<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration File No.: 333-47158
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED NOVEMBER 13, 2000
$450,000,100
(Approximate)
INDYMAC ABS, INC.
Depositor
[GRAPHIC OMITTED]
INDYMAC BANK
Seller and Master Servicer
HOME EQUITY MORTGAGE LOAN ASSET-BACKED TRUST,
SERIES SPMD 2000-C
Issuer
DISTRIBUTIONS PAYABLE ON THE 25TH OF EACH MONTH OR THE NEXT BUSINESS DAY,
COMMENCING IN DECEMBER 2000
----------
The following classes of certificates are being offered pursuant to this
prospectus supplement and the accompanying prospectus:
<TABLE>
<CAPTION>
APPROXIMATE
PRINCIPAL PASS-THROUGH PRICE TO UNDERWRITING PROCEEDS TO
CLASS AMOUNT (1) RATE (3) PUBLIC DISCOUNT COMPANY (7)
--------------- ----------------- ---------------- ------------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
AF-1 .......... $45,800,000 7.425% 100.0000%(6) 0.150% 99.8500%
AF-2 .......... $28,700,000 7.160% 99.9885%(6) 0.175% 99.8135%
AF-3 .......... $21,300,000 7.240% 99.9758%(6) 0.200% 99.7758%
AF-4 .......... $29,500,000 7.530% 99.9973%(6) 0.225% 99.7723%
AF-5 .......... $21,400,000 7.880%(4) 99.9910%(6) 0.250% 99.7410%
AF-6 .......... $16,200,000 7.340% 99.9620%(6) 0.230% 99.7320%
AF-IO ......... (2) 7.000% 10.1996%(6) 0.050% 10.1496%
MF-1 .......... $ 6,300,000 7.990%(4) 99.9824%(6) 0.400% 99.5824%
MF-2 .......... $ 6,300,000 8.380% 99.9653%(6) 0.500% 99.4653%
BF ............ $ 4,500,000 8.980% 99.9782%(6) 0.700% 99.2782%
AV ............ $245,700,000 (5) 100.0000% 0.225% 99.7750%
MV-1 .......... $10,800,000 (5) 100.0000% 0.400% 99.6000%
MV-2 .......... $10,125,000 (5) 100.0000% 0.525% 99.4750%
BV ............ $ 3,375,000 (5) 100.0000% 0.775% 99.2250%
R ............. $ 100 N/A N/A N/A N/A
------------- --------- -------------- ---------- ------------
Total ......... $450,000,100 $458,831,643 $1,125,598 $457,706,046
============= ============== ========== ============
</TABLE>
(1) Subject to a permitted variance in the aggregate of 5%.
(2) The Class AF-IO Certificates are "interest only" certificates with a
notional principal balance. The notional balance will be a fixed
schedule, subject to certain conditions described under "Description of
the Certificates--Notional Amount Certificates," for the first 35 months,
and zero thereafter.
(3) As described under "Description of the Certificates--Distributions" in
this prospectus supplement, the pass-through rates of the certificates
except the Class R certificates are subject to a rate cap.
(4) The pass-through rate is subject to increase as described under
"Description of the Certificates--Distributions of Interest and
Principal."
(5) The pass-through rate on the Class AV, Class MV-1, Class MV-2 and Class
BV certificates will vary as described under "Description of the
Certificates--Distributions of Interest and Principal" in this prospectus
supplement.
(6) Plus accrued interest from November 1, 2000.
(7) Before deducting expenses.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-10 IN THIS
PROSPECTUS SUPPLEMENT AND ON PAGE 4 IN THE PROSPECTUS.
The certificates represent obligations of the trust fund only and do not
represent an interest in or obligation of IndyMac ABS, Inc., IndyMac Bank,
F.S.B. or any of their affiliates.
This prospectus supplement may be used to offer and sell the offered
certificates only if accompanied by the prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Credit Suisse First Boston Corporation and Banc of America Securities LLC,
as underwriters, will purchase the offered certificates from the depositor. See
"Method of Distribution" in this prospectus supplement.
CREDIT SUISSE FIRST BOSTONBANC OF AMERICA SECURITIES LLC
CO-LEAD MANAGER AND BOOK RUNNER CO-LEAD MANAGER
The date of this prospectus supplement is November 16, 2000.
<PAGE>
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUPPLEMENT
SUMMARY ........................................... S-3
OFFERED CERTIFICATES ........................ S-3
CUT-OFF DATE ................................ S-3
CLOSING DATE ................................ S-3
DEPOSITOR ................................... S-3
SELLER AND MASTER SERVICER .................. S-3
TRUSTEE ..................................... S-3
DESIGNATIONS ................................ S-3
OTHER CERTIFICATES .......................... S-5
DISTRIBUTION DATES .......................... S-5
RECORD DATES ................................ S-5
INTEREST PAYMENTS ........................... S-5
PRINCIPAL PAYMENTS .......................... S-5
MORTGAGE LOANS .............................. S-6
STATISTICAL CALCULATION INFORMATION ......... S-6
PRE-FUNDING ACCOUNTS AND CAPITALIZED
INTEREST ACCOUNTS ......................... S-7
OPTIONAL TERMINATION ........................ S-7
ADVANCES .................................... S-7
CREDIT ENHANCEMENT .......................... S-7
RATINGS ..................................... S-9
TAX STATUS .................................. S-9
ERISA CONSIDERATIONS ........................ S-9
LEGAL INVESTMENT ............................ S-9
RISK FACTORS ...................................... S-10
THE MORTGAGE POOL ................................. S-15
GENERAL ..................................... S-15
ASSIGNMENT OF THE MORTGAGE LOANS ............ S-33
CONVEYANCE OF SUBSEQUENT MORTGAGE
LOANS ..................................... S-34
UNDERWRITING STANDARDS ...................... S-34
PMI MORTGAGE INSURANCE POLICY ............... S-36
SERVICING OF MORTGAGE LOANS ....................... S-37
THE MASTER SERVICER ......................... S-37
FORECLOSURE, DELINQUENCY AND LOSS
EXPERIENCE ................................ S-38
SERVICING COMPENSATION AND PAYMENT OF
EXPENSES .................................. S-39
ADJUSTMENT TO SERVICING COMPENSATION
IN CONNECTION WITH CERTAIN PREPAID
MORTGAGE LOANS ............................ S-39
ADVANCES .................................... S-40
CERTAIN MODIFICATIONS AND
REFINANCINGS .............................. S-40
DEFAULT MANAGEMENT SERVICES ................. S-41
DESCRIPTION OF THE CERTIFICATES ................... S-41
GENERAL ..................................... S-41
NOTIONAL AMOUNT CERTIFICATES ................ S-41
BOOK-ENTRY CERTIFICATES ..................... S-42
PAYMENTS ON MORTGAGE LOANS;
ACCOUNTS .................................. S-43
DISTRIBUTIONS ............................... S-43
PRIORITY OF DISTRIBUTIONS AMONG
CERTIFICATES .............................. S-44
DISTRIBUTIONS OF INTEREST AND PRINCIPAL S-44
CALCULATION OF ONE-MONTH LIBOR .............. S-50
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
EXCESS RESERVE FUND ACCOUNT ................. S-51
OVERCOLLATERALIZATION PROVISIONS ............ S-51
OPTIONAL PURCHASE OF DEFAULTED LOANS S-52
OPTIONAL TERMINATION ........................ S-53
THE TRUSTEE ................................. S-53
RESTRICTIONS ON TRANSFER OF THE CLASS R
CERTIFICATES .............................. S-53
YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS ................................... S-54
GENERAL ..................................... S-54
DEFAULTS IN DELINQUENT PAYMENTS ............. S-54
PREPAYMENT CONSIDERATIONS AND RISKS ......... S-54
ADJUSTABLE RATE CERTIFICATES ................ S-56
FIXED RATE CERTIFICATES ..................... S-56
OVERCOLLATERALIZATION PROVISIONS ............ S-56
SUBORDINATED CERTIFICATES ................... S-57
ADDITIONAL INFORMATION ...................... S-58
STRUCTURING ASSUMPTIONS ..................... S-58
WEIGHTED AVERAGE LIVES OF THE
OFFERED CERTIFICATES ...................... S-60
DECREMENT TABLES ............................ S-61
SPECIAL YIELD CONSIDERATIONS RELATING
TO THE CLASS AF-IO CERTIFICATES ........... S-67
LAST SCHEDULED DISTRIBUTION DATE ............ S-68
USE OF PROCEEDS ................................... S-68
FEDERAL INCOME TAX CONSEQUENCES ................... S-68
ERISA CONSIDERATIONS .............................. S-70
METHOD OF DISTRIBUTION ............................ S-72
LEGAL MATTERS ..................................... S-75
RATINGS ........................................... S-75
ANNEX I: GLOBAL CLEARANCE, SETTLEMENT
AND TAX DOCUMENTATION PROCEDURES ................. A-1
PROSPECTUS
IMPORTANT NOTICE ABOUT INFORMATION IN
THIS PROSPECTUS AND EACH
ACCOMPANYING PROSPECTUS SUPPLEMENT ............... 3
RISK FACTORS ...................................... 4
THE TRUST FUND .................................... 22
USE OF PROCEEDS ................................... 28
THE DEPOSITOR ..................................... 29
LOAN PROGRAM ...................................... 29
DESCRIPTION OF THE SECURITIES ..................... 32
CREDIT ENHANCEMENT ................................ 47
YIELD AND PREPAYMENT CONSIDERATIONS ............... 50
THE AGREEMENTS .................................... 50
CERTAIN LEGAL ASPECTS OF THE LOANS ................ 67
FEDERAL INCOME TAX CONSEQUENCES ................... 81
STATE TAX CONSIDERATIONS .......................... 100
ERISA CONSIDERATIONS .............................. 103
LEGAL INVESTMENT .................................. 107
METHOD OF DISTRIBUTION ............................ 108
LEGAL MATTERS ..................................... 109
FINANCIAL INFORMATION ............................. 109
RATING ............................................ 109
INDEX OF DEFINED TERMS ............................ 110
</TABLE>
----------------
Dealers will deliver a prospectus supplement and prospectus when acting as
underwriters of the Series SPMD 2000-C Home Equity Loan Asset-Backed
Certificates and with respect to their unsold allotments or subscriptions. In
addition, all dealers selling the Series SPMD 2000-C Home Equity Mortgage Loan
Asset-Backed Certificates will be required to deliver a prospectus supplement
and prospectus until February 14, 2001.
S-2
<PAGE>
SUMMARY
o THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND DOES
NOT CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING YOUR
INVESTMENT DECISION. TO UNDERSTAND ALL OF THE TERMS OF AN OFFERING OF THE
CERTIFICATES, READ CAREFULLY THIS ENTIRE DOCUMENT AND THE ACCOMPANYING
PROSPECTUS.
o CERTAIN STATEMENTS CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS CONSIST OF
FORWARD-LOOKING STATEMENTS RELATING TO FUTURE ECONOMIC PERFORMANCE OR
PROJECTIONS AND OTHER FINANCIAL ITEMS. THESE STATEMENTS CAN BE IDENTIFIED
BY THE USE OF FORWARD-LOOKING WORDS SUCH AS "MAY," "WILL," "SHOULD,"
"EXPECTS," "BELIEVES," "ANTICIPATES," "ESTIMATES," OR OTHER COMPARABLE
WORDS. FORWARD-LOOKING STATEMENTS ARE SUBJECT TO A VARIETY OF RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER FROM THE PROJECTED
RESULTS. THOSE RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHERS, GENERAL
ECONOMIC AND BUSINESS CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE
WITH GOVERNMENTAL REGULATIONS, CUSTOMER PREFERENCES AND VARIOUS OTHER
MATTERS, MANY OF WHICH ARE BEYOND OUR CONTROL. BECAUSE WE CANNOT PREDICT
THE FUTURE, WHAT ACTUALLY HAPPENS MAY BE VERY DIFFERENT FROM WHAT WE
PREDICT IN OUR FORWARD-LOOKING STATEMENTS.
OFFERED CERTIFICATES
On the closing date, Home Equity Mortgage Loan Asset-Backed Trust, Series SPMD
2000-C will issue seventeen classes of certificates, fifteen of which are being
offered pursuant to this prospectus supplement and the accompanying prospectus
and are listed on the cover page of this prospectus supplement. The assets of
the trust fund that will support the certificates will consist primarily of a
pool of fixed and adjustable rate, conventional, sub-prime mortgage loans that
are secured by first and second liens on one- to four-family residential
properties and certain other property and assets described in this prospectus
supplement.
CUT-OFF DATE
For any initial mortgage loan, November 1, 2000; for any subsequent mortgage
loan, the later of the date of origination and the first day of the month in
which the subsequent mortgage loan is added to the trust fund.
CLOSING DATE
On or about November 21, 2000.
DEPOSITOR
IndyMac ABS, Inc., a Delaware corporation, is a limited purpose finance
subsidiary of IndyMac Bank, F.S.B. Its address is 155 North Lake Avenue,
Pasadena, California 91101, and its telephone number is (800) 669-2300.
SELLER AND MASTER SERVICER
IndyMac Bank, F.S.B.
TRUSTEE
Bankers Trust Company of California, N.A.
DESIGNATIONS
Each class of certificates will have different characteristics. Certain of
these characteristics are reflected in the following general designations.
S-3
<PAGE>
o Loan Group 1
All mortgage loans with fixed interest rates
o Loan Group 2
All mortgage loans with adjustable interest rates
o Group 1 Certificates
Class AF-1, Class AF-2, Class AF-3, Class AF-4, Class AF-5, Class AF-6,
Class AF-IO, Class MF-1, Class MF-2, and Class BF Certificates.
o Group 2 Certificates
Class AV, Class MV-1, Class MV-2 and Class BV Certificates
o Certificate Group
Either the Group 1 Certificates or the Group 2 Certificates
o Regular Certificates
All classes of certificates except the Class R Certificates
o Residual Certificates
Class R Certificates
o Group 1 Class A Certificates
Class AF-1, Class AF-2, Class AF-3, Class AF-4, Class AF-5, Class AF-6 and
Class AF-IO Certificates
o Group 1 Mezzanine Certificates
Class MF-1 and Class MF-2 Certificates
o Group 1 Subordinated Certificates
Group 1 Mezzanine Certificates and Class BF Certificates
o Group 2 Class A Certificates
Class AV Certificates
o Group 2 Mezzanine Certificates
Class MV-1 and Class MV-2 Certificates
o Group 2 Subordinated Certificates
Group 2 Mezzanine Certificates and Class BV Certificates
o Adjustable Rate Certificates
Group 2 Certificates
S-4
<PAGE>
o Fixed Rate Certificates
Group 1 Certificates
o Physical Certificates
Class P, Class X and Class R Certificates
o Book-Entry Certificates
All classes of certificates except the Physical Certificates
o Residual Certificates
Class R Certificate
References to "Class A," "Class M-1," "Class M-2," "Class B," "Mezzanine
Certificates," and "Subordinated Certificates" are references to certificates
of either or both certificate groups of similar designations, as the context
requires.
OTHER CERTIFICATES
In addition to the offered certificates, the trust fund will issue the
Class P and Class X Certificates, which are not being offered to the public
pursuant to this prospectus supplement and the prospectus. Any information
contained in this prospectus supplement with respect to the Class P and Class X
Certificates is provided only to permit a better understanding of the offered
certificates.
DISTRIBUTION DATES
The trustee will make distributions on the 25th day of each calendar month
beginning in December 2000 to the holders of record. If the 25th day of a month
is not a business day, then the distributions will be made on the next business
day after the 25th day of the month.
RECORD DATES
The record date for the group 1 certificates is the last business day of the
month preceding the distribution date and for the group 2 certificates is the
business day before the related distribution date.
INTEREST PAYMENTS
The interest rate for each class of fixed-rate certificates is specified on the
cover page of this prospectus supplement and is subject to a cap. Interest will
accrue on the fixed rate certificates on the basis of a 360-day year divided
into twelve 30-day months. The interest rate for each class of adjustable rate
certificates will be equal to the sum of LIBOR plus a fixed margin, subject to
a cap. Interest will accrue on the adjustable rate certificates on the basis of
a 360-day year and the actual number of days elapsed in the applicable Interest
Accrual Period. The "Interest Accrual Period" for the fixed rate certificates
for any distribution date will be the calendar month preceding the month of the
distribution date. The "Interest Accrual Period" for the adjustable rate
certificates for any distribution date will be the period from and including
the preceding distribution date (or, in the case of the first distribution
date, the closing date) to and including the day prior to the current
distribution date.
See "Description of the Certificates--Distributions of Interest and Principal"
in this prospectus supplement.
PRINCIPAL PAYMENTS
Principal will be paid on the certificates on each distribution date as
described under "Description of the Certificates--Distributions" in this
prospectus supplement.
S-5
<PAGE>
MORTGAGE LOANS
On the closing date the trust fund will acquire a pool of initial mortgage
loans that will be divided into two loan groups, loan group 1 and loan group 2.
Loan group 1 will consist of fixed-rate mortgage loans secured by first or
second liens on mortgaged properties that are transferred to the trust fund on
the closing date and any subsequent fixed-rate mortgage loans that are
purchased by the trust fund during the pre-funding period using the amount on
deposit in the related pre-funding account.
Loan group 2 will consist of adjustable-rate mortgage loans secured by first
liens on mortgaged properties that are transferred to the trust fund on the
closing date and any subsequent mortgage loans that are purchased by the trust
fund during the pre-funding period using the amount on deposit in the related
pre-funding account.
STATISTICAL CALCULATION INFORMATION
The statistical calculation information presented in this prospectus supplement
concerning the mortgage loans does not reflect all of the mortgage loans that
will be included in the trust fund as of the closing date. The statistical
calculation information presented in this prospectus supplement relates to a
statistical calculation pool that comprises 86.27% of the mortgage loans that
will be included in the trust fund. The pool of mortgage loans for which
information is presented in this prospectus supplement is referred to as the
statistical calculation mortgage pool, and the mortgage loans for which
information is presented in this prospectus supplement are referred to as
statistical calculation mortgage loans. The depositor believes that the
information in this prospectus supplement with respect to the statistical
calculation mortgage pool is representative of the characteristics of the
mortgage pool as it will be constituted at the closing date and at the end of
the pre-funding period, although 13.73% of the mortgage loans that are expected
to be included in the final mortgage pool are not included in the statistical
calculation mortgage pool.
The mortgage loans to be transferred to the trust fund on the closing date will
consist of the statistitical calculation mortgage loans and other mortgage
loans, which together are referred to as the initial mortgage loans. Additional
mortgage loans, called subsequent mortgage loans, to be included in loan group
1 and loan group 2 will be transferred to the trust fund during the pre-funding
period, which begins on the closing date and ends no later than December 31,
2000. Accordingly, the statistical profile of the final pool of mortgage loans
following the pre-funding period will vary somewhat from the statistical
profile of the statistical calculation mortgage loans presented in this
prospectus supplement.
The statistical calculation mortgage loans in loan group 1 consist of 1,481
fixed-rate mortgage loans with an aggregate outstanding principal balance of
approximately $149,473,488 as of November 1, 2000, after giving effect to
principal payments due on or before that date. The statistical calculation
mortgage loans in loan group 2 consist of 1,701 adjustable-rate mortgage loans
with an aggregate outstanding principal balance of approximately $238,746,672
as of November 1, 2000, after giving effect to principal payments due on or
before that date.
As described in this prospectus supplement under "The Mortgage Pool," the
interest rates for the adjustable rate mortgage loans will generally adjust
semi-annually or annually, subject to certain caps and floors, as described
herein.
Approximately 99.23% of the statistical calculation loan group 2 mortgage loans
are mortgage loans that initially have a fixed rate of interest for two or more
years following their origination, and thereafter have an adjustable rate of
interest for the remaining life of the mortgage loan, as described under "The
Mortgage Pool" in this prospectus supplement.
See "The Mortgage Pool" in this prospectus supplement.
S-6
<PAGE>
PRE-FUNDING ACCOUNTS AND CAPITALIZED INTEREST ACCOUNTS
At closing, the seller will deposit up to $27,280,000 into two separate
pre-funding accounts, to be used to acquire subsequent mortgage loans from the
seller during the pre-funding period.
Of this amount, the trust fund will apply up to $15,150,000 to purchase
subsequent fixed-rate mortgage loans for inclusion in loan group 1 and up to
$12,130,000 to purchase subsequent adjustable-rate mortgage loans for inclusion
in loan group 2.
The purchase of subsequent mortgage loans will occur only during the
pre-funding period, which terminates upon the earlier of:
o the date on which the remaining pre-funding amount for both loan groups is
less than $100,000, and
o the close of business on December 31, 2000.
At closing, if required by the rating agencies, the seller will deposit funds
into two separate capitalized interest accounts, for use as necessary during
the pre-funding period to offset shortfalls in interest amounts attributable to
the pre-funding mechanism.
Any amounts in the pre-funding accounts not used during the pre-funding period
to purchase subsequent mortgage loans will be distributed as a prepayment of
principal of the group 1 senior and group 2 senior certificates, as applicable,
on the first distribution date following the pre-funding period.
OPTIONAL TERMINATION
The master servicer may purchase all of the remaining assets of the trust fund
after the principal balance of the mortgage loans and any real estate owned by
the trust fund declines to 10% or less of the principal balance of the mortgage
loans as of their respective cut-off dates.
See "Description of the Certificates--Optional Termination" in this prospectus
supplement.
ADVANCES
The master servicer will make cash advances with respect to delinquent payments
of principal and interest on the mortgage loans unless the master servicer
reasonably believes that the cash advances cannot be repaid from future
payments on the applicable mortgage loans. These cash advances are only
intended to maintain a regular flow of scheduled interest and principal
payments on the certificates and are not intended to guarantee or insure
against losses.
See "Servicing of Mortgage Loans--Advances" in this prospectus supplement.
CREDIT ENHANCEMENT
Credit enhancements provide limited protection to holders of certain
certificates against shortfalls in payments received on the mortgage loans.
This transaction employs the following forms of credit enhancement.
Subordination
On each distribution date, classes of a certificate group that are lower in
order of payment priority than the other classes of that certificate group will
not receive payments until the classes that are higher in order of payment
priority have been paid. If there is not enough money from the mortgage loans
in a loan group on a distribution date to pay all classes of the related
certificate group, the subordinate classes of that certificate group are the
first to forego payment.
Application of Realized Losses
If on any distribution date, after the balances of the certificates of a
certificate group have been reduced by the amount of principal paid on that
date, the total principal balance of those certificates
S-7
<PAGE>
is greater than the total principal balance of the mortgage loans in the
related loan group plus any amount remaining in the related pre-funding
account, the principal balance of the outstanding certificates in that group
that are lowest in order of payment priority will be reduced by the amount of
that excess.
Overcollateralization
On the closing date, the total principal balance of the mortgage loans in a
loan group plus the balance in the pre-funding account for the relevant loan
group will equal the total principal amount of the certificates related to the
loan group. Thus, initially no overcollateralization will exist. After the
distribution date in December 2000, any excess interest from a loan group
described in the next paragraph may be used to pay down principal on the
related certificates until they have reached a specified level of
overcollateralization. On any distribution date, the amount of any
overcollateralization will be available to absorb losses from liquidated
mortgage loans in the related loan group. If the level of overcollateralization
for a loan group falls below what is required, the excess interest for that
loan group described in the next paragraph will be paid to the related
certificates as principal. This will have the effect of reducing the principal
balance of those certificates faster than the principal balance of the mortgage
loans in the related loan group so that the required level of
overcollateralization is reached.
Excess Interest
The mortgage loans in each loan group are expected to generate more interest
than is needed to pay interest on the related certificates because the weighted
average interest rate of the mortgage loans in each loan group is expected to
be higher than the weighted average pass-through rate on the related
certificates. Some of the excess interest with respect to a loan group may be
used to pay interest on the related certificates that was previously accrued
but not paid, some of the excess interest may be used to reduce subordination
deficiencies, and some of the excess interest may be used to reimburse the
related subordinated certificates for losses that they experienced previously.
See "Description of the Certificates--Overcollateralization Provisions" in this
prospectus supplement.
Mortgage Insurance
Of the statistical calculation mortgage loans, approximately 28.36% of the
loans in loan group 1 and approximately 30.89% of the loans in loan group 2
will carry borrower-paid mortgage insurance. For certain loans with no
borrower-paid mortgage insurance and loan-to value ratios in excess of 60%, the
trust fund will acquire additional mortgage insurance. Of the statistical
calculation mortgage loans, approximately 51.89% of the loans in loan group 1
and approximately 60.60% of the loans in loan group 2 will carry additional
mortgage insurance. The mortgage insurance policy insures a portion of the loss
on the mortgage loan covered by the policy, as more fully described in the
policy.
S-8
<PAGE>
RATINGS
The classes of certificates listed below will not be offered unless they are
assigned the following ratings by Moody's Investors Services, Inc., Standard &
Poor's, a division of The McGraw-Hill Companies, Inc., and by Fitch, Inc.
<TABLE>
<CAPTION>
Moody's S&P Fitch
Class Rating Rating Rating
------- --------- -------- -------
<S> <C> <C> <C>
A Aaa AAA AAA
R -- AAA AAA
M-1 Aa2 AA AA
M-2 A2 A A
B Baa2 BBB BBB
</TABLE>
See "Ratings" in this prospectus supplement.
TAX STATUS
For federal income tax purposes, the trustee will elect to treat the trust as
including three REMICs. The Regular Certificates will represent ownership of
REMIC regular interests. The Class R Certificate will represent ownership of
the sole class of residual interest in each of the two REMICs. Holders of
Regular Certificates will be required to include in income all interest and
original issue discount, if any, on such certificates in accordance with the
accrual method of accounting regardless of the certificateholder's regular
method of accounting.
For further information regarding the federal income tax consequences of
investing in the offeredcertificates, see "Federal Income Tax Consequences" in
this prospectus supplement and in the prospectus.
ERISA CONSIDERATIONS
Subject to the considerations set forth in "ERISA Considerations" in this
prospectus supplement and in the prospectus, the offered certificates, other
than the Class R Certificates, may be purchased by an employee benefit plan or
other retirement arrangement subject to the Employee Retirement Income Security
Act of 1974, as amended, or Section 4975 of the Internal Revenue Code.
If you are a fiduciary of any employee benefit plan or other retirement
arrangement subject to the Employee Retirement Income Security Act of 1974, as
amended, or Section 4975 of the Internal Revenue Code, you should review
carefully with your lawyer whether you can buy or hold an offered certificate.
A fiduciary of an employee benefit plan must determine that the purchase of a
certificate is consistent with its fiduciary duties under applicable law and
does not result in a nonexempt prohibited transaction under applicable law.
See "ERISA Considerations" in this prospectus supplement and in the prospectus.
LEGAL INVESTMENT
Upon termination of the pre-funding period, the Class AV and the Class MV-1
Certificates will be "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 so long as they are rated in
one of the two highest rating categories by at least one rating agency. All
other certificates will not be "mortgage related securities" for purposes of
SMMEA.
See "Legal Investment" in the prospectus.
S-9
<PAGE>
RISK FACTORS
o THE FOLLOWING INFORMATION, WHICH YOU SHOULD CAREFULLY CONSIDER, IDENTIFIES
CERTAIN SIGNIFICANT SOURCES OF RISK ASSOCIATED WITH AN INVESTMENT IN THE
CERTIFICATES. YOU SHOULD ALSO CAREFULLY CONSIDER THE INFORMATION SET FORTH
UNDER "RISK FACTORS" IN THE PROSPECTUS.
YOU MAY HAVE DIFFICULTY SELLING YOUR CERTIFICATES
Each underwriter intends to make a secondary market in the certificates
purchased by it, but no underwriter has any obligation to do so. We cannot
assure you that a secondary market will develop or, if it develops, that it
will continue. Consequently, you may not be able to sell your certificates
readily or at prices that will enable you to realize your desired yield. The
market values of the certificates are likely to fluctuate; these fluctuations
may be significant and could result in significant losses to you.
The secondary markets for mortgage backed and asset backed securities have
experienced periods of illiquidity and can be expected to do so in the future.
Illiquidity can have a severely adverse effect on the prices of securities
especially those that are sensitive to prepayment, credit, or interest rate
risk, or that have been structured to meet the investment requirements of
limited categories of investors.
SUBPRIME MORTGAGE LOANS ARE SUBJECT TO GREATER RISK OF DELINQUENCY AND LOSS
Most of 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 Fannie Mae or Freddie Mac. We expect
that the rates of delinquency, bankruptcy and foreclosure for the mortgage
loans will be higher, and may be substantially higher, than those of mortgage
loans underwritten in accordance with Fannie Mae and Freddie Mac standards. See
"The Mortgage Pool--Underwriting Standards."
THE SUBORDINATED CERTIFICATES HAVE A GREATER RISK OF LOSS THAN THE CLASS A
CERTIFICATES, AND SUBORDINATION MAY NOT BE SUFFICIENT TO PROTECT THE CLASS A
CERTIFICATES FROM LOSSES
If you buy a Class M-1, Class M-2 or Class B Certificate, you will not
receive any payments on your certificate until the holders of the related Class
A Certificates have received all payments to which they are entitled.
Additionally, payments on the Class M-2 Certificates will be subordinate to
payments on the related Class M-1 Certificates and payments on the Class B
Certificates will be subordinate to payments on the related Class M-1 and Class
M-2 Certificates. As a result, the yield on your subordinated certificate will
be sensitive to losses on the mortgage loans in the related loan group. This
sensitivity increases with the subordination of a certificate, so that the
yields on the Class B Certificates are the most sensitive. You should carefully
consider the risk that you may lose all or a part of the money that you paid
for the subordinated certificate if losses are greater than expected.
If you buy a subordinated certificate you will not receive any principal
distributions until December 2003 at the earliest, unless the related Class A
Certificates have been paid down to zero before that date. As a result, your
subordinated certificate will be outstanding longer than would be the case if
principal were distributed on a proportionate basis among the Class A
Certificates and the subordinated certificates. Because your subordinated
certificate is outstanding longer, there is a greater period of time during
which losses on the mortgage loans in the related loan group will affect your
subordinated certificate. Therefore the risk that you will lose all or part of
the money you paid for the certificate also increases.
Investors in the offered certificates should consider the risk that the
subordination of the related subordinated classes may not be sufficient to
protect your certificates from loss.
EXCESS INTEREST FROM THE MORTGAGE LOANS MAY NOT PROVIDE ADEQUATE CREDIT
ENHANCEMENT
Each group of mortgage loans is expected to generate more interest than is
needed to pay interest on the related classes of certificates because the
weighted average interest rate on those mortgage loans is expected to be higher
than the weighted average pass-through rate on the related classes of
certificates. If the amount of interest generated by a group of mortgage loans
is more than the amount that is needed to pay interest on the related
certificates, some of such "excess interest" will be used to make additional
principal payments on the related certificates, some will be used to pay
interest on the related certificates that was previously accrued but not paid,
and some will be used to reimburse the related subordinated certificates for
losses that they experienced previously. The use of excess interest to make
additional
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principal payments on the related certificates will reduce the total principal
balance of those certificates below the aggregate principal balance of the
related mortgage loans, thereby creating "overcollateralization."
Overcollateralization is intended to provide limited protection to
certificateholders by absorbing the related certificates' share of losses from
liquidated mortgage loans in the applicable loan group.
However, we cannot assure you that enough excess interest will be
generated on the mortgage loans of either loan group to establish or maintain
the required levels of overcollateralization for the related certificate group.
The excess interest available on any distribution date will be affected by
the actual amount of interest received, collected or advanced in respect of the
related mortgage loans during the preceding month. Such amount will be
influenced by changes in the pass-through rates on the group 2 certificates and
changes to the weighted average of the mortgage rates resulting from
prepayments and liquidations of the related mortgage loans, and in the case of
the group 2 certificates, adjustments of the mortgage rates on adjustable rate
mortgage loans. Because the index used to determine the mortgage rates on the
adjustable rate mortgage loans is different from the index used to determine
the pass-through rates on the group 2 certificates, it is possible that the
pass-through rates on these certificates may be higher than the interest rates
on the related mortgage loans. In that event, it may be necessary to apply all
or a portion of the available excess interest to make required payments of
interest on the related classes of certificates. As a result, excess interest
may be unavailable for any other purpose.
Investors in the offered certificates, and particularly the Class B
Certificates, should consider the risk that the overcollateralization may not
be sufficient to protect your certificates from loss. Excess interest and
overcollateralization are the only forms of credit enhancement for the Class B
Certificates.
RISK REGARDING MORTGAGE RATES
The pass-through rate on each class of group 2 certificates adjusts
monthly and is generally based on one-month LIBOR. The mortgage rates on the
adjustable rate mortgage loans generally adjust semi-annually and, in the case
of approximately 99.23% of the group 2 statistical calculation mortgage loans,
only after a two or three year period after origination, based on six-month
LIBOR or CMT (called the Loan Index). Because the Loan Index may respond to
different economic and market factors than one-month LIBOR, there is not
necessarily a correlation in movement between such indices. For example, it is
possible that the interest rates on certain of the adjustable rate mortgage
loans may decline while the pass-through rates on the related certificates are
stable or rising. In addition, although it is possible that both the mortgage
rates and certificate pass-through rates may decline or increase during the
same period, because of the difference between mortgage rate adjustment periods
and pass-through rate adjustment periods, mortgage rates may decline or
increase more slowly than the related certificate pass-through rates.
This absence of a correlation between movement in the mortgage rates and
the certificate pass-through rates may reduce the interest payable on the group
2 certificates because of the imposition of a pass-through rate cap called the
"Group 2 Net WAC Cap," which also takes into account the reduction of excess
interest available in the first 35 months for interest payments directed to the
Class AF-IO Certificates. Although it is intended that the amount by which a
certificateholder's interest payment has been reduced by operation of the Group
2 Net WAC Cap (but not in excess of the Group 2 Maximum Cap) will be paid to
such certificateholder from excess funds on future distribution dates, we
cannot assure you that excess funds will be available or sufficient to make any
such payments. The ratings assigned to the group 2 certificates do not address
the likelihood that these payments will be made.
In addition, the pass-through rate for each class of fixed-rate
certificates will be subject to the imposition of a pass-through rate cap
called the "Group 1 Net WAC Cap," which also takes into account the reduction
of excess interest available in the first 35 months for interest payments
directed to the Class AF-IO Certificates. Unlike the holder of a group 2
certificate, a holder of a group 1 certificate whose interest payment has been
reduced by operation of the Group 1 Net WAC Cap on any distribution date after
the October 2003 distribution date will not be entitled to receive the amount
of such reduction from the excess funds on any future distribution date.
Although it is intended that the amount by which a certificateholder's interest
payment has been reduced through the October 2003 distribution date by
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operation of the Group 1 Net WAC Cap will be paid to the certificateholder from
excess funds on future distribution dates, we cannot assure you that excess
funds will be available or sufficient to make those payments. The ratings
assigned to the group 1 certificates do not address the likelihood that these
payments will be made.
INCREASED RISK OF LOSS AS A RESULT OF BALLOON LOANS
Approximately 8.38% of the loan group 1 statistical calculation mortgage
loans by principal balance are balloon loans. Balloon loans pose a special
payment risk because the mortgagor must pay, and the servicer is not obligated
to advance, a lump sum payment of principal at the end of the loan term. If the
mortgagor is unable to pay the lump sum or refinance the balloon balance, you
may suffer a loss if the collateral for the loan is insufficient and the other
forms of credit enhancement are insufficient or unavailable to cover the loss.
CASH FLOW CONSIDERATIONS AND RISKS COULD CAUSE PAYMENT DELAYS AND LOSSES
Substantial delays could result while liquidating delinquent mortgage
loans. Further, liquidation expenses (such as legal fees, real estate taxes,
and maintenance and preservation expenses) will reduce the security for the
related mortgage loans and in turn reduce the proceeds payable to
certificateholders. In the event any of the mortgaged properties fail to
provide adequate security for the related mortgage loans, and the credit
enhancement is insufficient, you could experience a loss.
UNPREDICTABILITY AND EFFECT OF PREPAYMENTS
A majority of the borrowers under the statistical calculation mortgage
loans generally cannot prepay their mortgage loans during the first one, two,
three, or five years after origination without incurring prepayment penalties.
However, we cannot predict the rate at which borrowers will repay their
mortgage loans. A prepayment of a mortgage loan will result in a prepayment on
the certificates.
o If you purchase your certificates at a discount and principal is repaid
slower than you anticipate, then your yield may be lower than you
anticipate.
o If you purchase your certificates at a premium and principal is repaid
faster than you anticipate, then your yield may be lower than you
anticipate.
In addition, the weighted average lives of the certificates will be
affected by any prepayment resulting from the distribution of amounts, if any,
on deposit in the pre-funding accounts after the end of the pre-funding period.
None of the prepayment penalties will be distributed to holders of the
offered certificates.
In addition, prepayments on fixed-rate mortgage loans with interest rates
in excess of the Group 1 Net WAC Cap can have the effect of reducing the Group
1 Net WAC Cap, and prepayments on adjustable-rate mortgage loans with interest
rates in excess of the Group 2 Net WAC Cap can have the effect of reducing the
Group 2 Net WAC Cap. In the event that either the Group 1 Net WAC Cap or the
Group 2 Net WAC Cap is in effect on any distribution date, the reduction of the
Group 1 Net WAC Cap or the Group 2 Net WAC Cap will have the effect of reducing
the pass-through rates of the related certificateholders on such distribution
day.
See "Yield, Prepayment and Maturity Considerations" for a description of
factors that may influence the rate and timing of prepayments on the mortgage
loans.
OWNERS OF CLASS AF-IO CERTIFICATES MAY NOT RECOVER THEIR INITIAL INVESTMENT
An investment in the Class AF-IO Certificates is risky because the return
of the investment depends solely on the payments of interest by borrowers under
the mortgage loans. If the borrowers prepay their mortgage loans, no further
interest payments will be made. If borrowers prepay their mortgages very fast,
investors in the Class AF-IO Certificates may not recover their initial
investments. In addition, the Class AF-IO Certificates are not entitled to any
distributions after the 35th distribution date.
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POSSIBLE PREPAYMENT DUE TO INABILITY TO ACQUIRE RELATED SUBSEQUENT MORTGAGE
LOANS
The ability of the trust fund to acquire subsequent mortgage loans for
inclusion in the related loan group depends on the ability of the seller to
originate and acquire mortgage loans during the pre-funding period that meet
the eligibility criteria for subsequent mortgage loans as described in this
prospectus supplement. The ability of the seller to originate and acquire
subsequent mortgage loans will be affected by a number of factors including
prevailing interest rates, employment levels, the rate of inflation and
economic conditions generally.
If the full amounts on deposit in the pre-funding account allocated to
purchase subsequent mortgage loans for a loan group cannot be used for that
purpose by the end of the pre-funding period, the amounts remaining on deposit
in that pre-funding account will be distributed to the holders of the related
Class A certificates as a prepayment on the January 2001 distribution date.
JUNIOR LIEN PRIORITY COULD RESULT IN PAYMENT DELAY OR LOSS
Approximately 9.61% of the statistical calculation mortgage loans in loan
group 1 (by principal balance as of November 1, 2000) are secured by second
liens on mortgaged properties. The master servicer has the power under certain
circumstances to consent to a new mortgage lien on the mortgaged property
having priority over the mortgage loan in the trust fund. 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 the remaining
proceeds are insufficient to satisfy the mortgage loans secured by second
mortgages and prior liens in the aggregate and the credit enhancement is
insufficient, you will bear the risk of delay in distributions while any
deficiency judgment against the borrower is sought and the risk of loss if the
deficiency judgment cannot be obtained or is not realized upon.
See "Certain Legal Aspects of the Loans" in the prospectus.
INSOLVENCY MAY AFFECT THE TIMING AND AMOUNT OF DISTRIBUTIONS ON THE
CERTIFICATES
The transfer of the mortgage loans by the seller to the depositor will be
characterized in the pooling and servicing agreement as a sale transaction.
Nevertheless, in the event of insolvency of the seller, the Federal Deposit
Insurance Corporation (referred to as the FDIC) as conservator or receiver,
could attempt to recharacterize the sale of the mortgage loans to the depositor
as a borrowing secured by a pledge of the mortgage loans. If such an attempt to
recharacterize the transfer of the mortgage loans were successful, the FDIC
could elect to accelerate payment of the certificates and liquidate the
mortgage loans, with the holders of the certificates entitled to no more than
the outstanding principal balances, if any, of the classes of certificates,
together with interest thereon at the applicable pass-through rates. In the
event of an acceleration of the certificates, the holders of the certificates
would lose the right to future payments of interest, might suffer reinvestment
losses in a lower interest rate environment and may fail to recover their
initial investment. Further, with respect to an acceleration by the FDIC,
interest may be payable only through the date of appointment of the FDIC as
conservator or receiver. The FDIC has a reasonable period of time (which it has
stated will generally not exceed 180 days after the date of its appointment) to
elect to accelerate payment. Whether or not an acceleration takes place, delays
in payments on the certificates and possible reductions in the amount of such
payments could occur.
DEVELOPMENTS IN CALIFORNIA COULD HAVE DISPROPORTIONATE EFFECT ON THE POOL OF
MORTGAGE LOANS DUE TO GEOGRAPHIC CONCENTRATION OF MORTGAGED PROPERTIES
Approximately 23.13% of the statistical calculation mortgage loans, based
on principal balances as of November 1, 2000, are secured by property in
California. Property in California may be more susceptible than homes located
in other parts of the country to certain types of uninsurable hazards, such as
earthquakes, floods, mudslides and other natural disasters.
In addition:
o Economic conditions in California (which may or may not affect real
property values) may affect the ability of borrowers to repay their
loans on time;
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o Declines in the California residential real estate market may reduce
the values of properties located in California, which would result in
an increase in the loan-to-value ratios; and
o Any increase in the market value of properties located in California
would reduce the loan-to-value ratios and could, therefore, make
alternative sources of financing available to the borrowers at lower
interest rates, which could result in an increased rate of prepayment
of the mortgage loans.
CERTIFICATES MAY NOT BE APPROPRIATE FOR CERTAIN INVESTORS
The offered certificates may not be an appropriate investment for
investors who do not have sufficient resources or expertise to evaluate the
particular characteristics of the applicable class of offered certificates.
This may be the case because, among other things:
o The yield to maturity of offered certificates purchased at a price
other than par will be sensitive to the uncertain rate and timing of
principal prepayments on the related mortgage loans;
o The rate of principal distributions on and the weighted average lives
of the offered certificates will be sensitive to the uncertain rate and
timing of principal prepayments on the related mortgage loans and the
priority of principal distributions among the classes of certificates.
Accordingly, the offered certificates may be an inappropriate
investment if you require a distribution of a particular amount of
principal on a specific date or an otherwise predictable stream of
distributions;
o You may not be able to reinvest amounts distributed in respect of
principal on an offered certificate (which, in general, are expected to
be greater during periods of relatively low interest rates) at a rate
at least as high as the pass-through rate applicable to your
certificate; or
o A secondary market for the offered certificates may not develop or
provide certificateholders with liquidity of investment.
You should also carefully consider the further risks discussed above and
under the heading "Yield, Prepayment and Maturity Considerations" in this
prospectus supplement and under the heading "Risk Factors" in the prospectus.
CERTIFICATES ARE NOT OBLIGATIONS OF ANY ENTITY
The offered certificates will not represent an ownership interest in or
obligation of any entity except for the obligations of the depositor and of the
seller pursuant to certain limited representations and warranties made with
respect to the mortgage loans and of the master servicer with respect to its
servicing obligations under the pooling and servicing agreement (including the
limited obligation to make certain monthly advances). Neither the certificates
nor the underlying mortgage loans will be guaranteed or insured by any
governmental agency or instrumentality. The offered certificates are not bank
accounts and are not insured by the FDIC. Proceeds of the assets included in
the trust fund (including the mortgage loans) and proceeds from the mortgage
insurance policies will be the sole source of payments on the offered
certificates. You will not be able to receive money from any entity in the
event that such proceeds are not enough to make all payments provided for under
the offered certificates.
RATINGS ON THE CERTIFICATES MAY BE DEPENDENT ON THE CREDITWORTHINESS OF PMI
MORTGAGE ASSURANCE COMPANY
The ratings assigned to the certificates by the rating agencies will be
based in part on the credit characteristics of the mortgage loans and on
ratings assigned to PMI Mortgage Assurance Company, the mortgage insurance
provider with respect to all of the mortgage loans having additional mortgage
insurance policies acquired by the trust. Of the statistical calculation
mortgage loans, approximately 51.89% of the loans in loan group 1, and
approximately 60.60% of the loans in loan group 2 are covered by additional
mortgage insurance policies. Any reduction in the ratings assigned to the
mortgage insurance provider by the rating agencies could result in the
reduction of the ratings assigned to the certificates. This reduction in
ratings could adversely affect the liquidity and market value of the
certificates.
For a discussion of additional risks pertaining to the certificates, see
"Risk Factors" in the prospectus.
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THE MORTGAGE POOL
GENERAL
The depositor will purchase the mortgage loans from IndyMac Bank, F.S.B.
(referred to as IndyMac Bank) pursuant to a pooling and servicing agreement
dated as of November 1, 2000 among IndyMac Bank, as seller and master servicer,
the depositor and the trustee or pursuant to the pooling and servicing
agreement and a subsequent transfer agreement dated as of the subsequent
transfer date among IndyMac Bank, as seller and master servicer, the depositor
and the trustee and will cause the mortgage loans to be assigned to the trustee
for the benefit of holders of the certificates. The mortgage loans purchased
pursuant to the pooling and servicing agreement shall be designated "initial
mortgage loans" and the mortgage loans purchased pursuant to the pooling and
servicing agreement and a subsequent transfer agreement shall be designated
"subsequent mortgage loans."
Under the pooling and servicing 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 pooling and servicing
agreement and certain characteristics of the mortgage loans and, subject to the
limitations described below under "--Assignment of 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 representation, warranty or covenant if the breach of representation,
warranty or covenant materially and adversely affects the interests of the
certificateholders in that mortgage loan; provided, however, that the seller
will not be obligated to make any repurchase or substitution (or cure any
breach) if the breach constitutes fraud in the origination of the affected
mortgage loan and the seller did not have knowledge of the fraud. The seller
will represent and warrant to the depositor in the pooling and servicing
agreement that the mortgage loans were selected from among the outstanding
one-to four-family mortgage loans in the seller's sub-prime mortgage portfolio
as to which the representations and warranties set forth in the pooling and
servicing agreement can be made and that the selection was not made in a manner
intended to adversely affect the interests of the certificateholders. See "Loan
Program--Representations by Sellers; Repurchases" in the prospectus. Under the
pooling and servicing agreement, the depositor will assign all its right, title
and interest in and to the representations, warranties and covenants (including
the seller's repurchase obligation) to the trustee for the benefit of the
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 Bank 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 or substitution obligations described above. The
obligations of IndyMac Bank, as master servicer, with respect to the
certificates are limited to the master servicer's contractual servicing
obligations under the pooling and servicing agreement.
Certain information with respect to the statistical calculation mortgage
loans to be included in the statistical calculation 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 in this prospectus supplement
with respect to the statistical calculation mortgage pool is representative of
the characteristics of the mortgage pool as it will be constituted at the
closing date and after the pre-funding period, although certain characteristics
of the mortgage loans in the mortgage pool may vary. Unless otherwise
indicated, information presented below expressed as a percentage (other than
rates of interest) are approximate percentages based on the Stated Principal
Balances of the statistical calculation mortgage loans as of the cut-off date.
As of the cut-off date, the aggregate of the Stated Principal Balances of
the statistical calculation mortgage loans is expected to be approximately
$388,220,160, which is referred to as the statistical calculation cut-off date
principal balance. The initial mortgage loans to be included in the mortgage
pool were acquired by the seller in the normal course of its business.
At origination, approximately 94.29% of the statistical calculation
mortgage loans had stated terms to maturity of 30 years. Each of the
statistical calculation mortgage loans provides for payments due on the first
day of each month (referred to as a Due Date). Scheduled monthly payments made
by the mortgagors on the statistical calculation mortgage loans (referred to as
scheduled payments) either earlier or later than the scheduled Due Dates
thereof is not expected to affect the amortization schedule or the relative
application of those payments to principal and interest.
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Of the statistical calculation mortgage loans, approximately 91.62% of the
loans in loan group 1 provide for the amortization of the amount financed over
a series of substantially equal monthly payments, and approximately 8.38% of
the loans in loan group 1 are balloon loans and provide for equal monthly
payments, consisting of principal and interest, based on a stated amortization
schedule, and a single payment of the remaining principal balance of the loan
at maturity.
Of the statistical calculation mortgage loans, 736 mortgage loans in loan
group 1, representing approximately 56.69% of the cut-off date principal
balance of the statistical calculation mortgage loans in loan group 1, and
1,355 mortgage loans in loan group 2, representing approximately 76.85% of the
cut-off date principal balance of the statistical calculation mortgage loans in
loan group 2, contain prepayment penalties. Prepayment penalties provide that
if the borrower were to prepay the mortgage loan in full at any time from the
origination of the mortgage loan to a date set forth in the related mortgage
note (referred to as the Prepayment Penalty Period), the borrower would also
have to pay a fee in addition to the amount necessary to repay the mortgage
loan. The Prepayment Penalty Period for the statistical calculation mortgage
loans vary from 1 year to 5 years, depending on the terms set forth in the
related mortgage note. The amount of the prepayment penalty varies.
With respect to the statistical calculation mortgage loans in loan group
2, each mortgage loan has a mortgage rate subject to adjustment on the Due Date
specified in the related mortgage note (referred to as the Initial Rate
Adjustment Date) and every six months (in the case of 6/6 Adjustable Mortgage
Loans and 2/28 Adjustable Mortgage Loans (each as defined below)) and one year
(in the case of 3/1 Adjustable Mortgage Loans (as defined below)) thereafter
(referred to as an Adjustment Date), equal to (a) in the case of 2/28
Adjustable Mortgage Loans and 6/6 Adjustable Mortgage Loans, the sum, rounded
to the nearest one-eighth of one percentage point (0.125%), of (i) the average
of interbank offered rates for six month U.S. dollar deposits in the London
market (referred to as the Index) based on quotations of major banks, as
published either (x) by Fannie Mae either 30 or 45 days prior to the Adjustment
Date or (y) in the "Money Rates" section of The Wall Street Journal as of the
first business day of the month prior to the Adjustment Date, as specified in
the related mortgage note, and (ii) the margin specified in the related
mortgage note and (b) in the case of the 3/1 Adjustable Mortgage Loans, the
weekly average yield on U.S. Treasury Securities adjusted to a constant
maturity of one year as made available by the Federal Reserve, in each case as
specified in the related mortgage note; provided, however, that the mortgage
rate will not increase on any Adjustment Date by more than (A) with respect to
1 statistical calculation mortgage loan (representing approximately 0.05% of
the statistical calculation cut-off date principal balance of loan group 2),
one-half percentage point (0.5%), (B) with respect to 1,561 statistical
calculation mortgage loans (representing approximately 92.47% of the
statistical calculation cut-off date principal balance of loan group 2), one
percentage point (1%), (C) with respect to 5 statistical calculation mortgage
loans (representing approximately 0.36% of the statistical calculation cut-off
date principal balance of loan group 2), one and one-half percentage points
(1.5%), (D) with respect to 113 statistical calculation mortgage loans
(representing approximately 5.85% of the statistical calculation cut-off date
principal balance of loan group 2), two percentage points (2.0%), (E) with
respect to 20 statistical calculation mortgage loans (representing
approximately 1.24% of the statistical calculation cut-off date principal
balance of loan group 2), three percentage points (3%), and (F) with respect to
1 statistical calculation mortgage loans (representing approximately 0.04% of
the statistical calculation cut-off date principal balance of loan group 2),
three and one half percentage points (3.5%) (referred to as the Periodic Rate
Cap). Approximately 94.09% of the statistical calculation mortgage loans in
loan group 2 (by statistical calculation cut-off date principal balance) have
an Initial Rate Adjustment Date occurring on the Due Date following the second
anniversary of the date of origination (referred to as 2/28 Adjustable Mortgage
Loans). Approximately 0.77% of the statistical calculation mortgage loans in
loan group 2 have an Initial Rate Adjustment Date occurring on the sixth Due
Date following the related date of origination (referred to as 6/6 Adjustable
Mortgage Loans). Approximately 5.14% of the statistical calculation mortgage
loans in loan group 2 (by statistical calculation cut-off date principal
balance) have an Initial Rate Adjustment Date occurring on the Due Date
following the third anniversary of the date of origination (referred to as 3/1
Adjustable Mortgage Loans).
With respect to the statistical calculation mortgage loans in loan group
2, 8 statistical calculation mortgage loans (representing approximately 0.77%
of the statistical calculation cut-off date principal
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balance of loan group 2) are subject to an initial rate cap of 1%, 1,588
statistical calculation mortgage loans (representing approximately 94.09% of
the statistical calculation cut-off date principal balance of loan group 2) are
subject to an initial rate cap of 3% and 105 statistical calculation mortgage
loans (representing approximately 5.14% of the statistical calculation cut-off
date principal balance of loan group 2) are subject to an initial rate cap of
5%.
The 2/28 Adjustable Mortgage Loans will include "performance loans"
(referred to as Performance Loans) that provide borrowers the potential of a
margin reduction for good payment history. The payment history for the
Performance Loan is evaluated in the second month preceding the month in which
the Initial Rate Adjustment Date occurs. If the related borrower has made
scheduled payments in full since the origination of that loan with a maximum of
one late payment (which, however, cannot be in the month of evaluation) the
loan is eligible for a reduction (ranging from 0.50% to 1.00%) in the margin
used to calculate the mortgage rate. Approximately 23.45% of the statistical
calculation mortgage loans in loan group 2 are Performance Loans.
All of the statistical calculation mortgage loans in loan group 2 provide
that over the life of the mortgage loan the mortgage rate will in no event be
more than the mortgage rate fixed at origination plus a fixed number of
percentage points specified in the related mortgage note (referred to as the
Maximum Rate). Effective with the first payment due on a statistical
calculation mortgage loan in loan group 2 after each related Adjustment Date,
the scheduled payment will be adjusted to an amount which will pay interest at
the adjusted rate and fully amortize the then-outstanding principal balance of
the mortgage loan in loan group 2 over its remaining term. If the applicable
Loan Index ceases to be published or is otherwise unavailable, the master
servicer will select an alternative index based upon comparable information.
Each statistical calculation mortgage loan in loan group 2 is, by its
terms, assumable in connection with a transfer of the related mortgaged
property if the proposed transferee submits certain information to the master
servicer required to enable it to evaluate the transferee's ability to repay
that mortgage loan and if the master servicer reasonably determines that the
security for that mortgage loan would not be impaired by the assumption. The
statistical calculation mortgage loans in loan group 1 are subject to the
"due-on-sale" provisions included therein.
All of the statistical calculation mortgage loans in loan group 1 were
originated in or after September 1999. All of the statistical calculation
mortgage loans in loan group 2 were originated in or after February 2000.
The latest stated maturity date of any statistical calculation mortgage
loan in loan group 1 is in November 2030. The earliest stated maturity date of
any statistical calculation mortgage loan in loan group 1 is in July 2010. The
latest stated maturity date of any statistical calculation mortgage loan in
loan group 2 is in November 2030. The earliest stated maturity date of any
statistical calculation mortgage loan in loan group 2 is in April 2030.
As of the cut-off date, 0.95% of the statistical calculation mortgage
loans in loan group 1 and 1.70% of the statistical calculation initial mortgage
loans in loan group 2 were delinquent more than 30 days.
With respect to 703 statistical calculation mortgage loans in loan group 1
(representing approximately 51.89% by cut-off date principal balance) the trust
fund (rather than the borrower) acquired the additional mortgage insurance.
With respect to 1,046 statistical calculation mortgage loans in loan group
2 (representing approximately 60.60% by cut-off date principal balance) the
trust fund (rather than the borrower) acquired the additional mortgage
insurance.
None of the statistical calculation mortgage loans in loan group 2 are
convertible into fixed-rate mortgage loans.
Of the statistical calculation mortgage loans in loan group 1, 1,202
mortgage loans (representing approximately 90.39% of the statistical
calculation cut-off date principal balance of the statistical calculation
mortgage loans in loan group 1) are secured by first liens on the related
mortgaged properties,
S-17
<PAGE>
and 279 mortgage loans in loan group 1 (representing approximately 9.61% of the
statistical calculation cut-off date principal balance of the statistical
calculation mortgage in group 1) are secured by second liens on the related
mortgaged properties. All of the statistical calculation mortgage loans in loan
group 2 are secured by first liens on the related mortgaged properties.
Six of the statistical calculation mortgage loans in loan group 1
(representing approximately 0.13% of the statistical calculation cut-off date
principal balance of the statistical calculation mortgage loans in loan group
1) had a Loan-to-Value Ratio or Combined Loan-to-Value Ratio (as applicable) at
origination of more than 95%. No statistical calculation mortgage loan in loan
group 2 had a Loan-to-Value Ratio at origination of more than 95%. Except for
208 statistical calculation mortgage loans in loan group 1, representing
approximately 5.91% of the statistical calculation cut-off date principal
balance of the statistical calculation mortgage loans in loan group 1, and
except for 8 statistical calculation mortgage loans in loan group 2,
representing approximately 0.45% of the statistical calculation cut-off date
principal balance of the mortgage loans in loan group 2, each statistical
calculation mortgage loan with a Loan-to-Value Ratio or Combined Loan-to-Value
Ratio (as applicable) at origination of greater than 80% will be covered by a
borrower-paid or lender acquired primary mortgage guaranty insurance policy
issued by a mortgage insurance company acceptable to Fannie Mae, Freddie Mac or
any nationally recognized statistical rating organization. No primary mortgage
guaranty insurance policy will be required with respect to any mortgage loan
(i) after the date on which the related Loan-to-Value Ratio or Combined
Loan-to-Value Ratio (as applicable) is 80% or less or, based on a new
appraisal, the principal balance of that mortgage loan represents 80% or less
of the new appraised value or (ii) if maintaining the policy is prohibited by
applicable law. See "--Underwriting Standards" herein.
The "Loan-to-Value Ratio" of a mortgage loan at any given time is the
fraction, expressed as a percentage, the numerator of which is the original
principal balance of the related mortgage loan and the denominator of which is
the Collateral Value of the related mortgaged property. The "Combined
Loan-to-Value Ratio" of a mortgage loan at any given time is the ratio,
expressed as a percentage, of (i) the sum of (a) the original principal balance
of the mortgage loan and (b) the outstanding principal balance at the date of
origination of the mortgage loan of any senior mortgage loans(s) or, in the
case of any open-ended senior mortgage loan, the maximum available line of
credit with respect to that mortgage loan at origination, regardless of any
lesser amount actually outstanding at the date of origination of the mortgage
loan, to (ii) the Collateral Value of the related mortgaged property. The
"Collateral Value" of the mortgaged property, other than with respect to
certain mortgage loans the proceeds of which were used to refinance an existing
mortgage loan (referred to as a Refinance Loan), is the lesser of (a) the
appraised value determined in an appraisal obtained by the originator at
origination of that mortgage loan and (b) the sales price for the mortgaged
property, if applicable. In the case of Refinance Loans, the Collateral Value
of the related mortgaged property is generally the appraised value thereof
determined in an appraisal obtained at the time of refinancing. No assurance
can be given that the value of any mortgaged property has remained or will
remain at the level that existed on the appraisal or sales date. If residential
real estate values generally or in a particular geographic area decline, the
Loan-to-Value Ratios or Combined Loan-to-Value Ratios (as applicable) might not
be a reliable indicator of the rates of delinquencies, foreclosures and losses
that could occur with respect to those mortgage loans.
The following information sets forth in tabular format certain
information, as of the statistical calculation cut-off date, as to the
statistical calculation mortgage loans in each loan group. Other than with
respect to rates of interest, percentages (approximate) are stated by Stated
Principal Balance of the statistical calculation mortgage loans in the related
loan group as of the cut-off date and the sum of the columns below may not
equal the total indicated due to rounding.
S-18
<PAGE>
STATISTICAL CALCULATION LOAN GROUP 1
COMBINED ORIGINAL LOAN-TO-VALUE RATIOS(1) -- LOAN GROUP 1
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
ORGINAL LOAN-TO-VALUE RATIOS OR COMBINED NUMBER OF PRINCIPAL AGGREGATE
ORIGINAL LOAN-TO-VALUE RATIOS MORTGAGE BALANCE PRINCIPAL
(AS APPLICABLE) (%) LOANS OUTSTANDING BALANCE
------------------------------------------ ----------- ------------------- -----------
<S> <C> <C> <C>
60.00 or Less ............................ 129 $ 11,588,537.49 7.75%
60.01 - 65.00 ........................... 48 5,616,726.75 3.76
65.01 - 70.00 ........................... 116 10,836,068.93 7.25
70.01 - 75.00 ........................... 193 21,272,094.93 14.23
75.01 - 80.00 ........................... 391 42,833,867.55 28.66
80.01 - 85.00 ........................... 132 14,869,271.57 9.95
85.01 - 90.00 ........................... 358 34,667,294.14 23.19
90.01 - 95.00 ........................... 108 7,600,910.59 5.09
95.01 - 100.00 ........................... 6 188,716.04 0.13
Total ................................. 1,481 $ 149,473,487.99 100.00%
</TABLE>
----------
(1) The weighted average Combined Original Loan-to-Value Ratio of the
statistical calculation mortgage loans in loan group 1 is expected to be
approximately 78.68%.
ORIGINAL TERMS TO MATURITY(1) -- LOAN GROUP 1
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
ORIGINAL TERM TO MATURITY MORTGAGE BALANCE PRINCIPAL
(MONTHS) LOANS OUTSTANDING BALANCE
--------------------------- ----------- ------------------- -----------
<S> <C> <C> <C>
61 - 120 ................. 1 $ 29,406.84 0.02%
121 - 180 ................. 341 18,892,298.46 12.64
181 - 240 ................. 26 2,331,176.42 1.56
301 - 360 ................. 1,113 128,220,606.27 85.78
Total .................. 1,481 $ 149,473,487.99 100.00%
</TABLE>
----------
(1) The weighted average original term to maturity of the statistical
calculation mortgage loans in loan group 1 is expected to be
approximately 335 months.
REMAINING TERMS TO MATURITY (1) -- LOAN GROUP 1
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
REMAINING TERM TO MATURITY MORTGAGE BALANCE PRINCIPAL
(MONTHS) LOANS OUTSTANDING BALANCE
---------------------------- ----------- ------------------- -----------
<S> <C> <C> <C>
61 - 120 .................. 1 $ 29,406.84 0.02%
121 - 180 .................. 341 18,892,298.46 12.64
181 - 240 .................. 26 2,331,176.42 1.56
301 - 360 .................. 1,113 128,220,606.27 85.78
Total ................... 1,481 $ 149,473,487.99 100.00%
</TABLE>
----------
(1) The weighted average remaining term to maturity of the statistical
calculation mortgage loans in loan group 1 is expected to be
approximately 334 months.
S-19
<PAGE>
MORTGAGE RATES(1) -- LOAN GROUP 1
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
MORTGAGE RATES (%) LOANS OUTSTANDING BALANCE
----------------------- ----------- ------------------- -----------
<S> <C> <C> <C>
7.751- 8.000 ......... 2 $ 168,025.01 0.11%
8.001- 8.250 ......... 1 199,614.77 0.13
8.501- 8.750 ......... 3 216,229.36 0.14
8.751- 9.000 ......... 5 910,927.96 0.61
9.001- 9.250 ......... 17 1,720,262.17 1.15
9.251- 9.500 ......... 33 3,353,093.44 2.24
9.501- 9.750 ......... 55 6,610,466.18 4.42
9.751-10.000 ......... 94 10,810,120.16 7.23
10.001-10.250 ......... 115 12,838,336.86 8.59
10.251-10.500 ......... 144 15,253,893.68 10.21
10.501-10.750 ......... 173 19,349,241.36 12.94
10.751-11.000 ......... 162 15,526,721.69 10.39
11.001-11.250 ......... 108 10,691,820.89 7.15
11.251-11.500 ......... 134 14,604,252.15 9.77
11.501-11.750 ......... 96 8,757,658.00 5.86
11.751-12.000 ......... 97 9,612,505.66 6.43
12.001-12.250 ......... 57 5,089,531.53 3.40
12.251-12.500 ......... 47 4,370,252.19 2.92
12.501-12.750 ......... 40 2,622,954.90 1.75
12.751-13.000 ......... 33 2,368,142.83 1.58
13.001-13.250 ......... 20 1,021,098.13 0.68
13.251-13.500 ......... 9 823,852.62 0.55
13.501-13.750 ......... 15 895,661.36 0.60
13.751-14.000 ......... 10 802,546.75 0.54
14.001-14.250 ......... 6 413,863.23 0.28
14.251-14.500 ......... 2 292,485.21 0.20
14.501-14.750 ......... 1 90,943.21 0.06
14.751-15.000 ......... 2 58,986.69 0.04
--- ---------------- ------
Total .............. 1,481 $ 149,473,487.99 100.00%
===== ================ ======
</TABLE>
----------
(1) The statistical calculation mortgage loans in loan group 1 with lender
acquired mortgage insurance are shown in the preceding table at mortgage
rates without adjusting for the interest premium charged by the related
lenders. As of the cut-off date, the weighted average mortgage rate of
the statistical calculation mortgage loans in loan group 1 without
adjusting for the interest premium is expected to be approximately
11.00%. If the mortgage rates for the lender acquired mortgage insurance
loans are shown net of the interest premium charged by the related
lenders, the weighted average mortgage rate of the statistical
calculation mortgage loans in loan group 1 is expected to be
approximately 10.70%.
S-20
<PAGE>
CURRENT MORTGAGE LOAN PRINCIPAL BALANCE(1) -- LOAN GROUP 1
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
RANGE OF CURRENT NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE LOAN MORTGAGE BALANCE PRINCIPAL
PRINCIPAL BALANCE LOANS OUTSTANDING BALANCE
----------------------------------- ----------- ------------------- -----------
<S> <C> <C> <C>
$9,954.24 to 50,000.00 ......... 424 $ 14,845,116.83 9.93%
$50,000.01 to 100,000.00 ......... 541 39,375,368.57 26.34
$100,000.01 to 150,000.00 ......... 236 28,884,729.06 19.32
$150,000.01 to 200,000.00 ......... 133 23,207,497.82 15.53
$200,000.01 to 250,000.00 ......... 63 14,062,978.62 9.41
$250,000.01 to 300,000.00 ......... 40 11,105,236.24 7.43
$300,000.01 to 350,000.00 ......... 12 3,883,671.46 2.60
$350,000.01 to 400,000.00 ......... 11 4,134,025.07 2.77
$400,000.01 to 450,000.00 ......... 7 2,998,175.79 2.01
$450,000.01 to 500,000.00 ......... 12 5,777,082.85 3.86
$550,000.01 to 599,808.25 ......... 2 1,199,605.68 0.80
Total .......................... 1,481 $ 149,473,487.99 100.00%
</TABLE>
----------
(1) The average current principal balance of the statistical calculation
mortgage loans in loan group 1 is expected to be approximately
$100,927.41.
OCCUPANCY TYPES(1) -- LOAN GROUP 1
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
OCCUPANCY TYPE LOANS OUTSTANDING BALANCE
---------------------- ----------- -------------------- -----------
<S> <C> <C> <C>
Primary Home ......... 1,359 $ 139,155,280.58 93.10%
Investor ............. 111 9,342,516.56 6.25
Second Home .......... 11 975,690.85 0.65
Total ............. 1,481 $ 149,473,487.99 100.00%
</TABLE>
----------
(1) Based upon representations of the related mortgagors at the time of
origination.
S-21
<PAGE>
STATE DISTRIBUTION OF MORTGAGED PROPERTIES -- LOAN GROUP 1
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
STATE OR TERRITORY LOANS OUTSTANDING BALANCE
------------------------ ----------- ------------------- -----------
<S> <C> <C> <C>
California ............. 279 $ 26,602,204.14 17.80%
New York ............... 180 26,096,003.94 17.46
New Jersey ............. 55 8,654,196.03 5.79
Florida ................ 93 8,123,647.67 5.43
South Carolina ......... 97 6,925,648.56 4.63
Texas .................. 69 5,887,051.62 3.94
Colorado ............... 42 5,579,043.63 3.73
North Carolina ......... 59 4,713,039.56 3.15
Massachusetts .......... 33 4,693,094.88 3.14
Pennsylvania ........... 44 4,095,459.37 2.74
Georgia ................ 45 4,073,505.40 2.73
Connecticut ............ 26 3,789,339.86 2.54
Michigan ............... 42 3,524,428.71 2.36
Virginia ............... 19 2,477,515.37 1.66
Oklahoma ............... 27 2,330,303.16 1.56
Utah ................... 22 2,195,254.10 1.47
Maryland ............... 15 2,152,275.90 1.44
Minnesota .............. 22 2,123,636.08 1.42
Ohio ................... 23 1,998,411.95 1.34
Nevada ................. 18 1,979,274.14 1.32
Tennessee .............. 32 1,914,624.18 1.28
Arizona ................ 22 1,853,738.31 1.24
Washington ............. 18 1,765,797.53 1.18
Louisiana .............. 14 1,460,603.69 0.98
Illinois ............... 14 1,358,751.79 0.91
Wisconsin .............. 12 1,274,050.53 0.85
Missouri ............... 16 1,036,859.09 0.69
Mississippi ............ 13 954,342.37 0.64
New Mexico ............. 12 877,309.40 0.59
Idaho .................. 12 847,503.77 0.57
Oregon ................. 11 818,095.09 0.55
Vermont ................ 8 720,656.61 0.48
Kentucky ............... 10 697,027.05 0.47
Washington DC .......... 8 678,138.95 0.45
New Hampshire .......... 4 597,540.49 0.40
Hawaii ................. 5 584,487.76 0.39
Indiana ................ 9 573,480.25 0.38
Kansas ................. 7 507,572.63 0.34
Arkansas ............... 7 483,006.00 0.32
Iowa ................... 6 460,840.18 0.31
Nebraska ............... 6 469,190.79 0.31
Delaware ............... 4 284,331.31 0.19
Alaska ................. 4 263,135.92 0.18
West Virginia .......... 6 260,298.81 0.17
Rhode Island ........... 3 231,985.21 0.16
Wyoming ................ 3 222,124.96 0.15
Montana ................ 2 114,757.03 0.08
Maine .................. 2 91,404.22 0.06
Alabama ................ 1 58,500.00 0.04
--- ---------------- -----
Total ............... 1,481 $ 149,473,487.99 100%
===== ================ =====
</TABLE>
S-22
<PAGE>
PURPOSE OF MORTGAGE LOANS -- LOAN GROUP 1
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
LOAN PURPOSE LOANS OUTSTANDING BALANCE
---------------------------------- ----------- ------------------- -----------
<S> <C> <C> <C>
Refinance (Cash-Out) ............. 677 $ 66,673,218.27 44.61%
Purchase ......................... 571 60,324,812.92 40.36
Refinance (Rate Or Term) ......... 233 22,475,456.80 15.04
--- ---------------- ------
Total ......................... 1,481 $ 149,473,487.99 100.00%
===== ================ ======
</TABLE>
DOCUMENTATION PROGRAMS FOR MORTGAGE LOANS(1) -- LOAN GROUP 1
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
TYPE OF MORTGAGE BALANCE PRINCIPAL
DOCUMENTATION PROGRAM LOANS OUTSTANDING BALANCE
-------------------------------------- ----------- ------------------- -----------
<S> <C> <C> <C>
Full/Alternate Documentation ......... 973 $ 92,570,266.87 61.93%
Reduced Documentation ................ 388 45,317,861.39 30.32
No Ratio ............................. 79 8,743,266.79 5.85
No Doc ............................... 41 2,842,092.94 1.90
--- ---------------- ------
Total ............................. 1,481 $ 149,473,487.99 100.00%
===== ================ ======
</TABLE>
----------
(1) The Full/Alternate, Reduced, No Ratio, and No Documentation Programs are
described under the heading "--Underwriting Standards."
TYPE OF MORTGAGE PROPERTIES -- LOAN GROUP 1
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
PROPERTY TYPE LOANS OUTSTANDING BALANCE
---------------------------------------- ----------- -------------------- -----------
<S> <C> <C> <C>
Single Family or Deminimus PUD ......... 939 $ 102,905,141.21 68.85%
Manufactured Home(1) ................... 270 18,903,420.42 12.65
Planned Unit Development (PUD) ......... 79 8,408,525.87 5.63
2 Unit ................................. 60 7,539,289.00 5.04
Low Rise Condominium ................... 48 3,204,600.59 2.14
3 Unit ................................. 20 2,663,233.10 1.78
Townhouse .............................. 23 2,459,564.05 1.65
4 Unit ................................. 16 1,883,149.00 1.26
Cooperative Unit ....................... 22 1,275,428.91 0.85
High Rise Condominium .................. 4 231,135.84 0.15
--- ----------------- ------
Total ............................... 1,481 $ 149,473,487.99 100.00%
===== ================= ======
</TABLE>
----------
(1) Treated as real property.
S-23
<PAGE>
CREDIT LEVELS FOR MORTGAGE LOANS(1) -- LOAN GROUP 1
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
CREDIT LEVEL LOANS OUTSTANDING BALANCE
------------------ ----------- ------------------- -----------
<S> <C> <C> <C>
0 (2) ............ 279 $ 14,363,432.46 9.61%
1+ ............... 283 40,298,707.52 26.96
1 ................ 535 59,233,279.56 39.63
2 ................ 219 22,931,031.90 15.34
3 ................ 119 9,743,358.91 6.52
4 ................ 46 2,903,677.64 1.94
Total ......... 1,481 $ 149,473,487.99 100.00%
===== ================ ======
</TABLE>
----------
(1) Credit Levels are assigned as described under the heading "--Underwriting
Standards."
(2) All of the loan group 1 statistical calculation mortgage loans with a
credit level of 0 are second lien mortgage loans.
S-24
<PAGE>
STATISTICAL CALCULATION LOAN GROUP 2
ORIGINAL LOAN-TO-VALUE RATIOS(1) -- LOAN GROUP 2
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
ORGINAL LOAN-TO-VALUE MORTGAGE BALANCE PRINCIPAL
RATIOS (%) LOANS OUTSTANDING BALANCE
----------------------- ----------- ------------------- -----------
<S> <C> <C> <C>
60.00 or Less ......... 94 $ 13,114,643.37 5.49%
60.01-65.00 ........... 49 8,427,295.86 3.53
65.01-70.00 ........... 130 19,396,432.78 8.12
70.01-75.00 ........... 244 34,407,009.52 14.41
75.01-80.00 ........... 526 71,410,136.07 29.91
80.01-85.00 ........... 145 21,541,070.73 9.02
85.01-90.00 ........... 351 49,277,874.96 20.64
90.01-95.00 ........... 162 21,172,208.84 8.87
--- ---------------- ------
Total .............. 1,701 $ 238,746,672.13 100.00%
===== ================ ======
</TABLE>
----------
(1) The weighted average Original Loan-to-Value Ratio of the statistical
calculation mortgage loans in loan group 2 is expected to be
approximately 79.69%.
ORIGINAL TERMS TO MATURITY(1) -- LOAN GROUP 2
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
ORIGINAL TERM TO MORTGAGE BALANCE PRINCIPAL
MATURITY (MONTHS) LOANS OUTSTANDING BALANCE
------------------- ----------- -------------------- -----------
<S> <C> <C> <C>
360-360 ........... 1,701 $ 238,746,672.13 100.00%
----- ---------------- ------
Total .......... 1,701 $ 238,746,672.13 100.00%
===== ================ ======
</TABLE>
----------
(1) The weighted average original term to maturity of the statistical
calculation mortgage loans in loan group 2 is expected to be
approximately 360 months.
REMAINING TERMS TO MATURITY(1) -- LOAN GROUP 2
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
REMAINING TERM TO MORTGAGE BALANCE PRINCIPAL
MATURITY (MONTHS) LOANS OUTSTANDING BALANCE
------------------- ----------- -------------------- -----------
<S> <C> <C> <C>
301-360 ........... 1,701 $ 238,746,672.13 100.00%
----- ---------------- ------
Total .......... 1,701 $ 238,746,672.13 100.00%
===== ================ ======
</TABLE>
----------
(1) The weighted average remaining term to maturity of the statistical
calculation mortgage loans in loan group 2 is expected to be
approximately 358 months.
S-25
<PAGE>
CURRENT MORTGAGE RATES(1) -- LOAN GROUP 2
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
CURRENT MORTGAGE RATES (%) LOANS OUTSTANDING BALANCE
---------------------------- ----------- ------------------- -----------
<S> <C> <C> <C>
7.751- 8.000 .............. 1 $ 92,226.99 0.04%
8.001- 8.250 .............. 2 426,720.68 0.18
8.251- 8.500 .............. 5 769,016.92 0.32
8.501- 8.750 .............. 16 2,843,872.12 1.19
8.751- 9.000 .............. 44 6,974,651.66 2.92
9.001- 9.250 .............. 69 11,888,340.58 4.98
9.251- 9.500 .............. 95 16,242,305.88 6.80
9.501- 9.750 .............. 166 27,289,286.25 11.43
9.751-10.000 .............. 221 32,432,322.80 13.58
10.001-10.250 .............. 156 22,632,940.13 9.48
10.251-10.500 .............. 199 27,387,333.76 11.47
10.501-10.750 .............. 175 24,092,846.51 10.09
10.751-11.000 .............. 121 16,031,185.07 6.71
11.001-11.250 .............. 95 12,421,902.06 5.20
11.251-11.500 .............. 89 11,568,053.46 4.85
11.501-11.750 .............. 56 5,713,044.31 2.39
11.751-12.000 .............. 47 6,761,129.90 2.83
12.001-12.250 .............. 21 1,578,450.53 0.66
12.251-12.500 .............. 36 4,539,622.08 1.90
12.501-12.750 .............. 16 1,337,133.06 0.56
12.751-13.000 .............. 23 2,078,569.40 0.87
13.001-13.250 .............. 11 838,097.56 0.35
13.251-13.500 .............. 30 2,323,331.84 0.97
13.501-13.750 .............. 4 363,527.97 0.15
13.751-14.000 .............. 1 45,464.41 0.02
14.001-14.250 .............. 1 29,176.78 0.01
14.251-14.500 .............. 1 46,119.42 0.02
--- ---------------- ------
Total ................... 1,701 $ 238,746,672.13 100.00%
===== ================ ======
</TABLE>
----------
(1) The statistical calculation mortgage loans in loan group 2 with lender
acquired mortgage insurance are shown in the preceding table at mortgage
rates without adjusting for the interest premium charged by the related
lenders. As of the cut-off date, the weighted average mortgage rate of
the statistical calculation mortgage loans in loan group 2 without
adjusting for the interest premium is expected to be approximately
10.41%. If the mortgage rates for the lender acquired mortgage insurance
loans are shown net of the interest premium charged by the related
lenders, the weighted average mortgage rate of the statistical
calculation mortgage loans in loan group 2 is expected to be
approximately 10.04%.
S-26
<PAGE>
CURRENT MORTGAGE LOAN PRINCIPAL BALANCE(1) -- LOAN GROUP 2
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
RANGE OF CURRENT NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE LOAN MORTGAGE BALANCE PRINCIPAL
PRINCIPAL BALANCE LOANS OUTSTANDING BALANCE
----------------------------------- ----------- ------------------ -----------
<S> <C> <C> <C>
$ 17,093.21 to 50,000.00 ......... 133 $ 5,217,528.54 2.19%
$ 50,000.01 to 100,000.00 ......... 586 44,825,321.47 18.78
$100,000.01 to 150,000.00 ......... 428 52,751,438.89 22.10
$150,000.01 to 200,000.00 ......... 229 39,948,330.75 16.73
$200,000.01 to 250,000.00 ......... 137 30,538,849.68 12.79
$250,000.01 to 300,000.00 ......... 92 25,172,021.03 10.54
$300,000.01 to 350,000.00 ......... 26 8,530,820.38 3.57
$350,000.01 to 400,000.00 ......... 26 9,775,733.03 4.09
$400,000.01 to 450,000.00 ......... 11 4,674,171.82 1.96
$450,000.01 to 500,000.00 ......... 28 13,509,843.82 5.66
$500,000.01 to 550,000.00 ......... 1 502,300.31 0.21
$550,000.01 to 600,000.00 ......... 1 566,870.51 0.24
$600,000.01 to 989,015.14 ......... 3 2,733,441.90 1.14
--- ---------------- ------
Total .......................... 1,701 $ 238,746,672.13 100.00%
===== ================ ======
</TABLE>
----------
(1) The average current principal balance of the statistical calculation
mortgage loans in loan group 2 is expected to be approximately
$140,356.66.
OCCUPANCY TYPES(1) -- LOAN GROUP 2
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
OCCUPANCY TYPE LOANS OUTSTANDING BALANCE
---------------------- ----------- -------------------- -----------
<S> <C> <C> <C>
Primary Home ......... 1,573 $ 225,669,225.53 94.52%
Investor ............. 116 11,609,161.96 4.86
Second Home .......... 12 1,468,284.64 0.61
----- ----------------- ------
Total ............. 1,701 $ 238,746,672.13 100.00%
===== ================= ======
</TABLE>
----------
(1) Based upon representations of the related mortgagors at the time of
origination.
S-27
<PAGE>
STATE DISTRIBUTION OF MORTGAGED PROPERTIES -- LOAN GROUP 2
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
STATE OR TERRITORY LOANS OUTSTANDING BALANCE
------------------------ ----------- ------------------- -----------
<S> <C> <C> <C>
California ............. 311 $ 63,177,518.05 26.46%
New Jersey ............. 113 18,068,703.99 7.57
New York ............... 66 13,327,861.53 5.58
Colorado ............... 73 10,583,932.90 4.43
North Carolina ......... 91 8,979,869.59 3.76
Texas .................. 69 8,770,820.28 3.67
Florida ................ 67 8,000,658.99 3.35
Massachusetts .......... 46 7,187,988.11 3.01
Virginia ............... 34 6,668,079.19 2.79
Illinois ............... 43 6,469,360.08 2.71
Arizona ................ 58 6,328,633.00 2.65
Michigan ............... 51 6,149,184.19 2.58
Utah ................... 41 5,832,573.12 2.44
Pennsylvania ........... 51 5,804,419.36 2.43
Washington ............. 39 5,622,810.57 2.36
Maryland ............... 34 5,319,581.31 2.23
Connecticut ............ 31 5,286,407.23 2.21
South Carolina ......... 66 5,230,277.65 2.19
Georgia ................ 38 4,901,730.39 2.05
Minnesota .............. 40 4,603,914.01 1.93
Missouri ............... 52 4,356,148.27 1.82
Iowa ................... 55 3,639,210.32 1.52
Nevada ................. 23 3,060,930.12 1.28
Tennessee .............. 24 2,374,604.50 0.99
Idaho .................. 17 1,951,864.77 0.82
Oregon ................. 15 1,901,048.31 0.80
New Mexico ............. 17 1,599,458.88 0.67
Washington DC .......... 7 1,604,962.27 0.67
Kansas ................. 17 1,266,089.09 0.53
Ohio ................... 15 1,224,273.20 0.51
Oklahoma ............... 14 1,182,902.19 0.50
Louisiana .............. 9 1,027,465.47 0.43
Hawaii ................. 4 778,127.42 0.33
New Hampshire .......... 5 670,888.14 0.28
Mississippi ............ 9 612,117.25 0.26
Wisconsin .............. 6 619,588.09 0.26
Arkansas ............... 7 590,557.45 0.25
Indiana ................ 6 564,833.14 0.24
Alaska ................. 4 522,659.52 0.22
Alabama ................ 5 493,010.92 0.21
Wyoming ................ 6 459,668.51 0.19
Vermont ................ 3 349,217.47 0.15
Nebraska ............... 4 319,430.62 0.13
Maine .................. 3 286,281.18 0.12
Montana ................ 3 282,467.00 0.12
West Virginia .......... 3 243,623.13 0.10
Kentucky ............... 3 221,907.89 0.09
Delaware ............... 2 142,460.77 0.06
North Dakota ........... 1 86,552.70 0.04
--- ---------------- ------
Total ............... 1,701 $ 238,746,672.13 100.00%
===== ================ ======
</TABLE>
S-28
<PAGE>
PURPOSE OF MORTGAGE LOANS -- LOAN GROUP 2
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
LOAN PURPOSE LOANS OUTSTANDING BALANCE
---------------------------------- ----------- -------------------- -----------
<S> <C> <C> <C>
Purchase ......................... 854 $ 121,538,687.13 50.91%
Refinance (Cash-Out) ............. 590 84,699,522.73 35.48
Refinance (Rate or Term) ......... 257 32,508,462.27 13.62
--- ----------------- ------
Total ......................... 1,701 $ 238,746,672.13 100.00%
===== ================= ======
</TABLE>
DOCUMENTATION PROGRAMS FOR MORTGAGE LOANS(1) -- LOAN GROUP 2
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
TYPE OF NUMBER OF PRINCIPAL AGGREGATE
DOCUMENTATION MORTGAGE BALANCE PRINCIPAL
PROGRAM LOANS OUTSTANDING BALANCE
-------------------------------------- ----------- -------------------- -----------
<S> <C> <C> <C>
Full/Alternate Documentation ......... 1208 $ 160,560,899.92 67.25%
Reduced Documentation ................ 415 65,538,352.72 27.45
No Ratio ............................. 60 10,726,488.24 4.49
No Doc ............................... 18 1,920,931.25 0.80
---- ----------------- ------
Total ............................. 1,701 $ 238,746,672.13 100.00%
===== ================= ======
</TABLE>
----------
(1) The Full/Alternate, Reduced, No Ratio, and No Documentation Programs are
described under the heading "--Underwriting Standards."
TYPE OF MORTGAGE PROPERTIES -- LOAN GROUP 2
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
PROPERTY TYPE LOANS OUTSTANDING BALANCE
---------------------------------------- ----------- -------------------- -----------
<S> <C> <C> <C>
Single Family or Deminimus PUD ......... 1,084 $ 158,067,071.63 66.21%
Planned Unit Development (PUD) ......... 135 25,999,524.20 10.89
Manufactured Home(1) ................... 270 22,712,481.94 9.51
Low Rise Condominium ................... 76 10,995,317.71 4.61
2 Unit ................................. 60 8,703,937.52 3.65
3 Unit ................................. 24 4,790,600.44 2.01
Townhouse .............................. 22 2,612,985.00 1.09
4 Unit ................................. 14 2,545,770.70 1.07
Cooperative Unit ....................... 11 1,504,313.13 0.63
High Rise Condominium .................. 5 814,669.86 0.34
----- ----------------- ------
Total ............................... 1,701 $ 238,746,672.13 100.00%
===== ================= ======
</TABLE>
----------
(1) Treated as real property.
S-29
<PAGE>
CREDIT LEVELS FOR MORTGAGE LOANS(1) -- LOAN GROUP 2
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
CREDIT LEVEL LOANS OUTSTANDING BALANCE
------------------ ----------- -------------------- -----------
<S> <C> <C> <C>
1+ ............... 741 $ 112,590,791.79 47.16%
1 ................ 522 73,349,472.72 30.72
2 ................ 263 34,966,240.19 14.65
3 ................ 131 14,103,393.40 5.91
4 ................ 44 3,736,774.03 1.57
--- ----------------- ------
Total ......... 1,701 $ 238,746,672.13 100.00%
===== ================= ======
</TABLE>
----------
(1) Credit Levels are assigned as described under the heading "--Underwriting
Standards."
MARGIN(1) -- LOAN GROUP 2
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
MARGIN (%) LOANS OUTSTANDING BALANCE
---------------------- ----------- ------------------- -----------
<S> <C> <C> <C>
4.751- 5.000 ......... 196 $ 32,975,368.73 13.81%
5.001- 5.250 ......... 2 590,140.00 0.25
5.251- 5.500 ......... 503 73,178,297.26 30.65
5.501- 5.750 ......... 141 18,813,627.28 7.88
5.751- 6.000 ......... 212 29,173,559.38 12.22
6.001- 6.250 ......... 183 24,901,339.83 10.43
6.251- 6.500 ......... 149 19,480,500.65 8.16
6.501- 6.750 ......... 89 12,421,569.37 5.20
6.751- 7.000 ......... 77 9,009,735.73 3.77
7.001- 7.250 ......... 28 5,359,115.13 2.24
7.251- 7.500 ......... 64 7,136,884.00 2.99
7.501- 7.750 ......... 7 1,370,588.44 0.57
7.751- 8.000 ......... 30 2,545,573.23 1.07
8.001- 8.250 ......... 6 580,813.09 0.24
8.251- 8.500 ......... 5 347,856.82 0.15
8.501- 8.750 ......... 3 202,543.01 0.08
8.751- 9.000 ......... 3 335,964.42 0.14
9.251- 9.500 ......... 1 88,000.00 0.04
9.501- 9.750 ......... 1 116,195.76 0.05
9.751-10.000 ......... 1 119,000.00 0.05
--- ---------------- ------
Total ............. 1,701 $ 238,746,672.13 100.00%
===== ================ ======
</TABLE>
----------
(1) The statistical calculation mortgage loans in loan group 2 with lender
acquired mortgage insurance are shown in the preceding table at margins
without adjusting for the interest premium charged by the related
lenders. As of the cut-off date, the weighted average margin of the
statistical calculation mortgage loans in loan group 2 without adjusting
for the interest premium is expected to be approximately 5.95%. If the
margins for the lender acquired mortgage insurance loans are shown net of
the interest premium charged by the related lenders, the weighted average
margin of the statistical calculation mortgage loans in loan group 2 is
expected to be approximately 5.58%.
S-30
<PAGE>
NEXT ADJUSTMENT DATES(1) -- LOAN GROUP 2
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
MONTHS LOANS OUTSTANDING BALANCE
------------------------ ----------- ------------------- -----------
<S> <C> <C> <C>
February 2001 .......... 1 $ 363,675.58 0.15%
April 2001 ............. 5 1,128,111.79 0.47
May 2001 ............... 3 367,750.00 0.15
April 2002 ............. 2 65,697.00 0.03
May 2002 ............... 3 292,044.27 0.12
June 2002 .............. 13 1,667,992.13 0.70
July 2002 .............. 72 10,944,681.79 4.58
August 2002 ............ 284 41,832,015.83 17.52
September 2002 ......... 498 69,781,393.69 29.23
October 2002 ........... 421 56,708,888.36 23.75
November 2002 .......... 294 43,318,378.51 18.14
May 2003 ............... 1 42,676.79 0.02
June 2003 .............. 1 148,179.21 0.06
July 2003 .............. 9 1,220,011.14 0.51
August 2003 ............ 24 2,868,373.67 1.20
September 2003 ......... 36 4,551,144.87 1.91
October 2003 ........... 22 2,337,332.50 0.98
November 2003 .......... 12 1,108,325.00 0.46
--- ---------------- ------
Total ............... 1,701 $ 238,746,672.13 100.00%
===== ================ ======
</TABLE>
----------
(1) The weighted average months to next Adjustment Date for the statistical
calculation mortgage loans in loan group 2 is expected to be
approximately 23 months.
S-31
<PAGE>
MAXIMUM RATES(1) -- LOAN GROUP 2
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
MAXIMUM RATE (%) LOANS OUTSTANDING BALANCE
-------------------------- ----------- ------------------- -----------
<S> <C> <C> <C>
14.751 to 15.000 ......... 2 $ 242,943.24 0.10%
15.001 to 15.250 ......... 2 426,720.68 0.18
15.251 to 15.500 ......... 5 769,016.92 0.32
15.501 to 15.750 ......... 16 2,843,872.12 1.19
15.751 to 16.000 ......... 46 7,198,740.09 3.02
16.001 to 16.250 ......... 69 11,888,340.58 4.98
16.251 to 16.500 ......... 96 16,527,072.18 6.92
16.501 to 16.750 ......... 167 27,441,378.97 11.49
16.751 to 17.000 ......... 218 32,057,518.12 13.43
17.001 to 17.250 ......... 156 22,632,940.13 9.48
17.251 to 17.500 ......... 198 27,102,567.46 11.35
17.501 to 17.750 ......... 174 23,940,753.79 10.03
17.751 to 18.000 ......... 121 15,870,561.35 6.65
18.001 to 18.250 ......... 95 12,421,902.06 5.20
18.251 to 18.500 ......... 89 11,568,053.46 4.85
18.501 to 18.750 ......... 56 5,713,044.31 2.39
18.751 to 19.000 ......... 47 6,921,753.62 2.90
19.001 to 19.250 ......... 21 1,578,450.53 0.66
19.251 to 19.500 ......... 36 4,539,622.08 1.90
19.501 to 19.750 ......... 16 1,337,133.06 0.56
19.751 to 20.000 ......... 23 2,078,569.40 0.87
20.001 to 20.250 ......... 11 838,097.56 0.35
20.251 to 20.500 ......... 30 2,323,331.84 0.97
20.501 to 20.750 ......... 4 363,527.97 0.15
20.751 to 21.000 ......... 1 45,464.41 0.02
21.001 to 21.250 ......... 1 29,176.78 0.01
21.251 to 21.500 ......... 1 46,119.42 0.02
--- ---------------- ------
Total ................. 1,701 $ 238,746,672.13 100.00%
===== ================ ======
</TABLE>
----------
(1) The statistical calculation mortgage loans in loan group 2 with lender
acquired mortgage insurance are shown in the preceding table at maximum
rates without adjusting for the interest premium charged by the related
lenders. As of the cut-off date, the weighted average maximum rate of the
statistical calculation mortgage loans in loan group 2 without adjusting
for the interest premium is expected to be approximately 17.41%. If the
maximum rates for the lender acquired mortgage insurance loans are shown
net of the interest premium charged by the related lenders, the weighted
average maximum rate of the statistical calculation mortgage loans in
loan group 2 is expected to be approximately 17.04%.
S-32
<PAGE>
ASSIGNMENT OF THE MORTGAGE LOANS
Pursuant to the pooling and servicing agreement, on the closing date the
seller will sell, transfer, assign, set over and otherwise convey without
recourse to the depositor all right, title and interest of the seller, and the
depositor 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 initial mortgage
loan and all right, title and interest in and to all other assets included in
Home Equity Mortgage Loan Asset-Backed Trust, Series SPMD 2000-C, including all
principal and interest received on or with respect to the mortgage loans,
exclusive of principal and interest due on or prior to the cut-off date and the
pre-funded amount deposited in the pre-funding accounts on the closing date.
In connection with the 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 mortgage note (and any modification or amendment
thereto) endorsed in blank without recourse, except that the depositor may
deliver or cause to be delivered a lost note affidavit in lieu of any original
mortgage note that has been lost, the original mortgage creating a first or
second lien on the related mortgaged property with evidence of recording
indicated thereon, an assignment in recordable form of the mortgage, the title
policy with respect to the related mortgaged property and, if applicable, all
recorded intervening assignments of the mortgage and any riders or
modifications to the mortgage note and mortgage (except for any document not
returned from the public recording office, which will be delivered to the
trustee as soon as the same is available to the depositor). With respect to up
to 30% of the initial mortgage loans (referred to as Delayed Delivery Loans),
the depositor may deliver all or a portion of each related mortgage file to the
trustee not later than five business days after the closing date. 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, recording is not required to
protect the trustee's interest 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 subsequent transfer date, as applicable (or promptly after the
trustee's receipt of any document permitted to be delivered after the closing
date or subsequent transfer date, as applicable), and if any document in a
mortgage file is found to be missing or defective in a material respect and the
seller does not cure that defect within 90 days of notice thereof from the
trustee (or within a longer period not to exceed 720 days after the closing
date as provided in the pooling and servicing 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 the
mortgage loan (referred to as deleted mortgage loan) from the trust fund and
substitute in its place another mortgage loan (a replacement mortgage loan);
however, 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 substitution will not disqualify the trust fund as a 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 pooling and servicing agreement,
o 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 and held for
distribution to the certificateholders on the related distribution date
(referred to as a Substitution Adjustment Amount)),
o have a current Mortgage Rate not lower than, and not more than 1% per
annum higher than, that of the deleted mortgage loan,
o with respect to the mortgage loans in loan group 2, (a) have a mortgage
rate based upon the same Loan Index and a Margin at least equal to and
not greater than 50 basis points higher than the deleted mortgage loan,
(b) have a mortgage rate subject to a maximum rate that is no less than
the maximum Rate applicable to the deleted mortgage loan, (c) have
Adjustment Dates that are no more or less frequent than the deleted
mortgage loan and (d) not be a Performance Loan,
S-33
<PAGE>
o have a Loan-to-Value Ratio or Combined Loan-to-Value Ratio (as
applicable) not higher than that of the deleted mortgage loan,
o have a remaining term to maturity not greater than (and not more than
one year less than) that of the deleted mortgage loan, and
o 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.
CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS
On the closing date, the excess of the aggregate class certificate balance
of the certificates over the principal balance of the initial mortgage loans on
November 1, 2000 (which excess is not expected to exceed $27,280,000) will be
deposited in two pre-funding accounts established and maintained by the trustee
on behalf of the certificateholders. The amount on deposit in one pre-funding
account will be allocated to purchase fixed rate mortgage loans for loan group
1 and the amount on deposit in the second pre-funding account will be allocated
to purchase adjustable rate mortgage loans for loan group 2. During the
pre-funding period, the depositor is expected to purchase conventional subprime
mortgage loans acquired by the seller after November 1, 2000 from the seller
and sell those subsequent mortgage loans to the trust fund as described below.
The purchase price for each subsequent mortgage loan will equal the Stated
Principal Balance of such subsequent mortgage loan as of the later of the date
of origination of the subsequent mortgage loan and the first day of the month
in which the subsequent mortgage loan is added to the trust fund, and will be
paid from the related pre-funding account. Accordingly, the purchase of
subsequent mortgage loans will decrease the amount on deposit in the
pre-funding accounts and increase the Stated Principal Balance of the mortgage
pool.
Pursuant to the pooling and servicing agreement and a subsequent transfer
agreement to be executed by the seller, the depositor and the trustee, the
conveyance of subsequent mortgage loans may be made on any business day during
the pre-funding period, subject to certain conditions in the pooling and
servicing agreement being satisfied as certified by the Depositor, including
that:
o the subsequent mortgage loans conveyed on the subsequent transfer date
satisfy the same representations and warranties in the pooling and
servicing agreement applicable to all mortgage loans,
o the subsequent mortgage loans conveyed on the subsequent transfer date
were selected in a manner reasonably believed not to be adverse to the
interests of the certificateholders,
o the trustee receives an opinion of counsel with respect to the validity
of the conveyance of the subsequent mortgage loans conveyed on the
subsequent transfer date and the absence of any adverse effect on the
REMIC,
o the conveyance of the subsequent mortgage loans on the subsequent
transfer date will not result in a reduction or withdrawal of any
ratings assigned to the offered certificates,
o no subsequent mortgage loan conveyed on the subsequent transfer date
was 30 or more days delinquent,
o each subsequent mortgage loan conveyed on the subsequent transfer date
that is an adjustable rate mortgage loan is secured by a first lien on
the related mortgaged property, and
o following the conveyance of the subsequent mortgage loans on the
subsequent transfer date, the characteristics of each loan group to
which mortgage loans were added pursuant to such conveyance will remain
substantially similar to the characteristics of each loan group as of
the initial cut-off date.
UNDERWRITING STANDARDS
The mortgage loans were originated in accordance with IndyMac Bank's
underwriting standards for sub-prime mortgage loans described below. IndyMac,
Inc., the entity whose assets were transferred to
S-34
<PAGE>
IndyMac Bank as described herein under "Servicing of the Mortgage Loans--The
Master Servicer", 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 Bank are "conventional non-conforming
mortgage loans" (i.e., loans which are not insured by the Federal Housing
Authority or partially guaranteed by the Veterans Administration and which do
not qualify for sale to Fannie Mae or Freddie Mac) secured by first or second
liens on one-to four-family residential properties.
IndyMac Bank purchases subprime mortgage loans from, or provides funding
for subprime mortgage loans originated by, banks, savings and loan
associations, mortgage bankers (which may or may not be affiliated with IndyMac
Bank) and mortgage brokers (each is referred to as a loan originator) either
under flow or bulk purchase arrangements, the terms of which may vary from loan
originator to loan originator. The loan originators are required to be HUD
approved mortgagees. In addition to purchasing mortgage loans from (or
providing funding to) loan originators, IndyMac Bank also engages in the direct
origination of mortgage loans.
IndyMac Bank's underwriting standards for subprime mortgage loans 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 Fannie Mae and Freddie Mac with
regard to the borrower's credit standing and repayment ability. Borrowers who
qualify under the IndyMac Bank underwriting standards for subprime mortgage
loans generally have payment histories and debt-to-income ratios that would not
satisfy Fannie Mae and Freddie Mac 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 those mortgage loans could be higher, and may be
substantially higher, than that of mortgage loans underwritten in accordance
with Fannie Mae and Freddie Mac standards.
In the process of underwriting mortgage loans, IndyMac Bank may use its
"electronic Mortgage Information and Transaction System" (or "e-MITS"), a
proprietary, internet-based, point-of-sale automated underwriting and
risk-based pricing system to underwrite and price the mortgage loans. This
system uses proprietary credit and risk analysis information generated from
statistical analysis of IndyMac Bank's historical database of over 300,000
loans to determine the economic levels at which a given loan should be
approved. The system also incorporates information from models provided by
credit rating agencies. e-MITS analyzes over forty data elements relating to
the mortgager and the mortgaged property before rendering an approval and a
risk-based price. As with IndyMac Bank's traditional underwriting process, this
approval is subject to full and complete data verification. Loans approved by
e-MITS comply with IndyMac Bank's underwriting guidelines. As is the case with
loans that are not underwritten through e-MITS, exceptions to standard
underwriting guidelines are permitted where compensating factors are present or
in the context of negotiated bulk purchases.
Each of the subprime mortgage loans purchased or originated by IndyMac
Bank is assigned to one of six credit levels. The credit levels are, in
descending order of credit-worthiness, 0, 1+, 1, 2, 3 and 4. With respect to
subprime mortgage loans purchased or originated before March 2000, the credit
level was primarily based on the prospective mortgagor's FICO Credit Score with
adjustments made to the FICO Credit Score based on the Loan-to-Value Ratio of
the mortgage loan and on the prospective mortgagor's debt-to-income ratio and
installment debt credit history. With respect to subprime mortgage loans
purchased or originated after February 2000, the credit level generally is
based solely on the prospective mortgagor's FICO Credit Score. For all subprime
mortgage loans, whenever purchased or originated, the FICO Credit Score for
credit level 0 is generally a minimum of 620; the FICO Credit Score for credit
level 4 is generally a minimum of 500.
IndyMac Bank also accepts loans underwritten under one of four
documentation programs: Full/Alternate Documentation, Reduced Documentation, No
Ratio Documentation and No Doc. For each credit level and documentation
program, IndyMac Bank has a maximum permitted loan amount, a maximum
Loan-to-Value Ratio or Combined Loan-to-Value Ratio (as applicable) and, in
some cases, a
S-35
<PAGE>
limitation on the loan purpose. The maximum debt to income ratio for all loans
purchased or originated before March 2000, other than those with primary
mortgage insurance, was 55%. That limitation, however, may have been waived on
a case by case basis. The maximum debt to income ratio for all loans purchased
or originated after February 2000, other than those with primary mortgage
insurance, was 65%.
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 each of these programs, certain credit underwriting
documentation concerning income or income verification and/or employment
verification is waived. Under the No Doc Program, credit underwriting
documentation concerning income, employment verification and asset verification
is waived and income ratios are not calculated.
Only mortgage loans for primary residences in credit Levels 0 and 1+ may
be submitted under the No Doc Program, and the maximum Loan-to-Value Ratios or
Combined Loan-to-Value Ratios (as applicable) under this program are less than
those under the Full/Alternate Documentation, Reduced Documentation and No Doc
Programs.
PMI MORTGAGE INSURANCE POLICY
For certain loans with no borrower-paid mortgage insurance and loan-to
value ratios in excess of 60%, the trust fund will acquire additional mortgage
insurance. Those loans include approximately 51.89% of the statistical
calculation mortgage loans in loan group 1 and approximately 60.60% of the
loans in loan group 2. They will be insured by a mortgage insurance policy
issued by PMI Mortgage Assurance Co. PMI, an Arizona corporation with its
headquarters in San Francisco, California, is a private mortgage insurance
company founded in 1972. PMI is rated "AA+" by S&P and "Aa2" by Moody's with
respect to its claims-paying ability. The remainder of the statistical
calculation mortgage loans will not be covered by a mortgage insurance policy
or are below the 60% LTV coverage limit. In addition, the majority of the
subsequent mortgage loans with an original loan-to-value ratio in excess of 60%
will be covered by the PMI mortgage insurance policy or already have
borrower-paid mortgage insurance.
The master servicer must follow specified procedures for making a claim on
an insured mortgage loan. Within six months after an insured mortgage loan
becomes delinquent and satisfactory arrangements to bring the loan current are
not made, the master servicer will initiate foreclosure proceedings. The master
servicer is required to file a claim with the mortgage insurer no later than 60
days after the earlier of acquiring marketable title to the mortgaged property
or a pre-arranged sale of the mortgaged property. If a claim filed by the
master servicer is incomplete, within 20 days of receipt of a claim the
mortgage insurer is required to notify the master servicer of all items needed
to perfect the claim. If no notice of deficiency is sent by the mortgage
insurer within the 20 day period, then the claim is a perfected claim as of the
date of receipt. Subject to the conditions and exclusions of the mortgage
insurance policy, the mortgage insurer is required to process and pay a
perfected claim within 60 days.
Under the mortgage insurance policy, the mortgage insurer will pay a claim
by either acquiring the related mortgaged property or paying a claim payment
amount. If the mortgage insurer acquires the mortgaged property, the price it
pays will be the outstanding principal balance of the mortgage loan, together
with certain accrued interest due on the mortgage loan and certain expenses
after delinquency paid by the insured (such as hazard insurance, taxes,
maintenance expenses and foreclosure costs), reduced by certain amounts such as
rental income and escrow deposits (collectively, the "Claim Amount"). Claim
payment may occur either where the mortgaged property is foreclosed by the
trust fund or where it is sold to a third party in a sale approved by the
mortgage insurer. When the mortgaged property is foreclosed by the trust fund,
the claim payment amount is an amount equal to the product of (i) the Claim
Amount and (ii) the coverage percentage specified in the mortgage insurance
policy.
The coverage percentage is a percentage generally equal to (i) the
original loan-to-value ratio of the mortgage loan minus 60% divided by (ii) the
original loan-to-value ratio of the mortgage loan. If the mortgaged property is
sold to a third party, the cash settlement amount is the lesser of the actual
loss and
S-36
<PAGE>
the product of coverage percentage and the Claim Amount. Thus, the covered
portion of any loss will be different depending upon the original loan-to-value
ratio of the mortgage loan. Mortgage loans with higher original loan-to-value
ratios will have a higher coverage percentage and mortgage loans with lower
original loan-to-value ratios will have a lower coverage percentage. The
mortgage insurance policy will not cover special hazard, bankruptcy, fraud
losses and certain other types of losses as described in the policy.
Claim payments under a mortgage insurance policy will be made to the
master servicer, deposited in the collection account, and treated in the same
manner as a prepayment of the related mortgage loan. Premiums payable on the
mortgage insurance policies will be paid monthly by the master servicer with
funds withdrawn from the collection account for the related mortgage loans.
SERVICING OF MORTGAGE LOANS
THE MASTER SERVICER
IndyMac Bank will act as master servicer. The principal executive offices
of the master servicer are located at 155 North Lake Avenue, Pasadena,
California 91101. IndyMac Bank is a wholly-owned subsidiary of IndyMac
Intermediate Holdings, Inc., which is a wholly-owned subsidiary of IndyMac
Bancorp, Inc.
Effective July 1, 2000, IndyMac Mortgage Holdings, Inc. ("Holdings")
acquired SGV Bancorp, the holding company of First Federal Savings and Loan
Association of San Gabriel Valley ("First Federal"). In connection with that
acquisition, IndyMac, Inc., the wholly-owned mortgage banking subsidiary of
Holdings, was merged with and into SGV Bancorp, and SGV Bancorp contributed
substantially all of its assets and liabilities (including the servicing
platform and all of the related servicing operations of the former IndyMac,
Inc., together with substantially all of its personnel) to First Federal. Also
in connection with the acquisition, Holdings changed its name to IndyMac
Bancorp, Inc.; SGV Bancorp changed its name to IndyMac Intermediate Holdings,
Inc. and First Federal changed its name to IndyMac Bank, F.S.B.
The master servicer will be responsible for servicing the mortgage loans
in accordance with the terms set forth in the pooling and servicing agreement
employing the same degree of skill and care which it employs in servicing the
mortgage loans comparable to the mortgage loans serviced by the master servicer
for itself or others. The master servicer may perform its servicing obligations
under the pooling and servicing agreement through one or more subservicers
selected by the master servicer. Notwithstanding any subservicing agreement,
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.
During the first half of 1998, the former IndyMac, Inc. acquired a
servicing platform (i.e., the servicing business operations but not mortgage
loans) from First of America Loan Services, Inc. in order to provide IndyMac,
Inc. with direct servicing capabilities for mortgage loans, including sub-prime
mortgage loans. Prior to that time, IndyMac, Inc. had master servicing
capabilities but no direct servicing capabilities. In connection with the
acquisition of SGV Bancorp, the servicing platform of First of America Loan
Services, Inc. was contributed to IndyMac Bank. As of the closing date, it is
expected that IndyMac Bank will directly service substantially all of the
initial mortgage loans (by cut-off date pool principal balance). With respect
to the other mortgage loans in the mortgage pool, as of the closing date, it is
expected that IndyMac Bank will perform its servicing obligations under the
pooling and servicing agreement through one or more subservicers.
If the servicing of any mortgage loan were to be transferred from a
subservicer to IndyMac Bank, or if any other servicing transfer were to occur,
there may be an increase in all delinquencies and defaults due to misapplied or
lost payments, data input errors, system incompatibilities or otherwise.
Although any increase in delinquencies is expected to be temporary, there can
be no assurance as to the duration or severity of any disruption in servicing
the applicable mortgage loans as a result of any servicing transfer.
As of September 30, 2000, the former IndyMac, Inc. provided servicing for
approximately $17.48 billion in conventional mortgages loans, of which
approximately $1.42 billion comprised sub-prime mortgage loans.
S-37
<PAGE>
FORECLOSURE, DELINQUENCY AND LOSS EXPERIENCE
IndyMac, Inc. commenced master servicing conventional mortgage loans
during April 1993 and commenced servicing conventional mortgage loans during
August 1998. In connection with the acquisition of SGV Bancorp, the master
servicing and servicing operations of the former IndyMac, Inc. were contributed
to IndyMac Bank, resulting in IndyMac Bank performing the master servicing and
servicing operations previously performed by IndyMac, Inc.
The delinquency and loss statistics may be affected by the size and
relative lack of seasoning of the portfolio because many of the loans were not
outstanding long enough to give rise to some or all of the periods of
delinquency and loss indicated in the charts below. In addition, because
IndyMac Bank only recently began directly servicing mortgage loans, the
foreclosure, delinquency and loss experience set forth below may not be
indicative of IndyMac Bank's foreclosure, delinquency and loss experience for
future periods. Accordingly, the information in the tables below (which
includes mortgage loans with underwriting, payment and other characteristics
which differ from those of the mortgage loans in the trust fund) 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 delinquency, foreclosure and loss experience presented these tables
will be indicative of the experience on the mortgage loans in the future.
The following table summarizes the delinquency and foreclosure experience
as of December 31, 1997, December 31, 1998, December 31, 1999 and September 30,
2000 on approximately $496 million, $1.21 billion, $892 million and $1.42
billion, respectively, in outstanding principal balance of sub-prime mortgage
loans master serviced or serviced by IndyMac Bank (does not include loans that
were part of First Federal's portfolio prior to its acquisition by IndyMac
Bancorp). A mortgage loan is characterized as delinquent if the borrower has
not paid the scheduled payment due by the due date specified in the related
mortgage note. The table below excludes sub-prime mortgage loans where the
borrower has filed for bankruptcy but has remained current in mortgage
payments.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1998 1999 2000
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Total Number of Sub-Prime Mortgage
Loans in Portfolio ................. 4,446 10,989 7,890 12,250
Delinquent Mortgage Loans and Pending
Foreclosures at Period End(1):
30-59 days ....................... 4.25% 5.88% 5.81% 6.44%
60-89 days ....................... 1.03 1.96 1.60 1.88
90 days or more (excluding pending
foreclosures) ................... 2.81 1.77 0.96 0.79
----- ------ ----- ------
Total delinquencies ........... 8.10% 9.61% 8.36% 9.11%
===== ====== ===== ======
Foreclosures pending ................ 1.73% 2.11% 6.16% 3.78%
----- ------ ----- ------
Total delinquencies and
foreclosures pending ......... 9.83% 11.72% 14.52% 12.89%
===== ====== ===== ======
</TABLE>
----------
(1) As a percentage of the total number of loans master serviced or serviced.
S-38
<PAGE>
The following table summarizes the loss experience on the dates indicated
of sub-prime mortgage loans originated or acquired by IndyMac Bank and serviced
or master serviced by IndyMac Bank and securitized by the depositor (does not
include loans that were part of First Federal's portfolio prior to its
acquisition by IndyMac Bancorp):
<TABLE>
<CAPTION>
CUMULATIVE NET CUMULATIVE STATED
LOSSES AMOUNT OF SECURITIES LOSS RATIO(1)
---------------- ---------------------- --------------
<S> <C> <C> <C>
As of December 31, 1997 .......... $ 0.00 $ 450,108,165.00 0.00%
As of December 31, 1998 .......... $ 880,972.00 $ 1,312,193,866.00 0.07%
As of December 31, 1999 .......... $ 1,686,327.00 $ 1,505,267,265.00 0.11%
As of September 30, 2000 ......... $ 6,272,013.36 $ 2,069,921,465.00 0.30%
</TABLE>
----------
(1) Loss Ratio represents cumulative net losses as a percentage of the
aggregate amount of securities issued.
Historically, a variety of factors, including the appreciation of real
estate values, has limited the master servicer's loss and delinquency
experience on its portfolio of serviced mortgage loans. There can be no
assurance that factors beyond the master servicer's control, such as national
or local economic conditions or downturns in the real estate markets of its
lending areas, will not result in increased rates of delinquencies and
foreclosure losses in the future. For example, a general deterioration of the
real estate market regions where the mortgaged properties are located may
result 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. A general weakening of the economy may result in decreases in the
financial strength of borrowers and decreases in the value of collateral
serving as collateral for loans. If the real estate market and economy continue
to decline, the master servicer may experience an increase in delinquencies on
the loans it services and higher net losses on liquidated loans.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The expense fees are payable out of the interest payments of each mortgage
loan. The expense fees will vary from mortgage loan to mortgage loan. As of the
cut-off date, the weighted average expense fee rate is expected to equal
approximately 0.51% plus lender acquired mortgage insurance premium. The
expense fees consist of (a) master servicing compensation, (b) servicing
compensation, (c) fees and expenses payable to trustee in respect of its
activities as trustee under the pooling and servicing agreement and subsequent
transfer agreement and (d) primary mortgage insurance premiums to PMI where
applicable. In cases where a mortgage loan is being directly serviced by the
master servicer, the master servicer will be entitled to the master servicing
fee and the servicing fee. In cases where a mortgage loan is being directly
serviced by a subservicer, the subservicer will be entitled to the servicing
fee and the master servicer will only be entitled to the master servicing fee.
The master servicer is obligated to pay certain ongoing expenses associated
with the trust fund and incurred by the master servicer in connection with its
responsibilities under the pooling and servicing agreement and those amounts
will be paid by the master servicer out of its fee. The amount of the master
servicing compensation is subject to adjustment with respect to prepaid
mortgage loans, as described herein under "--Adjustment to Servicing
Compensation in Connection with Certain Prepaid Mortgage Loans." The master
servicer will also be entitled to receive late payment fees, assumption fees,
and other similar charges. The master servicer will be entitled to receive all
reinvestment income earned on amounts on deposit in the collection account, the
certificate account, the capitalized interest accounts, the Excess Reserve
Account, and the pre-funding accounts. The adjusted net mortgage rate of a
mortgage loan is the mortgage loan's mortgage rate minus the related expense
fee rate.
ADJUSTMENT TO SERVICING COMPENSATION 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. Similarly, if the master
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<PAGE>
servicer purchases a mortgage loan as described under "--Certain Modifications
and Refinancings," the trust fund is entitled to the interest paid by the
borrower only to the date of purchase. Principal prepayments by borrowers
received during a Remittance Period will be distributed to Certificateholders
on the related distribution date. To offset any interest shortfall to
certificateholders as a result of any prepayments, the master servicer will be
required to reduce its servicing compensation, but the reduction for any
distribution date will be limited to an amount (such amount is referred to as
Compensating Interest) equal to the product of
o 0.25% multiplied by
o one-twelfth multiplied by
o the pool balance as of the first day of the prior month.
ADVANCES
Except as described below, the master servicer will be required to advance
prior to each distribution date, from its own funds or amounts received with
respect to the mortgage loans that do not constitute Available Funds for this
distribution date, an amount (referred to as an advance) equal to
o all of the payments of principal and interest on the mortgage loans due
during the related Remittance Period and delinquent as of the
"determination date" (which will be the 18th of the month or, if the
18th is not a business day, the next business day after the 18th of the
month)
minus
o the total of
o the master servicing fee for the related period and
o the applicable servicing fee for the related period
plus
o 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).
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 those 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, that advance will be included with
the distribution to certificateholders on the related distribution date. Any
failure by the master servicer to make or deposit in the certificate account,
including any failure to make an advance, will constitute an event of default
under the pooling and servicing agreement if the failure remains unremedied for
five days after written notice thereof. If the master servicer is terminated as
a result of the occurrence of an event of default, the trustee or the successor
master servicer will be obligated to make any required advance, in accordance
with the terms of the pooling and servicing agreement.
CERTAIN MODIFICATIONS AND REFINANCINGS
The master servicer may modify any mortgage loan upon the request of the
related mortgagor, provided that the master servicer purchases the mortgage
loan from the trust fund immediately following the modification. Any
modification of a mortgage loan may not be made unless the master servicer
determines that the modification includes a change in the interest rate on the
related mortgage loan to approximately a prevailing market rate. Any purchase
of a mortgage loan subject to a modification will be for a price equal to 100%
of the outstanding principal balance of the mortgage loan, plus accrued and
unpaid interest on the mortgage loan up to the date of purchase at a rate equal
to the applicable mortgage rate minus the master servicing fee rate, net of any
unreimbursed advances of principal and interest on
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<PAGE>
the mortgage loan made by the master servicer. The master servicer will deposit
the purchase price in the certificate account within one business day of the
purchase of that mortgage loan. Purchases of mortgage loans may occur when
prevailing interest rates are below the interest rates on the mortgage loans
and mortgagors request modifications as an alternative to refinancings. The
master servicer will indemnify the trust fund against liability for any
prohibited transactions taxes and any related interest, additions or penalties
imposed on the REMIC as a result of any modification or purchase.
DEFAULT MANAGEMENT SERVICES
In connection with the servicing of defaulted mortgage loans, the master
servicer may perform certain default management and other similar services
(including, but not limited to, appraisal services) and may act as a broker in
the sale of mortgaged properties related to those mortgage loans. The master
servicer will be entitled to reasonable compensation for providing those
services.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The certificates will be issued pursuant to the pooling and servicing
agreement. The following summaries of the material terms pursuant to which the
certificates were issued do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, the provisions of the pooling
and servicing agreement. When particular provisions or terms used in the
pooling and servicing agreement are referred to, the actual provisions
(including definitions of terms) are incorporated by reference.
The Home Equity Mortgage Loan Asset-Backed Certificates, Series SPMD
2000-C will consist of the following certificates: (a) Class AF-1, Class AF-2,
Class AF-3, Class AF-4, Class AF-5, Class AF-6 and Class AF-IO Certificates
(referred to as the Group 1 Class A Certificates), the Class MF-1 and Class
MF-2 Certificates (referred to as the Group 1 Mezzanine Certificates) and the
Class BF Certificates (referred to, with the Group 1 Mezzanine Certificates, as
the Group 1 Subordinated Certificates), (b) Class AV Certificates (referred to
as the Group 2 Class A Certificates), the Class MV-1 and Class MV-2
Certificates (referred to as the Group 2 Mezzanine Certificates) and the Class
BV Certificates (referred to, with the Group 2 Mezzanine Certificates, as the
Group 2 Subordinated Certificates), (c) the Class X and Class P Certificates,
which are not offered certificates, and (d) the Class R Certificates (referred
to as the Residual Certificates). The classes of offered Certificates (not
including the Class AF-IO Certificates) will have the respective initial Class
Certificate Balances and pass-through rates set forth on the cover page or
described in this prospectus supplement.
The Class Certificate Balance of any class of offered certificates as of
any distribution date is the initial Class Certificate Balance thereof reduced
by the sum of
o all amounts previously distributed to holders of certificates of that
class as payments of principal and,
o in the case of any class of Subordinated Certificates, the amount of
any Applied Realized Loss Amounts applicable to that class of
Subordinated Certificates not reimbursed before that distribution date.
The book-entry certificates will be issuable in book-entry form only. The
physical certificates will be issued in fully registered certificated form. The
offered certificates (other than the Class R Certificates) will be issued in
minimum dollar denominations of $25,000 and integral multiples of $1,000 in
excess thereof. A single certificate of those classes may be issued in an
amount different than described above. The Class R and Class P Certificates
will be issued as a single certificate each in a denomination of $100.
NOTIONAL AMOUNT CERTIFICATES
The Class AF-IO Certificates do not have Certificate Principal Balances
but will accrue interest at a rate of 7.00% per annum on their Notional Amount.
The "Notional Amount" of the Class AF-IO
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<PAGE>
Certificates will be the sum of the notional balances of its two components:
the Group 1 IO Component and the Group 2 IO Component. The components
comprising the Class AF-IO Certificates may not be transferred separately from
the certificates. The Group 1 IO Component will have a notional balance on a
distribution date equal to the lesser of the aggregate Stated Principal Balance
of the mortgage loans in Loan Group 1 as of the last day of the related
Remittance Period and the amounts described below:
<TABLE>
<CAPTION>
DISTRIBUTION DATES NOTIONAL AMOUNT
---------------------- ------------------
<S> <C>
1-3: ................. $54,000,000
4-6: ................. 50,400,000
7-9: ................. 45,700,000
10-12: ............... 40,000,000
13-15: ............... 34,200,000
16-18: ............... 29,200,000
19-21: ............... 24,800,000
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION DATES NOTIONAL AMOUNT
---------------------- ------------------
<S> <C>
22-24: ............... $21,200,000
25-27: ............... 18,400,000
28-30: ............... 15,800,000
31-33: ............... 13,300,000
34-35: ............... 11,500,000
Thereafter: .......... $ 0
</TABLE>
The Group 2 IO Component will have a notional balance on a distribution
date equal to the lesser of the aggregate Stated Principal Balance of the
mortgage loans in Loan Group 2 as of the last day of the related Remittance
Period and the amounts described below:
<TABLE>
<CAPTION>
DISTRIBUTION DATE NOTIONAL AMOUNT
---------------------- ------------------
<S> <C>
1-3: ................. $32,800,000
4-6: ................. 30,600,000
7-9: ................. 27,700,000
10-12: ............... 24,300,000
13-15: ............... 20,800,000
16-18: ............... 17,700,000
19-21: ............... 15,100,000
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION DATE NOTIONAL AMOUNT
---------------------- ------------------
<S> <C>
22-24: ............... $12,900,000
25-27: ............... 11,100,000
28-30: ............... 9,600,000
31-33: ............... 8,100,000
34-35: ............... 7,000,000
Thereafter: .......... $ 0
</TABLE>
BOOK-ENTRY CERTIFICATES
Persons acquiring beneficial ownership interests in the offered
certificates may elect to hold their offered certificates through the
Depository Trust Company (referred to as the Depository) in the United States,
or Clearstream, Luxembourg or the Euroclear System ("Euroclear"), in Europe.
Each class of book-entry certificates will be issued in one or more
certificates which equal the aggregate initial Class Certificate Balance of
those classes of certificates and which will be held by a nominee of the
Depository. Clearstream, Luxembourg and Euroclear will hold omnibus positions
on behalf of their participants through customers' securities accounts in
Clearstream, Luxembourg 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 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 those 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. 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 Securities--Book-Entry Registration of
Securities" no beneficial owner acquiring a book-entry certificate will be
entitled to receive a physical certificate representing the 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 pooling and
servicing 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
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<PAGE>
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 those 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 (referred to as the distribution account), which shall be maintained at
the Corporate Trust Office of the trustee in trust for the benefit of the
certificateholders. On or prior to the business day immediately preceding each
distribution date, the master servicer will withdraw from the certificate
account and the capitalized interest accounts the amount of Available Funds and
will deposit the Available Funds in the distribution account. Funds credited to
the certificate account and the distribution account may be invested for the
benefit and at the risk of the master servicer in Permitted Investments, as
defined in the pooling and servicing agreement. The amount, if any, remaining
in the pre-funding accounts at the end of the pre-funding period shall also be
deposited in the distribution account.
"Available Funds" with respect to any distribution date and the mortgage
loans in a loan group will be equal to the sum of:
o all scheduled installments of interest (net of the related expense fees
for that loan group) and principal due on the due date on those
mortgage loans in the related Remittance Period and received prior to
the related determination date, together with any advances in respect
thereof;
o all proceeds of any primary mortgage guaranty insurance policies and
any other insurance policies with respect to the mortgage loans in that
loan group, to the extent those 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 referred to as insurance proceeds) and all
other cash amounts received and retained in connection with the
liquidation of defaulted mortgage loans in that loan group, by
foreclosure or otherwise (referred to as liquidation proceeds) during
the related Remittance Period (in each case, net of unreimbursed
expenses incurred in connection with a liquidation or foreclosure and
unreimbursed advances, if any);
o all partial or full prepayments on the mortgage loans in that loan
group and related interest received during the related Remittance
Period together with all Compensating Interest thereon;
o amounts received with respect to that distribution date as the
Substitution Adjustment Amount or purchase price in respect of a
deleted mortgage loan in that loan group or a mortgage loan repurchased
by the seller or the master servicer in that loan group as of that
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 pursuant to the pooling and servicing
agreement; and
o for the distribution date in December 2000, any amounts withdrawn from
the related capitalized interest account and on the distribution date
immediately following the end of the pre-funding period, any amounts
remaining in the related pre-funding account, excluding any
reinvestment earnings.
The "Remittance Period" with respect to any distribution date is the
period commencing on the second day of the month preceding the month in which
the distribution date occurs and ending on the first day of the month in which
the distribution date occurs.
DISTRIBUTIONS
Distributions on the certificates will be made by the trustee on the 25th
day of each month, or if that day is not a business day, on the first business
day thereafter (referred to as a distribution date),
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<PAGE>
commencing in December 2000, to the persons in whose names the group 1
certificates are registered at the close of business on the last business day
of the month preceding the month of the distribution date and to the persons in
whose name the group 2 certificates are registered at the close of business on
the business day before the distribution 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 and who has so notified the trustee
in writing in accordance with the pooling and servicing agreement, by wire
transfer in immediately available funds to the account of that
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 those certificates at the Corporate Trust Office of the trustee.
PRIORITY OF DISTRIBUTIONS AMONG CERTIFICATES
As more fully described herein, distributions on the certificates will be
made on each distribution date from Available Funds for the related loan group
and will be made to the classes of certificates of the related certificate
group in the following order of priority:
o to interest on each class of certificates;
o to principal on the classes of certificates then entitled to receive
distributions of principal, in the order and subject to the priorities
set forth herein under "--Distributions of Interest and Principal";
o to deposit into the Excess Reserve Fund Account to cover IO Cap
CarryForward Amounts;
o to principal on the classes of certificates then entitled to receive
distributions of principal in order to maintain the Specified
Subordinated Amount for that certificate group;
o to unpaid interest and Applied Realized Loss Amounts in the order and
subject to the priorities described herein under "--Distributions of
Interest and Principal";
o to deposit into the Excess Reserve Fund Account to cover any other
Basis Risk CarryForward Amount subject to certain limitations set forth
herein under "--Distributions of Interest and Principal"; and
o to the residual interest holder.
DISTRIBUTIONS OF INTEREST AND PRINCIPAL
The initial pass-through rates for each class of fixed rate certificates
shall be as set forth on the cover page. After the optional termination date,
the pass-through rate for Class AF-5 and Class MF-1 will each be increased by
0.75% per annum. In addition, the pass-through rate on each distribution date
for each class of fixed rate certificates will be limited to the weighted
average of the mortgage rates on the mortgage loans in loan group 1 minus the
sum of the expense fee rate and, for the first 35 distribution dates only, the
product of (a) 7.00% and (b) the Group 1 IO Component notional balance divided
by the Group 1 aggregate Stated Principal Balances as of the opening of
business on the first day of the related Remittance Period (referred to as the
Group 1 Net WAC Cap).
The pass-through rate on each distribution date for each class of group 2
certificates will be equal to the least of (x) One-Month LIBOR plus the related
pass-through margin for that class, (y) the product of (i) a fraction whose
numerator is 30 and whose denominator is the actual number of days in the
related accrual period and (ii) the weighted average of the maximum lifetime
mortgage rates on the mortgage loans in loan group 2 minus the sum of the
expense fee rate and, for the first 35 distribution dates only, the product of
(a) 7.00% and (b) the Group 2 IO Component notional balance divided by the
Group 2 aggregate Stated Principal Balances as of the opening of business on
the first day of the related Remittance Period (referred to as the Group 2
Maximum Cap), and (z) the product of (i) a fraction whose
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numerator is 30 and whose denominator is the actual number of days in the
related accrual period and (ii) the weighted average of the mortgage rates on
the mortgage loans in loan group 2 then in effect on the beginning of the
related Remittance Period on the mortgage loans in loan group 2 minus the sum
of the expense fee rate and, for the first 35 distribution dates only, the
product of (a) 7.00% and (b) the Group 2 IO Component notional balance divided
by the Group 2 aggregate Stated Principal Balances as of the opening of
business on the first day of the related Remittance Period (referred to as the
Group 2 Net WAC Cap). In addition to the foregoing, after the optional
termination date, the pass-through margin for the Class AV certificates shall
be two times the initial margin and the pass-through margin for the Class MV-1,
Class MV-2 and Class BV certificates shall be 1.5 times the initial margin.
The initial "pass-through margin" for each class of adjustable rate
certificates is as follows: Class AV, 0.25%; Class MV-1, 0.67%; Class MV-2,
1.07% and Class BV, 1.95%.
Interest will be calculated on the basis of the related Class Certificate
Balance or component balance, as applicable. Interest on each class of Fixed
Rate Certificates will be calculated and payable on the basis of a 360-day year
divided into twelve 30-day months. Interest on each class of Adjustable Rate
Certificates will be calculated on the basis of actual days elapsed in a
360-day year.
On each distribution date, distributions in reduction of the Class
Certificate Balance of the certificates entitled to receive distributions of
principal will be made in an amount equal to the Principal Distribution Amount
for the related certificate group. The "Principal Distribution Amount" for each
certificate group and distribution date will equal the sum of (i) the Basic
Principal Distribution Amount for that distribution date for that certificate
group, (ii) the Extra Principal Distribution Amount for that distribution date
for that certificate group and (iii) for the first distribution date following
the end of the pre-funding period, any amount remaining in the related
pre-funding account (net of any investment income therefrom).
On each distribution date, the trustee is required to make the
disbursements and transfers from the Available Funds for each Loan Group then
on deposit in the distribution account specified below in the following order
of priority:
(i) to the holders of each class of offered certificates in the
related certificate group in the following order or priority:
(a) to the Class A Certificates for the related certificate group, the
related Accrued Certificate Interest and any Unpaid Interest Amounts for
those classes, on that distribution date;
(b) to the Class M-l Certificates of that certificate group, the Accrued
Certificate Interest for that class on that distribution date;
(c) to the Class M-2 Certificates of that certificate group, the Accrued
Certificate Interest for that class on that distribution date;
(d) to the Class B Certificates of that certificate group, the Accrued
Certificate Interest for that class on that distribution date;
(ii) A. with respect to each certificate group on each distribution date
(a) before the related Stepdown Date or (b) if a Trigger Event is in effect, to
the holders of the related class or classes of offered certificates then
entitled to distributions of principal as set forth below, an amount equal to
the applicable Principal Distribution Amount in the following order or
priority:
(x) (1) in the case of certificate group 1,
o to the Class AF-6 Certificate an amount equal to the AF-6 Share
times the Lockout Percentage and then
o sequentially to the Class R and Class AF-1, Class AF-2, Class
AF-3, Class AF-4, Class AF-5 and Class AF-6 Certificates, until
the respective Class Certificate Balances thereof are reduced to
zero;
(2) in the case of certificate group 2, to the Class AV Certificates
until the Class Certificate Balance thereof is reduced to zero;
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(y) for each certificate group, sequentially to the related Class M-1,
Class M-2 and Class B Certificates, until the respective Class Certificate
Balances are reduced to zero;
B. with respect to each certificate group on each distribution date (a)
on and after the related Stepdown Date and (b) as long as a Trigger Event
for that certificate group is not in effect, to the holders of the related
class or classes of offered certificates then entitled to distribution of
principal an amount equal to the applicable Principal Distribution Amount
in the following amounts and order of priority:
(a) the lesser of (x) the Principal Distribution Amount and (y) the Class
A Principal Distribution Amount, in the following order of priority:
(1) in the case of certificate group 1,
o to the Class AF-6 Certificate an amount equal to the AF-6 Share
times the Lockout Percentage and then
o sequentially to the Class R and Class AF-1, Class AF-2, Class
AF-3, Class AF-4, Class AF-5 and Class AF-6 Certificates, until
the respective Class Certificate Balances thereof are reduced to
zero;
(2) in the case of certificate group 2, to the Class AV Certificates
until the Class Certificate Balance thereof is reduced to zero;
(b) the lesser of (x) the excess of (i) the Principal Distribution Amount
over (ii) the amount distributed to the Class A Certificateholders in
clause (ii) B. (a) above and (y) the Class M-1 Principal Distribution
Amount to the related Class M-1 Certificateholders, until the Class
Certificate Balance thereof has been reduced to zero;
(c) the lesser of (x) the excess of (i) the Principal Distribution Amount
over (ii) the amount distributed to the Class A Certificateholders in
clause (ii) B. (a) above and to the Class M-1 Certificates in clause (ii)
B. (b) above and (y) the Class M-2 Principal Distribution Amount to the
related Class M-2 Certificateholders, until the Class Certificate Balance
thereof has been reduced to zero;
(d) the lesser of (x) the excess of (i) the Principal Distribution Amount
over (ii) the amount distributed to the Class A Certificateholders in
clause (ii) B. (a) above, to the Class M-1 Certificates in clause (ii) B.
(b) above and to the Class M-2 Certificates in clause (ii) B. (c) above and
(y) the Class B Principal Distribution Amount to the related Class B
Certificateholders, until the Class Certificate Balance thereof has been
reduced to zero;
(iii) any amount remaining after the distributions in clauses (i) and (ii)
above shall be distributed in the following order of priority with respect to
the offered certificates in the related certificate group:
(a) to the Excess Reserve Fund Account, the amount of any IO Cap
CarryForward for the distribution date;
(b) to the holders of any affected certificates in the related
certificate group from funds in the Excess Reserve Fund Account, any IO Cap
CarryForward for the distribution date in the same order and priority in
which Accrued Certificate Interest is allocated;
(c) to fund the Extra Principal Distribution Amount for that distribution
date to be paid as a component of the Principal Distribution Amount in the
same order of priority as described in clause (ii) above;
(d) to the holders of the Class M-1 Certificates, any Unpaid Interest
Amounts for that class;
(e) to the holders of the Class M-1 Certificates, any Unpaid Realized
Loss Amount for that class;
(f) to the holders of the Class M-2 Certificates, any Unpaid Interest
Amounts for that class;
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<PAGE>
(g) to the holders of the Class M-2 Certificates, any Unpaid Realized
Loss Amount for that class;
(h) to the holders of the Class B Certificates, any Unpaid Interest
Amounts for that class;
(i) to the holders of the Class B Certificates, any Unpaid Realized Loss
Amount for that class;
(j) to the Excess Reserve Fund Account the amount of any Basis Risk
Payment for such distribution date;
(k) from funds on deposit in the Excess Reserve Fund Account, an amount
equal to any Basis Risk CarryForward Amount for such distribution date in the
same order and priority in which Accrued Certificate Interest is allocated
among the classes of Certificates;
(l) to the holders of the Class X Certificates, the amounts described in
the pooling and servicing agreement; and
(m) to the holders of the Class R Certificates, the remaining amount.
If on any distribution date, after giving effect to all distributions of
principal as described above, the aggregate Class Certificate Balances of the
certificates in a certificate group exceeds the sum of (i) the aggregate Stated
Principal Balance of the mortgage loans in the related loan group and (ii) the
amounts, if any, on deposit in the related pre-funding account, the Class
Certificate Balance of the Subordinated Certificates (but not the Class A
Certificates) of that certificate group will be reduced, in inverse order of
seniority (beginning with the Class B Certificates) by an amount equal to that
excess, until that Class Certificate Balance is reduced to zero. That reduction
is referred to as an "Applied Realized Loss Amount."
On each distribution date, the holders of the Class P Certificates will be
entitled to receive all prepayment charges collected in connection with any of
the mortgage loans during the related Remittance Period. Those amounts are not
available for any other purpose. The Class P Certificates are not offered
hereby.
"Accrued Certificate Interest", for each class of offered certificates on
any distribution date shall equal the amount of interest accrued during the
related Interest Accrual Period on the related Class Certificate Balance at the
related Pass-Through Rate.
"AF-6 Share" means the product of the Principal Distribution Amount for
Loan Group 1 for the relevant distribution date times a fraction whose
numerator is the Class Certificate Balance of the Class AF-6 Certificates
immediately before that distribution date and whose denominator is the
aggregate Class Certificate Balances of the Group 1 Class A Certificates
immediately before that distribution date.
"Basic Principal Distribution Amount" means, with respect to either loan
group and any distribution date, the excess of (i) the Principal Remittance
Amount for that loan group for that distribution date over (ii) the Excess
Subordinated Amount, if any, for that loan group for that distribution date.
"Class A Principal Distribution Amount", for a loan group is the excess of
(A) the aggregate Class Certificate Balance of the Class A Certificates for the
related certificate group immediately prior to that distribution date over (B)
the lesser of (x) approximately 80.00% for loan group 1 and approximately
80.50% for loan group 2, of the aggregate Stated Principal Balances of the
mortgage loans in that loan group as of the last day of the related Remittance
Period and (y) the aggregate Stated Principal Balance of the mortgage loans in
that loan group as of the last day of the related Remittance Period minus
$900,000 for loan group 1 and $1,350,000 for loan group 2.
"Class B Principal Distribution Amount", for a loan group and with respect
to any distribution date is the excess of (i) the sum for the related
certificate group of (A) the aggregate Class Certificate Balance of the Class A
Certificates (after taking into account distribution of the Class A Principal
Distribution Amount for that distribution date), (B) the Class Certificate
Balance of the Class M-1 Certificates (after taking into account distribution
of the Class M-1 Principal Distribution Amount for that distribution date), (C)
the Class Certificate Balance of the Class M-2 Certificates (after taking into
account
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<PAGE>
distribution of the Class M-2 Principal Distribution Amount for that
distribution date) and (D) the Class Certificate Balance of the Class B
Certificates immediately prior to that distribution date over (ii) the lesser
of (A) approximately 99.00% for loan group 1 and approximately 98.50% for loan
group 2, of the aggregate Stated Principal Balances of the mortgage loans in
that loan group as of the last day of the related Remittance Period and (B) the
aggregate Stated Principal Balance of the mortgage loans in that loan group as
of the last day of the related Remittance Period minus $900,000 for loan group
1 and $1,350,000 for loan group 2; provided, however, that with respect to any
distribution date on which the Class Certificate Balances of the related Class
A, Class M-1 and Class M-2 Certificates have been reduced to zero, the Class B
Principal Distribution Amount is the lesser of (x) the Class Certificate
Balance of the Class B Certificates and (y) the Principal Distribution Amount.
"Class M-1 Principal Distribution Amount", for a loan group and with
respect to any distribution date is the excess of (i) the sum for the related
certificate group of (A) the aggregate Class Certificate Balance of the Class A
Certificates (after taking into account distribution of the Class A Principal
Distribution Amount for that distribution date) and (B) the Class Certificate
Balance of the Class M-1 Certificates immediately prior to that distribution
date over (ii) the lesser of (A) approximately 87.00% for loan group 1 and
approximately 88.50% for loan group 2, of the aggregate Stated Principal
Balances of the mortgage loans in that loan group as of the last day of the
related Remittance Period and (B) the aggregate Stated Principal Balance of the
mortgage loans in that loan group as of the last day of the related Remittance
Period minus $900,000 for loan group 1 and $1,350,000 for loan group 2.
"Class M-2 Principal Distribution Amount", for a loan group and with
respect to any distribution date is the excess of (i) the sum for the related
certificate group of (A) the aggregate Class Certificate Balance of the Class A
Certificates (after taking into account distribution of the Class A Principal
Distribution Amount for that distribution date), (B) the Class Certificate
Balance of the Class M-1 Certificates (after taking into account distribution
of the Class M-1 Principal Distribution Amount for that distribution date) and
(C) the Class Certificate Balance of the Class M-2 Certificates immediately
prior to that distribution date over (ii) the lesser of (A) approximately
94.00% for loan group 1 and approximately 96.00% for loan group 2, of the
aggregate Stated Principal Balances of the mortgage loans in that loan group as
of the last day of the related Remittance Period and (B) the aggregate Stated
Principal Balance of the mortgage loans in that loan group as of the last day
of the related Remittance Period minus $900,000 for loan group 1 and $1,350,000
for loan group 2.
"Excess Subordinated Amount" is described in "--Overcollateralization
Provisions."
"Extra Principal Distribution Amount" means, as of any distribution date
after the distribution date in December 2000 and either certificate group, the
lesser of (x) the related Total Monthly Excess Spread for that distribution
date and (y) the related Subordination Deficiency for that distribution date.
"IO Cap CarryForward" for any class of certificates on any distribution
date is the portion of any Basis Risk CarryForward Amounts for the class that
would not have been incurred if the Group 1 Net WAC Cap or the Group 2 Net WAC
Cap, as applicable, had not included a reduction in the cap for the product of
(a) 7.00% and (b) the Group 1 IO Component notional balance or Group 2 IO
Component notional balance, as applicable, divided by the Loan Group 1 or Loan
Group 2, as applicable, Stated Principal Balances on the distribution date. Any
payment in reduction of the IO Cap CarryForward Amount will also be credited in
reduction of the Basis Risk CarryForward Amount for the relevant class.
"Lockout Percentage" means the indicated percentage for the indicated
distribution dates:
<TABLE>
<CAPTION>
DISTRIBUTION DATES PERCENTAGE
<S> <C>
December 2000 through November 2002 .......... 0%
December 2002 through November 2004 .......... 45%
December 2004 through November 2005 .......... 80%
December 2005 through November 2006 .......... 100%
December 2006 and thereafter ................. 300%
</TABLE>
"Principal Remittance Amount" means, with respect to any distribution date
and each loan group, to the extent of funds available therefor as described
herein, the amount equal to the sum of the following
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amounts (without duplication) with respect to the immediately preceding
Remittance Period: (i) each payment of principal on a mortgage loan in the
related loan group received during that Remittance Period, including all full
and partial principal prepayments and any advances of principal with respect to
that Remittance Period, (ii) the liquidation proceeds on the mortgage loans in
the related loan group allocable to principal actually collected by the master
servicer during the related Remittance Period, (iii) the portion of the
purchase price with respect to each deleted mortgage loan in the related loan
group that was repurchased during the related Remittance Period, (iv) the
principal portion of any Substitution Adjustment Amounts in connection with a
substitution of a mortgage loan in the related loan group as of that
distribution date, (v) the principal portion of any proceeds from mortgage
insurance, and (vi) the allocable portion of the proceeds received with respect
to the termination of the trust fund (to the extent they relate to principal).
"Realized Loss" is the excess of the Stated Principal Balance of a
defaulted mortgage loan over the net liquidation proceeds with respect thereto
that are allocated to principal.
"Senior Enhancement Percentage" means, with respect to each certificate
group and for any distribution date, the percentage obtained by dividing (x)
the sum of (i) the aggregate Class Certificate Balances of the Subordinated
Certificates of the related certificate group and (ii) the related Subordinated
Amount (in each case after taking into account the distributions of the related
Principal Distribution Amount for that distribution date) by (y) the aggregate
Stated Principal Balance of the mortgage loans in the related loan group as of
the last day of the related Remittance Period.
"Senior Specified Enhancement Percentage" on any date of determination
thereof is 20.00% with respect to certificate group 1 and 19.50% with respect
to certificate group 2.
"60+ Day Delinquent Loan" means each mortgage loan with respect to which
any portion of a Scheduled Payment is, as of the last day of the prior
Remittance Period, two months or more past due (without giving effect to any
grace period) and all REO Property.
"Specified Subordinated Amount" means, with respect to each loan group (x)
for the distribution date in December 2000, zero and (y) for any other
distribution date before the Stepdown Date for the related certificate group,
an amount equal to 0.50% for loan group 1 and 0.75% for loan group 2, of the
sum of the cut-off date principal balance of the initial mortgage loans in the
related loan group plus the amount in the related pre-funding account; with
respect to each loan group on and after the Stepdown Date for the related
certificate group, an amount equal to 1.00% for loan group 1 and 1.50% for loan
group 2, of the aggregate Stated Principal Balance of the mortgage loans in
that loan group as of the last day of the related Remittance Period, subject to
a minimum amount equal to 0.50% for each loan group of the aggregate Stated
Principal Balance of the initial mortgage loans in that loan group as of the
respective cut-off dates plus the amount in the related pre-funding account,
provided, however, that on any distribution date after the step-down date on
which a Trigger Event for a certificate group has occurred, the Specified
Subordinated Amount shall not be reduced to the applicable percentage of the
then current aggregate Stated Principal Balance of the mortgage loans in the
related loan group until the distribution date on which a Trigger Event for
that certificate group is no longer occurring.
"Stated Principal Balance" means, as to any mortgage loan and Due Date,
the unpaid principal balance of that mortgage loan as of that Due Date as
specified in the amortization schedule at the time relating thereto, after
giving effect to any previous partial principal prepayments and liquidation
proceeds allocable to principal and to the payment of principal due on that Due
Date and irrespective of any delinquency payment by the related Mortgagor.
"Stepdown Date" means, with respect to each certificate group, the later
to occur of (i) the distribution date in December 2003 and (ii) the first
distribution date on which the Senior Enhancement Percentage (calculated for
this purpose only after taking into account distributions of principal on the
mortgage loans in the related loan group on the last day of the related
Remittance Period but prior to any applications of Principal Distribution
Amount to the Certificates) is greater than or equal to the related Senior
Specified Enhancement Percentage.
"Subordinated Amount" is described in "--Overcollateralization
Provisions."
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<PAGE>
"Subordinated Deficiency" is described in "--Overcollateralization
Provisions."
A "Trigger Event", with respect to each certificate group and a
distribution date after the Stepdown Date, exists if the quotient (expressed as
a percentage) of (x) the three month rolling average of 60+ Day Delinquent
Loans for the related loan group, as of the last day of the related Remittance
Period, and (y) the Stated Principal Balance of the mortgage loans in that loan
group, as of the last day of the related Remittance Period, equals or exceeds
70% (in the case of loan group 1) or 75% (in the case of loan group 2) of the
related Senior Enhancement Percentage.
"Total Monthly Excess Spread" as to either loan group and any distribution
date equals the excess, if any, of (x) the interest collected or advanced for
that loan group in the related Remittance Period over (y) the amounts paid
pursuant to clauses (i) and (iii)(a) above under the fourth paragraph of
"--Distributions of Interest and Principal" to the classes of certificates in
the related certificate group.
"Unpaid Interest Amounts" for any Class of Certificates and any
distribution date will equal the sum of (a) the excess of (i) the sum of the
Accrued Certificate Interest for that distribution date and any portion of
Accrued Certificate Interest from prior distribution dates remaining unpaid
over (ii) the amount in respect of interest on that class of certificates
actually distributed on the preceding distribution date and (b) 30 days'
interest on that excess at the applicable pass-through rate (to the extent
permitted by applicable law).
"Unpaid Realized Loss Amount", with respect to any class of Subordinated
Certificates and as to any distribution date, is the excess of (i) Applied
Realized Loss Amounts with respect to that class over (ii) the sum of all
distributions in reduction of Applied Realized Loss Amounts on all previous
distribution dates. Any amounts distributed to a class of Subordinated
Certificates in respect of any Unpaid Realized Loss Amount will not be applied
to reduce the Class Certificate Balance of that class.
In the event that, on a particular distribution date, amounts applied in
the order described above are not sufficient to make a full distribution of the
interest entitlement on the certificates of the related certificate group,
interest will be distributed on each class of certificates of equal priority
based on the amount of interest that each class would otherwise have been
entitled to receive in the absence of a shortfall. Any unpaid amount will be
carried forward and added to the amount holders of each 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 for the
related loan group were exceptionally high or were concentrated in a particular
month. See "--Overcollateralization Provisions" below for the meanings of
certain other defined terms used in this section.
CALCULATION OF ONE-MONTH LIBOR
On each LIBOR Determination Date (as defined below), the trustee will
determine One-Month LIBOR for the next Interest Accrual Period for the
adjustable rate certificates.
"One-Month LIBOR" means, as of any LIBOR Determination Date, the London
interbank offered rate for one-month United States dollar deposits which
appears in the Telerate Page 3750 as of 11:00 a.m., London time, on that date.
If the rate does not appear on Telerate Page 3750, the rate for that day will
be determined on the basis of the rates at which deposits in United States
dollars are offered by the Reference Banks at approximately 11:00 a.m. (London
time), on that day to prime banks in the London interbank market. 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 quotations are provided, the
rate for that day will be the arithmetic mean of the quotations (rounded
upwards if necessary to the nearest whole multiple of 1/16%). If fewer than two
quotations are provided as requested, the rate for that day will be the
arithmetic mean of the rates quoted by major banks in New York City, selected
by the master servicer, at approximately 11:00 a.m. (New York City time) on
that day for loans in United States dollars to leading European banks.
"LIBOR Determination Date" means, with respect to any Interest Accrual
Period, the second London business day preceding the commencement of that
Interest Accrual Period. For purposes of determining One-Month LIBOR, a "London
business day" is any day on which dealings in deposits of United States dollars
are transacted in the London interbank market.
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"Telerate Page 3750" means the display page currently so designated on the
Bridge Telerate Service (or any other page as may replace that page on that
service for the purpose of displaying comparable rates or prices) and
"Reference Banks" means leading banks selected by the master servicer and
engaged in transactions in Eurodollar deposits in the international
Eurocurrency market.
EXCESS RESERVE FUND ACCOUNT
The "Basis Risk Payment" for any distribution date will be the sum of (1)
any Basis Risk CarryForward Amount, plus (2) the Required Reserve Amount for
that date, minus (3) any IO Cap CarryForward paid on that distribution date.
However, the payment on any distribution date cannot exceed the amount
otherwise distributable on the Class X Certificates.
If on any Distribution Date before November 2003, the pass-through rate
for any class of group 1 certificates is based upon the Group 1 Net WAC Cap,
the excess of (i) the amount of interest that class of certificates would have
been entitled to receive on that Distribution Date had the pass-through rate
not been subject to the Group 1 Net WAC Cap, over (ii) the amount of interest
that class of group 1 Certificates received on that Distribution Date based on
the Group 1 Net WAC Cap, together with the unpaid portion of any excess from
prior Distribution Dates (and interest accrued thereon at the then applicable
pass-through rate on that class of group 1 certificates, without giving effect
to the Group 1 Net WAC Cap) is the "Basis Risk CarryForward Amount" on those
classes of group 1 certificates. Any Basis Risk CarryForward Amount on any
class of group 1 certificates will be paid from and to the extent of funds
available therefor in the Excess Reserve Fund Account (as described herein).
The ratings on the group 1 certificates do not address the likelihood of the
payment of any Basis Risk CarryForward Amount. After the October 2003 no
further amounts will be added to any Basis Risk Carryforward Amount for any
class of group 1 certificates, but any existing Basis Risk Carryforward Amount
will continue to be due until paid.
If on any Distribution Date, the pass-through rate for any class of group
2 certificates is based upon the Group 2 Net WAC Cap, the excess of (i) the
amount of interest that class of certificates would have been entitled to
receive on that Distribution Date had the pass-through rate not been subject to
the Group 2 Net WAC Cap, up to the Group 2 Maximum Cap, over (ii) the amount of
interest that class of group 2 Certificates received on that Distribution Date
based on the Group 2 Net WAC Cap, together with the unpaid portion of any
excess from prior Distribution Dates (and interest accrued thereon at the then
applicable pass-through rate on that class of group 2 certificates, without
giving effect to Group 2 Net WAC Cap) is the "Basis Risk CarryForward Amount"
on those classes of group 2 certificates. Any Basis Risk CarryForward Amount on
any class of group 2 certificates will be paid on future Distribution Dates
from and to the extent of funds available therefor in the Excess Reserve Fund
Account (as described herein). The ratings on the group 2 certificates do not
address the likelihood of the payment of any Basic Risk CarryForward Amount.
The pooling and servicing agreement establishes an account (referred to as
the Excess Reserve Fund Account), which is held in trust, as part of the trust
fund, by the trustee. The Excess Reserve Fund Account will not be an asset of
any REMIC. Certificateholders will be entitled to receive payments from the
Excess Reserve Fund Account pursuant to the pooling and servicing agreement in
an amount equal to any Basis Risk CarryForward Amount for their class of
Certificates. On the closing date, $10,000 will be deposited into the Excess
Reserve Fund Account. Thereafter, if the Group 2 Net WAC Cap exceeds the
weighted average rate on the Adjustable Rate Certificates by less than 0.25%,
the amount to be held in the Excess Reserve Fund Account (referred to as the
Required Reserve Amount) on any distribution date thereafter shall equal the
greater of (i) 0.50% of the sum of the outstanding Class Certificate Balance of
the Adjustable Rate Certificates as of that distribution date and (ii) $10,000
and shall be funded from amounts otherwise distributable on the Class X
Certificates. Any distribution by the trustee from amounts in the Excess
Reserve Fund Account shall be made on the applicable distribution date.
OVERCOLLATERALIZATION PROVISIONS
The pooling and servicing agreement requires that the Total Monthly Excess
Spread, if any, with respect to each loan group on each distribution date after
the distribution date in December 2000 be applied as an accelerated payment of
principal of the certificates of the related certificate group, but only to the
limited extent hereafter described.
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The application of Total Monthly Excess Spread to the payment of Extra
Principal Distribution Amount of the class or classes of certificates in a
certificate group then entitled to distributions of principal has the effect of
accelerating the amortization of those certificates relative to the
amortization of the related mortgage loans. The portion, if any, of the
Available Funds not required to be distributed to holders of the offered
certificates as described above on any distribution date will, to the extent
not otherwise required to be held in the Excess Reserve Fund Account, be
distributed to the Class X Certificateholders and will not be available on any
future distribution date to cover Extra Principal Distribution Amount, Unpaid
Interest Amounts or Applied Realized Losses.
With respect to any distribution date and loan group, the excess, if any,
of (a) the aggregate Stated Principal Balances of the mortgage loans in that
loan group immediately following that distribution date plus the amount, if
any, on deposit in the related pre-funding account over (b) the Class
Certificate Balance of the offered certificates in the related certificate
group as of that date (after taking into account the payment of the Principal
Remittance Amount on those certificates on that distribution date) is the
"Subordinated Amount" for that certificate group as of that distribution date.
The pooling and servicing agreement requires that the Total Monthly Excess
Spread for a loan group be applied as an accelerated payment of principal on
the certificates in the related certificate group then entitled to receive
distributions of principal to the extent that the Specified Subordinated Amount
for that certificate group exceeds the Subordinated Amount for that certificate
group as of that distribution date (as to either loan group, the excess is
referred to as a Subordination Deficiency). Any amount of Total Monthly Excess
Spread actually applied as an accelerated payment of principal with respect to
a certificate group is an "Extra Principal Distribution Amount" for that
certificate group. The required level of the Subordinated Amount with respect
to a distribution date and certificate group is the "Specified Subordinated
Amount." As described above, the Specified Subordinated Amount with respect to
a loan group may, over time, decrease, subject to certain floors and triggers.
If a Trigger Event occurs, the Specified Subordinated Amount for a loan group
may not "step down."
Subordination Reduction Amount. If a Specified Subordinated Amount is
permitted to decrease or "step down" on a distribution date in the future, or
if an Excess Subordinated Amount for a certificate group otherwise exists, the
pooling and servicing agreement provides that some or all of the principal
which would otherwise be distributed to the holders of the certificates in the
related certificate group on that distribution date will (to the extent not
otherwise required to be held in the Excess Reserve Fund Account) be
distributed to the Class X Certificateholders on that distribution date until
the Excess Subordinated Amount is reduced to zero. This has the effect of
decelerating the amortization of the certificates in the related certificate
group relative to the amortization of the mortgage loans in the related loan
group, and of reducing the related Subordinated Amount. With respect to a
certificate group and any distribution date, the excess, if any, of (a) the
Subordinated Amount on that distribution date over (b) the Specified
Subordinated Amount is the "Excess Subordinated Amount" with respect to that
distribution date. If, on any distribution date, the Excess Subordinated Amount
is, or, after taking into account all other distributions to be made on that
distribution date, would be, greater than zero (i.e., the related Subordinated
Amount is or would be greater than the related Specified Subordinated Amount),
then any amounts relating to principal which would otherwise be distributed to
the holders of the certificates in the related certificate group on that
distribution date will (to the extent not otherwise required to be held in the
Excess Reserve Fund Account) instead be distributed to the Class X
Certificateholders in an amount equal to the lesser of (x) the related Excess
Subordinated Amount and (y) the Net Monthly Excess Cashflow for the related
certificate group. The "Net Monthly Excess Cashflow" for a loan group is the
amount of Available Funds for such loan group remaining after the amount
necessary to maintain the Required Reserve Amount has been deposited in the
Excess Reserve Fund Account.
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 purchase
shall be at a price equal to 100% of the Stated
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Principal Balance of that 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 purchase price is to be distributed.
OPTIONAL TERMINATION
The master servicer will have the right to repurchase all remaining
mortgage loans and REO Properties and thereby effect early retirement of the
certificates on any distribution date (referred to as the Optional Termination
Date) following the date on which the aggregate Stated Principal Balance of the
mortgage loans and REO Properties first equals an amount less than or equal to
10% of the aggregate principal balance of the mortgage loans as of their
respective cut-off dates. In the event the master servicer exercises its
option, the purchase price distributed with respect to the certificates will be
100% of its then outstanding principal balance and any unpaid accrued interest
thereon at the applicable pass-through rate (in each case subject to reduction
as provided in the pooling and servicing agreement if the purchase price is
based in part on the appraised value of any REO Properties and the appraised
value is less than the Stated Principal Balance of the mortgage loans) plus one
month's interest on the then outstanding class certificate balance at the then
applicable pass-through rate together with any related Basis Risk CarryForward
Amount. Distributions on the certificates in respect of any optional
termination will first be paid as set forth under "Description of the
Certificates--Distributions of Interest and Principal" herein. The proceeds
from any 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 the appraised value is less
than the Stated Principal Balance of the related mortgage loan.
THE TRUSTEE
Bankers Trust Company of California N.A. will be the trustee under the
pooling and servicing agreement. The depositor and the master servicer may
maintain other banking relationships in the ordinary course of business with
Bankers Trust Company. Offered certificates may be surrendered at the office of
the trustee located at 123 Washington Street, NY NY 10006. Attn: Mortgage
Administration-INOOC1. Attention: Corporate Trust-MBS Administration or at any
other addresses as the trustee may designate for such purpose from time to
time. All correspondence to the Trustee must be sent to the Corporate Trust
Office of the Trustee, 1761 East St. Andrew Place, Santa Ana, California 92705,
Attn: Mortgage Administration-INOOC1.
The Trustee makes no representation or warranty, express or implied, and
assumes no responsibility for the adequacy, accuracy or completeness of any
information contained herein.
RESTRICTIONS ON TRANSFER OF THE CLASS R CERTIFICATES
The Class R Certificates will be subject to the restrictions on transfer
described in the prospectus under "Federal Income Tax Consequences--Taxation of
Holders of Residual Interest Securities--Restrictions on Ownership and Transfer
of Residual Interest Securities." The pooling and servicing agreement provides
that the Class R Certificates (in addition to certain other classes of
certificates) may not be acquired by an ERISA Plan. See "ERISA Considerations"
herein. Each Class R Certificate will contain a legend describing the foregoing
restrictions.
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YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
GENERAL
The effective yields to the holders of the Fixed Rate Certificates will be
lower than the yields otherwise produced by the applicable rate at which
interest is passed through to those holders and the purchase price of those
Certificates because monthly distributions will not be payable to those holders
until the 25th day (or, if that 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 the delay).
Each Interest Accrual Period for the Adjustable Rate Certificates will
consist of the actual number of days elapsed from the distribution date
preceding the month of the applicable distribution date (or, in the case of the
first Interest Accrual Period, from the closing date) through the day before
the applicable distribution date.
DEFAULTS IN DELINQUENT PAYMENTS
The yield to maturity of the offered certificates, and particularly the
Subordinated Certificates, will be sensitive to defaults on the mortgage loans
in the related loan group. If a purchaser of an offered certificate calculates
its anticipated yield based on an assumed rate of default and amount of losses
that is lower than the default rate and amount of losses actually incurred, its
actual yield to maturity will be lower than that so calculated. Holders of the
offered certificates may not receive reimbursement for Realized Losses in the
month following the occurrence of those losses. In general, the earlier a loss
occurs, the greater is the effect on an investor's yield to maturity. There can
be no assurance as to the delinquency, foreclosure or loss experience with
respect to the mortgage loans. Because the mortgage loans were underwritten in
accordance with standards less stringent than those generally acceptable to
Fannie Mae and Freddie Mac with regard to a borrower's credit standing and
repayment ability, the risk of delinquencies with respect to, and losses on,
the mortgage loans will be greater than that of mortgage loans underwritten in
accordance with Fannie Mae and Freddie Mac standards.
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 net liquidation proceeds applied to the
principal balance of the related mortgage loan. A "liquidated mortgage loan" is
a defaulted mortgage loan as to which the master servicer has determined that
all recoverable liquidation and insurance proceeds have been received.
PREPAYMENT CONSIDERATIONS AND RISKS
The rate of principal payments on the offered certificates, the aggregate
amount of distributions on the offered certificates and the yields to maturity
of the offered certificates will be related to the rate and timing of payments
of principal on the mortgage loans in the related loan group. 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 or condemnations
and repurchases by the seller or master servicer). Because certain of the
mortgage loans contain prepayment penalties, the rate of principal payments may
be less than the rate of principal payments for mortgage loans which did not
have prepayment penalties. The fixed-rate 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 in a loan
group (including any optional purchase by the master servicer of a defaulted
mortgage loan in that loan group and any optional repurchase of the remaining
mortgage loans in the trust fund in connection with the termination of the
trust fund, in each case as described herein) will result in distributions on
the offered certificates in the related certificate group of principal amounts
which would otherwise be distributed over the remaining terms of the mortgage
loans. Since the rate of payment of principal on the mortgage loans will depend
on future events and a variety of other factors, no assurance can be given as
to that rate or the rate of
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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 that 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 in the related
loan group. Further, an investor should consider the risk that, in the case of
any offered certificate purchased at a discount, a slower than anticipated rate
of principal payments (including prepayments) on the mortgage loans in the
related loan group could result in an actual yield to that investor that is
lower than the anticipated yield and, in the case of any offered certificate
purchased at a premium, a faster than anticipated rate of principal payments on
the mortgage loans in the related loan group could result in an actual yield to
that investor that is lower than the anticipated yield. In addition, the
weighted average lives of the certificates will be affected by any prepayment
resulting from the distribution of amounts, if any, on deposit in the
pre-funding account after the end of the pre-funding period that are allocable
to the related loan group.
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 in loan group 1, 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
in loan group 1 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.
All of the mortgage loans in loan group 2 are adjustable rate mortgages
("ARMs"). As is the case with fixed rate mortgage loans, the ARMs may be
subject to a greater rate of principal prepayments in a low interest rate
environment. For example, if prevailing interest rates were to fall, Mortgagors
with ARMs may be inclined to refinance their ARMs with a fixed rate loan to
"lock in" a lower interest rate. The existence of the applicable Periodic Rate
Cap and Maximum Rate also may affect the likelihood of prepayments resulting
from refinancings. In addition, the delinquency and loss experience of the ARMs
may differ from that on the fixed rate mortgage loans because the amount of the
monthly payments on the ARMs are subject to adjustment on each Adjustment Date.
In addition, a substantial majority of the ARMs (the 2/28 Adjustable Mortgage
Loans and the 3/1 Adjustable Mortgage Loans) will not have their initial
Adjustment Date until 2 or 3 years after the origination thereof. The
prepayment experience of the 2/28 Adjustable Mortgage Loans and the 3/1
Adjustable Mortgage Loans may differ from that of the other ARMs. The 2/28
Adjustable Mortgage Loans and the 3/1 Adjustable Mortgage Loans may be subject
to greater rates of prepayments as they approach their initial Adjustment Dates
even if market interest rates are only slightly higher or lower than the
Mortgage Rates on the 2/28 Adjustable Mortgage Loans or the 3/1 Adjustable
Mortgage Loans (as the case may be) as borrowers seek to avoid changes in their
monthly payments.
As described under "The Mortgage Pool--Assignment of the Mortgage Loans"
herein, with respect to up to 30% of the initial mortgage loans, the depositor
may deliver all or a portion of each related mortgage file to the trustee not
later than five business days after the closing date. Should the seller fail to
deliver all or a portion of any such related mortgage file to the depositor or
other designee of the depositor or, at the depositor's direction, to the
trustee within the time periods described under "The Mortgage Pool--Assignment
of the Mortgage Loans" herein, the seller will be obligated to repurchase the
related mortgage loan from the trust fund or, in certain circumstances, remove
the mortgage loan from the trust fund and substitute in its place another
mortgage loan. Any repurchases pursuant to this provision would have the effect
of accelerating the rate of prepayments on the initial mortgage loans.
The pre-funding feature of the trust fund also presents a prepayment risk.
It is anticipated that the trust fund will use substantially all of the
pre-funded amount as the consideration for the acquisition of additional
mortgage loans during the funding period, although there can be no assurance
that all of such cash will be so used. If the amounts on deposit in the
pre-funding accounts have not been exchanged by the trust fund for mortgage
loans on or before the end of the funding period, then such remaining amounts
in the pre-funding accounts will be released by the trust fund as a prepayment
of the principal of the related Class A Certificates.
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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.
ADJUSTABLE RATE CERTIFICATES
Each Interest Accrual Period for the Adjustable Rate Certificates will
consist of the actual number of days elapsed from the preceding distribution
date (or, in the case of the first distribution date, from the closing date)
through the day preceding the applicable distribution date. The pass-through
rate for each Class of Adjustable Rate Certificates will be adjusted by
reference to One-Month LIBOR, subject to the effects of the applicable
limitations described herein.
The pass-through rate for each class of Group 2 Certificates may be
calculated by reference to the adjusted net mortgage rates of the mortgage
loans in loan group 2, which are based on the applicable Loan Index. If the
mortgage loans bearing higher mortgage rates, either through higher margins or
an increase in the applicable Loan Index (and consequently, higher adjusted net
mortgage rates), were to prepay, the weighted average adjusted net mortgage
rate would be lower than otherwise would be the case. Changes in One-Month
LIBOR may not correlate with changes in either Loan Index. It is possible that
a decrease in either Loan Index, which would be expected to result in faster
prepayments, could occur simultaneously with an increased level of One-Month
LIBOR. If the sum of One-Month LIBOR plus the applicable pass-through margin
for a class or classes of group 2 certificates were to be higher than the Group
2 Net WAC Cap, the pass-through rate on the related Group 2 Certificates would
be lower than otherwise would be the case. Although holders of the Group 2
Certificates are entitled to receive any Basis Risk CarryForward Amount from
and to the extent of funds available in the Excess Reserve Fund Account for
Loan Group 2, there is no assurance that those funds will be available or
sufficient for those purposes. The ratings of the Group 2 Certificates do not
address the likelihood of the payment of any Basis Risk CarryForward Amount.
FIXED RATE CERTIFICATES
Each Interest Accrual Period for the fixed-rate certificates for any
distribution date will be the calendar month preceding the month of that
distribution date. The pass-through rate for each class of fixed-rate
certificates is specified on the cover page of this prospectus supplement,
subject to the effects of the applicable limitations described herein.
The pass-through rate for each class of Group 1 Certificates is subject to
the imposition of a pass-through rate cap equal to the weighted average
adjusted net mortgage rate on the group 1 mortgage loans and referred to herein
as the Group 1 Net WAC Cap. If the group 1 mortgage loans bearing higher
mortgage rates were to prepay, the resulting group 1 weighted average adjusted
net mortgage rate would be lower than would otherwise be the case. If the
pass-through rate for any class of fixed-rate certificates (as specified on the
cover page of this prospectus supplement) were to be higher than the Group 1
Net WAC Cap, the rate of interest actually paid on the related Group 1
Certificates would be lower than would otherwise be the case. Holders of Group
1 Certificates are entitled to receive any Basis Risk CarryForward Amount
created through October 2003 from and to the extent of funds available in the
Excess Reserve Fund Account for Loan Group 1. After October 2003, a Group 1
Certificateholder's interest payment that has been reduced by operation of the
Group 1 Net WAC Cap on any distribution date will not be paid to the
certificateholder on any future distribution date.
OVERCOLLATERALIZATION PROVISIONS
The operation of the overcollateralization provisions of the pooling and
servicing agreement will affect the weighted average lives of the offered
certificates and consequently the yields to maturity of
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those certificates. Unless and until the Subordinated Amount equals the
Specified Subordinated Amount for a loan group, Total Monthly Excess Spread
will be applied as distributions of principal of the class or classes of
certificates in the related certificate group then entitled to distributions of
principal, thereby reducing the weighted average lives thereof. The actual
Subordinated Amount for a loan group may change from distribution date to
distribution date producing uneven distributions of Total Monthly Excess
Spread. There can be no assurance as to when or whether the Subordinated Amount
will equal the Specified Subordinated Amount.
Total Monthly Excess Spread generally is a function of the excess of
interest collected or advanced on the mortgage loans over the interest required
to pay interest on the offered certificates and expenses at the expense rate.
Mortgage loans with higher adjusted net mortgage rates will contribute more
interest to the Total Monthly Excess Spread. Mortgage loans with higher
adjusted net mortgage rates may prepay faster than mortgage loans with
relatively lower adjusted net mortgage rates in response to a given change in
market interest rates. Any disproportionate prepayments of mortgage loans with
higher adjusted net mortgage rates may adversely affect the amount of Total
Monthly Excess Spread available to make accelerated payments of principal of
the offered certificates in the related certificate group.
As a result of the interaction of the foregoing factors, the effect of the
overcollateralization provisions on the weighted average lives of the offered
certificates may vary significantly over time and from class to class.
SUBORDINATED CERTIFICATES
The subordinated certificates provide credit enhancement for the senior
certificates in the related certificate group and may absorb losses on the
mortgage loans in the related loan group. The weighted average lives of, and
the yields to maturity on, the subordinated certificates, in order of their
relative payment priorities, will be progressively more sensitive to the rate
and timing of mortgagor defaults and the severity of ensuing losses on the
mortgage loans in the related loan group. If the actual rate and severity of
losses on the mortgage loans is higher than those assumed by a holder of a
related subordinated certificate, the actual yield to maturity on such holder's
certificate may be lower than the yield expected by such holder based on such
assumption. Realized losses on the mortgage loans in a loan group will reduce
the class certificate balance of the class of the related subordinated
certificates then outstanding with the lowest relative payment priority if and
to the extent that the aggregate class certificate balances of all classes of
certificates in a certificate group, following all distributions on a
distribution date exceeds the total principal balances of the related mortgage
loans. As a result of such reduction, less interest will accrue on such class
of subordinated certificates than would otherwise be the case.
The Principal Distribution Amount includes the net proceeds in respect of
principal received upon the liquidation of a related mortgage loan. If such net
proceeds are less than the unpaid principal balance of the liquidated mortgage
loan, the total principal balances of the mortgage loans in a loan group will
decline more than the aggregate class certificate balances of the related
offered certificates, thereby reducing the amount of the overcollateralization.
If such difference is not covered by the amount of the overcollateralization or
excess interest, the class of subordinated certificates then outstanding with
the lowest relative payment priority will bear such loss. In addition, the
subordinated certificates will not be entitled to any principal distributions
prior to the related Stepdown Date or during the continuation of a Trigger
Event (unless all of the certificates in the related certificate group with a
higher relative payment priority have been paid in full). Because each Trigger
Event is based on the delinquency, as opposed to the loss, experience on the
related mortgage loans, a holder of a subordinated certificate may not receive
distributions of principal for an extended period of time, even if the rate,
timing and severity of realized losses on the applicable mortgage loans is
consistent with such holder's expectations. Because of the disproportionate
distribution of principal of the senior certificates, depending on the timing
of realized losses, the subordinated certificates in the related certificate
group may bear a disproportionate percentage of the realized losses on the
mortgage loans in the related loan group.
For all purposes, the Class B Certificates in each certificate group will
have the lowest payment priority of any class of subordinated certificates.
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ADDITIONAL INFORMATION
The depositor filed certain yield tables and other computational materials
with respect to certain classes of the offered certificates with the Commission
in a report on Form 8-K. Such tables and materials were prepared by the
underwriters at the request of certain prospective investors, based on
assumptions provided by, and satisfying the special requirements of, those
prospective investors. Such tables and assumptions may be based on assumptions
that differ from the structuring assumptions. Accordingly, those tables and
other materials may not be relevant to or appropriate for investors other than
those specifically requesting them.
STRUCTURING ASSUMPTIONS
The prepayment model used in this prospectus supplement represents an
assumed rate of prepayment each month relative to the then outstanding
principal balance of a pool of mortgage loans for the life of those mortgage
loans. The prepayment assumption does not purport to be a historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of mortgage loans, including the related mortgage loans.
With respect to the mortgage loans in loan group 1, a 100% prepayment
assumption (PPC) assumes conditional prepayment rates of 4.00% per annum of the
then outstanding principal balance of the mortgage loans in loan group 1 in the
first month of the life of the related mortgage loans and an additional
approximately 1.64% per annum in each month thereafter until the twelfth month.
Beginning in the twelfth month and in each month thereafter during the life of
the mortgage loans in loan group 1, 100% prepayment assumption assumes a
conditional prepayment rate of 22.0% per annum each month. 0% prepayment
assumption assumes prepayment rates equal to 0% of the prepayment assumption
i.e., no prepayments. Correspondingly, 100% prepayment assumption assumes
prepayment rates equal to 100% of the prepayment assumption, and so forth. The
prepayment assumption with respect to loan group 2 assumes a Constant
Prepayment Rate (CPR).
Since the tables were prepared on the basis of the assumptions in the
following paragraph, there are discrepancies between the characteristics of the
actual mortgage loans and the characteristics of the mortgage loans assumed in
preparing the tables. Any discrepancy may have an effect upon the percentages
of the Certificate Principal Balances outstanding and weighted average lives of
the offered certificates set forth in the tables. In addition, since the actual
mortgage loans in the trust fund have characteristics which differ from those
assumed in preparing the tables set forth below, the distributions of principal
on the offered certificates may be made earlier or later than as indicated in
the tables.
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
which collectively are the structuring assumptions:
o the assumed mortgage loans of each loan group are as set forth below;
o the closing date for the certificates occurs on November 21, 2000;
o distributions on the certificates are made on the 25th day of each
month (regardless of whether it falls on a business day), commencing on
December 25, 2000, in accordance with the priorities described herein;
o the mortgage loans prepayment rates with respect to the mortgage loans
in loan group 1 are a multiple of the applicable prepayment assumption
and with respect to the mortgage loans in loan group 2 are constant
percentages of CPR each as stated in the tables below;
o prepayments include 30 days' interest thereon;
o the optional termination is exercised (except with respect to the
weighted average life to maturity);
o the Specified Subordinated Amount for each loan group is initially as
specified herein and thereafter decreases in accordance with the
provisions herein;
o with respect to loan group 2, (a) the mortgage rate for each mortgage
loan is adjusted on its next rate adjustment date (and on subsequent
adjustment dates, if necessary) to a rate equal to the
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Gross Margin plus the Index (subject to the applicable periodic
adjustment cap and maximum interest rate), (b) the assumed level of
six-month LIBOR is 6.72% per annum and of One-Year CMT is 6.13% per
annum and (c) the scheduled monthly payment on the mortgage loans is
adjusted to equal a fully amortizing payment;
o One-Month LIBOR remains constant at 6.62% per annum;
o a weighted average expense fee rate of 50.7 basis ponts (plus lender
acquired mortgage insurance premium) is paid monthly;
o no defaults in the payment by mortgagors of principal of and interest
on the mortgage loans are experienced;
o 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;
o prepayments represent prepayments in full of individual mortgage loans
and are received on the last day of each month, commencing in the
calendar month in which the closing date occurs;
o the initial Class Certificate Balance of each class of certificates is
as set forth on the cover page hereof;
o interest accrues on each class of certificates at the applicable
interest rate set forth or described on the cover hereof; and
o all of the amounts on deposit in the pre-funding accounts are used to
purchase subsequent mortgage loans during the pre-funding period with a
first scheduled principal and interest payment due on January 1, 2001.
While it is assumed that each of the mortgage loans prepays at the
specified constant percentages of the prepayment assumption, this is not likely
to be the case. Moreover, discrepancies exist between the characteristics of
the actual mortgage loans which will be delivered to the trustee and
characteristics of the mortgage loans assumed in preparing the tables herein.
LOAN GROUP 1
STATISTICAL CALCULATION MORTGAGE LOANS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
ORIGINAL
AMORTIZATION REMAINING
GROSS ORIGINAL TERM TERM TO TERM
PRINCIPAL COUPON TO MATURITY MATURITY TO MATURITY
GROUP BALANCES ($) RATE (%) (IN MONTHS) (IN MONTHS) (IN MONTHS)
-------- ------------------ ---------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
1 53,928,240.24 11.027 343 343 342
2 23,626,716.68 11.206 353 353 351
3 3,131,033.89 11.339 360 360 359
4 44,659,265.80 10.851 355 355 353
5 11,600,455.31 10.675 349 349 348
6 10,572,439.31 11.126 180 360 179
7 1,955,336.76 11.844 180 360 178
</TABLE>
ASSUMED SUBSEQUENT MORTGAGE LOANS
<TABLE>
<CAPTION>
ORIGINAL
AMORTIZATION REMAINING
GROSS ORIGINAL TERM TERM TO TERM
PRINCIPAL COUPON TO MATURITY MATURITY TO MATURITY
GROUP BALANCES ($) RATE (%) (IN MONTHS) (IN MONTHS) (IN MONTHS)
-------- ------------------ ---------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
8 27,968,002.73 10.978 350 350 350
9 2,558,609.28 11.239 180 360 180
</TABLE>
S-59
<PAGE>
LOAN GROUP 2
STATISTICAL CALCULATION MORTGAGE LOANS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
INITIAL
GROSS MONTHS PERIODIC
PRINCIPAL COUPON GROSS TO NEXT RATE
GROUP BALANCES ($) RATE (%) MARGIN (%) CHANGE CAP (%)
------- ------------------ ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
10 50,540,490.24 10.276 5.993 22 3.000
11 13,021,116.89 10.384 5.992 23 3.000
12 151,622,231.12 10.388 5.898 22 3.000
13 7,647,648.88 10.757 6.175 22 3.000
14 1,796,697.66 10.637 6.245 23 3.000
15 3,455,890.33 11.011 6.414 34 5.000
16 957,189.88 10.607 5.982 34 5.000
17 7,067,342.28 10.989 6.038 34 5.000
18 795,620.69 11.601 6.067 34 5.000
19 1,651,194.16 10.603 6.463 5 1.000
20 191,250.00 10.000 6.500 6 1.000
<CAPTION>
PERIODIC LIFETIME ORIGINAL TERM REMAINING TERM
RATE RATE TO MATURITY TO MATURITY
GROUP CAP (%) CAP (%) (IN MONTHS) (IN MONTHS) INDEX
------- ---------- ---------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
10 1.048 17.270 360 358 6 Mo. LIBOR
11 1.069 17.384 360 359 6 Mo. LIBOR
12 1.030 17.387 360 358 6 Mo. LIBOR
13 1.050 17.757 360 358 6 Mo. LIBOR
14 1.000 17.637 360 359 6 Mo. LIBOR
15 2.000 17.928 360 358 1 Yr. CMT
16 2.000 17.607 360 358 1 Yr. CMT
17 2.000 17.977 360 358 1 Yr. CMT
18 2.000 18.601 360 358 1 Yr. CMT
19 1.000 17.603 360 359 6 Mo. LIBOR
20 1.000 17.000 360 360 6 Mo. LIBOR
</TABLE>
ASSUMED SUBSEQUENT MORTGAGE LOANS
<TABLE>
<CAPTION>
INITIAL
GROSS MONTHS PERIODIC
PRINCIPAL COUPON GROSS TO NEXT RATE
GROUP BALANCES ($) RATE (%) MARGIN (%) CHANGE CAP(%)
------- ------------------ ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
21 29,405,135.77 10.377 5.937 24 3.000
22 1,607,005.45 11.005 6.141 36 5.000
23 241,186.66 10.540 6.467 6 1.000
<CAPTION>
PERIODIC LIFETIME ORIGINAL TERM REMAINING TERM
RATE RATE TO MATURITY TO MATURITY
GROUP CAP (%) CAP (%) (IN MONTHS) (IN MONTHS) INDEX
------- ---------- ---------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
21 1.037 17.375 360 360 6 Mo. LIBOR
22 2.000 17.975 360 360 1 Yr. CMT
23 1.000 17.540 360 360 6 Mo. LIBOR
</TABLE>
WEIGHTED AVERAGE LIVES OF THE OFFERED CERTIFICATES
The weighted average life of an offered certificate is determined by (a)
multiplying the amount of the reduction, if any, of the Class Certificate
Balance of the certificate on each distribution date by the number of years
from the date of issuance to that distribution date, (b) summing the results
and (c) dividing the sum by the aggregate amount of the reductions in Class
Certificate Balance of the 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 in the
related loan group increases. However, the weighted average lives of the
offered certificates will depend upon a variety of other factors, including the
timing of changes in the rate of principal payments and the priority sequence
of distributions of principal of the classes of certificates. See "Description
of the Certificates--Distributions of Interest and Principal" herein.
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 that 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 those 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 the Prepayment
Assumption, see the Decrement Tables below.
S-60
<PAGE>
DECREMENT TABLES
The following tables indicate the percentages of the initial Class
Certificate Balances of the classes of offered certificates that would be
outstanding after each of the dates shown at various constant percentages of
the applicable Prepayment Assumption and the corresponding weighted average
lives of those classes. The tables have been prepared on the basis of the
structuring assumptions. It is not likely that (i) all of the mortgage loans
will have the characteristics assumed, (ii) all of the mortgage loans will
prepay at the constant percentages of the applicable prepayment assumption
specified in the tables or at any other constant rate or (iii) all of the
mortgage loans will prepay at the same rate. Moreover, the diverse remaining
terms to maturity of the mortgage loans could produce slower or faster
principal distributions than indicated in the tables at the specified constant
percentages of the applicable prepayment assumption, even if the weighted
average remaining term to maturity of the mortgage loans is consistent with the
remaining terms to maturity of the mortgage loans specified in the structuring
assumptions.
Prepayment Scenarios
<TABLE>
<CAPTION>
SCENARIO I SCENARIO II SCENARIO III SCENARIO IV SCENARIO V
<S> <C> <C> <C> <C> <C>
Loan Group I (% of PPC) 0% 50% 100% 150% 200%
Loan Group II (% of CPR) 0% 15% 28% 35% 45%
</TABLE>
S-61
<PAGE>
PERCENT OF INITIAL CLASS CERTIFICATE BALANCE OUSTANDING*
<TABLE>
<CAPTION>
CLASS AF-1 CLASS AF-2
PREPAYMENT SCENARIO PREPAYMENT SCENARIO
-------------------------------------------------- --------------------------------------------------
DISTRIBUTION DATE I II III IV V I II III IV V
------------------------- ---------- --------- --------- --------- --------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage ...... 100 100 100 100 100 100 100 100 100 100
November 25, 2001 ....... 96 68 39 10 0 100 100 100 100 68
November 25, 2002 ....... 94 26 0 0 0 100 100 42 0 0
November 25, 2003 ....... 92 0 0 0 0 100 86 0 0 0
November 25, 2004 ....... 89 0 0 0 0 100 36 0 0 0
November 25, 2005 ....... 86 0 0 0 0 100 0 0 0 0
November 25, 2006 ....... 83 0 0 0 0 100 0 0 0 0
November 25, 2007 ....... 81 0 0 0 0 100 0 0 0 0
November 25, 2008 ....... 78 0 0 0 0 100 0 0 0 0
November 25, 2009 ....... 74 0 0 0 0 100 0 0 0 0
November 25, 2010 ....... 70 0 0 0 0 100 0 0 0 0
November 25, 2011 ....... 66 0 0 0 0 100 0 0 0 0
November 25, 2012 ....... 61 0 0 0 0 100 0 0 0 0
November 25, 2013 ....... 56 0 0 0 0 100 0 0 0 0
November 25, 2014 ....... 50 0 0 0 0 100 0 0 0 0
November 25, 2015 ....... 24 0 0 0 0 100 0 0 0 0
November 25, 2016 ....... 13 0 0 0 0 100 0 0 0 0
November 25, 2017 ....... 4 0 0 0 0 100 0 0 0 0
November 25, 2018 ....... 0 0 0 0 0 90 0 0 0 0
November 25, 2019 ....... 0 0 0 0 0 72 0 0 0 0
November 25, 2020 ....... 0 0 0 0 0 51 0 0 0 0
November 25, 2021 ....... 0 0 0 0 0 28 0 0 0 0
November 25, 2022 ....... 0 0 0 0 0 2 0 0 0 0
November 25, 2023 ....... 0 0 0 0 0 0 0 0 0 0
November 25, 2024 ....... 0 0 0 0 0 0 0 0 0 0
November 25, 2025 ....... 0 0 0 0 0 0 0 0 0 0
November 25, 2026 ....... 0 0 0 0 0 0 0 0 0 0
November 25, 2027 ....... 0 0 0 0 0 0 0 0 0 0
November 25, 2028 ....... 0 0 0 0 0 0 0 0 0 0
November 25, 2029 ....... 0 0 0 0 0 0 0 0 0 0
November 25, 2030 ....... 0 0 0 0 0 0 0 0 0 0
November 25, 2031 ....... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life to Maturity** ..... 11.76 1.48 0.90 0.69 0.58 20.01 3.80 2.00 1.41 1.13
Weighted Average
Life to Call** ......... 11.76 1.48 0.90 0.69 0.58 20.01 3.80 2.00 1.41 1.13
<CAPTION>
CLASS AF-3
PREPAYMENT SCENARIO
--------------------------------------------------
DISTRIBUTION DATE I II III IV V
------------------------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial Percentage ...... 100 100 100 100 100
November 25, 2001 ....... 100 100 100 100 100
November 25, 2002 ....... 100 100 100 37 0
November 25, 2003 ....... 100 100 42 0 0
November 25, 2004 ....... 100 100 0 0 0
November 25, 2005 ....... 100 93 0 0 0
November 25, 2006 ....... 100 46 0 0 0
November 25, 2007 ....... 100 22 0 0 0
November 25, 2008 ....... 100 0 0 0 0
November 25, 2009 ....... 100 0 0 0 0
November 25, 2010 ....... 100 0 0 0 0
November 25, 2011 ....... 100 0 0 0 0
November 25, 2012 ....... 100 0 0 0 0
November 25, 2013 ....... 100 0 0 0 0
November 25, 2014 ....... 100 0 0 0 0
November 25, 2015 ....... 100 0 0 0 0
November 25, 2016 ....... 100 0 0 0 0
November 25, 2017 ....... 100 0 0 0 0
November 25, 2018 ....... 100 0 0 0 0
November 25, 2019 ....... 100 0 0 0 0
November 25, 2020 ....... 100 0 0 0 0
November 25, 2021 ....... 100 0 0 0 0
November 25, 2022 ....... 100 0 0 0 0
November 25, 2023 ....... 68 0 0 0 0
November 25, 2024 ....... 31 0 0 0 0
November 25, 2025 ....... 0 0 0 0 0
November 25, 2026 ....... 0 0 0 0 0
November 25, 2027 ....... 0 0 0 0 0
November 25, 2028 ....... 0 0 0 0 0
November 25, 2029 ....... 0 0 0 0 0
November 25, 2030 ....... 0 0 0 0 0
November 25, 2031 ....... 0 0 0 0 0
Weighted Average
Life to Maturity** ..... 23.51 6.19 3.00 1.99 1.52
Weighted Average
Life to Call** ......... 23.51 6.19 3.00 1.99 1.52
</TABLE>
----------
* Rounded to the nearest whole percentage.
** The weighed average life of a Certificate of any class is determined by
(i) multiplying the net reduction, if any, of the Certficate Principal
Balance by the number of years from the date of issuance of the
Certificate to the related Distribution Date, (ii) adding the results,
and (iii) dividing them by the aggregate of the net reductions of the
certificate principal balance described in (i) above.
S-62
<PAGE>
PERCENT OF INITIAL CLASS CERTIFICATE BALANCE OUSTANDING*
<TABLE>
<CAPTION>
CLASS AF-4
PREPAYMENT SCENARIO
---------------------------------------------------
DISTRIBUTION DATE I II III IV V
---------------------------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial Percentage ......... 100 100 100 100 100
November 25, 2001 .......... 100 100 100 100 100
November 25, 2002 .......... 100 100 100 100 49
November 25, 2003 .......... 100 100 100 33 0
November 25, 2004 .......... 100 100 78 1 0
November 25, 2005 .......... 100 100 42 0 0
November 25, 2006 .......... 100 100 16 0 0
November 25, 2007 .......... 100 100 5 0 0
November 25, 2008 .......... 100 99 0 0 0
November 25, 2009 .......... 100 81 0 0 0
November 25, 2010 .......... 100 65 0 0 0
November 25, 2011 .......... 100 49 0 0 0
November 25, 2012 .......... 100 35 0 0 0
November 25, 2013 .......... 100 22 0 0 0
November 25, 2014 .......... 100 10 0 0 0
November 25, 2015 .......... 100 0 0 0 0
November 25, 2016 .......... 100 0 0 0 0
November 25, 2017 .......... 100 0 0 0 0
November 25, 2018 .......... 100 0 0 0 0
November 25, 2019 .......... 100 0 0 0 0
November 25, 2020 .......... 100 0 0 0 0
November 25, 2021 .......... 100 0 0 0 0
November 25, 2022 .......... 100 0 0 0 0
November 25, 2023 .......... 100 0 0 0 0
November 25, 2024 .......... 100 0 0 0 0
November 25, 2025 .......... 92 0 0 0 0
November 25, 2026 .......... 58 0 0 0 0
November 25, 2027 .......... 20 0 0 0 0
November 25, 2028 .......... 0 0 0 0 0
November 25, 2029 .......... 0 0 0 0 0
November 25, 2030 .......... 0 0 0 0 0
November 25, 2031 .......... 0 0 0 0 0
Weighted Average
Life to Maturity** ........ 26.25 11.15 4.99 3.00 2.08
Weighted Average
Life to Call** ............ 26.25 11.15 4.99 3.00 2.08
<CAPTION>
CLASS AF-5 CLASS AF-6
PREPAYMENT SCENARIO PREPAYMENT SCENARIO
---------------------------------------------------- ----------------------------------------
DISTRIBUTION DATE I II III IV V I II III IV
---------------------------- ---------- ---------- ---------- --------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage ......... 100 100 100 100 100 100 100 100 100
November 25, 2001 .......... 100 100 100 100 100 100 100 100 100
November 25, 2002 .......... 100 100 100 100 100 100 100 100 100
November 25, 2003 .......... 100 100 100 100 47 100 94 87 79
November 25, 2004 .......... 100 100 100 100 34 99 88 78 69
November 25, 2005 .......... 100 100 100 64 16 99 78 63 50
November 25, 2006 .......... 100 100 100 43 9 98 67 49 33
November 25, 2007 .......... 100 100 100 38 9 94 46 22 9
November 25, 2008 .......... 100 100 87 28 5 91 31 10 3
November 25, 2009 .......... 100 100 70 19 1 87 21 4 1
November 25, 2010 .......... 100 100 55 12 0 83 14 2 0
November 25, 2011 .......... 100 100 42 7 0 78 9 1 0
November 25, 2012 .......... 100 100 33 3 0 74 6 0 0
November 25, 2013 .......... 100 100 25 0 0 68 4 0 0
November 25, 2014 .......... 100 100 19 0 0 63 3 0 0
November 25, 2015 .......... 100 92 13 0 0 44 1 0 0
November 25, 2016 .......... 100 78 8 0 0 37 1 0 0
November 25, 2017 .......... 100 67 5 0 0 32 1 0 0
November 25, 2018 .......... 100 57 3 0 0 28 0 0 0
November 25, 2019 .......... 100 49 1 0 0 23 0 0 0
November 25, 2020 .......... 100 41 0 0 0 19 0 0 0
November 25, 2021 .......... 100 34 0 0 0 14 0 0 0
November 25, 2022 .......... 100 28 0 0 0 10 0 0 0
November 25, 2023 .......... 100 22 0 0 0 7 0 0 0
November 25, 2024 .......... 100 17 0 0 0 5 0 0 0
November 25, 2025 .......... 100 12 0 0 0 3 0 0 0
November 25, 2026 .......... 100 7 0 0 0 1 0 0 0
November 25, 2027 .......... 100 3 0 0 0 0 0 0 0
November 25, 2028 .......... 69 0 0 0 0 0 0 0 0
November 25, 2029 .......... 14 0 0 0 0 0 0 0 0
November 25, 2030 .......... 0 0 0 0 0 0 0 0 0
November 25, 2031 .......... 0 0 0 0 0 0 0 0 0
Weighted Average
Life to Maturity** ........ 28.38 19.64 11.17 6.68 3.91 15.18 7.17 5.68 4.97
Weighted Average
Life to Call** ............ 28.30 15.08 7.97 5.22 3.37 15.18 7.15 5.55 4.57
<CAPTION>
CLASS AF-6
PREPAYMENT
SCENARIO
---------
DISTRIBUTION DATE V
---------------------------- ---------
<S> <C>
Initial Percentage ......... 100
November 25, 2001 .......... 100
November 25, 2002 .......... 100
November 25, 2003 .......... 67
November 25, 2004 .......... 62
November 25, 2005 .......... 39
November 25, 2006 .......... 21
November 25, 2007 .......... 6
November 25, 2008 .......... 0
November 25, 2009 .......... 0
November 25, 2010 .......... 0
November 25, 2011 .......... 0
November 25, 2012 .......... 0
November 25, 2013 .......... 0
November 25, 2014 .......... 0
November 25, 2015 .......... 0
November 25, 2016 .......... 0
November 25, 2017 .......... 0
November 25, 2018 .......... 0
November 25, 2019 .......... 0
November 25, 2020 .......... 0
November 25, 2021 .......... 0
November 25, 2022 .......... 0
November 25, 2023 .......... 0
November 25, 2024 .......... 0
November 25, 2025 .......... 0
November 25, 2026 .......... 0
November 25, 2027 .......... 0
November 25, 2028 .......... 0
November 25, 2029 .......... 0
November 25, 2030 .......... 0
November 25, 2031 .......... 0
Weighted Average
Life to Maturity** ........ 4.48
Weighted Average
Life to Call** ............ 3.57
</TABLE>
----------
* Rounded to the nearest whole percentage.
** The weighed average life of a Certificate of any class is determined by
(i) multiplying the net reduction, if any, of the Certficate Principal
Balance by the number of years from the date of issuance of the
Certificate to the related Distribution Date, (ii) adding the results,
and (iii) dividing them by the aggregate of the net reductions of the
certificate principal balance described in (i) above.
S-63
<PAGE>
PERCENT OF INITIAL CLASS CERTIFICATE BALANCE OUSTANDING*
<TABLE>
<CAPTION>
CLASS MF-1
PREPAYMENT SCENARIO
---------------------------------------------------
DISTRIBUTION DATE I II III IV V
--------------------------------------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial Percentage .................... 100 100 100 100 100
November 25, 2001 ..................... 100 100 100 100 100
November 25, 2002 ..................... 100 100 100 100 100
November 25, 2003 ..................... 100 100 100 100 100
November 25, 2004 ..................... 100 100 79 46 24
November 25, 2005 ..................... 100 100 61 30 13
November 25, 2006 ..................... 100 99 47 20 7
November 25, 2007 ..................... 100 88 37 13 0
November 25, 2008 ..................... 100 77 28 9 0
November 25, 2009 ..................... 100 68 22 2 0
November 25, 2010 ..................... 100 59 17 0 0
November 25, 2011 ..................... 100 52 13 0 0
November 25, 2012 ..................... 100 45 10 0 0
November 25, 2013 ..................... 100 40 7 0 0
November 25, 2014 ..................... 100 34 2 0 0
November 25, 2015 ..................... 100 28 0 0 0
November 25, 2016 ..................... 100 23 0 0 0
November 25, 2017 ..................... 100 20 0 0 0
November 25, 2018 ..................... 100 17 0 0 0
November 25, 2019 ..................... 100 14 0 0 0
November 25, 2020 ..................... 100 12 0 0 0
November 25, 2021 ..................... 100 10 0 0 0
November 25, 2022 ..................... 100 8 0 0 0
November 25, 2023 ..................... 92 5 0 0 0
November 25, 2024 ..................... 81 0 0 0 0
November 25, 2025 ..................... 68 0 0 0 0
November 25, 2026 ..................... 54 0 0 0 0
November 25, 2027 ..................... 38 0 0 0 0
November 25, 2028 ..................... 20 0 0 0 0
November 25, 2029 ..................... 0 0 0 0 0
November 25, 2030 ..................... 0 0 0 0 0
November 25, 2031 ..................... 0 0 0 0 0
Weighted Average Life to Maturity** ... 26.12 12.56 6.76 4.67 4.01
Weighted Average Life to Call** ....... 26.11 11.33 5.92 4.24 3.71
<CAPTION>
CLASS MF-2
PREPAYMENT SCENARIO
---------------------------------------------------
DISTRIBUTION DATE I II III IV V
--------------------------------------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial Percentage .................... 100 100 100 100 100
November 25, 2001 ..................... 100 100 100 100 100
November 25, 2002 ..................... 100 100 100 100 100
November 25, 2003 ..................... 100 100 100 100 100
November 25, 2004 ..................... 100 100 79 46 24
November 25, 2005 ..................... 100 100 61 30 11
November 25, 2006 ..................... 100 99 47 20 0
November 25, 2007 ..................... 100 88 37 11 0
November 25, 2008 ..................... 100 77 28 2 0
November 25, 2009 ..................... 100 68 22 0 0
November 25, 2010 ..................... 100 59 17 0 0
November 25, 2011 ..................... 100 52 9 0 0
November 25, 2012 ..................... 100 45 4 0 0
November 25, 2013 ..................... 100 40 0 0 0
November 25, 2014 ..................... 100 34 0 0 0
November 25, 2015 ..................... 100 28 0 0 0
November 25, 2016 ..................... 100 23 0 0 0
November 25, 2017 ..................... 100 20 0 0 0
November 25, 2018 ..................... 100 17 0 0 0
November 25, 2019 ..................... 100 13 0 0 0
November 25, 2020 ..................... 100 8 0 0 0
November 25, 2021 ..................... 100 4 0 0 0
November 25, 2022 ..................... 100 1 0 0 0
November 25, 2023 ..................... 92 0 0 0 0
November 25, 2024 ..................... 81 0 0 0 0
November 25, 2025 ..................... 68 0 0 0 0
November 25, 2026 ..................... 54 0 0 0 0
November 25, 2027 ..................... 38 0 0 0 0
November 25, 2028 ..................... 20 0 0 0 0
November 25, 2029 ..................... 0 0 0 0 0
November 25, 2030 ..................... 0 0 0 0 0
November 25, 2031 ..................... 0 0 0 0 0
Weighted Average Life to Maturity** ... 26.09 12.32 6.58 4.50 3.76
Weighted Average Life to Call** ....... 26.09 11.33 5.92 4.20 3.54
</TABLE>
----------
* Rounded to the nearest whole percentage.
** The weighed average life of a Certificate of any class is determined by
(i) multiplying the net reduction, if any, of the Certficate Principal
Balance by the number of years from the date of issuance of the
Certificate to the related Distribution Date, (ii) adding the results,
and (iii) dividing them by the aggregate of the net reductions of the
certificate principal balance described in (i) above.
S-64
<PAGE>
PERCENT OF INITIAL CLASS CERTIFICATE BALANCE OUSTANDING*
<TABLE>
<CAPTION>
CLASS BF CLASS AV
PREPAYMENT SCENARIO PREPAYMEMT SCENARIO
--------------------------------------------------- --------------------------------------------------
DISTRIBUTION DATE I II III IV V I II III IV V
---------------------- ---------- ---------- --------- --------- --------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage ... 100 100 100 100 100 100 100 100 100 100
November 25, 2001 .... 100 100 100 100 100 99 82 68 61 50
November 25, 2002 .... 100 100 100 100 100 98 68 46 35 22
November 25, 2003 .... 100 100 100 100 100 97 56 30 19 7
November 25, 2004 .... 100 100 75 35 9 97 46 23 16 7
November 25, 2005 .... 100 100 53 16 0 96 38 17 10 4
November 25, 2006 .... 100 99 37 4 0 96 32 12 6 2
November 25, 2007 .... 100 85 24 0 0 95 27 9 4 1
November 25, 2008 .... 100 72 14 0 0 94 23 6 3 0
November 25, 2009 .... 100 61 6 0 0 93 19 4 2 0
November 25, 2010 .... 100 51 0 0 0 92 16 3 1 0
November 25, 2011 .... 100 42 0 0 0 91 14 2 0 0
November 25, 2012 .... 100 35 0 0 0 89 11 1 0 0
November 25, 2013 .... 100 28 0 0 0 88 10 1 0 0
November 25, 2014 .... 100 21 0 0 0 86 8 0 0 0
November 25, 2015 .... 100 13 0 0 0 84 7 0 0 0
November 25, 2016 .... 100 8 0 0 0 82 6 0 0 0
November 25, 2017 .... 100 4 0 0 0 79 5 0 0 0
November 25, 2018 .... 100 1 0 0 0 76 4 0 0 0
November 25, 2019 .... 100 0 0 0 0 73 3 0 0 0
November 25, 2020 .... 100 0 0 0 0 69 2 0 0 0
November 25, 2021 .... 100 0 0 0 0 65 2 0 0 0
November 25, 2022 .... 100 0 0 0 0 60 1 0 0 0
November 25, 2023 .... 91 0 0 0 0 54 1 0 0 0
November 25, 2024 .... 77 0 0 0 0 48 1 0 0 0
November 25, 2025 .... 62 0 0 0 0 41 0 0 0 0
November 25, 2026 .... 45 0 0 0 0 35 0 0 0 0
November 25, 2027 .... 26 0 0 0 0 27 0 0 0 0
November 25, 2028 .... 5 0 0 0 0 19 0 0 0 0
November 25, 2029 .... 0 0 0 0 0 9 0 0 0 0
November 25, 2030 .... 0 0 0 0 0 0 0 0 0 0
November 25, 2031 .... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life to Maturity** .. 25.60 10.76 5.63 3.91 3.33 21.87 5.37 2.77 2.10 1.46
Weighted Average
Life to Call** ...... 25.60 10.58 5.50 3.87 3.30 21.80 5.09 2.61 1.94 1.34
<CAPTION>
CLASS MV-1
PREPAYMENT SCENARIO
--------------------------------------------------
DISTRIBUTION DATE I II III IV V
---------------------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial Percentage ... 100 100 100 100 100
November 25, 2001 .... 100 100 100 100 100
November 25, 2002 .... 100 100 100 100 100
November 25, 2003 .... 100 100 100 100 100
November 25, 2004 .... 100 100 53 35 31
November 25, 2005 .... 100 87 38 23 10
November 25, 2006 .... 100 73 27 15 1
November 25, 2007 .... 100 62 19 9 0
November 25, 2008 .... 100 52 14 2 0
November 25, 2009 .... 100 44 10 0 0
November 25, 2010 .... 100 37 5 0 0
November 25, 2011 .... 100 31 0 0 0
November 25, 2012 .... 100 26 0 0 0
November 25, 2013 .... 100 22 0 0 0
November 25, 2014 .... 100 18 0 0 0
November 25, 2015 .... 100 15 0 0 0
November 25, 2016 .... 100 13 0 0 0
November 25, 2017 .... 100 10 0 0 0
November 25, 2018 .... 100 8 0 0 0
November 25, 2019 .... 100 4 0 0 0
November 25, 2020 .... 100 1 0 0 0
November 25, 2021 .... 100 0 0 0 0
November 25, 2022 .... 100 0 0 0 0
November 25, 2023 .... 100 0 0 0 0
November 25, 2024 .... 100 0 0 0 0
November 25, 2025 .... 93 0 0 0 0
November 25, 2026 .... 79 0 0 0 0
November 25, 2027 .... 62 0 0 0 0
November 25, 2028 .... 43 0 0 0 0
November 25, 2029 .... 21 0 0 0 0
November 25, 2030 .... 0 0 0 0 0
November 25, 2031 .... 0 0 0 0 0
Weighted Average
Life to Maturity** .. 27.53 9.58 5.12 4.34 4.07
Weighted Average
Life to Call** ...... 27.37 9.15 4.90 4.10 3.89
</TABLE>
----------
* Rounded to the nearest whole percentage
** The weighed average life of a Certificate of any class is determined by
(i) multiplying the net reduction, if any, of the Certficate Principal
Balance by the number of years from the date of issuance of the
Certificate to the related Distribution Date, (ii) adding the results,
and (iii) dividing them by the aggregate of the net reductions of the
certificate principal balance described in (i) above.
S-65
<PAGE>
PERCENT OF INITIAL CLASS CERTIFICATE BALANCE OUSTANDING*
<TABLE>
<CAPTION>
CLASS MV-2
PREPAYMENT SCENARIO
--------------------------------------------------
DISTRIBUTION DATE I II III IV V
--------------------------------------------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial Percentage .......................... 100 100 100 100 100
November 25, 2001 ........................... 100 100 100 100 100
November 25, 2002 ........................... 100 100 100 100 100
November 25, 2003 ........................... 100 100 100 100 100
November 25, 2004 ........................... 100 100 53 14 35
November 25, 2005 ........................... 100 87 38 2 21
November 25, 2006 ........................... 100 73 27 0 9
November 25, 2007 ........................... 100 62 16 0 1
November 25, 2008 ........................... 100 52 8 0 0
November 25, 2009 ........................... 100 44 2 0 0
November 25, 2010 ........................... 100 32 0 0 0
November 25, 2011 ........................... 100 31 0 0 0
November 25, 2012 ........................... 100 26 0 0 0
November 25, 2013 ........................... 100 20 0 0 0
November 25, 2014 ........................... 100 14 0 0 0
November 25, 2015 ........................... 100 10 0 0 0
November 25, 2016 ........................... 100 6 0 0 0
November 25, 2017 ........................... 100 3 0 0 0
November 25, 2018 ........................... 100 0 0 0 0
November 25, 2019 ........................... 100 0 0 0 0
November 25, 2020 ........................... 100 0 0 0 0
November 25, 2021 ........................... 100 0 0 0 0
November 25, 2022 ........................... 100 0 0 0 0
November 25, 2023 ........................... 100 0 0 0 0
November 25, 2024 ........................... 100 0 0 0 0
November 25, 2025 ........................... 93 0 0 0 0
November 25, 2026 ........................... 79 0 0 0 0
November 25, 2027 ........................... 62 0 0 0 0
November 25, 2028 ........................... 43 0 0 0 0
November 25, 2029 ........................... 19 0 0 0 0
November 25, 2030 ........................... 0 0 0 0 0
November 25, 2031 ........................... 0 0 0 0 0
Weighted Average Life to Maturity** ......... 27.49 9.19 4.86 4.06 3.59
Weighted Average Life to Call** ............. 27.37 9.06 4.81 3.97 3.52
<CAPTION>
CLASS BV
PREPAYMENT SCENARIO
--------------------------------------------------
DISTRIBUTION DATE I II III IV V
--------------------------------------------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial Percentage .......................... 100 100 100 100 100
November 25, 2001 ........................... 100 100 100 100 100
November 25, 2002 ........................... 100 100 100 100 100
November 25, 2003 ........................... 100 100 100 100 100
November 25, 2004 ........................... 100 100 45 16 0
November 25, 2005 ........................... 100 87 21 0 0
November 25, 2006 ........................... 100 73 3 0 0
November 25, 2007 ........................... 100 59 0 0 0
November 25, 2008 ........................... 100 43 0 0 0
November 25, 2009 ........................... 100 30 0 0 0
November 25, 2010 ........................... 100 19 0 0 0
November 25, 2011 ........................... 100 10 0 0 0
November 25, 2012 ........................... 100 2 0 0 0
November 25, 2013 ........................... 100 0 0 0 0
November 25, 2014 ........................... 100 0 0 0 0
November 25, 2015 ........................... 100 0 0 0 0
November 25, 2016 ........................... 100 0 0 0 0
November 25, 2017 ........................... 100 0 0 0 0
November 25, 2018 ........................... 100 0 0 0 0
November 25, 2019 ........................... 100 0 0 0 0
November 25, 2020 ........................... 100 0 0 0 0
November 25, 2021 ........................... 100 0 0 0 0
November 25, 2022 ........................... 100 0 0 0 0
November 25, 2023 ........................... 100 0 0 0 0
November 25, 2024 ........................... 100 0 0 0 0
November 25, 2025 ........................... 93 0 0 0 0
November 25, 2026 ........................... 79 0 0 0 0
November 25, 2027 ........................... 59 0 0 0 0
November 25, 2028 ........................... 28 0 0 0 0
November 25, 2029 ........................... 0 0 0 0 0
November 25, 2030 ........................... 0 0 0 0 0
November 25, 2031 ........................... 0 0 0 0 0
Weighted Average Life to Maturity** ......... 27.15 7.78 4.10 3.44 3.16
Weighted Average Life to Call** ............. 27.15 7.78 4.10 3.44 3.16
</TABLE>
----------
* Rounded to the nearest whole percentage
** The weighed average life of a Certificate of any class is determined by
(i) multiplying the net reduction, if any, of the Certficate Principal
Balance by the number of years from the date of issuance of the
Certificate to the related Distribution Date, (ii) adding the results,
and (iii) dividing them by the aggregate of the net reductions of the
certificate principal balance described in (i) above.
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<PAGE>
SPECIAL YIELD CONSIDERATIONS RELATING TO THE CLASS AF-IO CERTIFICATES
The Class AF-IO Certificates are only entitled to distributions before the
distribution date in November 2003. In addition, if, at any time through
October 2003, the aggregate Stated Principal Balances of the mortgage loans is
reduced to 10% of the aggregate principal balance of the mortgage loans as of
their respective cut-off dates, the yield to investors in the Class AF-IO
Certificates will be extremely sensitive to the rate and timing of principal
payments on the mortgage loans (including prepayments, defaults and
liquidations), which rate may fluctuate significantly over time. Further, if
the Optional Termination Date occurs before the distribution date in October
2003 and the master servicer effects an optional repurchase of all remaining
mortgage loans, then the Class AF-IO Certificates will receive no further
distributions. Investors in the Class AF-IO Certificates should consider the
risk that an extremely rapid rate of prepayments on the related mortgage loans
could result in the failure to fully recover their investments.
Based on the structuring assumptions, and further assuming prepayments at
approximately 264% of the prepayment assumption, assuming the Optional
Termination is exercised and assuming a purchase price of 10.1996%, the pre-tax
yield to maturity of the Class AF-IO Certificates would be approximately 0%. If
the actual prepayment rate on the mortgage loans were to exceed that rate, then
assuming the mortgage loans behave in conformity with all other structuring
assumptions, initial investors in the Class AF-IO Certificates would not fully
recover their initial investment. Timing of changes in the rate of prepayments
may significantly affect the actual yield to investors, even if the average
rate of principal prepayments is consistent with the expectations of investors.
Investors must make their own decisions as to the appropriate prepayment
assumption to be used in deciding whether to purchase any Class AF-IO
Certificates.
The 0% pre-tax yield described above was calculated by determining the
monthly discount rates which, when applied to the assumed stream of cash flow
to be paid on the Class AF-IO Certificates, would cause the discounted present
value of the assumed stream of cash flow to the closing date to equal the
assumed purchase price (which includes accrued interest), and converting the
monthly rate to a corporate bond equivalent rate. Those calculations do not
take into account the interest rates at which funds received by holders of the
Class AF-IO Certificates may be reinvested and consequently does not purport to
reflect the return on any investment in the Class AF-IO Certificates when the
reinvestment rates are considered.
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<PAGE>
LAST SCHEDULED DISTRIBUTION DATE
The last scheduled distribution dates for each Class of offered
certificates are as follows:
<TABLE>
<CAPTION>
LAST SCHEDULED
DISTRIBUTION DATE
------------------
<S> <C>
Class AF-1 Certificates .......... July 2018
Class AF-2 Certificates .......... January 2023
Class AF-3 Certificates .......... September 2025
Class AF-4 Certificates .......... June 2028
Class AF-5 Certificates .......... December 2031
Class AF-6 Certificates .......... February 2030
Class AF-IO Certificates ......... November 2003
Class MF-1 Certificates .......... December 2031
Class MF-2 Certificates .......... December 2031
Class BF Certificates ............ December 2031
Class AV Certificates ............ December 2031
Class MV-1 Certificates .......... December 2031
Class MV-2 Certificates .......... December 2031
Class BV Certificates ............ December 2031
Class R Certificates ............. December 2031
</TABLE>
The last scheduled distribution date for each class of offered
certificates is the date on which the initial Class Certificate Balance set
forth on the cover page hereof for that class would be reduced to zero. The
last scheduled distribution dates for all Classes have been calculated on the
basis of the structuring assumptions and the assumptions that no prepayments
are received on the mortgage loans, each monthly payment of principal and
interest on the mortgage loans is timely received, and no excess interest is
used to accelerate principal payments on the bonds. The last scheduled
distribution date for the Class AF-5, Class AV, Class M, Class B, and Class R
certificates is the thirteenth month after the last scheduled payment on the
latest maturing class of bonds.
Since the rate of distributions in reduction of the Class Certificate
Balance of each class of offered certificates will depend on the rate of
payment (including prepayments) of the mortgage loans, the Class Certificate
Balance of each 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
"--Prepayment Considerations and Risks" and "--Weighted Average Lives of the
Offered Certificates" herein and "Yield and Prepayment Considerations" in the
Prospectus.
USE OF PROCEEDS
The depositor will apply the net proceeds of the sale of the offered
certificates against the purchase price of the mortgage loans.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The Pooling and Servicing Agreement provides that the Trust Fund,
exclusive of the assets held in the Excess Reserve Fund Account and certain
other accounts specified in the pooling and servicing agreement, will comprise
two "Lower Tier REMICs" and an "Upper Tier REMIC" organized in three-tiered
REMIC structure. Each Certificate, other than the Class R Certificate,
represents ownership of a regular interest in the Upper Tier REMIC. The Class R
Certificate will represent ownership of the
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<PAGE>
sole Class of residual interest in each of the Lower Tier REMICs and the Upper
Tier REMIC. In addition, each of the Certificates (other than the Class AF-IO
Certificates) will represent a beneficial interest in the right to receive
payments from the Excess Reserve Fund Account. Elections will be made to treat
each of the Lower Tier REMICs and the Upper Tier REMIC as a REMIC for federal
income tax purposes.
Upon the issuance of the Offered Certificates, Brown & Wood LLP ("Tax
Counsel") will deliver its opinion to the effect that, assuming compliance with
the Pooling and Servicing Agreement, for federal income tax purposes, each of
the Lower Tier REMICs and the Upper Tier REMIC will each qualify as a REMIC
within the meaning of Section 860D of the Internal Revenue Code of 1986, as
amended (the "Code").
TAXATION OF REGULAR INTERESTS
A holder of a Class of Offered Certificates, other than the Class R
Certificate, will be treated for federal income tax purposes as owning an
interest in the corresponding Class of Regular Interests in the Upper Tier
REMIC. In addition, the pooling and servicing agreement provides that each
holder of a Certificate (other than the Class AF-IO Certificates) will be
treated as owning an interest in a limited recourse interest rate cap contract
(the "Cap Contracts"). A holder of an Adjustable Rate Certificate must allocate
its purchase price for the Adjustable Rate Certificate between its
components--the REMIC Regular Interest component and the Cap Contract
component. To the extent the Cap Contract component has significant value, the
Regular Interest component will be viewed as having been issued with an
additional amount of original issue discount ("OID") (which could cause the
total amount of OID to exceed a statutorily defined de minimis amount). See
"Federal Income Tax Consequences--Taxation of Debt Securities--Interest and
Acquisition Discount" in the Prospectus.
Upon the sale, exchange, or other disposition of an Adjustable Rate
Certificate, the holder must allocate the amount realized between the
components of the Adjustable Rate Certificate based on the relative fair market
values of those components at the time of sale. Assuming that an Adjustable
Rate Certificate is held as a "capital asset" within the meaning of section
1221 of the Code, gain or loss on the disposition of an interest in the Cap
Contract component should be capital gain or loss.
Interest on the Regular Interest component of a Certificate must be
included in income by a holder under the accrual method of accounting,
regardless of the holder's regular method of accounting. In addition, the
Regular Interest components of the Certificates could be considered to have
been issued with OID. See "Federal Income Tax Consequences--Taxation of Debt
Securities--Interest and Acquisition Discount" in the Prospectus. The
prepayment assumption that will be used in determining the accrual of any OID,
market discount, or bond premium, if any, will be a rate equal to the
Prepayment Assumption relating to each loan group. No representation is made
that the Mortgage Loans will prepay at such a rate or at any other rate. OID
must be included in income as it accrues on a constant yield method, regardless
of whether the holder receives currently the cash attributable to such OID.
STATUS OF THE OFFERED CERTIFICATES
The Regular Interest components of the Certificates will be treated as
assets described in Section 7701(a)(19)(C) of the Code, and as "real estate
assets" under Section 856(c)(5)(B) of the Code, generally, in the same
proportion that the assets of the Trust Fund, exclusive of the Basis Risk
Reserve Fund, would be so treated. In addition, to the extent the Regular
Interest component of a Certificate represents real estate assets under section
856(c)(5)(B) of the Code, the interest derived from that component or
Certificate would be interest on obligations secured by interests in real
property for purposes of section 856(c)(3) of the Code. The Cap Contract
components of the Adjustable Rate Certificates and the Group 1 Subordinated
Certificates will not, however, qualify as assets described in Section
7701(a)(19)(C) of the Code or as real estate assets under Section 856(c)(5)(B)
of the Code.
THE CAP CONTRACT COMPONENT
As indicated above, a portion of the purchase price paid by a holder to
acquire certain Certificates will be attributable to the Cap Contract component
of such Certificate. The portion of the overall
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<PAGE>
purchase price attributable to the Cap Contract component must be amortized
over the life of such Certificate, taking into account the declining balance of
the related Regular Interest component. Treasury regulations concerning
notional principal contracts provide alternative methods for amortizing the
purchase price of an interest rate cap contract. Under one method--the level
yield constant interest method--the price paid for an interest rate cap is
amortized over the life of the cap as though it were the principal amount of a
loan bearing interest at a reasonable rate. Holders are urged to consult their
tax advisors concerning the methods that can be employed to amortize the
portion of the purchase price paid for the Cap Contract component of an
Adjustable Rate Certificate.
Any payments made to a holder from the Excess Reserve Fund Account will be
treated as periodic payments on an interest rate cap contract. To the extent
the sum of such periodic payments for any year exceeds that year's amortized
cost of the Cap Contract component, such excess is ordinary income. If for any
year the amount of that year's amortized cost exceeds the sum of the periodic
payments, such excess is allowable as an ordinary deduction.
THE CLASS R CERTIFICATE
The Class R Certificate represents ownership of the residual interest in
each of the Lower Tier REMIC and the Upper Tier REMIC. Accordingly, the holder
of the Class R Certificate must take into account the "daily portions" of REMIC
taxable income or net loss for each REMIC for each calendar quarter in
determining such holder's federal taxable income. Moreover, all or a
significant portion of the income attributable to the residual interests will
be "excess inclusions," which cannot be offset with otherwise allowable losses.
For a more thorough discussion of the tax consequences of owning a residual
interest, see "Federal Income Tax Consequences--Taxation of Holders of Residual
Interest Securities" in the Prospectus.
The residual interests represented by the Class R Certificate will likely
be treated as "noneconomic residual interests" within the meaning of Treasury
Regulations interpreting the REMIC provisions of the Code. Generally, a
transfer of a noneconomic residual interest will be disregarded and the
transferor will continue to be treated as the owner of the residual interest
unless no significant purpose of the transfer was to enable the transferor to
impede the assessment or collection of tax. The Prospectus outlines these
restrictions and describes a safe harbor set out in Treasury Regulations under
which transfers of residual interests will be respected. See "Federal Income
Tax Consequences--Taxation of Holders of Residual Interest
Securities--Restrictions on Ownership and Transfer of Residual Interest
Securities" in the Prospectus.
Proposed Treasury regulations issued on February 4, 2000 (the "New
Proposed Regulations") would modify the safe harbor under which transfers of
noneconomic residual interests are treated as not disregarded for federal
income tax purposes. Under the New Proposed Regulations, a transfer of a
noneconomic residual interest would not qualify under this safe harbor unless
the present value of the anticipated tax liabilities associated with holding
the residual interest does not exceed the sum of the present value of the sum
of (i) any consideration given to the transferee to acquire the interest, (ii)
future distributions on the interest, and (iii) any anticipated tax savings
associated with holding the interest as the REMIC generates losses. For
purposes of this calculation, the present value generally is calculated using a
discount rate equal to the applicable federal rate. The New Proposed
Regulations have a proposed effective date of February 4, 2000.
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
Any fiduciary of an employee benefit or other plan or arrangement (such as
an individual retirement plan or Keogh plan) that is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975
of the Internal Revenue Code of 1986, as amended (the "Code"), (a "Plan") that
proposes to cause the Plan to acquire any of the offered certificates should
consult with its counsel with respect to the potential consequences under ERISA
and/or Section 4975 of the Code of the Plan's
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<PAGE>
acquisition and ownership of those Certificates. See "ERISA Considerations" in
the prospectus. Section 406 of ERISA and Section 4975 of the Code prohibit
"parties in interest" (under ERISA) and "disqualified persons" (under the Code)
with respect to an employee benefit or similar plan subject to ERISA and/or to
the excise tax provisions set forth under Section 4975 of the Code from
engaging in certain transactions involving that Plan and its assets unless a
statutory, regulatory or administrative exemption applies to the transaction.
Section 4975 of the Code imposes certain excise taxes on prohibited
transactions involving Plans subject to 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
those 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 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 Credit Suisse First Boston Corporation (Prohibited Transaction
Exemption 89-90, Exemption Application No. D-6555, 54 Fed. Reg. 42,581
(referred to as 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.
The Exemption provides exemptive relief to certain mortgage-backed and
asset-backed securities transactions using pre-funding accounts for trusts
issuing pass-through certificates. Mortgage loans or other secured receivables
supporting payments to certificateholders, 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 entity, may be transferred to the entity
within a 90-day or three-month period following the closing date, instead of
requiring that all such obligations be either identified or transferred on or
before the closing date. The relief is available when certain conditions are
met.
For a general description of the Exemption and the conditions that must be
satisfied for the Exemption to apply, including the conditions that apply to
any pre-funding account, see "ERISA Considerations" in the Prospectus.
It is expected that the Exemption will apply to the acquisition and
holding by Plans of the offered Regular 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 CHARACTERISTICS OF THE CLASS 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 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, TRANSFER OF THE CLASS R CERTIFICATES WILL NOT BE
REGISTERED BY THE TRUSTEE UNLESS THE TRUSTEE RECEIVES THE FOLLOWING:
o A REPRESENTATION FROM THE TRANSFEREE OF THAT CERTIFICATE, ACCEPTABLE TO
AND IN FORM AND SUBSTANCE SATISFACTORY TO THE TRUSTEE, TO THE EFFECT
THAT THAT TRANSFEREE IS NOT A PLAN, NOR A PERSON ACTING ON BEHALF OF
ANY SUCH PLAN OR ARRANGEMENT NOR USING THE ASSETS OF ANY SUCH PLAN TO
EFFECT THE TRANSFER;
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<PAGE>
o IF THE PURCHASER IS AN INSURANCE COMPANY, A REPRESENTATION THAT THE
PURCHASER IS AN INSURANCE COMPANY WHICH IS PURCHASING THE CERTIFICATES
WITH FUNDS CONTAINED IN AN "INSURANCE COMPANY GENERAL ACCOUNT" (AS THAT
TERM IS DEFINED IN SECTION V(E) OF PROHIBITED TRANSACTION CLASS
EXEMPTION 95-60) AND THAT THE PURCHASE AND HOLDING OF THE CERTIFICATES
ARE COVERED UNDER SECTIONS I AND III OF PTCE 95-60; OR
o AN OPINION OF COUNSEL SATISFACTORY TO THE TRUSTEE THAT THE PURCHASE AND
HOLDING OF THE CERTIFICATE BY A PLAN, ANY PERSON ACTING ON BEHALF OF A
PLAN OR USING A 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.
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 A PLAN'S
ASSETS IS ATTEMPTED WITHOUT THE OPINION OF COUNSEL, THE 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 as
described in the prospectus and the Exemption, and the potential consequences
in their specific circumstances, prior to making an investment in the offered
certificates. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment prudence and diversification, an
investment in 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 of the underwriting agreement, dated November 16,
2000, Credit Suisse First Boston Corporation and Banc of America Securities LLC
(referred to as the underwriters) have severally agreed to purchase, and the
depositor has agreed to sell to the underwriters, the principal amount of the
offered certificates set forth under their respective names.
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<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
CLASS AF-1 CLASS AF-2 CLASS AF-3 CLASS AF-4 CLASS AF-5
UNDERWRITER CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
---------------------------------------- ---------------- ---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Credit Suisse First Boston
Corporation ........................... $ 27,480,000 $ 17,220,000 $ 12,780,000 $ 17,700,000 $ 12,840,000
Banc of America Securities LLC ......... 18,320,000 11,480,000 8,520,000 11,800,000 8,560,000
------------- ------------ ------------ ------------ ------------
Totals ................................ $ 45,800,000 $ 28,700,000 $ 21,300,000 $ 29,500,000 $ 21,400,000
============= ============ ============ ============ ============
PRINCIPAL PERCENTAGE PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF INTEREST OF AMOUNT OF AMOUNT OF AMOUNT OF
CLASS AF-6 CLASS AF-IO CLASS MF-1 CLASS MF-2 CLASS BF
UNDERWRITER CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
---------------------------------------- ------------- ------------ ----------- ----------- -----------
Credit Suisse First Boston
Corporation ........................... $ 9,720,000 60% $ 3,780,000 $ 3,780,000 $ 2,700,000
Banc of America Securities LLC ......... 6,480,000 40 2,520,000 2,520,000 1,800,000
-------------- ------------- ------------ ------------ ------------
Totals ................................ $ 16,200,000 100% $ 6,300,000 $ 6,300,000 $ 4,500,000
============== ============= ============ ============ ============
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
CLASS AV CLASS MV-1 CLASS MV-2 CLASS BV CLASS R
UNDERWRITER CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
---------------------------------------- ------------- ------------ ----------- ----------- -----------
Credit Suisse First Boston
Corporation ........................... $ 147,420,000 $ 6,480,000 $ 6,075,000 $ 2,025,000 $ 100
Banc of America Securities LLC ......... 98,280,000 4,320,000 4,050,000 1,350,000 0
-------------- ------------- ------------ ------------ ------------
Totals ................................ $ 245,700,000 $ 10,800,000 $ 10,125,000 $ 3,375,000 $ 100
============== ============= ============ ============ ============
</TABLE>
The depositor has been advised that the underwriters propose initially to
offer the offered certificates to certain dealers at the prices set forth on
the cover page of this prospectus supplement less a selling concession not to
exceed the percentage of the certificate denomination set forth below, and that
the underwriters may allow, and such dealers may reallow, a reallowance
discount not to exceed the percentage of the certificate denomination set forth
below:
<TABLE>
<CAPTION>
SELLING CONCESSION REALLOWANCE DISCOUNT
-------------------- ---------------------
<S> <C> <C>
Class AF-1 ........... 0.0900% 0.0450%
Class AF-2 ........... 0.1050% 0.0525%
Class AF-3 ........... 0.1200% 0.0600%
Class AF-4 ........... 0.1350% 0.0675%
Class AF-5 ........... 0.1500% 0.0750%
Class AF-6 ........... 0.1380% 0.0690%
Class AF-IO .......... 0.0300% 0.0150%
Class MF-1 ........... 0.2400% 0.1200%
Class MF-2 ........... 0.3000% 0.1500%
Class BF ............. 0.4200% 0.2100%
Class AV ............. 0.1350% 0.0675%
Class MV-1 ........... 0.2400% 0.1200%
Class MV-2 ........... 0.3150% 0.1575%
Class BV ............. 0.4650% 0.2325%
</TABLE>
After the initial public offering, the public offering prices, such
concessions and such discounts may be changed.
Each underwriter intends to make a secondary market in each class of the
offered certificates purchased by it, but no underwriter has any obligation to
do so. There can be no assurance that a
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<PAGE>
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.
Until the distribution of the offered certificates is completed, rules of
the Securities and Exchange Commission may limit the ability of the
underwriters and certain selling group members to bid for and purchase the
offered certificates. As an exception to the rules, the underwriters are
permitted to engage in certain transactions that stabilize the price of the
offered certificates other than the Class R Certificates. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the offered certificates other than the Class R Certificates.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither the depositor nor either of the underwriters 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 offered
certificates other than the Class R Certificates. In addition, neither the
depositor nor either of the underwriters makes any representation that the
underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
The Class R Certificates will be purchased by Credit Suisse First Boston
Corporation and may be offered from time to time in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. There will be
no proceeds to the depositor from the sale of the Class R Certificates.
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.
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<PAGE>
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. Stroock & Stroock & Lavan 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 Class A Certificates except Class
AF-IO that they be rated Aaa by Moody's, AAA by S&P and AAA by Fitch. It is a
condition to the issuance of the Class AF-IO Certificates that they be rated
Aaa by Moody's, AAAr by S&P and AAA by Fitch. It is a condition to the issuance
of the Class R Certificates that they be rated at least AAA by S&P and AAA by
Fitch. It is a condition to the issuance of the Class M-1, Class M-2 and Class
B Certificates that they be rated at least Aa2, A2 and Baa2 by Moody's and AA,
A and BBB, respectively, by S&P and Fitch.
The ratings assigned by S&P 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 the
certificates are issued, S&P's ratings take into consideration the credit
quality of the related mortgage pool, including any credit support providers,
structural and legal aspects associated with the certificates, and the extent
to which the payment stream on that mortgage pool is adequate to make payments
required by the certificates. S&P's ratings on the 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 ratings on the adjustable rate certificates do not
address the likelihood of payment of any Basis Risk CarryForward Amount.
The ratings assigned to the offered certificates should be evaluated
independently from similar ratings on other types of securities. A rating is
not a recommendation to buy, sell or hold securities and may be subject to
revision or withdrawal at any time by the rating agencies.
The depositor has not requested a rating of the offered certificates by
any rating agency other than the rating agencies described above; 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 any other
rating agency. The rating assigned by another rating agency to the offered
certificates could be lower than the respective ratings assigned by the rating
agencies.
S-75
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<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX
DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Home Equity
Mortgage Loan Asset-Backed Certificates, Series SPMD 2000-C (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"), Clearstream, Luxembourg 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 Clearstream, Luxembourg 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 mortgage pass-through certificate
issues.
Secondary cross-market trading between Clearstream, Luxembourg or
Euroclear and DTC Participants holding Certificates will be effected on a
delivery-against-payment basis through the respective Depositaries of
Clearstream, Luxembourg 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, Clearstream, Luxembourg
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 mortgage pass-through certificate
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 Clearstream,
Luxembourg 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 mortgage
pass-through certificate issues in same-day funds.
A-1
<PAGE>
Trading between Clearstream, Luxembourg and/or Euroclear
Participants. Secondary market trading between Clearstream, Luxembourg
Participants or Euroclear Participants will be settled using the procedures
applicable to conventional Eurobonds in same-day funds.
Trading between DTC Seller and Clearstream, Luxembourg or Euroclear
Purchaser. When Global Securities are to be transferred from the account of a
DTC Participant to the account of a Clearstream, Luxembourg Participant or a
Euroclear Participant, the purchaser will send instructions to Clearstream,
Luxembourg or Euroclear through a Clearstream, Luxembourg Participant or
Euroclear Participant at least one business day prior to settlement.
Clearstream, Luxembourg 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
either the actual number of days in such accrual period and a year assumed to
consist of 360 days or a 360-day year of twelve 30-day months, as applicable to
the related Class of Global Securities. 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 Clearstream, Luxembourg
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 Clearstream, Luxembourg or Euroclear cash debt will be valued instead as of
the actual settlement date.
Clearstream, Luxembourg 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 Clearstream,
Luxembourg or Euroclear. Under this approach, they may take on credit exposure
to Clearstream, Luxembourg or Euroclear until the Global Securities are
credited to their accounts one day later.
As an alternative, if Clearstream, Luxembourg or Euroclear has extended a
line of credit to them, Clearstream, Luxembourg 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, Clearstream,
Luxembourg 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 Clearstream, Luxembourg 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 Clearstream, Luxembourg
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 Clearstream, Luxembourg or Euroclear Seller and DTC
Purchaser. Due to time zone differences in their favor, Clearstream, Luxembourg
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 Clearstream, Luxembourg or
Euroclear through a Clearstream, Luxembourg Participant or Euroclear
Participant at least one business day prior to settlement. In these cases
Clearstream, Luxembourg 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
A-2
<PAGE>
settlement date on the basis of either the actual number of days in such
accrual period and a year assumed to consist of 360 days or a 360-day year of
twelve 30-day months, as applicable to the related Class of Global Securities.
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 Clearstream, Luxembourg
Participant or Euroclear Participant the following day, and receipt of the cash
proceeds in the Clearstream, Luxembourg 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
Clearstream, Luxembourg 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 Clearstream, Luxembourg Participant's or Euroclear
Participant's account would instead be valued as of the actual settlement date.
Finally, day traders that use Clearstream, Luxembourg or Euroclear and
that purchase Global Securities from DTC Participants for delivery to
Clearstream, Luxembourg 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 Clearstream, Luxembourg or Euroclear for one day
(until the purchase side of the day trade is reflected in their
Clearstream, Luxembourg 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 Clearstream, Luxembourg
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 Clearstream, Luxembourg
Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Clearstream, Luxembourg 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-8BEN). 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-8BEN Certificate of Foreign Status of
Beneficial Owners for United States Tax Withholding. If the information shown
on Form W-8BEN changes, a new Form W-8BEN must be filed within 30 days of such
change. After December 31, 2000 only Form W-8BEN will be acceptable.
Exemption for non-U.S. Persons with Effectively Connected Income (Form
W-8ECI). 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 W-8ECI Certificate of Foreign Person's
Claim for Exemption from Withholding 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 W-8BEN). Non-U.S. Persons that are Certificate Owners residing
in a country that has a tax treaty with the United States
A-3
<PAGE>
can obtain an exemption or reduced tax rate (depending on the treaty terms) by
filing Form W-8BEN Certificate of Foreign Status of Beneficial Owners for
United States Tax Withholding. If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8BEN.
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).
The term "U.S. Person" means:
(1) a citizen or resident of the United States,
(2) a corporation or partnership organized in or under the laws of the
United States, any State thereof or the District of Columbia,
(3) an estate the income of which is includible in gross income for
United States tax purposes, regardless of its source, or
(4) 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. 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 or with the application of Treasury regulations
relating to tax documentation requirements that are generally effective
with respect to payments after December 31, 2000. Investors are advised to
consult their own tax advisors for specific tax advice concerning their
holding and disposing of the Global Securities.
A-4
<PAGE>
PROSPECTUS
INDYMAC ABS, INC.
DEPOSITOR
ASSET BACKED CERTIFICATES
ASSET BACKED NOTES
(ISSUABLE IN SERIES)
THE TRUSTS
PLEASE CAREFULLY
CONSIDER OUR Each trust will be established to hold assets in its trust
DISCUSSION OF SOME fund transferred to it by IndyMac ABS, Inc. The assets in
OF THE RISKS OF each trust fund will be specified in the prospectus
INVESTING IN THE supplement for the particular trust and will generally
SECURITIES UNDER consist of:
"RISK FACTORS"
BEGINNING ON o mortgage loans secured by first and/or subordinate liens
PAGE 4. 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,
o 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,
o closed-end and/or revolving home equity loans, secured
in whole or in part by first and/or subordinate liens
on one- to four-family residential properties, or
o home improvement installment sale contracts and
installment loan agreements that are secured by first or
subordinate liens on one- to four-family residential
properties
THE SECURITIES
IndyMac ABS, Inc. will sell either certificates or notes pursuant to a
prospectus supplement. The securities will be grouped into one or more series,
each having its own distinct designation. Each series will be issued in one or
more classes and each class will evidence beneficial ownership of a specified
portion of future payments on the assets in the trust fund that the series
relates to. A prospectus supplement for a series will specify all of the terms
of the series and each of the classes in the series.
OFFERS OF SECURITIES
The securities may be offered through several different methods, including
offerings through underwriters.
---------------------
THE SEC AND STATE SECURITIES REGULATORS HAVE NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
November 13, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Important Notice About Information In
This Prospectus and Each
Accompanying Prospectus Supplement .......... 3
Risk Factors ................................... 4
The Trust Fund ................................. 22
General ..................................... 22
The Loans ................................... 23
Substitution of Trust Fund Assets ........... 27
Available Information ....................... 27
Incorporation of Certain Documents by
Reference ................................ 28
Use of Proceeds ................................ 28
The Depositor .................................. 29
Loan Program ................................... 29
Underwriting Standards ...................... 29
Qualifications of Sellers ................... 30
Representations by Sellers; Repurchases...... 30
Description of the Securities .................. 32
General ..................................... 32
Distributions on Securities ................. 34
Advances .................................... 36
Reports to Securityholders .................. 36
Categories of Classes of Securities ......... 38
Indices Applicable to Floating Rate and
Inverse Floating Rate Classes ............ 40
Derivative Transactions ..................... 43
Book-Entry Registration of Securities ....... 43
Credit Enhancement ............................. 47
General ..................................... 47
Subordination ............................... 47
Letter of Credit ............................ 48
Insurance Policies, Surety Bonds and
Guaranties ............................... 48
Over-Collateralization ...................... 48
Reserve Accounts ............................ 49
Pool Insurance Policies ..................... 49
Cross-Collateralization ..................... 50
Yield and Prepayment Considerations ............ 50
The Agreements ................................. 52
Assignment of the Trust Fund Assets ......... 53
Payments on Loans; Deposits to Security
Account .................................. 54
Pre-Funding Account ......................... 56
Sub-Servicing by Sellers .................... 57
Collection Procedures ....................... 57
Hazard Insurance ............................ 58
Realization Upon Defaulted Loans ............ 60
Servicing and Other Compensation and
Payment of Expenses ...................... 61
Evidence as to Compliance ................... 61
Certain Matters Regarding the Master
Servicer and the Depositor ............... 62
Events of Default; Rights Upon Event
of Default ............................... 63
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Amendment ................................... 65
Termination; Optional Termination ........... 66
The Trustee ................................. 66
Certain Legal Aspects of the Loan .............. 67
General ..................................... 67
Foreclosure and Repossession ................ 68
Environmental Risks ......................... 70
Rights of Redemption ........................ 71
Anti-Deficiency Legislation and Other
Limitations on Lenders ................... 71
Due-On-Sale Clauses ......................... 72
Prepayment Charges and Late Payment
Fees ..................................... 73
Applicability of Usury Laws ................. 73
Home Improvement Contracts .................. 73
Installment Contracts ....................... 75
Soldiers' and Sailors' Civil Relief Act ..... 75
Junior Mortgages and Rights of Senior
Mortgagees ............................... 75
The Title I Program ......................... 76
Consumer Protection Laws .................... 80
Federal Income Tax Consequences ................ 81
General ..................................... 81
Taxation of Debt Securities ................. 81
Taxation of the REMIC and its Holders........ 86
REMIC Expenses; Single Class
REMICs ................................... 86
Taxation of the REMIC ....................... 86
Taxation of Holders of Residual Interest
Securities ............................... 87
Administrative Matters ...................... 90
Taxation of the FASIT and its Holders ....... 90
Treatment of FASIT Regular Interests ........ 92
Treatment of High-Yield Interest ............ 93
Tax Treatment of FASIT Ownership
Interests ................................ 93
Tax Status as a Grantor Trust ............... 94
Sale or Exchange ............................ 96
Miscellaneous Tax Aspects ................... 97
Tax Treatment of Foreign Investors .......... 97
Tax Characterization of the Trust Fund
as a Partnership ......................... 98
Tax Consequences to Holders of the
Notes .................................... 98
Tax Consequences to Holders of the
Certificates ............................. 98
State Tax Considerations ....................... 102
ERISA Considerations ........................... 103
Legal Investment ............................... 107
Method of Distribution ......................... 108
Legal Matters .................................. 109
Financial Information .......................... 109
Rating ......................................... 109
Index of Defined Terms ......................... 110
</TABLE>
2
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS AND EACH
ACCOMPANYING PROSPECTUS SUPPLEMENT
Information about each series of securities is contained in two separate
documents:
o this prospectus, which provides general information, some of which may
not apply to a particular series; and
o the accompanying prospectus supplement for a particular series, which
describes the specific terms of the securities of that series.
The prospectus will contain information about a particular series that
supplements the information contained in this prospectus, and you should rely
on that supplementary information in the prospectus supplement.
You should rely only on the information in this prospectus and the
accompanying prospectus supplement. We have not authorized anyone to provide
you with information that is different from that contained in this prospectus
and the accompanying prospectus supplement.
----------------
If you require additional information, the mailing address of our
principal executive offices is IndyMac ABS, Inc., 155 North Lake Avenue,
Pasadena, California 91101 and the telephone number is (800) 669-2300. For
other means of acquiring additional information about us or a series of
securities, see "The Trust Fund--Incorporation of Certain Documents by
Reference" beginning on page [22].
3
<PAGE>
RISK FACTORS
You should carefully consider the following information because it
identifies significant risks associated with an investment in the securities.
LIMITED LIQUIDITY No market for the securities of any series
will exist before those securities are issued.
We cannot assure you that a secondary market
will develop. Even if a secondary market
develops, we cannot assure you that it will
provide you with liquidity of investment or
that it will continue for the life of the
securities of that series.
LIMITED SOURCE OF PAYMENTS -- The applicable prospectus supplement may
NO RECOURSE TO SELLERS, provide that securities will be payable from
DEPOSITOR OR MASTER SERVICER trust funds other than their associated trust
fund, but if it does not, they will be payable
solely from their associated trust fund. If the
trust fund does not have enough assets to
distribute the full amount due to you as a
securityholder, your yield will be impaired,
and the return of your principal may be
impaired, without your having recourse to
anyone else. Furthermore, at the times
specified in the applicable prospectus
supplement, certain assets of the trust fund
and/or any balance remaining in the security
account immediately after making all payments
due on the securities of that series, may be
released and paid out to other people, such as
the depositor, a servicer, a credit enhancement
provider, or any other person entitled to
payments from the trust fund. Those assets will
no longer be available to make payments to you.
Those payments are generally made only after
making other specified payments that may be
described in the applicable prospectus
supplement.
You will not have any recourse against the
depositor or any servicer if you do not
receive a required distribution on the
securities. Nor will you have recourse against
the assets of the trust fund of any other
series of securities.
The securities will not represent an interest
in the depositor, any servicer, any seller to
the depositor, or anyone else except the trust
fund. The only obligation of the depositor to
a trust
4
<PAGE>
fund comes from certain representations and
warranties made by it about assets transferred
to the trust fund. If these representations
and warranties turn out to be untrue, the
depositor may be required to repurchase some
of the transferred assets. IndyMac ABS, Inc.,
which is the depositor, does not have
significant assets and is unlikely to have
significant assets in the future. So if the
depositor were required to repurchase a loan
because of a breach of a representation, its
only sources of funds for the repurchase would
be:
o funds obtained from enforcing of a
corresponding obligation of a seller or
originator of the loan or
o funds from a reserve account or similar
credit enhancement established to pay for
loan repurchases.
The only obligations to a trust fund of a
seller of loans to the depositor comes from
certain representations and warranties made by
it in connection with its sale of the loans
and certain document delivery requirements. If
these representations and warranties turn out
to be untrue, or the seller fails to deliver
required documents, it may be required to
repurchase or substitute for some of the
loans. However, the seller may not have the
financial ability to make the required
repurchase or substitution.
As described in this prospectus, a master
servicer may be obligated to enforce the
sellers' obligations. However, the master
servicer will not be obligated to purchase or
replace any loans if a seller defaults on its
obligation or for any other reason.
CREDIT ENHANCEMENT MAY NOT BE Credit enhancement is intended to reduce the
SUFFICIENT TO PROTECT YOU FROM effect of loan losses. But credit enhancements
LOSSES may benefit only some classes of a series of
securities, and the amount of any credit
enhancement will be limited as described in the
applicable prospectus supplement. Furthermore,
the amount of a credit enhancement may decline
over time pursuant to a schedule or formula or
otherwise, and could be depleted from payments
5
<PAGE>
or for other reasons before the securities
covered by the credit enhancement are paid in
full. In addition, a credit enhancement may
not cover all potential sources of loss. For
example, credit enhancement may or may not
cover fraud or negligence by a loan originator
or other parties. Also, the trustee may be
permitted to reduce, substitute for or even
eliminate all or a portion of a credit
enhancement as long as the trustee's actions
would not cause the rating agencies that have
rated the securities at the request of the
depositor to change adversely their rating of
the securities. Consequently, securityholders
may suffer losses even though a credit
enhancement exists and its provider does not
default.
PREPAYMENT AND YIELD The timing of principal payments on the
CONSIDERATIONS securities of a series will be affected by a
Your Yield Will Be Affected number of factors, including:
By Prepayments and By the
Allocation of Distributions o the extent of prepayments on the loans in
to the Securities the related trust fund,
o how payments of principal are allocated
among the classes of securities of a series
as specified in the related prospectus
supplement,
o whether the party entitled to any right of
optional termination of the trust fund
exercises that right, and
o the rate and timing of payment defaults and
losses on the trust fund assets.
Prepayments include prepayments resulting from
refinancing or liquidation of a loan due to
defaults, casualties and condemnations, as
well as repurchases by the depositor or a
seller due to a breach of representations and
warranties. Prepayments may be affected by a
variety of factors including:
o general economic conditions,
o interest rates,
o the availability of alternative financing
and
o homeowner mobility.
6
<PAGE>
The rate and timing of prepayment of the loans
will affect the yields to maturity and
weighted average lives of the securities. Any
reinvestment risks from faster or slower
prepayments of loans will be borne entirely by
the holders of one or more classes of the
related series of securities.
Your Yield Will Be Affected Interest payable on the securities of a
By Delayed Interest Payments series on each distribution date will include
all interest accrued during the period
specified in the related prospectus supplement.
If interest accrues on your securities over a
period ending two or more days prior to the
related distribution date, your effective yield
will be lower than the yield that you would
obtain if interest on your securities were to
accrue through the day immediately preceding
each distribution date. In addition, your
effective yield (at par) will be less than the
indicated coupon rate.
YOU WILL BEAR THE LOSSES ON Some of the mortgage loans held in the trust
BALLOON PAYMENT MORTGAGES fund may not be fully amortizing over their
terms to maturity. These loans will require
substantial principal payments (balloon
payments) at their stated maturities. Loans
with balloon payments involve a greater degree
of risk than fully amortizing loans because
typically the borrower must be able to
refinance the loan or sell the property to make
the balloon payment at maturity. The ability of
a borrower to do this will depend on such
factors as mortgage rates at the time of sale
or refinancing, the borrower's equity in the
property, the relative strength of the local
housing market, the financial condition of the
borrower, and tax laws. Losses on these loans
that are not otherwise covered by a credit
enhancement will be borne by the holders of one
or more classes of securities of the related
series.
NATURE OF MORTGAGES The value of the properties underlying the
Declines in Property Values loans held in the trust fund may decline over
May Adversely Affect You time. Among the factors that could reduce the
value of the properties are:
o an overall decline in the residential real
estate market in the areas in which they
are located,
7
<PAGE>
o a decline in their general condition caused
by the borrowers' failure to maintain their
property adequately, and
o natural disasters, such as earthquakes and
floods, that are not covered by insurance.
In the case of home equity loans and home
improvement contracts, declining property
values could diminish or extinguish the value
of a junior mortgage before reducing the value
of a senior mortgage on the same property.
If property values decline, the actual rates
of delinquencies, foreclosures and losses on
all underlying loans could be higher than
those currently experienced in the mortgage
lending industry in general. If these losses
are not otherwise covered by a credit
enhancement, they will be borne by the holders
of one or more classes of securities of the
related series.
Delays in Liquidation Even if the properties underlying the loans
May Adversely Affect You held in the trust fund provide adequate
security for the loans, substantial delays
could occur before defaulted loans are
liquidated and their proceeds are forwarded to
investors. Property foreclosure actions are
regulated by state statutes and rules and are
subject to many of the delays and expenses of
other lawsuits if defenses or counterclaims are
made, sometimes requiring several years to
complete. In addition, in some states, if the
proceeds of the foreclosure are insufficient to
repay the loan, the borrower is not liable for
the deficit. If a borrower defaults, these
restrictions may impede the master servicer's
ability to dispose of the property and obtain
sufficient proceeds to repay the loan in full.
In addition, the master servicer will be
entitled to deduct from liquidation proceeds
all expenses reasonably incurred in attempting
to recover on the defaulted loan, including
payments to senior lienholders, legal fees and
costs, real estate taxes, and property
maintenance and preservation expenses.
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Disproportionate Effect of Liquidation expenses of defaulted loans
Liquidation Expenses May generally do not vary directly with the
Adversely Affect You outstanding principal balance of the loan at
the time of default. Therefore, if a servicer
takes the same steps for a defaulted loan
having a small remaining principal balance as
it does for a defaulted loan having a large
remaining principal balance, the amount
realized after expenses is a smaller percentage
of the outstanding principal balance of the
small loan than it is for the defaulted loan
with a large remaining principal balance.
Junior Status of Liens The mortgages and deeds of trust securing
Securing Home Equity the home equity loans and the home improvement
Loans and Home contracts will be primarily junior liens
Improvement Contracts subordinate to the rights of the mortgagee
Could Adversely Affect You under the related senior mortgage(s) or
deed(s) of trust. Accordingly, the proceeds
from any liquidation, insurance or
condemnation proceeds will be available to
satisfy the outstanding balance of the junior
lien only to the extent that the claims of
the related 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 take one of the
following steps to protect its interest in
the property:
o pay the senior mortgage in full at or prior
to the foreclosure sale, or
o assume the payments on the senior mortgage
if the mortgagor is in default under that
mortgage.
The trust fund may effectively be prevented
from foreclosing on the related property,
because it will have no funds to satisfy any
senior mortgages or make payments due to any
senior mortgagees.
Some states have imposed legal limits on 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 that
secured lender. In
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some 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, that lender as the holder of the
junior lien may be precluded from obtaining a
deficiency judgment with respect to the excess
of:
o the aggregate amount owed under both the
senior and junior loans, over
o 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 State laws generally regulate interest rates
May Adversely Affect You and other charges, require certain disclosures,
and require licensing of mortgage loan
originators and servicers. In addition, most
states have other laws and public policies for
the protection of consumers that prohibit
unfair and deceptive practices in the
origination, servicing and collection of
mortgage loans. Depending on the particular law
and the specific facts involved, violations may
limit the ability of the master servicer to
collect all or part of the principal or
interest on the underlying loans held in the
trust fund. In some cases, the borrower may
even be entitled to a refund of amounts
previously paid. In addition, damages and
administrative sanctions could be imposed on
the master servicer.
The loans held in the trust fund may also be
subject to certain federal laws, including:
o the Federal Truth in Lending Act and its
regulations, which require disclosures to the
borrowers regarding the terms of any mortgage
loan;
o the Equal Credit Opportunity Act and its
regulations, which prohibit discrimination in
the extension of credit on the basis of age,
race, color, sex, religion, marital status,
national origin, receipt of public assistance
or
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the exercise of any right under the Consumer
Credit Protection Act; and
o the Fair Credit Reporting Act, which
regulates the use and reporting of
information related to the borrower's credit
experience.
Home Equity Loan Consumer Protection Act. 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, known
as 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 the right to
rescind the mortgage loan.
Holder in Due Course Rules. The home
improvement contracts are also subject to the
so-called holder in due course rules, which
comprise the Preservation of Consumers' Claims
and Defenses regulations of the Federal Trade
Commission and other similar federal and state
statutes and regulations. The holder in due
course rules protect the homeowner from
defective craftsmanship or incomplete work by
a contractor. These laws permit the obligor to
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<PAGE>
withhold payment if the work does not meet the
quality and durability standards agreed to by
the homeowner and the contractor. The holder
in due course rules have the effect of
subjecting any assignee of the seller in a
consumer credit transaction to all claims and
defenses which the obligor in the credit sale
transaction could assert against the seller of
the goods.
Some violations of these federal laws may
limit the ability of the master servicer to
collect the principal or interest on the loans
held in the trust fund, and in addition could
subject the trust fund to damages and
administrative enforcement. Losses on loans
caused by the application of these laws that
are not otherwise covered by a credit
enhancement will be borne by the holders of
one or more classes of securities of the
related series.
YOUR RISK OF LOSS MAY BE Multifamily lending may expose the lender to a
HIGHER THAN YOU EXPECT IF YOUR greater risk of loss than single family
SECURITIES ARE BACKED BY residential lending. Owners of multifamily
MULTIFAMILY LOANS residential properties rely on monthly lease
payments from tenants to
o pay for maintenance and other operating
expenses of those properties,
o fund capital improvements, and
o service any mortgage loan or other debt that
may be secured by those properties.
Various factors, many of which are beyond the
control of the owner or operator of a
multifamily 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 include the
rate of inflation, unemployment levels and
relative rates offered for various types of
housing. Shifts in economic factors may
trigger 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
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<PAGE>
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. We cannot determine and have
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.
YOUR RISK OF LOSS MAY BE The trust fund for any series may include home
HIGHER THAN YOU EXPECT IF YOUR equity loans and home improvement contracts
SECURITIES ARE BACKED BY that were originated with loan-to-value
PARTIALLY UNSECURED HOME ratios or combined loan-to-value ratios in
IMPROVEMENT CONTRACTS AND excess of the value of the related mortgaged
HOME EQUITY LOANS property. Under these circumstances, the trust
fund for the related series could be treated
as a general unsecured creditor as to any
unsecured portion of any related loan. If a
borrower defaults under a loan that is
unsecured in part, the related trust fund will
have recourse only against the borrower's
assets generally for the unsecured portion of
the loan, along with all other general
unsecured creditors of the borrower. In a
bankruptcy or insolvency proceeding relating to
a borrower on a partially unsecured loan, the
borrower's unsecured obligation on that loan
will be treated as an unsecured loan and may be
discharged by the bankruptcy court. Losses on
any partially unsecured loans that are not
otherwise covered by a credit enhancement will
be borne by the holders of one or more classes
of securities of the related series.
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<PAGE>
YOU COULD BE ADVERSELY Federal, state and local laws and regulations
AFFECTED BY VIOLATIONS OF impose a wide range of requirements on
ENVIRONMENTAL LAWS activities that may affect the environment,
health and safety. In certain circumstances,
these laws and regulations impose obligations
on owners or operators of residential
properties such as those that secure the loans
held in the trust fund. Failure to comply with
these laws and regulations can result in fines
and penalties that could be assessed against
the trust as owner of the related property.
In some states, a lien on the property due to
contamination has priority over the lien of an
existing mortgage. Also, a mortgage lender may
be held liable as an "owner" or "operator" for
costs associated with the release or threat of
release of petroleum and/or hazardous
substances under certain circumstances if the
lender has actually participated in the
management of the mortgaged property. If the
trust is considered the owner or operator of a
property, it will suffer losses as a result of
any liability imposed for environmental
hazards on the property.
RATING OF THE SECURITIES DOES Any class of securities issued under this
NOT ASSURE THEIR PAYMENT prospectus and the accompanying prospectus
supplement will be rated in one of the four
highest rating categories of at least one
nationally recognized rating agency. A rating
is based on the adequacy of the value of the
related trust assets and any credit enhancement
for that class, and reflects the rating
agency's assessment of how likely it is that
holders of the class of securities will receive
the payments to which they are entitled. A
rating is not an assessment of how likely it is
that principal prepayments on the underlying
loans will be made, the degree to which the
rate of prepayments might differ from that
originally anticipated or how likely it is that
the securities of a series will be redeemed
early. A rating is not a recommendation to
purchase, hold or sell securities because it
does not address the market price or the
securities or the suitability of the securities
for any particular investor.
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<PAGE>
A rating does not take into account the
possibility that prepayment at higher or lower
rates than an investor anticipates may cause a
reduction in that investor's yield. A rating
does not take into account the possibility
that an investor purchasing a security at a
premium might lose money on its initial
investment under certain prepayment scenarios.
In addition, if the rating relates to a series
with a pre-funding account, it does not take
into account:
o the ability of the related trust fund to
acquire subsequent loans,
o any prepayment of the securities resulting
from the distribution of amounts remaining in
the pre-funding account after the end of the
funding period, or
o the effect on an investor's yield resulting
from any such distribution.
A rating may not remain in effect for any
given period of time and the rating agency
could lower or withdraw the rating entirely in
the future. For example, the rating agency
could lower or withdraw its rating due to:
o a decrease in the adequacy of the value of
the trust assets or any related credit
enhancement,
o an adverse change in the financial or other
condition of a credit enhancement provider,
or
o a change in the rating of the credit
enhancement provider's long term debt.
The amount, type and nature of credit
enhancement established for a class of
securities will be determined based on
criteria established by each rating agency
rating classes of that series. These criteria
are sometimes based upon an actuarial analysis
of the behavior of similar loans in a larger
group. That analysis is often the basis upon
which each rating agency determines the amount
of credit enhancement required for a class.
The historical data supporting any actuarial
analysis may not accurately reflect future
experience, and the data derived from a large
pool of similar loans may not accurately
predict the delinquency, foreclosure or loss
experience of
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<PAGE>
any particular pool of mortgage loans.
Mortgaged properties may not retain their
values. If residential real estate markets
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 mortgaged properties become equal to
or greater than the value of the mortgaged
properties, the rates of delinquencies,
foreclosures and losses could be higher than
those now generally experienced in the
mortgage lending industry. In addition,
adverse economic conditions may prevent
certain mortgagors from making timely payments
on their loans. If that happens, the rates of
delinquencies, foreclosures and losses in any
trust fund may increase. If these losses are
not covered by a credit enhancement, they will
be borne, at least in part, by the holders of
one or more classes of securities of the
related series.
BOOK-ENTRY REGISTRATION Securities issued in book-entry form may have
Limit on Liquidity only limited liquidity in the resale market,
because investors may not want to buy
securities for which they cannot obtain
physical instruments.
Limit on Ability to Transfer Transactions in book-entry securities can be
or Pledge effected only through the Depository Trust
Company, its participating organizations, its
indirect participants and certain banks.
Therefore, your ability to transfer or pledge
securities issued in book-entry form may be
limited.
Delays in Distributions You may experience some delay in receiving
distributions on book-entry securities because
the trustee will send the distributions to the
Depository Trust Company for it to credit the
accounts of its participants. In turn, these
participants will then credit the distributions
to your account either directly or indirectly
through indirect participants.
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<PAGE>
PRE-FUNDING ACCOUNTS The prospectus supplement for a series of
Pre-Funding Accounts Will Not securities may provide that on the closing date
Be Used to Cover Losses on for that series, the depositor will deposit
the Loans cash into a pre-funding account. The amount
deposited into the pre-funding account will
never exceed [50]% of the initial aggregate
principal amount of the certificates and/or
notes of the related series. The pre-funding
account will be used to purchase additional
loans from the depositor during the period
beginning with the related closing date and
ending not more than one year after the closing
date. The depositor will acquire these
additional loans from the seller or sellers
specified in the related prospectus supplement.
The trustee for the related series will
maintain the pre-funding account. The
pre-funding account will only hold funds to be
used for purchasing the additional loans
described above. Amounts on deposit in the
pre-funding account will not be used to cover
losses on or in respect of the related loans.
Unused Amounts Will Be Paid Any amounts remaining in a pre-funding account
as Principal to Securityholders at the end of the period specified in the
applicable prospectus supplement will be
distributed as a prepayment of principal to the
related securityholders on the first
distribution date after the end of that period.
Any such distribution will be made in the
amounts and according to the priorities
specified in the related prospectus supplement.
The holders of one or more classes of the
related series of securities will bear the
entire reinvestment risk resulting from that
prepayment.
BANKRUPTCY OR INSOLVENCY MAY The seller and the depositor will treat the
AFFECT THE TIMING AND AMOUNT transfer of the loans held in the trust fund
OF DISTRIBUTIONS ON THE by the seller to the depositor as a sale for
SECURITIES accounting purposes. The depositor and the
trust fund will treat the transfer of the loans
from the depositor to the trust fund as a sale
for accounting purposes. If these
characterizations are correct, then if the
seller were to become bankrupt, the loans would
not be part of the seller's bankruptcy estate
and would not be available to the seller's
creditors. On the other hand, if the seller
becomes bankrupt, its bankruptcy trustee
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<PAGE>
or one of its creditor's may attempt to
recharacterize the sale of the loans as a
borrowing by the seller, secured by a pledge
of the loans. Presenting this position to a
bankruptcy court could prevent timely payments
on the securities and even reduce the payments
on the securities. Similarly, if the
characterizations of the transfers as sales
are correct, then if the depositor were to
become bankrupt, the loans would not be part
of the depositor's bankruptcy estate and would
not be available to the depositor's creditors.
On the other hand, if the depositor becomes
bankrupt, its bankruptcy trustee or one of its
creditor's may attempt to recharacterize the
sale of the loans as a borrowing by the
depositor, secured by a pledge of the loans.
Presenting this position to a bankruptcy court
could prevent timely payments on the
securities and even reduce the payments on the
securities.
If the master servicer becomes bankrupt, the
bankruptcy trustee may have the power to
prevent the appointment of a successor master
servicer. The period during which cash
collections may be commingled with the master
servicer's own funds before each distribution
date for securities will be specified in the
applicable prospectus supplement. If the
master servicer becomes bankrupt and cash
collections have been commingled with the
master servicer's own funds for at least ten
days, the trust fund will probably not have a
perfected interest in those collections. In
this case the trust might be an unsecured
creditor of the master servicer as to the
commingled funds and could recover only its
share as a general creditor, which might be
nothing. Collections commingled less than ten
days but still in an account of the master
servicer might also be included in the
bankruptcy estate of the master servicer even
though the trust may have a perfected security
interest in them. Their inclusion in the
bankruptcy estate of the master servicer may
result in delays in payment and failure to pay
amounts due on the securities.
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Federal and state statutory provisions
affording protection or relief to distressed
borrowers may affect the ability of the
secured mortgage lender to realize upon its
security in other situations as well. For
example, in a proceeding under the federal
Bankruptcy Code, a lender may not foreclose on
a mortgaged property without the permission of
the bankruptcy court. And in certain instances
a bankruptcy court may allow a borrower to
reduce the monthly payments, change the rate
of interest, and alter the mortgage loan
repayment schedule for under-collateralized
mortgage loans. The effect of these types of
proceedings can be to cause delays in
receiving payments on the loans underlying
securities and even to reduce the aggregate
amount of payments on the loans underlying
securities.
HOLDERS OF ORIGINAL ISSUE Debt securities that are compound interest
DISCOUNT SECURITIES ARE REQUIRED securities will be, and certain other debt TO
INCLUDE ORIGINAL ISSUE securities may be, issued with original issue
DISCOUNT IN ORDINARY GROSS discount for federal income tax purposes.
A INCOME AS IT ACCRUES holder of debt securities issued with original
issue discount is required to include original
issue discount in ordinary gross income for
federal income tax purposes as it accrues,
before receiving the cash attributable to that
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."
THE PRINCIPAL AMOUNT OF The market value of the assets relating to a
SECURITIES MAY EXCEED THE series of securities at any time may be less
MARKET VALUE OF THE TRUST FUND than the principal amount of the securities of
ASSETS that series then outstanding, plus accrued
interest. After an event of default and a sale
of the assets relating to 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 that sale
to the extent
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of unpaid fees and other amounts owing to them
under the related transaction documents before
any distributions to securityholders. Upon any
such sale, the proceeds may be insufficient to
pay in full the principal of and interest on
the securities of the related series.
DERIVATIVE TRANSACTIONS A trust fund may enter into privately
negotiated, over-the-counter hedging
transactions with various counterparties, for
the purpose of effectively fixing the interest
rate it pays on one or more borrowings or
series of borrowings These transactions
include interest rate and securities-based
swaps, caps, collars and floors, and are
referred to as derivative transactions.
Credit Risks If a trust fund enters into derivative
transactions, it is expected to do so with
banks, financial institutions and recognized
dealers in derivative transactions. Entering
into a derivative transaction directly with a
counterparty subjects a trust fund to the
credit risk that the counterparty may default
on its obligation to the trust fund. By
contrast, in transactions done through exchange
markets, credit risk is reduced by the
collection of variation margin and by 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. In addition, 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,
the risk of default is much greater in an
over-the-counter, privately negotiated
derivative transaction than in an
exchange-traded transaction. In the case of a
default, the related trust fund will be limited
to contractual remedies under the agreements
governing that derivative transaction. These
remedies may be limited by bankruptcy,
insolvency or similar laws.
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Legal Enforceability Risks Privately negotiated, over-the-counter
derivative transactions also may subject a
trust fund to the following risks:
o if the counterparty does not have the legal
capacity to enter into or perform its
obligations under the transaction, the
transaction would be unenforceable,
o if a court or regulatory body ruled that
classes of derivative transactions were
unlawful or not in compliance with applicable
laws or regulations, those transactions would
be invalid and unenforceable, or
o if new legislation changed the legal,
regulatory or tax status of derivative
transactions, those changes might be
detrimental to the related trust fund's
interests.
Basis Risk Using derivative transactions successfully
depends upon the ability to predict movements
of 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 if market
conditions are not predicted accurately, the
derivative transaction may result in a
substantial loss to that trust fund and the
related securityholders.
Certain capitalized terms are used in this
prospectus to assist you in understanding the
terms of the securities. The capitalized terms
used in this prospectus are defined on the
pages indicated under the caption "Index of
Principal Terms" beginning on page 110.
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THE TRUST FUND
GENERAL
The certificates of each series will represent interests in the assets of
a trust fund. The notes of each series will be secured by a pledge of the
assets of the related trust fund. The trustee will hold the trust fund for each
series for the benefit of the related securityholders. Each trust fund will
consist of the related trust fund assets (the "Trust Fund Assets"), which
include a pool of loans specified in the related prospectus supplement together
with payments relating to those loans, as specified in the related prospectus
supplement.* Unless the related prospectus supplement provides otherwise, the
pool will be created on the first day of the month of issuance of the related
series of securities. The securities will be entitled to payments in respect of
the assets of any other trust fund established by the depositor.
The depositor will acquire the Trust Fund Assets (either directly or
through affiliates) from originators or sellers that may be affiliates of the
depositor. The depositor will then convey the Trust Fund Assets without
recourse to the related trust fund. Loans that the depositor acquires will have
been originated in accordance with the underwriting criteria specified in this
prospectus under "Loan Program-Underwriting Standards" or as otherwise
described in the related prospectus supplement.
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 called sub-servicers, pursuant
to
o a pooling and servicing agreement among the depositor, the master
servicer and the trustee, in the case of a series consisting of
certificates, or
o a master servicing agreement between the trustee and the master
servicer, in the case of a series consisting of certificates and notes.
The master servicer will receive a fee for its services. See "Loan
Program" and "The Agreements" in this prospectus. With respect to loans
serviced by the master servicer through a sub-servicer, the master servicer
will remain liable for its servicing obligations under the related agreement as
if the master servicer alone were servicing those loans.
In the case of a series consisting of certificates, the term "agreement"
means the related pooling and servicing agreement. In the case of a series
consisting of certificates and notes, the term "agreement" means the related
trust agreement, indenture and master servicing agreement, as the context
requires.
If specified in the related prospectus supplement, a trust fund for a
series may be a business trust formed under the laws of the state specified in
the related prospectus supplement pursuant to a trust agreement between the
depositor and the related trustee.
Before the initial offering of a series of securities, the trust fund for
that series will have no assets or liabilities. The trust fund for a series is
not expected to engage in any activities other than:
o acquiring, holding and managing the related Trust Fund Assets and any
other assets specified in this prospectus and the related prospectus
supplement (including any proceeds of those assets),
----------
* Whenever the terms pool, certificates, notes and securities are used in
this prospectus, those terms will apply, unless the context indicates
otherwise, to one specific pool and the securities of one series
including the certificates representing undivided interests in, and/or
notes secured by the assets of, a single trust fund consisting primarily
of the loans in that pool. 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, as applicable, of one
specific series. The term trust fund will refer to one specific trust
fund.
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<PAGE>
o issuing securities and making distributions on them, and
o certain other related activities.
The trust fund for a series is not expected to have any source of capital other
than its assets and any related credit enhancement.
The related prospectus supplement may provide for additional obligations
of the depositor, but if it does not, the depositor's only obligations with
respect to a series of securities will be to obtain certain representations and
warranties from the sellers and to assign to the related trustee the
depositor's rights with respect to those representations and warranties. See
"The Agreements-- Assignment of the Trust Fund Assets". The master servicer's
obligations with respect to the loans will consist mainly 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 described
in this prospectus under "Loan Program-Representations by Sellers; Repurchases"
and "The Agreements--Sub-Servicing By Sellers" and "--Assignment of the Trust
Fund Assets"), and any obligation to make cash advances in the event of
delinquent payments on the loans, as described under "Description of the
Securities--Advances" in this prospectus. The master servicer's obligation to
make advances may be limited, as described in this prospectus and the related
prospectus supplement.
The following is a brief description of the assets expected to be included
in the trust funds. If specific information about the Trust Fund Assets is not
known when the related series of securities is initially offered, the related
prospectus supplement will contain more general information of the type
described below. Specific information will be set forth in a report on Form 8-K
to be filed with the SEC within fifteen days after the initial issuance of the
securities. A maximum of 5% of the Trust Fund Assets as they will be
constituted at the time that the applicable detailed description of Trust Fund
Assets is filed will deviate in any material respect from the Trust Fund Asset
pool characteristics described in the related prospectus supplement (other than
the aggregate number or amount of loans). A copy of the agreement with respect
to each series 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 that 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. In this prospectus, "home
equity loans" includes "closed-end loans" and "revolving credit line loans". If
specified in the related prospectus supplement, the loans may include
cooperative apartment loans secured by security interests in shares issued by
private, non-profit, cooperative housing corporations and in the related
proprietary leases or occupancy agreements granting exclusive rights to occupy
specific dwelling units in the 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
Federal Housing Administration (the "FHA") or the Department of Veterans'
Affairs (the "VA").
The applicable prospectus supplement may specify the day on which monthly
payments on the mortgage loans in a mortgage pool will be due, but if it does
not, all the loans in a pool will have monthly payments due on the first,
tenth, fifteenth, twentieth or twenty-fifth day of each month. The related
prospectus supplement will describe the payment terms of the loans to be
included in a trust fund. The payment terms may include any of the following
features, any combination of these features, or other features:
o Interest may be payable at a fixed rate, a rate that adjusts from time
to time in relation to a specified index, a rate that is fixed for a
period of time or under certain circumstances and is followed by an
adjustable rate, a rate that otherwise varies from time to time, or a
rate that is convertible from an adjustable rate to a fixed rate.
Changes to an adjustable rate may be subject to periodic limitations,
maximum rates, minimum rates or a combination of limitations.
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Accrued interest may be deferred and added to the principal of a loan
as described more fully in the related prospectus supplement. Loans may
provide for the payment of interest at a rate lower than the specified
interest rate borne by that loan (the "Loan Rate") for a period of time
or for the life of the loan; the amount of any difference may be
contributed by the seller of the property or by another source.
o 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 (referred to as a "balloon payment") of all or a
substantial portion of the principal may be due on maturity. Principal
may include interest that has been deferred and added to the principal
balance of the loan.
o 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. The terms of a loan may include limits on
periodic increases or decreases in the amount of monthly payments and
may include maximum or minimum amounts of monthly payments.
o 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 (called
lockout periods). Certain loans may permit prepayments after expiration
of the applicable lockout period, and may impose a prepayment fee in
connection with any 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 that permit the mortgagee to demand payment of the entire loan
in connection with the sale or certain transfers of the related
mortgaged property. Other loans may be assumable by persons meeting the
then applicable underwriting standards of the seller.
A trust fund may contain buydown loans. In a buydown loan, a third party
partially subsidizes the monthly payments of the mortgagor during the early
years of the loan. The difference is made up from a buydown fund contributed by
the third party at the time the loan is originated. The amount of the buydown
fund will equal either the discounted value or the full aggregate amount of
future payment subsidies. Thereafter, buydown funds are applied to the loan at
the time the master servicer receives the mortgagor's portion of the monthly
payment. The master servicer administers the buydown fund to ensure that the
monthly allocation from the buydown fund, combined with the monthly payment
received from the mortgagor, equals the scheduled monthly payment on the loan.
A buydown plan assumes that the mortgagor's income will increase during the
buydown period so that the mortgagor will be able to make the full mortgage
payments at the end of the buydown period. If the mortgagor's income does not
increase, the mortgagor might default on its buydown loan. If a trust fund
contains buydown loans, the related prospectus supplement will describe any
limitations on the interest rate initially paid by the mortgagor, on annual
increases in the interest rate, and on the length of the buydown period.
The real properties securing repayment of the loans are referred to as the
mortgaged properties. The 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 the home equity loans and 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. In
addition to being secured by mortgages on real estate, the home improvement
contracts may also be 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)
in amounts exceeding the value of the related mortgaged properties at the time
of origination. The mortgaged properties and the home improvements are
collectively referred to in this prospectus 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.
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Loans with certain Loan-to-Value Ratios (defined below) and/or certain
principal balances may be covered wholly or partially by primary mortgage
guaranty insurance policies. The existence, extent and duration of any such
coverage will be described in the applicable prospectus supplement.
The related prospectus supplement will state the aggregate principal
balance of loans secured by owner-occupied properties. The related prospectus
supplement also may state the basis for representations relating to Single
Family Properties (defined below), but if it does not, the sole basis for a
representation that a given percentage of the loans is secured by
owner-occupied Single Family Properties will be either:
o the borrower's representation at origination either that the borrower
will use the Property for at least six months every year or that the
borrower intends to use the Property as a primary residence, or
o 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 related prospectus supplement may specify the leasehold term, but
if it does not, the remaining term of the leasehold and any sublease is at
least as long as the remaining term on the loan.
Multifamily Loans. Mortgaged properties securing 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. 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 conferring exclusive rights to occupy specific apartments or units.
Generally, a tenant-stockholder of a cooperative makes a monthly payment to the
cooperative representing that 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. That monthly payment is in
addition to any payments of principal and interest the tenant-stockholder makes
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 depend in
large part on its receipt of maintenance payments from the tenant-stockholders,
as well as any rental income from units the cooperative controls. Unanticipated
expenditures may in some cases have to be paid by special assessments on the
tenant-stockholders. No more than 10% of the aggregate Trust Fund Assets for
any series, as constituted at the time of the applicable cut-off date (measured
by principal balance), will be comprised of multifamily loans.
Home Equity Loans. The mortgaged properties relating to home equity loans
will be Single Family Properties. The home equity loans will be either
revolving credit line loans or closed-end loans.
o Revolving credit line loans. 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 the loan. Principal amounts on a
revolving credit line loan may be drawn down (up to a maximum amount
specified in the related prospectus supplement) or
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repaid under each revolving credit line loan from time to time, but may
be subject to a minimum periodic payment. Except as provided in the
related 3 prospectus supplement, the Trust Fund Assets will not include
any amounts borrowed under a revolving credit line loan after the
cut-off date.
o Closed-end loans. 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 designed to fully amortize the loan
at its stated maturity. Except as 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 whereby
the borrower pays only the amount of interest accrued 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 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. The home improvement contracts will be secured by
mortgages on Single Family Properties that are generally subordinate to other
mortgages on the same Property. In general, 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-Your risk of loss may be higher than
you expect if your securities are backed by partially unsecured home
improvement contracts and home equity loans."
Additional Information. Each prospectus supplement will contain
information about the loans in the related pool, as of the date of the
prospectus supplement and to the extent then known to the depositor. This
information will include:
o the aggregate outstanding principal balance and the average outstanding
principal balance of the loans as of the first day of the month of
issuance of the related series or any other date referred to in the
related prospectus supplement as a cut-off date,
o the type of property securing the loans (e.g., single family
residences, individual units in condominium apartment buildings, small
multi-family properties, or other real property or home improvements),
o the original terms to maturity of the loans,
o the largest principal balance and the smallest principal balance of any
of the loans,
o the earliest origination date and latest maturity date of any of the
loans,
o the Loan-to-Value Ratios or Combined Loan-to-Value Ratios (each as
defined below), as applicable, of the loans,
o the Loan Rates or annual percentage rates ("APR") or range of Loan
Rates or APRs borne by the loans,
o the maximum and minimum per annum Loan Rates and
o the geographical distribution of the loans.
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If the depositor does not know specific information about the loans when the
related series of securities is initially offered, the related prospectus
supplement will contain more general information of the type described below.
Specific information will be set forth in the detailed description of Trust
Fund Assets.
Unless otherwise specified in the related prospectus supplement, the
"Loan-to-Value Ratio" of a loan at any given time is a 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
(x) the sum of
o the original principal balance of the loan (or, in the case of a
revolving credit line loan, the maximum amount available at
origination), and
o 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 that loan at origination, regardless of any lesser amount actually
outstanding at the date of origination of the loan,
to
(y) the collateral value of the related Property.
The applicable prospectus supplement may specify how the collateral value
of a Property will be calculated, but if it does not, the collateral value of a
Property (other than with respect to certain loans the proceeds of which were
used to refinance an existing mortgage loan), is the lesser of:
o the sales price for the property, or
o the appraised value determined in an appraisal obtained by the
originator at origination of the loan.
In the case of refinance loans, the collateral value" of the related Property
is generally the appraised value determined in an appraisal obtained at the
time of refinancing.
Mortgaged properties may not retain their values. If residential real
estate markets experience an overall decline in property values such that the
outstanding principal balances of the loans in a particular trust fund and any
primary or secondary financing on the related mortgaged properties, as
applicable, become equal to or greater than the value of the mortgaged
properties, the rates of delinquencies, foreclosures and losses could be higher
than those now generally experienced in the mortgage lending industry. In
addition, adverse economic conditions may prevent certain mortgagors from
making timely payments on their loans. If that happens, the rates of
delinquencies, foreclosures and losses in any trust fund may increase. If these
losses are not covered by a credit enhancement, they will be borne, at least in
part, by the holders of one or more classes of securities of the related
series.
SUBSTITUTION OF TRUST FUND ASSETS
Substitution of Trust Fund Assets will be permitted upon breaches of
representations and warranties with respect to any original Trust Fund Asset or
if the trustee determines that the documentation with respect to any Trust Fund
Asset is incomplete. See "Loan Program-Representations by Sellers;
Repurchases". The related prospectus supplement generally will specify the
period during which substitution will be permitted.
AVAILABLE INFORMATION
The depositor has filed with the SEC a Registration Statement under the
Securities Act of 1933, as amended, covering the securities. This prospectus,
which forms a part of the Registration
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Statement, and the prospectus supplement relating to each series of securities
contain summaries of the material terms of the documents referred to in this
prospectus and in the prospectus supplement, but do not contain all of the
information in the Registration Statement pursuant to the rules and regulations
of the SEC. For further information, reference is made to the Registration
Statement and its exhibits. The Registration Statement and exhibits can be
inspected and copied at prescribed rates at the public reference facilities
maintained by the SEC at its Public Reference Room, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its Regional Offices located as follows: Chicago
Regional Office, 500 West Madison Street, Chicago, Illinois 60661; and New York
Regional Office, Seven World Trade Center, New York, New York 10048. You may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC also maintains an Internet web site that
contains reports, information statements and other information regarding the
registrants that file electronically with the SEC, including the depositor. The
address of that Internet web site is http://www.sec.gov.
This prospectus and any related prospectus supplement do not constitute an
offer to sell or a solicitation of an offer to buy any securities other than
the securities offered by this prospectus and any related prospectus supplement
nor an offer of the securities to any person in any state or other jurisdiction
in which the offer would be unlawful. The delivery of this prospectus at any
time does not imply that the information in it is correct as of any time after
its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents referred to in the accompanying prospectus supplement that
are filed for the trust fund with the SEC after the date of this prospectus and
before the end of the related offering pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, are incorporated by
reference in this prospectus and are a part of this prospectus from the date of
their filing. Any statement contained in a document incorporated by reference
in this prospectus is modified or superseded for all purposes of this
prospectus to the extent that a statement contained in this prospectus (or in
the accompanying prospectus supplement) or in any other subsequently filed
document also incorporated by reference differs from that statement. Any
statement so modified or superseded shall not, except as so modified or
superseded, constitute a part of this prospectus. Neither the depositor nor the
master servicer for any series intends to file with the SEC 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 of 1934,
and accordingly those periodic reports will not be filed for each trust fund
after the first fiscal year of the trust fund unless, at the beginning of any
subsequent fiscal year of a trust fund, the securities of any class issued by
that trust fund are held of record by 300 or more persons.
The trustee (or any 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 that person's written or oral
request, 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 the exhibits are
specifically incorporated by reference into the information that this
prospectus incorporates). Requests should be directed to the corporate trust
office of the trustee or the address of any other entity, in each case as
specified in the accompanying prospectus supplement. The accompanying
prospectus supplement includes 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 other entity.
USE OF PROCEEDS
The depositor will use the net proceeds from the sale of the securities to
purchase Trust Fund Assets or will use those proceeds for general corporate
purposes. The depositor expects to sell securities in series from time to time,
but the timing and amount of securities offerings 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.
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THE DEPOSITOR
IndyMac ABS, Inc., a Delaware corporation, was incorporated in April 1998
for the limited purpose of acquiring, owning and transferring mortgage and
mortgage related assets and selling interests in them or bonds secured by them.
The depositor is a limited purpose finance subsidiary of IndyMac Bank, F.S.B.
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 depositor will have purchased the loans, either directly or through
affiliates, from sellers. The applicable prospectus supplement may specify
other underwriting criteria used in originating the loans, but if it does not,
the loans that the depositor acquires 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
a borrower's credit standing and ability to repay, as well as 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
that will supply the underwriting officer with pertinent credit information,
including the principal balance and payment history with respect to any senior
mortgage. Unless otherwise specified in the related prospectus supplement, the
related seller will verify the credit information supplied by the borrower. The
borrower generally must 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 summarizing 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). The employment verification specifies the length of employment with
that organization, the borrower's current salary and whether it is expected
that the borrower will continue employment in the future. If a prospective
borrower is self-employed, the borrower may be required to submit copies of
signed tax returns. The borrower may also be required to authorize verification
of deposits at financial institutions where the borrower has demand or savings
accounts.
In determining the adequacy of the mortgaged property as collateral, an
appraisal is made of each property considered for financing. The appraiser is
required to inspect the property and verify that it is in good repair and that
construction, if new, has been completed. The appraisal is based on the market
value of comparable homes, the estimated rental income (if considered
applicable by the appraiser) and the cost of replacing the home. The appraised
value of the property must be such that it currently supports, and is expected
to support in the future, the outstanding loan balance.
The maximum loan amount will vary depending on 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. As
specified in the related prospectus supplement, compensating factors may
include low Loan-to-Value Ratio, low debt-to-income ratio, stable employment,
favorable credit history and the nature of any underlying first mortgage loan.
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 specified in the related prospectus supplement, a
seller's underwriting criteria may permit loans with Loan-to-Value Ratios at
origination in excess of 100%, such as for debt consolidation or home
improvement purposes. Loan-to-Value Ratios may not be evaluated in the case of
Title I Loans.
After obtaining the employment, credit and property information, the
seller may use a debt-to-income ratio to assist in determining whether the
prospective borrower has sufficient monthly
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income available to make payments on the mortgage loan in addition to any 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 on a borrower's credit
grade and loan program. Variations in the debt-to-income ratio limit will be
permitted based on any compensating factors 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 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.
Some of the loans that may be included in a trust fund are types of loans
that have been developed recently and may involve additional uncertainties not
present in traditional types of loans. For example, some loans may provide for
escalating or variable payments by the borrower. These loans are underwritten
based on a judgment that the borrowers are able to make the initial monthly
payments. In some cases, a borrower's income may not be sufficient for the
borrower to continue to make loan payments as the payments increase. These
loans may also be underwritten primarily based on Loan-to-Value Ratios or other
favorable credit factors.
QUALIFICATIONS OF SELLERS
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 also must be:
o a seller/servicer approved by either the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC"), and
o 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 it and evidenced by all, or a part, of a series of
securities. These representations and warranties generally will include, among
other things:
o that title insurance (or in the case of Properties located in areas
where title insurance policies are generally not available, an
attorney's certificate of title) and any required hazard insurance
policy were effective at the 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
the loan was purchased from the seller by or on behalf of the
depositor;
o that the seller had good title to each loan and that the loan was not
subject to any valid offsets, defenses, counterclaims or rights of
rescission except to the extent that any buydown agreement may forgive
certain indebtedness of a borrower;
o that each loan (other than cooperative loans) constituted a valid lien
on, or a perfected security interest in, the Property (subject only to
any permissible disclosed liens, any applicable title insurance
exceptions, any applicable liens of nondelinquent current real property
taxes and assessments, any applicable liens arising under federal,
state or local laws relating to hazardous wastes or hazardous
substances, any applicable liens for common charges, and certain other
exceptions described in the applicable agreement);
o that there were no delinquent tax or assessment liens against the
Property;
o that no required payment on a loan was delinquent more than the number
of days specified in the related prospectus supplement; and
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o 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 specified in the related prospectus supplement, the seller's
representations and warranties in respect of a loan will be made as of the date
on which the seller sold the loan to the depositor or one of its affiliates,
instead of as of the cut-off date. In that case, 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 the loan. Since the seller's
representations and warranties do not include events occurring after the sale,
the seller's repurchase obligation (described in the next paragraph) will not
apply if an event that would otherwise have triggered the obligation occurs
after the sale date. However, the depositor will not include any loan in a
trust fund if the depositor has reason to believe that the seller's
representations and warranties in respect of that loan will not be accurate and
complete in all material respects 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, these representations will be in addition
to the representations and warranties made by the master servicer in its
capacity as master servicer.
The master servicer (or the trustee, if the master servicer is also the
seller) will promptly notify the applicable seller of any breach of its
representations and warranties in respect of a loan that materially and
adversely affects the securityholders' interests in that loan. If the seller
cannot cure the breach on or before the business day after the first
determination date (as defined in the related prospectus supplement) that is
more than 90 days after the seller receives notice from the master servicer or
the trustee, as the case may be, the seller will be obligated either:
o to repurchase the loan from the trust fund at a price (the "Purchase
Price") equal to 100% of its unpaid principal balance as of the date of
the repurchase plus accrued interest thereon at the Loan Rate, up to
the scheduled monthly payment date for the loan in the month following
the month of repurchase (less any advances or amount payable as related
servicing compensation if the seller is the master servicer), or
o to substitute for the loan a replacement loan that satisfies the
criteria specified in the related prospectus supplement; provided,
however, that the seller will not be obligated to make any repurchase
or substitution (or cure a breach) if the breach constitutes fraud in
the origination of the affected loan and the seller did not have
knowledge of the 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 will be obligated to pay any
prohibited transaction tax in connection with any repurchase or substitution.
In addition, the trustee must have received a satisfactory opinion of counsel
that the 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 from the
assets of the related trust fund or from any holder of the related residual
certificate. See "Description of the Securities--General" in this prospectus.
Except where the master servicer is also the seller, the master servicer will
be required under the applicable agreement to enforce this obligation for the
benefit of the trustee and the securityholders , acting in its good faith
business judgment as if it were the owner of the loan. This obligation to
repurchase or substitute will constitute the sole remedy available to
securityholders or the trustee for a seller's breach of representations and
warranties.
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. No assurance can be given that sellers
will fulfill their repurchase or substitution obligations.
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<PAGE>
DESCRIPTION OF THE SECURITIES
Each series of certificates will be issued pursuant to separate agreements
(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 a form of trust agreement have been filed as a exhibits to the Registration
Statement of which this prospectus forms a part. Each series of notes will be
issued pursuant to an indenture between the related trust fund and the entity
named in the related prospectus supplement as trustee for that series, and the
related loans will be serviced by the master servicer pursuant to a master
servicing agreement. A form of indenture and a form of master servicing
agreement have been filed as exhibits 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
securityholders of the securities of that series. The provisions of each
agreement will vary depending on the nature of the securities to be issued
under it and the nature of the related trust fund. The following summaries of
the material provisions that may appear in each agreement are subject to, and
are qualified in their entirety by reference to, all the provisions of the
agreements for each series of securities and the applicable prospectus
supplement. The depositor will provide a copy of the agreements (without
exhibits) relating to any series without charge upon written request of a
holder of record of a security of that series addressed to IndyMac ABS, Inc.,
155 North Lake Avenue, Pasadena, California 91101, Attention: Secondary
Marketing.
GENERAL
The securities of each series will be issued either in book-entry or fully
registered form in the authorized denominations specified in the related
prospectus supplement. In the case of certificates, the securities will
evidence specified beneficial ownership interests in the related trust fund. In
the case of notes, the securities will be secured by the assets of the related
trust fund. The securities 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 specified in the related
prospectus supplement. Each trust fund will consist of, to the extent provided
in the related agreement:
o the Trust Fund Assets that from time to time are subject to the related
agreement (exclusive of any amounts specified in the related prospectus
supplement as a 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 the
loans as of the cut-off date;
o the assets required to be deposited in the related Security Account
from time to time, as described under "The Agreements--Payments on
Loans; Deposits to Security Account";
o property that secured a loan and is acquired on behalf of the
securityholders by foreclosure or deed in lieu of foreclosure, and
o any insurance policies or other forms of credit enhancement required to
be maintained pursuant to the related agreement.
If 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 or portion of future interest payments and a specified
percentage or portion of future principal payments on the related Trust Fund
Assets. These specified percentages may be 0%. 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 the series. Certain series or classes of
securities
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<PAGE>
may be covered by insurance policies, surety bonds or other forms of credit
enhancement, in each case as described under "Credit Enhancement" in this
prospectus 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 of principal and interest. Distributions on one or
more classes of a series of securities may be made
o before distributions on one or more other classes,
o after the occurrence of specified events,
o in accordance with a schedule or formula, or
o based on collections from designated portions of the related Trust Fund
Assets,
in each case as specified in the related prospectus supplement. The timing and
amount of these distributions may vary among classes or over time, as specified
in the related prospectus supplement.
The trustee will make distributions of principal and interest (or, where
applicable, principal only or interest only) on the related securities on each
applicable distribution date in proportion to the percentages specified in the
related prospectus supplement. Distributions may be made monthly, quarterly,
semi-annually or at other intervals and on the dates 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. Distributions will be made in the manner
specified in the related prospectus supplement to the persons entitled to them
at the addresses appearing in the security register maintained for
securityholders; 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 the final distribution.
The securities will be freely transferable and exchangeable at the
corporate trust office of the trustee specified 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 subject to provisions of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") or the Internal Revenue Code of 1986, as
amended (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" in this prospectus.
Retirement arrangements subject to these provisions include individual
retirement accounts and annuities, Keogh plans and collective investment funds
in which the plans, accounts or arrangements are invested. The applicable
prospectus supplement may specify other conditions under which transfers of
this type would be permitted, but if it does not, transfer of securities of
those classes will not be registered unless the transferee
o represents that it is not, and is not purchasing on behalf of, a plan,
account or other retirement arrangement, or
o provides an opinion of counsel satisfactory to the trustee and the
depositor that the purchase of securities of that class by or on behalf
of a plan, account or other retirement 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 of it either as a "real estate mortgage investment
conduit" or REMIC or as a "financial asset securitization investment trust" or
FASIT, each as defined in the Code. 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
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<PAGE>
of the depositor or the master servicer and may be made only if certain
conditions are satisfied. The terms applicable to the making of a REMIC or
FASIT election, as well as any material federal income tax consequences to
securityholders not described in this prospectus, 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 the 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 the series will
constitute "regular interests" in the related FASIT, as defined in the Code. As
to each series for which a REMIC or FASIT election is made, the master servicer
or a holder of the related residual interest (in the case of a REMIC) or
ownership interest (in the case of a FASIT) will be obligated to comply with
applicable laws and regulations and will be obligated to pay any prohibited
transaction taxes. The applicable prospectus supplement may restrict the master
servicer's reimbursement rights, but if it does not, the master servicer will
be entitled to reimbursement for that payment from the assets of the trust fund
or from any holder of the related residual certificate (in the case of a REMIC)
or 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, for that series. See "Credit Enhancement" in this prospectus. Various
methods that may be used in determining the amount of distributions on the
securities of a series are described in the following paragraphs. Each
prospectus supplement will describe in detail the method for determining the
amount of distributions on the securities of that series.
The trustee will make distributions of principal and interest on the
securities out of, and only to the extent of, funds in the related Security
Account, including any funds transferred from any reserve account. Each
prospectus supplement will describe how distributions of principal and interest
will be applied to the related securities on each distribution date. Each
prospectus supplement will also describe the method of 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," as described in
the related prospectus supplement and the related agreement. The applicable
prospectus supplement may define Available Funds with reference to different
accounts or different amounts, but if it does not, "Available Funds" for each
distribution date will generally equal the amount on deposit in the related
Security Account on that distribution date (net of related fees and expenses
payable by the related trust fund) other than amounts to be held in the
Security Account 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 at the
pass-through rate or interest rate, as applicable (which in either case may be
fixed or adjustable, as specified in the related prospectus supplement), from
the date and for the periods specified in that prospectus supplement. If funds
are available, interest accrued during each specified period on each class of
securities entitled to interest (other than a class of securities on which
interest accrues but is not currently payable) will be distributable on the
distribution dates specified in the related prospectus supplement until the
aggregate Class Security Balance of the class has been distributed in full. In
the case of securities entitled only to distributions allocable to interest,
interest will be distributable until the aggregate notional amount of the
securities is reduced to zero, or for the period specified in the related
prospectus supplement. The original principal balance of each security will
equal the aggregate distributions allocable to principal to which that security
is entitled. Distributions allocable to interest on each security that is not
entitled to distributions allocable to principal will be calculated based on
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<PAGE>
the notional amount of that 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. If the interest accrual period for a security ends two
or more days before a distribution date, the effective yield will be lower than
the yield obtained if interest on the security were to accrue through the day
immediately preceding that distribution date. In addition, the effective yield
(at par) to securityholders will be less than the indicated coupon rate.
With respect to a class of accrual securities, any interest that has
accrued but is not paid on any distribution date will be added to the Class
Security Balance of that class on that distribution date. The applicable
prospectus supplement may specify some other basis for these distributions, but
if it does not, distributions of interest on each class of accrual securities
will begin only after the occurrence of the events specified in the related
prospectus supplement. Before that time, the beneficial ownership interest in
the trust fund (or the principal balance, as applicable) of a class of accrual
securities, as reflected in its Class Security Balance, will increase on each
distribution date by the amount of interest that accrued on the class during
the preceding interest accrual period but was not distributed on that
distribution date. A 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 of calculating the amount of principal to be distributed on the
securities on each distribution date and the manner of allocating it among the
classes of securities entitled to distributions of principal. The Class
Security Balance of any class entitled to distributions of principal generally
will be the original Class Security Balance of that class, reduced by all
distributions reported to the holders of that class as allocable to principal
and,
o in the case of accrual securities, increased by all interest accrued
but not then distributable on those securities and
o in the case of adjustable rate securities, subject to the effect of
negative amortization, if applicable.
If specified in the related prospectus supplement, one or more classes of
securities will be entitled to receive all or a disproportionate percentage of
the principal payments received from borrowers in advance of their scheduled
due dates and not accompanied by amounts representing scheduled interest due
after the month of those payments, in the percentages and under the
circumstances or for the periods specified in the prospectus supplement. Any
disproportionate allocation of these principal prepayments to a class or
classes of securities will have the effect of accelerating the amortization of
those securities while increasing the interests evidenced by one or more other
classes of securities in the trust fund. Increasing the interests of certain
classes of securities relative to that of other securities is intended to
preserve the availability of the subordination provided by those other
securities. See "Credit Enhancement--Subordination" in this prospectus.
Unscheduled Distributions. If specified in the related prospectus
supplement, the securities may receive distributions before the next scheduled
distribution date if applicable, the trustee will be required to make
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 the next
distribution date. The applicable prospectus supplement may specify some other
basis for these distributions, but if it does not, the amount of the
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. The applicable prospectus
supplement may provide that unscheduled
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<PAGE>
distribution will not include interest or that interest will be computed on a
different basis, but if it does not, all unscheduled distributions will include
interest at any applicable pass-through rate or interest rate on the amount of
the unscheduled distribution allocable to principal for the period and to the
date specified in the 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 securityholders), an amount equal to the
aggregate of payments of interest and principal that were delinquent on the
related determination date and were otherwise not advanced by any sub-servicer,
subject to the master servicer's determination that the advances will 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 try to maintain a regular
flow of scheduled interest and principal payments to securityholders, rather
than to guarantee or insure against losses. If the master servicer makes
advances from funds in a Security Account, the master servicer will replace the
funds on or before the next distribution date if the funds in that Security
Account on that distribution date would be less than the amount required for
distributions to securityholders on that date. Any advances will be
reimbursable to the master servicer out of recoveries on the specific loans
with respect to which the advances were made (e.g., late payments made by the
related borrower, any related insurance proceeds, liquidation proceeds or
proceeds of any loan repurchased by the depositor, a sub-servicer or a seller
pursuant to the related agreement). In addition, advances by the master
servicer or 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 the advances previously made are not ultimately recoverable as
described in the preceding sentence. If specified 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, for 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 under "Credit
Enhancement" in this prospectus and the related prospectus supplement.
Unless otherwise specified in the related prospectus supplement, if the
master servicer or a sub-servicer fails to make a required advance, the trustee
will be obligated to make that advance in its capacity as successor servicer.
If the trustee makes an advance, it will be entitled to reimbursement for that
advance to the same extent as the master servicer or sub-servicer.
REPORTS TO SECURITYHOLDERS
The applicable prospectus supplement may specify different items to be
reported, but if it does not, the master servicer or the trustee will furnish
to each related securityholder of record, either before or concurrently with
each distribution on a distribution date, a statement including, to the extent
applicable to that series:
(i) the amount of the distribution allocable to principal, separately
identifying the aggregate amount of any principal prepayments and if
specified in the related prospectus supplement, prepayment penalties;
(ii) the amount of the distribution allocable to interest;
(iii) the amount of any advance;
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(iv) the aggregate amount otherwise allocable to the subordinated
securityholders on that distribution date and the aggregate amount 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 that
Distribution Date;
(vi) the percentage of principal payments on the loans (excluding
prepayments), if any, which each class will be entitled to receive on the
following distribution date;
(vii) the percentage of principal prepayments on the loans, if any, which
each 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
o delinquent but not in foreclosure 1 to 30 days, 31 to 60 days,
61 to 90 days and 91 or more days, and
o in foreclosure and delinquent 1 to 30 days, 31 to 60 days, 61
to 90 days and 91 or more days,
in each case as of the close of business on the last day of the calendar month
preceding that 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, expected to apply to any class on the next
distribution date for that class;
(xii) 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 before the 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 applicable class having the percentage
interest specified in the related prospectus supplement. The report to
securityholders for any series of securities may include other information
similar 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 that calendar year:
o a report containing the aggregate of the amounts referred to in items
(i) and (ii) above for that calendar year (or, if that person was a
securityholder of record during a portion of the calendar year, for the
applicable portion of that year, and
o other customary information considered appropriate for securityholders
to prepare their tax returns.
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CATEGORIES OF CLASSES OF SECURITIES
In general, classes of securities 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 in that series by reference to the following categories.
<TABLE>
<CAPTION>
DEFINITION
CATEGORIES OF CLASSES PRINCIPAL TYPES
<S> <C>
Accretion Directed ...................... A class that receives principal payments from the accreted
interest from specified accrual classes. An accretion directed
class also may receive principal payments from principal paid
on the underlying Trust Fund Assets or other assets of the
trust fund for the related series.
Component Securities .................... A class consisting of "components". The components of a
class of component securities may have different principal
and 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 or 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, etc.)
having different effective structuring ranges and different
principal payment priorities. The structuring range for the
secondary planned principal classes of a series will be
narrower than that for the primary planned principal classes
of that 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 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 or
other assets of the trust fund.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
DEFINITION
CATEGORIES OF CLASSES PRINCIPAL TYPES
<S> <C>
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 or
scheduled principal classes.
Targeted Principal Class or 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 on
a designated index and that varies directly with changes in
the index.
Inverse Floating Rate .................... A class with an interest rate that resets periodically based on
a designated index and that varies inversely with changes in
the 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 or other assets of
the trust fund 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 because
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 of principal.
Principal Only ........................... A class that does not bear interest and is entitled to receive
only distributions of principal.
Partial Accrual .......................... A class that accretes a portion of the accrued interest on the
class. The accreted amount will be added to the principal
balance of the class on each applicable distribution date, with
the remainder of the accrued interest to be distributed
currently as interest on the class. The accretion may continue
until a specified event has occurred or until the partial accrual
class is retired.
Accrual .................................. A class that accretes all the accrued interest otherwise
distributable on the class. The accreted amount will be added
as principal to the principal balance of the class on each
applicable distribution date. The accretion may continue until
some specified event has occurred or until the accrual class is
retired.
</TABLE>
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<PAGE>
INDICES APPLICABLE TO FLOATING RATE AND INVERSE FLOATING RATE CLASSES
LIBOR
The applicable prospectus supplement may specify some other basis for
determining LIBOR, but if it does not, on the LIBOR determination date (as
defined in the related prospectus supplement) for each class of securities of a
series for which the applicable interest rate is determined by reference to an
index called LIBOR, the person designated in the related agreement as the
calculation agent will determine LIBOR using one of the two methods described
below. The 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, as set forth on the Telerate
Page 3750, offered by the principal London office of each of the designated
reference banks meeting the criteria set forth below 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 the LIBOR determination date. In lieu of
relying on the quotations for those reference banks that appear at the time on
the Telerate Page 3750, the calculation agent will request each of the
reference banks to provide the offered quotations at that time.
Under this method the calculation agent will establish LIBOR on each LIBOR
determination date as follows:
(a) If on any LIBOR determination date two or more reference banks provide
offered quotations, LIBOR for the next interest accrual period will be the
arithmetic mean of the offered quotations (rounded up if necessary to the
nearest whole multiple of 1/16%).
(b) If on any LIBOR determination date only one or none of the reference
banks provides offered quotations, LIBOR for the next interest accrual period
will be the arithmetic mean of the rates quoted by major banks in New York
City, selected by the calculation agent, at approximately 11:00 a.m. (New York
City time) on that day for loans in United States dollars 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 unable to
determine LIBOR according to paragraph (b) above, LIBOR for the next interest
accrual period will be LIBOR as determined on the preceding LIBOR determination
date, or, in the case of the first LIBOR determination date, LIBOR will be
considered to be the annual rate specified as such in the related prospectus
supplement.
Each reference bank will be a leading bank engaged in transactions in
Eurodollar deposits in the international Eurocurrency market; will not control,
be controlled by, or be under common control with the calculation agent; and
will have an established place of business in London. If any reference bank
should be unwilling or unable to act as such or if appointment of a 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 "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
British Bankers' Association designated banks as being, in the view of the
banks, the offered rate at which deposits are being quoted to prime banks in
the London interbank market. The 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.
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If on any LIBOR determination date, the calculation agent is unable to
calculate LIBOR as described in the preceding paragraph, LIBOR for the next
interest accrual period will be calculated as described above under "LIBO
Method."
The calculation agent's determination of LIBOR on each LIBOR determination
date and its calculation of the interest rate for each applicable class 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: savings
deposits, time deposits, FHLBSF advances, repurchase agreements and 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 before 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, because 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 the index on an exact date. As long as the 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 for which the interest
rate is determined by reference to an index denominated as COFI for the
interest accrual period beginning in that second following month
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will be based on the Eleventh District Cost of Funds Index for the second
preceding month. If publication is delayed beyond the tenth day, the interest
rate will be based on the Eleventh District Cost of Funds Index for the third
preceding month.
The applicable prospectus supplement may specify some other basis for
determining COFI, but if it does not, then if on the tenth day of the month in
which any interest accrual period begins for a class of COFI securities, the
most recently published Eleventh District Cost of Funds Index relates to a
month before the third preceding month, the index for the current interest
accrual period and for each subsequent interest accrual period will be based
(except as described below) 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 the 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 the tenth day of the month in which an interest
accrual period begins, the most recently published National Cost of Funds Index
relates to a month before the fourth preceding month, the applicable index for
that 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 that series. 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 could increase its volatility, particularly if the
alternative index is LIBOR.
The calculation agent's determination of COFI and its calculation of the
interest rates for the applicable classes for the related interest accrual
period shall (in the absence of manifest error) be final and binding.
Treasury Index
The applicable prospectus supplement may specify some other basis for
determining and defining the Treasury index, but if it does not, on the
Treasury index determination date for each class of securities of a series for
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, the date) specified in the related prospectus supplement. The
Treasury index for any period means the average of the yield for each business
day during the specified period (and the Treasury index for any date means the
yield for that date), expressed as an annual percentage rate, on U.S. Treasury
securities adjusted to the "constant maturity" specified in the prospectus
supplement or if no "constant maturity" is so specified, U.S. Treasury
securities trading on the secondary market having the maturity specified in the
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 a week, then it will use the Statistical Release from the 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. If the Treasury index is no longer
published, a new index based on comparable data and methodology will be
designated in accordance with the agreement relating to the applicable series.
The calculation agent's determination of the Treasury index, and its
calculation of the interest rates for the applicable classes for the related
interest accrual period shall (in the absence of manifest error) be final and
binding.
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Prime Rate
The applicable prospectus supplement may specify some other basis for
determining and defining the prime rate, but if it does not, on the prime rate
determination date for each class of securities for 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. 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 on the related prime rate determination date, 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. If a prime rate range is given,
then the average of the range will be used. If 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 applicable series.
The calculation agent's determination of the prime rate and its calculation of
the interest rates 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, for the purpose of effectively fixing the interest rate it pays
on one or more borrowings or series of borrowings These transactions include
interest rate and securities-based swaps, caps, collars and floors, and are
referred to as derivative transactions. Trust funds will use derivative
transactions as hedges and not as speculative investments. Derivative
transactions involve an agreement between two parties to exchange payments
based on variable interest rates for payments based on fixed interest rates.
These payments 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 pay the second 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 pays the second when a designated market interest rate goes
above a designated level on predetermined dates or during a specified time
period, and the second party pays the first 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
If so specified in the related prospectus supplement, one or more classes
of securities of any series may be issued as book-entry securities. Persons
acquiring beneficial ownership interests in book-entry securities will hold
their securities either:
o directly through the Depository Trust Company ("DTC") in the United
States, or Clearstream, Luxembourg or Euroclear in Europe, if they are
participants of these systems, or
o indirectly through organizations that are participants in these
systems.
Each class of book-entry securities will be issued in one or more
certificates that equal the aggregate principal balance of the class and will
initially be registered in the name of Cede & Co. as the nominee of DTC.
Clearstream, Luxembourg and Euroclear will hold omnibus positions on behalf of
their participants through customers' securities accounts in Clearstream,
Luxembourg's or Euroclear's name, on the books of their respective
depositaries. These depositaries will in turn hold the positions in customers'
securities accounts in the depositaries' names on the books of DTC. Citibank,
N.A., will act as depositary for Clearstream, Luxembourg and The Chase
Manhattan Bank will act as depositary for Euroclear Except as described below,
no person acquiring a beneficial interest in a book-entry security will be
entitled to receive a physical certificate representing the security.
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 that maintains the beneficial
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owner's account for that purpose. In turn, the financial intermediary's
ownership of a 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 Clearstream, Luxembourg or Euroclear, as appropriate). Therefore,
the beneficial owner must rely on the foregoing procedures to evidence its
beneficial ownership of a book-entry security. Beneficial ownership of a
book-entry security may only be transferred by compliance with the procedures
of the financial intermediaries and depository participants.
Beneficial owners will receive all distributions of principal of and
interest on the securities from the trustee through DTC and its participants.
While the securities are outstanding (except under the circumstances described
below), DTC is required to make book-entry transfers of the securities among
participants on whose behalf it acts and is required to receive and transmit
distributions on the securities in accordance with rules, regulations and
procedures creating and affecting DTC and its operations. Participants and
indirect participants with whom beneficial owners have accounts are likewise
required to make book-entry transfers and receive and transmit distributions on
behalf of their respective beneficial owners. Although beneficial owners will
not possess physical certificates, the DTC rules, regulations and procedures
provide a mechanism by which beneficial owners may receive distributions and
transfer their interests.
Beneficial owners will not receive or be entitled to receive certificates
representing their interests in the securities except under the limited
circumstances described below. Until definitive securities are issued,
beneficial owners who are not participants may transfer ownership of their
securities only through participants and indirect participants by instructing
them to transfer securities through DTC for the accounts of the purchasers of
those securities. In accordance with DTC's rules, regulations and procedures,
transfers of ownership 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 the appropriate debits and
credits on their records on behalf of the selling and purchasing beneficial
owners.
Because of time zone differences, credits of securities received in
Clearstream, Luxembourg or Euroclear resulting from transactions with
participants will be made during subsequent securities settlement processing
and dated the business day after the DTC settlement date. These credits, and
any transactions in the securities settled during processing, will be reported
to the applicable Euroclear or Clearstream, Luxembourg participants on that
business day. Cash received in Clearstream, Luxembourg or Euroclear resulting
from sales of securities by or through a Clearstream, Luxembourg participant
(described below) or Euroclear Participant (described below) to a DTC
participant will be received with value on the DTC settlement date but will not
be available in the applicable Clearstream, Luxembourg or Euroclear cash
account until the business day after settlement in DTC.
Transfers between DTC participants will be governed by DTC rules.
Transfers between Clearstream, Luxembourg participants and Euroclear
participants will be governed by their respective rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC and persons holding directly or indirectly through Clearstream,
Luxembourg participants or Euroclear participants will be effected in DTC in
accordance with DTC rules on behalf of the applicable European international
clearing system by the applicable depositary. These cross-market transactions,
however, will require delivery of instructions to the applicable European
international clearing system by the counterparty in that system according to
its rules and procedures and within its established deadlines (European time).
If the transaction meets its settlement requirements, the applicable European
international clearing system will deliver instructions to the applicable
depositary to effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment in accordance with the
procedures for same day funds settlement applicable to DTC. Clearstream,
Luxembourg Participants and Euroclear Participants may not deliver instructions
directly to the European depositaries.
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Clearstream, Luxembourg is incorporated under the laws of Luxembourg as a
professional depository. Clearstream, Luxembourg holds securities for its
participating organizations and facilitates the clearance and settlement of
securities transactions between Clearstream, Luxembourg participants through
electronic book-entry changes in the participants' accounts, thereby
eliminating the need for physical transfer of certificates. Transactions may be
settled in Clearstream, Luxembourg in any of 28 currencies, including United
States dollars. Clearstream, Luxembourg provides its participants, among other
things, services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing.
Clearstream, Luxembourg interfaces with domestic markets in several countries.
As a professional depository, Clearstream, Luxembourg is subject to regulation
by the Luxembourg Monetary Institute. Clearstream, Luxembourg 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 Clearstream, Luxembourg is
also available to other entities, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Clearstream, Luxembourg participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants and
to clear and settle transactions between Euroclear participants through
simultaneous electronic book-entry delivery against payment, thereby
eliminating the need for physical transfer of certificates, as well as any risk
from the lack of simultaneous transfers of securities and cash. Transactions
may be settled in any of 32 currencies, including United States dollars.
Euroclear provides various other services, including securities lending and
borrowing. It also interfaces with domestic markets in several countries in a
manner 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"), under contract with
Euroclear Clearance Systems S.C., a Belgian cooperative corporation. All
operations are conducted by Morgan. All Euroclear securities clearance accounts
and Euroclear cash accounts are accounts with Morgan, not Euroclear Clearance
Systems S.C. Euroclear Clearance Systems S.C. 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 that is a
member bank of the Federal Reserve System. As such, it is regulated and
examined by the Board of Governors of the Federal Reserve System and the New
York State Banking Department, as well as by 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. These
laws and rules govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipt 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. Morgan, in its capacity as Euroclear operator,
acts under the laws and procedures described above 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, because the trustee
will send payments to Cede & Co., as nominee of DTC. Distributions on
securities held through Clearstream, Luxembourg or Euroclear and received by
the applicable depositary will be credited to the cash accounts of Clearstream,
Luxembourg Participants or Euroclear Participants in accordance with each
system's rules and procedures. These distributions will be subject to tax
reporting under the applicable United States laws and regulations. See "Federal
Income Tax Consequences--Tax Treatment of Foreign Investors" and "--Tax
Consequences to Holders of the Notes--Backup Withholding" in this prospectus.
Because DTC can only act on behalf of financial intermediaries, the a
beneficial owner's ability to pledge book-entry
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securities to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of the book-entry securities, may be limited
by the lack of physical certificates for the book-entry securities. In
addition, issuance of the book-entry securities in book-entry form may reduce
the liquidity of those securities in the secondary market because some
potential investors may not want to purchase securities for which they cannot
obtain physical certificates.
Until definitive securities are issued, it is anticipated that the only
"securityholder" of the book-entry securities will be Cede & Co., as nominee of
DTC. Beneficial owners are only permitted to exercise the rights of
securityholders indirectly through financial intermediaries and DTC. Monthly
and annual reports on the related trust fund will be provided to Cede & Co., as
nominee of DTC. Cede & Co. may make them available to beneficial owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting DTC. It may also make them available to the financial intermediaries
to whose DTC accounts the book-entry securities of those beneficial owners are
credited.
Until definitive securities are issued, DTC will take any action permitted
to be taken by the holders of the book-entry securities of a series under the
related 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 the actions are taken on behalf of financial intermediaries whose holdings
include the book-entry securities. Clearstream, Luxembourg or Morgan (in its
capacity as Clearstream operator) will take any other action permitted to be
taken by a securityholder on behalf of a Clearstream, Luxembourg participant or
Euroclear participant, respectively, only in accordance with its applicable
rules and procedures and subject to the applicable depositary's ability to
effect actions on its behalf through DTC. At the direction of the related
participants, DTC may take actions with respect to some securities that
conflict with actions taken with respect to other securities.
The applicable prospectus supplement may specify when and for what reasons
definitive securities may be issued, but if it does not, definitive securities
will be issued to beneficial owners of book-entry securities, or their
nominees, rather than to DTC, only if:
o 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 securities, and DTC
or the trustee is unable to locate a qualified successor;
o the depositor, at its sole option, elects to terminate the book-entry
system through DTC;
o or after the occurrence of an event of default, beneficial owners of
securities representing not less than 51% of the aggregate percentage
interests evidenced by each class of securities of the related series
issued as book-entry securities advise the trustee and DTC through the
financial intermediaries in writing that the continuation of a book-entry
system through DTC (or a successor to it) is no longer in the best
interests of the beneficial owners.
Upon the occurrence of any of the events described in the preceding
paragraph, the trustee will be required to notify all beneficial owners of the
occurrence of the event and the availability of definitive securities through
DTC. Upon surrender by DTC of the global certificate or certificates
representing the book-entry securities and instructions for re-registration,
the trustee will issue the definitive securities, and thereafter the trustee
will recognize the holders of the definitive securities as securityholders
under the applicable agreement.
Although DTC, Clearstream, Luxembourg and Euroclear have agreed to the
foregoing procedures in order to facilitate transfers of securities among
participants of DTC, Clearstream, Luxembourg and Euroclear, they are not
obligated to perform or continue to perform these procedures and these
procedures may be discontinued at any time.
The master servicer, the depositor and the trustee will not be responsible
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 the beneficial ownership interests.
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CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided for one or more classes of a series of
securities or for 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 the 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 other method of credit enhancement
described in the related prospectus supplement, or any combination of them.
Unless otherwise specified in the related prospectus supplement, credit
enhancement will not provide protection against all risks of loss or guarantee
repayment of the entire principal balance of the securities and interest on
them. 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 specified in the related prospectus supplement, the rights of holders
of one or more classes of subordinated securities will be subordinate to the
rights of holders of one or more classes of senior securities of the series to
distributions of scheduled principal, principal prepayments, interest or any
combination of those distributions that otherwise would have been payable to
holders of subordinated securities under the circumstances and to the extent
specified in the related prospectus supplement. If specified in the related
prospectus supplement, holders of senior securities also may be protected by a
reduction in the ownership interest, if any, of the related subordinated
securities or by any other method described in the related prospectus
supplement.
If specified in the related prospectus supplement, delays in receiving
scheduled payments on the loans and losses on defaulted loans will be borne
first by the various classes of subordinated securities and thereafter by the
various classes of senior securities, in each case under the circumstances and
subject to the limitations specified in the related prospectus supplement. The
aggregate distributions of delinquent payments on the loans over the lives of
the securities or at any time, the aggregate losses on 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 of delinquent payments on the loans or
aggregate losses on the loans were to exceed the amount specified in the
related prospectus supplement, holders of senior securities would experience
losses on their securities.
In addition to or instead of the subordination methods listed above, the
prospectus supplement for a series may provide that all or a portion of the
distributions otherwise payable to holders of subordinated securities on any
distribution date will instead either be deposited into one or more reserve
accounts established with the trustee, or distributed to the holders of senior
securities. As specified in the related prospectus supplement, deposits into a
reserve account may be made on each distribution date, or for specified time
periods, or until the balance in the reserve account has reached a specified
amount and thereafter, to the extent necessary to maintain the balance in the
reserve account at any required level. Amounts on deposit in the reserve
account for a series may be released to the holders of certain classes of
securities at the times and under the circumstances specified in the related
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 in
the order of their scheduled final distribution
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dates, in accordance with a schedule or formula, in relation to the occurrence
of events, or 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
Any letter of credit for a series of securities will be issued by the bank
or financial institution specified in the related prospectus supplement. The
specified bank will be obligated to honor drawings under the letter of credit
in an aggregate fixed dollar amount, net of unreimbursed payments under the
letter of credit, equal to a specified percentage of the aggregate principal
balance of:
o the loans on the related cut-off date, or
o one or more classes of securities.
If 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 be reduced by the amount of unreimbursed payments under
the letter of credit. The obligations of the bank issuing a letter of credit
for any 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 any letter of
credit for a series will be filed with the SEC as an exhibit to a Current
Report on Form 8-K to be filed within 15 days of issuance of the securities of
that series.
INSURANCE POLICIES, SURETY BONDS AND GUARANTIES
If specified in the prospectus supplement for a series of securities,
deficiencies in amounts otherwise payable on the securities or on certain
classes of them will be covered by insurance policies or surety bonds provided
by one or more insurance companies or sureties. These instruments may cover
timely distributions of interest or full distributions of principal or both,
based on a schedule of principal distributions specified 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:
o maintaining timely payments or providing additional protection against
losses on the assets included in the trust fund,
o paying administrative expenses, or
o establishing a minimum reinvestment rate on the payments made on the
assets or a principal payment rate on the assets.
These arrangements may include agreements under which securityholders are
entitled to receive amounts deposited in various accounts held by the trustee
on the terms specified in the prospectus supplement. A copy of any such
instrument for a series will be filed with the SEC as an exhibit to a Current
Report on Form 8-K to be filed within 15 days of issuance of the securities of
that series.
OVER-COLLATERALIZATION
If provided in the prospectus supplement for a series, 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 particular class or
classes of securities and, thus, accelerate the rate of principal payments on
the specified class or classes. Reducing the principal balance of the
securities without a corresponding reduction in the principal balance of the
underlying loans will result in over-collateralization.
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RESERVE ACCOUNTS
If specified in the related prospectus supplement, credit support for a
series of securities will be provided by one or more reserve accounts held by
the trustee, in trust, for the series of securities. The related prospectus
supplement will specify whether or not a reserve account will be included in
the trust fund for a series.
The reserve account for a series will be funded by:
o a deposit of cash, U.S. Treasury securities or instruments evidencing
ownership of principal or interest payments on U.S. Treasury
securities, letters of credit, demand notes, certificates of deposit,
or a combination of those types of funds in an aggregate amount
specified in the related prospectus supplement,
o a deposit from time to time of amounts specified in the related
prospectus supplement to which the subordinated securityholders, if
any, would otherwise be entitled, or
o any other manner specified in the related prospectus supplement.
Any amounts on deposit in the reserve account and the proceeds of any
other instrument deposited in it upon maturity will be held in cash or will be
invested in permitted investments. The applicable prospectus supplement may
specify a different definition of permitted investments, but if it does not,
then permitted investments will include obligations of the United States and
specified agencies of the United States, certificates of deposit, specified
commercial paper, time deposits and bankers acceptances sold by eligible
commercial banks and specified repurchase agreements for United States
government securities with eligible commercial banks. If a letter of credit is
deposited with the trustee, the letter of credit will be irrevocable.
Generally, any deposited instrument 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 about the instruments deposited in the
reserve accounts will be specified in the related prospectus supplement.
Any amounts and payments on instruments deposited in a reserve account
will be available for withdrawal from that reserve account for distribution to
the securityholders 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 will be obtained for the pool and issued by the insurer named
in the prospectus supplement. Each pool insurance policy will, subject to
policy limitations, cover losses caused by defaults in payment on loans in the
pool. The insurance will be in an amount equal to a specified percentage of the
aggregate principal balance (as of the cut-off date) of the loans that are not
covered as to their entire outstanding principal balances by primary mortgage
guaranty insurance policies. As described in the related prospectus supplement,
the master servicer will present claims under the insurance to the pool insurer
on behalf of itself, the trustee and the securityholders. The pool insurance
policies are not blanket policies against loss, because claims under those
policies may be made only for particular defaulted loans and only upon
satisfaction of conditions precedent in the policy. The applicable prospectus
supplement may specify that pool insurance will cover the failure to pay or the
denial of a claim under a primary mortgage guaranty insurance policy, but if it
does not, the pool insurance policies will not cover losses due to a failure to
pay or denial of a claim under a primary mortgage guaranty insurance policy.
The original amount of coverage under each pool insurance policy will be
maintained to the extent provided in the related prospectus supplement and may
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 applicable
prospectus supplement may provide that the claims paid will be net of master
servicer expenses and accrued interest, but if it does not, then the amount of
claims paid will include certain expenses incurred by
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the master servicer as well as accrued interest on delinquent loans to the date
of payment of the claim. 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
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 that
case, credit support may be provided by a cross-collateralization feature
requiring that distributions be made on securities evidencing a beneficial
ownership interest in, or secured by, other asset groups within the same trust
fund before distributions are made on subordinated securities evidencing a
beneficial ownership interest in, or secured by, one or more other asset groups
in that trust fund. Cross-collateralization may be provided by:
o allocating specified excess amounts generated by one or more asset
groups to one or more other asset groups in the same trust fund, or
o allocating losses with respect to one or more asset groups to one or
more other asset groups in the same trust fund.
As described in more detail in the related prospectus supplement, these losses
or excess amounts, as the case may be, will be allocated to the outstanding
class or classes of subordinated securities of the related series having the
lowest rating assigned by any rating agency or the lowest payment priority. The
prospectus supplement for a series that includes a cross-collateralization
feature will describe the manner and conditions for applying the
cross-collateralization feature.
If specified in the related prospectus supplement, the coverage provided
by one or more forms of credit support may apply concurrently to two or more
separate trust funds. If applicable, the related prospectus supplement will
identify the trust funds to which the credit support relates and the manner of
determining the amount of coverage provided by it and of the application of the
coverage to the identified trust funds.
YIELD AND PREPAYMENT CONSIDERATIONS
The yields to maturity and weighted average lives of the securities will
depend primarily on the amount and timing of principal payments received on or
in respect of the related Trust Fund Assets. The original terms to maturity of
the loans in a given pool will vary depending on the type of loans. Each
prospectus supplement will contain information about the type and maturities of
the loans in the related pool. The applicable prospectus supplement may state
that some loans provide for prepayment penalties, but if it does not, then the
loans may be prepaid without penalty in full or in part at any time. The
prepayment experience on the loans in a pool will affect the weighted average
lives of the related 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 prepayment rate of these loans.
Generally, borrowers do not view home equity loans and home improvement
contracts as permanent financing. Accordingly, those loans may experience a
higher prepayment rate 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 principal payment rates to be similar to, or lower
than, the rates associated with traditional fully-amortizing first mortgage
loans.
A number of factors may affect the prepayment experience of the loans,
including general economic conditions, prevailing interest rates, the
availability of alternative financing, homeowner mobility and the frequency and
amount of future draws on any revolving credit line loans. Other factors that
might affect the prepayment rate of a pool of home equity loans or home
improvement
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contracts include the amount of, and interest rates on, the related senior
mortgage loans, and the fact that subordinate mortgage loans are generally used
for shorter-term financing for a variety of purposes, including home
improvement, education expenses and purchases of consumer goods such as
automobiles. In addition, any future limitations on borrowers' right 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 (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". If you buy securities in the secondary market at a
price other than par, your yield may vary from the yield you anticipated if the
prepayment rate on the loans is different from the rate you anticipated when
you bought the securities.
Collections on revolving credit line loans may vary because, among other
things, borrowers may:
o make payments as low as the minimum monthly payment for any month,
o make payments consisting only of the interest, fees and charges for a
given month during the interest-only period for certain revolving
credit line loans (and, in more limited circumstances, in the case of
closed-end loans for which an interest-only payment option has been
selected), or
o make payments as high as the entire outstanding principal balance plus
accrued interest, fees and charges on that loan.
In addition, borrowers may fail to make the required periodic payments.
Collections on the loans also may vary due to seasonal purchasing and
borrowers' payment habits.
The applicable prospectus supplement may indicate that some conventional
loans do not have due-on-sale provisions, but if it does not, then all
conventional loans will contain due-on-sale provisions permitting the mortgagee
to accelerate the maturity of the loan upon sale or specified transfers of the
related property by the borrower. Loans insured by the FHA, and loans partially
guaranteed by the VA, are assumable with the consent of the FHA and the VA,
respectively. Thus, the rate of prepayments on those loans may be lower than
that on conventional loans bearing comparable interest rates. The master
servicer generally will enforce any due-on-sale or due-on-encumbrance clause,
if 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. However, 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 of conventional mortgage loans has fluctuated
significantly in recent years. In general, if prevailing rates fall
significantly below the Loan Rates borne by the loans, the loans are more
likely to be subject to higher prepayment rates than if prevailing interest
rates remain at or above the Loan Rates. Conversely, if prevailing interest
rates rise appreciably above the Loan Rates borne by the loans, the loans are
more likely to experience a lower prepayment rate than if prevailing rates
remain at or below the Loan Rates. However, there can be no assurance that this
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 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. Thus, in most cases, the effect of prepayments in full will be to reduce
the amount of interest passed through or paid in the following month to
securityholders. Partial prepayments in a given month may be applied to the
outstanding principal balances of the loans 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
that month. Unless the related prospectus supplement provides otherwise,
neither full nor partial prepayments will be passed through or paid until the
month following receipt.
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Even if the properties underlying the loans held in the trust fund provide
adequate security for the loans, substantial delays could occur before
defaulted loans are liquidated and their proceeds are forwarded to investors.
Property foreclosure actions are regulated by state statutes and rules and are
subject to many of the delays and expenses of other lawsuits if defenses or
counterclaims are made, sometimes requiring several years to complete. In
addition, in some states, if the proceeds of the foreclosure are insufficient
to repay the loan, the borrower is not liable for the deficit. If a borrower
defaults, these restrictions may impede the master servicer's ability to
dispose of the property and obtain sufficient proceeds to repay the loan in
full. In addition, the master servicer will be entitled to deduct from
liquidation proceeds all expenses reasonably incurred in attempting to recover
on the defaulted loan, including payments to senior lienholders, legal fees and
costs, real estate taxes, and property maintenance and preservation expenses.
Liquidation expenses of defaulted loans generally do not vary directly
with the outstanding principal balance of the loan at the time of default.
Therefore, if a servicer takes the same steps for a defaulted loan having a
small remaining principal balance as it does for a defaulted loan having a
large remaining principal balance, the amount realized after expenses is a
smaller percentage of the outstanding principal balance of the small loan than
it is for the defaulted loan with a large remaining principal balance.
State laws generally regulate interest rates and other charges, require
certain disclosures, and require licensing of mortgage loan originators and
servicers. In addition, most states have other laws and public policies for the
protection of consumers that prohibit unfair and deceptive practices in the
origination, servicing and collection of mortgage loans. Depending on the
particular law and the specific facts involved, violations may limit the
ability of the master servicer to collect all or part of the principal or
interest on the underlying loans held in the trust fund. In some cases, the
borrower may even be entitled to a refund of amounts previously paid. In
addition, damages and administrative sanctions could be imposed on the master
servicer.
If the rate at which interest is passed through or paid to securityholders
is calculated on a loan-by-loan basis, disproportionate principal prepayments
among loans with different Loan Rates will affect the yields on those
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 the related prospectus supplement
provides otherwise), the interest will not be distributed until the month
following the month of accrual.
Under specified 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
causing an earlier retirement of the related series of securities. See "The
Agreements--Termination; Optional Termination."
Factors other than those identified in this prospectus and the related
prospectus supplement could significantly affect principal prepayments at any
time and over the lives of the securities. The relative contribution of the
various factors affecting prepayment also may vary from time to time. There can
be no assurance as to the rate of principal payment 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 the securities.
THE AGREEMENTS
The following is a summary of the material provisions of each agreement
that are not described elsewhere in this prospectus. Where particular
provisions or terms used in the agreements are referred to, the provisions or
terms are as specified in the related agreement.
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ASSIGNMENT OF THE TRUST FUND ASSETS
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 loans are sold based on actual principal balances) or scheduled to be
received (if the loans are sold based on scheduled principal balances) by or on
behalf of the depositor on or with respect to the loans after the cut-off date
(other than any retained interest specified in the related prospectus
supplement). Concurrently with the assignment, the trustee will deliver the
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. The
schedule will include the outstanding principal balance of each loan after
application of payments due on or before the cut-off date, as well as the Loan
Rate or APR, the maturity of each loan, the Loan-to-Value Ratios or Combined
Loan-to-Value Ratios, as applicable, at origination and other specified
information.
Unless otherwise specified in the related prospectus supplement, the
agreement will require that on or before the closing date, the depositor will
deliver or cause to be delivered to the trustee (or to the custodian) with
respect to each single family loan or multifamily loan:
o the mortgage note or contract endorsed without recourse in blank or to
the order of the trustee,
o the mortgage, deed of trust or similar instrument with evidence of
recording indicated on it (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 the mortgage together with a
certificate that the original of the mortgage was delivered to the
recording office),
o an assignment of the mortgage to the trustee in recordable form in the
case of a mortgage assignment, and
o any other security documents specified in the related prospectus
supplement or agreement, including security documents relating to any
senior interests in the property.
The applicable prospectus supplement may provide other arrangements for
assuring the priority of the assignments, but if it does not, then 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, in the opinion of counsel, recording is not required to
protect the trustee's interest in the loans against the claim of any subsequent
transferee or any successor to or creditor of the depositor or the originator
of the loans.
For any loans that are cooperative loans, the depositor will cause to be
delivered to the trustee:
o the related original cooperative note endorsed without recourse in
blank or to the order of the trustee,
o the original security agreement,
o the proprietary lease or occupancy agreement,
o the recognition agreement,
o an executed financing agreement, and
o 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.
For any loans that are home equity loans, the applicable prospectus
supplement will specify whether the documents relating to those loans will have
to be delivered to the trustee (or a custodian) and whether assignments of the
related mortgage to the trustee will be recorded. If documents need not be
delivered, the master servicer will retain them.
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For any home improvement contracts, the applicable prospectus supplement
will specify whether the documents relating to those contracts will have to be
delivered to the trustee (or a custodian) However, unless 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 takes physical possession of the home
improvement contracts without notice of the assignment, the securityholders'
interest 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 after
receiving them, within the time period specified in the related prospectus
supplement, and will hold the documents in trust for the benefit of the
securityholders. Generally, if a document is found to be missing or defective
in any material respect, the trustee (or custodian) will notify the master
servicer and the depositor, and the master servicer will notify the related
seller. If, after receiving notice, the seller cannot cure the omission or
defect within the time period specified in the related prospectus supplement,
it will be obligated to:
o purchase the related loan from the trust fund at the Purchase Price or,
o if specified in the related prospectus supplement, replace the loan
with another loan that meets specified requirements.
There can be no assurance that a seller will fulfill this purchase or
substitution obligation. Although the master servicer may be obligated to
enforce the seller's obligation, the master servicer will not be obligated to
purchase or replace the loan if the seller defaults on its obligation (nor will
the master servicer otherwise be obligated to purchase or replace any loan for
any other reason). See "Loan Program--Representations by Sellers; Repurchases"
in this prospectus The applicable prospectus supplement may provide other
remedies, but if it does not, then this obligation of the seller constitutes
the sole remedy available to the securityholders or the trustee for omission
of, or a material defect in, a constituent document.
Notwithstanding the repurchase obligations described above, no purchase or
substitution of a loan will be made with respect to a trust fund for which a
REMIC election is to be made if the 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 that tax from its own
funds). 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.
PAYMENTS ON LOANS; DEPOSITS TO SECURITY ACCOUNT
The master servicer will establish and maintain or cause to be established
and maintained for each trust fund a separate account or accounts for the
collection of payments on the related Trust Fund Assets (the "Security
Account"). The applicable prospectus supplement may provide for other
requirements for the Security Account, but if it does not, then the Security
Account must be either
o 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 nationally recognized
statistical rating organizations that rated one or more classes of the
related series of securities, or
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o 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")), or
o 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 the 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
o an account or accounts otherwise acceptable to each rating agency that
rated one or more classes of the related series of securities.
The collateral eligible to secure amounts in the Security Account is limited to
specified permitted investments. A Security Account may be maintained as an
interest bearing account, or the funds held in it may be invested in specified
permitted investments pending each succeeding distribution date. The related
prospectus supplement will specify whether the master servicer or its designee
will be entitled to receive the 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, as long as
it meets the criteria specified 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 the related
prospectus supplement or agreement provides for a different deposit
arrangement) the following payments and collections received or advances made
by or on behalf of it after the cut-off date (other than payments due on or
before the cut-off date and exclusive of any amounts representing any retained
interest):
o all payments on account of principal, including principal prepayments
and, if specified in the related prospectus supplement, any applicable
prepayment penalties, on the loans;
o all payments on account of interest on the loans, net of applicable
servicing compensation;
o all proceeds (net of unreimbursed payments of property taxes, insurance
premiums and similar items) incurred, and unreimbursed advances made,
by the master servicer) of the hazard insurance policies and any
primary mortgage guaranty insurance policies, to the extent the
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, and all other cash amounts (net of unreimbursed
expenses incurred in connection with liquidation or foreclosure and
unreimbursed advances made, by the master servicer) received and
retained in connection with the liquidation of defaulted loans, by
foreclosure or otherwise, 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;
o 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 "The
Agreements--Assignment of the Trust Fund Assets," and all proceeds of
any loan repurchased as described under "The Agreements--Termination;
Optional Termination";
o 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";
o 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
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o all other amounts required to be deposited in the Security Account
pursuant to the applicable 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:
o 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;
o to reimburse the master servicer for advances; provided, however, that
the right of reimbursement with respect to any loan is limited to
amounts received that represent late recoveries of payments of
principal and interest on the loan (or insurance proceeds or
liquidation proceeds from the loan);
o to reimburse the master servicer for any advances previously made that
the master servicer has determined to be nonrecoverable;
o to reimburse the master servicer from insurance proceeds for expenses
incurred by the master servicer and covered by the related insurance
policies;
o to reimburse the master servicer for unpaid master servicing fees and
unreimbursed out-of-pocket costs and expenses incurred by the master
servicer in performing its servicing obligations; provided, however
that the right of reimbursement is limited to amounts received
representing late recoveries of the payments for which the advances
were made;
o to reimburse the master servicer or the depositor for expenses incurred
and reimbursable pursuant to the applicable agreement;
o to withdraw any amount deposited in the Security Account that was not
required to be deposited in it; and
o to clear and terminate the Security Account upon termination of the
applicable agreement.
In addition, the related prospectus supplement will generally provide that
on or before the business day 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 specified 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 the pre-funded amount in cash 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 that the trustee will use
during the funding period to pay the purchase price for subsequent loans to the
depositor. 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 applicable trustee will use
the pre-funded amount to purchase subsequent loans from the depositor from time
to time during the funding period. Each funding period will begin on the
related closing date and will end on the date specified in the related
prospectus supplement (or at the latest, 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. Investment earnings on funds in a pre-funding account
will be deposited into the related Security Account or other trust account
specified in the related prospectus supplement. Any investment losses
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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 provided in the related prospectus supplement, on the
closing date for the related series, the depositor will deposit in an account
(the "Capitalized Interest Account") cash in an amount needed to cover
shortfalls in interest on the related series of securities that may arise by
using 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 those 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. If the entire amount on deposit
in a Capitalized Interest Account has not been used to cover shortfalls in
interest on the related series of securities by the end of the related funding
period, any amounts remaining in that 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 that loan pursuant to a sub-servicing agreement, which will
not contain any terms inconsistent with the other related agreements. Each
sub-servicing agreement will be a contract solely between the master servicer
and the sub-servicer. However, the agreement pursuant to which a series of
securities is issued will provide that, if for any reason the master servicer
for that series 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 the sub-servicing agreement.
All references in this prospectus and the related prospectus supplement to
actions, rights or duties of the master servicer will be deemed to include any
and all sub-servicers acting on the master servicer's behalf. The master
servicer will remain liable for its servicing duties and obligations under the
master servicing agreement as if it alone were servicing the loans, to the
extent specified in the related prospectus supplement.
COLLECTION PROCEDURES
The master servicer will make reasonable efforts to collect all payments
called for under the loans. In addition, the master servicer will, consistent
with each agreement and any pool insurance policy, primary mortgage guaranty
insurance policy, FHA insurance, VA guaranty, bankruptcy bond or alternative
arrangements, follow the collection procedures it customarily follows for loans
that are comparable to these loans. Consistent with the above, the master
servicer may, in its discretion, waive any assumption fee, late payment or
other charge in connection with a loan and 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 not inconsistent with
the coverage of that loan by a pool insurance policy, primary mortgage guaranty
insurance policy, FHA insurance, VA guaranty, bankruptcy bond or alternative
arrangements, if applicable. If the master servicer is obligated to make
advances (or cause them to be made), the obligation will remain in effect
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 the conveyance or proposed conveyance, exercise or cause to
be exercised its rights to accelerate the maturity of the loan under any
due-on-sale clause applicable to it, but only if permitted by applicable law
and will not impair or threaten to impair any recovery under any primary
mortgage guaranty 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 the 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 the property has been or is about to
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be conveyed, pursuant to which that person becomes liable for repayment of the
loan and, to the extent permitted by applicable law, the mortgagor remains
liable on it. 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". The terms of the related loan may
not be changed in connection with any such assumption.
Any prospective purchaser of a cooperative apartment 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 the 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 shares securing a
cooperative loan.
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 the items are allowable as a
deduction to the corporation, the 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 Section 216(b)(1) for any particular year. If 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 a failure would be permitted to continue over a
period of years appears remote.
HAZARD INSURANCE
The related prospectus supplement may provide otherwise, but the master
servicer generally 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. The
coverage will be in an amount that is at least equal to the lesser of
o the maximum insurable value of the improvements securing the loan or
o the greater of
(1) the outstanding principal balance of the loan and
(2) an amount such that the proceeds of the policy shall be sufficient
to prevent the mortgagor 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.
If the master servicer maintains a blanket policy insuring against hazard
losses on all the loans comprising part of a trust fund, it will have satisfied
its obligation relating to the
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maintenance of hazard insurance. The 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 that would have been
deposited in it 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,
their basic terms are dictated by respective state laws, and most policies
typically do not cover any physical damage resulting from 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. This list is merely indicative of certain
kinds of uninsured risks and is not 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 that 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 upon partial loss will not exceed the
larger of 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 the proportion of the loss that the amount of insurance carried
bears to the specified percentage of the full replacement cost of the
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 on them decrease, and since improved real estate
generally has appreciated in value over time in the past, the effect of this
requirement upon partial loss may be that hazard insurance proceeds will be
insufficient to fully restore 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 insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to the borrower's cooperative dwelling or the
cooperative's building could significantly reduce the value of the collateral
securing the cooperative loan to the extent not covered by other credit
support.
If the property securing a defaulted loan is damaged and proceeds 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 that such restoration will
increase the proceeds to securityholders on liquidation of the loan after
reimbursement of the master servicer for its expenses and that the 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 described 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 the 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 the loan plus interest accrued on
the loan that is payable to securityholders, the trust fund will realize a
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loss in the amount of the difference plus the aggregate of expenses incurred by
the master servicer in connection with the 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 the loan
plus interest accrued on the loan 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 the 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
the loan plus interest accrued on the loan 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
the loan. If the master servicer has expended its own funds to restore the
damaged property and those 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 the expenses incurred by it, in which event the trust fund may realize
a loss up to the amount withdrawn by the master servicer. Since insurance
proceeds cannot exceed deficiency claims and certain expenses incurred by the
master servicer, no payment or recovery of insurance proceeds will result in a
recovery to the trust fund which exceeds the principal balance of the defaulted
loan together with accrued interest on it. See "Credit Enhancement".
The proceeds from any liquidation of a loan will be applied in the
following order of priority:
(1) 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
the loan;
(2) to reimburse the master servicer for any unreimbursed advances with
respect to the loan;
(3) to accrued and unpaid interest (to the extent no advance has been
made for that amount) on the loan; and
(4) as a recovery of principal of the loan.
REALIZATION UPON DEFAULTED LOANS
Primary mortgage guaranty insurance policies. The master servicer will
maintain or cause to be maintained, as the case may be, in effect, to the
extent specified in the related prospectus supplement, a primary mortgage
guaranty insurance policy with regard to each loan for which coverage is
required. Primary mortgage guaranty 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 primary mortgage guaranty 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 guaranty 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 the
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
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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 the
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
the 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 the compensation will be retained by it
from collections of interest on the loan in the related trust fund. 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 the 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 the 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 requires it 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 the statement) of firms of independent public
accountants with respect to the related sub-servicer.
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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 have other 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 under the Agreement 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 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.
However, neither the master servicer, the depositor nor any director, officer,
employee, or agent of the master servicer or the depositor will be protected
against any liability which would otherwise be imposed for willful misfeasance,
bad faith or gross negligence in the performance of duties under the Agreement
or by reason of reckless disregard of obligations and duties under the
Agreement. 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 for willful
misfeasance, bad faith or gross negligence in the performance of duties under
the Agreement or by reason of reckless disregard of obligations and duties
under the Agreement. 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 that is not incidental to its respective
responsibilities under the Agreement and that 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 that it deems necessary or desirable
with respect to the Agreement and the rights and duties of the parties to the
Agreement and the interests of the securityholders under the Agreement. In that
event, the legal expenses and costs of the action and any liability resulting
from it 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 for them 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 the person is qualified to sell mortgage loans to, and service mortgage
loans on behalf of, FNMA or FHLMC and further provided that the merger,
consolidation or succession does not adversely affect the then current rating
or ratings of the class or classes of securities of any series that have been
rated.
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EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
Pooling and Servicing Agreement; Master Servicing Agreement. The
applicable prospectus supplement may provide for other events of default, but
if it does not, then events of default under each Agreement will consist of:
o 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 the 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 such class evidencing not less than 25% of the total
distributions allocated to such class ("percentage interests");
o 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 sixty days after the
giving of written notice of the 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
o 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" if payments on them 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 other circumstances specified in the
Agreement, the trustee shall terminate all of the rights and obligations of the
master servicer under the Agreement relating to the trust fund and in and to
the related Trust Fund Assets, upon which 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. If the trustee is unwilling or unable to so 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 any
appointment, the trustee is obligated to act as master servicer. The trustee
and any successor to the master service 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 its status as a securityholder, will have
any right under any Agreement to institute any proceeding with respect to the
Agreement, unless the holder previously has given to the trustee written notice
of default and unless the holders of securities of any class evidencing not
less than 66 2/3% of the aggregate percentage interest constituting such class
have made a written request upon the trustee to institute a proceeding in its
own name as trustee and have offered to the trustee reasonable indemnity, and
the trustee for 60 days has neglected or refused to institute the proceeding.
Indenture. The applicable prospectus supplement may provide for other
events of default, but if it does not, then the events of default under each
indenture will consist of:
o a default in the payment of any principal of or interest on any note of
any series which continues unremedied for five days after the written
notice of the default is given as specified in the related prospectus
supplement;
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o 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 is given in accordance with the
procedures described in the related prospectus supplement;
o certain events of bankruptcy, insolvency, receivership or liquidation
of the depositor or the trust fund; or
o 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 the
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
o the holders of 100% of the percentage interests of the notes ofsuch
series consent to the sale,
o 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
o 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.
If 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, if 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
of the notes 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
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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 to them, 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 by
that default.
AMENDMENT
The applicable prospectus supplement may specify other amendment
provisions, but if it does not, then each Agreement may be amended by the
depositor, the master servicer and the trustee, without the consent of any of
the securityholders:
o to cure any ambiguity or mistake;
o to correct any defective provision in the Agreement or to supplement
any provision in the Agreement which may be inconsistent with any other
provision in it;
o to add to the duties of the depositor, the seller or the master
servicer;
o to add any other provisions with respect to matters or questions
arising under the Agreement or
o to modify, alter, amend, add to or rescind any of the terms or
provisions contained in the Agreement.
However, no action pursuant to the fourth and fifth bulleted items above may,
as evidenced by an opinion of counsel, adversely affect in any material respect
the interests of any securityholder. But no opinion of counsel will be required
if the person requesting the amendment obtains a letter from each rating agency
requested to rate the class or classes of securities of the series stating that
the 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 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, if the trustee has received an
opinion of counsel to the effect that the action is necessary or helpful to
maintain the qualification, avoid or minimize that risk comply with any such
requirement of the Code, as the case may be.
The applicable prospectus supplement may specify other amendment
provisions, but if it does not, then each Agreement may also be amended by the
depositor, the master servicer and the trustee with the consent of holders of
securities of the 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. However, that no such amendment may
(1) 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 the security,
(2) 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 (1), 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
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(3) reduce the aforesaid percentage of securities of any class the
holders of which are required to consent to the amendment without the
consent of the holders of all securities of the class covered by the
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 the
amendment will not cause the 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. Generally, 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
o the final payment of or other liquidation of the last of the Trust Fund
Assets subject to it or the disposition of all property acquired upon
foreclosure of any such Trust Fund Assets remaining in the trust fund
and
o 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 the related prospectus supplement provides otherwise, 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 that
right will effect early retirement of the securities of that series, but the
right of the master servicer or the 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 the second bulleted item
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 of them 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 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.
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CERTAIN LEGAL ASPECTS OF THE LOAN
The following discussion contains general summaries of certain legal
matters relating to the loans. Because the legal aspects are governed primarily
by applicable state laws, which may differ substantially from state to state,
the summaries are not complete, nor do they reflect the laws of any particular
state or encompass the laws of all states in which the security for the loans
is situated.
GENERAL
The loans will be secured by deeds of trust, mortgages, security deeds or
deeds to secure debt, depending on the prevailing practice in the state in
which the property subject to the loan is located. In California, deeds of
trust are used almost exclusively instead of mortgages.
o A mortgage creates a lien upon the real property encumbered by the
mortgage. A mortgage lien generally does not have priority over 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 a note or bond and the mortgage to the mortgagee.
o A deed of trust is similar to a mortgage, but it 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 to the trustee to secure payment of the
obligation. The borrower grants the property irrevocably, in trust,
until the debt is paid, generally with a power of sale.
o 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 the grantee, as opposed to merely creating
a lien on the property, until 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, by the
directions of the beneficiary.
Cooperatives. Certain of the loans may be cooperative loans. In the
cooperative form of ownership, the cooperative owns all the real property
comprising the project, including the land, separate dwelling units and all
common areas. The cooperative is directly responsible for project management
and, in most cases, for payment of real estate taxes and hazard and liability
insurance. If there is a blanket mortgage on the cooperative or underlying land
or both, as is generally the case, the cooperative, as project mortgagor, is
also responsible for meeting these mortgage obligations. The cooperative
ordinarily incurs a blanket mortgage in connection with the construction or
purchase of the cooperative's apartment building. The interest of an occupant
under a proprietary lease or occupancy agreement to which the cooperative is a
party is generally subordinate to the interest of the holder of the blanket
mortgage in that building. If the cooperative cannot meet its payment
obligations under the blanket mortgage, the mortgagee holding the blanket
mortgage could foreclose and terminate all subordinate proprietary leases and
occupancy agreements. In addition, the blanket mortgage on a cooperative may
not fully amortize, but instead provide for a significant portion of principal
due in one lump sum at final maturity. If the cooperative is unable to
refinance this mortgage and thus cannot make its final payment, the mortgagee
could foreclose. A foreclosure in either of those situations could eliminate or
significantly diminish the value of any collateral held by a lender that
financed the purchase of cooperative shares by an individual tenant-stockholder
or, in the case of a trust fund including cooperative loans, the value of the
collateral securing those loans.
A cooperative is owned by tenant-stockholders. By virtue of their
ownership of stock, shares or membership certificates in the corporation, the
tenant-stockholders receive proprietary leases or occupancy agreements
conferring exclusive rights to occupy specific units. A tenant-stockholder
generally must make monthly payments to the cooperative, consisting of the
tenant-stockholder's pro
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rata share of the cooperative's payments on the blanket mortgage, real property
taxes, maintenance expenses and other capital or ordinary expenses. An
ownership interest in a cooperative and the rights accompanying that ownership
interest are financed by 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. To perfect its interest in the collateral, the lender
files a financing statement covering the proprietary lease or occupancy
agreement and the cooperative shares in the appropriate state and local
offices. Subject to the limitations discussed below, if a tenant-stockholder,
defaults, 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 the tenant-stockholder as an individual, as provided in the
applicable security agreement.
FORECLOSURE AND REPOSSESSION
Deed of Trust. A deed of trust generally is foreclosed by means of a
non-judicial sale. A provision of the deed of trust authorizes the trustee to
sell the property at public auction if the borrower defaults. In certain
states, foreclosure also may be accomplished by judicial action in the same
manner as a mortgage foreclosure. In some states, such as California, the
trustee must record a notice of default and send a copy to the
borrower-trustor, and to any person who has recorded a request for a copy of
any notice of default and notice of sale. In addition, in some states, the
trustee must provide notice to any other individual having an interest of
record in the property, including junior lien holders. 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, a copy of
the notice of sale must be posted on the property and sent to all parties
having an interest of record in the property. In California, the entire
process, from recording the notice of default to completing the non-judicial
sale, usually takes four to five months.
In some states, including California, the borrower-trustor has a right to
reinstate the loan at any time after default until shortly before the trustee's
sale. In general, the borrower or any other person with a junior encumbrance on
the real estate, may cure the default during the reinstatement period by paying
the entire amount in arrears plus the costs and expenses incurred in enforcing
the obligation. Certain state laws limit the amount of foreclosure expenses and
costs, including attorney's fees, that a lender can recover.
Mortgages. A mortgage generally is foreclosed by means of a judicial
proceeding. The foreclosure action is initiated by serving legal pleadings on
all parties having an interest in the real property. Difficulties in locating
necessary parties can delay the proceedings. Judicial foreclosure proceedings
are frequently uncontested by any of the parties. When the mortgagee's right to
foreclosure is contested, however, legal resolution of the issues can be time
consuming. Upon completion of a judicial foreclosure proceeding, the court
generally issues a judgment of foreclosure and appoints a referee or other
court officer to conduct a sale of the property. In general, the borrower or
any other person with a junior encumbrance on the real estate, may cure the
default during a reinstatement period by paying the entire amount in arrears
plus the costs and expenses incurred in enforcing the obligation. Certain state
laws limit the amount of foreclosure expenses and costs, including attorney's
fees, that a lender can recover. If the default is not cured when the
reinstatement period expires, the borrower or junior lienholder loses the right
to reinstate the loan and must pay the loan in full to prevent a foreclosure
sale. If the loan is not reinstated within any applicable cure period, a notice
of sale must be posted in a public place and in most states, published for a
specific period of time in one or more newspapers. In addition, a copy of the
notice of sale must be posted on the property and sent to all parties having an
interest of record in the property.
Although foreclosure sales are typically public sales, there are often no
third party bids in excess of the lender's lien. Several factors account for
the lack of higher bids, including the difficulty of determining the exact
status of title to the property, possible deterioration of the property during
the foreclosure proceedings and a requirement that the purchaser pay for the
property in cash or by
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cashier's check. Thus the foreclosing lender often purchases the property from
the trustee or referee for an amount equal to the outstanding principal amount
of the loan, accrued and unpaid interest and the expenses of foreclosure. The
lender then assumes the burdens of ownership, including obtaining hazard
insurance and making repairs at its own expense that will 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 on market conditions, the ultimate proceeds of the sale
may not equal the lender's investment in the property.
Courts have applied general equitable principles to foreclosure
proceedings, which are intended to mitigate the legal consequences of default
to the borrower. Some courts have considered whether the due process provisions
of federal or state constitutions require that borrowers under deeds of trust
receive more notice than the applicable state statute provides. For the most
part, courts have upheld the statutory notice provisions as being reasonable or
have found that a trustee's sale 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 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 a tenant-stockholder
and pledged to the lender are almost always subject to restrictions on transfer
specified in the cooperative's certificate of incorporation and bylaws, as well
as in the proprietary lease or occupancy agreement, The cooperative may cancel
a tenant-stockholder's shares if the tenant-stockholder fails to pay rent or
other obligations or charges owed, including mechanics' liens against the
cooperative apartment building incurred by the tenant-stockholder. The
proprietary lease or occupancy agreement generally permits the cooperative to
terminate the lease or agreement if the obligor fails to make payments, or
defaults in the performance of covenants required under the lease or agreement.
Typically, the lender and the cooperative enter into a recognition agreement
establishing the rights and obligations of both parties if the
tenant-stockholder defaults 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 if the
tenant-stockholder defaults under the proprietary lease or occupancy agreement,
the cooperative will not seek to terminate the lease or agreement until the
lender has had 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 to the cooperative's right
to any amount due under the proprietary lease or occupancy agreement. The
amount that the tenant-stockholder owes the cooperative could reduce the value
of the collateral below the outstanding principal balance of the cooperative
loan and accrued and unpaid interest on the loan. The lender generally cannot
restrict and does not monitor how much the tenant-stockholder owes the
cooperative.
Recognition agreements also provide that upon foreclosure of 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, any right of the lender to
dispossess the tenant-stockholder is not limited.
In some states, foreclosure on cooperative shares is accomplished by a
sale in accordance with 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 depends on the facts of 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
will be considered commercially reasonable if it was conducted according to the
usual practice of banks selling similar collateral.
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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 cooperative's right to receive amounts due under the
proprietary lease or occupancy agreement. If any proceeds remain, 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.
If the foreclosure involves a building that was converted from a rental
building to a building owned by a cooperative under a non-eviction plan, some
state laws provide that a purchaser at a foreclosure sale takes the property
subject to any rent control and rent stabilization laws applying to certain
tenants who remained in the building when it was converted to cooperative
ownership, but did not buy shares in the cooperative.
ENVIRONMENTAL RISKS
Real property pledged to a lender may be subject to unforeseen
environmental risks. Under certain state laws, contamination of a property may
give rise to a lien on the property to assure the payment of clean-up costs. In
several states, that lien has priority over an existing mortgage. In addition,
under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), the EPA may impose a lien on property with
respect to which it has incurred clean-up costs. A CERCLA lien, however, is
subordinate to pre-existing, perfected security interests.
CERCLA imposes liability for the costs of addressing releases or
threatened releases of hazardous substances at a property on any and all
"responsible parties," including owners or operators. Under CERCLA and certain
state laws, a secured lender may be liable as an "owner" or "operator", even if
the environmental damage or threat was caused by a prior or current owner or
operator. CERCLA excludes from the definition of "owner or operator" a secured
creditor that holds indicia of ownership primarily to protect its security
interest without "participating in the management" of the property. If a
lender's activities encroach on the actual management of a contaminated
facility or property, however, that lender may be considered 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 when it holds the facility or property as an
investment (including leasing the facility or property to a third party), or
fails to market the property in a timely fashion.
Judicial interpretations of the CERCLA secured creditor exclusion have
been inconsistent. In United States v. Fleet Factors Corp (1990), the United
States Court of Appeals for the Eleventh Circuit suggested that the mere
capacity of a 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 exclusion to
the lender, regardless of whether the lender actually exercised any influence.
Other courts, however, did not follow the narrow interpretation of the secured
creditor exclusion adopted by the Eleventh Circuit.
Congress has attempted to resolve the meaning of the secured creditor
exclusion by enacting the Asset Conservation, Lender Liability and Deposit
Insurance Protection Act of 1996 (the "Asset Conservation Act"), which took
effect on September 30, 1996. The Asset Conservation Act provides that a lender
actually must participate in the operational affairs of the property or the
borrower to be deemed to have participated in the management of a secured
property. Under the Asset Conservation Act, 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 loses the protection
of the secured creditor exclusion 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 secured property.
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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, that created the environmental hazard, but those other persons or
entities may be bankrupt or otherwise judgment proof. The costs associated with
environmental cleanup can be substantial. Costs arising from those
circumstances could result in a loss to Securityholders.
CERCLA does not apply to petroleum products, and the secured creditor
exclusion does not govern liability for cleanup costs under federal laws other
than CERCLA, in particular Subtitle I of the federal Resource Conservation and
Recovery Act ("RCRA"), which regulates underground petroleum storage tanks
(except heating oil tanks). The EPA has adopted a lender liability rule for
underground storage tanks under Subtitle I of RCRA. Under that rule, the holder
of a security interest in an underground storage tank or in 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. Moreover, under the Asset Conservation Act, 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 any specific protection for secured
creditors.
Unless the applicable prospectus supplement provides otherwise, no
environmental assessment (or a very limited environmental assessment) of the
properties was conducted when the loans were originated.
RIGHTS OF REDEMPTION
In some states, after a mortgage foreclosure or a sale under a deed of
trust, the borrower and certain foreclosed junior lienors have a
statutorily-prescribed period in which to redeem the property from the
foreclosure sale. In certain other states, including California, the 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, the property can be redeemed upon payment of the
foreclosure purchase price, accrued interest and taxes. In some states, the
right to redeem is an equitable right. The right of redemption diminishes the
lender's ability to sell the foreclosed property. The exercise of a right of
redemption would defeat the title of any purchaser at a foreclosure sale, or of
any purchaser from the lender after a sale under a deed of trust or a judicial
foreclosure. Consequently, the practical effect of the redemption right is to
force the lender to retain the property and pay the expenses of ownership until
the redemption period has run.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain state laws limit the remedies of a beneficiary under a deed of
trust or of a mortgagee under a mortgage. Some states, including California,
limit the beneficiary's or mortgagee's right to obtain a deficiency judgment
against the borrower following a foreclosure or a sale under a deed of trust. A
deficiency judgment is a personal judgment against the borrower equal in most
cases to the difference between the amount due the lender and the fair market
value of the 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 and a loan secured by a junior lien on the same property, the
lender, as 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 loans over the proceeds of any sale of the property. As a result of
these prohibitions, it is anticipated that in most cases the master servicer
will use a 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, and in that
way try to satisfy the full debt before bringing a personal action against the
borrower. In other states, the lender has the option of bringing a personal
action against the borrower without first exhausting the security. However, in
some of those states, the lender may be considered to have elected a remedy
following judgment on a personal action, and
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therefore may be precluded from exercising other remedies with respect to the
security. In those circumstances, lenders will usually proceed against the
security before bringing a personal action against the borrower.
Some states provide exceptions to the anti-deficiency statutes in cases
where the borrower's acts or omissions, such as waste of the property, have
impaired the value of the lender's security. Finally, some state statutes limit
the amount of any deficiency judgment to the excess of the outstanding debt
over the fair market value of the property at the time of the public sale.
These statutes prevent the beneficiary or mortgagee from obtaining a large
deficiency judgment as a result of low bides (or no bids) at the foreclosure
sale.
Article 9 of the UCC usually 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 proves that the sale of the collateral (in this case, the cooperative
shares and the related proprietary lease or occupancy agreement) was conducted
in a commercially reasonable manner.
In addition to anti-deficiency and related legislation, other federal and
state statutes, including the federal bankruptcy laws, the federal Soldiers and
Sailors' Civil Relief Act of 1940 and state laws affording relief to debtors,
may affect the ability of the secured mortgage lender to realize upon its
security. For example, in a proceeding under the federal Bankruptcy Code, a
lender may not foreclose on a mortgaged property without the permission of the
bankruptcy court. And in certain instances a bankruptcy court may allow a
borrower to reduce the monthly payments, change the rate of interest, and alter
the mortgage loan repayment schedule for under-collateralized mortgage loans.
The effect of these types of proceedings can be to cause delays in receiving
payments on the loans underlying securities and even to reduce the aggregate
amount of payments on the loans underlying securities.
Under the federal tax laws, certain tax liens have priority over the lien
of a mortgage or a secured party. Several federal and state consumer protection
laws impose substantive requirements upon mortgage lenders in connection with
the origination, servicing and enforcement of mortgage loans. These laws
include the federal Truth-in Lending Act, Real Estate Settlement Procedures
Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit
Reporting Act and related statutes and regulations. These laws impose specific
statutory liabilities on lenders who fail to comply with their provisions. In
some cases, the liability may extend to assignees of the loans or contracts.
DUE-ON-SALE CLAUSES
Each conventional loan usually will contain a due-on-sale clause providing
that if the mortgagor or obligor sells, transfers or conveys the property, the
mortgagee or secured party may accelerate the loan or contract. In previous
years, courts and legislatures in many states restricted lenders' rights to
enforce those clauses. For example, in 1978, the California Supreme Court 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 specified exceptions, preempts state constitutional, statutory and
case law prohibiting the enforcement of due-on-sale clauses. As a result,
due-on-sale clauses are generally enforceable except in those states whose
legislatures elected to regulate the enforceability of due-on-sale clauses with
respect to mortgage loans that were:
o originated or assumed during the "window period" under the Garn-St
Germain Act (which ended no later than October 15, 1982), and
o 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 the
prohibition on enforcement of due-on-sale clauses with respect to certain
categories of window period loans.
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The Garn-St Germain Act "encourages" lenders to permit assumption of loans
at the original interest rate or at another rate which is 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 specifies nine situations in
which a mortgagee may not enforce a due-on-sale clause even if the property has
been transferred. The inability to enforce a due-on-sale clause may result in
the property being transferred to an uncreditworthy person. This, in turn,
could increase the likelihood of default or could result in a new home buyer's
assuming a mortgage with an interest rate below the current market rate. Either
of those events could affect the average life of the loans and the number of
loans remaining outstanding 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 from any modified mortgage resulting from the bankruptcy proceeding.
PREPAYMENT CHARGES AND LATE PAYMENT FEES
Notes, mortgages and deeds of trust may impose late charges on borrowers
if payments are not timely made, and in some cases may impose prepayment fees
or penalties if the loan is paid before maturity. Certain states may limit the
amount of late charges or prepayment charges. Under certain state laws,
prepayment charges may not be imposed after a certain period of time following
the origination of mortgage loans for owner-occupied residential properties.
Since many of the properties will be owner-occupied, it is anticipated that
prepayment charges will not be imposed on many of the loans. The lack of
prepayment charges with respect to fixed rate loans with high Loan Rates may
increase the likelihood of refinancing or other early retirement of those 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 expressly rejecting application of the federal law. In addition, even
if a state does not reject Title V, it may adopt a provision limiting discount
points or other charges on mortgage loans covered by Title V. Certain states
have reimposed interest rate limits or limited discount points or other
charges, or both.
HOME IMPROVEMENT CONTRACTS
General. Some home improvement contracts may, in addition to being secured
by mortgages on real estate, also be secured by purchase money security
interests in the home improvements financed by those contracts. These home
improvement contracts are referred to in this section as "contracts"). The
contracts generally are "chattel paper" or "purchase money security interests,"
each as defined in the UCC. Under the UCC, the sale of chattel paper is treated
similarly 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
file a UCC-1 financing statement in the appropriate states to give notice of
the trust fund's ownership of the contracts and for other reasons. In general,
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 to take physical possession of
the contracts without notice of the 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 the contract
a purchase money security
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interest in the home improvements that secures all or part of the purchase
price of those improvements and related services. A financing statement
generally is not required to be filed to perfect a purchase money security
interest in consumer goods. These purchase money security interests are
assignable. In general, a purchase money security interest has priority over a
conflicting security interest in the same collateral and the proceeds of that
collateral. However, to the extent that the collateral becomes a fixture, a
security interest in those home improvement generally must be perfected by a
timely fixture filing in order for the related purchase money security interest
to take priority over a conflicting interest in the fixture. Under the UCC, a
security interest generally does not exist in ordinary building materials that
are 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 their characterization as goods upon
incorporation 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. As long as the home
improvement has not become subject to real estate laws, a creditor can
repossess a home improvement either by voluntary surrender, by "self-help"
repossession that is "peaceful" (that is, without breach of the peace) or, in
the absence of either voluntary surrender or peaceful repossession, by judicial
process. The holder of a contract must give the debtor notice, ranging from 10
to 30 days depending on the state, before commencing any repossession. The UCC
and consumer protection laws in most states place restrictions on repossession
sales, including prior notice to the debtor and commercial reasonableness in
conducting the sale. Most states also requires that the debtor be given notice,
prior to any resale of the unit, that the debtor may redeem at or before the
resale.
In most states, a creditor is entitled to a deficiency judgment against
the debtor upon repossession and resale of the property. However, some states
prohibit or limit deficiency judgments, and in many cases, the defaulting
borrower would have no assets with which to pay the judgment.
Certain other statutes, including federal and state bankruptcy laws, as
well as general equitable principles, may limit or delay the a lender's ability
to repossess and resell collateral or enforce a deficiency judgment.
Consumer Protection Laws. The so-called holder-in-due course rules of the
Federal Trade Commission protect the homeowner from defective craftsmanship or
incomplete work by a contractor. These rules permit the obligor to withhold
payment if the work does not meet the quality and durability standards agreed
to by the homeowner and the contractor. The holder in due course rules have the
effect of subjecting any assignee of the seller in a consumer credit
transaction to all claims and defenses which the obligor in the credit sale
transaction could assert against the seller of the goods. Liability is limited
to amounts paid under the contract; however, the obligor also may be able to
set off remaining amounts due as a defense against a claim by the Trustee
against the obligor. Several federal and state consumer protection laws impose
substantive requirements in connection with the origination, servicing and
enforcement of the contracts. These laws include the federal Truth-in Lending
Act, Federal Trade Commission Act, Fair Credit Billing Act, Fair Credit
Reporting Act, Equal Credit Opportunity Act, Fair Debt Collection Practices Act
and the Uniform Consumer Credit Code. In some cases, failure to comply with
these laws could affect the enforceability of the related contract.
Applicability of Usury Laws. Title V provides that, subject to specified
conditions, state usury limitations shall not apply to any contract secured by
a first lien on certain kinds of consumer goods. The contracts would be covered
by Title V if they meet certain conditions relating to, among other things,
prepayments, late charges and deferral fees and if they require a 30-day notice
period prior to any action leading to repossession of the related unit.
Title V authorized the states to reimpose interest rate and finance charge
limits by adopting, before April 1, 1983, a law or constitutional provision
expressly rejecting application of the federal law. In addition, even if a
state does not reject Title V, it may adopt a provision limiting discount
points or other charges on loans covered by Title V. Certain states have
reimposed interest rate limits or limited discount points or other charges, or
both.
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INSTALLMENT CONTRACTS
The loans may also include installment contracts. Under an installment
contract, the seller (referred to in this section as the "lender") retains
legal title to the property and enters into an agreement with the purchaser
(referred to in this section as the "borrower") for the payment of the purchase
price, plus interest, over the term of the contract. The lender obligated to
convey title to the borrower only after the borrower has fully performed under
the contract. 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.
State law determines the process by which a lender enforces its rights
under an installment contract. Installment contracts generally provide that if
the borrower defaults, the borrower loses his or her right to occupy the
property, the entire indebtedness is accelerated, and the borrower's equitable
interest in the property is forfeited. The lender does not have to foreclose in
order to obtain title to the property, although a quiet title action may be
necessary if the borrower has filed the installment contract in local land
records, and an ejectment action may be necessary to recover possession. A few
states permit ejectment of the borrower and forfeiture of his or her interest
in the property, particularly during the early years of an installment
contract. However, most states have enacted legislation protecting borrowers
under installment contracts from the harsh consequences of forfeiture. Under
these statutes, 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 amounts due. In addition, the borrower may have a post-foreclosure
right of redemption. In other states, courts may permit a borrower with a
significant investment under an installment contract for the sale of real
estate to share in the sale proceeds after the indebtedness is repaid, or may
otherwise refuse to enforce the forfeiture clause. In general, however, the
method by which a lender obtains possession and clear title under an
installment contract is simpler, faster and cheaper than is the process of
foreclosing and obtaining clear title to a property subject to one or more
liens.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Under the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the
"Relief Act"), a borrower who enters military service after the origination of
that borrower's loan (including a borrower who is a member of the National
Guard or is in reserve status at the time of origination and is later called to
active duty) generally may not be charged interest above an annual rate of 6%
during the period of active duty status, unless a court orders otherwise upon
the lender's application. It is possible that this restriction could affect the
master servicer's ability to collect full amounts of interest on some of the
loans for an indeterminate time. Unless the applicable prospectus supplement
provides a special feature for a particular trust fund, any shortfall in
interest collections resulting from the Relief Act could result in losses to
securityholders. The Relief Act also limits the master servicer's ability to
foreclose on an affected loan during the borrower's period of active duty
status. If one of these loans goes into default, the inability to realize upon
the property in a timely fashion could lead to delays and losses.
JUNIOR MORTGAGES AND RIGHTS OF SENIOR MORTGAGEES
If any loans are secured by mortgages that are junior to mortgages held by
other lenders or institutional investors, the rights of the related trust fund
(and therefore the related securityholders), as mortgagee under that junior
mortgage, are subordinate to those of any mortgagee under a senior mortgage.
The senior mortgagee has the right to receive hazard insurance and condemnation
proceeds and to sell the property upon default of the mortgagor. This would
extinguish 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 case adding the amounts spent to the balance
due on the junior loan. In most states, notice of default is not required to be
given to a junior mortgagee, unless the mortgage or deed of trust requires it.
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The standard mortgage form that most institutional lenders use gives the
mortgagee the right to receive all proceeds collected under any hazard
insurance policy and all awards under any condemnation proceedings. The
mortgagee may apply these proceeds and awards to any indebtedness secured by
the mortgage, in whatever order the mortgagee determines. Thus, if improvements
on the property are damaged or destroyed by fire or other casualty, or if the
property is taken by condemnation, the mortgagee or beneficiary under a senior
mortgage will have the prior right to any insurance proceeds and any
condemnation award. In most cases, any proceeds in excess of the senior
mortgage debt may be applied to satisfy a junior mortgage.
In some cases, the mortgage or deed of trust used by institutional lenders
requires that the mortgagor:
o pay all taxes and assessments on the property before they become
delinquent,
o pay all encumbrances, charges and liens on the property that have
priority to the mortgage or deed of trust,
o provide and maintain fire insurance on the property,
o maintain and repair the property and not commit or permit any waste of
the property, and
o appear in and defend any action or proceeding that may affect the
property or the rights of the mortgagee under the mortgage.
Under certain mortgages, if the mortgagor fails to perform any of these
obligations, the mortgagee has the option of performing the obligation itself
and being reimbursed by the mortgagor. Any amounts that the mortgagee spends
for these purposes become part of the indebtedness secured by the mortgage.
Most institutional lenders that make revolving credit line loans use a
form of credit line trust deed or mortgage containing a "future advance"
clause. A future advance clause provides that any additional amounts that the
beneficiary or lender advances to or on behalf of the borrower also will be
secured by the deed of trust or mortgage. Any future advances made after the
cut-off date with respect to any loan will not be included in the related trust
fund. In most states, the priority of the lien securing a future advance
depends 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, that advance is entitled to the same priority as amounts
initially advanced under the trust deed or mortgage. That is true even if any
junior trust deeds or mortgages or other liens intervene between the date of
recording of the senior trust deed or mortgage and the date of the future
advance, and even if the beneficiary or lender had actual knowledge of the
intervening junior trust deed or mortgage or other liens at the time of the
future advance. In most states, the trust deed or mortgage lien securing home
equity credit lines applies retroactively to the date of the original recording
of the trust deed or mortgage, as long as the amount advanced 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 the
lender receives written notice of lien from a judgment lien creditor of the
trustor.)
THE TITLE I PROGRAM
General. Some of the loans included in any trust fund may be 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.
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Loans eligible for FHA insurance under the Title I Program include
property improvement loans ("Property Improvement Loans" or "Title I Loans"). A
Property Improvement Loan or Title I Loan is a loan to finance actions or items
that substantially protect or improve the basic livability or utility of a
property. Single family improvement loans are included in this category.
A Title I Loan is originated using one of the following methods:
o Direct Loan. Under this method, the borrower applies directly to a
lender without any assistance from a dealer. The application may be
filled out by the borrower or by a person acting at the borrower's
direction who does not have a financial interest in the loan
transaction. The lender may disburse the loan proceeds to the borrower
or to the borrower and other parties to the transaction.
o Dealer Loan. Under this method, a 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. The lender may disburse the loan proceeds to the
dealer or the borrower, or jointly to the borrower and the dealer or
other parties. A dealer may include a seller, a contractor, or a
supplier of goods or services.
Loans insured under the Title I Program must have fixed interest rates.
The lender can establish the interest rate, which must be recited in the note.
The loans generally must 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 a 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. The first scheduled payment
must be due no later than two months from the date of the loan. The note must
permit full or partial prepayment of the loan. Interest 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 loan documents comply with applicable
federal, state and local laws.
Each Title I lender is required to use prudent lending standards in
underwriting individual loans and to satisfy the applicable Title I
underwriting requirements before approving a loan and disbursing the loan
proceeds. Generally, the lender must exercise prudence and diligence in
determining whether the borrower (and any co-maker) is solvent, is an
acceptable credit risk, and is reasonably able to make the loan payments. The
lender must determine whether the borrower's income will be adequate to cover
the loan payments as well as the borrower's other housing and recurring
expenses. The lender makes this determination in accordance with the
expense-to-income ratios published by the Secretary of HUD.
Under the Title I Program, the FHA does not review the individual loans
insured under the program, or approve them for qualification at the time of
approval by the lending institution. (This is different from the procedure
under other federal loan programs.) After a Title I Loan has been made and
reported for insurance, if a lender discovers any material misstatement of fact
or discovers that a borrower, dealer or any other party has misused loan
proceeds, it shall promptly report this to the FHA. However, if the validity of
any lien on the property has not been impaired, the Title I insurance will not
be affected unless the material misstatement 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 of a Title I
Loan must not exceed the actual cost of the project plus any applicable fees
and charges allowed under the Title I Program; provided that the maximum amount
does not exceed $25,000 (or the current applicable amount) for a single family
property improvement loan. The term of a Title I Loan generally 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, or 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 for the same property does not
exceed the maximum loan amount for the type of Title I Loan on that property
having the highest permissible loan amount.
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To be eligible for a Title I Loan, the borrower must have:
o at least a one-half interest in fee simple title to the real property,
or
o a lease of the property for a term expiring at least six months after
the final maturity of the Title I Loan, or
o a recorded land installment contract for the purchase of the real
property.
In the case of a Title I Loan over $15,000, the borrower also must have equity
in the property being improved at least equal to the amount of the loan. Any
Title I Loan over $7,500 must be secured by a recorded lien on the improved
property, evidenced by a mortgage or deed of trust executed by the borrower and
all other owners in fee simple.
Title I Loan proceeds may be used only to finance property improvements
that 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 it can amend from time to time,
that cannot be financed with Title I Loan proceeds. Before a lender may
disburse funds under a dealer Title I Loan, the lender must have in its
possession a completion certificate on a HUD-approved form, signed by the
borrower and the dealer. In the case of a direct Title I Loan, the borrower
must sign and submit a completion certificate to the lender promptly upon
completion of the improvements but not later than six months after disbursement
of the loan proceeds (one six month extension is allowed if necessary). The
lender or its agent is required to conduct an on-site inspection with respect
to any Title I Loan of $7,500 or more, and 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 that has been granted a
Title I insurance contract. The amount of insurance coverage in each account is
10% of the amount disbursed, advanced or expended by the lender in originating
or purchasing eligible Title I Loans, with certain adjustments. The amount in
the insurance coverage reserve account is the maximum amount of insurance
claims that FHA is required to pay. The FHA will register all loans to be
insured under the Title I Program. After the FHA receives and acknowledges a
loan report on the prescribed form, it will add the insurance coverage
attributable to that loan to the insurance coverage reserve account for the
applicable originating or purchasing lender The FHA charges a fee of 0.50% per
annum of the net proceeds (the original balance) of any eligible loan that it
receives and acknowledges. The FHA bills the lender annually for the insurance
premium on each insured loan on the approximate anniversary date of
origination. If an insured loan is prepaid during the year, FHA will not refund
the insurance premium, but will abate any insurance charges due after the
prepayment.
The FHA will reduce the insurance coverage available in a lender's FHA
insurance coverage reserve account by:
o the amount of FHA insurance claims relating to the insured loans that
are approved for payment, and
o the amount of insurance coverage attributable to insured loans that the
lender sells.
A lender's FHA insurance coverage reserve account will be further adjusted, as
required under Title I or by the FHA. The insurance coverage in the account
also may be earmarked with respect to each or any eligible loan, if the
Secretary of HUD determines that it is in its interest to do so. As a lender
originates and acquires new eligible loans, its insurance coverage reserve
account balance will continue to increase by 10% of the amount disbursed,
advanced or expended in originating or acquiring the eligible loans. If the
Secretary of HUD determines that it is in its interest to do so, it may
transfer insurance coverage between insurance coverage reserve accounts and
earmark coverage with respect to a particular loan or group of loans.
The lender may transfer insured loans and loans reported for insurance
only to another qualified lender under a valid Title I insurance contract. The
lender may not, however, transfer these loans as
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collateral in a bona fide loan transaction. Unless an insured loan is
transferred with recourse or with a guaranty or repurchase agreement, when the
FHA receives written notice of the loan transfer, it will transfer an amount
(if available) equal to the lesser of (i) 10% of the actual purchase price or
(ii) the net unpaid principal balance of the loan from the transferor's
insurance coverage reserve account to the transferee's insurance coverage
reserve account. However, no more than $5,000 in insurance coverage can 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 a lender may
accelerate an insured loan after a default, but 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:
o unless the default is cured within 30 days or the borrower enters into
a modification agreement or repayment plan, the loan will be
accelerated, and
o if the default persists, the lender will report the default to an
appropriate credit agency.
If the borrower brings the loan current, executes a modification agreement or
agrees to an acceptable repayment plan, the lender may rescind the acceleration
of maturity and reinstate the loan even after full payment is due.
Following acceleration of maturity on a secured Title I Loan, the lender
may either proceed against the property under the security instrument or make a
claim under the lender's insurance contract. 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, the FHA reviews the
claim, the complete loan file (including any evidence of the lender's efforts
to obtain recourse against any dealer), compliance with applicable state and
local laws in carrying out any foreclosure or repossession, and determines
whether the lender has properly filed proofs of claim if the borrower is
bankrupt or deceased. Generally, a claim on any Title I Loan must be filed with
the FHA no later than nine months after the date of default of that loan. When
a lender files an insurance claim, it also assigns to the United States its
entire interest in the loan note (or judgment in lieu of the note), in any
security held and in any claim filed in any legal proceedings. If the Secretary
has reason to believe that the note is not valid or enforceable against the
borrower when the lender assigns it to the United States, the FHA may deny the
claim and reassign the note to the lender. If the FHA discovers that the note
is not valid or enforceable after it has paid a claim, it may require the
lender to repurchase the paid claim and accept a reassignment of the note. If
the lender later obtains a valid and enforceable judgment against the borrower,
the lender may submit a new claim with an assignment of the judgment. The FHA
may contest a claim and demand repurchase of a loan any time up to two years
from the date the claim was certified for payment. In the case of fraud or
misrepresentation by the lender, the FHA may contest a claim and demand
repurchase of a loan even after that period.
Payment on an FHA insurance claim is made in an amount equal to the
"claimable amount," which cannot exceed the amount of coverage in the lender's
insurance coverage reserve account. The "claimable amount" is 90% of the sum
of:
o the unpaid loan obligation (that is, the net unpaid principal and
uncollected interest earned to the date of default), with adjustments
to that amount if the lender has proceeded against property securing
the loan,
o interest on the unpaid amount of the loan from the date of default to
the date of the claim's initial submission for payment plus 15 calendar
days (but not more than nine months from the date of default),
calculated at an annual rate of 7.0%,
o uncollected court costs,
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o attorney's fees up to $500, and
o the cost of recording the assignment of the security to the United
States.
CONSUMER PROTECTION LAWS
Several 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, Real Estate Settlement
Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair
Credit Reporting Act, and related statutes and regulations. In particular,
Regulation Z under the Truth in Lending Act requires particular disclosures to
borrowers about the loan terms; the Equal Credit Opportunity Act and its
Regulation B prohibit discrimination in the extension of credit 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; and the Fair Credit Reporting Act regulates the use and
reporting of information related to the borrower's credit experience.
These laws impose specific statutory liabilities on lenders who fail to
comply with their provisions. In addition, violations of these laws may limit
the sellers' ability to collect all or part of the principal of or interest on
the loans. Violations of these laws also could subject the sellers, and in some
cases their assignees, to damages and administrative enforcement.
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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
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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.
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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.
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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.
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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.
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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.
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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
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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
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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.
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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".
Proposed Treasury regulations issued on February 4, 2000 (the "New
Proposed Regulations") would modify the safe harbor under which transfers of
noneconomic residual interests are treated as not disregarded for federal
income tax purposes. Under the New Proposed Regulations, a transfer of a
noneconomic residual interest will not qualify under this safe harbor unless
the present value of the anticipated tax liabilities associated with holding
the residual interest does not exceed the sum of the present value of the sum
of (i) any consideration given to the transferee to acquire the interest, (ii)
future distributions on the interest, and (iii) any anticipated tax savings
associated with holding the interest as the REMIC generates losses. For
purposes of this calculation, the present value generally is calculated using a
discount rate equal to applicable federal rate. The New Proposed Regulations
have a proposed effective date of February 4, 2000.
In addition, President Clinton's Fiscal Year 2001 Budget Proposal contains
a provision under which a REMIC would be secondarily liable for the tax
liability of its residual interest. The proposal states that it would be
effective for REMICs created after the date of enactment. It is unknown whether
this provision will be included in any bill introduced to Congress this year or
if introduced whether it will be enacted. Prospective investors in REMIC
residual interests should consult their tax advisors regarding the New Proposed
Regulations and the Fiscal Year 2001 Budget Proposals.
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"). The FASIT provisions of the Code
became effective on September 1, 1997. On February 4, 2000, the IRS and
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Treasury issued proposed Treasury regulations on FASITs. The regulations
generally would not be effective until final regulations are filed with the
federal register. However, it appears that certain anti-abuse rules would apply
as of February 4, 2000. Accordingly, definitive guidance cannot be provided
with respect to many aspects of the tax treatment of FASIT regular interest
holders. Moreover, the qualification as a FASIT of any trust for which a FASIT
election is made (a "FASIT Trust") depends on the trust's ability to satisfy
the requirements of the FASIT provisions on an ongoing basis, including,
without limitation, the requirements of any final Treasury regulations that may
be promulgated in the future under the FASIT provisions or as a result of any
change in applicable law. Thus, no assurances can be made regarding the
qualification as a FASIT of any FASIT Trust for which a FASIT election is made
at any particular time after the issuance of securities by the FASIT Trust.
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
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"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.
Anti-Abuse Rule. Under proposed Treasury regulations, the Commissioner may
make appropriate adjustments with regard to the FASIT and any arrangement or
transaction involving the FASIT if a principal purpose of forming or using the
FASIT is to achieve results inconsistent with the intent of the FASIT
provisions and the FASIT regulations. This determination would be based on all
of the facts and circumstances, including a comparison of the purported
business purpose for a transaction and the claimed tax benefits resulting from
the transaction.
Consequences of the Failure of the FASIT Trust to Qualify as a FASIT. If a
FASIT Trust fails to comply with one or more of the Code's ongoing requirements
for FASIT status during any taxable year and the Commissioner of Internal
Revenue, proposed Treasury regulations provide that its FASIT status would be
lost for that year and the FASIT Trust will be unable to elect FASIT status
without the Commissioner's approval. If FASIT status is lost, under proposed
Treasury regulations the entity classification of the former FASIT (the "New
Arrangement") is determined under general federal income tax principles. The
holder of the FASIT Ownership Security is treated as exchanging the New
Arrangement's assets for an amount equal to their value and gain recognized is
treated as gain from a prohibited transaction that is subject to the 100
percent tax, without exception. Loss, if any, is disallowed. In addition, the
holder of the FASIT Ownership Security must recognize cancellation of
indebtedness income, on a regular interest by regular interest basis, in an
amount equal to the adjusted issue price of each FASIT Regular Note outstanding
immediately before the cessation over its fair market value. If the holder of
the FASIT Ownership Security has a continuing economic interest in the New
Arrangement, the characterization of this interest is determined under general
federal income tax principles. Holder of FASIT Regular Notes are treated as
exchanging their Notes for interests in the New Arrangement, the classification
of which is determined under general federal income tax principles. Gain is
recognized to the extent the new interest either does not qualify as debt or
differs either in kind or extent. The basis of the interest in the New
Arrangement equals the basis in the FASIT Regular Note increased by any gain
recognized on the exchange.
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.
Under proposed Treasury regulations, if a non-U.S. person holds (either
directly or through a vehicle which itself is not subject to U.S. federal
income tax such as a partnership or a trust) a FASIT Regular Note and a
"conduit debtor" pays or accrues interest on a debt instrument held by such
FASIT, any interest received or accrued by the non-U.S. person FASIT Regular
Note holder is treated as received or accrued from the conduit debtor. The
proposed Treasury regulations state that a debtor is a conduit debtor if the
debtor is a U.S. person or the United States branch of a non-U.S. person
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and the non-U.S. person regular interest holder is (1) a "10 percent
shareholder" of the debtor, (2) a "controlled foreign corporation" and the
debtor is a related person with respect to the controlled foreign corporation
or (3) related to the debtor. As set forth above, the proposed Treasury
regulations would not be effective until final regulations are filed with the
federal register.
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
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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.
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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
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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
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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
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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
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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
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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.
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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
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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.
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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 equity Securities,
an investment in the equity 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, regulatory or administrative exemption
applies.
Depending on the relevant facts and circumstances, certain prohibited
transaction exemptions may apply to the purchase or holding of securities--for
example, Prohibited Transaction Class Exemption ("PTCE") 96-23, which exempts
certain transactions effected on behalf of a Plan by an "in-house asset
manager"; PTCE 95-60, which exempts certain transactions by insurance company
general accounts; PTCE 91-38, which exempts certain transactions by bank
collective investment funds; PTCE 90-1, which exempts certain transactions by
insurance company pooled separate accounts; or PTCE 84-14, which exempts
certain transactions effected on behalf of a Plan by a "qualified professional
asset manager". There can be no assurance that any of these exemptions will
apply with respect to any Plan's investment in securities, or that such an
exemption, if it did apply, would apply to all prohibited transactions that may
occur in connection with such investment. Furthermore, these exemptions would
not apply to transactions involved in operation of the trust if, as described
above, the assets of the trust were considered to include Plan assets.
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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) senior Securities issued in a Series in which there is only one class
of those senior Securities; provided that the Securities in the case of clause
(i), or the senior 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 of a specified percentage of interest
payments only or principal payments only, or a notional amount of either
principal or interest payments 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 senior 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.
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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 securities in pass-through entities 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 securities by a Plan is on terms (including
the price for the securities) 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 securities acquired by the
Plan are not subordinated to the rights and interests evidenced by
other securities of the entity unless the investment pool contains
certain types of collateral, such as mortgages on real property (a
"Designated Transaction");
(3) the securities acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic
rating categories (four, if in a Designated Transaction) from Standard
& Poor's Ratings Group, a Division of The McGraw-Hill Companies
("S&P"), Moody's Investors Service, Inc. ("Moody's"), or Fitch IBCA,
Inc. ("Fitch") (each, a "rating agency");
(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 securities represents not more
than reasonable compensation for underwriting the securities; 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 securities 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.
(7) for certain types of issuers, the documents establishing the issuer
and governing the transaction must contain certain provisions intended
to protect the assets of the issuer from creditors of the sponsor.
The trust fund must also meet the following requirements:
(i) the corpus of the investment pool must consist solely of assets
of the type that have been included in other investment pools;
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(ii) securities in such other investment pools must have been rated
in one of the three highest rating categories, (four in a
Designated Transaction) of S&P, Moody's, or Fitch for at least
one year prior to the Plan's acquisition of securities; and
(iii) securities 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 securities.
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 securities in a entity holding
receivables on which the fiduciary (or its affiliate) is an obligor, provided
that, among other requirements: (i) in the case of an acquisition in connection
with the initial issuance of securities, at least fifty percent (50%) of each
class of securities 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
securities of any class does not exceed twenty-five percent (25%) of all of the
securities 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 securities representing an interest in one or more entities
containing assets sold or serviced by the same entity. The Underwriter
Exemptions do not apply to Plans sponsored by the Seller, the Underwriter, the
Trustee, the Master Servicer, any insurer with respect to the Loans, any
obligor with respect to Loans included in the investment pool 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 Underwriter Exemption provides exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for entities issuing pass-through securities. Mortgage loans or other
secured receivables (the "obligations") supporting payments to
security-holders, and having a value equal to no more than twenty-five percent
(25%) of the total principal amount of the securities being offered by the
entity, may transferred to the entity 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 securities 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 entity, which terms and
conditions have been approved by a rating agency.
(3) The transfer of such additional obligations to the entity during the
pre-funding period must not result in the securities 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 entity.
(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 investment pool 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 entity
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 entity,
(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
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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 entity 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.
The rating of a security may change. If the rating of a security declines
below BBB-, it will no longer be eligible for relief under the Underwriter
Exemption, and consequently may not be purchased by or sold to a Plan.
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.
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 by it will 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 those investors
whose authorized investments are subject to state regulation, to the same
extent as, under applicable law, obligations issued by or guaranteed as to
principal and interest by the United States constitute legal investments for
them. Those investors are 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). Under SMMEA, if a state enacted
legislation before October 4, 1991 specifically limiting the legal investment
authority of those entities with respect to "mortgage related securities," the
securities will constitute legal investments for entities subject to the
legislation only to the extent provided in the legislation. Approximately
twenty-one states adopted
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limiting legislation before the October 4, 1991 deadline. SMMEA provides,
however, that the enactment of limiting legislation will not affect the
validity of any contractual commitment to purchase, hold or invest in
securities, or require the sale or other disposition of securities, as long as
the contractual commitment was made or the securities were acquired before the
enactment of that 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 by the
securities, 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 regulations that the applicable
federal authority may prescribe. In this connection, federal credit unions
should review the National Credit Union Administration 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 its regulation "Investment and Deposit
Activities" (12 C.F.R. Part 703), (whether or not the class of securities under
consideration for purchase constitutes a "mortgage related security"). The NCUA
issued final regulations effective December 2, 1991 that restrict or 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),
setting forth, in relevant part, certain securities trading and sales practices
deemed unsuitable for an institution's investment portfolio, and guidelines for
(and restrictions on) investing in mortgage derivative products, including
"mortgage related securities" that are "high-risk mortgage securities" as
defined in the policy statement. According to the policy statement, "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, each depository institution must determine, before
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 that 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 "prudent
investor" provisions, percentage-of-assets limits and provisions that may
restrict or prohibit investment in securities that are not "interest bearing"
or "income paying."
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase securities or to purchase
securities representing more than a specified percentage of the investor's
assets. Investors are encouraged to consult their own legal advisors in
determining whether and to what extent the securities constitute legal
investments for them.
METHOD OF DISTRIBUTION
Securities are being offered hereby in series from time to time (each
series evidencing a separate trust fund) through any of the following methods:
o by negotiated firm commitment underwriting and public reoffering by
underwriters;
o by agency placements through one or more placement agents primarily
with institutional investors and dealers; and
o by placement directly by the depositor with institutional investors.
A prospectus supplement will be prepared for each series describing the
offering method and listing the underwriters for that series. Each prospectus
supplement will include either:
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o the price at which the series is being offered, the nature and amount
of any underwriting discounts or additional compensation to the
underwriters and the proceeds of the offering to the depositor, or
o the method of determining the price at which the underwriters will sell
the securities.
Each prospectus supplement for an underwritten offering will also describe the
underwriters' obligations, any material relationship between the depositor and
any underwriter and, if applicable, any discounts or concessions to be allowed
or reallowed to dealers or others and any arrangements to stabilize the market
for the offered securities. In firm commitment underwritten offerings, the
underwriters will be obligated to purchase all of the securities of the series
if any securities are purchased. The underwriters may acquire securities for
their own accounts and may resell them 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 that the underwriters or
agents may have to make in respect of those liabilities.
If a series is offered other than through underwriters, the related
prospectus supplement will describe the offering and any agreements to be
entered into between the depositor and purchasers of securities of the series.
LEGAL MATTERS
The validity of the securities, including certain federal income tax
consequences with respect to the securities, 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 for each series of securities. No trust
fund will engage in any business activities or have any assets or obligations
before the issuance of the related series of securities. Accordingly, no
financial statements for any trust fund will be included in this prospectus or
in the related prospectus supplement.
RATING
It is a condition to the issuance of the securities of each series offered
by this prospectus and by the related 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 specified in the related
prospectus supplement.
A security rating is based on the adequacy of the value of the related
trust assets and any credit enhancement for that class, and reflects the rating
agency's assessment of how likely it is that holders of the class of securities
will receive the payments to which they are entitled. A rating is not an
assessment of how likely it is that principal prepayments on the underlying
loans will be made, the degree to which the rate of prepayments might differ
from that originally anticipated or how likely it is that the securities of a
series will be redeemed early.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating organization. Each security rating should be evaluated independently of
any other security rating.
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INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
APR ................................... 26
Asset Conservation Act ................ 70
BIF ................................... 55
Capitalized Interest Account .......... 57
Cash Flow Bond Method ................. 95
CERCLA ................................ 70
Class Security Balance ................ 34
Code .................................. 33
Credit Enhancement .................... 33
DCR ................................... 105
DOL ................................... 103
DTC ................................... 43
Eleventh District ..................... 41
Eligible Corporations ................. 92
ERISA ................................. 33
FASIT ................................. 90
FASIT Provisions ...................... 90
FASIT Qualification Test .............. 91
FASIT Trust ........................... 91
FDIC .................................. 30
FHA ................................... 23
FHLBSF ................................ 41
FHLMC ................................. 30
Fitch ................................. 105
FNMA .................................. 30
Interest Weighted Securities .......... 84
IO .................................... 91
Loan Rate ............................. 24
Morgan ................................ 45
National Cost of Funds Index .......... 42
New Arrangement ....................... 92
New Proposed Regulations .............. 90
Nonresidents .......................... 97
OID ................................... 81
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
OID Regulations ....................... 81
OTS ................................... 42
Parties in Interest ................... 103
Pass-Through Securities ............... 94
Pay-Through Security .................. 83
Plans ................................. 103
Prepayment Assumption ................. 83
Property Improvement Loans ............ 77
PTCE .................................. 103
PTE 83-1 .............................. 104
Purchase Price ........................ 31
Ratio Strip Securities ................ 95
RCRA .................................. 71
Relief Act ............................ 75
Residual Interest Security ............ 87
Restricted Group ...................... 106
S&P ................................... 105
SAIF .................................. 55
Security Account ...................... 54
Servicing Fee ......................... 94
Single Family Properties .............. 25
Single Family Securities .............. 104
SMMEA ................................. 107
Stripped Securities ................... 94
TIN ................................... 97
Title I Loans ......................... 77
Title I Program ....................... 76
Title V ............................... 73
Trust Fund Assets ..................... 22
UCC ................................... 69
Underwriter Exemptions ................ 105
VA .................................... 23
VA Guaranty ........................... 61
</TABLE>
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<PAGE>
[GRAPHIC OF INDYMAC BANK.]
