bond]
Amount................. The amount available under the
[Letter of Credit] [Surety Bond]
(the "[Letter of Credit] [Surety
Bond] Amount") for the initial
Distribution Date will be
$______. For each Distribution
Date thereafter, the [Letter of
Credit] [Surety Bond] Amount will
equal the lesser of (i)___ % of
the Pool Balance as of the first
day of the preceding Collection
Period (after giving effect to
any amounts distributed with
respect to principal of the
Mortgage Loans on the
Distribution Date occurring in
such preceding Collection Period)
and (ii) the [Letter of Credit]
[Surety Bond] Amount as of the
first day of the preceding
Collection Period, minus any
amounts drawn under the [Letter
of Credit] [Surety Bond] during
such preceding Collection Period,
plus any amounts paid to the
[Letter of Credit] [Surety Bond]
Issuer on the Distribution Date
occurring in such preceding
Collection Period up to the
amount of any previous draws on
the [Letter of Credit] [Surety
Bond].] Certain Federal Income
Tax
Consequences......................... In the opinion of Tax Counsel (as
defined herein), for federal
income tax purposes, the
Securities will be characterized
as indebtedness, and the Trust
will not be characterized as an
association (or publicly traded
partnership) taxable as a
corporation. Each holder of a
Security, by the acceptance of a
Security, will agree to treat the
Security as indebtedness for
federal, state and local income
and franchise tax purposes. See
"Certain Federal Income Tax
Consequences" and "State Tax
Consequences" herein and "Certain
Federal Income Tax Consequences"
and "State Tax Considerations" in
the Prospectus concerning the
application of federal, state and
local tax laws.
ERISA Considerations................. Generally, plans that are subject
to the requirements of ERISA and
the Code are permitted to
purchase instruments like the
Notes that are debt under
applicable state law and have no
"substantial equity features"
without reference to the
prohibited transaction
requirements of ERISA and the
Code. In the opinion of ERISA
Counsel (as defined herein), the
Notes will be classified as
indebtedness without substantial
equity features for ERISA
purposes. However, if the Notes
are deemed to be equity interests
and no statutory, regulatory or
administrative exemption applies,
the Trust will hold plan assets
by reason of a Plan's investment
in the Notes. Accordingly, any
Plan fiduciary considering
whether to purchase the Notes on
behalf of a Plan should consult
with its counsel regarding the
applicability of the provisions
of ERISA and the Code and the
availability of any exemptions.
Under current law the purchase
and holding of the Certificates
by or on behalf of any employee
benefit plan (a "Plan") subject
to the fiduciary responsibility
provisions of the Employee
Retirement Income Security Act of
1974, as amended ("ERISA"), may
result in a "prohibited
transaction" within the meaning
of ERISA and the Code or other
violation of the fiduciary
responsibility provisions of
ERISA and Section 4975 of the
Code. [Consequently, Certificates
may not be transferred to a
proposed transferee that is a
Plan subject to ERISA or that is
described in Section 4975(e)(1)
of the Code, or a person acting
on behalf of any such Plan or
using the assets of such plan
unless the Owner Trustee and the
Depositor receive the opinion of
counsel reasonably satisfactory
to the Owner Trustee and the
Depositor to the effect that the
purchase and holding of such
Certificate will not result in
the assets of the Trust being
deemed to be "plan assets" for
ERISA purposes and will not be a
prohibited transaction under
ERISA or Section 4975 of the
Code.] See "ERISA Considerations"
herein and in the Prospectus.
Legal Investment..................... The Securities will not
constitute "mortgage related
securities" for purposes of the
Secondary Mortgage Market
Enhancement Act of 1984
("SMMEA"), because some of the
Mortgages securing the Mortgage
Loans are not first mortgages.
Accordingly, many institutions
with legal authority to invest in
comparably rated securities based
solely on first mortgages may not
be legally authorized to invest
in the Certificates. See "Legal
Investment Considerations" herein
and "Legal Investment" in the
Prospectus.
Rating............................... It is a condition to the issuance
of the Securities that they be
rated _________ by at least ____
nationally recognized statistical
rating organizations (each a
"Rating Agency"). In general,
ratings address credit risk and
do not address the likelihood of
prepayments. A security rating is
not a recommendation to buy, sell
or hold securities.
RISK FACTORS
Book-Entry REGISTRATION MAY REDUCE LIQUIDITY OF THE Securities.
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 physical securities. See
"Description of the Securities--Book-Entry Securities" herein and "Risk
Factors--Book-Entry Registration" in the Prospectus.
Since transactions in the Securities can be effected only through
DTC, CEDEL, Euroclear, participating organizations, indirect participants and
certain banks, the ability of a Security Owner to pledge a Security to persons
or entities that do not participate in the DTC, CEDEL or Euroclear system or
otherwise to take actions in respect of such Securities, may be limited due to
lack of a physical security representing the Securities. See "Description of
the Securities--Book-Entry Securities" herein and "Risk Factors--Book-Entry
Registration" in the Prospectus.
Security Owners may experience some delay in their receipt of
distributions of interest and principal on the Securities since such
distributions will be forwarded by the Trustee to DTC and DTC will credit such
distributions to the accounts of its Participants (as defined herein) which
will thereafter credit them to the accounts of Security Owners either directly
or indirectly through indirect participants. See "Description of the
Securities--Book-Entry Securities" herein and "Risk Factors--Book-Entry
Registration" in the Prospectus.
DELAYS DUE TO LIQUIDATION OF MORTGAGED PROPERTIES
Minimum monthly payments will at least equal and may exceed accrued
interest. Even assuming that the Mortgaged Properties provide adequate
security for the Mortgage Loans, substantial delay could be encountered in
connection with the liquidation of Mortgage Loans that are delinquent and
corresponding delays in the receipt of related proceeds by Holders could occur
if the [Letter of Credit] [Surety Bond] provider were unable to perform on its
obligations under the [Letter of Credit] [Surety Bond]. Further, liquidation
expenses (such as legal fees, real estate taxes, and maintenance and
preservation expenses) will reduce the proceeds payable to Holders and thereby
reduce the security for the Mortgage Loans. In the event any of the Mortgaged
Properties fail to provide adequate security for the related Mortgage Loans,
Holders could experience a loss if the [Letter of Credit] [Surety Bond]
provider were unable to perform its obligations under the [Letter of Credit]
[Surety Bond].]
PREPAYMENT CONSIDERATIONS AND RISKS
Substantially all of the Mortgage Loans [LOANS] may be prepaid in
whole or in part at any time without penalty. Home equity loans, such as the
Mortgage Loans [LOANS], have been originated in significant volume only during
the past few years and neither the Depositor nor the Master Servicer is aware
of any publicly available studies or statistics on the rate of prepayment of
such loans. Generally, home equity loans are not viewed by borrowers as
permanent financing. Accordingly, the Mortgage Loans [LOANS] may experience a
higher rate of prepayment than traditional loans. The Trust's prepayment
experience may be affected by a wide variety of factors, including general
economic conditions, interest rates, the availability of alternative financing
and homeowner mobility. In addition, substantially all of the Mortgage Loans
[LOANS] contain due-on-sale provisions and the Master Servicer intends to
enforce such provisions unless (i) such enforcement is not permitted by
applicable law or (ii) the Master Servicer, in a manner consistent with
reasonable commercial practice, permits the purchaser of the related Mortgaged
Property to assume the Mortgage Loan [LOANS]. To the extent permitted by
applicable law, such assumption will not release the original borrower from
its obligation under any such Mortgage Loan [LOANS]. See "Certain Legal
Aspects of the Loans--Due-on-Sale Clauses" in the Prospectus for a description
of certain provisions of the Credit Line Agreements that may affect the
prepayment experience on the Mortgage Loans [LOANS].
SECURITIES RATINGS-LIMITATIONS
The rating of the Securities will depend primarily on an assessment
by the Rating Agencies of the Loans and upon the claims-paying ability [Letter
of Credit] [Surety Bond] provider. Any reduction in a rating assigned to the
claims-paying ability of the [Letter of Credit][Surety Bond] provider below
the rating initially given to the Securities may result in a reduction in the
rating of the Securities. The rating by the Rating Agencies of the Securities
is not a recommendation to purchase, hold or sell the Securities, inasmuch as
such rating does not comment as to the market price or suitability for a
particular investor. There is no assurance that the ratings will remain in
place for any given period of time or that the ratings will not be lowered or
withdrawn by the Rating Agencies. In general, the ratings address credit risk
and do not address the likelihood of prepayments. The ratings of the
Securities do not address the possibility of the imposition of United States
withholding tax with respect to non-U.S. persons.
LEGAL CONSIDERATIONS
The Mortgage Loans are secured by deeds of trust or mortgages (which
generally are second mortgages). With respect to Mortgage Loans that are
secured by first mortgages, the Master Servicer has the power under certain
circumstances to consent to a new mortgage lien on the Mortgaged Property
having priority over such Mortgage Loan. Mortgage Loans secured by second
mortgages are entitled to proceeds that remain from the sale of the related
Mortgage Property after any related senior mortgage loan and prior statutory
liens have been satisfied. In the event that such proceeds are insufficient to
satisfy such loans and prior liens in the aggregate [and the [Letter of
Credit] [Surety Bond] provider is unable to perform its obligations under the
[Letter of Credit] [Surety Bond] or if the coverage under the [Letter of
Credit] [Surety Bond] is exhausted] the Trust and, accordingly, the Holders,
bear (i) the risk of delay in distributions while a deficiency judgment
against the borrower is obtained and (ii) the risk of loss if the deficiency
judgment cannot be obtained or is not realized upon. See "Certain Legal
Aspects of the Mortgage Loans" in the Properties.
The sale of the Mortgage Loans [LOANS] from the Seller to the
Depositor pursuant to the Purchase Agreement will be treated as a sale of the
Mortgage Loans [LOANS]. The Seller will warrant that such transfer is either a
sale of its interest in the Mortgage Loans [LOANS] or a grant of a first
priority perfected security interest therein. In the event of an insolvency of
the Seller, the receiver of the Seller may attempt to recharacterize the sale
of the Mortgage Loans [LOANS] as a borrowing by the Seller secured by a pledge
of the Mortgage Loans [LOANS]. If the receiver decided to challenge such
transfer, delays in payments of the Securities and possible reductions in the
amount thereof could occur. The Depositor will warrant in the Trust Agreement
that the transfer of its interest in the Mortgage Loans [LOANS] to the Trust
is a valid transfer and assignment of such interest.
If a conservator, receiver or trustee were appointed for the Seller,
or if certain other events relating to the bankruptcy or insolvency of the
Seller were to occur, Additional Balances would not be transferred by the
Seller to the Trust. In such an event, an Event of Default under the Pooling
and Servicing Agreement and Indenture would occur and the Owner Trustee would
attempt to sell the Mortgage Loans [LOANS] (unless Holders holding Securities
evidencing undivided interests aggregating at least 51% of each of the
Security Principal Balance of the Notes and the Certificates instruct
otherwise), thereby causing early payment of the Security Principal Balance of
the Notes and the Certificates.
In the event of a bankruptcy or insolvency of the Master Servicer,
the bankruptcy trustee or receiver may have the power to prevent the
applicable Trustee or the Holders from appointing a successor Master Servicer.
GEOGRAPHIC CONCENTRATION
As of the Cut-off Date, approximately _____% (by Cut-off Date
Principal Balance) of the Mortgaged Properties are located in the State of
__________. An overall decline in the __________ residential real estate
market could adversely affect the values of the Mortgaged Properties securing
such Mortgage Loans such that the Principal Balances of the related Mortgage
Loans, together with any primary financing on such Mortgaged Properties, could
equal or exceed the value of such Mortgaged Properties. As the residential
real estate market is influenced by many factors, including the general
condition of the economy and interest rates, no assurances may be given that
the __________ residential real estate market will not weaken. If the
__________ residential real estate market should experience an overall decline
in property values after the dates of origination of the Mortgage Loans, the
rates of losses on the Mortgage Loans would be expected to increase, and could
increase substantially.]
MASTER SERVICER'S ABILITY TO CHANGE THE TERMS OF THE MORTGAGE LOANS
The Master Servicer may agree to changes in the terms of a Credit
Line Agreement, provided that such changes (i) do not adversely affect the
interest of the Holders or the [Letter of Credit] [Surety Bond] provider, and
(ii) are consistent with prudent business practice. There can be no assurance
that changes in applicable law or the marketplace for home equity loans or
prudent business practice will not result in changes in the terms of the
Mortgage Loans. In addition, the Master Servicing Agreement permits the Master
Servicer, within certain limitations described therein, to increase the Credit
Limit of the related Mortgage Loan or reduce the Margin for such Mortgage
Loan.
DELINQUENT MORTGAGE LOANS [LOANS]
The Trust will include Mortgage Loans [LOANS] which are __ or fewer
days delinquent. The Cut-off Date Principal Balance of such delinquent
Mortgage Loans [LOANS] was $______________.]
For a discussion of additional risks pertaining to the Securities,
see "Risk Factors" in the Prospectus.
THE TRUST
GENERAL
The Issuer, Home Equity Loan Trust 199_, is a business trust formed
under the laws of the State of Delaware pursuant to the Trust Agreement for
the transactions described in this Prospectus Supplement. The Trust Agreement
constitutes the "governing instrument" under the laws of the State of Delaware
relating to business trusts. After its formation, the Issuer will not engage
in any activity other than (i) acquiring, holding and managing the Mortgage
Loans and the other assets of the Trust and proceeds therefrom, (ii) issuing
the Notes and the Certificates, (iii) making payments on the Notes and the
Certificates and (iv) engaging in other activities that are necessary,
suitable or convenient to accomplish the foregoing or are incidental thereto
or connected therewith.
The property of the Trust will consist of: (i) each of the Mortgage
Loans [LOANS] that are _________; (ii) collections on the Mortgage Loans
[LOANS] [received] after the Cut-off Date; (iii) Mortgaged Properties relating
to the Mortgage Loans [LOANS] that are acquired by foreclosure or deed in lieu
of foreclosure; (iv) the Collection Account and the Distribution Account
(excluding net earnings thereon); (v) the [Letter of Credit] [Surety Bond];
and (vi) an assignment of the Depositor's rights under the Purchase Agreement,
including all rights of the Depositor to purchase Additional Balances.
The Trust's principal offices are in __________, Delaware, in care of
________________________, as Owner Trustee, at [__________].
THE [LETTER OF CREDIT][SURETY BOND] ISSUER
The following information with respect to _________ ("_______") has
been furnished by __________. Accordingly, none of the Issuer, the Depositor
or the Master Servicer makes any representation as to the accuracy and
completeness of such information.
[Description of Letter of Credit/Surety Issuer]
THE MASTER SERVICER
GENERAL
The Master Servicer will service the Mortgage Loans in accordance
with the terms set forth in the Master Servicing Agreement. The Master
Servicer may perform any of its obligations under the Master Servicing
Agreement through one or more subservicers. Notwithstanding any such
subservicing arrangement, the Master Servicer will remain liable for its
servicing duties and obligations under the Master Servicing Agreement as if
the Master Servicer alone were servicing the Mortgage Loans. As of the Closing
Date, the Master Servicer will service the Mortgage Loans without subservicing
arrangements.
THE MASTER SERVICER
[IndyMac, Inc. ("IndyMac"), a Delaware corporation], will act as
Master Servicer for the Mortgage Loans pursuant to the Master Servicing
Agreement. The principal executive offices of [IndyMac] are located at [155
North Lake Avenue, Pasadena, California 91101].
At ______________, 199_, IndyMac provided servicing for approximately
$______ billion aggregate principal amount of first-lien mortgage loans,
substantially all of which are being serviced for unaffiliated persons. At
_____________, 199_, IndyMac provided servicing for approximately $______
million aggregate principal amount of first and second lien mortgage loans
originated under home equity lines of credit.
THE HOME EQUITY LOAN [HOME IMPROVEMENT CONTRACT] PROGRAM
UNDERWRITING PROCEDURES RELATING TO HOME EQUITY LOANS
The following is a description of the underwriting procedures
customarily employed by the Seller with respect to home equity loans. The
underwriting process is intended to assess the applicant's credit standing and
repayment ability, and the value and adequacy of the real property security as
collateral for the proposed loan. Exceptions to the Seller's underwriting
guidelines will be made when compensating factors are present. Such factors
include the borrower's employment stability, credit history, disposable
income, equity in the related property and the nature of the underlying first
mortgage loan.
UNDERWRITING PROCEDURES RELATING TO HOME IMPROVEMENT CONTRACTS
THE FOLLOWING IS A DESCRIPTION OF THE UNDERWRITING PROCEDURES
CUSTOMARILY EMPLOYED BY THE SELLER WITH RESPECT TO HOME IMPROVEMENT CONTRACTS.
THE UNDERWRITING PROCESS IS INTENDED TO ASSESS THE APPLICANT'S CREDIT STANDING
AND REPAYMENT ABILITY, [AND THE VALUE AND ADEQUACY OF THE REAL PROPERTY
SECURITY AS COLLATERAL FOR THE PROPOSED LOAN]. EXCEPTIONS TO THE SELLER'S
UNDERWRITING GUIDELINES WILL BE MADE WHEN COMPENSATING FACTORS ARE PRESENT.
SUCH FACTORS INCLUDE THE BORROWER'S EMPLOYMENT STABILITY, CREDIT HISTORY,
DISPOSABLE INCOME, [EQUITY IN THE RELATED PROPERTY] AND THE NATURE OF THE
UNDERLYING FIRST MORTGAGE LOAN.
[Description of Specific Underwriting Procedures to Follow]
SERVICING OF THE MORTGAGE LOANS [LOANS]
The Master Servicer has established standard policies for the
servicing and collection of the home equity loans [AND HOME IMPROVEMENT
CONTRACTS]. Servicing includes, but is not limited to, (i) the collection and
aggregation of payments relating to the Mortgage Loans [LOANS]; (ii) the
supervision of delinquent Mortgage Loans [LOANS], loss mitigation efforts,
foreclosure proceedings and, if applicable, the disposition of Mortgaged
Properties; and (iii) the preparation of tax related information in connection
with the Mortgage Loans [LOANS].
[Description of Specific Servicing Standards to Follow]
FORECLOSURE AND DELINQUENCY EXPERIENCE
The following table summarizes the delinquency and foreclosure
experience, respectively, on the dates indicated, of home equity loans
serviced by the Master Servicer. Since [_______] only began servicing home
equity loans [HOME IMPROVEMENT CONTRACTS] in _______ 199_, the delinquency and
foreclosure percentages may be affected by the size and relative lack of
seasoning of the servicing portfolio because many of such loans were not
outstanding long enough to give rise to some or all of the periods of
delinquency indicated in the chart below. Accordingly, the information should
not be considered as a basis for assessing the likelihood, amount or severity
of delinquency or losses on the Mortgage Loans [LOANS] and no assurances can
be given that the foreclosure and delinquency experience presented in the
table below will be indicative of such experience on the Mortgage Loans
[LOANS]:
Delinquency Status as of _____________, 199__ - HOME EQUITY LOANS*
<TABLE>
<CAPTION>
Dollars Percent Units Percent
<S> <C> <C> <C> <C>
Current................ $__________ ____% _____ ____%
30-59 days............. $__________ ____% _____ ____%
60-89 days............. $__________ ____% _____ ____%
90+ days............... $__________ ____% _____ ____%
Total $__________ 100.00% _____ 100.00%
</TABLE>
- -------------
* Delinquencies are reported on a contractual basis.
As of _____________, 199_, ______ loans with an aggregate balance of
$___________ are in bankruptcy and ________ loans with an aggregate balance of
$___________ are in foreclosure. Of the loans in foreclosure, there will be a
____________ 199_ charge off of $________. In addition to this charge off,
there is an anticipated charge off of approximately $_____________ which may
also be realized in _________.]
DELINQUENCY STATUS AS OF _____________, 199__ - HOME IMPROVEMENT CONTRACTS*
<TABLE>
<CAPTION>
DOLLARS PERCENT UNITS PERCENT
<S> <C> <C> <C> <C>
CURRENT................ $__________ ____% _____ ____%
30-59 DAYS............. $__________ ____% _____ ____%
60-89 DAYS............. $__________ ____% _____ ____%
90+ DAYS............... $__________ ____% _____ ____%
TOTAL $__________ 100.00% _____ 100.00%
</TABLE>
- -------------
* DELINQUENCIES ARE REPORTED ON A CONTRACTUAL BASIS.
AS OF _____________, 199_, ______ HOME IMPROVEMENT CONTRACTS WITH AN
AGGREGATE BALANCE OF $___________ ARE IN BANKRUPTCY AND ________ LOANS WITH AN
AGGREGATE BALANCE OF $___________ ARE IN FORECLOSURE. OF THE HOME IMPROVEMENT
CONTRACTS IN FORECLOSURE, THERE WILL BE A ____________ 199_ CHARGE OFF OF
$________. IN ADDITION TO THIS CHARGE OFF, THERE IS AN ANTICIPATED CHARGE OFF
OF APPROXIMATELY $_____________ WHICH MAY ALSO BE REALIZED IN
- ---------.]
DESCRIPTION OF THE MORTGAGE LOANS [LOANS]
GENERAL
The Mortgage Loans were originated pursuant to loan agreements and
disclosure statements (the "Credit Line Agreements") and are secured by
mortgages or deeds of trust, which are either first or second mortgages or
deeds of trust, on Mortgaged Properties located in [__] states. The Mortgaged
Properties securing the Mortgage Loans consist primarily of residential
properties that are one- to four-family properties. See "--Mortgage Loan
Terms" below.
The Cut-off Date Pool Balance is $______________, which is equal to
the aggregate Principal Balances of the Mortgage Loans as of the Cut-off Date.
As of the Cut-off Date, the Mortgage Loans were not more than 89 days
delinquent. The average Cut-off Date Principal Balance was approximately $____
, the minimum Cut-off Date Principal Balance was zero, the maximum Cut-off
Date Principal Balance was $______, the minimum Loan Rate and the maximum Loan
Rate as of the Cut-off Date were ____% and ____% per annum, respectively, and
the weighted average Loan Rate as of the Cut-off Date was approximately ___%
per annum. As of the Cut-off Date, the weighted average Credit Limit
Utilization Rate was approximately ____%, the minimum Credit Limit Utilization
Rate was zero and the maximum Credit Limit Utilization Rate was 100%. The
"Credit Limit Utilization Rate" is determined by dividing the Cut-off Date
Principal Balance of a Mortgage Loan by the Credit Limit of the related Credit
Line Agreement. The remaining term to scheduled maturity for the Mortgage
Loans as of the Cut-off Date ranged from ____ months to ____ months and the
weighted average remaining term to scheduled maturity was approximately _____
months. As of the Cut-off Date, the Combined Loan-to-Value Ratio of the
Mortgage Loans ranged from ____% to ______% and the weighted average Combined
Loan-to-Value Ratio was __%. The Combined Loan-to-Value Ratio for a Mortgage
Loan is the ratio (expressed as a percentage) of (A) the sum of (i) the Credit
Limit of the Mortgage Loan and (ii) any outstanding principal balances of
mortgage loans senior to such Mortgage Loan (calculated at the date of
origination of the Mortgage Loan) to (B) the lesser of (i) the appraised value
of the related Mortgaged Property as set forth in the loan files at such date
of origination or (ii) in the case of a Mortgaged Property purchased within
one year of the origination of the related Mortgage Loan, the purchase price
of such Mortgaged Property. Credit Limits under the Mortgage Loans as of the
Cut-off Date ranged from $______ to $____ and averaged approximately $_____ .
The weighted average second mortgage ratio (which is the Credit Limit for the
related Mortgage Loan, provided such Mortgage Loan was in the second lien
position, divided by the sum of such Credit Limit and the outstanding
principal balance of any mortgage loan senior to the related Mortgage Loan)
was approximately _____%. As of the Cut-off Date, approximately _____% by
Cut-off Date Principal Balance of the Mortgage Loans represented first liens
on the related Mortgaged Properties, while approximately ____% of the Mortgage
Loans represented second liens. As of the Cut-off Date, approximately ______%
of the Mortgage Loans are secured by Mortgaged Properties which are
single-family residences and ___% were owner-occupied. As of the Cut-off Date,
approximately ____%, ____%,____%,______%,______% and ______% by Cut-off Date
Principal Balance are located in [__________, ________, __________, _______,
______ and ________], respectively.
MORTGAGE LOAN TERMS
[The Mortgage Loans bear interest at a variable rate which changes
monthly on the first business day of the related month with changes in the
applicable Index Rate. The Mortgage Loans are subject to a maximum per annum
interest rate (the "Maximum Rate") ranging from _____% to _____% per annum and
subject to applicable usury limitations. As of the Cut-off Date, the weighted
average Maximum Rate was approximately ______%. See "Certain Legal Aspects of
the Loans--Applicability of Usury Laws" in the Prospectus. The daily periodic
rate on the Mortgage Loans (the "Loan Rate") is the sum of the Index Rate plus
the spread (the "Margin") which generally ranges between ____% and ____% and
had a weighted average, as of the Cut-off Date, of approximately %, divided by
365 days. The "Index Rate" is based on the highest "prime rate" published in
the `Money Rates' table of The Wall Street Journal as of the first business
day of each calendar month.]
_________ offers an introductory loan rate on home equity lines of
credit which are originated with Combined Loan-to-Value Ratios of __% and __%.
The introductory rate applies to any payments made during the first three
months after origination. After such three month period, the Loan Rate will
adjust to the Index plus the applicable Margin. As of the Cut-off Date,
approximately ____% of the Mortgage Loans by Cut-off Date Principal Balance
were subject to an introductory rate of ____% per annum.
In general, the home equity loans may be drawn upon for a period (the
"Draw Period") of either five years (which may be extendible for an additional
____ years, upon _________'s approval) or three years. Home equity loans with
an initial Draw Period of five years, which constitute approximately ____% of
the Mortgage Loans by Cut-off Date Principal Balance, are subject to a fifteen
year repayment period (the "Repayment Period") following the end of the Draw
Period during which the outstanding principal balance of the loan will be
repaid in monthly installments equal to [1/180] of the outstanding principal
balance as of the end of the Draw Period. Mortgage Loans with a Draw Period of
three years, which constitute approximately ____% of the Mortgage Loans by
Cut-off Date Principal Balance, are subject to a ten year Repayment Period
following the end of the Draw Period during which the outstanding principal
balance of the loan will be paid in monthly installments equal to [1/120] of
the outstanding principal balance as of the end of the Draw Period.
The minimum payment due during the Draw Period will be equal to the
finance charges accrued on the outstanding principal balance of the home
equity loan during the related billing period. The minimum payment due during
the repayment period will be equal to the sum of the finance charges accrued
on the outstanding principal balance of the Mortgage Loan during the related
billing period and the principal payment described above.
Set forth below is a description of certain characteristics of the
Mortgage Loans as of the Cut-off Date:
PRINCIPAL BALANCES OF HOME EQUITY AND HOME IMPROVEMENT LOANS
<TABLE>
<CAPTION>
Range of Principal Balances Number of Cut-off Date Percent of Pool by
Mortgage Principal Cut-off Date
Loans Balance Principal Balance
- --------------------------------------------- -------------- --------------- ---------------------
<S> <C> <C>
$ _______ to $ _______................... $ %
$ _______ to $ _______...................
$ _______ to $ _______...................
$ _______ to $ _______...................
$ _______ to $ _______...................
$ _______ to $ _______...................
$ _______ to $ _______...................
$ _______ to $ _______...................
$ _______ to $ _______...................
$ _______ to $ _______...................
$ _______ to $ _______...................
$ _______ to $ _______...................
$ _______ to $ _______...................
$ _______ to $ _______...................
$ _______ to $ _______...................
$ _______ to $ _______...................
-------------- --------------- ---------------------
Total............................ $ 100.00%
-------------- --------------- ---------------------
</TABLE>
GEOGRAPHIC DISTRIBUTION OF HOME EQUITY LOANS
AND HOME IMPROVEMENT CONTRACTS(1)
<TABLE>
<CAPTION>
State Number of Cut-off Date Percent of Pool by
Mortgage Principal Cut-off Date
Loans Balance Principal Balance
- --------------------------------------------- -------------- --------------- ---------------------
<S> <C> <C> <C>
$ %
-------------- --------------- ---------------------
Total............................ $ 100.00%
-------------- --------------- ---------------------
</TABLE>
- --------------
(1) Geographic location is determined by the address of the Mortgaged
Property securing the related Mortgage Loan.
COMBINED LOAN-TO-VALUE RATIOS(1)
<TABLE>
<CAPTION>
Range of Combined Number of Cut-off Date Percent of Pool by
Loan-to-Value Ratios Mortgage Principal Cut-off Date
Loans Balance Principal Balance
- --------------------------------------------- -------------- --------------- ---------------------
<S> <C> <C> <C>
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
-------------- --------------- ---------------------
Total............................ $ 100.00%
-------------- --------------- ---------------------
</TABLE>
- --------------
(1) The ratio (expressed as a percentage) of (A) the sum of (i) the
Credit Limit of the Mortgage Loans and (ii) any outstanding principal
balances of mortgage loans senior to the Mortgage Loans (calculated
at the date of origination of the Mortgage Loans) to (B) the lesser
of (i) the appraised value of the related Mortgaged Property as set
forth in loan files at such date of origination or (ii) in the case
of a Mortgaged Property purchased within one year of the origination
of the related Mortgage Loan, the purchase price of such Mortgaged
Property.
PROPERTY TYPE
<TABLE>
<CAPTION>
Property Type Number of Cut-off Date Percent of Pool by
Mortgage Principal Cut-off Date
Loans Balance Principal Balance
- --------------------------------------------- -------------- --------------- ---------------------
<S> <C> <C>
Single Family............................ $ %
Two- to Four-Family......................
Condominium..............................
-------------- --------------- ---------------------
PUD......................................
-------------- --------------- ---------------------
Total............................ $ 100.00%
-------------- --------------- ---------------------
</TABLE>
LIEN PRIORITY
<TABLE>
<CAPTION>
Lien Priority Number of Cut-off Date Percent of Pool by
Mortgage Principal Cut-off Date
Loans Balance Principal Balance
- --------------------------------------------- -------------- --------------- ---------------------
<S> <C> <C>
First Lien............................... $ %
Second Lien..............................
-------------- --------------- ---------------------
Total............................ $ 100.00%
-------------- --------------- ---------------------
</TABLE>
LOAN RATES(1)
<TABLE>
<CAPTION>
Range of Number of Cut-off Date Percent of Pool by
Loan Rates Mortgage Principal Cut-off Date
Loan-to-Value Ratios Loans Balance Principal Balance
- --------------------------------------------- -------------- --------------- ---------------------
<S> <C> <C>
_______% to ________%.................... $ %
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
-------------- --------------- ---------------------
Total............................ $ 100.00%
-------------- --------------- ---------------------
</TABLE>
- --------------
(1) Approximately % of the Mortgage Loans by Cut-Of Date Principal
Balance are subject to an introductory rate of ____% per annum.
MARGIN
<TABLE>
<CAPTION>
Range of Number of Cut-off Date Percent of Pool by
Margins Mortgage Principal Cut-off Date
Loans Balance Principal Balance
- --------------------------------------------- -------------- --------------- ---------------------
<S> <C> <C>
_______% to ________%.................... $ %
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
-------------- --------------- ---------------------
Total............................ $ 100.00%
-------------- --------------- ---------------------
</TABLE>
CREDIT LIMIT UTILIZATION RATES OF HOME EQUITY LOANS
<TABLE>
<CAPTION>
Range of Credit Limit Number of Cut-off Date Percent of Pool by
Utilization Rates Mortgage Principal Cut-off Date
Loans Balance Principal Balance
- --------------------------------------------- -------------- --------------- ---------------------
<S> <C> <C>
_______% to ________%.................... $ %
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
-------------- --------------- ---------------------
Total............................ $ 100.00%
-------------- --------------- ---------------------
</TABLE>
CREDIT LIMITS OF HOME EQUITY LOANS
<TABLE>
<CAPTION>
Range of Credit Limits Number of Cut-off Date Percent of Pool by
Mortgage Principal Cut-off Date
Loans Balance Principal Balance
- --------------------------------------------- -------------- --------------- ---------------------
<S> <C> <C>
_______% to ________%.................... $ %
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
_______% to ________%....................
-------------- --------------- ---------------------
Total............................ $ 100.00%
-------------- --------------- ---------------------
</TABLE>
MAXIMUM RATES OF HOME EQUITY LOANS
<TABLE>
<CAPTION>
Maximum Rates Number of Cut-off Date Percent of Pool by
Mortgage Principal Cut-off Date
Loans Balance Principal Balance
- --------------------------------------------- -------------- --------------- ---------------------
<S> <C> <C>
- --------%................................ $ %
- --------%................................
- --------%................................
- --------%................................
- --------%................................
-------------- --------------- ---------------------
Total............................ $ 100.00%
-------------- --------------- ---------------------
</TABLE>
MONTHS REMAINING TO SCHEDULED MATURITY
OF HOME EQUITY LOANS AND HOME IMPROVEMENT CONTRACTS(1)
<TABLE>
<CAPTION>
Range of Months Number of Cut-off Date Percent of Pool by
Remaining to Scheduled Maturity Mortgage Principal Cut-off Date
Loans Balance Principal Balance
- --------------------------------------------- -------------- --------------- ---------------------
<S> <C> <C>
_______ to ________...................... $ %
_______ to ________......................
_______ to ________......................
_______ to ________......................
_______ to ________......................
_______ to ________......................
_______ to ________......................
_______ to ________......................
_______ to ________......................
_______ to ________......................
-------------- --------------- ---------------------
Total............................ $ 100.00%
-------------- --------------- ---------------------
- --------------
(1) Assumes that the Draw Period for Mortgage Loans with five year Draw
Periods will be extended for an additional five years.
</TABLE>
ORIGINATION YEAR
<TABLE>
<CAPTION>
Origination Year Number of Cut-off Date Percent of Pool by
Mortgage Principal Cut-off Date
Loans Balance Principal Balance
- --------------------------------------------- -------------- --------------- ---------------------
<S> <C> <C>
- -------.................................. $ %
- -------..................................
-------------- --------------- ---------------------
Total............................ $ 100.00%
-------------- --------------- ---------------------
</TABLE>
DELINQUENCY STATUS OF HOME EQUITY LOANS AND HOME IMPROVEMENT CONTRACTS
<TABLE>
<CAPTION>
Number of Days Delinquent Number of Cut-off Date Percent of Pool by
Mortgage Principal Cut-off Date
Loans Balance Principal Balance
- --------------------------------------------- -------------- --------------- ---------------------
<S> <C> <C>
0 to 29.................................. $ %
30 to 59.................................
-------------- --------------- ---------------------
60 to 89.................................
-------------- --------------- ---------------------
Total............................ $ 100.00%
-------------- --------------- ---------------------
</TABLE>
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the Securities, the Depositor will
transfer to the Trust all of its right, title and interest in and to each
Mortgage Loan [LOANS] (including its right to purchase any Additional Balances
arising in the future), related Credit Line Agreements, mortgages and other
related documents (collectively, the "Related Documents"), including all
collections received on or with respect to each such Mortgage Loan after the
Cut-off Date (exclusive of payments in respect of accrued interest due on or
prior to the Cut-off Date or due in the month of ______). The Owner Trustee,
concurrently with such transfer, will deliver the Securities. Each Mortgage
Loan transferred to the Owner Trust will be identified on a schedule delivered
to the Owner Trustee pursuant to the Purchase Agreement. Such schedule will
include information as to the Cut-off Date Principal Balance of each Mortgage
Loan, as well as information with respect to the Loan Rate.
Within 90 days of an Assignment Event the Owner Trustee will review
the Mortgage Loans and the Related Documents and if any Mortgage Loan or
Related Document is found to be defective in any material respect and such
defect is not cured within 90 days following notification thereof to the
Seller and the Depositor by the Owner Trustee, the Seller will be obligated to
repurchase the Mortgage Loan and to deposit the Repurchase Price into the
Collection Account. Upon such retransfer, the Principal Balance of such
Mortgage Loan will be deducted from the Pool Balance. In lieu of any such
repurchase, the Seller may substitute an Eligible Substitute Mortgage Loan.
Any such repurchase or substitution will be considered a payment in full of
such Mortgage Loan. The obligation of the Seller to accept a transfer of a
Defective Mortgage Loan is the sole remedy regarding any defects in the
Mortgage Loans and Related Documents available to the Owner Trustee or the
Holders.
With respect to any Mortgage Loan, the "Repurchase Price" is equal to
the Principal Balance of such Mortgage Loan at the time of any transfer
described above plus accrued and unpaid interest thereon to the date of
repurchase.
An "Eligible Substitute Mortgage Loan" is a mortgage loan substituted
by the Depositor for a Defective Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding Principal Balance (or in the case of a
substitution of more than one Mortgage Loan for a Defective Mortgage Loan, an
aggregate Principal Balance), not __% more or less than the Transfer
Deficiency relating to such Defective Mortgage Loan; (ii) have a Loan Rate not
less than the Loan Rate of the Defective Mortgage Loan and not more than 1% in
excess of the Loan Rate of such Defective Mortgage Loan; (iii) have a Loan
Rate based on the same Index with adjustments to such Loan Rate made on the
same Interest Rate Adjustment Date as that of the Defective Mortgage Loan;
(iv) have a Margin that is not less than the Margin of the Defective Mortgage
Loan and not more than ___ basis points higher than the Margin for the
Defective Mortgage Loan; (v) have a mortgage of the same or higher level of
priority as the mortgage relating to the Defective Mortgage Loan; (vi) have a
remaining term to maturity not more than ___ months earlier and not more than
__ months later than the remaining term to maturity of the Defective Mortgage
Loan; (vii) comply with each representation and warranty as to the Mortgage
Loans set forth in the Purchase Agreement (deemed to be made as of the date of
substitution); (viii) in general, have an original Combined Loan-to-Value
Ratio not greater than that of the Defective Mortgage Loans; and (ix) satisfy
certain other conditions specified in the Purchase Agreement. To the extent
the Principal Balance of an Eligible Substitute Mortgage Loan is less than the
Principal Balance of the related Defective Mortgage Loan, the Seller will be
required to make a deposit to the Collection Account equal to such difference.
The Seller will make certain representations and warranties as to the
accuracy in all material respects of certain information furnished to the
Owner Trustee with respect to each Mortgage Loan (e.g., Cut-off Date Principal
Balance and the Loan Rate). In addition, the Seller will represent and warrant
on the Closing Date that at the time of transfer to the Depositor, the Seller
has transferred or assigned all of its right, title and interest in each
Mortgage Loan and the Related Documents, free of any lien (subject to certain
exceptions). Upon discovery of a breach of any such representation and
warranty which materially and adversely affects the interests of the Trustee
[or Letter of Credit][Surety Bond] provider in the related Mortgage Loan and
Related Documents, the Seller will have a period of 90 days after discovery or
notice of the breach to effect a cure. If the breach cannot be cured within
the 90-day period, the Seller will be obligated to repurchase or substitute
the Defective Mortgage Loan from the Trust; provided, however, that the Seller
will not be obligated to make any such repurchase or substitution (or cure
such breach) if such breach constitutes fraud in the origination of the
affected Mortgage Loan and the Seller did not have knowledge of such fraud.
The same procedure and limitations that are set forth above for the repurchase
or substitution of Defective Mortgage Loans will apply to the transfer of a
Mortgage Loan that is required to be repurchased or substituted because of a
breach of a representation or warranty in the Purchase Agreement that
materially and adversely affects the interests of the Trustee in the such
Mortgage Loan.
Mortgage Loans required to be transferred to the Seller as described
in the preceding paragraphs are referred to as "Defective Mortgage Loans."
MATURITY AND PREPAYMENT CONSIDERATIONS
[All of the Mortgage Loans [LOANS] may be prepaid in full or in part
at any time.] However, Mortgage Loans [LOANS] secured by Mortgaged Properties
in __________ are subject to an account termination fee equal to the lesser of
$___ and six months interest on the amount prepaid, to the extent the prepaid
amount exceeds __% of the unpaid principal balance, if the account is
terminated on or before its _____ year anniversary. In addition, Mortgage
Loans secured by Mortgaged Properties in other jurisdictions may be subject to
account termination fees to the extent permitted by law. In general, such
account termination fees do not exceed $___ and do not apply to accounts
terminated subsequent to a date designated in the related Mortgage Note which,
depending on the jurisdiction, ranges between [___ months and ____ years]
following origination.] The prepayment experience with respect to the Mortgage
Loans will affect the weighted average life of the Securities.
The rate of prepayment on the Mortgage Loans [LOANS] cannot be
predicted. Neither the Depositor nor the Master Servicer is aware of any
publicly available studies or statistics on the rate of prepayment of such
Mortgage Loans. Generally, home equity revolving credit lines are not viewed
by borrowers as permanent financing. Accordingly, the Mortgage Loans may
experience a higher rate of prepayment than traditional first mortgage loans.
On the other hand, because the Mortgage Loans amortize as described herein,
rates of principal payment on the Mortgage Loans [LOANS] will generally be
slower than those of traditional fully-amortizing first mortgages in the
absence of prepayments on such Mortgage Loans. The prepayment experience of
the Trust with respect to the Mortgage Loans may be affected by a wide variety
of factors, including general economic conditions, prevailing interest rate
levels, the availability of alternative financing, homeowner mobility, the
frequency and amount of any future draws on the Credit Line Agreements and
changes affecting the deductibility for Federal income tax purposes of
interest payments on home equity credit lines. Substantially all of the
Mortgage Loans contain "due-on-sale" provisions, and, with respect to the
Mortgage Loans, the Master Servicer intends to enforce such provisions, unless
such enforcement is not permitted by applicable law. The enforcement of a
"due-on-sale" provision will have the same effect as a prepayment of the
related Mortgage Loan. See "Certain Legal Aspects of the Loans--Due-on-Sale
Clauses" in the Prospectus.
The yield to an investor who purchases the Securities in the
secondary market at a price other than par will vary from the anticipated
yield if the rate of prepayment on the Mortgage Loans is actually different
than the rate anticipated by such investor at the time such Securities were
purchased.
Collections on the Mortgage Loans [LOANS] may vary because, among
other things, borrowers may make payments during any month as low as the
minimum monthly payment for such month or as high as the entire outstanding
principal balance plus accrued interest and the fees and charges thereon. It
is possible that borrowers may fail to make scheduled payments. Collections on
the Mortgage Loans may vary due to seasonal purchasing and payment habits of
borrowers.
No assurance can be given as to the level of prepayments that will
be experienced by the Trust and it can be expected that a portion of borrowers
will not prepay their Mortgage Loans to any significant degree. See "Yield and
Prepayment Considerations" in the Prospectus.
DESCRIPTION OF THE MASTER SERVICING AGREEMENT
The Master Servicer shall establish and maintain on behalf of the
Owner Trustee an account (the "Collection Account") for the benefit of the
Holders. The Collection Account will be an Eligible Account (as defined
herein). Subject to the investment provision described in the following
paragraphs, upon receipt by the Master Servicer of amounts in respect of the
Mortgage Loans (excluding amounts representing administrative charges, annual
fees, taxes, assessments, credit insurance charges, insurance proceeds to be
applied to the restoration or repair of a Mortgaged Property or similar
items), the Master Servicer will deposit such amounts in the Collection
Account. Amounts so deposited may be invested in Eligible Investments (as
described in the Servicing Agreement) maturing no later than one Business Day
prior to the date on which the amount on deposit therein is required to be
deposited in the Distribution Account or on such Distribution Date if approved
by the Rating Agencies. Not later than the _____ Business Day prior to each
Distribution Date (the "Determination Date"), the Master Servicer will notify
the Owner Trustee and the Indenture Trustee of the amount of such deposit to
be included in funds available for the related Distribution Date.
The Owner Trustee and the Indenture Trustee will establish one or
more accounts (the "Security Account") into which will be deposited amounts
withdrawn from the Collection Account for distribution to Holders on a
Distribution Date. The Security Account will be an Eligible Account. Amounts
on deposit therein will be invested in Eligible Investments maturing on or
before the Business Day prior to the related Distribution Date.
An "Eligible Account" is (i) an account that is maintained with a
depository institution whose debt obligations at the time of any deposit
therein have the highest short-term debt rating by the Rating Agencies, (ii)
one or more accounts with a depository institution having a minimum long-term
unsecured debt rating of "____" by _____ and "____" by _____, which accounts
are fully insured by either the Savings Association Insurance Fund ("SAIF") or
the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation
established by such fund, (iii) a segregated trust account maintained with the
Owner Trustee or an Affiliate of the Owner Trustee in its fiduciary capacity
or (iv) otherwise acceptable to each Rating Agency as evidenced by a letter
from each Rating Agency to the Owner Trustee, without reduction or withdrawal
of their then current ratings of the Securities.
Eligible Investments are specified in the Servicing Agreement and are
limited to investments which meet the criteria of the Rating Agencies from
time to time as being consistent with their then current ratings of the
Securities.
ALLOCATIONS AND COLLECTIONS
All collections on the Mortgage Loans will generally be allocated in
accordance with the Credit Line Agreements between amounts collected in
respect of interest and amounts collected in respect of principal. As to any
Distribution Date, "Interest Collections" will be equal to the aggregate of
the amounts collected during the related Collection Period, including Net
Liquidation Proceeds (as defined below), allocated to interest pursuant to the
terms of the Credit Line Agreements.
As to any Distribution Date, "Principal Collections" will be equal to
the sum of (i) the amounts collected during the related Collection Period,
including Net Liquidation Proceeds, and allocated to principal pursuant to the
terms of the Credit Line Agreements and (ii) any Substitution Adjustment
Amounts. "Net Liquidation Proceeds" with respect to a Mortgage Loan are equal
to the aggregate of all amounts received upon liquidation of such Mortgage
Loan, including, without limitation, insurance proceeds, reduced by related
expenses, but not including the portion, if any, of such amount that exceeds
the Principal Balance of the Mortgage Loan at the end of the Collection Period
immediately preceding the Collection Period in which such Mortgage Loan became
a Liquidated Mortgage Loan plus accrued and unpaid interest thereon through
the date of liquidation.
With respect to any date, the "Pool Balance" will be equal to the
aggregate of the Principal Balances of all Mortgage Loans as of such date. The
Principal Balance of a Mortgage Loan (other than a Liquidated Mortgage Loan)
on any day is equal to the Cut-off Date Principal Balance thereof, plus (i)
any Additional Balances in respect of such Mortgage Loan minus (ii) all
collections credited against the Principal Balance of such Mortgage Loan in
accordance with the related Credit Line Agreement prior to such day. The
Principal Balance of a Liquidated Mortgage Loan after final recovery of
related Liquidation Proceeds shall be zero.
HAZARD INSURANCE
The Master Servicing Agreement provides that the Master Servicer
maintain certain hazard insurance on the Mortgaged Properties relating to the
Mortgage Loans. While the terms of the related Credit Line Agreements
generally require borrowers to maintain certain hazard insurance, the Master
Servicer will not monitor the maintenance of such insurance.
The Master Servicing Agreement requires the Master Servicer to
maintain for any Mortgaged Property relating to a Mortgage Loan acquired upon
foreclosure of a Mortgage Loan, or by deed in lieu of such foreclosure, hazard
insurance with extended coverage in an amount equal to the lesser of (a) the
maximum insurable value of such Mortgaged Property or (b) the outstanding
balance of such Mortgage Loan plus the outstanding balance on any mortgage
loan senior to such Mortgage Loan at the time of foreclosure or deed in lieu
of foreclosure, plus accrued interest and the Master Servicer's good faith
estimate of the related liquidation expenses to be incurred in connection
therewith. The Master Servicing Agreement provides that the Master Servicer
may satisfy its obligation to cause hazard policies to be maintained by
maintaining a blanket policy insuring against losses on such Mortgaged
Properties. If such blanket policy contains a deductible clause, the Master
Servicer will be obligated to deposit in the Collection Account the sums which
would have been deposited therein but for such clause. The Master Servicer
will initially satisfy these requirements by maintaining a blanket policy. As
set forth above, all amounts collected by the Master Servicer (net of any
reimbursements to the Master Servicer) under any hazard policy (except for
amounts to be applied to the restoration or repair of the Mortgaged Property)
will ultimately be deposited in the Collection Account.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements on the property
by fire, lightning, explosion, smoke, windstorm and hail, and the like, strike
and civil commotion, subject to the conditions and exclusions specified in
each policy. Although the policies relating to the Mortgage Loans will be
underwritten by different insurers and therefore will not contain identical
terms and conditions, the basic terms thereof are dictated by state laws and
most of such policies typically do not cover any physical damage resulting
from the following: war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), nuclear reactions, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases vandalism. The foregoing list is
merely indicative of certain kinds of uninsured risks and is not intended to
be all-inclusive or an exact description of the insurance policies relating to
the Mortgaged Properties.
REALIZATION UPON DEFAULTED MORTGAGE LOANS [LOANS]
The Master Servicer will foreclose upon or otherwise comparably
convert to ownership Mortgaged Properties securing such of the Mortgage Loans
[LOANS] as come into default when in accordance with applicable servicing
procedures under the Master Servicing Agreement, no satisfactory arrangements
can be made for the collection of delinquent payments. In connection with such
foreclosure or other conversion, the Master Servicer will follow such
practices as it deems necessary or advisable and as are in keeping with its
general subordinate mortgage servicing activities, provided the Master
Servicer will not be required to expend its own funds in connection with
foreclosure or other conversion, correction of default on a related senior
mortgage loan or restoration of any property unless, in its sole judgment,
such foreclosure, correction or restoration will increase net Liquidation
Proceeds. The Master Servicer will be reimbursed out of Liquidation Proceeds
for advances of its own funds as liquidation expenses before any Net
Liquidation Proceeds are distributed to Holders or the [Transferor][Seller].
"Net Liquidation Proceeds" with respect to a Mortgage Loan is the amount
received upon liquidation of such Mortgage Loan reduced by related expenses,
which may include the amount advanced in respect of a senior mortgage, up to
the unpaid Principal Balance of the Mortgage Loan plus accrued and unpaid
interest thereon.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
With respect to each Collection Period, other than the first
Collection Period, the Master Servicer will retain from interest collections
in respect of the Mortgage Loan a portion of such interest collections as a
monthly Servicing Fee in the amount equal to ___% per annum ("Servicing Fee
Rate") on the aggregate Principal Balances of the Mortgage Loans as of the
first day of each such Collection Period. All assumption fees, late payment
charges and other fees and charges, to the extent collected from borrowers,
will be retained by the Master Servicer as additional servicing compensation.
The Master Servicer will pay certain ongoing expenses associated with
the Trust and incurred by it in connection with its responsibilities under the
Servicing Agreement, including, without limitation, payment of the fees and
disbursements of the Trustee, any custodian appointed by the Trustee, the
Registrar and any paying agent. In addition, the Master Servicer will be
entitled to reimbursement for certain expenses incurred by it in connection
with defaulted Mortgage Loans and in connection with the restoration of
Mortgaged Properties, such right of reimbursement being prior to the rights of
Holders to receive any related Net Liquidation Proceeds.
DESCRIPTION OF THE SECURITIES
GENERAL
The Notes will be issued pursuant to the Indenture dated as of
___________, 199_, between the Trust and _______________, as Indenture
Trustee. The Certificates will be issued pursuant to the Trust Agreement dated
as of ______________, 199_, among the Depositor, __________, and
______________, as Owner Trustee. The following summaries describe certain
provisions of the Securities, Indenture and Trust Agreement. The summaries do
not purport to be complete and are subject to, and qualified in their entirety
by reference to, the provisions of the applicable agreement. As used herein,
"Agreement" shall mean either the Trust Agreement or the Indenture, as the
context requires.
The Securities will be issued in fully registered, certificated form
only. The Securities will be freely TRANSFERABLE and exchangeable at the
corporate trust office of the Owner Trustee, with respect to the Certificates
or the Indenture Trustee with respect to the Notes.
BOOK-ENTRY SECURITIES
The Senior Certificates will be book-entry Certificates (the
"Book-Entry Certificates"). Persons acquiring beneficial ownership interests
in the Senior Certificates ("Certificate Owners") will hold their Certificates
through the Depository Trust Company ("DTC") in the United States[, or CEDEL
or Euroclear (in Europe)] if they are participants of such systems, or
indirectly through organizations which are participants in such systems. The
Book-Entry Certificates will be issued in one or more certificates which equal
the aggregate principal balance of the 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
N.A. will act as depositary for CEDEL and Chase 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
Certificate Principal Balances of $1,000 and in integral multiples in excess
thereof. Except as described below, no person acquiring a Book-Entry
Certificate (each, a "beneficial owner") will be entitled to receive a
physical certificate representing such Certificate (a "Definitive
Certificate"). Unless and until Definitive Certificates are issued, it is
anticipated that the only "Certificateholder" of the Certificates will be Cede
& Co., as nominee of DTC. Certificate Owners will not be Certificateholders as
that term is used in the Pooling and Servicing Agreement. Certificate Owners
are only permitted to exercise their rights indirectly through Participants
and DTC.
DISTRIBUTIONS
On each Distribution Date, collections on the Mortgage Loans will be
applied in the following order of priority:
(i) to the Master Servicer, the Servicing Fee;
(ii) as payment for the accrued interest due and
any overdue accrued interest on the respective Security
Principal Balance of the Notes and the Certificates;
(iii) as principal on the Securities, the excess of
Principal Collections over Additional Balances created
during the preceding Collection Period, such amount to be
allocated between the Notes and Certificates pro rata, based
on their respective Security Principal Balances;
(iv) as principal on the Securities, as payment for
any Liquidation Loss Amounts on the Mortgage Loans;
(v) as payment for the premium for the [Letter of
Credit][Surety Bond];
(vi) to reimburse prior draws made on the [Letter of
Credit][Surety Bond]; and
(vii) any remaining amounts to the Seller.
As to any Distribution Date, the "Collection Period" is the calendar
month preceding the month of such Distribution Date.
"Liquidation Loss Amount" means with respect to any Liquidated
Mortgage Loan, the unrecovered Principal Balance thereof at the end of the
Collection Period in which such Mortgage Loan became a Liquidated Mortgage
Loan after giving effect to the Net Liquidation Proceeds in connection
therewith.
INTEREST
Note Rate. Interest will accrue on the unpaid Security Principal
Balance of the Notes at the per annum rate (the "Note Rate") equal to __% per
annum from the Closing Date to the first Distribution Date and thereafter
interest will accrue on the Notes from and including the preceding
Distribution Date to but excluding such current Distribution Date (each, an
"Interest Accrual Period") at [a floating rate equal to LIBOR (as defined
herein) plus __%] [__%]. [Interest will be calculated on the basis of the
actual number of days in each Interest Accrual Period by 360.] A failure to
pay interest on any Notes on any Distribution Date that continues for five
days constitutes an Event of Default under the Indenture.
Pass-Through Rate. Interest will accrue on the unpaid Security
Principal Balance of the Certificates at the per annum rate (the "Pass-Through
Rate") equal to __% per annum from the Closing Date to the first Distribution
Date and thereafter interest will accrue on the Certificates for each Interest
Accrual Period at [a floating rate equal to LIBOR (as defined herein) plus
__%] [__%]. [Interest will be calculated on the basis of the actual number of
days in each Interest Accrual Period divided by 360.] A failure to pay
interest on any Certificates on any Distribution Date that continues for five
days constitutes an Event of Default under the Trust Agreement.
OPTIONAL TERMINATION
The Trust will terminate on the Distribution Date following the
earlier of (i) _________________________ and (ii) the final payment or other
liquidation of the last Mortgage Loan in the Trust. The Mortgage Loans will be
subject to optional repurchase by the Master Servicer on any Distribution Date
after the Principal Balance is reduced to an amount less than or equal to
$_____ (__% of the initial Principal Balance). The repurchase price will be
equal to the sum of the outstanding Principal Balance and accrued and unpaid
interest thereon at the weighted average of the Loan Rates through the day
preceding the final Distribution Date.
THE DEPOSITOR
IndyMac ABS, Inc., the Depositor, is a Delaware corporation organized
on APRIL 29, 1998 for the limited purpose of acquiring, owning and
transferring mortgage related assets and selling interests therein or bonds
secured thereby. It is a limited purpose finance subsidiary of IndyMac, Inc.,
a Delaware corporation. The Depositor maintains its principal office at 155
North Lake Avenue, Pasadena, California 91101-7139. Its telephone number is
800-669-2300.
THE INDENTURE
The following summary describes certain terms of the Indenture. The
summary does not purport to be complete and is subject to, and qualified by
reference to, the provisions of the Indenture. Whenever particular sections or
defined terms of the Indenture are referred to, such sections or defined terms
are thereby incorporated herein by reference. See "Description of the
Securities" herein for a summary of certain additional terms of the Indenture.
REPORTS TO NOTEHOLDERS
The Indenture Trustee will mail to each Noteholder, at such
Noteholder's request, at its address listed on the Note Register maintained
with the Indenture Trustee a report setting forth certain amounts relating to
the Notes.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
With respect to the Notes, "Events of Default" under the Indenture
will consist of: (i) a default for five days or more in the payment of any
interest on any Note; (ii) a default in the payment of the principal of or any
installment of the principal of any Note when the same becomes due and
payable; (iii) a default in the observance or performance of any covenant or
agreement of the Trust made in the Indenture, which default materially affects
the rights of the Noteholders, and the continuation of any such default for a
period of 30 days after notice thereof is given to the Trust by the Indenture
Trustee or to the Trust and the Indenture Trustee by the holders of at least
25% in principal amount of the Notes then outstanding; (iv) any representation
or warranty made by the Trust in the Indenture or in any certificate delivered
pursuant thereto or in connection therewith having been incorrect in a
material respect as of the time made, and such breach not having been cured
within 30 days after notice thereof is given to the Trust by the Indenture
Trustee or to the Trust and the Indenture Trustee by the holders of at least
25% in principal amount of Notes then outstanding; or (v) certain events of
bankruptcy, insolvency, receivership or liquidation of the Trust. [The amount
of principal required to be paid to Noteholders under the Indenture will
generally be limited to amounts available to be deposited in the Collection
Account. Therefore, the failure to pay principal on the Notes generally will
not result in the occurrence of an Event of Default until the final scheduled
Distribution Date for such Notes.] If there is an Event of Default with
respect to a Note due to late payment or nonpayment of interest due on a Note,
additional interest will accrue on such unpaid interest at the interest rate
on the Note (to the extent lawful) until such interest is paid. Such
additional interest on unpaid interest shall be due at the time such interest
is paid. If there is an Event of Default due to late payment or nonpayment of
principal on a Note, interest will continue to accrue on such principal at the
interest rate on the Note until such principal is paid. If an Event of Default
should occur and be continuing with respect to the Notes, the Indenture
Trustee or holders of a majority in principal amount of Notes then outstanding
may declare the principal of such Notes to be immediately due and payable.
Such declaration may, under certain circumstances, be rescinded by the holders
of a majority in principal amount of the Notes then outstanding. If the Notes
are due and payable following an Event of Default with respect thereto, the
Indenture Trustee may institute proceedings to collect amounts due or
foreclose on Trust property or exercise remedies as a secured party. If an
Event of Default occurs and is continuing with respect to the Notes, the
Indenture Trustee will be under no obligation to exercise any of the rights or
powers under the Indenture at the request or direction of any of the holders
of the Notes, if the Indenture Trustee reasonably believes it will not be
adequately indemnified against the costs, expenses and liabilities which might
be incurred by it in complying with such request. Subject to the provisions
for indemnification and certain limitations contained in the Indenture, the
holders of a majority in principal amount of the outstanding Notes will have
the right to direct the time, method and place of conducting any proceeding or
any remedy available to the Indenture Trustee, and the holders of a majority
in principal amount of the Notes then outstanding may, in certain cases, waive
any default with respect thereto, except a default in the payment of principal
or interest or a default in respect of a covenant or provision of the
Indenture that cannot be modified without the waiver or consent of all the
holders of the outstanding Notes. No holder of a Note will have the right to
institute any proceeding with respect to the Indenture, unless (i) such holder
previously has given the Indenture Trustee written notice of a continuing
Event of Default, (ii) the holders of not less than 25% in principal amount of
the outstanding Notes have made written request to the Indenture Trustee to
institute such proceeding in its own name as Indenture Trustee, (iii) such
holder or holders have offered the Indenture Trustee reasonable indemnity,
(iv) the Indenture Trustee has for 60 days failed to institute such proceeding
and (v) no direction inconsistent with such written request has been given to
the Indenture Trustee during the 60-day period by the holders of a majority in
principal amount of the Notes. In addition, the Indenture Trustee and the
Noteholders, by accepting the Notes, will covenant that they will not at any
time institute against the Trust any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law. With respect
to the Trust, neither the Indenture Trustee nor the Owner Trustee in its
individual capacity, nor any holder of a Certificate representing an ownership
interest in the Trust nor any of their respective owners, beneficiaries,
agents, officers, directors, employees, affiliates, successors or assigns
will, in the absence of an express agreement to the contrary, be personally
liable for the payment of the principal of or interest on the Notes or for the
agreements of the Trust contained in the Indenture.
CERTAIN COVENANTS
The Indenture will provide that the Trust may not consolidate with or
merge into any other entity, unless (i) the entity formed by or surviving such
consolidation or merger is organized under the laws of the United States, any
state or the District of Columbia, (ii) such entity expressly assumes the
Trust's obligation to make due and punctual payments upon the Notes and the
performance or observance of any agreement and covenant of the Trust under the
Indenture, (iii) no Event of Default shall have occurred and be continuing
immediately after such merger or consolidation, (iv) the Trust has been
advised that the ratings of the Securities then in effect would not be reduced
or withdrawn by any Rating Agency as a result of such merger or consolidation
and (v) the Trust has received an opinion of counsel to the effect that such
consolidation or merger would have no material adverse tax consequence to the
Trust or to any Noteholder or Certificateholder. The Trust will not, among
other things, (i) except as expressly permitted by the Indenture, sell,
transfer, exchange or otherwise dispose of any of the assets of the Trust,
(ii) claim any credit on or make any deduction from the principal and interest
payable in respect of the Notes (other than amounts withheld under the Code or
applicable state law) or assert any claim against any present or former holder
of Notes because of the payment of taxes levied or assessed upon the Trust,
(iii) dissolve or liquidate in whole or in part, (iv) permit the validity or
effectiveness of the Indenture to be impaired or permit any person to be
released from any covenants or obligations with respect to the Notes under the
Indenture except as may be expressly permitted thereby or (v) permit any lien,
charge excise, claim, security interest, mortgage or other encumbrance to be
created on or extend to or otherwise arise upon or burden the assets of the
Trust or any part thereof, or any interest therein or the proceeds thereof.
The Trust may not engage in any activity other than as specified under "The
Trust" herein. The Trust will not incur, assume or guarantee any indebtedness
other than indebtedness incurred pursuant to the Notes and the Indenture.
ANNUAL COMPLIANCE STATEMENT
The Trust will be required to file annually with the Indenture
Trustee a written statement as to the fulfillment of its obligations under the
Indenture.
INDENTURE TRUSTEE'S ANNUAL REPORT
The Indenture Trustee will be required to mail each year to all
Noteholders a report relating to any change in its eligibility and
qualification to continue as Indenture Trustee under the Indenture, any
amounts advanced by it under the Indenture, the amount, interest rate and
maturity date of any indebtedness owing by the Trust to the Indenture Trustee
in its individual capacity, any change in the property and funds physically
held by the Indenture Trustee as such and any action taken by it that
materially affects the Notes and that has not been previously reported, but if
no such changes have occurred, then no report shall be required.
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture will be discharged with respect to the collateral
securing the Notes upon the delivery to the Indenture Trustee for cancellation
of all the Notes or, with certain limitations, upon deposit with the Indenture
Trustee of funds sufficient for the payment in full of all the Notes.
MODIFICATION OF INDENTURE
With the consent of the holders of a majority in principal amount of
the Notes then outstanding, the Trust and the Indenture Trustee may execute a
supplemental indenture to add provisions to, change in any manner or eliminate
any provisions of, the Indenture, or modify (except as provided below) in any
manner the rights of the Noteholders. Without the consent of the holder of
each outstanding Note affected thereby, however, no supplemental indenture
will: (i) change the due date of any installment of principal of or interest
on any Note or reduce the principal amount thereof, the interest rate
specified thereon or the redemption price with respect thereto or change any
place of payment where or the coin or currency in which any Note or any
interest thereon is payable; (ii) impair the right to institute suit for the
enforcement of certain provisions of the Indenture regarding payment; (iii)
reduce the percentage of the aggregate amount of the outstanding Notes, the
consent of the holders of which is required for any supplemental indenture or
the consent of the holders of which is required for any waiver of compliance
with certain provisions of the Indenture or of certain defaults thereunder and
their consequences as provided for in the Indenture; (iv) modify or alter the
provisions of the Indenture regarding the voting of Notes held by the Trust,
the Depositor or an affiliate of any of them; (v) decrease the percentage of
the aggregate principal amount of Notes required to amend the sections of the
Indenture which specify the applicable percentage of aggregate principal
amount of the Notes necessary to amend the Indenture or certain other related
agreements; or (vi) permit the creation of any lien ranking prior to or on a
parity with the lien of the Indenture with respect to any of the collateral
for the Notes or, except as otherwise permitted or contemplated in the
Indenture, terminate the lien of the Indenture on any such collateral or
deprive the holder of any Note of the security afforded by the lien of the
Indenture. The Trust and the Indenture Trustee may also enter into
supplemental indentures, without obtaining the consent of the Noteholders, for
the purpose of, among other things, adding any provisions to or changing in
any manner or eliminating any of the provisions of the Indenture or of
modifying in any manner the rights of the Noteholders; provided that such
action will not materially and adversely affect the interest of any
Noteholder.
VOTING RIGHTS
At all times, the voting rights of Noteholders under the Indenture
will be allocated among the Notes pro rata in accordance with their
outstanding principal balances.
CERTAIN MATTERS REGARDING THE INDENTURE TRUSTEE AND THE DEPOSITOR
Neither the Depositor, the Indenture Trustee nor any director,
officer or employee of the Depositor or the Indenture Trustee will be under
any liability to the Trust or the related Noteholders for any action taken or
for refraining from the taking of any action in good faith pursuant to the
Indenture or for errors in judgment; provided, however, that none of the
Indenture Trustee, the Depositor and any director, officer or employee thereof
will be protected against any liability which would otherwise be imposed by
reason of willful malfeasance, bad faith or gross negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties under the Indenture. Subject to certain limitations set forth in the
Indenture, the Indenture Trustee and any director, officer, employee or agent
of the Indenture Trustee shall be indemnified by the Trust and held harmless
against any loss, liability or expense incurred in connection with
investigating, preparing to defend or defending any legal action, commenced or
threatened, relating to the Indenture other than any loss, liability or
expense incurred by reason of willful malfeasance, bad faith or gross
negligence in the performance of its duties under such Indenture or by reason
of reckless disregard of its obligations and duties under the Indenture. Any
such indemnification by the Trust will reduce the amount distributable to the
Noteholders. All persons into which the Indenture Trustee may be merged or
with which it may be consolidated or any person resulting from such merger or
consolidation shall be the successor of the Indenture Trustee under each
Indenture.
THE TRUST AGREEMENT
The following summary describes certain terms of the Trust Agreement.
The summary does not purport to be complete and is subject to, and qualified
by reference to, the provisions of the Trust Agreement. Whenever particular
sections or defined terms of the Trust Agreement are referred to, such
sections or defined terms are thereby incorporated herein by reference. See
"Description of the Securities" herein for a summary of certain additional
terms of the Trust Agreement.
AMENDMENT
The Trust Agreement may be amended by the Depositor and the Owner
Trustee, without consent of the Holders, to cure any ambiguity, to correct or
supplement any provision or for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions thereof or of
modifying in any manner the rights of such Holders; provided, however, that
such action will not, as evidenced by an opinion of counsel satisfactory to
the Owner Trustee, adversely affect in any material respect the interests of
any Holders. The Trust Agreement may also be amended by the Depositor and the
Owner Trustee with the consent of the holders of Certificates evidencing at
least a majority in principal amount of then outstanding Certificates and
Holders owning Voting Interests (as herein defined) aggregating not less than
a majority of the aggregate Voting Interests for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of the Trust Agreement or modifying in any manner the rights of the Holders.
INSOLVENCY EVENT
"Insolvency Event" means, with respect to any Person, any of the
following events or actions; certain events of insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings with
respect to such Person and certain actions by such Person indicating its
insolvency, reorganization pursuant to bankruptcy proceedings or inability to
pay its obligations. Upon termination of the Trust, the Owner Trustee shall
direct the Indenture Trustee promptly to sell the assets of the Trust (other
than the Collection Account) in a commercially reasonable manner and on
commercially reasonable terms. The proceeds from any such sale, disposition or
liquidation of the Mortgage Loans will be treated as collections on the
Mortgage Loans and deposited in the Collection Account. The Trust Agreement
will provide that the Owner Trustee does not have the power to commence a
voluntary proceeding in bankruptcy with respect to the Trust without the
unanimous prior approval of all Holders (including the Depositor) of the Trust
and the delivery to the Owner Trustee by each Holder (including the Depositor)
of a certificate certifying that the Holder reasonably believes that the Trust
is insolvent.
LIABILITY OF THE DEPOSITOR
Under the Trust Agreement, the Depositor will agree to be liable
directly to an injured party for the entire amount of any losses, claims,
damages or liabilities (other than those incurred by a Noteholder or a Holder
in the capacity of an investor with respect to the Trust) arising out of or
based on the arrangement created by the Trust Agreement.
VOTING INTERESTS
As of any date, the aggregate principal balance of all Certificates
outstanding will constitute the voting interest of the Issuer (the "Voting
Interests"), except that, for purposes of determining Voting Interests,
Certificates owned by the Issuer or its affiliates (other than the Depositor)
will be disregarded and deemed not to be outstanding, and except that, in
determining whether the Owner Trustee is protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Certificates that the Owner Trustee knows to be so owned will be so
disregarded. Certificates so owned that have been pledged in good faith may be
regarded as outstanding if the pledgee establishes to the satisfaction of the
Owner Trustee the pledgor's right so to act with respect to such Certificates
and that the pledgee is not the Issuer or its affiliates.
CERTAIN MATTERS REGARDING THE OWNER TRUSTEE AND THE DEPOSITOR
Neither the Depositor, the Owner Trustee nor any director, officer or
employee of the Depositor or the Owner Trustee will be under any liability to
the Trust or the related Holders for any action taken or for refraining from
the taking of any action in good faith pursuant to the Trust Agreement or for
errors in judgment; provided, however, that none of the Owner Trustee, the
Depositor and any director, officer or employee thereof will be protected
against any liability which would otherwise be imposed by reason of willful
malfeasance, bad faith or gross negligence in the performance of duties or by
reason of reckless disregard of obligations and duties under the Trust
Agreement. Subject to certain limitations set forth in the Trust Agreement,
the Owner Trustee and any director, officer, employee or agent of the Owner
Trustee shall be indemnified by the Trust and held harmless against any loss,
liability or expense incurred in connection with investigating, preparing to
defend or defending any legal action, commenced or threatened, relating to the
Trust Agreement other than any loss, liability or expense incurred by reason
of willful malfeasance, bad faith or gross negligence in the performance of
its duties under such Trust Agreement or by reason of reckless disregard of
its obligations and duties under the Trust Agreement. Any such indemnification
by the Trust will reduce the amount distributable to the Holders. All persons
into which the Owner Trustee may be merged or with which it may be
consolidated or any person resulting from such merger or consolidation shall
be the successor of the Owner Trustee under each Trust Agreement.
ADMINISTRATION AGREEMENT
The _________________, in its capacity as Administrator, will enter
into the Administration Agreement with the Trust and the Owner Trustee
pursuant to which the Administrator will agree, to the extent provided in such
Administration Agreement, to provide notices and perform other administrative
obligations required by the Indenture and the Trust Agreement.
THE INDENTURE TRUSTEE
[ ] is the Indenture Trustee under the Indenture. The mailing
address of the Indenture Trustee is [ ], Attention: Corporate Trust
Department.
THE OWNER TRUSTEE
[ ] is the Owner Trustee under the Trust Agreement. The mailing
address of the Owner Trustee is [ ], Attention: Corporate Trust
Administration.
USE OF PROCEEDS
The net proceeds from the sale of the Securities will be applied by
the Depositor towards the purchase price of the Mortgage Loans.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Prospective purchasers should see "Certain Federal Income Tax
Consequences" in the Prospectus for a discussion of the application of certain
federal income and state tax laws to the Trust Fund and the Securities.
STATE TAX CONSEQUENCES
In addition to the federal income tax consequences described in
"Certain Federal Income Tax Consequences" herein, potential investors should
consider the state income tax consequences of the acquisition, ownership, and
disposition of the Securities offered hereunder. State income tax law may
differ substantially from the corresponding federal tax law, and this
discussion does not purport to describe any aspect of the income tax laws of
any state. Therefore, potential investors should consult their own tax
advisors with respect to the various tax consequences of investments in the
Securities offered hereunder.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended
("ERISA") and Section 4975 of the Code impose certain restrictions on employee
benefit plans subject to ERISA or plans or arrangements subject to Section
4975 of the Code ("Plans") and on persons who are parties in interest or
disqualified persons ("parties in interest") with respect to such Plans.
Certain employee benefit plans, such as governmental plans and church plans
(if no election has been made under section 410(d) of the Code), are not
subject to the restrictions of ERISA, and assets of such plans may be invested
in the Securities without regard to the ERISA considerations described below,
subject to other applicable federal and state law. However, any such
governmental or church plan which is qualified under section 401(a) of the
Code and exempt from taxation under section 501(a) of the Code is subject to
the prohibited transaction rules set forth in section 503 of the Code. Any
Plan fiduciary which proposes to cause a Plan to acquire any of the Securities
should consult with its counsel with respect to the potential consequences
under ERISA, and the Code, of the Plan's acquisition and ownership of the
Securities. See "ERISA Considerations" in the Prospectus. Investments by Plans
are also subject to ERISA's general fiduciary requirements, including the
requirement of investment prudence and diversification and the requirement
that a Plan's investments be made in accordance with the documents governing
the Plan.
PROHIBITED TRANSACTIONS
GENERAL
Section 406 of ERISA prohibits parties in interest with respect to a
Plan from engaging in certain transactions (including loans) involving a Plan
and its assets unless a statutory or administrative exemption applies to the
transaction. Section 4975 of the Code imposes certain excise taxes (or, in
some cases, a civil penalty may be assessed pursuant to section 502(i) of
ERISA) on parties in interest which engage in non-exempt prohibited
transactions.
PLAN ASSET REGULATION
The United States Department of Labor ("Labor") has issued final
regulations concerning the definition of what constitutes the assets of a Plan
for purposes of ERISA and the prohibited transaction provisions of the Code
(the "Plan Asset Regulation"). The Plan Asset Regulation describes the
circumstances under which the assets of an entity in which a Plan invests will
be considered to be "plan assets" such that any person who exercises control
over such assets would be subject to ERISA's fiduciary standards. Under the
Plan Asset Regulation, generally when a Plan invests in another entity, the
Plan's assets do not include, solely by reason of such investment, any of the
underlying assets of the entity. However, the Plan Asset Regulation provides
that, if a Plan acquires an "equity interest" in an entity that is neither a
"publicly-offered security" (as defined therein) nor a security issued by an
investment company registered under the Investment Company Act of 1940, the
assets of the entity will be treated as assets of the Plan investor unless
certain exceptions apply. If the [Notes/Certificates] were deemed to be equity
interests and no statutory, regulatory or administrative exemption applies,
the Trust could be considered to hold plan assets by reason of a Plan's
investment in the Notes. Such plan assets would include an undivided interest
in any assets held by the Trust. In such an event, the Trustee and other
persons, in providing services with respect to the Trust's assets, may be
parties in interest with respect to such Plans, subject to the fiduciary
responsibility provisions of Title I of ERISA, including the prohibited
transaction provisions of Section 406 of ERISA, and Section 4975 of the Code
with respect to transactions involving the Trust's assets. Under the Plan
Asset Regulation, the term "equity interest" is defined as any interest in an
entity other than an instrument that is treated as indebtedness under
"applicable local law" and which has no "substantial equity features."
Although the Plan Assets Regulation is silent with respect to the question of
which law constitutes "applicable local law" for this purpose, Labor has
stated that these determinations should be made under the state law governing
interpretation of the instrument in question. In the preamble to the Plan
Assets Regulation, Labor declined to provide a precise definition of what
features are equity features or the circumstances under which such features
would be considered "substantial," noting that the question of whether a
plan's interest has substantial equity features is an inherently factual one,
but that in making a determination it would be appropriate to take into
account whether the equity features are such that a Plan's investment would be
a practical vehicle for the indirect provision of investment management
services. Brown & Wood LLP ("ERISA Counsel") has rendered its opinion that the
Notes will be classified as indebtedness without substantial equity features
for ERISA purposes. ERISA Counsel's opinion is based upon the terms of the
Notes, the opinion of Tax Counsel that the Notes will be classified as debt
instruments for federal income tax purposes and the ratings which have been
assigned to the Notes. However, if contrary to ERISA Counsel's opinion the
Notes are deemed to be equity interests in the Trust and no statutory,
regulatory or administrative exemption applies, the Trust could be considered
to hold plan assets by reason of a Plan's investment in the Notes.
THE UNDERWRITER'S EXEMPTION
Labor has granted to [_______ ] (the "Underwriter") an administrative
exemption (Prohibited Transaction Exemption _____ (the "Exemption")) which
exempts from the application of the prohibited transaction rules of ERISA and
the related excise tax provisions of Section 4975 of the Code transactions
relating to: (i) the acquisition, sale and holding by Plans of certificates
representing an undivided interest in certain asset backed pass-through trusts
with respect to which the Underwriter or any of its affiliates is the sole
underwriter or the manager or co-manager of the underwriting syndicate; and
(ii) the servicing, operation and management of such asset backed pass-through
trusts, provided that the general conditions and certain other conditions set
forth in the Exemption are satisfied. The Exemption will apply to the
acquisition, holding and resale of the Certificates by a Plan provided that
certain conditions (some of which are described below) are met.
Among the conditions that must be satisfied for the Exemption 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 interest 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 Corporation, Moody's Investors
Service, Inc, Duff & Phelps Inc. or Fitch IBCA, Inc.;
(4) the trustee must not be an affiliate of the
Underwriter, the Trustee, any Master Servicer, any obligor
with respect to assets held in the Trust Fund constituting
more than five percent of the aggregate unamortized
principal balance of the assets in the Trust;
(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 retain by the Issuer pursuant to
the assignment of the Mortgage Loans to the Trust Fund
represents not more than the fair market value of such
Mortgage Loans; the sum of all payments made to and retained
by the servicer represents not more than reasonable
compensation for such person's services under a pooling and
servicing agreement and reimbursements 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 Securities and Exchange Commission under
the Securities Act of 1933.
The Underwriter believes that the Exemption will apply to the
acquisition and holding of the Certificates by Plans and that all conditions
of the Exemption other than those within the control of the investors will be
met.
REVIEW BY PLAN FIDUCIARIES
Any Plan fiduciary considering whether to purchase any
[Notes/Certificates] on behalf of a Plan should consult with its counsel
regarding the applicability of the fiduciary responsibility and prohibited
transaction provisions of ERISA and the Code to such investment. Among other
things, before purchasing any [Notes/Certificates], a fiduciary of a Plan
should make its own determination as to whether the Trust, as obligor on the
[Notes/Certificates], is a party in interest with respect to the Plan, the
availability of the exemptive relief provided in the Plan Asset Regulations
and the availability of any other prohibited transaction exemptions.
Purchasers should analyze whether the decision may have an impact with respect
to purchases of the [Notes/Certificates].
LEGAL INVESTMENT CONSIDERATIONS
The appropriate characterization of the Securities under various
legal investment restrictions, and thus the ability of investors subject to
these restrictions to purchase Securities, may be subject to significant
interpretive uncertainties. All investors whose investment authority is
subject to legal restrictions should consult their own legal advisors to
determine whether, and to what extent, the Securities will constitute legal
investments for them. The Depositor makes no representation as to the proper
characterization of the Securities for legal investment or financial
institution regulatory purposes, or as to the ability of particular investors
to purchase Securities under applicable legal investment restrictions. The
uncertainties described above (and any unfavorable future determinations
concerning legal investment or financial institution regulatory
characteristics of the Securities) may adversely affect the liquidity of the
Securities.
[UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Depositor has agreed to sell to [____] (the "Underwriter"), and
the Underwriter has agreed to purchase from the Depositor, the Securities. The
Underwriter is obligated to purchase all the Securities offered hereby if any
are purchased. Distribution of the Securities will be made by the Underwriter
from time to time in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. Proceeds to the Depositor are expected to
be $________________ from the sale of the Notes and $___________ from the sale
of the Certificates, before deducting expenses payable by the Depositor of
$_________. In connection with the purchase and sale of the Securities, the
Underwriter may be deemed to have received compensation from the Depositor in
the form of underwriting discounts, concessions or commissions.
The Underwriting Agreement provides that the Depositor will indemnify
the Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, or contribute payments the Underwriter may be required
to make in respect thereof. The Depositor is an affiliate of the Underwriter.
The Underwriter is an affiliate of the Depositor.]
[METHOD OF DISTRIBUTION
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS ARE TO BE USED BY
COUNTRYWIDE SECURITIES CORPORATION, AN AFFILIATE OF INDYMAC ABS, INC. AND
INDYMAC, INC., IN CONNECTION WITH OFFERS AND SALES RELATED TO MARKET MAKING
TRANSACTIONS IN THE SECURITIES IN WHICH COUNTRYWIDE SECURITIES CORPORATION
ACTS AS PRINCIPAL. COUNTRYWIDE SECURITIES CORPORATION MAY ALSO ACT AS AGENT IN
SUCH TRANSACTIONS. SALES WILL BE MADE AT PRICES RELATED TO THE PREVAILING
PRICES AT THE TIME OF SALE.]
LEGAL MATTERS
Certain legal matters with respect to the Securities will be passed
upon for the Depositor by Brown & Wood LLP, New York, New York and for the
Underwriter by __________________________.
RATINGS
It is a condition to issuance that each Class of the Notes be rated
not lower than "_________" by [ ] and _______ by [ ]. It is a condition to
issuance that the Certificates be rated at least "___" by [ ] and "___" by [
]. A securities rating addresses the likelihood of the receipt by
Certificateholders and Noteholders of distributions on the Mortgage Loans. The
rating takes into consideration the structural, legal and tax aspects
associated with the Certificates and Notes. The ratings on the Securities do
not, however, constitute statements regarding the possibility that
Certificateholders or Noteholders might realize a lower than anticipated
yield. A securities rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each securities rating should be evaluated
independently of similar ratings on different securities.
[The ratings assigned by Duff & Phelps Credit Rating Co. ("DCR") to
securities address the likelihood of the receipt by the holders of such
securities of all distributions to which they are entitled under the
transaction structure. DCR's ratings reflect its analysis of the riskiness of
the mortgages and its analysis of the structure of the transaction as set
forth in the operative documents. DCR's ratings do not address the effect on
yield on the securities attributable to prepayments or recoveries on the
underlying assets.]
[The ratings assigned by Fitch IBCA, Inc. ("Fitch") to securities
address the likelihood of the receipt of all distributions on the assets by
the related holders of securities under the agreements pursuant to which such
securities are issued. Fitch's ratings take into consideration the credit
quality of the related pool, including any credit support providers,
structural and legal aspects associated with such securities, and the extent
to which the payment stream on the pool is adequate to make the payments
required by such securities.
Fitch ratings on such securities do not, however, constitute a
statement regarding frequency of prepayments of the assets.]
[The ratings assigned by Moody's Investors Service, Inc. ("Moody's")
to securities address the likelihood of the receipt by holders of securities
of all distributions to which such holders of securities are entitled. Moody's
ratings on securities do not represent any assessment of the likelihood or
rate of principal prepayments. The ratings do not address the possibility that
holders of securities might suffer a lower than anticipated yield as a result
of prepayments.]
[The ratings assigned by Standard & Poor's Ratings Group, a Division
of The McGraw-Hill Companies ("Standard & Poor's"), to securities address the
likelihood of the receipt of all distributions on the assets by the related
holders of securities under the agreements pursuant to which such securities
are issued. Standard & Poor's ratings take into consideration the credit
quality of the related pool, including any credit support providers,
structural and legal aspects associated with such securities, and the extent
to which the payment stream on such pool is adequate to make payments required
by such securities. Standard & Poor's ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the
related assets. The letter "r" attached to a Standard & Poor's rating
highlights derivative, hybrid and certain other types of securities that
Standard & Poor's believes may experience high volatility or high variability
in expected returns due to non-credit risks. The absence of an "r" symbol in
the rating of a class of securities should not be taken as an indication that
such securities will exhibit no volatility or variability in total return.]
The Depositor has not requested a rating of the Offered Certificates
by any rating agency other than the Rating Agencies; there can be no
assurance, however, as to whether any other rating agency will rate the
Offered Certificates or, if it does, what rating would be assigned by such
other rating agency. The rating assigned by such other rating agency to the
Offered Certificates could be lower than the respective ratings assigned by
the Rating Agencies.
<TABLE>
- ------------------------------------------------------- ----------------------------------------------------
<S> <C>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY $______________
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE DEPOSITOR OR THE HOME EQUITY LOAN
UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE TRUST 199___
PROSPECTUS DO NOT CONSTITUTE AN OFFER OF ANY $______ [FIXED] [FLOATING] RATE
SECURITIES OTHER THAN THOSE TO WHICH THEY RELATE OR AN ASSET BACKED NOTES
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, $______ [FIXED] [FLOATING] RATE
TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER ASSET BACKED CERTIFICATES,
OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER IndyMac ABS, Inc.
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE (Depositor)
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THEIR RESPECTIVE DATES.
--------------- PROSPECTUS
SUPPLEMENT
TABLE OF CONTENTS [, 199 ]
Page
----
PROSPECTUS SUPPLEMENT
Summary of Terms [UNDERWRITER]
Risk Factors
The Trust
The [Letter of Credit][Surety Bond] Issuer
The Master Servicer
The Home Equity Loan Program
Description of the Mortgage Loans
Maturity and Prepayment Considerations
Description of the Master Servicing Agreement
Description of the Securities
The Depositor
The Indenture
The Trust Agreement
Administration Agreement
The Indenture Trustee
The Owner Trustee
Use of Proceeds
Certain Federal Income Tax Consequences
State Tax Consequences
ERISA Considerations
Legal Investment Considerations
Underwriting
Legal Matters
Ratings
PROSPECTUS
Prospectus Supplement or Current Report on Form 8-K
Incorporation of Certain Documents by Reference
Available Information
Reports to Securityholders
Summary of Terms
Risk Factors
The Trust Fund
Use of Proceeds
The Depositor
Loan Program
Description of the Securities
- ------------------------------------------------------- ----------------------------------------------------
</TABLE>
SUBJECT TO COMPLETION, DATED ________, 1998
PROSPECTUS SUPPLEMENT
(To Prospectus dated ______________, 199__)
$-------------------
(APPROXIMATE)
HOME EQUITY LOAN TRUST 199_-_
HOME EQUITY LOAN ASSET BACKED CERTIFICATES, SERIES 199_-_
INDYMAC ABS, INC.
DEPOSITOR
[INDYMAC, INC.]
SELLER AND MASTER SERVICER
Each Home Equity Loan Asset Backed Certificate, Series 199_-_
(collectively, the "Certificates") will represent an undivided interest in the
Home Equity Loan Trust 199_-_ (the "Trust") to be formed pursuant to a Pooling
and Servicing Agreement among [IndyMac, Inc. ("IndyMac")], as Seller and
Master Servicer, IndyMac ABS, Inc., as Depositor, and [ ], as Trustee. The
property of the Trust will include a pool of [adjustable rate] home equity
revolving credit line loans made or to be made in the future (the "Mortgage
Loans") under certain home equity revolving credit line loan agreements. The
Mortgage Loans are secured primarily by first and second deeds of trust or
mortgages on one- to four-family residential properties.
The aggregate undivided interest in the Trust represented by the
Certificates will, as of ____________, 199_ (the "Cut-off Date"), represent
approximately __% of the outstanding principal balances of the Mortgage Loans.
The remaining undivided interest in the Trust not represented by the
Certificates (the "Transferor Interest") will initially be equal to
$_________________, which as of the Cut-off Date is _% of the outstanding
principal balances of the Mortgage Loans. Only the Certificates are offered
hereby.
Distributions of principal and interest on the Certificates will be made
on the __________th day of each month or, if such date is not a Business Day,
then on the succeeding Business Day (each, a "Distribution Date"), commencing
___________, 199_. On each Distribution Date, holders of the Certificates will
be entitled to receive, from and to the limited extent of funds available in
the Collection Account (as defined herein), distributions with respect to
interest and principal calculated as set forth herein. The Certificates are
not guaranteed by the Depositor, [IndyMac] or any affiliate thereof. [However,
the Certificates will be unconditionally and irrevocably guaranteed as to the
payment of the Guaranteed Distributions (as defined herein) on each
Distribution Date pursuant to the terms of a financial guaranty insurance
policy (the "Policy") to be issued by
[INSURER]
---------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER"RISK
FACTORS" ON PAGE S-15 HEREIN AND ON PAGE 16 IN THE ACCOMPANYING
PROSPECTUS.
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, [INDYMAC], THE TRUSTEE OR
ANY AFFILIATE THEREOF, EXCEPT TO THE EXTENT PROVIDED HEREIN. NEITHER
THE 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.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=================================================================================================================
Price to Underwriting Proceeds to the
Public (1) Discount(2) Depositor(3)
- -------------------------------------- ------------------------- ------------------------ --------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Certificate.................... % % %
====================================== ========================= ======================== ==========================
Total.............................. $ $ $
====================================== ========================= ======================== ==========================
</TABLE>
(1) Plus accrued interest, if any, from _______________, 199_.
(2) The Depositor has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting expenses, estimated to be $_______________.
---------------
The Certificates are offered subject to prior sale and subject to the
Underwriter's right to reject orders in whole or in part. It is expected that
delivery of the Certificates will be made in book-entry form only through the
facilities of The Depository Trust Company, CEDEL S.A. and the Euroclear
System on or about ______________, 199_ (the "Closing Date"). The Certificates
will be offered in Europe and the United States of America. [THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS ARE TO BE USED BY COUNTRYWIDE SECURITIES
CORPORATION, AN AFFILIATE OF INDYMAC ABS, INC. AND INDYMAC, INC., IN
CONNECTION WITH OFFERS AND SALES RELATED TO MARKET MAKING TRANSACTIONS IN THE
CERTIFICATES IN WHICH COUNTRYWIDE SECURITIES CORPORATION ACTS AS PRINCIPAL.
COUNTRYWIDE SECURITIES CORPORATION MAY ALSO ACT AS AGENT IN SUCH TRANSACTIONS.
SALES WILL BE MADE AT PRICES RELATED TO THE PREVAILING PRICES AT THE TIME OF
SALE.]
---------------
[UNDERWRITER]
________________, 199__.
There is currently no market for the Certificates offered hereby and
there can be no assurance that such a market will develop or if it does
develop that it will continue. See "Risk Factors" herein and in the
Prospectus.
THE UNDERWRITER INTENDS TO MAKE A SECONDARY MARKET IN THE UNDERWRITTEN
CERTIFICATES BUT HAS NO OBLIGATION TO DO SO. THERE IS CURRENTLY NO SECONDARY
MARKET FOR THE CERTIFICATES AND THERE CAN BE NO ASSURANCE THAT SUCH A MARKET
WILL DEVELOP OR, IF IT DOES DEVELOP, THAT IT WILL CONTINUE OR THAT IT WILL
PROVIDE CERTIFICATEHOLDERS WITH A SUFFICIENT LEVEL OF LIQUIDITY OF INVESTMENT.
The Certificates offered hereby constitute part of a separate series of
Home Equity Loan Asset Backed Certificates being offered by IndyMac ABS, Inc.
from time to time pursuant to its Prospectus dated _______________, 199__.
This Prospectus Supplement does not contain complete information about the
offering of the Certificates. Additional information is contained in the
Prospectus and investors are urged to read both this Prospectus Supplement and
the Prospectus in full. Sales of the Certificates may not be consummated
unless the purchaser has received both this Prospectus Supplement and the
Prospectus.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS
ACTING AS UNDERWRITERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
---------------
SUMMARY
The following summary of certain pertinent information is qualified in
its entirety by reference to the detailed information appearing elsewhere in
this Prospectus Supplement and the accompanying Prospectus. Certain
capitalized terms used in the Summary are defined elsewhere in the Prospectus
Supplement or in the Prospectus. Reference is made to the Index of Defined
Terms herein and the Index of Defined Terms in the Prospectus for the
definitions of certain capitalized terms. [TO THE EXTENT STATEMENTS CONTAINED
HEREIN DO NOT RELATE TO HISTORICAL OR CURRENT INFORMATION, THIS PROSPECTUS
SUPPLEMENT MAY BE DEEMED TO CONSIST OF FORWARD-LOOKING STATEMENTS. ANY SUCH
STATEMENTS, WHICH MAY INCLUDE BUT ARE NOT LIMITED TO STATEMENTS CONTAINED IN
"RISK FACTORS" AND "PREPAYMENT AND YIELD CONSIDERATIONS," INHERENTLY ARE
SUBJECT TO A VARIETY OF RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. SUCH RISKS AND
UNCERTAINTIES INCLUDE, AMONG OTHERS, GENERAL ECONOMIC AND BUSINESS CONDITIONS,
COMPETITION, CHANGES IN FOREIGN POLITICAL, SOCIAL AND ECONOMIC CONDITIONS,
REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, CUSTOMER
PREFERENCES AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND THE
DEPOSITOR'S CONTROL. THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE
DATE OF THIS PROSPECTUS SUPPLEMENT. AS A CONSEQUENCE, NO ASSURANCE CAN BE
GIVEN AS TO THE ACTUAL PAYMENTS ON, OR THE YIELD OF, ANY CLASS OF
CERTIFICATES. THE DEPOSITOR EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING
TO RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENT
CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE DEPOSITOR'S EXPECTATIONS WITH
REGARD THERETO OR ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH
ANY SUCH STATEMENT IS BASED.]
Trust....................... Home Equity Loan Trust 199_-_ (the "Trust")
will be formed pursuant to a pooling and
servicing agreement (the "Agreement") to be
dated as of ______________, 199_ (the
"Cut-off Date") among [IndyMac, Inc.
("IndyMac")], as seller and servicer
(together with any successor in such
capacity, the "Seller" and the "Master
Servicer", respectively), IndyMac ABS,
Inc., as depositor (the "Depositor"), and [
], as trustee (the "Trustee"). The property
of the Trust will include: a pool of
[adjustable rate] home equity revolving
credit line loans made or to be made in the
future (the "Mortgage Loans"), under
certain home equity revolving credit line
loan agreements (the "Credit Line
Agreements") and secured by either first or
second mortgages on residential properties
that are primarily one- to four-family
properties (the "Mortgaged Properties");
the collections in respect of the Mortgage
Loans received after the Cut-off Date
(exclusive of payments in respect of
accrued interest due on or prior to the
Cut-off Date or due in the month of
_____________); property that secured a
Mortgage Loan which has been acquired by
foreclosure or deed in lieu of foreclosure;
an irrevocable and unconditional limited
financial guaranty insurance policy (the
"Policy"); an assignment of the Depositor's
rights under the Purchase Agreement (as
defined herein); rights under certain
hazard insurance policies covering the
Mortgaged Properties; and certain other
property, as described more fully herein.
The Trust property will include the unpaid
principal balance of each Mortgage Loan as
of the Cut-off Date (the "Cut-off Date
Principal Balance") plus any additions
thereto as a result of new advances made
pursuant to the applicable Credit Line
Agreement (the "Additional Balances")
during the life of the Trust. With respect
to any date, the "Pool Balance" will be
equal to the aggregate of the Principal
Balances of all Mortgage Loans as of such
date. The aggregate Cut-off Date Principal
Balance of the Mortgage Loans is
$____________________ (the "Cut-off Date
Pool Balance"). The "Principal Balance" of
a Mortgage Loan (other than a Liquidated
Mortgage Loan) on any day is equal to its
Cut-off Date Principal Balance, plus (i)
any Additional Balances in respect of such
Mortgage Loan, minus (ii) all collections
credited against the Principal Balance of
such Mortgage Loan in accordance with the
related Credit Line Agreement prior to such
day. The Principal Balance of a Liquidated
Mortgage Loan (as defined herein) after
final recovery of related Liquidation
Proceeds (as defined herein) shall be zero.
Securities Offered.......... Each of the Home Equity Loan Asset Backed
Certificates, Series 199_-_ offered hereby
(the "Certificates") represents an
undivided interest in the Trust. Each
Certificate represents the right to receive
payments of interest at the variable rate
described below (the "Certificate Rate"),
payable monthly, and payments of principal
at such time and to the extent provided
below. The aggregate undivided interest in
the Trust represented by the Certificates
as of the Closing Date will equal
$__________________ (the "Original Invested
Amount"), which represents __% of the
Cut-off Date Pool Balance. The "Original
Certificate Principal Balance" will equal
$__________________. Following the Closing
Date, the "Invested Amount" with respect to
any date will be an amount equal to the
Original Invested Amount minus (i) the
amount of Investor Principal Collections
(as defined herein) previously distributed
to Certificateholders, and minus (ii) an
amount equal to the product of the Investor
Floating Allocation Percentage and the
Liquidation Loss Amounts (each as defined
herein). The Transferor (as described
below) will own the remaining undivided
interest (the "Transferor Interest") in the
Mortgage Loans, which is equal to the Pool
Balance minus the Invested Amount and will
initially equal approximately __% of the
Cut-off Date Pool Balance. The Transferor
(the "Transferor") as of any date is the
owner of the Transferor Interest which
initially will be [IndyMac].
The Certificates will be issued pursuant to
the Agreement. The principal amount of the
outstanding Certificates (the "Certificate
Principal Balance") on any date is equal to
the Original Certificate Principal Balance
minus the aggregate of amounts actually
distributed as principal to the
Certificateholders. See "Description of the
Certificates" herein.
Removal of Certain
Mortgage Loans;
Additional Balances......... Subject to certain conditions, on any
Distribution Date the Transferor may, but
shall not be obligated to, remove from the
Trust certain Mortgage Loans without notice
to the Certificateholders. The Transferor
is permitted to designate the Mortgage
Loans to be removed. Mortgage Loans so
designated will only be removed upon
satisfaction of certain conditions
specified in the Agreement, including: (i)
the Transferor Interest as of the Transfer
Date (as defined herein) (after giving
effect to such removal) exceeds the Minimum
Transferor Interest (as defined below);
(ii) the Transferor shall have delivered to
the Trustee a "Mortgage Loan Schedule"
containing a list of all Mortgage Loans
remaining in the Trust after such removal;
(iii) the Transferor shall represent and
warrant that no selection procedures which
are adverse to the interests of the
Certificateholders or the Certificate
Insurer were used by the Transferor in
selecting such Mortgage Loans; (iv) in
connection with the first such retransfer
of Mortgage Loans, the Rating Agencies (as
defined herein) shall have been notified of
the proposed transfer and prior to the
Transfer Date shall not have notified the
Transferor in writing that such transfer
would result in a reduction or withdrawal
of the ratings assigned to the Certificates
without regard to the Policy; and (v) the
Transferor shall have delivered to the
Trustee and the Certificate Insurer an
officer's certificate confirming the
conditions set forth in clauses (i) through
(iii) above. See "Description of the
Certificates--Optional Transfers of
Mortgage Loans to the Transferor" herein.
The "Minimum Transferor Interest" as of any
date is an amount equal to the lesser of
(a) __% of the Pool Balance on such date
and (b) the Transferor Interest as of the
Closing Date.
During the term of the Trust, all
Additional Balances will be transferred to
and become property of the Trust. The Pool
Balance at any time will generally
fluctuate from day to day because the
amount of Additional Balances and the
amount of principal payments with respect
to the Mortgage Loans will usually differ
from day to day. Because the Transferor
Interest is equal to the Pool Balance minus
the Invested Amount, the amount of the
Transferor Interest will fluctuate from day
to day as draws are made with respect to
the Mortgage Loans and as Principal
Collections are received.
The Mortgage Loans.......... The Mortgage Loans are secured by first and
second mortgages on Mortgaged Properties
located in ___ states. On the Closing Date,
[IndyMac] will sell the Mortgage Loans to
the Depositor, pursuant to a purchase
agreement (the "Purchase Agreement").
The percentage of the Cut-off Date
Principal Balance of the Mortgage Loans
secured primarily by Mortgaged Properties
located in the states of __________,
--------, ----------, _______, ______ and
________ is approximately ____%, ----%,
----%, ----%, ----% and ____%,
respectively. The "Combined Loan-to-Value
Ratio" of each Mortgage Loan is the ratio
of (A) the sum of (i) the maximum amount
the borrower was permitted to draw down
under the related Credit Line Agreement
(the "Credit Limit") and (ii) the amounts
of any related senior mortgage loans
(computed as of the date of origination of
each such Mortgage Loans) to (B) the lesser
of (i) the appraised value of the Mortgaged
Property or (ii) in the case of a Mortgaged
Property purchased within one year of the
origination of the related Mortgage Loan,
the purchase price of such Mortgaged
Property. As of the Cut-off Date the
Combined Loan-to-Value Ratios ranged from
____% to ______% and, as of the Cut-off
Date, the weighted average Combined
Loan-to-Value Ratio of the Mortgage Loans
was approximately ____%.
[Interest on each Mortgage Loan is payable
monthly and computed on the related daily
outstanding Principal Balance for each day
in the billing cycle at a variable rate per
annum (the "Loan Rate") equal at any time
(subject to maximum rates, as described
herein under "Description of the Mortgage
Loans--Mortgage Loan Terms," and further
subject to applicable usury limitations) to
the sum of (i) the highest prime rate
published in the "Money Rates" section of
The Wall Street Journal and (ii) a Margin
within the range of ____% to ____%]. As of
the Cut-off Date, the weighted average
Margin was approximately ____%. Loan Rates
are adjusted monthly on the first business
day of the calendar month preceding the Due
Date. As to each Mortgage Loan, the "Due
Date" is the fifteenth day of each month.
The Cut-off Date Principal Balances ranged
from zero to $__________ and averaged
approximately $__________. Credit Limits
under the Mortgage Loans as of the Cut-off
Date ranged from $__________ to $__________
and averaged approximately $__________.
Each Mortgage Loan was originated in the
period from _______________, 199_ to
________________, 199_. As of the Cut-off
Date, the maximum Credit Limit Utilization
Rate (as defined herein) was 100% and the
weighted average Credit Limit Utilization
Rate was approximately ____%. As of the
Cut-off Date, approximately ____% by
Cut-off Date Principal Balance of the
Mortgage Loans represented first liens on
the related Mortgaged Properties, while
approximately ____% of the Mortgage Loans
represented second liens. As of the Cut-off
Date, the Mortgage Loans had remaining
terms to scheduled maturity ranging from
___ months to ___ months and had a weighted
average of approximately ___ months. See
"Description of the Mortgage Loans" herein.
Denominations............... The Certificates will be offered for
purchase in denominations of $1,000 and
multiples of $1 in excess thereof. The
interest in the Trust evidenced by a
Certificate (the "Percentage Interest")
will be equal to the percentage derived by
dividing the denomination of such
Certificate by the Original Certificate
Principal Balance.
Registration of
Certificates................ The Certificates will initially be issued
in book-entry form. Persons acquiring
beneficial ownership interests in the
Certificates ("Certificate Owners") may
elect to hold their Certificate interests
through The Depository Trust Company
("DTC"), in the United States, or Centrale
de Livraison de Valeurs Mobilieres S.A.
("CEDEL") or the Euroclear System
("Euroclear"), in Europe. Transfers within
DTC, CEDEL or Euroclear, as the case may
be, will be in accordance with the usual
rules and operating procedures of the
relevant system. So long as the
Certificates are Book-Entry Certificates
(as defined herein), such Certificates will
be evidenced by one or more Certificates
registered in the name of Cede & Co.
("Cede"), as the nominee of DTC or one of
the relevant depositaries (collectively,
the "European Depositaries"). Cross-market
transfers between persons holding directly
or indirectly through DTC, on the one hand,
and counterparties holding directly or
indirectly through CEDEL or Euroclear, on
the other, will be effected in DTC through
Citibank N.A. ("Citibank") or The Chase
Manhattan Bank ("Chase"), the relevant
depositaries of CEDEL or Euroclear,
respectively, and each a participating
member of DTC. The Certificates will
initially be registered in the name of
Cede. The interests of the
Certificateholders will be represented by
book entries on the records of DTC and
participating members thereof. No
Certificate Owner will be entitled to
receive a definitive certificate
representing such person's interest, except
in the event that Definitive Certificates
(as defined herein) are issued under the
limited circumstances described herein. All
references in this Prospectus Supplement to
any Certificates reflect the rights of
Certificate Owners only as such rights may
be exercised through DTC and its
participating organizations for so long as
such Certificates are held by DTC. See
"Risk Factors--Book-Entry Certificates",
"Description of the
Certificates--Book-Entry Certificates"
herein and "Annex I" hereto.
Depositor................... IndyMac ABS, Inc., a Delaware corporation
and a limited purpose finance subsidiary of
IndyMac, Inc., a Delaware corporation. The
principal executive offices of the
Depositor are located at 155 North Lake
Avenue, Pasadena, California 91101
(Telephone: (818) ___-____). See "The
Depositor" in the Prospectus.
Master Servicer of the Mortgage
Loans....................... [IndyMac, Inc., a Delaware corporation
headquartered in Pasadena, California. The
principal executive offices of the Master
Servicer are located at 155 North Lake
Avenue, Pasadena, California 91101
(Telephone: (818) 304-8400).] See
"Servicing of the Mortgage Loans--The
Master Servicer" herein.
Collections................. All collections on the Mortgage Loans will
generally be allocated in accordance with
the Credit Line Agreements between amounts
collected in respect of interest and
amounts collected in respect of principal.
As to any Distribution Date, "Interest
Collections" will be equal to the amounts
collected during the related Collection
Period, including the portion of Net
Liquidation Proceeds (as defined below)
allocated to interest pursuant to the terms
of the Credit Line Agreements less
Servicing Fees for the related Collection
Period.
As to any Distribution Date, "Principal
Collections" will be equal to the sum of
(i) the amounts collected during the
related Collection Period, including the
portion of Net Liquidation Proceeds
allocated to principal pursuant to the
terms of the Credit Line Agreements and
(ii) any Transfer Deposit Amounts (as
defined herein).
"Net Liquidation Proceeds" with respect to
a Mortgage Loan are the proceeds (excluding
amounts drawn on the Policy) received in
connection with the liquidation of any
Mortgage Loan, whether through trustee's
sale, foreclosure sale or otherwise,
reduced by related expenses, but not
including the portion, if any, of such
amount that exceeds the Principal Balance
of the Mortgage Loan plus any accrued and
unpaid interest thereon to the end of the
Collection Period during which such
Mortgage Loan became a Liquidated Mortgage
Loan.
With respect to any Distribution Date, the
portion of Interest Collections allocable
to the Certificates ("Investor Interest
Collections") will equal the product of (a)
Interest Collections for such Distribution
Date and (b) the Investor Floating
Allocation Percentage. With respect to any
Distribution Date, the "Investor Floating
Allocation Percentage" is the percentage
equivalent of a fraction determined by
dividing the Invested Amount at the close
of business on the preceding Distribution
Date (or at the Closing Date in the case of
the first Distribution Date) by the Pool
Balance at the beginning of the related
Collection Period. The remaining amount of
Interest Collections will be allocated to
the Transferor Interest as more fully
described herein.
On each Distribution Date, the Investor
Interest Collections will be applied in the
following order of priority: (i) as payment
to the Trustee for its fee for services
rendered pursuant to the Agreement; (ii) as
payment for the premium for the Policy;
(iii) as payment for the accrued interest
due and any overdue accrued interest (with
interest thereon) on the Certificate
Principal Balance of the Certificates; (iv)
to pay any Investor Loss Amount (as defined
herein) for such Distribution Date; (v) as
payment for any Investor Loss Amount for a
previous Distribution Date that was not
previously (a) funded by Investor Interest
Collections allocable to the
Certificateholders, (b) absorbed by the
Overcollateralization Amount, (c) funded by
amounts on deposit in the Spread Account or
(d) funded by draws on the Policy; (vi) to
reimburse prior draws made from the Policy
(with interest thereon); (vii) to pay
principal on the Certificates until the
Invested Amount exceeds the Certificate
Principal Balance by the Required
Overcollateralization Amount, each as
defined herein (such amount, if any, paid
pursuant to this clause (vii) being
referred to herein as the "Accelerated
Principal Distribution Amount"); (viii) any
other amounts required to be deposited in
an account for the benefit of the
Certificate Insurer and Certificateholders
pursuant to the Agreement or amounts owed
to the Certificate Insurer pursuant to the
Insurance Agreement; (ix) certain amounts
that may be required to be paid to the
Master Servicer pursuant to the Agreement;
and (x) to the Transferor to the extent
permitted as described herein.
Investor Interest Collections available
after the payment of interest on the
Certificates may be insufficient to cover
any Investor Loss Amount. If such
insufficiency results in the Certificate
Principal Balance exceeding the Invested
Amount, a draw in an amount equal to such
difference will be made on the Policy in
accordance with the terms of the Policy.
The "Overcollateralization Amount" on any
date of determination is the amount, if
any, by which the Invested Amount exceeds
the Certificate Principal Balance on such
day. Payments to Certificateholders
pursuant to clause (iii) above will be
interest payments on the Certificates.
Payments to Certificateholders pursuant to
clauses (iv), (v) and (vii) will be
principal payments on the Certificates and
will therefore reduce the Certificate
Principal Balance, however, payments
pursuant to clause (vii) will not reduce
the Invested Amount. The Accelerated
Principal Distribution Amount is not
guaranteed by the Policy.
"Liquidation Loss Amount" means with
respect to any Liquidated Mortgage Loan,
the unrecovered Principal Balance thereof
at the end of the related Collection Period
in which such Mortgage Loan became a
Liquidated Mortgage Loan, after giving
effect to the Net Liquidation Proceeds in
connection therewith. The "Investor Loss
Amount" shall be the product of the
Investor Floating Allocation Percentage and
the Liquidation Loss Amount for such
Distribution Date. See "Description of the
Certificates--Distributions on the
Certificates" herein.
Principal Collections will be allocated
between the Certificateholders and the
Transferor ("Investor Principal
Collections" and "Transferor Principal
Collections", respectively) in accordance
with their percentage interests in the
Mortgage Loans of __% and __%,
respectively, as of the Cut-off Date (the
"Fixed Allocation Percentage"), but a
lesser amount of Principal Collections may
be distributed to Certificateholders during
the Managed Amortization Period, as
described below. The "Investor Fixed
Allocation Percentage" shall be __%.
The Master Servicer will deposit Interest
Collections and Principal Collections in
respect of the Mortgage Loans in an account
established for such purpose under the
Agreement (the "Collection Account"). See
"Description of the Certificates--Payments
on Mortgage Loans; Deposits to Collection
Account and Distribution Account" herein.
Collection Period........... As to any Distribution Date other than the
first Distribution Date, the "Collection
Period" is the calendar month preceding the
month of such Distribution Date. As to the
first Distribution Date, the "Collection
Period" is the period beginning after the
Cut-off Date and ending on the last day of
_____________, 199_.
Interest.................... Interest on the Certificates will be
distributed monthly on the fifteenth day of
each month or, if such day is not a
Business Day, then the next succeeding
Business Day (each, a "Distribution Date"),
commencing on ______________, 199_, at the
Certificate Rate for the related Interest
Period (as defined below). The "Certificate
Rate" for an Interest Period will generally
equal the sum of [(a) the London Interbank
offered rate for one-month Eurodollar
deposits ("LIBOR") appearing on the
Telerate Screen Page 3750, as of the second
LIBOR Business Day (as defined herein)
prior to the first day of such Interest
Period (or as of two LIBOR Business Days
prior to the Closing Date, in the case of
the first Interest Period) and (b) ____%.]
Notwithstanding the foregoing, in no event
will the amount of interest required to be
distributed in respect of the Certificates
on any Distribution Date exceed a rate
equal to the weighted average of the Loan
Rates (net of the Servicing Fee Rate, the
fee payable to the Trustee and the rate at
which the premium payable to the
Certificate Insurer is calculated) weighted
on the basis of the daily balance of each
Mortgage Loan during the related billing
cycle prior to the Collection Period
relating to such Distribution Date.
Interest on the Certificates in respect of
any Distribution Date will accrue from the
preceding Distribution Date (or in the case
of the first Distribution Date, from the
date of the initial issuance of the
Certificates (the "Closing Date") through
the day preceding such Distribution Date
(each such period, an "Interest Period") on
the basis of the actual number of days in
the Interest Period and a 360-day year.
Interest payments on the Certificates will
be funded from Investor Interest
Collections, any funds on deposit in the
Spread Account and from draws on the
Policy. See "Description of the
Certificates" herein.
Principal Payments from
Principal Collections....... For the period beginning on the first
Distribution Date and, unless a Rapid
Amortization Event (as defined herein)
shall have earlier occurred, ending on the
Distribution Date in _____________, 200_
(the "Managed Amortization Period"), the
amount of Principal Collections payable to
Certificateholders as of each Distribution
Date during the Managed Amortization Period
will equal, to the extent funds are
available therefor, the Scheduled Principal
Collections Distribution Amount for such
Distribution Date. On any Distribution Date
during the Managed Amortization Period, the
"Scheduled Principal Collections
Distribution Amount" shall equal the lesser
of (i) the Maximum Principal Payment (as
defined herein) and (ii) the Alternative
Principal Payment (as defined herein). With
respect to any Distribution Date, the
"Maximum Principal Payment" will equal the
product of the Investor Fixed Allocation
Percentage and Principal Collections for
such Distribution Date. With respect to any
Distribution Date, the "Alternative
Principal Payment" will equal the greater
of (x) ____% of the Certificate Principal
Balance immediately prior to such
Distribution Date and (y) the amount, but
not less than zero, of Principal
Collections for such Distribution Date less
the aggregate of Additional Balances
created during the related Collection
Period.
Beginning with the first Distribution Date
following the end of the Managed
Amortization Period, the amount of
Principal Collections payable to
Certificateholders on each Distribution
Date will be equal to the Maximum Principal
Payment. See "Description of the
Certificates--Distributions on the
Certificates" herein.
In addition, to the extent funds are
available therefor (including funds
available under the Policy), on the
Distribution Date in _____________ 20__,
Certificateholders will be entitled to
receive as payment of principal an amount
equal to the outstanding Certificate
Principal Balance.
Distributions of Principal Collections
based upon the Investor Fixed Allocation
Percentage may result in distributions of
principal to Certificateholders in amounts
that are greater relative to the declining
Pool Balance than would be the case if the
Investor Floating Allocation Percentage
were used to determine the percentage of
Principal Collections distributed in
respect of the Invested Amount. The
aggregate distributions of principal to
Certificateholders will not exceed the
Original Certificate Principal Balance.
The Certificate Insurer..... [Insurer] (the "Certificate Insurer") is a
____________ insurance company engaged
exclusively in the business of writing
financial guaranty insurance, principally
in respect of securities offered in
domestic and foreign markets. The
Certificate Insurer's claims-paying ability
is rated _____________ by
_________________________________________
and ______ by
________________________________________.
See "The Certificate Insurer" in this
Prospectus Supplement.
Policy...................... On or before the Closing Date, the Policy
will be issued by the Certificate Insurer
pursuant to the provisions of the Insurance
and Indemnity Agreement (the "Insurance
Agreement") to be dated as of
_____________, 199_, among the Seller, the
Depositor, the Master Servicer and the
Certificate Insurer.
The Policy will irrevocably and
unconditionally guarantee payment on each
Distribution Date to the Trustee for the
benefit of the Certificateholders the full
and complete payment of (i) the Guaranteed
Principal Distribution Amount (as defined
herein) with respect to the Certificates
for such Distribution Date and (ii) accrued
and unpaid interest due on the Certificates
(together, the "Guaranteed Distributions"),
with such Guaranteed Distributions having
been calculated in accordance with the
original terms of the Certificates or the
Agreement except for amendments or
modifications to which the Certificate
Insurer has given its prior written
consent. The effect of the Policy is to
guarantee the timely payment of interest
on, and the ultimate payment of the
principal amount of, all of the
Certificates.
The "Guaranteed Principal Distribution
Amount" for any Distribution Date shall be
the amount by which the Certificate
Principal Balance (after giving effect to
all other amounts distributable and
allocable to principal on the Certificates
on such Distribution Date) exceeds the
Invested Amount for such Distribution Date.
In addition, the Policy will guarantee the
payment of the outstanding Certificate
Principal Balance on the Distribution Date
in ____________, 20__ (after giving effect
to all other amounts distributable and
allocable to principal on such Distribution
Date).
In accordance with the Agreement, the
Trustee will be required to establish and
maintain an account (the "Spread Account")
for the benefit of the Certificate Insurer
and the Certificateholders. The Trustee
shall deposit the amounts into the Spread
Account as required by the Agreement.
In the absence of payments under the
Policy, Certificateholders will directly
bear the credit and other risks associated
with their undivided interest in the Trust.
See "Description of the Certificates--The
Policy" herein.
Overcollateralization
Amount...................... The distribution of Accelerated Principal
Distribution Amounts, if any, to
Certificateholders may result in the
Invested Amount being greater than the
Certificate Principal Balance, thereby
creating the Overcollateralization Amount.
The Overcollateralization Amount, if any,
will be available to absorb any Investor
Loss Amount not covered by Investor
Interest Collections. Payments of
Accelerated Principal Distribution Amounts
are not covered by the Policy. Any Investor
Loss Amounts not covered by such
overcollateralization, amounts on deposit
in the Spread Account or Investor Interest
Collections will be covered by draws on the
Policy to the extent provided therein.
Record Date................. The last day preceding a Distribution Date
or, if the Certificates are no longer
Book-Entry Certificates, the last day of
the month preceding a Distribution Date.
Servicing................... The Master Servicer will be responsible for
servicing, managing and making collections
on the Mortgage Loans. The Master Servicer
will deposit all collections in respect of
the Mortgage Loans into the Collection
Account as described herein. On the third
Business Day prior to each Distribution
Date (the "Determination Date"), the Master
Servicer will calculate, and instruct the
Trustee regarding the amounts to be paid,
as described herein, to the
Certificateholders on such Distribution
Date. See "Description of the
Certificates--Distributions on the
Certificates" herein. With respect to each
Collection Period, the Master Servicer will
receive from collections in respect of
interest on the Mortgage Loans, on behalf
of itself, a portion of such collections as
a monthly servicing fee (the "Servicing
Fee") in the amount of approximately ____%
per annum (the "Servicing Fee Rate") on the
aggregate Principal Balances of the
Mortgage Loans as of the first day of each
such Collection Period. See "Description of
the Certificates--Servicing Compensation
and Payment of Expenses" herein. In certain
limited circumstances, the Master Servicer
may resign or be removed, in which event
either the Trustee or a third-party
servicer will be appointed as a successor
Master Servicer. See "Description of the
Certificates--Certain Matters Regarding the
Master Servicer and the Transferor" herein.
Final Payment of
Principal; Termination...... The Trust will terminate on the
Distribution Date following the later of
(A) payment in full of all amounts owing to
the Certificate Insurer and (B) the
earliest of (i) the Distribution Date on
which the Certificate Principal Balance has
been reduced to zero, (ii) the final
payment or other liquidation of the last
Mortgage Loan in the Trust, (iii) the
optional retransfer to the Transferor of
the Certificates, as described below and
(iv) the Distribution Date in
______________, 20__. The Certificates will
be subject to optional retransfer to the
Transferor on any Distribution Date after
the Certificate Principal Balance is
reduced to an amount less than or equal to
$________________ (__% of the Original
Certificate Principal Balance) and all
amounts due and owing to the Certificate
Insurer and unreimbursed draws on the
Policy, together with interest thereon, as
provided under the Insurance Agreement,
have been paid. The retransfer price will
be equal to the sum of the outstanding
Certificate Principal Balance and accrued
and unpaid interest thereon at the
Certificate Rate through the day preceding
the final Distribution Date. See
"Description Of The
Certificates--Termination; Retirement of
the Certificates" herein and "The
Agreements--Termination"; Optional
Termination in the Prospectus.
In addition, the Trust may be liquidated as
a result of certain events of bankruptcy,
insolvency or receivership relating to the
Transferor. See "Description of the
Certificates--Rapid Amortization Events"
herein.
Trustee..................... [ ], a ____________________________ (the
"Trustee") will act as Trustee on behalf of
the Certificateholders.
Mandatory Retransfer of
Certain Mortgage Loans...... The Seller will make certain
representations and warranties in the
Agreement with respect to the Mortgage
Loans. Subject to the limitations described
below under "Descriptions of the
Certificates--Assignment of the Mortgage
Loans", if the Seller breaches certain of
its representations and warranties with
respect to any Mortgage Loan and such
breach materially and adversely affects the
interests of the Certificateholders or the
Certificate Insurer and is not cured within
the specified period, the Mortgage Loan
will be removed from the Trust upon the
expiration of a specified period from the
date on which the Seller becomes aware or
receives notice of such breach and will be
reassigned to the Seller. See "Description
of the Certificates--Assignment of Mortgage
Loans" herein. Federal Income Tax
Consequences................ Subject to the qualifications set forth in
"Certain Federal Income Tax Consequences"
herein, special tax counsel to the
Depositor is of the opinion that, under
existing law, a Certificate will be treated
as a debt instrument for Federal income tax
purposes as of the Closing Date. Under the
Agreement, the Transferor, the Depositor
and the Certificateholders will agree to
treat the Certificates as indebtedness for
Federal income tax purposes. See "Certain
Federal Income Tax Consequences" herein and
in the Prospectus for additional
information concerning the application of
Federal income tax laws.
ERISA Considerations........ The acquisition of a Certificate by a
pension or other employee benefit plan (a
"Plan") subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), could, in some instances, result
in a "prohibited transaction" or other
violation of the fiduciary responsibility
provisions of ERISA and Code Section 4975.
Certain exemptions from the prohibited
transaction rules could be applicable to
the acquisition of the Certificates. Any
Plan fiduciary considering whether to
purchase any Certificate on behalf of a
Plan should consult with its counsel
regarding the applicability of the
provisions of ERISA and the Code. See
"ERISA Considerations" herein and in the
Prospectus.
Legal Investment
Considerations.............. The Certificates will not constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"), because
not all of the Mortgages securing the
Mortgage Loans are first mortgages.
Accordingly, many institutions with legal
authority to invest in comparably rated
securities based solely on first mortgages
may not be legally authorized to invest in
the Certificates. See "Legal Investment
Considerations" herein and "Legal
Investment" in the Prospectus.
Certificate Rating.......... It is a condition to the issuance of the
Certificates that they be rated "___" by
_____ and "___" by _________ (each a
"Rating Agency"). In general, ratings
address credit risk and do not address the
likelihood of prepayments. See "Ratings"
herein and "Risk Factors--Rating of the
Securities" in the Prospectus.
RISK FACTORS
Book-Entry REGISTRATION MAY REDUCE LIQUIDITY OF THE Certificates.
Issuance of the Certificates in book-entry form may reduce the liquidity of
such Certificates in the secondary trading market since investors may be
unwilling to purchase Certificates for which they cannot obtain physical
certificates. See "Description of the Certificates--Book-Entry Certificates"
herein and "Risk Factors-Book-Entry Registration" in the Prospectus.
Since transactions in the Certificates can be effected only through DTC,
CEDEL, Euroclear, participating organizations, indirect participants and
certain banks, the ability of a Certificate Owner to pledge a Certificate to
persons or entities that do not participate in the DTC, CEDEL or Euroclear
system or otherwise to take actions in respect of such Certificates, may be
limited due to lack of a physical certificate representing the Certificates.
See "Description of the Certificates--Book-Entry Certificates" herein and
"Risk Factors-Book-Entry Registration" in the Prospectus.
Certificate Owners may experience some delay in their receipt of
distributions of interest and principal on the Certificates since such
distributions will be forwarded by the Trustee to DTC and DTC will credit such
distributions to the accounts of its Participants (as defined herein) which
will thereafter credit them to the accounts of Certificate Owners either
directly or indirectly through indirect participants. See "Description of the
Certificates--Book-Entry Certificates" herein and "Risk Factors-Book-Entry
Registration" in the Prospectus.
DELAYS DUE TO LIQUIDATIONS OF MORTGAGED PROPERTIES. Minimum monthly
payments on the Mortgage Loans will at least equal and may exceed accrued
interest. Even assuming that the Mortgaged Properties provide adequate
security for the Mortgage Loans, substantial delays could be encountered in
connection with the liquidation of Mortgage Loans that are delinquent and
resulting shortfalls in distributions to Certificateholders could occur if the
Certificate Insurer were unable to perform on its obligations under the
Policy. Further, liquidation expenses (such as legal fees, real estate taxes,
and maintenance and preservation expenses) will reduce the proceeds payable to
Certificateholders and thereby reduce the security for the Mortgage Loans. In
the event any of the Mortgaged Properties fails to provide adequate security
for the related Mortgage Loans, Certificateholders could experience a loss if
the Certificate Insurer were unable to perform its obligations under the
Policy.
Prepayment Considerations AND RISKS. Substantially all of the Mortgage
Loans may be prepaid in whole or in part at any time without penalty. Home
equity loans, such as the Mortgage Loans, have been originated in significant
volume only during the past few years and neither the Depositor nor the Master
Servicer is aware of any publicly available studies or statistics on the rate
of prepayment of such loans. Generally, home equity loans are not viewed by
borrowers as permanent financing. Accordingly, the Mortgage Loans may
experience a higher rate of prepayment than traditional loans. The Trust's
prepayment experience may be affected by a wide variety of factors, including
general economic conditions, interest rates, the availability of alternative
financing and homeowner mobility. In addition, substantially all of the
Mortgage Loans contain due-on-sale provisions and the Master Servicer intends
to enforce such provisions unless (i) such enforcement is not permitted by
applicable law or (ii) the Master Servicer, in a manner consistent with
reasonable commercial practice, permits the purchaser of the related Mortgaged
Property to assume the Mortgage Loan. To the extent permitted by applicable
law, such assumption will not release the original borrower from its
obligation under any such Mortgage Loan. See "Description of the Certificates"
herein and "Certain Legal Aspects of Loans--Due-on-Sale Clauses" in the
Prospectus for a description of certain provisions of the Credit Line
Agreements that may affect the prepayment experience on the Mortgage Loans.
Certificate RATING-LIMITATIONS. The rating of the Certificates will
depend primarily on an assessment by the Rating Agencies of the Mortgage Loans
and upon the claims-paying ability of the Certificate Insurer. Any reduction
in a rating assigned to the claims-paying ability of the Certificate Insurer
below the rating initially given to the Certificates may result in a reduction
in the rating of the Certificates. The rating by the Rating Agencies of the
Certificates is not a recommendation to purchase, hold or sell the
Certificates, inasmuch as such rating does not comment as to the market price
or suitability for a particular investor. There is no assurance that the
ratings will remain in place for any given period of time or that the ratings
will not be lowered or withdrawn by the Rating Agencies. In general, the
ratings address credit risk and do not address the likelihood of prepayments.
The ratings of the Certificates do not address the possibility of the
imposition of United States withholding tax with respect to non-U.S. persons.
Legal Considerations. The Mortgage Loans are secured by mortgages (which
generally are second mortgages). With respect to Mortgage Loans that are
secured by first mortgages, the Master Servicer has the power under certain
circumstances to consent to a new mortgage lien on the Mortgaged Property
having priority over such Mortgage Loan. Mortgage Loans secured by second
mortgages are entitled to proceeds that remain from the sale of the related
Mortgaged Property after any related senior mortgage loan and prior statutory
liens have been satisfied. In the event that such proceeds are insufficient to
satisfy such loans and prior liens in the aggregate and the Certificate
Insurer is unable to perform its obligations under the Policy, the
Certificateholders will bear (i) the risk of delay in distributions while a
deficiency judgment against the borrower is obtained and (ii) the risk of loss
if the deficiency judgment cannot be obtained or is not realized upon. See
"Certain Legal Aspects of Loans" in the Prospectus.
The sale of the Mortgage Loans from [IndyMac] to the Depositor pursuant
to the Purchase Agreement will be treated as a sale of the Mortgage Loans.
However, in the event of an insolvency of [IndyMac], the receiver of [IndyMac]
may attempt to recharacterize the sale of the Mortgage Loans as a borrowing by
[IndyMac], secured by a pledge of the applicable Mortgage Loans. If the
receiver decided to challenge such transfer, (i) if the Mortgage Loans have
not been delivered to the Trustee, the interest of the Trust in the Mortgage
Loans will be that of an unperfected security interest and (ii) even if the
Mortgage Loans have been delivered to the Trustee, delays in payments of the
Certificates and reductions in the amounts thereof could occur. The Depositor
will warrant in the Agreement that the transfer of the Mortgage Loans by it to
the Trust is either a valid transfer and assignment of such Mortgage Loans to
the Trust or the grant to the Trust of a security interest in such Mortgage
Loans.
If a conservator, receiver or trustee were appointed for the Transferor,
or if certain other events relating to the bankruptcy or insolvency of the
Transferor were to occur, Additional Balances would not be sold to the Trust.
In such an event, the Rapid Amortization Period would commence and the Trustee
would attempt to sell the Mortgage Loans (unless Certificateholders holding
Certificates evidencing undivided interests aggregating at least 51% of the
Certificate Principal Balance instruct otherwise), thereby causing early
payment of the Certificate Principal Balance. The net proceeds of such sale
will first be paid to the Certificate Insurer to the extent of unreimbursed
draws under the Policy and other amounts owing to the Certificate Insurer
pursuant to the Insurance Agreement. The Investor Fixed Allocation Percentage
of remaining amounts will be distributed to the Certificateholders and the
Policy will cover any amount by which such remaining net proceeds are
insufficient to pay the Certificate Principal Balance in full.
In the event of a bankruptcy or insolvency of the Master Servicer, the
bankruptcy trustee or receiver may have the power to prevent the Trustee or
the Certificateholders from appointing a successor Master Servicer.
[Geographic Concentration. As of the Cut-off Date, approximately _____%
(by Cut-off Date Principal Balance) of the Mortgaged Properties are located in
the State of __________. An overall decline in the __________ residential real
estate market could adversely affect the values of the Mortgaged Properties
securing such Mortgage Loans such that the Principal Balances of the related
Mortgage Loans, together with any primary financing on such Mortgaged
Properties, could equal or exceed the value of such Mortgaged Properties. As
the residential real estate market is influenced by many factors, including
the general condition of the economy and interest rates, no assurances may be
given that the __________ residential real estate market will not weaken. If
the __________ residential real estate market should experience an overall
decline in property values after the dates of origination of the Mortgage
Loans, the rates of losses on the Mortgage Loans would be expected to
increase, and could increase substantially.]
Master Servicer's Ability to Change the Terms of the Mortgage Loans. The
Master Servicer may agree to changes in the terms of a Credit Line Agreement,
provided that such changes (i) do not adversely affect the interest of the
Certificateholders or the Certificate Insurer, and (ii) are consistent with
prudent business practice. There can be no assurance that changes in
applicable law or the marketplace for home equity loans or prudent business
practice will not result in changes in the terms of the Mortgage Loans. In
addition, the Agreement permits the Master Servicer, within certain
limitations described therein, to increase the Credit Limit of the related
Mortgage Loan or reduce the Margin for such Mortgage Loan.
Delinquent Mortgage Loans. The Trust will include Mortgage Loans which
are __ or fewer days delinquent as of the Cut-off Date. The Cut-off Date
Principal Balance of Mortgage Loans which are between __ days and __ days
delinquent as of the Cut-off Date was $_________________. If there are not
sufficient funds from the Investor Interest Collections to cover the Investor
Loss Amounts for any Distribution Date, the Overcollateralization Amount and
the amount on deposit in the Spread Account have been reduced to zero, and the
Certificate Insurer fails to perform its obligations under the Policy, the
aggregate amount of principal returned to the Certificateholders may be less
than the Certificate Principal Balance on the day the Certificates are issued.
For a discussion of additional risks pertaining to the Certificates, see
"Risk Factors" in the Prospectus.
THE CERTIFICATE INSURER
The following information set forth in this section has been provided by
the Certificate Insurer. Accordingly, neither the Depositor nor the Master
Servicer makes any representation as to the accuracy and completeness of such
information.
[Description of Certificate Insurer]
THE MASTER SERVICER
General
[The Master Servicer will service the Mortgage Loans in accordance with
the terms set forth in the Agreement. The Master Servicer may perform any of
its obligations under the Agreement through one or more subservicers.
Notwithstanding any such subservicing arrangement, the Master Servicer will
remain liable for its servicing duties and obligations under the Agreement as
if the Master Servicer alone were servicing the Mortgage Loans. As of the
Closing Date, the Master Servicer will service the Mortgage Loans without
subservicing arrangements.]
The Master Servicer
[IndyMac, Inc. ("IndyMac"), a Delaware corporation], will act as Master
Servicer for the Mortgage Loans pursuant to the Master Servicing Agreement.
The principal executive offices of [IndyMac] are located at [155 North Lake
Avenue, Pasadena, California 91101].
At ______________, 199_, IndyMac provided servicing for approximately
$______ billion aggregate principal amount of first-lien mortgage loans,
substantially all of which are being serviced for unaffiliated persons. At
_____________, 199_, IndyMac provided servicing for approximately $______
million aggregate principal amount of first and second lien mortgage loans
originated under home equity lines of credit.
DESCRIPTION OF THE MORTGAGE LOANS
General
The Mortgage Loans were originated pursuant to loan agreements and
disclosure statements (the "Credit Line Agreements") and are secured by
mortgages or deeds of trust, which are either first or second mortgages or
deeds of trust, on Mortgaged Properties located in ____ states. The Mortgaged
Properties securing the Mortgage Loans consist primarily of residential
properties that are one- to four-family properties. See "--Mortgage Loan
Terms" below.
The Cut-off Date Pool Balance is $______________, which is equal to the
aggregate Principal Balances of the Mortgage Loans as of the Cut-off Date. As
of the Cut-off Date, the Mortgage Loans were not more than 89 days delinquent.
The average Cut-off Date Principal Balance was approximately $__________ , the
minimum Cut-off Date Principal Balance was zero, the maximum Cut-off Date
Principal Balance was $_____ , the minimum Loan Rate and the maximum Loan Rate
as of the Cut-off Date were _____% and _____% per annum, respectively, and the
weighted average Loan Rate as of the Cut-off Date was approximately _____% per
annum. As of the Cut-off Date, the weighted average Credit Limit Utilization
Rate was approximately _____%, the minimum Credit Limit Utilization Rate was
zero and the maximum Credit Limit Utilization Rate was 100%. The "Credit Limit
Utilization Rate" is determined by dividing the Cut-off Date Principal Balance
of a Mortgage Loan by the Credit Limit of the related Credit Line Agreement.
The remaining term to scheduled maturity for the Mortgage Loans as of the
Cut-off Date ranged from _____ months to _____ months and the weighted average
remaining term to scheduled maturity was approximately _____ months. As of the
Cut-off Date, the Combined Loan-to-Value Ratio of the Mortgage Loans ranged
from _____% to _____% and the weighted average Combined Loan-to-Value Ratio
was approximately _____%. The Combined Loan-to-Value Ratio for a Mortgage Loan
is the ratio (expressed as a percentage) of (A) the sum of (i) the Credit
Limit of the Mortgage Loan and (ii) any outstanding principal balances of
mortgage loans senior to such Mortgage Loan (calculated at the date of
origination of the Mortgage Loan) to (B) the lesser of (i) the appraised value
of the related Mortgaged Property as set forth in the loan files at such date
of origination or (ii) in the case of a Mortgaged Property purchased within
one year of the origination of the related Mortgage Loan, the purchase price
of such Mortgaged Property. Credit Limits under the Mortgage Loans as of the
Cut-off Date ranged from $_____ to $_____ and averaged approximately $_____ .
The weighted average second mortgage ratio (which is the Credit Limit for the
related Mortgage Loan, provided such Mortgage Loan was in the second lien
position, divided by the sum of such Credit Limit and the outstanding
principal balance of any mortgage loan senior to the related Mortgage Loan)
was approximately _____%. As of the Cut-off Date, approximately _____% by
Cut-off Date Principal Balance of the Mortgage Loans represented first liens
on the related Mortgaged Properties, while approximately _____% of the
Mortgage Loans represented second liens. As of the Cut-off Date, approximately
_____% of the Mortgage Loans are secured by Mortgaged Properties which are
single-family residences and _____% were owner-occupied. As of the Cut-off
Date, approximately _____%, _____%, _____%, _____%, _____% and _____% by
Cut-off Date Principal Balance are located in __________, ________,
__________, _______, ______ and ________], respectively.
Mortgage Loan Terms
[The Mortgage Loans bear interest at a variable rate which changes
monthly on the first business day of the related month with changes in the
applicable Index Rate. The Mortgage Loans are subject to a maximum per annum
interest rate (the "Maximum Rate") ranging from [_____% to _____%] per annum
and subject to applicable usury limitations. As of the Cut-off Date, the
weighted average Maximum Rate was approximately _____%. See "Certain Legal
Aspects of the Loans--Applicability of Usury Laws" in the Prospectus. The
daily periodic rate on the Mortgage Loans (the "Loan Rate") is the sum of the
Index Rate plus the spread (the "Margin") which generally ranges between
_____% and _____% and had a weighted average, as of the Cut-off Date, of
approximately _____%, divided by 365 days. The "Index Rate" is based on the
highest "prime rate" published in the `Money Rates' table of The Wall Street
Journal as of the first business day of each calendar month.]
[IndyMac] offers an introductory loan rate on home equity lines of credit
which are originated with Combined Loan-to-Value Ratios of __% and __%. The
introductory rate applies to any payments made during the first three months
after origination. After such three month period, the Loan Rate will adjust to
the Index plus the applicable Margin. As of the Cut-off Date, approximately
_____% of the Mortgage Loans by Cut-off Date Principal Balance were subject to
an introductory rate of ____% per annum.
In general, the home equity loans may be drawn upon for a period (the
"Draw Period") of either five years (which may be extendible for an additional
five years, upon [IndyMac's] approval) or three years. Home equity loans with
an initial Draw Period of five years, which constitute approximately _____% of
the Mortgage Loans by Cut-off Date Principal Balance, are subject to a fifteen
year repayment period (the "Repayment Period") following the end of the Draw
Period during which the outstanding principal balance of the loan will be
repaid in monthly installments equal to 1/180 of the outstanding principal
balance as of the end of the Draw Period. Mortgage Loans with a Draw Period of
three years, which constitute approximately _____% of the Mortgage Loans by
Cut-off Date Principal Balance, are subject to a ten year Repayment Period
following the end of the Draw Period during which the outstanding principal
balance of the loan will be paid in monthly installments equal to 1/120 of the
outstanding principal balance as of the end of the Draw Period.
The minimum payment due during the Draw Period will be equal to the
finance charges accrued on the outstanding principal balance of the home
equity loan during the related billing period. The minimum payment due during
the repayment period will be equal to the sum of the finance charges accrued
on the outstanding principal balance of the Mortgage Loan during the related
billing period and the principal payment described above.
Set forth below is a description of certain characteristics of the
Mortgage Loans as of the Cut-off Date:
<TABLE>
<CAPTION>
PRINCIPAL BALANCES
Range of Principal Balances Number of Cut-off Date Percent of Pool
Mortgage Principal Balance by Cut-off Date
Loans Principal Balance
<S> <C> <C>
$_______ to $_______ ........................ $ %
$_______ to $_______ ........................
$_______ to $_______ ........................
$_______ to $_______ ........................
$_______ to $_______ ........................
$_______ to $_______ ........................
$_______ to $_______ ........................
$_______ to $_______ ........................
$_______ to $_______ ........................
$_______ to $_______ ........................
$_______ to $_______ ........................
$_______ to $_______ ........................
$_______ to $_______ ........................
$_______ to $_______ ........................
$_______ to $_______ ........................
$_______ to $_______ ........................
$_______ to $_______ ........................
$_______ to $_______ ........................
$_______ to $_______ ........................
$_______ and over ........................... ------------ ------------------ ---------
Total ................................. $100
============ ================== =========
</TABLE>
GEOGRAPHIC DISTRIBUTION(1)
State Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Loans Principal Balance Principal Balance
$ %
------------ ------------------ --------
Total .......... 100%
============ ================== ========
- ----------
(1) Geographic location is determined by the address of the
Mortgaged Property securing the related Mortgage Loan.
<TABLE>
<CAPTION>
COMBINED LOAN-TO-VALUE RATIOS(1)
Range of Combined Number of Percent of Pool
Loan-to-Value Ratios Mortgage Cut-off Date by Cut-off Date
Loans Principal Balance Principal Balance
<S> <C> <C>
$_______ to $_______ ................ $ %
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ and over ................... ------------ ------------------ -------
Total ......................... 100%
============ ================== =======
</TABLE>
- ----------
(1) The ratio (expressed as a percentage) of (A) the sum of (i)
the Credit Limit of the Mortgage Loans and (ii) any
outstanding principal balances of mortgage loans senior to
the Mortgage Loans (calculated at the date of origination of
the Mortgage Loans) to (B) the lesser of (i) the appraised
value of the related Mortgaged Property as set forth in loan
files at such date of origination or (ii) in the case of a
Mortgaged Property purchased within one year of the
origination of the related Mortgage Loan, the purchase price
of such Mortgaged Property.
<TABLE>
<CAPTION>
PROPERTY TYPE
Number of
Mortgage Cut-off Date Percent of Pool
Property Type Loans Principal Balance by Cut-off Date
Principal Balance
<S> <C> <C>
Single Family ................... $ %
Two- to Four-Family .............
Condominium .....................
PUD .............................
Total ..................... 100%
============ ================== =========
</TABLE>
<TABLE>
<CAPTION>
LIEN PRIORITY
Number of
Mortgage Cut-off Date Percent of Pool
Lien Priority Loans Principal Balance by Cut-off Date
<S> <C> <C>
$ %
First Lien ...................
Second Lien ..................
Total .................. 100%
============ ================== =======
</TABLE>
<TABLE>
<CAPTION>
LOAN RATES(1)
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Range of Loan Rates Loans Principal Balance Principal Balance
<S> <C> <C> <C>
$_______ to $_______ ................ $ %
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................ $ %
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................ ------------ ------------------ -------
Total ......................... 100%
============ ================== =======
</TABLE>
- ----------
(1) Approximately % of the Mortgage Loans by Cut-off Date Principal
Balance are subject to an introductory rate of _____% per annum.
MARGIN
<TABLE>
<CAPTION>
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Range of Margins Loans Principal Balance Principal Balance
<S> <C> <C> <C>
$_______ to $_______ ................ $ %
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................ $ %
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ and over ................ ------------ ------------------ -------
Total ......................... 100%
============ ================== =======
</TABLE>
<TABLE>
<CAPTION>
CREDIT LIMIT UTILIZATION RATES
Number of Percent of Pool
Range of Credit Limit Mortgage Cut-off Date by Cut-off Date
Utilization Rates Loans Principal Balance Principal Balance
<S> <C> <C> <C>
$_______ to $_______ ................ $ %
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ and over ................ ------------ ------------------ -------
Total ......................... 100%
============ ================== =======
</TABLE>
<TABLE>
<CAPTION>
CREDIT LIMITS
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Range of Credit Limits Loans Principal Balance Principal Balance
<S> <C> <C> <C>
$_______ to $_______ ................ $ %
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ and over ................ ------------ ------------------ -------
Total ......................... 100%
============ ================== =======
</TABLE>
<TABLE>
<CAPTION>
MAXIMUM RATES
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Range of Maximum Rates Loans Principal Balance Principal Balance
<S> <C> <C> <C>
$_______ to $_______ ................ $ %
$_______ to $_______ ................
$_______ to $_______ ................
$_______ and over ................ ------------ ------------------ -------
Total ......................... 100%
============ ================== =======
</TABLE>
<TABLE>
<CAPTION>
MONTHS REMAINING TOSCHEDULED MATURITY(1)
Number of Percent of Pool
Range of Months Mortgage Cut-off Date by Cut-off Date
Remaining of Scheduled Maturity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
$_______ to $_______ ................ $ %
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................
$_______ to $_______ ................ ------------ ------------------ -------
Total ......................... 100%
============ ================== =======
</TABLE>
- ----------
(1) Assumes that the Draw Period for Mortgage Loans with five
year Draw Periods will be extended for an additional five
years.
<TABLE>
<CAPTION>
ORIGINATION YEAR
Number of Cut-off Date Percent of Pool
Mortgage Principal Balance by Cut-off Date
Origination Year Loans Principal Balance
<S> <C> <C> <C>
------- ..................... $ %
------- .....................
Total ................... ------------- ----------------- ---------
100%
============= ================= ========
</TABLE>
<TABLE>
<CAPTION>
DELINQUENCY STATUS
Number of Cut-off Date Percent of Pool
Mortgage Principal Balance by Cut-off Date
Number of Days Delinquent Loans Principal Balance
<S> <C> <C> <C>
0 to 29 .................... $ %
30 to 59 ....................
60 to 89 .................... ------------- ----------------- ---------
100%
Total ............... ============= ================= ========
</TABLE>
MATURITY AND PREPAYMENT CONSIDERATIONS
The Agreement, except as otherwise described herein, provides that the
Certificateholders will be entitled to receive on each Distribution Date
distributions of principal, in the amounts described herein, until the
Certificate Principal Balance is reduced to zero. During the Managed
Amortization Period, Certificateholders will receive amounts from Principal
Collections based upon their Fixed Allocation Percentage subject to reduction as
described below. During the Rapid Amortization Period, Certificateholders will
receive amounts from Principal Collections based solely upon their Fixed
Allocation Percentage. Because prior distributions of Principal Collections to
Certificateholders serve to reduce the Investor Floating Allocation Percentage
but do not change their Fixed Allocation Percentage, allocations of Principal
Collections based on the Fixed Allocation Percentage may result in distributions
of principal to the Certificateholders in amounts that are, in most cases,
greater relative to the declining balance of the Mortgage Loans than would be
the case if the Investor Floating Allocation Percentage were used to determine
the percentage of Principal Collections distributed to Certificateholders. This
is especially true during the Rapid Amortization Period when the
Certificateholders are entitled to receive Investor Principal Collections and
not a lesser amount. In addition, Investor Interest Collections may be
distributed as principal to Certificateholders in connection with the
Accelerated Principal Distribution Amount, if any. Moreover, to the extent of
losses allocable to the Certificateholders, Certificateholders may also receive
as payment of principal the amount of such losses either from Investor Interest
Collections or, in some instances, draws under the Policy. The level of losses
may therefore affect the rate of payment of principal on the Certificates.
To the extent obligors make more draws than principal payments, the
Transferor Interest may grow. Because during the Rapid Amortization Period the
Certificateholders share of Principal Collections is based upon its Fixed
Allocation Percentage (without reduction), an increase in the Transferor
Interest due to additional draws may also result in Certificateholders receiving
principal at a greater rate. The Agreement permits the Transferor, at its
option, but subject to the satisfaction of certain conditions specified in the
Agreement, including the conditions described below, to remove certain Mortgage
Loans from the Trust at any time during the life of the Trust, so long as the
Transferor Interest (after giving effect to such removal) is not less than the
Minimum Transferor Interest. Such removals may affect the rate at which
principal is distributed to Certificateholders by reducing the overall Pool
Balance and thus the amount of Principal Collections. See "Description of the
Certificates--Optional Retransfers of Mortgage Loans to the Transferor" herein.
All of the Mortgage Loans may be prepaid in full or in part at any time.
[However, Mortgage Loans secured by Mortgaged Properties in __________ are
subject to an account termination fee equal to the lesser of $___ and six months
interest on the amount prepaid, to the extent the prepaid amount exceeds __% of
the unpaid principal balance, if the account is terminated on or before its
_____ year anniversary. In addition, Mortgage Loans secured by Mortgaged
Properties in other jurisdictions may be subject to account termination fees to
the extent permitted by law. In general, such account termination fees do not
exceed $___ and do not apply to accounts terminated subsequent to a date
designated in the related Mortgage Note which, depending on the jurisdiction,
ranges between ___ months and ___ years following origination.] The prepayment
experience with respect to the Mortgage Loans will affect the weighted average
life of the Certificates.
The rate of prepayment on the Mortgage Loans cannot be predicted. Neither
the Depositor nor the Master Servicer is aware of any publicly available studies
or statistics on the rate of prepayment of such Mortgage Loans. Generally, home
equity revolving credit lines are not viewed by borrowers as permanent
financing. Accordingly, the Mortgage Loans may experience a higher rate of
prepayment than traditional first mortgage loans. On the other hand, because the
Mortgage Loans amortize as described herein, rates of principal payment on the
Mortgage Loans will generally be slower than those of traditional
fully-amortizing first mortgages in the absence of prepayments on such Mortgage
Loans. The prepayment experience of the Trust with respect to the Mortgage Loans
may be affected by a wide variety of factors, including general economic
conditions, prevailing interest rate levels, the availability of alternative
financing, homeowner mobility, the frequency and amount of any future draws on
the Credit Line Agreements and changes affecting the deductibility for Federal
income tax purposes of interest payments on home equity credit lines.
Substantially all of the Mortgage Loans contain "due-on-sale" provisions, and,
with respect to the Mortgage Loans, the Master Servicer intends to enforce such
provisions, unless such enforcement is not permitted by applicable law. The
enforcement of a "due-on-sale" provision will have the same effect as a
prepayment of the related Mortgage Loan. See "Certain Legal Aspects of The
Loans--Due-on-Sale Clauses" in the Prospectus.
The yield to an investor who purchases the Certificates in the secondary
market at a price other than par will vary from the anticipated yield if the
rate of prepayment on the Mortgage Loans is actually different than the rate
anticipated by such investor at the time such Certificates were purchased.
Collections on the Mortgage Loans may vary because, among other things,
borrowers may make payments during any month as low as the minimum monthly
payment for such month or as high as the entire outstanding principal balance
plus accrued interest and the fees and charges thereon. It is possible that
borrowers may fail to make scheduled payments. Collections on the Mortgage Loans
may vary due to seasonal purchasing and payment habits of borrowers.
No assurance can be given as to the level of prepayments that will be
experienced by the Trust and it can be expected that a portion of borrowers will
not prepay their Mortgage Loans to any significant degree. See "Yield and
Prepayment Considerations" in the Prospectus.
POOL FACTOR AND TRADING INFORMATION
The "Pool Factor" is a seven-digit decimal which the Master Servicer will
compute monthly expressing the Certificate Principal Balance of the Certificates
as of each Distribution Date (after giving effect to any distribution of
principal on such Distribution Date) as a proportion of the Original Certificate
Principal Balance. On the Closing Date, the Pool Factor will be 1.0000000. See
"Description of the Certificates--Distributions on the Certificates" herein.
Thereafter, the Pool Factor will decline to reflect reductions in the related
Certificate Principal Balance resulting from distributions of principal to the
Certificates and the Invested Amount of any unreimbursed Liquidation Loss
Amounts.
Pursuant to the Agreement, monthly reports concerning the Invested Amount,
the Pool Factor and various other items of information will be made available to
the Certificateholders. In addition, within 60 days after the end of each
calendar year, beginning with the 199_ calendar year, information for tax
reporting purposes will be made available to each person who has been a
Certificateholder of record at any time during the preceding calendar year. See
"Description of the Certificates--Book-Entry Certificates" and "--Reports to
Certificateholders" herein.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement. The form of the
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus Supplement and the Prospectus is a part. The following summaries
describe certain provisions of the 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 Agreement. Wherever particular sections or
defined terms of the Agreement are referred to, such sections or defined terms
are hereby incorporated herein by reference.
General
The Certificates will be issued in denominations of $1,000 and multiples of
$1 in excess thereof and will evidence specified undivided interests in the
Trust. The property of the Trust will consist of, to the extent provided in the
Agreement: (i) each of the Mortgage Loans that from time to time is subject to
the Agreement; (ii) collections on the Mortgage Loans received after the Cut-off
Date (exclusive of payments in respect of accrued interest due on or prior to
the Cut-off Date or due in the month of _____ ); (iii) Mortgaged Properties
relating to the Mortgage Loans that are acquired by foreclosure or deed in lieu
of foreclosure; (iv) the Collection Account and the Distribution Account
(excluding net earnings thereon); (v) the Policy; (vi) the Spread Account (for
the benefit of the Certificate Insurer and the Certificateholders); and (vii) an
assignment of the Depositor's rights under the Purchase Agreement. Definitive
Certificates (as defined below), if issued, will be transferable and
exchangeable at the corporate trust office of the Trustee, which will initially
act as Certificate Registrar. See "--Book-Entry Certificates" below. No service
charge will be made for any registration of exchange or transfer of
Certificates, but the Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge.
The aggregate undivided interest in the Trust represented by the
Certificates as of the Closing Date will equal $ _____ (the "Original Invested
Amount"), which represents __% of the Cut-off Date Pool Balance. The "Original
Certificate Principal Balance" will equal $ _____ . Following the Closing Date,
the "Invested Amount" with respect to any Distribution Date will be an amount
equal to the Original Invested Amount minus (i) the amount of Investor Principal
Collections previously distributed to Certificateholders, and minus (ii) an
amount equal to the product of the Investor Floating Allocation Percentage and
the Liquidation Loss Amounts (each as defined herein). The principal amount of
the outstanding Certificates (the "Certificate Principal Balance") on any
Distribution Date is equal to the Original Certificate Principal Balance minus
the aggregate of amounts actually distributed as principal to the
Certificateholders. See "--Distributions on the Certificates" below. Each
Certificate represents the right to receive payments of interest at the
Certificate Rate and payments of principal as described below.
The Transferor will own the remaining undivided interest in the Mortgage
Loans (the "Transferor Interest"), which is equal to the Pool Balance less the
Invested Amount. The Transferor Interest will initially equal $, which
represents _% of the Cut-off Date Pool Balance. The Transferor as of any date is
the owner of the Transferor Interest which initially will be the Seller. In
general, the Pool Balance will vary each day as principal is paid on the
Mortgage Loans, liquidation losses are incurred, Additional Balances are drawn
down by borrowers and Mortgage Loans are transferred to the Trust.
The Transferor has the right to sell or pledge the Transferor Interest at
any time, provided (i) the Rating Agencies (as defined herein) have notified the
Transferor and the Trustee in writing that such action will not result in the
reduction or withdrawal of the ratings assigned to the Certificates, and (ii)
certain other conditions specified in the Agreement are satisfied.
Book-Entry Certificates
The Certificates will initially be issued in book-entry form. Persons
acquiring beneficial ownership interests in the Certificates ("Certificate
Owners") may elect to hold their Certificate interests through The Depository
Trust Company ("DTC"), in the United States, or Centrale de Livraison de Valeurs
Mobilieres S.A. ("CEDEL") or the Euroclear System ("Euroclear"), in Europe.
Transfers within DTC, CEDEL or Euroclear, as the case may be, will be in
accordance with the usual rules and operating procedures of the relevant system.
So long as the Certificates are Book-Entry Certificates (as defined herein),
such Certificates will be evidenced by one or more Certificates registered in
the name of Cede & Co. ("Cede"), as the nominee of DTC or one of the relevant
depositaries (collectively, the "European Depositaries"). Cross-market transfers
between persons holding directly or indirectly through DTC, on the one hand, and
counterparties holding directly or indirectly through CEDEL or Euroclear, on the
other, will be effected in DTC through Citibank N.A. ("Citibank") or The Chase
Manhattan Bank ("Chase"), the relevant depositaries of CEDEL or Euroclear,
respectively, and each a participating member of DTC. The Certificates will
initially be registered in the name of Cede. The interests of the
Certificateholders will be represented by book entries on the records of DTC and
participating members thereof. No Certificate Owner will be entitled to receive
a definitive certificate representing such person's interest, except in the
event that Definitive Certificates (as defined herein) are issued under the
limited circumstances described herein. All references in this Prospectus
Supplement to any Certificates reflect the rights of Certificate Owners only as
such rights may be exercised through DTC and its participating organizations for
so long as such Certificates are held by DTC. See "Risk Factors--Book-Entry
Certificates", "Description of the Certificates--Book-Entry Certificates" herein
and "Annex I" hereto.
Assignment of Mortgage Loans
At the time of issuance of the Certificates, the Depositor will transfer to
the Trust all of its right, title and interest in and to each Mortgage Loan
(including any Additional Balances arising in the future), related Credit Line
Agreements, mortgages and other related documents (collectively, the "Related
Documents"), including all collections received on or with respect to each such
Mortgage Loan after the Cut-off Date (exclusive of payments in respect of
accrued interest due on or prior to the Cut-off Date or due in the month of
_____). The Trustee, concurrently with such transfer, will deliver the
Certificates to the Depositor and the Transferor Certificate (as defined in the
Agreement) to the Transferor. Each Mortgage Loan transferred to the Trust will
be identified on a schedule (the "Mortgage Loan Schedule") delivered to the
Trustee pursuant to the Agreement. Such schedule will include information as to
the Cut-off Date Principal Balance of each Mortgage Loan, as well as information
with respect to the Loan Rate.
Within 90 days of an Assignment Event, the Trustee will review the Mortgage
Loans and the Related Documents and if any Mortgage Loan or Related Document is
found to be defective in any material respect and such defect is not cured
within 90 days following notification thereof to the Seller and the Depositor by
the Trustee, the Seller will be obligated to accept the transfer of such
Mortgage Loan from the Trust. Upon such transfer, the Principal Balance of such
Mortgage Loan will be deducted from the Pool Balance, thus reducing the amount
of the Transferor Interest. If the deduction would cause the Transferor Interest
to become less than the Minimum Transferor Interest at such time (a "Transfer
Deficiency"), the Seller will be obligated to either substitute an Eligible
Substitute Mortgage Loan or make a deposit into the Collection Account in the
amount (the "Transfer Deposit Amount") equal to the amount by which the
Transferor Interest would be reduced to less than the Minimum Transferor
Interest at such time. Any such deduction, substitution or deposit, will be
considered a payment in full of such Mortgage Loan. Any Transfer Deposit Amount
will be treated as a Principal Collection. Notwithstanding the foregoing,
however, prior to all required deposits to the Collection Account being made no
such transfer shall be considered to have occurred unless such deposit is
actually made. The obligation of the Seller to accept a transfer of a Defective
Mortgage Loan is the sole remedy regarding any defects in the Mortgage Loans and
Related Documents available to the Trustee or the Certificateholders.
An "Eligible Substitute Mortgage Loan" is a mortgage loan substituted by
the Depositor for a Defective Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding Principal Balance (or in the case of a
substitution of more than one Mortgage Loan for a Defective Mortgage Loan, an
aggregate Principal Balance), not __% more or less than the Transfer Deficiency
relating to such Defective Mortgage Loan; (ii) have a Loan Rate not less than
the Loan Rate of the Defective Mortgage Loan and not more than _% in excess of
the Loan Rate of such Defective Mortgage Loan; (iii) have a Loan Rate based on
the same Index with adjustments to such Loan Rate made on the same Interest Rate
Adjustment Date as that of the Defective Mortgage Loan; (iv) have a Margin that
is not less than the Margin of the Defective Mortgage Loan and not more than ___
basis points higher than the Margin for the Defective Mortgage Loan; (v) have a
mortgage of the same or higher level of priority as the mortgage relating to the
Defective Mortgage Loan; (vi) have a remaining term to maturity not more than
___ months earlier and not more than __ months later than the remaining term to
maturity of the Defective Mortgage Loan; (vii) comply with each representation
and warranty as to the Mortgage Loans set forth in the Agreement (deemed to be
made as of the date of substitution); (viii) in general, have an original
Combined Loan-to-Value Ratio not greater than that of the Defective Mortgage
Loan; and (ix) satisfy certain other conditions specified in the Agreement. To
the extent the Principal Balance of an Eligible Substitute Mortgage Loan is less
than the Principal Balance of the related Defective Mortgage Loan and to the
extent that the Transferor Interest would be reduced below the Minimum
Transferor Interest, the Seller will be required to make a deposit to the
Collection Account equal to such difference.
The Seller will make certain representations and warranties as to the
accuracy in all material respects of certain information furnished to the
Trustee with respect to each Mortgage Loan (e.g., Cut-off Date Principal Balance
and the Loan Rate). In addition, the Seller will represent and warrant on the
Closing Date that at the time of transfer to the Depositor, the Seller has
transferred or assigned all of its rights, title and interest in each Mortgage
Loan and the Related Documents, free of any lien (subject to certain
exceptions). Upon discovery of a breach of any such representation and warranty
which materially and adversely affects the interests of the Certificateholders
or the Certificate Insurer in the related Mortgage Loan and Related Documents,
the Seller will have a period of 90 days after discovery or notice of the breach
to effect a cure. If the breach cannot be cured within the 90-day period, the
Seller will be obligated to repurchase or substitute a similar mortgage loan for
such Mortgage Loan; provided, however, that the Seller will not be obligated to
make any such repurchase or substitution (or cure such breach) if such breach
constitutes fraud in the origination of the affected Mortgage Loan and the
Seller did not have knowledge of such fraud. The same procedure and limitations
that are set forth in the second preceding paragraph for the transfer of
Defective Mortgage Loans will apply to the transfer of a Mortgage Loan that is
required to be transferred because of such breach of a representation or
warranty in the Agreement that materially and adversely affects the interests of
the Certificateholders.
Mortgage Loans required to be transferred to the Seller as described in the
preceding paragraphs are referred to as "Defective Mortgage Loans."
Pursuant to the Agreement, the Master Servicer will service and administer
the Mortgage Loans as more fully set forth above.
Amendments to Credit Line Agreements
Subject to applicable law, the Master Servicer may change the terms of the
Credit Line Agreements at any time provided that such changes (i) do not
adversely affect the interest of the Certificateholders or the Certificate
Insurer, and (ii) are consistent with prudent business practice. In addition,
the Agreement permits the Master Servicer, within certain limitations described
therein, to increase the Credit Limit of the related Mortgage Loan or reduce the
Margin for such Mortgage Loan.
Optional Transfers of Mortgage Loans to the Transferor
Subject to the conditions specified in the Agreement, on any Distribution
Date the Transferor may, but shall not be obligated to, remove on such
Distribution Date (the "Transfer Date") from the Trust, certain Mortgage Loans
without notice to the Certificateholders. The Transferor is permitted to
designate the Mortgage Loans to be removed. Mortgage Loans so designated will
only be removed upon satisfaction of certain conditions specified in the
Agreement, including: (i) the Transferor Interest as of such Transfer Date
(after giving effect to such removal) exceeds the Minimum Transferor Interest;
(ii) the Transferor shall have delivered to the Trustee a "Mortgage Loan
Schedule" containing a list of all Mortgage Loans remaining in the Trust after
such removal; (iii) the Transferor shall represent and warrant that no selection
procedures which the Transferor reasonably believes are adverse to the interests
of the Certificateholders or the Certificate Insurer were used by the Transferor
in selecting such Mortgage Loans; (iv) in connection with the first such
retransfer of Mortgage Loans, the Rating Agencies shall have been notified of
the proposed transfer and prior to the Transfer Date shall not have notified the
Transferor in writing that such transfer would result in a reduction or
withdrawal of the ratings assigned to the Certificates without regard to the
Policy; and (v) the Transferor shall have delivered to the Trustee and the
Certificate Insurer an officer's certificate confirming the conditions set forth
in clauses (i) through (iii) above.
As of any date of determination, the "Minimum Transferor Interest" is an
amount equal to the lesser of (a) _% of the Pool Balance on such date and (b)
the Transferor Interest as of the Closing Date.
Payments on Mortgage Loans; Deposits to Collection Account
The Trustee shall establish and maintain on behalf of the Master Servicer
an account (the "Collection Account") for the benefit of the Certificateholders
and the Transferor, as their interests may appear. The Collection Account will
be an Eligible Account (as defined herein). Subject to the investment provision
described in the following paragraphs, within two days of receipt by the Master
Servicer of amounts in respect of the Mortgage Loans (excluding amounts
representing administrative charges, annual fees, taxes, assessments, credit
insurance charges, insurance proceeds to be applied to the restoration or repair
of a Mortgaged Property or similar items), the Master Servicer will deposit such
amounts in the Collection Account. Amounts so deposited may be invested in
Eligible Investments (as described in the Agreement) maturing no later than one
Business Day prior to the date on which the amount on deposit therein is
required to be deposited in the Collection Account or on such Distribution Date
if approved by the Rating Agencies and the Certificate Insurer. Not later than
the third Business Day prior to each Distribution Date (the "Determination
Date"), the Master Servicer will notify the Trustee of the amount of such
deposit to be included in funds available for the related Distribution Date.
An "Eligible Account" is (i) an account that is maintained with a
depository institution whose debt obligations at the time of any deposit therein
have the highest short-term debt rating by the Rating Agencies, (ii) one or more
accounts with a depository institution having a minimum long-term unsecured debt
rating of "____" by _______ and "____" by ___, which accounts are fully insured
by either the Savings Association Insurance Fund ("SAIF") or the Bank Insurance
Fund ("BIF") of the Federal Deposit Insurance Corporation established by such
fund, (iii) a segregated trust account maintained with the Trustee or an
Affiliate of the Trustee in its fiduciary capacity or (iv) otherwise acceptable
to each Rating Agency and the Certificate Insurer as evidenced by a letter from
each Rating Agency and the Certificate Insurer to the Trustee, without reduction
or withdrawal of their then current ratings of the Certificates.
Eligible Investments are specified in the Agreement and are limited to
investments which meet the criteria of the Rating Agencies from time to time as
being consistent with their then current ratings of the Certificates.
Allocations and Collections
All collections on the Mortgage Loans will generally be allocated in
accordance with the Credit Line Agreements between amounts collected in respect
of interest and amounts collected in respect of principal. As to any
Distribution Date, "Interest Collections" will be equal to the amounts collected
during the related Collection Period, including such portion of Net Liquidation
Proceeds allocated to interest pursuant to the terms of the Credit Line
Agreements less Servicing Fees for the related Collection Period.
As to any Distribution Date, "Principal Collections" will be equal to the
sum of (i) the amounts collected during the related Collection Period, including
such portion of Net Liquidation Proceeds allocated to principal pursuant to the
terms of the Credit Line Agreements and (ii) any Transfer Deposit Amounts. "Net
Liquidation Proceeds" with respect to a Mortgage Loan are equal to the
Liquidation Proceeds, reduced by related expenses, but not including the
portion, if any, of such amount that exceeds the Principal Balance of the
Mortgage Loan plus accrued and unpaid interest thereon to the end of the
Collection Period during which such Mortgage Loan became a Liquidated Mortgage
Loan. "Liquidation Proceeds" are the proceeds (excluding any amounts drawn on
the Policy) received in connection with the liquidation of any Mortgage Loan,
whether through trustee's sale, foreclosure sale or otherwise.
With respect to any Distribution Date, the portion of Interest Collections
allocable to the Certificates ("Investor Interest Collections") will equal the
product of (a) Interest Collections for such Distribution Date and (b) the
Investor Floating Allocation Percentage. With respect to any Distribution Date,
the "Investor Floating Allocation Percentage" is the percentage equivalent of a
fraction determined by dividing the Invested Amount at the close of business on
the preceding Distribution Date (or the Closing Date in the case of the first
Distribution Date) by the Pool Balance at the beginning of the related
Collection Period. The remaining amount of Interest Collections will be
allocated to the Transferor Interest.
Principal Collections will be allocated between the Certificateholders and
the Transferor ("Investor Principal Collections" and "Transferor Principal
Collections", respectively) as described herein.
The Trustee will deposit any amounts drawn under the Policy into the
Collection Account.
With respect to any date, the "Pool Balance" will be equal to the aggregate
of the Principal Balances of all Mortgage Loans as of such date. The Principal
Balance of a Mortgage Loan (other than a Liquidated Mortgage Loan) on any day is
equal to the Cut-off Date Principal Balance thereof, plus (i) any Additional
Balances in respect of such Mortgage Loan minus (ii) all collections credited
against the Principal Balance of such Mortgage Loan in accordance with the
related Credit Line Agreement prior to such day. The Principal Balance of a
Liquidated Mortgage Loan after final recovery of related Liquidation Proceeds
shall be zero.
Distributions on the Certificates
Beginning with the first Distribution Date (which will occur on __________,
199_), distributions on the Certificates will be made by the Trustee or the
Paying Agent on each Distribution Date to the persons in whose names such
Certificates are registered at the close of business on the day prior to each
Distribution Date or, if the Certificates are no longer Book-Entry Certificates,
at the close of business on the last day of the month preceding such
Distribution Date (the "Record Date"). The term "Distribution Date" means the
fifteenth day of each month or, if such day is not a Business Day, then the next
succeeding Business Day. Distributions will be made by check or money order
mailed (or upon the request of a Certificateholder owning Certificates having
denominations aggregating at least $_________, by wire transfer or otherwise) to
the address of the person entitled thereto (which, in the case of Book-Entry
Certificates, will be DTC or its nominee) as it appears on the Certificate
Register in amounts calculated as described herein on the Determination Date.
However, the final distribution in respect of the Certificates will be made only
upon presentation and surrender thereof at the office or the agency of the
Trustee specified in the notice to Certificateholders of such final
distribution. For purposes of the Agreement, a "Business Day" is any day other
than (i) a Saturday or Sunday or (ii) a day on which banking institutions in New
York State are required or authorized by law to be closed.
Application of Interest Collections. On each Distribution Date, the Trustee
or the Paying Agent will apply the Investor Interest Collections in the
following manner and order of priority:
(i) as payment to the Trustee for its fee for services
rendered pursuant to the Agreement;
(ii) as payment for the premium for the Policy;
(iii) as payment for the accrued interest due and any
overdue accrued interest (with interest thereon to the extent
permitted by law) on the Certificate Principal Balance of the
Certificates;
(iv) to pay Certificateholders the Investor Loss Amount
for such Distribution Date;
(v) as payment for any Investor Loss Amount for a previous
Distribution Date that was not previously (a) funded by
Investor Interest Collections, (b) absorbed by the
Overcollateralization Amount, (c) funded by amounts on deposit
in the Spread Account or (d) funded by draws on the Policy;
(vi) to reimburse prior draws made from the Policy (with
interest thereon);
(vii) to pay principal on the Certificates until the
Invested Amount exceeds the Certificate Principal Balance by
the Required Overcollateralization Amount (such amount so paid,
the "Accelerated Principal Distribution Amount");
(viii) any other amounts required to be deposited in an
account for the benefit of the Certificate Insurer and the
Certificateholders or owed to the Certificate Insurer pursuant
to the Insurance Agreement;
(ix) certain amounts that may be required to be paid to
the Master Servicer pursuant to the Agreement; and
(x) to the Transferor to the extent permitted as described
herein.
Payments to Certificateholders pursuant to clause (iii) will be interest
payments on the Certificates. Payments to Certificateholders pursuant to
clauses (iv), (v) and (vii) will be principal payments on the Certificates and
will therefore reduce the Certificate Principal Balance, however, payments
pursuant to clause (vii) will not reduce the Invested Amount. The Accelerated
Principal Distribution Amount is not guaranteed by the Policy.
To the extent that Investor Interest Collections are applied to pay the
interest on the Certificates, Investor Interest Collections may be
insufficient to cover Investor Loss Amounts. If such insufficiency results in
the Certificate Principal Balance exceeding the Invested Amount, a draw will
be made on the Policy in accordance with the terms of the Policy.
The "Required Overcollateralization Amount" shall be an amount set forth
in the Agreement. "Liquidation Loss Amount" means with respect to any
Liquidated Mortgage Loan, the unrecovered Principal Balance thereof during the
Collection Period in which such Mortgage Loan became a Liquidated Mortgage
Loan, after giving effect to the Net Liquidation Proceeds in connection
therewith. The "Investor Loss Amount" shall be the product of the Investor
Floating Allocation Percentage and the Liquidation Loss Amount for such
Distribution Date.
A "Liquidated Mortgage Loan" means, as to any Distribution Date, any
Mortgage Loan in respect of which the Master Servicer has determined, based on
the servicing procedures specified in the Agreement, as of the end of the
preceding Collection Period that all Liquidation Proceeds which it expects to
recover with respect to the disposition of the related Mortgaged Property have
been recovered. The Investor Loss Amount will be allocated to the
Certificateholders.
As to any Distribution Date other than the first Distribution Date, the
"Collection Period" is the calendar month preceding each Distribution Date. As
to the first Distribution Date, the "Collection Period" is the period
beginning after the Cut-off Date and ending on the last day of _______________
199_.
Interest will be distributed on each Distribution Date at the Certificate
Rate for the related Interest Period (as defined below). The "Certificate
Rate" for a Distribution Date will generally equal the sum of [(a) LIBOR,
determined as specified herein, as of the second LIBOR Business Day prior to
the immediately preceding Distribution Date (or as of two LIBOR Business Days
prior to the Closing Date, in the case of the first Distribution Date) plus
(b) ____% per annum.] Notwithstanding the foregoing, in no event will the
amount of interest required to be distributed in respect of the Certificates
on any Distribution Date exceed a rate equal to the weighted average of the
Loan Rates (net of the Servicing Fee Rate, the fee payable to the Trustee and
the rate at which the premium payable to the Certificate Insurer is
calculated) weighted on the basis of the daily balance of each Mortgage Loan
during the related billing cycle prior to the Collection Period relating to
such Distribution Date.
Interest on the Certificates in respect of any Distribution Date will
accrue on the Certificate Principal Balance from the preceding Distribution
Date (or in the case of the first Distribution Date, from the date of the
initial issuance of the Certificates (the "Closing Date")) through the day
preceding such Distribution Date (each such period, an "Interest Period") on
the basis of the actual number of days in the Interest Period and a 360-day
year. Interest payments on the Certificates will be funded from Investor
Interest Collections and, if necessary, from draws on the Policy.
[Calculation of the LIBOR Rate. On each Distribution Date, LIBOR shall be
established by the Trustee and as to any Interest Period, LIBOR will equal the
rate for United States dollar deposits for one month which appears on the
Telerate Screen Page 3750 as of 11:00 A.M., London time, on the second LIBOR
Business Day prior to the first day of such Interest Period. "Telerate Screen
Page 3750" means the display designated as page 3750 on the Telerate Service
(or such other page as may replace page 3750 on that service for the purpose
of displaying London interbank offered rates of major banks). If such rate
does not appear on such page (or such other page as may replace that page on
that service, or if such service is no longer offered, such other service for
displaying LIBOR or comparable rates as may be selected by the Depositor after
consultation with the Trustee), the rate will be the Reference Bank Rate. The
"Reference Bank Rate" will be determined on the basis of the rates at which
deposits in U.S. Dollars are offered by the reference banks (which shall be
three major banks that are engaged in transactions in the London interbank
market, selected by the Depositor after consultation with the Trustee) as of
11:00 A.M., London time, on the day that is two LIBOR Business Days prior to
the immediately preceding Distribution Date to prime banks in the London
interbank market for a period of one month in amounts approximately equal to
the principal amount of the Certificates then outstanding. The Trustee will
request the principal London office of each of the reference banks to provide
a quotation of its rate. If at least two such quotations are provided, the
rate will be the arithmetic mean of the quotations. If on such date fewer than
two quotations are provided as requested, the rate will be the arithmetic mean
of the rates quoted by one or more major banks in New York City, selected by
the Depositor after consultation with the Trustee, as of 11:00 A.M., New York
City time, on such date for loans in U.S. Dollars to leading European banks
for a period of one month in amounts approximately equal to the principal
amount of the Certificates then outstanding. If no such quotations can be
obtained, the rate will be LIBOR for the prior Distribution Date. "LIBOR
Business Day" means any day other than (i) a Saturday or a Sunday or (ii) a
day on which banking institutions in the State of New York or in the city of
London, England are required or authorized by law to be closed.]
Transferor Collections. Collections allocable to the Transferor Interest
that are not distributed to Certificateholders will be distributed to the
Transferor only to the extent that such distribution will not reduce the
amount of the Transferor Interest as of the related Distribution Date below
the Minimum Transferor Interest. Amounts not distributed to the Transferor
because of such limitations will be retained in the Collection Account until
the Transferor Interest exceeds the Minimum Transferor Interest, at which time
such excess shall be released to the Transferor. If any such amounts are still
retained in the Collection Account upon the commencement of the Rapid
Amortization Period, such amounts will be paid to the Certificateholders as a
reduction of the Certificate Principal Balance.
Overcollateralization. The distribution of the aggregate Accelerated
Principal Distribution Amount, if any, to Certificateholders may result in the
Invested Amount being greater than the Certificate Principal Balance, thereby
creating overcollateralization. The Overcollateralization Amount, if any, will
be available to absorb any Investor Loss Amount that is not covered by
Investor Interest Collections.
Distributions of Principal Collections. For the period beginning on the
first Distribution Date and, unless a Rapid Amortization Event shall have
earlier occurred, ending on the Distribution Date in ______________ 20__ (the
"Managed Amortization Period"), the amount of Principal Collections payable to
Certificateholders as of each Distribution Date during the Managed
Amortization Period will equal, to the extent funds are available therefor,
the Scheduled Principal Collections Distribution Amount for such Distribution
Date. On any Distribution Date during the Managed Amortization Period, the
"Scheduled Principal Collections Distribution Amount" shall equal the lesser
of (i) the Maximum Principal Payment (as defined herein) and (ii) the
Alternative Principal Payment (as defined herein). With respect to any
Distribution Date, the "Maximum Principal Payment" will equal the product of
the Investor Fixed Allocation Percentage and Principal Collections for such
Distribution Date. With respect to any Distribution Date, the "Alternative
Principal Payment" will equal the greater of (x) 0___% of the Certificate
Principal Balance immediately prior to such Distribution Date and (y) the
amount, but not less than zero, of Principal Collections for such Distribution
Date less the aggregate of Additional Balances created during the related
Collection Period.
Beginning with the first Distribution Date following the end of the
Managed Amortization Period, the amount of Principal Collections payable to
Certificateholders on each Distribution Date will be equal to the Maximum
Principal Payment.
The amount of Principal Collections to be distributed to
Certificateholders on the first Distribution Date will reflect Principal
Collections and Additional Balances during the first Collection Period which
is the period beginning after the Cut-off Date through the last day of
__________ 199_.
Distributions of Principal Collections based upon the Investor Fixed
Allocation Percentage may result in distributions of principal to
Certificateholders in amounts that are greater relative to the declining Pool
Balance than would be the case if the Investor Floating Allocation Percentage
were used to determine the percentage of Principal Collections distributed in
respect of the Invested Amount. Principal Collections not allocated to the
Certificateholders will be allocated to the Transferor Interest. The aggregate
distributions of principal to the Certificateholders will not exceed the
Original Certificate Principal Balance.
In addition, to the extent of funds available therefor (including funds
available under the Policy), on the Distribution Date in ____________ 20__,
Certificateholders will be entitled to receive as a payment of principal an
amount equal to the outstanding Certificate Principal Balance.
The Paying Agent. The Paying Agent shall initially be the Trustee,
together with any successor thereto in such capacity (the "Paying Agent"). The
Paying Agent shall have the revocable power to withdraw funds from the
Collection Account for the purpose of making distributions to the
Certificateholders.
Rapid Amortization Events
As described above, the Managed Amortization Period will continue through
the Distribution Date in 20__, unless a Rapid Amortization Event occurs prior
to such date in which case the Rapid Amortization Period will commence prior
to such date. "Rapid Amortization Event" refers to any of the following
events:
(a) failure on the part of the Seller (i) to make a payment or
deposit required under the Agreement within three Business Days
after the date such payment or deposit is required to be made or
(ii) to observe or perform in any material respect any other
covenants or agreements of the Seller set forth in the Agreement,
which failure continues unremedied for a period of 60 days after
written notice;
(b) any representation or warranty made by the Seller in the
Agreement proves to have been incorrect in any material respect when
made and continues to be incorrect in any material respect for a
period of 60 days after written notice and as a result of which the
interests of the Certificateholders are materially and adversely
affected; provided, however, that a Rapid Amortization Event shall
not be deemed to occur if the Seller has purchased or made a
substitution for the related Mortgage Loan or Mortgage Loans if
applicable during such period (or within an additional 60 days with
the consent of the Trustee) in accordance with the provisions of the
Agreement;
(c) the occurrence of certain events of bankruptcy, insolvency
or receivership relating to the Transferor; or
(d) the Trust becomes subject to regulation by the Securities
and Exchange Commission as an investment company within the meaning
of the Investment Company Act of 1940, as amended.
In the case of any event described in clause (a) or (b), a Rapid
Amortization Event will be deemed to have occurred only if, after the
applicable grace period, if any, described in such clauses, either the Trustee
or Certificateholders holding Certificates evidencing more than 51% of the
Percentage Interests or the Certificate Insurer (so long as there is no
default by the Certificate Insurer in the performance of its obligations under
the Policy), by written notice to the Depositor and the Master Servicer (and
to the Trustee, if given by the Certificateholders) declare that a Rapid
Amortization Event has occurred as of the date of such notice. In the case of
any event described in clause (c) or (d), a Rapid Amortization Event will be
deemed to have occurred without any notice or other action on the part of the
Trustee or the Certificateholders immediately upon the occurrence of such
event.
In addition to the consequences of a Rapid Amortization Event discussed
above, if the Transferor voluntarily files a bankruptcy petition or goes into
liquidation or any person is appointed a receiver or bankruptcy trustee of the
Transferor, on the day of any such filing or appointment no further Additional
Balances will be transferred to the Trust, the Transferor will immediately
cease to transfer Additional Balances to the Trust and the Transferor will
promptly give notice to the Trustee of any such filing or appointment. Within
15 days, the Trustee will publish a notice of the liquidation or the filing or
appointment stating that the Trustee intends to sell, dispose of or otherwise
liquidate the Mortgage Loans in a commercially reasonable manner and to the
best of its ability. Unless otherwise instructed within a specified period by
Certificateholders representing undivided interests aggregating more than 51%
of the aggregate principal amount of the Certificates, the Trustee will sell,
dispose of or otherwise liquidate the Mortgage Loans in a commercially
reasonable manner and on commercially reasonable terms. Any proceeds will be
treated as collections allocable to the Certificateholders and the Investor
Fixed Allocation Percentage of such remaining proceeds and will be distributed
to the Certificateholders on the date such proceeds are received (the
"Dissolution Distribution Date"). If the portion of such proceeds allocable to
the Certificateholders are not sufficient to pay in full the remaining amount
due on the Certificates, the Policy will cover such shortfall.
Notwithstanding the foregoing, if a conservator, receiver or
trustee-in-bankruptcy is appointed for the Transferor and no Rapid
Amortization Event exists other than such conservatorship, receivership or
insolvency of the Transferor, the conservator, receiver or
trustee-in-bankruptcy may have the power to prevent the commencement of the
Rapid Amortization Period or the sale of Mortgage Loans described above.
The Policy
[On or before the Closing Date, the Policy will be issued by the
Certificate Insurer pursuant to the provisions of the Agreement and the
Insurance and Indemnity Agreement (the "Insurance Agreement") to be dated as
of ____________, 199_, among the Seller, the Depositor, the Master Servicer
and the Certificate Insurer.
The Policy will irrevocably and unconditionally guarantee payment on each
Distribution Date to the Trustee for the benefit of the Certificateholders the
full and complete payment of (i) the Guaranteed Principal Distribution Amount
(as defined herein) with respect to the Certificates for such Distribution
Date and (ii) accrued and unpaid interest due on the Certificates (together,
the "Guaranteed Distributions"), with such Guaranteed Distributions having
been calculated in accordance with the original terms of the Certificates or
the Agreement except for amendments or modifications to which the Certificate
Insurer has given its prior written consent. The effect of the Policy is to
guarantee the timely payment of interest on, and the ultimate payment of the
principal amount of, all of the Certificates.
The "Guaranteed Principal Distribution Amount" shall be the amount, if
any, by which the Certificate Principal Balance (after giving effect to all
other amounts distributable and allocable to principal on the Certificates)
exceeds the Invested Amount as of such Distribution Date (after giving effect
to all other amounts distributable and allocable to principal on the
Certificates for such Distribution Date). In addition, the Policy will
guarantee the payment of the outstanding Certificate Principal Balance on the
Distribution Date in ______________ 20__ (after giving effect to all other
amounts distributable and allocable to principal on such Distribution Date).
In accordance with the Agreement, the Trustee will be required to
establish and maintain an account (the "Spread Account") for the benefit of
the Certificate Insurer and the Certificateholders. The Trustee shall deposit
the amounts into the Spread Account as required by the Agreement.
Payment of claims on the Policy will be made by the Certificate Insurer
following Receipt by the Certificate Insurer of the appropriate notice for
payment on the later to occur of (i) 12:00 noon, New York City time, on the
second Business Day following Receipt of such notice for payment and (ii)
12:00 noon, New York City time, on the relevant Distribution Date.
If payment of any amount guaranteed by the Certificate Insurer pursuant
to the Policy is avoided as a preference payment under applicable bankruptcy,
insolvency, receivership or similar law, the Certificate Insurer will pay such
amount out of the funds of the Certificate Insurer on the later of (a) the
date when due to be paid pursuant to the Order referred to below or (b) the
first to occur of (i) the fourth Business Day following Receipt by the
Certificate Insurer from the Trustee of (A) a certified copy of the order (the
"Order") of the court or other governmental body which exercised jurisdiction
to the effect that the Certificateholder is required to return the amount of
any Guaranteed Distributions distributed with respect to the Certificates
during the term of the related Policy because such distributions were
avoidable preference payments under applicable bankruptcy law, (B) a
certificate of the Certificateholder that the Order has been entered and is
not subject to any stay and (C) an assignment duly executed and delivered by
the Certificateholder, in such form as is reasonably required by the
Certificate Insurer and provided to the Certificateholder by the Certificate
Insurer, irrevocably assigning to the Certificate Insurer all rights and
claims of the Certificateholder relating to or arising under the Certificates
against the debtor which made such preference payment or otherwise with
respect to such preference payment, or (ii) the date of Receipt by the
Certificate Insurer from the Trustee of the items referred to in clauses (A),
(B) and (C) above if, at least four Business Days prior to such date of
Receipt, the Certificate Insurer shall have Received written notice from the
Trustee that such items were to be delivered on such date and such date was
specified in such notice. Such payment shall be disbursed to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Order
and not to the Trustee or any Certificateholder directly (unless a
Certificateholder has previously paid such amount to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Order
in which case such payment shall be disbursed to the Trustee for distribution
to such Certificateholder upon proof of such payment reasonably satisfactory
to the Certificate Insurer).
The terms "Receipt" and "Received", with respect to the Policy, mean
actual delivery to the Certificate Insurer and to its fiscal agent appointed
by the Certificate Insurer at its option, if any, prior to 12:00 noon, New
York City time, on a Business Day; delivery either on a day that is not a
Business Day or after 12:00 noon, New York City time, shall be deemed to be
Receipt on the next succeeding Business Day. If any notice or certificate
given under the Policy by the Trustee is not in proper form or is not properly
completed, executed or delivered it shall be deemed not to have been Received,
and the Certificate Insurer or the fiscal agent shall promptly so advise the
Trustee and the Trustee may submit an amended notice.
Under the Policy, "Business Day" means any day other than (i) a Saturday
or Sunday or (ii) a day on which banking institutions in The City of New York,
New York are authorized or obligated by law or executive order to be closed.
The Certificate Insurer's obligations under the Policy in respect of
Guaranteed Distributions shall be discharged to the extent funds are
transferred to the Trustee as provided in the Policy, whether or not such
funds are properly applied by the Trustee.
The Certificate Insurer shall be subrogated to the rights of each
Certificateholder to receive payments of principal and interest, as
applicable, with respect to distributions on the Certificates to the extent of
any payment by the Certificate Insurer under the Policy. To the extent the
Certificate Insurer makes Guaranteed Distributions, either directly or
indirectly (as by paying through the Trustee), to the Certificateholders, the
Certificate Insurer will be subrogated to the rights of the
Certificateholders, as applicable, with respect to such Guaranteed
Distributions, shall be deemed to the extent of the payments so made to be a
registered Certificateholder for purposes of payment and shall receive all
future Guaranteed Distributions until all such Guaranteed Distributions by the
Certificate Insurer have been fully reimbursed, provided that the
Certificateholders have received the full amount of the Guaranteed
Distributions.
The terms of the Policy cannot be modified, altered or affected by any
other agreement or instrument, or by the merger, consolidation or dissolution
of the Seller. The Policy by its terms may not be cancelled or revoked. The
Policy is governed by the laws of the State of ________.
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
covered by the Florida Insurance Guaranty Association created under Part II of
Chapter 631 of the Florida Insurance Code. In the event the Certificate
Insurer were to become insolvent, any claims arising under the Policy are
excluded from coverage by the California Insurance Guaranty Association,
established pursuant to Article 14.2 of Chapter 1 of part 2 of Division 1 of
the California Insurance Code.
Pursuant to the terms of the Agreement, unless a Certificate Insurer
default exists, the Certificate Insurer shall be deemed to be the Holder of
the Certificates for certain purposes (other than with respect to payment on
the Certificates), will be entitled to exercise all rights of the
Certificateholders thereunder, without the consent of such Holders and the
Holders of the Certificates may exercise such rights only with the prior
written consent of the Certificate Insurer. In addition, the Certificate
Insurer will have certain additional rights as third party beneficiary to the
Agreement.
In the absence of payments under the Policy, Certificateholders will bear
directly the credit and other risks associated with their undivided interest
in the Trust.]
Reports to Certificateholders
Concurrently with each distribution to the Certificateholders, the Master
Servicer will forward to the Trustee for mailing to such Certificateholder a
statement setting forth among other items:
(i) the Investor Floating Allocation Percentage for the
preceding Collection Period;
(ii) the amount being distributed to Certificateholders;
(iii) the amount of interest included in such distribution
and the related Certificate Rate;
(iv) the amount, if any, of overdue accrued interest
included in such distribution (and the amount of interest
thereon);
(v) the amount, if any, of the remaining overdue accrued
interest after giving effect to such distribution;
(vi) the amount, if any, of principal included in such
distribution;
(vii) the amount, if any, of the reimbursement of previous
Liquidation Loss Amounts included in such distribution;
(viii) the amount, if any, of the aggregate unreimbursed
Liquidation Loss Amounts after giving effect to such
distribution;
(ix) the Servicing Fee for such Distribution Date;
(x) the Invested Amount and the Certificate Principal
Balance, each after giving effect to such distribution;
(xi) the Pool Balance as of the end of the preceding
Collection Period;
(xii) the number and aggregate Principal Balances of the
Mortgage Loans as to which the minimum monthly payment is
delinquent for 30-59 days, 60-89 days and 90 or more days,
respectively, as of the end of the preceding Collection Period;
(xiii) the book value of any real estate which is acquired
by the Trust through foreclosure or grant of deed in lieu of
foreclosure; and
(xiv) the amount of any draws on the Policy.
In the case of information furnished pursuant to clauses (iii), (iv),
(v), (vi), (vii) and (viii) above, the amounts shall be expressed as a dollar
amount per Certificate with a $1,000 denomination.
Within 60 days after the end of each calendar year commencing in 1998,
the Master Servicer will be required to forward to the Trustee a statement
containing the information set forth in clauses (iii) and (vi) above
aggregated for such calendar year.
Collection and Other Servicing Procedures on Mortgage Loans
The Master Servicer will make reasonable efforts to collect all payments
called for under the Mortgage Loans and will, consistent with the Agreement,
follow such collection procedures as it follows from time to time with respect
to the home equity loans in its servicing portfolio comparable to the Mortgage
Loans. Consistent with the above, the Master Servicer may in its discretion
waive any late payment charge or any assumption or other fee or charge that
may be collected in the ordinary course of servicing the Mortgage Loans.
With respect to the Mortgage Loans, the Master Servicer may arrange with
a borrower a schedule for the payment of interest due and unpaid for a period,
provided that any such arrangement is consistent with the Master Servicer's
policies with respect to the home equity mortgage loans it owns or services.
In accordance with the terms of the Agreement, the Master Servicer may consent
under certain circumstances to the placing of a subsequent senior lien in
respect of a Mortgage Loan.
Hazard Insurance
The Agreement provides that the Master Servicer maintain certain hazard
insurance on the Mortgaged Properties relating to the Mortgage Loans. While
the terms of the related Credit Line Agreements generally require borrowers to
maintain certain hazard insurance, the Master Servicer will not monitor the
maintenance of such insurance.
The Agreement requires the Master Servicer to maintain for any Mortgaged
Property relating to a Mortgage Loan acquired upon foreclosure of a Mortgage
Loan, or by deed in lieu of such foreclosure, hazard insurance with extended
coverage in an amount equal to the lesser of (a) the maximum insurable value
of such Mortgaged Property or (b) the outstanding balance of such Mortgage
Loan plus the outstanding balance on any mortgage loan senior to such Mortgage
Loan at the time of foreclosure or deed in lieu of foreclosure, plus accrued
interest and the Master Servicer's good faith estimate of the related
liquidation expenses to be incurred in connection therewith. The Agreement
provides that the Master Servicer may satisfy its obligation to cause hazard
policies to be maintained by maintaining a blanket policy insuring against
losses on such Mortgaged Properties. If such blanket policy contains a
deductible clause, the Master Servicer will be obligated to deposit in the
Collection Account the sums which would have been deposited therein but for
such clause. The Master Servicer will initially satisfy these requirements by
maintaining a blanket policy. As set forth above, all amounts collected by the
Master Servicer (net of any reimbursements to the Master Servicer) under any
hazard policy (except for amounts to be applied to the restoration or repair
of the Mortgaged Property) will ultimately be deposited in the Collection
Account.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property by fire,
lightning, explosion, smoke, windstorm and hail, and the like, strike and
civil commotion, subject to the conditions and exclusions specified in each
policy. Although the policies relating to the Mortgage Loans will be
underwritten by different insurers and therefore will not contain identical
terms and conditions, the basic terms thereof are dictated by state laws and
most of such policies typically do not cover any physical damage resulting
from the following: war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), nuclear reactions, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases vandalism. The foregoing list is
merely indicative of certain kinds of uninsured risks and is not intended to
be all-inclusive or an exact description of the insurance policies relating to
the Mortgaged Properties.
Realization Upon Defaulted Mortgage Loans
The Master Servicer will foreclose upon or otherwise comparably convert
to ownership Mortgaged Properties securing such of the Mortgage Loans as come
into default when, in accordance with applicable servicing procedures under
the Agreement, no satisfactory arrangements can be made for the collection of
delinquent payments. In connection with such foreclosure or other conversion,
the Master Servicer will follow such practices as it deems necessary or
advisable and as are in keeping with its general subordinate mortgage
servicing activities, provided the Master Servicer will not be required to
expend its own funds in connection with foreclosure or other conversion,
correction of default on a related senior mortgage loan or restoration of any
property unless, in its sole judgment, such foreclosure, correction or
restoration will increase Net Liquidation Proceeds. The Master Servicer will
be reimbursed out of Liquidation Proceeds for advances of its own funds as
liquidation expenses before any Net Liquidation Proceeds are distributed to
Certificateholders or the Transferor.
Optional Purchase of Defaulted Loan
The Master Servicer may, at its option, purchase from the Trust any
Mortgage Loan which is delinquent in payment by 91 days or more. Any such
purchase shall be at a price equal to 100% of the Principal Balance of such
Mortgage Loan plus accrued interest thereon at the applicable Loan Rate from
the date through which interest was last paid by the related mortgagor to the
first day of the month in which such amount is to be distributed to
Certificateholders.
Servicing Compensation and Payment of Expenses
With respect to each Collection Period, the Master Servicer will receive
from interest collections in respect of the Mortgage Loans a portion of such
interest collections as a monthly Servicing Fee in the amount equal to
approximately 0.50% per annum ("Servicing Fee Rate") on the aggregate
Principal Balances of the Mortgage Loans as of the first day of the related
Collection Period (or at the Cut-off Date for the first Collection Period).
All assumption fees, late payment charges and other fees and charges, to the
extent collected from borrowers, will be retained by the Master Servicer as
additional servicing compensation.
The Master Servicer will pay certain ongoing expenses associated with the
Trust and incurred by it in connection with its responsibilities under the
Agreement. In addition, the Master Servicer will be entitled to reimbursement
for certain expenses incurred by it in connection with defaulted Mortgage
Loans and in connection with the restoration of Mortgaged Properties, such
right of reimbursement being prior to the rights of Certificateholders to
receive any related Net Liquidation Proceeds.
Evidence as to Compliance
The Agreement provides for delivery on or before ___________ in each
year, beginning in ___________, 199_, to the Trustee of an annual statement
signed by an officer of the Master Servicer to the effect that the Master
Servicer has fulfilled its material obligations under the Agreement throughout
the preceding fiscal year, except as specified in such statement.
On or before _____________ of each year, beginning ___________, 199_, the
Master Servicer will furnish a report prepared by a firm of nationally
recognized independent public accountants (who may also render other services
to the Master Servicer or the Transferor) to the Trustee, the Certificate
Insurer and the Rating Agencies to the effect that such firm has examined
certain documents and the records relating to servicing of the Mortgage Loans
under the Agreement and that, on the basis of such examination, such firm
believes that such servicing was conducted in compliance with the Agreement
except for (a) such exceptions as such firm believes to be immaterial and (b)
such other exceptions as shall be set forth in such report.
Certain Matters Regarding the Master Servicer and the Transferor
The Agreement provides that the Master Servicer may not resign from its
obligations and duties thereunder, except in connection with a permitted
transfer of servicing, unless (i) 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 or its affiliate or (ii) upon the satisfaction of the
following conditions: (a) the Master Servicer has proposed a successor
servicer to the Trustee in writing and such proposed successor servicer is
reasonably acceptable to the Trustee; (b) the Rating Agencies have confirmed
to the Trustee that the appointment of such proposed successor servicer as the
Master Servicer will not result in the reduction or withdrawal of the then
current rating of the Certificates; and (c) such proposed successor servicer
is reasonably acceptable to the Certificate Insurer. No such resignation will
become effective until the Trustee or a successor servicer has assumed the
Master Servicer's obligations and duties under the Agreement.
The Master Servicer may perform any of its duties and obligations under
the Agreement through one or more subservicers or delegates, which may be
affiliates of the Master Servicer. Notwithstanding any such arrangement, the
Master Servicer will remain liable and obligated to the Trustee and the
Certificateholders for the Master Servicer's duties and obligations under the
Agreement, without any diminution of such duties and obligations and as if the
Master Servicer itself were performing such duties and obligations.
The Agreement provides that the Master Servicer will indemnify the Trust
and the Trustee from and against any loss, liability, expense, damage or
injury suffered or sustained as a result of the Master Servicer's actions or
omissions in connection with the servicing and administration of the Mortgage
Loans which are not in accordance with the provisions of the Agreement. Under
the Agreement, the Transferor will indemnify an injured party for the entire
amount of any losses, claims, damages or liabilities arising out of or based
on the Agreement (other than losses resulting from defaults under the Mortgage
Loans). In the event of an Event of Servicing Termination (as defined below)
resulting in the assumption of servicing obligations by a successor Master
Servicer, the successor Master Servicer will indemnify the Transferor for any
losses, claims, damages and liabilities of the Transferor as described in this
paragraph arising from the successor Master Servicer's actions or omissions.
The Agreement provides that neither the Depositor, the Transferor nor the
Master Servicer nor their directors, officers, employees or agents will be
under any other liability to the Trust, the Trustee, the Certificateholders or
any other person for any action taken or for refraining from taking any action
pursuant to the Agreement. However, neither the Depositor, the Transferor nor
the Master Servicer will be protected against any liability which would
otherwise be imposed by reason of willful misconduct, bad faith or gross
negligence of the Depositor, the Transferor or the Master Servicer in the
performance of its duties under the Agreement or by reason of reckless
disregard of its obligations thereunder. In addition, the Agreement provides
that the Master Servicer will not be under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its servicing
responsibilities under the Agreement and which in its opinion may expose it to
any expense or liability. The Master Servicer may, in its sole discretion,
undertake any such legal action which it may deem necessary or desirable with
respect to the Agreement and the rights and duties of the parties thereto and
the interest of the Certificateholders thereunder.
Any corporation into which the Master Servicer may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Master Servicer shall be a party, or any
corporation succeeding to the business of the Master Servicer shall be the
successor of the Master Servicer hereunder, without the execution or filing of
any paper or any further act on the part of any of the parties hereto,
anything in the Agreement to the contrary notwithstanding.
Events of Servicing Termination
"Events of Servicing Termination" will consist of: (i) any failure by the
Master Servicer to deposit in the Collection Account any deposit required to
be made under the Agreement, which failure continues unremedied for five
business days after the giving of written notice of such failure to the Master
Servicer by the Trustee, or to the Master Servicer and the Trustee by the
Certificate Insurer or Certificateholders evidencing an aggregate, undivided
interest in the Trust of at least 25% of the Certificate Principal Balance;
(ii) any failure by the Master Servicer duly to observe or perform in any
material respect any other of its covenants or agreements in the Agreement
which, in each case, materially and adversely affects the interests of the
Certificateholders or the Certificate Insurer and continues unremedied for 60
days after the giving of written notice of such failure to the Master Servicer
by the Trustee, or to the Master Servicer and the Trustee by the Certificate
Insurer or Certificateholders evidencing an aggregate, undivided interest in
the Trust of at least 25% of the Certificate Principal Balance; or (iii)
certain events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings relating to the Master Servicer and certain
actions by the Master Servicer indicating insolvency, reorganization or
inability to pay its obligations. Under certain other circumstances, the
Certificate Insurer with the consent of holders of Investor Certificates
evidencing an aggregate, undivided interest in the Trust of at least 66 2/3%
of the Certificate Principal Balance may deliver written notice to the Master
Servicer terminating all the rights and obligations of the Master Servicer
under the Agreement.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (i) above for a period of ten Business Days or
referred to under clause (ii) above for a period of 60 Business Days, shall
not constitute an Event of Servicing Termination if such delay or failure
could not be prevented by the exercise of reasonable diligence by the Master
Servicer and such delay or failure was caused by an act of God or other
similar occurrence. Upon the occurrence of any such event the Master Servicer
shall not be relieved from using its best efforts to perform its obligations
in a timely manner in accordance with the terms of the Agreement and the
Master Servicer shall provide the Trustee, the Depositor, the Transferor, the
Certificate Insurer and the Certificateholders prompt notice of such failure
or delay by it, together with a description of its efforts to so perform its
obligations.
Rights Upon an Event of Servicing Termination
So long as an Event of Servicing Termination remains unremedied, either
the Trustee, or Certificateholders evidencing an aggregate, undivided interest
in the Trust of at least 66 2/3% of the Certificate Principal Balance or the
Certificate Insurer, may terminate all of the rights and obligations of the
Master Servicer under the Agreement and in and to the Mortgage Loans,
whereupon the Trustee will succeed to all the responsibilities, duties and
liabilities of the Master Servicer under the Agreement and will be entitled to
similar compensation arrangements. In the event that the Trustee would be
obligated to succeed the Master Servicer but is unwilling or unable so to act,
it may appoint, or petition a court of competent jurisdiction for the
appointment of, a housing and home finance institution or other mortgage loan
or home equity loan servicer with all licenses and permits required to perform
its obligations under the Agreement and having a net worth of at least
$__________ and acceptable to the Certificate Insurer to act as successor to
the Master Servicer under the Agreement. Pending such appointment, the Trustee
will be obligated to act in such capacity unless prohibited by law. Such
successor will be entitled to receive the same compensation that the Master
Servicer would otherwise have received (or such lesser compensation as the
Trustee and such successor may agree). A receiver or conservator for the
Master Servicer may be empowered to prevent the termination and replacement of
the Master Servicer where the only Event of Servicing Termination that has
occurred is an Insolvency Event.
Amendment
The Agreement may be amended from time to time by the Master Servicer,
the Depositor and the Trustee and with the consent of the Certificate Insurer,
but without the consent of any of the Certificateholders, (i) to cure any
ambiguity or mistake, (ii) to correct any defective provision therein or to
supplement any provision therein which may be inconsistent with any other
provision therein, (iii) to add to the duties of the Depositor, the Seller or
the Master Servicer, (iv) to add any other provisions with respect to matters
or questions arising under the Agreement or (v) to modify, alter, amend, add
to or rescind any of the terms or provisions contained in the Agreement;
provided that any action pursuant to clauses (iv) or (v) above shall not, as
evidenced by an opinion of counsel (which opinion of counsel shall not be an
expense of the Trustee or the Trust Fund), adversely affect in any material
respect the interests of any Certificateholder or the Certificate Insurer;
provided, however, that no such opinion of counsel shall be required if the
Person requesting the amendment obtains a letter from each Rating Agency
stating that the amendment would not result in the downgrading or withdrawal
of the respective ratings then assigned to the Certificates; it being
understood and agreed that any such letter in and of itself will not represent
a determination as to the materiality of any such amendment and will represent
a determination only as to the credit issues affecting any such rating.
The Agreement may also be amended from time to time by the Depositor, the
Master Servicer and the Trustee with the consent of the Certificate Insurer
and with the consent of the Holders of a Majority in Interest of each Class of
Certificates affected thereby for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Agreement
or of modifying in any manner the rights of the Holders of Certificates;
provided, however, that no such amendment shall (i) reduce in any manner the
amount of, or delay the timing of, payments required to be distributed on any
Certificate without the consent of the Holder of such Certificate, (ii)
adversely affect in any material respect the interests of the Holders of any
Class of Certificates in a manner other than as described in (i), without the
consent of the Holders of Certificates of such Class evidencing, as to such
Class, Percentage Interests aggregating 66 2/3%, or (iii) reduce the aforesaid
percentages of Certificates the Holders of which are required to consent to
any such amendment, without the consent of the Holders of all such
Certificates then outstanding.
Termination; Retirement of the Certificates
The Trust will terminate on the Distribution Date following the later of
(A) payment in full of all amounts owing to the Certificate Insurer and (B)
the earliest of (i) the Distribution Date on which the Certificate Principal
Balance has been reduced to zero, (ii) the final payment or other liquidation
of the last Mortgage Loan in the Trust, (iii) the optional transfer to the
Transferor of the Certificates, as described below and (iv) the Distribution
Date in ____________ 20__.
The Certificates will be subject to optional transfer to the Transferor
on any Distribution Date after the Certificate Principal Balance is reduced to
an amount less than or equal to __% of the Original Certificate Principal
Balance and all amounts due and owing to the Certificate Insurer and
unreimbursed draws on the Policy, together with interest thereon, as provided
under the Insurance Agreement, have been paid. The transfer price will be
equal to the sum of the outstanding Certificate Principal Balance and accrued
and unpaid interest thereon at the Certificate Rate through the day preceding
the final Distribution Date. In no event, however, will the Trust created by
the Agreement continue for more than 21 years after the death of certain
individuals named in the Agreement. Written notice of termination of the
Agreement will be given to each Certificateholder, and the final distribution
will be made only upon surrender and cancellation of the Certificates at an
office or agency appointed by the Trustee which will be specified in the
notice of termination.
In addition, the Trust may be liquidated as a result of certain events of
bankruptcy, insolvency or receivership relating to the Transferor.
See "--Rapid Amortization Events" herein.
The Trustee
[ ], a ______________________ with its principal place of business in
________, has been named Trustee pursuant to the Agreement.
The commercial bank or trust company serving as Trustee may own
Certificates and have normal banking relationships with the Depositor, the
Master Servicer, the Seller and the Certificate Insurer and/or their
affiliates.
The Trustee may resign at any time, in which event the Depositor will be
obligated to appoint a successor Trustee, as approved by the Certificate
Insurer. The Depositor may also remove the Trustee if the Trustee ceases to be
eligible to continue as such under the Agreement or if the Trustee becomes
insolvent. Upon becoming aware of such circumstances, the Depositor will be
obligated to appoint a successor Trustee, as approved by the Certificate
Insurer. Any resignation or removal of the Trustee and appointment of a
successor Trustee will not become effective until acceptance of the
appointment by the successor Trustee.
No holder of a Certificate will have any right under the Agreement to
institute any proceeding with respect to the Agreement unless such holder
previously has given to the Trustee written notice of default and unless
Certificateholders evidencing an aggregate, undivided interest in the Trust of
at least 51% of the Certificate Principal Balance have made written requests
upon the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity and the
Trustee for 60 days has neglected or refused to institute any such proceeding.
The Trustee will be under no obligation to exercise any of the trusts or
powers vested in it by the Agreement or to make any investigation of matters
arising thereunder or to institute, conduct or defend any litigation
thereunder or in relation thereto at the request, order or direction of any of
the Certificateholders, unless such Certificateholders have offered to the
Trustee reasonable security or indemnity against the cost, expenses and
liabilities which may be incurred therein or thereby.
Certain Activities
The Trust will not: (i) borrow money; (ii) make loans; (iii) invest in
securities for the purpose of exercising control; (iv) underwrite securities;
(v) except as provided in the Agreement, engage in the purchase and sale (or
turnover) of investments; (vi) offer securities in exchange for property
(except Certificates for the Mortgage Loans); or (vii) repurchase or otherwise
reacquire its securities. See "--Evidence as to Compliance" above for
information regarding reports as to the compliance by the Master Servicer with
the terms of the Agreement.
DESCRIPTION OF THE PURCHASE AGREEMENT
The Mortgage Loans to be transferred to the Trust by the Depositor will
be purchased by the Depositor from [IndyMac] pursuant to the Purchase
Agreement to be entered into between the Depositor, as purchaser of the
Mortgage Loans, and [IndyMac], as Seller of the Mortgage Loans. Under the
Purchase Agreement, the Seller will agree to transfer the Mortgage Loans and
related Additional Balances to the Depositor. Pursuant to the Agreement, the
Mortgage Loans will be immediately transferred by the Depositor to the Trust,
and the Depositor will assign its rights in, to and under the Purchase
Agreement to the Trust. The following summary describes certain terms of the
form of the Purchase Agreement and is qualified by reference to the Purchase
Agreement.
Transfers of Mortgage Loans
Pursuant to the Purchase Agreement, the Seller will transfer and assign
to the Depositor, all of its right, title and interest in and to the Mortgage
Loans and all of the Additional Balances thereafter created. The purchase
price of the Mortgage Loans is a specified percentage of the face amount
thereof as of the time of transfer and is payable by the Depositor in cash.
The purchase price of each Additional Balance comprising the Principal Balance
of a Mortgage Loan is the amount of the related new advance.
Representations and Warranties
The Seller will represent and warrant to the Depositor that, among other
things, as of the Closing Date, it is duly organized and in good standing and
that it has the authority to consummate the transactions contemplated by the
Purchase Agreement. The Seller will also represent and warrant to the
Depositor that, among other things, immediately prior to the sale of the
Mortgage Loans to the Depositor, the Seller was the sole owner and holder of
the Mortgage Loans free and clear of any and all liens and security interests.
The Seller will make similar representations and warranties in the Agreement.
The Seller will also represent and warrant to the Depositor that, among other
things, as of the Closing Date, (a) the Purchase Agreement constitutes a
legal, valid and binding obligation of the Seller and (b) the Purchase
Agreement constitutes a valid sale to the Depositor of all right, title and
interest of the Seller in and to the Mortgage Loans and the proceeds thereof.
Assignment to Trust
The Seller expressly acknowledges and consents to the Depositor's
transfer of its rights relating to the Mortgage Loans under the Agreement to
the Trust. The Seller also agrees to perform its obligations under the
Purchase Agreement for the benefit of the Trust.
Termination
The Purchase Agreement will terminate upon the termination of the Trust.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will be
applied by the Depositor towards the purchase of the Mortgage Loans.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following discussion, which summarizes certain U.S. federal income
tax aspects of the purchase, ownership and disposition of the Certificates, is
based on the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury Regulations thereunder, and published rulings and court
decisions in effect as of the date hereof, all of which are subject to change,
possibly retroactively. This discussion does not address every aspect of the
U.S. federal income tax laws which may be relevant to Certificate Owners in
light of their personal investment circumstances or to certain types of
Certificate Owners subject to special treatment under the U.S. federal income
tax laws (for example, banks and life insurance companies). Accordingly,
investors should consult their tax advisors regarding U.S. federal, state,
local, foreign and any other tax consequences to them of investing in the
Certificates.
Characterization of the Certificates as Indebtedness
Based on the application of existing law to the facts as set forth in the
Agreement and other relevant documents and assuming compliance with the terms
of the Agreement as in effect on the date of issuance of the Certificates,
Brown & Wood LLP, special tax counsel to the Depositor ("Tax Counsel"), is of
the opinion that the Certificates will be treated as debt instruments for
Federal income tax purposes as of such date. Accordingly, upon issuance, the
Certificates will be treated as "Debt Securities" as described in the
Prospectus. See "Certain Federal Income Tax Consequences" in the Prospectus.
The Transferor and the Certificateholders express in the Agreement their
intent that, for applicable tax purposes, the Certificates will be
indebtedness secured by the Mortgage Loans. The Transferor, the Depositor and
the Certificateholders, by accepting the Certificates, and each Certificate
Owner by its acquisition of a beneficial interest in a Certificate, have
agreed to treat the Certificates as indebtedness for U.S. federal income tax
purposes. However, because different criteria are used to determine the
non-tax accounting characterization of the transaction, the Transferor intends
to treat this transaction as a sale of an interest in the Asset Balances of
the Mortgage Loans for financial accounting and certain regulatory purposes.
In general, whether for U.S. federal income tax purposes a transaction
constitutes a sale of property or a loan, the repayment of which is secured by
property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction rather than its form or the manner in
which it is labeled. While the Internal Revenue Service (the "IRS") and the
courts have set forth several factors to be taken into account in determining
whether the substance of a transaction is a sale of property or a secured
loan, the primary factor in making this determination is whether the
transferee has assumed the risk of loss or other economic burdens relating to
the property and has obtained the benefits of ownership thereof. Tax Counsel
has analyzed and relied on several factors in reaching its opinion that the
weight of the benefits and burdens of ownership of the Mortgage Loans has been
retained by the Transferor and has not been transferred to the Certificate
Owners.
In some instances, courts have held that a taxpayer is bound by the
particular form it has chosen for a transaction, even if the substance of the
transaction does not accord with its form. Tax Counsel has advised that the
rationale of those cases will not apply to this transaction, because the form
of the transaction as reflected in the operative provisions of the documents
either accords with the characterization of the Certificates as debt or
otherwise makes the rationale of those cases inapplicable to this situation.
Taxation of Interest Income of Certificate Owners
Assuming that the Certificate Owners are holders of debt obligations for
U.S. federal income tax purposes, the Certificates generally will be taxable
as Debt Securities. See "Certain Federal Income Tax Consequences" in the
Prospectus.
While it is not anticipated that the Certificates will be issued at a
greater than de minimis discount, under Treasury regulations (the "OID
Regulations") it is possible that the Certificates could nevertheless be
deemed to have been issued with original issue discount ("OID") if the
interest were not treated as "unconditionally payable" under the OID
Regulations. If such regulations were to apply, all of the taxable income to
be recognized with respect to the Certificates would be includible in income
of Certificate Owners as OID, but would not be includible again when the
interest is actually received. See "Certain Federal Income Tax
Consequences--Taxation of Debt Securities; Interest and Acquisition Discount"
in the Prospectus for a discussion of the application of the OID rules if the
Certificates are in fact issued at a greater than de minimis discount or are
treated as having been issued with OID under the OID Regulations. For purposes
of calculating OID, it is likely that the Certificates will be treated as
Pay-Through Securities.
Possible Classification of the Certificates as a Partnership or Association
Taxable as a Corporation
The opinion of Tax Counsel is not binding on the courts or the IRS. It is
possible that the IRS could assert that, for purposes of the Code, the
transaction contemplated by this Prospectus with respect to the Certificates
constitutes a sale of the Mortgage Loans (or an interest therein) to the
Certificate Owners and that the proper classification of the legal
relationship between the Transferor and the Certificate Owners resulting from
this transaction is that of a partnership, a publicly traded partnership
treated as a corporation, or an association taxable as a corporation. Since
Tax Counsel has advised that the Certificates will be treated as indebtedness
in the hands of the Certificateholders for U.S. federal income tax purposes,
the Transferor will not attempt to comply with U.S. federal income tax
reporting requirements applicable to partnerships or corporations as such
requirements would apply if the Certificates were treated as indebtedness.
If it were determined that this transaction created an entity classified
as a corporation (including a publicly traded partnership taxable as a
corporation), the Trust would be subject to U.S. federal income tax at
corporate income tax rates on the income it derives from the Mortgage Loans,
which would reduce the amounts available for distribution to the Certificate
Owners. Cash distributions to the Certificate Owners generally would be
treated as dividends for tax purposes to the extent of such corporation's
earnings and profits.
If the transaction were treated as creating a partnership between the
Certificate Owners and the Transferor, the partnership itself would not be
subject to U.S. federal income tax (unless it were to be characterized as a
publicly traded partnership taxable as a corporation); rather, the Transferor
and each Certificate Owner would be taxed individually on their respective
distributive shares of the partnership's income, gain, loss, deductions and
credits. The amount and timing of items of income and deductions of the
Certificate Owner could differ if the Certificates were held to constitute
partnership interests rather than indebtedness.
Possible Classification as a Taxable Mortgage Pool
In relevant part, Section 7701(i) of the Code provides that any entity
(or a portion of an entity) that is a "taxable mortgage pool" will be
classified as a taxable corporation and will not be permitted to file a
consolidated U.S. federal income tax return with another corporation. Subject
to a grandfather provision for existing entities, any entity (or a portion of
any entity) will be a taxable mortgage pool if (i) substantially all of its
assets consist of debt instruments, more than 50% of which are real estate
mortgages, (ii) the entity is the obligor under debt obligations with two or
more maturities, and (iii) under the terms of the entity's debt obligations
(or an underlying arrangement), payments on such debt obligations bear a
relationship to the debt instruments held by the entity.
Assuming that all of the provisions of the Agreement, as in effect on the
date of issuance, are complied with, Tax Counsel is of the opinion that the
arrangement created by the Agreement will not be a taxable mortgage pool under
Section 7701(i) of the Code because only one class of indebtedness secured by
the Mortgage Loans is being issued.
The opinion of Tax Counsel is not binding on the IRS or the courts. If
the IRS were to contend successfully (or future regulations were to provide)
that the arrangement created by the Agreement is a taxable mortgage pool, such
arrangement would be subject to U.S. federal corporate income tax on its
taxable income generated by ownership of the Mortgage Loans. Such a tax might
reduce amounts available for distributions to Certificate Owners. The amount
of such a tax would depend upon whether distributions to Certificate Owners
would be deductible as interest expense in computing the taxable income of
such an arrangement as a taxable mortgage pool.
Foreign Investors
In general, subject to certain exceptions, interest (including OID) paid
on a Certificate to a nonresident alien individual, foreign corporation or
other non-United States person is not subject to U.S. federal income tax,
provided that such interest is not effectively connected with a trade or
business of the recipient in the United States and the Certificate Owner
provides the required foreign person information certification. See "Certain
Federal Income Tax Consequences--Tax Treatment of Foreign Investors" in the
Prospectus.
If the interests of the Certificate Owners were deemed to be partnership
interests, the partnership would be required, on a quarterly basis, to pay
withholding tax equal to the product, for each foreign partner, of such
foreign partner's distributive share of "effectively connected" income of the
partnership multiplied by the highest rate of tax applicable to that foreign
partner. In addition, such foreign partner would be subject to branch profits
tax. Each non-foreign partner would be required to certify to the partnership
that it is not a foreign person. The tax withheld from each foreign partner
would be credited against such foreign partner's U.S.
income tax liability.
If the Trust were taxable as a corporation, distributions to foreign
persons, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30%, unless such rate were reduced by an applicable
tax treaty.
Backup Withholding
Certain Certificate Owners may be subject to backup withholding at the
rate of 31% with respect to interest paid on the Certificates if the
Certificate Owners, upon issuance, fail to supply the Trustee or his broker
with his taxpayer identification number, furnish an incorrect taxpayer
identification number, fail to report interest, dividends, or other
"reportable payments" (as defined in the Code) properly, or, under certain
circumstances, fail to provide the Trustee or his broker with a certified
statement, under penalty of perjury, that he is not subject to backup
withholding.
The Trustee will be required to report annually to the IRS, and to each
Certificateholder of record, the amount of interest paid (and OID accrued, if
any) on the Certificates (and the amount of interest withheld for U.S. federal
income taxes, if any) for each calendar year, except as to exempt holders
(generally, holders that are corporations, certain tax-exempt organizations or
nonresident aliens who provide certification as to their status as
nonresidents). As long as the only "Certificateholder" of record is Cede, as
nominee for DTC, Certificate Owners and the IRS will receive tax and other
information including the amount of interest paid on the Certificates owned
from Participants and Indirect Participants rather than from the Trustee. (The
Trustee, however, will respond to requests for necessary information to enable
Participants, Indirect Participants and certain other persons to complete
their reports.) Each non-exempt Certificate Owner will be required to provide,
under penalty of perjury, a certificate on IRS Form W-9 containing his or her
name, address, correct Federal taxpayer identification number and a statement
that he or she is not subject to backup withholding. Should a nonexempt
Certificate Owner fail to provide the required certification, the Participants
or Indirect Participants (or the Paying Agent) will be required to withhold
31% of the interest (and principal) otherwise payable to the holder, and remit
the withheld amount to the IRS as a credit against the holder's Federal income
tax liability.
STATE TAXES
The Depositor makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Certificates under the tax laws of
any state. Investors considering an investment in the Certificates should
consult their own tax advisors regarding such tax consequences.
All investors should consult their own tax advisors regarding the
Federal, state, local or foreign income tax consequences of the purchase,
ownership and disposition of the Certificates.
ERISA CONSIDERATIONS
Any Plan fiduciary which proposes to cause a Plan to acquire any of the
Certificates should consult with its counsel with respect to the potential
consequences under the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and the Code, of the Plans acquisition and ownership of
such Certificates. See "ERISA Considerations" in the Prospectus.
The U.S. Department of Labor has granted to _________________
("Underwriter") Prohibited Transaction Exemption _____ (the "Exemption") which
exempts from the application of the prohibited transaction rules transactions
relating to (1) the acquisition, sale and holding by Plans of certain
certificates representing an undivided interest in certain asset-backed
pass-through trusts, with respect to which Underwriter or any of its
affiliates is the sole underwriter or the manager or co-manager of the
underwriting syndicate; and (2) the servicing, operation and management of
such asset-backed pass-through trusts, provided that the general conditions
and certain other conditions set forth in the Exemption are satisfied. The
Exemption will apply to the acquisition, holding and resale of the
Certificates by a Plan provided that certain conditions are met.
For a general description of the Exemption and the conditions that must
be satisfied for the Exemption to apply, see "ERISA Considerations" in the
Prospectus.
The Underwriter believes that the Exemption will apply to the acquisition
and holding of the Certificates by Plans and that all conditions of the
Exemption other than those within the control of the investors will be met.
Any Plan fiduciary considering whether to purchase any Certificates on
behalf of a Plan should consult with its counsel regarding the applicability
of the fiduciary responsibility and prohibited transaction provisions of ERISA
and the Code to such investment. Among other things, before purchasing any
Certificates, a fiduciary of a Plan subject to the fiduciary responsibility
provisions of ERISA or an employee benefit plan subject to the prohibited
transaction provisions of the Code should make its own determination as to the
availability of the exemptive relief provided in the Exemption, and also
consider the availability of any other prohibited transaction exemptions.
LEGAL INVESTMENT CONSIDERATIONS
Although, as a condition to their issuance, the Certificates will be
rated in the highest rating category of the Rating Agencies, the Certificates
will not constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"), because not all
of the Mortgages securing the Mortgage Loans are first mortgages. Accordingly,
many institutions with legal authority to invest in comparably rated
securities based on first mortgage loans may not be legally authorized to
invest in the Certificates, which because they evidence interests in a pool
that includes junior mortgage loans are not "mortgage related securities"
under SMMEA. See "Legal Investment" in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, dated ___________, 199_ (the "Underwriting Agreement"), among the
Depositor and [Underwriter] (the "Underwriter"), the Depositor has agreed to
sell to the Underwriter, and the Underwriter has agreed to purchase from the
Depositor all the Certificates.
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase all the Certificates
offered hereby if any of the Certificates are purchased.
The Depositor has been advised by the Underwriter that it proposes
initially to offer the Certificates to the public in Europe and the United
States at the offering price set forth herein and to certain dealers at such
price less a discount not in excess of ____% of the Certificate denominations.
The Underwriter may allow and such dealers may reallow a discount not in
excess of _____% of the Certificate denominations to certain other dealers.
After the initial public offering, the public offering price, such concessions
and such discounts may be changed.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Act.
[THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS ARE TO BE USED BY
COUNTRYWIDE SECURITIES CORPORATION, AN AFFILIATE OF INDYMAC ABS, INC. AND
INDYMAC, INC., IN CONNECTION WITH OFFERS AND SALES RELATED TO MARKET MAKING
TRANSACTIONS IN THE CERTIFICATES IN WHICH COUNTRYWIDE SECURITIES CORPORATION
ACTS AS PRINCIPAL. COUNTRYWIDE SECURITIES CORPORATION MAY ALSO ACT AS AGENT IN
SUCH TRANSACTIONS. SALES WILL BE MADE AT PRICES RELATED TO THE PREVAILING
PRICES AT THE TIME OF SALE.]
LEGAL MATTERS
Certain legal matters with respect to the Certificates will be passed
upon for the Depositor by Brown & Wood LLP, New York, New York and for the
Underwriter by _______________________, New York, New York.
EXPERTS
The consolidated balance sheets of [Insurer] and Subsidiaries as of
___________, 199_ and 199_ and the related consolidated statements of income,
changes in shareholder's equity, and cash flows for each of the three years in
the period ended ___________, 199_, incorporated by reference in this
Prospectus Supplement, have been incorporated herein in reliance on the report
of ________________________, independent accountants, given on the authority
of that firm as experts in accounting and auditing.
RATINGS
It is a condition to issuance that the Certificates be rated "___" by
_____ and "___" by _________.
A securities rating addresses the likelihood of the receipt by
Certificateholders of distributions on the Mortgage Loans. The rating takes
into consideration the characteristics of the Mortgage Loans and the
structural, legal and tax aspects associated with the Certificates. The
ratings on the Certificates do not, however, constitute statements regarding
the likelihood or frequency of prepayments on the Mortgage Loans or the
possibility that Certificateholders might realize a lower than anticipated
yield.
The ratings assigned to the Certificates will depend primarily upon the
creditworthiness of the Certificate Insurer. Any reduction in a rating
assigned to the claims-paying ability of the Certificate Insurer below the
ratings initially assigned to the Certificates may result in a reduction of
one or more of the ratings assigned to the Certificates.
A securities rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each securities rating should be evaluated
independently of similar ratings on different securities.
The Depositor has not requested a rating of the Certificates by any
rating agency other than the Rating Agencies; there can be no assurance,
however, as to whether any other rating agency will rate the Certificates or,
if it does, what rating would be assigned by such other rating agency. The
rating assigned by such other rating agency to the Certificates could be lower
than the respective ratings assigned by the Rating Agencies.
INDEX OF DEFINED TERMS
Page
Accelerated Principal Distribution Amount................10, 36
Additional Balances.......................................... 4
Agreement.....................................................4
Alternative Principal Payment............................12, 38
BIF..........................................................34
Business Day.............................................36, 41
Cede..........................................................8
CEDEL.........................................................8
Certificate Insurer..........................................13
Certificate Owners........................................8, 32
Certificate Principal Balance.............................5, 31
Certificate Rate......................................5, 11, 37
Certificateholder............................................51
Citibank..................................................... 8
Closing Date..........................................2, 12, 37
Code.........................................................48
Collection Account.......................................11, 34
Collection Period........................................11, 37
Combined Loan-to-Value Ratio................................. 7
Credit Limit Utilization Rate................................20
Credit Limit..................................................7
Credit Line Agreements....................................4, 20
Cut-off Date Pool Balance.....................................4
Cut-off Date Principal Balance................................4
Cut-off Date...............................................1, 4
Debt Securities..............................................49
Defective Mortgage Loans.....................................33
Deposito......................................................4
Determination Date.......................................14, 34
Dissolution Distribution Date................................39
Distribution Date.....................................1, 11, 35
Draw Period..................................................21
DTC...................................................8, 32, 56
Due Date......................................................7
Eligible Account.............................................34
Eligible Substitute Mortgage Loan........................... 33
ERISA....................................................16, 51
Euroclear.....................................................8
European Depositaries.....................................8, 32
Events of Servicing Termination..............................45
Exemption....................................................51
Fixed Allocation Percentage..................................11
Guaranteed Distributions.................................13, 40
Guaranteed Principal Distribution Amount.................13, 40
Index Rate...................................................21
Insurance Agreement......................................13, 40
Interest Collections......................................9, 35
Interest Period..........................................12, 37
Invested Amount...........................................5, 31
Investor Fixed Allocation Percentage.........................11
Investor Floating Allocation Percentage...................9, 35
Investor Interest Collections.............................9, 35
Investor Loss Amount.....................................10, 37
Investor Principal Collections...........................11, 35
IRS..........................................................49
LIBOR Business Day...........................................37
LIBOR........................................................11
Liquidated Mortgage Loan.....................................37
Liquidation Loss Amount..................................10, 36
Liquidation Proceeds.........................................35
Loan Rate.................................................7, 21
Managed Amortization Period..............................12, 38
Margin.......................................................21
Master Servicer...............................................4
Maximum Principal Payment................................12, 38
Maximum Rate.................................................21
Minimum Transferor Interest...............................6, 34
Money Rates...................................................7
Mortgage Loan Schedule................................6, 32, 34
Mortgage Loans.............................................1, 4
Mortgaged Properties..........................................4
Net Liquidation Proceeds..................................9, 35
OID Regulations..............................................49
OID..........................................................49
Order........................................................40
Original Certificate Principal Balance....................5, 31
Original Invested Amount..................................5, 31
Overcollateralization Amount.................................10
Paying Agent.................................................38
Percentage Interest...........................................8
Plan.........................................................16
Policy.....................................................1, 4
Pool Balance..............................................4, 35
Pool Factor..................................................31
Principal Balance.............................................4
Principal Collections.....................................9, 35
Purchase Agreement............................................6
Rapid Amortization Event.....................................39
Rating Agency................................................16
Receipt......................................................41
Received.....................................................41
Record Date..................................................35
Reference Bank Rate..........................................37
Related Documents............................................32
Repayment Period.............................................21
Required Overcollateralization Amount........................36
SAIF.........................................................34
Scheduled Principal Collections Distribution Amount......12, 38
Seller........................................................4
Servicing Fee Rate.......................................14, 44
Servicing Fee................................................14
SMMEA....................................................16, 52
Spread Account...........................................13, 40
Tax Counsel..................................................49
Telerate Screen Page ..................................3750, 37
Transfer Date................................................34
Transfer Deficiency..........................................32
Transfer Deposit Amount......................................33
Transferor Interest....................................1, 5, 32
Transferor Principal Collections.........................11, 35
Transferor....................................................5
Trust......................................................1, 4
Trustee...................................................4, 15
Underwriter..............................................51, 52
Underwriting Agreement.......................................52
Assignment Event.............................................32
Certificates...............................................1, 5
IndyMac.......................................................3
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Home Equity
Loan Asset Backed Certificates, Series 199_-_ (the "Global Securities") will
be available only in book-entry form. Investors in the Global Securities may
hold such Global Securities through any of The Depository Trust Company
("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 holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior Home Equity Loan Asset Backed
Certificates issues.
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 respective
Depositaries, which in turn will hold such positions in accounts as DTC
Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to prior Home Equity Loan Asset
Backed Certificates issues. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the
settlement date.
Investors electing to hold their Global 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.
Trading between DTC seller and CEDEL or Euroclear purchaser. 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 respective Depositary, as the case may be, to
receive the Global Securities against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment
date to and excluding the settlement date, on the basis of the actual number
of days in such accrual period and a year assumed to consist of 360 days. For
transactions settling on the 31st of the month, payment will include interest
accrued to and excluding the first day of the following month. Payment will
then be made by the respective Depositary of 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 accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, CEDEL Participants or Euroclear Participants
purchasing Global 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 this result will
depend on each CEDEL Participant's or Euroclear Participant's particular cost
of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities
to the respective European Depositary 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 Depositary, to a DTC Participant. The seller will send
instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. In these cases
CEDEL or Euroclear will instruct the respective Depositary, as appropriate, to
deliver the Global 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 the
CEDEL Participant or Euroclear Participant the following day, and receipt of
the cash proceeds in the CEDEL Participant's or Euroclear Participant's
account would be back-valued to the value date (which would be the preceding
day, when settlement occurred in New York). Should the CEDEL Participant or
Euroclear Participant have a line of credit with its respective clearing
system and elect to be in debt in anticipation of receipt of the sale proceeds
in its account, the back-valuation will extinguish any overdraft incurred over
that one-day period. If settlement is not completed on the intended value date
(i.e., the trade fails), receipt of the cash proceeds in the CEDEL
Participant's or Euroclear Participant's account would instead be valued as of
the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase Global
Securities from 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 were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a 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, 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 can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status).
If the information shown on Form W-8 changes, a new Form W-8 must be filed
within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form 4224 (Exemption from Withholding of
Tax on Income Effectively Connected with the Conduct of a Trade or Business in
the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Certificate Owners residing
in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty
provides only for a reduced rate, withholding tax will be imposed at that rate
unless the filer alternatively files Form W-8. Form 1001 may be filed by the
Certificate Owners or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of
the United States or any political subdivision thereof or (iii) an estate or
trust the income of which is includible in gross income for United States tax
purposes, regardless of its source. 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.
<TABLE>
============================================================================== ================================================
<S> <C>
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Company or [Underwriter]. This Prospectus Supplement and the Prospectus do not
constitute an offer of any securities other than those to which they relate or
an offer to sell, or a solicitation of an offer to buy, to any person in any
jurisdiction where such an offer or solicitation would be unlawful. Neither
the delivery of this Prospectus Supplement and the Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to their
respective dates.
--------------- $[-------------]
TABLE OF CONTENTS (Approximate)
PAGE
PROSPECTUS SUPPLEMENT Home Equity Loan
SUMMARY...................................................S-4 Asset Backed Certificates
RISK FACTORS............................................S- 17 Series 199_-_
THE CERTIFICATE INSURER.................................S- 19
THE MASTER SERVICER.....................................S- 20 INDYMAC ABS, INC.
DESCRIPTION OF THE MORTGAGE LOANS.......................S- 20 DEPOSITOR
PRINCIPAL BALANCES......................................S- 22
GEOGRAPHIC DISTRIBUTION(1)..............................S- 23 [INDYMAC INC.]
MARGIN..................................................S- 26 Seller and Master Servicer
CREDIT LIMIT UTILIZATION RATES..........................S- 27
MONTHS REMAINING TO SCHEDULED MATURITY(1)...............S- 28
ORIGINATION YEAR........................................S- 28 -------------------------
DELINQUENCY STATUS......................................S- 29 PROSPECTUS SUPPLEMENT
MATURITY AND PREPAYMENT CONSIDERATIONS..................S- 29 [_________, 199_]
POOL FACTOR AND TRADING INFORMATION.....................S- 31 -------------------------
DESCRIPTION OF THE CERTIFICATES.........................S- 31
DESCRIPTION OF THE PURCHASE AGREEMENT...................S- 47 [UNDERWRITER]
USE OF PROCEEDS.........................................S- 48
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................S- 48
STATE TAXES.............................................S- 51
ERISA CONSIDERATIONS....................................S- 51
LEGAL INVESTMENT CONSIDERATIONS.........................S- 52
UNDERWRITING............................................S- 52
LEGAL MATTERS...........................................S- 52
EXPERTS.................................................S- 53
RATINGS.................................................S- 53
INDEX OF DEFINED TERMS..................................S- 54
ANNEX I.................................................S- 55
GLOBAL CLEARANCE, SETTLEMENT AND TAX
DOCUMENTATION PROCEDURES................................S- 55
PROSPECTUS
Prospectus Supplement........................................2
Available Information........................................2
Reports to Holders...........................................2
Summary of Terms.............................................3
Risk Factors................................................11
Description of the Securities...............................14
The Trust Funds.............................................17
Enhancement.................................................22
Servicing of Loans..........................................24
The Agreements..............................................30
Certain Legal Aspects of Loans..............................38
The Depositor...............................................46
Use of Proceeds.............................................46
Certain Federal Income Tax Consequences.....................47
State Tax Considerations....................................64
ERISA Considerations........................................65
Legal Investment............................................67
=========================================================================== =================================================
</TABLE>
SUBJECT TO COMPLETION, DATED ________ __, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED ___________, 1998)
$-----------
INDYMAC ABS, INC.
DEPOSITOR
[INDYMAC, INC.]
SELLER AND SERVICER
MANUFACTURED HOUSING CONTRACT TRUST 199__
MANUFACTURED HOUSING CONTRACT PASS-THROUGH CERTIFICATES, SERIES 199_
PRINCIPAL AND INTEREST PAYABLE ON THE _____ DAY OF EACH MONTH, BEGINNING IN
______ 199_
The Manufactured Housing Contract Pass-Through Certificates, Series
19__ (the "Certificates") will represent beneficial interests in THE
MANUFACTURED HOUSING CONTRACT TRUST SERIES 19__ (the "Trust"), the assets of
which will consist primarily of manufactured housing installment sales
contracts and installment loan agreements (the "Contracts") PURCHASED BY
INDYMAC, INC. FROM ONE OR MORE INSTITUTIONS WHICH MAY BE AFFILIATES OF THE
DEPOSITOR ("[IndyMac]") in the ordinary course of its business. Only the
Classes identified in the table below (collectively, the "Offered
Certificates") are offered hereby.
THE CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND WILL NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF INDYMAC ABS, INC., THE TRUSTEE,
[INDYMAC], THE SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES. THE OFFERED
CERTIFICATES WILL NOT BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY ANY OTHER PARTY.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER "RISK
FACTORS" ON PAGE S-15 HEREIN AND ON PAGE 15 IN THE ACCOMPANYING PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
[Price to Underwriting Proceeds
Public(1) Discounts and to the
Commissions Depositor(1)
------------------ --------------- --------------
<S> <C> <C> <C>
Class A- Certificates.............................. % % %
Class __ Certificates............................... % % %
Class A-R Certificates.............................. % % %
Class B- Certificates............................... % % %
Class __ Certificates............................... % % %
Total............................................... $_________ $_________ $_________
</TABLE>
(1) Before deducting expenses payable by the Depositor, estimated
to be $_______.] =
[The Offered Certificates are offered by the Underwriter when, as and
if issued by the Depositor, delivered to and accepted by the Underwriter and
subject to the Underwriter's right to reject orders in whole or in part. It is
expected that delivery of the Offered Certificates, in book-entry form, will
be made through the facilities of The Depository Trust Company on or about
_______, 19 , against payment in immediately available funds.]
[Underwriter]
The Contracts will be sold to the Depositor by [IndyMac, Inc.
("IndyMac")].
Elections will be made to treat certain assets of the Trust as two
separate real estate mortgage investment conduits (each, a "REMIC") under the
Internal Revenue Code of 1986, as amended (the "Code"). The Regular
Certificates will represent "regular interests" in one of the REMICs. The
Class A-R Certificates will represent beneficial ownership of the "residual
interest" in each REMIC. See "Federal Income Tax Consequences" herein and in
the Prospectus.
The Class A-R Certificates will be subject to certain transfer
restrictions. See "Description of the Certificates -- Restrictions on Transfer
of the Class A-R Certificates" herein.
The Underwriter intends to make a secondary market in the Classes of
Underwritten Certificates being purchased by it, but has no obligation to do
so. There is currently no secondary market for the Offered Certificates and
there can be no assurance that such a market will develop or, if it does
develop, that it will continue or that it will provide Certificateholders with
a sufficient level of liquidity of investment.
--------------------
This Prospectus Supplement does not contain complete information
about the offering of the Offered Certificates. Additional information is
contained in the Prospectus of the Depositor dated , 1998 (the "Prospectus")
and purchasers are urged to read both this Prospectus Supplement and the
Prospectus in full. Sales of the Offered Certificates may not be consummated
unless the purchaser has received both this Prospectus Supplement and the
Prospectus.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER THE PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER THE PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
SUMMARY
This summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Capitalized terms used herein that are not
otherwise defined shall have the meanings ascribed thereto elsewhere in this
Prospectus Supplement or in the Prospectus. See the Index of Principal Terms
for the location herein of certain principal terms. [TO THE EXTENT STATEMENTS
CONTAINED HEREIN DO NOT RELATE TO HISTORICAL OR CURRENT INFORMATION, THIS
PROSPECTUS SUPPLEMENT MAY BE DEEMED TO CONSIST OF FORWARD-LOOKING STATEMENTS.
ANY SUCH STATEMENTS, WHICH MAY INCLUDE BUT ARE NOT LIMITED TO STATEMENTS
CONTAINED IN "RISK FACTORS" AND "PREPAYMENT AND YIELD CONSIDERATIONS,"
INHERENTLY ARE SUBJECT TO A VARIETY OF RISKS AND UNCERTAINTIES THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. SUCH RISKS AND
UNCERTAINTIES INCLUDE, AMONG OTHERS, GENERAL ECONOMIC AND BUSINESS CONDITIONS,
COMPETITION, CHANGES IN FOREIGN POLITICAL, SOCIAL AND ECONOMIC CONDITIONS,
REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, CUSTOMER
PREFERENCES AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND THE
DEPOSITOR'S CONTROL. THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE
DATE OF THIS PROSPECTUS SUPPLEMENT. AS A CONSEQUENCE, NO ASSURANCE CAN BE
GIVEN AS TO THE ACTUAL PAYMENTS ON, OR THE YIELD OF, ANY CLASS OF
CERTIFICATES. THE DEPOSITOR EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING
TO RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENT
CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE DEPOSITOR'S EXPECTATIONS WITH
REGARD THERETO OR ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH
ANY SUCH STATEMENT IS BASED.]
SECURITIES ISSUED............ Manufactured Housing Contract
Pass-Through Certificates, Series 19
(the "Certificates") will be issued
pursuant to a pooling and servicing
agreement, to be dated as of ______, 19
(the "Agreement"), among IndyMac ABS,
Inc., as depositor (the "Depositor"),
[IndyMac, Inc.] ("[IndyMac]"), as
seller and servicer (in such
capacities, the "Seller" and the
"Servicer," respectively), and , as
trustee (the "Trustee"). The
Certificates will be issued in the
amounts (with respect to each Class,
the "Initial Certificate Principal
Balance") and bear the pass-through
rates (with respect to each Class, the
"Pass-Through Rate") set forth below:
<TABLE>
<CAPTION>
CLASS INITIAL CERTIFICATE PASS-THROUGH
PRINCIPAL BALANCE RATE (1)
<S> <C> <C>
Class A- Certificates........... $ %
Class Certificates........... $ %
Class A-R Certificates........... $ %
Class B- Certificates........... $ %
Class Certificates........... $ %(1)
</TABLE>
(1) Computed on the basis of a [360]-day year of twelve [30]-day months.
The following chart sets forth information
regarding securities to be issued pursuant
to the Agreement but which are not offered
hereby:
<TABLE>
<CAPTION>
CLASS INITIAL CERTIFICATE PASS-THROUGH
PRINCIPAL BALANCE RATE
<S> <C> <C>
Class __ Certificates............ $ %
Class __ Certificates............
</TABLE>
Securities Offered........... The Class A, Class B- and Class
Certificates are the only Certificates
being offered hereby (the "Offered
Certificates"). The Offered Certificates
(other than the Class A-R Certificates)
will be issued in book-entry form in
minimum denominations of $1,000 and
integral multiples of $1 in excess
thereof (the "Book-Entry Certificates").
The Class A-R Certificates will be
issued in definitive form as fully
registered physical certificates. The
certificates representing the Class A-R
Certificates will be subject to certain
transfer restrictions. See "Description
of the Certificates--Registration of the
Offered Certificates--The Class A-R
Certificates" herein. The other Offered
Certificates initially will be
represented by certificates registered
in the name of Cede & Co., as the
nominee of The Depository Trust Company
("DTC").
Except as stated otherwise herein,
certificates representing the Offered
Certificates will be issued in
definitive form only under the limited
circumstances described herein. All
references herein to "holders" or
"holders of the Offered Certificates"
will reflect the rights of beneficial
owners of Offered Certificates issued
in book-entry form ("Certificate
Owners") as they may indirectly
exercise such rights through DTC, and
participating members thereof, except
as otherwise specified herein. See
"Risk Factors-- Book-Entry
Registration" and "Description of the
Certificates-- Registration of the
Offered Certificates" herein and "Risk
Factors--Book-Entry Registration" in
the Prospectus.
The Offered Certificates will evidence
undivided interests in the Contract
Pool and certain other property held in
trust for the benefit of the
Certificateholders (collectively, the
"Trust Fund"). The undivided percentage
interest (the "Percentage Interest") of
a Class A or Class B- Certificate in
distributions on the related Class of
Certificates will equal the percentage
obtained from dividing the denomination
of such Certificate by the Initial
Certificate Principal Balance of such
Class of Certificates. The Offered
Certificates will not represent
interests in or obligations of the
Depositor, the Trustee, [IndyMac], the
Servicer or any of their respective
affiliates. Neither the Offered
Certificates nor the underlying
Contracts will be insured or guaranteed
by any governmental agency or
instrumentality or by any other party.
Cut-off Date............... ________, 19 .
Due Period................. With respect to each Distribution
Date, the calendar month preceding the
month in which the Distribution Date
occurs.
Prepayment Period.......... With respect to each Distribution
Date, the calendar month preceding the
month in which the Distribution Date
occurs.
Closing Date............... ________, 19 .
Interest Accrual Period.... With respect to each Distribution
Date, the calendar month preceding the
month in which the Distribution Date
occurs. Interest on the Certificates
will be computed on the basis of a
[360]-day year consisting of twelve
[30]-day months.
Distribution Dates Distributions on the
Certificates will be made on the day of
each month (or, if such day is not a
Business Day, on the immediately
succeeding Business Day), commencing
________, 19 (each, a "Distribution
Date"). A "Business Day" will be any
day other than (i) a Saturday or Sunday
or (ii) a day on which banks in the
States of New York or California are
authorized or obligated by law or
executive order to be closed.
Distributions Distributions to the
holders of Certificates of a Class on
each Distribution Date will be made in
an amount equal to their respective
Percentage Interests multiplied by the
aggregate amount distributed on such
Class of Certificates on such
Distribution Date. So long as the
Offered Certificates are registered in
the name of Cede & Co., as nominee of
DTC, distributions on each Distribution
Date will be made to the holders of
record of the related Offered
Certificates (the "Certificateholders")
as of the close of business on the
Business Day immediately preceding such
Distribution Date (each, a "Record
Date"), except that the final
distribution in respect of the
Certificates will only be made upon
presentation and surrender of the
Certificates at the office or agency
appointed by the Trustee for that
purpose in New York, New York. With
respect to the Class A-R Certificates
and, if Definitive Certificates are
issued, with respect to the other
Offered Certificates, the Record Date
shall be the close of business on the
last Business Day of the month
immediately preceding the month in
which such Distribution Date occurs. As
more fully described herein under
"Description of the
Certificates--Distributions-- Priority
of Distributions," distributions to
Certificateholders generally will be
applied first to the payment of
interest and interest shortfalls,
second to the payment of any principal
previously due but not distributed and
third, if any principal is then due, to
the payment of principal of the related
Class of Certificates. With respect to
each Distribution Date, interest on the
Certificates will accrue during the
related Interest Accrual Period. The
Available Distribution Amount with
respect to each Distribution Date will
be calculated as described herein under
"Description of the Certificates--
Distributions--Determination
of Available Distribution Amount." On
each Distribution Date, the Available
Distribution Amount will be distributed
in the amounts and in the order of
priority set forth herein under
"Description of the
Certificates--Distributions--Priority
of Distributions."
Effect of Priority Sequence of
Principal Distributions.... The principal amounts described herein
under "Description of the
Certificates--Distributions--Priority
of Distributions" generally will be
distributed, to the extent of the
Available Distribution Amount after
payment of interest and interest
shortfalls on the Certificates, first
to the Senior Certificates,
sequentially beginning with the Class
A-R Certificates and then in numerical
Class order, and then to each Class of
Subordinate Certificates in order of
seniority. This should, unless offset
by other cash flow insufficiencies due
to delinquencies and liquidation
losses, have the effect of
accelerating the amortization of the
Senior Certificates sequentially
beginning with the Class A-R
Certificates and then in numerical
Class order and delaying the
amortization of the Subordinate
Certificates, from what it would be
without such prioritization, thereby
increasing the respective interest in
the Trust Fund evidenced by the
Subordinate Certificates. Increasing
the respective interest of one or more
Classes of Subordinate Certificates
relative to that of the Senior
Certificates is intended to preserve,
as provided herein, the availability
on each Distribution Date of the
subordination provided by the related
Subordinate Certificates. The
aggregate amount of principal paid on
any Class of Certificates will not
exceed its Initial Certificate
Principal Balance. See "Description of
the Certificates" herein.
Prepayment Considerations
and Risks.................. The Contracts may be prepaid at any
time without penalty and, accordingly,
the rate of principal payments thereon
is likely to vary from time to time.
The Offered Certificates may be sold
at a discount to their principal
amounts. A slower than anticipated
rate of principal payments on the
Contracts is likely to result in a
lower than anticipated yield on the
Offered Certificates if they are
purchased at a discount. See "Risk
Factors--Prepayment Considerations"
and "Yield and Prepayment
Considerations" herein and "Yield
Considerations" and "Yield and
Prepayment Considerations" in the
Prospectus.
Subordination of the Subordinate
Certificates .............. The rights of the Subordinate
Certificateholders to receive
distributions of amounts collected on
or in respect of the Contracts will be
subordinated to such rights of the
Senior Certificateholders to the
extent described herein. Interest and
interest shortfalls on the Subordinate
Certificates will not be subordinated
to principal payments on the Senior
Certificates. The foregoing
subordination is intended to enhance
the likelihood of receipt by the
holders of each Class of Senior
Certificates and Subordinate
Certificates, as applicable, of the
full amount of their monthly payments
of interest and the ultimate receipt
by such holders of principal equal to
the related Initial Certificate
Principal Balances.
Overcollateralization........ Excess interest collections will be
applied, to the extent available, to
make accelerated payments of principal
to the Certificates. The "Accelerated
Principal Distribution Amount" for any
Distribution Date will be the positive
difference, if any, between the Target
Overcollateralization Amount and the
Current Overcollateralization Amount.
The "Overcollateralization Reduction
Amount" for any Distribution Date will
be the positive difference, if any,
between the Current
Overcollateralization Amount and the
Target Overcollateralization Amount.
The "Current Overcollateralization
Amount" will mean, for any
Distribution Date, the positive
difference, if any, between the Pool
Balance and the sum of the Certificate
Principal Balances of all
then-outstanding Classes of
Certificates. The "Target
Overcollateralization Amount" will
mean, (i) for any Distribution Date
prior to the Cross-over Date, ____% of
the Cut-off Date Principal Balance and
(ii) for any other Distribution Date,
the lesser of (a) ____% of the Cut-off
Date Principal Balance and (b) ____%
of the then-outstanding Pool Balance;
provided, however, that so long as any
Class of Certificates is outstanding,
the Target Overcollateralization
Amount will not be less than ____% of
the Cut-off Date Principal Balance.
Losses on Liquidated
Contracts.................. As described herein, on each
Distribution Date the aggregate
distribution of principal to the
holders of Certificates is intended to
include the Contract Principal Balance
of each Contract that became a
Liquidated Contract during the related
Prepayment Period. If the amounts
received by the Servicer in connection
with the liquidation of a Liquidated
Contract, whether through foreclosure
thereon or repossession and resale of
the related manufactured home or
otherwise (including insurance
proceeds collected in connection with
such liquidation) ("Liquidation
Proceeds"), net of reasonable,
out-of-pocket costs and expenses
(exclusive of the Servicer's overhead
costs) incurred by the Servicer in
connection with liquidation of any
Contract or disposition of any related
REO property ("Liquidation Expenses"),
from such Liquidated Contract are less
than the Contract Principal Balance of
such Liquidated Contract, and accrued
and unpaid interest thereon, then to
the extent such deficiency is not
covered by any excess interest
collections on nondefaulted Contracts,
the deficiency may, in effect, be
absorbed first by a reduction in the
Current Overcollateralization Amount,
then by the Class B-
Certificateholders, then by the Class
B- Certificateholders and then by the
Class __ Certificateholders because a
portion of future Available
Distribution Amounts funded by future
principal collections on or in respect
of the Contracts, up to the aggregate
amount of such deficiencies, that
would otherwise have been
distributable to the related
Subordinate Certificateholders may
instead be paid to the Senior
Certificateholders. If the protection
afforded to the holders of a Class of
Subordinate Certificates by the
subordination of one or more other
Classes of Subordinate Certificates,
is exhausted, the holders of such
Class of Subordinate Certificates will
incur a loss on their investment. If
the protection afforded to the holders
of a Class of Senior Certificates by
the subordination of the Subordinate
Certificates is exhausted, the holders
of the Senior Certificates will incur
a loss on their investment. The
"Contract Principal Balance" of a
Contract will be its [actual]
principal balance, computed as
described herein under "[IndyMac,
Inc.--Manufactured Housing Division--
Servicing]" on the basis of the
[actuarial method] [or] [simple
interest method] [, as the case may
be]. In general, a "Liquidated
Contract" will be a defaulted Contract
as to which all amounts that the
Servicer expects to recover through
the date of sale or other disposition
of the Manufactured Home and any real
property securing such Contract have
been received. If the Available
Distribution Amount for any
Distribution Date is not sufficient to
distribute an amount equal to the full
Formula Principal Distribution Amount
for such Distribution Date to the
Certificateholders, in addition to
interest and interest shortfalls
distributable to the
Certificateholders, the aggregate
Certificate Principal Balance will be
greater than the Pool Balance. In such
event, the amount of such deficiency
(the "Liquidation Loss Amount") will
be allocated first to the Class B-2
Certificates (the "Class B-2
Liquidation Loss Amount") to reduce
the Class B-2 Adjusted Certificate
Principal Balance. After the Class B-2
Adjusted Certificate Principal Balance
has been reduced to zero, no
additional Liquidation Loss Amount
will be allocated to the Class B-2
Certificates and any further
Liquidation Loss Amounts will be
allocated to reduce the Class B-1
Adjusted Certificate Principal Balance
(the "Class B-1 Liquidation Loss
Amount"). After the Class B-1 Adjusted
Certificate Principal Balance has been
reduced to zero, any further
Liquidation Loss Amount will be
allocated to reduce the Class Adjusted
Certificate Principal Balance (the
"Class Liquidation Loss Amount"). In
the event the Adjusted Certificate
Principal Balance of a Class of
Subordinate Certificates were to be
reduced by a Liquidation Loss Amount,
interest accruing on such Class will
be calculated on such reduced Adjusted
Certificate Principal Balance. On each
Distribution Date, holders of Class B-
Certificates will be entitled to
receive from the Available
Distribution Amount for such
Distribution Date, one month's
interest at the related Pass-Through
Rate on the Adjusted Certificate
Principal Balance of such Class.
Additionally, such holders will be
entitled to receive, prior to any
distribution of principal on the
related Class of Certificates and each
subordinate Class of Certificates, one
month's interest at the related
Pass-Through Rate on the Liquidation
Loss Amount for such Class as of the
immediately preceding Distribution
Date (each, a "Liquidation Loss
Interest Amount"). The "Adjusted
Certificate Principal Balance" of any
Class of Subordinate Certificates on
any Distribution Date will be its
Certificate Principal Balance (after
giving effect to the distributions
made on the immediately preceding
Distribution Date) less any
Liquidation Loss Amounts allocated to
such Class on such preceding
Distribution Date. See "Description of
the Certificates--Subordination of the
Subordinate Certificates" "--Losses on
Liquidated Contracts" and "Yield and
Prepayment Considerations" herein.
Servicer..................... [IndyMac] will act as the Servicer of
the Contracts and will be the Master
Servicer for purposes of the
Prospectus. See "[IndyMac, Inc.]" and
"Description of the
Certificates--Certain Other Matters
Regarding the Servicer" herein.
Advances..................... For each Distribution Date, the
Servicer will be obligated to make
Advances in respect of the related Due
Period to the extent of delinquent
[principal and interest payments] in
respect of the Contracts. [The
Servicer will not make any Advances
with respect to delinquent principal
payments on the Contracts.] The
Servicer will be required to make an
Advance only to the extent that it
determines such Advance will be
recoverable from future payments and
collections on or in respect of the
related Contracts. Assuming that in
the judgment of the Servicer all
delinquent payments on the Contracts
were recoverable, the amount of the
Advance paid out of the funds of the
Servicer will be calculated such that,
if it is made, it will permit a
distribution to the Class __
Certificateholders undiminished by
such delinquent payments [of
interest]. See "Description of the
Certificates--Advances" herein.
Final Distribution Date...... To the extent not previously paid
prior to such dates, the outstanding
principal amount of each Class of
Offered Certificates will be payable
on the ________ 20__ Distribution Date
(the "Final Scheduled Distribution
Date"). The Final Scheduled
Distribution Date has been determined
by adding seven months to the month in
which the maturity date of the
Contract with the latest stated
maturity as of the Cut-off Date
occurs. Because the rate of
distributions in reduction of the
Certificate Principal Balances of the
Offered Certificates will depend on
the rate of amortization of the
Contracts (including amortization due
to prepayments and defaults), the
actual final distribution on any Class
of Offered Certificates could occur
significantly earlier than the Final
Scheduled Distribution Date. See "Risk
Factors--Prepayment Considerations"
and "Yield and Prepayment
Considerations" herein.
Termination.................. The Depositor and the Servicer will
each have the option to purchase from
the Trust all Contracts then
outstanding and all other property in
the Trust Fund on any Distribution
Date on or after the first
Distribution Date as of which the Pool
Balance is less than 10% of the
Cut-off Date Principal Balance. See
"Description of the
Certificates--Termination" herein.
If neither the Depositor nor the
Servicer exercises its optional
termination right within 90 days after
such right can first be exercised, the
Trustee shall solicit bids for the
purchase of all Contracts then
outstanding and all other property in
the Trust Fund. In the event that
satisfactory bids are received as
described herein under "Description of
the Certificates--Termination," the
sale proceeds will be distributed to
Certificateholders. If satisfactory
bids are not received, the Trustee
shall decline to sell such Contracts
and other property of the Trust Fund,
and shall not be under any obligation
to solicit any further bids or
otherwise negotiate any further sale
of the Contracts. See "Description of
the Certificates--Termination" herein.
The Contracts................ The assets of the Trust will primarily
consist of a pool (the "Contract
Pool") of [fixed rate] manufactured
housing installment sales contracts
and installment loan agreements
(collectively, the "Contracts")
secured by security interests in
manufactured homes (the "Manufactured
Homes") financed or refinanced with
the proceeds of the Contracts and,
with respect to certain of the
Contracts (the "Land-and-Home
Contracts"), secured by liens on the
underlying real property on which the
related Manufactured Homes are
located. The Contract Pool will
consist of Contracts having an
aggregate Contract Principal Balance
as of the Cut-off Date of $ (the
"Cut-off Date Principal Balance"). The
properties underlying the Contracts as
of the Cut-off Date were located in
states. [Substantially all of the
Contracts bear interest at an annual
percentage rate (each, an "APR") which
will be equal to or higher than (i)
the sum of the Class A or Class A-R
Pass-Through Rate, as the case may be,
and (ii) the rate at which the
Servicing Fee is calculated.] Monthly
payments of principal and interest on
the Contracts will be due on various
days (each, a "Due Date") throughout
each Due Period. All of the Contracts
are [Actuarial Contracts] [or] [Simple
Interest Contracts]. As of the Cut-off
Date, the APRs on the Contracts ranged
from % to % with a weighted average
APR of %. The Contracts have remaining
terms to maturity as of the Cut-off
Date of at least 10 months but not
more than ___ months and original
terms to maturity of at least ___
months but not more than ___ months.
As of the Cut-off Date, the Contracts
had a weighted average remaining term
to maturity of approximately months, a
weighted average seasoning of
approximately months and a weighted
average original loan-to-value ratio
of %. See "The Contract Pool" herein
and "Yield and Prepayment
Considerations" in the Prospectus. The
Agreement will require the Servicer to
cause to be maintained one or more
standard hazard insurance policies
with respect to each Manufactured Home
(other than a Manufactured Home in
repossession) in an amount and manner
described herein under "Description of
the Certificates--Hazard Insurance
Policies." Generally, no other
insurance policies will be provided
with respect to any Contract or
Manufactured Home.
Security Interests and Mortgages
on the Manufactured Homes;
Repurchase Obligations..... In connection with the transfer of the
Contracts to the Trustee, [IndyMac]
will assign the security interests in
the Manufactured Homes and, with
respect to Land-and-Home Contracts,
the liens on the underlying real
property on which the Manufactured
Homes are located to the Trustee. The
Servicer will be required to take such
steps as are necessary to perfect and
maintain perfection of the security
interest in each Manufactured Home in
the name of [IndyMac] as lienholder or
legal titleholder, but so long as
[IndyMac or an affiliate thereof] is
the Servicer, the Servicer will not be
required to cause notations to be made
on any document of title relating to
any Manufactured Home or to execute
any instrument relating to any
Manufactured Home (other than a
notation or a transfer instrument
necessary to show [IndyMac] as the
lienholder or legal titleholder). With
respect to the Land-and-Home
Contracts, assignments to the Trustee
of the mortgages or deeds of trust
securing the Land-and-Home Contracts
(each, a "Mortgage") will be recorded
in the appropriate public office for
real property records[, except in the
State of California and in states
where the Seller has reasonably
determined that such recording is not
required to protect the Trustee's
interest against the claim of any
subsequent transferee or any successor
to or creditor of the Depositor or the
Seller].
As a result of the foregoing, the
security interests in the Manufactured
Homes in certain states may not be
effectively transferred to the Trustee
or perfected. See "Risk Factors--
Security Interests and Certain Other
Aspects of the Contracts" herein. To
the extent such security interest is
perfected and is effectively
transferred to the Trustee, the
Trustee will have a prior claim over
subsequent purchasers of the
Manufactured Homes, holders of
subsequently perfected security
interests and creditors of either the
Depositor or [IndyMac]. Under the laws
of most states, Manufactured Homes
constitute personal property, and
perfection of a security interest in a
Manufactured Home is obtained,
depending on applicable state law,
either by noting the security interest
on the certificate of title for the
Manufactured Home or by filing a
financing statement under the Uniform
Commercial Code. If a Manufactured
Home were relocated to another state
without reperfection of the related
security interest, or if it were to
become attached to its site and a
determination were made that the
security interest was subject to real
estate title and recording laws, or as
a result of fraud or negligence, the
Trustee could lose its prior perfected
security interest in such Manufactured
Home. See "Risk Factors--Security
Interests and Certain Other Aspects of
the Contracts."
Federal and state consumer protection
laws impose requirements upon
creditors in connection with
extensions of credit and collections
on installment sales contracts and
installment loan agreements, and
certain of these laws make an assignee
of such a contract, such as the Trust
Fund, liable to the obligor thereon
for any violation by the lender.
Certain Federal Income Tax
Consequences............... An election will be made to treat the
Contract Pool and certain other assets
of the Trust as a REMIC for federal
income tax purposes (the "Pooling
REMIC"). An election also will be made
to treat the "regular interests" in
the Pooling REMIC and certain other
assets of the Trust as another REMIC
for federal income tax purposes (the
"Issuing REMIC"). The Regular
Certificates will be designated as
"regular interests" in the Issuing
REMIC and the Class A-R Certificates
will represent the beneficial
ownership of the "residual interest"
in each of the Pooling REMIC and the
Issuing REMIC.
Because the Offered Certificates
(other than the Class A-R
Certificates) will be considered REMIC
regular interests, they will be
taxable debt obligations under the
Internal Revenue Code of 1986, as
amended (the "Code"), and interest
paid or accrued on such Certificates,
including any original issue discount
will be taxable to the holders of such
Certificates in accordance with the
accrual method of accounting,
regardless of such Certificateholders'
usual methods of accounting. Each of
the Class A Certificates (other than
the Class A-R Certificates), will be
issued with original issue discount
only if its stated principal amount
exceeds its issue price. See "Certain
Federal Income Tax Consequences"
herein and "Federal Income Tax
Consequences" in the Prospectus. [The
Class __ and Class B-__ Certificates
will not be treated by the Trust as
"variable rate debt instruments" as
defined in Treasury Regulations
promulgated under the Code and,
therefore, will be treated as issued
with original issue discount as
described in "Certain Federal Income
Tax Consequences" herein and "Federal
Income Tax Consequences" in the
Prospectus.] For purposes of
determining the amount and the rate of
accrual of original issue discount and
market discount, the Depositor intends
to assume that there will be
prepayments on the Contracts at a rate
equal to ___% of the Prepayment Model.
No representation is made as to
whether the Contracts will prepay at
that rate or any other rate. See
"Certain Federal Income Tax
Consequences" herein and "Federal
Income Tax Consequences" in the
Prospectus.
For federal income tax purposes, the
Offered Certificates (other than the
Class A-R Certificates) generally will
be treated as "regular interests in a
REMIC" for domestic building and loan
associations, and "real estate assets"
for real estate investment trusts
("REITs"), subject to the limitations
described in "Certain Federal Income
Tax Consequences" herein and "Federal
Income Tax Consequences" in the
Prospectus. Similarly, interest on the
Offered Certificates will be
considered "interest on obligations
secured by mortgages on real property"
for REITs, subject to the limitations
described in "Federal Income Tax
Consequences" in the Prospectus. The
holders of the Class A-R Certificates,
as holders of the residual interest in
the REMICs, will be subject to special
federal income tax rules that may
significantly reduce the after-tax
yield of such Certificates. Further,
significant restrictions apply to the
transfer of the Class A-R
Certificates. See "Certain Federal
Income Tax Consequences" herein and
"Federal Income Tax Consequences" in
the Prospectus.
ERISA Considerations......... A fiduciary of an employee benefit
plan subject to the Employee
Retirement Income Security Act of
1974, as amended ("ERISA"), or Section
4975 of the Code should carefully
review with its legal advisors whether
the purchase or holding of Class A
Certificates could give rise to a
transaction prohibited or not
otherwise permissible under ERISA or
the Code. See "ERISA Considerations"
herein and in the Prospectus.
An employee benefit plan or other plan
subject to ERISA and/or Section 4975
of the Code, or an entity purchasing
Class A-R or Class B-1 Certificates on
behalf of any such employee benefit or
other plan, will not be permitted to
purchase or hold such Certificates
unless the opinion of counsel
described under "ERISA Considerations"
is delivered to the Trustee. See
"ERISA Considerations" herein and in
the Prospectus.
Legal Investment
Considerations............. The Offered Certificates will [not]
constitute "mortgage related
securities" under the Secondary
Mortgage Market Enhancement Act of
1984 ("SMMEA"). No representation is
made as to the appropriate
characterization of the Offered
Certificates under any laws relating
to investment restrictions and
investors should consult their legal
advisors. See "Risk Factors--Limited
Liquidity; Lack of SMMEA Eligibility"
and "Legal Investment Considerations"
herein and "Legal Investment" in the
Prospectus.
Ratings...................... It is a condition to the issuance of
the Certificates that they be rated
"___" by _____ and "___" by _________
(each a "Rating Agency"). In general,
ratings address credit risk and do not
address the likelihood of prepayments.
See "Ratings" herein and "Risk
Factors--Rating of the Certificates"
in the Prospectus.
RISK FACTORS
Prospective investors in the Offered Certificates should consider among other
things, the following risk factors in connection with the purchase of the
Offered Certificates.
LIMITATIONS OF CREDIT ENHANCEMENT
An investment in the Offered Certificates may be affected by, among
other things, a downturn in regional or local economic conditions. These
regional or local economic conditions are often volatile and historically have
affected the delinquency, loan loss and repossession experience of
manufactured housing contracts. The geographic location of the Manufactured
Homes is set forth under "The Contract Pool" herein. Moreover, regardless of
its location, manufactured housing generally depreciates in value over time.
Consequently, the market value of the Manufactured Homes could be or become
lower than the Contract Principal Balance of the related Contracts. See "The
Contract Pool" herein and "The Trust Fund--The Contracts" in the Prospectus.
High delinquencies and liquidation losses on the Contracts will have the
effect of reducing, and could eliminate, the protection against losses
afforded by, with respect to (i) the Senior Certificates, the subordination of
the Subordinate Certificates and (ii) the Subordinate Certificates, the
subordination of the Class X Certificates. If any such protection is
eliminated, and the amount of overcollateralization, if any, has been reduced
to zero, the related Certificateholders will bear the risk of losses on the
Contracts and must rely on the value of the Manufactured Homes for recovery of
the outstanding principal of and unpaid interest on any defaulted Contracts.
See "Description of the Certificates--Subordination of the Subordinate
Certificates" and "--Losses on Liquidated Contracts" herein.
LIMITED HISTORICAL DELINQUENCY, LOSS AND PREPAYMENT INFORMATION
[IndyMac began acquiring and servicing manufactured housing contracts
and installment loan agreements in February 1996 and, from such date to the
present, has substantially increased the volume of such contracts that it has
acquired and/or serviced. Consequently, IndyMac has limited historical
experience with respect to the performance, including the delinquency and loss
experience and the rate of prepayments of these contracts. Accordingly,
neither the delinquency experience and loan loss and liquidation experience
set forth under "IndyMac, Inc.--Delinquency and Loss Experience" nor the
prepayment scenarios set forth under "Yield and Prepayment Considerations" may
be indicative of the performance of the Contracts included in the Contract
Pool. Prospective investors should take these factors into account when
reviewing the information set forth herein and making their investment
decision.]
[CERTAIN STATISTICAL INFORMATION RELATING TO THE DELINQUENCY, LOAN
LOSS AND REPOSSESSION EXPERIENCE OF THE PORTFOLIO OF MANUFACTURED HOUSING
CONTRACTS SERVICED BY [INDYMAC] IS SET FORTH HEREIN UNDER "[INDYMAC,
INC.--DELINQUENCY AND LOSS EXPERIENCE]." SUCH STATISTICAL INFORMATION RELATES
ONLY TO MANUFACTURED HOUSING CONTRACTS SERVICED BY [INDYMAC] DURING THE
PERIODS INDICATED AND IS INCLUDED HEREIN ONLY FOR ILLUSTRATIVE PURPOSES. THERE
IS NO ASSURANCE THAT THE CONTRACTS WILL HAVE CHARACTERISTICS SIMILAR TO THE
MANUFACTURED HOUSING CONTRACTS TO WHICH SUCH STATISTICAL INFORMATION RELATES.
IN ADDITION, THE LOSSES EXPERIENCED UPON RECOVERY OF PRINCIPAL UPON THE
LIQUIDATION OF MANUFACTURED HOUSING CONTRACTS HISTORICALLY HAVE BEEN SHARPLY
AFFECTED BY DOWNTURNS IN REGIONAL OR LOCAL ECONOMIC CONDITIONS. THESE REGIONAL
OR LOCAL ECONOMIC CONDITIONS ARE OFTEN VOLATILE, AND NO PREDICTION CAN BE MADE
REGARDING FUTURE ECONOMIC LOSS UPON LIQUIDATION. IN LIGHT OF THE FOREGOING, NO
ASSURANCE CAN BE GIVEN THAT THE LOSSES EXPERIENCED UPON THE LIQUIDATION OF
DEFAULTED CONTRACTS WILL BE SIMILAR TO ANY STATISTICAL INFORMATION CONTAINED
HEREIN REGARDING [INDYMAC]. SEE "THE TRUST FUND--THE CONTRACTS" IN THE
PROSPECTUS.]
PREPAYMENT CONSIDERATIONS AND RISKS
The prepayment experience on the Contracts may affect the average
life of the Offered Certificates. Prepayments on the Contracts (which include
both voluntary prepayments and liquidations following default) may be
influenced by a variety of economic, geographic, social and other factors,
including repossessions, aging, seasonality, market interest rates, changes in
housing needs, job transfers and unemployment. See "Yield and Prepayment
Considerations" herein and "Yield and Prepayment Considerations" in the
Prospectus.
YIELD ON THE OFFERED CERTIFICATES
YIELD AFFECTED BY DELAY IN INTEREST DISTRIBUTIONS. Because interest
will not be distributed on the Offered Certificates until the 25th day (or, if
such day is not a Business Day, then on the next succeeding Business Day) of
the month following the Interest Accrual Period during which such interest
accrues on the Certificates, the effective yield to the holders of the Offered
Certificates will be lower than the yield otherwise produced by their
respective Pass-Through Rates and purchase prices.
YIELD AFFECTED BY RATE AND TIMING OF PRINCIPAL PAYMENTS ON THE
CONTRACTS. The yield to maturity of, and the aggregate amount of distributions
on, each Class of the Offered Certificates will be related to the rate and
timing of principal payments on the Contracts. The rate of principal payments
on the Contracts will be affected by the amortization schedules of the
Contracts and by the rate of principal prepayments thereon (including for this
purpose payments resulting from refinancings and liquidations of the Contracts
due to defaults and repurchases of Contracts by [IndyMac] under certain
circumstances). No assurance can be given as to the rate of principal payments
or prepayments on the Contracts.
LIMITED OBLIGATIONS-NO RECOURSE TO SELLER, THE DEPOSITOR, THE SERVICER,
THE TRUSTEE OR THE UNDERWRITER
The Offered Certificates will not represent an interest in or
obligation of the SELLER, THE Depositor, the Trustee, the Underwriter,
[IndyMac], THE SERVICER or any of their respective affiliates. Neither the
Contracts nor the Offered Certificates will be insured or guaranteed by any
governmental agency or instrumentality, THE SELLER, the Depositor, THE
TRUSTEE, the Underwriter, [IndyMac], the Servicer or any of their respective
affiliates and the Offered Certificates will be payable only from amounts
payable on or in respect of the assets in the Trust Fund. See "Risk
Factors--Limited Source of Payments -- No Recourse to Sellers, Depositor or
Master Servicer" in the Prospectus.
The Depositor will not be obligated in any way in respect of the
Certificates. The obligations of [IndyMac] in its capacity as Servicer with
respect to the Certificates will be limited to its contractual servicing
obligations. [IndyMac] will, however, make certain representations and
warranties in its capacity as Seller relating to the Contracts. In the event
of an uncured breach of any such representation or warranty that materially
and adversely affects the Certificateholders' interest in a Contract,
[IndyMac], as Seller, may, under certain circumstances, be obligated to
repurchase such Contract. See "Description of the Certificates-- Conveyance of
Contracts" herein.
Limited LIQUIDITY-LACK of SMMEA Eligibility
The Underwriter intends to make a secondary market in the Offered
Certificates, but will have no obligation to do so. There can be no assurance
that a secondary market for any Class of Offered Certificates will develop, or
if one does develop, that it will continue or provide sufficient liquidity of
investment or that it will remain for the term of the related Class of Offered
Certificates. [The Offered Certificates will not constitute "mortgage related
securities" for purposes of SMMEA. Accordingly, many institutions with legal
authority to invest in SMMEA securities will not be able to invest in the
Offered Certificates, thereby limiting the market for the Offered
Certificates. In light of the foregoing, investors should consult their own
counsel as to whether they have the legal authority to invest in non-SMMEA
securities such as the Offered Certificates.] See "Legal Investment
Considerations" herein and "Risk Factors--Limited Liquidity" in the
Prospectus.
SECURITY INTEREST IN UNDERLYING ASSETS MAY NOT BE EFFECTIVE
Each Contract will be secured by a security interest in a
Manufactured Home (and, in the case of a Land-and-Home Contract, by a Mortgage
on the underlying real property on which the Manufactured Home is located).
Perfection of security interests in Manufactured Homes and enforcement of
rights to realize upon the value of the Manufactured Homes as collateral for
the Contracts are subject to a number of federal and state laws, including the
Uniform Commercial Code (the "UCC") as adopted in each state and, in most
states, certificate of title statutes, but generally not state real estate
laws. The steps necessary to perfect the security interest in a Manufactured
Home will vary from state to state. Because of the expense and administrative
inconvenience involved, [IndyMac] will not amend any certificate of title to
change the lienholder specified therein from [IndyMac] to the Trustee or file
any UCC-3 assignments and will not deliver any certificate of title to the
Trustee or note thereon the Trustee's interest, although UCC-1 financing
statements will be filed to reflect the sale of the Contracts from [IndyMac]
to the Depositor and from the Depositor to the Trust. Consequently, in some
states, in the absence of such an amendment to the certificate of title, the
assignment to the Trustee of the security interest in the Manufactured Home
may not be effective or such security interest may not be perfected and, in
the absence of such notation or delivery to the Trustee, the assignment of the
security interest in the Manufactured Home may not be effective against
creditors of [IndyMac] or a trustee in bankruptcy of [IndyMac] or such
affiliate. Land-and-Home Contracts will also be secured by a Mortgage on the
underlying real property on which a Manufactured Home is placed. Assignments
to the Trustee of such Mortgages will be recorded in the appropriate public
office for real property records[, except in the State of California and in
states where the Seller has reasonably determined that such recording is not
required to protect the Trustee's interest against the claim of any subsequent
transferee or any successor to or creditor of the Depositor or the Seller].
See "Certain Legal Aspects of the Contracts" herein AND "RISK FACTORS-SECURITY
INTEREST IN UNDERLYING ASSETS MAY NOT BE EFFECTIVE" IN THE PROSPECTUS.
CONSUMER PROTECTION LAWS AND OTHER LIMITATIONS ON LENDERS
Numerous federal and state consumer protection laws impose
requirements on lending under installment sales contracts and installment loan
agreements such as the Contracts, and the failure by the lender or seller of
goods to comply with such requirements could give rise to liabilities of
assignees for amounts due under such agreements and the right of set-off
against claims by such assignees. These laws would apply to the Trust Fund as
assignee of the Contracts. Pursuant to the Agreement, [IndyMac] will represent
and warrant that each Contract complies with all requirements of law and will
provide certain warranties relating to the validity, perfection and priority
of the security interest in each Manufactured Home securing a Contract. A
breach of any such representation and warranty that materially and adversely
affects the Certificateholders' interest in any Contract may, subject to
certain conditions described herein under "Description of the
Certificates--Conveyance of Contracts," create an obligation by [IndyMac] to
repurchase such Contract unless such breach is cured within 90 days after
notice thereof. If [IndyMac] does not honor its repurchase obligation in
respect of a Contract and such Contract were to become defaulted, recovery of
amounts due on such Contract would be dependent on repossession and resale of
the Manufactured Home securing such Contract. Certain other factors, such as
the bankruptcy of an obligor or the application of equitable principles by a
court, may limit the ability of the Certificateholders to receive payments on
the Contracts or to realize upon the Manufactured Homes or may limit the
amount realized to less than the amount due. See "Certain Legal Aspects of the
Contracts" herein and "Certain Legal Aspects of the Contracts" in the
Prospectus.
BANKRUPTCY OR INSOLVENCY OF THE SELLER, THE DEPOSITOR OR THE SERVICER COULD
LEAD TO DELAY OR REDUCTION OF AMOUNTS PAYABLE TO CERTIFICATEHOLDERS
[IndyMac] and the Depositor intend that the transfer of Contracts
from [IndyMac] to the Depositor and from the Depositor to the Trust Fund
constitutes a sale, rather than a pledge of the Contracts to secure
indebtedness of [IndyMac] or the Depositor, as the case may be. However, if
[IndyMac] or the Depositor were to become a debtor under the federal
bankruptcy code, it is possible that a creditor or trustee in bankruptcy of
[IndyMac] or the Depositor, or [IndyMac] or the Depositor as
debtor-in-possession, may argue that the sale of the Contracts by [IndyMac] or
the Depositor, as the case may be, was a pledge of the Contracts rather than a
sale. This position, if presented to or accepted by a court, could result in a
delay in or reduction of distributions to the Certificateholders. SEE "RISK
FACTORS-BANKRUPTCY OR INSOLVENCY OF THE SELLER, THE DEPOSITOR OR THE MASTER
SERVICER COULD LEAD TO DELAY OR REDUCTION OF AMOUNTS PAYABLE TO
CERTIFICATEHOLDERS" IN THE PROSPECTUS.
BOOK-ENTRY REGISTRATION MAY REDUCE LIQUIDITY OF THE CERTIFICATES
Since transactions in the Book-Entry Certificates can be effected
only through DTC, participating organizations, indirect participants and
certain banks, the ability of a Certificate Owner of Book-Entry Certificates
to pledge a Book-Entry Certificate to persons or entities that do not
participate in the DTC system or otherwise to take action in respect of such
Book-Entry Certificate, may be limited due to lack of a physical certificate
representing such Book-Entry Certificate.
Certificate Owners of Book-Entry Certificates may experience some
delay in their receipt of distributions of interest and principal on the
Book-Entry Certificates since such distributions will be forwarded by the
Trustee to DTC and DTC will credit such distributions to the accounts of its
Participants, which will thereafter credit them to the accounts of such
Certificate Owners either directly or indirectly through indirect
participants. See "Description of the Certificates--Registration of the
Offered Certificates" herein and "Risk Factors--Book-Entry Registration" in
the Prospectus.
THE CONTRACT POOL
All of the Contracts will have been purchased or originated by
[IndyMac or an affiliate thereof] in the ordinary course of its business. Each
Contract will be a manufactured housing installment sales contract or
installment loan agreement (collectively, "manufactured housing contracts" or
"contracts"). A description of the general practice of [IndyMac] and its
affiliates with respect to the origination or purchase of manufactured housing
contracts is set forth under "[IndyMac, Inc.--Manufactured Housing
Division--Underwriting Practices]" herein.
The statistical information presented in this Prospectus Supplement
concerning the Contract Pool is based on the Contract Pool as of the Cut-off
Date. Unless otherwise noted, all percentages relating to the Contracts are
measured by the Contract Principal Balance of the related Contracts and the
Contract Pool as of the Cut-off Date.
Under the Agreement, the Manufactured Homes will be required to
comply with the requirements of certain federal statutes which, in the
aggregate, generally require the Manufactured Homes to have a minimum of 400
square feet of living space and a minimum width in excess of 102 inches and to
be of a kind customarily used at a fixed location. Such statutes also require
the Manufactured Homes to be transportable in one or more sections, built on a
permanent chassis and designed to be used as dwellings, with or without
permanent foundations, when connected to the required utilities. The
Manufactured Homes will also be required to include the plumbing, heating, air
conditioning and electrical systems therein.
The Agreement will require the Servicer to maintain hazard insurance
policies with respect to each Manufactured Home (other than a Manufactured
Home in repossession) in the amounts and manner set forth herein under
"Description of the Certificates--Hazard Insurance Policies." Generally, no
other insurance will be maintained with respect to the Manufactured Homes or
the Contracts.
[IndyMac] will assign to the Trustee the Contracts and all rights to
receive payments on the Contracts [received after the Cut-off Date, whether
due before, on or after the Cut-off Date] [due after the Cut-off Date, whether
received before, on or after the Cut-off Date]. See "Description of the
Certificates--Conveyance of Contracts" herein.
The Contract Pool will consist of Contracts having an aggregate
Contract Principal Balance as of the Cut-off Date of $ . Each Contract was
originated on or after ________, 19 and on or before ________, 19 .
Each Contract has a [fixed APR] and provides for level monthly
payments (each, a "Monthly Payment") over the term of such Contract that fully
amortize the principal balance of the Contract. Each Contract provides for
allocation of payments according to [the ["actuarial"] [or] [simple interest]
method, [as the case may be],] as described under "[IndyMac,
Inc.--Manufactured Housing Division--Servicing]".
For each Land-and-Home Contract, [IndyMac] either (a) financed the
Manufactured Home and the land on which it is located, or (b) financed the
Manufactured Home and either took as additional security a Mortgage on the
underlying real property on which the Manufactured Home is located or, in
certain cases, took a Mortgage on the underlying real property on which the
Manufactured Home is located in lieu of a down payment in the form of cash or
the value of a trade-in unit. See "Certain Legal Aspects of the Contracts"
herein and "Certain Legal Aspects of the Contracts" in the Prospectus.
Based on Cut-off Date Principal Balance, % of the Contracts are
secured by Manufactured Homes which were new and % of the Contracts are
secured by Manufactured Homes which were used. Based on Cut-off Date Principal
Balance, % of the Contracts are Land-and-Home Contracts. Each Contract has an
APR of at least % and not more than %. The weighted average APR of the
Contracts as of the Cut-off Date is %. The Contracts have remaining terms to
maturity as of the Cut-off Date of at least __ months but not more than ___
months and original terms to maturity of at least __ months but not more than
___ months. As of the Cut-off Date, the Contracts had a weighted average
remaining term to maturity of approximately months, a weighted average
seasoning of approximately __ months and a weighted average original
loan-to-value ratio of %. The average outstanding Contract Principal Balance
as of the Cut-off Date was approximately $ . The properties underlying the
Contracts were located as of the Cut-off Date in states. Based on Cut-off Date
Principal Balance, % and % of such properties are located in , and ,
respectively. No other state represented more than [5.00%] of the Cut-off Date
Principal Balance.
Appearing below is some additional information regarding the
characteristics of the Contracts. Unless otherwise indicated by the context,
all such information is as of the Cut-off Date. Percentages may not add to
100.00% due to rounding.
GEOGRAPHICAL DISTRIBUTION OF MANUFACTURED HOMES(1)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
GEOGRAPHIC NUMBER OF AGGREGATE PERCENTAGE OF
LOCATION CONTRACTS CUT-OFF DATE CUT-OFF DATE
CONTRACT POOL BALANCE
PRINCIPAL BALANCE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Alabama............... $ %
Arizona...............
Arkansas..............
California............
Colorado..............
Florida...............
Georgia...............
Idaho.................
Illinois..............
Indiana...............
Iowa..................
Kansas................
Kentucky..............
Louisiana.............
Michigan..............
Minnesota.............
Mississippi...........
Missouri..............
Montana...............
Nebraska..............
Nevada................
New Mexico............
New York..............
North Carolina........
Ohio..................
Oklahoma..............
Oregon................
Pennsylvania..........
South Carolina........
South Dakota..........
Tennessee.............
Texas.................
Utah..................
Virginia..............
Washington............
West Virginia.........
Wyoming...............
Total.............. $ 100.00%
============== =========== =======
</TABLE>
(1) Based on the location of the properties underlying the Contracts as of the
Cut-off Date.
<TABLE>
<CAPTION>
ORIGINAL CONTRACT AMOUNTS
-------------------------------------------------------------------------------------------------------
ORIGINAL CONTRACT NUMBER OF AGGREGATE CUT-OFF PERCENTAGE OF
AMOUNT CONTRACTS DATE CONTRACT CUT-OFF DATE
PRINCIPAL BALANCE POOL BALANCE
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 5,000-$ 9,999 ......... $ %
$10,000-$14,999..........
$15,000-$19,999..........
$20,000-$24,999..........
$25,000-$29,999..........
$30,000-$34,999..........
$35,000-$39,999..........
$40,000-$44,999..........
$45,000-$49,999..........
$50,000-$54,999..........
$55,000-$59,999..........
$60,000-$64,999..........
$65,000-$69,999..........
$70,000-$74,999..........
$75,000-$79,999..........
$80,000-$84,999..........
$85,000-$89,999..........
$90,000-$94,999..........
$95,000-$99,999..........
$100,000 or more.........
$ %
</TABLE>
<TABLE>
<CAPTION>
REMAINING TERM TO MATURITY
REMAINING TERM NUMBER OF AGGREGATE CUT-OFF PERCENTAGE OF
CONTRACTS DATE CONTRACT CUT-OFF DATE
PRINCIPAL BALANCE POOL BALANCE
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LESS THAN 121
MONTHS
121-180 MONTHS
181-240 MONTHS
241- 300 MONTHS
301 - 360 MONTHS
------- ------- -------
Total . . . .
-------------------------------------------------------------------
</TABLE>
APRS
- --------------------------------------------------------------------------------
APRS NUMBER OF AGGREGATE PERCENTAGE OF
CONTRACTS CUT-OFF DATE CUT-OFF DATE
CONTRACT POOL BALANCE
PRINCIPAL BALANCE
- --------------------------------------------------------------------------------
7.01% - 8.00%
8.01% - 9.00%
9.01% - 10.00%
10.01% - 11.00%
11.01% - 12.00%
12.01% - 13.00%
13.01% - 14.00%
14.01% - 15.00%
Total . . . .
ORIGINAL LOAN-TO-VALUE(1) RATIO
- --------------------------------------------------------------------------------
ORIGINAL NUMBER OF AGGREGATE PERCENTAGE OF
LOAN-TO-VALUE CONTRACTS CUT-OFF DATE CUT-OFF DATE
RATIO(2) CONTRACT POOL BALANCE
PRINCIPAL BALANCE
60% OR LESS
61%-65%
66%-70%
71%-75%
76%-80%
81%-85%
86%-90%
91%-95%
96%-100%
TOTAL
(1) "Value" in the above table will be equal to the sum
of (a) either (i) the sum of the down payment (which
includes the value of any trade-in unit), AND the original
amount financed on the related Contract (which may include
sales and other taxes and insurance and prepaid finance
charges) or (ii) the appraisal value of the home and (b) in
the case of any Land-and-Home Contract, the appraised value
of the land securing such Contract (as appraised by an
independent appraiser).
(2) ROUNDED TO THE NEAREST 1%.
[INDYMAC, INC.]
[IndyMac, formerly known as Independent National Mortgage
Corporation, operates a nationwide mortgage conduit business established in
1993 to purchase mortgage loans that do not typically qualify for sale to the
U.S. government sponsored mortgage agencies. IndyMac formed its Manufactured
Housing Division ("MHD") in December 1995 to both originate directly to
consumers and to purchase manufactured housing retail installment sales
contracts and installment loan agreements from retailers, brokers and other
loan originators. Loans currently originated or purchased by the MHD are fixed
or variable rate and fully amortizing loans and, in general, provide that the
related manufactured home be constructed in compliance with the Manufactured
Home and Construction and Safety Standards instituted by the Department of
Housing and Urban Development ("HUD") in June 1976. The MHD's primary
competition is from local, regional and national banks, independent finance
companies and captive manufactured housing finance companies. The MHD has its
administrative headquarters in San Diego, California and conducts its
operations through six Region Service Centers currently located in Atlanta,
Houston, Indianapolis, Raleigh, San Diego, and Vancouver, WA, and the Third
Party Lending Department (the "TPL Department") in San Diego, California.]
[In addition to its mortgage conduit business and manufactured
housing operations, IndyMac is engaged in the subprime mortgage lending
business and additional lending operations through its Home Improvement
Division ("HID"), Construction Lending Division ("CLD") and LoanWorks, which
make home improvement and debt consolidation loans, loans for the purchase of
lots, home construction and remodeling and real estate loans to consumers.
IndyMac's principal office is located at 155 North Lake Avenue, Pasadena, CA
91101, telephone (800) 669-2300.]
MANUFACTURED HOUSING DIVISION
[The MHD finances both new and used manufactured homes and originates
retail installment sales contracts and installment loan agreements by
purchasing such contracts from retailers. In addition, the MHD purchases loans
from other originators of manufactured home loans and from approved IndyMac
sellers who deal with other IndyMac divisions. The MHD distributes its
products and services through its Region Service Centers and the TPL
Department in San Diego. The marketing efforts of each Region Service Center
are implemented through account executives located throughout the country and
offer retailers financing programs with varying loan terms, down payment
requirements, interest rates and credit policies. Retailers/loan originators
wishing to offer the MHD financing programs to their customers must submit an
application to the MHD for approval. Upon satisfactory review of the
dealer's/loan originator's credit worthiness, financial strength and
appropriate experience and qualifications, the dealer/loan originator is
approved and a financing agreement is executed. Annual reviews are conducted
to monitor continuing qualifications as well as portfolio performance. The TPL
Department originates Land-and-Home Contracts through sellers which sell to
IndyMac's mortgage conduit business and through selected brokers.]
Underwriting Practices. [Due to the importance of the roles the
manufacturer, the retailer and the home buyer play in the satisfactory
performance of a contract, all three are subject to investigation to manage
credit risk. Manufacturers are evaluated and approved by a centralized unit.
Such manufacturers must be approved by HUD and meet minimum financial
requirements. In addition, the MHD region sales and management staff make
recommendations based on the industry experience of the principals and
relevant market experience with the product. Dealers are also approved by a
centralized unit based upon their financial condition, experience in the
industry and the credit history of the principals. Such approval process also
involves the input of the region sales staff and management. The dealers are
subject to annual performance reviews.]
[The MHD's underwriting guidelines generally require that each
applicant's credit history, residence history, employment history, debt
payment to income ratio and discretionary income be examined. Generally, a
borrower is required to be employed by the same employer a minimum of two
years or be in the same occupational field for at least two years. The
borrower is required to have an established credit history, and the MHD
carefully reviews any derogatory information. In general, the debt payment to
income ratio generally is not permitted to exceed 45%. Discretionary income
requirements are based on family size. Headquarters' approval is required for
certain exceptions, such as applicants with bankruptcies within the preceding
five years, credit bureau scores which are below the required standards and
debt ratios in excess of Region Service Centers' exception guidelines.]
Servicing. [The MHD services all manufactured housing loans purchased
or originated by IndyMac and its affiliates. The customer service department
(the "Customer Service Department") and collection department (the "Collection
Department") located in each Region Service Center service the contracts
relating to such region. The Collection Department of each Region Service
Center performs all collection efforts. In the event of delinquencies,
collectors evaluate the customer's situation and work with the customer to
eliminate the delinquency in a timely manner. The Collection Department also
monitors accounts which have filed bankruptcy and manages repossession
proceedings and liquidations. All loans purchased or originated by the TPL
Department are serviced in the Region Service Center responsible for the state
in which the manufactured home is located.]
[ IF A Contract provides for allocation of payments according to the
"actuarial" method, the portion of each Monthly Payment for any Contract
allocable to principal will be equal to the total amount thereof less the
portion allocable to interest. The portion of each Monthly Payment due in a
particular month that is allocable to interest is a precomputed amount equal
to one month's interest on the principal balance of the Contract, which
principal balance is determined by reducing the initial principal balance by
the principal portion of all Monthly Payments that were due in prior months
(whether or not such Monthly Payments were timely made) and all prior partial
principal prepayments. Thus, each payment allocated to a scheduled monthly
payment of a Contract will be applied to interest and to principal in
accordance with such precomputed allocation whether such Monthly Payment is
received in advance of or subsequent to the related Due Dates. All payments
received on the Contracts (other than payments allocated to items other than
principal and interest or payments sufficient to pay the outstanding principal
balance of and all accrued and unpaid interest on such Contracts) will be
applied when received to current and any previously unpaid Monthly Payments in
the order of the Due Dates of such payments.]
[ IF A Contract provides for allocation of payments according to the
simple interest method, each Monthly Payment for any Contract will be applied
first to interest accrued through the date immediately preceding the date of
payment and then to unpaid principal. Accordingly, if an obligor pays an
installment before its Due Date, the portion of the payment allocable to
interest for the related Due Period will be less than if the payment had been
made on the Due Date, the portion of the payment applied to reduce the
principal balance will be correspondingly greater, and the principal balance
will be amortized more rapidly than scheduled. Conversely, if an obligor pays
an installment after its Due Date, the portion of the payment allocable to
interest for the payment period will be greater than if the payment had been
made on the Due Date, the portion of the payment applied to reduce the
principal balance will be correspondingly less, and the principal balance will
be amortized more slowly than scheduled, in which case a larger portion of the
principal balance may be due on the final scheduled payment date.]
DELINQUENCY AND LOSS EXPERIENCE
[The following table sets forth information concerning delinquency
experience for the periods indicated for the portfolio of manufactured housing
contracts serviced by the Region Service Centers.]
[The following table sets forth the delinquency experience for the
periods indicated of the portfolio of conventional manufactured housing
contracts originated or purchased and serviced by [IndyMac and its
affiliates], including contracts previously sold in connection with
securitizations. [All of the Contracts in the Trust Fund will be conventional
contracts, meaning that they are not insured or guaranteed by any governmental
agency.]
DELINQUENCY EXPERIENCE(1)
<TABLE>
<CAPTION>
AT ________________,
----------------------------------------------
19- 19- 19-
<S> <C> <C> <C>
IndyMac Originated..........................................
Acquired Portfolios.........................................
Number of Delinquent Assets(2) IndyMac Originated:
30-59 days past due...................................
60-89 days past due...................................
90 days or more past due..............................
TOTAL NUMBER OF ASSETS DELINQUENT...........................
Acquired Portfolios:
30-59 days past due...................................
60-89 days past due...................................
90 days or more past due..............................
Total Number of Assets Delinquent...........................
Total Delinquencies as a Percentage of Serviced
Assets (3)
IndyMac Originated.......................................... % % %
Acquired Portfolios.........................................
</TABLE>
(1) Excludes assets already in repossession.
(2) The period of delinquency is based on the number of days payments are
contractually past due (assuming 30-day months). Consequently, a payment
due on the first day of a month is not 30 days delinquent until the first
day of the following month.
(3) By number of assets.
[The following table sets forth information concerning repossession
and loss experience for the periods indicated for the portfolio of
manufactured housing contracts originated or purchased by the Region Service
Centers.]
<TABLE>
<CAPTION>
LOSS EXPERIENCE
AT OR FOR THE FISCAL YEAR
ENDED _____________
------------------------------------------------------------
19 19 19
--- ---- --
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total Number of Serviced
Assets (1).......................................
Average Number of Serviced
Assets During Period.............................
Number of Serviced Assets
Repossessed......................................
Serviced Assets Repossessed
as a Percentage of Total
Serviced Assets (2)..............................
Serviced Assets Repossessed
as a Percentage of Average Number of
Serviced Assets..................................
Average Outstanding Principal
Balance of Assets(3)
[IndyMac] Originated.............................
Acquired Portfolios..............................
Net Losses from Asset
Liquidations (4):
Total Dollars (3)
[IndyMac] Originated...........................
Acquired Portfolios............................
As a Percentage of Average
Outstanding Principal
Balance of Assets (3)(5)
[IndyMac] Originated...........................
Acquired Portfolios............................
</TABLE>
(1) As of period end.
(2) TOTAL NUMBER OF SERVICED ASSETS REPOSSESSED DURING THE APPLICABLE PERIOD
EXPRESSED AS A PERCENTAGE OF THE TOTAL NUMBER OF ASSETS SERVICED AT THE
END OF THE APPLICABLE PERIOD.
(3) Includes assets originated by MHD and serviced by MHD.
(4) Net losses represent all losses incurred on portfolios serviced by MHD.
The calculation of the net losses includes accrued interest plus expenses
of repossession and liquidation.
(5) Total net losses incurred on assets liquidated during the applicable
period expressed as a percentage of the outstanding principal balance of
all assets at the end of the applicable period.
The data presented in the foregoing tables are for illustrative
purposes only and there is no assurance that the delinquency, loan loss or
repossession experience of the Contracts will be similar to that set forth
above. [IndyMac and its affiliates only recently began purchasing and
originating manufactured housing installment sales contracts and installment
loans. Consequently, such contracts and loans have not yet exhibited a loss
and delinquency experience that is representative of the losses and
delinquencies that may be experienced over a longer period of time.] In
addition, the delinquency, loan loss and repossession experience of
manufactured housing contracts historically has been sharply affected by a
downturn in regional or local economic conditions. These regional or local
economic conditions are often volatile, and no predictions can be made
regarding future economic conditions in any particular area. These downturns
have tended to increase the severity of loss on repossession because of the
increased supply of used manufactured homes, which in turn may affect the
supply in other regions.
YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL
The following information supplements, and to the extent inconsistent
therewith supersedes, the information in the Prospectus under "Yield
Considerations" and "Yield and Prepayment Considerations."
The Contracts may be prepaid in full or in part at any time by the
related borrowers (each, an "Obligor") without payment of any prepayment fee
or penalty (although there is generally no refund of any prepaid finance
charges). The prepayment experience of the Contracts (including prepayments
due to liquidations of defaulted Contracts) will affect the life of the
Certificates. It is anticipated that a substantial number of Contracts will be
prepaid in full prior to maturity. A variety of factors, including homeowner
mobility, general and regional economic conditions and prevailing interest
rates may influence prepayments. In addition, repurchases of Contracts on
account of certain breaches of representations and warranties as described
herein under "Description of the Certificates--Conveyance of Contracts" will
have the effect of prepayment of such Contracts and therefore will affect the
lives of the Certificates. Most of the Contracts contain provisions that
prohibit the Obligor from selling the related Manufactured Home without the
prior consent of the holder of the related Contract. Such provisions are
similar to "due-on-sale" clauses and may not be enforceable in some states.
See "Certain Legal Aspects of the Contracts--Land-and-Home Contracts" herein
and "Certain Legal Aspects of the Contracts--Due-on-Sale Clauses" in the
Prospectus. [IndyMac]'s policy is to permit most sales of Manufactured Homes
where the proposed buyer meets its then current underwriting standards and
enters into an assumption agreement. See "-- Weighted Average Life of the
Offered Certificates" herein and "Yield and Prepayment Considerations" in the
Prospectus.
The allocation of distributions to the Certificateholders in
accordance with the Agreement will have the effect of accelerating the
amortization of each Class of Offered Certificates in the sequence indicated
herein under "Description of the Certificates--Distributions--Priority of
Distributions" from the amortization that would be applicable if distributions
in respect of the Formula Principal Distribution Amount were made pro rata
according to the Class A- , Class , Class A-R, Class B- and Class Certificate
Principal Balances. As described herein under "Description of the
Certificates--Subordination of the Subordinate Certificates" to the extent
that, on any Distribution Date, the Available Distribution Amount is not
sufficient to permit a full distribution of the Formula Principal Distribution
Amount or the portion thereof due on such Distribution Date to any Class of
Offered Certificates entitled to such distribution, the effect will be to
delay the amortization of such Class of Offered Certificates. If a purchaser
of a Class of Offered Certificates purchases them at a discount and calculates
its anticipated yield to maturity based on an assumed rate of payment of
principal on such Offered Certificates that is faster than the rate actually
realized, such purchaser's actual yield to maturity will be lower than the
yield so calculated by such purchaser.
The rate of distributions of principal of the Offered Certificates
and the yield to maturity of the Offered Certificates also will be directly
related to the rate of payment of principal (including delinquencies and
prepayments) of the Contracts. The rate of principal distributions on the
Offered Certificates and the yield to maturity of the Offered Certificates
will be affected by the rate of delinquencies on the Contracts and the rate of
Obligor defaults resulting in losses on Liquidated Contracts, by the severity
of those losses and by the timing of those losses. If a purchaser of Offered
Certificates calculates its anticipated yield based on an assumed rate of
default and an assumed amount of losses that are lower than the default rate
and amount of losses actually incurred and such amount of losses actually
incurred is not entirely covered by interest collected on the Contracts in
excess of the amount necessary to distribute interest on the Certificates and
exceeds the Current Overcollateralization Amount, if any, its actual yield to
maturity will be lower than that so calculated. The timing of losses on
Liquidated Contracts will also affect an investor's actual yield to maturity,
even if the rate of defaults and severity of losses are consistent with an
investor's expectations. There can be no assurance that the delinquency,
repossession or loss experience set forth herein under "[IndyMac],
Inc.--Delinquency and Loss Experience" will be representative of the results
that may be experienced with respect to the Contracts. There can be no
assurance as to the delinquency, repossession or loss experience with respect
to the Contracts.
On any Distribution Date on or after the Distribution Date, if any,
on which the aggregate Certificate Principal Balance of the Certificates is
greater than the Pool Balance, if the Available Distribution Amount is not
sufficient to permit a full distribution of the Formula Principal Distribution
Amount to the Certificateholders, the Certificateholders (beginning with the
most junior Class of Certificates with a Certificate Principal Balance (i.e.,
the Class B- Certificates) until its Certificate Principal Balance or Adjusted
Certificate Principal Balance, as applicable, has been reduced to zero, then
to the second most junior Class (i.e., the Class B- Certificates) and so
forth) will absorb (i) all losses on each Liquidated Contract in the amount by
which its Liquidation Proceeds (net of Liquidation Expenses and applicable
Advances) are less than its Contract Principal Balance plus accrued and unpaid
interest thereon at a percentage equal to the sum of (a) the weighted average
Pass-Through Rate and (b) the percentage rate used to calculate the Servicing
Fee and (ii) other shortfalls in the Available Distribution Amount and will
incur a loss on their investments. See "Description of the
Certificates--Distributions," "--Subordination of the Subordinate
Certificates" and "--Losses on Liquidated Contracts" herein.
Each of the Depositor and the Servicer will have the option to
repurchase the Contracts and other property in the Trust on any Distribution
Date on or after the first Distribution Date as of which the Pool Balance is
less than 10% of the Cut-off Date Principal Balance. See "Description of the
Certificates--Termination" herein. The exercise of such option or the sale of
the Contracts and such other property of the Trust Fund by the Trustee under
the circumstances described herein under "Description of the
Certificates--Termination" will effect early retirement of all outstanding
Offered Certificates.
Although the APRs on the Contracts vary, prepayments on Contracts
generally will not affect the Pass-Through Rate on the Class [A] Certificates,
because the related Pass-Through Rates are [fixed]. The Class [ ] Pass-Through
Rates on any Distribution Date will be %, per annum (computed on the basis of
a 360-day year of twelve 30-day months), unless the Contracts prepay in such a
manner that the applicable Weighted Average Net Contract Rate is less than %,
in which case the Class [ ] Pass-Through Rate will equal such Weighted Average
Net Contract Rate.
While partial prepayments of the principal on the Contracts are
applied on the related Due Dates, Obligors are not required to pay interest on
the Contracts after the date of a full prepayment of principal. As a result,
full prepayments of Contracts in advance of the related Due Dates in any
Prepayment Period will reduce the amount of interest received during such
Prepayment Period to less than one month's interest. If a sufficient number of
Contracts are prepaid in full in a Prepayment Period in advance of their
respective Due Dates, interest received during that Prepayment Period may be
less than the interest payable on the Class A and Class B Certificates on the
related Distribution Date. See "Description of the Certificates--Compensating
Interest." Although no assurance can be given in this matter, it is not
expected that the net shortfall of interest received because of prepayments in
full in any Prepayment Period will be great enough, in the absence of
delinquencies and Liquidation Losses, to reduce the Available Distribution
Amount for the related Distribution Date below the amount that would be
required to be distributed to Class A and Class B Certificateholders on such
Distribution Date.
WEIGHTED AVERAGE LIFE OF THE OFFERED CERTIFICATES
The following information is given solely to illustrate the effect of
prepayments of the Contracts on the weighted average life of the Offered
Certificates under the stated assumptions and is not a prediction of the
prepayment rate that might actually be experienced by the Contracts.
Weighted average life refers to the average amount of time from the
date of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The weighted average life of the Offered
Certificates will be affected by the rate at which principal on the Contracts
is paid. Principal payments on Contracts may be in the form of scheduled
amortization or prepayments (for this purpose, the term "prepayment" includes
repayments and liquidations due to default or other dispositions of
Contracts). Prepayments on contracts may be measured by a prepayment standard
or model. The model used in this Prospectus Supplement (the "Prepayment
Model") is based on an assumed rate of prepayment each month of the Contract
Principal Balance of a pool of new Contracts. 100% of the Prepayment Model
assumes prepayment rates of ___% per annum of the Contract Principal Balance
of such Contracts in the first month of the life of the Contracts and an
additional ___% per annum in each month thereafter until the __th month.
Beginning in the __th month and in each month thereafter during the life of
the Contracts, 100% of the Prepayment Model assumes a constant prepayment rate
of ____% per annum.
As used in the following tables, "0% of the Prepayment Model" assumes
no prepayments on the Contracts, "75% of the Prepayment Model" assumes the
Contracts will prepay at rates equal to 75% of the Prepayment Model assumed
prepayment rates, "100% of the Prepayment Model" assumes the Contracts will
prepay at rates equal to 100% of the Prepayment Model assumed prepayment
rates, "160% of the Prepayment Model" assumes the Contracts will prepay at
rates equal to 160% of the Prepayment Model assumed prepayment rates, "200% of
the Prepayment Model" assumes the Contracts will prepay at rates equal to 200%
of the Prepayment Model assumed prepayment rates and "300% of the Prepayment
Model" assumes the Contracts will prepay at rates equal to 300% of the
Prepayment Model assumed prepayment rates.
There is no assurance, however, that prepayments of the Contracts
will conform to any level of the Prepayment Model, and no representation is
made that the Contracts will prepay at the prepayment rates shown or any other
prepayment rate. The rate of principal payments on pools of manufactured
housing contracts is influenced by a variety of economic, geographic, social
and other factors, including the level of interest rates and the rate at which
manufactured homeowners sell their manufactured homes or default on their
contracts. Other factors affecting prepayment of manufactured housing
contracts include changes in obligors' housing needs, job transfers,
unemployment and obligors' net equity in the related manufactured homes. In
the case of mortgage loans secured by site-built homes, in general, if
prevailing interest rates fall significantly below the interest rates on such
mortgage loans, the mortgage loans are likely to be subject to higher
prepayment rates than if prevailing interest rates remain at or above the
rates borne by such mortgage loans. Conversely, if prevailing interest rates
rise above the interest rates on such mortgage loans, the rate of prepayment
would be expected to decrease. In the case of manufactured housing contracts,
however, because the outstanding [actual] principal balances are, in general,
much smaller than mortgage loan balances and the original terms to maturity
are generally shorter, the reduction or increase in the size of the monthly
payments on contracts of the same maturity and principal balance arising from
a change in the interest rate thereon is generally much smaller. Consequently,
changes in prevailing interest rates may not have a similar effect, or may
have a similar effect, but to a smaller degree, on the prepayment rates on
manufactured housing contracts.
MODELING ASSUMPTIONS AND MHP TABLES
The prepayment tables set forth below (the "MHP Tables") assume that
Monthly Payments on the Contracts are received by the Servicer on their
respective Due Dates and that on each Distribution Date the Available
Distribution Amount will be sufficient to distribute interest on the Offered
Certificates and an amount equal to the full Formula Principal Distribution
Amount to the Certificateholders and to pay the Servicing Fee to the Servicer
and the Trustee Fee to the Trustee (together with the assumptions set forth
below, the "Modeling Assumptions").
The percentages and weighted average lives in the following tables
were determined assuming that (i) scheduled interest and principal payments on
the Contracts are received in a timely manner and prepayments are made at the
indicated percentages of the Prepayment Model; (ii) neither the Depositor nor
the Servicer exercises its right of optional termination and the Trustee does
not receive satisfactory bids for the sale of the Contracts and other property
in the Trust Fund, in each case as described herein under "Description of the
Certificates--Termination"; (iii) the Contracts will, as of the Cut-off Date,
be grouped into five pools having the additional characteristics set forth
below under "Assumed Contract Characteristics"; (iv) the Initial Certificate
Principal Balance and the Pass-Through Rate of each Class of Certificates is
as set forth under "Summary--Securities Issued" herein; (v) no interest
shortfalls will arise in connection with prepayment in full of the Contracts;
(vi) there will be no losses on the Contract Pool; (vii) the Servicing Fee
will be paid to the Servicer; and (viii) the Trustee Fee will be paid to the
Trustee. No representation is made that the Contracts will experience
delinquencies or losses at the respective rates assumed above or at any other
rates.
ASSUMED CONTRACT CHARACTERISTICS
<TABLE>
<CAPTION>
REMAINING
CUT-OF DATE TERM TO
CONTRACT PRINCIPAL MATURITY SEASONING
BALANCE APR (MONTHS) (MONTHS)
------- --- --------- ---------
<S> <C> <C> <C> <C>
1 ................................................. $
2 .................................................
3 .................................................
4 .................................................
5 ................................................. --------- --- ----- -----
Total............................................ $ %
========== === ===== ===
</TABLE>
Since the tables that follow were prepared on the basis of the
assumptions in the preceding table (the "Assumed Contract Characteristics"),
there will be discrepancies between the characteristics of the actual
Contracts and the characteristics of the Contracts assumed in preparing the
following tables. Any such discrepancy may have an effect upon the percentages
of the Initial Class A and Initial Class B- Certificate Principal Balances
outstanding and weighted average lives of the Class A and Class B-
Certificates set forth in the tables. In addition, since the actual Contracts
and the Trust Fund will have characteristics which differ from those assumed
in preparing the tables set forth below, distributions of principal on the
Certificates may be made earlier or later than as indicated in the tables.
It is not likely that the Contracts will prepay at any constant
percentage of the Prepayment Model to maturity or that all Contracts will
prepay at the same rate. In addition, the remaining terms to maturity of the
Contracts (which include recently originated Contracts) could produce slower
distributions of principal than as indicated in the tables at the various
percentages of the Prepayment Model specified even if the weighted average
remaining term to maturity of the Contracts is the same as the weighted
average remaining term to maturity of the Assumed Contract Characteristics.
Investors are urged to make their investment decisions on a basis
that includes their determination as to anticipated prepayment rates under a
variety of the assumptions discussed herein.
Based on the foregoing assumptions, the following tables indicate the
resulting weighted average lives of the Offered Certificates and set forth the
percentage of the Initial Class A, Initial Class and Initial Class B-1
Certificate Principal Balances that would be outstanding after each of the
dates shown at the indicated percentages of the Prepayment Model. In the
following tables, the weighted average life of a Class of Certificates is
determined by (i) multiplying the amount of each principal distribution by the
number of years from the Closing Date to the related Distribution Date, (ii)
summing the results and (iii) dividing the sum by the Initial Certificate
Principal Balance of such Class of Certificates.
PERCENT OF THE INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
DISTRIBUTION DATE CLASS A- CERTIFICATES AT THE FOLLOWING CLASS A- CERTIFICATES AT THE FOLLOWING
- ----------------- PERCENTAGES OF MHP PERCENTAGE OF MHP
----------------------------------------- -------------------------------------------
0% 100% 150% 180% 200% 300% 0% 100% 150% 180% 200% 300%
-- ---- ---- ---- ---- ---- -- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial PERCENTAGE.......
JULY 1999...............
JULY 2000...............
JULY 2001...............
JULY 2002...............
JULY 2003...............
JULY 2004...............
JULY 2005...............
JULY 2006...............
JULY 2007...............
JULY 2008...............
JULY 2009...............
JULY 2010...............
JULY 2011...............
JULY 2012...............
JULY 2013...............
JULY 2014...............
JULY 2015...............
JULY 2016...............
JULY 2017...............
JULY 2018...............
JULY 2019...............
JULY 2020...............
JULY 2021...............
JULY 2022...............
JULY 2023...............
JULY 2024...............
JULY 2025...............
JULY 2026...............
JULY 2027...............
JULY 2028...............
</TABLE>
Weighted Average Life (years)
PERCENT OF THE INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
DISTRIBUTION DATE CLASS A-R CERTIFICATES AT THE FOLLOWING CLASS B- CERTIFICATES AT THE FOLLOWING
- ----------------- PERCENTAGES OF MHP PERCENTAGE OF MHP
----------------------------------------- -------------------------------------------
0% 100% 150% 180% 200% 300% 0% 100% 150% 180% 200% 300%
-- ---- ---- ---- ---- ---- -- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial PERCENTAGE.......
JULY 1999...............
JULY 2000...............
JULY 2001...............
JULY 2002...............
JULY 2003...............
JULY 2004...............
JULY 2005...............
JULY 2006...............
JULY 2007...............
JULY 2008...............
JULY 2009...............
JULY 2010...............
JULY 2011...............
JULY 2012...............
JULY 2013...............
JULY 2014...............
JULY 2015...............
JULY 2016...............
JULY 2017...............
JULY 2018...............
JULY 2019...............
JULY 2020...............
JULY 2021...............
JULY 2022...............
JULY 2023...............
JULY 2024...............
JULY 2025...............
JULY 2026...............
JULY 2027...............
JULY 2028...............
</TABLE>
Weighted Average Life (years)
PERCENT OF THE INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
DISTRIBUTION DATE CLASS B-CERTIFICATES AT THE FOLLOWING
- ----------------- PERCENTAGES OF MHP
----------------------------------------------
0% 100% 150% 180% 200% 300%
-- ---- ---- ---- ---- ----
Initial PERCENTAGE.......
JULY 1999...............
JULY 2000...............
JULY 2001...............
JULY 2002...............
JULY 2003...............
JULY 2004...............
JULY 2005...............
JULY 2006...............
JULY 2007...............
JULY 2008...............
JULY 2009...............
JULY 2010...............
JULY 2011...............
JULY 2012...............
JULY 2013...............
JULY 2014...............
JULY 2015...............
JULY 2016...............
JULY 2017...............
JULY 2018...............
JULY 2019...............
JULY 2020...............
JULY 2021...............
JULY 2022...............
JULY 2023...............
JULY 2024...............
JULY 2025...............
JULY 2026...............
JULY 2027...............
JULY 2028...............
Weighted Average Life (years)
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement. The
following description supplements and, to the extent inconsistent therewith
supersedes, the description of the Agreement and the Certificates under
"Description of the Certificates" in the Prospectus and must be read together
therewith. The following summaries describe certain terms of the Agreement, do
not purport to be complete and will be subject to, and will be qualified in
their entirety by reference to, the provisions of the Agreement. When
particular provisions or terms used in the Agreement are referred to, the
actual provisions (including definitions of terms) are incorporated by
reference.
GENERAL
The Offered Certificates (other than the Class A-R Certificates) will
be issued in fully registered form only, in minimum denominations of $1,000
and integral multiples of $1 in excess thereof. The Class A-R Certificates
will be issued in definitive form as fully registered physical certificates.
Definitive Certificates, if issued, will be transferable and exchangeable at
the Corporate Trust Office of the Trustee. No service charge will be made for
any registration of exchange or transfer, but the Trustee may require payment
of a sum sufficient to cover any tax or other governmental charge.
The Trust Fund will include, among other things, (i) the Contract
Pool, including all rights to receive payments on the Contracts [[received]
[due] after the Cut-off Date whether [due] [received] before, on or after the
Cut-off Date], (ii) security interests in the related Manufactured Homes,
(iii) the amounts held from time to time in an account (the "Certificate
Account") maintained by the Trustee pursuant to the Agreement, (iv) any
property which initially secured a Contract and which is acquired in the
process of realizing thereon, including, in the case of a Land-and-Home
Contract, the underlying real property on which the Manufactured Home is
located, (v) the proceeds of all insurance policies described herein and (vi)
all proceeds of the foregoing. The Depositor will cause the Contracts and
other assets of the Trust Fund to be assigned to the Trustee or a co-trustee.
The Servicer will service the Contracts pursuant to the Agreement.
Distributions of principal and interest on the Certificates will be
made on each Distribution Date to the persons in whose names the Certificates
are registered as of the close of business on the related Record Date. With
respect to each Distribution Date, the Offered Certificates will accrue
interest during the related Interest Accrual Period. If Definitive
Certificates are issued, distributions will be made by check mailed to the
address of the person entitled thereto as it appears on the Certificate
Register, except that a holder of Offered Certificates with original
denominations aggregating at least $5 million may request payment by wire
transfer of funds pursuant to written instructions delivered to the Trustee at
least five Business Days prior to the Record Date. The final distribution in
retirement of the Certificates will be made only upon presentation and
surrender of the Certificates at the office or agency of the Trustee specified
in the final distribution notice to Certificateholders.
To the extent not previously paid prior to such dates, the
Certificate Principal Balance of each Class of Offered Certificates will be
payable on the Final Scheduled Distribution Date.
CONVEYANCE OF CONTRACTS
On the Closing Date, the Depositor will assign to the Trustee or a
co-trustee, without recourse, among other things, all right, title and
interest of the Depositor conveyed to it by [IndyMac] in, to and under the
Contracts, including all principal and interest [[received] [due] on the
Contracts after the Cut-off Date whether [due] [received] before, on or after
the Cut-off Date], and all rights under the standard hazard insurance policies
on the related Manufactured Homes. The Depositor will represent and warrant
only that it had, subject to certain assumptions, good title to, and was the
sole owner of each Contract and any related Mortgage free of any liens,
charges or encumbrances created by the Depositor.
With respect to each Contract, [IndyMac] will deliver or cause to be
delivered to the Trustee or a custodian of the Trustee, as specified in the
Agreement, (i) the original copy of the Contract; (ii) in the case of any
Contract not originated by [IndyMac or an affiliate thereof], the assignment
of the Contract from the originator to [IndyMac or such affiliate] and (iii)
any extension, modification or waiver agreement(s) relating to such Contract.
In addition, with respect to each Land-and-Home Contract, [IndyMac] will (in
addition to the delivery of documents specified in the preceding sentence)
deliver or cause to be delivered to the Trustee or a custodian of the Trustee,
as specified in the Agreement, [(i) the related Mortgage with evidence of
recording thereon,] (ii) an assignment of the Mortgage in recordable form to
the Trustee (which may be a blanket assignment if permitted in the applicable
jurisdiction) and (iii) if applicable, the power of attorney granted to the
Trustee. The assignments to the Trustee of Mortgages for Land-and-Home
Contracts will be recorded in the appropriate public office for real property
records[, except in the State of California and in states where the Seller has
reasonably determined that such recording is not required to protect the
Trustee's interest against the claim of any subsequent transferee or any
successor to or creditor of the Depositor or the Seller]. All Contracts
originated or otherwise owned by an affiliate of [IndyMac, Inc.] have been or
will be assigned to [IndyMac, Inc.] in the ordinary course of business, and
such assignment shall be delivered to the Trustee or a custodian of the
Trustee on or prior to the Closing Date. All other documents relating to such
Contract, including the [related mortgage and] original title document or
application for title for the related Manufactured Home, the credit
application, credit reports and verifications, appraisals, tax and insurance
records and payment records, will be maintained by the Servicer.
[IndyMac] will make certain representations and warranties in respect
of each Contract as of the Closing Date or other specified date, including the
following: (a) as of the Cut-off Date, no Contract was more than 29 days past
due; (b) each Contract and any related Mortgage is a legal, valid and binding
obligation of the Obligor and is enforceable in accordance with its terms
(except as may be limited by laws affecting creditors' rights generally or by
general equitable principles); (c) each Contract is covered by hazard
insurance described below under "Hazard Insurance Policies"; (d) each Contract
complies with all requirements of law; (e) each Contract creates a valid and
enforceable first priority security interest in favor of [IndyMac] in the
Manufactured Home covered thereby and such security interest and, if
applicable, the related Mortgage has been assigned (by way of individual
assignment) by [IndyMac] to the Trustee; and (f) immediately prior to the
transfer thereof to the Depositor, [IndyMac] had good and marketable title to
each Contract, free and clear of any encumbrance, equity, loan, pledge,
charge, claim or security interest, and was the sole owner and had full right
to transfer such Contract and any related Mortgage to the Depositor, no
Contract or any related Mortgage has been sold, assigned or pledged by
[IndyMac] to any person other than the Depositor and prior to the transfer of
the Contracts by [IndyMac] to the Depositor, [IndyMac] was the sole owner and
had the full right to transfer the Contract to the Depositor. Pursuant to the
Agreement, [IndyMac] will be obligated to repurchase, for the purchase price,
or substitute any Contract on the first Business Day after the first
Determination Date which is more than 90 days after [IndyMac] becomes aware,
or after [IndyMac]'s receipt of written notice from the Trustee or the
Servicer, of a breach of any representation or warranty of [IndyMac] with
respect to a Contract that materially and adversely affects the
Certificateholders' interest in such Contract if such breach has not been
cured. The "purchase price" for any Contract will be the unpaid principal
balance of such Contract plus accrued interest thereon at the applicable APR
from the date through which interest was last paid or advanced to the
scheduled payment date for such Contract in month in which such amount is to
be distributed. This repurchase obligation will constitute the sole remedy
available to the Depositor, the Trustee and the Certificateholders for a
breach of a representation or warranty under the Agreement with respect to the
Contracts.
Pursuant to the Agreement, [IndyMac] will also make certain
representations and warranties with respect to the Contracts in the aggregate,
including that the aggregate Contract Principal Balance as of the Cut-off Date
equals the Cut-off Date Principal Balance and no adverse selection procedures
were employed in selecting the Contracts.
PAYMENTS ON CONTRACTS; COLLECTION ACCOUNT; CERTIFICATE ACCOUNT
The Servicer will establish and maintain the Collection Account, and
the Trustee will establish and maintain the Certificate Account. The
Collection Account and the Certificate Account will each be maintained (i) at
a depository institution organized under the laws of the United States or any
State, the deposits of which are insured to the full extent permitted by law
by the Federal Deposit Insurance Corporation (a) the long-term deposit rating
or unsecured long-term debt of which has been assigned one of the two highest
ratings by each Rating Agency or (b) maintained with a depository institution
the short-term unsecured debt obligations of which are rated in the highest
short-term rating category by the Rating Agencies or (c) whose commercial
paper has a rating of P-1 by Moody's and, if rated by Fitch, F-1 by Fitch or
(ii) in the corporate trust department of the Trustee or (iii) at an
institution otherwise acceptable to each Rating Agency (such account, an
"Eligible Account"). Funds in the Collection Account and the Certificate
Account will be invested in Eligible Investments that will mature or be
subject to redemption not later than the Business Day immediately preceding
the Distribution Date next following the date of such investment. Eligible
Investments will include, among other things, obligations of the United States
or of any agency thereof backed by the full faith and credit of the United
States, federal funds, certificates of deposit, time deposits and bankers'
acceptances sold by eligible financial institutions, commercial paper rated
P-1 by Moody's and, if rated by Fitch, F-1 by Fitch and other obligations
acceptable to each Rating Agency.
All payments in respect of principal and interest on the Contracts
received by the Servicer (net of any servicing compensation and certain other
amounts reimbursable to the Servicer pursuant to the Agreement), including
principal prepayments and Liquidation Proceeds (net of Liquidation Expenses),
will be deposited into the Collection Account no later than the second
Business Day following [IndyMac]'s receipt thereof. Amounts received as late
payment fees, extension fees, assumption fees or similar fees will be retained
by the Servicer as additional servicing compensation. See "--Servicing
Compensation" herein and "Description of the Certificates--Servicing
Compensation and Payment of Expenses" in the Prospectus. In addition, on or
prior to the Deposit Date (as defined below) the following amounts will also
be deposited into the Collection Account: (i) the purchase price paid by
[IndyMac] for Contracts repurchased as a result of breach of a representation
or warranty under the Agreement, as described herein under "Conveyance of
Contracts," (ii) all Advances, if any, and (iii) amounts collected under
hazard insurance policies, except to the extent that they are applied to the
restoration of the related Manufactured Home or paid to the related Obligor in
accordance with the normal servicing procedures of the Servicer. From time to
time, as will be provided in the Agreement, the Servicer will also withdraw
funds from the Collection Account to make payments payable to it as permitted
by the Agreement and described in the definition of the term "Available
Distribution Amount."
On the Business Day immediately preceding each Distribution Date
(each, a "Deposit Date"), the Servicer will withdraw funds from the Collection
Account (but only to the extent of the related Available Distribution Amount)
and deposit such funds in the Certificate Account. On each Distribution Date,
the Trustee or its paying agent will withdraw funds from the Certificate
Account (but only to the extent of the related Available Distribution Amount)
to make payments to Certificateholders as described herein under
"--Distributions--Priority of Distributions."
DISTRIBUTIONS
General. Distributions will be made on each Distribution Date to
holders of record on the preceding Record Date, except that the final
distribution in respect of the Certificates will only be made upon
presentation and surrender of the Certificates at the office or agency
appointed by the Trustee for that purpose. Distributions on a Class of
Certificates will be allocated among the Certificates of such Class in
proportion to their respective Percentage Interests. In no event will the
aggregate distributions of principal to a holder of Offered Certificates
exceed the Initial Certificate Principal Balance of the related Class of
Certificates.
Each distribution with respect to an Offered Certificate held in
book-entry form will be paid to DTC, which will credit the amount of such
distribution to the accounts of its Participants in accordance with its normal
procedures. Each Participant will be responsible for disbursing such
distribution to the Certificate Owners that it represents and to each indirect
participating brokerage firm (each, a "brokerage firm" or "indirect
participating firm") for which it acts as agent. Each brokerage firm will be
responsible for disbursing funds to the Certificate Owners that it represents.
All such credits and disbursements with respect to Offered Certificates held
in book-entry form will be made by DTC and the Participants in accordance with
DTC's rules. See "--Registration of the Offered Certificates" herein.
Available Distribution Amount. On the second Business Day preceding
each Distribution Date (each, a "Determination Date"), the Servicer will
determine the Available Distribution Amount and amounts to be distributed on
the Certificates on such Distribution Date. The "Available Distribution
Amount" with respect to any Distribution Date will be an amount equal to (i)
the sum of (a) Monthly Payments of principal and interest [due] on Contracts
during the related Due Period, to the extent such payments [of interest]
[principal] [were made by the related Obligor] [or advanced by the Servicer]
and (b) unscheduled payments received with respect to the Contracts during the
related Prepayment Period, including principal prepayments, Liquidation
Proceeds (net of Liquidation Expenses) and net insurance proceeds, less (ii)
the sum of (a) the Trustee Fee, (b) the Servicing Fee and other servicing
compensation, (c) payments on Contracts that have been repurchased by
[IndyMac] as a result of a breach of a representation or warranty and any
other payments not required to be deposited in the Certificate Account, (d)
reimbursements to the Servicer for Liquidation Expenses incurred in respect of
Manufactured Homes, (e) reimbursements to the Servicer for Advances in respect
of delinquent Contracts as to which the related late Monthly Payments have
been made, Nonrecoverable Advances and Advances in respect of Liquidated
Contracts, in each case to the extent as will be permitted in the Agreement,
and (f) certain expenses reimbursable to the Depositor as will be permitted in
the Agreement.
Interest. On each Distribution Date, holders of each Class of Class A
Certificates will be entitled to receive, to the extent of the Available
Distribution Amount, (i) interest accrued on such Class during the related
Interest Accrual Period at the related Pass-Through Rate on the Certificate
Principal Balance of such Class immediately prior to that Distribution Date
(the "Interest Distribution Amount" for such Class and Distribution Date),
plus (ii) any amounts distributable under clause (i) above or this clause (ii)
on such Class on the previous Distribution Date but not previously
distributed, plus, to the extent legally permissible, interest accrued on any
such amount during the related Interest Accrual Period at the related
Pass-Through Rate (the "Carryover Interest Distribution Amount" for such Class
and Distribution Date). On each Distribution Date, holders of the Subordinate
Certificates will be entitled to receive, to the extent of the Available
Distribution Amount and on a subordinated basis as described below under
"--Priority of Distributions", (i) interest accrued on such Class during the
related Interest Accrual Period at the related Pass-Through Rate on the
Adjusted Certificate Principal Balance of such Class immediately prior to that
Distribution Date (the "Interest Distribution Amount" for such Class and
Distribution Date), plus (ii) any amounts distributable under clause (i) above
or this clause (ii) on such Class on the previous Distribution Date but not
previously distributed, plus, to the extent legally permissible, interest
accrued on any such amount during the related Interest Accrual Period at the
related Pass-Through Rate (the "Carryover Interest Distribution Amount" for
such Class and Distribution Date).
The "Interest Accrual Period" shall mean, with respect to each
Distribution Date, the calendar month preceding the month in which the
Distribution Date occurs. Interest on the Certificates will be computed on the
basis of a [360]-day year consisting of twelve [30]-day months.
For any Distribution Date, the Pass-Through Rates for the Classes of
Class A Certificates will be as set forth on the cover page hereof.
In addition, on each Distribution Date, to the extent of the
Available Distribution Amount and on a subordinated basis as described below
under "--Priority of Distributions" the holders of the Subordinate
Certificates will be entitled to receive (i) interest accrued during the
related Interest Accrual Period at the related Pass-Through Rate on any
related Liquidation Loss Amount (the "Liquidation Loss Interest Amount" for
such Class and Distribution Date), plus (ii) any amounts distributable under
clause (i) above or this clause (ii) on such Class on the previous
Distribution Date but not previously distributed, plus, to the extent legally
permissible, interest accrued on any such amount during the related Interest
Accrual Period at the related Pass-Through Rate (the "Unpaid Liquidation Loss
Interest Shortfall" for such Class and Distribution Date).
Principal. The "Formula Principal Distribution Amount" for any
Distribution Date will equal (a) the sum of: (i) the sum of the principal
components of all Monthly Payments [scheduled to be] during the related Due
Period on the Contracts that were outstanding during such Due Period
[(regardless of whether such Monthly Payments were received by the Servicer
from the related Obligors)], not including any Monthly Payments [due] on
Liquidated Contracts or repurchased Contracts; (ii) the sum of the amounts of
all Principal Prepayments received by the Servicer on the Contracts during the
related Prepayment Period; (iii) with respect to any Contract that became a
Liquidated Contract during the related Prepayment Period, the Contract
Principal Balance thereof on the date of liquidation thereof (determined
without giving effect to such liquidation); and (iv) with respect to any
Contract that was purchased or repurchased by [IndyMac] pursuant to the
Agreement during the related Prepayment Period, the Contract Principal Balance
thereof on the date of purchase or repurchase thereof (determined without
giving effect to such purchase or repurchase); less (b) the
Overcollateralization Reduction Amount, if any, for such Distribution Date.
The "Unpaid Certificate Principal Shortfall" for any Distribution Date will
be, with respect to each Class of Certificates, an amount equal to all Formula
Principal Distribution Amounts distributable on such Class on previous
Distribution Dates that have not yet been distributed on such Class of
Certificates.
The "Class A Formula Principal Distribution Amount" for any
Distribution Date will equal (i) prior to the Cross-over Date, the Formula
Principal Distribution Amount, (ii) on any Distribution Date as to which the
Principal Distribution Tests are not met, the Formula Principal Distribution
Amount, or (iii) on any other Distribution Date, the Class A Percentage of the
Formula Principal Distribution Amount. The "Class Formula Principal
Distribution Amount" for any Distribution Date will equal (i) as long as the
Class A Certificate Principal Balance has not been reduced to zero and prior
to the Cross-over Date, zero, (ii) on any Distribution Date as to which the
Principal Distribution Tests are not met and the Class A Certificate Principal
Balance has not been reduced to zero, zero, (iii) on any Distribution Date as
to which the Principal Distribution Tests are not met and the Class A
Certificate Principal Balance has been reduced to zero, the Formula Principal
Distribution Amount, or (iv) on any other Distribution Date, the Class
Percentage of the Formula Principal Distribution Amount. The "Class B-1
Formula Principal Distribution Amount" for any Distribution Date will equal
(i) as long as the Class A Certificate Principal Balance and the Class
Certificate Principal Balance have not been reduced to zero and prior to the
Cross-over Date, zero, (ii) on any Distribution Date as to which the Principal
Distribution Tests are not met and the Class A Certificate Principal Balance
and the Class Certificate Principal Balance have not been reduced to zero,
zero, (iii) on any Distribution Date as to which the Principal Distribution
Tests are not met and the Class A Certificate Principal Balance and the Class
Certificate Principal Balance each have been reduced to zero, the Formula
Principal Distribution Amount, or (iv) on any other Distribution Date, the
Class B-1 Percentage of the Formula Principal Distribution Amount. The "Class
B-2 Formula Principal Distribution Amount" for any Distribution Date will
equal (i) as long as the Class A Certificate Principal Balance, the Class
Certificate Principal Balance and the Class B-1 Certificate Principal Balance
have not been reduced to zero and prior to the Cross-over Date, zero, (ii) on
any Distribution Date as to which the Principal Distribution Tests are not met
and the Class A Certificate Principal Balance, the Class Certificate Principal
Balance and the Class B-1 Certificate Principal Balance have not been reduced
to zero, zero, (iii) on any Distribution Date as to which the Principal
Distribution Tests are not met and the Class A Certificate Principal Balance,
the Class Certificate Principal Balance and the Class B-1 Certificate
Principal Balance each have been reduced to zero, the Formula Principal
Distribution Amount, or (iv) on any other Distribution Date, the Class B-2
Percentage of the Formula Principal Distribution Amount. For any Distribution
Date, if the "Class A Formula Principal Distribution Amount", the "Class
Formula Principal Distribution Amount", the "Class B-1 Formula Principal
Distribution Amount" or the "Class B-2 Formula Principal Distribution Amount"
exceeds the Certificate Principal Balance with respect to the related Class of
Certificates, less the Unpaid Certificate Principal Shortfall with respect to
such Class and Distribution Date, then such amounts shall be allocated to the
Formula Principal Distribution Amount of the next junior Class of
Certificates. If the Class A Certificate Principal Balance, the Class
Certificate Principal Balance and the Class B-1 Certificate Principal Balance
have not been reduced to zero on or before a Distribution Date, then amounts
then allocable as the Class B-2 Formula Principal Distribution Amount shall be
allocated first to the Class B-1 Formula Principal Distribution Amount, next
to the Class Formula Principal Distribution Amount, and finally to the Class A
Formula Principal Distribution Amount, to the extent that allocation of such
amounts to the Class B-2 Formula Principal Distribution Amount would reduce
the Class B-2 Certificate Principal Balance below the Class B-2 Floor Amount.
The "Class A Percentage" for a Distribution Date will generally be
the percentage derived from the fraction (which shall not be greater than
one), the numerator of which is the Class A Certificate Principal Balance
immediately prior to such Distribution Date and the denominator of which is
the sum of the Class A Certificate Principal Balance, the Class Adjusted
Certificate Principal Balance and the Class B Adjusted Certificate Principal
Balance, each immediately prior to such Distribution Date. The "Class
Percentage" for a Distribution Date will generally be the percentage derived
from the fraction (which shall not be greater than one), the numerator of
which is the Class Adjusted Certificate Principal Balance immediately prior to
such Distribution Date and the denominator of which is the sum of the Class A
Certificate Principal Balance, the Class Adjusted Certificate Principal
Balance and the Class B Adjusted Certificate Principal Balance, each
immediately prior to such Distribution Date. The "Class B-1 Percentage" and
the "Class B-2 Percentage" for a Distribution Date will generally be
calculated in the same manner as the Class Percentage, appropriately modified
to relate to the Class B-1 or Class B-2 Certificates, as the case may be.
Priority of Distributions On each Distribution Date the Available
Distribution Amount will be distributed in the following amounts and in the
following order of priority:
a. concurrently, to each Class of Class A Certificates (a)
first, the related Interest Distribution Amount for such Distribution Date,
with the Available Distribution Amount being allocated among such Classes pro
rata based on their respective Interest Distribution Amounts and (b) second,
the related Carryover Interest Distribution Amount, if any, for such
Distribution Date, in each case with the Available Distribution Amount being
allocated among the Classes of Class A Certificates pro rata based on their
respective Carryover Interest Distribution Amounts;
b. to the Class B- Certificates, (a) first, the related
Interest Distribution Amount for such Distribution Date and (b) second, the
related Carryover Interest Distribution Amount, if any, for such Distribution
Date;
c. concurrently, to each Class of Class A Certificates, the
related Unpaid Certificate Principal Shortfall for the Class A Certificates,
if any, for such Distribution Date, allocated among the Class A Certificates
pro rata based on their respective Certificate Principal Balances;
d. to the Class A Certificates, the Class A Formula
Principal Distribution Amount allocated in the following manner and in the
following order of priority; provided, however, that on any Distribution Date
on which the Pool Balance is less than or equal to the aggregate Certificate
Principal Balance of the Class A Certificates immediately prior to such
Distribution Date, the Class A Formula Principal Distribution Amount will be
allocated among the Class A Certificates pro rata based upon their respective
Certificate Principal Balances:
(a) to the Class A-R Certificates until the Class
A-R Certificate Principal Balance has been reduced to zero;
(b) to the Class A- Certificates until the Class A-
Certificate Principal Balance has been reduced to zero; and
(c) to the Class Certificates until the Class
Certificate Principal Balance has been reduced to zero.
e. to the Class B- Certificates, (a) first, any related
Liquidation Loss Interest Amount for such Distribution Date, and (b) second,
any related Unpaid Liquidation Loss Interest Shortfall for such Distribution
Date;
f. to the Class B- Certificates, the related Unpaid
Certificate Principal Shortfall for the Class B- Certificates, if any, for
such Distribution Date;
g. to the Class B- Certificates, the Class Formula Principal
Distribution Amount, in reduction of the Certificate Principal Balance of such
Class, until it is reduced to zero;
h. to the Class Certificates, (a) first, any related
Liquidation Loss Interest Amount for such Distribution Date, and (b) second,
any related Unpaid Liquidation Loss Interest Shortfall for such Distribution
Date;
i. to the Class Certificates, the related Unpaid Certificate
Principal Shortfall for the Class Certificates, if any, for such Distribution
Date;
j. to the Class Certificates, the Class Formula Principal
Distribution Amount, in reduction of the Certificate Principal Balance of such
Class, until it is reduced to zero;
k. to the Servicer, an additional servicing fee equal to
one-twelfth of the product of % and the Pool Balance at the beginning of the
related Due Period; and
l. any remainder to the Class A-R Certificates.
The "Cross-over Date" will be the later to occur of (i) the
Distribution Date occurring in _________, 20 or (ii) the first Distribution
Date on which the percentage equivalent of a fraction (which shall not be
greater than one) the numerator of which is the aggregate Adjusted Certificate
Balance of the Subordinate Certificates plus the Current Overcollateralization
Amount for such Distribution Date and the denominator of which is the Pool
Balance on such Distribution Date, equals or exceeds ____ times the percentage
equivalent of a fraction (which shall not be greater than one) the numerator
of which is the aggregate Initial Certificate Principal Balance of the
Subordinate Certificates and the denominator of which is the Cut-off Date
Principal Balance.
The "Principal Distribution Tests" will be met in respect of a
Distribution Date if the following conditions are satisfied: (i) the Average
Sixty-Day Delinquency Ratio (as defined in the Agreement) as of such
Distribution Date does not exceed ____%; (ii) the Average Thirty-Day
Delinquency Ratio (as defined in the Agreement) as of such Distribution Date
does not exceed ____%; (iii) the Cumulative Realized Losses (as defined in the
Agreement) as of such Distribution Date do not exceed a certain specified
percentage of the original Pool Balance, depending on the year in which such
Distribution Date occurs; and (iv) the Current Realized Loss Ratio (as defined
in the Agreement) as of such Distribution Date does not exceed ____%. The
Average Sixty-Day Delinquency Ratio and the Average Thirty-Day Delinquency
Ratio will, in general, be the ratios of the average of the Contract Principal
Balances delinquent 60 days or more and 30 days or more, respectively, for the
preceding three calendar months to the average Pool Balance for such periods.
Cumulative Realized Losses will, in general, be the aggregate Realized Losses
incurred in respect of Liquidated Contracts since the Cut-off Date. The
Current Realized Loss Ratio will, in general, be the ratio of the aggregate
Realized Losses incurred on Liquidated Contracts for the periods specified in
the Agreement to an average Pool Balance specified in the Agreement.
The "Pool Balance" for any Distribution Date will be equal to (i) the
Cut-off Date Principal Balance, less (ii) the aggregate of the Formula
Principal Distribution Amounts (without subtracting therefrom any
Overcollateralization Reduction Amount) for such Distribution Date and all
prior Distribution Dates. The "Certificate Principal Balance" of each Class of
Certificates will be its Initial Certificate Principal Balance reduced by all
distributions in respect of principal on such Class.
REALIZED LOSSES ON LIQUIDATED CONTRACTS
The Formula Principal Distribution Amount for any Distribution Date
is intended to include the Contract Principal Balance of each Contract that
became a Liquidated Contract during the related Prepayment Period. A Realized
Loss will be incurred on a Liquidated Contract in the amount, if any, by which
the Liquidation Proceeds, net of Liquidation Expenses, from such Liquidated
Contract are less than the Contract Principal Balance of such Liquidated
Contract, plus accrued and unpaid interest thereon, plus amounts reimbursable
to the Servicer for previously unreimbursed Advances. To the extent that the
amount of the Realized Loss is not covered by interest collected on the
nondefaulted Contracts in excess of certain interest payments due to be
distributed on the Class A, Class and Class B Certificates and any portion of
such interest required to be paid to the Trustee and Servicer as compensation,
the amount of such Realized Loss may be allocated first, to reduce the Current
Overcollateralization Amount, and then to the Subordinate Certificates. See
"--Allocation of Liquidation Loss Amounts".
ALLOCATION OF LIQUIDATION LOSS AMOUNTS
The "Liquidation Loss Amount" for any Distribution Date will be the
amount, if any, by which the aggregate Certificate Principal Balance of all
Certificates (after giving effect to the distributions made on the immediately
preceding Distribution Date) exceeds the Pool Balance for such immediately
preceding Distribution Date. The Liquidation Loss Amount will be allocated
among the Classes of Subordinate Certificates in order of reverse numerical
designation.
SUBORDINATION OF THE SUBORDINATE CERTIFICATES
Credit support for the Class A Certificates will be provided by the
subordination of the Subordinate Certificates, effected by the allocation of
Liquidation Loss Amounts as described herein and by the preferential
application of the Available Distribution Amount to the Class A Certificates
relative to the Subordinate Certificates to the extent described herein. The
primary credit support for the Class Certificates will be the subordination of
the Class B, effected by the allocation of Liquidation Loss Amounts as
described herein and by the preferential allocation of the Available
Distribution Amount to the Class Certificates relative to the Class B
Certificates to the extent described herein. The primary credit support for
the Class B- Certificates will be the subordination of the Class B- , effected
by the allocation of Liquidation Loss Amounts as described herein and by the
preferential allocation of the Available Distribution Amount to the Class B-
Certificates relative to the Class B- to the extent described herein. See
"--Distributions--Priority of Distributions" above.
OVERCOLLATERALIZATION
Excess interest collections will be applied, to the extent available,
to make accelerated payments of principal to the Certificates. The
"Accelerated Principal Distribution Amount" for any Distribution Date will be
the positive difference, if any, between the Target Overcollateralization
Amount and the Current Overcollateralization Amount. The
"Overcollateralization Reduction Amount" for any Distribution Date will be the
positive difference, if any, between the Current Overcollateralization Amount
and the Target Overcollateralization Amount. The "Current
Overcollateralization Amount" will mean, for any Distribution Date, the
positive difference, if any, between the Pool Balance and the sum of the
Certificate Principal Balances of all then-outstanding Classes of
Certificates. The "Target Overcollateralization Amount" will mean (i) for any
Distribution Date prior to the Cross-over Date, ____% of the Cut-off Date
Principal Balance and (ii) for any other Distribution Date, the lesser of (a)
____% of the Cut-off Date Principal Balance and (b) ____% of the
then-outstanding Pool Balance; provided, however, that so long as any Class of
Certificates is outstanding the Target Overcollateralization Amount will not
be less than ____% of the Cut-off Date Principal Balance.
ADVANCES
On each Deposit Date, the Servicer will be required to make an
advance to the Trust in respect of the related Due Period and each Contract,
the amount, if any, of the related [Monthly Payment] [allocable to interest]
that was not timely made (each, an "Advance"), except that the Servicer will
not be required to make any Advance that the Servicer believes is not or if
made would not be, ultimately recoverable from future payments made on the
related Contracts, Liquidation Proceeds or otherwise (a "Nonrecoverable
Advance"). [The Servicer will not make any Advances with respect to delinquent
principal payments on the Contracts.] On each Distribution Date, the Servicer
will be entitled to reimbursement from collections of late Monthly Payments in
respect of any Advances made and not previously reimbursed. An Advance in
respect of any Due Period will not exceed the amount of [principal and
interest] that would have been paid on or in respect of the Contracts during
the related Due Period assuming that [all Monthly Payments] were received by
the Servicer on the related Due Dates.
Advances are intended to maintain a regular flow of scheduled
payments [of interest] to Certificateholders rather than to guarantee or
insure against losses. The Servicer will reimburse itself for Advances out of
collections of late Monthly Payments. In addition, upon the determination that
a Nonrecoverable Advance has been made in respect of a Contract or upon a
Contract becoming a Liquidated Contract, the Servicer will reimburse itself
out of funds in the Collection Account for the Advances on such Contract
(exclusive of any Advances that were recovered out of Liquidation Proceeds for
the related Contract).
COMPENSATING INTEREST
When an Obligor prepays a Contract between Due Dates, the Obligor is
required to pay interest on the amount prepaid only to the date of prepayment
and not thereafter. Pursuant to the Agreement, so long as [IndyMac] is the
Servicer, the Servicing Fee for any month will be reduced by an amount with
respect to each prepaid Contract sufficient to pass through to
Certificateholders the full amount of interest to which they would be entitled
in respect of such Contract on the related Distribution Date (the
"Compensating Interest"). If shortfalls in interest as a result of prepayments
in any Prepayment Period exceed in the aggregate the amount of the Servicing
Fee for such Distribution Date, the amount of interest available to be
distributed to Certificateholders will be reduced by the amount of such excess
and [IndyMac] will have no obligation to reimburse such shortfall.
REPORTS TO CERTIFICATEHOLDERS
The Trustee will include with each distribution to each
Certificateholder a statement as of the related Distribution Date setting
forth, among other things:
(i) the aggregate amount distributed on each Class of
Certificates, separately identifying the portion thereof which constitutes
principal and interest;
(ii) the Interest Distribution Amount, Carryover Interest
Distribution Amount, Liquidation Loss Interest Amount and Unpaid Liquidation
Loss Interest Shortfall in respect of each Class of Certificates;
(iii) the Formula Principal Distribution Amount and Unpaid
Certificate Principal Shortfall in respect of each Class of Certificates;
(iv) the Accelerated Principal Distribution Amount,
Overcollateralization Reduction Amount, Target Overcollateralization Amount
and Current Overcollateralization Amount;
(v) the Class A- , Class , Class A-R, Class B- and Class
Certificate Principal Balances, after giving effect to the distributions of
principal made on such Distribution Date;
(vi) the Adjusted Certificate Principal Balance of the
Class B- and Class Certificates, after giving effect to the distributions of
principal and allocation of Liquidation Loss Amounts made on such Distribution
Date;
(vii) the number of and aggregate Contract Principal
Balances of Contracts with payments delinquent 31 to 59, 60 to 89 and 90 or
more days, respectively;
(viii) the number of and aggregate Contract Principal
Balances of Contracts relating to Manufactured Homes that were repossessed
since the immediately preceding Distribution Date;
(ix) [the aggregate Realized Losses and the Cumulative
Realized Losses for such Distribution Date]; and
(x) the amount of fees payable out of the Trust Fund.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee will furnish a report to each Certificateholder of
record at any time during such calendar year as to, among other things, the
aggregate of interest and principal reported pursuant to clause (i) for such
calendar year.
TERMINATION
The Agreement will provide that on any Distribution Date on or after
the first Distribution Date as of which the Pool Balance is less than 10% of
the Cut-off Date Principal Balance, the Depositor and the Servicer will each
have the option to repurchase all outstanding Contracts and all other property
of the Trust Fund at a price equal to the sum of (a) 100% of the unpaid
principal balance as of the final Distribution Date, and (b) the lesser of (i)
the fair market value of any REO Property (as determined by the Depositor or
the Servicer, as the case may be) and (ii) the unpaid principal balance of
each Contract related to any REO Property, plus, in each case, any unpaid
interest on the Certificates due on prior Distribution Dates, together with
interest thereon, to the extent legally permissible, at the related
Pass-Through Rate on the unpaid principal balance (including any Contract as
to which the related Manufactured Home has been repossessed and not yet
disposed of). Notwithstanding the foregoing, the foregoing option will not be
exercisable unless there will be distributed to the Certificateholders an
amount equal to 100% of the Certificate Principal Balance of each Certificate
plus one month's interest thereon at the related Pass-Through Rate, any
previously undistributed shortfalls in interest due thereon, together with
interest thereon, to the extent legally permissible, at the related
Pass-Through Rate, and any unpaid Liquidation Loss Interest Amounts. The
Servicer shall have the prior right to exercise the option to purchase the
Contracts as described above if both the Depositor and the Servicer desire to
exercise such option.
If neither the Depositor nor the Servicer exercises its optional
termination right within 90 days after it first becomes eligible to do so, the
Trustee will solicit bids for the purchase of all Contracts and other property
in the Trust Fund. A BID WILL BE CONSIDERED SATISFACTORY AND THE Trustee will
sell such Contracts and other property only if the net proceeds to the Trust
from such sale would at least equal the Termination Price. If the net proceeds
from such sale would not at least equal the Termination Price, the Trustee
will decline to sell the Contracts and other property of the Trust and will
not be under any obligation to solicit any further bids or otherwise negotiate
any further sale of the Contracts and other property of the Trust.
The "Termination Price" will equal the sum of (1) any Liquidation
Expenses incurred by the Servicer in respect of any Contract that has not yet
been liquidated, (2) all amounts required to be reimbursed or paid to the
Servicer in respect of previously unreimbursed Advances and (3) the greater of
(a) the sum of (i) the aggregate Contract Principal Balance, plus accrued and
unpaid interest thereon at the related APRs through the end of the Due Period
immediately preceding the Due Period in which the terminating purchase will
occur, plus (ii) the lesser of (A) the aggregate Contract Principal Balance of
each Contract that had been secured by any Manufactured Home acquired by the
Servicer in a repossession or foreclosure (each, an "REO Property") remaining
in the Trust, plus accrued interest thereon at the related APR through the end
of the Due Period immediately preceding the Due Period in which the
terminating purchase will occur, and (B) the current appraised value of any
such REO Property (net of Liquidation Expenses to be incurred in connection
with the disposition of such property estimated in good faith by the
Servicer), such appraisal to be conducted by an appraiser mutually agreed upon
by the Servicer and the Trustee, plus all previously unreimbursed Advances
made in respect of such REO Property, and (b) the aggregate fair market value
of the Trust Fund (as determined by the Servicer as will be described in the
Agreement) plus all previously unreimbursed Advances. The fair market value of
the assets of the Trust as determined for purposes of a terminating purchase
will be deemed to include accrued interest at the applicable APR on the
Contract Principal Balance (including any Contract that had been secured by a
REO Property, which REO Property has not yet been disposed of by the Servicer)
through the end of the Due Period immediately preceding the Due Period in
which the terminating purchase will occur. The basis for any such valuation
shall be furnished by the Servicer to the Certificateholders upon request.
On the date of any termination of the Trust, the Termination Price
will be distributed (i) first to the Servicer to reimburse it for all
previously unreimbursed Liquidation Expenses and Advances and (ii) second to
the Certificateholders in accordance with the distribution priorities set
forth herein under "--Distributions--Priority of Distributions." Upon the
termination of the Trust and payment of all amounts due on the Certificates
and all administrative expenses associated with the Trust, any remaining
assets of the Trust will be sold and the proceeds distributed to the holders
of the Class A-R Certificates in accordance with the Agreement.
TERMINATION OF AGREEMENT
The Agreement will terminate upon the last action required to be
taken by the Trustee on the final Distribution Date following the earliest to
occur of (i) the purchase by the Depositor or the Servicer of all Contracts
and all other property in the Trust Fund as described herein under
"--Termination," (ii) the sale of the Contracts and other property in the
Trust Fund by the Trustee as described herein under "--Termination" or (iii)
the final payment or other liquidation (or any Advance with respect thereto)
of the last Contract remaining in the Trust Fund or the disposition of all
property acquired upon repossession of any Manufactured Home.
Upon presentation and surrender of the Offered Certificates, the
Trustee will cause to be distributed, to the extent of funds available, to
Certificateholders on the final Distribution Date in proportion to their
respective Percentage Interests an amount equal to the respective Certificate
Principal Balances of the Offered Certificates, together with any unpaid
interest on such Offered Certificates due on prior Distribution Dates,
together with interest thereon, to the extent legally permissible, at the
related Pass-Through Rate, and any Liquidation Loss Interest Amounts for such
Class and one month's interest at the applicable Pass-Through Rate on such
unpaid Certificate Principal Balances; provided that such funds will be
distributed in the applicable order of priority specified herein under
"--Distributions--Priority of Distributions." If the Agreement is then being
terminated, any amount which remains on deposit in the Certificate Account
(other than amounts retained to meet claims) after distribution to the holders
of the Certificates will be distributed to the Class A-R Certificateholders in
accordance with the Agreement.
SERVICING COMPENSATION
For its servicing of the Contracts, on each Distribution Date (i) the
Servicer will be entitled to receive a monthly servicing fee equal to
one-twelfth of the product of 1.00% and the Pool Balance as of the first day
of the related Due Period (the "Servicing Fee"), whether or not the related
payments on the Contracts are received and (ii) as additional servicing
compensation, the Servicer will receive amounts pursuant to clause (xviii)
under "Description of the Certificates--Distributions--Priority of
Distributions." See "--Payments on Contracts; Collection Account; Certificate
Account" herein.
The Servicer will also be entitled to retain, as compensation for the
additional services provided in connection with the performance of its
servicing obligations under the Agreement, any fees for late payments made by
Obligors, extension fees paid by Obligors for the extension of scheduled
payments and assumption and similar fees for permitted assumptions of
Contracts by purchasers of the related Manufactured Homes. The Servicer also
will be entitled to retain as additional servicing compensation amounts in
respect of interest on principal prepayments in full of a Contract received
after the Contract's Due Date during any Prepayment Period, but,
correspondingly, its Servicing Fee will be reduced by amounts in respect of
interest on principal prepayments in full of a Contract received in advance of
the Contract's Due Date during such Prepayment Period.
COMPENSATION OF THE TRUSTEE
For its services, on each Distribution Date the Trustee will be
entitled to receive a monthly trustee fee as described in the Agreement (the
"Trustee Fee").
CERTAIN OTHER MATTERS REGARDING THE SERVICER
Any person with which the Servicer is merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which
the Servicer is a party, or any person succeeding to the business of the
Servicer, will be the successor to the Servicer under the Agreement, so long
as such successor has a net worth of at least $10 million and has serviced at
least $100 million of manufactured housing contracts for at least one year.
HAZARD INSURANCE POLICIES
The Servicer will be obligated to cause to be maintained one or more
hazard insurance policies with respect to each Manufactured Home (other than
any Manufactured Home in repossession) in an amount at least equal to the
lesser of its maximum insurable value or the principal amount due from the
Obligor under the related Contract. Such hazard insurance policies will, at a
minimum, provide fire and extended coverage on terms and conditions customary
in manufactured housing hazard insurance policies, with customary deductible
amounts.
All amounts collected by the Servicer under a hazard insurance policy
will be applied either to the restoration or repair of the related
Manufactured Home or against the principal balance of the related Contract
upon repossession of such Manufactured Home, after reimbursing the Servicer
for amounts previously advanced by it for such purposes. The Servicer may
satisfy its obligation to maintain hazard insurance policies by maintaining a
blanket policy insuring against hazard losses on all the Manufactured Homes.
Such blanket policy may contain a deductible clause, in which case the
Servicer will be required to make payments to the Trust Fund in the amount of
any deductible amounts in connection with insurance claims on repossessed
Manufactured Homes. See "Description of the Certificates-- Standard Hazard
Insurance" and "The Agreements--Hazard Insurance" in the Prospectus.
If the Servicer repossesses a Manufactured Home on behalf of the
Trustee, the Servicer will be required to either maintain a hazard insurance
policy with respect to such Manufactured Home meeting the requirements set
forth above, or to indemnify the Trust against any damage to such Manufactured
Home prior to resale or other disposition.
EVIDENCE AS TO COMPLIANCE
The Servicer will be required to deliver to the Trustee on or before
March 31 of each year, beginning March 31, ____, an officer's certificate
executed by an officer of the Servicer stating that (i) a review of the
activities of the Servicer during the preceding calendar year (or shorter
period in the case of the first such officer's certificate) and of performance
under the Agreement has been made under the supervision of such officer, and
(ii) to the best of such officer's knowledge, the Servicer has fulfilled all
its obligations under the Agreement throughout such year (or shorter period in
the case of the first such officer's certificate), or, if there has been a
default in the fulfillment of any such obligation, specifying each such
default known to such officer and the nature and status thereof. Such
officer's certificate will be accompanied by a statement of a firm of
independent public accountants to the effect that, on the basis of an
examination of certain documents and records relating to servicing of the
Contracts under the Agreement, conducted in accordance with generally accepted
auditing standards or such other audit or review program used by the Servicer,
the Servicer's servicing has been conducted in compliance with the provisions
of the Agreement (or such agreements), except for (i) such exceptions as such
firm believes to be immaterial and (ii) such other exceptions as may be set
forth in such statement.
EVENTS OF DEFAULT
"Events of Default" under the Agreement will consist of (i) any
failure by the Servicer to make any deposit or payment required of it under
the Agreement which continues unremedied for five days after the giving of
written notice of such failure; (ii) any failure by the Servicer duly to
observe or perform in any material respect any of its other covenants or
agreements in the Agreement that materially affects the rights of the
Certificateholders which continues unremedied for 60 days after the giving of
written notice of such failure or breach; and (iii) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
other similar proceedings regarding the Servicer. "Notice" as used in this
paragraph will mean notice to the Servicer by the Trustee or the Depositor, or
to the Servicer, the Trustee and the Depositor by the Holders of Certificates
evidencing, in the aggregate, interests ("Fractional Interests") at least
equal to 25% of the principal balance of all Certificates. The foregoing
description of Events of Default replaces the description under "The
Agreements--Events of Default; Rights Upon Event of Default" in the
Prospectus.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default remains unremedied, the Trustee may,
and at the written direction of the Holders of Certificates evidencing
Fractional Interests aggregating not less than 66 2/3% shall, terminate all of
the rights and obligations of the Servicer under the Agreement and in and to
the related Contracts, whereupon (i) (subject to applicable law regarding the
Trustee's ability to make Advances) the Trustee or (ii) a successor Servicer
appointed by the Trustee with a net worth of at least $10 million that has
serviced at least $100 million of manufactured housing contracts for at least
one year will succeed to all the responsibilities, duties and liabilities of
the Servicer under the Agreement and will be entitled to similar compensation
arrangements. If, however, a bankruptcy trustee or similar official has been
appointed for the Servicer, and no Event of Default other than such
appointment has occurred, such trustee or official may have the power to
prevent the Trustee or such Certificateholders from effecting a transfer of
servicing. If the Trustee is obligated to succeed the Servicer but is
unwilling or unable so to act, it may appoint, or petition a court of
competent jurisdiction for the appointment of, a successor Servicer as
described above. Pending such appointment, the Trustee will be obligated to
act in such capacity. The Trustee and such successor Servicer may agree upon
the servicing compensation to be paid, which in no event may be greater than a
monthly amount specified in the Agreement.
AMENDMENT
The Agreement may be amended by the Depositor, the Servicer and the
Trustee without the consent of any the Certificateholders (i) to cure any
mistake or ambiguity, (ii) to correct any defective provision therein or to
supplement any provision therein that may be inconsistent with any other
provision therein, (iii) to add to the duties of the Depositor, the Seller or
the Servicer, (iv) to add any other provisions with respect to matters or
questions arising thereunder or (v) to modify alter, amend, add to or rescind
any of the provisions contained in the Agreement; provided, however, that in
the case of clause (iv) or (v), any such action will not, as evidenced by an
opinion of counsel (which opinion of counsel shall not be an expense of the
Trustee or the Trust Fund), adversely affect in any material respect the
interests of any Certificateholder; provided further that no such opinion of
counsel shall be required if the Person requesting the amendment obtains a
letter from each Rating Agency stating that the amendment would not result in
the downgrading or withdrawal of the respective ratings then assigned to the
Certificates; it being understood and agreed that any such letter in and of
itself will not represent a determination as to the materiality of any such
amendment and will represent a determination only as to the credit issues
affecting any such rating. The Agreement may also be amended, by the
Depositor, the Servicer and the Trustee with the consent of more than 50% (by
Certificate Principal Balance) of the Holders of Certificates of each Class
affected thereby for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the Agreement or of
modifying in any manner the rights of the Certificateholders; provided,
however, that no such amendment shall (i) reduce in any manner the amount of,
or delay the timing of, any distributions on any Certificate, without the
consent of the Holder of such Certificate, (ii) adversely affect in any
material respect the interests of the Holders of any Class of Certificates in
a manner other than as described in (i), without the consent of the Holders of
Certificates of such Class evidencing, as to such Class, at least 66 2/3% (by
Certificate Principal Balance) of the Certificates of such Class, or (iii)
reduce the aforesaid percentages of Certificates the Holders of which are
required to consent to any such amendment, without the consent of the Holders
of all such Certificates then outstanding.
The Trustee, the Depositor and the Servicer also may at any time and
from time to time amend the Agreement without the consent of the
Certificateholders to modify, eliminate or add to any of its provisions to
such extent as shall be necessary or helpful to (i) maintain the qualification
of either REMIC as a REMIC under the Code, (ii) avoid or minimize the risk of
the imposition of any tax on either REMIC pursuant to the Code that would be a
claim at any time prior to the final redemption of the Certificates or (iii)
comply with any other requirements of the Code, provided that the Trustee has
been provided an opinion of counsel, which opinion shall be an expense of the
party requesting such opinion but in any case shall not be an expense of the
Trustee or the Trust Fund, to the effect that such action is necessary or
helpful to, as applicable, (i) maintain such qualification, (ii) avoid or
minimize the risk of the imposition of such a tax or (iii) comply with any
such requirements of the Code.
VOTING
The Agreement will provide that, solely for the purposes of giving
any consent, notice, waiver, request or demand pursuant to the Agreement, any
Certificate registered in the name of the Depositor, the Servicer or any
affiliate of the Servicer and any Certificate in respect of which the Servicer
or any affiliate thereof is the Certificate Owner shall be deemed not to be
outstanding and the Percentage Interest and Fractional Interest evidenced
thereby shall not be taken into account in determining whether the requisite
amount of Percentage Interests or Fractional Interests necessary to effect
such consent, notice, waiver, request or demand has been obtained, unless, in
the case of (i) the Class A Certificates, all Class A Certificates are held by
such persons, (ii) the Class Certificates, all Class A Certificates and Class
Certificates are held by such persons or (iii) the Class B Certificates, all
Certificates are held by such persons, or, in each case, the Certificates of
the related Class or Classes have been fully paid.
THE TRUSTEE
____________________, a banking corporation organized under the laws
of _____________________, will be the Trustee. Its "Corporate Trust Office" is
located at ___________________________________, telephone (___) ___-____. The
Depositor, [IndyMac] and their respective affiliates may engage in commercial
transactions with the Trustee from time to time.
The Trustee may resign at any time, in which event the Depositor will
be obligated to appoint a successor Trustee. The Depositor may remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent. In such circumstances, the
Depositor will also be obligated to appoint a successor Trustee. In addition,
the Holders of Class A Certificates or, after the Certificate Principal
Balance of each Class of Class A Certificates has been reduced to zero,
Holders of Class and Class B Certificates evidencing Fractional Interests of
more than 50% of the Class A or the Class and Class B Certificates, as the
case may be, may remove the Trustee at any time and appoint a successor
Trustee. Any resignation or removal of the Trustee and appointment of a
successor Trustee will not become effective until acceptance of the
appointment by the successor Trustee.
REGISTRATION OF THE OFFERED CERTIFICATES
The Class A- , Class , Class B- and Class Certificates. The Offered
Certificates other than the Class A-R Certificates will be book-entry
Certificates (the "Book-Entry Certificates"). Certificate Owners will hold
their Offered Certificates through DTC if they are participants of such
systems, or indirectly through organizations which are participants in such
systems. The Book-Entry Certificates will be issued as one or more
certificates with aggregate principal balances equal to the aggregate
principal balance of the Offered Certificates and will initially be registered
in the name of Cede & Co., the nominee of DTC. Investors may hold beneficial
interests in the Book-Entry Certificates in minimum denominations of $1,000.
Except as described below, no person acquiring a Book-Entry Certificate will
be entitled to receive a physical certificate representing such Certificate (a
"Definitive Certificate"). Unless and until Definitive Certificates are
issued, it is anticipated that the only "Certificateholder" of the Offered
Certificates will be Cede & Co., as nominee of DTC. Certificate Owners will
not be Certificateholders as that term will be used in the Agreement.
Certificate Owners will be permitted to exercise their rights only indirectly
through DTC and its participating members (the "DTC Participants").
A Certificate Owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or
other financial intermediary (each, a "Financial Intermediary") that maintains
the beneficial 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 Certificate Owner's Financial Intermediary is not a DTC
Participant).
Certificate Owners will receive all distributions of principal of and
interest on the Offered Certificates from the Trustee through DTC and DTC
Participants. While the Offered Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "DTC Rules"), DTC is
required to make book-entry transfers among DTC Participants on whose behalf
it acts with respect to the Offered Certificates and is required to receive
and transmit distributions of principal of, and interest on, the Offered
Certificates. DTC Participants and indirect participants with whom Certificate
Owners have accounts with respect to Offered Certificates will similarly be
required to make book-entry transfers and receive and transmit such
distributions on behalf of their respective Certificate Owners. Accordingly,
although Certificate Owners will not possess certificates representing their
respective interests in the Offered Certificates, the DTC Rules provide a
mechanism by which Certificate Owners will receive distributions and will be
able to transfer their interests.
Certificateholders 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, Certificateholders who are not
DTC Participants may transfer ownership of Offered Certificates only through
DTC Participants and indirect participants by instructing such DTC
Participants and indirect participants to transfer Offered Certificates, by
book-entry transfer, through DTC for the account of the purchasers of such
Offered Certificates, which account is maintained with their respective DTC
Participants. Under the DTC Rules and in accordance with DTC's normal
procedures, transfers of ownership of Offered Certificates will be executed
through DTC and the accounts of the respective DTC Participants will be
debited and credited. Similarly, the DTC Participants and indirect
participants will make debits or credits, as the case may be, on their records
on behalf of selling and purchasing Certificateholders.
Transfers between DTC Participants will occur in accordance with DTC
Rules.
DTC, which is a New York-chartered limited purpose trust company,
performs services for its participants, some of which (and/or their
representatives) own DTC. In accordance with its normal procedures, DTC is
expected to record the positions held by each DTC Participant in the
Book-Entry 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 DTC Rules as in effect from time to time.
Distributions on Book-Entry Certificates will be made on each
Distribution 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 payments to the beneficial owners of the
Book-Entry Certificates that it represents and to each Financial Intermediary
for which it acts as agent. Each such Financial Intermediary will be
responsible for disbursing funds to the beneficial owners of the Book-Entry
Certificates that it represents.
Under a book-entry format, beneficial owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since
such payments will be forwarded by the Trustee to Cede & Co. 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 DTC 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 the
Offered Certificates in the secondary market since certain potential investors
may be unwilling to purchase Offered Certificates for which they cannot obtain
physical certificates. See "Risk Factors--Limited Liquidity" herein.
Monthly and annual reports on the Trust will be provided to Cede &
Co., as nominee of DTC, and may be made available by Cede & Co. to Certificate
Owners upon request, in accordance with the rules, regulations and procedures
creating and affecting the Depository, and to the Financial Intermediaries to
whose DTC accounts the Book-Entry Certificates of such Certificate Owners are
credited.
DTC has advised the Trustee that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by the
holders of the Book-Entry Certificates under the 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. DTC may take actions, at the 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 Depositor advises the Trustee in writing that DTC is no longer
willing, qualified or able to discharge properly its responsibilities as
nominee and depository with respect to the Book-Entry Certificates and the
Depositor or the Trustee is unable to locate a qualified successor, (b) the
Depositor, at its sole option, with the consent of the Trustee, elects to
terminate the book-entry system through DTC or (c) after the occurrence of an
Event of Default, Certificate Owners having Fractional Interests aggregating
not less than 51% of the Book-Entry Certificates advise the Trustee and DTC
through the Financial Intermediaries and the DTC Participants in writing that
the continuation of a book-entry system through DTC (or a successor thereto)
is no longer in the best interests of Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all Certificate
Owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of Offered Certificates among participants of DTC, it
will be under no obligation to perform or continue to perform such procedures
and such procedures may be discontinued at any time.
Neither the Depositor, the Servicer nor the Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Certificates held
by Cede & Co., as nominee for DTC, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
The Class A-R Certificates. The Class A-R Certificates will be issued
in definitive form as one fully registered physical certificate representing
the entire Class A-R Certificate Principal Balance. The certificates
representing the Class A-R Certificates will be subject to certain transfer
restrictions. See "ERISA Considerations--The Class A-R Certificates" herein
and "ERISA Considerations" in the Prospectus.
USE OF PROCEEDS
Substantially all of the net proceeds to be received by the Depositor
from the sale of the Offered Certificates will be used to purchase the
Contracts from [IndyMac], to pay the costs, if any, of carrying the Contracts
until sale of the Offered Certificates and to pay other expenses connected
with pooling the Contracts, issuing the Certificates and selling the Offered
Certificates.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
An election will be made to treat the Contract Pool and certain other
assets of the Trust as a REMIC for federal income tax purposes (the "Pooling
REMIC"). An election also will be made to treat the "regular interests" in the
Pooling REMIC and certain other assets of the Trust as another REMIC for
federal income tax purposes (the "Issuing REMIC"). The Regular Certificates
will be designated as "regular interests" in the Issuing REMIC and the Class
A-R Certificates will represent the beneficial ownership of the "residual
interest" in each of the Pooling REMIC and the Issuing REMIC. In order for the
REMIC standards to be met, substantially all of the assets of the Trust must
consist of qualified mortgages or permitted investments. Section 860G(a)(3) of
the Code contains the definition of "qualified mortgages" for REMIC purposes.
The regulations promulgated by the Internal Revenue Service under Sections
860A through 860G of the Code provide that obligations secured by interests in
manufactured housing that qualify as "single family residences" within the
meaning of Section 25(e)(10) of the Code may be treated as qualified mortgages
of the REMIC. Under Section 25(e)(10), the term "single family residence"
includes any manufactured home which has a minimum of 400 square feet of
living space and a minimum width in excess of 102 inches and which is of a
kind customarily used in a fixed location. Accordingly, assuming a timely
election to be treated as a REMIC is made and further assuming the compliance
by the Trust Fund with all the terms of the Agreement, Brown & Wood LLP will
be of the opinion that (i) the Pooling REMIC and the Issuing REMIC will
qualify as a REMIC within the meaning of the Code, (ii) the Class A (other
than the Class A-R Certificates), Class and Class B Certificates will
constitute "regular interests" in the Issuing REMIC and (iii) the Class A-R
Certificates will constitute the sole class of "residual interests" in each of
the Pooling REMIC and the Issuing REMIC.
Because the Offered Certificates (other than the Class A-R
Certificates) will be considered REMIC regular interests, they will be taxable
debt obligations under the Internal Revenue Code of 1986, as amended (the
"Code"), and interest paid or accrued on such Certificates, including any
original issue discount will be taxable to the holders of such Certificates in
accordance with the accrual method of accounting, regardless of such
Certificateholders' usual methods of accounting. Each of the Class A
Certificates bears interest at a [fixed rate] and, therefore, each Class
(other than the Class A-R Certificates) will be issued with original issue
discount only if its stated principal amount exceeds its issue price by more
than a statutorily defined de minimis amount. The Class B- Certificates will
not be treated by the Trust as "variable rate debt instruments" as defined in
Treasury Regulations promulgated under the Code and, therefore, will be
treated as issued with original issue discount as described in "Federal Income
Tax Consequences" in the Prospectus. For purposes of determining the amount
and the rate of accrual of original issue discount and market discount, the
Depositor intends to assume that there will be prepayments on the Contracts at
a rate equal to ___% of the Prepayment Model. No representation is made as to
whether the Contracts will prepay at that rate or any other rate. See "Certain
Federal Income Tax Consequences" herein and "Federal Income Tax Consequences"
in the Prospectus.
The Offered Certificates will be treated as (i) assets described in
Section 7701(a)(19)(C) of the Code and (ii) "real estate assets" within the
meaning of Section 856(c)(5) of the Code, in each case to the extent described
in the Prospectus. Interest on the Offered Certificates 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 to the same extent that the
Offered Certificates are treated as real estate assets. See "Federal Income Tax
Consequences" in the Prospectus.
ORIGINAL ISSUE DISCOUNT
The Offered Certificates (other than the Class A-R Certificates) may
be issued with original issue discount for federal income tax purposes. For
purposes of determining the amount and the rate of accrual of original issue
discount and market discount, the Depositor intends to assume that there will
be prepayments on the Contracts at a rate equal to ___% of the Prepayment
Model. No representation is made as to whether the Contracts will prepay at
that rate or any other rate. See "Yield and Prepayment Considerations" herein
and "Federal Income Tax Consequences" in the Prospectus.
EFFECT OF LOSSES AND DELINQUENCIES
As described herein under "Description of the Certificates," the
Class B Certificates will be subordinated to the Senior Certificates. In the
event there are losses or delinquencies on the Contracts, amounts that
otherwise would be distributed on the Class B-1 Certificates may instead be
distributed on the Senior Certificates. Holders of the Class B-1 Certificates
nevertheless will be required to report interest with respect to such Class
B-1 Certificates under an accrual method without giving effect to delays and
reductions in distributions on such Certificates attributable to losses and
delinquencies on the Contracts in the Contract Pool, except to the extent it
can be established, for tax purposes, that such amounts are uncollectible. As
a result, the amount of income reported by holders of the Class B-1
Certificates in any period could significantly exceed the amount of cash
distributed to such holders in that period. The holders of Class B-1
Certificates will eventually be allowed a loss (or will be allowed to report a
lesser amount of income) to the extent that the aggregate amount of
distributions on such Certificates is reduced as a result of losses and
delinquencies on the Contracts in the Contract Pool. However, the timing and
character of such losses or reductions in income are uncertain, and holders of
the Class B-1 Certificates are urged to consult their own tax advisors on this
point.
CLASS A-R CERTIFICATES
In addition to the stated Initial Certificate Principal Balance, the
Class A-R Certificates will be entitled to receive the proceeds of the
remaining assets of the Trust, if any, after the distribution of all amounts
due to all other Classes of Certificates. It is not anticipated that there
will be any material assets remaining in such circumstances.
The holders of the Class A-R Certificates must include the taxable
income of each REMIC in their federal taxable income. The resulting tax
liability of the holders may exceed cash distributions to such holders during
certain periods. All or a portion of the taxable income from a Class A-R
Certificate recognized by a holder may be treated as "excess inclusion"
income, which with limited exceptions, is subject to U.S. federal income tax.
The Small Business Job Protection Act of 1996 has eliminated the
special rule permitting Section 593 institutions ("thrift institutions") to
use net operating losses and other allowable deductions to offset their excess
inclusion income from REMIC residual certificates that have "significant
value" within the meaning of the REMIC Regulations, effective for taxable
years beginning after December 31, 1995, except with respect to residual
certificates continuously held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides
three rules for determining the effect on excess inclusions on the alternative
minimum taxable income of a residual holder. First, alternative minimum
taxable income for such residual holder is determined without regard to the
special rule that taxable income cannot be less than excess inclusions.
Second, a residual holder's alternative minimum taxable income for a tax year
cannot be less than the excess inclusions for the year. Third, the amount of
any alternative minimum tax net operating loss deductions must be computed
without regard to any excess inclusions. These rules are effective for tax
years beginning after December 31, 1986, unless a residual holder elects to
have such rules apply only to tax years beginning after August 20, 1996.
Furthermore, the Small Business Job Protection Act of 1996, as part
of the repeal of the bad debt reserve method for thrift institutions, repealed
the application of Code Section 593(d) to any taxable year beginning after
December 31, 1995.
Also, purchasers of a Class A-R Certificate should consider carefully
the tax consequences of an investment in Class A-R Certificates discussed in
the Prospectus and should consult their own tax advisors with respect to those
consequences. See "Federal Income Tax Consequences--Taxation of Holders of
Residual Interest Certificates" in the Prospectus. Specifically, prospective
holders of Class A-R Certificates should consult their tax advisors regarding
whether, at the time of acquisition, a Class A-R Certificate will be treated
as a "noneconomic" residual interest, a "non-significant value" residual
interest and a "tax avoidance potential" residual interest.
For further information regarding the federal income tax consequences
of investing in the Offered Certificates, see "Federal Income Tax
Consequences" in the Prospectus.
ERISA CONSIDERATIONS
ERISA imposes certain restrictions on employee benefit plans that are
subject to ERISA ("Plans") and on persons who are fiduciaries with respect to
such Plans. See "ERISA Considerations" in the Prospectus.
CLASS A CERTIFICATES (OTHER THAN THE CLASS A-R CERTIFICATES)
As discussed in the Prospectus under "ERISA Considerations" and
subject to the limitations discussed thereunder, it is expected that the
[Underwriter's] PTE (as such term is defined in the Prospectus) will apply to
the acquisition and holding by Plans of Class A Certificates (other than the
Class A-R Certificates) sold by the Underwriter and that all conditions of the
Underwriter's PTE other than those within the control of the investors have
been met. In addition, as of the date hereof, no Obligor with respect to
Contracts included in the Trust Fund constitutes more than five percent of the
aggregate unamortized principal balance of the assets of the Trust Fund.
Employee benefit plans that are governmental plans and church plans
(in each case as defined in Section 3(33) of ERISA) are not subject to ERISA
requirements. Accordingly, assets of such plans may be invested in the Class A
Certificates without regard to the ERISA restrictions described above, subject
to applicable provisions of other federal and state laws.
Any Plan fiduciary who proposes to cause a Plan to purchase Class A
Certificates should consult with its own counsel with respect to the potential
consequences under ERISA and the Code, of the Plan's acquisition and ownership
of Class A Certificates. Assets of a Plan or individual retirement account
should not be invested in the Class A Certificates unless it is clear that the
assets of the Trust Fund will not be plan assets or unless it is clear that
the Underwriter's PTE or a prohibited transaction class exemption will apply
and exempt all potential prohibited transactions. See "ERISA Considerations"
in the Prospectus.
CLASS A-R CERTIFICATES
Because the characteristics of the Class A-R Certificates may not
meet the requirements of Prohibited Transaction Class Exemption [83-1] (Class
Exemption for Certain Transactions Involving Mortgage Pool Investment Trusts),
the Underwriter's PTE or any other issued exemption under ERISA, the purchase
and holding of the Class A-R Certificates by a Plan or by individual
retirement accounts or other plans subject to Section 4975 of the Code may
result in prohibited transactions or the imposition of excise taxes or civil
penalties. Consequently, transfers of the Class A-R Certificates will not be
registered by the Trustee unless the Trustee receives: (i) a representation
from the transferee of such Certificate, acceptable to and in form and
substance satisfactory to the Trustee, the Depositor and the Servicer, to the
effect that such transferee is not an employee benefit plan subject to Section
406 of ERISA or a plan or arrangement subject to Section 4975 of the Code, nor
a person acting on behalf of any such plan or arrangement nor using the assets
of any such plan or arrangement to effect such transfer; (ii) if the purchaser
is an insurance company, a representation that the purchaser is an insurance
company which is purchasing such Certificates with funds contained in an
"insurance company general account" (as such term is defined in Section V(e)
of Prohibited Transactions Class Exemption 95-60 ("PTCE 95-60")) and that the
purchase and holding of such Certificates are covered under PTCE 95-60; or
(iii) an opinion of counsel satisfactory to the Trustee, the Depositor and the
Servicer that the purchase or holding of such Certificate by a Plan, any
person acting on behalf of a Plan or using such Plan's assets, will not result
in the assets of the Trust Fund being deemed to be "plan assets" and subject
to the prohibited transaction requirements of ERISA and the Code and will not
subject the Trustee, the Depositor or the Servicer to any obligation in
addition to those undertaken in the Agreement. Such representation, as
described above, shall be deemed to have been made to the Trustee by the
transferee's acceptance of a Class A-R Certificate. In the event that the
representation is violated, or any attempt to transfer to a Plan or person
acting on behalf of a Plan or using such Plan's assets is attempted without
such opinion of counsel, such attempted transfer or acquisition shall be void
and of no effect.
CLASS B-1 CERTIFICATES
As discussed in the Prospectus, because subordinate certificates such
as the Class B-1 Certificates are subordinated to the Class A Certificates,
the Underwriter's PTE will not apply to the Class B-1 Certificates. As such,
no transfer of a Class B-1 Certificate will be permitted to be made to a Plan
unless such Plan, at its expense, delivers to the Trustee and the Depositor an
opinion of counsel to the effect that the purchase or holding of a Class B-1
Certificate by such Plan will not result in the assets of the Trust Fund being
deemed to be "plan assets" and subject to the prohibited transaction
provisions of ERISA and the Code and will not subject the Depositor, the
Trustee or the Servicer to any obligation in addition to those undertaken in
the Agreement. Unless such opinion is delivered, each person acquiring a Class
B-1 Certificate will be deemed to represent to the Trustee, the Depositor and
the Servicer that such person is not a Plan subject to ERISA or Section 4975
of the Code. Purchasers who are insurance companies purchasing Class B-1
Certificates with funds from their "general accounts" will be deemed to
represent with respect to their acquisition of a beneficial interest in such
Certificates that such purchase is covered under Section III of the Prohibited
Transaction Class Exemption _____. See "ERISA Considerations" in the
Prospectus.
LEGAL INVESTMENT CONSIDERATIONS
The Offered Certificates will [not] constitute "mortgage related
securities" under SMMEA. The appropriate characterization of the Offered
Certificates under various legal investment restrictions, and thus the ability
of investors subject to these restrictions to purchase the Offered
Certificates, may be subject to significant interpretive uncertainties. 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.
The Depositor makes no representation as to the proper
characterization of the Offered Certificates for legal investment or financial
institution regulatory purposes, or as to the ability of particular investors
to purchase Offered Certificates under applicable legal investment
restrictions. The uncertainties described above (and any unfavorable future
determinations concerning legal investment or financial institution regulatory
characteristics of the Offered Certificates) may adversely affect the
liquidity of the Offered Certificates. See "Legal Investment" in the
Prospectus.
UNDERWRITING
Under the terms and subject to the conditions contained in an
Underwriting Agreement dated _________, 19 (the "Underwriting Agreement"), the
Underwriter has agreed to purchase from the Depositor all of the Offered
Certificates. The Underwriting Agreement provides that the obligations of the
Underwriter are subject to certain conditions precedent and that the
Underwriter will be obligated to purchase all the Offered Certificates, if any
are purchased.
The Depositor has been advised by the Underwriter that it proposes to
offer the Offered Certificates to the public initially at the public offering
prices set forth on the cover page of this Prospectus Supplement and to
certain dealers at such price less a concession, based on Initial Certificate
Principal Balances, not in excess of % of the Class A- Certificates, % of the
Class Certificates, % of the Class A-R Certificates, % of the Class B-
Certificates and % of the Class Certificates. The Underwriter may allow and
such dealers may reallow a concession not in excess of, based on Initial
Certificate Principal Balances, % of the Class A- Certificates, % of the Class
Certificates, % of the Class A-R Certificates, % of the Class B- Certificates
and % of the Class Certificates to certain other dealers. After the initial
public offering of each Class of Offered Certificates, the public offering
price and such concessions for such Class may be changed.
The Underwriting Agreement provides that the Depositor will indemnify
the Underwriter against certain liabilities, including liabilities under
applicable securities laws, or contribute to payments the Underwriter may be
required to make in respect thereof.
Until the distribution of the Certificates is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriter
and certain selling group members to bid for and purchase the Certificates. As
an exemption to these rules, the Underwriter is permitted to engage in certain
transactions that stabilize the price of each Class of Certificates. Such
transactions may consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Certificates.
Neither the Seller nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the prices of the Certificates. In
addition, neither the Seller nor the Underwriter makes any representation that
the Underwriter will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
LEGAL MATTERS
The validity of the Certificates, including certain federal income
tax consequences with respect thereto, will be passed upon for the Depositor
Brown & Wood LLP, New York, New York. __________, ________, __________ will
pass upon certain legal matters on behalf of the Underwriter.
RATINGS
It is a condition to issuance that the Certificates be rated "___" by
_____ and "___" by _________.
A securities rating addresses the likelihood of the receipt by
Certificateholders of distributions on the Mortgage Loans. The rating takes
into consideration the characteristics of the Mortgage Loans and the
structural, legal and tax aspects associated with the Certificates. The
ratings on the Certificates do not, however, constitute statements regarding
the likelihood or frequency of prepayments on the Mortgage Loans or the
possibility that Certificateholders might realize a lower than anticipated
yield.
The ratings assigned to the Certificates will depend primarily upon
the creditworthiness of the Certificate Insurer. Any reduction in a rating
assigned to the claims-paying ability of the Certificate Insurer below the
ratings initially assigned to the Certificates may result in a reduction of
one or more of the ratings assigned to the Certificates.
A securities rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each securities rating should be evaluated
independently of similar ratings on different securities.
The Depositor has not requested a rating of the Certificates by any
rating agency other than the Rating Agencies; there can be no assurance,
however, as to whether any other rating agency will rate the Certificates or,
if it does, what rating would be assigned by such other rating agency. The
rating assigned by such other rating agency to the Certificates could be lower
than the respective ratings assigned by the Rating Agencies.
INDEX OF PRINCIPAL TERMS
Set forth below is a list of certain of the more significant
capitalized terms used in this Prospectus Supplement and the pages on which
the definitions of such terms may be found.
TERM PAGE
- ---- ----
Adjusted Certificate Principal Balance.........................S-6
Advance.......................................................S-38
Agreement......................................................S-1
APR............................................................S-7
Available Distribution Amount.................................S-33
Book-Entry Certificates.......................................S-44
Business Day...................................................S-2
Carryover Interest Distribution Amount........................S-34
Certificate Account...........................................S-31
Certificate Owners.............................................S-2
Certificate Principal Balance.................................S-37
Certificateholders.............................................S-3
Certificates...................................................S-1
Class A Formula Principal Distribution Amount.................S-35
Class A Percentage............................................S-35
Class B-1 Formula Principal Distribution Amount...............S-35
Class B-1 Liquidation Loss Amount..............................S-5
Class B-1 Percentage..........................................S-36
Class B-2 Formula Principal Distribution Amount...............S-35
Class B-2 Liquidation Loss Amount..............................S-5
Class B-2 Percentage..........................................S-36
CLD...........................................................S-19
Code................................................S-1, S-9, S-47
Compensating Interest.........................................S-39
Contract Pool..................................................S-7
Contract Principal Balance.....................................S-5
Contracts.................................................S-1, S-7
Corporate Trust Office........................................S-44
Cross-over Date...............................................S-37
Current Overcollateralization Amount.....................S-4, S-38
Cut-off Date...................................................S-2
Deposit Date..................................................S-33
Determination Date............................................S-33
DTC............................................................S-2
Due Date.......................................................S-7
Eligible Account..............................................S-33
ERISA..........................................................S-9
Events of Default.............................................S-42
Final Scheduled Distribution Date..............................S-6
Formula Principal Distribution Amount.........................S-34
Fractional Interests..........................................S-42
HID...........................................................S-19
HUD...........................................................S-19
IndyMac........................................................S-1
Initial Certificate Principal Balance..........................S-1
Interest Accrual Period.......................................S-34
Interest Distribution Amount..................................S-34
Issuing REMIC............................................S-9, S-46
Land-and-Home Contracts........................................S-7
Liquidation Expenses...........................................S-5
Liquidation Loss Amount..................................S-5, S-38
Liquidation Loss Interest Amount.........................S-6, S-34
Liquidation Proceeds...........................................S-5
Manufactured Homes.............................................S-7
Manufactured housing contracts................................S-14
MHD...........................................................S-19
Monthly Payment...............................................S-14
Mortgage.......................................................S-8
Nonrecoverable Advance........................................S-38
Obligor.......................................................S-23
Offered Certificates...........................................S-1
Overcollateralization Reduction Amount....................S-4,S-38
Pass-Through Rate..............................................S-1
Percentage Interest............................................S-2
Pooling REMIC............................................S-9, S-46
Prepayment Model..............................................S-25
Principal Distribution Tests..................................S-37
Record Date....................................................S-3
REMIC..........................................................S-1
REO Property..................................................S-40
Seller.........................................................S-1
Servicing Fee.................................................S-41
SMMEA.........................................................S-10
Target Overcollateralization Amount......................S-4, S-38
Termination Price.............................................S-40
TPL Department................................................S-19
Trust..........................................................S-1
Trust Fund.....................................................S-2
Trustee........................................................S-1
Trustee Fee...................................................S-41
UCC...........................................................S-12
Underwriting Agreement........................................S-50
Unpaid Certificate Principal Shortfall........................S-35
Unpaid Liquidation Loss Interest Shortfall....................S-34
Value.........................................................S-18
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
NO DEALER SALESPERSON OR OTHER PERSON HAS IndyMac ABS Inc.
BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE Depositor
ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND IF GIVEN OR MADE
SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
DEPOSITOR OR ANY UNDERWRITER. THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN $___________
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY
ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO Manufactured Housing Contract Pass-
MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE Through Certificates 199___
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE DEPOSITOR SINCE SUCH DATE.
---------------------------
TABLE OF CONTENTS
PAGE [IndyMac.Inc.]
PROSPECTUS SUPPLEMENT
SUMMARY ....................................4 Seller and Servicer
RISK FACTORS.............................. 15
THE CONTRACT POOL......................... 18
[INDYMAC, INC.]........................... 23
YIELD AND PREPAYMENT CONSIDERATIONS....... 27
PERCENT OF THE INITIAL CERTIFICATE PRINCIPAL
BALANCE OUTSTANDING.............. 32
PERCENT OF THE INITIAL CERTIFICATE PRINCIPAL
BALANCE OUTSTANDING.............. 33
PERCENT OF THE INITIAL CERTIFICATE PRINCIPAL
BALANCE OUTSTANDING.............. 34
DESCRIPTION OF THE CERTIFICATES........... 35
USE OF PROCEEDS........................... 51 PROSPECTUS SUPPLEMENT
CERTAIN FEDERAL INCOME TAX CONSEQUENCES... 51
ERISA CONSIDERATIONS...................... 53
LEGAL INVESTMENT CONSIDERATIONS........... 54
[UNDERWRITING............................. 55
[PLAN OF DISTRIBUTION......................55
LEGAL MATTERS............................. 55
RATINGS 56
INDEX OF PRINCIPAL TERMS.................. 57
PROSPECTUS
Prospectus Supplement or Current Report on Form 8-K...3
Available Information........................... 3
Incorporation of Certain Information by Reference 4
Reports to Certificateholders................... 4
Summary of Terms................................ 3
Risk Factors.................................... 15
The Trust Fund.................................. 22
Use of Proceeds................................. 26
The Depositor................................... 26
The Manufactured Housing Program................ 27
Description of the Certificates................. 30
Credit Enhancement.............................. 44
Yield and Prepayment Considerations............. 49
The Agreements.................................. 52
Certain Legal Aspects of the Contracts.......... 67
Federal Income Tax Consequences................. 86
State Tax Considerations........................ 107
ERISA Considerations............................ 107
Legal Investment................................ 112
Method of Distribution.......................... 113
Legal Matters................................... 114
Financial Information........................... 114
Rating.......................................... 114
Index of Defined Terms.......................... 116
UNTIL _________________ ALL DEALERS EFFECTING TRANSACTIONS IN THE
OFFERED CERTIFICATES WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION MAY BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
PROSPECTUS
INDYMAC ABS, INC.
DEPOSITOR
ASSET BACKED CERTIFICATES
(ISSUABLE IN SERIES)
-----------------
THIS PROSPECTUS RELATES TO THE ISSUANCE OF ASSET BACKED CERTIFICATES (THE
"CERTIFICATES"), WHICH MAY BE SOLD FROM TIME TO TIME IN ONE OR MORE SERIES
(EACH, A "SERIES") BY INDYMAC ABS, INC. (THE "DEPOSITOR") OR BY A TRUST FUND
(AS DEFINED BELOW) ON TERMS DETERMINED AT THE TIME OF SALE AND DESCRIBED IN
THIS PROSPECTUS AND THE RELATED PROSPECTUS SUPPLEMENT. THE CERTIFICATES OF A
SERIES WILL CONSIST OF CERTIFICATES WHICH EVIDENCE BENEFICIAL OWNERSHIP OF A
TRUST ESTABLISHED BY THE DEPOSITOR (EACH, A "TRUST FUND"). AS SPECIFIED IN THE
RELATED PROSPECTUS SUPPLEMENT, THE TRUST FUND FOR A SERIES OF CERTIFICATES
WILL INCLUDE CERTAIN ASSETS (THE "TRUST FUND ASSETS") WHICH WILL CONSIST
PRIMARILY OF MANUFACTURED HOUSING INSTALLMENT SALES CONTRACTS OR INSTALLMENT
LOAN AGREEMENTS (THE "CONTRACTS"). THE TRUST FUND ASSETS WILL BE ACQUIRED BY
THE DEPOSITOR, EITHER DIRECTLY OR INDIRECTLY, FROM ONE OR MORE INSTITUTIONS
(EACH, A "SELLER"), WHICH MAY BE AFFILIATES OF THE DEPOSITOR, AND CONVEYED BY
THE DEPOSITOR TO THE RELATED TRUST FUND. A TRUST FUND ALSO MAY INCLUDE
INSURANCE POLICIES, SURETY BONDS, CASH ACCOUNTS, REINVESTMENT INCOME,
GUARANTIES OR LETTERS OF CREDIT TO THE EXTENT DESCRIBED IN THE RELATED
PROSPECTUS SUPPLEMENT. SEE "INDEX OF DEFINED TERMS" ON PAGE 95 OF THIS
PROSPECTUS FOR THE LOCATION OF THE DEFINITIONS OF CERTAIN CAPITALIZED TERMS.
EACH SERIES OF CERTIFICATES WILL BE ISSUED IN ONE OR MORE CLASSES. EACH
CLASS OF CERTIFICATES OF A SERIES WILL EVIDENCE BENEFICIAL OWNERSHIP OF A
SPECIFIED PERCENTAGE (WHICH MAY BE 0%) OR PORTION OF FUTURE INTEREST PAYMENTS
AND A SPECIFIED PERCENTAGE (WHICH MAY BE 0%) OR PORTION OF FUTURE PRINCIPAL
PAYMENTS ON THE RELATED TRUST FUND ASSETS. A SERIES OF CERTIFICATES MAY
INCLUDE ONE OR MORE CLASSES THAT ARE SENIOR IN RIGHT OF PAYMENT TO ONE OR MORE
OTHER CLASSES OF CERTIFICATES OF SUCH SERIES. ONE OR MORE CLASSES OF
CERTIFICATES OF A SERIES MAY BE ENTITLED TO RECEIVE DISTRIBUTIONS OF
PRINCIPAL, INTEREST OR ANY COMBINATION THEREOF PRIOR TO ONE OR MORE OTHER
CLASSES OF CERTIFICATES OF SUCH SERIES OR AFTER THE OCCURRENCE OF SPECIFIED
EVENTS, IN EACH CASE AS SPECIFIED IN THE RELATED PROSPECTUS SUPPLEMENT.
(cover continued on next page)
--------------------
FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN
INVESTMENT IN THE CERTIFICATES, SEE THE INFORMATION
UNDER "RISK FACTORS" ON PAGE 15.
-----------------
THE CERTIFICATES OF A GIVEN SERIES WILL REPRESENT BENEFICIAL INTERESTS IN
THE RELATED TRUST FUND ONLY AND WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS
OF THE DEPOSITOR, THE MASTER SERVICER, ANY SELLER OR ANY AFFILIATES THEREOF,
EXCEPT TO THE EXTENT DESCRIBED IN THE RELATED PROSPECTUS SUPPLEMENT. THE
CERTIFICATES AND THE CONTRACTS WILL NOT BE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE DEPOSITOR OR ANY OTHER PERSON
OR ENTITY, EXCEPT IN EACH CASE TO THE EXTENT DESCRIBED IN THE RELATED
PROSPECTUS SUPPLEMENT. THE DEPOSITOR IS NOT A GOVERNMENTAL AGENCY OR
INSTRUMENTALITY NOR IS IT AFFILIATED WITH ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
---------------------
THESE CERTIFICATES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
Prior to issuance there will have been no market for the Certificates of
any Series and there can be no assurance that a secondary market for any
Certificates will develop, or if it does develop, that it will continue or
provide Certificateholders with a sufficient level of liquidity of investment.
This Prospectus may not be used to consummate sales of Certificates of any
Series unless accompanied by a Prospectus Supplement. Offers of the
Certificates may be made through one or more different methods, including
offerings through underwriters, as more fully described under "Method of
Distribution" herein and in the related Prospectus Supplement.
, 1998
(continued from cover page)
Distributions to Certificateholders will be made monthly, quarterly,
semi-annually or at such other intervals and on the dates specified in the
related Prospectus Supplement. Distributions on the Certificates of a Series
will be made from the related Trust Fund Assets or proceeds thereof pledged
for the benefit of the Certificateholders as specified in the related
Prospectus Supplement.
The related Prospectus Supplement will describe any insurance or
guarantee provided with respect to the related Series of Certificates
including, without limitation, any insurance or guarantee provided by the
Department of Housing and Urban Development, the United States Department of
Veterans' Affairs or any private insurer or guarantor. The only obligations of
the Depositor with respect to a Series of Certificates will be to obtain
certain representations and warranties from each Seller and to assign to the
Trustee for the related Series of Certificates the Depositor's rights with
respect to such representations and warranties. The principal obligations of
the Master Servicer named in the related Prospectus Supplement with respect to
the related Series of Certificates will be limited to its contractual
servicing obligations, including any obligation it may have to advance
delinquent interest and/or principal payments on the related Trust Fund
Assets.
The yield on each class of Certificates of a Series will be affected by,
among other things, the rate of payments of principal (including prepayments)
on the related Trust Fund Assets and the timing of receipt of such payments as
described under "Risk Factors -- Prepayment and Yield Considerations" and
"Yield and Prepayment Considerations" herein and in the related Prospectus
Supplement. A Trust Fund may be subject to early termination under the
circumstances described under "The Agreements -- Termination"; Optional
Termination herein and in the related Prospectus Supplement.
If specified in the related Prospectus Supplement, one or more elections
may be made to treat a Trust Fund or specified portions thereof as a "real
estate mortgage investment conduit" ("REMIC") or as a financial asset
securitization investment trust ("FASIT") for federal income tax purposes. See
"Federal Income Tax Consequences."
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES COVERED BY SUCH PROSPECTUS
SUPPLEMENT, WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE
REQUIRED TO DELIVER SUCH PROSPECTUS SUPPLEMENT AND THIS PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS AND PROSPECTUS
SUPPLEMENT WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
PROSPECTUS SUPPLEMENT OR CURRENT REPORT ON FORM 8-K
The Prospectus Supplement or Current Report on Form 8-K relating to the
Certificates of each Series to be offered hereunder will, among other things,
set forth with respect to such Certificates, as appropriate: (i) the aggregate
principal amount, interest rate and authorized denominations of each class of
such Series of Certificates; (ii) information as to the assets of the Trust
Fund, including the general characteristics of the related Trust Fund Assets
included therein and, if applicable, the insurance policies, surety bonds,
guaranties, letters of credit or other instruments or agreements included in
the Trust Fund or otherwise, and the amount and source of any reserve account
or other cash account; (iii) the circumstances, if any, under which the Trust
Fund may be subject to early termination; (iv) the method used to calculate
the amount of principal to be distributed or paid with respect to each class
of Certificates; (v) the order of application of distributions or payments to
each of the classes within such Series, whether sequential, pro rata, or
otherwise; (vi) the Distribution Dates with respect to such Series; (vii)
additional information with respect to the method of distribution of such
Certificates; (viii) whether one or more REMIC elections will be made with
respect to the Trust Fund and, if so, the designation of the regular interests
and the residual interests; (ix) whether a FASIT election will be made with
respect to the Trust Fund, and if so, the designation of the regular interests
and the ownership interest; (x) the aggregate original percentage ownership
interest in the Trust Fund to be evidenced by each class of Certificates; (xi)
information as to the nature and extent of subordination with respect to any
class of Certificates that is subordinate in right of payment to any other
class; and (xii) information as to the Seller, the Master Servicer and the
Trustee.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Certificates. This Prospectus, which forms a part
of the Registration Statement, and the Prospectus Supplement relating to each
Series of Certificates contain descriptions of the material terms of the
documents referred to herein and therein, but do not contain all of the
information set forth in the Registration Statement pursuant to the Rules and
Regulations of the Commission. For further information, reference is made to
such Registration Statement and the exhibits thereto. Such Registration
Statement and exhibits can be inspected and copied at prescribed rates at the
public reference facilities maintained by the Commission at its Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
Regional Offices located as follows: Midwest Regional Office, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661; and Northeast Regional Office,
Seven World Trade Center, Suite 1300, New York, New York 10048. The Commission
also maintains a Web site at http://www.sec.gov from which such Registration
Statement and exhibits may be obtained.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any
Prospectus Supplement with respect hereto and, if given or made, such
information or representations must not be relied upon. This Prospectus and
any Prospectus Supplement with respect hereto do not constitute an offer to
sell or a solicitation of an offer to buy any securities other than the
Certificates offered hereby and thereby nor an offer of the Certificates to
any person in any state or other jurisdiction in which such offer would be
unlawful. The delivery of this Prospectus at any time does not imply that
information herein is correct as of any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by or on behalf of the Trust Fund
referred to in the accompanying Prospectus Supplement with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), after the date of this Prospectus
and prior to the termination of any offering of the Certificates issued by
such Trust Fund shall be deemed to be incorporated by reference in this
Prospectus and to be a part of this Prospectus from the date of the filing of
such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for all purposes of this Prospectus to the extent that a statement
contained herein (or in the accompanying Prospectus Supplement) or in any
other subsequently filed document which also is or is deemed to be
incorporated by reference modifies or replaces such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus. Neither the Depositor
nor the Master Servicer for any Series intends to file with the Commission
periodic reports with respect to the related Trust Fund following completion
of the reporting period required by Rule 15d-1 or Regulation 15D under the
Exchange Act, AND ACCORDINGLY SUCH PERIODIC REPORTS WILL NOT BE FILED FOR SUCH
TRUST FUND SUBSEQUENT TO THE FIRST FISCAL YEAR OF SUCH TRUST FUND UNLESS AT
THE BEGINNING OF ANY SUBSEQUENT FISCAL YEAR OF SUCH TRUST FUND THE
CERTIFICATES OF ANY CLASS ISSUED BY SUCH TRUST FUND ARE HELD OF RECORD BY 300
OR MORE PERSONS.
The Trustee or such other entity specified in the related Prospectus
Supplement on behalf of any Trust Fund will provide without charge to each
person to whom this Prospectus is delivered, on the written or oral request of
such person, a copy of any or all of the documents referred to above that have
been or may be incorporated by reference in this Prospectus (not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates). Such requests should be directed to the
Corporate Trust Office of the Trustee or the address of such other entity, in
each case as specified in the accompanying Prospectus Supplement. Included in
the accompanying Prospectus Supplement is the name, address, telephone number,
and, if available, facsimile number of the office or contact person at the
Corporate Trust Office of the Trustee or such other entity.
REPORTS TO CERTIFICATEHOLDERS
Periodic and annual reports concerning the related Trust Fund for a
Series of Certificates will be forwarded to Certificateholders. However, such
reports will neither be examined nor reported on by an independent public
accountant. See "Description of the Certificates -- Reports to
Certificateholders."
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the related
Prospectus Supplement with respect to the Series of Certificates offered
thereby and to the related Agreement (as such term is defined below) which
will be prepared in connection with each Series of Certificates. Unless
otherwise specified, capitalized terms used and not defined in this Summary of
Terms have the meanings given to them in this Prospectus and in the related
Prospectus Supplement. See "Index of Defined Terms" on page 95 of this
Prospectus for the location of the definitions of certain capitalized terms.
Title of Certificates.................. Asset Backed Certificates (the
"Certificates"), which are issuable in
Series.
Depositor.............................. IndyMac ABS, Inc., a Delaware
corporation.
Trustee................................ The trustee(s) (the "Trustee") for
each Series of Certificates will be
specified in the related Prospectus
Supplement. See "The Agreements"
herein for a description of the
Trustee's rights and obligations.
Master Servicer........................ The entity or entities named as Master
Servicer (the "Master Servicer") in
the related Prospectus Supplement,
which may be an affiliate of the
Depositor. See "The Agreements--
Certain Matters Regarding the Master
Servicer and the Depositor."
Trust Fund Assets...................... Assets of the Trust Fund for a Series
of Certificates will include certain
assets (the "Trust Fund Assets") which
will consist primarily of the
Contracts, together with payments in
respect of the Contracts, as specified
in the related Prospectus Supplement.
At the time of issuance of the
Certificates of the Series, the
Depositor will cause the Contracts
constituting the related Trust Fund to
be assigned to the Trustee, without
recourse. The Contracts will be
collected in a pool (each, a "Pool")
as of the first day of the month of
the issuance of the related Series of
Certificates or such other date
specified in the related Prospectus
Supplement (the "Cut-off Date"). Trust
Fund Assets also may include insurance
policies, surety bonds, cash accounts,
reinvestment income, guaranties or
letters of credit to the extent
described in the related Prospectus
Supplement. See "Credit Enhancement."
In addition, if the related Prospectus
Supplement so provides, the related
Trust Fund Assets will include the
funds on deposit in an account (a
"Pre-Funding Account") which will be
used to purchase additional Contracts
during the period specified in such
Prospectus Supplement. See "The
Agreements-- Pre-Funding Account."
Contracts.............................. The Contracts will consist of
manufactured housing installment sale
contracts and installment loan
agreements secured by a security
interest in a new or used manufactured
home (each, a "Manufactured Home"),
and, to the extent, if any, indicated
in the related Prospectus Supplement,
by a mortgage or deed of trust on the
real estate on which the manufactured
home is located. The Contracts may be
conventional Contracts or contracts
insured by the Federal Housing
Administration ("FHA") or partially
guaranteed by the Veterans
Administration ("VA"). See "--Credit
Support-- FHA Insurance." The
Manufactured Homes may be located in
any of the fifty states or any
TERRITORY OR POSSESSION OF THE UNITED
STATES. Each Contract may provide for
an annual percentage rate thereon (a
"Contract Rate") that is fixed over
its term or that adjusts as described
in the related Prospectus Supplement.
The manner of determining scheduled
payments due on the Contract will be
described in the related Prospectus
Supplement. Each Contract may provide
for scheduled payments to maturity,
payments that adjust from time to time
to accommodate changes in the Contract
Rate or to reflect the occurrence of
certain events, and may provide for
negative amortization or accelerated
amortization, in each case as
described in the related Prospectus
Supplement. Each Contract may provide
for payments of principal, interest or
both, on due dates that occur monthly,
quarterly, semiannually or at such
other interval as is specified in the
related Prospectus Supplement. The
related Prospectus Supplement will
describe the minimum principal balance
of the Contracts at origination and
the maximum original term to maturity
of the Contracts. All Contracts will
have been purchased by the Depositor,
either directly or through an
affiliate, from one or more Sellers.
Description of the Certificates........ Each Certificate will represent a
beneficial ownership interest in, or
be secured by the assets of, a Trust
Fund created by the Depositor pursuant
to an Agreement among the Depositor,
the Master Servicer and the Trustee
for the related Series. The
Certificates of any Series may be
issued in one or more classes as
specified in the related Prospectus
Supplement. A Series of Certificates
may include one or more classes of
senior Certificates (collectively, the
"Senior Certificates") and one or more
classes of subordinate Certificates
(collectively, the "Subordinated
Securities"). Certain Series or
classes of Certificates may be covered
by insurance policies or other forms
of credit enhancement, in each case as
described under "Credit Enhancement"
herein and in the related Prospectus
Supplement.
One or more classes of Certificates of
each Series (i) may be entitled to
receive distributions allocable only
to principal, only to interest or to
any combination thereof; (ii) may be
entitled to receive distributions only
of prepayments of principal throughout
the lives of the Certificates or
during specified periods; (iii) may be
subordinated in the right to receive
distributions of scheduled payments of
principal, prepayments of principal,
interest or any combination thereof to
one or more other classes of
Certificates of such Series throughout
the lives of the Certificates or
during specified periods; (iv) may be
entitled to receive such distributions
only after the occurrence of events
specified in the related Prospectus
Supplement; (v) may be entitled to
receive distributions in accordance
with a schedule or formula or on the
basis of collections from designated
portions of the related Trust Fund
Assets; (vi) as to Certificates
entitled to distributions allocable to
interest, may be entitled to receive
interest at a fixed rate or a rate
that is subject to change from time to
time; and (vii) as to Certificates
entitled to distributions allocable to
interest, may be entitled to
distributions allocable to interest
only after the occurrence of events
specified in the related Prospectus
Supplement and may accrue interest
until such events occur, in each case
as specified in the related Prospectus
Supplement. The timing and amounts of
such distributions may vary among
classes or over time, as specified in
the related Prospectus Supplement.
Distributions on the Certificates...... Distributions on the Certificates
entitled thereto will be made monthly,
quarterly, semi-annually or at such
other intervals and on the dates
specified in the related Prospectus
Supplement (each, a "Distribution
Date") out of the payments received in
respect of the assets of the related
Trust Fund or Funds or other assets
pledged for the benefit of the
Certificates as described under
"Credit Enhancement" herein to the
extent specified in the related
Prospectus Supplement. The amount
allocable to payments of principal and
interest on any Distribution Date will
be determined as specified in the
related Prospectus Supplement. The
Prospectus Supplement for a Series of
Certificates will describe the method
for allocating distributions among
Certificates of different classes as
well as the method for allocating
distributions among Certificates for
any particular CLASS.
UNLESS otherwise specified in the
related Prospectus Supplement, the
aggregate original principal balance
of the Certificates will not exceed
the aggregate distributions allocable
to principal that such Certificates
will be entitled to receive. If
specified in the related Prospectus
Supplement, the Certificates will have
an aggregate original principal
balance equal to the aggregate unpaid
principal balance of the Trust Fund
Assets as of the related Cut-off Date
and will bear interest in the
aggregate at a rate equal to the
Contract Rate net of the aggregate
servicing fees and any other amounts
specified in the related Prospectus
Supplement or at such other interest
rate as may be specified in such
Prospectus Supplement. If specified in
the related Prospectus Supplement, the
aggregate original principal balance
of the Certificates and interest rates
on the classes of Certificates will be
determined based on the cash flow on
the Trust Fund ASSETS.
THE rate at which interest will be
passed through or paid to holders of
each class of Certificates entitled
thereto may be a fixed rate or a rate
that is subject to change from time to
time from the time and for the
periods, in each case, as specified in
the related Prospectus Supplement. Any
such rate may be calculated on a
loan-by-loan, weighted average or
notional amount in each case as
described in the related Prospectus
Supplement.
Credit Enhancement..................... The assets in a Trust Fund or the
Certificates of one or more classes in
the related Series may have the
benefit of one or more types of credit
enhancement as described in the
related Prospectus Supplement. The
protection against losses afforded by
any such credit support may be
limited. The type, characteristics and
amount of credit enhancement will be
determined based on the
characteristics of the Contracts
comprising the Trust Fund Assets and
other factors and will be established
on the basis of requirements of each
Rating Agency rating the Certificates
of such Series. See "Credit
Enhancement."
A. Subordination...................... A Series of Certificates may consist
of one or more classes of Senior
Certificates and one or more classes
of Subordinated Certificates. The
rights of the holders of the
Subordinated Certificates of a Series
to receive distributions with respect
to the assets in the related Trust
Fund will be subordinated to such
rights of the holders of the Senior
Certificates of the same Series to the
extent described in the related
Prospectus Supplement. This
subordination is intended to enhance
the likelihood of regular receipt by
holders of Senior Certificates of the
full amount of monthly payments of
principal and interest due them. The
protection afforded to the holders of
Senior Certificates of a Series by
means of the subordination feature
will be accomplished by (i) the
preferential right of such holders to
receive, prior to any distribution
being made in respect of the related
Subordinated Certificates, the amounts
of interest and/or principal due them
on each Distribution Date out of the
funds available for distribution on
such date in the related Collection
Account and, to the extent described
in the related Prospectus Supplement,
by the right of such holders to
receive future distributions on the
assets in the related Trust Fund that
would otherwise have been payable to
the holders of Subordinated
Certificates; (ii) reducing the
ownership interest (if applicable) of
the related Subordinated Certificates;
or (iii) a combination of clauses (i)
and (ii) above. If so specified in the
related Prospectus Supplement,
subordination may apply only in the
event of certain types of losses not
covered by other forms of credit
support, such as hazard losses not
covered by standard hazard insurance
policies or losses due to the
bankruptcy or fraud of the borrower.
The related Prospectus Supplement will
set forth information concerning,
among other things, the amount of
subordination of a class or classes of
Subordinated Certificates in a Series,
the circumstances in which such
subordination will be applicable, and
the manner, if any, in which the
amount of subordination will decrease
over time.
B. Reserve Account.................... One or more reserve accounts or other
cash accounts (each, a "Reserve
Account") may be established and
maintained for each Series of
Certificates. The related Prospectus
Supplement will specify whether or not
such Reserve Accounts will be included
in the corpus of the Trust Fund for
such Series and will also specify the
manner of funding such Reserve
Accounts and the conditions under
which the amounts in any such Reserve
Accounts will be used to make
distributions to holders of
Certificates of a particular class or
released from such Reserve Accounts.
C. Letter of Credit................... If so specified in the related
Prospectus Supplement, credit support
may be provided by one or more letters
of credit. A letter of credit may
provide limited protection against
certain losses in addition to or in
lieu of other credit support, such as
losses resulting from delinquent
payments on the Contracts in the
related Trust Fund, losses from risks
not covered by standard hazard
insurance policies, losses due to
bankruptcy of a borrower and
application of certain provisions of
the Bankruptcy Code, and losses due to
denial of insurance coverage due to
misrepresentations made in connection
with the origination or sale of a
Contract. The issuer of the letter of
credit (the "L/C Bank") will be
obligated to honor demands with
respect to such letter of credit, to
the extent of the amount available
thereunder, and to provide funds under
the circumstances and subject to such
conditions as are specified in the
related Prospectus Supplement. The
liability of the L/C Bank under its
letter of credit will be reduced by
the amount of unreimbursed payments
THEREUNDER.
THE maximum liability of a L/C Bank
under its letter of credit will be an
amount equal to a percentage specified
in the related Prospectus Supplement
of the initial aggregate outstanding
principal balance of the Contracts in
the related Trust Fund or one or more
classes of Certificates of the related
Series (the "L/C Percentage"). The
maximum amount available at any time
to be paid under a letter of credit
will be determined in the manner
specified therein and in the related
Prospectus Supplement.
D. Insurance Policies; Surety
Bonds and Guarantees............... If so specified in the related
Prospectus Supplement, credit support
for a Series may be provided by an
insurance policy and/or a surety bond
issued by one or more insurance
companies or sureties. Such
certificate guarantee insurance or
surety bond will guarantee timely
distributions of interest and/or full
distributions of principal on the
basis of a schedule of principal
distributions set forth in or
determined in the manner specified in
the related Prospectus Supplement. If
specified in the related Prospectus
Supplement, one or more bankruptcy
bonds, special hazard insurance
policies, other insurance or
third-party guarantees may be used to
provide coverage for the risks of
default or types of losses set forth
in such Prospectus Supplement.
E. Over-Collateralization............. If so provided in the Prospectus
Supplement for a Series of
Certificates, a portion of the
interest payment on each Contract may
be applied as an additional
distribution in respect of principal
to reduce the principal balance of a
certain class or classes of
Certificates and, thus, accelerate the
rate of payment of principal on such
class or classes of Certificates.
F. Contract Pool Insurance
Policy............................. A pool insurance policy or policies
may be obtained and maintained for
Contracts relating to any Series of
Certificates, which shall be limited
in scope, covering defaults on the
related Contracts in an initial amount
equal to a specified percentage of the
aggregate principal balance of all
Contracts included in the Pool as of
the related Cut-off Date.
G. FHA Insurance...................... If specified in the related Prospectus
Supplement, all or a portion of the
Contracts in a Pool may be (i) insured
by the Federal Housing Administration
(the "FHA") and/or (ii) partially
guaranteed by the Department of
Veterans' Affairs (the "VA"). See
"Certain Legal Aspects of the
Contracts-- FHA Insurance and VA
Guaranties."
H. Cross-Collateralization............ If specified in the related Prospectus
Supplement, separate classes of a
Series of Certificates may evidence
the beneficial ownership of, or be
secured by, separate groups of assets
included in a Trust Fund. In such
case, credit support may be provided
by a cross- collateralization feature
which requires that distributions be
made with respect to Certificates
evidencing a beneficial ownership
interest in, or secured by, one or
more asset groups prior to
distributions to Subordinated
Certificates evidencing a beneficial
ownership interest in, or secured by,
other asset groups within the same
Trust Fund. See "Credit Enhancement--
Cross-Collateralization."
If specified in the related Prospectus
Supplement, the coverage provided by
one or more of the forms of credit
enhancement described in this
Prospectus may apply concurrently to
two or more separate Trust Funds. If
applicable, the related Prospectus
Supplement will identify the Trust
Funds to which such credit enhancement
relates and the manner of determining
the amount of coverage provided to
such Trust Funds thereby and of the
application of such coverage to the
identified Trust Funds. See "Credit
Enhancement--Cross-Collateralization."
Advances...............................
The Master Servicer and, if
applicable, each servicing institution
that services a Contract in a Pool on
behalf of the Master Servicer (each, a
"Sub-Servicer") may be obligated to
advance amounts (each, an "Advance")
corresponding to delinquent interest
and/or principal payments on such
Contract until the date, as specified
in the related Prospectus Supplement,
following the date on which the
related Manufactured Home is sold
after repossession (and, in the case
of Land-and-Home Contracts, after the
related underlying real property is
sold in foreclosure) or the related
Contract is otherwise liquidated. Any
obligation to make Advances may be
subject to limitations as specified in
the related Prospectus Supplement. If
so specified in the related Prospectus
Supplement, Advances may be drawn from
a cash account available for such
purpose as described in such
Prospectus Supplement. Advances will
be reimbursable to the extent
described under "Description of the
Certificates-- Advances" herein and in
the related Prospectus SUPPLEMENT. -
IN the event the Master Servicer or
Sub-Servicer fails to make a required
Advance, the Trustee may be obligated
to advance such amounts otherwise
required to be advanced by the Master
Servicer or Sub-Servicer. See
"Description of the Certificates --
Advances."
Optional Termination................... The Master Servicer or the party
specified in the related Prospectus
Supplement, including the holder of
the residual interest in a REMIC or
the holder of an ownership interest in
a FASIT, may have the option to effect
early retirement of a Series of
Certificates through the purchase of
the Trust Fund Assets. The Master
Servicer will deposit the proceeds of
any such purchase in the Collection
Account for each Trust Fund as
described under "The Agreements --
Payments on Contracts; Deposit to
Collection Account." Any such purchase
of Trust Fund Assets and property
acquired in respect of Trust Fund
Assets evidenced by a Series of
Certificates will be made at the
option of the Master Servicer, such
other person or, if applicable, such
holder of the REMIC residual interest
or FASIT ownership interest, at a
price specified in the related
Prospectus Supplement. The exercise of
such right will effect early
retirement of the Certificates of that
Series, but the right of the Master
Servicer, such other person or, if
applicable, such holder of the REMIC
residual interest or FASIT ownership
interest to so purchase is subject to
the principal balance of the related
Trust Fund Assets being less than the
percentage specified in the related
Prospectus Supplement of the aggregate
principal balance of the Trust Fund
Assets as of the Cut-off Date for the
Series. The foregoing is subject to
the provision that if a REMIC election
is made with respect to a Trust Fund,
any repurchase will be made only in
connection with a "qualified
liquidation" of the REMIC within the
meaning of Section 860F(g)(4) of the
Code, and if a FASIT election is made
with respect to a Trust Fund, any
repurchase will be made only if such
repurchase would not be a prohibited
transaction within the meaning of
section 860L(e)(2) of the Code.
Legal Investment....................... The Prospectus Supplement for each
series of Certificates will specify
which, if any, of the classes of
Certificates offered thereby
constitute "mortgage related
securities" for purposes of the
Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA"). Classes of
Certificates that qualify as "mortgage
related securities" will be legal
investments for certain types of
institutional investors to the extent
provided in SMMEA, subject, in any
case, to any other regulations which
may govern investments by such
institutional investors. Institutions
whose investment activities are
subject to review by federal or state
authorities should consult with their
counsel or the applicable authorities
to determine whether an investment in
a particular class of Certificates
(whether or not such class constitutes
a "mortgage related security")
complies with applicable guidelines,
policy statements or restrictions. See
"Legal Investment."
Federal Income Tax Consequences........ The federal income tax consequences to
Certificateholders will vary depending
on whether one or more elections are
made to treat the Trust Fund or
specified portions thereof as either a
REMIC or a FASIT under the provisions
of the Internal Revenue Code of 1986,
as amended (the "Code"). The
Prospectus Supplement for each Series
of Certificates will specify whether
such an election will be MADE.
IF a REMIC election or a FASIT
election is made, Certificates
representing regular interests in a
REMIC or FASIT will generally be
treated as evidences of indebtedness
for federal tax purposes. Stated
interest on such regular interests
will be taxable as ordinary income and
taken into account using the accrual
method of accounting, regardless of
the holder's normal accounting method.
If neither a REMIC election nor a
FASIT election is made, interest
(other than original issue discount
("OID")) on Certificates that are
characterized as indebtedness for
federal income tax purposes will be
includible in income by holders
thereof in accordance with their usual
method of accounting.
Certain classes of Certificates may be
issued with OID. A holder should be
aware that the Code and the Treasury
regulations promulgated thereunder do
not adequately address certain issues
relevant to prepayable securities,
such as the CERTIFICATES.
HOLDERS that will be required to
report income with respect to the
related Certificates under the accrual
method of accounting will do so
without giving effect to delays and
reductions in distributions
attributable to a default or
delinquency on the Contracts, except
possibly to the extent that it can be
established that such amounts are
uncollectible. As a result, the amount
of income (including OID) reported by
a holder of a Certificate in any
period could significantly exceed the
amount of cash distributed to such
holder in that PERIOD.
IN the opinion of Brown & Wood LLP, if
a REMIC election is made with respect
to a Series of Certificates, then the
arrangement by which such Certificates
are issued will be treated as a REMIC
as long as all of the provisions of
the relevant Agreement are complied
with and the statutory and regulatory
requirements are satisfied.
Certificates will be designated as
"regular interests" or "residual
interests" in a REMIC. A REMIC
generally will not be subject to
entity-level tax. Rather, the taxable
income or net loss of a REMIC will be
taken into account by the holders of
residual interests. Such holders will
report their proportionate share of
the taxable income of the REMIC
whether or not they receive cash
distributions from the REMIC
attributable to such income. The
portion of the REMIC taxable income
consisting of "excess inclusions"
generally may not be offset by
otherwise allowable deductions or
losses of the holder, including the
net operating deductions.
In the opinion of Brown & Wood LLP, if
a FASIT election is made with respect
to a Series of Securities, then the
arrangement by which such Securities
are issued will be treated as a FASIT
as long as all of the provisions of
the relevant Agreement are complied
with and the statutory and regulatory
requirements are satisfied. Securities
will be designated as regular
interests or as the ownership
interest. The FASIT generally will not
be subject to an entity-level tax.
Rather, the taxable income or net loss
of the FASIT will be taken into
account by the holder of the ownership
interest whether or not the holder
receives cash distributions from the
FASIT attributable to such income. The
ownership interest generally must be
held at all times by a domestic C
corporation (an "Eligible
Corporation"). Furthermore, certain
regular interests referred to as
High-Yield interests are only suitable
investments for Eligible Corporations.
Income derived from holding ownership
interests and income derived from
holding High-Yield interests generally
may not be offset by otherwise
allowable deductions, including net
operating loss deductions.
In the opinion of Brown & Wood LLP, if
a REMIC or a FASIT election is not
made with respect to a Series of
Certificates, then the arrangement by
which such Certificates are issued
either will be classified as a grantor
trust under Subpart E, Part I of
Subchapter J of the Code or as a
partnership. The Trust Fund will not
be a publicly traded partnership
taxable as a corporation as long as
all of the provisions of the relevant
Agreement are complied with and the
statutory and regulatory requirements
are satisfied. The holders of the
Certificates issued by such Trust Fund
will agree to treat the Certificates
as equity interests in a partnership
or in a grantor TRUST.
GENERALLY, gain or loss will be
recognized on a sale of Certificates
in the amount equal to the difference
between the amount realized and the
seller's tax basis in the Certificates
SOLD.
THE material federal income tax
consequences for investors associated
with the purchase, ownership and
disposition of the Certificates are
set forth herein under "Federal Income
-- Tax Consequences." The material
federal income tax consequences for
investors associated with the
purchase, ownership and disposition of
Certificates of any particular Series
will be set forth under the heading
"Federal Income Tax Consequences" in
the related Prospectus Supplement. See
"Federal Income Tax Consequences."
ERISA Considerations................... A fiduciary of any employee benefit
plan or other retirement plan or
arrangement subject to the Employee
Retirement Income Certificate Act of
1974, as amended ("ERISA"), or the
Code should carefully review with its
legal advisors whether the purchase or
holding of Certificates could give
rise to a transaction prohibited or
not otherwise permissible under ERISA
or the Code. See "ERISA
Considerations." Certain classes of
Certificates may not be transferred
unless the Trustee and the Depositor
are furnished with a letter of
representation or an opinion of
counsel to the effect that such
transfer will not result in a
violation of the prohibited
transaction provisions of ERISA and
the Code and will not subject the
Trustee, the Depositor or the Master
Servicer to additional obligations.
See "Description of the
Certificates-General" and "ERISA
Considerations."
Risk Factors........................... For a discussion of certain risks
associated with an investment in the
Certificates, see "Risk Factors" on
page 14 herein and in the related
Prospectus Supplement
<PAGE>
RISK FACTORS
Investors should consider the following factors in connection with the
purchase of the Certificates.
LIMITED LIQUIDITY
No market for the Certificates of any Series will exist prior to the
issuance thereof, and no assurance can be given that a secondary market will
develop or, if it does develop, that it will provide Certificateholders with
liquidity of investment or will continue for the life of the Certificates of
such Series.
LIMITED SOURCE OF PAYMENTS -- NO RECOURSE TO SELLERS,
DEPOSITOR OR MASTER SERVICER
The Depositor does not have, nor is it expected to have, any significant
assets. Unless otherwise specified in the related Prospectus Supplement, the
Certificates of a Series will be payable solely from the Trust Fund for such
Certificates and will not have any claim against or security interest in the
Trust Fund for any other Series. There will be no recourse to the Depositor or
any other person for any failure to receive distributions on the Certificates.
Further, at the times set forth in the related Prospectus Supplement, certain
Trust Fund Assets and/or any balance remaining in the Collection Account
immediately after making all payments due on the Certificates of such Series,
after making adequate provision for future payments on certain classes of
Certificates and after making any other payments specified in the related
Prospectus Supplement, may be promptly released or remitted to the Depositor,
the Master Servicer, any credit enhancement provider or any other person
entitled thereto and will no longer be available for making payments to
Certificateholders. Consequently, holders of Certificates of each Series must
rely solely upon payments with respect to the Trust Fund Assets and the other
assets constituting the Trust Fund for a Series of Certificates, including, if
applicable, any amounts available pursuant to any credit enhancement for such
Series, for the payment of principal of and interest on the Certificates of
such Series.
The Certificates will not represent an interest in or obligation of the
Depositor, the Master Servicer, any Seller or any of their respective
affiliates. The only obligations, if any, of the Depositor with respect to the
Trust Fund Assets or the Certificates of any Series will be pursuant to
certain representations and warranties. The Depositor does not have, and is
not expected in the future to have, any significant assets with which to meet
any obligation to repurchase Contracts with respect to which there has been a
breach of any representation or warranty which materially and adversely
affects the Certificateholders' interest in such Contracts. If, for example,
the Depositor were required to repurchase a Contract, its only sources of
funds to make such repurchase would be from funds obtained (i) from the
enforcement of a corresponding obligation, if any, on the part of the related
Seller or originator of such Contract or (ii) to the extent provided in the
related Prospectus Supplement, from a Reserve Account or similar credit
enhancement established to provide funds for such repurchases.
The only obligations of any Seller with respect to Trust Fund Assets or
the Certificates of any Series will be pursuant to certain representations and
warranties and certain document delivery requirements. A Seller may be
required to repurchase or substitute for any Contract with respect to which
such representations and warranties or certain document delivery requirements
are breached (and in the case of any such breach of representations and
warranties, such breach materially and adversely affects the
Certificateholders' interest in such Contract). There is no assurance,
however, that such Seller will have the financial ability to effect such
repurchase or substitution.
CREDIT ENHANCEMENT -- LIMITATIONS
Although credit enhancement is intended to reduce the risk of delinquent
payments or losses to holders of Certificates entitled to the benefit thereof,
the amount of such credit enhancement will be limited, as set forth in the
related Prospectus Supplement, and may be subject to periodic reduction in
accordance with a schedule or formula or otherwise decline, and could be
depleted under certain circumstances prior to the payment in full of the
related Series of Certificates, and as a result Certificateholders of the
related Series may suffer losses. Moreover, such credit enhancement may not
cover all potential losses or risks. For example, credit enhancement may or
may not cover fraud or negligence by a loan originator or other parties. In
addition, the Trustee will generally be permitted to reduce, terminate or
substitute all or a portion of the credit enhancement for any Series of
Certificates, provided the applicable Rating Agency indicates that the
then-current rating of the Certificates of such Series will not be adversely
affected. See "Credit Enhancement."
PREPAYMENT AND YIELD CONSIDERATIONS
The timing of principal payments of the Certificates of a Series will be
affected by a number of factors, including the following: (i) the extent of
prepayments (including for this purpose prepayments resulting from refinancing
or liquidations of the Contracts due to defaults, casualties, condemnations
and repurchases by the Depositor or a Seller) of the Contracts comprising the
Trust Fund, which prepayments may be influenced by a variety of factors
including general economic conditions, prevailing interest rate levels, the
availability of alternative financing and homeowner mobility, (ii) the manner
of allocating principal and/or payments among the classes of Certificates of a
Series as specified in the related Prospectus Supplement, (iii) the exercise
by the party entitled thereto of any right of optional termination and (iv)
the rate and timing of payment defaults and losses incurred with respect to
the Trust Fund Assets. The repurchase of Contracts by the Depositor or a
Seller may result from repurchases of Trust Fund Assets due to material
breaches of the Depositor's or such Seller's representations and warranties,
as applicable. The yields to maturity and weighted average lives of the
Certificates will be affected primarily by the rate and timing of prepayment
of the Contracts comprising the Trust Fund Assets. In addition, the yields to
maturity and weighted average lives of the Certificates will be affected by
the distribution of amounts remaining in any Pre-Funding Account following the
end of the related Funding Period. Any reinvestment risks resulting from a
faster or slower incidence of prepayment of Contracts held by a Trust Fund
will be borne entirely by the holders of one or more classes of the related
Series of Certificates. See "Yield and Prepayment Considerations" and "The
Agreements -- Pre-Funding Account."
Interest payable on the Certificates of a Series on a Distribution Date
will include all interest accrued during the period specified in the related
Prospectus Supplement. In the event interest accrues over a period ending two
or more days prior to a Distribution Date, the effective yield to
Certificateholders will be reduced from the yield that would otherwise be
obtainable if interest payable on the Certificates were to accrue through the
day immediately preceding each Distribution Date, and the effective yield (at
par) to Certificateholders will be less than the indicated coupon rate. See
"Description of the Certificates -- Distributions on Certificates --
Distributions of Interest."
DEPRECIATION IN VALUE OF MANUFACTURED HOMES
An investment in Certificates may be affected by, among other things, a
downturn in national, regional or local economic conditions. Regional and
local economic conditions are often volatile and, historically, regional and
local economic conditions, as well as national economic conditions, have
affected the delinquency, loan loss and repossession experience of
manufactured housing installment sales contracts and/or installment loan
contracts (hereinafter generally referred to as "contracts" or "manufactured
housing contracts"). Moreover, regardless of its location, manufactured
housing generally depreciates in value. Thus, Certificateholders should expect
that, as a general matter, the market value of any Manufactured Home will be
lower than the outstanding principal balance of the related Contract.
Sufficiently high delinquencies and liquidation losses on the Contracts in a
Contract Pool will have the effect of reducing, and could eliminate, the
protection against loss afforded by any credit enhancement supporting any
class of the related Certificates. If such protection is eliminated with
respect to a class of Certificates, the holders of such Certificates will bear
all risk of loss on the related Contracts and will have to rely on the value
of the related Manufactured Homes (and, in the case of Land-and-Home
Contracts, the related underlying real properties) for recovery of the
outstanding principal of and unpaid interest on any defaulted Contracts in the
related Contract Pool.
SECURITY INTEREST IN UNDERLYING ASSETS MAY NOT BE EFFECTIVE
The Seller in respect of a Contract will represent that such Contract is
secured by a security interest in a Manufactured Home. Perfection of security
interests in the Manufactured Homes and enforcement of rights to realize upon
the value of the Manufactured Homes as collateral for the Contracts are
subject to a number of Federal and state laws, including the Uniform
Commercial Code as adopted in each state and each state's certificate of title
statutes. The steps necessary to perfect the security interest in a
Manufactured Home will vary from state to state. Because of the expense and
administrative inconvenience involved, the Master Servicer will not amend any
certificates of title to change the lienholder specified therein from the
Seller to the Trustee and will not deliver any certificate of title to the
Trustee or note thereon the Trustee's interest. Consequently, in some states,
in the absence of such an amendment, the assignment to the Trustee of the
security interest in the Manufactured Home may not be effective or such
security interest may not be perfected and, in the absence of such notation or
delivery to the Trustee, the assignment of the security interest in the
Manufactured Home may not be effective against creditors of the Seller or a
trustee in bankruptcy of the Seller. In the case of Land-and-Home Contracts,
the Prospectus Supplement for the related Series will state whether
assignments to the Trustee of the mortgage or deed of trust related to the
underlying real property securing such Contracts will be recorded. In some
states in the absence of such recordation the assignment to the Trustee of
such mortgage or deed of trust may not be effective, and in the absence of
such recordation may not be effective against creditors of or purchasers from
the Seller or a trustee in bankruptcy of the Seller.
EFFECT OF VIOLATING CONSUMER PROTECTION LAWS
Delays Due to Liquidation. Even assuming that the Manufactured Homes
provide adequate security for the Contracts, substantial delays could be
encountered in connection with the liquidation of defaulted Contracts and
corresponding delays in the receipt of related proceeds by Certificateholders
could occur. An action to repossess a Manufactured Home securing a Contract is
regulated by state statutes and rules and is subject to many of the delays and
expenses of other lawsuits if defenses or counterclaims are interposed,
sometimes requiring several years to complete. In the event of a default by a
borrower, these restrictions, among other things, may impede the ability of
the Master Servicer to repossess or sell the Manufactured Home or to obtain
liquidation proceeds sufficient to repay all amounts due on the related
Contract. In addition, the Master Servicer will be entitled to deduct from
related liquidation proceeds all expenses reasonably incurred in attempting to
recover amounts due on defaulted Contracts and not yet repaid, including
payments to senior lienholders, legal fees and costs of legal action, taxes
and maintenance and preservation expenses.
Consumer Protection Laws. Applicable state laws generally regulate
interest rates and other charges, require certain disclosures, and require
licensing of certain originators and servicers of Contracts, including the
Truth in Lending Act, the Federal Trade Commission Act, the Fair Credit
Billing Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act,
the Fair Debt Collection Practices Act and the Uniform Consumer Credit Code.
In addition, most states have other laws, public policy and general principles
of equity relating to the protection of consumers, unfair and deceptive acts
and practices which may apply to the origination, servicing and collection of
the Contracts. 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 Contracts, may entitle the
borrower to a refund of amounts previously paid and, in addition, could
subject the Master Servicer to damages and administrative sanctions. Losses on
such Contracts that are not otherwise covered by the credit enhancement
described in the applicable Prospectus Supplement will be borne by the holders
of one or more classes of Certificates of the related Series. See "Certain
Legal Aspects of the Contracts."
Holder in Due Course Rules. The so--called "Holder--in--Due--Course" rule
of the Federal Trade Commission is intended to defeat the ability of the
transferor of a consumer credit contract which is the seller of goods which
gave rise to the transaction (and certain related lenders and assignees) to
transfer such contract free of notice of claims by the debtor thereunder. The
effect of this rule is to subject the assignee of such a Contract (such as the
Trust Fund) to all claims and defenses which the obligor under the Contract
could assert against the seller of the Manufactured Home. Liability under this
rule is limited to amounts paid under the Contract; however, the obligor under
the Contract also may be able to assert the rule to set off remaining amounts
due as a defense against a claim brought by the Trust Fund against such
obligor. See "Certain Legal Aspects of the Contracts."
RATING OF THE CERTIFICATES -- LIMITATIONS
It will be a condition to the issuance of a class of Certificates offered
hereby that they be rated in one of the four highest rating categories by the
Rating Agency identified in the related Prospectus Supplement. Any such rating
would be based on, among other things, the adequacy of the value of the
related Trust Fund Assets and any credit enhancement with respect to such
class and will represent such Rating Agency's assessment solely of the
likelihood that holders of such class of Certificates will receive payments to
which such Certificateholders are entitled under the related Agreement. Such
rating will not constitute an assessment of the likelihood that principal
prepayments on the related Contracts will be made, the degree to which the
rate of such prepayments might differ from that originally anticipated or the
likelihood of early optional termination of the Series of Certificates. Such
rating shall not be deemed a recommendation to purchase, hold or sell
Certificates, inasmuch as it does not address market price or suitability for
a particular investor. Such rating will not address the possibility that
prepayment at higher or lower rates than anticipated by an investor may cause
such investor to experience a lower than anticipated yield or that an investor
purchasing a Certificate at a significant premium might fail to recoup its
initial investment under certain prepayment scenarios. IN ADDITION, IF SUCH
RATING RELATES TO A SERIES WITH A PRE-FUNDING ACCOUNT, SUCH RATING WILL NOT
ADDRESS THE ABILITY OF THE RELATED TRUST FUND TO ACQUIRE SUBSEQUENT CONTRACTS,
ANY POTENTIAL PREPAYMENT OF THE CERTIFICATES RESULTING FROM DISTRIBUTION TO
CERTIFICATEHOLDERS OF AMOUNTS REMAINING IN THE PRE-FUNDING ACCOUNT FOLLOWING
THE END OF THE FUNDING PERIOD, OR THE EFFECT ON THE YIELD TO
CERTIFICATEHOLDERS RESULTING THEREFROM. FURTHERMORE, ALTHOUGH THE ADDITION OF
SUBSEQUENT CONTRACTS TO ANY TRUST FUND WILL BE SUBJECT TO THE CONDITIONS
DESCRIBED IN THE RELATED PROSPECTUS SUPPLEMENT, UNLESS OTHERWISE SPECIFIED IN
THE RELATED PROSPECTUS SUPPLEMENT THERE IS NO ASSURANCE THAT THE ADDITION OF
SUBSEQUENT CONTRACTS (OR THE INABILITY OF THE RELATED TRUST FUND TO PURCHASE
SUBSEQUENT CONTRACTS) WOULD NOT CAUSE A RATING TO BE LOWERED OR WITHDRAWN.
There is also no assurance that any such rating will remain in effect for
any given period of time or that it may not be lowered or withdrawn entirely
by the Rating Agency in the future if in its judgment circumstances in the
future so warrant. In addition to being lowered or withdrawn due to any
erosion in the adequacy of the value of the Trust Fund Assets or any credit
enhancement with respect to a Series of Certificates, such rating might also
be lowered or withdrawn because of, among other reasons, an adverse change in
the financial or other condition of a credit enhancement provider or a change
in the rating of such credit enhancement provider's long term debt.
The amount, type and nature of credit enhancement, if any, established
with respect to a class of Certificates will be determined on the basis of
criteria established by each Rating Agency rating classes of such Series. Such
criteria are sometimes based upon an actuarial analysis of the behavior of
similar loans in a larger group. Such analysis is often the basis upon which
each Rating Agency determines the amount of credit enhancement required with
respect to each such class. There can be no assurance that the historical data
supporting any such actuarial analysis will accurately reflect future
experience nor any assurance that the data derived from a large pool of
similar loans accurately predicts the delinquency, repossession or loss
experience of any particular pool of Contracts. No assurance can be given that
the values of any Manufactured Homes have remained or will remain at their
levels on the respective dates of origination of the related Contracts.
BOOK-ENTRY REGISTRATION MAY REDUCE LIQUIDITY OF THE CERTIFICATES
If issued in book-entry form, such registration may reduce the liquidity
of the Certificates in the secondary trading market since investors may be
unwilling to purchase Certificates for which they cannot obtain physical
certificates. Since transactions in book-entry Certificates can be effected
only through the Depository Trust Company ("DTC"), participating
organizations, Financial Intermediaries and certain banks, the ability of a
Certificateholder to pledge a book-entry Certificate to persons or entities
that do not participate in the DTC system may be limited due to lack of a
physical certificate representing such Certificates. Certificates Owners will
not be recognized as Certificateholders as such term is used in the related
Agreement, and Certificate Owners will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and its Participants.
In addition, Certificateholders may experience some delay in their
receipt of distributions of interest and principal on book-entry Certificates
since distributions are required to be forwarded by the Trustee to DTC and DTC
will then be required to credit such distributions to the accounts of
Depository participants which thereafter will be required to credit them to
the accounts of Certificateholders either directly or indirectly through
Financial Intermediaries. See "Description of the Certificates -- Book-Entry
Registration of Certificates."
PRE-FUNDING ACCOUNTS
PRE-FUNDED AMOUNTS NOT USED TO COVER LOSSES. If so provided in the
related Prospectus Supplement, on the closing date specified in such
Prospectus Supplement (the "Closing Date") the Depositor will deposit cash in
an amount (the "Pre-Funded Amount") specified in such Prospectus Supplement
into an account (the "Pre-Funding Account"). In no event shall the Pre-Funded
Amount exceed 50% of the initial aggregate principal amount of the
Certificates of the related Series. The Pre-Funded Amount will be used to
purchase Contracts ("Subsequent Contracts") in a period from the related
Closing Date to a date not more than one year after such Closing Date (such
period, the "Funding Period") from the Depositor (which, in turn, will acquire
such Subsequent Contracts from the Seller or Sellers specified in the related
Prospectus Supplement). The Pre-Funding Account will be maintained with the
Trustee for the related Series of Certificates and is designed solely to hold
funds to be applied by such Trustee during the Funding Period to pay to the
Depositor the purchase price for Subsequent Contracts. Monies on deposit in
the Pre-Funding Account will not be available to cover losses on or in respect
of the related Contracts.
UNUSED PRE-FUNDED AMOUNTS AT THE END OF FUNDING PERIOD WILL BE
DISTRIBUTED AS PRINCIPAL PREPAYMENT TO CERTIFICATEHOLDERS. To the extent that
the entire Pre-Funded Amount has not been applied to the purchase of
Subsequent Contracts by the end of the related Funding Period, any amounts
remaining in the Pre-Funding Account will be distributed as a prepayment of
principal to Certificateholders on the Distribution Date immediately following
the end of the Funding Period, in the amounts and pursuant to the priorities
set forth in the related Prospectus Supplement. Any reinvestment risk
resulting from such prepayment will be borne entirely by the holders of one or
more classes of the related Series of Certificates.
BANKRUPTCY OR INSOLVENCY OF THE SELLER, THE DEPOSITOR OR THE MASTER SERVICER
COULD LEAD TO DELAY OR REDUCTION OF AMOUNTS PAYABLE TO CERTIFICATEHOLDERS
The Seller and the Depositor will treat the transfer of the Contracts by
the Seller to the Depositor as a sale for accounting purposes. The Depositor
and the Trust Fund will treat the transfer of Contracts from the Depositor to
the Trust Fund as a sale for accounting purposes. As a sale of the Contracts
by the Seller to the Depositor, the Contracts would not be part of the
Seller's bankruptcy estate and would not be available to the Seller's
creditors. However, in the event of the insolvency of the Seller, it is
possible that the bankruptcy trustee or a creditor of the Seller may attempt
to recharacterize the sale of the Contracts as a borrowing by the Seller,
secured by a pledge of the Contracts. Similarly, as a sale of the Contracts by
the Depositor to the Trust Fund, the Contracts would not be part of the
Depositor's bankruptcy estate and would not be available to the Depositor's
creditors. However, in the event of the insolvency of the Depositor, it is
possible that the bankruptcy trustee or a creditor of the Depositor may
attempt to recharacterize the sale of the Contracts as a borrowing by the
Depositor, secured by a pledge of the Contracts. In either case, this
position, if argued before or accepted by a court, could prevent timely
payments of amounts due on the Certificates and result in a reduction of
payments due on the Certificates.
In the event of a bankruptcy or insolvency of the Master Servicer, the
bankruptcy trustee or receiver may have the power to prevent the Trustee or
the Certificateholders from appointing a successor Master Servicer. The time
period, if any, during which cash collections may be commingled with the
Master Servicer's own funds prior to each Distribution Date will be specified
in the related Prospectus Supplement. In the event of the insolvency of the
Master Servicer and if such cash collections are commingled with the Master
Servicer's own funds for at least ten days, the Trust Fund will likely not
have a perfected interest in such collections since such collections would not
have been deposited in a segregated account within ten days after the
collection thereof, and the inclusion thereof in the bankruptcy estate of the
Master Servicer may result in delays in payment and failure to pay amounts due
on the Certificates of the related Series.
In addition, federal and state statutory provisions, including the
federal bankruptcy laws and state laws affording relief to debtors, may
interfere with or affect the ability of the secured manufactured housing
lender to realize upon its security. For example, in a proceeding under Title
11 of the United States Code Section 101 et seq. and the rules related
thereto, as amended (the "Bankruptcy Code"), a lender may not repossess a
manufactured home (or foreclose on the underlying real property) without the
permission of the bankruptcy court. The rehabilitation plan proposed by the
debtor may provide, if the manufactured home is not the debtor's principal
residence and the court determines that the value of the manufactured home is
less than the principal balance of the related manufactured housing loan, for
the reduction of the secured indebtedness to the value of the manufactured
home as of the date of the commencement of the bankruptcy, rendering the
lender a general unsecured creditor for the difference, and also may reduce
the monthly payments due under such manufactured housing loan, change the rate
of interest and alter the manufactured housing loan repayment schedule. The
effect of any such proceedings under the Bankruptcy Code, including but not
limited to any automatic stay, could result in delays in receiving payments on
the Contracts underlying a Series of Certificates and possible reductions in
the aggregate amount of such payments.
VALUE OF TRUST FUND ASSETS COULD BE INSUFFICIENT TO PAY PRINCIPAL AND INTEREST
ON THE CERTIFICATES
There is no assurance that the market value of the Trust Fund Assets or
any other assets relating to a Series of Certificates described under "Credit
Enhancement" herein will at any time be equal to or greater than the principal
amount of the Certificates of such Series then outstanding, plus accrued
interest thereon. Moreover, upon an event of default under the Agreement for a
Series of Certificates and a sale of the related Trust Fund Assets or upon a
sale of the assets of a Trust Fund for a Series of Certificates, the Trustee,
the Master Servicer, the credit enhancer, if any, and any other service
provider specified in the related Prospectus Supplement generally will be
entitled to receive the proceeds of any such sale to the extent of unpaid fees
and other amounts owing to such persons under the related Agreement prior to
distributions to Certificateholders. Upon any such sale, the proceeds thereof
may be insufficient to pay in full the principal of and interest on the
Certificates of such Series.
DERIVATIVE TRANSACTIONS - RISK OF EARLY TERMINATION
IF SPECIFIED IN THE RELATED PROSPECTUS SUPPLEMENT, A TRUST FUND MAY ENTER
INTO PRIVATELY NEGOTIATED, OVER-THE-COUNTER HEDGING TRANSACTIONS WITH VARIOUS
COUNTERPARTIES, INCLUDING INTEREST RATE SWAPS, CAPS, COLLARS AND FLOORS
(COLLECTIVELY, THE "DERIVATIVE TRANSACTIONS") TO EFFECTIVELY FIX THE RATE OF
INTEREST THAT SUCH TRUST FUND PAYS ON ONE OR MORE BORROWING OR ONE OR MORE
SERIES OF BORROWINGS. CERTAIN EVENTS RELATED TO SUCH DERIVATIVE TRANSACTIONS
THAT ARE NOT ENTIRELY WITHIN THE CONTROL OF THE TRUST FUND (OR EVEN THE
COUNTERPARTY) MAY CAUSE THE EARLY TERMINATION OF SUCH DERIVATIVE TRANSACTIONS.
IN THE EVENT OF ANY SUCH EARLY TERMINATION, THE TRUST FUND MAY BE REQUIRED TO
MAKE A TERMINATION PAYMENT WHICH COULD BE SUBSTANTIAL. THIS IN TURN WOULD
REDUCE AMOUNTS AVAILABLE TO THE TRUST FUND TO MAKE PAYMENTS TO THE RELATED
CERTIFICATEHOLDERS. SEE "DESCRIPTION OF THE CERTIFICATES -- DERIVATIVE
TRANSACTIONS."
THE TRUST FUND
GENERAL
The Certificates of each Series will represent interests in the assets of
the related Trust Fund. The Trust Fund for each Series will be held by the
Trustee for the benefit of the related Certificateholders. Each Trust Fund
will consist of certain assets (the "Trust Fund Assets") consisting of a pool
(each, a "Pool") comprised of Contracts as specified in the related Prospectus
Supplement, together with payments in respect of such Contracts, as specified
in the related Prospectus Supplement.* The Pool will be created on the first
day of the month of the issuance of the related Series of Certificates or such
other date specified in the related Prospectus Supplement (the "Cut-off
Date"). The Certificates will be entitled to payment from the assets of the
related Trust Fund or Funds or other assets pledged for the benefit of the
Certificateholders, as specified in the related Prospectus Supplement and will
not be entitled to payments in respect of the assets of any other trust fund
established by the Depositor.
The Trust Fund Assets will be acquired by the Depositor, either directly
or through affiliates, from originators or sellers which may be affiliates of
the Depositor (the "Sellers"), and conveyed without recourse by the Depositor
to the related Trust Fund. Contracts acquired by the Depositor will have been
originated in accordance with the underwriting criteria specified below under
"The Manufactured Housing Program -- Underwriting Standards" or as otherwise
described in the related Prospectus Supplement. See "The Manufactured Housing
Program -- Underwriting Standards."
The Depositor will cause the Trust Fund Assets to be assigned to the
Trustee named in the related Prospectus Supplement for the benefit of the
holders of the Certificates of the related Series. The Master Servicer named
in the related Prospectus Supplement will service the Trust Fund Assets,
either directly or through other servicing institutions ("Sub-Servicers"),
pursuant to a pooling and servicing agreement (each, an "Agreement") among the
Depositor, the Master Servicer and the Trustee, and will receive a fee for
such services. See "The Manufactured Housing Program" and "The Agreements."
With respect to Contracts serviced by the Master Servicer through a
Sub-Servicer, the Master Servicer will remain liable for its servicing
obligations under the related Agreement as if the Master Servicer alone were
servicing such Contracts.
With respect to each Trust Fund, prior to the initial offering of the
related Series of Certificates, the Trust Fund will have no assets or
liabilities. No Trust Fund is expected to engage in any activities other than
acquiring, managing and holding of the related Trust Fund Assets and other
assets contemplated herein specified and in the related Prospectus Supplement
and the proceeds thereof, issuing Certificates and making payments and
distributions thereon and certain related activities. No Trust Fund is
expected to have any source of capital other than its assets and any related
credit enhancement.
Unless otherwise specified in the related Prospectus Supplement, the only
obligations of the Depositor with respect to a Series of Certificates will be
to obtain certain representations and warranties from the Sellers and, to the
extent such representations and warranties are not made by the Sellers
directly to the Trustee, to assign to the Trustee for such Series of
Certificates the Depositor's rights with respect to such representations and
warranties. See "The Agreements -- Assignment of the Trust Fund Assets." The
obligations of the Master Servicer with respect to the Contracts will consist
principally of its contractual servicing obligations under the related
Agreement (including its obligation to enforce the obligations of the
Sub-Servicers or Sellers, or both, as more fully described herein under "The
Manufactured Housing Program -- Representations by Sellers; Repurchases" and
"The Agreements -- Sub-Servicing By Sellers" and " -- Assignment of the Trust
Fund Assets") and its obligation, if any, to make certain cash advances in the
event of delinquencies in payments in respect of interest and/or principal on
or with respect to the Contracts in the amounts described herein under
"Description of the Certificates -- Advances." The obligations of the Master
Servicer to make advances may be subject to limitations, to the extent
provided herein and in the related Prospectus Supplement.
The following is a brief description of the assets expected to be
included in the Trust Funds. If specific information respecting the Trust Fund
Assets is not known at the time the related Series of Certificates initially
is offered, more general information of the nature described below will be
provided in the related Prospectus Supplement, and specific information will
be set forth in a report on Form 8-K to be filed with the Securities and
Exchange Commission within fifteen days after the initial issuance of such
Certificates (the "Detailed Description"). A copy of the Agreement with
respect to each Series of Certificates will be attached to the Form 8-K and
will be available for inspection at the Corporate Trust Office of the Trustee
specified in the related Prospectus Supplement. A schedule of the Contracts
relating to such Series will be attached to the Agreement delivered to the
Trustee upon delivery of the Certificates.
THE CONTRACTS
The Contracts will consist of manufactured housing installment sale
contracts and installment loan agreements secured by a security interest in a
new or used manufactured home (each, a "Manufactured Home"), and, to the
extent, if any, indicated in the related Prospectus Supplement, by a mortgage
or deed of trust on the real estate on which the manufactured home is located.
The Contracts may be conventional Contracts or contracts insured by the
Federal Housing Administration ("FHA") or partially guaranteed by the Veterans
Administration ("VA"). All Contracts will have been purchased by the
Depositor, either directly or through an affiliate, from one or more Sellers.
Unless otherwise specified in the related Prospectus Supplement, the
related Seller will represent the Manufactured Homes securing the Contracts
consist of manufactured homes within the meaning of 42 United States Code,
Section 5402(6), which defines a "manufactured home" as "a structure,
transportable in one or more sections, which in the traveling mode, is eight
body feet or more in width or forty body feet or more in length, or, when
erected on site, is three hundred twenty or more square feet, and which is
built on a permanent chassis designed to be used as a dwelling with or without
a permanent foundation when connected to the required utilities, and includes
the plumbing, heating, air-conditioning, and electrical systems contained
therein; except that such term shall include any structure which meets all the
requirements of this paragraph except the size requirements and with respect
to which the manufacturer voluntarily files a certification required by the
Secretary [of Housing and Urban Development] and complies with the standards
established under this chapter."
The payment terms of the Contracts to be included in a Trust Fund will be
described in the related Prospectus Supplement and may include any of the
following features (or combination thereof), all as described below or in the
related Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate adjustable
from time to time in relation to an index (which will be specified
in the related Prospectus Supplement), a rate that is fixed for a
period of time or under certain circumstances and is followed by an
adjustable rate, a rate that otherwise varies from time to time, a
rate that is "stepped-up" or a rate that is convertible from an
adjustable rate to a fixed rate. Changes to an adjustable rate may
be subject to periodic limitations, maximum rates, minimum rates or
a combination of such limitations. Accrued interest may be deferred
and added to the principal of a Contract for such periods and under
such circumstances as may be specified in the related Prospectus
Supplement. Contracts may provide for the payment of interest at a
rate lower than the Contract Rate for a period of time or for the
life of the Contract, and the amount of any difference may be
contributed from funds supplied by the seller of the Manufactured
Home or another source.
(b) Principal may be payable on a level debt service basis to
fully amortize the Contract 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 Contract 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 payment"). Principal may include interest that has been
deferred and added to the principal balance of the Contract.
(c) Monthly payments of principal and interest may be fixed for
the life of the Contract, may increase over a specified period of
time or may change from period to period. Contracts may include
limits on periodic increases or decreases in the amount of monthly
payments and may include maximum or minimum amounts of monthly
payments. A Contract may provide for scheduled payments to maturity
or payments that adjust from time to time to accommodate changes in
the Contract Rate or to reflect the occurrence of certain events or
that adjust on the basis of other methodologies, and may provide for
negative amortization or accelerated amortization, in each case as
described in the related Prospectus Supplement.
(d) Prepayments of principal may be subject to a prepayment
fee, which may be fixed for the life of the Contract or may decline
over time, and may be prohibited for the life of the Contract or for
certain periods ("lockout periods"). Certain Contracts may permit
prepayments after expiration of the applicable lockout period and
may require the payment of a prepayment fee in connection with any
such subsequent prepayment. Other Contracts may permit prepayments
without payment of a fee unless the prepayment occurs during
specified time periods. The Contracts may include "due on sale"
clauses which permit the lender to demand payment of the entire
Contract in connection with the sale or certain transfers of the
related Manufactured Home (and, in the case of a Land-and-Home
Contract, the related underlying real property). Other Contracts may
be assumable by persons meeting the then applicable underwriting
standards of the related Seller.
A Trust Fund may contain certain Land-and-Home Contracts that are
"staged-funding" Contracts, under which the related Seller makes multiple
disbursements to enable the obligor to finance both the purchase of a
Manufactured Home and the acquisition or improvement of the related underlying
real property. For example, such Seller might make disbursements to enable the
obligor to purchase the underlying real property, then to make improvements on
the underlying real property (such as a driveway, well and septic system),
then to purchase and deliver the Manufactured Home, and then to make final
site improvements. Prior to the final disbursement, the obligor pays only
interest on the disbursed amount of the loan; following the final
disbursement, the obligor begins making fully amortizing payments of principal
and interest. Such Seller will represent and warrant in the related Agreement
that all staged-funding Land-and-Home Contracts included in a Contract Pool
will have been fully disbursed within 90 days after the related Closing Date,
and such Seller will be obligated to repurchase at the related Purchase Price
on the next Distribution Date any staged-funding Land-and-Home Contract that
has not been fully disbursed by such date.
Additional Information. Each Prospectus Supplement will contain
information, as of the date of such Prospectus Supplement and to the extent
then specifically known to the Depositor, with respect to the Contracts
contained in the related Pool, including (i) the aggregate outstanding
principal balance and the average outstanding principal balance of the
Contracts as of the applicable Cut-off Date, (ii) the largest principal
balance and the smallest principal balance of any of the Contracts as of the
applicable Cut-off Date, (iii) whether the Manufactured Homes were new or used
at the time of origination of the related Contracts, (iv) the state or states
in which the Manufactured Homes are located at origination of the related
Contracts, (v) information with respect to the prepayment provisions, if any,
of the Contracts, (vi) the original and remaining terms to maturity of the
Contracts, (vii) the earliest origination date and latest maturity date of any
of the Contracts, (viii) the Loan-to-Value Ratios, as applicable, of the
Contracts, (ix) the Contract Rates or annual percentage rates ("APR") or range
of Contract Rates or APR's borne by the Contracts, (x) the maximum and minimum
per annum Contract Rates and (xi) with respect to Contracts with adjustable
Contract Rates "ARM Contracts"), the index, the frequency of the adjustment
dates, and the maximum Contract Rate or monthly payment variation at the time
of any adjustment thereof and over the life of the ARM Contract, (xii) the
method of allocation of payments on the Contracts (i.e., the simple interest
method, the actuarial method or such other method specified in such Prospectus
Supplement) and (xiii) other information regarding the payment characteristics
of the Contracts. If specific information respecting the Contracts is not
known to the Depositor at the time the related Certificates are initially
offered, more general information of the nature described above will be
provided in the related Prospectus Supplement, and specific information will
be set forth in the Detailed Description.
Unless otherwise specified in the related Prospectus Supplement, the
"Loan-to-Value Ratio" of a Contract at any given time is the fraction,
expressed as a percentage, the numerator of which is the original principal
balance of the related Contract and the denominator of which is the Value in
respect of the Contract. Unless otherwise provided in the related Prospectus
Supplement, the "Value" in respect of any Contract is calculated by
determining the sum of (a) either (i) the sum of the down payment (which
includes the value of any trade-in unit), AND the original amount financed on
the related Contract (which may include sales and other taxes and insurance
and prepaid finance charges) or (ii) the appraisal value of the home and (b)
in the case of any Land-and-Home Contract, the appraised value of the land
securing such Contract (as appraised by an independent appraiser).
SUBSTITUTION OF TRUST FUND ASSETS
Substitution of Trust Fund Assets will be permitted in the event of
certain breaches of representations and warranties with respect to any
original Trust Fund Asset or in the event certain documentation with respect
to any Trust Fund Asset is determined by the Trustee to be incomplete. See
"The Manufactured Housing Program -- Representations by Sellers; Repurchases."
The period during which such substitution will be permitted generally will be
indicated in the related Prospectus Supplement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will be
applied by the Depositor to the purchase of Trust Fund Assets or will be used
by the Depositor for general corporate purposes. The Depositor expects to sell
Certificates in Series from time to time, but the timing and amount of
offerings of Certificates will depend on a number of factors, including the
volume of Trust Fund Assets acquired by the Depositor, prevailing interest
rates, availability of funds and general market conditions.
THE DEPOSITOR
IndyMac ABS, Inc., a Delaware corporation (the "Depositor"), was
incorporated in April 1998 for the limited purpose of acquiring, owning and
transferring mortgage and mortgage related assets and selling interests
therein or bonds secured thereby. The Depositor is a limited purpose finance
subsidiary of IndyMac, Inc., a Delaware corporation. The Depositor maintains
its principal office at 155 North Lake Avenue, Pasadena, California 91101. Its
telephone number is (800) 669-2300.
Neither the Depositor nor any of the Depositor's affiliates will insure
or guarantee distributions on the Certificates of any Series.
THE MANUFACTURED HOUSING PROGRAM
UNDERWRITING STANDARDS
The Contracts will have been purchased by the Depositor, either directly
or through affiliates, from one or more Sellers as described in the related
Prospectus Supplement. The Contracts so acquired by the Depositor will have
been originated in accordance with the underwriting criteria for the
applicable Seller or Sellers as described in the related Prospectus
Supplement.
QUALIFICATIONS OF SELLERS
Each Seller will be required to be an institution experienced in
originating and servicing manufactured housing contracts of the type contained
in the related Pool in accordance with accepted practices and prudent
guidelines, and must maintain satisfactory facilities to originate and service
those loans. Other qualifications of each Seller will be described in the
related Prospectus Supplement.
REPRESENTATIONS BY SELLERS; REPURCHASES
Each Seller will have made representations and warranties in respect of
the Contracts sold by such Seller and evidenced by all, or a part, of a Series
of Certificates. Such representations and warranties may include, among other
things: (i) that the Seller had good title to each such Contract and such
Contract was subject to no offsets, defenses, counterclaims or rights of
rescission except to the extent that any buydown agreement may forgive certain
indebtedness of a borrower; (ii) that each Contract constituted a valid lien
on, or a perfected security interest with respect to, the Manufactured Home
(and, in the case of each Land-and-Home Contract, the underlying real
property) (subject only to permissible liens disclosed, if applicable, and
certain other exceptions described in the Agreement); (iii) that no required
payment on a Contract was delinquent more than the number of days specified in
the related Prospectus Supplement; (iv) that each Contract is covered by
hazard insurance; and (v) that each Contract was made in compliance with, and
is enforceable under, all applicable local, state and federal laws and
regulations in all material respects.
If so specified in the related Prospectus Supplement, the representations
and warranties of a Seller in respect of a Contract will be made not as of the
Cut-off Date but as of the date on which such Seller sold the Contract to the
Depositor or one of its affiliates. Under such circumstances, a substantial
period of time may have elapsed between the sale date and the date of initial
issuance of the Series of Certificates evidencing an interest in such
Contract. Since the representations and warranties of a Seller do not address
events that may occur following the sale of a Contract by such Seller, its
repurchase obligation described below will not arise if the relevant event
that would otherwise have given rise to such an obligation with respect to a
Contract occurs after the date of sale of such Contract by such Seller to the
Depositor or its affiliates. However, the Depositor will not include any
Contract in the Trust Fund for any Series of Certificates if anything has come
to the Depositor's attention that would cause it to believe that the
representations and warranties of a Seller will not be accurate and complete
in all material respects in respect of such Contract as of the date of initial
issuance of the related Series of Certificates. If the Master Servicer is also
a Seller of Contracts with respect to a particular Series of Certificates,
such representations will be in addition to the representations and warranties
made by the Master Servicer in its capacity as a Master Servicer.
The Master Servicer or the Trustee, if the Master Servicer is the Seller,
will promptly notify the relevant Seller of any breach of any representation
or warranty made by it in respect of a Contract which materially and adversely
affects the Certificateholders' interest in such Contract. Unless otherwise
specified in the related Prospectus Supplement, if such Seller cannot cure any
such breach on or prior to the business day after the first Determination Date
which is more than 90 days after such Seller's receipt of notice from the
Master Servicer or the Trustee, as the case may be, then such Seller will be
obligated either (i) to repurchase such Contract from the Trust Fund at a
price (the "Purchase Price") equal to 100% of the unpaid principal balance
thereof as of the date of the repurchase plus accrued interest thereon to the
scheduled monthly payment date for such Contract in the month following the
month of repurchase at the Contract Rate (less any Advances or amount payable
as related servicing compensation if such Seller is the Master Servicer) or
(ii) substitute for such Contract a replacement loan that satisfies the
criteria specified in the related Prospectus Supplement. If a REMIC election
is to be made with respect to a Trust Fund, unless otherwise specified in the
related Prospectus Supplement, the Master Servicer or a holder of the related
residual certificate generally will be obligated to pay any prohibited
transaction tax which may arise in connection with any such repurchase or
substitution and the Trustee must have received a satisfactory opinion of
counsel that such repurchase or substitution will not cause the Trust Fund to
lose its status as a REMIC or otherwise subject the Trust Fund to a prohibited
transaction tax. The Master Servicer may be entitled to reimbursement for any
such payment from the assets of the related Trust Fund or from any holder of
the related residual certificate. See "Description of the Certificates --
General." Except in those cases in which the Master Servicer is the Seller,
the Master Servicer will be required under the relevant Agreement to enforce
this obligation for the benefit of the Trustee and the holders of the
Certificates, following the practices it would employ in its good faith
business judgment were it the owner of such Contract. This repurchase or
substitution obligation will constitute the sole remedy available to holders
of Certificates or the Trustee for a breach of representation by a Seller.
Neither the Depositor nor the Master Servicer (unless the Master Servicer
is a Seller) will be obligated to purchase or substitute a Contract if a
Seller defaults on its obligation to do so, and no assurance can be given that
Sellers will carry out their respective repurchase or substitution obligations
with respect to Contracts.
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to separate pooling
and servicing agreements (each, an "Agreement") among the Depositor, the
Master Servicer and the Trustee. A form of Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
Each Agreement, dated as of the related Cut-off Date, will be among the
Depositor, the Master Servicer and the Trustee for the benefit of the holders
of the Certificates of such Series. The provisions of each Agreement will vary
depending upon the nature of the Certificates to be issued thereunder and the
nature of the related Trust Fund. The following are descriptions of the
material provisions which may appear in each Agreement. The descriptions are
subject to, and are qualified in their entirety by reference to, all of the
provisions of the Agreement for each Series of Certificates and the applicable
Prospectus Supplement. The Depositor will provide a copy of the Agreement
(without exhibits) relating to any Series without charge upon written request
of a holder of record of a Certificate of such Series addressed to IndyMac
ABS, Inc., 155 North Lake Avenue, Pasadena, California 91101, Attention:
Secondary Marketing, telephone (800) 669-2300.
GENERAL
Unless otherwise specified in the related Prospectus Supplement, the
Certificates of each Series will be issued in book-entry or fully registered
form, in the authorized denominations specified in the related Prospectus
Supplement, will evidence specified beneficial ownership interests in the
assets of the related Trust Fund created pursuant to each Agreement and will
not be entitled to payments in respect of the assets included in any other
Trust Fund established by the Depositor. Unless otherwise specified in the
related Prospectus Supplement, the Certificates will not represent obligations
of the Depositor or any affiliate of the Depositor. Certain of the Contracts
may be guaranteed or insured as set forth in the related Prospectus
Supplement. Each Trust Fund will consist of, to the extent provided in the
related Agreement, (i) the Trust Fund Assets, as from time to time are subject
to the related Agreement (exclusive of any amounts specified in the related
Prospectus Supplement ("Retained Interest")), including all payments of
interest and principal received with respect to the Contracts after the
Cut-off Date (to the extent not applied in computing the principal balance of
such Contracts as of the Cut-off Date (the "Cut-off Date Principal Balance"));
(ii) such assets as from time to time are required to be deposited in the
related Collection Account, as described below under "The Agreements --
Payments on Contracts; Deposits to Collection Account"; (iii) property which
secured a Contract and which is acquired on behalf of the Certificateholders
by repossession (in the case of a Manufactured Home) or foreclosure or deed in
lieu of foreclosure (in the case of underlying real property securing a
Land-and-Home Contract) and (iv) any insurance policies or other forms of
credit enhancement required to be maintained pursuant to the related
Agreement. If so specified in the related Prospectus Supplement, a Trust Fund
may also include one or more of the following: reinvestment income on payments
received on the Trust Fund Assets, a Reserve Account, a pool insurance policy,
a special hazard insurance policy, a bankruptcy bond, one or more letters of
credit, a surety bond, guaranties or similar instruments.
Each Series of Certificates will be issued in one or more classes. Each
class of Certificates of a Series will evidence beneficial ownership of a
specified percentage (which may be 0%) or portion of future interest payments
and a specified percentage (which may be 0%) or portion of future principal
payments on the related Trust Fund Assets. A Series of Certificates may
include one or more classes that are senior in right to payment to one or more
other classes of Certificates of such Series. Certain Series or classes of
Certificates may be covered by insurance policies, surety bonds or other forms
of credit enhancement, in each case as described under "Credit Enhancement"
herein and in the related Prospectus Supplement. One or more classes of
Certificates of a Series may be entitled to receive distributions of
principal, interest or any combination thereof. Distributions on one or more
classes of a Series of Certificates may be made prior to one or more other
classes, after the occurrence of specified events, in accordance with a
schedule or formula or on the basis of collections from designated portions of
the related Trust Fund Assets, in each case as specified in the related
Prospectus Supplement. The timing and amounts of such distributions may vary
among classes or over time as specified in the related Prospectus Supplement.
Distributions of principal and interest (or, where applicable, of
principal only or interest only) on the related Certificates will be made by
the Trustee on each Distribution Date (i.e., monthly, quarterly, semi-annually
or at such other intervals and on the dates as are specified in the related
Prospectus Supplement) in proportion to the percentages specified in the
related Prospectus Supplement. Distributions will be made to the persons in
whose names the Certificates are registered at the close of business on the
dates specified in the related Prospectus Supplement (each, a "Record Date").
Distributions will be made in the manner specified in the related Prospectus
Supplement to the persons entitled thereto at the address appearing in the
register maintained for holders of Certificates (the "Certificate Register");
provided, however, that the final distribution in retirement of the
Certificates will be made only upon presentation and surrender of the
Certificates at the office or agency of the Trustee or other person specified
in the notice to Certificateholders of such final distribution.
The Certificates will be freely transferable and exchangeable at the
Corporate Trust Office of the Trustee as set forth in the related Prospectus
Supplement. No service charge will be made for any registration of exchange or
transfer of Certificates of any Series, but the Trustee may require payment of
a sum sufficient to cover any related tax or other governmental charge.
Under current law, the purchase and holding of certain classes of
Certificates by or on behalf of any employee benefit plan or other retirement
arrangement (including individual retirement accounts and annuities, Keogh
plans and collective investment funds in which such plans, accounts or
arrangements are invested) subject to provisions of ERISA or the Code may
result in prohibited transactions, within the meaning of ERISA and the Code,
or may subject the Trustee, the Master Servicer or the Depositor to
obligations or liabilities in addition to those undertaken in the related
Agreement. See "ERISA Considerations." UNDER CURRENT LAW, the transfer of
Certificates of such a class will not be registered unless the transferee (i)
represents that it is not, and is not purchasing on behalf of, any such plan,
account or arrangement or (ii) provides an opinion of counsel satisfactory to
the Trustee and the Depositor that the purchase of Certificates of such a
class by or on behalf of such plan, account or arrangement is permissible
under applicable law and will not subject the Trustee, the Master Servicer or
the Depositor to any obligation or liability in addition to those undertaken
in the Agreements.
As to each Series, an election may be made to treat the related Trust
Fund or designated portions thereof either as a REMIC or as a FASIT. The
related Prospectus Supplement will specify whether a REMIC or FASIT election
is to be made. Alternatively, the Agreement for a Series may provide that a
REMIC or FASIT election may be made at the discretion of the Depositor or the
Master Servicer and may only be made if certain conditions are satisfied. As
to any such Series, the terms and provisions applicable to the making of a
REMIC election will be set forth in the related Prospectus Supplement. If a
REMIC election is made with respect to a Series, one of the classes will be
designated as evidencing the sole class of "residual interests" in the related
REMIC, as defined in the Code. All other classes of Certificates in such a
Series will constitute "regular interests" in the related REMIC, as defined in
the Code. If a FASIT election is made with respect to a Series, one of the
classes will be designated as the ownership interest, as defined in the Code.
All other classes of Securities in such a Series will constitute "regular
interests" in the related FASIT, as defined in the Code. As to each Series
with respect to which a REMIC election is to be made, the Master Servicer or a
holder of the related residual certificate in the case of a REMIC, and the
holder of the related ownership interest in the case of a FASIT, will be
obligated to take all actions required in order to comply with applicable laws
and regulations and will be obligated to pay any prohibited transaction taxes.
The Master Servicer, unless otherwise provided in the related Prospectus
Supplement, will be entitled to reimbursement for any such payment from the
assets of the Trust Fund or from any holder of the related residual
certificate in the case of a REMIC, or from the holder of the related
ownership interest in the case of a FASIT.
DISTRIBUTIONS ON CERTIFICATES
General. In general, the method of determining the amount of
distributions on a particular Series of Certificates will depend on the type
of credit support, if any, that is used with respect to such Series. See
"Credit Enhancement." Set forth below are descriptions of various methods that
may be used to determine the amount of distributions on the Certificates of a
particular Series. The Prospectus Supplement for each Series of Certificates
will describe the method to be used in determining the amount of distributions
on the Certificates of such Series.
Distributions allocable to principal and interest on the Certificates
will be made by the Trustee out of, and only to the extent of, funds in the
related Collection Account, including any funds transferred from any Reserve
Account (a "Reserve Account"). As between Certificates of different classes
and as between distributions of principal (and, if applicable, between
distributions of Principal Prepayments, as defined below, and scheduled
payments of principal) and interest, distributions made on any Distribution
Date will be applied as specified in the related Prospectus Supplement. The
Prospectus Supplement will also describe the method for allocating
distributions among Certificates of a particular class.
Available Funds. All distributions on the Certificates of each Series on
each Distribution Date will be made from the Available Funds described below,
in accordance with the terms described in the related Prospectus Supplement
and specified in the Agreement. "Available Funds" for each Distribution Date
will generally equal the amount on deposit in the related Collection Account
on such Distribution Date (net of related fees and expenses payable by the
related Trust Fund) other than amounts to be held therein for distribution on
future Distribution Dates.
Distributions of Interest. Interest will accrue on the aggregate
principal balance of the Certificates (or, in the case of Certificates
entitled only to distributions allocable to interest, the aggregate notional
amount) of each class of Certificates (the "Class Certificate Balance")
entitled to interest from the date, at the pass-through rate or interest rate,
as applicable (which in either case may be a fixed rate or rate adjustable as
specified in such Prospectus Supplement), and for the periods specified in
such Prospectus Supplement. To the extent funds are available therefor,
interest accrued during each such specified period on each class of
Certificates entitled to interest (other than a class of Certificates that
provides for interest that accrues, but is not currently payable, referred to
hereafter as "Accrual Certificates") will be distributable on the Distribution
Dates specified in the related Prospectus Supplement until the aggregate Class
Certificate Balance of the Certificates of such class has been distributed in
full or, in the case of Certificates entitled only to distributions allocable
to interest, until the aggregate notional amount of such Certificates is
reduced to zero or for the period of time designated in the related Prospectus
Supplement. The original Class Certificate Balance of each Certificate will
equal the aggregate distributions allocable to principal to which such
Certificate is entitled. Distributions allocable to interest on each
Certificate that is not entitled to distributions allocable to principal will
be calculated based on the notional amount of such Certificate. The notional
amount of a Certificate will not evidence an interest in or entitlement to
distributions allocable to principal but will be used solely for convenience
in expressing the calculation of interest and for certain other purposes.
Interest payable on the Certificates of a Series on a Distribution Date
will include all interest accrued during the period specified in the related
Prospectus Supplement. In the event interest accrues over a period ending two
or more days prior to a Distribution Date, the effective yield to
Certificateholders will be reduced from the yield that would otherwise be
obtainable if interest payable on the Certificate were to accrue through the
day immediately preceding such Distribution Date, and the effective yield (at
par) to Certificateholders will be less than the indicated coupon rate.
With respect to any class of Accrual Certificates, if specified in the
related Prospectus Supplement, any interest that has accrued but is not paid
on a given Distribution Date will be added to the aggregate Class Certificate
Balance of such class of Certificates on that Distribution Date. Distributions
of interest on any class of Accrual Certificates will commence only after the
occurrence of the events specified in such Prospectus Supplement. Prior to
such time, the beneficial ownership interest in the Trust Fund or the
principal balance, as applicable, of such class of Accrued Certificates, as
reflected in the aggregate Class Certificate Balance of such class of Accrual
Certificates, will increase on each Distribution Date by the amount of
interest that accrued on such class of Accrual Certificates during the
preceding interest accrual period but that was not required to be distributed
to such class on such Distribution Date. Any such class of Accrual
Certificates will thereafter accrue interest on its outstanding Class
Certificate Balance as so adjusted.
Distributions of Principal. The related Prospectus Supplement will
specify the method by which the amount of principal to be distributed on the
Certificates on each Distribution Date will be calculated and the manner in
which such amount will be allocated among the classes of Certificates entitled
to distributions of principal. The aggregate Class Certificate Balance of any
class of Certificates entitled to distributions of principal generally will be
the aggregate original Class Certificate Balance of such class of Certificates
specified in such Prospectus Supplement, reduced by all distributions reported
to the holders of such Certificates as allocable to principal and, (i) in the
case of Accrual Certificates, increased by all interest accrued but not then
distributable on such Accrual Certificates and (ii) in the case of adjustable
rate Certificates, subject to the effect of negative amortization, if
applicable.
If so provided in the related Prospectus Supplement, one or more classes
of Certificates will be entitled to receive all or a disproportionate
percentage of the payments of principal which are received from borrowers in
advance of their scheduled due dates and are not accompanied by amounts
representing scheduled interest due after the month of such payments
("Principal Prepayments") in the percentages and under the circumstances or
for the periods specified in such Prospectus Supplement. Any such allocation
of Principal Prepayments to such class or classes of Certificates will have
the effect of accelerating the amortization of such Certificates while
increasing the interests evidenced by one or more other classes of
Certificates in the Trust Fund. Increasing the interests of the other classes
of Certificates relative to that of certain Certificates is intended to
preserve the availability of the subordination provided by such other
Certificates.
See "Credit Enhancement -- Subordination."
Unscheduled Distributions. If specified in the related Prospectus
Supplement, the Certificates will be subject to receipt of distributions
before the next scheduled Distribution Date under the circumstances and in the
manner described below and in such Prospectus Supplement. If applicable, the
Trustee will be required to make such unscheduled distributions on the day and
in the amount specified in the related Prospectus Supplement if, due to
substantial payments of principal (including Principal Prepayments) on the
Trust Fund Assets, the Trustee or the Master Servicer determines that the
funds available or anticipated to be available from the Collection Account
and, if applicable, any Reserve Account, may be insufficient to make required
distributions on the Certificates on such Distribution Date. Unless otherwise
specified in the related Prospectus Supplement, the amount of any such
unscheduled distribution that is allocable to principal will not exceed the
amount that would otherwise have been required to be distributed as principal
on the Certificates on the next Distribution Date. Unless otherwise specified
in the related Prospectus Supplement, the unscheduled distributions will
include interest at the applicable pass-through rate (if any) or interest rate
(if any) on the amount of the unscheduled distribution allocable to principal
for the period and to the date specified in such Prospectus Supplement.
ADVANCES
To the extent provided in the related Prospectus Supplement, the Master
Servicer will be required to advance on or before each Distribution Date (from
its own funds, funds advanced by Sub-Servicers or funds held in the Collection
Account for future distributions to the holders of Certificates of the related
Series), an amount equal to the aggregate of payments of interest and/or
principal that were delinquent on the related Determination Date (as such term
is defined in the related Prospectus Supplement) and were otherwise not
advanced by any Sub-Servicer, subject to the Master Servicer's determination
that such advances may be recoverable out of late payments by borrowers,
Liquidation Proceeds, Insurance Proceeds or otherwise.
In making Advances, the Master Servicer will endeavor to maintain a
regular flow of scheduled interest and/or principal payments to holders of the
Certificates, rather than to guarantee or insure against losses. If Advances
are made by the Master Servicer from cash being held for future distribution
to Certificateholders, the Master Servicer will replace such funds on or
before any future Distribution Date to the extent that funds in the applicable
Collection Account on such Distribution Date would be less than the amount
required to be available for distributions to Certificateholders on such date.
Any Master Servicer funds advanced will be reimbursable to the Master Servicer
out of recoveries on the specific Contracts with respect to which such
Advances were made (e.g., late payments made by the related borrower, any
related Insurance Proceeds, Liquidation Proceeds or proceeds of any Contract
purchased by the Depositor, a Sub-Servicer or a Seller pursuant to the related
Agreement). Advances by the Master Servicer (and any advances by a
Sub-Servicer) also will be reimbursable to the Master Servicer (or
Sub-Servicer) from cash otherwise distributable to Certificateholders
(including the holders of Senior Certificates) to the extent that the Master
Servicer determines that any such Advances previously made are not ultimately
recoverable as described above. To the extent provided in the related
Prospectus Supplement, the Master Servicer also will be obligated to make
Advances, to the extent recoverable out of Insurance Proceeds, Liquidation
Proceeds or otherwise, in respect of certain taxes and insurance premiums not
paid by borrowers on a timely basis. Funds so advanced are reimbursable to the
Master Servicer to the extent permitted by the related Agreement. The
obligations of the Master Servicer to make advances may be supported by a cash
advance reserve fund, a surety bond or other arrangement of the type described
herein under "Credit Enhancement," in each case as described in the related
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, in
the event the Master Servicer or a Sub-Servicer fails to make a required
Advance, the Trustee will be obligated to make such Advance in its capacity as
successor servicer. If the Trustee makes such an Advance, it will be entitled
to be reimbursed for such Advance to the same extent and degree as the Master
Servicer or a Sub-Servicer is entitled to be reimbursed for Advances. See
"Description of the Certificates -- Distributions on Certificates."
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise specified in the related Prospectus Supplement, prior to
or concurrently with each distribution on a Distribution Date the Master
Servicer or the Trustee will furnish to each Certificateholder of record of
the related Series a statement setting forth, to the extent applicable to such
Series of Certificates, among other things:
(i) the amount of such distribution allocable to
principal, separately identifying the aggregate
amount of Principal Prepayments, and if so specified
in the related Prospectus Supplement, any applicable
prepayment penalties included therein;
(ii) the amount of such distribution allocable to
interest;
(iii) the amount of any Advance;
(iv) the aggregate amount (a) otherwise allocable to the
Subordinated Certificateholders on such Distribution
Date and (b) withdrawn from the Reserve Account, if
any, that is included in the amounts distributed to
the Senior Certificateholders;
(v) the outstanding principal balance or notional amount
of each class of the related Series after giving
effect to the distribution of principal on such
Distribution Date;
(vi) the percentage of Principal Prepayments on the
Contracts, if any, which each such class will be
entitled to receive on the following Distribution
Date;
(vii) the related amount of the servicing compensation
retained or withdrawn from the Collection Account by
the Master Servicer;
(viii) the number and aggregate principal balances of
Contracts (A) delinquent (exclusive of Contracts in
repossession or liquidation) (1) 31 to 59 days, (2)
60 to 89 days and (3) 90 or more days and (B) in
repossession or liquidation, as of the close of
business on the last day of the calendar month
preceding such Distribution Date;
(ix) the number and aggregate principal balances of
Contracts relating to Manufactured Homes that were
repossessed since the immediately preceding
Distribution Date;
(x) the pass-through rate or interest rate, as
applicable, if adjusted from the date of the last
statement, of any such class expected to be
applicable to the next distribution to such class;
(xi) if applicable, the amount remaining in any Reserve
Account at the close of business on the Distribution
Date;
(xii) the pass-through rate or interest rate, as
applicable, as of the day prior to the immediately
preceding Distribution Date; and
(xiii) any amounts remaining under letters of credit, pool
policies or other forms of credit enhancement.
Where applicable, any amount set forth above may be expressed as a
dollar amount per single Certificate of the relevant class having the
Percentage Interest specified in the related Prospectus Supplement. The report
to Certificateholders for any Series of Certificates may include additional or
other information of a similar nature to that specified above.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or the Trustee will mail to each
Certificateholder of record at any time during such calendar year a report (a)
as to the aggregate of amounts reported pursuant to (i) and (ii) above for
such calendar year or, in the event such person was a Certificateholder of
record during a portion of such calendar year, for the applicable portion of
such year and (b) such other customary information as may be deemed necessary
or desirable for Certificateholders to prepare their tax returns.
CATEGORIES OF CLASSES OF CERTIFICATES
The Certificates of any Series may be comprised of one or more
classes. Such classes, in general, fall into different categories. The
following chart identifies and generally defines certain of the more typical
categories. The Prospectus Supplement for a series of Certificates may
identify the classes which comprise such Series by reference to the following
categories.
CATEGORIES OF CLASSES DEFINITION
PRINCIPAL TYPES
Accretion Directed................. A class that receives principal
payments from the accreted interest
from specified Accrual Certificates.
An Accretion Directed class also may
receive principal payments from
principal paid on the underlying Trust
Fund Assets for the related Series.
Component Certificates............. A class consisting of "Components."
The Components of a class of Component
Certificates may have different
principal and/or interest payment
characteristics but together
constitute a single class. Each
Component of a class of Component
Certificates may be identified as
falling into one or more of the
categories in this chart. Notional
Amount Certificates....... A class
having no principal balance and
bearing interest on the related
notional amount. The notional amount
is used for purposes of the
determination of interest
distributions.
Planned Principal Class (also
sometimes referred to as "PACs")... A class that is designed to receive
principal payments using a
predetermined principal balance
schedule derived by assuming two
constant prepayment rates for the
underlying Trust Fund Assets. These
two rates are the endpoints for the
"structuring range" for the Planned
Principal Class. The Planned Principal
Classes in any Series of Certificates
may be subdivided into different
categories (e.g., Primary Planned
Principal Classes, Secondary Planned
Principal Classes and so forth) having
different effective structuring ranges
and different principal payment
priorities. The structuring range for
the Secondary Planned Principal
Classes of a Series of Certificates
will be narrower than that for the
Primary Planned Principal Class of
such Series. Scheduled Principal
Class.......... A class that is
designed to receive principal payments
using a predetermined principal
balance schedule but is not designated
as a Planned Principal Class or
Targeted Principal Class. In many
cases, the schedule is derived by
assuming two constant prepayment rates
for the underlying Trust Fund Assets.
These two rates are the endpoints for
the "structuring range" for the
Scheduled Principal Class. Sequential
Pay..................... Classes that
receive principal payments in a
prescribed sequence, that do not have
predetermined principal balance
schedules and that under all
circumstances receive payments of
principal continuously from the first
Distribution Date on which they
receive principal until they are
retired. A single class that receives
principal payments before or after all
other classes in the same Series of
Certificates may be identified as a
Sequential Pay class.
Strip.............................. A class that receives a constant
proportion, or "strip," of the
principal payments on the underlying
Trust Fund Assets.
Support Class (also sometimes
referred to as "companion classes") A class that receives principal
payments on any Distribution Date only
if scheduled payments have been made
on specified Planned Principal
Classes, Targeted Principal Classes
and/or Scheduled Principal Classes.
Targeted Principal Class (also
sometimes referred to as "TACs").. A class that is designed to receive
principal payments using a
predetermined principal balance
schedule derived by assuming a single
constant prepayment rate for the
underlying Trust Fund Assets.
INTEREST TYPES
Fixed Rate......................... A class with an interest rate that is
fixed throughout the life of the
class. Floating
Rate...................... A class
with an interest rate that resets
periodically based upon a designated
index and that varies directly with
changes in such index.
Inverse Floating Rate.............. A class with an interest rate that
resets periodically based upon a
designated index and that varies
inversely with changes in such index.
Variable Rate...................... A class with an interest rate that
resets periodically and is calculated
by reference to the rate or rates of
interest applicable to specified
assets or instruments (e.g., the
Contract Rates borne by the underlying
Contracts).
Interest Only...................... A class that receives some or all of
the interest payments made on the
underlying Trust Fund Assets and
little or no principal. Interest Only
classes have either a nominal
principal balance or a notional
amount. A nominal principal balance
represents actual principal that will
be paid on the class. It is referred
to as nominal since it is extremely
small compared to other classes. A
notional amount is the amount used as
a reference to calculate the amount of
interest due on an Interest Only class
that is not entitled to any
distributions in respect of principal.
Principal Only..................... A
class that does not bear interest and
is entitled to receive only
distributions in respect of principal.
Partial Accrual.................... A
class that accretes a portion of the
amount of accrued interest thereon,
which amount will be added to the
principal balance of such class on
each applicable Distribution Date,
with the remainder of such accrued
interest to be distributed currently
as interest on such class. Such
accretion may continue until a
specified event has occurred or until
such Partial Accrual class is retired.
Accrual............................ A class that accretes the amount of
accrued interest otherwise
distributable on such class, which
amount will be added as principal to
the principal balance of such class on
each applicable Distribution Date.
Such accretion may continue until some
specified event has occurred or until
such Accrual class is retired.
INDICES APPLICABLE TO FLOATING RATE AND INVERSE FLOATING RATE CLASSES
LIBOR
Unless otherwise specified in the related Prospectus Supplement, on the
LIBOR Determination Date (as such term is defined in the related Prospectus
Supplement) for each class of Certificates of a Series as to which the
applicable interest rate is determined by reference to an index denominated as
LIBOR, the Person designated in the related Agreement (the "Calculation
Agent") will determine LIBOR in accordance with one of the two methods
described below (which method will be specified in the related Prospectus
Supplement):
LIBO Method
If using this method to calculate LIBOR, the Calculation Agent will
determine LIBOR by reference to the quotations set forth on the Reuters Screen
LIBO Page (as defined in the International Swap Dealers Association, Inc. Code
of Standard Wording, Assumptions and Provisions for Swaps, 1986 Edition),
offered by the principal London office of each of the designated reference
banks meeting the criteria set forth below (the "Reference Banks") for making
one-month United States dollar deposits in leading banks in the London
Interbank market, as of 11:00 a.m. (London time) on such LIBOR Determination
Date. In lieu of relying on the quotations for those Reference Banks that
appear at such time on the Reuters Screen LIBO Page, the Calculation Agent
will request each of the Reference Banks to provide such offered quotations at
such time.
Under this method LIBOR will be established by the Calculation Agent on
each LIBOR Determination Date as follows:
(a) If on any LIBOR Determination Date two or more Reference
Banks provide such offered quotations, LIBOR for the next Interest
Accrual Period shall be the arithmetic mean of such offered
quotations (rounded upwards if necessary to the nearest whole
multiple of 1/32%).
(b) If on any LIBOR Determination Date only one or none of
the Reference Banks provides such offered quotations, LIBOR for the
next Interest Accrual Period (as such term is defined in the related
Prospectus Supplement) shall be whichever is the higher of (i) LIBOR
as determined on the previous LIBOR Determination Date or (ii) the
Reserve Interest Rate. The "Reserve Interest Rate" shall be the rate
per annum which the Calculation Agent determines to be either (i) the
arithmetic mean (rounded upwards if necessary to the nearest whole
multiple of 1/32%) of the one-month United States dollar lending
rates that New York City banks selected by the Calculation Agent are
quoting, on the relevant LIBOR Determination Date, to the principal
London offices of at least two of the Reference Banks to which such
quotations are, in the opinion of the Calculation Agent, being so
made or (ii) in the event that the Calculation Agent can determine no
such arithmetic mean, the lowest one-month United States dollar
lending rate which New York City banks selected by the Calculation
Agent are quoting on such LIBOR Determination Date to leading
European banks.
(c) If on any LIBOR Determination Date for a class specified
in the related Prospectus Supplement, the Calculation Agent is
required but is unable to determine the Reserve Interest Rate in the
manner provided in paragraph (b) above, LIBOR for the next Interest
Accrual Period shall be LIBOR as determined on the preceding LIBOR
Determination Date, or, in the case of the first LIBOR Determination
Date, LIBOR shall be deemed to be the per annum rate specified as
such in the related Prospectus Supplement.
Each Reference Bank (i) shall be a leading bank engaged in transactions
in Eurodollar deposits in the international Eurocurrency market; (ii) shall
not control, be controlled by, or be under common control with the Calculation
Agent; and (iii) shall have an established place of business in London. If any
such Reference Bank should be unwilling or unable to act as such or if
appointment of any such Reference Bank is terminated, another leading bank
meeting the criteria specified above will be appointed.
BBA Method
If using this method of determining LIBOR, the Calculation Agent will
determine LIBOR on the basis of the British Bankers' Association "BBA")
"Interest Settlement Rate" for one-month deposits in United States dollars as
found on Telerate page 3750 as of 11:00 a.m. London time on each LIBOR
Determination Date. Interest Settlement Rates currently are based on rates
quoted by eight BBA designated banks as being, in the view of such banks, the
offered rate at which deposits are being quoted to prime banks in the London
interbank market. Such Interest Settlement Rates are calculated by eliminating
the two highest rates and the two lowest rates, averaging the four remaining
rates, carrying the result (expressed as a percentage) out to six decimal
places, and rounding to five decimal places.
If on any LIBOR Determination Date, the Calculation Agent is unable to
calculate LIBOR in accordance with the method forth in the immediately
preceding paragraph, LIBOR for the next Interest Accrual period shall be
calculated in accordance with the LIBOR method described above under "LIBO
Method."
The establishment of LIBOR on each LIBOR Determination Date by the
Calculation Agent and its calculation of the rate of interest for the
applicable classes for the related Interest Accrual Period shall (in the
absence of manifest error) be final and binding.
COFI
The Eleventh District Cost of Funds Index is designed to represent the
monthly weighted average cost of funds for savings institutions in Arizona,
California and Nevada that are member institutions of the Eleventh Federal
Home Loan Bank District (the "Eleventh District"). The Eleventh District Cost
of Funds Index for a particular month reflects the interest costs paid on all
types of funds held by Eleventh District member institutions and is calculated
by dividing the cost of funds by the average of the total amount of those
funds outstanding at the end of that month and of the prior month and
annualizing and adjusting the result to reflect the actual number of days in
the particular month. If necessary, before these calculations are made, the
component figures are adjusted by the Federal Home Loan Bank of San Francisco
("FHLBSF") to neutralize the effect of events such as member institutions
leaving the Eleventh District or acquiring institutions outside the Eleventh
District. The Eleventh District Cost of Funds Index is weighted to reflect the
relative amount of each type of funds held at the end of the relevant month.
The major components of funds of Eleventh District member institutions are:
(i) savings deposits, (ii) time deposits, (iii) FHLBSF advances, (iv)
repurchase agreements and (v) all other borrowings. Because the component
funds represent a variety of maturities whose costs may react in different
ways to changing conditions, the Eleventh District Cost of Funds Index does
not necessarily reflect current market rates.
A number of factors affect the performance of the Eleventh District Cost
of Funds Index, which may cause it to move in a manner different from indices
tied to specific interest rates, such as United States Treasury bills or
LIBOR. Because the liabilities upon which the Eleventh District Cost of Funds
Index is based were issued at various times under various market conditions
and with various maturities, the Eleventh District Cost of Funds Index may not
necessarily reflect the prevailing market interest rates on new liabilities of
similar maturities. Moreover, as stated above, the Eleventh District Cost of
Funds Index is designed to represent the average cost of funds for Eleventh
District savings institutions for the month prior to the month in which it its
due to be published. Additionally, the Eleventh District Cost of Funds Index
may not necessarily move in the same direction as market interest rates at all
times, since as longer term deposits or borrowings mature and are renewed at
prevailing market interest rates, the Eleventh District Cost of Funds Index is
influenced by the differential between the prior and the new rates on those
deposits or borrowings. In addition, movements of the Eleventh District Cost
of Funds Index, as compared to other indices tied to specific interest rates,
may be affected by changes instituted by the FHLBSF in the method used to
calculate the Eleventh District Cost of Funds Index.
The FHLBSF publishes the Eleventh District Cost of Funds Index in its
monthly Information Bulletin. Any individual may request regular receipt by
mail of Information Bulletins by writing the Federal Home Loan Bank of San
Francisco, P.O. Box 7948, 600 California Street, San Francisco, California
94120, or by calling (415) 616-1000. The Eleventh District Cost of Funds Index
may also be obtained by calling the FHLBSF at (415) 616-2600.
The FHLBSF has stated in its Information Bulletin that the Eleventh
District Cost of Funds Index for a month "will be announced on or near the
last working day" of the following month and also has stated that it "cannot
guarantee the announcement" of such index on an exact date. So long as such
index for a month is announced on or before the tenth day of the second
following month, the interest rate for each class of Certificates of a Series
as to which the applicable interest rate is determined by reference to an
index denominated as COFI (each, a class of "COFI Certificates") for the
Interest Accrual Period commencing in such second following month will be
based on the Eleventh District Cost of Funds Index for the second preceding
month. If publication is delayed beyond such tenth day, such interest rate
will be based on the Eleventh District Cost of Funds Index for the third
preceding month.
Unless otherwise specified in the related Prospectus Supplement, if on
the tenth day of the month in which any Interest Accrual Period commences for
a class of COFI Certificates the most recently published Eleventh District
Cost of Funds Index relates to a month prior to the third preceding month, the
index for such current Interest Accrual Period and for each succeeding
Interest Accrual Period will, except as described in the next to last sentence
of this paragraph, be based on the National Monthly Median Cost of Funds Ratio
to SAIF-Insured Institutions (the "National Cost of Funds Index") published by
the Office of Thrift Supervision (the "OTS") for the third preceding month (or
the fourth preceding month if the National Cost of Funds Index for the third
preceding month has not been published on such tenth day of an Interest
Accrual Period). Information on the National Cost of Funds Index may be
obtained by writing the OTS at 1700 G Street, N.W., Washington, D.C. 20552 or
calling (202) 906-6677, and the current National Cost of Funds Index may be
obtained by calling (202) 906-6988. If on any such tenth day of the month in
which an Interest Accrual Period commences the most recently published
National Cost of Funds Index relates to a month prior to the fourth preceding
month, the applicable index for such Interest Accrual Period and each
succeeding Interest Accrual Period will be based on LIBOR, as determined by
the Calculation Agent in accordance with the Agreement relating to such Series
of Certificates. A change of index from the Eleventh District Cost of Funds
Index to an alternative index will result in a change in the index level, and,
particularly if LIBOR is the alternative index, could increase its volatility.
The establishment of COFI by the Calculation Agent and its calculation of
the rates of interest for the applicable classes for the related Interest
Accrual Period shall (in the absence of manifest error) be final and binding.
Treasury Index
Unless otherwise specified in the related Prospectus Supplement, on the
Treasury Index Determination Date (as such term is defined in the related
Prospectus Supplement) for each class of Certificates of a Series as to which
the applicable interest rate is determined by reference to an index
denominated as a Treasury Index, the Calculation Agent will ascertain the
Treasury Index for Treasury securities of the maturity and for the period (or,
if applicable, date) specified in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, the Treasury Index
for any period means the average of the yield for each business day during the
period specified therein (and for any date means the yield for such date),
expressed as a per annum percentage rate, on (i) U.S Treasury securities
adjusted to the "constant maturity" (as further described below) specified in
such Prospectus Supplement or (ii) if no "constant maturity" is so specified,
U.S. Treasury securities trading on the secondary market having the maturity
specified in such Prospectus Supplement, in each case as published by the
Federal Reserve Board in its Statistical Release No. H.15(519). Statistical
Release No. H.15(519) is published on Monday or Tuesday of each week and may
be obtained by writing or calling the Publications Department at the Board of
Governors of the Federal Reserve System, 21st and C Streets, Washington, D.C.
20551 (202) 452-3244. If the Calculation Agent has not yet received
Statistical Release No. H.15(519) for such week, then it will use such
Statistical Release from the immediately preceding week.
Yields on U.S. Treasury securities at "constant maturity" are derived
from the U.S. Treasury's daily yield curve. This curve, which relates the
yield on a security to its time to maturity, is based on the closing market
bid yields on actively traded Treasury securities in the over-the-counter
market. These market yields are calculated from composites of quotations
reported by five leading U.S. Government securities dealers to the Federal
Reserve Bank of New York. This method provides a yield for a given maturity
even if no security with that exact maturity is outstanding. In the event that
the Treasury Index is no longer published, a new index based upon comparable
data and methodology will be designated in accordance with the Agreement
relating to the particular Series of Certificates. The Calculation Agent's
determination of the Treasury Index, and its calculation of the rates of
interest for the applicable classes for the related Interest Accrual Period
shall (in the absence of manifest error) be final and binding.
Prime Rate
Unless otherwise specified in the related Prospectus Supplement, on the
Prime Rate Determination Date (as such term is defined in the related
Prospectus Supplement) for each class of Certificates of a Series as to which
the applicable interest rate is determined by reference to an index
denominated as the Prime Rate, the Calculation Agent will ascertain the Prime
Rate for the related Interest Accrual Period. Unless otherwise specified in
the related Prospectus Supplement, the Prime Rate for an Interest Accrual
Period will be the "Prime Rate" as published in the "Money Rates" section of
The Wall Street Journal (or if not so published, the "Prime Rate" as published
in a newspaper of general circulation selected by the Calculation Agent in its
sole discretion) on the related Prime Rate Determination Date. If a prime rate
range is given, then the average of such range will be used. In the event that
the Prime Rate is no longer published, a new index based upon comparable data
and methodology will be designated in accordance with the Agreement relating
to the particular Series of Certificates. The Calculation Agent's
determination of the Prime Rate and its calculation of the rates of interest
for the related Interest Accrual Period shall (in the absence of manifest
error) be final and binding.
DERIVATIVE TRANSACTIONS
IF SPECIFIED IN THE RELATED PROSPECTUS SUPPLEMENT, A TRUST FUND MAY ENTER
INTO PRIVATELY NEGOTIATED, OVER-THE-COUNTER HEDGING TRANSACTIONS WITH VARIOUS
COUNTERPARTIES, INCLUDING INTEREST RATE BASED SWAPS, CAPS, COLLARS AND FLOORS
(COLLECTIVELY, "DERIVATIVE TRANSACTIONS") TO EFFECTIVELY FIX THE RATE OF
INTEREST THAT SUCH TRUST FUND PAYS ON ONE OR MORE BORROWINGS OR SERIES OF
BORROWINGS. TRUST FUNDS WILL USE THESE DERIVATIVE TRANSACTIONS AS HEDGES AND
NOT AS SPECULATIVE INVESTMENTS. DERIVATIVE TRANSACTIONS INVOLVE AN AGREEMENT
BETWEEN TWO PARTIES TO EXCHANGE PAYMENTS THAT ARE BASED, RESPECTIVELY, ON
VARIABLE AND FIXED RATES OF INTEREST AND THAT ARE CALCULATED ON THE BASIS OF A
SPECIFIED AMOUNT OF PRINCIPAL FOR A SPECIFIED PERIOD OF TIME. CAP AND FLOOR
TRANSACTIONS INVOLVE AN AGREEMENT BETWEEN TWO PARTIES IN WHICH THE FIRST PARTY
AGREES TO MAKE PAYMENTS TO THE COUNTERPARTY WHEN A DESIGNATED MARKET INTEREST
RATE GOES ABOVE (IN THE CASE OF A CAP) OR BELOW (IN THE CASE OF A FLOOR) A
DESIGNATED LEVEL ON PREDETERMINED DATES OR DURING A SPECIFIED TIME PERIOD.
COLLAR TRANSACTIONS INVOLVE AN AGREEMENT BETWEEN TWO PARTIES IN WHICH THE
FIRST PARTY MAKES PAYMENTS TO THE COUNTERPARTY WHEN A DESIGNATED MARKET
INTEREST RATE GOES ABOVE A DESIGNATED LEVEL OF PREDETERMINED DATES OR DURING A
SPECIFIED TIME PERIOD, AND THE COUNTERPARTY MAKES PAYMENTS TO THE FIRST PARTY
WHEN A DESIGNATED MARKET INTEREST RATE GOES BELOW A DESIGNATED LEVEL ON
PREDETERMINED DATES OR DURING A SPECIFIED TIME PERIOD.
BOOK-ENTRY REGISTRATION OF CERTIFICATES
As described in the related Prospectus Supplement, if not issued in fully
registered form, each class of Certificates will be registered as book-entry
certificates (the "Book-Entry Certificates"). Persons acquiring beneficial
ownership interests in the Certificates "Certificate Owners") will hold their
Certificates through the Depository Trust Company ("DTC") in the United
States, or CEDEL or Euroclear (in Europe) if they are participants of such
systems, or indirectly through organizations which are participants in such
systems. The Book-Entry Certificates will be issued in one or more
certificates which equal the aggregate principal balance of the 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, N.A., will act as depositary for CEDEL and The
Chase Manhattan Bank will act as depositary for Euroclear (in such capacities,
individually the "Relevant Depositary" and collectively the "European
Depositaries"). Except as described below, no person acquiring a Book-Entry
Certificate (each, a "beneficial owner") will be entitled to receive a
physical certificate representing such Certificate (a "Definitive
Certificate"). Unless and until Definitive Certificates are issued, it is
anticipated that the only "Securityholders" of the Certificates will be Cede &
Co., as nominee of DTC. Certificate 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).
Certificate Owners will receive all distributions of principal of, and
interest on, the Certificates from the Trustee through DTC and DTC
participants. While the 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 the Certificates and is required to receive and transmit
distributions of principal of, and interest on, the Certificates. Participants
and indirect participants with whom Certificate Owners have accounts with
respect to Certificates are similarly required to make book-entry transfers
and receive and transmit such distributions on behalf of their respective
Certificate Owners. Accordingly, although Certificate Owners will not possess
certificates, the Rules provide a mechanism by which Certificate Owners will
receive distributions and will be able to transfer their interest.
Certificate Owners will not receive or be entitled to receive
certificates representing their respective interests in the Certificates,
except under the limited circumstances described below. Unless and until
Definitive Certificates are issued, Certificate Owners who are not
Participants may transfer ownership of Certificates only through Participants
and indirect participants by instructing such Participants and indirect
participants to transfer Certificates, by book-entry transfer, through DTC for
the account of the purchasers of such Certificates, which account is
maintained with their respective Participants. Under the Rules and in
accordance with DTC's normal procedures, transfers of ownership of
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 Certificate Owners.
Because of time zone differences, credits of securities received in CEDEL
or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or CEDEL Participants on such business day. Cash received in CEDEL
or Euroclear as a result of sales of securities by or through a CEDEL
Participant (as defined herein) or Euroclear Participant (as defined herein)
to a DTC Participant will be received with value on the DTC settlement date
but will be available in the relevant CEDEL or Euroclear cash account only as
of the business day following settlement in DTC.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may not deliver
instructions directly to the European Depositaries.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes
in accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or
indirectly.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities
and cash. Transactions may be settled in any of 32 currencies, including
United States dollars. Euroclear includes various other services, including
securities lending and borrowing and interfaces with domestic markets in
several countries generally similar to the arrangements for cross-market
transfers with DTC described above. Euroclear is operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York ("Morgan" and in
such capacity, the "Euroclear Operator"), under contract with Euroclear
Clearance Systems S.C., a Belgian cooperative corporation (the "Belgian
Cooperative"). All operations are conducted by Morgan, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with
the Euroclear Operator, not the Belgian Cooperative. The Belgian Cooperative
establishes policy for Euroclear on behalf of Euroclear Participants.
Euroclear Participants include banks (including central banks), securities
brokers and dealers and other professional financial intermediaries. Indirect
access to Euroclear is also available to other firms that clear through or
maintain a custodial relationship with a Euroclear Participant, either
directly or indirectly.
Morgan is the Belgian branch of a New York banking corporation which is a
member bank of the Federal Reserve System. As such, it is regulated and
examined by the Board of Governors of the Federal Reserve System and the New
York State Banking Department, as well as the Belgian Banking Commission.
Certificates clearance accounts and cash accounts with Morgan are
governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions
govern transfers of securities and cash within Euroclear, withdrawals of
securities and cash from Euroclear, and receipts of payments with respect to
securities in Euroclear. All securities in Euroclear are held on a fungible
basis without attribution of specific certificates to specific securities
clearance accounts. The Euroclear Operator acts under the Terms and Conditions
only on behalf of Euroclear Participants, and has no record of or relationship
with persons holding through Euroclear Participants.
Under a book-entry format, beneficial owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since
such payments will be forwarded by the Trustee to Cede & Co., as nominee of
DTC. Distributions with respect to 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. See "Federal Income Tax Consequences
- -Tax Treatment of Foreign Investors" and " -- Tax Consequences to Holders of
the Certificates -- Backup Withholding" herein. 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 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 will be provided to Cede & Co.,
as nominee of DTC, and may be made available by Cede & Co. to beneficial
owners upon request, in accordance with the rules, regulations and procedures
creating and affecting 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 applicable 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 other action permitted to be taken by a Certificateholder under
the 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 direction of the related
Participants, with respect to some Certificates which conflict with actions
taken with respect to other Certificates.
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, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the applicable 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.
None of the Master Servicer, the Depositor or the Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Certificates held
by Cede & Co., as nominee of DTC, or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided with respect to one or more classes of
a Series of Certificates or with respect to the related Trust Fund Assets.
Credit enhancement may be in the form of a limited financial guaranty policy
issued by an entity named in the related Prospectus Supplement, the
subordination of one or more classes of the Certificates of such Series, the
establishment of one or more Reserve Accounts, the use of a cross-
collateralization feature, use of a pool insurance policy, FHA Insurance, VA
Guarantee, bankruptcy bond, special hazard insurance policy, surety bond,
letter of credit, guaranteed investment contract, overcollateralization, or
another method of credit enhancement contemplated herein and described in the
related Prospectus Supplement, or any combination of the foregoing. Unless
otherwise specified in the related Prospectus Supplement, credit enhancement
will not provide protection against all risks of loss and will not guarantee
repayment of the entire principal balance of the Certificates and interest
thereon. If losses occur which exceed the amount covered by credit enhancement
or which are not covered by the credit enhancement, Certificateholders will
bear their allocable share of any deficiencies.
SUBORDINATION
If so specified in the related Prospectus Supplement, protection afforded
to holders of one or more classes of Certificates of a Series by means of the
subordination feature may be accomplished by the preferential right of holders
of one or more other classes of such Series (the "Senior Certificates") to
distributions in respect of scheduled principal, Principal Prepayments,
interest or any combination thereof that otherwise would have been payable to
holders of Subordinated Certificates under the circumstances and to the extent
specified in the related Prospectus Supplement. Protection may also be
afforded to the holders of Senior Certificates of a Series by: (i) reducing
the ownership interest (if applicable) of the related Subordinated
Certificates; (ii) a combination of the immediately preceding sentence and
clause (i) above; or (iii) as otherwise described in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, delays in
receipt of scheduled payments on the Contracts and losses on defaulted
Contracts may be borne first by the various classes of Subordinated
Certificates and thereafter by the various classes of Senior Certificates, in
each case under the circumstances and subject to the limitations specified in
such Prospectus Supplement. The aggregate distributions in respect of
delinquent payments on the Contracts over the lives of the Certificates or at
any time, the aggregate losses in respect of defaulted Contracts which must be
borne by the Subordinated Certificates by virtue of subordination and the
amount of the distributions otherwise distributable to the Subordinated
Certificateholders that will be distributable to Senior Certificateholders on
any Distribution Date may be limited as specified in the related Prospectus
Supplement. If aggregate distributions in respect of delinquent payments on
the Contracts or aggregate losses in respect of such Contracts were to exceed
an amount specified in the related Prospectus Supplement, holders of Senior
Certificates would experience losses on the Certificates.
In addition to or in lieu of the foregoing, if so specified in the
related Prospectus Supplement, all or any portion of distributions otherwise
payable to holders of Subordinated Certificates on any Distribution Date may
instead be deposited into one or more Reserve Accounts established with the
Trustee or distributed to holders of Senior Certificates. Such deposits may be
made on each Distribution Date, for specified periods or until the balance in
the Reserve Account has reached a specified amount and, following payments
from the Reserve Account to holders of Senior Certificates or otherwise,
thereafter to the extent necessary to restore the balance in the Reserve
Account to required levels, in each case as specified in the related
Prospectus Supplement. Amounts on deposit in the Reserve Account may be
released to the holders of certain classes of Certificates at the times and
under the circumstances specified in such Prospectus Supplement.
If specified in the related Prospectus Supplement, various classes of
Senior Certificates and Subordinated Certificates may themselves be
subordinate in their right to receive certain distributions to other classes
of Senior and Subordinated Certificates, respectively, through a
cross-collateralization mechanism or otherwise.
As between classes of Senior Certificates and as between classes of
Subordinated Certificates, distributions may be allocated among such classes
(i) in the order of their scheduled final distribution dates, (ii) in
accordance with a schedule or formula, (iii) in relation to the occurrence of
events or (iv) otherwise, in each case as specified in the related Prospectus
Supplement. As between classes of Subordinated Certificates, payments to
holders of Senior Certificates on account of delinquencies or losses and
payments to any Reserve Account will be allocated as specified in the related
Prospectus Supplement.
LETTER OF CREDIT
The letter of credit, if any, with respect to a Series of Certificates
will be issued by the bank or financial institution specified in the related
Prospectus Supplement (the "L/C Bank"). Under the letter of credit, the L/C
Bank will be obligated to honor drawings thereunder in an aggregate fixed
dollar amount, net of unreimbursed payments thereunder, equal to the
percentage specified in the related Prospectus Supplement of the aggregate
principal balance of the Contracts as of the related Cut-off Date or of one or
more classes of Certificates (the "L/C Percentage"). If so specified in the
related Prospectus Supplement, the letter of credit may permit drawings in the
event of losses not covered by insurance policies or other credit support,
such as losses arising from damage not covered by standard hazard insurance
policies, losses resulting from the bankruptcy of a borrower and the
application of certain provisions of the Bankruptcy Code, or losses resulting
from denial of insurance coverage due to misrepresentations in connection with
the origination of a Contract. The amount available under the letter of credit
will, in all cases, be reduced to the extent of the unreimbursed payments
thereunder. The obligations of the L/C Bank under the letter of credit for
each Series of Certificates will expire at the earlier of the date specified
in the related Prospectus Supplement or the termination of the Trust Fund. See
"The Agreements -- Termination: Optional Termination." A copy of the letter of
credit for a Series, if any, will be filed with the Commission as an exhibit
to a Current Report on Form 8-K to be filed within 15 days of issuance of the
Certificates of the related Series.
INSURANCE POLICIES, SURETY BONDS AND GUARANTIES
If so provided in the Prospectus Supplement for a Series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by insurance policies and/or surety bonds
provided by one or more insurance companies or sureties. Such instruments may
cover, with respect to one or more classes of Certificates of the related
series, timely distributions of interest and/or full distributions of
principal on the basis of a schedule of principal distributions set forth in
or determined in the manner specified in the related Prospectus Supplement. In
addition, if specified in the related Prospectus Supplement, a Trust Fund may
also include bankruptcy bonds, special hazard insurance policies, other
insurance or guaranties for the purpose of (i) maintaining timely payments or
providing additional protection against losses on the assets included in such
Trust Fund, (ii) paying administrative expenses or (iii) establishing a
minimum reinvestment rate on the payments made in respect of such assets or
principal payment rate on such assets. Such arrangements may include
agreements under which Certificateholders are entitled to receive amounts
deposited in various accounts held by the Trustee upon the terms specified in
such Prospectus Supplement. A copy of any such instrument for a series will be
filed with the Commission as an exhibit to a Current Report on Form 8-K to be
filed with the Commission within 15 days of issuance of the Certificates of
the related series.
OVER-COLLATERALIZATION
If so provided in the Prospectus Supplement for a Series of Certificates,
a portion of the interest payment on each Contract may be applied as an
additional distribution in respect of principal to reduce the principal
balance of a certain class or classes of Certificates and, thus, accelerate
the rate of payment of principal on such class or classes of Certificates.
RESERVE ACCOUNTS
If specified in the related Prospectus Supplement, credit support with
respect to a Series of Certificates will be provided by the establishment and
maintenance with the Trustee for such Series of Certificates, in trust, of one
or more Reserve Accounts for such Series. The related Prospectus Supplement
will specify whether or not any such Reserve Accounts will be included in the
Trust Fund for such Series.
The Reserve Account for a Series will be funded (i) by the deposit
therein of cash, United States Treasury securities, instruments evidencing
ownership of principal or interest payments thereon, letters of credit, demand
notes, certificates of deposit or a combination thereof in the aggregate
amount specified in the related Prospectus Supplement, (ii) by the deposit
therein from time to time of certain amounts, as specified in the related
Prospectus Supplement to which the Subordinate Certificateholders, if any,
would otherwise be entitled or (iii) in such other manner as may be specified
in the related Prospectus Supplement.
Any amounts on deposit in the Reserve Account and the proceeds of any
other instrument upon maturity will be held in cash or will be invested in
"Permitted Investments" which, in general, will include obligations of the
United States and certain agencies thereof, certificates of deposit, certain
commercial paper, time deposits and bankers acceptances sold by eligible
commercial banks and certain repurchase agreements of United States government
securities with eligible commercial banks. If a letter of credit is deposited
with the Trustee, such letter of credit will be irrevocable. Unless otherwise
specified in the related Prospectus Supplement, any instrument deposited
therein will name the Trustee, in its capacity as trustee for the holders of
the Certificates, as beneficiary and will be issued by an entity acceptable to
each Rating Agency that rates the Certificates of the related Series.
Additional information with respect to such instruments deposited in the
Reserve Accounts will be set forth in the related Prospectus Supplement.
Any amounts so deposited and payments on instruments so deposited will be
available for withdrawal from the Reserve Account for distribution to the
holders of Certificates of the related Series for the purposes, in the manner
and at the times specified in the related Prospectus Supplement.
POOL INSURANCE POLICIES
If specified in the related Prospectus Supplement, a separate pool
insurance policy ("Pool Insurance Policy") will be obtained for the Pool and
issued by the insurer (the "Pool Insurer") named in such Prospectus
Supplement. Each Pool Insurance Policy will, subject to the limitations
described therein, cover loss by reason of default in payment on Contracts in
the Pool in an amount equal to a percentage specified in such Prospectus
Supplement of the aggregate principal balance of such Contracts as of the
Cut-off Date. As more fully described in the related Prospectus Supplement,
the Master Servicer will present claims thereunder to the Pool Insurer on
behalf of itself, the Trustee and the holders of the Certificates of the
related Series. The Pool Insurance Policies, however, are not blanket policies
against loss, since claims thereunder may only be made respecting particular
defaulted Contracts and only upon satisfaction of certain conditions precedent
as described in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
original amount of coverage under each Pool Insurance Policy will be reduced
over the life of the related Certificates by the aggregate dollar amount of
claims paid less the aggregate of the net amounts realized by the Pool Insurer
upon disposition of all repossessed or foreclosed properties. The amount of
claims paid will include certain expenses incurred by the Master Servicer as
well as accrued interest on delinquent Contracts to the date of payment of the
claim, unless otherwise specified in the related Prospectus Supplement.
Accordingly, if aggregate net claims paid under any Pool Insurance Policy
reach the original policy limit, coverage under that Pool Insurance Policy
will be exhausted and any further losses will be borne by the related
Certificateholders. A copy of the Pool Insurance Policy for a Series, if any,
will be filed within 15 days of issuance of the Certificates of such Series
with the Commission as an exhibit to a Current Report on Form 8-K.
CROSS-COLLATERALIZATION
If specified in the related Prospectus Supplement, the beneficial
ownership of separate groups of assets included in a Trust Fund may be
evidenced by separate classes of the related Series of Certificates. In such
case, credit support may be provided by a cross-collateralization feature
which requires that distributions be made with respect to Certificates
evidencing a beneficial ownership interest in, or secured by, one or more
asset groups within the same Trust Fund prior to distributions to Subordinated
Certificates evidencing a beneficial ownership interest in, or secured by, one
or more other asset groups within such Trust Fund. Cross-collateralization may
be provided by (i) the allocation of certain excess amounts generated by one
or more asset groups to one or more other asset groups within the same Trust
Fund or (ii) the allocation of losses with respect to one or more asset groups
to one or more other asset groups within the same Trust Fund. Such excess
amounts will be applied and/or such losses will be allocated to the class or
classes of Subordinated Certificates of the related Series then outstanding
having the lowest rating assigned by any Rating Agency or the lowest payment
priority, in each case to the extent and in the manner more specifically
described in the related Prospectus Supplement. The Prospectus Supplement for
a Series which includes a cross-collateralization feature will describe the
manner and conditions for applying such cross-collateralization feature.
If specified in the related Prospectus Supplement, the coverage provided
by one or more of the forms of credit enhancement described in this Prospectus
may apply concurrently to two or more separate Trust Funds. If applicable, the
related Prospectus Supplement will identify the Trust Funds to which such
credit enhancement relates and the manner of determining the amount of
coverage provided to such Trust Funds thereby and of the application of such
coverage to the identified Trust Funds.
YIELD AND PREPAYMENT CONSIDERATIONS
The yields to maturity and weighted average lives of the Certificates
will be affected primarily by the amount and timing of principal payments
received on or in respect of the Trust Fund Assets included in the related
Trust Fund. The original terms to maturity of the Contracts in a given Pool
will vary depending upon the type of Contracts included therein. Each
Prospectus Supplement will contain information with respect to the type and
maturities of the Contracts in the related Pool. The related Prospectus
Supplement will specify the circumstances, if any, under which the related
Contracts will be subject to prepayment penalties. The prepayment experience
on the Contracts in a Pool will affect the weighted average life of the
related Series of Certificates.
The rate of prepayment on the Contracts cannot be predicted. The
prepayment experience of the related Trust Fund may be affected by a wide
variety of factors, including general economic conditions, prevailing interest
rate levels, the availability of alternative financing and homeowner mobility.
In general, if prevailing rates fall significantly below the Contract Rates
borne by the Contracts, such Contracts are more likely to be subject to higher
prepayment rates than if prevailing interest rates remain at or above such
Contract Rates. Conversely, if prevailing interest rates rise appreciably
above the Contract Rates borne by the Contracts, such Contracts are more
likely to experience a lower prepayment rate than if prevailing rates remain
at or below such Contract Rates. However, there can be no assurance that such
will be the case.
Because of the depreciating nature of manufactured housing, which limits
the possibilities for refinancing, and because the terms and principal amounts
of manufactured housing contracts are generally shorter and smaller than the
terms and principal amounts of mortgage loans secured by site-built homes,
changes in interest rates have a correspondingly smaller effect on the amount
of the monthly payments on manufactured housing contracts than on the amount
of the monthly payments on mortgage loans secured by site-built homes.
Consequently, changes in interest rates may play a smaller role in prepayment
behavior of manufactured housing contracts than they do in the prepayment
behavior of loans secured by mortgages on site-built homes. Conversely, local
economic conditions and certain of the other factors mentioned above may play
a larger role in the prepayment behavior of manufactured housing contracts
than they do in the prepayment behavior of loans secured by mortgages on
site-built homes.
In addition, the enforcement of a "due-on-sale" provision (as described
below) will have the same effect as a prepayment of the related Contract. See
"Certain Legal Aspects of the Contracts -- Due-on-Sale Clauses." Unless
otherwise specified in the related Prospectus Supplement, substantially all
Contracts will contain due-on-sale provisions permitting the lender to
accelerate the maturity of the loan upon sale or certain transfers by the
borrower of the related Manufactured Home (and, in the case of a Land-and-Home
Contract, the related underlying real property). Contracts insured by the FHA
or partially guaranteed by the VA are assumable with the consent of the FHA
and the VA, respectively. Thus, the rate of prepayments on such Contracts may
be lower than that of conventional Contracts bearing comparable interest
rates. The Master Servicer generally will enforce any due-on-sale or
due-on-encumbrance clause, to the extent it has knowledge of the conveyance or
further encumbrance or the proposed conveyance or proposed further encumbrance
of the Manufactured Home (and, in the case of a Land-and-Home Contract, the
underlying real property) and reasonably believes that it is entitled to do so
under applicable law; provided, however, that the Master Servicer will not
take any enforcement action that would impair or threaten to impair any
recovery under any related insurance policy.
When a full prepayment is made on a Contract, the borrower is charged
interest on the principal amount of the Contract so prepaid only for the
number of days in the month actually elapsed up to the date of the prepayment,
rather than for a full month. The effect of prepayments in full will be to
reduce the amount of interest passed through or paid in the following month to
holders of Certificates because interest on the principal amount of any
Contract so prepaid will generally be paid only to the date of prepayment.
Partial prepayments in a given month may be applied to the outstanding
principal balances of the Contracts so prepaid on the first day of the month
of receipt or the month following receipt. In the latter case, partial
prepayments will not reduce the amount of interest passed through or paid in
such month. Unless otherwise specified in the related Prospectus Supplement,
neither full nor partial prepayments will be passed through or paid until the
month following receipt.
Unless otherwise specified in the related Prospectus Supplement, no
scheduled payment on a Contract will be considered delinquent once 90% of the
amount thereof is received. Late payments or payments of less than 100% of any
scheduled payment on a simple interest Contract will result in such Contract
amortizing more slowly than originally scheduled and could extend the maturity
date of any such Contract beyond its original scheduled maturity date.
Applicable state laws generally regulate interest rates and other
charges, require certain disclosures, and require licensing of certain
originators and servicers of Contracts. In addition, most have other laws,
public policy and general principles of equity relating to the protection of
consumers, unfair and deceptive acts and practices which may apply to the
origination, servicing and collection of the Contracts. 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 Contracts, may entitle the borrower to a refund of amounts
previously paid and, in addition, could subject the Master Servicer to damages
and administrative sanctions.
If the rate at which interest is passed through or paid to the holders of
Certificates of a Series is calculated on a Contract-by-Contract basis,
disproportionate principal prepayments among Contracts with different Contract
Rates will affect the yield on such Certificates. In most cases, the effective
yield to Certificateholders will be lower than the yield otherwise produced by
the applicable pass-through rate or interest rate and purchase price, because
while interest will accrue on each Contract from the first day of the month
(unless otherwise specified in the related Prospectus Supplement), the
distribution of such interest will not be made earlier than the month
following the month of accrual.
The yield to an investor who purchases Certificates in the secondary
market at a price other than par will vary from the anticipated yield if the
rate of prepayment on the Contracts is actually different than the rate
anticipated by such investor at the time such Certificates were purchased.
Under certain circumstances, the Master Servicer, the holders of the
residual interests in a REMIC or any person specified in the related
Prospectus Supplement may have the option to purchase the assets of a Trust
Fund thereby effecting earlier retirement of the related Series of
Certificates. See "The Agreements -- Termination; Optional Termination."
The relative contribution of the various factors affecting prepayment may
vary from time to time. There can be no assurance as to the rate of payment of
principal of the Trust Fund Assets at any time or over the lives of the
Certificates.
The Prospectus Supplement relating to a Series of Certificates will
discuss in greater detail the effect of the rate and timing of principal
payments (including prepayments), delinquencies and losses on the yield,
weighted average lives and maturities of such Certificates.
THE AGREEMENTS
Set forth below is a description of the material provisions of each
Agreement which are not described elsewhere in this Prospectus. The
description is subject to, and qualified by reference to, the provisions of
each Agreement. Where particular provisions or terms used in the Agreements
are referred to, such provisions or terms are as specified in the Agreements.
ASSIGNMENT OF THE TRUST FUND ASSETS
At the time of issuance of any series of Certificates, the Depositor will
assign (or cause to be assigned) to the Trustee, without recourse, the
Contracts comprising the related Trust Fund, together with all principal and
interest received (if the Contracts are assigned based on actual principal
balances) or scheduled to be received (if the Contracts are assigned based on
scheduled principal balances) by or on behalf of the Depositor on or with
respect to such Contracts after the Cut-off Date, other than any Retained
Interest specified in the related Prospectus Supplement. The Trustee will,
concurrently with such assignment, deliver such Certificates to the Depositor
in exchange for the Contracts. Each Contract will be identified in a schedule
appearing as an exhibit to the related Agreement. Such schedule will include
detailed information in respect of each Contract included in the related Trust
Fund, including the Contract number, the outstanding principal amount and the
Contract Rate.
The Prospectus Supplement for any Series will state whether the Trustee,
the Master Servicer (which may also be the Seller), as agent for the Trustee,
or a custodian specified in such Prospectus Supplement will maintain custody
of the original Contract, any assignment of such Contract to the Seller and
any extensions, supplements, waivers or modifications to such Contract (the
"Contract Documents").
In order to give notice of the right, title and interest of the Trustee
in the Contracts, the Depositor will cause UCC-1 financing statements to be
executed by the Seller identifying the Depositor as secured party and by the
Depositor identifying the Trustee as the secured party and, in each case,
identifying the Contracts as collateral. Unless otherwise specified in the
related Prospectus Supplement, the Contracts will not be stamped or otherwise
marked to reflect their assignment from the Company to the Trust. Therefore,
if, through negligence, fraud or otherwise, a subsequent purchaser were able
to take physical possession of the Contracts without notice of such
assignment, the interest of the Trustee in the Contracts could be defeated.
With respect to each Land-and-Home Contract, the related Prospectus
Supplement will state whether the Trustee, the Master Servicer (which may also
be the Seller), as agent for the Trustee, or a custodian specified in such
Prospectus Supplement will maintain custody of the original Contract, the
related mortgage or deed of trust and the assignment of such mortgage or deed
of trust in recordable form (such mortgage or deed of trust together with such
assignment, the "Mortgage Documents"), and any assignments of or extensions,
supplements, waivers or modification to such Contract. The related Prospectus
Supplement will also state whether assignments to the Trustee of the mortgage
or deed of trust related to the underlying real property securing such
Contracts will be recorded. In some states in the absence of such recordation
the assignment to the Trustee of such mortgage or deed of trust may not be
effective, and in the absence of such recordation may not be effective against
creditors of or purchasers from the Seller or a trustee in bankruptcy of the
Seller.
Unless otherwise specified in the related Prospectus Supplement, if the
Trustee or custodian specified in the such Prospectus Supplement is delivered
the Contract Documents and/or the Mortgage Documents, the Trustee or
custodian, as the case may be, will review the Contract Documents and the
Mortgage Documents (if any) that have been delivered to it within the time
period specified in the related Prospectus Supplement after receipt thereof.
Unless otherwise specified in the related Prospectus Supplement, if any such
document is found to be missing or defective in any material respect, the
Trustee or such custodian will notify the Master Servicer and the Depositor,
and the Master Servicer will notify the related Seller. If such Seller cannot
cure the omission or defect within the time period specified in the related
Prospectus Supplement after receipt of such notice, such Seller will be
obligated to either (i) purchase the related Contract from the Trust Fund at
the related Purchase Price or (ii) if so specified in the related Prospectus
Supplement, remove such Contract from the Trust Fund and substitute in its
place one or more other Contracts that meets certain requirements set forth
therein. There can be no assurance that a Seller will fulfill this purchase or
substitution obligation. Although the Master Servicer may be obligated to
enforce such obligation to the extent described above under "The Manufactured
Housing Program -- Representations by Sellers; Repurchases," the Master
Servicer will not be obligated to purchase or replace such Contract if the
Seller defaults on its obligation. Unless otherwise specified in the related
Prospectus Supplement, this obligation to cure, purchase or substitute
constitutes the sole remedy available to the Certificateholders or the Trustee
for omission of, or a material defect in, a Contract Document or a Mortgage
Document (if any). The Trustee will be authorized to appoint a custodian
pursuant to a custodial agreement to maintain possession of and, if
applicable, to review the Contract Documents and/or the Mortgage Documents (if
any) as agent of the Trustee.
The Master Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the Agreement. Unless otherwise specified in the related
Prospectus Supplement, a breach of such representations and warranties by the
Master Servicer does not give rise to an obligation by the Master Servicer to
repurchase any affected Mortgage Loans.
Notwithstanding the foregoing provisions, with respect to a Trust Fund
for which a REMIC election is to be made, no purchase or substitution of a
Contract will be made if such purchase or substitution would result in a
prohibited transaction tax under the Code (unless the Master Servicer or a
holder of the related residual certificate otherwise pays such prohibited
transaction from its own funds as described herein). See "The Manufactured
Housing Program -- Representations by Sellers; Repurchases."
NO RECOURSE TO SELLERS, DEPOSITOR OR MASTER SERVICER
As described above under " -- Assignment of the Contracts," the Depositor
will cause the Contracts comprising the related Trust Fund to be assigned to
the Trustee, without recourse. However, each Seller will be obligated to
repurchase or substitute for any Contract as to which certain representations
and warranties are breached where such breach materially and adversely affects
the Certificateholders' interest in such Contract, or for failure to deliver
certain documents relating to the Contracts as described herein under
"Assignment of the Contracts" and "The Manufactured Housing Program --
Representations by Sellers; Repurchases." These obligations to purchase or
substitute constitute the sole remedy available to the Certificateholders or
the Trustee for a breach of any such representation or failure to deliver a
constituent document.
PAYMENTS ON CONTRACTS; DEPOSITS TO COLLECTION ACCOUNT
The Master Servicer will establish and maintain or cause to be
established and maintained with respect to the related Trust Fund a separate
account or accounts for the collection of payments on the related Trust Fund
Assets in the Trust Fund (the "Certificate Account") which, unless otherwise
specified in the related Prospectus Supplement, must be either (i) maintained
with a depository institution the debt obligations of which (or in the case of
a depository institution that is the principal subsidiary of a holding
company, the obligations of which) are rated in one of the two highest rating
categories by the Rating Agency or Rating Agencies that rated one or more
classes of the related Series of Certificates, (ii) an account or accounts the
deposits in which are fully insured by either the Bank Insurance Fund (the
"BIF") of the Federal Deposit Insurance Corporation (the "FDIC") or the
Savings Association Insurance Fund (as successor to the Federal Savings and
Loan Insurance Corporation ("SAIF")), (iii) an account or accounts the
deposits in which are insured by the BIF or SAIF (to the limits established by
the FDIC), and the uninsured deposits in which are otherwise secured such
that, as evidenced by an opinion of counsel, the Certificateholders have a
claim with respect to the funds in the Collection Account or a perfected first
priority security interest against any collateral securing such funds that is
superior to the claims of any other depositors or general creditors of the
depository institution with which the Collection Account is maintained or (iv)
an account or accounts otherwise acceptable to each Rating Agency. The
collateral eligible to secure amounts in the Collection Account is limited to
Permitted Investments. A Collection Account may be maintained as an interest
bearing account or the funds held therein may be invested pending each
succeeding Distribution Date in Permitted Investments. Unless otherwise
specified in the related Prospectus Supplement, the Master Servicer or its
designee will be entitled to receive any such interest or other income earned
on funds in the Collection Account as additional compensation and will be
obligated to deposit in the Collection Account the amount of any loss
immediately as realized. The Collection Account may be maintained with the
Master Servicer or with a depository institution that is an affiliate of the
Master Servicer, provided it meets the standards set forth above.
The Master Servicer will deposit or cause to be deposited in the
Collection Account for each Trust Fund, to the extent applicable and unless
otherwise specified in the related Prospectus Supplement and provided in the
Agreement, the following payments and collections received or advances made by
or on behalf of it subsequent to the Cut-off Date (other than payments due on
or before the Cut-off Date and exclusive of any amounts representing Retained
Interest):
(i) all payments on account of principal, including
Principal Prepayments and, if specified in the related Prospectus
Supplement, any applicable prepayment penalties, on the Contracts;
(ii) all payments on account of interest on the
Contracts, net of applicable servicing compensation;
(iii) all proceeds (net of unreimbursed payments of property
taxes, insurance premiums and similar items ("Insured Expenses")
incurred, and unreimbursed Advances made, by the Master Servicer, if
any) of the hazard insurance policies, to the extent such proceeds
are not applied to the restoration of the property or released to the
obligor in accordance with the Master Servicer's normal servicing
procedures (collectively, "Insurance Proceeds") and all other cash
amounts (net of unreimbursed expenses incurred in connection with
liquidation, repossession or foreclosure ("Liquidation Expenses") and
unreimbursed Advances made, by the Master Servicer, if any) received
and retained in connection with the liquidation of defaulted
Contracts, by repossession, foreclosure or otherwise ("Liquidation
Proceeds"), together with any net proceeds received on a monthly
basis with respect to any properties acquired on behalf of the
Certificateholders by repossession (in the case of Manufactured
Homes) or foreclosure or deed in lieu of foreclosure (in the case of
underlying real property securing Land-and-Home Contracts);
(iv) all proceeds of any Contract or property in respect
thereof purchased by the Master Servicer, the Depositor or any Seller
as described under "The Manufactured Housing Program --
Representations by Sellers; Repurchases" or " -- Assignment of Trust
Fund Assets" above and all proceeds of any Contract repurchased as
described under " -- Termination; Optional Termination" below;
(v) all payments required to be deposited in the Collection
Account with respect to any deductible clause in any blanket
insurance policy described under " -- Hazard Insurance" below;
(vi) any amount required to be deposited by the Master
Servicer in connection with losses realized on investments for the
benefit of the Master Servicer of funds held in the Collection
Account and, to the extent specified in the related Prospectus
Supplement, any payments required to be made by the Master Servicer
in connection with prepayment interest shortfalls; and
(vii) all other amounts required to be deposited in the
Collection Account pursuant to the Agreement.
The Master Servicer (or the Depositor, as applicable) may from time to
time direct the institution that maintains the Collection Account to withdraw
funds from the Collection Account for the following purposes:
(i) to pay to the Master Servicer the servicing fees
described in the related Prospectus Supplement, the master servicing
fees (subject to reduction) and, as additional servicing
compensation, earnings on or investment income with respect to funds
in the amounts in the Collection Account credited thereto;
(ii) to reimburse the Master Servicer for Advances, such
right of reimbursement with respect to any Contract being limited to
amounts received that represent late recoveries of payments of
principal and/or interest on such Contract (or Insurance Proceeds or
Liquidation Proceeds with respect thereto) with respect to which such
Advance was made;
(iii) to reimburse the Master Servicer for any Advances
previously made which the Master Servicer has determined to be
nonrecoverable;
(iv) to reimburse the Master Servicer from Insurance
Proceeds for expenses incurred by the Master Servicer and covered by
the related insurance policies;
(v) to reimburse the Master Servicer for unpaid master
servicing fees and unreimbursed out-of-pocket costs and expenses
incurred by the Master Servicer in the performance of its servicing
obligations, such right of reimbursement being limited to amounts
received representing late recoveries of the payments for which such
advances were made;
(vi) to reimburse the Master Servicer or the Depositor for
expenses incurred and reimbursable pursuant to the Agreement;
(vii) to withdraw any amount deposited in the Collection
Account and not required to be deposited therein; and
(viii) to clear and terminate the Collection Account upon
termination of the Agreement.
In addition, unless otherwise specified in the related Prospectus
Supplement, on or prior to the business day immediately preceding each
Distribution Date, the Master Servicer shall withdraw from the Collection
Account the amount of Available Funds, to the extent on deposit, for deposit
in an account maintained by the Trustee for the related Series of
Certificates.
PRE-FUNDING ACCOUNT
If so provided in the related Prospectus Supplement, the Master Servicer
will establish and maintain a Pre-Funding Account, in the name of the related
Trustee on behalf of the related Certificateholders, into which the Depositor
will deposit cash in an amount equal to the Pre-Funded Amount on the related
Closing Date. The Pre-Funding Account will be maintained with the Trustee for
the related Series of Certificates and is designed solely to hold funds to be
applied by such Trustee during the Funding Period to pay to the Depositor the
purchase price for Subsequent Contracts. Monies on deposit in the Pre-Funding
Account will not be available to cover losses on or in respect of the related
Contracts. The Pre-Funded Amount will not exceed 50% of the initial aggregate
principal amount of the Certificates of the related Series. The Pre-Funded
Amount will be used by the related Trustee to purchase Subsequent Contracts
from the Depositor from time to time during the Funding Period. The Funding
Period, if any, for a Trust Fund will begin on the related Closing Date and
will end on the date specified in the related Prospectus Supplement, which in
no event will be later than the date that is one year after the related
Closing Date. Monies on deposit in the Pre-Funding Account may be invested in
Permitted Investments under the circumstances and in the manner described in
the related Agreement. Earnings on investment of funds in the Pre-Funding
Account will be deposited into the related Collection Account or such other
trust account as is specified in the related Prospectus Supplement and losses
will be charged against the funds on deposit in the Pre-Funding Account. Any
amounts remaining in the Pre-Funding Account at the end of the Funding Period
will be distributed to the related Certificateholders in the manner and
priority specified in the related Prospectus Supplement, as a prepayment of
principal of the related Certificates.
In addition, if so provided in the related Prospectus Supplement, on the
related Closing Date the Depositor will deposit in an account (the
"Capitalized Interest Account") cash in such amount as is necessary to cover
shortfalls in interest on the related Series of Certificates that may arise as
a result of utilization of the Pre-Funding Account as described above. The
Capitalized Interest Account shall be maintained with the Trustee for the
related Series of Certificates and is designed solely to cover the
above-mentioned interest shortfalls. Monies on deposit in the Capitalized
Interest Account will not be available to cover losses on or in respect of the
related Contracts. To the extent that the entire amount on deposit in the
Capitalized Interest Account has not been applied to cover shortfalls in
interest on the related Series of Certificates by the end of the Funding
Period, any amounts remaining in the Capitalized Interest Account will be paid
to the Depositor.
SUB-SERVICING BY SELLERS
Each Seller of a Contract or any other servicing entity may act as the
Sub-Servicer for such Contract pursuant to an agreement (each, a
"Sub-Servicing Agreement"), which will not contain any terms inconsistent with
the related Agreement. While each Sub-Servicing Agreement will be a contract
solely between the Master Servicer and the Sub-Servicer, the Agreement
pursuant to which a Series of Certificates is issued will provide that, if for
any reason the Master Servicer for such Series of Certificates is no longer
the Master Servicer of the related Contracts, the Trustee or any successor
Master Servicer must recognize the Sub-Servicer's rights and obligations under
such Sub-Servicing Agreement.
All references in this Prospectus and in the Prospectus Supplement for
any Series to actions, rights or duties of the Master Servicer will be deemed
to include any one or more Sub-Servicers acting on the Master Servicer's
behalf. Notwithstanding the foregoing, unless otherwise provided in the
related Prospectus Supplement, the Master Servicer will remain liable for its
servicing duties and obligations under the Agreement as if the Master Servicer
alone were servicing the Contracts.
COLLECTION PROCEDURES
The Master Servicer will make reasonable efforts to collect all payments
called for under the Contracts and will, consistent with each Agreement and
any Pool Insurance Policy, FHA Insurance, VA Guaranty, bankruptcy bond or
alternative arrangements, follow such collection procedures as are customary
with respect to loans that are comparable to the Contracts. Consistent with
the above, the Master Servicer may, in its discretion, (i) waive any
assumption fee, late payment or other charge in connection with a Contract and
(ii) to the extent not inconsistent with the coverage of such Contract by a
Pool Insurance Policy, FHA Insurance, VA Guaranty, bankruptcy bond or
alternative arrangements, if applicable, arrange with a borrower a schedule
for the liquidation of delinquencies running for no more than 125 days after
the applicable due date for each payment. To the extent the Master Servicer is
obligated to make or cause to be made Advances, such obligation will remain
during any period of such an arrangement.
In any case in which property securing a Contract has been, or is about
to be, conveyed by the obligor, the Master Servicer will, to the extent it has
knowledge of such conveyance or proposed conveyance, exercise or cause to be
exercised its rights to accelerate the maturity of such Contract under any
due-on-sale clause applicable thereto. If these conditions are not met or if
the Master Servicer reasonably believes it is unable under applicable law to
enforce such due-on-sale clause or if such Contract is insured by the FHA or
partially guaranteed by the VA, the Master Servicer will enter into or cause
to be entered into an assumption and modification agreement with the person to
whom such property has been or is about to be conveyed, pursuant to which such
person becomes liable for repayment of the Contract and, to the extent
permitted by applicable law, the obligor remains liable thereon. Any fee
collected by or on behalf of the Master Servicer for entering into an
assumption agreement will be retained by or on behalf of the Master Servicer
as additional servicing compensation. See "Certain Legal Aspects of the
Contracts -- Due-on-Sale Clauses." In connection with any such assumption, the
terms of the related Contract may not be changed.
HAZARD INSURANCE
Except as otherwise specified in the related Prospectus Supplement, the
Master Servicer will require the obligor on each Contract to maintain a hazard
insurance policy providing for no less than the coverage of the standard form
of fire insurance policy with extended coverage customary for the type of
Manufactured Home in the state in which such Manufactured Home is located.
Such coverage will generally be in an amount that equal to the lesser of (i)
the maximum insurable value of the Manufactured Home (and, in the case of a
Land-and-Home Contract, the underlying real property) securing such Contract
and (ii) the outstanding principal balance of the Contract; provided, however,
that the amount of such coverage will be sufficient to avoid the application
of any co-insurance clause in the policy. Each hazard insurance policy caused
to be maintained by the Master Servicer will contain a standard loss payee
clause in favor of the Master Servicer and its successors and assigns. If any
obligor is in default in the payment of premiums on its hazard insurance
policy or policies, the Master Servicer will pay such premiums out of its own
funds, and may add separately such premium to the obligor's obligations as
provided by the Contract, but may not add such premium to the remaining
principal balance of the Contract.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements securing a manufactured
housing contract by fire, lightning, explosion, smoke, windstorm and hail,
riot, strike and civil commotion, subject to the conditions and exclusions
particularized in each policy. Although the policies relating to the Contracts
may have been underwritten by different insurers under different state laws in
accordance with different applicable forms and therefore may not contain
identical terms and conditions, the basic terms thereof are dictated by
respective state laws, and most such policies typically do not cover any
physical damage resulting from the following: war, revolution, governmental
actions, floods and other water-related causes, earth movement (including
earthquakes, landslides and mud flows), nuclear reactions, wet or dry rot,
vermin, rodents, insects or domestic animals, theft and, in certain cases,
vandalism and hurricanes. The foregoing list is merely indicative of certain
kinds of uninsured risks and is not intended to be all inclusive. If the
Manufactured Home securing a Contract is located in a federally designated
special flood area at the time of origination, the Master Servicer will
require the obligor to obtain and maintain flood insurance.
The Master Servicer may maintain, in lieu of causing individual hazard
insurance policies to be maintained with respect to each individual Contract,
and will maintain, to the extent that the related Contract does not require
the obligor to maintain a hazard insurance policy with respect to the related
Manufactured Home (and, in the case of a Land-and-Home Contract, the
underlying real property), one or more blanket insurance policies covering
losses on the obligor's interest on the Contracts resulting from the absence
or inefficiency of individual hazard insurance policies. The Master Servicer
will pay the premium for such blanket policy on the basis described therein
and will pay any deductible amount with respect to claims under such policy
relating to the Contracts.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal servicing compensation to be paid to the Master Servicer in
respect of its master servicing activities for each Series of Certificates
will be equal to the percentage per annum described in the related Prospectus
Supplement (which may vary under certain circumstances) of the outstanding
principal balance of each Contract, and such compensation will be retained by
it from collections of interest on such Contract in the related Trust Fund
(the "Master Servicing Fee"). As compensation for its servicing duties, a
Sub-Servicer or, if there is no Sub-Servicer, the Master Servicer will be
entitled to a monthly servicing fee as described in the related Prospectus
Supplement. In addition, the Master Servicer or Sub-Servicer will retain all
prepayment charges, assumption fees and late payment charges, to the extent
collected from borrowers, and any benefit that may accrue as a result of the
investment of funds in the applicable Collection Account (unless otherwise
specified in the related Prospectus Supplement).
The Master Servicer will, to the extent provided in the related
Prospectus Supplement, pay or cause to be paid certain ongoing expenses
associated with each Trust Fund and incurred by it in connection with its
responsibilities under the related Agreement, including, without limitation,
payment of the fees and disbursements of the Trustee, any custodian appointed
by the Trustee, the certificate registrar and any paying agent, and payment of
expenses incurred in enforcing the obligations of Sub-Servicers and Sellers.
The Master Servicer will be entitled to reimbursement of expenses incurred in
enforcing the obligations of Sub-Servicers and Sellers under certain limited
circumstances. Certain other expenses may be borne by the related Trust Fund
as specified in the related Prospectus Supplement.
EVIDENCE AS TO COMPLIANCE
Each Agreement will provide that on or before a specified date in each
year, a firm of independent public accountants will furnish a statement to the
Trustee to the effect that, on the basis of the examination by such firm of
certain documents and records relating to the servicing of manufactured
housing contracts serviced by or on behalf of the Master Servicer under
pooling and servicing agreements similar to such Agreement, such servicing has
been conducted in compliance with such Agreement, except for any exceptions
set forth in such statement.
Each Agreement will also provide for delivery to the Trustee, on or
before a specified date in each year, of an annual statement signed by an
officer of the Master Servicer to the effect that the Master Servicer has
fulfilled its obligations under the Agreement throughout the preceding year.
Copies of the annual accountants' statement and the statement of an
officer of the Master Servicer may be obtained by Certificateholders of the
related Series without charge upon written request to the Master Servicer at
the address set forth in the related Prospectus Supplement.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE DEPOSITOR
The Master Servicer under each Agreement will be named in the related
Prospectus Supplement. The entity serving as Master Servicer may be an
affiliate of the Depositor and may otherwise have normal business
relationships with the Depositor or the Depositor's affiliates.
Each Agreement will provide that the Master Servicer may not resign from
its obligations and duties under the Agreement except upon a determination
that its duties thereunder are no longer permissible under applicable law. The
Master Servicer may, however, be removed from its obligations and duties as
set forth in the Agreement. No such resignation will become effective until
the Trustee or a successor servicer has assumed the Master Servicer's
obligations and duties under the Agreement.
Each Agreement will further provide that neither the Master Servicer, the
Depositor nor any director, officer, employee, or agent of the Master Servicer
or the Depositor will be under any liability to the related Trust Fund or
Certificateholders for any action taken or for refraining from the taking of
any action in good faith pursuant to the Agreement, or for errors in judgment;
provided, however, that neither the Master Servicer, the Depositor nor any
such person will be protected against any liability which would otherwise be
imposed by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. Each Agreement will further provide that
the Master Servicer, the Depositor and any director, officer, employee or
agent of the Master Servicer or the Depositor will be entitled to
indemnification by the related Trust Fund and will be held harmless against
any loss, liability or expense incurred in connection with any legal action
relating to the Agreement or the Certificates, other than any loss, liability
or expense related to any specific Contract or Contracts (except any such
loss, liability or expense otherwise reimbursable pursuant to the Agreement)
and any loss, liability or expense incurred by reason of willful misfeasance,
bad faith or gross negligence in the performance of duties thereunder or by
reason of reckless disregard of obligations and duties thereunder. In
addition, each Agreement will provide that neither the Master Servicer nor the
Depositor will be under any obligation to appear in, prosecute or defend any
legal action which is not incidental to its respective responsibilities under
the Agreement and which in its opinion may involve it in any expense or
liability. The Master Servicer or the Depositor may, however, in its
discretion undertake any such action which it may deem necessary or desirable
with respect to the Agreement and the rights and duties of the parties thereto
and the interests of the Certificateholders thereunder. In such event, the
legal expenses and costs of such action and any liability resulting therefrom
will be expenses, costs and liabilities of the Trust Fund and the Master
Servicer or the Depositor, as the case may be, will be entitled to be
reimbursed therefor out of funds otherwise distributable to
Certificateholders.
Except as otherwise specified in the related Prospectus Supplement, any
person into which the Master Servicer may be merged or consolidated, or any
person resulting from any merger or consolidation to which the Master Servicer
is a party, or any person succeeding to the business of the Master Servicer,
will be the successor of the Master Servicer under each Agreement, provided
that such person is qualified to sell mortgage loans to, and service mortgage
loans on behalf of, the Federal National Mortgage Association ("FNMA") or the
Federal Home Loan Mortgage Corporation ("FHLMC") and further provided that
such merger, consolidation or succession does not adversely affect the then
current rating or ratings of the class or classes of Certificates of such
Series that have been rated.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
Except as otherwise specified in the related Prospectus Supplement,
Events of Default under each Agreement will consist of (i) any failure by the
Master Servicer to distribute or cause to be distributed to Certificateholders
of any class any required payment which continues unremedied for five days
after the giving of written notice of such failure to the Master Servicer by
the Trustee or the Depositor, or to the Master Servicer, the Depositor and the
Trustee by the holders of Certificates of such class evidencing not less than
25% of the total distributions allocated to such class ("Percentage
Interests"); (ii) any failure by the Master Servicer duly to observe or
perform in any material respect any of its other covenants or agreements in
the Agreement, which failure materially affects the rights of
Certificateholders and continues unremedied for thirty days after the giving
of written notice of such failure to the Master Servicer by the Trustee or the
Depositor, or to the Master Servicer, the Depositor and the Trustee by the
holders of Certificates of any class evidencing not less than 25% of the
aggregate Percentage Interests constituting such class; and (iii) certain
events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceeding and certain actions by or on behalf of the
Master Servicer indicating its insolvency, reorganization or inability to pay
its obligations.
If specified in the related Prospectus Supplement, the Agreement will
permit the Trustee to sell the Trust Fund Assets and the other assets of the
Trust Fund described under "Credit Enhancement" herein in the event that
payments in respect thereto are insufficient to make payments required in the
Agreement. The assets of the Trust Fund will be sold only under the
circumstances and in the manner specified in the related Prospectus
Supplement.
Unless otherwise provided in the related Prospectus Supplement, so long
as an Event of Default under an Agreement remains unremedied, the Depositor or
the Trustee may, and at the direction of holders of Certificates of any class
evidencing not less than 66 2/3% of the aggregate Percentage Interests
constituting such class and under such other circumstances as may be specified
in such Agreement, the Trustee shall terminate all of the rights and
obligations of the Master Servicer under the Agreement relating to such Trust
Fund and in and to the related Trust Fund Assets, whereupon the Trustee will
succeed to all of the responsibilities, duties and liabilities of the Master
Servicer under the Agreement, including, if specified in the related
Prospectus Supplement, the obligation to make Advances, and will be entitled
to similar compensation arrangements. In the event that the Trustee is
unwilling or unable so to act, it may appoint, or petition a court of
competent jurisdiction for the appointment of, a manufactured housing loan
servicing institution with a net worth of a least $10,000,000 to act as
successor to the Master Servicer under the Agreement. Pending such
appointment, the Trustee is obligated to act in such capacity. The Trustee and
any such successor may agree upon the servicing compensation to be paid, which
in no event may be greater than the compensation payable to the Master
Servicer under the Agreement.
Unless otherwise provided in the related Prospectus Supplement, no
Certificateholder, solely by virtue of such holder's status as a
Certificateholder, will have any right under any Agreement to institute any
proceeding with respect to such Agreement, unless such holder previously has
given to the Trustee written notice of default and unless the holders of
Certificates of any class of such Series evidencing not less than 66 2/3% of
the aggregate Percentage Interests constituting such class have made written
request upon the Trustee to institute such proceeding in its own name as
Trustee thereunder and have offered to the Trustee reasonable indemnity, and
the Trustee for 60 days has neglected or refused to institute any such
proceeding.
AMENDMENT
Except as otherwise specified in the related Prospectus Supplement, each
Agreement may be amended by the Depositor, the Master Servicer and the
Trustee, without the consent of any of the Certificateholders, (i) to cure any
ambiguity or mistake; (ii) to correct any defective provision therein or to
supplement any provision therein which may be inconsistent with any other
provision therein; (iii) to add to the duties of the Depositor, the Seller or
the Master Servicer, (iv) to add any other provisions with respect to matters
or questions arising thereunder or (v) to modify, alter, amend, add to or
rescind any of the terms or provisions contained in such Agreement; provided,
however, that any such action pursuant to clauses (iv) or (v) above will not,
as evidenced by an opinion of counsel, adversely affect in any material
respect the interests of any Certificateholder; provided, however, that no
opinion of counsel will be required if the person requesting such amendment
obtains a letter from each Rating Agency requested to rate the class or
classes of Certificates of such Series stating that such amendment will not
result in the downgrading or withdrawal of the respective ratings then
assigned to such Certificates. In addition, if a REMIC or FASIT election is
made with respect to a Trust Fund, the related Agreement may be amended to
modify, eliminate or add to any of its provisions to such extent as may be
necessary to maintain the qualification of the related Trust Fund as a REMIC
or FASIT, avoid or minimize the risk of the imposition of any tax on the REMIC
or FASIT or to comply with any other provision of the Code, provided that the
Trustee has received an opinion of counsel to the effect that such action is
necessary or helpful to maintain such qualification, avoid or minimize the
risk of imposition of such a tax or comply with any such requirement of the
Code, as the case may be. Except as otherwise specified in the related
Prospectus Supplement, each Agreement may also be amended by the Depositor,
the Master Servicer and the Trustee with the consent of holders of
Certificates of such Series evidencing not less than 66 2/3% of the aggregate
Percentage Interests of each class affected thereby for the purpose of adding
any provisions to or changing in an manner or eliminating any of the
provisions of the Agreement or of modifying in any manner the rights of the
holders of the related Certificates; provided, however, that no such amendment
may (i) reduce in any manner the amount of or delay the timing of, payments
received on Contracts which are required to be distributed on any Certificate
without the consent of the holder of such Certificate, (ii) adversely affect
in any material respect the interests of the holders of any class of
Certificates in a manner other than as described in the immediately preceding
clause (i), without the consent of the holders of such class evidencing not
less than 66 2/3% of the Percentage Interests of such class or (iii) reduce
the aforesaid percentage of Certificates of any class the holders of which are
required to consent to any such amendment without the consent of the holders
of all Certificates of such class covered by such Agreement then outstanding.
If a REMIC or FASIT election is made with respect to a Trust Fund, the Trustee
will not be entitled to consent to an amendment to the related Agreement
without having first received an opinion of counsel to the effect that such
amendment will not cause such Trust Fund to fail to qualify as a REMIC or as a
FASIT, as the case may be.
TERMINATION; OPTIONAL TERMINATION
Unless otherwise specified in the related Agreement, the obligations
created by each Agreement for each Series of Certificates will terminate upon
the payment to the related Certificateholders of all amounts held in the
Collection Account or by the Master Servicer and required to be paid to them
pursuant to such Agreement following the later of (i) the final payment of or
other liquidation of the last of the Trust Fund Assets subject thereto or the
disposition of all property acquired upon repossession or foreclosure of any
such Trust Fund Assets remaining in the Trust Fund and (ii) the purchase by
the Master Servicer or, if specified in the related Prospectus Supplement, BY
THE HOLDER OF a call right with respect to the Trust Fund Assets after the
passage of a specified period of time or after the principal balance of the
Trust Fund Assets or the Securities has been reduced to a specified level.
Unless otherwise specified by the related Prospectus Supplement, any such
purchase of Trust Fund Assets and property acquired in respect of Trust Fund
Assets will be made at the option of the Master Servicer or such other person
at a price specified in the related Prospectus Supplement. The exercise of
such right will effect early retirement of the Certificates of that Series,
but the right of the Master Servicer or such other person or, if applicable,
such holder of the REMIC residual interest, to so purchase is subject to the
principal balance of the related Trust Fund Assets being less than the
percentage specified in the related Prospectus Supplement of the aggregate
principal balance of the Trust Fund Assets as of the Cut-off Date for the
Series. The foregoing is subject to the provision that if a REMIC election is
made with respect to a Trust Fund, any repurchase pursuant to clause (ii)
above will be made only in connection with a "qualified liquidation" of the
REMIC within the meaning of Section 860F(g)(4) of the Code.
THE TRUSTEE
The Trustee under each Agreement will be named in the applicable
Prospectus Supplement. The commercial bank or trust company serving as Trustee
may have normal banking relationships with the Depositor, the Master Servicer
and any of their respective affiliates.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
The following discussion contains summaries, which are general in nature,
of certain legal matters relating to the Contracts. Because such legal aspects
are governed primarily by applicable state law (which laws may differ
substantially), the descriptions do not, except as expressly provided below,
reflect the laws of any particular state, nor encompass the laws of all states
in which the security for the Contracts is situated. The descriptions are
qualified by reference to the applicable federal laws and the appropriate laws
of the states in which Contracts may be originated.
GENERAL
As a result of the assignment of the Contracts to the Trustee, the
Trustee will succeed to all of the rights (including the right to receive
payment on the Contracts) of the obligee under the Contracts. Each Contract
evidences both (a) the obligation of the obligor to repay the loan evidenced
thereby and (b) the grant of a security interest in the Manufactured Home to
secure repayment of such loan. Certain aspects of both features of the
Contracts are described more fully below.
The Contracts generally are "chattel paper" as defined in the Uniform
Commercial Code (the "UCC") in effect in the states in which the Manufactured
Homes initially were registered. Pursuant to the UCC, the sale of chattel
paper is treated in a manner similar to perfection of a security interest in
chattel paper. Under the Agreement, the Master Servicer will transfer physical
possession of the Contracts to the Trustee or its custodian or may retain
physical possession of the Contracts as custodian for the Trustee. In
addition, the Master Servicer will make an appropriate filing of a UCC-1
financing statement in the appropriate states to give notice of the Trustee's
ownership of the Contracts. Unless otherwise specified in the related
Prospectus Supplement, the Contracts will not be stamped or marked otherwise
to reflect their assignment from the Company to the Trustee. Therefore, if,
through negligence, fraud or otherwise, a subsequent purchaser were able to
take physical possession of any Contract without notice of such assignment,
the Trustee's interest in such Contract could be defeated.
MANUFACTURED HOMES
Security Interests in the Manufactured Homes
The Manufactured Homes securing the Contracts may be located in all 50
states and the District of Columbia. Security interests in manufactured homes
may be perfected either by notation of the secured party's lien on the
certificate of title or by delivery of the required documents and payment of a
fee to the state motor vehicle authority, depending on state law. In some
nontitle states, perfection pursuant to the provisions of the UCC is required.
The Seller may effect such notation or delivery of the required documents and
fees, and obtain possession of the certificate of title, as appropriate under
the laws of the state in which any manufactured home securing a manufactured
housing contract is registered. In the event the Seller fails, due to clerical
error, to effect such notation or delivery, or files the security interest
under the wrong law (for example, under a motor vehicle title statute rather
than under the UCC, in a few states), the Seller may not have a first priority
security interest in the Manufactured Home securing a Contract. As
manufactured homes have become larger and often have been attached to their
sites without any apparent intention to move them, courts in many states have
held that manufactured homes, under certain circumstances, may become subject
to real estate title and recording laws. As a result, a security interest in a
manufactured home could be rendered subordinate to the interests of other
parties claiming an interest in the home under applicable state real estate
law. In order to perfect a security interest in a manufactured home under real
estate laws, the holder of the security interest must file either a "fixture
filing" under the provisions of the UCC or a real estate mortgage under the
real estate laws of the state where the home is located. These filings must be
made in the real estate records office of the county where the home is
located. See "-- Land-and-Home Contracts." So long as the borrower does not
permanently attach its Manufactured Home to its site, a security interest in
the Manufactured Home will be governed by the certificate of title laws or the
UCC, and the notation of the security interest on the certificate of title or
the filing of a UCC financing statement will be effective to maintain the
priority of the security interest in the Manufactured Home. If, however, a
Manufactured Home is permanently attached to its site, other parties could
obtain an interest in the Manufactured Home which is prior to the security
interest originally retained by the Seller and transferred to the Depositor.
With respect to a Series of Certificates and if so described in the related
Prospectus Supplement, the Master Servicer may be required to perfect a
security interest in the Manufactured Home under applicable real estate laws.
The Seller will represent that as of the date of the sale to the Depositor it
has obtained a perfected first priority security interest by proper notation
or delivery of the required documents and fees with respect to substantially
all of the Manufactured Homes securing the Contracts.
The Depositor will cause the security interests in the Manufactured Homes
to be assigned to the Trustee on behalf of the Certificateholders. Unless
otherwise specified in the related Prospectus Supplement, neither the
Depositor nor the Trustee will amend the certificates of title (or file UCC-3
statements) to identify the Trustee as the new secured party, and neither the
Depositor nor the Master Servicer will deliver the certificates of title to
the Trustee or note thereon the interest of the Trustee. Accordingly, the
Seller (or other originator of the Contracts) will continue to be named as the
secured party on the certificates of title relating to the Manufactured Homes.
In some states, such assignment is an effective conveyance of such security
interest without amendment of any lien noted on the related certificate of
title and the new secured party succeeds to Master Servicer's rights as the
secured party. However, in some states, in the absence of an amendment to the
certificate of title (or the filing of a UCC-3 statement), such assignment of
the security interest in the Manufactured Home may not be held effective or
such security interests may not be perfected and in the absence of such
notation or delivery to the Trustee, the assignment of the security interest
in the Manufactured Home may not be effective against creditors of the Seller
(or such other originator of the Contracts) or a trustee in bankruptcy of the
Seller (or such other originator).
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or
administrative error by state recording officials, the notation of the lien of
the Seller (or other originator of the Contracts) on the certificate of title
or delivery of the required documents and fees will be sufficient to protect
the Certificateholders against the rights of subsequent purchasers of a
Manufactured Home or subsequent lenders who take a security interest in the
Manufactured Home. If there are any Manufactured Homes as to which the
security interest assigned to the Trustee is not perfected, such security
interest would be subordinate to, among others, subsequent purchasers for
value of Manufactured Homes and holders of perfected security interests. There
also exists a risk in not identifying the Trustee as the new secured party on
the certificate of title that, through fraud or negligence, the security
interest of the Trustee could be released.
In the event that the owner of a Manufactured Home moves it to a state
other than the state in which such Manufactured Home initially is registered,
under the laws of most states the perfected security interest in the
Manufactured Home would continue for four months after such relocation and
thereafter only if and after the owner re-registers the Manufactured Home in
such state. If the owner were to relocate a Manufactured Home to another state
and not re-register the Manufactured Home in such state, and if steps are not
taken to re-perfect the Trustee's security interest in such state, the
security interest in the Manufactured Home would cease to be perfected. A
majority of states generally require surrender of a certificate of title to
re-register a Manufactured Home; accordingly, the Master Servicer must
surrender possession if it holds the certificate of title to such Manufactured
Home or, in the case of Manufactured Homes registered in states which provide
for notation of lien, the Seller (or other originator) would receive notice of
surrender if the security interest in the Manufactured Home is noted on the
certificate of title. Accordingly, the Trustee would have the opportunity to
re-perfect its security interest in the Manufactured Home in the state of
relocation. In states which do not require a certificate of title for
registration of a manufactured home, re-registration could defeat perfection.
In the ordinary course of servicing the manufactured housing contracts, the
Master Servicer takes steps to effect such re-perfection upon receipt of
notice of re-registration or information from the obligor as to relocation.
Similarly, when an obligor under a manufactured housing contract sells a
manufactured home, the Master Servicer must surrender possession of the
certificate of title or, if it is noted as lienholder on the certificate of
title, will receive notice as a result of its lien noted thereon and
accordingly will have an opportunity to require satisfaction of the related
manufactured housing contract before release of the lien.
Under the laws of most states, liens for repairs performed on a
Manufactured Home and liens for personal property taxes take priority even
over a perfected security interest. The related Seller will represent that it
has no knowledge of any such liens with respect to any Manufactured Home
securing payment on any Contract. However, such liens could arise at any time
during the term of a Contract. No notice will be given to the Trustee or
Certificateholders in the event such a lien arises.
Enforcement of Security Interests in Manufactured Homes
The Master Servicer on behalf of the Trustee, to the extent required by
the related Agreement, may take action to enforce the Trustee's security
interest with respect to Contracts in default by repossession and resale of
the Manufactured Homes securing such defaulted Contracts. So long as the
Manufactured Home has not become subject to the real estate law, a creditor
can repossess a Manufactured Home securing a Contract by voluntary surrender,
by "self-help" repossession that is "peaceful" (i.e., without breach of the
peace) or, in the absence of voluntary surrender and the ability to repossess
without breach of the peace, by judicial process. The holder of a Contract
must give the debtor a number of days' notice, which varies from 10 to 30 days
depending on the state, prior to commencement of any repossession. The UCC and
consumer protection laws in most states place restrictions on repossession
sales, including requiring prior notice to the debtor and commercial
reasonableness in effecting such a sale. The law in most states also requires
that the debtor be given notice of any sale prior to resale of the unit so
that the debtor may redeem at or before such resale. In the event of such
repossession and resale of a Manufactured Home, the Trustee would be entitled
to be paid out of the sale proceeds before such proceeds could be applied to
the payment of the claims of unsecured creditors or the holders of
subsequently perfected security interests or, thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the manufactured home securing such debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments, and in many
cases the defaulting borrower would have no assets with which to pay a
judgment.
Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit or
delay the ability of a lender to repossess and resell collateral or enforce a
deficiency judgment.
LAND-AND-HOME CONTRACTS
If so specified in the related Prospectus Supplement, certain Contracts
("Land-and-Home Contracts") may be secured by a lien on the underlying real
property on which the related Manufactured Home is located (in addition to a
lien on the Manufactured Home).
General
The Land-and-Home Contracts will be secured by deeds of trust, mortgages,
security deeds or deeds to secure debt, depending upon the prevailing practice
in the state in which the property subject to the loan is located. Deeds of
trust are used almost exclusively in California instead of mortgages. A
mortgage creates a lien upon the real property encumbered by the mortgage,
which lien is generally not prior to the lien for real estate taxes and
assessments. Priority between mortgages depends on their terms and generally
on the order of recording with a state or county office. There are two parties
to a mortgage, the mortgagor, who is the borrower and owner of the mortgaged
property, and the mortgagee, who is the lender. Under the mortgage instrument,
the mortgagor delivers to the mortgagee a note or bond and the mortgage.
Although a deed of trust is similar to a mortgage, a deed of trust formally
has three parties, the borrower-property owner called the trustor (similar to
a mortgagor), a lender (similar to a mortgagee) called the beneficiary, and a
third-party grantee called the trustee. Under a deed of trust, the borrower
grants the property, irrevocably until the debt is paid, in trust, generally
with a power of sale, to the trustee to secure payment of the obligation. A
security deed and a deed to secure debt are special types of deeds which
indicate on their face that they are granted to secure an underlying debt. By
executing a security deed or deed to secure debt, the grantor conveys title
to, as opposed to merely creating a lien upon, the subject property to the
grantee until such time as the underlying debt is repaid. The trustee's
authority under a deed of trust, the mortgagee's authority under a mortgage
and the grantee's authority under a security deed or deed to secure debt are
governed by law and, with respect to some deeds of trust, the directions of
the beneficiary.
Foreclosure
Deed of Trust. Foreclosure of a deed of trust is generally accomplished
by a non-judicial sale under a specific provision in the deed of trust which
authorizes the trustee to sell the property at public auction upon any default
by the borrower under the terms of the note or deed of trust. In certain
states, such foreclosure also may be accomplished by judicial action in the
manner provided for foreclosure of mortgages. In addition to any notice
requirements contained in a deed of trust, in some states (such as
California), the trustee must record a notice of default and send a copy to
the borrower-trustor, to any person who has recorded a request for a copy of
any notice of default and notice of sale, to any successor in interest to the
borrower-trustor, to the beneficiary of any junior deed of trust and to
certain other persons. In some states (including California), the
borrower-trustor has the right to reinstate the loan at any time following
default until shortly before the trustee's sale. In general, the borrower, or
any other person having a junior encumbrance on the real estate, may, during a
statutorily prescribed reinstatement period, cure a monetary default by paying
the entire amount in arrears plus other designated costs and expenses incurred
in enforcing the obligation. Generally, state law controls the amount of
foreclosure expenses and costs, including attorney's fees, which may be
recovered by a lender. After the reinstatement period has expired without the
default having been cured, the borrower or junior lienholder no longer has the
right to reinstate the loan and must pay the loan in full to prevent the
scheduled foreclosure sale. If the deed of trust is not reinstated within any
applicable cure period, a notice of sale must be posted in a public place and,
in most states (including California), published for a specific period of time
in one or more newspapers. In addition, some state laws require that a copy of
the notice of sale be posted on the property and sent to all parties having an
interest of record in the real property.
Mortgages. Foreclosure of a mortgage is generally accomplished by
judicial action. The action is initiated by the service of legal pleadings
upon all parties having an interest in the real property. Delays in completion
of the foreclosure may occasionally result from difficulties in locating
necessary parties. Judicial foreclosure proceedings are often not contested by
any of the parties. When the mortgagee's right to foreclosure is contested,
the legal proceedings necessary to resolve the issue can be time consuming.
After the completion of a judicial foreclosure proceeding, the court generally
issues a judgment of foreclosure and appoints a referee or other court officer
to conduct the sale of the property. In some states, mortgages may also be
foreclosed by advertisement, pursuant to a power of sale provided in the
mortgage.
Although foreclosure sales are typically public sales, frequently no
third party purchaser bids in excess of the lender's lien because of the
difficulty of determining the exact status of title to the property, the
possible deterioration of the property during the foreclosure proceedings and
a requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender often purchases the property from the
trustee or referee for an amount equal to the principal amount outstanding
under the loan, accrued and unpaid interest and the expenses of foreclosure in
which event the mortgagor's debt will be extinguished or the lender may
purchase for a lesser amount in order to preserve its right against a borrower
to seek a deficiency judgment in states where such judgment is available.
Thereafter, subject to the right of the borrower in some states to remain in
possession during the redemption period, the lender will assume the burden of
ownership, including obtaining hazard insurance and making such repairs at its
own expense as are necessary to render the property suitable for sale. The
lender will commonly obtain the services of a real estate broker and pay the
broker's commission in connection with the sale of the property. Depending
upon market conditions, the ultimate proceeds of the sale of the property may
not equal the lender's investment in the property. Any loss may be reduced by
the receipt of any mortgage guaranty insurance proceeds.
Courts have imposed general equitable principles upon foreclosure, which
are generally designed to mitigate the legal consequences to the borrower of
the borrower's defaults under the loan documents. Some courts have been faced
with the issue of whether federal or state constitutional provisions
reflecting due process concerns for fair notice require that borrowers under
deeds of trust receive notice longer than that prescribed by statute. For the
most part, these cases have upheld the notice provisions as being reasonable
or have found that the sale by a trustee under a deed of trust does not
involve sufficient state action to afford constitutional protection to the
borrower.
Rights of Redemption
In some states, after sale pursuant to a deed of trust or foreclosure of
a mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In certain
other states (including California), this right of redemption applies only to
sales following judicial foreclosure, and not to sales pursuant to a
non-judicial power of sale. In most states where the right of redemption is
available, statutory redemption may occur upon payment of the foreclosure
purchase price, accrued interest and taxes. 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 exercise of a right of redemption
would defeat the title of any purchaser from the lender subsequent to
foreclosure or sale under a deed of trust. Consequently, the practical effect
of the redemption right is to force the lender to retain the property and pay
the expenses of ownership until the redemption period has run. In some states,
there is no right to redeem property after a trustee's sale under a deed of
trust.
Anti-Deficiency Legislation; Bankruptcy Laws; Tax Liens
Certain states have imposed statutory and judicial restrictions that
limit the remedies of a beneficiary under a deed of trust or a mortgagee under
a mortgage. In some states, including California, statutes and case law limit
the right of the beneficiary or mortgagee to obtain a deficiency judgment
against borrowers financing the purchase of their residence or following sale
under a deed of trust or certain other foreclosure proceedings. A deficiency
judgment is a personal judgment against the borrower equal in most cases to
the difference between the amount due to the lender and the fair market value
of the real property at the time of the foreclosure sale. In certain states,
including California, if a lender simultaneously originates a loan secured by
a senior lien on a particular property and a loan secured by a junior lien on
the same property, such a lender as the holder of the junior lien may be
precluded from obtaining a deficiency judgment with respect to the excess of
the aggregate amount owed under both such loans over the proceeds of any sale
under a deed of trust or other foreclosure proceedings. As a result of these
prohibitions, it is anticipated that in most instances the Master Servicer
will utilize the non-judicial foreclosure remedy and will not seek deficiency
judgments against defaulting borrowers.
Some state statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. In certain other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security; however, in some of these states, the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the security. Consequently,
the practical effect of the election requirement, when applicable, is that
lenders will usually proceed first against the security rather than bringing a
personal action against the borrower. In some states, exceptions to the
anti-deficiency statutes are provided for in certain instances where the value
of the lender's security has been impaired by acts or omissions of the
borrower, for example, in the event of waste of the property. Finally, other
statutory provisions limit any deficiency judgment against the former borrower
following a foreclosure sale to the excess of the outstanding debt over the
fair market value of the property at the time of the public sale. The purpose
of these statutes is generally to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result
of low or no bids at the foreclosure sale.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
and state laws affording relief to debtors, may interfere with or affect the
ability of the secured mortgage lender to realize upon its security. For
example, in a proceeding under the Bankruptcy Code, a lender may not foreclose
on a mortgaged property without the permission of the bankruptcy court. The
rehabilitation plan proposed by the debtor may provide, if the mortgaged
property is not the debtor's principal residence and the court determines that
the value of the mortgaged property is less than the principal balance of the
mortgage loan, for the reduction of the secured indebtedness to the value of
the mortgaged property as of the date of the commencement of the bankruptcy,
rendering the lender a general unsecured creditor for the difference, and also
may reduce the monthly payments due under such mortgage loan, change the rate
of interest and alter the mortgage loan repayment schedule. The effect of any
such proceedings under the Bankruptcy Code, including but not limited to any
automatic stay, could result in delays in receiving payments on the
Land-and-Home Contracts underlying a Series of Certificates and possible
reductions in the aggregate amount of such payments.
The federal tax laws provide priority to certain tax liens over the lien
of a mortgage or secured party.
Environmental Risks
Real property pledged as security to a lender may be subject to
unforeseen environmental risks. Under the laws of certain states,
contamination of a property may give rise to a lien on the property to assure
the payment of the costs of clean-up. In several states such a lien has
priority over the lien of an existing mortgage against such property. In
addition, under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA"), the United States Environmental
Protection Agency ("EPA") may impose a lien on property where EPA has incurred
clean-up costs. However, a CERCLA lien is subordinate to pre-existing,
perfected security interests.
Under the laws of some states, and under CERCLA, it is conceivable that a
secured lender may be held liable as an "owner" or "operator" for the costs of
addressing releases or threatened releases of hazardous substances at an
underlying real property, even though the environmental damage or threat was
caused by a prior or current owner or operator. CERCLA imposes liability for
such costs on any and all "responsible parties," including owners or
operators. However, CERCLA excludes from the definition of "owner or operator"
a secured creditor who holds indicia of ownership primarily to protect its
security interest (the "secured creditor exclusion") but without
"participating in the management" of the underlying real property. Thus, if a
lender's activities begin to encroach on the actual management of a
contaminated facility or property, the lender may incur liability as an "owner
or operator" under CERCLA. Similarly, if a lender forecloses and takes title
to a contaminated facility or property, the lender may incur CERCLA liability
in various circumstances, including, but not limited to, when it holds the
facility or property as an investment (including leasing the facility or
property to third party), or fails to market the property in a timely fashion.
Whether actions taken by a lender would constitute participation in the
management of a mortgaged property, or the business of a borrower, so as to
render the secured creditor exemption unavailable to a lender has been a
matter of judicial interpretation of the statutory language, and court
decisions have been inconsistent. In 1990, the Court of Appeals for the
Eleventh Circuit suggested that the mere capacity of the lender to influence a
borrower's decisions regarding disposal of hazardous substances was sufficient
participation in the management of the borrower's business to deny the
protection of the secured creditor exemption to the lender.
This ambiguity appears to have been resolved by the enactment of the
Asset Conservation, Lender Liability and Deposit Insurance Protection Act of
1996, which was signed into law by President Clinton on September 30, 1996.
This legislation provides that in order to be deemed to have participated in
the management of a mortgaged property, a lender must actually participate in
the operational affairs of the property or the borrower. The legislation also
provides that participation in the management of the property does not include
"merely having the capacity to influence, or unexercised right to control"
operations. Rather, a lender will lose the protection of the secured creditor
exemption only if it exercises decision-making control over the borrower's
environmental compliance and hazardous substance handling and disposal
practices, or assumes day-to-day management of all operational functions of
the mortgaged property.
If a lender is or becomes liable, it can bring an action for contribution
against any other "responsible parties," including a previous owner or
operator, who created the environmental hazard, but those persons or entities
may be bankrupt or otherwise judgment proof. The costs associated with
environmental cleanup may be substantial. It is conceivable that such costs
arising from the circumstances set forth above would result in a loss to
Certificateholders.
CERCLA does not apply to petroleum products, and the secured creditor
exclusion does not govern liability for cleanup costs under federal laws other
than CERCLA, in particular Subtitle I of the federal Resource Conservation and
Recovery Act ("RCRA"), which regulates underground petroleum storage tanks
(except heating oil tanks). The EPA has adopted a lender liability rule for
underground storage tanks under Subtitle I of RCRA. Under such rule, a holder
of a security interest in an underground storage tank or real property
containing an underground storage tank is not considered an operator of the
underground storage tank as long as petroleum is not added to, stored in or
dispensed from the tank. In addition, under the Asset Conservation, Lender
Liability and Deposit Insurance Protection Act of 1996, the protections
accorded to lenders under CERCLA are also accorded to the holders of security
interests in underground storage tanks. It should be noted, however, that
liability for cleanup of petroleum contamination may be governed by state law,
which may not provide for any specific protection for secured creditors, or
alternatively, may not impose liability on secured creditors at all.
Except as otherwise specified in the related Prospectus Supplement, at
the time the Land-and-Home Contracts were originated, no environmental
assessment or a very limited environmental assessment of the related
underlying real properties was conducted.
DUE-ON-SALE CLAUSES
Unless otherwise specified in the related Prospectus Supplement, each
conventional Contract will contain a due-on-sale clause which will generally
provide that if the obligor sells, transfers or conveys the Manufactured Home
(and, in the case of Land-and-Home Contracts, the underlying real property),
the loan or contract may be accelerated by the secured party or the mortgagee.
Court decisions and legislative actions have placed substantial restriction on
the right of lenders to enforce such clauses in many states. For instance, the
California Supreme Court in August 1978 held that due-on-sale clauses were
generally unenforceable. However, the Garn-St Germain Depository Institutions
Act of 1982 (the "Garn-St Germain Act"), subject to certain exceptions,
preempts state constitutional, statutory and case law prohibiting the
enforcement of due-on-sale clauses. As a result, due-on-sale clauses have
become generally enforceable except in those states whose legislatures
exercised their authority to regulate the enforceability of such clauses with
respect to manufactured housing loans that were (i) originated or assumed
during the "window period" under the Garn-St Germain Act which ended in all
cases not later than October 15, 1982 and (ii) originated by lenders other
than national banks, federal savings institutions and federal credit unions.
FHLMC has taken the position in its published mortgage servicing standards
that, out of a total of eleven "window period states," five states (Arizona,
Michigan, Minnesota, New Mexico and Utah) have enacted statutes extending, on
various terms and for varying periods, the prohibition on enforcement of
due-on-sale clauses with respect to certain categories of window period loans.
Also, the Garn-St Germain Act does "encourage" lenders to permit assumption of
loans at the original rate of interest or at some other rate less than the
average of the original rate and the market rate.
As to loans secured by an owner-occupied residence, the Garn-St Germain
Act sets forth nine specific instances in which a secured party or mortgagee
covered by the Act may not exercise its rights under a due-on-sale clause,
notwithstanding the fact that a transfer of the property may have occurred.
The inability to enforce a due-on-sale clause may result in transfer of the
related Manufactured Home (and, in the case of Land-and-Home Contracts, the
related underlying real property) to an uncreditworthy person, which could
increase the likelihood of default or may result in a loan bearing an interest
rate below the current market rate being assumed by a new home buyer, which
may affect the average life of the Contracts and the number of Contracts which
may extend to maturity.
In addition, under federal bankruptcy law, due-on-sale clauses may not be
enforceable in bankruptcy proceedings and may, under certain circumstances, be
eliminated by modified terms of the loan resulting from such bankruptcy
proceeding.
ENFORCEABILITY OF PREPAYMENT AND LATE PAYMENT FEES
Forms of notes, contracts, mortgages and deeds of trust used by lenders
may contain provisions obligating the borrower to pay a late charge if
payments are not timely made, and in some circumstances may provide for
prepayment fees or penalties if the obligation is paid prior to maturity. In
certain states, there are or may be specific limitations upon the late charges
which a lender may collect from a borrower for delinquent payments. Certain
states also limit the amounts that a lender may collect from a borrower as an
additional charge if the loan is prepaid. Under certain state laws, prepayment
charges may not be imposed after a certain period of time following the
origination of manufactured housing loans with respect to prepayments on loans
secured by liens encumbering owner-occupied residential properties. The
absence of such a restraint on prepayment, particularly with respect to fixed
rate Contracts having higher Contract Rates, may increase the likelihood of
refinancing or other early retirement of such loans or contracts. Late charges
and prepayment fees are typically retained by servicers as additional
servicing compensation.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V") provides that (subject to
certain conditions governing, among other things, (x) the terms of any
prepayments, (y) late charges and deferral fees and (z) requiring a 30-day
notice period prior to instituting any action leading to repossession of the
related unit) state usury limitations shall not apply to any manufactured
housing loan that is secured by a first lien on certain kinds of manufactured
housing. The Office of Thrift Supervision, as successor to the Federal Home
Loan Bank Board, is authorized to issue rules and regulations and to publish
interpretations governing implementation of Title V. The statute authorized
the states to reimpose interest rate limits by adopting, before April 1, 1983,
a law or constitutional provision which expressly rejects an application of
the federal law. Fifteen states adopted such a law prior to the April 1, 1983
deadline. In addition, even where Title V is not so rejected, any state is
authorized by the law to adopt a provision limiting discount points or other
charges on manufactured housing loans covered by Title V. Certain states have
taken action to reimpose interest rate limits and/or to limit discount points
or other charges.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the "Relief Act"), a borrower who enters military service
after the origination of such borrower's Contract (including a borrower who is
a member of the National Guard or is in reserve status at the time of the
origination of the Contract and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such
borrower's active duty status, unless a court orders otherwise upon
application of the lender. It is possible that such interest rate limitation
could have an effect, for an indeterminate period of time, on the ability of
the Master Servicer to collect full amounts of interest on certain of the
Contracts. Unless otherwise provided in the related Prospectus Supplement, any
shortfall in interest collections resulting from the application of the Relief
Act could result in losses to Certificateholders. The Relief Act also imposes
limitations which would impair the ability of the Master Servicer to repossess
or foreclose on the collateral securing an affected Contract during the
borrower's period of active duty status. Moreover, the Relief Act permits the
extension of a Contract's maturity and the re-adjustment of its payment
schedule beyond the completion of military service. Thus, in the event that
such a Contract goes into default, there may be delays and losses occasioned
by the inability to realize upon the Manufactured Home (and, in the case of
Land-and-Home Contracts, the underlying real property) in a timely fashion.
FHA INSURANCE AND VA GUARANTIES
Certain of the Contracts may be FHA insured or VA guaranteed, the
payments upon which, subject to the following discussion, are insured by the
FHA under Title I of the National Housing Act, as amended, or partially
guaranteed by the VA. Any FHA insurance or VA guarantees relating to the
Contracts will be described in the related Prospectus Supplement.
The FHA is responsible for administering various federal programs,
including manufactured home insurance, authorized under the National Housing
Act, as amended. The insurance premiums for FHA insured contracts are
collected by HUD approved lenders or by the servicers of such FHA insured
contracts and are paid to the FHA. The regulations governing FHA manufactured
home insurance provide that insurance benefits are payable upon the
repossession and resale of the collateral and assignment of the contract to
HUD. With respect to a defaulted FHA insured contract, the servicer must
follow applicable regulations before initiating repossession procedures. Once
it is determined, either by the servicer or HUD, that default was caused by
circumstances beyond the lenders control, these regulations require, among
other things, that the lender arrange a face-to-face meeting with the
borrower, initiate a modification or repayment plan, if feasible, and give the
borrower 30 days' notice of default prior to any repossession. Such plans may
involve the reduction or suspension of scheduled contract payments for a
specified period, with such payments to be made upon or before the maturity
date of the contract, or the recasting of payments due under the FHA insured
contract up to and beyond the scheduled maturity date. In addition, when a
default is accompanied by certain other criteria, HUD may provide relief by
making payments to the servicer of such contract in partial or full
satisfaction of amounts due thereunder (which payments are to be repaid by the
borrower to HUD) or by accepting assignment of the contract. With certain
exceptions, at least three full monthly installments must be due and unpaid
under the FHA insured contract, and HUD must have rejected any request for
relief from the lender before the servicer may initiate foreclosure
proceedings. If these regulations are satisfied, the insurance claim is paid
in cash by HUD.
For manufactured housing contracts, the amount of insurance benefits
generally paid by FHA is equal to 90% of the sum of (i) the unpaid principal
amount of the contract at the date of default and uncollected interest earned
to the date of default computed at the contract rate, after deducting the best
price obtainable for the collateral (based in part on a HUD-approved
appraisal) and all amounts retained or collected by the lender from other
sources with respect to the contract, (ii) accrued and unpaid interest on the
unpaid amount of the contract from the date of default to the date of
submission of the claim plus 15 calendar days (but in no event more than nine
months) computed at a rate of 7% per annum, (iii) costs paid to a dealer or
other third party to repossess and preserve the property, (iv) the amount of
any sales commission paid to a dealer or other third party for the resale of
the property, (v) any property taxes, special assessments and other similar
charges and hazard insurance premiums, prorated to the date of disposition of
the property, (vi) uncollected court costs, (vii) legal fees, not to exceed
$500, and (viii) expenses for recording the assignment of the lien on the
collateral to the United States. When entitlement to insurance benefits
results from assignment of the FHA insured contract to HUD, the insurance
payment includes full compensation for interest accrued and unpaid to the
assignment date.
The insurance available to a lender under FHA Title I insurance is
subject to the limit of a reserve amount equal to ten percent of the original
principal balance of all Title I insured loans held by the lender, which
amount is reduced by all claims paid to the lender and which is increased by
an amount equal to ten percent of the original principal balance of insured
loans originated or acquired by the lender.
The maximum guarantee that may be issued by the VA for a VA guaranteed
contract is the lesser of (a) the lesser of $20,000 and 40% of the principal
amount of the contract and (b) the maximum amount of guaranty entitlement
available to the obligor veteran (which may range from $20,000 to zero). The
amount payable under the guarantee will be the percentage of the VA contract
originally guaranteed applied to indebtedness outstanding as of the applicable
date of computation specified in the VA regulations, interest accrued on the
unpaid balance of the loan to the appropriate date of computation and limited
expenses of the contract holder, but in each case only to the extent that such
amounts have not been recovered through resale of the manufactured home. The
amount payable under the guarantee may in no event exceed the amount of the
original guarantee.
The VA may, at its option and without regard to the guarantee, make full
payment to a lender of the unsatisfied amount on a contract upon its
assignment to the VA. With respect to a defaulted VA guaranteed Contract, the
servicer is, absent exceptional circumstances, authorized to announce its
intention to repossess only when the default has continued for three months.
Generally, a claim for the guarantee is submitted after liquidation of the
related collateral.
CONSUMER PROTECTION LAWS
The so-called "Holder-in-Due Course" rule of the Federal Trade Commission
is intended to defeat the ability of the transferor of a consumer credit
contract which is the seller of goods which gave rise to the transaction (and
certain related lenders and assignees) to transfer such contract free of
notice of claims by the debtor thereunder. The effect of this rule is to
subject the assignee of such a contract to all claims and defenses which the
debtor could assert against the seller of goods. Liability under this rule is
limited to amounts paid under a Contract; however, the obligor also may be
able to assert the rule to set off remaining amounts due as a defense against
a claim brought by the Trustee against such obligor. Numerous other federal
and state consumer protection laws impose requirements applicable to the
origination, servicing and enforcement of the Contracts, including the Truth
in Lending Act, the Federal Trade Commission Act, the Fair Credit Billing Act,
the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Fair Debt
Collection Practices Act and the Uniform Consumer Credit Code. In the case of
some of these laws, the failure to comply with their provisions may affect the
enforceability of the related contract.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the anticipated material federal income tax
consequences of the purchase, ownership, and disposition of the Certificates
and is based on advice of Brown & Wood LLP, special counsel to the Depositor.
The summary is based upon the provisions of the Code, the regulations
promulgated thereunder, including, where applicable, proposed regulations, and
the judicial and administrative rulings and decisions now in effect, all of
which are subject to change or possible differing interpretations. The
statutory provisions, regulations, and interpretations on which this summary
is based are subject to change, and such a change could apply retroactively.
The summary does not purport to deal with all aspects of federal income
taxation that may affect particular investors in light of their individual
circumstances, nor with certain types of investors subject to special
treatment under the federal income tax laws. This summary focuses primarily
upon investors who will hold Certificates as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the Code,
but much of the discussion is applicable to other investors as well.
Prospective Investors are advised to consult their own tax advisers concerning
the federal, state, local and any other tax consequences to them of the
purchase, ownership and disposition of the Certificates.
The federal income tax consequences to Holders will vary depending on
whether (i) the Certificates of a Series are classified as indebtedness; (ii)
an election is made to treat the Trust Fund relating to a particular Series of
Certificates as a REMIC or as a FASIT; (iii) the Certificates represent
interests in a grantor trust; or (iv) the Trust Fund relating to a particular
Series of Certificates is classified as a partnership. The Prospectus
Supplement for each Series of Certificates will specify how the Certificates
will be treated for federal income tax purposes and will discuss whether a
REMIC or a FASIT election, if any, will be made with respect to such Series.
Prior to issuance of each Series of Certificates, the Depositor shall file
with the Commission a Form 8-K on behalf of the related Trust Fund containing
an opinion of Brown & Wood LLP with respect to the validity of the information
set forth under "Federal Income Tax Consequences" herein and in the related
Prospectus Supplement.
TAXATION OF DEBT CERTIFICATES
Interest and Acquisition Discount. Certificates representing regular
interests in a REMIC are generally treated as evidences of indebtedness issued
by the REMIC. Certificates representing regular interests in a FASIT are
treated as debt instruments. Stated interest on regular interests in REMICs
and regular interests in FASITsregular interests in REMICs and regular
interests in FASITs will be taxable as ordinary income and taken into account
using the accrual method of accounting, regardless of the Holder's normal
accounting method. THUS, A TAXPAYER MAY BE REQUIRED TO REPORT INCOME IN
RESPECT OF A FASIT OR REMIC REGULAR INTEREST BEFORE ACTUALLY RECEIVING A
CORRESPONDING CASH DISTRIBUTION. Interest (other than original issue discount)
on Certificates (other than regular interests in REMICs or FASITsregular
interests in REMICs or FASITs) that are characterized as indebtedness for
federal income tax purposes will be includible in income by holders thereof in
accordance with their usual methods of accounting. Certificates characterized
as debt for federal income tax purposes, including regular interests in REMICs
or FASITs, will be referred to hereinafter collectively as "Debt
Certificates."
Debt Certificates that are Compound Interest Certificates (i.e., debt
securities that accrete the amount of accrued interest and add that amount to
the principal balance of the securities until maturity or until some specified
event has occurred)(i.e., debt securities that accrete the amount of accrued
interest and add that amount to the principal balance of the securities until
maturity or until some specified event has occurred) will, and certain of the
other Debt Certificates may, be issued with "original issue discount" ("OID").
The following discussion is based in part on the rules governing OID which are
set forth in Sections 1271-1275 of the Code and the Treasury regulations
issued thereunder on February 2, 1994, as amended on June 11, 1996, (the "OID
Regulations"). A Holder should be aware, however, that the OID Regulations do
not adequately address certain issues relevant to prepayable securities, such
as the Debt Certificates.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Debt Certificate and its issue price. A
holder of a Debt Certificate must include such OID in gross income as ordinary
interest income as it accrues under a method taking into account an economic
accrual of the discount. In general, OID must be included in income in advance
of the receipt of the cash representing that income. The amount of OID on a
Debt Certificate will be considered to be zero if it is less than a de minimis
amount determined under the Code.
The issue price of a Debt Certificate is the first price at which a
substantial amount of Debt Certificates of that class are sold (excluding
sales to bond houses, brokers, underwriters or wholesalers). If less than a
substantial amount of a particular class of Debt Certificates is sold for cash
on or prior to the related Closing Date, the issue price for such class will
be treated as the fair market value of such class on such Closing Date. The
issue price of a Debt Certificate generally includes the amount paid by an
initial Debt Certificate holder for accrued interest that relates to a period
prior to the issue date of the Debt Certificate ("pre-issuance accrued
interest"). The issue price of a Debt Security may, however, be computed
without regard to such pre-issuance accrued interest if such pre-issuance
accrued interest will be paid on the first payment date following the date of
issuance. This alternative is available only if the first payment date occurs
within one year of the date of issuance. Under this alternative, the payment
of pre-issuance accrued interest will be treated as a non-taxable return of
capital and not as a payment of interest.(Apre-issuance accrued interest@).
The issue price of a Debt Security may, however, be computed without regard to
such pre-issuance accrued interest if such pre-issuance accrued interest will
be paid on the first payment date following the date of issuance. This
alternative is available only if the first payment date occurs within one year
of the date of issuance. Under this alternative, the payment of pre-issuance
accrued interest will be treated as a non-taxable return of capital and not as
a payment of interest. The stated redemption price at maturity of a Debt
Certificate includes the original principal amount of the Debt Certificate,
but generally will not include stated interest if it is "qualified stated
interest."
Under the OID Regulations, qualified stated interest generally means
interest payable at a single fixed rate or qualified variable rate (as
described below) provided that such interest payments are unconditionally
payable at intervals of one year or less during the entire term of the Debt
Certificate. The OID Regulations state that interest payments are
unconditionally payable only if a late payment or nonpayment is expected to be
penalized or reasonable remedies exist to compel payment or the Debt Security
otherwise provides terms and conditions that make the likelihood of late
payment or nonpayment a remote contingency. Certain Debt Certificates may
provide for default remedies in the event of late payment or nonpayment of
interest. The interest on such Debt Certificates will be unconditionally
payable and constitute qualified stated interest, not OID. However, absent
clarification of the OID Regulations, where Debt Certificates do not provide
for default remedies, the interest payments will be included in the Debt
Certificate's stated redemption price at maturity and taxed as OID. Interest
is payable at a single fixed rate only if the rate appropriately takes into
account the length of the interval between payments. Distributions of interest
on Debt Certificates with respect to which deferred interest will accrue, will
not constitute qualified stated interest payments, in which case the stated
redemption price at maturity of such Debt Certificates includes all
distributions of interest as well as principal thereon. Where the interval
between the issue date and the first Distribution Date on a Debt Certificate
is either longer or shorter than the interval between subsequent Distribution
Dates, all or part of the interest foregone, in the case of the longer
interval, and all of the additional interest, in the case of the shorter
interval, will be included in the stated redemption price at maturity and
tested under the de minimis rule described below. In the case of a Debt
Certificate with a long first period which has non-de minimis OID, all stated
interest in excess of interest payable at the effective interest rate for the
long first period will be included in the stated redemption price at maturity
and the Debt Certificate will generally have OID. Holders of Debt Certificates
should consult their own tax advisors to determine the issue price and stated
redemption price at maturity of a Debt Certificate.
Under the de minimis rule, OID on a Debt Certificate will be considered
to be zero if such OID is less than 0.25% of the stated redemption price at
maturity of the Debt Certificate multiplied by the weighted average maturity
of the Debt Certificate. For this purpose, the weighted average maturity of
the Debt Certificate is computed as the sum of the amounts determined by
multiplying the number of full years (i.e., rounding down partial years) from
the issue date until each distribution in reduction of stated redemption price
at maturity is scheduled to be made by a fraction, the numerator of which is
the amount of each distribution included in the stated redemption price at
maturity of the Debt Certificate and the denominator of which is the stated
redemption price at maturity of the Debt Certificate. Holders generally must
report de minimis OID pro rata as principal payments are received, and such
income will be capital gain if the Debt Certificate is held as a capital
asset. However, accrual method holders may elect to accrue all de minimis OID
as well as market discount under a constant interest method.
Debt Certificates may provide for interest based on a qualified variable
rate. Under the OID Regulations, interest is treated as payable at a qualified
variable rate and not as contingent interest if, generally, (i) such interest
is unconditionally payable at least annually, (ii) the issue price of the debt
instrument does not exceed the total noncontingent principal payments and
(iii) interest is based on a "qualified floating rate," an "objective rate,"
or a combination of "qualified floating rates" that do not operate in a manner
that significantly accelerates or defers interest payments on such Debt
Certificate. In the case of Compound Interest Certificates, certain Interest
Weighted Certificates (as defined herein), and certain of the other Debt
Certificates, none of the payments under the instrument will be considered
qualified stated interest, and thus the aggregate amount of all payments will
be included in the stated redemption price.
The OID Regulations do not contain provisions specifically interpreting
Code Section 1272(a)(6). Until the Treasury issues guidance to the contrary,
the Trustee intends to base its computation on Code Section 1272(a)(6) and the
OID Regulations as described in this Prospectus. However, because no
regulatory guidance currently exists under Code Section 1272(a)(6), there can
be no assurance that such methodology represents the correct manner of
calculating OID.
The holder of a Debt Certificate issued with OID must include in gross
income, for all days during its taxable year on which it holds such Debt
Certificate, the sum of the "daily portions" of such original issue discount.
The amount of OID includible in income by a holder will be computed by
allocating to each day during a taxable year a pro rata portion of the
original issue discount that accrued during the relevant accrual period. In
the case of a Debt Certificate that is not a regular interest in a REMIC or a
FASIT and the principal payments on which are not subject to acceleration
resulting from prepayments on the Contracts, the amount of OID includible in
income of a Holder for an accrual period (generally the period over which
interest accrues on the debt instrument) will equal the product of the yield
to maturity of the Debt Certificate and the adjusted issue price of the Debt
Certificate, reduced by any payments of qualified stated interest. The
adjusted issue price is the sum of its issue price plus prior accruals or OID,
reduced by the total payments made with respect to such Debt Certificate in
all prior periods, other than qualified stated interest payments.
The amount of OID to be included in income by a holder of a debt
instrument, such as certain classes of the Debt Certificates, that is subject
to acceleration due to prepayments on other debt obligations securing such
instruments (a "Pay-Through Security"), is computed by taking into account the
anticipated rate of prepayments assumed in pricing the debt instrument (the
"Prepayment Assumption"). The amount of OID that will accrue during an accrual
period on a Pay-Through Certificate is the excess (if any) of the sum of (a)
the present value of all payments remaining to be made on the Pay-Through
Certificate as of the close of the accrual period and (b) the payments during
the accrual period of amounts included in the stated redemption price of the
Pay-Through Certificate, over the adjusted issue price of the Pay-Through
Certificate at the beginning of the accrual period. The present value of the
remaining payments is to be determined on the basis of three factors: (i) the
original yield to maturity of the Pay-Through Certificate (determined on the
basis of compounding at the end of each accrual period and properly adjusted
for the length of the accrual period), (ii) events which have occurred before
the end of the accrual period and (iii) the assumption that the remaining
payments will be made in accordance with the original Prepayment Assumption.
The effect of this method is to increase the portions of OID required to be
included in income by a Holder to take into account prepayments with respect
to the Contracts at a rate that exceeds the Prepayment Assumption, and to
decrease (but not below zero for any period) the portions of original issue
discount required to be included in income by a Holder of a Pay-Through
Certificate to take into account prepayments with respect to the Contracts at
a rate that is slower than the Prepayment Assumption. Although original issue
discount will be reported to Holders of Pay-Through Certificates based on the
Prepayment Assumption, no representation is made to Holders that Contracts
will be prepaid at that rate or at any other rate.
The Depositor may adjust the accrual of OID on a class of Debt
Certificates in a manner that it believes to be appropriate, to take account
of realized losses on the Contracts, although the OID Regulations do not
provide for such adjustments. If the IRS were to require that OID be accrued
without such adjustments, the rate of accrual of OID for a class of Debt
Certificates could increase.
Certain classes of Debt Certificates may represent more than one class of
REMIC or FASIT regular interests. Unless otherwise provided in the related
Prospectus Supplement, the Trustee intends, based on the OID Regulations, to
calculate OID on such Certificates as if, solely for the purposes of computing
OID, the separate regular interests were a single debt instrument.
A subsequent holder of a Debt Certificate will also be required to
include OID in gross income, but such a holder who purchases such Debt
Certificate for an amount that exceeds its adjusted issue price will be
entitled (as will an initial holder who pays more than a Debt Certificate's
issue price) to offset such OID by comparable economic accruals of portions of
such excess.
Effects of Defaults and Delinquencies. Holders will be required to report
income with respect to REMIC or FASIT regular interests under an accrual
method without giving effect to delays and reductions in distributions
attributable to a default or delinquency on the Contracts, except possibly to
the extent that it can be established that such amounts are uncollectible. As
a result, the amount of income (including OID) reported by a holder of such a
Certificate in any period could significantly exceed the amount of cash
distributed to such holder in that period. The holder will eventually be
allowed a loss (or will be allowed to report a lesser amount of income) to the
extent that the aggregate amount of distributions on the Certificates is
deducted as a result of a Contract default. However, the timing and character
of such losses or reductions in income are uncertain and, accordingly, holders
of Certificates should consult their own tax advisors on this point.
Interest Weighted Certificates. It is not clear how income should be
accrued with respect to REMIC or FASIT regular interests or Stripped
Certificates (as defined under " -- Tax Status as a Grantor Trust; General"
herein) the payments on which consist solely or primarily of a specified
portion of the interest payments on qualified mortgages held by the REMIC, on
debt instruments held by the FASIT, or on Contracts underlying Pass-Through
Certificates ("Interest Weighted Securities"). The Issuer intends to take the
position that all of the income derived from an Interest Weighted Certificate
should be treated as OID and that the amount and rate of accrual of such OID
should be calculated by treating the Interest Weighted Certificate as a
Compound Interest Certificate. However, in the case of Interest Weighted
Certificates that are entitled to some payments of principal and that are
REMIC or FASIT regular interests the Internal Revenue Service could assert
that income derived from an Interest Weighted Certificate should be calculated
as if the Certificate were a security purchased at a premium equal to the
excess of the price paid by such holder for such Certificate over its stated
principal amount, if any. Under this approach, a holder would be entitled to
amortize such premium only if it has in effect an election under Section 171
of the Code with respect to all taxable debt instruments held by such holder,
as described below. Alternatively, the Internal Revenue Service could assert
that an Interest Weighted Certificate should be taxable under the rules
governing bonds issued with contingent payments. Such treatment may be more
likely in the case of Interest Weighted Certificates that are Stripped
Certificates as described below. See " -- Tax Status as a Grantor Trust --
Discount or Premium on Pass-Through Certificates."
Variable Rate Debt Certificates. In the case of Debt Certificates bearing
interest at a rate that varies directly, according to a fixed formula, with an
objective index, it appears that (i) the yield to maturity of such Debt
Certificates and (ii) in the case of Pay-Through Certificates, the present
value of all payments remaining to be made on such Debt Certificates, should
be calculated as if the interest index remained at its value as of the issue
date of such Certificates. Because the proper method of adjusting accruals of
OID on a variable rate Debt Certificate is uncertain, holders of variable rate
Debt Certificates should consult their own tax advisers regarding the
appropriate treatment of such Certificates for federal income tax purposes.
Market Discount. A purchaser of a Certificate may be subject to the
market discount rules of Sections 1276-1278 of the Code. A Holder that
acquires a Debt Certificate with more than a prescribed de minimis amount of
"market discount" (generally, the excess of the principal amount of the Debt
Certificate over the purchaser's purchase price) will be required to include
accrued market discount in income as ordinary income in each month, but
limited to an amount not exceeding the principal payments on the Debt
Certificate received in that month and, if the Certificates are sold, the gain
realized. Such market discount would accrue in a manner to be provided in
Treasury regulations but, until such regulations are issued, such market
discount would in general accrue either (i) on the basis of a constant yield
(in the case of a Pay-Through Certificate, taking into account a prepayment
assumption) or (ii) in the ratio of (a) in the case of Certificates (or in the
case of a Pass-Through Certificate (as defined herein), as set forth below,
the Contracts underlying such Certificate) not originally issued with original
issue discount, stated interest payable in the relevant period to total stated
interest remaining to be paid at the beginning of the period or (b) in the
case of Certificates (or, in the case of a Pass-Through Certificate, as
described below, the Contracts underlying such Certificate) originally issued
at a discount, OID in the relevant period to total OID remaining to be paid.
Section 1277 of the Code provides that, regardless of the origination
date of the Debt Certificate (or, in the case of a Pass-Through Certificate,
the Contracts), the excess of interest paid or accrued to purchase or carry a
Certificate (or, in the case of a Pass-Through Certificate, as described
below, the underlying Contracts) with market discount over interest received
on such Certificate is allowed as a current deduction only to the extent such
excess is greater than the market discount that accrued during the taxable
year in which such interest expense was incurred. In general, the deferred
portion of any interest expense will be deductible when such market discount
is included in income, including upon the sale, disposition, or repayment of
the Certificate (or in the case of a Pass-Through Certificate, an underlying
Contract). A holder may elect to include market discount in income currently
as it accrues, on all market discount obligations acquired by such holder
during the taxable year such election is made and thereafter, in which case
the interest deferral rule will not apply.
Premium. A holder who purchases a Debt Certificate (other than an
Interest Weighted Certificate to the extent described above) at a cost greater
than its stated redemption price at maturity, generally will be considered to
have purchased the Certificate at a premium, which it may elect to amortize as
an offset to interest income on such Certificate (and not as a separate
deduction item) on a constant yield method. Although no regulations addressing
the computation of premium accrual on securities similar to the Certificates
have been issued, the legislative history of the 1986 Act indicates that
premium is to be accrued in the same manner as market discount. Accordingly,
it appears that the accrual of premium on a class of Pay-Through Certificates
will be calculated using the prepayment assumption used in pricing such class.
If a holder makes an election to amortize premium on a Debt Certificate, such
election will apply to all taxable debt instruments (including all REMIC and
FASIT regular interests and all pass-through certificates representing
ownership interests in a trust holding debt obligations) held by the holder at
the beginning of the taxable year in which the election is made, and to all
taxable debt instruments acquired thereafter by such holder, and will be
irrevocable without the consent of the IRS. Purchasers who pay a premium for
the Certificates should consult their tax advisers regarding the election to
amortize premium and the method to be employed.
Regulations dealing with amortizable bond premium specifically do not
apply to prepayable debt instruments described in Code Section 1272(a)(6) such
as the Certificates. Absent further guidance from the IRS, the Trustee intends
to account for amortizable bond premium in the manner described above.
Prospective purchasers of the Certificates should consult their tax advisors
regarding the possible application of the Amortizable Bond Premium
Regulations.
Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit a holder of a Debt Certificate to elect to accrue all
interest, discount (including de minimis market or original issue discount)
and premium in income as interest, based on a constant yield method for Debt
Certificates acquired on or after April 4, 1994. If such an election were to
be made with respect to a Debt Certificate with market discount, the holder of
the Debt Certificate would be deemed to have made an election to include in
income currently market discount with respect to all other debt instruments
having market discount that such holder of the Debt Certificate acquires
during the year of the election or thereafter. Similarly, a holder of a Debt
Certificate that makes this election for a Debt Certificate that is acquired
at a premium will be deemed to have made an election to amortize bond premium
with respect to all debt instruments having amortizable bond premium that such
holder owns or acquires. The election to accrue interest, discount and premium
on a constant yield method with respect to a Debt Certificate is irrevocable.
TAXATION OF THE REMIC AND ITS HOLDERS
General. In the opinion of Brown & Wood LLP, special counsel to the
Depositor, if a REMIC election is made with respect to a Series of
Certificates, then the arrangement by which the Certificates of that Series
are issued will be treated as a REMIC as long as all of the provisions of the
relevant Agreement are complied with . Certificates will be designated as
"Regular Interests" or "Residual Interests" in a REMIC, as specified in the
related Prospectus Supplement.
Except to the extent specified otherwise in a Prospectus Supplement, if a
REMIC election is made with respect to a Series of Certificates, (i)
Certificates held by a domestic building and loan association will constitute
"a regular or a residual interest in a REMIC" within the meaning of Code
Section 7701(a)(19)(C)(xi) (assuming that at least 95% of the REMIC's assets
consist of cash, government securities, "loans secured by an interest in real
property," and other types of assets described in Code Section
7701(a)(19)(C)); and (ii) Certificates held by a real estate investment trust
will constitute "real estate assets" within the meaning of Code Section
856(c)(5)(B), and income with respect to the Certificates will be considered
"interest on obligations secured by mortgages on real property or on interests
in real property" within the meaning of Code Section 856(c)(3)(B) (assuming,
for both purposes, that at least 95% of the REMIC's assets are qualifying
assets). If less than 95% of the REMIC's assets consist of assets described in
(i) or (ii) above, then a Certificate will qualify for the tax treatment
described in (i), (ii) or (iii) in the proportion that such REMIC assets are
qualifying assets.
The Small Business Job Protection Act of 1996, as part of the repeal of
the bad debt reserve method for thrift institutions, repealed the application
of Code Section 593(d) to any taxable year beginning after December 31, 1995.
REMIC EXPENSES; SINGLE CLASS REMICS
As a general rule, all of the expenses of a REMIC will be taken into
account by holders of the Residual Interest Certificates. In the case of a
"single class REMIC," however, the expenses will be allocated, under Treasury
regulations, among the holders of the Regular Interest Certificates and the
holders of the Residual Interest Certificates (as defined herein) on a daily
basis in proportion to the relative amounts of income accruing to each Holder
on that day. In the case of a holder of a Regular Interest Certificate who is
an individual or a "pass-through interest holder" (including certain
pass-through entities but not including real estate investment trusts), such
expenses will be deductible only to the extent that such expenses, plus other
"miscellaneous itemized deductions" of the Holder, exceed 2% of such Holder's
adjusted gross income. In addition, for taxable years beginning after December
31, 1990, the amount of itemized deductions otherwise allowable for the
taxable year for an individual whose adjusted gross income exceeds the
applicable amount (which amount will be adjusted for inflation for taxable
years beginning after 1990) will be reduced by the lesser of (i) 3% of the
excess of adjusted gross income over the applicable amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for such taxable year. The
reduction or disallowance of this deduction may have a significant impact on
the yield of the Regular Interest Certificate to such a Holder. In general
terms, a single class REMIC is one that either (i) would qualify, under
existing Treasury regulations, as a grantor trust if it were not a REMIC
(treating all interests as ownership interests, even if they would be
classified as debt for federal income tax purposes) or (ii) is similar to such
a trust and which is structured with the principal purpose of avoiding the
single class REMIC rules. Unless otherwise specified in the related Prospectus
Supplement, the expenses of the REMIC will be allocated to holders of the
related residual interest securities.
TAXATION OF THE REMIC
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level tax. Rather, the
taxable income or net loss of a REMIC is taken into account by the holders of
residual interests. As described above, the regular interests are generally
taxable as debt of the REMIC.
Calculation of REMIC Income. The taxable income or net loss of a REMIC is
determined under an accrual method of accounting and in the same manner as in
the case of an individual, with certain adjustments. In general, the taxable
income or net loss will be the difference between (i) the gross income
produced by the REMIC's assets, including stated interest and any original
issue discount or market discount on loans and other assets and (ii)
deductions, including stated interest and original issue discount accrued on
Regular Interest Certificates, amortization of any premium with respect to
Contracts, and servicing fees and other expenses of the REMIC. A holder of a
Residual Interest Certificate that is an individual or a "pass-through
interest holder" (including certain pass-through entities, but not including
real estate investment trusts) will be unable to deduct servicing fees payable
on the loans or other administrative expenses of the REMIC for a given taxable
year, to the extent that such expenses, when aggregated with such holder's
other miscellaneous itemized deductions for that year, do not exceed two
percent of such holder's adjusted gross income.
For purposes of computing its taxable income or net loss, the REMIC
should have an initial aggregate tax basis in its assets equal to the
aggregate fair market value of the regular interests and the residual
interests on the Startup Day (generally, the day that the interests are
issued). That aggregate basis will be allocated among the assets of the REMIC
in proportion to their respective fair market values.
The OID provisions of the Code apply to loans of individuals originated
on or after March 2, 1984, and the market discount provisions apply to loans
originated after July 18, 1984. Subject to possible application of the de
minimis rules, the method of accrual by the REMIC of OID income on such loans
will be equivalent to the method under which holders of Pay-Through
Certificates accrue original issue discount (i.e., under the constant yield
method taking into account the Prepayment Assumption). The REMIC will deduct
OID on the Regular Interest Certificates in the same manner that the holders
of the Regular Interest Certificates include such discount in income, but
without regard to the de minimis rules. See "Taxation of Debt Certificates"
above. However, a REMIC that acquires loans at a market discount must include
such market discount in income currently, as it accrues, on a constant
interest basis.
To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the life
of the loans (taking into account the Prepayment Assumption) on a constant
yield method. Although the law is somewhat unclear regarding recovery of
premium attributable to loans originated on or before such date, it is
possible that such premium may be recovered in proportion to payments of loan
principal.
Prohibited Transactions and Contributions Tax. The REMIC will be subject
to a 100% tax on any net income derived from a "prohibited transaction." For
this purpose, net income will be calculated without taking into account any
losses from prohibited transactions or any deductions attributable to any
prohibited transaction that resulted in a loss. In general, prohibited
transactions include: (i) subject to limited exceptions, the sale or other
disposition of any qualified mortgage transferred to the REMIC; (ii) subject
to a limited exception, the sale or other disposition of a cash flow
investment; (iii) the receipt of any income from assets not permitted to be
held by the REMIC pursuant to the Code; or (iv) the receipt of any fees or
other compensation for services rendered by the REMIC. It is anticipated that
a REMIC will not engage in any prohibited transactions in which it would
recognize a material amount of net income. In addition, subject to a number of
exceptions, a tax is imposed at the rate of 100% on amounts contributed to a
REMIC after the close of the three-month period beginning on the Startup Day.
The holders of Residual Interest Certificates will generally be responsible
for the payment of any such taxes imposed on the REMIC. To the extent not paid
by such holders or otherwise, however, such taxes will be paid out of the
Trust Fund and will be allocated pro rata to all outstanding classes of
Certificates of such REMIC.
TAXATION OF HOLDERS OF RESIDUAL INTEREST CERTIFICATES
The holder of a Certificate representing a residual interest (a "Residual
Interest Certificate") will take into account the "daily portion" of the
taxable income or net loss of the REMIC for each day during the taxable year
on which such holder held the Residual Interest Certificate. The daily portion
is determined by allocating to each day in any calendar quarter its ratable
portion of the taxable income or net loss of the REMIC for such quarter, and
by allocating that amount among the holders (on such day) of the Residual
Interest Certificates in proportion to their respective holdings on such day.
The holder of a Residual Interest Certificate must report its
proportionate share of the taxable income of the REMIC whether or not it
receives cash distributions from the REMIC attributable to such income or
loss. The reporting of taxable income without corresponding distributions
could occur, for example, in certain REMIC issues in which the loans held by
the REMIC were issued or acquired at a discount, since mortgage prepayments
cause recognition of discount income, while the corresponding portion of the
prepayment could be used in whole or in part to make principal payments on
REMIC Regular Interests issued without any discount or at an insubstantial
discount (if this occurs, it is likely that cash distributions will exceed
taxable income in later years). Taxable income may also be greater in earlier
years of certain REMIC issues as a result of the fact that interest expense
deductions, as a percentage of outstanding principal on REMIC Regular Interest
Certificates, will typically increase over time as lower yielding Certificates
are paid, whereas interest income with respect to loans will generally remain
constant over time as a percentage of loan principal.
In any event, because the holder of a residual interest is taxed on the
net income of the REMIC, the taxable income derived from a Residual Interest
Certificate in a given taxable year will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pretax yield. Therefore, the after-tax
yield on the Residual Interest Certificate may be less than that of such a
bond or instrument.
Limitation on Losses. The amount of the REMIC's net loss that a holder
may take into account currently is limited to the holder's adjusted basis at
the end of the calendar quarter in which such loss arises. A holder's basis in
a Residual Interest Certificate will initially equal such holder's purchase
price, and will subsequently be increased by the amount of the REMIC's taxable
income allocated to the holder, and decreased (but not below zero) by the
amount of distributions made and the amount of the REMIC's net loss allocated
to the holder. Any disallowed loss may be carried forward indefinitely, but
may be used only to offset income of the REMIC generated by the same REMIC.
The ability of holders of Residual Interest Certificates to deduct net losses
may be subject to additional limitations under the Code, as to which such
holders should consult their tax advisers.
Distributions. Distributions on a Residual Interest Certificate (whether
at their scheduled times or as a result of prepayments) will generally not
result in any additional taxable income or loss to a holder of a Residual
Interest Certificate. If the amount of such payment exceeds a holder's
adjusted basis in the Residual Interest Certificate, however, the holder will
recognize gain (treated as gain from the sale of the Residual Interest
Certificate) to the extent of such excess.
Sale or Exchange. A holder of a Residual Interest Certificate will
recognize gain or loss on the sale or exchange of a Residual Interest
Certificate equal to the difference, if any, between the amount realized and
such holder's adjusted basis in the Residual Interest Certificate at the time
of such sale or exchange. Except to the extent provided in regulations, which
have not yet been issued, any loss upon disposition of a Residual Interest
Certificate will be disallowed if the selling holder acquires any residual
interest in a REMIC or similar mortgage pool within six months before or after
such disposition.
Excess Inclusions. The portion of the REMIC taxable income of a holder of
a Residual Interest Certificate consisting of "excess inclusion" income may
not be offset by other deductions or losses, including net operating losses,
on such holder's federal income tax return. Further, if the holder of a
Residual Interest Certificate is an organization subject to the tax on
unrelated business income imposed by Code Section 511, such holder's excess
inclusion income will be treated as unrelated business taxable income of such
holder. In addition, under Treasury regulations yet to be issued, if a real
estate investment trust, a regulated investment company, a common trust fund,
or certain cooperatives were to own a Residual Interest Certificate, a portion
of dividends (or other distributions) paid by the real estate investment trust
(or other entity) would be treated as excess inclusion income. If a Residual
Certificate is owned by a foreign person excess inclusion income is subject to
tax at a rate of 30% which may not be reduced by treaty, is not eligible for
treatment as "portfolio interest" and is subject to certain additional
limitations. See "Tax Treatment of Foreign Investors." The Small Business Job
Protection Act of 1996 has eliminated the special rule permitting Section 593
institutions ("thrift institutions") to use net operating losses and other
allowable deductions to offset their excess inclusion income from REMIC
residual certificates that have "significant value" within the meaning of the
REMIC Regulations, effective for taxable years beginning after December 31,
1995, except with respect to residual certificates continuously held by a
thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides three
rules for determining the effect on excess inclusions on the alternative
minimum taxable income of a residual holder. First, alternative minimum
taxable income for such residual holder is determined without regard to the
special rule that taxable income cannot be less than excess inclusions.
Second, a residual holder's alternative minimum taxable income for a tax year
cannot be less than excess inclusions for the year. Third, the amount of any
alternative minimum tax net operating loss deductions must be computed without
regard to any excess inclusions. These rules are effective for tax years
beginning after December 31, 1986, unless a residual holder elects to have
such rules apply only to tax years beginning after August 20, 1996.
The excess inclusion portion of a REMIC's income is generally equal to
the excess, if any, of REMIC taxable income for the quarterly period allocable
to a Residual Interest Certificate, over the daily accruals for such quarterly
period of (i) 120% of the long term applicable federal rate on the Startup Day
multiplied by (ii) the adjusted issue price of such Residual Interest
Certificate at the beginning of such quarterly period. The adjusted issue
price of a Residual Interest at the beginning of each calendar quarter will
equal its issue price (calculated in a manner analogous to the determination
of the issue price of a Regular Interest), increased by the aggregate of the
daily accruals for prior calendar quarters, and decreased (but not below zero)
by the amount of loss allocated to a holder and the amount of distributions
made on the Residual Interest Certificate before the beginning of the quarter.
The long-term federal rate, which is announced monthly by the Treasury
Department, is an interest rate that is based on the average market yield of
outstanding marketable obligations of the United States government having
remaining maturities in excess of nine years.
Under the REMIC Regulations, in certain circumstances, transfers of
Residual Certificates may be disregarded. See " -- Restrictions on Ownership
and Transfer of Residual Interest Certificates" and " -- Tax Treatment of
Foreign Investors" below.
Restrictions on Ownership and Transfer of Residual Interest Certificates.
As a condition to qualification as a REMIC, reasonable arrangements must be
made to prevent the ownership of a REMIC residual interest by any
"Disqualified Organization." Disqualified Organizations include the United
States, any State or political subdivision thereof, any foreign government,
any international organization, or any agency or instrumentality of any of the
foregoing, a rural electric or telephone cooperative described in Section
1381(a)(2)(C) of the Code, or any entity exempt from the tax imposed by
Sections 1-1399 of the Code, if such entity is not subject to tax on its
unrelated business income. Accordingly, the applicable Agreement will prohibit
Disqualified Organizations from owning a Residual Interest Certificate. In
addition, no transfer of a Residual Interest Certificate will be permitted
unless the proposed transferee shall have furnished to the Trustee an
affidavit representing and warranting that it is neither a Disqualified
Organization nor an agent or nominee acting on behalf of a Disqualified
Organization.
If a Residual Interest Certificate is transferred to a Disqualified
Organization after March 31, 1988 (in violation of the restrictions set forth
above), a substantial tax can be imposed on the transferor of such Residual
Interest Certificate at the time of the transfer. In addition, if a
Disqualified Organization holds an interest in a pass-through entity after
March 31, 1988 (including, among others, a partnership, trust, real estate
investment trust, regulated investment company, or any person holding as
nominee), that owns a Residual Interest Certificate, the pass-through entity
will be required to pay an annual tax on its allocable share of the excess
inclusion income of the REMIC.
Under the REMIC Regulations, if a Residual Interest Certificate is a
"noneconomic residual interest," as described below, a transfer of a Residual
Interest Certificate to a United States person will be disregarded for all
Federal tax purposes unless no significant purpose of the transfer was to
impede the assessment or collection of tax. A Residual Interest Certificate is
a "noneconomic residual interest" unless, at the time of the transfer (i) the
present value of the expected future distributions on the Residual Interest
Certificate at least equals the product of the present value of the
anticipated excess inclusions and the highest 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 REMIC at or after the time at
which the taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. If a transfer of a Residual Interest
is disregarded, the transferor would be liable for any Federal income tax
imposed upon taxable income derived by the transferee from the REMIC. The
REMIC Regulations provide no guidance as to how to determine if a significant
purpose of a transfer is to impede the assessment or collection of tax. A
similar type of limitation exists with respect to certain transfers of
residual interests by foreign persons to United States persons. See " -- Tax
Treatment of Foreign Investors."
Mark to Market Rules. Prospective purchasers of a REMIC Residual Interest
Certificate should be aware that a REMIC Residual Interest Certificate
acquired after January 3, 1995 cannot be marked-to-market.
ADMINISTRATIVE MATTERS
The REMIC's books must be maintained on a calendar year basis and the
REMIC must file an annual federal income tax return. The REMIC will also be
subject to the procedural and administrative rules of the Code applicable to
partnerships, including the determination of any adjustments to, among other
things, items of REMIC income, gain, loss, deduction, or credit, by the IRS in
a unified administrative proceeding.
TAXATION OF THE FASIT AND ITS HOLDERS
In the opinion of Brown & Wood LLP, special counsel to the Depositor,
if a FASIT election is made with respect to a Series of Securities, then the
arrangement by which the Securities of that Series are issued will be treated
as a FASIT so long as all of the provisions of the relevant Agreement are
complied with .
The Small Business and Job Protection Act of 1996 added Sections 860H
through 860L to the Code (the "FASIT Provisions"), which provide for a new
type of entity for federal income tax purposes known as a "financial asset
securitization investment trust" (a "FASIT"). Although the FASIT provisions of
the Code became effective on September 1, 1997, no Treasury regulations or
other administrative guidance have been issued with respect to those
provisions. Accordingly, definitive guidance cannot be provided with respect
to many aspects of the tax treatment of FASIT regular interest holders.
Investors should also note that the FASIT discussion contained herein
constitutes only a summary of the U.S. federal income tax consequences to the
holders of FASIT interests. With respect to each Series of FASIT regular
interests, the related Prospectus Supplement will provide a detailed
discussion regarding the federal income tax consequences associated with the
particular transaction.
FASIT interests will be classified as either FASIT regular interests,
which generally will be treated as debt for federal income tax purposes, or
FASIT ownership interests, which generally are not treated as debt for such
purposes, but rather as representing rights and responsibilities with respect
to the taxable income or loss of the related FASIT. The Prospectus Supplement
for each Series of Securities will indicate which Securities of such Series
will be designated as regular interests, and which, if any, will be designated
as ownership interests.
Qualification as a FASIT. A Trust Fund will qualify as a FASIT if (i) a
FASIT election is in effect, (ii) certain tests concerning (A) the composition
of the FASIT's assets and (B) the nature of the investors' interests in the
FASIT are met on a continuing basis, and (iii) the Trust Fund is not a
regulated investment company as defined in section 851(a) of the Code.
Asset Composition. For a Trust Fund to be eligible for FASIT status,
substantially all of the Trust Fund Assets must consist of "permitted assets"
as of the close of the third month beginning after the closing date and at all
times thereafter (the "FASIT Qualification Test"). Permitted assets include
(i) cash or cash equivalents, (ii) debt instruments with fixed terms that
would qualify as regular interests if issued by a REMIC (generally,
instruments that provide for interest at a fixed rate, a qualifying variable
rate, or a qualifying interest-only ("IO") type rate), (iii) foreclosure
property, (iv) certain hedging instruments (generally, interest and currency
rate swaps and credit enhancement contracts) that are reasonably required to
guarantee or hedge against the FASIT's risks associated with being the obligor
on FASIT interests, (v) contract rights to acquire qualifying debt instruments
or qualifying hedging instruments, (vi) FASIT regular interest, and (vii)
REMIC regular interests. Permitted assets do not include any debt instruments
issued by the holder of the FASIT's ownership interest or by any person
related to such holder.
Interests in a FASIT. In addition to the foregoing asset qualification
requirements, the interests in a FASIT also must meet certain requirements.
All of the interests in a FASIT must belong to either of the following: (i)
one or more classes of regular interests or (ii) a single class of ownership
interest that is held by a fully taxable domestic C Corporation.
A FASIT interest generally qualifies as a regular interest if (i) it is
designated as a regular interest, (ii) it has a stated maturity no greater
than thirty years, (iii) it entitles its holder to a specified principal
amount, (iv) the issue price of the interest does not exceed 125% of its
stated principal amount, (v) the yield to maturity of the interest is less
than the applicable Treasury rate published by the IRS plus 5%, and (vi) if it
pays interest, such interest is payable at either (a) a fixed rate with
respect to the principal amount of the regular interest or (b) a permissible
variable rate with respect to such principal amount. Permissible variable
rates for FASIT regular interests are the same as those for REMIC regular
interests (i.e., certain qualified floating rates and weighted average rates).
Interest will be considered to be based on a permissible variable rate if
generally, (i) such interest is unconditionally payable at least annually,
(ii) the issue price of the debt instrument does not exceed the total
noncontingent principal payments and (iii) interest is based on a "qualified
floating rate," an "objective rate," a combination of a single fixed rate and
one or more "qualified floating rate," one "qualified inverse floating rate,"
or a combination of "qualified floating rates" that do not operate in a manner
that significantly accelerates or defers interest payments on such FASIT
regular interest.
If an interest in a FASIT fails to meet one or more of the requirements
set out in clauses (iii), (iv), or (v) in the immediately preceding paragraph,
but otherwise meets all requirements to be treated as a FASIT, it may still
qualify as a type of regular interest known as a "High-Yield Interest." In
addition, if an interest in a FASIT fails to meet the requirement of clause
(vi), but the interest payable on the interest consists of a specified portion
of the interest payments on permitted assets and that portion does not vary
over the life of the security, the interest will also qualify as a High-Yield
Interest. A High-Yield Interest may be held only by domestic C corporations
that are fully subject to corporate income tax ("Eligible Corporations"),
other FASITs, and dealers in securities who acquire such interests as
inventory, rather than for investment. In addition, holders of High-Yield
Interests are subject to limitations on offset of income derived from such
interest. See "Certain Federal Income Tax Consequences-Taxation of Trust as a
FASIT-Treatment of High-Yield Interests."
Consequences of Disqualification. If a Trust Fund fails to comply with
one or more of ongoing requirements for FASIT status during any taxable year,
the Code provides that its FASIT status may be lost for that year and
thereafter. If FASIT status is lost, the treatment of the former FASIT and
interests therein for federal income tax purposes is uncertain. Although the
Code authorizes the Treasury to issue regulations that address situations
where a failure to meet the requirements for FASIT status occurs inadvertently
and in good faith, such regulations have not yet been issued. It is possible
that disqualification relief might be accompanied by sanctions, such as the
imposition of a corporate tax on all or a portion of the FASIT's income for
the period of time in which the requirements for FASIT status are not
satisfied.
TREATMENT OF FASIT REGULAR SECURITIES
Payments received by holders of FASIT regular interests generally will be
accorded the same tax treatment under the Code as payments received on other
taxable debt instruments. Holders of FASIT regular interests must report
income from such Securities under an accrual method of accounting, even if
they otherwise would have used the cash receipts and disbursements method. If
the FASIT regular interests is sold, the Holder generally will recognize gain
or loss upon the sale. See "Taxation of Debt Securities" above.
TREATMENT OF HIGH-YIELD INTEREST
High-Yield Interests are subject to special rules regarding the
eligibility of holders of such interest, and the ability of such holders to
offset income derived from those interests with losses. High-Yield Interests
only may be held by Eligible Corporations, other FASITs, and dealers in
securities who acquire such interests as inventory. If a securities dealer
(other than an Eligible Corporation) initially acquires a High-Yield Interest
as inventory, but later begins to hold it for investment, the dealer will be
subject to an excise tax equal to the income from the High-Yield Interest
multiplied by the highest corporate income tax rate. In addition, transfers of
High-Yield Interests to disqualified holders will be disregarded for federal
income tax purposes, and the transferor will continue to be treated as the
holder of the High-Yield Interest.
The Holder of a High-Yield Interest may not use non-FASIT current losses
or net operating loss carryforwards or carrybacks to offset any income derived
from the High-Yield Interest, for either regular federal income tax purposes
or for alternative minimum tax purposes. In addition, the FASIT provisions
contain an anti-abuse rule that imposes corporate income tax on income derived
from a FASIT regular interest that is held by a pass-through entity (other
than another FASIT) that issues debt or equity securities backed by the FASIT
regular interest and that have the same features as High-Yield Interests.
TAX TREATMENT OF FASIT OWNERSHIP SECURITIES
A FASIT ownership interest represents the residual equity interest in a
FASIT. As such, the holder of a FASIT ownership interest determines its
taxable income by taking into account all assets, liabilities, and items of
income, gain, deduction, loss, and credit of a FASIT. In general, the
character of the income to the holder of a FASIT ownership interest will be
the same as the character of such income to the FASIT, except that any
tax-exempt interest income taken into account by the holder of a FASIT
ownership interest is treated as ordinary income. In determining that taxable
income, the holder of a FASIT ownership interest must determine the amount of
interest, original issue discount, market discount, and premium recognized
with respect to the FASIT's assets and the FASIT regular interests issued by
the FASIT according to a constant yield methodology and under an accrual
method of accounting. In addition, holders of FASIT Ownership Securities are
subject to the same limitations on their ability to use losses to offset
income from their FASIT regular interests as are holders of High-Yield
Interest.
Rules similar to the wash sale rules applicable to REMIC residual
interests also will apply to FASIT ownership interests. Accordingly, losses on
dispositions of a FASIT ownership interest generally will be disallowed where
within six months before or after the disposition, the seller of such interest
acquires any other FASIT ownership interest that is economically comparable to
a FASIT ownership interest. In addition, if any security that is sold or
contributed to a FASIT by the holders of the related FASIT ownership interest
was required to be marked-to-market under section 475 of the Code by such
holder, then section 475 of the Code will continue to apply to such
securities, except that the amount realized under the mark-to-market rules or
the securities' value after applying special valuation rules contained in the
FASIT provisions. Those special valuation rules generally require that the
value of debt instruments that are not traded on an established securities
market be determined by calculating the present value of the reasonably
expected payments under the instrument using a discount rate of 120% of the
applicable Federal rate, compounded semi-annually.
The holder of a FASIT ownership interest will be subject to a tax equal
to 100% of the net income derived by the FASIT from any "prohibited
transactions." Prohibited transactions include (i) the receipt of income
derived from assets that are not permitted assets, (ii) certain dispositions
of permitted assets, (iii) the receipt of any income derived from any loan
originated by a FASIT, and (iv) in certain cases, the receipt of income
representing a servicing fee or other compensation. Any Series of Securities
for which a FASIT election is made generally will be structured in order to
avoid application of the prohibited transaction tax.
TAX STATUS AS A GRANTOR TRUST
In the absence of a REMIC or FASIT election, a Trust Fund generally will
be classified as a grantor trust if (i) there is either only one class of
Certificates that evidences the entire undivided beneficial ownership of the
Trust Fund Assets, or, if there is more than one class of Certificates, each
class represents a direct investment in the Trust Fund Assets, and (ii) no
power exists under the Agreement to vary the investment of the
Certificateholders. If these conditions are satisfied, the related Prospectus
Supplement will recite that, in the opinion of Brown & Wood LLP, special
counsel to the Depositor, the Trust Fund relating to a Series of Certificates
will be classified for federal income tax purposes as a grantor trust under
Subpart E, Part I of Subchapter J of the Code and not as an association
taxable as a corporation (the Certificates of such Series, "Pass-Through
Securities"). In some Series there will be no separation of the principal and
interest payments on the Contracts. In such circumstances, a Holder will be
considered to have purchased a pro rata undivided interest in each of the
Contracts. In other cases ("Stripped Certificates"), sale of the Certificates
will produce a separation in the ownership of all or a portion of the
principal payments from all or a portion of the interest payments on the
Contracts.
Each Holder must report on its federal income tax return its share of the
gross income derived from the Contracts (not reduced by the amount payable as
fees to the Trustee and the Master Servicer and similar fees (collectively,
the "Servicing Fee")), at the same time and in the same manner as such items
would have been reported under the Holder's tax accounting method had it held
its interest in the Contracts directly, received directly its share of the
amounts received with respect to the Contracts, and paid directly its share of
the Servicing Fees. In the case of Pass-Through Certificates other than
Stripped Certificates, such income will consist of a pro rata share of all of
the income derived from all of the Contracts and, in the case of Stripped
Certificates, such income will consist of a pro rata share of the income
derived from each stripped bond or stripped coupon in which the Holder owns an
interest. The holder of a Certificate will generally be entitled to deduct
such Servicing Fees under Section 162 or Section 212 of the Code to the extent
that such Servicing Fees represent "reasonable" compensation for the services
rendered by the Trustee and the Master Servicer (or third parties that are
compensated for the performance of services). In the case of a noncorporate
holder, however, Servicing Fees (to the extent not otherwise disallowed, e.g.,
because they exceed reasonable compensation) will be deductible in computing
such holder's regular tax liability only to the extent that such fees, when
added to other miscellaneous itemized deductions, exceed 2% of adjusted gross
income and may not be deductible to any extent in computing such holder's
alternative minimum tax liability. In addition, for taxable years beginning
after December 31, 1990, the amount of itemized deductions otherwise allowable
for the taxable year for an individual whose adjusted gross income exceeds the
applicable amount (which amount will be adjusted for inflation in taxable
years beginning after 1990) will be reduced by the lesser of (i) 3% of the
excess of adjusted gross income over the applicable amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for such taxable year.
Discount or Premium on Pass-Through Certificates. The holder's purchase
price of a Pass-Through Certificate is to be allocated among the Contracts in
proportion to their fair market values, determined as of the time of purchase
of the Certificates. In the typical case, the Trustee (to the extent necessary
to fulfill its reporting obligations) will treat each Contract as having a
fair market value proportional to the share of the aggregate principal
balances of all of the Contracts that it represents, since the Certificates,
unless otherwise specified in the related Prospectus Supplement, will have a
relatively uniform interest rate and other common characteristics. To the
extent that the portion of the purchase price of a Pass-Through Certificate
allocated to a Contract (other than to a right to receive any accrued interest
thereon and any undistributed principal payments) is less than or greater than
the portion of the principal balance of the Contract allocable to the
Certificate, the interest in the Contract allocable to the Pass-Through
Certificate will be deemed to have been acquired at a discount or premium,
respectively.
The treatment of any discount will depend on whether the discount
represents OID or market discount. In the case of a Contract with OID in
excess of a prescribed de minimis amount or a Stripped Certificate, a holder
of a Certificate will be required to report as interest income in each taxable
year its share of the amount of OID that accrues during that year in the
manner described above. OID with respect to a Contract could arise, for
example, by virtue of the financing of points by the originator of the
Contract, or by virtue of the charging of points by the originator of the
Contract in an amount greater than a statutory de minimis exception, in
circumstances under which the points are not currently deductible pursuant to
applicable Code provisions. Any market discount or premium on a Contract will
be includible in income, generally in the manner described above, except that
in the case of Pass-Through Certificates, market discount is calculated with
respect to the Contracts underlying the Certificate, rather than with respect
to the Certificate. A Holder that acquires an interest in a Contract
originated after July 18, 1984 with more than a de minimis amount of market
discount (generally, the excess of the principal amount of the Contract over
the purchaser's allocable purchase price) will be required to include accrued
market discount in income in the manner set forth above. See " -- Taxation of
Debt Certificates; Market Discount" and " -- Premium" above.
In the case of market discount on a Pass-Through Certificate attributable
to Contracts originated on or before July 18, 1984, the holder generally will
be required to allocate the portion of such discount that is allocable to a
loan among the principal payments on the Contract and to include the discount
allocable to each principal payment in ordinary income at the time such
principal payment is made. Such treatment would generally result in discount
being included in income at a slower rate than discount would be required to
be included in income using the method described in the preceding paragraph.
Stripped Certificates. A Stripped Certificate may represent a right to
receive only a portion of the interest payments on the Contracts, a right to
receive only principal payments on the Contracts, or a right to receive
certain payments of both interest and principal. Certain Stripped Certificates
("Ratio Strip Certificates") may represent a right to receive differing
percentages of both the interest and principal on each Contract. Pursuant to
Section 1286 of the Code, the separation of ownership of the right to receive
some or all of the interest payments on an obligation from ownership of the
right to receive some or all of the principal payments results in the creation
of "stripped bonds" with respect to principal payments and "stripped coupons"
with respect to interest payments. Section 1286 of the Code applies the OID
rules to stripped bonds and stripped coupons. For purposes of computing
original issue discount, a stripped bond or a stripped coupon is treated as a
debt instrument issued on the date that such stripped interest is purchased
with an issue price equal to its purchase price or, if more than one stripped
interest is purchased, the ratable share of the purchase price allocable to
such stripped interest.
Servicing fees in excess of reasonable servicing fees ("excess
servicing") will be treated under the stripped bond rules. If the excess
servicing fee is less than 100 basis points (i.e., 1% interest on the Contract
principal balance) or the Certificates are initially sold with a de minimis
discount (assuming no prepayment assumption is required), any non-de minimis
discount arising from a subsequent transfer of the Certificates should be
treated as market discount. The IRS appears to require that reasonable
servicing fees be calculated on a Contract by Contract basis, which could
result in some Contracts being treated as having more than 100 basis points of
interest stripped off.
OID Regulations and judicial decisions provide no direct guidance as to
how the interest and original issue discount rules are to apply to Stripped
Certificates and other Pass-Through Certificates. Under the method described
above for Pay-Through Certificates (the "Cash Flow Bond Method"), a prepayment
assumption is used and periodic recalculations are made which take into
account with respect to each accrual period the effect of prepayments during
such period. However, the 1986 Act does not, absent Treasury regulations,
appear specifically to cover instruments such as the Stripped Certificates
which technically represent ownership interests in the underlying Contracts,
rather than being debt instruments "secured by" those loans. For tax years
beginning after August 5, 1997 the Taxpayer Relief Act of 1997 may allow use
of the Cash Flow Bond Method with respect to Stripped Certificates and other
Pass-Through Certificates because it provides that such method applies to any
pool of debt instruments the yield on which may be affected by prepayments.
Nevertheless, it is believed that the Cash Flow Bond Method is a reasonable
method of reporting income for such Certificates, and it is expected that OID
will be reported on that basis unless otherwise specified in the related
Prospectus Supplement. In applying the calculation to Pass-Through
Certificates, the Trustee will treat all payments to be received by a holder
with respect to the underlying Contracts as payments on a single installment
obligation. The IRS could, however, assert that original issue discount must
be calculated separately for each Contract underlying a Certificate.
Under certain circumstances, if the Contracts prepay at a rate faster
than the Prepayment Assumption, the use of the Cash Flow Bond Method may
accelerate a Holder's recognition of income. If, however, the Contracts prepay
at a rate slower than the Prepayment Assumption, in some circumstances the use
of this method may decelerate a Holder's recognition of income.
In the case of a Stripped Certificate that is an Interest Weighted
Certificate, the Trustee intends, absent contrary authority, to report income
to Certificate holders as OID, in the manner described above for Interest
Weighted Certificates.
Possible Alternative Characterizations. The characterizations of the
Stripped Certificates described above are not the only possible
interpretations of the applicable Code provisions. Among other possibilities,
the IRS could contend that (i) in certain Series, each non-Interest Weighted
Certificate is composed of an unstripped undivided ownership interest in
Contracts and an installment obligation consisting of stripped principal
payments; (ii) the non-Interest Weighted Certificates are subject to the
contingent payment provisions of the Contingent Regulations; or (iii) each
Interest Weighted Stripped Certificate is composed of an unstripped undivided
ownership interest in Contracts and an installment obligation consisting of
stripped interest payments.
Given the variety of alternatives for treatment of the Stripped
Certificates and the different federal income tax consequences that result
from each alternative, potential purchasers are urged to consult their own tax
advisers regarding the proper treatment of the Certificates for federal income
tax purposes.
Character as Qualifying Contracts. In the case of Stripped Certificates,
there is no specific legal authority existing regarding whether the character
of the Certificates, for federal income tax purposes, will be the same as the
Contracts. The IRS could take the position that the Contracts' character is
not carried over to the Certificates in such circumstances. Pass-Through
Certificates will be, and, although the matter is not free from doubt,
Stripped Certificates should be considered to represent "real estate assets"
within the meaning of Section 856(c)(5)(B) of the Code and "loans secured by
an interest in real property" within the meaning of Section 7701(a)(19)(C)(v)
of the Code; and interest income attributable to the Certificates should be
considered to represent "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. Reserves or funds underlying the Certificates may
cause a proportionate reduction in the above-described qualifying status
categories of Certificates.
SALE OR EXCHANGE
Subject to the discussion below with respect to Trust Funds classified as
partnerships, a Holder's tax basis in its Certificate is the price such holder
pays for a Certificate, plus amounts of original issue or market discount
included in income and reduced by any payments received (other than qualified
stated interest payments) and any amortized premium. Gain or loss recognized
on a sale, exchange, or redemption of a Certificate, measured by the
difference between the amount realized and the Certificate's basis as so
adjusted, will generally be capital gain or loss, assuming that the
Certificate is held as a capital asset. In the case of a Certificate held by a
bank, thrift, or similar institution described in Section 582 of the Code,
however, gain or loss realized on the sale or exchange of a REMIC or FASIT
regular interest will be taxable as ordinary income or loss. In addition, gain
from the disposition of a REMIC or FASIT regular interest that might otherwise
be capital gain will be treated as ordinary income to the extent of the
excess, if any, of (i) the amount that would have been includible in the
holder's income if the yield on such REMIC regular interest had equaled 110%
of the applicable federal rate as of the beginning of such holder's holding
period, over the amount of ordinary income actually recognized by the holder
with respect to such REMIC regular interest. In general, the maximum tax rate
on ordinary income for individual taxpayers is 39.6% and the maximum tax rate
on long-term capital gains for such taxpayers is 28%. The maximum tax rate on
both ordinary income and long-term capital gains of corporate taxpayers is
35%.
The Taxpayer Relief Act of 1997 reduces the maximum rates on long-term
capital gains recognized on capital assets held by individual taxpayers for
more than eighteen months as of the date of disposition (and would further
reduce the maximum rates on such gains in the year 2001 and thereafter for
certain individual taxpayers who meet specified conditions). Prospective
investors should consult their own tax advisors concerning these tax law
changes.
MISCELLANEOUS TAX ASPECTS
Backup Withholding. Subject to the discussion below with respect to Trust
Funds classified as partnerships, a Holder, other than a holder of a REMIC
Residual Certificate, may, under certain circumstances, be subject to "backup
withholding" at a rate of 31% with respect to distributions or the proceeds of
a sale of certificates to or through brokers that represent interest or
original issue discount on the Certificates. This withholding generally
applies if the holder of a Certificate (i) fails to furnish the Trustee with
its taxpayer identification number ("TIN"); (ii) furnishes the Trustee an
incorrect TIN; (iii) fails to report properly interest, dividends or other
"reportable payments" as defined in the Code; or (iv) under certain
circumstances, fails to provide the Trustee or such holder's securities broker
with a certified statement, signed under penalty of perjury, that the TIN
provided is its correct number and that the holder is not subject to backup
withholding. Backup withholding will not apply, however, with respect to
certain payments made to Holders, including payments to certain exempt
recipients (such as exempt organizations) and to certain Nonresidents (as
defined below). Holders should consult their tax advisers as to their
qualification for exemption from backup withholding and the procedure for
obtaining the exemption.
The Trustee will report to the Holders and to the Master Servicer for
each calendar year the amount of any "reportable payments" during such year
and the amount of tax withheld, if any, with respect to payments on the
Certificates.
TAX TREATMENT OF FOREIGN INVESTORS
Subject to the discussion below with respect to Trust Funds classified as
partnerships is made, under the Code, unless interest (including OID) paid on
a Certificate (other than a Residual Interest Certificate) is considered to be
"effectively connected" with a trade or business conducted in the United
States by a nonresident alien individual, foreign partnership or foreign
corporation ("Nonresidents"), such interest will normally qualify as portfolio
interest (except where (i) the recipient is a holder, directly or by
attribution, of 10% or more of the capital or profits interest in the issuer
or (ii) the recipient is a controlled foreign corporation to which the issuer
is a related person) and will be exempt from federal income tax. Upon receipt
of appropriate ownership statements, the issuer normally will be relieved of
obligations to withhold tax from such interest payments. These provisions
supersede the generally applicable provisions of United States law that would
otherwise require the issuer to withhold at a 30% rate (unless such rate were
reduced or eliminated by an applicable tax treaty) on, among other things,
interest and other fixed or determinable, annual or periodic income paid to
Nonresidents. Holders of Pass-Through Certificates and Stripped Certificates,
including Ratio Strip Certificates, however, may be subject to withholding to
the extent that the Contracts were originated on or before July 18, 1984.
Interest and OID of Holders who are Non-residents are not subject to
withholding if they are effectively connected with a United States business
conducted by the Holder. They will, however, generally be subject to the
regular United States income tax.
Payments to holders of Residual Interest Certificates who are
Non-residents will generally be treated as interest for purposes of the 30%
(or lower treaty rate) United States withholding tax. Holders should assume
that such income does not qualify for exemption from United States withholding
tax as "portfolio interest." It is clear that, to the extent that a payment
represents a portion of REMIC taxable income that constitutes excess inclusion
income, a holder of a Residual Interest Certificate will not be entitled to an
exemption from or reduction of the 30% (or lower treaty rate) withholding tax
rule. If the payments are subject to United States withholding tax, they
generally will be taken into account for withholding tax purposes only when
paid or distributed (or when the Residual Interest Certificate is disposed
of). The Treasury has statutory authority, however, to promulgate regulations
which would require such amounts to be taken into account at an earlier time
in order to prevent the avoidance of tax. Such regulations could, for example,
require withholding prior to the distribution of cash in the case of Residual
Interest Certificates that do not have significant value. Under the REMIC
Regulations, if a Residual Interest Certificate has tax avoidance potential, a
transfer of a Residual Interest Certificate to a Nonresident will be
disregarded for all federal tax purposes. A Residual Interest Certificate has
tax avoidance potential unless, at the time of the transfer the transferor
reasonably expects that the REMIC will distribute to the transferee residual
interest holder amounts that will equal at least 30% of each excess inclusion,
and that such amounts will be distributed at or after the time at which the
excess inclusions accrue and not later than the calendar year following the
calendar year of accrual. If a Nonresident transfers a Residual Interest
Certificate to a United States person, and if the transfer has the effect of
allowing the transferor to avoid tax on accrued excess inclusions, then the
transfer is disregarded and the transferor continues to be treated as the
owner of the Residual Interest Certificate for purposes of the withholding tax
provisions of the Code. See " -- Excess Inclusions."
TAX CHARACTERIZATION OF THE TRUST FUND AS A PARTNERSHIP
In the absence of a REMIC or FASIT election, a Trust Fund that is not
classified as a grantor trust will be classified as a partnership for federal
tax purposes. Brown & Wood LLP, special counsel to the Depositor, will deliver
its opinion that a Trust Fund classified as a partnership will not be a
publicly traded partnership taxable as a corporation for federal income tax
purposes. This opinion will be based on the assumption that the terms of the
related Agreement and related documents will be complied with, and on
counsel's conclusions that the nature of the income of the Trust Fund will
exempt it from the rule that certain publicly traded partnerships are taxable
as corporations or the issuance of the Certificates has been structured as a
private placement under an IRS safe harbor, so that the Trust Fund will not be
characterized as a publicly traded partnership taxable as a corporation.
If the Trust Fund were taxable as a corporation for federal income tax
purposes, the Trust Fund would be subject to corporate income tax on its
taxable income. Any such corporate income tax could materially reduce cash
available to make distributions on the Certificates, and Certificateholders
could be liable for any such tax that is unpaid by the Trust Fund.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
Treatment of the Trust Fund as a Partnership. The Trust Fund and the
Master Servicer will agree, and the Certificateholders will agree by their
purchase of Certificates, to treat the Trust Fund as a partnership for
purposes of federal and state income tax, franchise tax and any other tax
measured in whole or in part by income, with the assets of the partnership
being the assets held by the Trust Fund, and the partners of the partnership
being the Certificateholders. However, the proper characterization of the
arrangement involving the Trust Fund, the Certificates and the Master Servicer
is not clear because there is no authority on transactions closely comparable
to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Trust Fund. Any such
characterization would not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership.
Indexed Certificates, etc. The following discussion assumes that all
payments on the Certificates are denominated in U.S. dollars, none of the
Certificates are Indexed Certificates or Strip Certificates, and that a Series
of Certificates includes a single class of Certificates. If these conditions
are not satisfied with respect to any given Series of Certificates, additional
tax considerations with respect to such Certificates will be disclosed in the
applicable Prospectus Supplement.
Partnership Taxation. As a partnership, the Trust Fund will not be
subject to federal income tax. Rather, each Certificateholder will be required
to separately take into account such holder's allocated share of income,
gains, losses, deductions and credits of the Trust Fund. The Trust Fund's
income will consist primarily of interest and finance charges earned on the
Contracts (including appropriate adjustments for market discount, OID and bond
premium) and any gain upon collection or disposition of Contracts. The Trust
Fund's deductions will consist primarily of servicing and other fees, and
losses or deductions upon collection or disposition of Contracts.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the related Agreement and related documents). The Agreements will
provide, in general, that the Certificateholders will be allocated taxable
income of the Trust Fund for each month equal to the sum of (i) the interest
that accrues on the Certificates in accordance with their terms for such
month, including interest accruing at the Pass-Through Rate for such month and
interest on amounts previously due on the Certificates but not yet
distributed; (ii) any Trust Fund income attributable to discount on the
Contracts that corresponds to any excess of the principal amount of the
Certificates over their initial issue price (iii) prepayment premium payable
to the Certificateholders for such month; and (iv) any other amounts of income
payable to the Certificateholders for such month. Such allocation will be
reduced by any amortization by the Trust Fund of premium on Contracts that
corresponds to any excess of the issue price of Certificates over their
principal amount. All remaining taxable income of the Trust Fund will be
allocated to the Company. Based on the economic arrangement of the parties,
this approach for allocating Trust Fund income should be permissible under
applicable Treasury regulations, although no assurance can be given that the
IRS would not require a greater amount of income to be allocated to
Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Pass-Through
Rate plus the other items described above even though the Trust Fund might not
have sufficient cash to make current cash distributions of such amount. Thus,
cash basis holders will in effect be required to report income from the
Certificates on the accrual basis and Certificateholders may become liable for
taxes on Trust Fund income even if they have not received cash from the Trust
Fund to pay such taxes. In addition, because tax allocations and tax reporting
will be done on a uniform basis for all Certificateholders but
Certificateholders may be purchasing Certificates at different times and at
different prices, Certificateholders may be required to report on their tax
returns taxable income that is greater or less than the amount reported to
them by the Trust Fund.
All of the taxable income allocated to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated
business taxable income" generally taxable to such a holder under the Code.
An individual taxpayer's share of expenses of the Trust Fund (including
fees to the Master Servicer but not interest expense) would be miscellaneous
itemized deductions. Such deductions might be disallowed to the individual in
whole or in part and might result in such holder being taxed on an amount of
income that exceeds the amount of cash actually distributed to such holder
over the life of the Trust Fund.
The Trust Fund intends to make all tax calculations relating to income
and allocations to Certificateholders on an aggregate basis. If the IRS were
to require that such calculations be made separately for each Contract, the
Trust Fund might be required to incur additional expense but it is believed
that there would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Contracts were not issued
with OID, and, therefore, the Trust Fund should not have OID income. However,
the purchase price paid by the Trust Fund for the Contracts may be greater or
less than the remaining principal balance of the Contracts at the time of
purchase. If so, the Contract will have been acquired at a premium or
discount, as the case may be. (As indicated above, the Trust Fund will make
this calculation on an aggregate basis, but might be required to recompute it
on a Contract by Contract basis.)
If the Trust Fund acquires the Contracts at a market discount or premium,
the Trust Fund will elect to include any such discount in income currently as
it accrues over the life of the Contracts or to offset any such premium
against interest income on the Contracts. As indicated above, a portion of
such market discount income or premium deduction may be allocated to
Certificateholders.
Section 708 Termination. Pursuant to final regulations issued on May 9,
1997 under Code Section 708, a sale or exchange of 50% or more of the capital
and profits in a partnership would cause a deemed contribution of assets of
the partnership (the "old partnership") to a new partnership (the "new
partnership") in exchange for interests in the new partnership. Such interests
would be deemed distributed to the partners of the old partnership in
liquidation thereof, which would not constitute a sale or exchange.
Accordingly under these new regulations, if the Trust Fund were characterized
as a partnership and a sale of Certificates terminated the partnership under
Code Section 708, the purchaser's basis in its ownership interest would not
change.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates
sold. A Certificateholder's tax basis in a Certificate will generally equal
the holder's cost increased by the holder's share of Trust Fund income
(includible in income) and decreased by any distributions received with
respect to such Certificate. In addition, both the tax basis in the
Certificates and the amount realized on a sale of a Certificate would include
the holder's share of liabilities of the Trust Fund. A holder acquiring
Certificates at different prices may be required to maintain a single
aggregate adjusted tax basis in such Certificates, and, upon sale or other
disposition of some of the Certificates, allocate a portion of such aggregate
tax basis to the Certificates sold (rather than maintaining a separate tax
basis in each Certificate for purposes of computing gain or loss on a sale of
that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share
of unrecognized accrued market discount on the Contracts would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust Fund does not expect to have any other
assets that would give rise to such special reporting requirements. Thus, to
avoid those special reporting requirements, the Trust Fund will elect to
include market discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise
to a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust
Fund's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the
Certificateholders in proportion to the principal amount of Certificates owned
by them as of the close of the last day of such month. As a result, a holder
purchasing Certificates may be allocated tax items (which will affect its tax
liability and tax basis) attributable to periods before the actual
transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or
losses of the Trust Fund might be reallocated among the Certificateholders.
The Trust Fund's method of allocation between transferors and transferees may
be revised to conform to a method permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder
had. The tax basis of the Trust Fund's assets will not be adjusted to reflect
that higher (or lower) basis unless the Trust Fund were to file an election
under Section 754 of the Code. In order to avoid the administrative
complexities that would be involved in keeping accurate accounting records, as
well as potentially onerous information reporting requirements, the Trust Fund
will not make such election. As a result, Certificateholders might be
allocated a greater or lesser amount of Trust Fund income than would be
appropriate based on their own purchase price for Certificates.
Administrative Matters. The Owner Trustee is required to keep or have
kept complete and accurate books of the Trust Fund. Such books will be
maintained for financial reporting and tax purposes on an accrual basis and
the fiscal year of the Trust Fund will be the calendar year. The Trustee will
file a partnership information return (IRS Form 1065) with the IRS for each
taxable year of the Trust Fund and will report each Certificateholder's
allocable share of items of Trust Fund income and expense to holders and the
IRS on Schedule K-1. The Trust Fund will provide the Schedule K-l information
to nominees that fail to provide the Trust Fund with the information statement
described below and such nominees will be required to forward such information
to the beneficial owners of the Certificates. Generally, holders must file tax
returns that are consistent with the information return filed by the Trust
Fund or be subject to penalties unless the holder notifies the IRS of all such
inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust
Fund with a statement containing certain information on the nominee, the
beneficial owners and the Certificates so held. Such information includes (i)
the name, address and taxpayer identification number of the nominee and (ii)
as to each beneficial owner (x) the name, address and identification number of
such person, (y) whether such person is a United States person, a tax-exempt
entity or a foreign government, an international organization, or any wholly
owned agency or instrumentality of either of the foregoing and (z) certain
information on Certificates that were held, bought or sold on behalf of such
person throughout the year. In addition, brokers and financial institutions
that hold Certificates through a nominee are required to furnish directly to
the Trust Fund information as to themselves and their ownership of
Certificates. A clearing agency registered under Section 17A of the Exchange
Act is not required to furnish any such information statement to the Trust
Fund. The information referred to above for any calendar year must be
furnished to the Trust Fund on or before the following January 31. Nominees,
brokers and financial institutions that fail to provide the Trust Fund with
the information described above may be subject to penalties.
The Depositor will be designated as the tax matters partner in the
related Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which
the partnership information return is filed. Any adverse determination
following an audit of the return of the Trust Fund by the appropriate taxing
authorities could result in an adjustment of the returns of the
Certificateholders, and, under certain circumstances, a Certificateholder may
be precluded from separately litigating a proposed adjustment to the items of
the Trust Fund. An adjustment could also result in an audit of a
Certificateholder's returns and adjustments of items not related to the income
and losses of the Trust Fund.
Tax Consequences to Foreign Certificateholders. It is not clear whether
the Trust Fund would be considered to be engaged in a trade or business in the
United States for purposes of federal withholding taxes with respect to
non-U.S. Persons because there is no clear authority dealing with that issue
under facts substantially similar to those described herein. Although it is
not expected that the Trust Fund would be engaged in a trade or business in
the United States for such purposes, the Trust Fund will withhold as if it
were so engaged in order to protect the Trust Fund from possible adverse
consequences of a failure to withhold. The Trust Fund expects to withhold on
the portion of its taxable income, as calculated for this purpose which may
exceed the distributions to Certificateholders, that is allocable to foreign
Certificateholders pursuant to Section 1446 of the Code, as if such income
were effectively connected to a U.S. trade or business, at a rate of 35% for
foreign holders that are taxable as corporations and 39.6% for all other
foreign holders. Subsequent adoption of Treasury regulations or the issuance
of other administrative pronouncements may require the Trust Fund to change
its withholding procedures. In determining a holder's withholding status, the
Trust Fund may rely on IRS Form W-8, IRS Form W-9 or the holder's
certification of nonforeign status signed under penalties of perjury.
The term "U.S. Person" means a citizen or resident of the United States,
a corporation, partnership (or other entity treated as a corporation or
partnership) created or organized in or under the laws of the United States or
any state thereof including the District of Columbia (other than a partnership
that is not treated as a United States person under any applicable Treasury
regulations), or an estate whose income is subject to U.S. federal income tax
regardless of its source of income, or a trust if a court within the United
States is able to exercise primary supervision of the administration of the
trust and one or more United States persons have the authority to control all
substantial decisions of the trust. Notwithstanding the preceding sentence, to
the extent provided in regulations, certain trusts in existence on August 20,
1996 and treated as United States persons prior to such date that elect to
continue to be so treated also shall be considered U.S. Persons.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the
branch profits tax) on its share of the Trust Fund's income. Each foreign
holder must obtain a taxpayer identification number from the IRS and submit
that number to the Trust Fund on Form W-8 in order to assure appropriate
crediting of the taxes withheld. A foreign holder generally would be entitled
to file with the IRS a claim for refund with respect to taxes withheld by the
Trust Fund taking the position that no taxes were due because the Trust Fund
was not engaged in a U.S. trade or business. However, interest payments made
(or accrued) to a Certificateholder who is a foreign person generally will be
considered guaranteed payments to the extent such payments are determined
without regard to the income of the Trust Fund. If these interest payments are
properly characterized as guaranteed payments, then the interest will not be
considered "portfolio interest." As a result, Certificateholders will be
subject to United States federal income tax and withholding tax at a rate of
30 percent, unless reduced or eliminated pursuant to an applicable treaty. In
such case, a foreign holder would only be entitled to claim a refund for that
portion of the taxes in excess of the taxes that should be withheld with
respect to the guaranteed payments.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding
tax of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences," potential investors should consider the state and
local income tax consequences of the acquisition, ownership, and disposition
of the Certificates. State and local income tax law may differ substantially
from the corresponding federal law, and this discussion does not purport to
describe any aspect of the income tax laws of any state or locality.
Therefore, potential investors should consult their own tax advisors with
respect to the various state and local tax consequences of an investment in
the Certificates.
ERISA CONSIDERATIONS
The following describes certain considerations under ERISA and the Code,
which apply only to Certificates of a Series that are not divided into
subclasses. If Certificates are divided into subclasses the related Prospectus
Supplement will contain information concerning considerations relating to
ERISA and the Code that are applicable to such Certificates.
ERISA imposes requirements on employee benefit plans (and on 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 or arrangements are invested)
(collectively "Plans") subject to ERISA and on persons who are fiduciaries
with respect to such Plans. Generally, ERISA applies to investments made by
Plans. Among other things, ERISA requires that the assets of Plans be held in
trust and that the trustee, or other duly authorized fiduciary, have exclusive
authority and discretion to manage and control the assets of such Plans. ERISA
also imposes certain duties on persons who are fiduciaries of Plans. Under
ERISA, any person who exercises any authority or control respecting the
management or disposition of the assets of a Plan is considered to be a
fiduciary of such Plan (subject to certain exceptions not here relevant).
Certain employee benefit plans, such as governmental plans (as defined in
ERISA Section 3(32)) and, if no election has been made under Section 410(d) of
the Code, church plans (as defined in ERISA Section 3(33)), are not subject to
ERISA requirements. Accordingly, assets of such plans may be invested in
Certificates without regard to the ERISA considerations described above and
below, subject to the provisions of applicable state law. Any such plan which
is qualified and exempt from taxation under Code Sections 401(a) and 501(a),
however, is subject to the prohibited transaction rules set forth in Code
Section 503.
On November 13, 1986, the United States Department of Labor (the "DOL")
issued final regulations concerning the definition of what constitutes the
assets of a Plan. (Labor Reg. Section 2510.3-101) Under this regulation, the
underlying assets and properties of corporations, partnerships and certain
other entities in which a Plan makes an "equity" investment could be deemed
for purposes of ERISA to be assets of the investing Plan in certain
circumstances. However, the regulation provides that, generally, the assets of
a corporation or partnership in which a Plan invests will not be deemed for
purposes of ERISA to be assets of such Plan if the equity interest acquired by
the investing Plan is a publicly-offered security. A publicly-offered
security, as defined in the Labor Reg. Section 2510.3-101, is a security that
is widely held, freely transferable and registered under the Securities
Exchange Act of 1934, as amended.
In addition to the imposition of general fiduciary standards of
investment prudence and diversification, ERISA prohibits a broad range of
transactions involving Plan assets and persons ("Parties in Interest") having
certain specified relationships to a Plan and imposes additional prohibitions
where Parties in Interest are fiduciaries with respect to such Plan. Because
the Contracts may be deemed Plan assets of each Plan that purchases
Certificates, an investment in the Certificates by a Plan might be a
prohibited transaction under ERISA Sections 406 and 407 and subject to an
excise tax under Code Section 4975 unless a statutory or administrative
exemption applies.
In Prohibited Transaction Exemption 83-1 ("PTE 83-1"), which amended
Prohibited Transaction Exemption 81-7, the DOL exempted from ERISA's
prohibited transaction rules certain transactions relating to the operation of
residential mortgage pool investment trusts and the purchase, sale and holding
of "mortgage pool pass-through certificates" in the initial issuance of such
certificates. PTE 83-1 permits, subject to certain conditions, transactions
which might otherwise be prohibited between Plans and Parties in Interest with
respect to those Plans related to the origination, maintenance and termination
of mortgage pools consisting of mortgage loans secured by first or second
mortgages or deeds of trust on single-family residential property, and the
acquisition and holding of certain mortgage pool pass-through certificates
representing an interest in such mortgage pools by Plans. If the general
conditions (discussed below) of PTE 83-1 are satisfied, investments by a Plan
in Certificates that represent interests in a Pool consisting of Contracts
("Single Family Securities") will be exempt from the prohibitions of ERISA
Sections 406(a) and 407 (relating generally to transactions with Parties in
Interest who are not fiduciaries) if the Plan purchases the Single Family
Certificates at no more than fair market value and will be exempt from the
prohibitions of ERISA Sections 406(b)(1) and (2) (relating generally to
transactions with fiduciaries) if, in addition, the purchase is approved by an
independent fiduciary, no sales commission is paid to the pool sponsor, the
Plan does not purchase more than 25% of all Single Family Certificates, and at
least 50% of all Single Family Certificates are purchased by persons
independent of the pool sponsor or pool trustee. PTE 83-1 does not provide an
exemption for transactions involving Subordinate Certificates. Accordingly,
unless otherwise provided in the related Prospectus Supplement, no transfer of
a Subordinate Certificate or a Certificate which is not a Single Family
Certificate may be made to a Plan.
The discussion in this and the next succeeding paragraph applies only to
Single Family Certificates. The Depositor believes that, for purposes of PTE
83-1, the term "mortgage pass-through certificate" would include: (i)
Certificates issued in a Series consisting of only a single class of
Certificates; and (ii) Certificates issued in a Series in which there is only
one class of those particular Certificates; provided that the Certificates in
the case of clause (i), or the Certificates in the case of clause (ii),
evidence the beneficial ownership of both a specified percentage of future
interest payments (greater than 0%) and a specified percentage (greater than
0%) of future principal payments on the Contracts. It is not clear whether a
class of Certificates that evidences the beneficial ownership in a Trust Fund
divided into Contract groups, beneficial ownership of a specified percentage
of interest payments only or principal payments only, or a notional amount of
either principal or interest payments, or a class of Certificates entitled to
receive payments of interest and principal on the Contracts only after
payments to other classes or after the occurrence of certain specified events
would be a "mortgage pass-through certificate" for purposes of PTE 83-1.
PTE 83-1 sets forth three general conditions which must be satisfied for
any transaction to be eligible for exemption: (i) the maintenance of a system
of insurance or other protection for the pooled mortgage loans and property
securing such loans, and for indemnifying Certificateholders against
reductions in pass-through payments due to property damage or defaults in loan
payments in an amount not less than the greater of one percent of the
aggregate principal balance of all covered pooled mortgage loans or the
principal balance of the largest covered pooled mortgage loan; (ii) the
existence of a pool trustee who is not an affiliate of the pool sponsor; and
(iii) a limitation on the amount of the payment retained by the pool sponsor,
together with other funds inuring to its benefit, to not more than adequate
consideration for selling the mortgage loans plus reasonable compensation for
services provided by the pool sponsor to the Pool. The Depositor believes that
the first general condition referred to above will be satisfied with respect
to the Certificates in a Series issued without a subordination feature, or the
Certificates only in a Series issued with a subordination feature, provided
that the subordination and Reserve Account, subordination by shifting of
interests, the pool insurance or other form of credit enhancement described
under "Credit Enhancement" herein (such subordination, pool insurance or other
form of credit enhancement being the system of insurance or other protection
referred to above) with respect to a Series of Certificates is maintained in
an amount not less than the greater of one percent of the aggregate principal
balance of the Contracts or the principal balance of the largest Contract. See
"Description of the Certificates" herein. In the absence of a ruling that the
system of insurance or other protection with respect to a Series of
Certificates satisfies the first general condition referred to above, there
can be no assurance that these features will be so viewed by the DOL. The
Trustee will not be affiliated with the Depositor.
Each Plan fiduciary who is responsible for making the investment
decisions whether to purchase or commit to purchase and to hold Single Family
Certificates must make its own determination as to whether the first and third
general conditions, and the specific conditions described briefly in the
preceding paragraph, of PTE 83-1 have been satisfied, or as to the
availability of any other prohibited transaction exemptions. Each Plan
fiduciary should also determine whether, under the general fiduciary standards
of investment prudence and diversification, an investment in the 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.
The DOL has granted to certain underwriters individual administrative
exemptions (the "Underwriter Exemptions") from certain of the prohibited
transaction rules of ERISA and the related excise tax provisions of Section
4975 of the Code 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 Underwriter Exemptions.
While each Underwriter Exemption is an individual exemption separately
granted to a specific underwriter, the terms and conditions which generally
apply to the Underwriter Exemptions are substantially identical, and include
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 interest evidenced by the certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the trust fund;
(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 Ratings
Group, a Division of The McGraw-Hill Companies ("S&P"), Moody's
Investors Service, Inc. ("Moody's"), Duff & Phelps Credit Rating Co.
("DCR") or Fitch IBCA, Inc. ("Fitch");
(4) the trustee must not be 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
seller pursuant to the assignment of the loans to the trust fund
represents not more than the fair market value of such loans; the sum
of all payments made to and retained by the servicer and any other
servicer represents not more than reasonable compensation for such
person's services under the agreement pursuant to which the loans are
pooled and reimbursements 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
Securities and Exchange Commission under the Securities Act of 1933
as amended.
The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist solely of
assets of the type that have been included in other investment pools;
(ii) certificates in such other investment pools must have
been rated in one of the three highest rating categories of S&P,
Moody's, Fitch or DCR for at least one year prior to the Plan's
acquisition of certificates; and
(iii) certificates evidencing interests in such other
investment pools must have been purchased by investors other than
Plans for at least one year prior to any Plan's acquisition of
certificates.
Moreover, the Underwriter Exemptions generally 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
as to 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 (50%) of each class of certificates in which Plans have
invested is acquired by persons independent of the Restricted Group, (ii) such
fiduciary (or its affiliate) is an obligor with respect to five percent (5%)
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 (25%) 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 (25%) of the assets of the Plan with respect to
which such person is a fiduciary is 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
Seller, the related Underwriter, the Trustee, the Master Servicer, any insurer
with respect to the Contracts, any obligor with respect to Contracts included
in the Trust Fund constituting more than five percent (5%) of the aggregate
unamortized principal balance of the assets in the Trust Fund, or any
affiliate of such parties (the "Restricted Group").
The Prospectus Supplement for each Series of Certificates will indicate
the classes of Certificates, if any, offered thereby as to which it is
expected that an Underwriter Exemption will apply.
The Underwriter Exemption contains several requirements, some of which
differ from those in PTE 83-l. The Underwriter Exemption contains an expanded
definition of "certificate" which includes an interest which entitles the
holder to pass-through payments of principal, interest and/or other payments.
The Underwriter Exemption contains an expanded definition of "trust" which
permits the trust corpus to consist of secured consumer receivables. The
definition of "trust," however, does not include any investment pool unless,
inter alia, (i) the investment pool consists only of assets of the type which
have been included in other investment pools, (ii) certificates evidencing
interests in such other investment pools have been purchased by investors
other than Plans for at least one year prior to the Plan's acquisition of
certificates pursuant to the Underwriter Exemption and (iii) certificates in
such other investment pools have been rated in one of the three highest
generic rating categories of the four credit rating agencies noted below.
Generally, the Underwriter Exemption holds that the acquisition of the
certificates by a Plan must be 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. The Underwriter Exemption
requires that the rights and interests evidenced by the certificates not be
"subordinated" to the rights and interests evidenced by other certificates of
the same trust. The Underwriter Exemption requires that certificates acquired
by a Plan have received a rating at the time of their acquisition that is in
one of the three highest generic rating categories of S&P, Moody's, Fitch or
DCR. The Underwriter Exemption specifies that the pool trustee must not be an
affiliate of the pool sponsor, nor an affiliate of the Underwriter, the pool
servicer, any obligor with respect to mortgage loans included in the trust
constituting more than five percent of the aggregate unamortized principal
balance of the assets in the trust, or any affiliate of such entities.
Finally, the Underwriter Exemption stipulates that any Plan investing in the
certificates must be an "accredited investor" as defined in Rule 501(a)(1) of
Regulation D of the Securities and Exchange Commission under the Securities
Act of 1933.
On July 21, 1997, the DOL published in the Federal Register an amendment
to the Underwriter Exemption which extends exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. The amendment generally
allows mortgage loans or other secured receivables (the "obligations")
supporting payments to certificate-holders, and having a value equal to no
more than twenty-five percent (25%) of the total principal amount of the
certificates being offered by the trust, to be transferred to the trust within
a 90-day or three-month period following the closing date (the "pre-funding
period") instead of requiring that all such obligations be either identified
or transferred on or before the closing date. The relief is available when the
following conditions are met:
(1) The ratio of the amount allocated to the pre-funding
account to the total principal amount of the certificates being
offered (the "pre-funding limit") must not exceed twenty-five percent
(25%).
(2) All obligations transferred after the closing date (the
"additional obligations") must meet the same terms and conditions for
eligibility as the original obligations used to create the trust,
which terms and conditions have been approved by a rating agency.
(3) The transfer of such additional obligations to the trust
during the pre-funding period must not result in the certificates to
be covered by the Underwriter Exemption receiving a lower credit
rating from a rating agency upon termination of the pre-funding
period than the rating that was obtained at the time of the initial
issuance of the certificates by the trust.
(4) Solely as a result of the use of pre-funding, the
weighted average annual percentage interest rate (the "average
interest rate") for all of the obligations in the trust at the end of
the pre-funding period must not be more than 1.0% lower than the
average interest rate for the obligations which were transferred to
the trust on the closing date.
(5) In order to ensure that the characteristics of the
additional obligations are substantially similar to the original
obligations which were transferred to the trust,
(i) the characteristics of the additional obligations
must be monitored by an insurer or other credit
support provider which is independent of the
depositor; or
(ii) an independent accountant retained by the depositor
must provide the depositor with a letter (with
copies provided to each rating agency rating the
certificates, the related underwriter and the
related trustee) stating whether or not the
characteristics of the additional obligations
conform to the characteristics described in the
related prospectus or prospectus supplement and/or
pooling and servicing agreement. In preparing such
letter, the independent accountant must use the
same type of procedures as were applicable to the
obligations which were transferred to the trust as
of the closing date.
(6) The pre-funding period must end no later than three
months or 90 days after the closing date or earlier in certain
circumstances if the pre-funding account falls below the minimum
level specified in the pooling and servicing agreement or an event of
default occurs.
(7) Amounts transferred to any pre-funding account and/or
capitalized interest account used in connection with the pre-funding
may be invested only in certain permitted investments.
(8) The related prospectus supplement must describe:
(i) any pre-funding account and/or capitalized
interest account used in connection with a
pre-funding account;
(ii) the duration of the pre-funding period;
(iii) the percentage and/or dollar amount of the
pre-funding Limit for the trust; and
(iv) that the amount remaining in the
pre-funding account at the end of the
pre-funding period will be remitted to
certificate holders as repayments of
principal.
(9) The related pooling and servicing agreement must
describe the permitted investments for the pre-funding account and/or
capitalized interest account and, if not disclosed in the related
prospectus or prospectus supplement, the terms and conditions for
eligibility of additional obligations.
Any Plan fiduciary which proposes to cause a Plan to purchase
Certificates should consult with its counsel concerning the impact of ERISA
and the Code, the applicability of PTE 83-1 and the Underwriter Exemption, and
the potential consequences in their specific circumstances, prior to making
such investment. Moreover, each Plan fiduciary should determine whether under
the general fiduciary standards of investment prudence and diversification an
investment in the 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.
LEGAL INVESTMENT
The Prospectus Supplement for each series of Certificates will specify
which, if any, of the classes of Certificates offered thereby constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). Classes of Certificates that qualify as
"mortgage related securities" will be legal investments for persons, trusts,
corporations, partnerships, associations, business trusts, and business
entities (including depository institutions, life insurance companies and
pension funds) created pursuant to or existing under the laws of the United
States or of any state (including the District of Columbia and Puerto Rico)
whose authorized investments are subject to state regulations to the same
extent as, under applicable law, obligations issued by or guaranteed as to
principal and interest by the United States or any such entities. Under SMMEA,
if a state enacts legislation prior to October 4, 1991 specifically limiting
the legal investment authority of any such entities with respect to "mortgage
related securities," securities will constitute legal investments for entities
subject to such legislation only to the extent provided therein. Approximately
twenty-one states adopted such legislation prior to the October 4, 1991
deadline. SMMEA provides, however, that in no event will the enactment of any
such legislation affect the validity of any contractual commitment to
purchase, hold or invest in securities, or require the sale or other
disposition of securities, so long as such contractual commitment was made or
such securities were acquired prior to the enactment of such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in Certificates
without limitations as to the percentage of their assets represented thereby,
federal credit unions may invest in mortgage related securities, and national
banks may purchase securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12
U.S.C. 24 (Seventh), subject in each case to such regulations as the
applicable federal authority may prescribe. In this connection, federal credit
unions should review the National Credit Union Administration ("NCUA") Letter
to Credit Unions No. 96, as modified by Letter to Credit Unions No. 108, which
includes guidelines to assist federal credit unions in making investment
decisions for mortgage related securities and the NCUA's regulation
"Investment and Deposit Activities" (12 C.F.R. Part 703), which sets forth
certain restrictions on investment by federal credit unions in mortgage
related securities (in each case whether or not the class of Certificates
under consideration for purchase constituted a "mortgage related security").
The NCUA issued final regulations effective December 2, 1991 that restrict and
in some instances prohibit the investment by Federal Credit Unions in certain
types of mortgage related securities.
All depository institutions considering an investment in the Certificates
(whether or not the class of Certificates under consideration for purchase
constitutes a "mortgage related security") should review the Federal Financial
Institutions Examination Council's Supervisory Policy Statement on the
Certificates Activities (to the extent adopted by their respective regulators)
(the "Policy Statement") setting forth, in relevant part, certain securities
trading and sales practices deemed unsuitable for an institution's investment
portfolio, and guidelines for (and restrictions on) investing in mortgage
derivative products, including "mortgage related securities," which are
"high-risk mortgage securities" as defined in the Policy Statement. According
to the Policy Statement, such "high-risk mortgage securities" include
securities such as Certificates not entitled to distributions allocated to
principal or interest, or Subordinated Certificates. Under the Policy
Statement, it is the responsibility of each depository institution to
determine, prior to purchase (and at stated intervals thereafter), whether a
particular mortgage derivative product is a "high-risk mortgage security," and
whether the purchase (or retention) of such a product would be consistent with
the Policy Statement.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders guidelines or agreements generally
governing investments made by a particular investor, including, but not
limited to "prudent investor" provisions, percentage-of-assets limits and
provisions which may restrict or prohibit investment in securities which are
not "interest bearing" or "income paying," or in securities which are issued
in book-entry form.
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Certificates or to
purchase Certificates representing more than a specified percentage of the
investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the Certificates constitute legal
investments for such investors.
METHOD OF DISTRIBUTION
Certificates are being offered hereby in Series from time to time (each
Series evidencing or relating to a separate Trust Fund) through any of the
following methods:
1. By negotiated firm commitment underwriting and public reoffering
by underwriters;
2. By agency placements through one or more placement agents
primarily with institutional investors and dealers; and
3. By placement directly by the Depositor with institutional
investors.
A Prospectus Supplement will be prepared for each Series which will
describe the method of offering being used for that Series and will set forth
the identity of any underwriters thereof and either the price at which such
Series is being offered, the nature and amount of any underwriting discounts
or additional compensation to such underwriters and the proceeds of the
offering to the Depositor, or the method by which the price at which the
underwriters will sell the Certificates will be determined. Each Prospectus
Supplement for an underwritten offering will also contain information
regarding the nature of the underwriters' obligations, any material
relationship between the Depositor and any underwriter and, where appropriate,
information regarding any discounts or concessions to be allowed or reallowed
to dealers or others and any arrangements to stabilize the market for the
Certificates so offered. In firm commitment underwritten offerings, the
underwriters will be obligated to purchase all of the Certificates of such
Series if any such Certificates are purchased. Certificates may be acquired by
the underwriters for their own accounts and may be resold from time to time in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale.
Underwriters and agents may be entitled under agreements entered into
with the Depositor to indemnification by the Depositor against certain civil
liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribution with respect to payments which such underwriters
or agents may be required to make in respect thereof.
If a Series is offered other than through underwriters, the Prospectus
Supplement relating thereto will contain information regarding the nature of
such offering and any agreements to be entered into between the Depositor and
purchasers of Certificates of such Series.
LEGAL MATTERS
The validity of the Certificates of each Series, including certain
federal income tax consequences with respect thereto, will be passed upon for
the Depositor by Brown & Wood LLP, One World Trade Center, New York, New York
10048.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of
Certificates and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related Series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement.
RATING
It is a condition to the issuance of the Certificates of each Series
offered hereby and by the Prospectus Supplement that they shall have been
rated in one of the four highest rating categories by the nationally
recognized statistical rating agency or agencies (each, a "Rating Agency")
specified in the related Prospectus Supplement.
Any such rating would be based on, among other things, the adequacy of
the value of the Trust Fund Assets and any credit enhancement with respect to
such class and will reflect such Rating Agency's assessment solely of the
likelihood that holders of a class of Certificates of such class will receive
payments to which such Certificateholders are entitled under the related
Agreement. Such rating will not constitute an assessment of the likelihood
that principal prepayments on the related Contracts will be made, the degree
to which the rate of such prepayments might differ from that originally
anticipated or the likelihood of early optional termination of the Series of
Certificates. Such rating should not be deemed a recommendation to purchase,
hold or sell Certificates, inasmuch as it does not address market price or
suitability for a particular investor. Each security rating should be
evaluated independently of any other security rating. Such rating will not
address the possibility that prepayment at higher or lower rates than
anticipated by an investor may cause such investor to experience a lower than
anticipated yield or that an investor purchasing a Certificate at a
significant premium might fail to recoup its initial investment under certain
prepayment scenarios.
There is also no assurance that any such rating will remain in effect for
any given period of time or that it may not be lowered or withdrawn entirely
by the Rating Agency in the future if in its judgment circumstances in the
future so warrant. In addition to being lowered or withdrawn due to any
erosion in the adequacy of the value of the Trust Fund Assets or any credit
enhancement with respect to a Series, such rating might also be lowered or
withdrawn among other reasons, because of an adverse change in the financial
or other condition of a credit enhancement provider or a change in the rating
of such credit enhancement provider's long term debt.
The amount, type and nature of credit enhancement, if any, established
with respect to a Series of Certificates will be determined on the basis of
criteria established by each Rating Agency rating classes of such Series. Such
criteria are sometimes based upon an actuarial analysis of the behavior of
mortgage loans in a larger group. Such analysis is often the basis upon which
each Rating Agency determines the amount of credit enhancement required with
respect to each such class. There can be no assurance that the historical data
supporting any such actuarial analysis will accurately reflect future
experience nor any assurance that the data derived from a large pool of
manufactured housing loans accurately predicts the delinquency, repossession,
foreclosure or loss experience of any particular pool of Contracts. No
assurance can be given that values of any Manufactured Homes (and, in the case
of Land-and-Home Contracts, any underlying real properties) have remained or
will remain at their levels on the respective dates of origination of the
related Contracts. If the manufactured housing or residential real estate
markets should experience an overall decline in property values such that the
outstanding principal balances of the Contracts in a particular Trust Fund and
any secondary financing on the related Manufactured Homes (and, in the case of
Land-and Home Contracts, the related underlying real properties) become equal
to or greater than the value of the Manufactured Homes (and, in the case of
Land-and-Home Contracts, the underlying real properties), the rates of
delinquencies, repossessions, foreclosures and losses could be higher than
those now generally experienced in the mortgage lending industry. In
additional, adverse economic conditions (which may or may not affect
manufactured housing property values) may affect the timely payment by
obligors of scheduled payments of principal and interest on the Contracts and,
accordingly, the rates of delinquencies, repossessions, foreclosures and
losses with respect to any Trust Fund. To the extent that such losses are not
covered by credit enhancement, such losses will be borne, at least in part, by
the holders of one or more classes of the Certificates of the related Series.
INDEX OF DEFINED TERMS
TERM PAGE
Accretion Directed.................................33
Accrual............................................35
Accrual Certificates...............................30
Advance............................................11
Agreement..........................................22
APR................................................24
ARM Contracts......................................24
Available Funds....................................30
balloon payment....................................24
BBA................................................36
Belgian Cooperative................................41
BIF................................................49
Book-Entry Certificates............................39
Calculation Agent..................................35
Capitalized Interest Account.......................51
Cash Flow Bond Method..............................79
CEDEL Participants.................................40
CERCLA.............................................62
Certificate Account................................49
Certificate Owners.................................39
Certificate Register...............................29
CERTIFICATES........................................1
Class Security Balance.............................30
Closing Date.......................................19
Code...............................................12
COFI Securities....................................37
Collateral Value...................................25
Commission..........................................3
Component Certificates.............................33
Contract Documents.................................48
Contract Rate.......................................6
contracts..........................................16
CONTRACTS...........................................1
Contract-to-Value Ratio............................25
Cut-off Date....................................5, 22
Cut-off Date Principal Balance.....................28
DCR................................................88
Debt Securities....................................67
Definitive Security................................39
DEPOSITOR...........................................1
DERIVATIVE TRANSACTIONS........................21, 39
Detailed Description...............................23
Distribution Date...................................7
DOL................................................86
DTC................................................18
Eleventh District..................................37
EPA................................................62
ERISA..............................................14
Euroclear Operator.................................41
Euroclear Participants.............................41
European Depositaries..............................39
Exchange Act........................................3
FDIC...............................................49
FHA................................................10
FHLBSF.............................................37
FHLMC..............................................55
Financial Intermediary.............................39
Fitch..............................................88
Fixed Rate.........................................34
Floating Rate......................................34
FNMA...............................................55
Funding Period.....................................19
Garn-St Germain Act................................63
Holder in Due Course Rules.........................17
Insurance Proceeds.................................50
Insured Expenses...................................50
Interest Only......................................34
Interest Settlement Rate...........................36
Interest Weighted Certificates.....................69
Inverse Floating Rate..............................34
L/C Bank............................................9
L/C Percentage......................................9
Land-and-Home Contracts............................59
Liquidation Expenses...............................50
Liquidation Proceeds...............................50
Loan-to-Value Ratio................................25
lockout periods....................................24
Manufactured Home...............................6, 23
manufactured housing contracts.....................16
Master Servicer.....................................5
Master Servicing Fee...............................53
Moody's............................................88
Morgan.............................................41
Mortgage Documents.................................48
National Cost of Funds Index.......................38
NCUA...............................................91
Nonresidents.......................................81
Notional Amount Certificates.......................33
OID................................................12
OID Regulations....................................67
OTS................................................38
PACs...............................................33
Partial Accrual....................................35
Parties in Interest.................................7
Pass-Through Securities............................78
Pay-Through Security...............................68
Percentage Interests...............................55
Permitted Investments..............................45
Planned Principal Class............................33
Plans..............................................86
Policy Statement...................................91
Pool Insurance Policy..............................45
Pool Insurer.......................................45
Pool:...............................................5
Pre-Funded Amount..................................19
Pre-Funding Account.................................5
Prepayment Assumption..............................68
Prime Rate.........................................39
Principal Only.....................................34
Principal Prepayments..............................31
PTE 83-1...........................................87
Purchase Price.....................................26
Rating Agency......................................93
Ratio Strip Securities.............................79
RCRA...............................................63
Record Date........................................29
Reference Banks....................................36
Relevant Depositary................................39
Relief Act.........................................64
REMIC...............................................2
Reserve Account.....................................9
Reserve Interest Rate..............................36
Residual Interest Security.........................73
Restricted Group...................................89
Retained Interest..................................28
Rules..............................................40
S&P................................................88
SAIF...............................................49
Scheduled Principal Class..........................33
Securityholders....................................39
SELLER..............................................1
Sellers............................................22
Senior Certificates................................43
Senior Securities...................................6
Sequential Pay.....................................34
SERIES..............................................1
Servicing Fee......................................78
Single Family Securities...........................87
SMMEA..............................................12
Strip..............................................34
Stripped Securities................................78
Subordinated Securities.............................6
Subsequent Contracts...............................19
Sub-Servicer.......................................11
Sub-Servicing Agreement............................52
Support Class......................................34
TACs...............................................34
Targeted Principal Class...........................34
Terms and Conditions...............................41
TIN................................................81
Title V............................................64
TRUST FUND..........................................1
TRUST FUND ASSETS...................................1
Trustee.............................................5
U.S. Person........................................85
UCC................................................57
Underwriter Exemptions.............................88
VA.................................................10
Value..............................................25
Variable Rate......................................34
SUBJECT TO COMPLETION, DATED _________ _____, 1998
PROSPECTUS
INDYMAC ABS, INC.
DEPOSITOR
ASSET BACKED CERTIFICATES
ASSET BACKED NOTES
(ISSUABLE IN SERIES)
_____________________________________
This Prospectus relates to the issuance of Asset Backed Certificates (the
"Certificates") and Asset Backed Notes (the "Notes" and, together with the
Certificates, the "Securities"), which may be sold from time to time in one or
more series (each, a "Series") by IndyMac ABS, Inc. (the "Depositor") or by a
Trust Fund (as defined below) on terms determined at the time of sale and
described in this Prospectus and the related Prospectus Supplement. The
Securities of a Series will consist of Certificates which evidence beneficial
ownership of a trust established by the Depositor (each, a "Trust Fund"), and/or
Notes secured by the assets of a Trust Fund. As specified in the related
Prospectus Supplement, the Trust Fund for a Series of Securities will include
certain assets (the "Trust Fund Assets") which will consist of the following
types of mortgage loans (the "Loans"): (i) mortgage loans secured by first
and/or subordinate liens on one- to four-family residential properties,
including manufactured housing that is permanently affixed and treated as real
property under local law, or security interests in shares issued by cooperative
housing corporations (the "Single Family Loans"), (ii) mortgage loans secured by
first and/or subordinate liens on small multifamily residential properties, such
as rental apartment buildings or projects containing five to fifty residential
units (the "Multifamily Loans"), (iii) closed-end and/or revolving home equity
loans (the "Home Equity Loans"), secured in whole or in part by first and/or
subordinate liens on one- to four-family residential properties and (iv) home
improvement installment sale contracts and installment loan agreements (the
"Home Improvement Contracts") that are either unsecured or secured by first or
subordinate liens on one- to four-family residential properties, or by purchase
money security interests in the home improvements financed thereby (the "Home
Improvements"). The Trust Fund Assets will be acquired by the Depositor, either
directly or indirectly, from one or more institutions (each, a "Seller"), which
may be affiliates of the Depositor, and conveyed by the Depositor to the related
Trust Fund. A Trust Fund also may include insurance policies, surety bonds, cash
accounts, reinvestment income, guaranties or letters of credit to the extent
described in the related Prospectus Supplement. See "Index of Defined Terms" on
Page 110 of this Prospectus for the location of the definitions of certain
capitalized terms.
Each Series of Securities will be issued in one or more classes. Each class
of Certificates of a Series will evidence beneficial ownership of a specified
percentage (which may be 0%) or portion of future interest payments and a
specified percentage (which may be 0%) or portion of future principal payments
on the related Trust Fund Assets. Each class of Notes of a Series will be
secured by the related Trust Fund Assets or, if so specified in the related
Prospectus Supplement, a portion thereof. A Series of Securities may include one
or more classes that are senior in right of payment to one or more other classes
of Securities of such Series. One or more classes of Securities of a Series may
be entitled to receive distributions of principal, interest or any combination
thereof prior to one or more other classes of Securities of such Series or after
the occurrence of specified events, in each case as specified in the related
Prospectus Supplement.
(cover continued on next page)
_____________________________________
FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE
SECURITIES, SEE THE INFORMATION UNDER "RISK FACTORS" ON PAGE 16.
_____________________________________
THE CERTIFICATES OF A GIVEN SERIES WILL REPRESENT BENEFICIAL INTERESTS IN,
AND THE NOTES OF A GIVEN SERIES WILL REPRESENT OBLIGATIONS OF, THE RELATED TRUST
FUND ONLY AND WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR,
THE MASTER SERVICER, ANY SELLER OR ANY AFFILIATES THEREOF, EXCEPT TO THE EXTENT
DESCRIBED IN THE RELATED PROSPECTUS SUPPLEMENT. THE SECURITIES AND THE LOANS
WILL NOT BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY
OR BY THE DEPOSITOR OR ANY OTHER PERSON OR ENTITY, EXCEPT IN EACH CASE TO THE
EXTENT DESCRIBED IN THE RELATED PROSPECTUS SUPPLEMENT. THE DEPOSITOR IS NOT A
GOVERNMENTAL AGENCY OR INSTRUMENTALITY NOR IS IT AFFILIATED WITH ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
_____________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_____________________________________
Prior to issuance there will have been no market for the Securities of any
Series and there can be no assurance that a secondary market for any Securities
will develop, or if it does develop, that it will continue or provide
Securityholders with a sufficient level of liquidity of investment. This
Prospectus may not be used to consummate sales of Securities of any Series
unless accompanied by a Prospectus Supplement. Offers of the Securities may be
made through one or more different methods, including offerings through
underwriters, as more fully described under "Method of Distribution" herein and
in the related Prospectus Supplement.
___________ ____, 1998
(continued from cover page)
Distributions to Securityholders will be made monthly, quarterly, semi-
annually or at such other intervals and on the dates specified in the related
Prospectus Supplement. Distributions on the Securities of a Series will be made
from the related Trust Fund Assets or proceeds thereof pledged for the benefit
of the Securityholders as specified in the related Prospectus Supplement.
The related Prospectus Supplement will describe any insurance or guarantee
provided with respect to the related Series of Securities including, without
limitation, any insurance or guarantee provided by the Department of Housing and
Urban Development, the United States Department of Veterans' Affairs or any
private insurer or guarantor. The only obligations of the Depositor with respect
to a Series of Securities will be to obtain certain representations and
warranties from each Seller and to assign to the Trustee for the related Series
of Securities the Depositor's rights with respect to such representations and
warranties. The principal obligations of the Master Servicer named in the
related Prospectus Supplement with respect to the related Series of Securities
will be limited to its contractual servicing obligations, including any
obligation it may have to advance delinquent interest and/or principal payments
on the related Trust Fund Assets.
The yield on each class of Securities of a Series will be affected by,
among other things, the rate of payments of principal (including prepayments) on
the related Trust Fund Assets and the timing of receipt of such payments as
described under "Risk Factors -- Prepayment and Yield Considerations" and "Yield
and Prepayment Considerations" herein and in the related Prospectus Supplement.
A Trust Fund may be subject to early termination under the circumstances
described under "The Agreements -- Termination"; Optional Termination herein and
in the related Prospectus Supplement.
If specified in the related Prospectus Supplement, one or more elections
may be made to treat a Trust Fund or specified portions thereof as a "real
estate mortgage investment conduit" ("REMIC") or as a "financial asset
securitization investment trust" ("FASIT") for federal income tax purposes. See
"Federal Income Tax Consequences."
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES COVERED BY SUCH PROSPECTUS SUPPLEMENT,
WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO
DELIVER SUCH PROSPECTUS SUPPLEMENT AND THIS PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS AND PROSPECTUS SUPPLEMENT WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
PROSPECTUS SUPPLEMENT OR CURRENT REPORT ON FORM 8-K
The Prospectus Supplement or Current Report on Form 8-K relating to the
Securities of each Series to be offered hereunder will, among other things, set
forth with respect to such Securities, as appropriate: (i) the aggregate
principal amount, interest rate and authorized denominations of each class of
such Series of Securities; (ii) information as to the assets of the Trust Fund,
including the general characteristics of the related Trust Fund Assets included
therein and, if applicable, the insurance policies, surety bonds, guaranties,
letters of credit or other instruments or agreements included in the Trust Fund
or otherwise, and the amount and source of any reserve account or other cash
account; (iii) the circumstances, if any, under which the Trust Fund may be
subject to early termination; (iv) the circumstances, if any, under which the
Notes of such Series are subject to redemption; (v) the method used to calculate
the amount of principal to be distributed or paid with respect to each class of
Securities; (vi) the order of application of distributions or payments to each
of the classes within such Series, whether sequential, pro rata, or otherwise;
(vii) the Distribution Dates with respect to such Series; (viii) additional
information with respect to the method of distribution of such Securities; (ix)
whether one or more REMIC elections will be made with respect to the Trust Fund
and, if so, the designation of the regular interests and the residual interests;
(x) whether a FASIT election will be made with respect to the Trust Fund and, if
so, the designation of the regular interests and the ownership interest; (xi)
the aggregate original percentage ownership interest in the Trust Fund to be
evidenced by each class of Certificates; (xii) the stated maturity of each class
of Notes of such Series; (xiii) information as to the nature and extent of
subordination with respect to any class of Securities that is subordinate in
right of payment to any other class; and (xiv) information as to the Seller, the
Master Servicer and the Trustee.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Securities. This Prospectus, which forms a part of
the Registration Statement, and the Prospectus Supplement relating to each
Series of Securities contain descriptions of the material terms of the documents
referred to herein and therein, but do not contain all of the information set
forth in the Registration Statement pursuant to the Rules and Regulations of the
Commission. For further information, reference is made to such Registration
Statement and the exhibits thereto. Such Registration Statement and exhibits can
be inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at its Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at its Regional Offices located as follows:
Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and Northeast Regional Office, Seven World Trade Center, Suite 1300, New
York, New York 10048. The Commission also maintains a Web site at
http://www.sec.gov from which such Registration Statement and exhibits may be
obtained.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by or on behalf of the Trust Fund referred
to in the accompanying Prospectus Supplement with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), after the date of this Prospectus and prior to the
termination of any offering of the Securities issued by such Trust Fund shall be
deemed to be incorporated by reference in this Prospectus and to be a part of
this Prospectus from the date of the filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for all purposes of this
Prospectus to the extent that a statement contained herein (or in the
accompanying Prospectus Supplement) or in any other subsequently filed document
which also is or is deemed to be incorporated by reference modifies or replaces
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus. Neither the Depositor nor the Master Servicer for any Series intends
to file with the Commission periodic reports with respect to the related Trust
Fund following completion of the reporting period required by Rule 15d-1 or
Regulation 15D under the Exchange Act, and accordingly such periodic reports
will not be filed for such Trust Fund subsequent to the first fiscal year of
such Trust Fund unless at the beginning of any subsequent fiscal year of such
Trust Fund the securities of any class issued by such Trust Fund are held of
record by 300 or more persons.
The Trustee or such other entity specified in the related Prospectus
Supplement on behalf of any Trust Fund will provide without charge to each
person to whom this Prospectus is delivered, on the written or oral request of
such person, a copy of any or all of the documents referred to above that have
been or may be incorporated by reference in this Prospectus (not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates). Such requests should be directed to the Corporate
Trust Office of the Trustee or the address of such other entity, in each case as
specified in the accompanying Prospectus Supplement. Included in the
accompanying Prospectus Supplement is the name, address, telephone number, and,
if available, facsimile number of the office or contact person at the Corporate
Trust Office of the Trustee or such other entity.
REPORTS TO SECURITYHOLDERS
Periodic and annual reports concerning the related Trust Fund for a Series
of Securities will be forwarded to Securityholders. However, such reports will
neither be examined nor reported on by an independent public accountant. See
"Description of the Securities--Reports to Securityholders."
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the related Prospectus
Supplement with respect to the Series of Securities offered thereby and to the
related Agreement (as such term is defined below) which will be prepared in
connection with each Series of Securities. Unless otherwise specified,
capitalized terms used and not defined in this Summary of Terms have the
meanings given to them in this Prospectus and in the related Prospectus
Supplement. See "Index of Defined Terms" on page 110 of this Prospectus for the
location of the definitions of certain capitalized terms.
<TABLE>
<CAPTION>
<S> <C>
Title of Securities Asset Backed Certificates (the "Certificates") and Asset Backed Notes (the "Notes"
and, together with the Certificates, the "Securities"), which are issuable in Series.
Depositor IndyMac ABS, Inc., a Delaware corporation.
Trustee The trustee(s) (the "Trustee") for each Series of Securities will be specified in the
related Prospectus Supplement. See "The Agreements" herein for a description of the
Trustee's rights and obligations.
Master Servicer The entity or entities named as Master Servicer (the "Master Servicer") in the
related Prospectus Supplement, which may be an affiliate of the Depositor. See "The
Agreements -- Certain Matters Regarding the Master Servicer and the Depositor."
Trust Fund Assets Assets of the Trust Fund for a Series of Securities will include certain assets (the
"Trust Fund Assets") which will consist of the Loans, together with payments in
respect of such Trust Fund Assets, as specified in the related Prospectus Supplement.
At the time of issuance of the Securities of the Series, the Depositor will cause the
Loans constituting the related Trust Fund to be assigned to the Trustee, without
recourse. The Loans will be collected in a pool (each, a "Pool") as of the first day
of the month of the issuance of the related Series of Securities or such other date
specified in the related Prospectus Supplement (the "Cut-off Date"). Trust Fund
Assets also may include insurance policies, surety bonds, cash accounts, reinvestment
income, guaranties or letters of credit to the extent described in the related
Prospectus Supplement. See "Credit Enhancement." In addition, if the related
Prospectus Supplement so provides, the related Trust Fund Assets will include the
funds on deposit in an account (a "Pre-Funding Account") which will be used to
purchase additional Loans during the period specified in such Prospectus Supplement.
See "The Agreements -- Pre-Funding Account."
Loans The Loans will consist of (i) mortgage loans secured by first and/or subordinate
liens on one- to four-family residential properties, including manufactured housing
that is permanently affixed and treated as real property under local law, or security
interests in shares issued by cooperative housing corporations (the "Single Family
Loans"), (ii) mortgage loans secured by first and/or subordinate liens on small
multifamily residential properties, such as rental apartment buildings or projects
containing five to fifty residential units (the "Multifamily Loans"), (iii) closed-
end loans (the "Closed-End Loans") and/or revolving home equity loans or certain
balances thereof (the "Revolving Credit Line Loans," together with the Closed-End
Loans, the "Home Equity Loans") and (iv) home improvement installment sale contracts
and installment loan agreements (the "Home Improvement Contracts"). All Loans will
have been purchased by the Depositor, either directly or through an affiliate, from
one or more Sellers.
As specified in the related Prospectus Supplement, the Home Equity Loans will, and
the Home Improvement Contracts may, be secured by mortgages or deeds of trust or
other similar security instruments creating a lien on a Mortgaged Property (as
defined below), which may be subordinated to one or more senior liens on the
Mortgaged Property, as described in the related Prospectus Supplement. As specified
in the related Prospectus Supplement, Home Improvement Contracts may be unsecured or
secured by purchase money security interests in the Home Improvements financed
thereby. If so specified in the related Prospectus Supplement, the Home Equity Loans
and the Home Improvement Contracts may include Loans (primarily for home improvement
or debt consolidation purposes) that are in amounts in excess of the value of the
related Mortgaged Properties at the time of origination. The Mortgaged Properties and
the Home Improvements are collectively referred to herein as the "Properties." All
Properties will be located in the United States, its territories or possessions.
Description of the Securities Each Security will represent a beneficial ownership interest in, or be secured by the
assets of, a Trust Fund created by the Depositor pursuant to an Agreement among the
Depositor, the Master Servicer and the Trustee for the related Series. The Securities
of any Series may be issued in one or more classes as specified in the related
Prospectus Supplement. A Series of Securities may include one or more classes of
senior Securities (collectively, the "Senior Securities") and one or more classes of
subordinate Securities (collectively, the "Subordinated Securities"). Certain Series
or classes of Securities may be covered by insurance policies or other forms of
credit enhancement, in each case as described under "Credit Enhancement" herein and
in the related Prospectus Supplement.
One or more classes of Securities of each Series (i) may be entitled to receive
distributions allocable only to principal, only to interest or to any combination
thereof; (ii) may be entitled to receive distributions only of prepayments of
principal throughout the lives of the Securities or during specified periods; (iii)
may be subordinated in the right to receive distributions of scheduled payments of
principal, prepayments of principal, interest or any combination thereof to one or
more other classes of Securities of such Series throughout the lives of the
Securities or during specified periods; (iv) may be entitled to receive such
distributions only after the occurrence of events specified in the related Prospectus
Supplement; (v) may be entitled to receive distributions in accordance with a
schedule or formula or on the basis of collections from designated portions of the
related Trust Fund Assets; (vi) as to Securities entitled to distributions allocable
to interest, may be entitled to receive interest at a fixed rate or a rate that is
subject to change from time to time; and (vii) as to Securities entitled to
distributions allocable to interest, may be entitled to distributions allocable to
interest only after the occurrence of events specified in the related Prospectus
Supplement and may accrue interest until such events occur, in each case as specified
in the related Prospectus Supplement. The timing and amounts of such distributions
may vary among classes or over time, as specified in the related Prospectus
Supplement.
Distributions on the Securities Distributions on the Securities entitled thereto will be made monthly, quarterly,
semi-annually or at such other intervals and on the dates specified in the related
Prospectus Supplement (each, a "Distribution Date") out of the payments received in
respect of the assets of the related Trust Fund or Funds or other assets pledged for
the benefit of the Securities as described under "Credit Enhancement" herein to the
extent specified in the related Prospectus Supplement. The amount allocable to
payments of principal and interest on any Distribution Date will be determined as
specified in the related Prospectus Supplement. The Prospectus Supplement for a
Series of Securities will describe the method for allocating distributions among
Securities of different classes as well as the method for allocating distributions
among Securities for any particular class.
Unless otherwise specified in the related Prospectus Supplement, the aggregate
original principal balance of the Securities will not exceed the aggregate
distributions allocable to principal that such Securities will be entitled to
receive. If specified in the related Prospectus Supplement, the Securities will have
an aggregate original principal balance equal to the aggregate unpaid principal
balance of the Trust Fund Assets as of the related Cut-off Date and will bear
interest in the aggregate at a rate equal to the interest rate borne by the
underlying Loans (the "Loan Rate") net of the aggregate servicing fees and any other
amounts specified in the related Prospectus Supplement, or at such other interest
rate as may be specified in such Prospectus Supplement. If specified in the related
Prospectus Supplement, the aggregate original principal balance of the Securities and
interest rates on the classes of Securities will be determined based on the cash flow
on the Trust Fund Assets.
The rate at which interest will be passed through or paid to holders of each class of
Securities entitled thereto may be a fixed rate or a rate that is subject to change
from time to time from the time and for the periods, in each case, as specified in
the related Prospectus Supplement. Any such rate may be calculated on a loan-by-loan,
weighted average or notional amount in each case as described in the related
Prospectus Supplement.
Credit Enhancement The assets in a Trust Fund or the Securities of one or more classes in the related
Series may have the benefit of one or more types of credit enhancement as described
in the related Prospectus Supplement. The protection against losses afforded by any
such credit support may be limited. The type, characteristics and amount of credit
enhancement will be determined based on the characteristics of the Loans comprising
the Trust Fund Assets and other factors and will be established on the basis of
requirements of each Rating Agency rating the Securities of such Series. See "Credit
Enhancement."
A. Subordination A Series of Securities may consist of one or more classes of Senior Securities and
one or more classes of Subordinated Securities. The rights of the holders of the
Subordinated Securities of a Series to receive distributions with respect to the
assets in the related Trust Fund will be subordinated to such rights of the holders
of the Senior Securities of the same Series to the extent described in the related
Prospectus Supplement. This subordination is intended to enhance the likelihood of
regular receipt by holders of Senior Securities of the full amount of monthly
payments of principal and interest due them. The protection afforded to the holders
of Senior Securities of a Series by means of the subordination feature will be
accomplished by (i) the preferential right of such holders to receive, prior to any
distribution being made in respect of the related Subordinated Securities, the
amounts of interest and/or principal due them on each Distribution Date out of the
funds available for distribution on such date in the related Security Account and, to
the extent described in the related Prospectus Supplement, by the right of such
holders to receive future distributions on the assets in the related Trust Fund that
would otherwise have been payable to the holders of Subordinated Securities; (ii)
reducing the ownership interest (if applicable) of the related Subordinated
Securities; or (iii) a combination of clauses (i) and (ii) above. If so specified in
the related Prospectus Supplement, subordination may apply only in the event of
certain types of losses not covered by other forms of credit support, such as hazard
losses not covered by standard hazard insurance policies or losses due to the
bankruptcy or fraud of the borrower. The related Prospectus Supplement will set forth
information concerning, among other things, the amount of subordination of a class or
classes of Subordinated Securities in a Series, the circumstances in which such
subordination will be applicable, and the manner, if any, in which the amount of
subordination will decrease over time.
B. Reserve Account One or more reserve accounts or other cash accounts (each, a "Reserve Account") may
be established and maintained for each Series of Securities. The related Prospectus
Supplement will specify whether or not such Reserve Accounts will be included in the
corpus of the Trust Fund for such Series and will also specify the manner of funding
such Reserve Accounts and the conditions under which the amounts in any such Reserve
Accounts will be used to make distributions to holders of Securities of a particular
class or released from such Reserve Accounts.
C. Letter of Credit If so specified in the related Prospectus Supplement, credit support may be provided
by one or more letters of credit. A letter of credit may provide limited protection
against certain losses in addition to or in lieu of other credit support, such as
losses resulting from delinquent payments on the Loans in the related Trust Fund,
losses from risks not covered by standard hazard insurance policies, losses due to
bankruptcy of a borrower and application of certain provisions of the Bankruptcy
Code, and losses due to denial of insurance coverage due to misrepresentations made
in connection with the origination or sale of a Loan. The issuer of the letter of
credit (the "L/C Bank") will be obligated to honor demands with respect to such
letter of credit, to the extent of the amount available thereunder, and to provide
funds under the circumstances and subject to such conditions as are specified in the
related Prospectus Supplement. The liability of the L/C Bank under its letter of
credit will be reduced by the amount of unreimbursed payments thereunder.
The maximum liability of a L/C Bank under its letter of credit will be an amount
equal to a percentage specified in the related Prospectus Supplement of the initial
aggregate outstanding principal balance of the Loans in the related Trust Fund or one
or more classes of Securities of the related Series (the "L/C Percentage"). The
maximum amount available at any time to be paid under a letter of credit will be
determined in the manner specified therein and in the related Prospectus Supplement.
D. Insurance Policies; Surety Bonds If so specified in the related Prospectus Supplement, credit support for a Series may
and Guarantees be provided by an insurance policy and/or a surety bond issued by one or more
insurance companies or sureties. Such certificate guarantee insurance or surety bond
will guarantee timely distributions of interest and/or full distributions of
principal on the basis of a schedule of principal distributions set forth in or
determined in the manner specified in the related Prospectus Supplement. If specified
in the related Prospectus Supplement, one or more bankruptcy bonds, special hazard
insurance policies, other insurance or third-party guarantees may be used to provide
coverage for the risks of default or types of losses set forth in such Prospectus
Supplement.
E. Over-Collateralization If so provided in the Prospectus Supplement for a Series of Securities, a portion of
the interest payment on each Loan may be applied as an additional distribution in
respect of principal to reduce the principal balance of a certain class or classes of
Securities and, thus, accelerate the rate of payment of principal on such class or
classes of Securities.
F. Loan Pool Insurance Policy A mortgage pool insurance policy or policies may be obtained and maintained for Loans
relating to any Series of Securities, which shall be limited in scope, covering
defaults on the related Loans in an initial amount equal to a specified percentage of
the aggregate principal balance of all Loans included in the Pool as of the related
Cut-off Date.
G. FHA Insurance If specified in the related Prospectus Supplement, all or a portion of the Loans in a
Pool may be (i) insured by the Federal Housing Administration (the "FHA") and/or (ii)
partially guaranteed by the Department of Veterans' Affairs (the "VA"). See "Certain
Legal Aspects of the Loans -- The Title I Program."
H. Cross-Collateralization If specified in the related Prospectus Supplement, separate classes of a Series of
Securities may evidence the beneficial ownership of, or be secured by, separate
groups of assets included in a Trust Fund. In such case, credit support may be
provided by a cross- collateralization feature which requires that distributions be
made with respect to Securities evidencing a beneficial ownership interest in, or
secured by, one or more asset groups prior to distributions to Subordinated
Securities evidencing a beneficial ownership interest in, or secured by, other asset
groups within the same Trust Fund. See "Credit Enhancement--Cross-Collateralization."
If specified in the related Prospectus Supplement, the coverage provided by one or
more of the forms of credit enhancement described in this Prospectus may apply
concurrently to two or more separate Trust Funds. If applicable, the related
Prospectus Supplement will identify the Trust Funds to which such credit enhancement
relates and the manner of determining the amount of coverage provided to such Trust
Funds thereby and of the application of such coverage to the identified Trust Funds.
See "Credit Enhancement -- Cross-Collateralization."
Advances The Master Servicer and, if applicable, each mortgage servicing institution that
services a Loan in a Pool on behalf of the Master Servicer (each, a "Sub-Servicer")
may be obligated to advance amounts (each, an "Advance") corresponding to delinquent
interest and/or principal payments on such Loan (including, in the case of
Cooperative Loans, unpaid maintenance fees or other charges under the related
proprietary lease) until the date, as specified in the related Prospectus Supplement,
following the date on which the related Property is sold at a foreclosure sale or the
related Loan is otherwise liquidated. Any obligation to make Advances may be subject
to limitations as specified in the related Prospectus Supplement. If so specified in
the related Prospectus Supplement, Advances may be drawn from a cash account
available for such purpose as described in such Prospectus Supplement. Advances will
be reimbursable to the extent described under "Description of the Securities --
Advances" herein and in the related Prospectus Supplement.
In the event the Master Servicer or Sub-Servicer fails to make a required Advance,
the Trustee may be obligated to advance such amounts otherwise required to be
advanced by the Master Servicer or Sub-Servicer. See "Description of the Securities -
- Advances."
Optional Termination The Master Servicer or the party specified in the related Prospectus Supplement,
including the holder of the residual interest in a REMIC or the holder of the
ownership interest in a FASIT, may have the option to effect early retirement of a
Series of Securities through the purchase of the Trust Fund Assets. The Master
Servicer will deposit the proceeds of any such purchase in the Security Account for
each Trust Fund as described under "The Agreements -- Payments on Loans; Deposit to
Security Account." Any such purchase of Trust Fund Assets and property acquired in
respect of Trust Fund Assets evidenced by a Series of Securities will be made at the
option of the Master Servicer, such other person or, if applicable, such holder of
the REMIC residual interest or FASIT ownership interest, at a price specified in the
related Prospectus Supplement. The exercise of such right will effect early
retirement of the Securities of that Series, but the right of the Master Servicer,
such other person or, if applicable, such holder of the REMIC residual interest or
FASIT ownership interest, to so purchase is subject to the principal balance of the
related Trust Fund Assets being less than the percentage specified in the related
Prospectus Supplement of the aggregate principal balance of the Trust Fund Assets at
the Cut-off Date for the Series. The foregoing is subject to the provision that if a
REMIC election is made with respect to a Trust Fund, any repurchase will be made only
in connection with a "qualified liquidation" of the REMIC within the meaning of
Section 860F(g)(4) of the Code, and if a FASIT election is made with respect to a
Trust Fund, any repurchase will be made only if such repurchase would not be a
prohibited transaction within the meaning of section 860L(e)(2) of the Code.
Legal Investment The Prospectus Supplement for each series of Securities will specify which, if any,
of the classes of Securities offered thereby constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA").
Classes of Securities that qualify as "mortgage related securities" will be legal
investments for certain types of institutional investors to the extent provided in
SMMEA, subject, in any case, to any other regulations which may govern investments by
such institutional investors. Institutions whose investment activities are subject to
review by federal or state authorities should consult with their counsel or the
applicable authorities to determine whether an investment in a particular class of
Securities (whether or not such class constitutes a "mortgage related security")
complies with applicable guidelines, policy statements or restrictions. See "Legal
Investment."
Federal Income Tax Consequences The federal income tax consequences to Securityholders will vary depending on whether
one or more elections are made to treat the Trust Fund or specified portions thereof
as either a REMIC or a FASIT under the provisions of the Internal Revenue Code of
1986, as amended (the "Code"). The Prospectus Supplement for each Series of
Securities will specify whether such an election will be made.
If a REMIC election or a FASIT election is made, Securities representing regular
interests in a REMIC or FASIT will generally be treated as evidences of indebtedness
for federal income tax purposes. Stated interest on such regular interests will be
taxable as ordinary income and taken into account using the accrual method of
accounting, regardless of the holder's normal accounting method. If neither a REMIC
election nor a FASIT is made, interest (other than original issue discount ("OID") on
Securities that are characterized as indebtedness for federal income tax purposes
will be includible in income by holders thereof in accordance with their usual method
of accounting.
Certain classes of Securities may be issued with OID. A holder should be aware that
the Code and the Treasury regulations promulgated thereunder do not adequately
address certain issues relevant to prepayable securities, such as the Securities.
Securityholders that will be required to report income with respect to the related
Securities under the accrual method of accounting will do so without giving effect to
delays and reductions in distributions attributable to a default or delinquency on
the Loans, except possibly to the extent that it can be established that such amounts
are uncollectible. As a result, the amount of income (including OID) reported by a
holder of a Security in any period could significantly exceed the amount of cash
distributed to such holder in that period.
In the opinion of Brown & Wood LLP, if a REMIC election is made with respect to a
Series of Securities, then the arrangement by which such Securities are issued will
be treated as a REMIC as long as all of the provisions of the applicable Agreement
are complied with and the statutory and regulatory requirements are satisfied.
Securities will be designated as "regular interests" or "residual interests" in a
REMIC. A REMIC generally will not be subject to entity-level tax. Rather, the taxable
income or net loss of a REMIC will be taken into account by the holders of residual
interests. Such holders will report their proportionate share of the taxable income
of the REMIC whether or not they receive cash distributions from the REMIC
attributable to such income. The portion of the REMIC taxable income consisting of
"excess inclusions" generally may not be offset by otherwise allowable deductions of
the holder, including net operating loss deductions.
In the opinion of Brown & Wood LLP, if a FASIT election is made with respect to a Series
of Securities, then the arrangement by which such Securities are issued will be
treated as a FASIT as long as all of the provisions of the applicable Agreement are
complied with and the statutory and regulatory requirements are satisfied. Securities
will be designated as regular interests or as the ownership interest. The FASIT
generally will not be subject to an entity-level tax. Rather, the taxable income or
net loss of the FASIT will be taken into account by the holder of the ownership
interest whether or not the holder receives cash distributions from the FASIT
attributable to such income. The ownership interest generally must be held at all
times by a domestic C corporation (an "Eligible Corporation"). Furthermore, certain
regular interests referred to as High-Yield interests are only suitable investments
for Eligible Corporations. Income derived from holding ownership interests and income
derived from holding High-Yield interests generally may not be offset by otherwise
allowable deductions, including net operating loss deductions.
In the opinion of Brown & Wood llp, if a REMIC or FASIT election is not made with
respect to a Series of Securities, then the arrangement by which such Securities are
issued either will be classified as a grantor trust under Subpart E, Part I of
Subchapter J of the Code or as a partnership. The Trust Fund will not be a publicly
traded partnership taxable as a corporation as long as all of the provisions of the
related Agreement are complied with and the statutory and regulatory requirements are
satisfied. If Notes are issued by such Trust Fund, such Notes will be treated as
indebtedness for federal income tax purposes. The holders of the Certificates issued
by such Trust Fund will agree to treat the Certificates either as equity interests in
a partnership or in a grantor trust.
Generally, gain or loss will be recognized on a sale of Securities in the amount
equal to the difference between the amount realized and the seller's tax basis in
the Securities sold.
The material federal income tax consequences for investors associated with the
purchase, ownership and disposition of the Securities are set forth herein under
"Federal Income - Tax Consequences." The material federal income tax consequences for
investors associated with the purchase, ownership and disposition of Securities of
any particular Series will be set forth under the heading "Federal Income Tax
Consequences" in the related Prospectus Supplement. See "Federal Income Tax
Consequences."
ERISA Considerations A fiduciary of any employee benefit plan or other retirement plan or arrangement
subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
or the Code should carefully review with its legal advisors whether the purchase or
holding of Securities could give rise to a transaction prohibited or not otherwise
permissible under ERISA or the Code. See "ERISA Considerations." Certain classes of
Securities may not be transferred unless the Trustee and the Depositor are furnished
with a letter of representation or an opinion of counsel to the effect that such
transfer will not result in a violation of the prohibited transaction provisions of
ERISA and the Code and will not subject the Trustee, the Depositor or the Master
Servicer to additional obligations. See "Description of the Securities-General" and
"ERISA Considerations."
Risk Factors For a discussion of certain risks associated with an investment in the Securities,
see "Risk Factors" on page 16 herein and in the related Prospectus Supplement.
</TABLE>
RISK FACTORS
Investors should consider the following factors in connection with the
purchase of the Securities.
Limited Liquidity
No market for the Securities of any Series will exist prior to the issuance
thereof, and no assurance can be given that a secondary market will develop or,
if it does develop, that it will provide Securityholders with liquidity of
investment or will continue for the life of the Securities of such Series.
Limited Source of Payments -- No Recourse to Sellers, Depositor or Master
Servicer
The Depositor does not have, nor is it expected to have, any significant
assets. Unless otherwise specified in the related Prospectus Supplement, the
Securities of a Series will be payable solely from the Trust Fund for such
Securities and will not have any claim against or security interest in the Trust
Fund for any other Series. There will be no recourse to the Depositor or any
other person for any failure to receive distributions on the Securities.
Further, at the times set forth in the related Prospectus Supplement, certain
Trust Fund Assets and/or any balance remaining in the Security Account
immediately after making all payments due on the Securities of such Series,
after making adequate provision for future payments on certain classes of
Securities and after making any other payments specified in the related
Prospectus Supplement, may be promptly released or remitted to the Depositor,
the Master Servicer, any credit enhancement provider or any other person
entitled thereto and will no longer be available for making payments to
Securityholders. Consequently, holders of Securities of each Series must rely
solely upon payments with respect to the Trust Fund Assets and the other assets
constituting the Trust Fund for a Series of Securities, including, if
applicable, any amounts available pursuant to any credit enhancement for such
Series, for the payment of principal of and interest on the Securities of such
Series.
The Securities will not represent an interest in or obligation of the
Depositor, the Master Servicer, any Seller or any of their respective
affiliates. The only obligations, if any, of the Depositor with respect to the
Trust Fund Assets or the Securities of any Series will be pursuant to certain
representations and warranties. The Depositor does not have, and is not expected
in the future to have, any significant assets with which to meet any obligation
to repurchase Loans with respect to which there has been a breach of any
representation or warranty which materially and adversely affects the interests
of the Securityholders in such Loans. If, for example, the Depositor were
required to repurchase a Loan, its only sources of funds to make such repurchase
would be from funds obtained (i) from the enforcement of a corresponding
obligation, if any, on the part of the related Seller or originator of such Loan
or (ii) to the extent provided in the related Prospectus Supplement, from a
Reserve Account or similar credit enhancement established to provide funds for
such repurchases.
The only obligations of any Seller with respect to Trust Fund Assets or the
Securities of any Series will be pursuant to certain representations and
warranties and certain document delivery requirements. A Seller may be required
to repurchase or substitute for any Loan with respect to which such
representations and warranties or certain document delivery requirements are
breached (and in the case of any such breach of representations and warranties,
such breach materially and adversely affects the interest of the Securityholders
in such Loan). There is no assurance, however, that such Seller will have the
financial ability to effect such repurchase or substitution. Although the Master
Servicer may be obligated to enforce such obligation to the extent described
under "Loan Program -- Representations by Sellers; Repurchases," the Master
Servicer will not be obligated to purchase or replace such Loan if the Seller
defaults on its obligation (nor will the Master Servicer otherwise be obligated
to purchase or replace any such Loan for any other reason).
Credit Enhancement -- Limitations
Although credit enhancement is intended to reduce the risk of delinquent
payments or losses to holders of Securities entitled to the benefit thereof, the
amount of such credit enhancement will be limited, as set forth in the related
Prospectus Supplement, and may be subject to periodic reduction in accordance
with a schedule or formula or otherwise decline, and could be depleted under
certain circumstances prior to the payment in full of the related Series of
Securities, and as a result Securityholders of the related Series may suffer
losses. Moreover, such credit enhancement may not cover all potential losses or
risks. For example, credit enhancement may or may not cover fraud or negligence
by a loan originator or other parties. In addition, the Trustee will generally
be permitted to reduce, terminate or substitute all or a portion of the credit
enhancement for any Series of Securities, provided the applicable Rating Agency
indicates that the then-current rating of the Securities of such Series will not
be adversely affected. See "Credit Enhancement."
Prepayment and Yield Considerations
The timing of principal payments of the Securities of a Series will be
affected by a number of factors, including the following: (i) the extent of
prepayments (including for this purpose prepayments resulting from refinancing
or liquidations of the Loans due to defaults, casualties, condemnations and
repurchases by the Depositor or a Seller) of the Loans comprising the Trust
Fund, which prepayments may be influenced by a variety of factors including
general economic conditions, prevailing interest rate levels, the availability
of alternative financing and homeowner mobility, (ii) the manner of allocating
principal and/or payments among the classes of Securities of a Series as
specified in the related Prospectus Supplement, (iii) the exercise by the party
entitled thereto of any right of optional termination and (iv) the rate and
timing of payment defaults and losses incurred with respect to the Trust Fund
Assets. The repurchase of Loans by the Depositor or a Seller may result from
repurchases of Trust Fund Assets due to material breaches of the Depositor's or
such Seller's representations and warranties, as applicable. The yields to
maturity and weighted average lives of the Securities will be affected primarily
by the rate and timing of prepayment of the Loans comprising the Trust Fund
Assets. In addition, the yields to maturity and weighted average lives of the
Securities will be affected by the distribution of amounts remaining in any
Pre-Funding Account following the end of the related Funding Period. Any
reinvestment risks resulting from a faster or slower incidence of prepayment of
Loans held by a Trust Fund will be borne entirely by the holders of one or more
classes of the related Series of Securities. See "Yield and Prepayment
Considerations" and "The Agreements -- Pre-Funding Account."
Interest payable on the Securities of a Series on a Distribution Date will
include all interest accrued during the period specified in the related
Prospectus Supplement. In the event interest accrues over a period ending two or
more days prior to a Distribution Date, the effective yield to Securityholders
will be reduced from the yield that would otherwise be obtainable if interest
payable on the Securities were to accrue through the day immediately preceding
each Distribution Date, and the effective yield (at par) to Securityholders will
be less than the indicated coupon rate. See "Description of the Securities --
Distributions on Securities -- Distributions of Interest."
Loans With Balloon Payments Have Greater Risk of Borrower Default
Certain of the Loans as of the related Cut-off Date may not be fully
amortizing over their terms to maturity and, thus, will require substantial
principal payments (i.e., balloon payments) at their stated maturity. Loans with
balloon payments involve a greater degree of risk because the ability of a
borrower to make a balloon payment typically will depend upon its ability either
to timely refinance the loan or to timely sell the related Property. The ability
of a borrower to accomplish either of these goals will be affected by a number
of factors, including the level of available mortgage rates at the time of sale
or refinancing, the borrower's equity in the related Property, the financial
condition of the borrower and tax laws. Losses on such Loans that are not
otherwise covered by the credit enhancement described in the applicable
Prospectus Supplement will be borne by the holders of one or more classes of
Securities of the related Series.
Nature of Mortgages
Property Values May Decline. The value of the Properties underlying the
Loans may decline over time. Among the factors that could adversely affect the
value of the Properties are an overall decline in the residential real estate
market in the areas in which the Properties are located or a decline in the
general condition of the Properties as a result of failure of borrowers to
maintain adequately the Properties or of natural disasters that are not
necessarily covered by insurance, such as earthquakes and floods. Such decline
could extinguish the value of the interest of a junior mortgagee in the Property
before having any effect on the interest of the related senior mortgagee. If
such a decline occurs, the actual rates of delinquencies, foreclosures and
losses on all Loans could be higher than those currently experienced in the
mortgage lending industry in general. Losses on such Loans that are not
otherwise covered by the credit enhancement described in the applicable
Prospectus Supplement will be borne by the holder of one or more classes of
Securities of the related Series.
Delays Due to Liquidation of Properties. Even assuming that the Properties
provide adequate security for the Loans, substantial delays could be encountered
in connection with the liquidation of defaulted Loans and corresponding delays
in the receipt of related proceeds by Securityholders could occur. An action to
foreclose on a Property securing a Loan is regulated by state statutes and rules
and is subject to many of the delays and expenses of other lawsuits if defenses
or counterclaims are interposed, sometimes requiring several years to complete.
Furthermore, in some states an action to obtain a deficiency judgment is not
permitted following a nonjudicial sale of a Property. In the event of a default
by a borrower, these restrictions, among other things, may impede the ability of
the Master Servicer to foreclose on or sell the Property or to obtain
liquidation proceeds sufficient to repay all amounts due on the related Loan. In
addition, the Master Servicer will be entitled to deduct from related
liquidation proceeds all expenses reasonably incurred in attempting to recover
amounts due on defaulted Loans and not yet repaid, including payments to senior
lienholders, legal fees and costs of legal action, real estate taxes and
maintenance and preservation expenses.
Disproportionate Effect of Liquidation Expenses. Liquidation expenses with
respect to defaulted loans generally do not vary directly with the outstanding
principal balance of the loan at the time of default. Therefore, assuming that a
servicer took the same steps in realizing upon a defaulted loan having a small
remaining principal balance as it would in the case of a defaulted loan having a
large remaining principal balance, the amount realized after expenses of
liquidation would be smaller as a percentage of the outstanding principal
balance of the small loan than would be the case with the defaulted loan having
a large remaining principal balance.
Home Equity Loans; Junior Liens May Be More Difficult To Foreclose. Since
the mortgages and deeds of trust securing the Home Equity Loans and the Home
Improvement Contracts will be primarily junior liens subordinate to the rights
of the mortgagee under the related senior mortgage(s) or deed(s) of trust, the
proceeds from any liquidation, insurance or condemnation proceeds will be
available to satisfy the outstanding balance of such junior lien only to the
extent that the claims of such senior mortgagees have been satisfied in full,
including any related foreclosure costs. In addition, if a junior mortgagee
forecloses on the property securing a junior mortgage, it forecloses subject to
any senior mortgage and must either pay the entire amount due on any senior
mortgage to the related senior mortgagee at or prior to the foreclosure sale or
undertake the obligation to make payments on any such senior mortgage in the
event the mortgagor is in default thereunder in order to protect the junior
mortgagee's interest in the property. The Trust Fund will not have any source of
funds to satisfy any senior mortgages or make payments due to any senior
mortgagees and may therefore effectively be prevented from foreclosing on the
related property.
Certain states have imposed statutory and judicial restrictions that limit
the remedies of a secured lender in the event that the proceeds of any sale
under a deed of trust or other foreclosure proceedings are insufficient to pay
amounts owed to such secured lender. In certain states, including California, if
a lender simultaneously originates a loan secured by a senior lien on a
particular property and a loan secured by a junior lien on the same property,
such a lender as the holder of the junior lien may be precluded from obtaining a
deficiency judgment with respect to the excess of the aggregate amount owed
under both such loans over the proceeds of any sale under a deed of trust or
other foreclosure proceedings. See "Certain Legal Aspects of the Loans --
Anti-Deficiency Legislation; Bankruptcy Laws; Tax Liens."
Consumer Protection Laws. Applicable state laws generally regulate interest
rates and other charges, require certain disclosures, and require licensing of
certain originators and servicers of Loans. In addition, most states have other
laws, public policy and general principles of equity relating to the protection
of consumers, unfair and deceptive acts and practices which may apply to the
origination, servicing and collection of the 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
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 the Loans."
Multifamily Loans Subject to More Risks Than Single Family Loans
Multifamily lending may be viewed as exposing the lender to a greater risk
of loss than single family residential lending. Owners of multifamily
residential properties rely on monthly lease payments from tenants to pay for
maintenance and other operating expenses of such properties, to fund capital
improvements and to service any mortgage loan and any other debt that may be
secured by such properties. Various factors, many of which are beyond the
control of the owner or operator of such a property, may affect the economic
viability of that property.
Changes in payment patterns by tenants may result from a variety of social,
legal and economic factors. Economic factors including the rate of inflation,
unemployment levels and relative rates offered for various types of housing may
be reflected in changes in payment patterns including increased risks of
defaults by tenants and higher vacancy rates. Adverse economic conditions,
either local or national, may limit the amount of rent that can be charged and
may result in a reduction in timely lease payments or a reduction in occupancy
levels. Occupancy and rent levels may also be affected by construction of
additional housing units, competition and local politics, including rent
stabilization or rent control laws and policies. In addition, the level of
mortgage interest rates may encourage tenants to purchase single family housing.
The Depositor is unable to determine and has no basis to predict whether, or to
what extent, economic, legal or social factors will affect future rental or
payment patterns.
The location and construction quality of a particular building may affect
the occupancy level as well as the rents that may be charged for individual
units. The characteristics of a neighborhood may change over time or in relation
to newer developments. The effects of poor construction quality will increase
over time in the form of increased maintenance and capital improvements. Even
good construction will deteriorate over time if adequate maintenance is not
performed in a timely fashion.
Home Improvement Contracts and Home Equity Loans May Be Unsecured or
Undercollateralized
The Trust Fund for any Series may include Home Improvement Contracts that
are not secured by an interest in real estate or otherwise. The Trust Fund for
any Series may also include Home Equity Loans and Home Improvement Contracts
that were originated with Loan-to-Value Ratios or Combined Loan-to-Value Ratios
in excess of the value of the related Mortgaged Property pledged as security
therefor. Under such circumstances, the Trust Fund for the related Series could
be treated as a general unsecured creditor as to any unsecured portion of any
such Loan. In the event of a default under a Loan that is unsecured in whole or
in part, the related Trust Fund will have recourse only against the borrower's
assets generally for the unsecured portion of the Loan, along with all other
general unsecured creditors of the borrower. In a bankruptcy or insolvency
proceeding relating to a borrower on any such Loan, the unsecured obligations of
the borrower with respect to such Loan may be discharged, even though the value
of the borrower's assets made available to the related Trust Fund as a general
unsecured creditor is insufficient to pay amounts due and owing under the
related Loan.
Certain Environmental Liabilities May Reduce Amounts Available to
Securityholders
Real property pledged as security to a lender may be subject to certain
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the costs of cleanup.
In several states, such a lien has priority over the lien of an existing
mortgage against such property. In addition under the laws of some states and
under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), a lender may be liable, as an "owner" or
"operator," for costs of addressing releases or threatened releases of hazardous
substances that require remedy at a property, if agents or employees of the
lender have become sufficiently involved in the operations of the borrower,
regardless of whether the environmental damage or threat was caused by a prior
owner. Such costs could result in a loss to the holders of one or more classes
of Securities of the related Series. A lender also risks such liability on
foreclosure of the related property. See "Certain Legal Aspects of the Loans --
Environmental Risks."
Certain Other Legal Aspects of the Loans That May Delay or Reduce Amounts
Available to Securityholders
Consumer Protection Laws. The Loans may also be subject to federal laws,
including:
(i) the Federal Truth in Lending Act and Regulation Z
promulgated thereunder, which require certain disclosures to
the borrowers regarding the terms of the 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;
(iii)the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit
experience; and
(iv) for Loans that were originated or closed after November 7,
1989, the Home Equity Loan Consumer Protection Act of 1988,
which requires additional application disclosures, limits
changes that may be made to the loan documents without the
borrower's consent and restricts a lender's ability to
declare a default or to suspend or reduce a borrower's
credit limit to certain enumerated events.
The Riegle Act. Certain mortgage loans may be subject to the Riegle
Community Development and Regulatory Improvement Act of 1994 (the "Riegle Act")
which incorporates the Home Ownership and Equity Protection Act of 1994. These
provisions impose additional disclosure and other requirements on creditors with
respect to non-purchase money mortgage loans with high interest rates or high
up-front fees and charges. The provisions of the Riegle Act apply on a mandatory
basis to all mortgage loans originated on or after October 1, 1995. These
provisions can impose specific statutory liabilities upon creditors who fail to
comply with their provisions and may affect the enforceability of the related
loans. In addition, any assignee of the creditor would generally be subject to
all claims and defenses that the consumer could assert against the creditor,
including, without limitation, the right to rescind the mortgage loan.
Holder in Due Course Rules. The Home Improvement Contracts are also subject
to the Preservation of Consumers' Claims and Defenses regulations of the Federal
Trade Commission and other similar federal and state statutes and regulations
(collectively, the "Holder in Due Course Rules"), which are intended to defeat
the ability of the transferor of a consumer credit contract which is the seller
of goods which gave rise to the transaction (and certain related lenders and
assignees) to transfer such contract free of notice of claims by the debtor
thereunder. The effect of the Holder in Due Course Rules is to subject the
assignee of such a Home Improvement Contract (such as the Trust Fund) to all
claims and defenses which the obligor under the Home Improvement Contract could
assert against the seller of the related goods. Liability under this rule is
limited to amounts paid under the Home Improvement Contract; however, the
obligor under the Home Improvement Contract also may be able to assert the rule
to set off remaining amounts due as a defense against a claim brought by the
Trust Fund against such obligor. See "Certain Legal Aspects of the Loans."
Violations of certain provisions of these federal laws may limit the
ability of the Master Servicer to collect all or part of the principal of or
interest on the Loans and in addition could subject the Trust Fund to damages
and administrative enforcement. Losses on such Loans that are not otherwise
covered by the credit enhancement described in the applicable Prospectus
Supplement will be borne by the holders of one or more classes of Securities of
the related Series. See "Certain Legal Aspects of the Loans."
Rating of the Securities -- Limitations
It will be a condition to the issuance of a class of Securities offered
hereby that they be rated in one of the four highest rating categories by the
Rating Agency identified in the related Prospectus Supplement. Any such rating
would be based on, among other things, the adequacy of the value of the related
Trust Fund Assets and any credit enhancement with respect to such class and will
represent such Rating Agency's assessment solely of the likelihood that holders
of such class of Securities will receive payments to which such Securityholders
are entitled under the related Agreement. Such rating will not constitute an
assessment of the likelihood that principal prepayments on the related Loans
will be made, the degree to which the rate of such prepayments might differ from
that originally anticipated or the likelihood of early optional termination of
the Series of Securities. Such rating shall not be deemed a recommendation to
purchase, hold or sell Securities, inasmuch as it does not address market price
or suitability for a particular investor. Such rating will not address the
possibility that prepayment at higher or lower rates than anticipated by an
investor may cause such investor to experience a lower than anticipated yield or
that an investor purchasing a Security at a significant premium might fail to
recoup its initial investment under certain prepayment scenarios. In addition,
if such rating relates to a Series with a Pre-Funding Account, such rating will
not address the ability of the related Trust Fund to acquire Subsequent Loans,
any potential prepayment of the Securities resulting from distribution to
securityholders of amounts remaining in the Pre-Funding Account following the
end of the Funding Period, or the effect on the yield to Securityholders
resulting therefrom. Furthermore, although the addition of Subsequent Loans to
any Trust Fund will be subject to the conditions described in the related
Prospectus Supplement, unless otherwise specified in the related Prospectus
Supplement, there is no assurance that the addition of Subsequent Loans (or the
inability of the related Trust Fund to purchase Subsequent Loans) would not
cause a rating to the lowered or withdrawn.
There is also no assurance that any such rating will remain in effect for
any given period of time or that it may not be lowered or withdrawn entirely by
the Rating Agency in the future if in its judgment circumstances in the future
so warrant. In addition to being lowered or withdrawn due to any erosion in the
adequacy of the value of the Trust Fund Assets or any credit enhancement with
respect to a Series of Securities, such rating might also be lowered or
withdrawn because of, among other reasons, an adverse change in the financial or
other condition of a credit enhancement provider or a change in the rating of
such credit enhancement provider's long term debt.
The amount, type and nature of credit enhancement, if any, established with
respect to a class of Securities will be determined on the basis of criteria
established by each Rating Agency rating classes of such Series. Such criteria
are sometimes based upon an actuarial analysis of the behavior of similar loans
in a larger group. Such analysis is often the basis upon which each Rating
Agency determines the amount of credit enhancement required with respect to each
such class. There can be no assurance that the historical data supporting any
such actuarial analysis will accurately reflect future experience nor any
assurance that the data derived from a large pool of similar loans accurately
predicts the delinquency, foreclosure or loss experience of any particular pool
of Loans. No assurance can be given that the values of any Properties have
remained or will remain at their levels on the respective dates of origination
of the related Loans. If the residential real estate markets should experience
an overall decline in property values such that the outstanding principal
balances of the Loans in a particular Trust Fund and any secondary financing on
the related Properties become equal to or greater than the value of the
Properties, the rates of delinquencies, foreclosures and losses could be higher
than those now generally experienced in the mortgage lending industry. In
addition, adverse economic conditions (which may or may not affect real property
values) may affect the timely payment by mortgagors of scheduled payments of
principal and interest on the Loans and, accordingly, the rates of
delinquencies, foreclosures and losses with respect to any Trust Fund. To the
extent that such losses are not covered by credit enhancement, such losses will
be borne, at least in part, by the holders of one or more classes of Securities
of the related Series. See "Rating."
Book-Entry Registration May Reduce Liquidity of the Securities
If issued in book-entry form, such registration may reduce the liquidity of
the Securities in the secondary trading market since investors may be unwilling
to purchase Securities for which they cannot obtain physical certificates. Since
transactions in book-entry Securities can be effected only through the
Depository Trust Company ("DTC"), participating organizations, Financial
Intermediaries and certain banks, the ability of a Securityholder to pledge a
book-entry Security to persons or entities that do not participate in the DTC
system may be limited due to lack of a physical certificate representing such
Securities. Securities Owners will not be recognized as Securityholders as such
term is used in the related Agreement, and Security Owners will be permitted to
exercise the rights of Securityholders only indirectly through DTC and its
Participants.
In addition, Securityholders may experience some delay in their receipt of
distributions of interest and principal on book-entry Securities since
distributions are required to be forwarded by the Trustee to DTC and DTC will
then be required to credit such distributions to the accounts of Depository
participants which thereafter will be required to credit them to the accounts of
Securityholders either directly or indirectly through Financial Intermediaries.
See "Description of the Securities -- Book-Entry Registration of Securities."
Pre-Funding Accounts
Pre-Funded Amounts Not Used to Cover Losses. If so provided in the related
Prospectus Supplement, on the closing date specified in such Prospectus
Supplement (the "Closing Date") the Depositor will deposit cash in an amount
(the "Pre-Funded Amount") specified in such Prospectus Supplement into an
account (the "Pre-Funding Account"). In no event shall the Pre-Funded Amount
exceed 50% of the initial aggregate principal amount of the Certificates and/or
Notes of the related Series of Securities. The Pre-Funded Amount will be used to
purchase Loans ("Subsequent Loans") in a period from the related Closing Date to
a date not more than one year after such Closing Date (such period, the "Funding
Period") from the Depositor (which, in turn, will acquire such Subsequent Loans
from the Seller or Sellers specified in the related Prospectus Supplement). The
Pre-Funding Account will be maintained with the Trustee for the related Series
of Securities and is designed solely to hold funds to be applied by such Trustee
during the Funding Period to pay to the Depositor the purchase price for
Subsequent Loans. Monies on deposit in the Pre-Funding Account will not be
available to cover losses on or in respect of the related Loans.
Unused Pre-Funded Amounts at the end of Funding Period will be Distributed
as Principal Prepayment to Securityholders. To the extent that the entire Pre-
Funded Amount has not been applied to the purchase of Subsequent Loans by the
end of the related Funding Period, any amounts remaining in the Pre-Funding
Account will be distributed as a prepayment of principal to Securityholders on
the Distribution Date immediately following the end of the Funding Period, in
the amounts and pursuant to the priorities set forth in the related Prospectus
Supplement. Any reinvestment risk resulting from such prepayment will be borne
entirely by the holders of one or more classes of the related Series of
Securities.
Bankruptcy or Insolvency of the Seller, the Depositor or the Master Servicer
Could Lead to Delay or Reduction of Amounts Payable to Securityholders
The Seller and the Depositor will treat the transfer of the Loans by the
Seller to the Depositor as a sale for accounting purposes. The Depositor and the
Trust Fund will treat the transfer of Loans from the Depositor to the Trust Fund
as a sale for accounting purposes. As a sale of the Loans by the Seller to the
Depositor, the Loans would not be part of the Seller's bankruptcy estate and
would not be available to the Seller's creditors. However, in the event of the
insolvency of the Seller, it is possible that the bankruptcy trustee or a
creditor of the Seller may attempt to recharacterize the sale of the Loans as a
borrowing by the Seller, secured by a pledge of the Loans. Similarly, as a sale
of the Loans by the Depositor to the Trust Fund, the Loans would not be part of
the Depositor's bankruptcy estate and would not be available to the Depositor's
creditors. However, in the event of the insolvency of the Depositor, it is
possible that the bankruptcy trustee or a creditor of the Depositor may attempt
to recharacterize the sale of the Loans as a borrowing by the Depositor, secured
by a pledge of the Loans. In either case, this position, if argued before or
accepted by a court, could prevent timely payments of amounts due on the
Securities and result in a reduction of payments due on the Securities.
In the event of a bankruptcy or insolvency of the Master Servicer, the
bankruptcy trustee or receiver may have the power to prevent the Trustee or the
Securityholders from appointing a successor Servicer. The time period, if any,
during which cash collections may be commingled with the Master Servicer's own
funds prior to each Distribution Date will be specified in the related
Prospectus Supplement. In the event of the insolvency of the Master Servicer and
if such cash collections are commingled with the Master Servicer's own funds for
at least ten days, the Trust Fund will likely not have a perfected interest in
such collections since such collections would not have been deposited in a
segregated account within ten days after the collection thereof, and the
inclusion thereof in the bankruptcy estate of the Master Servicer may result in
delays in payment and failure to pay amounts due on the Securities of the
related Series.
In addition, federal and state statutory provisions, including the federal
bankruptcy laws and state laws affording relief to debtors, may interfere with
or affect the ability of the secured mortgage lender to realize upon its
security. For example, in a proceeding under Title 11 of the United States Code
Section 101 et seq. and the rules and regulations promulgated thereunder, as
amended (the "Bankruptcy Code"), a lender may not foreclose on a mortgaged
property without the permission of the bankruptcy court. The rehabilitation plan
proposed by the debtor may provide, if the mortgaged property is not the
debtor's principal residence and the court determines that the value of the
mortgaged property is less than the principal balance of the mortgage loan, for
the reduction of the secured indebtedness to the value of the mortgaged property
as of the date of the commencement of the bankruptcy, rendering the lender a
general unsecured creditor for the difference, and also may reduce the monthly
payments due under such mortgage loan, change the rate of interest and alter the
mortgage loan repayment schedule. The effect of any such proceedings under the
Bankruptcy Code, including but not limited to any automatic stay, could result
in delays in receiving payments on the Loans underlying a Series of Securities
and possible reductions in the aggregate amount of such payments.
Holders of Original Issue Discount Securities Required to Include Original
Issue Discount in Ordinary Gross Income for Federal Income Tax Purposes as it
Accrues
Debt Securities that are Compound Interest Securities will be, and certain
of the other Debt Securities may be, issued with original discount for federal
income tax purposes. A holder of Debt Securities issued with original issue
discount will be required to include original issue discount in ordinary gross
income for federal income tax purposes as it accrues, in advance of receipt of
the cash attributable to such income. Accrued but unpaid interest on the Debt
Securities that are Compound Interest Securities generally will be treated as
original issue discount for this purpose. See "Federal Income Tax Consequences
- -- Taxation of Debt Securities -- Interest and Acquisition Discount" and " --
Market Discount" herein.
Value of Trust Fund Assets Could Be Insufficient to Pay Principal and
Interest on the Securities
There is no assurance that the market value of the Trust Fund Assets or any
other assets relating to a Series of Securities described under "Credit
Enhancement" herein will at any time be equal to or greater than the principal
amount of the Securities of such Series then outstanding, plus accrued interest
thereon. Moreover, upon an event of default under the Agreement for a Series of
Securities and a sale of the related Trust Fund Assets or upon a sale of the
assets of a Trust Fund for a Series of Securities, the Trustee, the Master
Servicer, the credit enhancer, if any, and any other service provider specified
in the related Prospectus Supplement generally will be entitled to receive the
proceeds of any such sale to the extent of unpaid fees and other amounts owing
to such persons under the related Agreement prior to distributions to
Securityholders. Upon any such sale, the proceeds thereof may be insufficient to
pay in full the principal of and interest on the Securities of such Series.
Derivative Transactions--Risk of Early Termination
If so specified in the related Prospectus Supplement, a Trust Fund may
enter into privately negotiated, over the counter hedging transactions with
various counterparties, including interest rate swaps, caps, collars and
floors (collectively, the "Derivative Transactions"). Certain events related
to such Derivative Transactions that are not entirely within the control of
the Trust Fund (or even the counterparty) may cause the early termination of
such Derivative Transactions. In the event of any such termination, the
Trust Fund may be required to make a termination payment which could be
substantial. This in turn would reduce amounts available to the Trust Fund
to make payments to the related Securityholders. See "Description of the
Securities -- Derivative Transactions."
THE TRUST FUND
General
The Securities of each Series will represent interests in the assets of the
related Trust Fund, and the Notes of each Series will be secured by the pledge
of the assets of the related Trust Fund. The Trust Fund for each Series will be
held by the Trustee for the benefit of the related Securityholders. Each Trust
Fund will consist of certain assets (the "Trust Fund Assets") consisting of a
pool (each, a "Pool") comprised of Loans as specified in the related Prospectus
Supplement, together with payments in respect of such Loans, as specified in the
related Prospectus Supplement.* The Pool will be created on the first day of the
month of the issuance of the related Series of Securities or such other date
specified in the related Prospectus Supplement (the "Cut-off Date"). The
Securities will be entitled to payment from the assets of the related Trust Fund
or Funds or other assets pledged for the benefit of the Securityholders, as
specified in the related Prospectus Supplement and will not be entitled to
payments in respect of the assets of any other trust fund established by the
Depositor.
_________________ * Whenever the terms "Pool", "Certificates", "Notes" and
"Securities" are used in this Prospectus, such terms will be deemed to apply,
unless the context indicates otherwise, to one specific Pool and the Securities
of one Series including the Certificates representing certain undivided
interests in, and/or Notes secured by the assets of, a single Trust Fund
consisting primarily of the Loans in such Pool. Similarly, the term
"Pass-Through Rate" will refer to the pass-through rate borne by the
Certificates and the term "interest rate" will refer to the interest rate borne
by the Notes of one specific Series, as applicable, and the term "Trust Fund"
will refer to one specific Trust Fund.
The Trust Fund Assets will be acquired by the Depositor, either directly or
through affiliates, from originators or sellers which may be affiliates of the
Depositor (the "Sellers"), and conveyed without recourse by the Depositor to the
related Trust Fund. Loans acquired by the Depositor will have been originated in
accordance with the underwriting criteria specified below under "Loan Program --
Underwriting Standards" or as otherwise described in the related Prospectus
Supplement. See "Loan Program -- Underwriting Standards."
The Depositor will cause the Trust Fund Assets 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 named in
the related Prospectus Supplement will service the Trust Fund Assets, either
directly or through other servicing institutions ("Sub-Servicers"), pursuant to
a Pooling and Servicing Agreement among the Depositor, the Master Servicer and
the Trustee with respect to a Series consisting of Certificates, or a master
servicing agreement (each, a "Master Servicing Agreement") between the Trustee
and the Master Servicer with respect to a Series consisting of Certificates and
Notes, and will receive a fee for such services. See "Loan Program" and "The
Agreements." With respect to Loans serviced by the Master Servicer through a
Sub-Servicer, the Master Servicer will remain liable for its servicing
obligations under the related Agreement as if the Master Servicer alone were
servicing such Loans.
As used herein, "Agreement" means, with respect to a Series consisting of
Certificates, the Pooling and Servicing Agreement, and with respect to a Series
consisting of Certificates and Notes, the Trust Agreement, the Indenture and the
Master Servicing Agreement, as the context requires.
If so specified in the related Prospectus Supplement, a Trust Fund relating
to a Series of Securities may be a business trust formed under the laws of the
state specified in the related Prospectus Supplement pursuant to a trust
agreement (each, a "Trust Agreement") between the Depositor and the trustee of
such Trust Fund.
With respect to each Trust Fund, prior to the initial offering of the
related Series of Securities, the Trust Fund will have no assets or liabilities.
No Trust Fund is expected to engage in any activities other than acquiring,
managing and holding of the related Trust Fund Assets and other assets
contemplated herein specified and in the related Prospectus Supplement and the
proceeds thereof, issuing Securities and making payments and distributions
thereon and certain related activities. No Trust Fund is expected to have any
source of capital other than its assets and any related credit enhancement.
Unless otherwise specified in the related Prospectus Supplement, the only
obligations of the Depositor with respect to a Series of Securities will be to
obtain certain representations and warranties from the Sellers and, to the
extent such representations and warranties are not made by the Sellers directly
to the Trustee, to assign to the Trustee for such Series of Securities the
Depositor's rights with respect to such representations and warranties. See "The
Agreements -- Assignment of the Trust Fund Assets." The obligations of the
Master Servicer with respect to the Loans will consist principally of its
contractual servicing obligations under the related Agreement (including its
obligation to enforce the obligations of the Sub-Servicers or Sellers, or both,
as more fully described herein under "Loan Program -- Representations by
Sellers; Repurchases" and "The Agreements -- Sub-Servicing By Sellers" and " --
Assignment of the Trust Fund Assets") and its obligation, if any, to make
certain cash advances in the event of delinquencies in payments of interest
and/or principal on or with respect to the Loans in the amounts described herein
under "Description of the Securities -- Advances." The obligations of the Master
Servicer to make advances may be subject to limitations, to the extent provided
herein and in the related Prospectus Supplement.
The following is a brief description of the assets expected to be included
in the Trust Funds. If specific information respecting the Trust Fund Assets is
not known at the time the related Series of Securities initially is offered,
more general information of the nature described below will be provided in the
related Prospectus Supplement, and specific information will be set forth in a
report on Form 8-K to be filed with the Securities and Exchange Commission
within fifteen days after the initial issuance of such Securities (the "Detailed
Description"). A copy of the Agreement with respect to each Series of Securities
will be attached to the Form 8-K and will be available for inspection at the
corporate trust office of the Trustee specified in the related Prospectus
Supplement. A schedule of the Loans relating to such Series will be attached to
the Agreement delivered to the Trustee upon delivery of the Securities.
The Loans
General. Loans will consist of Single Family Loans, Multifamily Loans, Home
Equity Loans or Home Improvement Contracts. For purposes hereof, "Home Equity
Loans" includes "Closed-End Loans" and "Revolving Credit Line Loans." If so
specified, the Loans may include cooperative apartment loans ("Cooperative
Loans") secured by security interests in shares issued by private, non-profit,
cooperative housing corporations ("Cooperatives") and in the related proprietary
leases or occupancy agreements granting exclusive rights to occupy specific
dwelling units in such Cooperatives' buildings. As more fully described in the
related Prospectus Supplement, the Loans may be "conventional" loans or loans
that are insured or guaranteed by a governmental agency such as the FHA or VA.
Unless otherwise specified in the related Prospectus Supplement, all of the
Loans in a Pool will have monthly payments due on the first, tenth, fifteenth,
twentieth or twenty-fifth day of each month. The payment terms of the Loans to
be included in a Trust Fund will be described in the related Prospectus
Supplement and may include any of the following features (or combination
thereof), all as described below or in the related Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate adjustable from time to
time in relation to an index (which will be specified in the related
Prospectus Supplement), a rate that is fixed for a period of time or under
certain circumstances and is followed by an adjustable rate, a rate that
otherwise varies from time to time, a rate that is "stepped-up" or a rate
that is convertible from an adjustable rate to a fixed rate. Changes to an
adjustable rate may be subject to periodic limitations, maximum rates,
minimum rates or a combination of such limitations. Accrued interest may be
deferred and added to the principal of a Loan for such periods and under
such circumstances as may be specified in the related Prospectus
Supplement. Loans may provide for the payment of interest at a rate lower
than the specified interest rate borne by such Loan (the "Loan Rate") for a
period of time or for the life of the Loan, and the amount of any
difference may be contributed from funds supplied by the seller of the
Property or another source.
(b) Principal may be payable on a level debt service basis to fully
amortize the Loan over its term, may be calculated on the basis of an
assumed amortization schedule that is significantly longer than the
original term to maturity or on an interest rate that is different from
the Loan Rate or may not be amortized during all or a portion of the
original term. Payment of all or a substantial portion of the principal
may be due on maturity ("balloon payment"). Principal may include
interest that has been deferred and added to the principal balance of
the Loan.
(c) Monthly payments of principal and interest may be fixed for the life of
the Loan, may increase over a specified period of time or may change from
period to period. Loans may include limits on periodic increases or
decreases in the amount of monthly payments and may include maximum or
minimum amounts of monthly payments.
(d) Prepayments of principal may be subject to a prepayment fee, which may
be fixed for the life of the Loan or may decline over time, and may be
prohibited for the life of the Loan or for certain periods ("lockout
periods"). Certain Loans may permit prepayments after expiration of the
applicable lockout period and may require the payment of a prepayment fee
in connection with any such subsequent prepayment. Other Loans may permit
prepayments without payment of a fee unless the prepayment occurs during
specified time periods. The Loans may include "due on sale" clauses which
permit the mortgagee to demand payment of the entire Loan in connection
with the sale or certain transfers of the related Property. Other Loans may
be assumable by persons meeting the then applicable underwriting standards
of the related Seller.
A Trust Fund may contain certain Loans ("Buydown Loans") that include
provisions whereby a third party partially subsidizes the monthly payments of
the borrowers on such Loans during the early years of such Loans, the difference
to be made up from a fund (a "Buydown Fund") contributed by such third party at
the time of origination of the Loan. A Buydown Fund will be in an amount equal
either to the discounted value or full aggregate amount of future payment
subsidies. The underlying assumption of buydown plans is that the income of the
borrower will increase during the buydown period as a result of normal increases
in compensation and inflation, so that the borrower will be able to meet the
full loan payments at the end of the buydown period. To the extent that this
assumption as to increased income is not fulfilled, the possibility of defaults
on Buydown Loans is increased. The related Prospectus Supplement will contain
information with respect to any Buydown Loan concerning limitations on the
interest rate paid by the borrower initially, on annual increases in the
interest rate and on the length of the buydown period.
The real property which secures repayment of the Loans is referred to as
the "Mortgaged Properties." Home Improvement Contracts may, and the other Loans
will, be secured by mortgages or deeds of trust or other similar security
instruments creating a lien on a Mortgaged Property. In the case of Home Equity
Loans and the Home Improvement Contracts liens generally will be subordinated to
one or more senior liens on the related Mortgaged Properties as described in the
related Prospectus Supplement. As specified in the related Prospectus
Supplement, Home Improvement Contracts may be unsecured or secured by purchase
money security interests in the Home Improvements financed thereby. If so
specified in the related Prospectus Supplement, the Home Equity Loans and the
Home Improvement Contracts may include Loans (primarily for home improvement or
debt consolidation purposes) that are in amounts in excess of the value of the
related Mortgaged Properties at the time of origination. The Mortgaged
Properties and the Home Improvements are collectively referred to herein as the
"Properties." The Properties may be located in any one of the fifty states, the
District of Columbia, Guam, Puerto Rico or any other territory of the United
States.
Loans with certain Loan-to-Value Ratios and/or certain principal balances
may be covered wholly or partially by primary mortgage guaranty insurance
policies (each, a "Primary Mortgage Insurance Policy"). The existence, extent
and duration of any such coverage will be described in the applicable Prospectus
Supplement.
The aggregate principal balance of Loans secured by Properties that are
owner-occupied will be disclosed in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, the sole basis for a
representation that a given percentage of the Loans is secured by Single Family
Properties that are owner-occupied will be either (i) the making of a
representation by the borrower at origination of the Loan either that the
underlying Property will be used by the borrower for a period of at least six
months every year or that the borrower intends to use the Property as a primary
residence or (ii) a finding that the address of the underlying Property is the
borrower's mailing address.
Single Family Loans. The Mortgaged Properties relating to Single Family
Loans will consist of detached or semi-detached one- to four-family dwelling
units, townhouses, rowhouses, individual condominium units, individual units in
planned unit developments, manufactured housing that is permanently affixed and
treated as real property under local law, security interests in shares issued by
cooperative housing corporations, and certain other dwelling units ("Single
Family Properties"). Single Family Properties may include vacation and second
homes, investment properties and leasehold interests. In the case of leasehold
interests, the remaining term of the leasehold and any sublease is at least as
long as the remaining term on the Loan, unless otherwise specified in the
related Prospectus Supplement.
Multifamily Loans. Mortgaged Properties which secure Multifamily Loans may
include small multifamily residential properties such as rental apartment
buildings or projects containing five to fifty residential units, including
mid-rise and garden apartments. Certain of the Multifamily 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 which 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 Multifamily 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 the Cooperative
might control. Unanticipated expenditures may in some cases have to be paid by
special assessments on the tenant-stockholders.
Home Equity Loans. The Mortgaged Properties relating to Home Equity Loans
will consist of Single Family Properties. As more fully described in the related
Prospectus Supplement, interest on each Revolving Credit Line Loan, excluding
introductory rates offered from time to time during promotional periods, is
computed and payable monthly on the average daily outstanding principal balance
of such Loan. Principal amounts on a Revolving Credit Line Loan may be drawn
down (up to a maximum amount as set forth in the related Prospectus Supplement)
or repaid under each Revolving Credit Line Loan from time to time, but may be
subject to a minimum periodic payment. Except to the extent provided in the
related Prospectus Supplement, the Trust Fund will not include any amounts
borrowed under a Revolving Credit Line Loan after the Cut-off Date. The full
amount of a Closed-End Loan is advanced at the inception of the Loan and
generally is repayable in equal (or substantially equal) installments of an
amount to fully amortize such Loan at its stated maturity. Except to the extent
provided in the related Prospectus Supplement, the original terms to stated
maturity of Closed-End Loans will not exceed 360 months. Under certain
circumstances, under either a Revolving Credit Line Loan or a Closed-End Loan, a
borrower may choose an interest only payment option and is obligated to pay only
the amount of interest which accrues on the Loan during the billing cycle. An
interest only payment option may be available for a specified period before the
borrower must begin paying at least the minimum monthly payment of a specified
percentage of the average outstanding balance of the Loan.
Home Improvement Contracts. The Trust Fund Assets for a Series of
Securities may consist, in whole or in part, of Home Improvement Contracts
originated by a home improvement contractor, a thrift or a commercial mortgage
banker in the ordinary course of business. The Home Improvements securing the
Home Improvement Contracts may include, but are not limited to, replacement
windows, house siding, new roofs, swimming pools, spas, kitchen and bathroom
remodeling goods, solar heating panels and other exterior and interior
renovations and general remodeling projects. As specified in the related
Prospectus Supplement, the Home Improvement Contracts will either be unsecured
or secured by mortgages on Single Family Properties which are generally
subordinate to other mortgages on the same Property, or secured by purchase
money security interests in the Home Improvements financed thereby. Except as
otherwise specified in the related Prospectus Supplement, the Home Improvement
Contracts will be fully amortizing and may have fixed interest rates or
adjustable interest rates and may provide for other payment characteristics as
described below and in the related Prospectus Supplement. The initial
Loan-to-Value Ratio of a Home Improvement Contract is computed in the manner
described in the related Prospectus Supplement.
Additional Information. Each Prospectus Supplement will contain
information, as of the date of such Prospectus Supplement and to the extent then
specifically known to the Depositor, with respect to the Loans contained in the
related Pool, including (i) the aggregate outstanding principal balance and the
average outstanding principal balance of the Loans as of the applicable Cut-off
Date, (ii) the type of property securing the Loan (e.g., single family
residences, individual units in condominium apartment buildings, small
multi-family properties, other real property or Home Improvements), (iii) the
original terms to maturity of the Loans, (iv) the largest principal balance and
the smallest principal balance of any of the Loans, (v) the earliest origination
date and latest maturity date of any of the Loans, (vi) the Loan-to-Value Ratios
or Combined Loan-to-Value Ratios, as applicable, of the Loans, (vii) the Loan
Rates or annual percentage rates ("APR") or range of Loan Rates or APR's borne
by the Loans, (viii) the maximum and minimum per annum Loan Rates and (ix) the
geographical location of the Loans. If specific information respecting the Loans
is not known to the Depositor at the time the related Securities are initially
offered, more general information of the nature described above will be provided
in the related Prospectus Supplement, and specific information will be set forth
in the Detailed Description. Unless otherwise specified in the related
Prospectus Supplement, the "Loan-to-Value Ratio" of a Loan at any given time is
the fraction, expressed as a percentage, the numerator of which is the original
principal balance of the related Loan and the denominator of which is the
Collateral Value of the related Property.
Unless otherwise specified in the related Prospectus Supplement, the
"Combined Loan-to-Value Ratio" of a Loan at any given time is the ratio,
expressed as a percentage, of (i) the sum of (a) the original principal balance
of the Loan (or, in the case of a Revolving Credit Line Loan, the maximum amount
thereof available at origination) and (b) the outstanding principal balance at
the date of origination of the Loan of any senior mortgage loan(s) or, in the
case of any open-ended senior mortgage loan, the maximum available line of
credit with respect to such mortgage loan at origination, regardless of any
lesser amount actually outstanding at the date of origination of the Loan, to
(ii) the Collateral Value of the related Property. Unless otherwise specified in
the related Prospectus Supplement, the "Collateral Value" of the Property, other
than with respect to certain Loans the proceeds of which were used to refinance
an existing mortgage loan (each, a "Refinance Loan"), is the lesser of (a) the
appraised value determined in an appraisal obtained by the originator at
origination of such Loan and (b) the sales price for such Property. In the case
of Refinance Loans, the "Collateral Value" of the related Property is generally
the appraised value thereof determined in an appraisal obtained at the time of
refinancing.
No assurance can be given that values of the Properties have remained or
will remain at their levels on the dates of origination of the related Loans. If
the residential real estate market should experience an overall decline in
property values such that the sum of the outstanding principal balances of the
Loans and any primary or secondary financing on the Properties, as applicable,
in a particular Pool become equal to or greater than the value of the
Properties, the actual rates of delinquencies, foreclosures and losses could be
higher than those now generally experienced in the mortgage lending industry. In
addition, adverse economic conditions and other factors (which may or may not
affect real property values) may affect the timely payment by borrowers of
scheduled payments of principal and interest on the Loans and, accordingly, the
actual rates of delinquencies, foreclosures and losses with respect to any Pool.
To the extent that such losses are not covered by subordination provisions or
alternative arrangements, such losses will be borne, at least in part, by the
holders of the Securities of the related Series.
Substitution of Trust Fund Assets
Substitution of Trust Fund Assets will be permitted in the event of
breaches of representations and warranties with respect to any original Trust
Fund Asset or in the event certain documentation with respect to any Trust Fund
Asset is determined by the Trustee to be incomplete. See "Loan Program - -
Representations by Sellers; Repurchases." The period during which such
substitution will be permitted generally will be indicated in the related
Prospectus Supplement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Securities will be
applied by the Depositor to the purchase of Trust Fund Assets or will be used by
the Depositor for general corporate purposes. The Depositor expects to sell
Securities in Series from time to time, but the timing and amount of offerings
of Securities will depend on a number of factors, including the volume of Trust
Fund Assets acquired by the Depositor, prevailing interest rates, availability
of funds and general market conditions.
THE DEPOSITOR
IndyMac ABS, Inc., a Delaware corporation (the "Depositor"), was
incorporated in April 1998 for the limited purpose of acquiring, owning and
transferring mortgage and mortgage related assets and selling interests therein
or bonds secured thereby. The Depositor is a limited purpose finance subsidiary
of IndyMac, Inc., a Delaware corporation. The Depositor maintains its principal
office at 155 North Lake Avenue, Pasadena, California 91101. Its telephone
number is (800) 669-2300.
Neither the Depositor nor any of the Depositor's affiliates will insure or
guarantee distributions on the Securities of any Series.
LOAN PROGRAM
The Loans will have been purchased by the Depositor, either directly or
through affiliates, from Sellers. Unless otherwise specified in the related
Prospectus Supplement, the Loans so acquired by the Depositor will have been
originated in accordance with the underwriting criteria specified below under
"Underwriting Standards."
Underwriting Standards
Underwriting standards are applied by or on behalf of a lender to evaluate
the borrower's credit standing and repayment ability, and the value and adequacy
of the related Property as collateral. In general, a prospective borrower
applying for a Loan is required to fill out a detailed application designed to
provide to the underwriting officer pertinent credit information, including the
principal balance and payment history with respect to any senior mortgage, if
any, which, unless otherwise specified in the related Prospectus Supplement,
will be verified by the related Seller. As part of the description of the
borrower's financial condition, the borrower generally is required to provide a
current list of assets and liabilities and a statement of income and expenses,
as well as an authorization to apply for a credit report which summarizes the
borrower's credit history with local merchants and lenders and any record of
bankruptcy. In most cases, an employment verification is obtained from an
independent source (typically the borrower's employer) which verification
reports, among other things, the length of employment with that organization and
the borrower's current salary. If a prospective borrower is self-employed, the
borrower may be required to submit copies of signed tax returns. The borrower
may also be required to authorize verification of deposits at financial
institutions where the borrower has demand or savings accounts.
Unless otherwise specified in the related Prospectus Supplement, in
determining the adequacy of the property to be used as collateral, an appraisal
will generally be made of each property considered for financing. The appraiser
is generally required to inspect the property, issue a report on its condition
and, if applicable, verify construction, if new, has been completed. The
appraisal is generally based on the market value of comparable homes, the
estimated rental income (if considered applicable by the appraiser) and the cost
of replacing the home. The value of the property being financed, as indicated by
the appraisal, must be such that it currently supports, and is anticipated to
support in the future, the outstanding loan balance.
The maximum loan amount will vary depending upon a borrower's credit grade
and loan program but will not generally exceed $1,000,000. Variations in maximum
loan amount limits will be permitted based on compensating factors. Compensating
factors may generally include, to the extent specified in the related Prospectus
Supplement, low loan-to-value ratio, low debt-to- income ratio, stable
employment, favorable credit history and the nature of the underlying first
mortgage loan, if applicable.
Each Seller's underwriting standards will generally permit loans with
loan-to-value ratios at origination of up to 100% depending on the loan program,
type and use of the property, creditworthiness of the borrower and
debt-to-income ratio. If so specified in the related Prospectus Supplement, a
Seller's underwriting criteria may permit loans with loan-to-value ratios at
origination in excess of 100%, such as for debt consolidation or home
improvement purposes. Loan-to-value ratios may not be evaluated in the case of
Title I Loans.
After obtaining all applicable employment, credit and property information,
the related Seller may use a debt-to-income ratio to assist in determining
whether the prospective borrower has sufficient monthly income available to
support the payments of principal and interest on the mortgage loan in addition
to other monthly credit obligations. The "debt-to-income ratio" is the ratio of
the borrower's total monthly payments to the borrower's gross monthly income.
The maximum monthly debt-to-income ratio will vary depending upon a borrower's
credit grade and loan program. Variations in the monthly debt-to-income ratio
limit will be permitted based on compensating factors to the extent specified in
the related Prospectus Supplement.
In the case of a Loan secured by a leasehold interest in real property, the
title to which is held by a third party lessor, the related Seller will, unless
otherwise specified in the related Prospectus Supplement, represent and warrant,
among other things, that the remaining term of the lease and any sublease is at
least as long as the remaining term on the Loan.
Certain of the types of Loans that may be included in a Trust Fund are
recently developed and may involve additional uncertainties not present in
traditional types of loans. For example, certain of such Loans may provide for
escalating or variable payments by the borrower. These types of Loans are
underwritten on the basis of a judgment that the borrowers have the ability to
make the monthly payments required initially. In some instances, a borrower's
income may not be sufficient to permit continued loan payments as such payments
increase. These types of Loans may also be underwritten primarily upon the basis
of Loan-to-Value Ratios or other favorable credit factors.
Qualifications of Sellers
Each Seller will be required to satisfy the following qualifications. Each
Seller must be an institution experienced in originating and servicing loans of
the type contained in the related Pool in accordance with accepted practices and
prudent guidelines, and must maintain satisfactory facilities to originate and
service those loans. Unless otherwise specified in the related Prospectus
Supplement, each Seller must be (i) a seller/servicer approved by either the
Federal National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage
Corporation ("FHLMC") and (ii) a mortgagee approved by HUD or an institution the
deposit accounts of which are insured by the Federal Deposit Insurance
Corporation (the "FDIC").
Representations by Sellers; Repurchases
Each Seller will have made representations and warranties in respect of the
Loans sold by such Seller and evidenced by all, or a part, of a Series of
Securities. Such representations and warranties may include, among other things:
(i) that title insurance (or in the case of Properties located in areas where
such policies are generally not available, an attorney's certificate of title)
and any required hazard insurance policy were effective at origination of each
Loan, other than Cooperative Loans and certain Home Equity Loans, and that each
policy (or certificate of title as applicable) remained in effect on the date of
purchase of the Loan from the Seller by or on behalf of the Depositor; (ii) that
the Seller had good title to each such Loan and such Loan was subject to no
offsets, defenses, counterclaims or rights of rescission except to the extent
that any buydown agreement may forgive certain indebtedness of a borrower; (iii)
that each Loan, other than Cooperative Loans, constituted a valid lien on, or a
perfected security interest with respect to, the Property (subject only to
permissible liens disclosed, if applicable, title insurance exceptions, if
applicable, the liens of nondelinquent current real property taxes and
assessments, if applicable, liens arising under federal, state or local laws
relating to hazardous wastes or hazardous substances, if applicable, any liens
for common charges, if applicable, and certain other exceptions described in the
Agreement); (iv) that there were no delinquent tax or assessment liens against
the Property; (v) that no required payment on a Loan was delinquent more than
the number of days specified in the related Prospectus Supplement; and (vi) that
each Loan was made in compliance with, and is enforceable under, all applicable
local, state and federal laws and regulations in all material respects.
If so specified in the related Prospectus Supplement, the representations
and warranties of a Seller in respect of a Loan will be made not as of the
Cut-off Date but as of the date on which such Seller sold the Loan to the
Depositor or one of its affiliates. Under such circumstances, a substantial
period of time may have elapsed between the sale date and the date of initial
issuance of the Series of Securities evidencing an interest in such Loan. Since
the representations and warranties of a Seller do not address events that may
occur following the sale of a Loan by such Seller, its repurchase obligation
described below will not arise if the relevant event that would otherwise have
given rise to such an obligation with respect to a Loan occurs after the date of
sale of such Loan by such Seller to the Depositor or its affiliates. However,
the Depositor will not include any Loan in the Trust Fund for any Series of
Securities if anything has come to the Depositor's attention that would cause it
to believe that the representations and warranties of a Seller will not be
accurate and complete in all material respects in respect of such Loan as of the
date of initial issuance of the related Series of Securities. If the Master
Servicer is also a Seller of Loans with respect to a particular Series of
Securities, such representations will be in addition to the representations and
warranties made by the Master Servicer in its capacity as a Master Servicer.
The Master Servicer or the Trustee, if the Master Servicer is the Seller,
will promptly notify the relevant Seller of any breach of any representation or
warranty made by it in respect of a Loan which materially and adversely affects
the interests of the Securityholders in such Loan. Unless otherwise specified in
the related Prospectus Supplement, if such Seller cannot cure any such breach on
or prior to the business day after the first Determination Date which is more
than 90 days after such Seller's receipt of notice from the Master Servicer or
the Trustee, as the case may be, then such Seller will be obligated either (i)
to repurchase such Loan from the Trust Fund at a price (the "Purchase Price")
equal to 100% of the unpaid principal balance thereof as of the date of the
repurchase plus accrued interest thereon to the scheduled monthly payment date
for such Loan in the month following the month of repurchase at the Loan Rate
(less any Advances or amount payable as related servicing compensation if the
Seller is the Master Servicer) or (ii) substitute for such Loan a replacement
loan that satisfies the criteria specified in the related Prospectus Supplement;
provided, however, that such Seller will not be obligated to make any such
repurchase or substitution (or cure such breach) if such breach constitutes
fraud in the origination of the affected Loan and such Seller did not have
knowledge of such fraud. If a REMIC election is to be made with respect to a
Trust Fund, unless otherwise specified in the related Prospectus Supplement, the
Master Servicer or a holder of the related residual certificate generally will
be obligated to pay any prohibited transaction tax which may arise in connection
with any such repurchase or substitution and the Trustee must have received a
satisfactory opinion of counsel that such repurchase or substitution will not
cause the Trust Fund to lose its status as a REMIC or otherwise subject the
Trust Fund to a prohibited transaction tax. The Master Servicer may be entitled
to reimbursement for any such payment from the assets of the related Trust Fund
or from any holder of the related residual certificate. See "Description of the
Securities -- General." Except in those cases in which the Master Servicer is
the Seller, the Master Servicer will be required under the relevant Agreement to
enforce this obligation for the benefit of the Trustee and the holders of the
Securities, following the practices it would employ in its good faith business
judgment were it the owner of such Loan. This repurchase or substitution
obligation will constitute the sole remedy available to holders of Securities or
the Trustee for a breach of representation by a Seller.
Neither the Depositor nor the Master Servicer (unless the Master Servicer
is a Seller) will be obligated to purchase or substitute a Loan if a Seller
defaults on its obligation to do so, and no assurance can be given that Sellers
will carry out their respective repurchase or substitution obligations with
respect to Loans.
DESCRIPTION OF THE SECURITIES
Each Series of Certificates will be issued pursuant to separate agreements
(each, a "Pooling and Servicing Agreement" or a "Trust Agreement") among the
Depositor, the Master Servicer and the Trustee. A form of Pooling and Servicing
Agreement and Trust Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. Each Series of Notes will be
issued pursuant to an indenture (the "Indenture") between the related Trust Fund
and the entity named in the related Prospectus Supplement as trustee (the
"Trustee") with respect to such Series, and the related Loans will be serviced
by the Master Servicer pursuant to a Master Servicing Agreement. A form of
Indenture and Master Servicing Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. A Series of
Securities may consist of both Notes and Certificates. Each Agreement, dated as
of the related Cut-off Date, will be among the Depositor, the Master Servicer
and the Trustee for the benefit of the holders of the Securities of such Series.
The provisions of each Agreement will vary depending upon the nature of the
Securities to be issued thereunder and the nature of the related Trust Fund. The
following are descriptions of the material provisions which may appear in each
Agreement. The descriptions are subject to, and are qualified in their entirety
by reference to, all of the provisions of the Agreement for each Series of
Securities and the applicable Prospectus Supplement. The Depositor will provide
a copy of the Agreement (without exhibits) relating to any Series without charge
upon written request of a holder of record of a Security of such Series
addressed to IndyMac ABS, Inc., 155 North Lake Avenue, Pasadena, California
91101, Attention: Secondary Marketing.
General
Unless otherwise specified in the related Prospectus Supplement, the
Securities of each Series will be issued in book-entry or fully registered form,
in the authorized denominations specified in the related Prospectus Supplement,
will, in the case of Certificates, evidence specified beneficial ownership
interests in, and in the case of Notes, be secured by, the assets of the related
Trust Fund created pursuant to each Agreement and will not be entitled to
payments in respect of the assets included in any other Trust Fund established
by the Depositor. Unless otherwise specified in the related Prospectus
Supplement, the Securities will not represent obligations of the Depositor or
any affiliate of the Depositor. Certain of the Loans may be guaranteed or
insured as set forth in the related Prospectus Supplement. Each Trust Fund will
consist of, to the extent provided in the related Agreement, (i) the Trust Fund
Assets, as from time to time are subject to the related Agreement (exclusive of
any amounts specified in the related Prospectus Supplement ("Retained
Interest")), including all payments of interest and principal received with
respect to the Loans after the Cut-off Date (to the extent not applied in
computing the principal balance of such Loans as of the Cut-off Date (the
"Cut-off Date Principal Balance")); (ii) such assets as from time to time are
required to be deposited in the related Security Account, as described below
under "The Agreements -- Payments on Loans; Deposits to Security Account"; (iii)
property which secured a Loan and which is acquired on behalf of the
Securityholders by foreclosure or deed in lieu of foreclosure and (iv) any
insurance policies or other forms of credit enhancement required to be
maintained pursuant to the related Agreement. If so specified in the related
Prospectus Supplement, a Trust Fund may also include one or more of the
following: reinvestment income on payments received on the Trust Fund Assets, a
Reserve Account, a mortgage pool insurance policy, a special hazard insurance
policy, a bankruptcy bond, one or more letters of credit, a surety bond,
guaranties or similar instruments.
Each Series of Securities will be issued in one or more classes. Each class
of Certificates of a Series will evidence beneficial ownership of a specified
percentage (which may be 0%) or portion of future interest payments and a
specified percentage (which may be 0%) or portion of future principal payments
on, and each class of Notes of a Series will be secured by, the related Trust
Fund Assets. A Series of Securities may include one or more classes that are
senior in right to payment to one or more other classes of Securities of such
Series. Certain Series or classes of Securities may be covered by insurance
policies, surety bonds or other forms of credit enhancement, in each case as
described under "Credit Enhancement" herein and in the related Prospectus
Supplement. One or more classes of Securities of a Series may be entitled to
receive distributions of principal, interest or any combination thereof.
Distributions on one or more classes of a Series of Securities may be made prior
to one or more other classes, after the occurrence of specified events, in
accordance with a schedule or formula or on the basis of collections from
designated portions of the related Trust Fund Assets, in each case as specified
in the related Prospectus Supplement. The timing and amounts of such
distributions may vary among classes or over time as specified in the related
Prospectus Supplement.
Distributions of principal and interest (or, where applicable, of principal
only or interest only) on the related Securities will be made by the Trustee on
each Distribution Date (i.e., monthly, quarterly, semi- annually or at such
other intervals and on the dates as are specified in the related Prospectus
Supplement) in proportion to the percentages specified in the related Prospectus
Supplement. Distributions will be made to the persons in whose names the
Securities are registered at the close of business on the dates specified in the
related Prospectus Supplement (each, a "Record Date"). Distributions will be
made in the manner specified in the related Prospectus Supplement to the persons
entitled thereto at the address appearing in the register maintained for holders
of Securities (the "Security Register"); provided, however, that the final
distribution in retirement of the Securities will be made only upon presentation
and surrender of the Securities at the office or agency of the Trustee or other
person specified in the notice to Securityholders of such final distribution.
The Securities will be freely transferable and exchangeable at the
Corporate Trust Office of the Trustee as set forth in the related Prospectus
Supplement. No service charge will be made for any registration of exchange or
transfer of Securities of any Series, but the Trustee may require payment of a
sum sufficient to cover any related tax or other governmental charge.
Under current law, the purchase and holding of certain classes of
Securities by or on behalf of any employee benefit plan or other retirement
arrangement (including individual retirement accounts and annuities, Keogh plans
and collective investment funds in which such plans, accounts or arrangements
are invested) subject to provisions of ERISA or the Code may result in
prohibited transactions, within the meaning of ERISA and the Code, or may
subject the Trustee, the Master Servicer or the Depositor to obligations or
liabilities in addition to those undertaken in the related Agreement. See "ERISA
Considerations." Under current law, the transfer of Securities of such a class
will not be registered unless the transferee (i) represents that it is not, and
is not purchasing on behalf of, any such plan, account or arrangement or (ii)
provides an opinion of counsel satisfactory to the Trustee and the Depositor
that the purchase of Securities of such a class by or on behalf of such plan,
account or arrangement is permissible under applicable law and will not subject
the Trustee, the Master Servicer or the Depositor to any obligation or liability
in addition to those undertaken in the Agreements.
As to each Series, an election may be made to treat the related Trust Fund
or designated portions thereof either as a REMIC or as a FASIT. The related
Prospectus Supplement will specify whether a REMIC or FASIT election is to be
made. Alternatively, the Agreement for a Series may provide that a REMIC or
FASIT election may be made at the discretion of the Depositor or the Master
Servicer and may only be made if certain conditions are satisfied. As to any
such Series, the terms and provisions applicable to the making of a REMIC or
FASIT election will be set forth in the related Prospectus Supplement. If a
REMIC election is made with respect to a Series, one of the classes will be
designated as evidencing the sole class of "residual interests" in the related
REMIC, as defined in the Code. All other classes of Securities in such a Series
will constitute "regular interests" in the related REMIC, as defined in the
Code. If a FASIT election is made with respect to a Series, one of the classes
will be designated as the ownership interest, as defined in the Code. All other
classes of Securities in such a Series will constitute "regular interests" in
the related FASIT, as defined in the Code. As to each Series with respect to
which a REMIC or FASIT election is to be made, the Master Servicer or a holder
of the related residual in the case of a REMIC, and the holder of the related
ownership interest in the case of a FASIT, certificate will be obligated to take
all actions required in order to comply with applicable laws and regulations and
will be obligated to pay any prohibited transaction taxes. The Master Servicer,
unless otherwise provided in the related Prospectus Supplement, will be entitled
to reimbursement for any such payment from the assets of the Trust Fund or from
any holder of the related residual certificate in the case of a REMIC, or, from
the holder of the related ownership interest in the case of a FASIT.
Distributions on Securities
General. In general, the method of determining the amount of distributions
on a particular Series of Securities will depend on the type of credit support,
if any, that is used with respect to such Series. See "Credit Enhancement." Set
forth below are descriptions of various methods that may be used to determine
the amount of distributions on the Securities of a particular Series. The
Prospectus Supplement for each Series of Securities will describe the method to
be used in determining the amount of distributions on the Securities of such
Series.
Distributions allocable to principal and interest on the Securities will be
made by the Trustee out of, and only to the extent of, funds in the related
Security Account, including any funds transferred from any Reserve Account (a
"Reserve Account"). As between Securities of different classes and as between
distributions of principal (and, if applicable, between distributions of
Principal Prepayments, as defined below, and scheduled payments of principal)
and interest, distributions made on any Distribution Date will be applied as
specified in the related Prospectus Supplement. The Prospectus Supplement will
also describe the method for allocating distributions among Securities of a
particular class.
Available Funds. All distributions on the Securities of each Series on each
Distribution Date will be made from the Available Funds described below, in
accordance with the terms described in the related Prospectus Supplement and
specified in the Agreement. "Available Funds" for each Distribution Date will
generally equal the amount on deposit in the related Security Account on such
Distribution Date (net of related fees and expenses payable by the related Trust
Fund) other than amounts to be held therein for distribution on future
Distribution Dates.
Distributions of Interest. Interest will accrue on the aggregate principal
balance of the Securities (or, in the case of Securities entitled only to
distributions allocable to interest, the aggregate notional amount) of each
class of Securities (the "Class Security Balance") entitled to interest from the
date, at the pass-through rate or interest rate, as applicable (which in either
case may be a fixed rate or rate adjustable as specified in such Prospectus
Supplement), and for the periods specified in such Prospectus Supplement. To the
extent funds are available therefor, interest accrued during each such specified
period on each class of Securities entitled to interest (other than a class of
Securities that provides for interest that accrues, but is not currently
payable, referred to hereafter as "Accrual Securities") will be distributable on
the Distribution Dates specified in the related Prospectus Supplement until the
aggregate Class Security Balance of the Securities of such class has been
distributed in full or, in the case of Securities entitled only to distributions
allocable to interest, until the aggregate notional amount of such Securities is
reduced to zero or for the period of time designated in the related Prospectus
Supplement. The original Class Security Balance of each Security will equal the
aggregate distributions allocable to principal to which such Security is
entitled. Distributions allocable to interest on each Security that is not
entitled to distributions allocable to principal will be calculated based on the
notional amount of such Security. The notional amount of a Security will not
evidence an interest in or entitlement to distributions allocable to principal
but will be used solely for convenience in expressing the calculation of
interest and for certain other purposes.
Interest payable on the Securities of a Series on a Distribution Date will
include all interest accrued during the period specified in the related
Prospectus Supplement. In the event interest accrues over a period ending two or
more days prior to a Distribution Date, the effective yield to Securityholders
will be reduced from the yield that would otherwise be obtainable if interest
payable on the Security were to accrue through the day immediately preceding
such Distribution Date, and the effective yield (at par) to Securityholders will
be less than the indicated coupon rate.
With respect to any class of Accrual Securities, if specified in the
related Prospectus Supplement, any interest that has accrued but is not paid on
a given Distribution Date will be added to the aggregate Class Security Balance
of such class of Securities on that Distribution Date. Distributions of interest
on any class of Accrual Securities will commence only after the occurrence of
the events specified in such Prospectus Supplement. Prior to such time, the
beneficial ownership interest in the Trust Fund or the principal balance, as
applicable, of such class of Accrued Securities, as reflected in the aggregate
Class Security Balance of such class of Accrual Securities, will increase on
each Distribution Date by the amount of interest that accrued on such class of
Accrual Securities during the preceding interest accrual period but that was not
required to be distributed to such class on such Distribution Date. Any such
class of Accrual Securities will thereafter accrue interest on its outstanding
Class Security Balance as so adjusted.
Distributions of Principal. The related Prospectus Supplement will specify
the method by which the amount of principal to be distributed on the Securities
on each Distribution Date will be calculated and the manner in which such amount
will be allocated among the classes of Securities entitled to distributions of
principal. The aggregate Class Security Balance of any class of Securities
entitled to distributions of principal generally will be the aggregate original
Class Security Balance of such class of Securities specified in such Prospectus
Supplement, reduced by all distributions reported to the holders of such
Securities as allocable to principal and, (i) in the case of Accrual Securities,
increased by all interest accrued but not then distributable on such Accrual
Securities and (ii) in the case of adjustable rate Securities, subject to the
effect of negative amortization, if applicable.
If so provided in the related Prospectus Supplement, one or more classes of
Securities will be entitled to receive all or a disproportionate percentage of
the payments of principal which are received from borrowers in advance of their
scheduled due dates and are not accompanied by amounts representing scheduled
interest due after the month of such payments ("Principal Prepayments") in the
percentages and under the circumstances or for the periods specified in such
Prospectus Supplement. Any such allocation of Principal Prepayments to such
class or classes of Securities will have the effect of accelerating the
amortization of such Securities while increasing the interests evidenced by one
or more other classes of Securities in the Trust Fund. Increasing the interests
of the other classes of Securities relative to that of certain Securities is
intended to preserve the availability of the subordination provided by such
other Securities. See "Credit Enhancement -- Subordination."
Unscheduled Distributions. If specified in the related Prospectus
Supplement, the Securities will be subject to receipt of distributions before
the next scheduled Distribution Date under the circumstances and in the manner
described below and in such Prospectus Supplement. If applicable, the Trustee
will be required to make such unscheduled distributions on the day and in the
amount specified in the related Prospectus Supplement if, due to substantial
payments of principal (including Principal Prepayments) on the Trust Fund
Assets, the Trustee or the Master Servicer determines that the funds available
or anticipated to be available from the Security Account and, if applicable, any
Reserve Account, may be insufficient to make required distributions on the
Securities on such Distribution Date. Unless otherwise specified in the related
Prospectus Supplement, the amount of any such unscheduled distribution that is
allocable to principal will not exceed the amount that would otherwise have been
required to be distributed as principal on the Securities on the next
Distribution Date. Unless otherwise specified in the related Prospectus
Supplement, the unscheduled distributions will include interest at the
applicable pass-through rate (if any) or interest rate (if any) on the amount of
the unscheduled distribution allocable to principal for the period and to the
date specified in such Prospectus Supplement.
Advances
To the extent provided in the related Prospectus Supplement, the Master
Servicer will be required to advance on or before each Distribution Date (from
its own funds, funds advanced by Sub-Servicers or funds held in the Security
Account for future distributions to the holders of Securities of the related
Series), an amount equal to the aggregate of payments of interest and/or
principal that were delinquent on the related Determination Date (as such term
is defined in the related Prospectus Supplement) and were otherwise not advanced
by any Sub-Servicer, subject to the Master Servicer's determination that such
advances may be recoverable out of late payments by borrowers, Liquidation
Proceeds, Insurance Proceeds or otherwise. In the case of Cooperative Loans, the
Master Servicer also may be required to advance any unpaid maintenance fees and
other charges under the related proprietary leases as specified in the related
Prospectus Supplement.
In making Advances, the Master Servicer will endeavor to maintain a regular
flow of scheduled interest and principal payments to holders of the Securities,
rather than to guarantee or insure against losses. If Advances are made by the
Master Servicer from cash being held for future distribution to Securityholders,
the Master Servicer will replace such funds on or before any future Distribution
Date to the extent that funds in the applicable Security Account on such
Distribution Date would be less than the amount required to be available for
distributions to Securityholders on such date. Any Master Servicer funds
advanced will be reimbursable to the Master Servicer out of recoveries on the
specific Loans with respect to which such Advances were made (e.g., late
payments made by the related borrower, any related Insurance Proceeds,
Liquidation Proceeds or proceeds of any Loan purchased by the Depositor, a
Sub-Servicer or a Seller pursuant to the related Agreement). Advances by the
Master Servicer (and any advances by a Sub-Servicer) also will be reimbursable
to the Master Servicer (or Sub- Servicer) from cash otherwise distributable to
Securityholders (including the holders of Senior Securities) to the extent that
the Master Servicer determines that any such Advances previously made are not
ultimately recoverable as described above. To the extent provided in the related
Prospectus Supplement, the Master Servicer also will be obligated to make
Advances, to the extent recoverable out of Insurance Proceeds, Liquidation
Proceeds or otherwise, in respect of certain taxes and insurance premiums not
paid by borrowers on a timely basis. Funds so advanced are reimbursable to the
Master Servicer to the extent permitted by the related Agreement. The
obligations of the Master Servicer to make advances may be supported by a cash
advance reserve fund, a surety bond or other arrangement of the type described
herein under "Credit Enhancement," in each case as described in the related
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, in the
event the Master Servicer or a Sub-Servicer fails to make a required Advance,
the Trustee will be obligated to make such Advance in its capacity as successor
servicer. If the Trustee makes such an Advance, it will be entitled
to be reimbursed for such Advance to the same extent and degree as the Master
Servicer or a Sub-Servicer is entitled to be reimbursed for Advances. See
"Description of the Securities -- Distributions on Securities."
Reports to Securityholders
Unless otherwise specified in the related Prospectus Supplement, prior to
or concurrently with each distribution on a Distribution Date the Master
Servicer or the Trustee will furnish to each Securityholder of record of the
related Series a statement setting forth, to the extent applicable to such
Series of Securities, among other things:
(i) the amount of such distribution allocable to principal,
separately identifying the aggregate amount of any Principal
Prepayments and if so specified in the related Prospectus
Supplement, any applicable prepayment penalties included
therein;
(ii) the amount of such distribution allocable to interest;
(iii) the amount of any Advance;
(iv) the aggregate amount (a) otherwise allocable to the
Subordinated Securityholders on such Distribution Date and (b)
withdrawn from the Reserve Account, if any, that is included
in the amounts distributed to the Senior Securityholders;
(v) the outstanding principal balance or notional amount of each
class of the related Series after giving effect to the
distribution of principal on such Distribution Date;
(vi) the percentage of principal payments on the Loans (excluding
prepayments), if any, which each such class will be entitled
to receive on the following Distribution Date;
(vii) the percentage of Principal Prepayments on the Loans, if
any, which each such class will be entitled to receive on the
following Distribution Date;
(viii) the related amount of the servicing compensation retained
or withdrawn from the Security Account by the Master Servicer,
and the amount of additional servicing compensation received
by the Master Servicer attributable to penalties, fees, excess
Liquidation Proceeds and other similar charges and items;
(ix) the number and aggregate principal balances of Loans (A)
delinquent (exclusive of Loans in foreclosure) (1) 1 to 30
days, (2) 31 to 60 days, (3) 61 to 90 days and (4) 91 or more
days and (B) in foreclosure and delinquent (1) 1 to 30 days,
(2) 31 to 60 days, (3) 61 to 90 days and (4) 91 or more days,
as of the close of business on the last day of the calendar
month preceding such Distribution Date;
(x) the book value of any real estate acquired through foreclosure
or grant of a deed in lieu of foreclosure;
(xi) the pass-through rate or interest rate, as applicable, if
adjusted from the date of the last statement, of any such
class expected to be applicable to the next distribution to
such class;
(xii)if applicable, the amount remaining in any Reserve
Account at the close of business on the Distribution Date;
(xiii) the pass-through rate or interest rate, as applicable, as of
the day prior to the immediately preceding Distribution Date; and
(xiv) any amounts remaining under letters of credit, pool
policies or other forms of credit enhancement.
Where applicable, any amount set forth above may be expressed as a dollar
amount per single Security of the relevant class having the Percentage Interest
specified in the related Prospectus Supplement. The report to Securityholders
for any Series of Securities may include additional or other information of a
similar nature to that specified above.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or the Trustee will mail to each
Securityholder of record at any time during such calendar year a report (a) as
to the aggregate of amounts reported pursuant to (i) and (ii) above for such
calendar year or, in the event such person was a Securityholder of record during
a portion of such calendar year, for the applicable portion of such year and (b)
such other customary information as may be deemed necessary or desirable for
Securityholders to prepare their tax returns.
Categories of Classes of Securities
The Securities of any Series may be comprised of one or more classes. Such
classes, in general, fall into different categories. The following chart
identifies and generally defines certain of the more typical categories. The
Prospectus Supplement for a series of Securities may identify the classes which
comprise such Series by reference to the following categories.
<TABLE>
<CAPTION>
CATEGORIES OF CLASSES DEFINITION
PRINCIPAL TYPES
<S> <C>
Accretion Directed . . . . . . . . . . . . . A class that receives principal payments from the accreted interest from specified
Accrual Securities. An Accretion Directed class also may receive principal payments
from principal paid on the underlying Trust Fund Assets for the related Series.
Component Securities . . . . . . . . . . . . A class consisting of "Components." The Components of a class of Component Securities
may have different principal and/or interest payment characteristics but together
constitute a single class. Each Component of a class of Component Securities may be
identified as falling into one or more of the categories in this chart.
Notional Amount Securities . . . . . . . . . A class having no principal balance and bearing interest on the related notional
amount. The notional amount is used for purposes of the determination of interest
distributions.
Planned Principal Class (also sometimes A class that is designed to receive principal payments using a predetermined
referred to as "PACs") . . . . . . . . . . . principal balance schedule derived by assuming two constant prepayment rates for the
underlying Trust Fund Assets. These two rates are the endpoints for the "structuring
range" for the Planned Principal Class. The Planned Principal Classes in any Series
of Securities may be subdivided into different categories (e.g., Primary Planned
Principal Classes, Secondary Planned Principal Classes and so forth) having different
effective structuring ranges and different principal payment priorities. The
structuring range for the Secondary Planned Principal Categories of Classes of a
Series of Securities will be narrower than that for the Primary Planned Principal
Class of such Series.
Scheduled Principal Class . . . . . . . . . . A class that is designed to receive principal payments using a predetermined
principal balance schedule but is not designated as a Planned Principal Class or
Targeted Principal Class. In many cases, the schedule is derived by assuming two
constant prepayment rates for the underlying Trust Fund Assets. These two rates are
the endpoints for the "structuring range" for the Scheduled Principal Class.
Sequential Pay . . . . . . . . . . . . . . . Classes that receive principal payments in a prescribed sequence, that do not have
predetermined principal balance schedules and that under all circumstances receive
payments of principal continuously from the first Distribution Date on which they
receive principal until they are retired. A single class that receives principal
payments before or after all other classes in the same Series of Securities may be
identified as a Sequential Pay class.
Strip . . . . . . . . . . . . . . . . . . . . A class that receives a constant proportion, or "strip," of the principal payments on
the underlying Trust Fund Assets.
Support Class (also sometimes referred to as A class that receives principal payments on any Distribution Date only if scheduled
"companion classes") . . . . . . . . . . . . payments have been made on specified Planned Principal Classes, Targeted Principal
Classes and/or Scheduled Principal Classes.
Targeted Principal Class (also sometimes A class that is designed to receive principal payments using a predetermined
referred to as "TACs") . . . . . . . . . . . principal balance schedule derived by assuming a single constant prepayment rate for
the underlying Trust Fund Assets.
</TABLE>
INTEREST TYPES
<TABLE>
<CAPTION>
<S> <C>
Fixed Rate A class with an interest rate that is fixed throughout the life of the class.
Floating Rate A class with an interest rate that resets periodically based upon a designated index
and that varies directly with changes in such index.
Inverse Floating Rate A class with an interest rate that resets periodically based upon a designated index
and that varies inversely with changes in such index.
Variable Rate A class with an interest rate that resets periodically and is calculated by reference
to the rate or rates of interest applicable to specified assets or instruments (e.g.,
the Loan Rates borne by the underlying Loans).
Interest Only A class that receives some or all of the interest payments made on the underlying
Trust Fund Assets and little or no principal. Interest Only classes have either a
nominal principal balance or a notional amount. A nominal principal balance
represents actual principal that will be paid on the class. It is referred to as
nominal since it is extremely small compared to other classes. A notional amount is
the amount used as a reference to calculate the amount of interest due on an Interest
Only class that is not entitled to any distributions in respect of principal.
Principal Only A class that does not bear interest and is entitled to receive only distributions in
respect of principal.
Partial Accrual A class that accretes a portion of the amount of accrued interest thereon, which
amount will be added to the principal balance of such class on each applicable
Distribution Date, with the remainder of such accrued interest to be distributed
currently as interest on such class. Such accretion may continue until a specified
event has occurred or until such Partial Accrual class is retired.
Accrual A class that accretes the amount of accrued interest otherwise distributable on such
class, which amount will be added as principal to the principal balance of such class
on each applicable Distribution Date. Such accretion may continue until some
specified event has occurred or until such Accrual class is retired.
</TABLE>
Indices Applicable to Floating Rate and Inverse Floating Rate Classes
LIBOR
Unless otherwise specified in the related Prospectus Supplement, on the
LIBOR Determination Date (as such term is defined in the related Prospectus
Supplement) for each class of Securities of a Series as to which the applicable
interest rate is determined by reference to an index denominated as LIBOR, the
Person designated in the related Agreement (the "Calculation Agent") will
determine LIBOR in accordance with one of the two methods described below (which
method will be specified in the related Prospectus Supplement):
LIBO Method
If using this method to calculate LIBOR, the Calculation Agent will
determine LIBOR by reference to the quotations set forth on the Reuters Screen
LIBO Page (as defined in the International Swap Dealers Association, Inc. Code
of Standard Wording, Assumptions and Provisions for Swaps, 1986 Edition),
offered by the principal London office of each of the designated reference banks
meeting the criteria set forth below (the "Reference Banks") for making
one-month United States dollar deposits in leading banks in the London Interbank
market, as of 11:00 a.m. (London time) on such LIBOR Determination Date. In lieu
of relying on the quotations for those Reference Banks that appear at such time
on the Reuters Screen LIBO Page, the Calculation Agent will request each of the
Reference Banks to provide such offered quotations at such time.
Under this method LIBOR will be established by the Calculation Agent on
each LIBOR Determination Date as follows:
(a) If on any LIBOR Determination Date two or more Reference Banks
provide such offered quotations, LIBOR for the next Interest Accrual Period
shall be the arithmetic mean of such offered quotations (rounded upwards if
necessary to the nearest whole multiple of 1/32%).
(b) If on any LIBOR Determination Date only one or none of the
Reference Banks provides such offered quotations, LIBOR for the next
Interest Accrual Period (as such term is defined in the related Prospectus
Supplement) shall be whichever is the higher of (i) LIBOR as determined on
the previous LIBOR Determination Date or (ii) the Reserve Interest Rate.
The "Reserve Interest Rate" shall be the rate per annum which the
Calculation Agent determines to be either (i) the arithmetic mean (rounded
upwards if necessary to the nearest whole multiple of 1/32%) of the
one-month United States dollar lending rates that New York City banks
selected by the Calculation Agent are quoting, on the relevant LIBOR
Determination Date, to the principal London offices of at least two of the
Reference Banks to which such quotations are, in the opinion of the
Calculation Agent, being so made or (ii) in the event that the Calculation
Agent can determine no such arithmetic mean, the lowest one-month United
States dollar lending rate which New York City banks selected by the
Calculation Agent are quoting on such LIBOR Determination Date to leading
European banks.
(c) If on any LIBOR Determination Date for a class specified in the
related Prospectus Supplement, the Calculation Agent is required but is
unable to determine the Reserve Interest Rate in the manner provided in
paragraph (b) above, LIBOR for the next Interest Accrual Period shall be
LIBOR as determined on the preceding LIBOR Determination Date, or, in the
case of the first LIBOR Determination Date, LIBOR shall be deemed to be the
per annum rate specified as such in the related Prospectus Supplement.
Each Reference Bank (i) shall be a leading bank engaged in transactions in
Eurodollar deposits in the international Eurocurrency market; (ii) shall not
control, be controlled by, or be under common control with the Calculation
Agent; and (iii) shall have an established place of business in London. If any
such Reference Bank should be unwilling or unable to act as such or if
appointment of any such Reference Bank is terminated, another leading bank
meeting the criteria specified above will be appointed.
BBA Method
If using this method of determining LIBOR, the Calculation Agent will
determine LIBOR on the basis of the British Bankers' Association BBA") "Interest
Settlement Rate" for one-month deposits in United States dollars as found on
Telerate page 3750 as of 11:00 a.m. London time on each LIBOR Determination
Date. Interest Settlement Rates currently are based on rates quoted by eight BBA
designated banks as being, in the view of such banks, the offered rate at which
deposits are being quoted to prime banks in the London interbank market. Such
Interest Settlement Rates are calculated by eliminating the two highest rates
and the two lowest rates, averaging the four remaining rates, carrying the
result (expressed as a percentage) out to six decimal places, and rounding to
five decimal places.
If on any LIBOR Determination Date, the Calculation Agent is unable to
calculate LIBOR in accordance with the method set forth in the immediately
preceding paragraph, LIBOR for the next Interest Accrual period shall be
calculated in accordance with the LIBOR method described above under "LIBO
Method."
The establishment of LIBOR on each LIBOR Determination Date by the
Calculation Agent and its calculation of the rate of interest for the applicable
classes for the related Interest Accrual Period shall (in the absence of
manifest error) be final and binding.
COFI
The Eleventh District Cost of Funds Index is designed to represent the
monthly weighted average cost of funds for savings institutions in Arizona,
California and Nevada that are member institutions of the Eleventh Federal Home
Loan Bank District (the "Eleventh District"). The Eleventh District Cost of
Funds Index for a particular month reflects the interest costs paid on all types
of funds held by Eleventh District member institutions and is calculated by
dividing the cost of funds by the average of the total amount of those funds
outstanding at the end of that month and of the prior month and annualizing and
adjusting the result to reflect the actual number of days in the particular
month. If necessary, before these calculations are made, the component figures
are adjusted by the Federal Home Loan Bank of San Francisco ("FHLBSF") to
neutralize the effect of events such as member institutions leaving the Eleventh
District or acquiring institutions outside the Eleventh District. The Eleventh
District Cost of Funds Index is weighted to reflect the relative amount of each
type of funds held at the end of the relevant month. The major components of
funds of Eleventh District member institutions are: (i) savings deposits, (ii)
time deposits, (iii) FHLBSF advances, (iv) repurchase agreements and (v) all
other borrowings. Because the component funds represent a variety of maturities
whose costs may react in different ways to changing conditions, the Eleventh
District Cost of Funds Index does not necessarily reflect current market rates.
A number of factors affect the performance of the Eleventh District Cost of
Funds Index which may cause it to move in a manner different from indices tied
to specific interest rates, such as United States Treasury bills or LIBOR.
Because the liabilities upon which the Eleventh District Cost of Funds Index is
based were issued at various times under various market conditions and with
various maturities, the Eleventh District Cost of Funds Index may not
necessarily reflect the prevailing market interest rates on new liabilities of
similar maturities. Moreover, as stated above, the Eleventh District Cost of
Funds Index is designed to represent the average cost of funds for Eleventh
District savings institutions for the month prior to the month in which it is
due to be published. Additionally, the Eleventh District Cost of Funds Index may
not necessarily move in the same direction as market interest rates at all
times, since as longer term deposits or borrowings mature and are renewed at
prevailing market interest rates, the Eleventh District Cost of Funds Index is
influenced by the differential between the prior and the new rates on those
deposits or borrowings. In addition, movements of the Eleventh District Cost of
Funds Index, as compared to other indices tied to specific interest rates, may
be affected by changes instituted by the FHLBSF in the method used to calculate
the Eleventh District Cost of Funds Index.
The FHLBSF publishes the Eleventh District Cost of Funds Index in its
monthly Information Bulletin. Any individual may request regular receipt by mail
of Information Bulletins by writing the Federal Home Loan Bank of San Francisco,
P.O. Box 7948, 600 California Street, San Francisco, California 94120, or by
calling (415) 616-1000. The Eleventh District Cost of Funds Index may also be
obtained by calling the FHLBSF at (415) 616-2600.
The FHLBSF has stated in its Information Bulletin that the Eleventh
District Cost of Funds Index for a month "will be announced on or near the last
working day" of the following month and also has stated that it "cannot
guarantee the announcement" of such index on an exact date. So long as such
index for a month is announced on or before the tenth day of the second
following month, the interest rate for each class of Securities of a Series as
to which the applicable interest rate is determined by reference to an index
denominated as COFI (each, a class of "COFI Securities") for the Interest
Accrual Period commencing in such second following month will be based on the
Eleventh District Cost of Funds Index for the second preceding month. If
publication is delayed beyond such tenth day, such interest rate will be based
on the Eleventh District Cost of Funds Index for the third preceding month.
Unless otherwise specified in the related Prospectus Supplement, if on the
tenth day of the month in which any Interest Accrual Period commences for a
class of COFI Securities the most recently published Eleventh District Cost of
Funds Index relates to a month prior to the third preceding month, the index for
such current Interest Accrual Period and for each succeeding Interest Accrual
Period will, except as described in the next to last sentence of this paragraph,
be based on the National Monthly Median Cost of Funds Ratio to SAIF-Insured
Institutions (the "National Cost of Funds Index") published by the Office of
Thrift Supervision (the "OTS") for the third preceding month (or the fourth
preceding month if the National Cost of Funds Index for the third preceding
month has not been published on such tenth day of an Interest Accrual Period).
Information on the National Cost of Funds Index may be obtained by writing the
OTS at 1700 G Street, N.W., Washington, D.C. 20552 or calling (202) 906-6677,
and the current National Cost of Funds Index may be obtained by calling (202)
906-6988. If on any such tenth day of the month in which an Interest Accrual
Period commences the most recently published National Cost of Funds Index
relates to a month prior to the fourth preceding month, the applicable index for
such Interest Accrual Period and each succeeding Interest Accrual Period will be
based on LIBOR, as determined by the Calculation Agent in accordance with the
Agreement relating to such Series of Securities. A change of index from the
Eleventh District Cost of Funds Index to an alternative index will result in a
change in the index level, and, particularly if LIBOR is the alternative index,
could increase its volatility.
The establishment of COFI by the Calculation Agent and its calculation of
the rates of interest for the applicable classes for the related Interest
Accrual Period shall (in the absence of manifest error) be final and binding.
Treasury Index
Unless otherwise specified in the related Prospectus Supplement, on the
Treasury Index Determination Date (as such term is defined in the related
Prospectus Supplement) for each class of Securities of a Series as to which the
applicable interest rate is determined by reference to an index denominated as a
Treasury Index, the Calculation Agent will ascertain the Treasury Index for
Treasury securities of the maturity and for the period (or, if applicable, date)
specified in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, the Treasury Index for any period means the
average of the yield for each business day during the period specified therein
(and for any date means the yield for such date), expressed as a per annum
percentage rate, on (i) U.S Treasury securities adjusted to the "constant
maturity" (as further described below) specified in such Prospectus Supplement
or (ii) if no "constant maturity" is so specified, U.S. Treasury securities
trading on the secondary market having the maturity specified in such Prospectus
Supplement, in each case as published by the Federal Reserve Board in its
Statistical Release No. H.15(519). Statistical Release No. H.15(519) is
published on Monday or Tuesday of each week and may be obtained by writing or
calling the Publications Department at the Board of Governors of the Federal
Reserve System, 21st and C Streets, Washington, D.C. 20551 (202) 452-3244. If
the Calculation Agent has not yet received Statistical Release No. H.15(519) for
such week, then it will use such Statistical Release from the immediately
preceding week.
Yields on U.S. Treasury securities at "constant maturity" are derived from
the U.S. Treasury's daily yield curve. This curve, which relates the yield on a
security to its time to maturity, is based on the closing market bid yields on
actively traded Treasury securities in the over-the-counter market. These market
yields are calculated from composites of quotations reported by five leading
U.S. Government securities dealers to the Federal Reserve Bank of New York. This
method provides a yield for a given maturity even if no security with that exact
maturity is outstanding. In the event that the Treasury Index is no longer
published, a new index based upon comparable data and methodology will be
designated in accordance with the Agreement relating to the particular Series of
Securities. The Calculation Agent's determination of the Treasury Index, and its
calculation of the rates of interest for the applicable classes for the related
Interest Accrual Period shall (in the absence of manifest error) be final and
binding.
Prime Rate
Unless otherwise specified in the related Prospectus Supplement, on the
Prime Rate Determination Date (as such term is defined in the related Prospectus
Supplement) for each class of Securities of a Series as to which the applicable
interest rate is determined by reference to an index denominated as the Prime
Rate, the Calculation Agent will ascertain the Prime Rate for the related
Interest Accrual Period. Unless otherwise specified in the related Prospectus
Supplement, the Prime Rate for an Interest Accrual Period will be the "Prime
Rate" as published in the "Money Rates" section of The Wall Street Journal (or
if not so published, the "Prime Rate" as published in a newspaper of general
circulation selected by the Calculation Agent in its sole discretion) on the
related Prime Rate Determination Date. If a prime rate range is given, then the
average of such range will be used. In the event that the Prime Rate is no
longer published, a new index based upon comparable data and methodology will be
designated in accordance with the Agreement relating to the particular Series of
Securities. The Calculation Agent's determination of the Prime Rate and its
calculation of the rates of interest for the related Interest Accrual Period
shall (in the absence of manifest error) be final and binding.
Derivative Transactions
If specified in the related Prospectus Supplement, a Trust Fund may enter
into privately negotiated, over-the-counter hedging transactions with various
counterparties, including interest rate swaps, caps, collars and floors
(collectively, "Derivative Transactions") to effectively fix the rate of
interest that such Trust Fund pays on one or more borrowings or series of
borrowings. Trust Funds will use these Derivative Transactions as hedges and not
as speculative investments. Derivative transactions involve an agreement between
two parties to exchange payments that are based, respectively, on variable and
fixed rates of interest and that are calculated on the basis of a specified
amount of principal for a specified period of time. Cap and floor transactions
involve an agreement between two parties in which the first party agrees to make
payments to the counterparty when a designated market interest rate goes above
(in the case of a cap) or below (in the case of a floor) a designated level on
predetermined dates or during a specified time period. Collar transactions
involve an agreement between two parties in which the first party makes payments
to the counterparty when a designated market interest rate goes above a
designated level on predetermined dates or during a specified time period, and
the counterparty makes payments to the first party when a designated market
interest rate goes below a designated level on predetermined dates or during a
specified time period.
Book-Entry Registration of Securities
As described in the related Prospectus Supplement, if not issued in fully
registered form, each class of Securities will be registered as book-entry
certificates (the "Book-Entry Securities"). Persons acquiring beneficial
ownership interests in the Securities ("Security Owners") will hold their
Securities through the Depository Trust Company ("DTC") in the United States, or
CEDEL or Euroclear (in Europe) if they are participants of such systems, or
indirectly through organizations which are participants in such systems. The
Book-Entry Securities will be issued in one or more certificates which equal the
aggregate principal balance of the Securities and will initially be registered
in the name of Cede & Co., the nominee of DTC. CEDEL and Euroclear will hold
omnibus positions on behalf of their participants through customers' securities
accounts in CEDEL's and Euroclear's names on the books of their respective
depositaries which in turn will hold such positions in customers' securities
accounts in the depositaries' names on the books of DTC. Citibank, N.A., will
act as depositary for CEDEL and The Chase Manhattan Bank will act as depositary
for Euroclear (in such capacities, individually the "Relevant Depositary" and
collectively the "European Depositaries"). Except as described below, no person
acquiring a Book-Entry Security (each, a "beneficial owner") will be entitled to
receive a physical certificate representing such Security (a "Definitive
Security"). Unless and until Definitive Securities are issued, it is anticipated
that the only "Securityholders" of the Securities will be Cede & Co., as nominee
of DTC. Security Owners are only permitted to exercise their rights indirectly
through Participants and DTC.
The beneficial owner's ownership of a Book-Entry Security will be recorded
on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Security will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the beneficial owner's Financial Intermediary is not a DTC participant, and on
the records of CEDEL or Euroclear, as appropriate).
Security Owners will receive all distributions of principal of, and
interest on, the Securities from the Trustee through DTC and DTC participants.
While the Securities are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Securities and is
required to receive and transmit distributions of principal of, and interest on,
the Securities. Participants and indirect participants with whom Security Owners
have accounts with respect to Securities are similarly required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Security Owners. Accordingly, although Security Owners will not
possess certificates, the Rules provide a mechanism by which Security Owners
will receive distributions and will be able to transfer their interest.
Security Owners will not receive or be entitled to receive certificates
representing their respective interests in the Securities, except under the
limited circumstances described below. Unless and until Definitive Securities
are issued, Security Owners who are not Participants may transfer ownership of
Securities only through Participants and indirect participants by instructing
such Participants and indirect participants to transfer Securities, by
book-entry transfer, through DTC for the account of the purchasers of such
Securities, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of Securities will be executed through DTC and the accounts of the
respective Participants at DTC will be debited and credited. Similarly, the
Participants and indirect participants will make debits or credits, as the case
may be, on their records on behalf of the selling and purchasing Security
Owners.
Because of time zone differences, credits of securities received in CEDEL
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Euroclear or
CEDEL Participants on such business day. Cash received in CEDEL or Euroclear as
a result of sales of securities by or through a CEDEL Participant (as defined
herein) or Euroclear Participant (as defined herein) to a DTC Participant will
be received with value on the DTC settlement date but will be available in the
relevant CEDEL or Euroclear cash account only as of the business day following
settlement in DTC.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book- entry changes
in accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York ("Morgan" and in such capacity, the
"Euroclear Operator"), under contract with Euroclear Clearance Systems S.C., a
Belgian cooperative corporation (the "Belgian Cooperative"). All operations are
conducted by Morgan, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Belgian Cooperative. The Belgian Cooperative establishes policy for Euroclear on
behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other professional
financial intermediaries. Indirect access to Euroclear is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
Morgan is the Belgian branch of a New York banking corporation which is a
member bank of the Federal Reserve System. As such, it is regulated and examined
by the Board of Governors of the Federal Reserve System and the New York State
Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with Morgan are governed by
the Terms and Conditions Governing Use of Euroclear and the related Operating
Procedures of the Euroclear System and applicable Belgian law (collectively, the
"Terms and Conditions"). The Terms and Conditions govern transfers of securities
and cash within Euroclear, withdrawals of securities and cash from Euroclear,
and receipts of payments with respect to securities in Euroclear. All securities
in Euroclear are held on a fungible basis without attribution of specific
certificates to specific securities clearance accounts. The Euroclear Operator
acts under the Terms and Conditions only on behalf of Euroclear Participants,
and has no record of or relationship with persons holding through Euroclear
Participants.
Under a book-entry format, beneficial owners of the Book-Entry Securities
may experience some delay in their receipt of payments, since such payments will
be forwarded by the Trustee to Cede & Co., as nominee of DTC. Distributions with
respect to Securities held through CEDEL or Euroclear will be credited to the
cash accounts of CEDEL Participants or Euroclear Participants in accordance with
the relevant system's rules and procedures, to the extent received by the
Relevant Depositary. Such distributions will be subject to tax reporting in
accordance with relevant United States tax laws and regulations. See "Federal
Income Tax Consequences -Tax Treatment of Foreign Investors" and " -- Tax
Consequences to Holders of the Notes -- Backup Withholding" herein. Because DTC
can only act on behalf of Financial Intermediaries, the ability of a beneficial
owner to pledge Book-Entry Securities to persons or entities that do not
participate in the Depository system may be limited due to the lack of physical
certificates for such Book- Entry Securities. In addition, issuance of the
Book-Entry Securities in book- entry form may reduce the liquidity of such
Securities in the secondary market since certain potential investors may be
unwilling to purchase Securities for which they cannot obtain physical
certificates.
Monthly and annual reports on the Trust will be provided to Cede & Co., as
nominee of DTC, and may be made available by Cede & Co. to beneficial owners
upon request, in accordance with the rules, regulations and procedures creating
and affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Securities of such beneficial owners are credited.
DTC has advised the Trustee that, unless and until Definitive Securities
are issued, DTC will take any action permitted to be taken by the holders of the
Book-Entry Securities under the applicable Agreement only at the direction of
one or more Financial Intermediaries to whose DTC accounts the Book-Entry
Securities are credited, to the extent that such actions are taken on behalf of
Financial Intermediaries whose holdings include such Book-Entry Securities.
CEDEL or the Euroclear Operator, as the case may be, will take any other action
permitted to be taken by a Securityholder under the 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
direction of the related Participants, with respect to some Securities which
conflict with actions taken with respect to other Securities.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Securities. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Securities and instructions for re-
registration, the Trustee will issue Definitive Securities, and thereafter the
Trustee will recognize the holders of such Definitive Securities as
Securityholders under the applicable Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Securities among participants of DTC, CEDEL
and Euroclear, they are under no obligation to perform or continue to perform
such procedures and such procedures may be discontinued at any time.
None of the Master Servicer, the Depositor or the Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Securities held by
Cede & Co., as nominee of DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
CREDIT ENHANCEMENT
General
Credit enhancement may be provided with respect to one or more classes of a
Series of Securities or with respect to the related Trust Fund Assets. Credit
enhancement may be in the form of a limited financial guaranty policy issued by
an entity named in the related Prospectus Supplement, the subordination of one
or more classes of the Securities of such Series, the establishment of one or
more Reserve Accounts, the use of a cross- collateralization feature, use of a
mortgage pool insurance policy, FHA Insurance, VA Guarantee, bankruptcy bond,
special hazard insurance policy, surety bond, letter of credit, guaranteed
investment contract, overcollateralization, or another method of credit
enhancement contemplated herein and described in the related Prospectus
Supplement, or any combination of the foregoing. Unless otherwise specified in
the related Prospectus Supplement, 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
which exceed the amount covered by credit enhancement or which are not covered
by the credit enhancement, Securityholders will bear their allocable share of
any deficiencies.
Subordination
If so specified in the related Prospectus Supplement, protection afforded
to holders of one or more classes of Securities of a Series by means of the
subordination feature may be accomplished by the preferential right of holders
of one or more other classes of such Series (the "Senior Securities") to
distributions in respect of scheduled principal, Principal Prepayments, interest
or any combination thereof that otherwise would have been payable to holders of
Subordinated Securities under the circumstances and to the extent specified in
the related Prospectus Supplement. Protection may also be afforded to the
holders of Senior Securities of a Series by: (i) reducing the ownership interest
(if applicable) of the related Subordinated Securities; (ii) a combination of
the immediately preceding sentence and clause (i) above; or (iii) as otherwise
described in the related Prospectus Supplement. If so specified in the related
Prospectus Supplement, delays in receipt of scheduled payments on the Loans and
losses on defaulted Loans may be borne first by the various classes of
Subordinated Securities and thereafter by the various classes of Senior
Securities, in each case under the circumstances and subject to the limitations
specified in such Prospectus Supplement. The aggregate distributions in respect
of delinquent payments on the Loans over the lives of the Securities or at any
time, the aggregate losses in respect of defaulted Loans which must be borne by
the Subordinated Securities by virtue of subordination and the amount of the
distributions otherwise distributable to the Subordinated Securityholders that
will be distributable to Senior Securityholders on any Distribution Date may be
limited as specified in the related Prospectus Supplement. If aggregate
distributions in respect of delinquent payments on the Loans or aggregate losses
in respect of such Loans were to exceed an amount specified in the related
Prospectus Supplement, holders of Senior Securities would experience losses on
the Securities.
In addition to or in lieu of the foregoing, if so specified in the related
Prospectus Supplement, all or any portion of distributions otherwise payable to
holders of Subordinated Securities on any Distribution Date may instead be
deposited into one or more Reserve Accounts established with the Trustee or
distributed to holders of Senior Securities. Such deposits may be made on each
Distribution Date, for specified periods or until the balance in the Reserve
Account has reached a specified amount and, following payments from the Reserve
Account to holders of Senior Securities or otherwise, thereafter to the extent
necessary to restore the balance in the Reserve Account to required levels, in
each case as specified in the related Prospectus Supplement. Amounts on deposit
in the Reserve Account may be released to the holders of certain classes of
Securities at the times and under the circumstances specified in such Prospectus
Supplement.
If specified in the related Prospectus Supplement, various classes of
Senior Securities and Subordinated Securities may themselves be subordinate in
their right to receive certain distributions to other classes of Senior and
Subordinated Securities, respectively, through a cross-collateralization
mechanism or otherwise.
As between classes of Senior Securities and as between classes of
Subordinated Securities, distributions may be allocated among such classes (i)
in the order of their scheduled final distribution dates, (ii) in accordance
with a schedule or formula, (iii) in relation to the occurrence of events or
(iv) otherwise, in each case as specified in the related Prospectus Supplement.
As between classes of Subordinated Securities, payments to holders of Senior
Securities on account of delinquencies or losses and payments to any Reserve
Account will be allocated as specified in the related Prospectus Supplement.
Letter of Credit
The letter of credit, if any, with respect to a Series of Securities will
be issued by the bank or financial institution specified in the related
Prospectus Supplement (the "L/C Bank"). Under the letter of credit, the L/C Bank
will be obligated to honor drawings thereunder in an aggregate fixed dollar
amount, net of unreimbursed payments thereunder, equal to the percentage
specified in the related Prospectus Supplement of the aggregate principal
balance of the Loans on the related Cut-off Date or of one or more classes of
Securities (the "L/C Percentage"). If so specified in the related Prospectus
Supplement, the letter of credit may permit drawings in the event of losses not
covered by insurance policies or other credit support, such as losses arising
from damage not covered by standard hazard insurance policies, losses resulting
from the bankruptcy of a borrower and the application of certain provisions of
the Bankruptcy Code, or losses resulting from denial of insurance coverage due
to misrepresentations in connection with the origination of a Loan. The amount
available under the letter of credit will, in all cases, be reduced to the
extent of the unreimbursed payments thereunder. The obligations of the L/C Bank
under the letter of credit for each Series of Securities will expire at the
earlier of the date specified in the related Prospectus Supplement or the
termination of the Trust Fund. See "The Agreements -- Termination: Optional
Termination." A copy of the letter of credit for a Series, if any, will be filed
with the Commission as an exhibit to a Current Report on Form 8-K to be filed
within 15 days of issuance of the Securities of the related Series.
Insurance Policies, Surety Bonds and Guaranties
If so provided in the Prospectus Supplement for a Series of Securities,
deficiencies in amounts otherwise payable on such Securities or certain classes
thereof will be covered by insurance policies and/or surety bonds provided by
one or more insurance companies or sureties. Such instruments may cover, with
respect to one or more classes of Securities of the related series, timely
distributions of interest and/or full distributions of principal on the basis of
a schedule of principal distributions set forth in or determined in the manner
specified in the related Prospectus Supplement. In addition, if specified in the
related Prospectus Supplement, a Trust Fund may also include bankruptcy bonds,
special hazard insurance policies, other insurance or guaranties for the purpose
of (i) maintaining timely payments or providing additional protection against
losses on the assets included in such Trust Fund, (ii) paying administrative
expenses or (iii) establishing a minimum reinvestment rate on the payments made
in respect of such assets or principal payment rate on such assets. Such
arrangements may include agreements under which Securityholders are entitled to
receive amounts deposited in various accounts held by the Trustee upon the terms
specified in such Prospectus Supplement. A copy of any such instrument for a
series will be filed with the Commission as an exhibit to a Current Report on
Form 8-K to be filed with the Commission within 15 days of issuance of the
Securities of the related series.
Over-Collateralization
If so provided in the Prospectus Supplement for a Series of Securities, a
portion of the interest payment on each Loan may be applied as an additional
distribution in respect of principal to reduce the principal balance of a
certain class or classes of Securities and, thus, accelerate the rate of payment
of principal on such class or classes of Securities.
Reserve Accounts
If specified in the related Prospectus Supplement, credit support with
respect to a Series of Securities will be provided by the establishment and
maintenance with the Trustee for such Series of Securities, in trust, of one or
more Reserve Accounts for such Series. The related Prospectus Supplement will
specify whether or not any such Reserve Accounts will be included in the Trust
Fund for such Series.
The Reserve Account for a Series will be funded (i) by the deposit therein
of cash, United States Treasury securities, instruments evidencing ownership of
principal or interest payments thereon, letters of credit, demand notes,
certificates of deposit or a combination thereof in the aggregate amount
specified in the related Prospectus Supplement, (ii) by the deposit therein from
time to time of certain amounts, as specified in the related Prospectus
Supplement to which the Subordinate Securityholders, if any, would otherwise be
entitled or (iii) in such other manner as may be specified in the related
Prospectus Supplement.
Any amounts on deposit in the Reserve Account and the proceeds of any other
instrument upon maturity will be held in cash or will be invested in "Permitted
Investments" which, in general, will include obligations of the United States
and certain agencies thereof, certificates of deposit, certain commercial paper,
time deposits and bankers acceptances sold by eligible commercial banks and
certain repurchase agreements of United States government securities with
eligible commercial banks. If a letter of credit is deposited with the Trustee,
such letter of credit will be irrevocable. Unless otherwise specified in the
related Prospectus Supplement, any instrument deposited therein will name the
Trustee, in its capacity as trustee for the holders of the Securities, as
beneficiary and will be issued by an entity acceptable to each Rating Agency
that rates the Securities of the related Series. Additional information with
respect to such instruments deposited in the Reserve Accounts will be set forth
in the related Prospectus Supplement.
Any amounts so deposited and payments on instruments so deposited will be
available for withdrawal from the Reserve Account for distribution to the
holders of Securities of the related Series for the purposes, in the manner and
at the times specified in the related Prospectus Supplement.
Pool Insurance Policies
If specified in the related Prospectus Supplement, a separate pool
insurance policy ("Pool Insurance Policy") will be obtained for the Pool and
issued by the insurer (the "Pool Insurer") named in such Prospectus Supplement.
Each Pool Insurance Policy will, subject to the limitations described therein,
cover loss by reason of default in payment on Loans in the Pool in an amount
equal to a percentage specified in such Prospectus Supplement of the aggregate
principal balance of such Loans on the Cut-off Date which are not covered as to
their entire outstanding principal balances by Primary Mortgage Insurance
Policies. As more fully described in the related Prospectus Supplement, the
Master Servicer will present claims thereunder to the Pool Insurer on behalf of
itself, the Trustee and the holders of the Securities of the related Series. The
Pool Insurance Policies, however, are not blanket policies against loss, since
claims thereunder may only be made respecting particular defaulted Loans and
only upon satisfaction of certain conditions precedent as described in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, the Pool Insurance Policies will not cover losses due to
a failure to pay or denial of a claim under a Primary Mortgage Insurance Policy.
Unless otherwise specified in the related Prospectus Supplement, the
original amount of coverage under each Pool Insurance Policy will be reduced
over the life of the related Securities by the aggregate dollar amount of claims
paid less the aggregate of the net amounts realized by the Pool Insurer upon
disposition of all foreclosed properties. The amount of claims paid will include
certain expenses incurred by the Master Servicer as well as accrued interest on
delinquent Loans to the date of payment of the claim, unless otherwise specified
in the related Prospectus Supplement. Accordingly, if aggregate net claims paid
under any Pool Insurance Policy reach the original policy limit, coverage under
that Pool Insurance Policy will be exhausted and any further losses will be
borne by the related Securityholders.
Cross-Collateralization
If specified in the related Prospectus Supplement, the beneficial ownership
of separate groups of assets included in a Trust Fund may be evidenced by
separate classes of the related Series of Securities. In such case, credit
support may be provided by a cross-collateralization feature which requires that
distributions be made with respect to Securities evidencing a beneficial
ownership interest in, or secured by, one or more asset groups within the same
Trust Fund prior to distributions to Subordinated Securities evidencing a
beneficial ownership interest in, or secured by, one or more other asset groups
within such Trust Fund. Cross-collateralization may be provided by (i) the
allocation of certain excess amounts generated by one or more asset groups to
one or more other asset groups within the same Trust Fund or (ii) the allocation
of losses with respect to one or more asset groups to one or more other asset
groups within the same Trust Fund. Such excess amounts will be applied and/or
such losses will be allocated to the class or classes of Subordinated Securities
of the related Series then outstanding having the lowest rating assigned by any
Rating Agency or the lowest payment priority, in each case to the extent and in
the manner more specifically described in the related Prospectus Supplement. The
Prospectus Supplement for a Series which includes a cross-collateralization
feature will describe the manner and conditions for applying such
cross-collateralization feature.
If specified in the related Prospectus Supplement, the coverage provided by
one or more of the forms of credit enhancement described in this Prospectus may
apply concurrently to two or more separate Trust Funds. If applicable, the
related Prospectus Supplement will identify the Trust Funds to which such credit
enhancement relates and the manner of determining the amount of coverage
provided to such Trust Funds thereby and of the application of such coverage to
the identified Trust Funds.
YIELD AND PREPAYMENT CONSIDERATIONS
The yields to maturity and weighted average lives of the Securities will be
affected primarily by the amount and timing of principal payments received on or
in respect of the Trust Fund Assets included in the related Trust Fund. The
original terms to maturity of the Loans in a given Pool will vary depending upon
the type of Loans included therein. Each Prospectus Supplement will contain
information with respect to the type and maturities of the Loans in the related
Pool. The related Prospectus Supplement will specify the circumstances, if any,
under which the related Loans will be subject to prepayment penalties. The
prepayment experience on the Loans in a Pool will affect the weighted average
life of the related Series of Securities.
The rate of prepayment on the Loans cannot be predicted. Home equity loans
and home improvement contracts have been originated in significant volume only
during the past few years and the Depositor is not aware of any publicly
available studies or statistics on the rate of prepayment of such loans.
Generally, home equity loans and home improvement contracts are not viewed by
borrowers as permanent financing. Accordingly, such Loans may experience a
higher rate of prepayment than traditional first mortgage loans. On the other
hand, because home equity loans such as the Revolving Credit Line Loans
generally are not fully amortizing, the absence of voluntary borrower
prepayments could cause rates of principal payments lower than, or similar to,
those of traditional fully- amortizing first mortgage loans. The prepayment
experience of the related Trust Fund may be affected by a wide variety of
factors, including general economic conditions, prevailing interest rate levels,
the availability of alternative financing, homeowner mobility and the frequency
and amount of any future draws on any Revolving Credit Line Loans. Other factors
that might be expected to affect the prepayment rate of a pool of home equity
mortgage loans or home improvement contracts include the amounts of, and
interest rates on, the underlying senior mortgage loans, and the use of first
mortgage loans as long-term financing for home purchase and subordinate mortgage
loans as shorter-term financing for a variety of purposes, including home
improvement, education expenses and purchases of consumer durables such as
automobiles. Accordingly, such Loans may experience a higher rate of prepayment
than traditional fixed-rate mortgage loans. In addition, any future limitations
on the right of borrowers to deduct interest payments on home equity loans for
federal income tax purposes may further increase the rate of prepayments of the
Loans. The enforcement of a "due-on-sale" provision (as described below) will
have the same effect as a prepayment of the related Loan. See "Certain Legal
Aspects of the Loans -- Due-on-Sale Clauses." The yield to an investor who
purchases Securities in the secondary market at a price other than par will vary
from the anticipated yield if the rate of prepayment on the Loans is actually
different than the rate anticipated by such investor at the time such Securities
were purchased.
Collections on Revolving Credit Line Loans may vary because, among other
things, borrowers may (i) make payments during any month as low as the minimum
monthly payment for such month or, during the interest-only period for certain
Revolving Credit Line Loans and, in more limited circumstances, Closed-End
Loans, with respect to which an interest-only payment option has been selected,
the interest and the fees and charges for such month or (ii) make payments as
high as the entire outstanding principal balance plus accrued interest and the
fees and charges thereon. It is possible that borrowers may fail to make the
required periodic payments. In addition, collections on the Loans may vary due
to seasonal purchasing and the payment habits of borrowers.
Unless otherwise specified in the related Prospectus Supplement,
substantially all conventional Loans will contain due-on-sale provisions
permitting the mortgagee to accelerate the maturity of the loan upon sale or
certain transfers by the borrower of the related Property. Loans insured by the
FHA, and Single Family Loans partially guaranteed by the VA, are assumable with
the consent of the FHA and the VA, respectively. Thus, the rate of prepayments
on such Loans may be lower than that of conventional Loans bearing comparable
interest rates. The Master Servicer generally will enforce any due-on-sale or
due-on-encumbrance clause, to the extent it has knowledge of the conveyance or
further encumbrance or the proposed conveyance or proposed further encumbrance
of the Property and reasonably believes that it is entitled to do so under
applicable law; provided, however, that the Master Servicer will not take any
enforcement action that would impair or threaten to impair any recovery under
any related insurance policy. See "The Agreements -- Collection Procedures" and
"Certain Legal Aspects of the Loans" for a description of certain provisions of
each Agreement and certain legal developments that may affect the prepayment
experience on the Loans.
The rate of prepayments with respect to conventional mortgage loans has
fluctuated significantly in recent years. In general, if prevailing rates fall
significantly below the Loan Rates borne by the Loans, such Loans are more
likely to be subject to higher prepayment rates than if prevailing interest
rates remain at or above such Loan Rates. Conversely, if prevailing interest
rates rise appreciably above the Loan Rates borne by the Loans, such Loans are
more likely to experience a lower prepayment rate than if prevailing rates
remain at or below such Loan Rates. However, there can be no assurance that such
will be the case.
When a full prepayment is made on a Loan, the borrower is charged interest
on the principal amount of the Loan so prepaid only for the number of days in
the month actually elapsed up to the date of the prepayment, rather than for a
full month. The effect of prepayments in full will be to reduce the amount of
interest passed through or paid in the following month to holders of Securities
because interest on the principal amount of any Loan so prepaid will generally
be paid only to the date of prepayment. Partial prepayments in a given month may
be applied to the outstanding principal balances of the Loans so prepaid on the
first day of the month of receipt or the month following receipt. In the latter
case, partial prepayments will not reduce the amount of interest passed through
or paid in such month. Unless otherwise specified in the related Prospectus
Supplement, neither full nor partial prepayments will be passed through or paid
until the month following receipt.
Even assuming that the Properties provide adequate security for the Loans,
substantial delays could be encountered in connection with the liquidation of
defaulted Loans and corresponding delays in the receipt of related proceeds by
Securityholders could occur. An action to foreclose on a Property securing a
Loan is regulated by state statutes and rules and is subject to many of the
delays and expenses of other lawsuits if defenses or counterclaims are
interposed, sometimes requiring several years to complete. Furthermore, in some
states an action to obtain a deficiency judgment is not permitted following a
nonjudicial sale of a property. In the event of a default by a borrower, these
restrictions among other things, may impede the ability of the Master Servicer
to foreclose on or sell the Property or to obtain liquidation proceeds
sufficient to repay all amounts due on the related Loan. In addition, the Master
Servicer will be entitled to deduct from related liquidation proceeds all
expenses reasonably incurred in attempting to recover amounts due on defaulted
Loans and not yet repaid, including payments to senior lienholders, legal fees
and costs of legal action, real estate taxes and maintenance and preservation
expenses.
Liquidation expenses with respect to defaulted mortgage loans generally 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 large remaining
principal balance, the amount realized after expenses of liquidation would be
smaller as a percentage of the remaining principal balance of the small mortgage
loan than would be the case with the other defaulted mortgage loan having a
large remaining principal balance.
Applicable state laws generally regulate interest rates and other charges,
require certain disclosures, and require licensing of certain originators and
servicers of Loans. In addition, most have other laws, public policy and general
principles of equity relating to the protection of consumers, unfair and
deceptive acts and practices which may apply to the origination, servicing and
collection of the 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 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.
If the rate at which interest is passed through or paid to the holders of
Securities of a Series is calculated on a Loan-by-Loan basis, disproportionate
principal prepayments among Loans with different Loan Rates will affect the
yield on such Securities. In most cases, the effective yield to Securityholders
will be lower than the yield otherwise produced by the applicable pass-through
rate or interest rate and purchase price, because while interest will accrue on
each Loan from the first day of the month (unless otherwise specified in the
related Prospectus Supplement), the distribution of such interest will not be
made earlier than the month following the month of accrual.
Under certain circumstances, the Master Servicer, the holders of the
residual interests in a REMIC or any person specified in the related Prospectus
Supplement may have the option to purchase the assets of a Trust Fund thereby
effecting earlier retirement of the related Series of Securities. See "The
Agreements -- Termination; Optional Termination."
The relative contribution of the various factors affecting prepayment may
vary from time to time. There can be no assurance as to the rate of payment of
principal of the Trust Fund Assets at any time or over the lives of the
Securities.
The Prospectus Supplement relating to a Series of Securities will discuss
in greater detail the effect of the rate and timing of principal payments
(including prepayments), delinquencies and losses on the yield, weighted average
lives and maturities of such Securities.
THE AGREEMENTS
Set forth below is a description of the material provisions of each
Agreement which are not described elsewhere in this Prospectus. The description
is subject to, and qualified by reference to, the provisions of each Agreement.
Where particular provisions or terms used in the Agreements are referred to,
such provisions or terms are as specified in the Agreements.
Assignment of the Trust Fund Assets
Assignment of the Loans. At the time of issuance of the Securities of a
Series, the Depositor will cause the Loans comprising the related Trust Fund to
be assigned to the Trustee, without recourse, together with all principal and
interest received (if the Contracts are sold based on actual principal balances)
or scheduled to be received (if the Contracts are sold based on scheduled
principal balances) by or on behalf of the Depositor on or with respect to such
Loans after the Cut-off Date and other than any Retained Interest specified in
the related Prospectus Supplement. The Trustee will, concurrently with such
assignment, deliver such Securities to the Depositor in exchange for the Loans.
Each Loan will be identified in a schedule appearing as an exhibit to the
related Agreement. Such schedule will include information as to the outstanding
principal balance of each Loan after application of payments due on or before
the Cut-off Date, as well as information regarding the Loan Rate or APR, the
maturity of the Loan, the Loan-to-Value Ratios or Combined Loan-to-Value Ratios,
as applicable, at origination and certain other information.
Unless otherwise specified in the related Prospectus Supplement, the
Agreement will require that, on or prior to the Closing Date, the Depositor will
also deliver or cause to be delivered to the Trustee (or to the custodian
hereinafter referred to) as to each Single Family Loan or Multifamily Loan,
among other things, (i) the mortgage note or contract endorsed without recourse
in blank or to the order of the Trustee, (ii) the mortgage, deed of trust or
similar instrument (a "Mortgage") with evidence of recording indicated thereon
(except for any Mortgage not returned from the public recording office, in which
case the Depositor will deliver or cause to be delivered a copy of such Mortgage
together with a certificate that the original of such Mortgage was delivered to
such recording office), (iii) an assignment of the Mortgage to the Trustee,
which assignment will be in recordable form in the case of a Mortgage assignment
and (iv) such other security documents, including those relating to any senior
interests in the Property, as may be specified in the related Prospectus
Supplement or the related Agreement. Unless otherwise specified in the related
Prospectus Supplement, the Depositor will promptly cause the assignments of the
related Loans to be recorded in the appropriate public office for real property
records, except in states in which the Seller has reasonably determined (in
certain circumstances, as evidenced by an opinion of counsel acceptable to the
Trustee) that such recording is not required to protect the Trustee's interest
in such Loans against the claim of any subsequent transferee or any successor to
or creditor of the Depositor or the originator of such Loans. With respect to
any Loans that are Cooperative Loans, the Depositor will cause to be delivered
to the Trustee the related original cooperative note endorsed without recourse
in blank or to the order of the Trustee, the original security agreement, the
proprietary lease or occupancy agreement, the recognition agreement, an executed
financing agreement and the relevant stock certificate, related blank stock
powers and any other document specified in the related Prospectus Supplement.
The Depositor will cause to be filed in the appropriate office an assignment and
a financing statement evidencing the Trustee's security interest in each
Cooperative Loan.
With respect to any Loans that are Home Equity Loans, the related
Prospectus Supplement will specify whether the documents relating to such Loans
will be required to be delivered to the Trustee (or a custodian) and whether
assignments of the related Mortgage to the Trustee will be recorded. In the
event documents are not required to be delivered, they will be retained by the
Master Servicer, which may also be the Seller.
With respect to the Home Improvement Contracts, the related Prospectus
Supplement will specify whether the documents relating to such Contracts will be
required to be delivered to the Trustee (or a custodian). Notwithstanding the
foregoing, unless otherwise specified in the related Prospectus Supplement, the
Depositor will not deliver to the Trustee the original Mortgage securing a Home
Improvement Contract. In order to give notice of the right, title and interest
of Securityholders to the Home Improvement Contracts, the Depositor will cause a
UCC-1 financing statement to be executed by the Depositor or the Seller
identifying the Trustee as the secured party and identifying all Home
Improvement Contracts as collateral. Unless otherwise specified in the related
Prospectus Supplement, the Home Improvement Contracts will not be stamped or
otherwise marked to reflect their assignment to the Trustee. Therefore, if,
through negligence, fraud or otherwise, a subsequent purchaser were able to take
physical possession of the Home Improvement Contracts without notice of such
assignment, the interest of Securityholders in the Home Improvement Contracts
could be defeated. See "Certain Legal Aspects of the Loans -- The Home
Improvement Contracts."
The Trustee (or the custodian) will review the loan documents that have
been delivered to it within the time period specified in the related Prospectus
Supplement after receipt thereof, and the Trustee (or the custodian) will hold
such documents in trust for the benefit of the related Securityholders. Unless
otherwise specified in the related Prospectus Supplement, if any such document
is found to be missing or defective in any material respect, the Trustee (or
such custodian) will notify the Master Servicer and the Depositor, and the
Master Servicer will notify the related Seller. If such
Seller cannot cure the omission or defect within the time period specified in
the related Prospectus Supplement after receipt of such notice, such Seller
will be obligated to either (i) purchase the related Loan from the Trust Fund
at the Purchase Price or (ii) if so specified in the related Prospectus
Supplement, remove such Loan from the Trust Fund and substitute in its place
one or more other Loans that meets certain requirements set forth therein.
There can be no assurance that a Seller will fulfill this purchase or
substitution obligation. Although the Master Servicer may be obligated to
enforce such obligation to the extent described above under "Loan Program --
Representations by Sellers; Repurchases," the Master Servicer will not be
obligated to purchase or replace such Loan if the Seller defaults on its
obligation (nor will the Master Servicer otherwise be obligated to purchase
or replace any such Loan for any other reason). Unless otherwise specified
in the related Prospectus Supplement, this obligation of the Seller to cure,
purchase or substitute constitutes the sole remedy available to the
Securityholders or the Trustee for omission of, or a material defect in, a
constituent document.
Notwithstanding the foregoing provisions, with respect to a Trust Fund for
which a REMIC election is to be made, no purchase or substitution of a Loan will
be made if such purchase or substitution would result in a prohibited
transaction tax under the Code (unless the Master Servicer or a holder of the
related residual certificate otherwise pays such prohibited transaction from its
own funds as described herein). See "Loan Program -- Representations by Sellers;
Repurchases."
The Trustee will be authorized to appoint a custodian pursuant to a
custodial agreement to maintain possession of and, if applicable, to review the
documents relating to the Loans as agent of the Trustee.
No Recourse to Sellers, Depositor or Master Servicer
As described above under " -- Assignment of the Loans," the Depositor will
cause the Loans comprising the related Trust Fund to be assigned to the Trustee,
without recourse. However, each Seller will be obligated to repurchase or
substitute for any Loan as to which certain representations and warranties are
breached where such breach materially and adversely affects the interests of the
Securityholders, or for failure to deliver certain documents relating to the
Loans as described herein under "Assignment of the Loans" and "Loan Program --
Representations by Sellers; Repurchases." These obligations to purchase or
substitute constitute the sole remedy available to the Securityholders or the
Trustee for a breach of any such representation or failure to deliver a
constituent document.
Payments on Loans; Deposits to Security Account
The Master Servicer will establish and maintain or cause to be established
and maintained with respect to the related Trust Fund a separate account or
accounts for the collection of payments on the related Trust Fund Assets in the
Trust Fund (the "Security Account") which, unless otherwise specified in the
related Prospectus Supplement, must be either (i) maintained with a depository
institution the debt obligations of which (or in the case of a depository
institution that is the principal subsidiary of a holding company, the
obligations of which) are rated in one of the two highest rating categories by
the Rating Agency or Rating Agencies that rated one or more classes of the
related Series of Securities, (ii) an account or accounts the deposits in which
are fully insured by either the Bank Insurance Fund (the "BIF") of the FDIC or
the Savings Association Insurance Fund (as successor to the Federal Savings and
Loan Insurance Corporation ("SAIF")), (iii) an account or accounts the deposits
in which are insured by the BIF or SAIF (to the limits established by the FDIC),
and the uninsured deposits in which are otherwise secured such that, as
evidenced by an opinion of counsel, the Securityholders have a claim with
respect to the funds in the Security Account or a perfected first priority
security interest against any collateral securing such funds that is superior to
the claims of any other depositors or general creditors of the depository
institution with which the Security Account is maintained or (iv) an account or
accounts otherwise acceptable to each Rating Agency. The collateral eligible to
secure amounts in the Security Account is limited to Permitted Investments. A
Security Account may be maintained as an interest bearing account or the funds
held therein may be invested pending each succeeding Distribution Date in
Permitted Investments. Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer or its designee will be entitled to receive any
such interest or other income earned on funds in the Security Account as
additional compensation and will be obligated to deposit in the Security Account
the amount of any loss immediately as realized. The Security Account may be
maintained with the Master Servicer or with a depository institution that is an
affiliate of the Master Servicer, provided it meets the standards set forth
above.
The Master Servicer will deposit or cause to be deposited in the Security
Account for each Trust Fund, to the extent applicable and unless otherwise
specified in the related Prospectus Supplement and provided in the Agreement,
the following payments and collections received or advances made by or on behalf
of it subsequent to the Cut-off Date (other than payments due on or before the
Cut-off Date and exclusive of any amounts representing Retained Interest):
(i) all payments on account of principal, including Principal
Prepayments and, if specified in the related Prospectus Supplement, any
applicable prepayment penalties, on the Loans;
(ii) all payments on account of interest on the Loans, net of
applicable servicing compensation;
(iii) all proceeds (net of unreimbursed payments of property taxes,
insurance premiums and similar items ("Insured Expenses") incurred, and
unreimbursed Advances made, by the Master Servicer, if any) of the hazard
insurance policies and any Primary Mortgage Insurance Policies, to the
extent such proceeds are not applied to the restoration of the property or
released to the Mortgagor in accordance with the Master Servicer's normal
servicing procedures (collectively, "Insurance Proceeds") and all other
cash amounts (net of unreimbursed expenses incurred in connection with
liquidation or foreclosure ("Liquidation Expenses") and unreimbursed
Advances made, by the Master Servicer, if any) received and retained in
connection with the liquidation of defaulted Loans, by foreclosure or
otherwise ("Liquidation Proceeds"), together with any net proceeds received
on a monthly basis with respect to any properties acquired on behalf of the
Securityholders by foreclosure or deed in lieu of foreclosure;
(iv) all proceeds of any Loan or property in respect thereof purchased
by the Master Servicer, the Depositor or any Seller as described under
"Loan Program -- Representations by Sellers; Repurchases" or " --
Assignment of Trust Fund Assets" above and all proceeds of any Loan
repurchased as described under " -- Termination; Optional Termination"
below;
(v) all payments required to be deposited in the Security Account with
respect to any deductible clause in any blanket insurance policy described
under " -- Hazard Insurance" below;
(vi) any amount required to be deposited by the Master Servicer in
connection with losses realized on investments for the benefit of the
Master Servicer of funds held in the Security Account and, to the extent
specified in the related Prospectus Supplement, any payments required to be
made by the Master Servicer in connection with prepayment interest
shortfalls; and
(vii)all other amounts required to be deposited in the Security
Account pursuant to the Agreement.
The Master Servicer (or the Depositor, as applicable) may from time to time
direct the institution that maintains the Security Account to withdraw funds
from the Security Account for the following purposes:
(i) to pay to the Master Servicer the servicing fees described in the
related Prospectus Supplement, the master servicing fees (subject to
reduction) and, as additional servicing compensation, earnings on or
investment income with respect to funds in the amounts in the Security
Account credited thereto;
(ii) to reimburse the Master Servicer for Advances, such right of
reimbursement with respect to any Loan being limited to amounts received
that represent late recoveries of payments of principal and/or interest on
such Loan (or Insurance Proceeds or Liquidation Proceeds with respect
thereto) with respect to which such Advance was made;
(iii) to reimburse the Master Servicer for any Advances previously
made which the Master Servicer has determined to be nonrecoverable;
(iv) to reimburse the Master Servicer from Insurance Proceeds for expenses
incurred by the Master Servicer and covered by the related insurance policies;
(v) to reimburse the Master Servicer for unpaid master servicing fees
and unreimbursed out-of-pocket costs and expenses incurred by the Master
Servicer in the performance of its servicing obligations, such right of
reimbursement being limited to amounts received representing late
recoveries of the payments for which such advances were made; (vi) to
reimburse the Master Servicer or the Depositor for expenses incurred and
reimbursable pursuant to the Agreement;
(vii) to withdraw any amount deposited in the Security Account and not
required to be deposited therein; and
(viii) to clear and terminate the Security Account upon termination of
the Agreement.
In addition, unless otherwise specified in the related Prospectus
Supplement, on or prior to the business day immediately preceding each
Distribution Date, the Master Servicer shall withdraw from the Security Account
the amount of Available Funds, to the extent on deposit, for deposit in an
account maintained by the Trustee for the related Series of Securities.
Pre-Funding Account
If so provided in the related Prospectus Supplement, the Master Servicer
will establish and maintain a Pre-Funding Account, in the name of the related
Trustee on behalf of the related Securityholders, into which the Depositor will
deposit cash in an amount equal to the Pre-Funded Amount on the related Closing
Date. The Pre-Funding Account will be maintained with the Trustee for the
related Series of Securities and is designed solely to hold funds to be applied
by such Trustee during the Funding Period to pay to the Depositor the purchase
price for Subsequent Loans. Monies on deposit in the Pre-Funding Account will
not be available to cover losses on or in respect of the related Loans. The
Pre-Funded Amount will not exceed 50% of the initial aggregate principal amount
of the Certificates and Notes of the related Series. The Pre-Funded Amount will
be used by the related Trustee to purchase Subsequent Loans from the Depositor
from time to time during the Funding Period. The Funding Period, if any, for a
Trust Fund will begin on the related Closing Date and will end on the date
specified in the related Prospectus Supplement, which in no event will be later
than the date that is one year after the related Closing Date. Monies on deposit
in the Pre-Funding Account may be invested in Permitted Investments under the
circumstances and in the manner described in the related Agreement. Earnings on
investment of funds in the Pre-Funding Account will be deposited into the
related Security Account or such other trust account as is specified in the
related Prospectus Supplement and losses will be charged against the funds on
deposit in the Pre-Funding Account. Any amounts remaining in the Pre-Funding
Account at the end of the Funding Period will be distributed to the related
Securityholders in the manner and priority specified in the related Prospectus
Supplement, as a prepayment of principal of the related Securities.
In addition, if so provided in the related Prospectus Supplement, on the
related Closing Date the Depositor will deposit in an account (the "Capitalized
Interest Account") cash in such amount as is necessary to cover shortfalls in
interest on the related Series of Securities that may arise as a result of
utilization of the Pre-Funding Account as described above. The Capitalized
Interest Account shall be maintained with the Trustee for the related Series of
Securities and is designed solely to cover the above-mentioned interest
shortfalls. Monies on deposit in the Capitalized Interest Account will not be
available to cover losses on or in respect of the related Loans. To the extent
that the entire amount on deposit in the Capitalized Interest Account has not
been applied to cover shortfalls in interest on the related Series of Securities
by the end of the Funding Period, any amounts remaining in the Capitalized
Interest Account will be paid to the Depositor.
Sub-Servicing by Sellers
Each Seller of a Loan or any other servicing entity may act as the Sub-
Servicer for such Loan pursuant to an agreement (each, a "Sub-Servicing
Agreement"), which will not contain any terms inconsistent with the related
Agreement. While each Sub-Servicing Agreement will be a contract solely between
the Master Servicer and the Sub-Servicer, the 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 Loans, the Trustee or any successor Master Servicer must recognize the
Sub-Servicer's rights and obligations under such Sub- Servicing Agreement.
All references in this Prospectus and in the Prospectus Supplement for any
Series to actions, rights or duties of the Master Servicer will be deemed to
include any one or more Sub-Servicers acting on the Master Servicer's behalf.
Notwithstanding the foregoing, unless otherwise provided in the related
Prospectus Supplement, the Master Servicer will remain liable for its servicing
duties and obligations under the Master Servicing Agreement as if the Master
Servicer alone were servicing the Loans.
Collection Procedures
The Master Servicer will make reasonable efforts to collect all payments
called for under the Loans and will, consistent with each Agreement and any Pool
Insurance Policy, Primary Mortgage Insurance Policy, FHA Insurance, VA Guaranty,
bankruptcy bond or alternative arrangements, follow such collection procedures
as are customary with respect to loans that are comparable to the Loans.
Consistent with the above, the Master Servicer may, in its discretion, (i) waive
any assumption fee, late payment or other charge in connection with a Loan and
(ii) to the extent not inconsistent with the coverage of such Loan by a Pool
Insurance Policy, Primary Mortgage Insurance Policy, FHA Insurance, VA Guaranty,
bankruptcy bond or alternative arrangements, if applicable, arrange with a
borrower a schedule for the liquidation of delinquencies running for no more
than 125 days after the applicable due date for each payment. To the extent the
Master Servicer is obligated to make or cause to be made Advances, such
obligation will remain during any period of such an arrangement.
In any case in which property securing a Loan has been, or is about to be,
conveyed by the mortgagor or obligor, the Master Servicer will, to the extent it
has knowledge of such conveyance or proposed conveyance, exercise or cause to be
exercised its rights to accelerate the maturity of such Loan under any
due-on-sale clause applicable thereto, but only if the exercise of such rights
is permitted by applicable law and will not impair or threaten to impair any
recovery under any Primary Mortgage Insurance Policy. If these conditions are
not met or if the Master Servicer reasonably believes it is unable under
applicable law to enforce such due-on-sale clause or if such Loan is a mortgage
loan insured by the FHA or partially guaranteed by the VA, the Master Servicer
will enter into or cause to be entered into an assumption and modification
agreement with the person to whom such property has been or is about to be
conveyed, pursuant to which such person becomes liable for repayment of the Loan
and, to the extent permitted by applicable law, the mortgagor remains liable
thereon. Any fee collected by or on behalf of the Master Servicer for entering
into an assumption agreement will be retained by or on behalf of the Master
Servicer as additional servicing compensation. See "Certain Legal Aspects of the
Loans -- Due-on-Sale Clauses." In connection with any such assumption, the terms
of the related Loan may not be changed.
With respect to Cooperative Loans, any prospective purchaser will generally
have to obtain the approval of the board of directors of the relevant
Cooperative before purchasing the shares and acquiring rights under the related
proprietary lease or occupancy agreement. See "Certain Legal Aspects of the
Loans." This approval is usually based on the purchaser's income and net worth
and numerous other factors. Although the Cooperative's approval is unlikely to
be unreasonably withheld or delayed, the necessity of acquiring such approval
could limit the number of potential purchasers for those shares and otherwise
limit the Trust Fund's ability to sell and realize the value of those shares.
In general a "tenant-stockholder" (as defined in Code Section 216(b)(2) of
a corporation that qualifies as a "cooperative housing corporation" within the
meaning of Code Section 216(b)(1) is allowed a deduction for amounts paid or
accrued within his taxable year to the corporation representing his
proportionate share of certain interest expenses and certain real estate taxes
allowable as a deduction under Code Section 216(a) to the corporation under Code
Sections 163 and 164. In order for a corporation to qualify under Code Section
216(b)(1) for its taxable year in which such items are allowable as a deduction
to the corporation, such Section requires, among other things, that at least 80%
of the gross income of the corporation be derived from its tenant-stockholders
(as defined in Code Section 216(b)(2)). By virtue of this requirement, the
status of a corporation for purposes of Code Section 216(b)(1) must be
determined on a year-to-year basis. Consequently, there can be no assurance that
Cooperatives relating to the Cooperative Loans will qualify under such Section
for any particular year. In the event that such a Cooperative fails to qualify
for one or more years, the value of the collateral securing any related
Cooperative Loans could be significantly impaired because no deduction would be
allowable to tenant-stockholders under Code Section 216(a) with respect to those
years. In view of the significance of the tax benefits accorded tenant-
stockholders of a corporation that qualifies under Code Section 216(b)(1), the
likelihood that such a failure would be permitted to continue over a period of
years appears remote.
Hazard Insurance
Except as otherwise specified in the related Prospectus Supplement, the
Master Servicer will require the mortgagor or obligor on each Loan to maintain a
hazard insurance policy providing for no less than the coverage of the standard
form of fire insurance policy with extended coverage customary for the type of
Property in the state in which such Property is located. Such coverage will be
in an amount that is at least equal to the lesser of (i) the maximum insurable
value of the improvements securing such Loan or (ii) the greater of (y) the
outstanding principal balance of the Loan and (z) an amount such that the
proceeds of such policy shall be sufficient to prevent the mortgagor and/or the
mortgagee from becoming a co-insurer. All amounts collected by the Master
Servicer under any hazard policy (except for amounts to be applied to the
restoration or repair of the Property or released to the mortgagor or obligor in
accordance with the Master Servicer's normal servicing procedures) will be
deposited in the related Security Account. In the event that the Master Servicer
maintains a blanket policy insuring against hazard losses on all the Loans
comprising part of a Trust Fund, it will conclusively be deemed to have
satisfied its obligation relating to the maintenance of hazard insurance. Such
blanket policy may contain a deductible clause, in which case the Master
Servicer will be required to deposit from its own funds into the related
Security Account the amounts which would have been deposited therein but for
such clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements securing a Loan by fire,
lightning, explosion, smoke, windstorm and hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the Loans may have been underwritten
by different insurers under different state laws in accordance with different
applicable forms and therefore may not contain identical terms and conditions,
the basic terms thereof are dictated by respective state laws, and most such
policies typically do not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other water-related
causes, earth movement (including earthquakes, landslides and mud flows),
nuclear reactions, wet or dry rot, vermin, rodents, insects or domestic animals,
theft and, in certain cases, vandalism and hurricanes. The foregoing list is
merely indicative of certain kinds of uninsured risks and is not intended to be
all inclusive. If the Property securing a Loan is located in a federally
designated special flood area at the time of origination, the Master Servicer
will require the mortgagor or obligor to obtain and maintain flood insurance.
The hazard insurance policies covering properties securing the Loans
typically contain a clause which in effect requires the insured at all time to
carry insurance of a specified percentage (generally 80% to 90%) of the full
replacement value of the insured property in order to recover the full amount of
any partial loss. If the insured's coverage falls below this specified
percentage, then the insurer's liability in the event of partial loss will not
exceed the larger of (i) the actual cash value (generally defined as replacement
cost at the time and place of loss, less physical depreciation) of the
improvements damaged or destroyed or (ii) such proportion of the loss as the
amount of insurance carried bears to the specified percentage of the full
replacement cost of such improvements. Since the amount of hazard insurance the
Master Servicer may cause to be maintained on the improvements securing the
Loans declines as the principal balances owing thereon decrease, and since
improved real estate generally has appreciated in value over time in the past,
the effect of this requirement in the event of partial loss may be that hazard
insurance proceeds will be insufficient to restore fully the damaged property.
If specified in the related Prospectus Supplement, a special hazard insurance
policy will be obtained to insure against certain of the uninsured risks
described above. See "Credit Enhancement."
The Master Servicer will not require that a standard hazard or flood
insurance policy be maintained on the cooperative dwelling relating to any
Cooperative Loan. Generally, the Cooperative itself is responsible for
maintenance of hazard insurance for the property owned by the Cooperative and
the tenant-stockholders of that Cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to such borrower's cooperative dwelling or such
Cooperative's building could significantly reduce the value of the collateral
securing such Cooperative Loan to the extent not covered by other credit
support.
If the Property securing a defaulted Loan is damaged and proceeds, if any,
from the related hazard insurance policy are insufficient to restore the damaged
Property, 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 Securityholders on liquidation of the Loan after
reimbursement of the Master Servicer for its expenses and (ii) that such
expenses will be recoverable by it from related Insurance Proceeds or
Liquidation Proceeds.
If recovery on a defaulted Loan under any related Insurance Policy is not
available for the reasons set forth in the preceding paragraph, or if the
defaulted Loan is not covered by an Insurance Policy, the Master Servicer will
be obligated to follow or cause to be followed such normal practices and
procedures as it deems necessary or advisable to realize upon the defaulted
Loan. If the proceeds of any liquidation of the Property securing the defaulted
Loan are less than the principal balance of such Loan plus interest accrued
thereon that is payable to Securityholders, the Trust Fund will realize a loss
in the amount of such difference plus the aggregate of expenses incurred by the
Master Servicer in connection with such proceedings and which are reimbursable
under the Agreement. In the unlikely event that any such proceedings result in a
total recovery which is, after reimbursement to the Master Servicer of its
expenses, in excess of the principal balance of such Loan plus interest accrued
thereon that is payable to Securityholders, the Master Servicer will be entitled
to withdraw or retain from the Security Account amounts representing its normal
servicing compensation with respect to such Loan and, unless otherwise specified
in the related Prospectus Supplement, amounts representing the balance of such
excess, exclusive of any amount required by law to be forwarded to the related
borrower, as additional servicing compensation.
If the Master Servicer or its designee recovers Insurance Proceeds which,
when added to any related Liquidation Proceeds and after deduction of certain
expenses reimbursable to the Master Servicer, exceed the principal balance of
such Loan plus interest accrued thereon that is payable to Securityholders, the
Master Servicer will be entitled to withdraw or retain from the Security Account
amounts representing its normal servicing compensation with respect to such
Loan. In the event that the Master Servicer has expended its own funds to
restore the damaged Property and such funds have not been reimbursed under the
related hazard insurance policy, it will be entitled to withdraw from the
Security Account out of related Liquidation Proceeds or Insurance Proceeds an
amount equal to such expenses incurred by it, in which event the Trust Fund may
realize a loss up to the amount so charged. Since Insurance Proceeds cannot
exceed deficiency claims and certain expenses incurred by the Master Servicer,
no such payment or recovery will result in a recovery to the Trust Fund which
exceeds the principal balance of the defaulted Loan together with accrued
interest thereon. See "Credit Enhancement."
The proceeds from any liquidation of a Loan will be applied in the
following order of priority: first, to reimburse the Master Servicer for any
unreimbursed expenses incurred by it to restore the related Property and any
unreimbursed servicing compensation payable to the Master Servicer with respect
to such Loan; second, to reimburse the Master Servicer for any unreimbursed
Advances with respect to such Loan; third, to accrued and unpaid interest (to
the extent no Advance has been made for such amount) on such Loan; and fourth,
as a recovery of principal of such Loan.
Realization Upon Defaulted Loans
Primary Mortgage Insurance Policies. If so specified in the related
Prospectus Supplement, the Master Servicer will maintain or cause to be
maintained, as the case may be, in full force and effect, a Primary Mortgage
Insurance Policy with regard to each Loan for which such coverage is required.
Primary Mortgage Insurance Policies reimburse certain losses sustained by reason
of defaults in payments by borrowers. The Master Servicer will not cancel or
refuse to renew any such Primary Mortgage Insurance Policy in effect at the time
of the initial issuance of a Series of Securities that is required to be kept in
force under the applicable Agreement unless the replacement Primary Mortgage
Insurance Policy for such cancelled or nonrenewed policy is maintained with an
insurer whose claims-paying ability is sufficient to maintain the current rating
of the classes of Securities of such Series that have been rated.
FHA Insurance; VA Guaranties. Loans designated in the related Prospectus
Supplement as insured by the FHA will be insured by the FHA as authorized under
the United States Housing Act of 1937, as amended. In addition to the Title I
Program of the FHA, see "Certain Legal Aspects of the Loans -- Title I Program,"
certain Loans will be insured under various FHA programs including the standard
FHA 203(b) program to finance the acquisition of one- to four-family housing
units and the FHA 245 graduated payment mortgage program. These programs
generally limit the principal amount and interest rates of the mortgage loans
insured. Loans insured by FHA generally require a minimum down payment of
approximately 5% of the original principal amount of the loan. No FHA-insured
Loans relating to a Series may have an interest rate or original principal
amount exceeding the applicable FHA limits at the time of origination of such
loan.
Loans designated in the related Prospectus Supplement as guaranteed by the
VA will be partially guaranteed by the VA under the Serviceman's Readjustment
Act of 1944, as amended (a "VA Guaranty"). The Serviceman's Readjustment Act of
1944, as amended, permits a veteran (or in certain instances the spouse of a
veteran) to obtain a mortgage loan guaranty by the VA covering mortgage
financing of the purchase of a one- to four-family dwelling unit at interest
rates permitted by the VA. The program has no mortgage loan limits, requires no
down payment from the purchaser and permits the guaranty of mortgage loans of up
to 30 years' duration. However, no Loan guaranteed by the VA will have an
original principal amount greater than five times the partial VA guaranty for
such Loan. The maximum guaranty that may be issued by the VA under a VA
guaranteed mortgage loan depends upon the original principal amount of the
mortgage loan, as further described in 38 United States Code Section 1803(a), as
amended.
Servicing and Other Compensation and Payment of Expenses
The principal servicing compensation to be paid to the Master Servicer in
respect of its master servicing activities for each Series of Securities will be
equal to the percentage per annum described in the related Prospectus Supplement
(which may vary under certain circumstances) of the outstanding principal
balance of each Loan, and such compensation will be retained by it from
collections of interest on such Loan in the related Trust Fund (the "Master
Servicing Fee"). As compensation for its servicing duties, a Sub- Servicer or,
if there is no Sub-Servicer, the Master Servicer will be entitled to a monthly
servicing fee as described in the related Prospectus Supplement. In addition,
the Master Servicer or Sub-Servicer will retain all prepayment charges,
assumption fees and late payment charges, to the extent collected from
borrowers, and any benefit that may accrue as a result of the investment of
funds in the applicable Security Account (unless otherwise specified in the
related Prospectus Supplement).
The Master Servicer will, to the extent provided in the related Prospectus
Supplement, pay or cause to be paid certain ongoing expenses associated with
each Trust Fund and incurred by it in connection with its responsibilities under
the related Agreement, including, without limitation, payment of the fees and
disbursements of the Trustee, any custodian appointed by the Trustee, the
certificate registrar and any paying agent, and payment of expenses incurred in
enforcing the obligations of Sub-Servicers and Sellers. The Master Servicer will
be entitled to reimbursement of expenses incurred in enforcing the obligations
of Sub-Servicers and Sellers under certain limited circumstances. Certain other
expenses may be borne by the related Trust Fund as specified in the related
Prospectus Supplement.
Evidence as to Compliance
Each Agreement will provide that on or before a specified date in each
year, a firm of independent public accountants will furnish a statement to the
Trustee to the effect that, on the basis of the examination by such firm
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FHLMC, the servicing by or on behalf of the Master Servicer of mortgage loans or
private asset backed securities, or under pooling and servicing agreements
substantially similar to each other (including the related Agreement) was
conducted in compliance with such agreements except for any significant
exceptions or errors in records that, in the opinion of the firm, the Audit
Program for Mortgages serviced for FHLMC, or the Uniform Single Attestation
Program for Mortgage Bankers, it is required to report. In rendering its
statement such firm may rely, as to matters relating to the direct servicing of
Loans by Sub-Servicers, upon comparable statements for examinations conducted
substantially in compliance with the Uniform Single Attestation Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FHLMC (rendered
within one year of such statement) of firms of independent public accountants
with respect to the related Sub-Servicer.
Each Agreement will also provide for delivery to the Trustee, on or before
a specified date in each year, of an annual statement signed by an officer of
the Master Servicer to the effect that the Master Servicer has fulfilled its
obligations under the Agreement throughout the preceding year. Copies of the
annual accountants' statement and the statement of an officer of the Master
Servicer may be obtained by Securityholders of the related Series without charge
upon written request to the Master Servicer at the address set forth in the
related Prospectus Supplement.
Certain Matters Regarding the Master Servicer and the Depositor
The Master Servicer under each Pooling and Servicing Agreement or Master
Servicing Agreement, as applicable, will be named in the related Prospectus
Supplement. The entity serving as Master Servicer may be an affiliate of the
Depositor and may otherwise have normal business relationships with the
Depositor or the Depositor's affiliates.
Each Agreement will provide that the Master Servicer may not resign from
its obligations and duties under the Agreement except upon a determination that
its duties thereunder are no longer permissible under applicable law. The Master
Servicer may, however, be removed from its obligations and duties as set forth
in the Agreement. No such resignation will become effective until the Trustee or
a successor servicer has assumed the Master Servicer's obligations and duties
under the Agreement.
Each Agreement will further provide that neither the Master Servicer, the
Depositor nor any director, officer, employee, or agent of the Master Servicer
or the Depositor will be under any liability to the related Trust Fund or
Securityholders for any action taken or for refraining from the taking of any
action in good faith pursuant to the Agreement, or for errors in judgment;
provided, however, that neither the Master Servicer, the Depositor nor any such
person will be protected against any liability which would otherwise be imposed
by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. Each Agreement will further provide that the
Master Servicer, the Depositor and any director, officer, employee or agent of
the Master Servicer or the Depositor will be entitled to indemnification by the
related Trust Fund and will be held harmless against any loss, liability or
expense incurred in connection with any legal action relating to the Agreement
or the Securities, other than any loss, liability or expense related to any
specific Loan or Loans (except any such loss, liability or expense otherwise
reimbursable pursuant to the Agreement) and any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. In addition, each Agreement will provide that
neither the Master Servicer nor the Depositor will be under any obligation to
appear in, prosecute or defend any legal action which is not incidental to its
respective responsibilities under the Agreement and which in its opinion may
involve it in any expense or liability. The Master Servicer or the Depositor
may, however, in its discretion undertake any such action which it may deem
necessary or desirable with respect to the Agreement and the rights and duties
of the parties thereto and the interests of the Securityholders thereunder. In
such event, the legal expenses and costs of such action and any liability
resulting therefrom will be expenses, costs and liabilities of the Trust Fund
and the Master Servicer or the Depositor, as the case may be, will be entitled
to be reimbursed therefor out of funds otherwise distributable to
Securityholders.
Except as otherwise specified in the related Prospectus Supplement, any
person into which the Master Servicer may be merged or consolidated, or any
person resulting from any merger or consolidation to which the Master Servicer
is a party, or any person succeeding to the business of the Master Servicer,
will be the successor of the Master Servicer under each Agreement, provided that
such person is qualified to sell mortgage loans to, and service mortgage loans
on behalf of, FNMA or FHLMC and further provided that such merger, consolidation
or succession does not adversely affect the then current rating or ratings of
the class or classes of Securities of such Series that have been rated.
Events of Default; Rights Upon Event of Default
Pooling and Servicing Agreement; Master Servicing Agreement. Except as
otherwise specified in the related Prospectus Supplement, Events of Default
under each Agreement will consist of (i) any failure by the Master Servicer to
distribute or cause to be distributed to Securityholders of any class any
required payment which continues unremedied for five days after the giving of
written notice of such failure to the Master Servicer by the Trustee or the
Depositor, or to the Master Servicer, the Depositor and the Trustee by the
holders of Securities of such class evidencing not less than 25% of the total
distributions allocated to such class ("Percentage Interests"); (ii) any failure
by the Master Servicer duly to observe or perform in any material respect any of
its other covenants or agreements in the Agreement, which failure materially
affects the rights of Securityholders and continues unremedied for thirty days
after the giving of written notice of such failure to the Master Servicer by the
Trustee or the Depositor, or to the Master Servicer, the Depositor and the
Trustee by the holders of Securities of any class evidencing not less than 25%
of the aggregate Percentage Interests constituting such class; and (iii) certain
events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceeding and certain actions by or on behalf of the
Master Servicer indicating its insolvency, reorganization or inability to pay
its obligations.
If specified in the related Prospectus Supplement, the Agreement will
permit the Trustee to sell the Trust Fund Assets and the other assets of the
Trust Fund described under "Credit Enhancement" herein in the event that
payments in respect thereto are insufficient to make payments required in the
Agreement. The assets of the Trust Fund will be sold only under the
circumstances and in the manner specified in the related Prospectus Supplement.
Unless otherwise provided in the related Prospectus Supplement, so long as
an Event of Default under an Agreement remains unremedied, the Depositor or the
Trustee may, and at the direction of holders of Securities of any class
evidencing not less than 66 2/3% of the aggregate Percentage Interests
constituting such class and under such other circumstances as may be specified
in such Agreement, the Trustee shall terminate all of the rights and obligations
of the Master Servicer under the Agreement relating to such Trust Fund and in
and to the related Trust Fund Assets, whereupon the Trustee will succeed to all
of the responsibilities, duties and liabilities of the Master Servicer under the
Agreement, including, if specified in the related Prospectus Supplement, the
obligation to make Advances, and will be entitled to similar compensation
arrangements. In the event that the Trustee is unwilling or unable so to act, it
may appoint, or petition a court of competent jurisdiction for the appointment
of, a mortgage loan servicing institution with a net worth of a least
$10,000,000 to act as successor to the Master Servicer under the Agreement.
Pending such appointment, the Trustee is obligated to act in such capacity. The
Trustee and any such successor may agree upon the servicing compensation to be
paid, which in no event may be greater than the compensation payable to the
Master Servicer under the Agreement.
Unless otherwise provided in the related Prospectus Supplement, no
Securityholder, solely by virtue of such holder's status as a Securityholder,
will have any right under any Agreement to institute any proceeding with respect
to such Agreement, unless such holder previously has given to the Trustee
written notice of default and unless the holders of Securities of any class of
such Series evidencing not less than 66 2/3% of the aggregate Percentage
Interests constituting such class have made written request upon the Trustee to
institute such proceeding in its own name as Trustee thereunder and have offered
to the Trustee reasonable indemnity, and the Trustee for 60 days has neglected
or refused to institute any such proceeding.
Indenture. Except as otherwise specified in the related Prospectus
Supplement, Events of Default under the Indenture for each Series of Notes
include: (i) a default in the payment of any principal of or interest on any
Note of such Series which continues unremedied for five days after the giving of
written notice of such default is given as specified in the related Prospectus
Supplement; (ii) failure to perform in any material respect any other covenant
of the Depositor or the Trust Fund in the Indenture which continues for a period
of thirty (30) days after notice thereof is given in accordance with the
procedures described in the related Prospectus Supplement; (iii) certain events
of bankruptcy, insolvency, receivership or liquidation of the Depositor or the
Trust Fund; or (iv) any other Event of Default provided with respect to Notes of
that Series including but not limited to certain defaults on the part of the
issuer, if any, of a credit enhancement instrument supporting such Notes.
If an Event of Default with respect to the Notes of any Series at the time
outstanding occurs and is continuing, either the Trustee or the holders of a
majority of the then aggregate outstanding amount of the Notes of such Series
may declare the principal amount (or, if the Notes of that Series have an
interest rate of 0%, such portion of the principal amount as may be specified in
the terms of that Series, as provided in the related Prospectus Supplement) of
all the Notes of such Series to be due and payable immediately. Such declaration
may, under certain circumstances, be rescinded and annulled by the holders of
more than 50% of the Percentage Interests of the Notes of such Series.
If, following an Event of Default with respect to any Series of Notes, the
Notes of such Series have been declared to be due and payable, the Trustee may,
in its discretion, notwithstanding such acceleration, elect to maintain
possession of the collateral securing the Notes of such Series and to continue
to apply distributions on such collateral as if there had been no declaration of
acceleration if such collateral continues to provide sufficient funds for the
payment of principal of and interest on the Notes of such Series as they would
have become due if there had not been such a declaration. In addition, the
Trustee may not sell or otherwise liquidate the collateral securing the Notes of
a Series following an Event of Default, other than a default in the payment of
any principal or interest on any Note of such Series for five days or more,
unless (a) the holders of 100% of the Percentage Interests of the Notes of such
Series consent to such sale, (b) the proceeds of such sale or liquidation are
sufficient to pay in full the principal of and accrued interest, due and unpaid,
on the outstanding Notes of such Series at the date of such sale or (c) the
Trustee determines that such collateral would not be sufficient on an ongoing
basis to make all payments on such Notes as such payments would have become due
if such Notes had not been declared due and payable, and the Trustee obtains the
consent of the holders of 66 2/3% of the Percentage Interests of the Notes of
such Series.
In the event that the Trustee liquidates the collateral in connection with
an Event of Default involving a default for five days or more in the payment of
principal of or interest on the Notes of a Series, the Indenture provides that
the Trustee will have a prior lien on the proceeds of any such liquidation for
unpaid fees and expenses. As a result, upon the occurrence of such an Event of
Default, the amount available for distribution to the Noteholders would be less
than would otherwise be the case. However, the Trustee may not institute a
proceeding for the enforcement of its lien except in connection with a
proceeding for the enforcement of the lien of the Indenture for the benefit of
the Noteholders after the occurrence of such an Event of Default.
Except as otherwise specified in the related Prospectus Supplement, in the
event the principal of the Notes of a Series is declared due and payable, as
described above, the holders of any such Notes issued at a discount from par
may be entitled to receive no more than an amount equal to the unpaid
principal amount thereof less the amount of such discount which is
unamortized.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing with respect
to a Series of Notes, the Trustee shall be under no obligation to exercise any
of the rights or powers under the Indenture at the request or direction of any
of the holders of Notes of such Series, unless such holders offered to the
Trustee security or indemnity satisfactory to it against the costs, expenses and
liabilities which might be incurred by it in complying with such request or
direction. Subject to such provisions for indemnification and certain
limitations contained in the Indenture, the holders of a majority of the then
aggregate outstanding amount of the Notes of such Series shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee with respect to the Notes of such Series, and the holders of a majority
of the then aggregate outstanding amount of the Notes of such Series may, in
certain cases, waive any default with respect thereto, except a default in the
payment of principal or interest or a default in respect of a covenant or
provision of the Indenture that cannot be modified without the waiver or consent
of all the holders of the outstanding Notes of such Series affected thereby.
Amendment
Except as otherwise specified in the related Prospectus Supplement, each
Agreement may be amended by the Depositor, the Master Servicer and the Trustee,
without the consent of any of the Securityholders, (i) to cure any ambiguity or
mistake; (ii) to correct any defective provision therein or to supplement any
provision therein which may be inconsistent with any other provision therein;
(iii) to add to the duties of the Depositor, the Seller or the Master Servicer;
(iv) to add any other provisions with respect to matters or questions arising
thereunder or (v) to modify, alter, amend, add to or rescind any of the terms or
provisions contained in such Agreement; provided, however, that any such action
pursuant to clauses (iv) or (v) above, will not, as evidenced by an opinion of
counsel, adversely affect in any material respect the interests of any
Securityholder; provided, however, that no opinion of counsel will be required
if the person requesting such amendment obtains a letter from each Rating Agency
requested to rate the class or classes of Securities of such Series stating that
such amendment will not result in the downgrading or withdrawal of the
respective ratings then assigned to such Securities. In addition, if a REMIC or
FASIT election is made with respect to a Trust Fund, the related Agreement may
be amended to modify, eliminate or add to any of its provisions to such extent
as may be necessary or helpful to maintain the qualification of the related
Trust Fund as a REMIC or as a FASIT, avoid or minimize the risk of the
imposition of any tax on the REMIC or FASIT or to comply with any other
provision of the Code, provided that the Trustee has received an opinion of
counsel to the effect that such action is necessary or helpful to maintain such
qualification, avoid or minimize the risk of imposition of such a tax or comply
with any such requirement of the Code, as the case may be. Except as otherwise
specified in the related Prospectus Supplement, each Agreement may also be
amended by the Depositor, the Master Servicer and the Trustee with the consent
of holders of Securities of such Series evidencing not less than 66 2/3% of the
aggregate Percentage Interests of each class affected thereby for the purpose of
adding any provisions to or changing in an manner or eliminating any of the
provisions of the Agreement or of modifying in any manner the rights of the
holders of the related Securities; provided, however, that no such amendment may
(i) reduce in any manner the amount of or delay the timing of, payments received
on Loans which are required to be distributed on any Security without the
consent of the holder of such Security, (ii) adversely affect in any material
respect the interests of the holders of any class of Securities in a manner
other than as described in the immediately preceding clause (i), without the
consent of the holders of Securities of such class evidencing not less than 66
2/3% of the Percentage Interests of such class, or (iii) reduce the aforesaid
percentage of Securities of any class the holders of which are required to
consent to any such amendment without the consent of the holders of all
Securities of such class covered by such Agreement then outstanding. If a REMIC
or FASIT election is made with respect to a Trust Fund, the Trustee will not be
entitled to consent to an amendment to the related Agreement without having
first received an opinion of counsel to the effect that such amendment will not
cause such Trust Fund to fail to qualify as a REMIC or as a FASIT, as the case
may be.
Termination; Optional Termination
Pooling and Servicing Agreement; Trust Agreement. Unless otherwise
specified in the related Agreement, the obligations created by each Pooling and
Servicing Agreement and Trust Agreement for each Series of Securities will
terminate upon the payment to the related Securityholders of all amounts held in
the Security Account or by the Master Servicer and required to be paid to them
pursuant to such Agreement following the later of (i) the final payment of or
other liquidation of the last of the Trust Fund Assets subject thereto or the
disposition of all property acquired upon foreclosure of any such Trust Fund
Assets remaining in the Trust Fund and (ii) the purchase by the Master Servicer
or, if specified in the related Prospectus Supplement, by the holder of a call
right with respect to the Trust Fund Assets after the passage of a specified
period of time or after the principal balance of the Trust Fund Assets or the
Securities has been reduced to a specified level.
Unless otherwise specified by the related Prospectus Supplement, any such
purchase of Trust Fund Assets and property acquired in respect of Trust Fund
Assets will be made at the option of the Master Servicer or such other person at
a price specified in the related Prospectus Supplement. The exercise of such
right will effect early retirement of the Securities of that Series, but the
right of the Master Servicer or such other person to so purchase is subject to
the principal balance of the related Trust Fund Assets being less than the
percentage specified in the related Prospectus Supplement of the aggregate
principal balance of the Trust Fund Assets at the Cut-off Date for the Series.
The foregoing is subject to the provision that if a REMIC election is made with
respect to a Trust Fund, any repurchase pursuant to clause (ii) above will be
made only in connection with a "qualified liquidation" of the REMIC within the
meaning of Section 860F(g)(4) of the Code.
Indenture. The Indenture will be discharged with respect to a Series of
Notes (except with respect to certain continuing rights specified in the
Indenture) upon the delivery to the Trustee for cancellation of all the Notes of
such Series or, with certain limitations, upon deposit with the Trustee of funds
sufficient for the payment in full of all of the Notes of such Series.
In addition to such discharge with certain limitations, the Indenture will
provide that, if so specified with respect to the Notes of any Series, the
related Trust Fund will be discharged from any and all obligations in respect of
the Notes of such Series (except for certain obligations relating to temporary
Notes and exchange of Notes, to register the transfer of or exchange Notes of
such Series, to replace stolen, lost or mutilated Notes of such Series, to
maintain paying agencies and to hold monies for payment in trust) upon the
deposit with the Trustee, in trust, of money and/or direct obligations of or
obligations guaranteed by the United States of America which through the payment
of interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of and each
installment of interest on the Notes of such Series on the last scheduled
Distribution Date for such Notes and any installment of interest on such Notes
in accordance with the terms of the Indenture and the Notes of such Series. In
the event of any such defeasance and discharge of Notes of such Series, holders
of Notes of such Series would be able to look only to such money and/or direct
obligations for payment of principal and interest, if any, on their Notes until
maturity.
The Trustee
The Trustee under each Agreement will be named in the applicable Prospectus
Supplement. The commercial bank or trust company serving as Trustee may have
normal banking relationships with the Depositor, the Master Servicer and any of
their respective affiliates.
CERTAIN LEGAL ASPECTS OF THE LOANS
The following discussion contains summaries, which are general in nature,
of certain legal matters relating to the Loans. Because such legal aspects are
governed primarily by applicable state law (which laws may differ
substantially), the descriptions do not, except as expressly provided below,
reflect the laws of any particular state, nor encompass the laws of all states
in which the security for the Loans is situated. The descriptions are qualified
in their entirety by reference to the applicable federal laws and the
appropriate laws of the states in which Loans may be originated.
General
The Loans for a Series may be secured by deeds of trust, mortgages,
security deeds or deeds to secure debt, depending upon the prevailing practice
in the state in which the property subject to the loan is located. Deeds of
trust are used almost exclusively in California instead of mortgages. A mortgage
creates a lien upon the real property encumbered by the mortgage, which lien is
generally not prior to the lien for real estate taxes and assessments. Priority
between mortgages depends on their terms and generally on the order of recording
with a state or county office. There are two parties to a mortgage, the
mortgagor, who is the borrower and owner of the mortgaged property, and the
mortgagee, who is the lender. Under the mortgage instrument, the mortgagor
delivers to the mortgagee a note or bond and the mortgage. Although a deed of
trust is similar to a mortgage, a deed of trust formally has three parties, the
borrower-property owner called the trustor (similar to a mortgagor), a lender
(similar to a mortgagee) called the beneficiary, and a third-party grantee
called the trustee. Under a deed of trust, the borrower grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale, to
the trustee to secure payment of the obligation. A security deed and a deed to
secure debt are special types of deeds which indicate on their face that they
are granted to secure an underlying debt. By executing a security deed or deed
to secure debt, the grantor conveys title to, as opposed to merely creating a
lien upon, the subject property to the grantee until such time as the underlying
debt is repaid. The trustee's authority under a deed of trust, the mortgagee's
authority under a mortgage and the grantee's authority under a security deed or
deed to secure debt are governed by law and, with respect to some deeds of
trust, the directions of the beneficiary.
Cooperatives. Certain of the Loans may be Cooperative Loans. The
Cooperative owns all the real property that comprises the project, including the
land, separate dwelling units and all common areas. The Cooperative is directly
responsible for project management and, in most cases, payment of real estate
taxes and hazard and liability insurance. If there is a blanket mortgage on the
Cooperative and/or underlying land, as is generally the case, the Cooperative,
as project mortgagor, is also responsible for meeting these mortgage
obligations. A blanket mortgage is ordinarily incurred by the Cooperative in
connection with the construction or purchase of the Cooperative's apartment
building. The interest of the occupant under proprietary leases or occupancy
agreements to which that Cooperative is a party are generally subordinate to the
interest of the holder of the blanket mortgage in that building. If the
Cooperative is unable to meet the payment obligations arising under its blanket
mortgage, the mortgagee holding the blanket mortgage could foreclose on that
mortgage and terminate all subordinate proprietary leases and occupancy
agreements. In addition, the blanket mortgage on a Cooperative may provide
financing in the form of a mortgage that does not fully amortize with a
significant portion of principal being due in one lump sum at final maturity.
The inability of the Cooperative to refinance this mortgage and its consequent
inability to make such final payment could lead to foreclosure by the mortgagee
providing the financing. A foreclosure in either event by the holder of the
blanket mortgage could eliminate or significantly diminish the value of any
collateral held by the lender who financed the purchase by an individual
tenant-stockholder of Cooperative shares or, in the case of a Trust Fund
including Cooperative Loans, the collateral securing the Cooperative Loans.
The Cooperative is owned by tenant-stockholders who, through ownership of
stock, shares or membership certificates in the corporation, receive proprietary
leases or occupancy agreements which confer exclusive rights to occupy specific
units. Generally, a tenant-stockholder of a Cooperative must make a monthly
payment to the Cooperative representing such tenant- stockholder's pro rata
share of the Cooperative's payments for its blanket mortgage, real property
taxes, maintenance expenses and other capital or ordinary expenses. An ownership
interest in a Cooperative and accompanying rights is financed through a
Cooperative share loan evidenced by a promissory note and secured by a security
interest in the occupancy agreement or proprietary lease and in the related
Cooperative shares. The lender takes possession of the share certificate and a
counterpart of the proprietary lease or occupancy agreement, and a financing
statement covering the proprietary lease or occupancy agreement and the
Cooperative shares 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.
Foreclosure
Deed of Trust. Foreclosure of a deed of trust is generally accomplished by
a non-judicial sale under a specific provision in the deed of trust which
authorizes the trustee to sell the property at public auction upon any default
by the borrower under the terms of the note or deed of trust. In certain states,
such foreclosure also may be accomplished by judicial action in the manner
provided for foreclosure of mortgages. In addition to any notice requirements
contained in a deed of trust, in some states (such as California), the trustee
must record a notice of default and send a copy to the borrower-trustor, to any
person who has recorded a request for a copy of any notice of default and notice
of sale, to any successor in interest to the borrower-trustor, to the
beneficiary of any junior deed of trust and to certain other persons. In some
states (including California), the borrower- trustor has the right to reinstate
the loan at any time following default until shortly before the trustee's sale.
In general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a statutorily prescribed reinstatement period, cure a
monetary default by paying the entire amount in arrears plus other designated
costs and expenses incurred in enforcing the obligation. Generally, state law
controls the amount of foreclosure expenses and costs, including attorney's
fees, which may be recovered by a lender. After the reinstatement period has
expired without the default having been cured, the borrower or junior lienholder
no longer has the right to reinstate the loan and must pay the loan in full to
prevent the scheduled foreclosure sale. If the deed of trust is not reinstated
within any applicable cure period, a notice of sale must be posted in a public
place and, in most states (including California), published for a specific
period of time in one or more newspapers. In addition, some state laws require
that a copy of the notice of sale be posted on the property and sent to all
parties having an interest of record in the real property.
Mortgages. Foreclosure of a mortgage is generally accomplished by judicial
action. The action is initiated by the service of legal pleadings upon all
parties having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties. Judicial foreclosure proceedings are often not contested by any of the
parties. When the mortgagee's right to foreclosure is contested, the legal
proceedings necessary to resolve the issue can be time consuming. After the
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other court officer to conduct
the sale of the property. In some states, mortgages may also be foreclosed by
advertisement, pursuant to a power of sale provided in the mortgage.
Although foreclosure sales are typically public sales, frequently no third
party purchaser bids in excess of the lender's lien because of the difficulty of
determining the exact status of title to the property, the possible
deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender often purchases the property from the trustee
or referee for an amount equal to the principal amount outstanding under the
loan, accrued and unpaid interest and the expenses of foreclosure in which event
the mortgagor's debt will be extinguished or the lender may purchase for a
lesser amount in order to preserve its right against a borrower to seek a
deficiency judgment in states where such judgment is available. Thereafter,
subject to the right of the borrower in some states to remain in possession
during the redemption period, the lender will assume the burden of ownership,
including obtaining hazard insurance and making such repairs at its own expense
as are necessary to render the property suitable for sale. The lender will
commonly obtain the services of a real estate broker and pay the broker's
commission in connection with the sale of the property. Depending upon market
conditions, the ultimate proceeds of the sale of the property may not equal the
lender's investment in the property. Any loss may be reduced by the receipt of
any mortgage guaranty insurance proceeds.
Courts have imposed general equitable principles upon foreclosure, which
are generally designed to mitigate the legal consequences to the borrower of the
borrower's defaults under the loan documents. Some courts have been faced with
the issue of whether federal or state constitutional provisions reflecting due
process concerns for fair notice require that borrowers under deeds of trust
receive notice longer than that prescribed by statute. For the most part, these
cases have upheld the notice provisions as being reasonable or have found that
the sale by a trustee under a deed of trust does not involve sufficient state
action to afford constitutional protection to the borrower.
When the beneficiary under a junior mortgage or deed of trust cures the
default and reinstates or redeems by paying the full amount of the senior
mortgage or deed of trust, the amount paid by the beneficiary so to cure or
redeem becomes a part of the indebtedness secured by the junior mortgage or deed
of trust. See "Junior Mortgages; Rights of Senior Mortgagees" below.
Cooperative Loans. The Cooperative shares owned by the tenant-stockholder
and pledged to the lender are, in almost all cases, subject to restrictions on
transfer as set forth in the Cooperative's certificate of incorporation and
bylaws, as well as the proprietary lease or occupancy agreement, and may be
cancelled by the Cooperative for failure by the tenant-stockholder to pay rent
or other obligations or charges owed by such tenant-stockholder, including
mechanics' liens against the cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement generally
permits the Cooperative to terminate such lease or agreement in the event an
obligor fails to make payments or defaults in the performance of covenants
required thereunder. Typically, the lender and the Cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant- stockholder on its obligations
under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the Cooperative will recognize the
lender's lien against proceeds from the sale of the Cooperative apartment,
subject, however, to the Cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the Cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the Cooperative Loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure on a
Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant- stockholders.
In some states, foreclosure on the Cooperative shares is accomplished by a
sale in accordance with the provisions of Article 9 of the Uniform Commercial
Code (the "UCC") and the security agreement relating to those shares. Article 9
of the UCC requires that a sale be conducted in a "commercially reasonable"
manner. Whether a foreclosure sale has been conducted in a "commercially
reasonable" manner will depend on the facts in each case. In determining
commercial reasonableness, a court will look to the notice given the debtor and
the method, manner, time, place and terms of the foreclosure. Generally, a sale
conducted according to the usual practice of banks selling similar collateral
will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperative to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds remaining, the
lender must account to the tenant-stockholder for the surplus. Conversely, if a
portion of the indebtedness remains unpaid, the tenant- stockholder is generally
responsible for the deficiency. See "Anti- Deficiency Legislation and Other
Limitations on Lenders" below.
In the case of foreclosure on a building which was converted from a rental
building to a building owned by a Cooperative under a non-eviction plan, some
states require that a purchaser at a foreclosure sale take the property subject
to rent control and rent stabilization laws which apply to certain tenants who
elected to remain in the building but who did not purchase shares in the
Cooperative when the building was so converted.
Environmental Risks
Real property pledged as security to a lender may be subject to unforeseen
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the payment of the
costs of clean-up. In several states such a lien has priority over the lien of
an existing mortgage against such property. In addition, under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the United States Environmental Protection Agency ("EPA") may impose
a lien on property where EPA has incurred clean-up costs. However, a CERCLA lien
is subordinate to pre-existing, perfected security interests.
Under the laws of some states, and under CERCLA, it is conceivable that a
secured lender may be held liable as an "owner" or "operator" for the costs of
addressing releases or threatened releases of hazardous substances at a
Property, even though the environmental damage or threat was caused by a prior
or current owner or operator. CERCLA imposes liability for such costs on any and
all "responsible parties," including owners or operators. However, CERCLA
excludes from the definition of "owner or operator" a secured creditor who holds
indicia of ownership primarily to protect its security interest (the "secured
creditor exclusion") but without "participating in the management" of the
Property. Thus, if a lender's activities begin to encroach on the actual
management of a contaminated facility or property, the lender may incur
liability as an "owner or operator" under CERCLA. Similarly, if a lender
forecloses and takes title to a contaminated facility or property, the lender
may incur CERCLA liability in various circumstances, including, but not limited
to, when it holds the facility or property as an investment (including leasing
the facility or property to third party), or fails to market the property in a
timely fashion.
Whether actions taken by a lender would constitute participation in the
management of a mortgaged property, or the business of a borrower, so as to
render the secured creditor exemption unavailable to a lender has been a matter
of judicial interpretation of the statutory language, and court decisions have
been inconsistent. In 1990, the Court of Appeals for the Eleventh Circuit
suggested that the mere capacity of the lender to influence a borrower's
decisions regarding disposal of hazardous substances was sufficient
participation in the management of the borrower's business to deny the
protection of the secured creditor exemption to the lender.
This ambiguity appears to have been resolved by the enactment of the Asset
Conservation, Lender Liability and Deposit Insurance Protection Act of 1996,
which was signed into law by President Clinton on September 30, 1996. This
legislation provides that in order to be deemed to have participated in the
management of a mortgaged property, a lender must actually participate in the
operational affairs of the property or the borrower. The legislation also
provides that participation in the management of the property does not include
"merely having the capacity to influence, or unexercised right to control"
operations. Rather, a lender will lose the protection of the secured creditor
exemption only if it exercises decision-making control over the borrower's
environmental compliance and hazardous substance handling and disposal
practices, or assumes day-to-day management of all operational functions of the
mortgaged property.
If a lender is or becomes liable, it can bring an action for contribution
against any other "responsible parties," including a previous owner or operator,
who created the environmental hazard, but those persons or entities may be
bankrupt or otherwise judgment proof. The costs associated with environmental
cleanup may be substantial. It is conceivable that such costs arising from the
circumstances set forth above would result in a loss to Certificateholders.
CERCLA does not apply to petroleum products, and the secured creditor
exclusion does not govern liability for cleanup costs under federal laws other
than CERCLA, in particular Subtitle I of the federal Resource Conservation and
Recovery Act ("RCRA"), which regulates underground petroleum storage tanks
(except heating oil tanks). The EPA has adopted a lender liability rule for
underground storage tanks under Subtitle I of RCRA. Under such rule, a holder of
a security interest in an underground storage tank or real property containing
an underground storage tank is not considered an operator of the underground
storage tank as long as petroleum is not added to, stored in or dispensed from
the tank. In addition, under the Asset Conservation, Lender Liability and
Deposit Insurance Protection Act of 1996, the protections accorded to lenders
under CERCLA are also accorded to the holders of security interests in
underground storage tanks. It should be noted, however, that liability for
cleanup of petroleum contamination may be governed by state law, which may not
provide for any specific protection for secured creditors, or alternatively, may
not impose liability on secured creditors at all.
Except as otherwise specified in the related Prospectus Supplement, at the
time the Loans were originated, no environmental assessment or a very limited
environmental assessment of the Properties was conducted.
Rights of Redemption
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In certain
other states (including California), this right of redemption applies only to
sales following judicial foreclosure, and not to sales pursuant to a non-
judicial power of sale. In most states where the right of redemption is
available, statutory redemption may occur upon payment of the foreclosure
purchase price, accrued interest and taxes. 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 exercise of a right of redemption
would defeat the title of any purchaser from the lender subsequent to
foreclosure or sale under a deed of trust. Consequently, the practical effect of
the redemption right is to force the lender to retain the property and pay the
expenses of ownership until the redemption period has run. In some states, there
is no right to redeem property after a trustee's sale under a deed of trust.
Anti-Deficiency Legislation; Bankruptcy Laws; Tax Liens
Certain states have imposed statutory and judicial restrictions that limit
the remedies of a beneficiary under a deed of trust or a mortgagee under a
mortgage. In some states, including California, statutes and case law limit the
right of the beneficiary or mortgagee to obtain a deficiency judgment against
borrowers financing the purchase of their residence or following sale under a
deed of trust or certain other foreclosure proceedings. A deficiency judgment is
a personal judgment against the borrower equal in most cases to the difference
between the amount due to the lender and the fair market value of the real
property at the time of the foreclosure sale. In certain states, including
California, if a lender simultaneously originates a loan secured by a senior
lien on a particular property and a loan secured by a junior lien on the same
property, such a lender as the holder of the junior lien may be precluded from
obtaining a deficiency judgment with respect to the excess of the aggregate
amount owed under both such loans over the proceeds of any sale under a deed of
trust or other foreclosure proceedings. As a result of these prohibitions, it is
anticipated that in most instances the Master Servicer will utilize the
non-judicial foreclosure remedy and will not seek deficiency judgments against
defaulting borrowers.
Some state statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement, when applicable, is that lenders
will usually proceed first against the security rather than bringing a personal
action against the borrower. In some states, exceptions to the anti-deficiency
statutes are provided for in certain instances where the value of the lender's
security has been impaired by acts or omissions of the borrower, for example, in
the event of waste of the property. Finally, other statutory provisions limit
any deficiency judgment against the former borrower following a foreclosure sale
to the excess of the outstanding debt over the fair market value of the property
at the time of the public sale. The purpose of these statutes is generally to
prevent a beneficiary or a mortgagee from obtaining a large deficiency judgment
against the former borrower as a result of low or no bids at the foreclosure
sale.
Generally, Article 9 of the UCC governs foreclosure on Cooperative shares
and the related proprietary lease or occupancy agreement. Some courts have
interpreted section 9-504 of the UCC to prohibit a deficiency award unless the
creditor establishes that the sale of the collateral (which, in the case of a
Cooperative Loan, would be the shares of the Cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
In addition to anti-deficiency and related legislation, 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 its security. For
example, in a proceeding under the Bankruptcy Code, a lender may not foreclose
on a mortgaged property without the permission of the bankruptcy court. The
rehabilitation plan proposed by the debtor may provide, if the mortgaged
property is not the debtor's principal residence and the court determines that
the value of the mortgaged property is less than the principal balance of the
mortgage loan, for the reduction of the secured indebtedness to the value of the
mortgaged property as of the date of the commencement of the bankruptcy,
rendering the lender a general unsecured creditor for the difference, and also
may reduce the monthly payments due under such mortgage loan, change the rate of
interest and alter the mortgage loan repayment schedule. The effect of any such
proceedings under the Bankruptcy Code, including but not limited to any
automatic stay, could result in delays in receiving payments on the Loans
underlying a Series of Securities and possible reductions in the aggregate
amount of such payments. The federal tax laws provide priority to certain tax
liens over the lien of a mortgage or secured party.
Due-on-Sale Clauses
Unless otherwise specified in the related Prospectus Supplement, each
conventional Loan will contain a due-on-sale clause which will generally provide
that if the mortgagor or obligor sells, transfers or conveys the Property, the
loan or contract may be accelerated by the mortgagee or secured party. Court
decisions and legislative actions have placed substantial restriction on the
right of lenders to enforce such clauses in many states. For instance, the
California Supreme Court in August 1978 held that due-on- sale clauses were
generally unenforceable. However, the Garn-St Germain Depository Institutions
Act of 1982 (the "Garn-St Germain Act"), subject to certain exceptions, preempts
state constitutional, statutory and case law prohibiting the enforcement of
due-on-sale clauses. As a result, due-on-sale clauses have become generally
enforceable except in those states whose legislatures exercised their authority
to regulate the enforceability of such clauses with respect to mortgage loans
that were (i) originated or assumed during the "window period" under the Garn-St
Germain Act which ended in all cases not later than October 15, 1982 and (ii)
originated by lenders other than national banks, federal savings institutions
and federal credit unions. FHLMC has taken the position in its published
mortgage servicing standards that, out of a total of eleven "window period
states," five states (Arizona, Michigan, Minnesota, New Mexico and Utah) have
enacted statutes extending, on various terms and for varying periods, the
prohibition on enforcement of due- on-sale clauses with respect to certain
categories of window period loans. Also, the Garn-St Germain Act does
"encourage" lenders to permit assumption of loans at the original rate of
interest or at some other rate less than the average of the original rate and
the market rate.
As to loans secured by an owner-occupied residence, the Garn-St Germain Act
sets forth nine specific instances in which a mortgagee covered by the Act may
not exercise its rights under a due-on-sale clause, notwithstanding the fact
that a transfer of the property may have occurred. The inability to enforce a
due-on-sale clause may result in transfer of the related Property to an
uncreditworthy person, which could increase the likelihood of default or may
result in a mortgage bearing an interest rate below the current market rate
being assumed by a new home buyer, which may affect the average life of the
Loans and the number of Loans which may extend to maturity.
In addition, under federal bankruptcy law, due-on-sale clauses may not be
enforceable in bankruptcy proceedings and may, under certain circumstances, be
eliminated in any modified mortgage resulting from such bankruptcy proceeding.
Enforceability of Prepayment and Late Payment Fees
Forms of notes, mortgages and deeds of trust used by lenders may contain
provisions obligating the borrower to pay a late charge if payments are not
timely made, and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon the late charges which a lender may
collect from a borrower for delinquent payments. Certain states also limit the
amounts that a lender may collect from a borrower as an additional charge if the
loan is prepaid. Under certain state laws, prepayment charges may not be imposed
after a certain period of time following the origination of mortgage loans with
respect to prepayments on loans secured by liens encumbering owner-occupied
residential properties. Since many of the Properties will be owner-occupied, it
is anticipated that prepayment charges may not be imposed with respect to many
of the Loans. The absence of such a restraint on prepayment, particularly with
respect to fixed rate Loans having higher Loan Rates, may increase the
likelihood of refinancing or other early retirement of such loans or contracts.
Late charges and prepayment fees are typically retained by servicers as
additional servicing compensation.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V") provides that state usury
limitations shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. The Office of Thrift
Supervision, as successor to the Federal Home Loan Bank Board, is authorized to
issue rules and regulations and to publish interpretations governing
implementation of Title V. The statute authorized the states to reimpose
interest rate limits by adopting, before April 1, 1983, a law or constitutional
provision which expressly rejects an application of the federal law. Fifteen
states adopted such a law prior to the April 1, 1983 deadline. In addition, even
where Title V is not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on mortgage loans covered by
Title V. Certain states have taken action to reimpose interest rate limits
and/or to limit discount points or other charges.
The Home Improvement Contracts
General. The Home Improvement Contracts, other than those Home Improvement
Contracts that are unsecured or secured by mortgages on real estate (such Home
Improvement Contracts are hereinafter referred to in this section as
"contracts") generally are "chattel paper" or constitute "purchase money
security interests" each as defined in the UCC. Pursuant to the UCC, the sale of
chattel paper is treated in a manner similar to perfection of a security
interest in chattel paper. Under the related Agreement, the Depositor will
transfer physical possession of the contracts to the Trustee or a designated
custodian or may retain possession of the contracts as custodian for the
Trustee. In addition, the Depositor will make an appropriate filing of a UCC- 1
financing statement in the appropriate states to, among other things, give
notice of the Trust Fund's ownership of the contracts. Unless otherwise
specified in the related Prospectus Supplement, the contracts will not be
stamped or otherwise marked to reflect their assignment from the Depositor to
the Trustee. Therefore, if through negligence, fraud or otherwise, a subsequent
purchaser were able to take physical possession of the contracts without notice
of such assignment, the Trust Fund's interest in the contracts could be
defeated.
Security Interests in Home Improvements. The contracts that are secured by
the Home Improvements financed thereby grant to the originator of such contracts
a purchase money security interest in such Home Improvements to secure all or
part of the purchase price of such Home Improvements and related services. A
financing statement generally is not required to be filed to perfect a purchase
money security interest in consumer goods. Such purchase money security
interests are assignable. In general, a purchase money security interest grants
to the holder a security interest that has priority over a conflicting security
interest in the same collateral and the proceeds of such collateral. However, to
the extent that the collateral subject to a purchase money security interest
becomes a fixture, in order for the related purchase money security interest to
take priority over a conflicting interest in the fixture, the holder's interest
in such Home Improvement must generally be perfected by a timely fixture filing.
In general, a security interest does not exist under the UCC in ordinary
building material incorporated into an improvement on land. Home Improvement
Contracts that finance lumber, bricks, other types of ordinary building material
or other goods that are deemed to lose such characterization upon incorporation
of such materials into the related property, will not be secured by a purchase
money security interest in the Home Improvement being financed.
Enforcement of Security Interest in Home Improvements. So long as the Home
Improvement has not become subject to the real estate law, a creditor can
repossess a Home Improvement securing a contract by voluntary surrender, by
"self-help" repossession that is "peaceful" (i.e., without breach of the peace)
or, in the absence of voluntary surrender and the ability to repossess without
breach of the peace, by judicial process. The holder of a contract must give the
debtor a number of days' notice, which varies from 10 to 30 days depending on
the state, prior to commencement of any repossession. The UCC and consumer
protection laws in most states place restrictions on repossession sales,
including requiring prior notice to the debtor and commercial reasonableness in
effecting such a sale. The law in most states also requires that the debtor be
given notice of any sale prior to resale of the unit that the debtor may redeem
at or before such resale.
Under the laws applicable in most states, a creditor is entitled to obtain
a deficiency judgment from a debtor for any deficiency on repossession and
resale of the property securing the debtor's loan. However, some states impose
prohibitions or limitations on deficiency judgments, and in many cases the
defaulting borrower would have no assets with which to pay a judgment.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws and general equitable principles, may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment.
Consumer Protection Laws. The so-called "Holder-in-Due Course" rule of the
Federal Trade Commission is intended to defeat the ability of the transferor of
a consumer credit contract which is the seller of goods which gave rise to the
transaction (and certain related lenders and assignees) to transfer such
contract free of notice of claims by the debtor thereunder. The effect of this
rule is to subject the assignee of such a contract to all claims and defenses
which the debtor could assert against the seller of goods. Liability under this
rule is limited to amounts paid under a contract; however, the obligor also may
be able to assert the rule to set off remaining amounts due as a defense against
a claim brought by the Trustee against such obligor. Numerous other federal and
state consumer protection laws impose requirements applicable to the
origination, servicing and enforcement of the contracts, including the Truth in
Lending Act, the Federal Trade Commission Act, the Fair Credit Billing Act, the
Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Fair Debt
Collection Practices Act and the Uniform Consumer Credit Code. In the case of
some of these laws, the failure to comply with their provisions may affect the
enforceability of the related contract.
Applicability of Usury Laws. Title V of the Depository Institutions
Deregulation and Monetary Control Act of 1980, as amended ("Title V"), provides
that, subject to the following conditions, state usury limitations shall not
apply to any contract which is secured by a first lien on certain kinds of
consumer goods. The contracts would be covered if they satisfy certain
conditions governing, among other things, the terms of any prepayments, late
charges and deferral fees and requiring a 30-day notice period prior to
instituting any action leading to repossession of the related unit.
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
Installment Contracts
The Loans may also consist of installment sale contracts. Under an
installment sale contract ("Installment Contract") the seller (hereinafter
referred to in this section as the "lender") retains legal title to the property
and enters into an agreement with the purchaser hereinafter referred to in this
section as the "borrower") for the payment of the purchase price, plus interest,
over the term of such contract. Only after full performance by the borrower of
the contract is the lender obligated to convey title to the property to the
purchaser. As with mortgage or deed of trust financing, during the effective
period of the Installment Contract, the borrower is generally responsible for
maintaining the property in good condition and for paying real estate taxes,
assessments and hazard insurance premiums associated with the property.
The method of enforcing the rights of the lender under an Installment
Contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to its terms. The terms of Installment Contracts
generally provide that upon a default by the borrower, the borrower loses his or
her right to occupy the property, the entire indebtedness is accelerated, and
the buyer's equitable interest in the property is forfeited. The lender in such
a situation does not have to foreclose in order to obtain title to the property,
although in some cases a quiet title action is in order if the borrower has
filed the Installment Contract in local land records and an ejectment action may
be necessary to recover possession. In a few states, particularly in cases of
borrower default during the early years of an Installment Contract, the courts
will permit ejectment of the buyer and a forfeiture of his or her interest in
the property. However, most state legislatures have enacted provisions by
analogy to mortgage law protecting borrowers under Installment Contracts from
the harsh consequences of forfeiture. Under such statutes, a judicial or
nonjudicial foreclosure may be required, the lender may be required to give
notice of default and the borrower may be granted some grace period during which
the Installment Contract may be reinstated upon full payment of the default
amount and the borrower may have a post-foreclosure statutory redemption right.
In other states, courts in equity may permit a borrower with significant
investment in the property under an Installment Contract for the sale of real
estate to share in the proceeds of sale of the property after the indebtedness
is repaid or may otherwise refuse to enforce the forfeiture clause.
Nevertheless, generally speaking, the lender's procedures for obtaining
possession and clear title under an Installment Contract in a given state are
simpler and less time- consuming and costly than are the procedures for
foreclosing and obtaining clear title to a property subject to one or more
liens.
Soldiers' and Sailors' Civil Relief Act
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the "Relief Act"), a borrower who enters military service
after the origination of such borrower's Loan (including a borrower who is a
member of the National Guard or is in reserve status at the time of the
origination of the Loan and is later called to active duty) may not be charged
interest above an annual rate of 6% during the period of such borrower's active
duty status, unless a court orders otherwise upon application of the lender. It
is possible that such interest rate limitation could have an effect, for an
indeterminate period of time, on the ability of the Master Servicer to collect
full amounts of interest on certain of the Loans. Unless otherwise provided in
the related Prospectus Supplement, any shortfall in interest collections
resulting from the application of the Relief Act could result in losses to
Securityholders. The Relief Act also imposes limitations which would impair the
ability of the Master Servicer to foreclose on an affected Loan during the
borrower's period of active duty status. Moreover, the Relief Act permits the
extension of a Loan's maturity and the re-adjustment of its payment schedule
beyond the completion of military service. Thus, in the event that such a Loan
goes into default, there may be delays and losses occasioned by the inability to
realize upon the Property in a timely fashion.
Junior Mortgages; Rights of Senior Mortgagees
To the extent that the Loans comprising the Trust Fund for a Series are
secured by mortgages which are junior to other mortgages held by other lenders
or institutional investors, the rights of the Trust Fund (and therefore the
Securityholders), as mortgagee under any such junior mortgage, are subordinate
to those of any mortgagee under any senior mortgage. The senior mortgagee has
the right to receive hazard insurance and condemnation proceeds and to cause the
property securing the Loan to be sold upon default of the mortgagor, thereby
extinguishing the junior mortgagee's lien unless the junior mortgagee asserts
its subordinate interest in the property in foreclosure litigation and,
possibly, satisfies the defaulted senior mortgage. A junior mortgagee may
satisfy a defaulted senior loan in full and, in some states, may cure a default
and bring the senior loan current, in either event adding the amounts expended
to the balance due on the junior loan. In most states, absent a provision in the
mortgage or deed of trust, no notice of default is required to be given to a
junior mortgagee.
The standard form of the mortgage used by most institutional lenders
confers on the mortgagee the right both to receive all proceeds collected under
any hazard insurance policy and all awards made in connection with condemnation
proceedings, and to apply such proceeds and awards to any indebtedness secured
by the mortgage, in such order as the mortgagee may determine. Thus, in the
event improvements on the property are damaged or destroyed by fire or other
casualty, or in the event the property is taken by condemnation, the mortgagee
or beneficiary under senior mortgages will have the prior right to collect any
insurance proceeds payable under a hazard insurance policy and any award of
damages in connection with the condemnation and to apply the same to the
indebtedness secured by the senior mortgages. Proceeds in excess of the amount
of senior mortgage indebtedness, in most cases, may be applied to the
indebtedness of a junior mortgage.
Another provision sometimes found in the form of the mortgage or deed of
trust used by institutional lenders obligates the mortgagor to pay before
delinquency all taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee under the mortgage. Upon a
failure of the mortgagor to perform any of these obligations, the mortgagee is
given the right under certain mortgages to perform the obligation itself, at its
election, with the mortgagor agreeing to reimburse the mortgagee for any sums
expended by the mortgagee on behalf of the mortgagor. All sums so expended by
the mortgagee become part of the indebtedness secured by the mortgage.
The form of credit line trust deed or mortgage generally used by most
institutional lenders which make Revolving Credit Line Loans typically contains
a "future advance" clause, which provides, in essence, that additional amounts
advanced to or on behalf of the borrower by the beneficiary or lender are to be
secured by the deed of trust or mortgage. Any amounts so advanced after the
Cut-off Date with respect to any Mortgage will not be included in the Trust
Fund. The priority of the lien securing any advance made under the clause may
depend in most states on whether the deed of trust or mortgage is called and
recorded as a credit line deed of trust or mortgage. If the beneficiary or
lender advances additional amounts, the advance is entitled to receive the same
priority as amounts initially advanced under the trust deed or mortgage,
notwithstanding the fact that there may be junior trust deeds or mortgages and
other liens which intervene between the date of recording of the trust deed or
mortgage and the date of the future advance, and notwithstanding that the
beneficiary or lender had actual knowledge of such intervening junior trust
deeds or mortgages and other liens at the time of the advance. In most states,
the trust deed or mortgage lien securing mortgage loans of the type which
includes home equity credit lines applies retroactively to the date of the
original recording of the trust deed or mortgage, provided that the total amount
of advances under the home equity credit line does not exceed the maximum
specified principal amount of the recorded trust deed or mortgage, except as to
advances made after receipt by the lender of a written notice of lien from a
judgment lien creditor of the trustor.
The Title I Program
General. Certain of the Loans contained in a Trust Fund may be loans
insured under the FHA Title I Credit Insurance program created pursuant to
Sections 1 and 2(a) of the National Housing Act of 1934 (the "Title I Program").
Under the Title I Program, the FHA is authorized and empowered to insure
qualified lending institutions against losses on eligible loans. The Title I
Program operates as a coinsurance program in which the FHA insures up to 90% of
certain losses incurred on an individual insured loan, including the unpaid
principal balance of the loan, but only to the extent of the insurance coverage
available in the lender's FHA insurance coverage reserve account. The owner of
the loan bears the uninsured loss on each loan.
The types of loans which are eligible for insurance by the FHA under the
Title I Program include property improvement loans ("Property Improvement Loans"
or "Title I Loans"). A Property Improvement Loan or Title I Loan means a loan
made to finance actions or items that substantially protect or improve the basic
livability or utility of a property and includes single family improvement
loans.
There are two basic methods of lending or originating such loans which
include a "direct loan" or a "dealer loan." With respect to a direct loan, the
borrower makes application directly to a lender without any assistance from a
dealer, which application may be filled out by the borrower or by a person
acting at the direction of the borrower who does not have a financial interest
in the loan transaction, and the lender may disburse the loan proceeds solely to
the borrower or jointly to the borrower and other parties to the transaction.
With respect to a dealer loan, the dealer, who has a direct or indirect
financial interest in the loan transaction, assists the borrower in preparing
the loan application or otherwise assists the borrower in obtaining the loan
from lender and the lender may distribute proceeds solely to the dealer or the
borrower or jointly to the borrower and the dealer or other parties. With
respect to a dealer Title I Loan, a dealer may include a seller, a contractor or
supplier of goods or services.
Loans insured under the Title I Program are required to have fixed interest
rates and, generally, provide for equal installment payments due weekly,
biweekly, semi-monthly or monthly, except that a loan may be payable quarterly
or semi-annually in order to correspond with the borrower's irregular flow of
income. The first or last payments (or both) may vary in amount but may not
exceed 150% of the regular installment payment, and the first scheduled payment
may be due no later than two months from the date of the loan. The note must
contain a provision permitting full or partial prepayment of the loan. The
interest rate may be established by the lender and must be fixed for the term of
the loan and recited in the note. Interest on an insured loan must accrue from
the date of the loan and be calculated on a simple interest basis. The lender
must assure that the note and all other documents evidencing the loan are in
compliance with applicable federal, state and local laws.
Each insured lender is required to use prudent lending standards in
underwriting individual loans and to satisfy the applicable loan underwriting
requirements under the Title I Program prior to its approval of the loan and
disbursement of loan proceeds. Generally, the lender must exercise prudence and
diligence to determine whether the borrower and any co-maker is solvent and an
acceptable credit risk, with a reasonable ability to make payments on the loan
obligation. The lender's credit application and review must determine whether
the borrower's income will be adequate to meet the periodic payments required by
the loan, as well as the borrower's other housing and recurring expenses, which
determination must be made in accordance with the expense-to-income ratios
published by the Secretary of HUD.
Under the Title I Program, the FHA does not review or approve for
qualification for insurance the individual loans insured thereunder at the time
of approval by the lending institution (as is typically the case with other
federal loan programs). If, after a loan has been made and reported for
insurance under the Title I Program, the lender discovers any material
misstatement of fact or that the loan proceeds have been misused by the
borrower, dealer or any other party, it shall promptly report this to the FHA.
In such case, provided that the validity of any lien on the property has not
been impaired, the insurance of the loan under the Title I Program will not be
affected unless such material misstatements of fact or misuse of loan proceeds
was caused by (or was knowingly sanctioned by) the lender or its employees.
Requirements for Title I Loans. The maximum principal amount for Title I
Loans must not exceed the actual cost of the project plus any applicable fees
and charges allowed under the Title I Program; provided that such maximum amount
does not exceed $25,000 (or the current applicable amount) for a single family
property improvement loan. Generally, the term of a Title I Loan may not be less
than six months nor greater than 20 years and 32 days. A borrower may obtain
multiple Title I Loans with respect to multiple properties, and a borrower may
obtain more than one Title I Loan with respect to a single property, in each
case as long as the total outstanding balance of all Title I Loans in the same
property does not exceed the maximum loan amount for the type of Title I Loan
thereon having the highest permissible loan amount.
Borrower eligibility for a Title I Loan requires that the borrower have at
least a one-half interest in either fee simple title to the real property, a
lease thereof for a term expiring at least six months after the final maturity
of the Title I Loan or a recorded land installment contract for the purchase of
the real property, and that the borrower have equity in the property being
improved at least equal to the amount of the Title I Loan if such loan amount
exceeds $15,000. Any Title I Loan in excess of $7,500 must be secured by a
recorded lien on the improved property which is evidenced by a mortgage or deed
of trust executed by the borrower and all other owners in fee simple.
The proceeds from a Title I Loan may be used only to finance property
improvements which substantially protect or improve the basic livability or
utility of the property as disclosed in the loan application. The Secretary of
HUD has published a list of items and activities which cannot be financed with
proceeds from any Title I Loan and from time to time the Secretary of HUD may
amend such list of items and activities. With respect to any dealer Title I
Loan, before the lender may disburse funds, the lender must have in its
possession a completion certificate on a HUD approved form, signed by the
borrower and the dealer. With respect to any direct Title I Loan, the borrower
is required to submit to the lender, promptly upon completion of the
improvements but not later than six months after disbursement of the loan
proceeds with one six month extension if necessary, a completion certificate,
signed by the borrower. The lender or its agent is required to conduct an on-
site inspection on any Title I Loan where the principal obligation is $7,500 or
more, and on any direct Title I Loan where the borrower fails to submit a
completion certificate.
FHA Insurance Coverage. Under the Title I Program the FHA establishes an
insurance coverage reserve account for each lender which has been granted a
Title I insurance contract. The amount of insurance coverage in this account is
10% of the amount disbursed, advanced or expended by the lender in originating
or purchasing eligible loans registered with FHA for Title I insurance, with
certain adjustments. The balance in the insurance coverage reserve account is
the maximum amount of insurance claims the FHA is required to pay. Loans to be
insured under the Title I Program will be registered for insurance by the FHA
and the insurance coverage attributable to such loans will be included in the
insurance coverage reserve account for the originating or purchasing lender
following the receipt and acknowledgment by the FHA of a loan report on the
prescribed form pursuant to the Title I regulations. The FHA charges a fee of
0.50% per annum of the net proceeds (the original balance) of any eligible loan
so reported and acknowledged for insurance by the originating lender. The FHA
bills the lender for the insurance premium on each insured loan annually, on
approximately the anniversary date of the loan's origination. If an insured loan
is prepaid during the year, FHA will not refund the insurance premium, but will
abate any insurance charges falling due after such prepayment.
Under the Title I Program the FHA will reduce the insurance coverage
available in the lender's FHA insurance coverage reserve account with respect to
loans insured under the lender's contract of insurance by (i) the amount of the
FHA insurance claims approved for payment relating to such insured loans and
(ii) the amount of insurance coverage attributable to insured loans sold by the
lender. The balance of the lender's FHA insurance coverage reserve account will
be further adjusted as required under Title I or by the FHA, and the insurance
coverage therein may be earmarked with respect to each or any eligible loans
insured thereunder, if a determination is made by the Secretary of HUD that it
is in its interest to do so. Originations and acquisitions of new eligible loans
will continue to increase a lender's insurance coverage reserve account balance
by 10% of the amount disbursed, advanced or expended in originating or acquiring
such eligible loans registered with the FHA for insurance under the Title I
Program. The Secretary of HUD may transfer insurance coverage between insurance
coverage reserve accounts with earmarking with respect to a particular insured
loan or group of insured loans when a determination is made that it is in the
Secretary's interest to do so.
The lender may transfer (except as collateral in a bona fide loan
transaction) insured loans and loans reported for insurance only to another
qualified lender under a valid Title I contract of insurance. Unless an insured
loan is transferred with recourse or with a guaranty or repurchase agreement,
the FHA, upon receipt of written notification of the transfer of such loan in
accordance with the Title I regulations, will transfer from the transferor's
insurance coverage reserve account to the transferee's insurance coverage
reserve account an amount, if available, equal to 10% of the actual purchase
price or the net unpaid principal balance of such loan (whichever is less).
However, under the Title I Program not more than $5,000 in insurance coverage
shall be transferred to or from a lender's insurance coverage reserve account
during any October 1 to September 30 period without the prior approval of the
Secretary of HUD.
Claims Procedures Under Title I. Under the Title I Program the lender may
accelerate an insured loan following a default on such loan only after the
lender or its agent has contacted the borrower in a face-to-face meeting or by
telephone to discuss the reasons for the default and to seek its cure. If the
borrower does not cure the default or agree to a modification agreement or
repayment plan, the lender will notify the borrower in writing that, unless
within 30 days the default is cured or the borrower enters into a modification
agreement or repayment plan, the loan will be accelerated and that, if the
default persists, the lender will report the default to an appropriate credit
agency. The lender may rescind the acceleration of maturity after full payment
is due and reinstate the loan only if the borrower brings the loan current,
executes a modification agreement or agrees to an acceptable repayment plan.
Following acceleration of maturity upon a secured Title I Loan, the lender
may either (a) proceed against the property under any security instrument or (b)
make a claim under the lender's contract of insurance. If the lender chooses to
proceed against the property under a security instrument (or if it accepts a
voluntary conveyance or surrender of the property), the lender may file an
insurance claim only with the prior approval of the Secretary of HUD.
When a lender files an insurance claim with the FHA under the Title I
Program, the FHA reviews the claim, the complete loan file and documentation of
the lender's efforts to obtain recourse against any dealer who has agreed
thereto, certification of compliance with applicable state and local laws in
carrying out any foreclosure or repossession, and evidence that the lender has
properly filed proofs of claims, where the borrower is bankrupt or deceased.
Generally, a claim for reimbursement for loss on any Title I Loan must be filed
with the FHA no later than nine months after the date of default of such loan.
Concurrently with filing the insurance claim, the lender shall assign to the
United States of America the lender's entire interest in the loan note (or a
judgment in lieu of the note), in any security held and in any claim filed in
any legal proceedings. If, at the time the note is assigned to the United
States, the Secretary has reason to believe that the note is not valid or
enforceable against the borrower, the FHA may deny the claim and reassign the
note to the lender. If either such defect is discovered after the FHA has paid a
claim, the FHA may require the lender to repurchase the paid claim and to accept
a reassignment of the loan note. If the lender subsequently obtains a valid and
enforceable judgment against the borrower, the lender may resubmit a new
insurance claim with an assignment of the judgment. The FHA may contest any
insurance claim and make a demand for repurchase of the loan at any time up to
two years from the date the claim was certified for payment and may do so
thereafter in the event of fraud or misrepresentation on the part of the lender.
Under the Title I Program the amount of an FHA insurance claim payment,
when made, is equal to the Claimable Amount, up to the amount of insurance
coverage in the lender's insurance coverage reserve account. For the purposes
hereof, the "Claimable Amount" means an amount equal to 90% of the sum of: (a)
the unpaid loan obligation (net unpaid principal and the uncollected interest
earned to the date of default) with adjustments thereto if the lender has
proceeded against property securing such loan; (b) the interest on the unpaid
amount of the loan obligation from the date of default to the date of the
claim's initial submission for payment plus 15 calendar days (but not to exceed
9 months from the date of default), calculated at the rate of 7% per annum; (c)
the uncollected court costs; (d) the attorney's fees not to exceed $500; and (e)
the expenses for recording the assignment of the security to the United States.
Consumer Protection Laws
Numerous federal and state consumer protection laws impose substantive
requirements upon mortgage lenders in connection with the origination, servicing
and enforcement of loans secured by Single Family Properties. These laws include
the federal Truth-in-Lending Act and Regulation Z promulgated thereunder, Real
Estate Settlement Procedures Act and Regulation B promulgated thereunder, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act and
related statutes and regulations. In particular, Regulation Z, requires certain
disclosures to the borrowers regarding the terms of the Loans; the Equal Credit
Opportunity Act and Regulation B promulgated thereunder 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; the Fair Credit
Reporting Act regulates the use and reporting of information related to the
borrower's credit experience. Certain provisions of these laws impose specific
statutory liabilities upon lenders who fail to comply therewith. In addition,
violations of such laws may limit the ability of the Sellers to collect all or
part of the principal of or interest on the Loans and could subject the Sellers
and in some cases their assignees to damages and administrative enforcement.
FEDERAL INCOME TAX CONSEQUENCES
General
The following is a summary of the anticipated material federal income tax
consequences of the purchase, ownership, and disposition of the Securities and
is based on advice of Brown & Wood LLP, special counsel to the Depositor. The
summary is based upon the provisions of the Code, the regulations promulgated
thereunder, including, where applicable, proposed regulations, and the judicial
and administrative rulings and decisions now in effect, all of which are subject
to change or possible differing interpretations. The statutory provisions,
regulations, and interpretations on which this summary is based are subject to
change, and such a change could apply retroactively.
The summary does not purport to deal with all aspects of federal income
taxation that may affect particular investors in light of their individual
circumstances, nor with certain types of investors subject to special treatment
under the federal income tax laws. This summary focuses primarily upon investors
who will hold Securities as "capital assets" (generally, property held for
investment) within the meaning of Section 1221 of the Code, but much of the
discussion is applicable to other investors as well. Prospective Investors are
advised to consult their own tax advisers concerning the federal, state, local
and any other tax consequences to them of the purchase, ownership and
disposition of the Securities.
The federal income tax consequences to Securityholders will vary depending
on whether (i) the Securities of a Series are classified as indebtedness; (ii)
an election is made to treat the Trust Fund relating to a particular Series of
Securities as a REMIC or as a FASIT; (iii) the Securities represent interests in
a grantor trust; or (iv) the Trust Fund relating to a particular Series of
Certificates is classified as a partnership. The Prospectus Supplement for each
Series of Securities will specify how the Securities will be treated for federal
income tax purposes and will discuss whether a REMIC or a FASIT election, if
any, will be made with respect to such Series. Prior to issuance of each Series
of Securities, the Depositor shall file with the Commission a Form 8-K on behalf
of the related Trust Fund containing an opinion of Brown & Wood LLP with respect
to the validity of the information set forth under "Federal Income Tax
Consequences" herein and in the related Prospectus Supplement.
Taxation of Debt Securities
Interest and Acquisition Discount. Securities representing regular
interests in a REMIC are generally treated as evidences of indebtedness issued
by the REMIC. Securities representing regular interests in a FASIT are treated
as debt instruments. Stated interest on regular interests in REMICs and regular
interests in FASITsSecurities representing regular interests in a FASIT are
treated as debt instruments. Stated interest on regular interests in REMICs and
regular interests in FASITsSecurities representing regular interests in a FASIT
are treated as debt instruments. Stated interest on regular interests in REMICs
and regular interests in FASITs will be taxable as ordinary income and taken
into account using the accrual method of accounting, regardless of the
Securityholder's normal accounting method. Thus, a taxpayer may be required to
report income in respect of a FASIT or REMIC regular interest before actually
receiving a corresponding cash distribution. Interest (other than original issue
discount) on Securities (other than Regular Interest Securities) that are
characterized as indebtedness for federal income tax purposes will be includible
in income by holders thereof in accordance with their usual methods of
accounting. Securities characterized as debt for federal income tax purposes,
including regular interests in REMICs or FASITs, will be referred to hereinafter
collectively as "Debt Securities."
Debt Securities that are Compound Interest Securities (i.e., debt
securities that accrete the amount of accrued interest and add that amount to
the principal balance of the securities until maturity or until some specified
event has occurred) will, and certain of the other Debt Securities may, be
issued with "original issue discount" ("OID"). The following discussion is based
in part on the rules governing OID which are set forth in Sections 1271-1275 of
the Code and the Treasury regulations issued thereunder, (the "OID
Regulations"). A Securityholder should be aware, however, that the OID
Regulations do not adequately address certain issues relevant to prepayable
securities, such as the Debt Securities.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Debt Security and its issue price. A holder of
a Debt Security must include such OID in gross income as ordinary interest
income as it accrues under a method taking into account an economic accrual of
the discount. In general, OID must be included in income in advance of the
receipt of the cash representing that income. The amount of OID on a Debt
Security will be considered to be zero if it is less than a de minimis amount
determined under the Code.
The issue price of a Debt Security is the first price at which a
substantial amount of Debt Securities of that class are sold (excluding sales to
bond houses, brokers, underwriters or wholesalers). If less than a substantial
amount of a particular class of Debt Securities is sold for cash on or prior to
the related Closing Date, the issue price for such class will be treated as the
fair market value of such class on such Closing Date. The issue price of a Debt
Security generally includes the amount paid by an initial Debt Security holder
for accrued interest that relates to a period prior to the issue date of the
Debt Security. ("pre-issuance accrued interest"). The issue price of a Debt
Security may, however, be computed without regard to such pre-issuance accrued
interest if such pre-issuance accrued interest will be paid on the first payment
date following the date of issuance. This alternative is available only if the
first payment date occurs within one year of the date of issuance. Under this
alternative, the payment of pre-issuance accrued interest will be treated as a
non-taxable return of capital and not as a payment of interest. The stated
redemption price at maturity of a Debt Security includes the original principal
amount of the Debt Security, but generally will not include stated interest if
it is "qualified stated interest."
Under the OID Regulations, qualified stated interest generally means
interest payable at a single fixed rate or qualified variable rate (as described
below) provided that such interest payments are unconditionally payable at
intervals of one year or less during the entire term of the Debt Security. The
OID Regulations state that interest payments are unconditionally payable only if
a late payment or nonpayment is expected to be penalized or reasonable remedies
exist to compel payment or the Debt Security otherwise provides terms and
conditions that make the likelihood of late payment or nonpayment a remote
contingency. Certain Debt Securities may provide for default remedies in the
event of late payment or nonpayment of interest. The interest on such Debt
Securities will be unconditionally payable and constitute qualified stated
interest, not OID. However, absent clarification of the OID Regulations, where
Debt Securities do not provide for default remedies, the interest payments will
be included in the Debt Security's stated redemption price at maturity and taxed
as OID. Interest is payable at a single fixed rate only if the rate
appropriately takes into account the length of the interval between payments.
Distributions of interest on Debt Securities with respect to which deferred
interest will accrue, will not constitute qualified stated interest payments, in
which case the stated redemption price at maturity of such Debt Securities
includes all distributions of interest as well as principal thereon. Where the
interval between the issue date and the first Distribution Date on a Debt
Security is either longer or shorter than the interval between subsequent
Distribution Dates, all or part of the interest foregone, in the case of the
longer interval, and all of the additional interest, in the case of the shorter
interval, will be included in the stated redemption price at maturity and tested
under the de minimis rule described below. In the case of a Debt Security with a
long first period which has non-de minimis OID, all stated interest in excess of
interest payable at the effective interest rate for the long first period will
be included in the stated redemption price at maturity and the Debt Security
will generally have OID. Holders of Debt Securities should consult their own tax
advisors to determine the issue price and stated redemption price at maturity of
a Debt Security.
Under the de minimis rule, OID on a Debt Security will be considered to be
zero if such OID is less than 0.25% of the stated redemption price at maturity
of the Debt Security multiplied by the weighted average maturity of the Debt
Security. For this purpose, the weighted average maturity of the Debt Security
is computed as the sum of the amounts determined by multiplying the number of
full years (i.e., rounding down partial years) from the issue date until each
distribution in reduction of stated redemption price at maturity is scheduled to
be made by a fraction, the numerator of which is the amount of each distribution
included in the stated redemption price at maturity of the Debt Security and the
denominator of which is the stated redemption price at maturity of the Debt
Security. Holders generally must report de minimis OID pro rata as principal
payments are received, and such income will be capital gain if the Debt Security
is held as a capital asset. However, accrual method holders may elect to accrue
all de minimis OID as well as market discount under a constant interest method.
Debt Securities may provide for interest based on a qualified variable
rate. Under the OID Regulations, interest is treated as payable at a qualified
variable rate and not as contingent interest if, generally, (i) such interest is
unconditionally payable at least annually, (ii) the issue price of the debt
instrument does not exceed the total noncontingent principal payments and (iii)
interest is based on a "qualified floating rate," an "objective rate," or a
combination of "qualified floating rates" that do not operate in a manner that
significantly accelerates or defers interest payments on such Debt Security. In
the case of Compound Interest Securities, certain Interest Weighted Securities
(as defined herein), and certain of the other Debt Securities, none of the
payments under the instrument will be considered qualified stated interest, and
thus the aggregate amount of all payments will be included in the stated
redemption price.
The OID Regulations do not contain provisions specifically interpreting
Code Section 1272(a)(6). Until the Treasury issues guidance to the contrary, the
Trustee intends to base its computation on Code Section 1272(a)(6) and the OID
Regulations as described in this Prospectus. However, because no regulatory
guidance currently exists under Code Section 1272(a)(6), there can be no
assurance that such methodology represents the correct manner of calculating
OID.
The holder of a Debt Security issued with OID must include in gross income,
for all days during its taxable year on which it holds such Debt Security, the
sum of the "daily portions" of such original issue discount. The amount of OID
includible in income by a holder will be computed by allocating to each day
during a taxable year a pro rata portion of the original issue discount that
accrued during the relevant accrual period. In the case of a Debt Security that
is not a regular interest in a REMIC or a FASIT and the principal payments on
which are not subject to acceleration resulting from prepayments on the Loans,
the amount of OID includible in income of a Securityholder for an accrual period
(generally the period over which interest accrues on the debt instrument) will
equal the product of the yield to maturity of the Debt Security and the adjusted
issue price of the Debt Security, reduced by any payments of qualified stated
interest. The adjusted issue price is the sum of its issue price plus prior
accruals or OID, reduced by the total payments made with respect to such Debt
Security in all prior periods, other than qualified stated interest payments.
The amount of OID to be included in income by a holder of a debt
instrument, such as certain classes of the Debt Securities, that is subject to
acceleration due to prepayments on other debt obligations securing such
instruments (a "Pay-Through Security"), is computed by taking into account the
anticipated rate of prepayments assumed in pricing the debt instrument (the
"Prepayment Assumption"). The amount of OID that will accrue during an accrual
period on a Pay-Through Security is the excess (if any) of the sum of (a) the
present value of all payments remaining to be made on the Pay-Through Security
as of the close of the accrual period and (b) the payments during the accrual
period of amounts included in the stated redemption price of the Pay-Through
Security, over the adjusted issue price of the Pay-Through Security at the
beginning of the accrual period. The present value of the remaining payments is
to be determined on the basis of three factors: (i) the original yield to
maturity of the Pay-Through Security (determined on the basis of compounding at
the end of each accrual period and properly adjusted for the length of the
accrual period), (ii) events which have occurred before the end of the accrual
period and (iii) the assumption that the remaining payments will be made in
accordance with the original Prepayment Assumption. The effect of this method is
to increase the portions of OID required to be included in income by a holder to
take into account prepayments with respect to the Loans at a rate that exceeds
the Prepayment Assumption, and to decrease (but not below zero for any period)
the portions of original issue discount required to be included in income by a
holder of a Pay-Through Security to take into account prepayments with respect
to the Loans at a rate that is slower than the Prepayment Assumption. Although
original issue discount will be reported to holders of Pay-Through Securities
based on the Prepayment Assumption, no representation is made to holders that
Loans will be prepaid at that rate or at any other rate.
The Depositor may adjust the accrual of OID on a class of Debt Securities
in a manner that it believes to be appropriate, to take account of realized
losses on the Loans, although the OID Regulations do not provide for such
adjustments. If the IRS were to require that OID be accrued without such
adjustments, the rate of accrual of OID for a class Debt Securities could
increase.
Certain classes of Debt Securities may represent more than one class of
REMIC or FASIT regular interests. Unless otherwise provided in the related
Prospectus Supplement, the Trustee intends, based on the OID Regulations, to
calculate OID on such Securities as if, solely for the purposes of computing
OID, the separate regular interests were a single debt instrument.
A subsequent holder of a Debt Security will also be required to include OID
in gross income, but such a holder who purchases such Debt Security for an
amount that exceeds its adjusted issue price will be entitled (as will an
initial holder who pays more than a Debt Security's issue price) to offset such
OID by comparable economic accruals of portions of such excess.
Effects of Defaults and Delinquencies. Holders will be required to report
income with respect to REMIC or FASIT regular interests under an accrual method
without giving effect to delays and reductions in distributions attributable to
a default or delinquency on the Loans, except possibly to the extent that it can
be established that such amounts are uncollectible. As a result, the amount of
income (including OID) reported by a holder of such a Security in any period
could significantly exceed the amount of cash distributed to such holder in that
period. The holder will eventually be allowed a loss (or will be allowed to
report a lesser amount of income) to the extent that the aggregate amount of
distributions on the Securities is deducted as a result of a Loan default.
However, the timing and character of such losses or reductions in income are
uncertain and, accordingly, holders of Securities should consult their own tax
advisors on this point.
Interest Weighted Securities. It is not clear how income should be accrued
with respect to REMIC or FASIT regular
interests or Stripped Securities (as defined under " -- Tax Status as a
Grantor Trust; General" herein) the payments on which consist solely or
primarily of a specified portion of the interest payments on qualified mortgages
held by the REMIC, on debt instruments held by the FASIT, or on Loans underlying
Pass-Through Securities ("Interest Weighted Securities"). The Issuer intends to
take the position that all of the income derived from an Interest Weighted
Security should be treated as OID and that the amount and rate of accrual of
such OID should be calculated by treating the Interest Weighted Security as a
Compound Interest Security. However, in the case of Interest Weighted Securities
that are entitled to some payments of principal and that are REMIC or FASIT
regular interests the Internal Revenue Service could assert that income derived
from an Interest Weighted Security should be calculated as if the Security were
a security purchased at a premium equal to the excess of the price paid by such
holder for such Security over its stated principal amount, if any. Under this
approach, a holder would be entitled to amortize such premium only if it has in
effect an election under Section 171 of the Code with respect to all taxable
debt instruments held by such holder, as described below. Alternatively, the
Internal Revenue Service could assert that an Interest Weighted Security should
be taxable under the rules governing bonds issued with contingent payments. Such
treatment may be more likely in the case of Interest Weighted Securities that
are Stripped Securities as described below. See " -- Tax Status as a Grantor
Trust -- Discount or Premium on Pass-Through Securities."
Variable Rate Debt Securities. In the case of Debt Securities bearing
interest at a rate that varies directly, according to a fixed formula, with an
objective index, it appears that (i) the yield to maturity of such Debt
Securities and (ii) in the case of Pay-Through Securities, the present value of
all payments remaining to be made on such Debt Securities, should be calculated
as if the interest index remained at its value as of the issue date of such
Securities. Because the proper method of adjusting accruals of OID on a variable
rate Debt Security is uncertain, holders of variable rate Debt Securities should
consult their own tax advisers regarding the appropriate treatment of such
Securities for federal income tax purposes.
Market Discount. A purchaser of a Security may be subject to the market
discount rules of Sections 1276-1278 of the Code. A holder that acquires a Debt
Security with more than a prescribed de minimis amount of "market discount"
(generally, the excess of the principal amount of the Debt Security over the
purchaser's purchase price) will be required to include accrued market discount
in income as ordinary income in each month, but limited to an amount not
exceeding the principal payments on the Debt Security received in that month
and, if the Securities are sold, the gain realized. Such market discount would
accrue in a manner to be provided in Treasury regulations but, until such
regulations are issued, such market discount would in general accrue either (i)
on the basis of a constant yield (in the case of a Pay- Through Security, taking
into account a prepayment assumption) or (ii) in the ratio of (a) in the case of
Securities (or in the case of a Pass-Through Security (as defined herein), as
set forth below, the Loans underlying such Security) not originally issued with
original issue discount, stated interest payable in the relevant period to total
stated interest remaining to be paid at the beginning of the period or (b) in
the case of Securities (or, in the case of a Pass-Through Security, as described
below, the Loans underlying such Security) originally issued at a discount, OID
in the relevant period to total OID remaining to be paid.
Section 1277 of the Code provides that, regardless of the origination date
of the Debt Security (or, in the case of a Pass-Through Security, the Loans),
the excess of interest paid or accrued to purchase or carry a Security (or, in
the case of a Pass-Through Security, as described below, the underlying Loans)
with market discount over interest received on such Security is allowed as a
current deduction only to the extent such excess is greater than the market
discount that accrued during the taxable year in which such interest expense was
incurred. In general, the deferred portion of any interest expense will be
deductible when such market discount is included in income, including upon the
sale, disposition, or repayment of the Security (or in the case of a
Pass-Through Security, an underlying Loan). A holder may elect to include market
discount in income currently as it accrues, on all market discount obligations
acquired by such holder during the taxable year such election is made and
thereafter, in which case the interest deferral rule will not apply.
Premium. A holder who purchases a Debt Security (other than an Interest
Weighted Security to the extent described above) at a cost greater than its
stated redemption price at maturity, generally will be considered to have
purchased the Security at a premium, which it may elect to amortize as an offset
to interest income on such Security (and not as a separate deduction item) on a
constant yield method. Although no regulations addressing the computation of
premium accrual on securities similar to the Securities have been issued, the
legislative history of the 1986 Act indicates that premium is to be accrued in
the same manner as market discount. Accordingly, it appears that the accrual of
premium on a class of Pay-Through Securities will be calculated using the
prepayment assumption used in pricing such class. If a holder makes an election
to amortize premium on a Debt Security, such election will apply to all taxable
debt instruments (including all REMIC and FASIT regular interests and all
pass-through certificates representing ownership interests in a trust holding
debt obligations) held by the holder at the beginning of the taxable year in
which the election is made, and to all taxable debt instruments acquired
thereafter by such holder, and will be irrevocable without the consent of the
IRS. Purchasers who pay a premium for the Securities should consult their tax
advisers regarding the election to amortize premium and the method to be
employed.
Regulations dealing with amortizable bond premium specifically do not apply
to prepayable debt instruments described in Code Section 1272(a)(6) such as the
Securities. Absent further guidance from the IRS, the Trustee intends to account
for amortizable bond premium in the manner described above. Prospective
purchasers of the Securities should consult their tax advisors regarding the
possible application of the Amortizable Bond Premium Regulations.
Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit a holder of a Debt Security to elect to accrue all interest,
discount (including de minimis market or original issue discount) and premium in
income as interest, based on a constant yield method for Debt Securities
acquired on or after April 4, 1994. If such an election were to be made with
respect to a Debt Security with market discount, the holder of the Debt Security
would be deemed to have made an election to include in income currently market
discount with respect to all other debt instruments having market discount that
such holder of the Debt Security acquires during the year of the election or
thereafter. Similarly, a holder of a Debt Security that makes this election for
a Debt Security that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such holder owns or acquires. The election to
accrue interest, discount and premium on a constant yield method with respect to
a Debt Security is irrevocable
Taxation of the REMIC and its Holders
General. In the opinion of Brown & Wood LLP, special counsel to the
Depositor, if a REMIC election is made with respect to a Series of Securities,
then the arrangement by which the Securities of that Series are issued will be
treated as a REMIC as long as all of the provisions of the applicable Agreement
are complied with ^. Securities will be designated as - "Regular Interests" or
"Residual Interests" in a REMIC, as specified in the related Prospectus
Supplement.
Except to the extent specified otherwise in a Prospectus Supplement, if a
REMIC election is made with respect to a Series of Securities, (i) Securities
held by a domestic building and loan association will constitute "a regular or a
residual interest in a REMIC" within the meaning of Code Section
7701(a)(19)(C)(xi) (assuming that at least 95% of the REMIC's assets consist of
cash, government securities, "loans secured by an interest in real property,"
and other types of assets described in Code Section 7701(a)(19)(C)); and (ii)
Securities held by a real estate investment trust will constitute "real estate
assets" within the meaning of Code Section 856(c)(5)(B), and income with respect
to the Securities will be considered "interest on obligations secured by
mortgages on real property or on interests in real property" within the meaning
of Code Section 856(c)(3)(B) (assuming, for both purposes, that at least 95% of
the REMIC's assets are qualifying assets). If less than 95% of the REMIC's
assets consist of assets described in (i) or (ii) above, then a Security will
qualify for the tax treatment described in (i), (ii) or (iii) in the proportion
that such REMIC assets are qualifying assets.
The Small Business Job Protection Act of 1996, as part of the repeal of the
bad debt reserve method for thrift institutions, repealed the application of
Code Section 593(d) to any taxable year beginning after December 31, 1995.
REMIC Expenses; Single Class REMICs
As a general rule, all of the expenses of a REMIC will be taken into
account by holders of the Residual Interest Securities. In the case of a "single
class REMIC," however, the expenses will be allocated, under Treasury
regulations, among the holders of the Regular Interest Securities and the
holders of the Residual Interest Securities (as defined herein) on a daily basis
in proportion to the relative amounts of income accruing to each holder on that
day. In the case of a holder of a Regular Interest Security who is an individual
or a "pass-through interest holder" (including certain pass- through entities
but not including real estate investment trusts), such expenses will be
deductible only to the extent that such expenses, plus other "miscellaneous
itemized deductions" of the holder, exceed 2% of such holder's adjusted gross
income. In addition, for taxable years beginning after December 31, 1990, the
amount of itemized deductions otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds the applicable amount (which
amount will be adjusted for inflation for taxable years beginning after 1990)
will be reduced by the lesser of (i) 3% of the excess of adjusted gross income
over the applicable amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for such taxable year. The reduction or disallowance of this
deduction may have a significant impact on the yield of the Regular Interest
Security to such a holder. In general terms, a single class REMIC is one that
either (i) would qualify, under existing Treasury regulations, as a grantor
trust if it were not a REMIC (treating all interests as ownership interests,
even if they would be classified as debt for federal income tax purposes) or
(ii) is similar to such a trust and which is structured with the principal
purpose of avoiding the single class REMIC rules. Unless otherwise specified in
the related Prospectus Supplement, the expenses of the REMIC will be allocated
to holders of the related residual interest securities.
Taxation of the REMIC
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level tax. Rather, the
taxable income or net loss of a REMIC is taken into account by the holders of
residual interests. As described above, the regular interests are generally
taxable as debt of the REMIC.
Calculation of REMIC Income. The taxable income or net loss of a REMIC is
determined under an accrual method of accounting and in the same manner as in
the case of an individual, with certain adjustments. In general, the taxable
income or net loss will be the difference between (i) the gross income produced
by the REMIC's assets, including stated interest and any original issue discount
or market discount on loans and other assets and (ii) deductions, including
stated interest and original issue discount accrued on Regular Interest
Securities, amortization of any premium with respect to Loans, and servicing
fees and other expenses of the REMIC. A holder of a Residual Interest Security
that is an individual or a "pass-through interest holder" (including certain
pass-through entities, but not including real estate investment trusts) will be
unable to deduct servicing fees payable on the loans or other administrative
expenses of the REMIC for a given taxable year, to the extent that such
expenses, when aggregated with such holder's other miscellaneous itemized
deductions for that year, do not exceed two percent of such holder's adjusted
gross income.
For purposes of computing its taxable income or net loss, the REMIC should
have an initial aggregate tax basis in its assets equal to the aggregate fair
market value of the regular interests and the residual interests on the Startup
Day (generally, the day that the interests are issued). That aggregate basis
will be allocated among the assets of the REMIC in proportion to their
respective fair market values.
The OID provisions of the Code apply to loans of individuals originated on
or after March 2, 1984, and the market discount provisions apply to loans
originated after July 18, 1984. Subject to possible application of the de
minimis rules, the method of accrual by the REMIC of OID income on such loans
will be equivalent to the method under which holders of Pay-Through Securities
accrue original issue discount (i.e., under the constant yield method taking
into account the Prepayment Assumption). The REMIC will deduct OID on the
Regular Interest Securities in the same manner that the holders of the Regular
Interest Securities include such discount in income, but without regard to the
de minimis rules. See "Taxation of Debt Securities" above. However, a REMIC that
acquires loans at a market discount must include such market discount in income
currently, as it accrues, on a constant interest basis.
To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the life
of the loans (taking into account the Prepayment Assumption) on a constant yield
method. Although the law is somewhat unclear regarding recovery of premium
attributable to loans originated on or before such date, it is possible that
such premium may be recovered in proportion to payments of loan principal.
Prohibited Transactions and Contributions Tax. The REMIC will be subject to
a 100% tax on any net income derived from a "prohibited transaction." For this
purpose, net income will be calculated without taking into account any losses
from prohibited transactions or any deductions attributable to any prohibited
transaction that resulted in a loss. In general, prohibited transactions
include: (i) subject to limited exceptions, the sale or other disposition of any
qualified mortgage transferred to the REMIC; (ii) subject to a limited
exception, the sale or other disposition of a cash flow investment; (iii) the
receipt of any income from assets not permitted to be held by the REMIC pursuant
to the Code; or (iv) the receipt of any fees or other compensation for services
rendered by the REMIC. It is anticipated that a REMIC will not engage in any
prohibited transactions in which it would recognize a material amount of net
income. In addition, subject to a number of exceptions, a tax is imposed at the
rate of 100% on amounts contributed to a REMIC after the close of the
three-month period beginning on the Startup Day. The holders of Residual
Interest Securities will generally be responsible for the payment of any such
taxes imposed on the REMIC. To the extent not paid by such holders or otherwise,
however, such taxes will be paid out of the Trust Fund and will be allocated pro
rata to all outstanding classes of Securities of such REMIC.
Taxation of Holders of Residual Interest Securities
The holder of a Security representing a residual interest (a "Residual
Interest Security") will take into account the "daily portion" of the taxable
income or net loss of the REMIC for each day during the taxable year on which
such holder held the Residual Interest Security. The daily portion is determined
by allocating to each day in any calendar quarter its ratable portion of the
taxable income or net loss of the REMIC for such quarter, and by allocating that
amount among the holders (on such day) of the Residual Interest Securities in
proportion to their respective holdings on such day.
The holder of a Residual Interest Security must report its proportionate
share of the taxable income of the REMIC whether or not it receives cash
distributions from the REMIC attributable to such income or loss. The reporting
of taxable income without corresponding distributions could occur, for example,
in certain REMIC issues in which the loans held by the REMIC were issued or
acquired at a discount, since mortgage prepayments cause recognition of discount
income, while the corresponding portion of the prepayment could be used in whole
or in part to make principal payments on REMIC Regular Interests issued without
any discount or at an insubstantial discount (if this occurs, it is likely that
cash distributions will exceed taxable income in later years). Taxable income
may also be greater in earlier years of certain REMIC issues as a result of the
fact that interest expense deductions, as a percentage of outstanding principal
on REMIC Regular Interest Securities, will typically increase over time as lower
yielding Securities are paid, whereas interest income with respect to loans will
generally remain constant over time as a percentage of loan principal.
In any event, because the holder of a residual interest is taxed on the net
income of the REMIC, the taxable income derived from a Residual Interest
Security in a given taxable year will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pretax yield. Therefore, the after-tax
yield on the Residual Interest Security may be less than that of such a bond or
instrument.
Limitation on Losses. The amount of the REMIC's net loss that a holder may
take into account currently is limited to the holder's adjusted basis at the end
of the calendar quarter in which such loss arises. A holder's basis in a
Residual Interest Security will initially equal such holder's purchase price,
and will subsequently be increased by the amount of the REMIC's taxable income
allocated to the holder, and decreased (but not below zero) by the amount of
distributions made and the amount of the REMIC's net loss allocated to the
holder. Any disallowed loss may be carried forward indefinitely, but may be used
only to offset income of the REMIC generated by the same REMIC. The ability of
holders of Residual Interest Securities to deduct net losses may be subject to
additional limitations under the Code, as to which such holders should consult
their tax advisers.
Distributions. Distributions on a Residual Interest Security (whether at
their scheduled times or as a result of prepayments) will generally not result
in any additional taxable income or loss to a holder of a Residual Interest
Security. If the amount of such payment exceeds a holder's adjusted basis in the
Residual Interest Security, however, the holder will recognize gain (treated as
gain from the sale of the Residual Interest Security) to the extent of such
excess.
Sale or Exchange. A holder of a Residual Interest Security will recognize
gain or loss on the sale or exchange of a Residual Interest Security equal to
the difference, if any, between the amount realized and such holder's adjusted
basis in the Residual Interest Security at the time of such sale or exchange.
Except to the extent provided in regulations, which have not yet been issued,
any loss upon disposition of a Residual Interest Security will be disallowed if
the selling holder acquires any residual interest in a REMIC or similar mortgage
pool within six months before or after such disposition.
Excess Inclusions. The portion of the REMIC taxable income of a holder of a
Residual Interest Security consisting of "excess inclusion" income may not be
offset by other deductions or losses, including net operating losses, on such
holder's federal income tax return. Further, if the holder of a Residual
Interest Security is an organization subject to the tax on unrelated business
income imposed by Code Section 511, such holder's excess inclusion income will
be treated as unrelated business taxable income of such holder. In addition,
under Treasury regulations yet to be issued, if a real estate investment trust,
a regulated investment company, a common trust fund, or certain cooperatives
were to own a Residual Interest Security, a portion of dividends (or other
distributions) paid by the real estate investment trust (or other entity) would
be treated as excess inclusion income. If a Residual Security is owned by a
foreign person excess inclusion income is subject to tax at a rate of 30% which
may not be reduced by treaty, is not eligible for treatment as "portfolio
interest" and is subject to certain additional limitations. See "Tax Treatment
of Foreign Investors." The Small Business Job Protection Act of 1996 has
eliminated the special rule permitting Section 593 institutions ("thrift
institutions") to use net operating losses and other allowable deductions to
offset their excess inclusion income from REMIC residual certificates that have
"significant value" within the meaning of the REMIC Regulations, effective for
taxable years beginning after December 31, 1995, except with respect to residual
certificates continuously held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides three
rules for determining the effect on excess inclusions on the alternative minimum
taxable income of a residual holder. First, alternative minimum taxable income
for such residual holder is determined without regard to the special rule that
taxable income cannot be less than excess inclusions. Second, a residual
holder's alternative minimum taxable income for a tax year cannot be less than
excess inclusions for the year. Third, the amount of any alternative minimum tax
net operating loss deductions must be computed without regard to any excess
inclusions. These rules are effective for tax years beginning after December 31,
1986, unless a residual holder elects to have such rules apply only to tax years
beginning after August 20, 1996.
The excess inclusion portion of a REMIC's income is generally equal to the
excess, if any, of REMIC taxable income for the quarterly period allocable to a
Residual Interest Security, over the daily accruals for such quarterly period of
(i) 120% of the long term applicable federal rate on the Startup Day multiplied
by (ii) the adjusted issue price of such Residual Interest Security at the
beginning of such quarterly period. The adjusted issue price of a Residual
Interest at the beginning of each calendar quarter will equal its issue price
(calculated in a manner analogous to the determination of the issue price of a
Regular Interest), increased by the aggregate of the daily accruals for prior
calendar quarters, and decreased (but not below zero) by the amount of loss
allocated to a holder and the amount of distributions made on the Residual
Interest Security before the beginning of the quarter. The long-term federal
rate, which is announced monthly by the Treasury Department, is an interest rate
that is based on the average market yield of outstanding marketable obligations
of the United States government having remaining maturities in excess of nine
years.
Under the REMIC Regulations, in certain circumstances, transfers of
Residual Securities may be disregarded. See " -- Restrictions on Ownership and
Transfer of Residual Interest Securities" and " -- Tax Treatment of Foreign
Investors" below.
Restrictions on Ownership and Transfer of Residual Interest Securities. As
a condition to qualification as a REMIC, reasonable arrangements must be made to
prevent the ownership of a REMIC residual interest by any "Disqualified
Organization." Disqualified Organizations include the United States, any State
or political subdivision thereof, any foreign government, any international
organization, or any agency or instrumentality of any of the foregoing, a rural
electric or telephone cooperative described in Section 1381(a)(2)(C) of the
Code, or any entity exempt from the tax imposed by Sections 1-1399 of the Code,
if such entity is not subject to tax on its unrelated business income.
Accordingly, the applicable Pooling and Servicing Agreement will prohibit
Disqualified Organizations from owning a Residual Interest Security. In
addition, no transfer of a Residual Interest Security will be permitted unless
the proposed transferee shall have furnished to the Trustee an affidavit
representing and warranting that it is neither a Disqualified Organization nor
an agent or nominee acting on behalf of a Disqualified Organization.
If a Residual Interest Security is transferred to a Disqualified
Organization after March 31, 1988 (in violation of the restrictions set forth
above), a substantial tax can be imposed on the transferor of such Residual
Interest Security at the time of the transfer. In addition, if a Disqualified
Organization holds an interest in a pass-through entity after March 31, 1988
(including, among others, a partnership, trust, real estate investment trust,
regulated investment company, or any person holding as nominee), that owns a
Residual Interest Security, the pass-through entity will be required to pay an
annual tax on its allocable share of the excess inclusion income of the REMIC.
Under the REMIC Regulations, if a Residual Interest Security is a
"noneconomic residual interest," as described below, a transfer of a Residual
Interest Security to a United States person will be disregarded for all Federal
tax purposes unless no significant purpose of the transfer was to impede the
assessment or collection of tax. A Residual Interest Security is a "noneconomic
residual interest" unless, at the time of the transfer (i) the present value of
the expected future distributions on the Residual Interest Security at least
equals the product of the present value of the anticipated excess inclusions and
the highest 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 REMIC at or after the time at which the taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes. If a
transfer of a Residual Interest is disregarded, the transferor would be liable
for any Federal income tax imposed upon taxable income derived by the transferee
from the REMIC. The REMIC Regulations provide no guidance as to how to determine
if a significant purpose of a transfer is to impede the assessment or collection
of tax. A similar type of limitation exists with respect to certain transfers of
residual interests by foreign persons to United States persons. See " -- Tax
Treatment of Foreign Investors."
Mark to Market Rules. Prospective purchasers of a REMIC Residual Interest
Security should be aware that a REMIC Residual Interest Security acquired after
January 3, 1995 cannot be marked-to-market.
Administrative Matters
The REMIC's books must be maintained on a calendar year basis and the REMIC
must file an annual federal income tax return. The REMIC will also be subject to
the procedural and administrative rules of the Code applicable to partnerships,
including the determination of any adjustments to, among other things, items of
REMIC income, gain, loss, deduction, or credit, by the IRS in a unified
administrative proceeding.
Taxation of the FASIT and its Holders
In the opinion of Brown & Wood LLP, special counsel to the Depositor, if a
FASIT election is made with respect to a Series of Securities, then the
arrangement by which the Securities of that Series are issued will be treated as
a FASIT so long as all of the provisions of the related Agreement are complied
with.
The Small Business and Job Protection Act of 1996 added Sections 860H
through 860L to the Code (the "FASIT Provisions"), which provide for a new type
of entity for federal income tax purposes known as a "financial asset
securitization investment trust" (a "FASIT"). Although the FASIT provisions of
the Code became effective on September 1, 1997, no Treasury regulations or other
administrative guidance have been issued with respect to those provisions.
Accordingly, definitive guidance cannot be provided with respect to many aspects
of the tax treatment of FASIT regular interest holders. Investors should also
note that the FASIT discussion contained herein constitutes only a summary of
the U.S. federal income tax consequences to the holders of FASIT interests. With
respect to each Series of FASIT regular interests, the related Prospectus
Supplement will provide a detailed discussion regarding the federal income tax
consequences associated with the particular transaction.
FASIT interests will be classified as either FASIT regular interests, which
generally will be treated as debt for federal income tax purposes, or FASIT
ownership interests, which generally are not treated as debt for such purposes,
but rather as representing rights and responsibilities with respect to the
taxable income or loss of the related FASIT. The Prospectus Supplement for each
Series of Securities will indicate which Securities of such Series will be
designated as regular interests, and which, if any, will be designated as
ownership interests.
Qualification as a FASIT. A Trust Fund will qualify as a FASIT if (i) a
FASIT election is in effect, (ii) certain tests concerning (A) the composition
of the FASIT's assets and (B) the nature of the investors' interests in the
FASIT are met on a continuing basis, and (iii) the Trust Fund is not a regulated
investment company as defined in Section 851(a) of the Code.
Asset Composition. For a Trust Fund to be eligible for FASIT status,
substantially all of the Trust Fund Assets must consist of "permitted assets" as
of the close of the third month beginning after the closing date and at all
times thereafter (the "FASIT Qualification Test"). Permitted assets include (i)
cash or cash equivalents, (ii) debt instruments with fixed terms that would
qualify as regular interests if issued by a REMIC (generally, instruments that
provide for interest at a fixed rate, a qualifying variable rate, or a
qualifying interest-only ("IO") type rate), (iii) foreclosure property, (iv)
certain hedging instruments (generally, interest and currency rate swaps and
credit enhancement contracts) that are reasonably required to guarantee or hedge
against the FASIT's risks associated with being the obligor on FASIT interests,
(v) contract rights to acquire qualifying debt instruments or qualifying hedging
instruments, (vi) FASIT regular interest, and (vii) REMIC regular interests.
Permitted assets do not include any debt instruments issued by the holder of the
FASIT's ownership interest or by any person related to such holder
Interests in a FASIT. In addition to the foregoing asset qualification
requirements, the interests in a FASIT also must meet certain requirements. All
of the interests in a FASIT must belong to either of the following: (i) one or
more classes of regular interests or (ii) a single class of ownership interest
that is held by a fully taxable domestic C Corporation.
A FASIT interest generally qualifies as a regular interest if (i) it is
designated as a regular interest, (ii) it has a stated maturity no greater than
thirty years, (iii) it entitles its holder to a specified principal amount, (iv)
the issue price of the interest does not exceed 125% of its stated principal
amount, (v) the yield to maturity of the interest is less than the applicable
Treasury rate published by the IRS plus 5%, and (vi) if it pays interest, such
interest is payable at either (a) a fixed rate with respect to the principal
amount of the regular interest or (b) a permissible variable rate with respect
to such principal amount. Permissible variable rates for FASIT regular interests
are the same as those for REMIC regular interests (i.e., certain qualified
floating rates and weighted average rates). Interest will generally be
considered to be based on a permissible variable rate if (i) such interest is
unconditionally payable at least annually, (ii) the issue price of the debt
instrument does not exceed the total noncontingent principal payments and (iii)
interest is based on a "qualified floating rate," an "objective rate," a
combination of a single fixed rate and one or more "qualified floating rate,"
one "qualified inverse floating rate," or a combination of "qualified floating
rates" that do not operate in a manner that significantly accelerates or defers
interest payments on such FASIT regular interest.
If an interest in a FASIT fails to meet one or more of the requirements set
out in clauses (iii), (iv), or (v) in the immediately preceding paragraph, but
otherwise meets all requirements to be treated as a FASIT, it may still qualify
as a type of regular interest known as a "High-Yield Interest." In addition, if
an interest in a FASIT fails to meet the requirement of clause (vi), but the
interest payable on the interest consists of a specified portion of the interest
payments on permitted assets and that portion does not vary over the life of the
security, the interest will also qualify as a High-Yield Interest. A High-Yield
Interest may be held only by domestic C corporations that are fully subject to
corporate income tax ("Eligible Corporations"), other FASITs, and dealers in
securities who acquire such interests as inventory, rather than for investment.
In addition, holders of High-Yield Interests are subject to limitations on of
income derived from such interest.
Consequences of Disqualification. If a Trust Fund fails to comply with one
or more of ongoing requirements for FASIT status during any taxable year, the
Code provides that its FASIT status may be lost for that year and thereafter. If
FASIT status is lost, the treatment of the former FASIT and interests therein
for federal income tax purposes is uncertain. Although the Code authorizes the
Treasury to issue regulations that address situations where a failure to meet
the requirements for FASIT status occurs inadvertently and in good faith, such
regulations have not yet been issued. It is possible that disqualification
relief might be accompanied by sanctions, such as the imposition of a corporate
tax on all or a portion of the FASIT's income for the period of time in which
the requirements for FASIT status are not satisfied.
Treatment of FASIT Regular Interests
Payments received by holders of FASIT regular interests generally will be
accorded the same tax treatment under the Code as payments received on other
taxable debt instruments. Holders of FASIT regular interests must report income
from such Securities under an accrual method of accounting, even if they
otherwise would have used the cash receipts and disbursements method. If the
FASIT regular interests is sold, the holder generally will recognize gain or
loss upon the sale. See "-Taxation of Debt Securities" above.
Treatment of High-Yield Interest
High-Yield Interests are subject to special rules regarding the eligibility
of holders of such interest, and the ability of such holders to offset income
derived from those interests with losses. High-Yield Interests only may be held
by Eligible Corporations, other FASITs, and dealers in securities who acquire
such interests as inventory. If a securities dealer (other than an Eligible
Corporation) initially acquires a High-Yield Interest as inventory, but later
begins to hold it for investment, the dealer will be subject to an excise tax
equal to the income from the High-Yield Interest multiplied by the highest
corporate income tax rate. In addition, transfers of High-Yield Interests to
disqualified holders will be disregarded for federal income tax purposes, and
the transferor will continue to be treated as the holder of the High-Yield
Interest.
The holder of a High-Yield Interest may not use non-FASIT current losses or
net operating loss carryforwards or carrybacks to offset any income derived from
the High-Yield Interest, for either regular federal income tax purposes or for
alternative minimum tax purposes. In addition, the FASIT provisions contain an
anti-abuse rule that imposes corporate income tax on income derived from a FASIT
regular interest that is held by a pass-through entity (other than another
FASIT) that issues debt or equity securities backed by the FASIT regular
interest and that have the same features as High-Yield Interests.
Tax Treatment of FASIT Ownership Interests
A FASIT ownership interest represents the residual equity interest in a
FASIT. As such, the holder of a FASIT ownership interest determines its taxable
income by taking into account all assets, liabilities, and items of income,
gain, deduction, loss, and credit of a FASIT. In general, the character of the
income to the holder of a FASIT ownership interest will be the same as the
character of such income to the FASIT, except that any tax- exempt interest
income taken into account by the holder of a FASIT ownership interest is treated
as ordinary income. In determining that taxable income, the holder of a FASIT
ownership interest must determine the amount of interest, original issue
discount, market discount, and premium recognized with respect to the FASIT's
assets and the FASIT regular interests issued by the FASIT according to a
constant yield methodology and under an accrual method of accounting. In
addition, holders of FASIT Ownership Securities are subject to the same
limitations on their ability to use losses to offset income from their FASIT
regular interests as are holders of High-Yield Interest.
Rules similar to the wash sale rules applicable to REMIC residual interests
also will apply to FASIT ownership interests. Accordingly, losses on
dispositions of a FASIT ownership interest generally will be disallowed where
within six months before or after the disposition, the seller of such interest
acquires any other FASIT ownership interest that is economically comparable to a
FASIT ownership interest. In addition, if any security that is sold or
contributed to a FASIT by the holders of the related FASIT ownership interest
was required to be marked-to- market under section 475 of the Code by such
holder, then section 475 of the Code will continue to apply to such securities,
except that the amount realized under the mark-to-market rules or the
securities' value after applying special valuation rules contained in the FASIT
provisions. Those special valuation rules generally require that the value of
debt instruments that are not traded on an established securities market be
determined by calculating the present value of the reasonably expected payments
under the instrument using a discount rate of 120% of the applicable Federal
rate, compounded semi-annually.
The holder of a FASIT ownership interest will be subject to a tax equal to
100% of the net income derived by the FASIT from any "prohibited transactions."
Prohibited transactions include (i) the receipt of income derived from assets
that are not permitted assets, (ii) certain dispositions of permitted assets,
(iii) the receipt of any income derived from any loan originated by a FASIT, and
(iv) in certain cases, the receipt of income representing a servicing fee or
other compensation. Any Series of Securities for which a FASIT election is made
generally will be structured in order to avoid application of the prohibited
transaction tax.
Tax Status as a Grantor Trust
In the absence of a REMIC or FASIT election, a Trust Fund generally will be
classified as a grantor trust if (i) there is either only one class of
Securities that evidences the entire undivided beneficial ownership of the Trust
Fund Assets, or, if there is more than one class of Securities, each class
represents a direct investment in the Trust Fund Assets, and (ii) no power
exists under the related Agreement to vary the investment of the
Securityholders. If these conditions are satisfied, the related Prospectus
Supplement will recite that in the opinion of Brown & Wood LLP, special counsel
to the Depositor, the Trust Fund relating to a Series of Securities will be
classified for federal income tax purposes as a grantor trust under Subpart E,
Part I of Subchapter J of the Code (the Securities of such Series, "Pass-Through
Securities"). In some Series there will be no separation of the principal and
interest payments on the Loans. In such circumstances, a holder will be
considered to have purchased a pro rata undivided interest in each of the Loans.
In other cases ("Stripped Securities"), sale of the Securities will produce a
separation in the ownership of all or a portion of the principal payments from
all or a portion of the interest payments on the Loans.
Each holder must report on its federal income tax return its share of the
gross income derived from the Loans (not reduced by the amount payable as fees
to the Trustee and the Servicer and similar fees (collectively, the "Servicing
Fee")), at the same time and in the same manner as such items would have been
reported under the holder's tax accounting method had it held its interest in
the Loans directly, received directly its share of the amounts received with
respect to the Loans, and paid directly its share of the Servicing Fees. In the
case of Pass-Through Securities other than Stripped Securities, such income will
consist of a pro rata share of all of the income derived from all of the Loans
and, in the case of Stripped Securities, such income will consist of a pro rata
share of the income derived from each stripped bond or stripped coupon in which
the holder owns an interest. The holder of a Security will generally be entitled
to deduct such Servicing Fees under Section 162 or Section 212 of the Code to
the extent that such Servicing Fees represent "reasonable" compensation for the
services rendered by the Trustee and the Servicer (or third parties that are
compensated for the performance of services). In the case of a noncorporate
holder, however, Servicing Fees (to the extent not otherwise disallowed, e.g.,
because they exceed reasonable compensation) will be deductible in computing
such holder's regular tax liability only to the extent that such fees, when
added to other miscellaneous itemized deductions, exceed 2% of adjusted gross
income and may not be deductible to any extent in computing such holder's
alternative minimum tax liability. In addition, for taxable years beginning
after December 31, 1990, the amount of itemized deductions otherwise allowable
for the taxable year for an individual whose adjusted gross income exceeds the
applicable amount (which amount will be adjusted for inflation in taxable years
beginning after 1990) will be reduced by the lesser of (i) 3% of the excess of
adjusted gross income over the applicable amount or (ii) 80% of the amount of
itemized deductions otherwise allowable for such taxable year.
Discount or Premium on Pass-Through Securities. The holder's purchase price
of a Pass-Through Security is to be allocated among the Loans in proportion to
their fair market values, determined as of the time of purchase of the
Securities. In the typical case, the Trustee (to the extent necessary to fulfill
its reporting obligations) will treat each Loan as having a fair market value
proportional to the share of the aggregate principal balances of all of the
Loans that it represents, since the Securities, unless otherwise specified in
the related Prospectus Supplement, will have a relatively uniform interest rate
and other common characteristics. To the extent that the portion of the purchase
price of a Pass-Through Security allocated to a Loan (other than to a right to
receive any accrued interest thereon and any undistributed principal payments)
is less than or greater than the portion of the principal balance of the Loan
allocable to the Security, the interest in the Loan allocable to the Pass-
Through Security will be deemed to have been acquired at a discount or premium,
respectively.
The treatment of any discount will depend on whether the discount
represents OID or market discount. In the case of a Loan with OID in excess of a
prescribed de minimis amount or a Stripped Security, a holder of a Security will
be required to report as interest income in each taxable year its share of the
amount of OID that accrues during that year in the manner described above. OID
with respect to a Loan could arise, for example, by virtue of the financing of
points by the originator of the Loan, or by virtue of the charging of points by
the originator of the Loan in an amount greater than a statutory de minimis
exception, in circumstances under which the points are not currently deductible
pursuant to applicable Code provisions. Any market discount or premium on a Loan
will be includible in income, generally in the manner described above, except
that in the case of Pass-Through Securities, market discount is calculated with
respect to the Loans underlying the Certificate, rather than with respect to the
Security. A holder that acquires an interest in a Loan originated after July 18,
1984 with more than a de minimis amount of market discount (generally, the
excess of the principal amount of the Loan over the purchaser's allocable
purchase price) will be required to include accrued market discount in income in
the manner set forth above. See "--Taxation of Debt Securities; Market Discount"
and " -- Premium" above.
In the case of market discount on a Pass-Through Security attributable to
Loans originated on or before July 18, 1984, the holder generally will be
required to allocate the portion of such discount that is allocable to a loan
among the principal payments on the Loan and to include the discount allocable
to each principal payment in ordinary income at the time such principal payment
is made. Such treatment would generally result in discount being included in
income at a slower rate than discount would be required to be included in income
using the method described in the preceding paragraph.
Stripped Securities. A Stripped Security may represent a right to receive
only a portion of the interest payments on the Loans, a right to receive only
principal payments on the Loans, or a right to receive certain payments of both
interest and principal. Certain Stripped Securities ("Ratio Strip Securities")
may represent a right to receive differing percentages of both the interest and
principal on each Loan. Pursuant to Section 1286 of the Code, the separation of
ownership of the right to receive some or all of the interest payments on an
obligation from ownership of the right to receive some or all of the principal
payments results in the creation of "stripped bonds" with respect to principal
payments and "stripped coupons" with respect to interest payments. Section 1286
of the Code applies the OID rules to stripped bonds and stripped coupons. For
purposes of computing original issue discount, a stripped bond or a stripped
coupon is treated as a debt instrument issued on the date that such stripped
interest is purchased with an issue price equal to its purchase price or, if
more than one stripped interest is purchased, the ratable share of the purchase
price allocable to such stripped interest.
Servicing fees in excess of reasonable servicing fees ("excess servicing")
will be treated under the stripped bond rules. If the excess servicing fee is
less than 100 basis points (i.e., 1% interest on the Loan principal balance) or
the Securities are initially sold with a de minimis discount (assuming no
prepayment assumption is required), any non-de minimis discount arising from a
subsequent transfer of the Securities should be treated as market discount. The
IRS appears to require that reasonable servicing fees be calculated on a Loan by
Loan basis, which could result in some Loans being treated as having more than
100 basis points of interest stripped off.
OID Regulations and judicial decisions provide no direct guidance as to how
the interest and original issue discount rules are to apply to Stripped
Securities and other Pass-Through Securities. Under the method described above
for Pay-Through Securities (the "Cash Flow Bond Method"), a prepayment
assumption is used and periodic recalculations are made which take into account
with respect to each accrual period the effect of prepayments during such
period. However, the 1986 Act does not, absent Treasury regulations, appear
specifically to cover instruments such as the Stripped Securities which
technically represent ownership interests in the underlying Loans, rather than
being debt instruments "secured by" those loans. For tax years beginning after
August 5, 1997 the Taxpayer Relief Act of 1997 may allow use of the Cash Flow
Bond Method with respect to Stripped Securities and other Pass-Through
Securities because it provides that such method applies to any pool of debt
instruments the yield on which may be affected by prepayments. Nevertheless, it
is believed that the Cash Flow Bond Method is a reasonable method of reporting
income for such Securities, and it is expected that OID will be reported on that
basis unless otherwise specified in the related Prospectus Supplement. In
applying the calculation to Pass-Through Securities, the Trustee will treat all
payments to be received by a holder with respect to the underlying Loans as
payments on a single installment obligation. The IRS could, however, assert that
original issue discount must be calculated separately for each Loan underlying a
Security.
Under certain circumstances, if the Loans prepay at a rate faster than the
Prepayment Assumption, the use of the Cash Flow Bond Method may accelerate a
holder's recognition of income. If, however, the Loans prepay at a rate slower
than the Prepayment Assumption, in some circumstances the use of this method may
decelerate a holder's recognition of income.
In the case of a Stripped Security that is an Interest Weighted Security,
the Trustee intends, absent contrary authority, to report income to Security
holders as OID, in the manner described above for Interest Weighted Securities.
Possible Alternative Characterizations. The characterizations of the
Stripped Securities described above are not the only possible interpretations of
the applicable Code provisions. Among other possibilities, the IRS could contend
that (i) in certain Series, each non-Interest Weighted Security is composed of
an unstripped undivided ownership interest in Loans and an installment
obligation consisting of stripped principal payments; (ii) the non-Interest
Weighted Securities are subject to the contingent payment provisions of the
Contingent Regulations; or (iii) each Interest Weighted Stripped Security is
composed of an unstripped undivided ownership interest in Loans and an
installment obligation consisting of stripped interest payments.
Given the variety of alternatives for treatment of the Stripped Securities
and the different federal income tax consequences that result from each
alternative, potential purchasers are urged to consult their own tax advisers
regarding the proper treatment of the Securities for federal income tax
purposes.
Character as Qualifying Loans. In the case of Stripped Securities, there is
no specific legal authority existing regarding whether the character of the
Securities, for federal income tax purposes, will be the same as the Loans. The
IRS could take the position that the Loans' character is not carried over to the
Securities in such circumstances. Pass-Through Securities will be, and, although
the matter is not free from doubt, Stripped Securities should be considered to
represent "real estate assets" within the meaning of Section 856(c)(5)(B) of the
Code and "loans secured by an interest in real property" within the meaning of
Section 7701(a)(19)(C)(v) of the Code; and interest income attributable to the
Securities should be considered to represent "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. Reserves or funds underlying the Securities
may cause a proportionate reduction in the above-described qualifying status
categories of Securities.
Sale or Exchange
Subject to the discussion below with respect to Trust Funds classified as
partnerships made, a holder's tax basis in its Security is the price such holder
pays for a Security, plus amounts of original issue or market discount included
in income and reduced by any payments received (other than qualified stated
interest payments) and any amortized premium. Gain or loss recognized on a sale,
exchange, or redemption of a Security, measured by the difference between the
amount realized and the Security's basis as so adjusted, will generally be
capital gain or loss, assuming that the Security is held as a capital asset. In
the case of a Security held by a bank, thrift, or similar institution described
in Section 582 of the Code, however, gain or loss realized on the sale or
exchange of a REMIC or FASIT regular interest will be taxable as ordinary income
or loss. In addition, gain from the disposition of a REMIC regular interest that
might otherwise be capital gain will be treated as ordinary income to the extent
of the excess, if any, of (i) the amount that would have been includible in the
holder's income if the yield on such REMIC regular interest Security had equaled
110% of the applicable federal rate as of the beginning of such holder's holding
period, over the amount of ordinary income actually recognized by the holder
with respect to such REMIC regular interest. In general, the maximum tax rate on
ordinary income for individual taxpayers is 39.6% and the maximum tax rate on
long-term capital gains for such taxpayers is 28%. The maximum tax rate on both
ordinary income and long-term capital gains of corporate taxpayers is 35%.
The Taxpayer Relief Act of 1997 reduces the maximum rates on long-term
capital gains recognized on capital assets held by individual taxpayers for more
than eighteen months as of the date of disposition (and would further reduce the
maximum rates on such gains in the year 2001 and thereafter for certain
individual taxpayers who meet specified conditions). Prospective investors
should consult their own tax advisors concerning these tax law changes.
Miscellaneous Tax Aspects
Backup Withholding. Subject to the discussion below with respect to Trust
Funds classified as partnerships, a holder, other than a holder of a REMIC
Residual Security, may, under certain circumstances, be subject to "backup
withholding" at a rate of 31% with respect to distributions or the proceeds of a
sale of certificates to or through brokers that represent interest or original
issue discount on the Securities. This withholding generally applies if the
holder of a Security (i) fails to furnish the Trustee with its taxpayer
identification number ("TIN"); (ii) furnishes the Trustee an incorrect TIN;
(iii) fails to report properly interest, dividends or other "reportable
payments" as defined in the Code; or (iv) under certain circumstances, fails to
provide the Trustee or such holder's securities broker with a certified
statement, signed under penalty of perjury, that the TIN provided is its correct
number and that the holder is not subject to backup withholding. Backup
withholding will not apply, however, with respect to certain payments made to
holders, including payments to certain exempt recipients (such as exempt
organizations) and to certain Nonresidents (as defined below). holders should
consult their tax advisers as to their qualification for exemption from backup
withholding and the procedure for obtaining the exemption.
The Trustee will report to the holders and to the Servicer for each
calendar year the amount of any "reportable payments" during such year and the
amount of tax withheld, if any, with respect to payments on the Securities.
Tax Treatment of Foreign Investors
Subject to the discussion below with respect to Trust Funds classified as
partnerships election is made, under the Code, unless interest (including OID)
paid on a Security (other than a Residual Interest Security) is considered to be
"effectively connected" with a trade or business conducted in the United States
by a nonresident alien individual, foreign partnership or foreign corporation
("Nonresidents"), such interest will normally qualify as portfolio interest
(except where (i) the recipient is a holder, directly or by attribution, of 10%
or more of the capital or profits interest in the issuer or (ii) the recipient
is a controlled foreign corporation to which the issuer is a related person) and
will be exempt from federal income tax. Upon receipt of appropriate ownership
statements, the issuer normally will be relieved of obligations to withhold tax
from such interest payments. These provisions supersede the generally applicable
provisions of United States law that would otherwise require the issuer to
withhold at a 30% rate (unless such rate were reduced or eliminated by an
applicable tax treaty) on, among other things, interest and other fixed or
determinable, annual or periodic income paid to Nonresidents. Holders of
Pass-Through Securities and Stripped Securities, including Ratio Strip
Securities, however, may be subject to withholding to the extent that the Loans
were originated on or before July 18, 1984.
Interest and OID of Securityholders who are Nonresidents are not subject to
withholding if they are effectively connected with a United States business
conducted by the holder. They will, however, generally be subject to the regular
United States income tax.
Payments to holders of Residual Interest Securities who are Nonresidents
will generally be treated as interest for purposes of the 30% (or lower treaty
rate) United States withholding tax. Holders should assume that such income does
not qualify for exemption from United States withholding tax as "portfolio
interest." It is clear that, to the extent that a payment represents a portion
of REMIC taxable income that constitutes excess inclusion income, a holder of a
Residual Interest Security will not be entitled to an exemption from or
reduction of the 30% (or lower treaty rate) withholding tax rule. If the
payments are subject to United States withholding tax, they generally will be
taken into account for withholding tax purposes only when paid or distributed
(or when the Residual Interest Security is disposed of). The Treasury has
statutory authority, however, to promulgate regulations which would require such
amounts to be taken into account at an earlier time in order to prevent the
avoidance of tax. Such regulations could, for example, require withholding prior
to the distribution of cash in the case of Residual Interest Securities that do
not have significant value. Under the REMIC Regulations, if a Residual Interest
Security has tax avoidance potential, a transfer of a Residual Interest Security
to a Nonresident will be disregarded for all federal tax purposes. A Residual
Interest Security has tax avoidance potential unless, at the time of the
transfer the transferor reasonably expects that the REMIC will distribute to the
transferee residual interest holder amounts that will equal at least 30% of each
excess inclusion, and that such amounts will be distributed at or after the time
at which the excess inclusions accrue and not later than the calendar year
following the calendar year of accrual. If a Nonresident transfers a Residual
Interest Security to a United States person, and if the transfer has the effect
of allowing the transferor to avoid tax on accrued excess inclusions, then the
transfer is disregarded and the transferor continues to be treated as the owner
of the Residual Interest Security for purposes of the withholding tax provisions
of the Code. See " -- Excess Inclusions."
Tax Characterization of the Trust Fund as a Partnership
In the absence of a REMIC or FASIT election, a Trust Fund that is not
classified as a grantor trust will be classified as a partnership for federal
tax purposes. Brown & Wood LLP, special counsel to the Depositor, will deliver
its opinion that a Trust Fund classified as a partnership will not be a publicly
traded partnership taxable as a corporation for federal income tax purposes.
This opinion will be based on the assumption that the terms of the Trust
Agreement and related documents will be complied with, and on counsel's
conclusions that the nature of the income of the Trust Fund will exempt it from
the rule that certain publicly traded partnerships are taxable as corporations
or the issuance of the Securities has been structured as a private placement
under an IRS safe harbor, so that the Trust Fund will not be characterized as a
publicly traded partnership taxable as a corporation.
If the Trust Fund were taxable as a corporation for federal income tax
purposes, the Trust Fund would be subject to corporate income tax on its taxable
income. The Trust Fund's taxable income would include all its income, possibly
reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes and
distributions on the Certificates, and Certificateholders could be liable for
any such tax that is unpaid by the Trust Fund.
Tax Consequences to Holders of the Notes
Treatment of the Notes as Indebtedness. The Trust Fund will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal income tax purposes. Special counsel to the Depositor will, except
as otherwise provided in the related Prospectus Supplement, advise the Depositor
that the Notes will be classified as debt for federal income tax purposes. The
tax treatment of the Notes is described under the caption "Taxation of Debt
Securities" set forth above.
Tax Consequences to Holders of the Certificates
Treatment of the Trust Fund as a Partnership. The Trust Fund and the Master
Servicer will agree, and the Certificateholders will agree by their purchase of
Certificates, to treat the Trust Fund as a partnership for purposes of federal
and state income tax, franchise tax and any other tax measured in whole or in
part by income, with the assets of the partnership being the assets held by the
Trust Fund, the partners of the partnership being the Certificateholders, and
the Notes being debt of the partnership. However, the proper characterization of
the arrangement involving the Trust Fund, the Certificates, the Notes, the Trust
Fund and the Servicer is not clear because there is no authority on transactions
closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Trust Fund. Any such
characterization would not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership.
Indexed Securities, etc. The following discussion assumes that all payments
on the Certificates are denominated in U.S. dollars, none of the Certificates
are Indexed Securities or Strip Certificates, and that a Series of Securities
includes a single class of Certificates. If these conditions are not satisfied
with respect to any given Series of Certificates, additional tax considerations
with respect to such Certificates will be disclosed in the applicable Prospectus
Supplement.
Partnership Taxation. As a partnership, the Trust Fund will not be subject
to federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust Fund. The Trust Fund's income will
consist primarily of interest and finance charges earned on the Loans (including
appropriate adjustments for market discount, OID and bond premium) and any gain
upon collection or disposition of Loans. The Trust Fund's deductions will
consist primarily of interest accruing with respect to the Notes, servicing and
other fees, and losses or deductions upon collection or disposition of Loans.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the Certificateholders will be allocated taxable income of the
Trust Fund for each month equal to the sum of (i) the interest that accrues on
the Certificates in accordance with their terms for such month, including
interest accruing at the Pass-Through Rate for such month and interest on
amounts previously due on the Certificates but not yet distributed; (ii) any
Trust Fund income attributable to discount on the Loans that corresponds to any
excess of the principal amount of the Certificates over their initial issue
price (iii) prepayment premium payable to the Certificateholders for such month;
and (iv) any other amounts of income payable to the Certificateholders for such
month. Such allocation will be reduced by any amortization by the Trust Fund of
premium on Loans that corresponds to any excess of the issue price of
Certificates over their principal amount. All remaining taxable income of the
Trust Fund will be allocated to the Company. Based on the economic arrangement
of the parties, this approach for allocating Trust Fund income should be
permissible under applicable Treasury regulations, although no assurance can be
given that the IRS would not require a greater amount of income to be allocated
to Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Pass-Through Rate
plus the other items described above even though the Trust Fund might not have
sufficient cash to make current cash distributions of such amount. Thus, cash
basis holders will in effect be required to report income from the Certificates
on the accrual basis and Certificateholders may become liable for taxes on Trust
Fund income even if they have not received cash from the Trust Fund to pay such
taxes. In addition, because tax allocations and tax reporting will be done on a
uniform basis for all Certificateholders but Certificateholders may be
purchasing Certificates at different times and at different prices,
Certificateholders may be required to report on their tax returns taxable income
that is greater or less than the amount reported to them by the Trust Fund.
All of the taxable income allocated to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated business
taxable income" generally taxable to such a holder under the Code.
An individual taxpayer's share of expenses of the Trust Fund (including
fees to the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Trust Fund.
The Trust Fund intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Loan, the Trust Fund
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Loans were not issued with
OID, and, therefore, the Trust Fund should not have OID income. However, the
purchase price paid by the Trust Fund for the Loans may be greater or less than
the remaining principal balance of the Loans at the time of purchase. If so, the
Loan will have been acquired at a premium or discount, as the case may be. (As
indicated above, the Trust Fund will make this calculation on an aggregate
basis, but might be required to recompute it on a Loan by Loan basis.)
If the Trust Fund acquires the Loans at a market discount or premium, the
Trust Fund will elect to include any such discount in income currently as it
accrues over the life of the Loans or to any such premium against interest
income on the Loans. As indicated above, a portion of such market discount
income or premium deduction may be allocated to Certificateholders.
Section 708 Termination. Pursuant to final regulations issued on May 9,
1997 under Code Section 708, a sale or exchange of 50% or more of the capital
and profits in a partnership would cause a deemed contribution of assets of the
partnership (the "old partnership") to a new partnership (the "new partnership")
in exchange for interests in the new partnership. Such interests would be deemed
distributed to the partners of the old partnership in liquidation thereof, which
would not constitute a sale or exchange. Accordingly under these new
regulations, if the Trust Fund were characterized as a partnership and a sale of
Certificates terminated the partnership under Code Section 708, the purchaser's
basis in its ownership interest would not change.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust Fund income (includible
in income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust Fund. A holder acquiring Certificates
at different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share of
unrecognized accrued market discount on the Loans would generally be treated as
ordinary income to the holder and would give rise to special tax reporting
requirements. The Trust Fund does not expect to have any other assets that would
give rise to such special reporting requirements. Thus, to avoid those special
reporting requirements, the Trust Fund will elect to include market discount in
income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust
Fund's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the Certificateholders
in proportion to the principal amount of Certificates owned by them as of the
close of the last day of such month. As a result, a holder purchasing
Certificates may be allocated tax items (which will affect its tax liability and
tax basis) attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust Fund might be reallocated among the Certificateholders. The Trust
Fund's method of allocation between transferors and transferees may be revised
to conform to a method permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust Fund's assets will not be adjusted to reflect that
higher (or lower) basis unless the Trust Fund were to file an election under
Section 754 of the Code. In order to avoid the administrative complexities that
would be involved in keeping accurate accounting records, as well as potentially
onerous information reporting requirements, the Trust Fund will not make such
election. As a result, Certificateholders might be allocated a greater or lesser
amount of Trust Fund income than would be appropriate based on their own
purchase price for Certificates.
Administrative Matters. The Owner Trustee is required to keep or have kept
complete and accurate books of the Trust Fund. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust Fund will be the calendar year. The Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust Fund and will report each Certificateholder's allocable share of items of
Trust Fund income and expense to holders and the IRS on Schedule K-1. The Trust
Fund will provide the Schedule K-l information to nominees that fail to provide
the Trust Fund with the information statement described below and such nominees
will be required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file tax returns that are consistent with
the information return filed by the Trust Fund or be subject to penalties unless
the holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust Fund
with a statement containing certain information on the nominee, the beneficial
owners and the Certificates so held. Such information includes (i) the name,
address and taxpayer identification number of the nominee and (ii) as to each
beneficial owner (x) the name, address and identification number of such person,
(y) whether such person is a United States person, a tax- exempt entity or a
foreign government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust Fund information
as to themselves and their ownership of Certificates. A clearing agency
registered under Section 17A of the Exchange Act is not required to furnish any
such information statement to the Trust Fund. The information referred to above
for any calendar year must be furnished to the Trust Fund on or before the
following January 31. Nominees, brokers and financial institutions that fail to
provide the Trust Fund with the information described above may be subject to
penalties.
The Depositor will be designated as the tax matters partner in the related
Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust Fund by the appropriate taxing authorities
could result in an adjustment of the returns of the Certificateholders, and,
under certain circumstances, a Certificateholder may be precluded from
separately litigating a proposed adjustment to the items of the Trust Fund. An
adjustment could also result in an audit of a Certificateholder's returns and
adjustments of items not related to the income and losses of the Trust Fund.
Tax Consequences to Foreign Certificateholders. It is not clear whether the
Trust Fund would be considered to be engaged in a trade or business in the
United States for purposes of federal withholding taxes with respect to non-
U.S. Persons because there is no clear authority dealing with that issue under
facts substantially similar to those described herein. Although it is not
expected that the Trust Fund would be engaged in a trade or business in the
United States for such purposes, the Trust Fund will withhold as if it were so
engaged in order to protect the Trust Fund from possible adverse consequences of
a failure to withhold. The Trust Fund expects to withhold on the portion of its
taxable income, as calculated for this purpose which may exceed the
distributions to Certificateholders, that is allocable to foreign
Certificateholders pursuant to Section 1446 of the Code, as if such income were
effectively connected to a U.S. trade or business, at a rate of 35% for foreign
holders that are taxable as corporations and 39.6% for all other foreign
holders. Subsequent adoption of Treasury regulations or the issuance of other
administrative pronouncements may require the Trust Fund to change its
withholding procedures. In determining a holder's withholding status, the Trust
Fund may rely on IRS Form W-8, IRS Form W-9 or the holder's certification of
nonforeign status signed under penalties of perjury.
The term "U.S. Person" means a citizen or resident of the United States, a
corporation, partnership or (other entity treated as a corporation or
partnership) created or organized in or under the laws of the United States or
any state thereof including the District of Columbia (other than a partnership
that is not treated as a United States person under any applicable Treasury
regulations), or an estate whose income is subject to U.S. federal income tax
regardless of its source of income, or a trust if a court within the United
States is able to exercise primary supervision of the administration of the
trust and one or more United States persons have the authority to control all
substantial decisions of the trust. Notwithstanding the preceding sentence, to
the extent provided in regulations, certain trusts in existence on August 20,
1996 and treated as United States persons prior to such date that elect to
continue to be so treated also shall be considered U.S. Persons.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the branch
profits tax) on its share of the Trust Fund's income. Each foreign holder must
obtain a taxpayer identification number from the IRS and submit that number to
the Trust Fund on Form W-8 in order to assure appropriate crediting of the taxes
withheld. A foreign holder generally would be entitled to file with the IRS a
claim for refund with respect to taxes withheld by the Trust Fund taking the
position that no taxes were due because the Trust Fund was not engaged in a U.S.
trade or business. However, interest payments made (or accrued) to a
Certificateholder who is a foreign person generally will be considered
guaranteed payments to the extent such payments are determined without regard to
the income of the Trust Fund. If these interest payments are properly
characterized as guaranteed payments, then the interest will not be considered
"portfolio interest." As a result, Certificateholders will be subject to United
States federal income tax and withholding tax at a rate of 30 percent, unless
reduced or eliminated pursuant to an applicable treaty. In such case, a foreign
holder would only be entitled to claim a refund for that portion of the taxes in
excess of the taxes that should be withheld with respect to the guaranteed
payments.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences," potential investors should consider the state and
local income tax consequences of the acquisition, ownership, and disposition of
the Securities. State and local income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state or locality. Therefore, potential
investors should consult their own tax advisors with respect to the various
state and local tax consequences of an investment in the Securities.
ERISA CONSIDERATIONS
The following describes certain considerations under ERISA and the Code,
which apply only to Securities of a Series that are not divided into subclasses.
If Securities are divided into subclasses the related Prospectus Supplement will
contain information concerning considerations relating to ERISA and the Code
that are applicable to such Securities.
ERISA imposes requirements on employee benefit plans (and on 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 or arrangements are invested) (collectively "Plans")
subject to ERISA and on persons who are fiduciaries with respect to such Plans.
Generally, ERISA applies to investments made by Plans. Among other things, ERISA
requires that the assets of Plans be held in trust and that the trustee, or
other duly authorized fiduciary, have exclusive authority and discretion to
manage and control the assets of such Plans. ERISA also imposes certain duties
on persons who are fiduciaries of Plans. Under ERISA, any person who exercises
any authority or control respecting the management or disposition of the assets
of a Plan is considered to be a fiduciary of such Plan (subject to certain
exceptions not here relevant). Certain employee benefit plans, such as
governmental plans (as defined in ERISA Section 3(32)) and, if no election has
been made under Section 410(d) of the Code, church plans (as defined in ERISA
Section 3(33)), are not subject to ERISA requirements. Accordingly, assets of
such plans may be invested in Securities without regard to the ERISA
considerations described above and below, subject to the provisions of
applicable state law. Any such plan which is qualified and exempt from taxation
under Code Sections 401(a) and 501(a), however, is subject to the prohibited
transaction rules set forth in Code Section 503.
On November 13, 1986, the United States Department of Labor (the "DOL")
issued final regulations concerning the definition of what constitutes the
assets of a Plan. (Labor Reg. Section 2510.3-101) Under this regulation, the
underlying assets and properties of corporations, partnerships and certain other
entities in which a Plan makes an "equity" investment could be deemed for
purposes of ERISA to be assets of the investing Plan in certain circumstances.
However, the regulation provides that, generally, the assets of a corporation or
partnership in which a Plan invests will not be deemed for purposes of ERISA to
be assets of such Plan if the equity interest acquired by the investing Plan is
a publicly-offered security. A publicly- offered security, as defined in the
Labor Reg. Section 2510.3-101, is a security that is widely held, freely
transferable and registered under the Securities Exchange Act of 1934, as
amended.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA prohibits a broad range of transactions
involving Plan assets and persons ("Parties in Interest") having certain
specified relationships to a Plan and imposes additional prohibitions where
Parties in Interest are fiduciaries with respect to such Plan. Because the Loans
may be deemed Plan assets of each Plan that purchases Securities, an investment
in the Securities by a Plan might be a prohibited transaction under ERISA
Sections 406 and 407 and subject to an excise tax under Code Section 4975 unless
a statutory or administrative exemption applies.
In Prohibited Transaction Exemption 83-1 ("PTE 83-1"), which amended
Prohibited Transaction Exemption 81-7, the DOL exempted from ERISA's prohibited
transaction rules certain transactions relating to the operation of residential
mortgage pool investment trusts and the purchase, sale and holding of "mortgage
pool pass-through certificates" in the initial issuance of such certificates.
PTE 83-1 permits, subject to certain conditions, transactions which might
otherwise be prohibited between Plans and Parties in Interest with respect to
those Plans related to the origination, maintenance and termination of mortgage
pools consisting of mortgage loans secured by first or second mortgages or deeds
of trust on single-family residential property, and the acquisition and holding
of certain mortgage pool pass- through certificates representing an interest in
such mortgage pools by Plans. If the general conditions (discussed below) of PTE
83-1 are satisfied, investments by a Plan in Securities that represent interests
in a Pool consisting of Loans ("Single Family Securities") will be exempt from
the prohibitions of ERISA Sections 406(a) and 407 (relating generally to
transactions with Parties in Interest who are not fiduciaries) if the Plan
purchases the Single Family Securities at no more than fair market value and
will be exempt from the prohibitions of ERISA Sections 406(b)(1) and (2)
(relating generally to transactions with fiduciaries) if, in addition, the
purchase is approved by an independent fiduciary, no sales commission is paid to
the pool sponsor, the Plan does not purchase more than 25% of all Single Family
Securities, and at least 50% of all Single Family Securities are purchased by
persons independent of the pool sponsor or pool trustee. PTE 83- 1 does not
provide an exemption for transactions involving Subordinate Securities.
Accordingly, unless otherwise provided in the related Prospectus Supplement, no
transfer of a Subordinate Security or a Security which is not a Single Family
Security may be made to a Plan.
The discussion in this and the next succeeding paragraph applies only to
Single Family Securities. The Depositor believes that, for purposes of PTE 83-1,
the term "mortgage pass-through certificate" would include: (i) Securities
issued in a Series consisting of only a single class of Securities; and (ii)
Securities issued in a Series in which there is only one class of those
particular Securities; provided that the Securities in the case of clause (i),
or the Securities in the case of clause (ii), evidence the beneficial ownership
of both a specified percentage of future interest payments (greater than 0%) and
a specified percentage (greater than 0%) of future principal payments on the
Loans. It is not clear whether a class of Securities that evidences the
beneficial ownership in a Trust Fund divided into Loan groups, beneficial
ownership of a specified percentage of interest payments only or principal
payments only, or a notional amount of either principal or interest payments, or
a class of Securities entitled to receive payments of interest and principal on
the Loans only after payments to other classes or after the occurrence of
certain specified events would be a "mortgage pass-through certificate" for
purposes of PTE 83-1.
PTE 83-1 sets forth three general conditions which must be satisfied for
any transaction to be eligible for exemption: (i) the maintenance of a system of
insurance or other protection for the pooled mortgage loans and property
securing such loans, and for indemnifying Securityholders against reductions in
pass-through payments due to property damage or defaults in loan payments in an
amount not less than the greater of one percent of the aggregate principal
balance of all covered pooled mortgage loans or the principal balance of the
largest covered pooled mortgage loan; (ii) the existence of a pool trustee who
is not an affiliate of the pool sponsor; and (iii) a limitation on the amount of
the payment retained by the pool sponsor, together with other funds inuring to
its benefit, to not more than adequate consideration for selling the mortgage
loans plus reasonable compensation for services provided by the pool sponsor to
the Pool. The Depositor believes that the first general condition referred to
above will be satisfied with respect to the Securities in a Series issued
without a subordination feature, or the Securities only in a Series issued with
a subordination feature, provided that the subordination and Reserve Account,
subordination by shifting of interests, the pool insurance or other form of
credit enhancement described under "Credit Enhancement" herein (such
subordination, pool insurance or other form of credit enhancement being the
system of insurance or other protection referred to above) with respect to a
Series of Securities is maintained in an amount not less than the greater of one
percent of the aggregate principal balance of the Loans or the principal balance
of the largest Loan. See "Description of the Securities" herein. In the absence
of a ruling that the system of insurance or other protection with respect to a
Series of Securities satisfies the first general condition referred to above,
there can be no assurance that these features will be so viewed by the DOL. The
Trustee will not be affiliated with the Depositor.
Each Plan fiduciary who is responsible for making the investment decisions
whether to purchase or commit to purchase and to hold Single Family Securities
must make its own determination as to whether the first and third general
conditions, and the specific conditions described briefly in the preceding
paragraph, of PTE 83-1 have been satisfied, or as to the availability of any
other prohibited transaction exemptions. Each Plan fiduciary should also
determine whether, under the general fiduciary standards of investment prudence
and diversification, an investment in the Securities is appropriate for the
Plan, taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
The DOL has granted to certain underwriters individual administrative
exemptions (the "Underwriter Exemptions") from certain of the prohibited
transaction rules of ERISA and the related excise tax provisions of Section 4975
of the Code 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 Underwriter Exemptions. While each Underwriter Exemption is
an individual exemption separately granted to a specific underwriter, the terms
and conditions which generally apply to the Underwriter Exemptions are
substantially identical, and include 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 interest evidenced by the certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by
other certificates of the trust fund;
(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 Ratings Group, a Division of The
McGraw- Hill Companies ("S&P"), Moody's Investors Service, Inc.
("Moody's"), Duff & Phelps Credit Rating Co. ("DCR") or Fitch IBCA, Inc.
("Fitch");
(4) the trustee must not be 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 seller pursuant to the assignment
of the loans to the trust fund represents not more than the fair market
value of such loans; the sum of all payments made to and retained by the
servicer and any other servicer represents not more than reasonable
compensation for such person's services under the agreement pursuant to
which the loans are pooled and reimbursements 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 Securities and Exchange
Commission under the Securities Act of 1933 as amended.
The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist solely of assets of
the type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been
rated in one of the three highest rating categories of S&P, Moody's, Fitch
or DCR for at least one year prior to the Plan's acquisition of
certificates; and
(iii) certificates evidencing interests in such other investment
pools must have been purchased by investors other than Plans for at least
one year prior to any Plan's acquisition of certificates.
Moreover, the Underwriter Exemptions generally 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 as to 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
(50%) of each class of certificates in which Plans have invested is acquired by
persons independent of the Restricted Group, (ii) such fiduciary (or its
affiliate) is an obligor with respect to five percent (5%) 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
(25%) 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 (25%) of the assets of the Plan with respect to which such
person is a fiduciary is 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 Seller, the
related Underwriter, the Trustee, the Master Servicer, any insurer with respect
to the Loans, any obligor with respect to Loans included in the Trust Fund
constituting more than five percent (5%) of the aggregate unamortized principal
balance of the assets in the Trust Fund, or any affiliate of such parties (the
"Restricted Group").
The Prospectus Supplement for each Series of Securities will indicate the
classes of Securities, if any, offered thereby as to which it is expected that
an Underwriter Exemption will apply.
The Underwriter Exemption contains several requirements, some of which
differ from those in PTE 83-l. The Underwriter Exemption contains an expanded
definition of "certificate" which includes an interest which entitles the holder
to pass-through payments of principal, interest and/or other payments. The
Underwriter Exemption contains an expanded definition of "trust" which permits
the trust corpus to consist of secured consumer receivables. The definition of
"trust," however, does not include any investment pool unless, inter alia, (i)
the investment pool consists only of assets of the type which have been included
in other investment pools, (ii) certificates evidencing interests in such other
investment pools have been purchased by investors other than Plans for at least
one year prior to the Plan's acquisition of certificates pursuant to the
Underwriter Exemption and (iii) certificates in such other investment pools have
been rated in one of the three highest generic rating categories of the four
credit rating agencies noted below. Generally, the Underwriter Exemption holds
that the acquisition of the certificates by a Plan must be 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. The
Underwriter Exemption requires that the rights and interests evidenced by the
certificates not be "subordinated" to the rights and interests evidenced by
other certificates of the same trust. The Underwriter Exemption requires that
certificates acquired by a Plan have received a rating at the time of their
acquisition that is in one of the three highest generic rating categories of
S&P, Moody's, Fitch or DCR. The Underwriter Exemption specifies that the pool
trustee must not be an affiliate of the pool sponsor, nor an affiliate of the
Underwriter, the pool servicer, any obligor with respect to mortgage loans
included in the trust constituting more than five percent of the aggregate
unamortized principal balance of the assets in the trust, or any affiliate of
such entities. Finally, the Underwriter Exemption stipulates that any Plan
investing in the certificates must be an "accredited investor" as defined in
Rule 501(a)(1) of Regulation D of the Securities and Exchange Commission under
the Securities Act of 1933.
On July 21, 1997, the DOL published in the Federal Register an amendment to
the Underwriter Exemption which extends exemptive relief to certain mortgage-
backed and asset-backed securities transactions using pre-funding accounts for
trusts issuing pass-through certificates. The amendment generally allows
mortgage loans or other secured receivables (the "obligations") supporting
payments to certificate-holders, and having a value equal to no more than
twenty-five percent (25%) of the total principal amount of the certificates
being offered by the trust, to be transferred to the trust within a 90-day or
three-month period following the closing date (the "pre-funding period") instead
of requiring that all such obligations be either identified or transferred on or
before the closing date. The relief is available when the following conditions
are met:
(1) The ratio of the amount allocated to the pre-funding account to
the total principal amount of the certificates being offered (the
"pre-funding limit") must not exceed twenty-five percent (25%).
(2) All obligations transferred after the closing date (the
"additional obligations") must meet the same terms and conditions for
eligibility as the original obligations used to create the trust, which
terms and conditions have been approved by a rating agency.
(3) The transfer of such additional obligations to the trust during
the pre- funding period must not result in the certificates to be covered
by the Underwriter Exemption receiving a lower credit rating from a rating
agency upon termination of the pre-funding period than the rating that was
obtained at the time of the initial issuance of the certificates by the
trust.
(4) Solely as a result of the use of pre-funding, the weighted average
annual percentage interest rate (the "average interest rate") for all of
the obligations in the trust at the end of the pre-funding period must not
be more than 1.0% lower than the average interest rate for the obligations
which were transferred to the trust on the closing date.
(5) In order to ensure that the characteristics of the additional
obligations are substantially similar to the original obligations which
were transferred to the trust,
(i) the characteristics of the additional obligations must be
monitored by an insurer or other credit support provider which is
independent of the depositor; or
(ii) an independent accountant retained by the depositor must
provide the depositor with a letter (with copies provided to each
rating agency rating the certificates, the related underwriter and the
related trustee) stating whether or not the characteristics of the
additional obligations conform to the characteristics described in the
related prospectus or prospectus supplement and/or pooling and
servicing agreement. In preparing such letter, the independent
accountant must use the same type of procedures as were applicable to
the obligations which were transferred to the trust as of the closing
date.
(6) The pre-funding period must end no later than three months or 90
days after the closing date or earlier in certain circumstances if the
pre-funding account falls below the minimum level specified in the pooling
and servicing agreement or an event of default occurs.
(7) Amounts transferred to any pre-funding account and/or capitalized
interest account used in connection with the pre-funding may be invested
only in certain permitted investments.
(8) The related prospectus supplement must describe:
(i) any pre-funding account and/or capitalized interest account
used in connection with a pre-funding account;
(ii) the duration of the pre-funding period;
(iii) the percentage and/or dollar amount of the pre-funding
Limit for the trust; and
(iv) that the amount remaining in the pre-funding account at the
end of the pre-funding period will be remitted to certificate holders
as repayments of principal.
(9) The related pooling and servicing agreement must describe the
permitted investments for the pre-funding account and/or capitalized
interest account and, if not disclosed in the related prospectus or
prospectus supplement, the terms and conditions for eligibility of
additional obligations.
Any Plan fiduciary which proposes to cause a Plan to purchase Securities
should consult with its counsel concerning the impact of ERISA and the Code, the
applicability of PTE 83-1 and the Underwriter Exemption, and the potential
consequences in their specific circumstances, prior to making such investment.
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
The Prospectus Supplement for each series of Securities will specify which,
if any, of the classes of Securities offered thereby constitute "mortgage
related securities" for purposes of the Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA"). Classes of Securities that qualify as "mortgage related
securities" will be legal investments for persons, trusts, corporations,
partnerships, associations, business trusts, and business entities (including
depository institutions, life insurance companies and pension funds) created
pursuant to or existing under the laws of the United States or of any state
(including the District of Columbia and Puerto Rico) whose authorized
investments are subject to state regulations to the same extent as, under
applicable law, obligations issued by or guaranteed as to principal and interest
by the United States or any such entities. Under SMMEA, if a state enacts
legislation prior to October 4, 1991 specifically limiting the legal investment
authority of any such entities with respect to "mortgage related securities,"
securities will constitute legal investments for entities subject to such
legislation only to the extent provided therein. Approximately twenty-one states
adopted such legislation prior to the October 4, 1991 deadline. SMMEA provides,
however, that in no event will the enactment of any such legislation affect the
validity of any contractual commitment to purchase, hold or invest in
securities, or require the sale or other disposition of securities, so long as
such contractual commitment was made or such securities were acquired prior to
the enactment of such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in Securities
without limitations as to the percentage of their assets represented thereby,
federal credit unions may invest in mortgage related securities, and national
banks may purchase securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
24 (Seventh), subject in each case to such regulations as the applicable federal
authority may prescribe. In this connection, federal credit unions should review
the National Credit Union Administration ("NCUA") Letter to Credit Unions No.
96, as modified by Letter to Credit Unions No. 108, which includes guidelines to
assist federal credit unions in making investment decisions for mortgage related
securities and the NCUA's regulation "Investment and Deposit Activities" (12
C.F.R. Part 703), which sets forth certain restrictions on investment by federal
credit unions in mortgage related securities (in each case whether or not the
class of Securities under consideration for purchase constituted a "mortgage
related security"). The NCUA issued final regulations effective December 2, 1991
that restrict and in some instances prohibit the investment by Federal Credit
Unions in certain types of mortgage related securities.
All depository institutions considering an investment in the Securities
(whether or not the class of Securities under consideration for purchase
constitutes a "mortgage related security") should review the Federal Financial
Institutions Examination Council's Supervisory Policy Statement on the
Securities Activities (to the extent adopted by their respective regulators)
(the "Policy Statement") setting forth, in relevant part, certain securities
trading and sales practices deemed unsuitable for an institution's investment
portfolio, and guidelines for (and restrictions on) investing in mortgage
derivative products, including "mortgage related securities," which are
"high-risk mortgage securities" as defined in the Policy Statement. According to
the Policy Statement, such "high-risk mortgage securities" include securities
such as Securities not entitled to distributions allocated to principal or
interest, or Subordinated Securities. Under the Policy Statement, it is the
responsibility of each depository institution to determine, prior to purchase
(and at stated intervals thereafter), whether a particular mortgage derivative
product is a "high-risk mortgage security," and whether the purchase (or
retention) of such a product would be consistent with the Policy Statement.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to "prudent investor" provisions, percentage-of-assets limits and provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying," or in securities which are issued in book-entry
form.
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Securities or to purchase
Securities representing more than a specified percentage of the investor's
assets. Investors should consult their own legal advisors in determining whether
and to what extent the Securities constitute legal investments for such
investors.
METHOD OF DISTRIBUTION
Securities are being offered hereby in Series from time to time (each
Series evidencing or relating to a separate Trust Fund) through any of the
following methods:
1. By negotiated firm commitment underwriting and public reoffering by
underwriters;
2. By agency placements through one or more placement agents primarily with
institutional investors and dealers; and
3.By placement directly by the Depositor with institutional investors.
A Prospectus Supplement will be prepared for each Series which will
describe the method of offering being used for that Series and will set forth
the identity of any underwriters thereof and either the price at which such
Series is being offered, the nature and amount of any underwriting discounts or
additional compensation to such underwriters and the proceeds of the offering to
the Depositor, or the method by which the price at which the underwriters will
sell the Securities will be determined. Each Prospectus Supplement for an
underwritten offering will also contain information regarding the nature of the
underwriters' obligations, any material relationship between the Depositor and
any underwriter and, where appropriate, information regarding any discounts or
concessions to be allowed or reallowed to dealers or others and any arrangements
to stabilize the market for the Securities so offered. In firm commitment
underwritten offerings, the underwriters will be obligated to purchase all of
the Securities of such Series if any such Securities are purchased. Securities
may be acquired by the underwriters for their own accounts and may be resold
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. In addition, if so stated in the related Prospectus
Supplement, such Prospectus Supplement and this Prospectus may be used by
Countrywide Securities Corporation, an affiliate of IndyMac ABS, Inc. and
IndyMac, Inc., in connection with offers and sales related to market making
transactions in the securities in which Countrywide Securities Corporation acts
as principal. Countrywide Securities Corporation may also act as agent in such
transactions. Sales in such transactions will be made at prices related to
prevailing prices at the time of sale.
Underwriters and agents may be entitled under agreements entered into with
the Depositor to indemnification by the Depositor against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribution with respect to payments which such underwriters or agents
may be required to make in respect thereof.
If a Series is offered other than through underwriters, the Prospectus
Supplement relating thereto will contain information regarding the nature of
such offering and any agreements to be entered into between the Depositor and
purchasers of Securities of such Series.
LEGAL MATTERS
The validity of the Securities of each Series, including certain federal
income tax consequences with respect thereto, will be passed upon for the
Depositor by Brown & Wood LLP, One World Trade Center, New York, New York 10048.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of Securities
and no Trust Fund will engage in any business activities or have any assets or
obligations prior to the issuance of the related Series of Securities.
Accordingly, no financial statements with respect to any Trust Fund will be
included in this Prospectus or in the related Prospectus Supplement.
RATING
It is a condition to the issuance of the Securities of each Series offered
hereby and by the Prospectus Supplement that they shall have been rated in one
of the four highest rating categories by the nationally recognized statistical
rating agency or agencies (each, a "Rating Agency") specified in the related
Prospectus Supplement.
Any such rating would be based on, among other things, the adequacy of the
value of the Trust Fund Assets and any credit enhancement with respect to such
class and will reflect such Rating Agency's assessment solely of the likelihood
that holders of a class of Securities of such class will receive payments to
which such Securityholders are entitled under the related Agreement. Such rating
will not constitute an assessment of the likelihood that principal prepayments
on the related Loans will be made, the degree to which the rate of such
prepayments might differ from that originally anticipated or the likelihood of
early optional termination of the Series of Securities. Such rating should not
be deemed a recommendation to purchase, hold or sell Securities, inasmuch as it
does not address market price or suitability for a particular investor. Each
security rating should be evaluated independently of any other security rating.
Such rating will not address the possibility that prepayment at higher or lower
rates than anticipated by an investor may cause such investor to experience a
lower than anticipated yield or that an investor purchasing a Security at a
significant premium might fail to recoup its initial investment under certain
prepayment scenarios.
There is also no assurance that any such rating will remain in effect for
any given period of time or that it may not be lowered or withdrawn entirely by
the Rating Agency in the future if in its judgment circumstances in the future
so warrant. In addition to being lowered or withdrawn due to any erosion in the
adequacy of the value of the Trust Fund Assets or any credit enhancement with
respect to a Series, such rating might also be lowered or withdrawn among other
reasons, because of an adverse change in the financial or other condition of a
credit enhancement provider or a change in the rating of such credit enhancement
provider's long term debt.
The amount, type and nature of credit enhancement, if any, established with
respect to a Series of Securities will be determined on the basis of criteria
established by each Rating Agency rating classes of such Series. Such criteria
are sometimes based upon an actuarial analysis of the behavior of mortgage loans
in a larger group. Such analysis is often the basis upon which each Rating
Agency determines the amount of credit enhancement required with respect to each
such class. There can be no assurance that the historical data supporting any
such actuarial analysis will accurately reflect future experience nor any
assurance that the data derived from a large pool of mortgage loans accurately
predicts the delinquency, foreclosure or loss experience of any particular pool
of Loans. No assurance can be given that values of any Properties have remained
or will remain at their levels on the respective dates of origination of the
related Loans. If the residential real estate markets should experience an
overall decline in property values such that the outstanding principal balances
of the Loans in a particular Trust Fund and any secondary financing on the
related Properties become equal to or greater than the value of the Properties,
the rates of delinquencies, foreclosures and losses could be higher than those
now generally experienced in the mortgage lending industry. In additional,
adverse economic conditions (which may or may not affect real property values)
may affect the timely payment by mortgagors of scheduled payments of principal
and interest on the Loans and, accordingly, the rates of delinquencies,
foreclosures and losses with respect to any Trust Fund. To the extent that such
losses are not covered by credit enhancement, such losses will be borne, at
least in part, by the holders of one or more classes of the Securities of the
related Series.
INDEX OF DEFINED TERMS
Term Page
- ---- ----
Accretion Directed........................................ 38
Accrual................................................... 39
Accrual Securities........................................ 35
Advance................................................... 13
Agreement................................................. 25
Amortizable Bond Premium Regulations...................... 81
APR....................................................... 29
Available Funds........................................... 35
Balloon Payment........................................... 18
Belgian Cooperative....................................... 45
BIF....................................................... 53
Book-Entry Securities..................................... 43
Buydown Fund.............................................. 27
Buydown Loans............................................. 27
Calculation Agent......................................... 40
Capitalized Interest Account.............................. 55
Cash Flow Bond Method..................................... 89
CEDEL Participants........................................ 44
CERCLA................................................ 20, 67
Certificates............................................... 3
Claimable Amount.......................................... 76
Class Security Balance.................................... 35
Closed-End Loans........................................... 8
Code...................................................... 14
COFI Securities........................................... 42
Collateral Value.......................................... 29
Combined Loan-to-Value Ratio.............................. 29
Commission................................................ 6
Component Securities...................................... 38
Contingent Regulations.................................... 90
Cooperative Loans......................................... 26
Cooperatives.............................................. 26
Cut-off Date.............................................. 25
Cut-off Date............................................... 8
Cut-off Date Principal Balance............................ 33
DCR....................................................... 98
Debt Securities........................................... 77
Definitive Security....................................... 43
Depositor.................................................. 3
Derivative Transactions................................24, 43
Detailed Description...................................... 26
Distribution Date......................................... 10
DOL....................................................... 96
DTC....................................................... 22
Eleventh District......................................... 41
EPA....................................................... 67
ERISA..................................................... 16
Euroclear Operator........................................ 45
Euroclear Participants.................................... 45
European Depositaries..................................... 43
Exchange Act.............................................. 7
FDIC...................................................... 31
FHA....................................................... 12
FHLBSF.................................................... 41
FHLMC..................................................... 31
Financial Intermediary.................................... 44
Fitch..................................................... 98
Fixed Rate................................................ 39
Floating Rate............................................. 39
FNMA...................................................... 31
Funding Period............................................ 23
Garn-St Germain Act....................................... 69
Holder in Due Course Rules................................ 21
Home Equity Loans.......................................... 3
Home Improvement Contracts................................. 3
Home Improvements.......................................... 3
Indenture................................................. 33
Installment Contract...................................... 72
Insurance Proceeds........................................ 54
Insured Expenses.......................................... 54
Interest Only............................................. 39
Interest Weighted Securities.............................. 80
Inverse Floating Rate..................................... 39
IRS....................................................... 79
L/C Bank.................................................. 11
L/C Percentage............................................ 11
Liquidation Expenses...................................... 54
Liquidation Proceeds...................................... 54
Loan Rate................................................. 10
Loans...................................................... 3
Loan-to-Value Ratio....................................... 29
Lockout periods........................................... 27
Master Servicer............................................ 8
Master Servicing Agreement................................ 25
Master Servicing Fee...................................... 59
Moody's................................................... 98
Morgan.................................................... 45
Mortgage.................................................. 52
Mortgaged Properties...................................... 27
Multifamily Loans.......................................... 3
National Cost of Funds Index.............................. 42
NCUA..................................................... 101
Nonresidents.............................................. 91
Notes...................................................... 3
Notional Amount Securities................................ 38
OID....................................................... 14
OID Regulations........................................... 77
OTS....................................................... 42
PACs...................................................... 38
Partial Accrual........................................... 39
Parties in Interest....................................... 97
Pass-Through Rate......................................... 25
Pass-Through Securities................................... 88
Pay-Through Security...................................... 79
Percentage Interests...................................... 61
Permitted Investments..................................... 48
Planned Principal Class................................... 38
Plans..................................................... 96
Policy Statement......................................... 101
Pool....................................................... 8
Pool Insurance Policy..................................... 48
Pool Insurer.............................................. 48
Pooling and Servicing Agreement........................... 33
Pre-Funded Amount......................................... 23
Pre-Funding Account........................................ 8
Prepayment Assumption..................................... 79
Primary Mortgage Insurance Policy......................... 27
Prime Rate................................................ 43
Principal Only............................................ 39
Principal Prepayments..................................... 36
Properties................................................. 8
Property Improvement Loans................................ 73
PTE 83-1.................................................. 97
Purchase Price............................................ 32
Rating Agency............................................. 10
Ratio Strip Securities.................................... 89
RCRA...................................................... 68
Record Date............................................... 34
Reference Banks........................................... 40
Refinance Loan............................................ 29
Regular Interest Securities............................... 77
Relevant Depositary....................................... 43
Relief Act................................................ 72
REMIC...................................................... 5
Reserve Account........................................... 11
Reserve Interest Rate..................................... 40
Residual Interest Security................................ 83
Restricted Group.......................................... 99
Retained Interest......................................... 33
Revolving Credit Line Loans................................ 8
Riegle Act................................................ 21
Rules..................................................... 44
S&P....................................................... 98
SAIF...................................................... 53
Scheduled Principal Class................................. 38
Securities................................................. 3
Security Account.......................................... 53
Security Owners........................................... 43
Security Register......................................... 34
Securityholders........................................... 43
Seller..................................................... 3
Sellers................................................... 25
Senior Securities.......................................... 9
Sequential Pay............................................ 38
Series.................................................... 3
Servicing Fee............................................. 88
Single Family Loans........................................ 3
Single Family Properties.................................. 27
Single Family Securities.................................. 97
SMMEA..................................................... 14
Strip..................................................... 39
Stripped Securities....................................... 88
Subordinated Securities.................................... 9
Subsequent Loans.......................................... 23
Sub-Servicer.............................................. 13
Sub-Servicing Agreement................................... 56
Support Class............................................. 39
TACs...................................................... 39
Targeted Principal Class.................................. 39
Terms and Conditions...................................... 45
TIN....................................................... 91
Title I Loans............................................. 73
Title I Program........................................... 73
Title V................................................... 70
Trust Agreement........................................... 25
Trust Fund................................................. 3
Trust Fund Assets.......................................... 3
Trustee.................................................... 8
U.S. Person............................................... 95
UCC....................................................... 66
Underwriter Exemptions.................................... 98
VA....................................................... 12
VA Guaranty............................................... 59
Variable Rate............................................. 39
(THIS PAGE INTENTIONALLY LEFT BLANK)
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the Securities being registered under this
Registration Statement, other than underwriting discounts and commissions:
SEC registration fee $590,000
Printing and engraving expenses $ 40,000
Legal fees and expenses $ 75,000
Trustee fees and expenses $ 25,000
Accounting fees and expenses $ 30,000
RATING AGENCY FEES $ 80,000
MISCELLANEOUS $ 10,000
Total $850,000
* ALL AMOUNTS EXCEPT THE SEC REGISTRATION FEE ARE ESTIMATES OF EXPENSES
INCURRED IN CONNECTION WITH THE ISSUANCE AND DISTRIBUTION OF A SERIES OF
SECURITIES IN AN AGGREGATE PRINCIPAL AMOUNT ASSUMED FOR THESE PURPOSES
TO BE EQUAL TO $150,000,000 OF SECURITIES REGISTERED HEREBY.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of Delaware empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he or she is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
such action, suit or proceeding if the person indemnified acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
No indemnification may be made in respect to any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court may deem proper. Section 145
further provides that to the extent a director or officer of a corporation has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to above, or in the defense of any claim, issue or matter
therein, he or she shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him or her in connection therewith.
The Certificate of Incorporation and Bylaws of the Registrant provide, in
effect, that, to the extent and under the circumstances permitted by Section 145
of the General Corporation Law of Delaware, the Registrant shall indemnify any
person who was or is a party or is threatened to be made a party to any action,
suit or proceeding of the type described above by reason of the fact that he or
she is or was a director, officer, employee or agent of the Registrant.
ITEM 16. EXHIBITS.
1.1(a) - Form of Underwriting Agreement*
1.1(b) - Form of Indemnification and Contribution Agreement.*
3.1 - Certificate of Incorporation of the Registrant.**
3.2 - By-laws of the Registrant.**
4.1 - Form of Pooling and Servicing Agreement relating to Home Equity Loan
Asset Backed Certificates.**
4.2 - Form of Pooling and Servicing Agreement relating to Mortgage Pass-
Through Certificates.**
4.3 - Form of Pooling and Servicing Agreement relating to Manufactured
Housing Asset Backed Certificates.**
4.4 - Form of Trust Agreement.**
4.5 - Form of Indenture.**
4.6 - Form of Master Servicing Agreement.**
5.1 - Opinion of Brown & Wood LLP as to legality of the Securities.
8.1 - Opinion of Brown & Wood LLP as to certain tax matters (included in
Exhibit 5.1).
10.1 - Form of Loan Purchase Agreement.**
23.1 - Consent of Brown & Wood LLP (included in Exhibits 5.1 and 8.1 hereof).
___________
* To be filed by amendment.
** Previously filed.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended (the "Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the
most recent post-effective amendment hereof) which, individually or
in the aggregate, represent a fundamental change in the information
set forth in this Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high
and of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in this
Registration Statement or any material change to such information
in this Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to
the Commission by the Registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under the
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of a Trust Fund's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934, as amended, that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(d) The undersigned Registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act of 1939 in accordance
with the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Trust Indenture Act of 1939.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that (i) it reasonably believes that the security rating
requirement of Transaction Requirement B.5 of Form S-3 will be met by the time
of sale of each Series of Securities to which this Registration Statement
relates and (ii) it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Pasadena, state of California on the 26th day
of June, 1998.
IndyMac ABS, Inc.
By /s/ S. Blair Abernathy
.......................................
Name: S. Blair Abernathy
Title: Chairman of the Board,
President and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement Amendment has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ S. Blair Abernathy Chairman of the Board, President June 26, 1998
- ----------------------- and Director
S. Blair Abernathy
* First Vice President, Chief Financial June 26, 1998
- ----------------------- Officer and Principal Accounting
James Gross Officer and Director
* General Counsel, Secretary and Director June 26, 1998
- -----------------------
Gwen J. Ellis
* Director June 26, 1998
- -----------------------
Jeffrey P. Grogin
* Director June 26, 1998
- -----------------------
James Banks
* By /s/ S. Blair Abernathy
------------------------
S. Blair Abernathy
Attorney-in-Fact
</TABLE>
EXHIBIT INDEX
EXHIBIT
SEQUENTIAL
NO. DESCRIPTION OF EXHIBIT PAGE NUMBER
---------- ---------------------- -----------
1.1(a) -- Form of Underwriting Agreement*
1.1(b) -- Form of Indemnification and Contribution Agreement*
3.1 -- Certificate of Incorporation of the Registrant**
3.2 -- By-laws of the Registrant**
4.1 -- Form of Pooling and Servicing Agreement relating to Home
Equity Loan Asset Backed Certificate**
4.2 -- Form of Pooling and Servicing Agreement relating to
Mortgage Pass-Through Certificates**
4.3 -- Form of Pooling and Servicing Agreement relating to
Manufactured Housing Asset Backed Certificates**
4.4 -- Form of Trust Agreement**
4.5 -- Form of Indenture**
4.6 -- Form of Master Servicing Agreement**
5.1 -- Opinion of Brown & Wood LLP as to legality of the Securities
8.1 -- Opinion of Brown & Wood LLP as to certain tax matters
(included in Exhibit 5.1)
10.1 -- Form of Loan Purchase Agreement**
23.1 -- Consent of Brown & Wood LLP (included in Exhibits 5.1
and 8.1)
- -----------
* To be filed by amendment.
** Previously filed.
[BROWN & WOOD llp]
June 26, 1998
IndyMac ABS, Inc.
155 North Lake Avenue
Pasadena, CA 91101
Re: IndyMac ABS, Inc.
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel for IndyMac ABS, Inc., a Delaware corporation (the
"Company"), in connection with the preparation of a registration statement on
Form S-3 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "1933 Act"), relating to the issuance from time to time of up to
$2,000,000,000 aggregate principal amount of Asset Backed Certificates and Asset
Backed Notes (the "Securities"), issuable in series (each, a "Series"). The
Registration Statement is being filed with the Securities and Exchange
Commission under the 1933 Act. As set forth in the Registration Statement, each
Series of Securities will be issued under and pursuant to the conditions of a
separate pooling and servicing agreement, trust agreement or indenture (each, an
"Agreement") among the Company, a trustee (the "Trustee") and, where
appropriate, a master servicer (the "Master Servicer"), each to be identified
(together with any other relevant parties) in the prospectus supplement for such
Series of Securities.
We have examined copies of the Company's Certificate of Incorporation, the
Company's By-laws and forms of each Agreement, as filed as Exhibits 4.1, 4.2,
4.3, 4.4, 4.5, 4.6 and 10.1 to the Registration Statement, and the forms of
Securities included in any Agreement so filed in the Registration Statement and
such other records, documents and statutes as we have deemed necessary for
purposes of this opinion.
Based upon the foregoing, we are of the opinion that:
(i) When any Agreement relating to a Series of Securities has been duly and
validly authorized by all necessary action on the part of the Company and has
been duly executed and delivered by the Company, the Master Servicer, if any,
the Trustee and any other party thereto, such Agreement will constitute a legal,
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency or other laws relating to or affecting creditors' rights
generally or by general equity principles.
(ii) When a Series of Securities has been duly authorized by all necessary
action on the part of the Company (subject to the terms thereof being otherwise
in compliance with applicable law at such time), duly executed and authenticated
by the Trustee for such Series in accordance with the terms of the related
Agreement and issued and delivered against payment therefor as described in the
Registration Statement, such Series of Securities will be legally and validly
issued, fully paid and nonassessable, and the holders thereof will be entitled
to the benefits of the related Agreement.
(iii) The information set forth in each Prospectus under the caption
"Federal Income Tax Consequences," to the extent it constitutes matters of law
or legal conclusions, is correct in all material respects. The opinions set
forth in each Prospectus under the heading "Federal Income Tax Consequences" are
hereby confirmed.
In rendering the foregoing opinions, we express no opinion as to the laws
of any jurisdiction other than the laws of the State of New York (excluding
choice of law principles therein) and the federal laws of the United States of
America.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the heading
"Legal Matters" in each prospectus supplement and prospectus forming a part of
the Registration Statement, without admitting that we are "experts" within the
meaning of the 1933 Act or the Rules and Regulations of the Commission issued
thereunder, with respect to any part of the Registration Statement, including
this exhibit.
Very truly yours,
Brown & Wood llp
