AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 1998
REGISTRATION NO. 333-51609
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INDYMAC ABS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<TABLE>
<S> <C>
DELAWARE APPLIED FOR
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
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)
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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)
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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.
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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>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1)(2) PER UNIT(2) OFFERING PRICE(2) FEE
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<S> <C> <C> <C> <C>
Asset Backed Certificates $1,800,000,000 100% $1,800,000,000 (3)
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Asset Backed Notes $ 200,000,000 100% $ 200,000,000 (3)
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</TABLE>
(1) This Registration Statement relates to the offering from time to
time of $1,800,000,000 aggregate principal amount of Asset Backed
Certificates and $200,000,000 aggregate principal amount of Asset
Backed Notes 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) A total registration fee of $595,295.00 (for all Asset Backed
Certificates and Asset Backed Notes registered) was previously paid.
P --------------
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.
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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
<TABLE>
<CAPTION>
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[Initial Class Pass-Through Rate
Certificate Balance (1)
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<S> <C> <C>
Class A - $ %
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Class $ %
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Class PO $ (2)
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Class X (3) (4)
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Class A-R $ %
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Class B - $ %
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Class $ %
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Class $ %
==================================================================== ======================== ============================
</TABLE>
(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]
<PAGE>
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.
<PAGE>
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
hereof. 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-Through
Certificate Rate
Balance
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.
<PAGE>
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........................ 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.
<PAGE>
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 any 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.
<PAGE>
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%.
<PAGE>
<TABLE>
<CAPTION>
Mortgage Rates(1) Current Mortgage Loan Principal Balances(1)
- ------------------------------------------------------- ----------------------------------------------------
Mortgage Rates Number Aggregate Percent Current Mortgage Number Aggregate Percent
(%) of Principal of Loan Amounts of Principal of
Mortgage Balance Mortgage Mortgage Balance Mortgage
Loans Outstanding Pool Loans Outstanding Pool
- ------------------------------------------------------- ----------------------------------------------------
<S> <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........... Total............... 100%
--------------------- === ========== =========
---------------------
8.750...........
8.875........... (1)As of the Cut-off Date, the average current
Mortgage Loan principal balance is expected
to be approximately $_____
9.000...........
9.125...........
9.250...........
9.375...........
9.500...........
9.875...........
10.00........... $
100%
- ----------------- === ============== ===========
(1) The Lender PMI Mortgage Loans are shown at the
Mortgage Rates net of the interest premium
charged by the related lenders. As of the
Cut-off Date, the weighted average Mortgage Rate
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.
</TABLE>
<TABLE>
<CAPTION>
Documentation Program for Mortgage Loans
----------------------------------------------------
Type of Program Number Aggregate Percent
of Principal of
Mortgage Balance Mortgage
Loans Outstanding Pool
----------------------------------------------------
<S> <C> <C> <C> <C>
Full............... $ %
Alternative.........
Reduced.............
Streamlined.........
Totals..............
===== ============== =======
$ 100%
</TABLE>
<TABLE>
<CAPTION>
Original Loan-to-Value Ratios(1) Types of Mortgaged Properties
- ------------------------------------------------------- ----------------------------------------------------
Original Number Aggregate Percent Property Type Number Aggregate Percent
Loan-to-Value of Principal of of Principal of
Ration (%) Mortgage Balance Mortgage Mortgage Balance Mortgage
Loans Outstanding Pool Loans OutstandingPool
- ------------------------------------------------------- ----------------------------------------------------
<S> <C> <C> <C> <C>
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
Development.........
--- ---------- ---------
65.01 to 70.00.. Totals $ 100%
=== ========== =========
70.01 to 75.00..
75.01 to 80.00.. Occupancy Types(1)
----------------------------------------------------
80.01 to 85.00.. Occupancy Type Number Aggregate Percent
85.01 to 90.00.. of Principal of
90.01 to 95.00.. Mortgage Balance Mortgage
---- -------------- -----------
Totals.......... $ 100% Loans OutstandingPool
- ----------------- === ============== =========== ----------------------------------------------------
(1) The weighted average original Loan-to-Value Primary Residence... $ %
Ratio of the Mortgage Loans is expected to be
approximately ____%
Investor Property...
Second Residence....
--- ---------- ---------
Totals.............. $ 100%
--------------------- === ---------- ---------
(1)Based upon representations of the related
mortgagors at the time of origination.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
State Distribution Properties(1) Remaining terms to Maturity(1)
- ------------------------------------------------------- ----------------------------------------------------
State Number Aggregate Percent Remaining Term to Number Aggregate Percentage
of Principal of Maturity (Months) of Principal of
Mortgage Balance Mortgage Mortgage Balance Mortgage
Loans Outstanding Pool 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.................
- ----------------- === ============== =========== 334.................
333.................
(1) Other includes other states with under (2)% 332.................
concentration individually. No more than 328.................
approximately % of the Mortgage Loans 326.................
will be secured by Mortgaged 325.................
properties located in any one postal zip code area.321.................
320.................
319.................
318.................
314.................
297.................
293.................
259.................
240.................
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>
Purpose of Mortgage Loans
- -------------------------------------------------------
Loan Purpose Number Aggregate Percentage
of Principal of
Mortgage balance Mortgage
Loans Outstanding Pool
- -------------------------------------------------------
Purchase........ $ %
Refinance
(rate/term).....
Refinance (cash
out)............
--- -------------- -----------
Totals.......... $ 100%
=== ============== ===========
<PAGE>
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:
<PAGE>
<TABLE>
<CAPTION>
Primary Residence Purchase Money and Rate/Term Refinances
Credit Maximum No Income/
Level Loan Amount Full/Alt. Doc. Reduced Doc. No Ratio No Asset
- -------------------- ------------- ---------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
0
I+
I
II
III
IV
</TABLE>
<TABLE>
<CAPTION>
Primary Residence-Cash Out Refinances
Credit Maximum No Income/
Level Loan Amount Full/Alt. Doc. Reduced Doc. No Ratio No Asset
- -------------------- ------------- ---------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
0
I+
I
II
III
IV
</TABLE>
<TABLE>
<CAPTION>
Second Home and Investor Properties-Purchase Money and Rate/Term Refinances
Credit Maximum
Level* Loan Amount Full/Alt. Doc. Reduced Doc. No Ratio
- -------------------- ------------- ---------------- ------------ ---------
<S> <C> <C> <C> <C>
0
I+
I
II
III
- ------------
* No Credit Level IV allowed for this product.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Second Home and Investor Properties-Cash-Out Refinances
Credit Maximum
Level Loan Amount Full/Alt. Doc. Reduced Doc. No Ratio
- -------------------- ------------- ---------------- ------------ ---------
<S> <C> <C> <C> <C>
0
I+
I
II
- ------------
* No Credit Level III or IV allowed for this product.
</TABLE>
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,
-----------------------------------
----- ------ ----- ------ ------
Delinquent Mortgage Loans and Pending Foreclosures at Period
end(1):
<S> <C> <C> <C> <C> <C>
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>
Net Original Term Remaining
Principal Balance Mortgage Rate Mortgage Rate to Maturity Term Loan Age
(in months) to Maturity
(in months)
- ----------------- ------------- ------------- ------------- --------------- --------
<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.
<TABLE>
<CAPTION>
Sensitivity of the Interest Only Certificates to Prepayments
(Pre-Tax Yields to Maturity)
SPA Prepayment/Assumption
Class 0% % % % % %
- --------- ---------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Class X % % % % % %
</TABLE>
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............. %
<TABLE>
<CAPTION>
Sensitivity of the Principal Only Certificates to Prepayments
(Pre-Tax Yields to Maturity)
SPA Prepayment/Assumption
Class 0% % % % % %
- ----------- ---------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Class PO % % % % % %
Class PO... % % % % % %
</TABLE>
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.
<PAGE>
<TABLE>
<CAPTION>
Percent of Initial Class Certificate
Balances Outstanding*
Class A-
Distribution Date 0% % % % % % %
- -------------------- -------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Initial............ % % % % % %
19.............
19.............
19.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
--- --- --- --- --- ---
Weighted Average
Life (in years)**.......
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Class A-
Distribution Date 0% % % % % % %
- -------------------- -------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Initial............ % % % % % %
19.............
19.............
19.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
20.............
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.
<PAGE>
<TABLE>
=================================================================== ==========================================================
<S> <C>
No person has been authorized to give any information or to make $[_____________]
any representations other than those contained in this (Approximate)
Prospectus Supplement or the Prospectus and, if given or made,
such information or representations must not be relied upon. IndyMac ABS, Inc.
This Prospectus Supplement and the Prospectus do not constitute Depositor
an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby, nor an offer of Offered Certificates [IndyMac, Inc.]
in any state or jurisdiction in which, or to any person to whom, Seller and Master Servicer
such offer would be unlawful. The delivery of this Prospectus
Supplement or the Prospectus at any time does not imply that the Mortgage Pass-Through
information contained herein or therein is correct as of any Certificates,
time subsequent to its date; however, if any material change Series 199_ - _
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. PROSPECTUS SUPPLEMENT
--------------- [_________, 199_]
-------------------------
TABLE OF CONTENTS
Page
Prospectus Supplement
Summary Of Terms........................................ S-3
Risk Factors............................................. S-11
The Mortgage Pool........................................ S-14
Servicing of Mortgage Loans.............................. S-21
Description of the Certificates.......................... S-24
Yield, Prepayment and Maturity Considerations............ S-34
Credit Enhancement....................................... S-41
Use of Proceeds.......................................... S-43
Certain Federal Income Tax Consequences.................. S-43
Erisa Considerations..................................... S-44
Method of Distribution................................... S-45
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.
---------------------
<PAGE>
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__
<PAGE>
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 hereof. 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
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.
<PAGE>
[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.
<PAGE>
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 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 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*
Dollars Percent Units Percent
Current................ $__________ ____% _____ ____%
30-59 days............. $__________ ____% _____ ____%
60-89 days............. $__________ ____% _____ ____%
90+ days............... $__________ ____% _____ ____%
Total $__________ 100.00% _____ 100.00%
- -------------
* 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*
Dollars Percent Units Percent
Current................ $__________ ____% _____ ____%
30-59 days............. $__________ ____% _____ ____%
60-89 days............. $__________ ____% _____ ____%
90+ days............... $__________ ____% _____ ____%
Total $__________ 100.00% _____ 100.00%
- -------------
* 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
Number of Cut-off Date Percent of Pool by
Mortgage Principal Cut-off Date
Range of Principal Balances Loans Balance Principal Balance
- -------------------------------- --------- ------------ ------------------
$ _______ to $ _______.......... $ %
$ _______ to $ _______..........
$ _______ to $ _______..........
$ _______ to $ _______..........
$ _______ to $ _______..........
$ _______ to $ _______..........
$ _______ to $ _______..........
$ _______ to $ _______..........
$ _______ to $ _______..........
$ _______ to $ _______..........
$ _______ to $ _______..........
$ _______ to $ _______..........
$ _______ to $ _______..........
$ _______ to $ _______..........
$ _______ to $ _______..........
$ _______ to $ _______..........
--------- ------------ ------------------
Total................... $ 100.00%
========= ============ ==================
<PAGE>
GEOGRAPHIC DISTRIBUTION OF HOME EQUITY LOANS
AND HOME IMPROVEMENT CONTRACTS(1)
Number of Cut-off Date Percent of Pool by
Mortgage Principal Cut-off Date
State Loans Balance Principal Balance
- -------------------------------- --------- ------------ ------------------
$ %
--------- ------------ ------------------
Total................... $ 100.00%
========= ============ ==================
- --------------
(1) Geographic location is determined by the address of the Mortgaged Property
securing the related Mortgage Loan.
COMBINED LOAN-TO-VALUE RATIOS(1)
Number of Cut-off Date Percent of Pool by
Range of Combined Mortgage Principal Cut-off Date
Loan-to-Value Ratios Loans Balance Principal Balance
- -------------------------------- --------- ------------ ------------------
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%........... ___________________________________________
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
--------- ------------ ------------------
Total................... $ 100.00%
========= ============ ==================
- --------------
(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
Number of Cut-off Date Percent of Pool by
Mortgage Principal Cut-off Date
Property Type Loans Balance Principal Balance
- -------------------------------- --------- ------------ ------------------
Single Family................... $ %
Two- to Four-Family.............
Condominium.....................
--------- ------------ ------------------
PUD.............................
--------- ------------ ------------------
Total................... $ 100.00%
========= ============ ==================
LIEN PRIORITY
Number of Cut-off Date Percent of Pool by
Mortgage Principal Cut-off Date
Lien Priority Loans Balance Principal Balance
- -------------------------------- --------- ------------ ------------------
First Lien...................... $ %
Second Lien.....................
--------- ------------ ------------------
Total................... $ 100.00%
========= ============ ==================
<PAGE>
LOAN RATES(1)
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
- -------------------------------- --------- ------------ ------------------
_______% to ________%........... $ %
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
--------- ------------ ------------------
Total................... $ 100.00%
========= ============ ==================
- --------------
(1) Approximately % of the Mortgage Loans by Cut-Of Date Principal Balance
are subject to an introductory rate of ____% per annum.
MARGIN
Number of Cut-off Date Percent of Pool by
Range of Mortgage Principal Cut-off Date
Margins Loans Balance Principal Balance
- -------------------------------- --------- ------------ ------------------
_______% to ________%........... $ %
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
--------- ------------ ------------------
Total................... $ 100.00%
========= ============ ==================
<PAGE>
CREDIT LIMIT UTILIZATION RATES OF HOME EQUITY LOANS
Number of Cut-off Date Percent of Pool by
Range of Credit Limit Mortgage Principal Cut-off Date
Utilization Rates Loans Balance Principal Balance
- -------------------------------- --------- ------------ ------------------
_______% to ________%........... $ %
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
--------- ------------ ------------------
Total................... $ 100.00%
========= ============ ==================
<PAGE>
CREDIT LIMITS OF HOME EQUITY LOANS
Number of Cut-off Date Percent of Pool by
Mortgage Principal Cut-off Date
Range of Credit Limits Loans Balance Principal Balance
- -------------------------------- --------- ------------ ------------------
_______% to ________%........... $ %
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
_______% to ________%...........
--------- ------------ ------------------
Total................... $ 100.00%
========= ============ ==================
MAXIMUM RATES OF HOME EQUITY LOANS
Number of Cut-off Date Percent of Pool by
Mortgage Principal Cut-off Date
Maximum Rates Loans Balance Principal Balance
- -------------------------------- --------- ------------ ------------------
________%....................... $ %
________%.......................
________%.......................
________%.......................
________%.......................
--------- ------------ ------------------
Total................... $ 100.00%
========= ============ ==================
<PAGE>
MONTHS REMAINING TO SCHEDULED MATURITY
OF HOME EQUITY LOANS AND HOME IMPROVEMENT CONTRACTS(1)
Number of Cut-off Date Percent of Pool by
Range of Months Mortgage Principal Cut-off Date
Remaining to Scheduled Maturity Loans Balance Principal Balance
- -------------------------------- --------- ------------ ------------------
_______ 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.
ORIGINATION YEAR
Number of Cut-off Date Percent of Pool by
Mortgage Principal Cut-off Date
Origination Year Loans Balance Principal Balance
- -------------------------------- --------- ------------ ------------------
_______......................... $ %
_______.........................
--------- ------------ ------------------
Total................... $ 100.00%
========= ============ ==================
DELINQUENCY STATUS OF HOME EQUITY LOANS AND HOME IMPROVEMENT CONTRACTS
Number of Cut-off Date Percent of Pool by
Mortgage Principal Cut-off Date
Number of Days Delinquent Loans Balance Principal Balance
- -------------------------------- --------- ------------ ------------------
0 to 29......................... $ %
30 to 59........................
--------- ------------ ------------------
60 to 89........................
--------- ------------ ------------------
Total................... $ 100.00%
========= ============ ==================
<PAGE>
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.
<PAGE>
<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
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, HOME EQUITY LOAN
TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER
OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE TRUST 199___
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE $______ [FIXED] [FLOATING] RATE
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ASSET BACKED NOTES
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE $______ [FIXED] [FLOATING] RATE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME ASSET BACKED CERTIFICATES,
SUBSEQUENT TO THEIR RESPECTIVE DATES.
---------------
TABLE OF CONTENTS
Page IndyMac ABS, Inc.
---- (Depositor)
PROSPECTUS SUPPLEMENT
Summary of Terms
Risk Factors
The Trust
The [Letter of Credit][Surety Bond] Issuer
The Master Servicer PROSPECTUS SUPPLEMENT
The Home Equity Loan Program [ , 199 ]
Description of the Mortgage Loans
Maturity and Prepayment Considerations
Description of the Master Servicing Agreement
Description of the Securities [UNDERWRITER]
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.
================================================================================
Price to Underwriting Proceeds to the
Public (1) Discount(2) Depositor(3)
- --------------------------------------------------------------------------------
Per Certificate.......... % % %
- --------------------------------------------------------------------------------
Total.................... $ $ $
================================================================================
(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__.
<PAGE>
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.
----------
<PAGE>
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 hereof. 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 Cutoff
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.
<PAGE>
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.
<PAGE>
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]
<PAGE>
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.
<PAGE>
Set forth below is a description of certain characteristics of the
Mortgage Loans as of the Cut-off Date:
<TABLE>
<CAPTION>
PRINCIPAL BALANCES
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Range of Principal Balances Loans Principal Balance Principal Balance
- -------------------------------- --------- ----------------- -----------------
<S> <C> <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>
<PAGE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION(1)
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
State Loans Principal Balance Principal Balance
- -------------------------------- --------- ----------------- -----------------
<S> <C> <C> <C>
$ %
--------- ----------------- -----------------
Total .................. 100%
========= ================= =================
----------
(1) Geographic location is determined by the address of the Mortgaged
Property securing the related Mortgage Loan.
</TABLE>
<TABLE>
<CAPTION>
COMBINED LOAN-TO-VALUE RATIOS(1)
<S> <C> <C> <C>
Number of Percent of Pool
Range of Combined Mortgage Cut-off Date by Cut-off Date
Loan-to-Value Ratios Loans Principal Balance Principal Balance
- -------------------------------- --------- ----------------- -----------------
$_______ to $_______ ......... $ %
$_______ to $_______ .........
$_______ to $_______ .........
$_______ to $_______ .........
$_______ to $_______ .........
$_______ to $_______ .........
$_______ to $_______ .........
$_______ to $_______ .........
$_______ to $_______ .........
$_______ and over ............
--------- ----------------- -----------------
Total .................. 100%
========= ================= =================
- ----------
(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>
<TABLE>
<CAPTION>
PROPERTY TYPE
<S> <C> <C> <C>
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Property Type Loans Principal Balance Principal Balance
- -------------------------------- --------- ----------------- -----------------
Single Family ................ $ %
Two- to Four-Family ..........
Condominium ..................
PUD ..........................
--------- ----------------- -----------------
Total .................. 100%
========= ================= =================
</TABLE>
<TABLE>
<CAPTION>
LIEN PRIORITY
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Lien Priority Loans Principal Balance Principal Balance
- -------------------------------- --------- ----------------- -----------------
<S> <C> <C> <C>
First Lien ................... $ %
Second Lien ..................
--------- ----------------- -----------------
Total .................. 100%
========= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOAN RATES(1)
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Rage 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 $_______ .........
$_______ to $_______ .........
$_______ to $_______ .........
$_______ to $_______ .........
$_______ to $_______ .........
$_______ to $_______ .........
--------- ----------------- -----------------
Total .................. 100%
========= ================= =================
----------
(1) Approximately % of the Mortgage Loans by Cut-off Date Principal
Balance are subject to an introductory rate of _____% per annum.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MARGIN
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 $_______ .........
$_______ to $_______ .........
$_______ to $_______ .........
$_______ to $_______ .........
$_______ to $_______ .........
$_______ to $_______ .........
$_______ and over ............
--------- ----------------- -----------------
Total .................. 100%
========= ================= =================
</TABLE>
<PAGE>
<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 $_______ .........
$_______ 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
Maximum Rates Loans Principal Balance Principal Balance
- -------------------------------- --------- ----------------- -----------------
<S> <C> <C> <C>
_______% ..................... $ %
_______% .....................
_______% .....................
_______% .....................
--------- ----------------- -----------------
Total .................. 100%
========= ================= =================
</TABLE>
<TABLE>
<CAPTION>
MONTHS REMAINING TO SCHEDULED MATURITY(1)
Number of Percent of Pool
Range of Months Mortgage Cut-off Date by Cut-off Date
Remaining to Scheduled Maturity Loans Principal Balance Principal Balance
- -------------------------------- --------- ----------------- -----------------
<S> <C> <C> <C>
_______ to _______ ........... $ %
_______ to _______ ...........
_______ to _______ ...........
_______ to _______ ...........
_______ to _______ ...........
_______ to _______ ...........
_______ to _______ ...........
_______ to _______ ...........
_______ to _______ ...........
_______ to _______ ...........
--------- ----------------- -----------------
Total .................. 100%
========= ================= =================
----------
(1) Assumes that the Draw Period for Mortgage Loans with five year
Draw Periods will be extended for an additional five years.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ORIGINATION YEAR
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Origination Year Loans Principal Balance Principal Balance
- -------------------------------- --------- ----------------- -----------------
<S> <C> <C> <C>
- ------- ...................... $ %
- ------- ......................
--------- ----------------- -----------------
Total .................. 100%
========= ================= =================
</TABLE>
<TABLE>
<CAPTION>
DELINQUENCY STATUS
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Number of Days Delinquent Loans Principal Balance Principal Balance
- -------------------------------- --------- ----------------- -----------------
<S> <C> <C> <C>
0 to 29 ...................... $ %
30 to 59 .....................
60 to 89 .....................
--------- ----------------- -----------------
Total .................. 100%
========= ================= =================
</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.
<PAGE>
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.
<PAGE>
INDEX OF DEFINED TERMS
Page
----
<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
<PAGE>
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.
<PAGE>
<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
PAGE $[_____________]
---- (Approximate)
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............................................... $_________ $_________ $_________
(1) Before deducting expenses payable by the Depositor, estimated to be $_______.]
</TABLE>
[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]
<PAGE>
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.
<PAGE>
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 hereof. 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:
Initial Certificate Pass-Through
Class Principal Balance Rate (1)
----- ------------------- ------------
Class A- Certificates........... $ %
Class Certificates........... $ %
Class A-R Certificates........... $ %
Class B- Certificates........... $ %
Class Certificates........... $ %(1)
_______________
(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:
Initial Certificate Pass-Through
Class Principal Balance Rate
----- ------------------- ------------
Class __ Certificates............ $ %
Class __ Certificates............
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.
<PAGE>
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.
<PAGE>
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)
- -------------------------------------------------------------------------------
Aggregate
Cut-off Date Percentage of
Geographic Number of Contract Cut-off Date
Location Contracts Principal Balance Pool Balance
- -------------------------------------------------------------------------------
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%
======== ============ ==========
(1) Based on the location of the properties underlying the Contracts as of the
Cut-off Date.
<PAGE>
Original Contract Amounts
- -------------------------------------------------------------------------------
Aggregate Cut-off Percentage of
Original Contract Number of Date Contract Cut-off Date
Amount Contracts Principal Balance Pool Balance
- -------------------------------------------------------------------------------
$ 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......... _________ _____________ ___________
$ %
========= ============= ===========
Remaining Term to Maturity
Aggregate Cut-off Percentage of
Remaining Number of Date Contract Cut-off Date
Term Contracts Principal Balance Pool Balance
- -------------------------------------------------------------------------------
Less than 121
months
121-180 months
181-240 months
241- 300 months
301 - 360 months
_________ _____________ ___________
Total . . . .
_______________________________________________________________________________
<PAGE>
APRs
- -------------------------------------------------------------------------------
Aggregate
Cut-off Date Percentage of
Number of Contract Cut-off Date
APRs Contracts Principal Balance Pool 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
- -------------------------------------------------------------------------------
Aggregate
Cut-off Date Percentage of
Original Loan-to Number of Contract Cut-off Date
Value Ratio(2) Contracts Principal Balance Pool 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%.
<PAGE>
[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.]
<PAGE>
DELINQUENCY EXPERIENCE(1)
<TABLE>
<CAPTION>
At ________________,
----------------------------------------------
19- 19- 19-
--- --- ---
<S> <C> <C> <C>
Total Number of Serviced Assets
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.]
<PAGE>
LOSS EXPERIENCE
At or for the Fiscal Year
ended _____________
<TABLE>
<CAPTION>
------------------------------------------------------------
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.
<PAGE>
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.
<PAGE>
ASSUMED CONTRACT CHARACTERISTICS
<TABLE>
<CAPTION>
Remaining
Term to
Contract Principal Maturity Seasoning
Pool 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.
<PAGE>
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.......................
Weighted Average Life (years)...
</TABLE>
<PAGE>
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.......................
Weighted Average Life (years)...
</TABLE>
<PAGE>
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).
<PAGE>
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.
<PAGE>
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
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------ -----------------------------------------------------
<S> <C>
IndyMac ABS.......Inc.
No dealer salesperson or other person has
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
Prospectus nor any sale made hereunder shall under Through Certificates 199___
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
<PAGE>
(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".
<PAGE>
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".
<PAGE>
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.
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.
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. 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.
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
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. See "Description of the Certificates - Derivative Transactions".
Credit Risks. It is expected that if a Trust Fund enters into
Derivative Transactions it will do so with banks, financial institutions and
recognized dealers in Derivative Transactions. Entering into a Derivatives
Transaction directly with a counterparty subjects a Trust Fund to the credit
risk that the counterparty may default on an obligation to such Trust Fund.
Such a risk contrasts with transactions done through exchange markets, wherein
credit risk is reduced through the collection of variation margin and through
the interposition of a clearing organization as the guarantor of all
transactions. Clearing organizations transform the credit risk of individual
counterparties into the more remote risk of the failure of the clearing
organization. Additionally, the financial integrity of over-the-counter
Derivative Transactions is generally unsupported by other regulatory or
self-regulatory protections such as margin requirements, capital requirements,
or financial compliance programs. Therefore, there are much greater risks of
defaults with respect to over-the-counter privately negotiated Derivative
Transactions than with respect to exchange-traded transactions. If there is a
default by the other party to such a transaction, the related Trust Fund will
have to rely on its contractual remedies (which may be limited by bankruptcy,
insolvency or similar laws) pursuant to the agreements related to the
Derivative Transactions.
Legal Enforceability Risks. Privately negotiated over-the-counter
Derivative Transactions subject a Trust Fund to the risks of (a) a single
counterparty's legal incapacity to enter into or perform its obligations under
a given Derivative Transaction or class of Derivative Transactions, rendering
such Derivative Transactions unenforceable, (b) a court or regulatory body
declaring that classes of Derivative Transactions are unlawful or not in
compliance with applicable laws or regulations, rendering them invalid and
unenforceable, or (c) legislation which may be proposed or enacted which may
affect the legal, regulatory or tax status of Derivative Transactions to the
detriment of the related Trust Fund's interests.
Basis Risks. Successful use of Derivative Transactions depends upon
the ability to predict movements of the overall securities or interest rate
markets. There might be an imperfect correlation, or even no correlation,
between price movements of a Derivative Transaction and price movements of the
investments or instruments being hedged. If a Trust Fund enters into
Derivative Transactions at the wrong time or market conditions are predicted
incorrectly, the Derivative Transaction may result in a substantial loss to
such Trust Fund and hence the related Securityholders.
<PAGE>
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.
_______________
* Whenever the terms "Pool" and "Certificates" 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 a single Trust Fund consisting primarily of the Contracts
in such Pool. Similarly, the term "pass-through rate" will refer to the
pass-through rate borne by the Certificates and the term "Trust Fund"
will refer to one specific Trust Fund.
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.
<PAGE>
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):
<PAGE>
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 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 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.
<PAGE>
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.
<PAGE>
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 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
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) 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. 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.
<PAGE>
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..................................................87
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 each 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.
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 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 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. 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. 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
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. 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.
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
UNDERCOLLATERALIZED AND SUBJECT TO GREATER RISK OF COLLECTION
If specified in the related Prospectus Supplement, the Trust Fund for
any Series may 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 undercollateralized portion
of any such Loan. In the event of a default under a Loan that is
undercollateralized, the related Trust Fund will have recourse only against the
borrower's assets generally for the undercollateralized 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
undercollateralized obligations of the borrower with respect to such Loan will
be treated as an unsecured loan and may be discharged by the bankruptcy court
even though such obligations are not fully satisfied. Losses on any such
undercollateralized 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.
HOME IMPROVEMENT CONTRACTS MAY BE UNSECURED AND SUBJECT TO GREATER
RISK OF COLLECTION
If so specified in the related Prospectus Supplement, the Trust Fund
for any Series may include Home Improvement Contracts that are not secured by
an interest in real estate or otherwise. In the event of a default under a
Loan that is unsecured, the related Trust Fund will only have recourse against
the borrower's assets generally 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 obligations of the borrower in respect to
such Loan may be discharged by the bankruptcy court even though such
obligations are not fully satisfied. Losses on any such unsecured 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.
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.
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
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. See "Description of the Securities -- Derivative Transactions".
CREDIT RISKS. It is expected that if a Trust Fund enters into
Derivative Transactions it will do so with banks, financial institutions and
recognized dealers in Derivative Transactions. Entering into a Derivatives
Transaction directly with a counterparty subjects a Trust Fund to the credit
risk that the counterparty may default on an obligation to such Trust Fund.
Such a risk contrasts with transactions done through exchange markets, wherein
credit risk is reduced through the collection of variation margin and through
the interposition of a clearing organization as a guarantor of all
transactions. Clearing organizations transform the credit risk of individual
counterparties into the more remote risk of the failure of the clearing
organization. Additionally, the financial integrity of over-the-counter
Derivative Transactions is generally unsupported by other regulatory or
self-regulatory protections such as margin requirements, capital requirements,
or financial compliance programs. Therefore, there are much greater risks of
defaults with respect to over-the-counter privately negotiated Derivative
Transactions than with respect to exchange-traded transactions. If there is a
default by the other party to such a transaction, the related Trust Fund will
have to rely on its contractual remedies (which may be limited by bankruptcy,
insolvency or similar laws) pursuant to the agreements related to the
Derivative Transactions.
LEGAL ENFORCEABILITY RISKS. Privately negotiated over-the-counter
Derivative Transactions subject a Trust Fund to the risks of (a) a single
counterparty's legal incapacity to enter into or perform its obligations under
a given Derivative Transaction or class of Derivative Transactions, rendering
such Derivative Transactions unenforceable, (b) a court or regulatory body
declaring that classes of Derivative Transactions are unlawful or not in
compliance with applicable laws or regulations, rendering them invalid and
unenforceable, or (c) legislation which may be proposed or enacted which may
affect the legal, regulatory or tax status of Derivative Transactions to the
detriment of the related Trust Fund's interests.
BASIS RISKS. Successful use of Derivative Transactions depends upon
the ability to predict movements of the overall securities or interest rate
markets. There might be an imperfect correlation, or even no correlation,
between price movements of a Derivative Transaction and price movements of the
investments or instruments being hedged. If a Trust Fund enters into
Derivative Transactions at the wrong time or market conditions are predicted
incorrectly, the Derivative Transactions may result in a substantial loss to
such Trust Fund and hence the related Securityholders.
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.
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 Agreements 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 Propectus 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.
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* 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.
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 by 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 maximum of 5% of the Trust Fund
Assets as they will be constituted at the time that the applicable Detailed
Description is filed will deviate in any material respect from the Trust Fund
Asset pool characteristics other than the aggregate number or amount of Loans)
described in the related Prospectus Supplement. 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. See "Risk Factors - Home
Improvement Contracts and Home Equity Loans may be Undercollateralized and
Subject to Greater Risk of Collection " and "-Home Improvement Contracts May
be Unsecured and Subject to Greater Risk of Collection ".
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. In addition, if so specified in the related Prospectus
Supplement, a Seller's underwriting criteria may permit unsecured loans for
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.
<PAGE>
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 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 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 "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 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 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 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.
<PAGE>
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 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:
(a) (i) the corpus of the trust fund must consist solely of
assets of the type that have been included in other investment
pools;
(b) (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
(c) (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,
(a) (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
(b) (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:
(a) (i) any pre-funding account and/or capitalized
interest account used in connection with a pre-funding
account;
(b) (ii) the duration of the pre-funding period;
(c) (iii) the percentage and/or dollar amount of the
pre-funding Limit for the trust; and
(d) (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.
<PAGE>
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.
<PAGE>
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
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
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.
<PAGE>
ITEM 16. EXHIBITS.
1.1 -- Form of Underwriting 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)**
- ----------
* Previously filed.
** Filed herewith.
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 I.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. 2 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 17th day of July, 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 July 17, 1998
----------------------------- and Director
S. Blair Abernathy
/s/ Carmella L. Grahn First Vice President, Chief July 17, 1998
----------------------------- Financial Officer and Principal
Carmella L. Grahn Accounting Officer and Director
* General Counsel, Secretary July 17, 1998
----------------------------- and Director
Gwen J. Eells
* Director July 17, 1998
-----------------------------
Jeffrey P. Grogin
* Director July 17, 1998
-----------------------------
James Banks
*By /s/ S. Blair Abernathy
-----------------------------
S. Blair Abernathy
Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
SEQUENTIAL
NO. DESCRIPTION OF EXHIBIT PAGE NUMBER
- ---------- ---------------------- ------------
<S> <C> <C>
1.1 -- Form of Underwriting 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)**...............
- -----------
* Previously filed.
** Filed herewith.
</TABLE>
Exhibit 1.1
7/6/98
INDYMAC ABS, INC.
ASSET-BACKED SECURITIES
(Issuable in Series)
UNDERWRITING AGREEMENT
_______________., _______, 1998
as Representative of the
several Underwriters
________________
New York, New York __________
Ladies and Gentlemen:
IndyMac ABS, Inc., a corporation organized and existing under the laws
of the State of Delaware (the "Company"), proposes to cause the formation of
trusts (each, a "Trust") from time to time and to offer for sale from time to
time its Asset-Backed Securities evidencing interests in pools of certain
contracts and mortgage loans (the "Securities"). The Securities may be issued in
various series, and within each series, in one or more classes, in one or more
offerings on terms determined at the time of sale (each such series, a "Series"
and each such class, a "Class"). Each Trust may issue one or more classes of
Asset-Backed Notes (the "Notes") pursuant to an Indenture to be dated as of the
respective cut-off date (each, a "Cut-off Date") as supplemented by one or more
supplements to such Indenture (such Indenture, as supplemented, the "Indenture")
between the related Trust and the indenture trustee named therein (the
"Indenture Trustee"). Simultaneously with the issuance of the Notes, the Trust
may issue Asset-Backed Certificates (the "Certificates"), each representing a
fractional undivided ownership interest in the related Trust, pursuant to a
separate Trust Agreement (each, a "Trust Agreement") to be dated as of the
respective Cut-off Date among the Company, one or more affiliates of the Company
and the owner trustee named therein (the "Owner Trustee"). Alternatively, each
Trust may issue one or more Classes of Certificates, each evidencing a
fractional undivided interest in the related Trust, pursuant to a separate
Pooling and Servicing Agreement (each, a "Pooling and Servicing Agreement"), to
be dated as of the respective Cut-off Date among the Company, the seller named
therein (the "Seller"), the master servicer named therein (the "Master
Servicer") and the trustee named therein (the "Trustee").
The assets of each Trust (the "Trust Assets") will consist primarily of
one or more pools of fixed- or adjustable-rate, closed-end or revolving home
equity loans ("HELs"), home improvement contracts or loans ("HILs") or
manufactured housing contracts ("Contracts") as specified in the related Terms
Agreement referred to below. The Trust Assets will be serviced by the Master
Servicer pursuant to the terms of the related Pooling and Servicing Agreement or
a sale and servicing agreement to be dated as of the respective Cut-off Date
(each, a "Sale and Servicing Agreement"), among the Trust, the Master Servicer,
the Company and the Indenture Trustee.
If and to the extent specified in the related Transaction Documents (as
defined below), in addition to the Trust Assets conveyed to the Trust on the
Closing Date (such Trust Assets so conveyed to the Trust at such time, the
"Initial Trust Assets"), the Company may convey to the Trust, from time to time
during the period commencing after the Closing Date and ending at the expiration
of the period specified in such Transaction Documents (each, a "Pre-Funding
Period")(the date of any such conveyance, a "Subsequent Transfer Date"),
additional Trust Assets (any such additional Trust Assets so conveyed to the
Trust through the Pre-Funding Period, the "Subsequent Trust Assets").
The Securities may have the benefit of one or more insurance policies
(each, a "Policy") issued by the securities insurer named therein (the
"Securities Insurer") pursuant to an insurance and indemnity agreement among the
Company, the Seller and the Securities Insurer (each, an "Insurance Agreement").
The Trust Agreement, the Sale and Servicing Agreement, the Indenture,
the Insurance Agreement and the Pooling and Servicing Agreement are sometimes
referred to herein individually as a "Transaction Document" and collectively as
the "Transaction Documents." Capitalized terms used and not otherwise defined
herein shall have the meanings assigned thereto in the related Transaction
Documents.
Underwritten offerings of Securities may be made through you or through
an underwriting syndicate managed by you. The Company proposes to sell one or
more Series of the Securities to you and to each of the other several
underwriters, if any, participating in an underwriting syndicate managed by you.
Whenever the Company determines to make an offering of Securities
(each, an "Offering") pursuant to this Underwriting Agreement through you, it
will enter into an agreement (the "Terms Agreement", and collectively with this
Underwriting Agreement, this "Agreement") providing for the sale of specified
Classes of Offered Securities (as defined below) to, and the purchase and public
offering thereof by, you and such other underwriters, if any, selected by you as
have authorized you to enter into such Terms Agreement on their behalf (the
underwriters designated in any such Terms Agreement being referred to herein as
"Underwriters," which term shall include you whether acting alone in the sale of
any Offered Securities of any Series or as a member of an underwriting
syndicate). Each such Offering which the Company elects to make pursuant to this
Agreement shall be governed by this Agreement, and this Agreement shall inure to
the benefit of and be binding upon each Underwriter. Each Terms Agreement, which
shall be substantially in the form of Exhibit A hereto, shall specify, among
other things, the nature of the related Trust Assets, the Classes of Securities
to be purchased by the Underwriters (the "Offered Securities"), whether such
Offered Securities constitute Notes or Certificates, the principal balance or
balances of the Offered Securities, each subject to any stated variance, the
names of the Underwriters participating in such offering (subject to
substitution as provided in Section 13 hereof) and the price or prices at which
such Offered Securities are to be purchased by the Underwriters from the
Company.
1. Representations and Warranties. (a) The Company represents and
------------------------------
warrants to and agrees with the Underwriters, as of the date of the applicable
Terms Agreement, that:
(i) The registration statement specified in the related
Terms Agreement, on Form S-3, including a prospectus, has been filed
with the Securities and Exchange Commission (the "Commission") for the
registration under the Securities Act of 1933, as amended (the "Act"),
of asset-backed securities issuable in series, which registration
statement has been declared effective by the Commission. As of the
Closing Date (as hereinafter defined), no stop order suspending the
effectiveness of such registration statement has been issued and no
proceedings for that purpose have been initiated or to the Company's
knowledge threatened by the Commission. The prospectus in the form in
which it will be used in connection with the offering of the Offered
Securities of the applicable Series is proposed to be supplemented by
a prospectus supplement dated the date of the related Terms Agreement
relating to the Offered Securities of the applicable Series and, as so
supplemented, to be filed with the Commission pursuant to Rule 424
under the Act. (Such registration statement is hereinafter referred to
as the "Registration Statement"; such prospectus supplement, as first
filed with the Commission, is hereinafter referred to as the
"Prospectus Supplement"; and such prospectus, in the form in which it
will first be filed with the Commission in connection with the
offering of the Offered Securities of the applicable Series, including
documents incorporated therein as of the time of such filing and as
supplemented by the Prospectus Supplement, is hereinafter referred to
as the "Prospectus"). Any preliminary prospectus, including any
preliminary prospectus supplement which, as completed, is proposed to
be used in connection with the sale of a Series of Offered Securities
and any prospectus filed with the Commission pursuant to Rule 424(a)
of the Act, is hereinafter referred to as a "Preliminary Prospectus."
Any reference herein to the Registration Statement, a Preliminary
Prospectus or the Prospectus shall be deemed to refer to and include
the documents incorporated by reference therein pursuant to Item 12 of
Form S-3 which were filed under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") on or before the date on which the
Registration Statement, as amended, became effective or the issue date
of such Preliminary Prospectus or the date on which the Prospectus is
filed pursuant to Rule 424(b) under the Act, as the case may be; and
any reference herein to the terms "amend", "amendment" or supplement
with respect to the Registration Statement, any Preliminary Prospectus
or the Prospectus shall be deemed to refer to and include the filing
of any document under the Exchange Act after the date on which the
Registration Statement became effective or the issue date of any
Preliminary Prospectus or the date on which the Prospectus is filed
pursuant to Rule 424(b) under the Act, as the case may be, deemed to
be incorporated therein by reference.
(ii) The related Registration Statement, at the time it
became effective, and the prospectus contained therein, and any
amendments thereof and supplements thereto filed prior to the date of
the related Terms Agreement, conformed in all material respects to the
requirements of the Act and the rules and regulations of the
Commission thereunder; on the date of the related Terms Agreement and
on the related Closing Date (as defined in Section 3 below), the
related Registration Statement and the related Prospectus, and any
amendments thereof and supplements thereto, will conform in all
material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder and, to the extent the
Offered Securities of the applicable Series include Notes, the rules
and regulations under the Trust Indenture Act of 1939, as amended (the
"TIA"); such Registration Statement, at the time it became effective,
did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading; such Prospectus, on the
date of any filing pursuant to Rule 424(b) and on the related Closing
Date, will not include any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they are made, not misleading; provided, however, that the
Company makes no representations or warranties as to the information
contained in or omitted from such Registration Statement or such
Prospectus (or any supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of the Underwriters specifically for use in the preparation
thereof.
(iii) The Offered Securities of the related Series will
conform in all material respects to the descriptions thereof contained
in the related Prospectus, and each of such Offered Securities, when
validly authenticated, issued and delivered in accordance with the
applicable Transaction Documents, will be duly and validly issued and
outstanding and entitled to the benefits of the applicable Transaction
Document. Each Offered Security of the Classes indicated to be
"mortgage related securities" under the heading "Summary of
Terms--Legal Investment" in the related Prospectus Supplement will,
when issued, be a "mortgage related security" as such term is defined
in Section 3(a)(41) of the Exchange Act.
(iv) This Agreement has been duly authorized, executed and
delivered by the Company. As of the applicable Closing Date, each
Transaction Document to which the Company is a party will have been
duly authorized, executed and delivered by the Company and will
conform in all material respects to the respective descriptions
thereof contained in the related Prospectus and, assuming the valid
execution and delivery thereof by the other parties thereto, each
Transaction Document to which the Company is a party will constitute a
legal, valid and binding agreement of the Company enforceable in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting
creditors' rights generally and by general principles of equity.
(v) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware with corporate power and authority to own its properties
and conduct its business as described in the related Prospectus and to
enter into and perform its obligations under the Transaction Documents
to which it is a party and this Agreement.
(vi) Neither the issuance or delivery of the Offered
Securities of the applicable Series, nor the consummation of any other
of the transactions contemplated herein, nor compliance with the
provisions of the Transaction Documents to which the Company is a
party or this Agreement, will conflict with or result in the breach of
any material term or provision of, and the Company is not in breach or
violation of or in default (nor has an event occurred which with
notice or lapse of time or both would constitute a default) under the
terms of (i) the certificate of incorporation or by-laws of the
Company (ii) any indenture, contract, lease, mortgage, deed of trust,
note, agreement or other evidence of indebtedness or other agreement,
obligation or instrument to which the Company is a party or by which
it or its properties are bound, or (iii) any law, decree, order, rule
or regulation applicable to the Company of any court or supervisory,
regulatory, administrative or governmental agency, body or authority,
or arbitrator having jurisdiction over the Company, or its properties,
the default in or the breach or violation of which might result in any
material adverse change in the financial condition, earnings, affairs
or business of the Company or which might materially and adversely
affect the properties or assets thereof or the legality or
enforceability of this Agreement or the Transaction Documents to which
it is a party or which would have a material adverse effect on the
Company or the Offered Securities of the related Series or the ability
of the Company to perform its obligations under the Transaction
Documents to which the Company is a party or this Agreement; and
neither the delivery of the Offered Securities of the related Series,
nor the consummation of any other of the transactions contemplated
herein, nor the compliance with the provisions of the Transaction
Documents to which it is a party or this Agreement will result in such
a breach, violation or default which would have such a material
adverse effect.
(vii) No filing or registration with, notice to, or consent,
approval, authorization or order or other action of any court or
governmental authority or agency is required for the consummation by
the Company of the transactions contemplated by this Agreement, the
Transaction Documents to which it is a party (other than as required
under "blue sky" or state securities laws, as to which no
representations and warranties are made by the Company), except such
as have been, or will have been prior to the applicable Closing Date,
obtained under the Act, and such recordations of the assignment of the
Trust Assets to the Trustee or Indenture Trustee, as applicable (to
the extent such recordations are required pursuant to the Transaction
Documents) that have not yet been completed.
(viii) There is no action, suit or proceeding before or by
any court, administrative or governmental agency now pending to which
the Company is a party, or to the best of the Company's knowledge
threatened against the Company, which could reasonably result
individually or in the aggregate in any material adverse change in the
condition (financial or otherwise), earnings, affairs, regulatory
situation or business prospects of the Company or could reasonably
interfere with or materially and adversely affect the consummation of
the transactions contemplated in the related Transaction Documents or
this Agreement.
(ix) At the time of execution and delivery of the
Transaction Documents for the related Series of Offered Securities,
(1) the Company will own the Trust Assets being transferred to the
Trust pursuant thereto, free and clear of any lien, mortgage, pledge,
charge, encumbrance, adverse claim or other security interest
(collectively, "Liens"), except to the extent permitted in the
applicable Transaction Documents, and will not have assigned to any
person other than the Trust any of its right, title or interest, in
the Trust Assets, (2) the Company will have the power and authority to
transfer the Trust Assets to the Trust and to transfer the Offered
Securities of the related Series to the Underwriters, and (3) upon
execution and delivery of the related Transaction Documents, and
delivery of the related Offered Securities to the Company, the Trust
will own the Trust Assets free of Liens other than Liens permitted or
created by the applicable Transaction Documents or created or granted
by the Underwriters and (4) upon payment and delivery of the Offered
Securities of the related Series to the Underwriters, the Underwriters
will acquire ownership of such Offered Securities, free of Liens other
than Liens created or granted by the Underwriters.
(x) Any taxes, fees and other governmental charges in
connection with the execution, delivery and issuance of this
Agreement, the applicable Transaction Documents and the Offered
Securities of the applicable Series have been or will be paid by the
Company at or prior to the applicable Closing Date, except for fees
for recording assignments of the Trust Assets to the Trustee or
Indenture Trustee, as applicable, pursuant to the applicable
Transaction Documents that have not yet been completed, which fees
will be paid by or on behalf of the Company in accordance with the
applicable Transaction Documents.
(xi) The Master Servicer or any subservicer who will be
servicing any Trust Assets pursuant to the applicable Transaction
Documents is qualified to do business in all jurisdictions in which
its activities as servicer or subservicer of the Trust Assets serviced
by it require such qualification except where failure to be so
qualified will not have a material adverse effect on such servicing
activities.
(xii) The Company is not doing business with Cuba.
(xiii) The Company possesses all material licenses,
certificates, authorities or permits issued by the appropriate state,
federal or foreign regulatory agencies or bodies necessary to conduct
the business now operated by it and as described in the related
Prospectus and the Company has received no notice of proceedings
relating to the revocation or modification of any such license,
certificate, authority or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would
materially and adversely affect the business, operations, financial
condition or earnings of the Company.
(xiv) If the Offered Securities of the applicable Series
include Notes, at or prior to the related Closing Date, the Trust will
have entered into the related Indenture, Trust Agreement and any
Insurance Agreement, if any, and, assuming the due authorization,
execution and delivery thereof by the other parties thereto, such
Indenture, such Trust Agreement and such Insurance Agreement (on such
Closing Date) will constitute the valid and binding agreement of the
Trust enforceable in accordance with its terms, subject, as to
enforceability, to bankruptcy, insolvency, reorganization or other
similar laws affecting creditors' rights and to general principles of
equity (regardless of whether the enforceability of such Indenture,
such Trust Agreement or such Insurance Agreement is considered in a
proceeding in equity or at law).
(xv) Neither the Company, the Trust nor any funds or
accounts established thereunder is an "investment company" (as defined
in the Investment Company Act of 1940, as amended (the "1940 Act")) or
is under the "control" (as such term is defined in the 1940 Act) of an
"investment company" that is registered or required to be registered
under, or is otherwise subject to the provisions of, the 1940 Act.
(xvi) If the Offered Securities of the applicable Series
includes Notes, the Indenture has been qualified under the TIA.
2. Purchase and Sale. Subject to the execution of the Terms Agreement
-----------------
for a particular Offering and subject to the terms and conditions and in
reliance upon the representations and warranties set forth in this Agreement and
such Terms Agreement, the Company agrees to sell to each Underwriter, severally
and not jointly, and each Underwriter, severally and not jointly, agrees to
purchase from the Company, the respective original principal amounts of the
related Offered Securities set forth in the related Terms Agreement opposite the
name of such Underwriter, plus any additional original principal amount of
Offered Securities which such Underwriter may be obligated to purchase pursuant
to Section 13 hereof, at the purchase price therefor set forth in such Terms
Agreement (the "Purchase Price").
The parties hereto agree that settlement for all securities sold
pursuant to this Agreement shall take place on the terms set forth herein and
not as set forth in Rule 15c6-l(a) under the Exchange Act.
3. Delivery and Payment. Delivery of and payment for the Offered
--------------------
Securities of a Series shall be made at the offices of Brown & Wood LLP, One
World Trade Center, New York, New York 10048 at 10:00 a.m. New York City time,
on the Closing Date specified in the related Terms Agreement, which date and
time may be postponed by agreement between the Underwriters and the Company
(such date and time being herein called the "Closing Date"). Delivery of such
Offered Securities shall be made to the Underwriters against payment by the
Underwriters of the Purchase Price thereof to or upon the order of the Company
by wire transfer in federal or other immediately available funds. Unless
delivery is made through the facilities of The Depository Trust Company, the
Offered Securities shall be registered in such names and in such authorized
denominations as the Underwriters may request not less than two full business
days in advance of the applicable Closing Date.
The Company agrees to notify the Underwriters at least two business
days before the applicable Closing Date of the exact principal balance evidenced
by the Offered Securities and to have such Offered Securities available for
inspection, checking and packaging in New York, New York, no later than 12:00
noon on the business day prior to such Closing Date.
4. Offering by the Underwriters. It is understood that the Underwriters
----------------------------
propose to offer the Offered Securities of the related Series for sale to the
public as set forth in the related Prospectus and that the Underwriters will not
offer, sell or otherwise distribute such Offered Securities (except for the sale
thereof in exempt transactions) in any state in which such Offered Securities
are not exempt from registration under "blue sky" or state securities laws
(except where such Offered Securities will have been qualified for offering and
sale at the Representatives direction under such "blue sky" or state securities
laws).
5. Agreements. The Company agrees with each Underwriter that:
----------
(a) The Company will cause each of the Preliminary Prospectus and
the Prospectus relating to the Offered Securities of the applicable Series
to be filed in compliance with Rule 424 under the Act and, if necessary,
within 15 days of the applicable Closing Date, will file a report on Form
8-K setting forth specific information concerning the Trust Assets and will
promptly advise each Underwriter when such Preliminary Prospectus and such
Prospectus as so supplemented have been so filed, and prior to the
termination of the Offering to which such Preliminary Prospectus and
Prospectus relate also will promptly advise each Underwriter (i) when any
amendment to the related Registration Statement specifically relating to
such Offered Securities shall have become effective or any further
supplement to such Preliminary Prospectus or such Final Prospectus has been
filed, (ii) of any request by the Commission for any amendment of such
Registration Statement, Preliminary Prospectus or Prospectus or for any
additional information, (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of such Registration Statement or the
institution or threatening of any proceeding for that purpose and (iv) of
the receipt by the Company of any written notification with respect to the
suspension of the qualification of such Offered Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose. The Company will not file any amendment of the related
Registration Statement or supplement to the related Preliminary Prospectus
or Prospectus (other than any amendment or supplement specifically relating
to one or more Series of asset-backed securities other than the Series that
includes the related Offered Securities) unless (i) the Company has given
reasonable notice to the Underwriters of its intention to file any such
amendment or supplement, (ii) the Company has furnished the Underwriters
with a copy for their review within a reasonable time prior to filing, and
(iii) the Underwriters do not reasonably object to the filing of such
amendment or supplement. The Company will use its best efforts to prevent
the issuance of any such stop order and, if issued, to obtain as soon as
possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Offered
Securities of the applicable Series is required to be delivered under the
Act, any event occurs as a result of which the related Prospectus as then
amended or supplemented would include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, or if it shall be necessary at
any time to amend or supplement the related Prospectus to comply with the
Act, the TIA or the rules thereunder, the Company promptly will prepare and
file with the Commission, subject to paragraph (a) of this Section 5, an
amendment or supplement which will correct such statement or omission or an
amendment which will effect such compliance.
(c) The Company will furnish to each Underwriter and counsel for
the Underwriters, without charge, as many conformed copies of the related
Registration Statement (including exhibits thereto) and, so long as
delivery of a prospectus by the Underwriters or a dealer may be required by
the Act, as many copies of the related Preliminary Prospectus and the
related Prospectus and any supplements thereto, as the Underwriters may
reasonably request.
(d) The Company will, as between itself and the Underwriters, pay
all expenses incidental to the performance of its obligations under this
Agreement, including without limitation (i) expenses of preparing, printing
and reproducing the related Registration Statement, the related Preliminary
Prospectus, the related Prospectus, the Transaction Documents and the
Offered Securities, (ii) the cost of delivering the Offered Securities of
the applicable Series to the Underwriters, insured to the reasonable
satisfaction of the Underwriters, (iii) the fees charged by securities
rating services for rating the Offered Securities of the applicable Series,
(iv) the fees and expenses of the Trustee, the Owner Trustee and/or the
Indenture Trustee, as applicable, except for fees and expenses of their
respective counsel which will be borne by them and (v) all other costs and
expenses incidental to the performance by the Company of the Company's
obligations hereunder which are not otherwise specifically provided for in
this subsection. It is understood that, except as provided in this
paragraph (d) and in Section 9 hereof, each Underwriter will pay all of its
own expenses, including (i) the fees of any counsel to such Underwriter,
(ii) any transfer taxes on resale of any of the Offered Securities by it,
(iii) any advertising expenses connected with any offers that such
Underwriter may make and (iv) any expenses for the qualification of the
Offered Securities of the applicable Series under "blue sky" or state
securities laws, including filing fees and the fee and disbursements of
counsel in connection therewith and in connection with the preparation of
any Blue Sky Survey.
(e) So long as any Offered Securities of the applicable Series
are outstanding, upon request of any Underwriter, the Company will, or will
cause the Master Servicer to, furnish to such Underwriter, as soon as
available, a copy of (i) the annual statement of compliance delivered by
the Master Servicer pursuant to the applicable Transaction Document, (ii)
the annual independent public accountants' servicing report furnished
pursuant to the applicable Transaction Document, (iii) each report of the
Company regarding the Offered Securities of the applicable Series filed
with the Commission under the Exchange Act or mailed to the holders of such
Offered Securities and (iv) from time to time, such other information
concerning such Offered Securities which may be furnished by the Company or
the Master Servicer without undue expense and without violation of
applicable law.
(f) The Company will furnish such information, execute such
instruments and take such actions as may be reasonably requested by the
Underwriters to qualify the Offered Securities of a Series for sale under
the laws of such jurisdictions as the Underwriters may designate, to
maintain such qualifications in effect so long as required for the
distribution of such Offered Securities and to determine the legality of
such Offered Securities for purchase by investors; provided, however, that
the Company shall not be required to qualify to do business in any
jurisdiction where it is not qualified on the date of the related Terms
Agreement or to take any action which would subject it to general or
unlimited service of process or corporate or franchise taxation as a
foreign corporation in any jurisdiction in which it is not, on the date of
the related Terms Agreement, subject to such service of process or such
taxation.
(g) The Company will cause any Computational Materials,
Structural Term Sheets and Collateral Term Sheets (each as defined in
Section 9 below) with respect to the Offered Securities of a Series that
are delivered by an Underwriter to the Company pursuant to Section 8 to be
filed with the Commission on Form 8-K pursuant to Rule 13a-11 under the
Exchange Act in accordance with the No Action Letters.
(h) The Company will timely file all reports with respect to the
Trust required to be filed under the Exchange Act, as such requirements may
be modified by any No-Action relief granted to the Company.
6. Conditions to the Obligations of the Underwriters. The several
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obligations of the Underwriters to purchase the Offered Securities of any Series
shall be subject to the accuracy in all material respects of the representations
and warranties on the part of the Company contained in this Agreement, as of the
date of the applicable Terms Agreement and the related Closing Date, to the
accuracy of the statements of the Company made in any applicable officers'
certificates pursuant to the provisions hereof, to the performance by the
Company of its obligations under this Agreement and the applicable Transaction
Documents and to the following additional conditions applicable to the related
Offering:
(a) No stop order suspending the effectiveness of the related
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or threatened and the related Prospectus
shall have been filed or mailed for filing with the Commission not later
than required pursuant to the rules and regulations of the Commission.
(b) The Company shall have furnished to the Underwriters a
certificate, dated the related Closing Date, of the Company, signed by a
vice president of the Company, to the effect that the signer of such
certificate has carefully examined the related Registration Statement, the
related Prospectus and this Agreement and that:
(i) The representations and warranties of the Company herein
are true and correct in all material respects on and as of such
Closing Date with the same effect as if made on such Closing Date, and
the Company has complied with all agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to
such Closing Date;
(ii) No stop order suspending the effectiveness of the
related Registration Statement has been issued, and no proceedings for
that purpose have been instituted and are pending or, to his
knowledge, have been threatened as of such Closing Date; and
(iii) Nothing has come to the attention of such person that
would lead him to believe that the related Prospectus (other than any
Current Report incorporated by reference therein) contains any untrue
statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(c) The Seller shall have furnished to the Underwriters a
certificate, dated the related Closing Date, of the Seller, signed by a
vice president or an assistant vice president of the Seller, to the effect
that (i) the signer of such certificate has carefully examined the related
Prospectus and nothing has come to the attention of such person that would
lead him to believe that such Prospectus contains any untrue statement of a
material fact with respect to the Seller or omits to state any material
fact with respect to the Seller or the Trust Assets necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading and (ii) the Seller has complied with all
agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to such Closing Date under this Agreement and the
Transaction Documents to which it is a party.
(d) The Company shall have furnished to you an opinion, dated the
related Closing Date, of Brown & Wood LLP, special counsel to the Company,
to the effect that:
(i) The related Registration Statement and any amendments
thereto have become effective under the Act; to the best knowledge of
such counsel, no stop order suspending the effectiveness of such
Registration Statement has been issued and not withdrawn, no
proceedings for that purpose have been instituted or threatened and
not terminated; and such Registration Statement, the related
Prospectus and each amendment or supplement thereto, as of their
respective effective or issue dates (other than the financial and
statistical information contained therein as to which such counsel
need express no opinion), complied as to form in all material respects
with the applicable requirements of the Act and the rules and
regulations thereunder and, if the applicable Series of Offered
Securities includes Notes, with the requirements of the TIA and the
rules and regulations thereunder;
(ii) To the best knowledge of such counsel, there are no
material contracts, indentures or other documents of a character
required to be described or referred to in the related Registration
Statement or the related Prospectus or to be filed as exhibits to such
Registration Statement other than those described or referred to
therein or filed or incorporated by reference as exhibits thereto;
(iii) Assuming that this Agreement and each Transaction
Document to which the Company and/or the Seller is a party have each
been duly authorized, executed and delivered by the parties thereto,
each constitutes a valid, legal and binding agreement of the Company
and the Seller, as applicable, enforceable against the Company or the
Seller in accordance with its terms, subject, as to enforceability to
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and to general principles
of equity regardless of whether enforcement is sought in a proceeding
in equity or at law; and subject to limitations of public policy under
applicable securities laws as to rights of indemnity and contribution
thereunder;
(iv) Assuming that the Offered Securities of the applicable
Series have been duly and validly authorized, executed and
authenticated in the manner contemplated in relevant Transaction
Document, when delivered and paid for by the Underwriters as provided
in this Agreement, such Offered Securities will be validly issued and
outstanding and entitled to the benefits of the related Transaction
Documents and, if such Offered Securities include Notes, such Notes
will constitute the valid, legal and binding obligation of the Trust,
enforceable against the Trust in accordance with their terms subject,
as to enforceability, to bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally
and to general principals of equity regardless of whether enforcement
is sought in a proceeding in equity or at law;
(v) The Offered Securities of the related Series and the
related Transaction Documents conform to the descriptions thereof
contained in the related Prospectus;
(vi) The statements in the related Prospectus and the
Prospectus Supplement, as the case may be, under the headings "Certain
Federal Income Tax Consequences," "ERISA Considerations" and "Legal
Investment," to the extent that they constitute matters of New York or
federal law or legal conclusions with respect thereto, have been
reviewed by such counsel and are correct in all material respects;
(vii) The Offered Securities, if any, indicated under the
heading "Summary of Terms--Legal Investment" in the related Prospectus
Supplement to be "mortgage related securities" will be mortgage
related securities, as defined in Section 3(a)(41) of the Exchange
Act, so long as such Offered Securities are rated in one of the two
highest rating categories by at least one nationally recognized
statistical rating organization;
(viii) Either (a) the Pooling and Servicing Agreement is not
required to be or (b) the Indenture has been, duly qualified under the
TIA, and, in either case, the Trust is not required to be registered
under the Investment Company Act of 1940, as amended;
(ix) If one or more "real estate mortgage investment
conduit" ("REMIC") elections are indicated in the related Prospectus
Supplement, the Trust as described in such Prospectus Supplement will
qualify as a REMIC within the meaning of Section 860D of the Internal
Revenue Code of 1986, as amended (the "Code") and the indicated
Classes of such Securities will be considered "regular interests" in
the REMIC, assuming: (i) an election is made to treat the Trust as a
REMIC, (ii) compliance with the applicable Transaction Documents and
(iii) compliance with changes in the law, including any amendments to
the Code or applicable Treasury regulations thereunder; and
(x) If the related Prospectus Supplement indicates that one
or more Classes of Offered Securities are to be treated as debt of the
Trust for federal income tax purposes, such Classes will be treated as
debt for federal income tax purposes and the Trust will not be
considered to be a publicly traded partnership or a taxable mortgage
pool.
Such counsel shall also state that nothing has come to its
attention that would lead such counsel to believe that the related Registration
Statement, at the time it became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or that the related
Prospectus, as of the date of the related Prospectus Supplement, and on the
related Closing Date, contained or contains an untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; it being understood that such counsel need express no view
as to (i) financial and statistical information contained therein or (ii) any
description in such Prospectus of any Securities Insurer with respect to the
related Offered Securities.
Such opinion may express its reliance as to factual matters on
the representations and warranties made by, and on certificates or other
documents furnished by officers of, the parties to this Agreement and the
applicable Transaction Documents. Such opinion may be qualified as an opinion
only on the laws of the State of New York and the federal law of the United
States. To the extent that such firm relies upon the opinion of other counsel in
rendering any portion of its opinion, the opinion of such other counsel shall be
attached to and delivered with the opinion of such firm that is delivered to
you.
(e) The Company shall have furnished to the Underwriters an
opinion, dated the related Closing Date, of counsel to the Company (who may
be an employee of the Company or of an affiliate of the Company), to the
effect that:
(i) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State
of Delaware and is duly qualified to do business in, and is in good
standing as a foreign corporation under the laws of, the State of
California.
(ii) The Offered Securities of the applicable Series have
been duly authorized and executed and, assuming authentication and
delivery in the manner contemplated in the relevant Transaction
Document, are validly issued and outstanding, and upon delivery by the
Company of the Offered Securities to be purchased by the Underwriters
and payment by the Underwriters of the purchase price therefor in the
manner contemplated by this Agreement, the Underwriters will acquire
such Offered Securities free and clear of any lien, pledge,
encumbrance or other security interest other than one created or
granted by any Underwriter;
(iii) Each Transaction Document to which the Company is a
party has been duly authorized, executed and delivered by the Company;
(iv) This Agreement has been duly authorized, executed and
delivered by the Company;
(v) No consent, approval, authorization or order of any
California, Delaware or federal governmental agency or body or any
California, Delaware or federal court is required for the consummation
by the Company of the transactions contemplated by the terms of this
Agreement or the Transaction Documents to which the Company is a party
except such as may be required under the "blue sky" or state
securities laws of any jurisdiction in connection with the offering,
sale or acquisition of the related Offered Securities, any
recordations of the assignment of the Trust Assets to the Trustee or
the Indenture Trustee, as applicable (to the extent such recordations
are required pursuant to the Transaction Documents) that have not yet
been completed and such other approvals as have been obtained;
(vi) The sale of the Offered Securities to be purchased by
the Underwriters pursuant to this Agreement and the consummation of
any of the transactions contemplated by the terms of the Transaction
Documents or this Agreement do not conflict with or result in a breach
or violation of any material term or provision of, or constitute a
default under, the certificate of incorporation of the Company, or any
indenture or other agreement or instrument to which the Company is a
party or by which it is bound, or any California, Delaware or federal
statute or regulation applicable to the Company or an order of any
California, Delaware or federal court, regulatory body, administrative
agency or governmental body having jurisdiction over the Company; and
(vii) There are no legal or governmental actions,
investigations or proceedings pending to which the Company is a party,
or, to the best knowledge of such counsel, threatened against the
Company, (A) asserting the invalidity of this Agreement, the
Transaction Documents or the Offered Securities, (B) seeking to
prevent the issuance of the Offered Securities or the consummation of
any of the transactions contemplated by this Agreement or the
Transaction Documents, (C) which might materially and adversely affect
the performance by the Company of its obligations under, or the
validity or enforceability of, this Agreement, the Transaction
Documents or the Offered Securities or (D) seeking to affect adversely
the Federal income tax attributes of the Offered Securities as
described in the related Prospectus under the heading "Certain Federal
Income Tax Consequences." For purposes of the foregoing, such counsel
may state that it has not regarded any legal or governmental actions,
investigations or proceedings to be "threatened" unless the potential
litigant or governmental authority has manifested to the legal
department of the Company a present intention to initiate such
proceedings.
Such opinion may express its reliance as to factual matters on
the representations and warranties made by, and on certificates or other
documents furnished by officers of, the parties to this Agreement and the
Transaction Documents. Such opinion may assume the due authorization, execution
and delivery of the instruments and documents referred to therein by the parties
thereto other than the Company or its affiliates. Such opinion may be qualified
as an opinion only on the laws of the States of Delaware and California and the
federal law of the United States. To the extent that such counsel relies upon
the opinion of other counsel in rendering any portion of its opinion, the
opinion of such other counsel shall be attached to and delivered with the
opinion of such counsel that is delivered to the Underwriters.
(f) The Seller shall have furnished to the Underwriters an
opinion, dated the related Closing Date, of counsel to the Seller (who may
be an employee of the Seller), to the effect that:
(i) The Seller has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the state
of its incorporation (the "Incorporation State");
(ii) This Agreement and the Transaction Documents to which
the Seller is a party have each been duly authorized, executed and
delivered by the Seller;
(iii) No consent, approval, authorization or order of any
Incorporation State or federal court or governmental agency or body is
required for the consummation by the Seller of the transactions
contemplated by the terms of this Agreement, or the Transaction
Documents except any such as may be required under the "blue sky" or
state securities laws of any jurisdiction in connection with the
offering, sale or acquisition of the Offered Securities, any
recordations of the assignment of the Trust Assets to the Trustee or
the Indenture Trustee, as applicable, (to the extent such recordations
are required pursuant to the Transaction Documents) that have not yet
been completed and any approvals as have been obtained;
(iv) The consummation of any of the transactions
contemplated by the terms of this Agreement or the Transaction
Documents do not conflict with or result in a breach or violation of
any material term or provision of, or constitute a default under, the
charter or by-laws of the Seller, or, to the best knowledge of such
counsel, any indenture or other agreement or instrument to which the
Seller is a party or by which it is bound, any Incorporation State or
federal statute or regulation applicable to the Seller or any order of
any Incorporation State or federal court, regulatory body,
administrative agency or governmental body having jurisdiction over
the Seller; and
(v) There are no legal or governmental actions,
investigations or proceedings pending to which the Seller is a party,
or, to the best knowledge of such counsel, threatened against the
Seller, (A) asserting the invalidity of this Agreement or the
Transaction Documents or (B) which might materially and adversely
affect the performance by the Seller of its obligations under, or the
validity or enforceability of, this Agreement or the Transaction
Documents. For purposes of the foregoing, such counsel may state that
it has not regarded any legal or governmental actions, investigations
or proceedings to be "threatened" unless the potential litigant or
governmental authority has manifested to the legal department of the
Seller a present intention to initiate such proceedings.
Such opinion may express its reliance as to factual matters on
the representations and warranties made by, and on certificates or other
documents furnished by officers of, the parties to the Transaction Documents.
Such opinion may assume the due authorization, execution and delivery of the
instruments and documents referred to therein by the parties thereto other than
the Seller. Such opinion may be qualified as an opinion only on the laws of the
Incorporation State and the federal law of the United States. To the extent that
such counsel relies upon the opinion of other counsel in rendering any portion
of its opinion, the opinion of such other counsel shall be attached to and
delivered with the opinion of such counsel that is delivered to the
Underwriters.
(g) Each party providing credit enhancement to the Offered
Securities shall have furnished to the Underwriters an opinion, dated the
related Closing Date, of its counsel, with respect to the related
Registration Statement and the related Prospectus, and such other related
matters, in the form previously agreed to by such provider and the
Underwriters.
(h) The Underwriters shall have received from their counsel such
opinion or opinions, dated the related Closing Date, with respect to the
issuance and sale of the Offered Securities, the related Registration
Statement and the related Prospectus, and such other related matters as the
Underwriters may reasonably require.
(i) The Company's independent accountants, Deloitte & Touche LLP,
and Grant Thornton shall each have furnished to the Underwriters a letter
or letters addressed to the Underwriters and dated as of or prior to the
date of first use of the related Prospectus Supplement in the form and
reflecting the performance of the procedures previously agreed to by the
Company and the Underwriters.
(j) Subsequent to the date of the applicable Terms Agreement,
there shall not have occurred any change, or any development involving a
prospective change, in or affecting the business or properties of the
Company or any of its affiliates which in your reasonable judgment
materially impairs the investment quality of the related Offered Securities
so as to make it impractical or inadvisable to proceed with the public
offering or the delivery of the related Offered Securities as contemplated
by the related Prospectus.
(k) The Classes of Offered Securities of the applicable Series
shall be rated not lower than the required ratings set forth under the
heading "Ratings" in the Prospectus Supplement, such ratings shall not have
been rescinded and no public announcement shall have been made that any
such required rating of the Offered Securities has been placed under review
(otherwise than for possible upgrading).
(l) The Underwriters shall have received copies of any opinions
of counsel to the Company supplied to the rating organizations relating to
certain matters with respect to the related Offered Securities. Any such
opinions shall be dated the applicable Closing Date and addressed to the
Underwriters or accompanied by reliance letters addressed to the
Underwriters.
(m) All Classes of Offered Securities being publicly offered by
the Underwriters or privately placed an initial purchaser shall have been
issued and paid for pursuant to the terms of this Agreement and any related
purchase agreement, respectively.
(n) Counsel for each of the Trustee, the Owner Trustee and the
Indenture Trustee, as applicable shall have furnished to the Underwriters
an opinion, dated the related Closing Date, in form and substance that is
customary and reasonably acceptable to the Underwriters regarding certain
matters relating to each of the Trustee, the Owner Trustee and the
Indenture Trustee, as applicable.
In addition, counsel for the Owner Trustee shall furnish to the
Underwriters such opinions as to the treatment of the Trust for purposes of
state tax law where the Owner Trustee maintains possession of the Trust Assets
as are customary and reasonably satisfactory to the Underwriters.
(o) The Policy relating to the Offered Securities of the related
Series, if any, shall have been duly executed and issued prior to the
Closing Date, in form and substance that is customary and reasonably
satisfactory to the Underwriters, and shall conform in all respects to the
description thereof in the Prospectus.
(p) On or prior to the applicable Closing Date, there shall have
been no downgrading, nor shall any notice have been given of (i) any
intended or possible downgrading or (ii) any review or possible changes,
the direction of which has not been indicated, of the rating accorded and
originally requested by the Company relating to any previously issued
asset-backed securities of the Company by any "nationally recognized
statistical rating organization" (as such term is defined for purposes of
the Exchange Act).
(q) If applicable, on or prior to the Closing Date, there has
been no downgrading, nor shall any notice have been given of (i) any
intended or possible downgrading or (ii) any review or possible changes,
the direction of which has not been indicated, of the rating accorded the
Securities Insurer's claims paying ability by any "nationally recognized
statistical rating organization" (as such term is defined for purposes of
the Exchange Act).
(r) The Company shall have furnished to the Underwriters such
further information, certificates an documents as the Underwriters may
reasonably have requested, and all proceedings in connection with the
transactions contemplated by this Agreement and all documents incident
hereto shall be in all material respects reasonably satisfactory in form
and substance to the Underwriters and their counsel.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects with respect to the particular
Offered Securities of a Series when and as provided in this Agreement and the
related Terms Agreement, this Agreement (with respect to the related Offered
Securities) and the related Terms Agreement and all obligations of the
Underwriters hereunder (with respect to the related Offered Securities) and
thereunder may be canceled at, or at any time prior to, the related Closing Date
by the Underwriters. Notice of such cancellation shall be given to the Company
in writing, or by telephone or telegraph confirmed in writing.
7. Indemnification and Contribution. (a) The Company agrees to
--------------------------------
indemnify and hold harmless each Underwriter and each person who controls an
Underwriter within the meaning of either the Act or the Exchange Act against any
and all losses, claims, damages or liabilities, joint or several, to which they
may become subject under the Act, the Exchange Act, or other federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in the Company Prospectus Information or the Company Registration
Information or in any revision or amendment thereof or supplement thereto or
arise out of or are based upon the omission or alleged omission to state in the
Company Registration Information, the Company Prospectus Information or in any
revision or amendment thereof or supplement thereto a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, and agrees to
reimburse each such indemnified party for any legal or other expenses reasonably
incurred by it or him in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the Company
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shall not be liable to a particular Underwriter or any person who controls such
Underwriter to the extent that any misstatement or alleged misstatement or
omission or alleged omission was (i) made in reliance upon and in conformity
with the Underwriter Information of such Underwriter and (ii) in the case of the
Company Prospectus Information, to the extent that such misstatement or omission
was corrected and such Underwriter did not deliver, at or prior to the written
confirmation of such sale, a copy of the Prospectus as then revised, amended or
supplemented in any case where such delivery is required by the Act or the
Exchange Act, if the Company has previously furnished copies thereof to the
Underwriters in accordance with the terms of this Agreement. This indemnity
agreement will be in addition to any liability which the Company may otherwise
have.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, its officers who signed the applicable Registration
Statement or any amendment thereof, its directors, and each person who
controls the Company within the meaning of either the Act or the Exchange
Act, to the same extent as the foregoing indemnities from the Company to
each Underwriter; provided, however, that an Underwriter will be liable in
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any such case only to the extent that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon
and in conformity with the Underwriter Information of such Underwriter, and
provided, further, that any such omission or alleged omission relating to
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the Derived Information included in any Underwriter Information, pursuant
to the definitions thereof shall be determined by reading such Derived
Information in conjunction with the Prospectus as an integral document and
in light of the circumstances under which such statements in the Derived
Information and Prospectus were made. This indemnity agreement will be in
addition to any liability which any Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 7, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve the indemnifying party from any
liability which it may have to any indemnified party otherwise than under
this Section 7. In case any such action is brought against any indemnified
party and it notifies the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein, and to the
extent that it may elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified
party, to assume the defense thereof, with counsel satisfactory to such
indemnified party; provided, however, that if the defendants in any such
action include both the indemnified party and the indemnifying party and
the indemnified party or parties shall have reasonably concluded that there
may be legal defenses available to it or them and/or other indemnified
parties that are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right
to elect separate counsel to assert such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified
party or parties. Upon receipt of notice from the indemnifying party to
such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying
party will not be liable for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof,
unless (i) the indemnified party shall have employed separate counsel in
connection with the assertion of legal defenses in accordance with the
proviso to the next preceding sentence (it being understood, however, that
the indemnifying party shall not be liable for the expenses of more than
one separate counsel for each of, and approved by, the applicable
Underwriter, in the case of paragraph (a) of this Section 7, representing
the related indemnified parties under such paragraph (a) who are parties to
such action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action or
(iii) the indemnifying party has authorized the employment of counsel for
the indemnified party at the expense of the indemnifying party; and except
that, if clause (i) or (iii) is applicable, such liability shall only be in
respect of the counsel referred to in such clause (i) or (iii). No
indemnifying party shall, without the consent of the indemnified party,
effect any settlement of any pending or threatened proceeding in respect of
which any indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such proceeding.
(d) If the indemnification provided for in Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
Section 7 (a) or (b), then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in Section 7(a) or (b) above in
such proportion as is appropriate to reflect the following: (A) in the case
of any Underwriter which did not furnish Derived Information as provided in
Section 8 hereof (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Offered Securities or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions or alleged statements or
alleged omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations; or (B)
in the case of any Underwriter which did so furnish Derived Information,
(i) the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Offered Securities and
(ii) the relative fault of the Company on the one hand and the Underwriters
on the other in connection with the statements or omissions or alleged
statements or alleged omissions which resulted in such losses, claims,
damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one
hand and the Underwriters on the other shall be in such proportion so that
the Underwriters are responsible for an amount equal to the amount of the
loss multiplied by a fraction, the numerator of which is the Spread and the
denominator of which is the initial public offering price as set forth on
the Prospectus Supplement and the Company is responsible for the balance.
The relative benefits received by an Underwriter shall be the Spread of
such Underwriter, in the case of each Underwriter. The relative fault shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omissions or alleged
omission to state a material fact relates to information supplied by the
Company or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid by an indemnified party as a result
of the losses, claims, damages or liabilities referred to in the first
sentence of this Section 7(d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
Section 7(d). An Underwriter shall not be required to contribute any amount
in excess of (x) the applicable Spread over (y) the amount of any damages
which the applicable Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission; provided, however, that if the statements or omissions or alleged
-------- -------
statements or alleged omissions which resulted in contribution were
contained in or omitted from Derived Information filed on the Form 8-K, the
preceding limitation on contribution shall be inapplicable to the
Underwriter which furnished such Derived Information. The obligation of any
Underwriter to contribute under this Section 7(d) is several in proportion
to the applicable Spread. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) The obligations of the Company under this Section 7 shall be
in addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls an Underwriter within the meaning of the Act or the Exchange Act;
and the obligations of each Underwriter under this Section 7 shall be in
addition to any liability which such Underwriter may otherwise have and
shall have extended upon the same terms and conditions, to the officers of
the Company who signed the applicable Registration Statement or any
amendment thereof, to its directors, and to each person who controls the
Company within the meaning of either the Act or the Exchange Act.
8. Computational Materials, Structural Term Sheets or Collateral Term
------------------------------------------------------------------
Sheets. (a) Each Underwriter which has furnished Computational Materials,
- ------
Structural Term Sheets or Collateral Term Sheets to potential investors shall
furnish a copy thereof to Brown & Wood LLP no later than 3:00 p.m. New York City
time on the business day prior to the day on which such materials are required
to be filed with the Securities and Exchange Commission pursuant to the
No-Action Letters.
(b) Each Underwriter which has so furnished Computational
Materials, Structural Term Sheets or Collateral Term Sheets hereby
represents to the Company as to the materials it has furnished as follows:
(i) The Computational Materials, Structural Term Sheets or
Collateral Term Sheets so furnished by such Underwriter to the Company
for filing include all Computational Materials, Structural Term Sheets
or Collateral Term Sheets prepared by such Underwriter that are
required to be filed with the Securities and Exchange Commission
pursuant to the terms of the No-Action Letters and that such
Computational Materials, Structural Term Sheets or Collateral Term
Sheets comply with the conditions for the use thereof set forth in the
No-Action Letters.
(ii) Assuming the accuracy of the Seller Asset Information,
the Derived Information included in the Underwriter Information of
such Underwriter pursuant to the definitions thereof does not contain
an untrue statement of a material fact or, when read in conjunction
with the Prospectus as an integral document, omit to state a material
fact necessary to make such statements, in light of the circumstances
under which they were made, not misleading; provided, however, that
-------- -------
the Underwriter makes no representation that the Prospectus (exclusive
of such Derived Information and the Underwriter Information provided
by such Underwriter) does not include any untrue statements of a
material fact and does not omit to state any material facts necessary
to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
(iii) The Computational Materials, Structural Term Sheets or
Collateral Term Sheets contain customary legends regarding the
assumptions on which they are based and the absence of assurances or
representations as to the actual rate or timing of principal payments
or prepayments on any of the Trust Assets or the performance
characteristics of the Offered Securities, and a statement to the
effect that the Computational Materials, Structural Term Sheets or
Collateral Term Sheets were prepared by the applicable Underwriter in
reliance on information regarding the Trust Assets furnished by the
Seller or the Company
(iv) The Company did not participate in the preparation of
the Computational Materials, Structural Term Sheets or Collateral Term
Sheets other than by supplying the Seller Asset Information to the
Underwriter.
(c) At or prior to the time any Computational Materials,
Structural Term Sheets or Collateral Term Sheets are furnished to the
Company for filing on the Form 8-K, the Underwriter furnishing such
Computational Materials, Structural Term Sheets or Collateral Term Sheets
will provide to the Company and such Underwriter a letter, in form and
substance reasonably satisfactory to the Company and such Underwriter, of a
firm of independent public accountants of national reputation to the effect
that such accountants have performed certain specified procedures with
respect to such Computational Materials, Structural Term Sheets or
Collateral Term Sheets and have found no exceptions, other than such
exceptions as are acceptable to the Company and the Underwriter.
9. Certain Defined Terms. The following terms shall have the
---------------------
meanings set forth below, unless the context clearly indicates otherwise:
Collateral Term Sheets: As defined in the PSA Letter. The term
----------------------
"Collateral Term Sheet" as used herein includes any subsequent Collateral Term
Sheet that reflects a substantive change in the information presented from the
previous Collateral term sheet.
Computational Materials: Computer generated tables and/or charts
-----------------------
displaying, with respect to any Class or Classes of Offered Securities, any of
the following: yield; average life; duration; expected maturity; interest rate
sensitivity; loss sensitivity; cash flow characteristics; background information
regarding the Trust Assets; the proposed structure; decrement tables; or similar
information (tabular or otherwise) of a statistical, mathematical, tabular or
computational nature.
Company Prospectus Information: All information contained or
------------------------------
incorporated in the Prospectus other than the Underwriter Information.
Company Registration Information: All information contained or
--------------------------------
incorporated in the Registration Statement.
Derived Information: Any portion of information delivered to the
-------------------
Company by the Underwriters for inclusion in the Form 8-K that: (i) is not
contained in the Prospectus without taking into account information incorporated
therein by reference; (ii) does not constitute Seller Asset Information; and
(iii) is of the type of information defined as Collateral Term Sheets,
Structural Term Sheets or Computational Materials.
Form 8-K: The Current Report on Form 8-K, if any, filed by or on
--------
behalf of the Company with respect to the Trust Assets and including any Derived
Information furnished by one or more of the Underwriters
Kidder Letter: The May 17, 1994 letter of Brown & Wood on behalf
-------------
of Kidder, Peabody & Co. Inc. (which letter, and the SEC staff's response
thereto, were publicly available May 20, 1994).
No-Action Letters: The PSA Letter and the Kidder Letter.
-----------------
PSA Letter: The letter dated February 13, 1995 of Cleary,
----------
Gottlieb, Steen & Hamilton on behalf of the Public Securities Association (which
letter, and the SEC's response thereto, were publicly available on February 17,
1995).
Seller Asset Information: Information relating to the Trust
------------------------
Assets furnished by the Seller to any Underwriter upon which the mathematical
calculations reflected in the Computational Materials, Structural Term Sheets or
Collateral Term Sheets of such Underwriter are based.
Spread: As to any Underwriter, the underwriting discount set
------
forth on the cover of the applicable Prospectus Supplement.
Structural Term Sheets: As defined in the PSA Letter.
----------------------
Underwriter Information: As to any Underwriter, the only written
-----------------------
information furnished by or on behalf of such Underwriter to the Company
specifically for use in connection with the preparation of the related
Registration Statement or the Prospectus, such information being (i) the
information relating to such Underwriter set forth in the Prospectus Supplement
in the last paragraph of the cover page thereof and under the caption "Method of
Distribution" therein and (ii) any Derived Information prepared by such
Underwriter, furnished to the Company and included in the Form 8-K; provided,
however, that such Derived Information shall not include any Seller Asset
Information or any errors in the mathematical calculations reflected in such
Derived Information to the extent such errors result from such Seller Asset
Information.
10. Termination. This Agreement (with respect to a particular
-----------
Offering) and the related Terms Agreement shall be subject to termination in the
absolute discretion of the Underwriters, by notice given to the Company prior to
delivery of and payment for the related Offered Securities, if prior to the
related Closing Date (i) trading in securities generally on the New York Stock
Exchange shall have been suspended or materially limited, (ii) a general
moratorium on commercial banking activities in New York shall have been declared
by either federal or New York State authorities, or (iii) there shall have
occurred any outbreak or material escalation of hostilities or other calamity or
crisis the effect of which on the financial markets of the United States is such
as to make it, in the reasonable judgment of the Underwriters, impracticable to
market such Offered Securities.
11. Representations and Indemnities to Survive Delivery. The
---------------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Company, or its officers and of each Underwriter set forth in or made pursuant
to this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriters or the Company, or any of
the officers, directors or controlling persons referred to in Section 7 hereof,
and will survive delivery of and payment for the related Offered Securities. The
provisions of Section 7 hereof shall survive the termination or cancellation of
this Agreement. 12. Default by One or More of the Underwriters. If one or more
of the Underwriters shall fail on the applicable Closing Date to purchase the
Offered Securities which it or they are obligated to purchase hereunder and
under the applicable Terms Agreement (the "Defaulted Securities"), you shall
have the right, within 24 hours thereafter, to make arrangements for one or more
of the non-defaulting Underwriters, or any other underwriters, to purchase all,
but not less than all, of the Defaulted Securities in such amounts as may be
agreed upon and upon the terms set forth herein and in the applicable Terms
Agreement. If, however, you have not completed such arrangements within such
24-hour period, then:
(a) if the aggregate original principal balance of Defaulted
Securities does not exceed 10% of the aggregate original principal balance
of the Offered Securities to be purchased pursuant to such Terms Agreement,
the non-defaulting Underwriters named in such Terms Agreement shall be
obligated to purchase the full amount thereof in the proportions that their
respective underwriting obligations thereunder bear to the underwriting
obligations of all non-defaulting Underwriters; and
(b) if the aggregate original principal balance of Defaulted
Securities exceeds 10% of the aggregate original principal balance of the
Offered Securities to be purchased pursuant to such Terms Agreement, the
applicable Terms Agreement shall terminate without any liability on the
part of any non-defaulting Underwriter.
No action taken pursuant to this Section 12 and nothing in this
Agreement shall relieve any defaulting Underwriter from liability in respect of
its default.
In the event of any such default which does not result in a
termination of this Agreement either you or the Company shall have the right to
postpone the Closing Date for a period of time not exceeding seven days in order
to effect any required changes in the Registration Statement or in any other
documents or arrangements.
13. Reimbursement of Underwriter Expenses If for any reason other than
-------------------------------------
default by an Underwriter in its obligation to purchase the Offered Securities
or termination by an Underwriter pursuant to Section 10 hereof, the Offered
Securities are not delivered by or on behalf of the Company as provided herein,
the Company will reimburse each Underwriter for all out-of-pocket expenses of
such Underwriter, including reasonable fees and disbursements of its counsel,
reasonably incurred by such Underwriter in making preparations for the purchase,
sale and delivery of the Offered Securities, but the Company shall then be under
no further liability to any Underwriter with respect to the Offered Securities,
except as provided in Section 5(d) hereof.
14. Seller Obligation. The Seller agrees with each Underwriter, for
-----------------
the sole and exclusive benefit of such Underwriter and each person who controls
an Underwriter within the meaning of either the Act or the Exchange Act and not
for the benefit of any assignee thereof or any other person or persons dealing
with such Underwriter, to indemnify and hold harmless each Underwriter and each
person who controls each Underwriter within the meaning of either the Act or the
Exchange Act against any failure by the Company to perform any of its
obligations under this Agreement. The Seller agrees that there are no conditions
precedent to the obligations of the Seller hereunder other than written demand
to the Company to perform its obligations under this Agreement.
15. Successors. This Agreement will inure to the benefit of and be
----------
binding upon the parties hereto and thereto and their respective successors and
the officers, directors and controlling persons referred to in Section 7 hereof,
and their successors and assigns, and no other person will have any right or
obligation hereunder or thereunder. No purchaser of any Offered Security from
the Underwriters shall be deemed a successor or assign by reason of such
purchase.
16. APPLICABLE LAW. THIS AGREEMENT AND THE RELATED TERMS AGREEMENT
--------------
WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED THEREIN.
17. Miscellaneous. (a) This Agreement supersedes all prior and
-------------
contemporaneous agreements and understandings relating to the subject matter
hereof. This Agreement or any term of this Agreement may not be changed, waived,
discharged or terminated except by an affirmative written agreement made by the
party against whom enforcement of the change, waiver, discharge or termination
is sought. The headings in this Agreement are for purposes of reference only and
shall not limit or otherwise affect the meaning hereof or thereof. This
Agreement and any Terms Agreement may be executed in counterparts, each of which
shall be an original, all of which, taken together, shall constitute one and the
same instrument.
(b) Any costs and expenses incurred in connection with the
qualification of any of the Offered Securities under the "blue sky" or
securities laws of any state shall be paid by the Underwriter requesting
such action. Unless otherwise agreed to among the Underwriters, any
advertising or "tombstone" expenses shall be paid by the Underwriter
incurring the same. Each Underwriter shall be responsible for all costs and
expenses incurred by it in connection with the purchase and sale of the
Offered Securities.
(c) If an Underwriter fails to provide the Company with original
issue discount ("OID") calculations within five business days after the
applicable Closing Date for any Offered Securities purchased by such
Underwriter, such Underwriter agrees to reimburse the Trust for any
penalties actually incurred by the Trust resulting from the failure of the
Trust to legend the Offered Securities with OID information or for any
delay in legending, as well as for any other penalties actually imposed on
the Trust resulting from not having the OID information or for having such
information late.
18. Notices. All communications hereunder shall be in writing and
-------
effective only on receipt and, if sent to an Underwriter, shall be delivered to
the address specified on the signature page hereof, or if sent to the Company or
the Seller, shall be delivered to 155 North Lake Avenue., Pasadena CA 91101
attention of General Counsel.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the undersigned a counterpart hereof,
whereupon this letter and your acceptance shall represent a binding agreement
among the Company, the Seller and the Underwriters.
Very truly yours,
INDYMAC ABS, INC.
By: ________________________________
Name:
Title:
INDYMAC, INC.
By: ________________________________
Name:
Title:
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above written.
_________________________________
as Representative of
the several Underwriters
By: ________________________________
Name:
Title:
Address:
<PAGE>
EXHIBIT A
INDYMAC ABS, INC.
ASSET-BACKED SECURITIES
TERMS AGREEMENT
(to Underwriting Agreement,
dated __________________
among the Company, INDYMAC, Inc. and the Representative)
IndyMac ABS, Inc. _______, 199_
155 North Lake Avenue
Pasadena, CA 91101
This letter supplements and modifies the captioned Underwriting
Agreement (the "Underwriting Agreement") with respect to the Series _-_
Securities solely as it relates to the purchase and sale of the Offered
Securities described below. The Series _-_ Securities are registered with the
Securities and Exchange Commission by means of an effective Registration
Statement (No. ). Capitalized terms used and not defined herein have the
meanings given them in the Underwriting Agreement.
Section 1. The Trust Assets: The Trust Assets for the Series -_
----------------
Securities shall consist of [HELs, Hils or Contracts] having the characteristics
described in the Prospectus Supplement dated the date hereof.
Section 2. The Securities: The Offered Securities shall be issued
--------------
as follows:
(a) Classes: The Offered Securities shall be issued with the
-------
following Class designations, interest rates and principal balances,
subject in the aggregate to the variance referred to in the Prospectus:
Principal Interest Class Purchase
Class Balance Rate Price Percentage
----- --------- -------- ----------------
Each of the Underwriters agrees, severally and not jointly, subject to
the terms and provisions herein and of the captioned Underwriting Agreement, to
purchase the principal balances of the Classes of Series -_ Securities specified
opposite its name below.
Class Underwriter Underwriter Underwriter Underwriter
- ----- ----------- ----------- ----------- -----------
(b) The Offered Securities shall have such other characteristics
as described in the related Prospectus.
Section 3. Purchase Price: The Purchase Price for each Class of
--------------
the Offered Securities shall be the Class Purchase Price Percentage therefor (as
set forth in Section 2(a) above) of the initial class principal balance thereof
plus accrued interest at the applicable interest rate per annum of each such
Class from and including the Cut-off Date up to, but not including, (the
"Closing Date").
Section 4. Securities Insurer:
------------------
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the undersigned a counterpart hereof,
whereupon this letter and your acceptance shall represent a binding agreement
between the Underwriters and the Company.
Very truly yours,
---------------------------------
as Representative of the several
Underwriters
By: ______________________________
Name:
Title:
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above written.
INDYMAC ABS, INC.
By: _________________________
Name:
Title:
ACKNOWLEDGED BY:
INDYMAC, INC.
By: _________________________
Name:
Title:
Exhibit 5.1
[BROWN & WOOD LLP]
July 17, 1998
IndyMac ABS, Inc.
155 North Lake Avenue
Pasadena, CA 91101
Re: IndyMac ABS, Inc.
Registration Statement on Form S-3
File No. 333-51609
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 and adopted.
In rendering the foregoing opinions, we express no opinion as to the
laws of any jurisdiction other than Delaware General Corporation Law, 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
