As filed with the Securities and Exchange Commission on November 3, 2000
Registration No. 333-47158
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--
Amendment No. 1 to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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IndyMac ABS, Inc.
(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 954685267
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
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155 North Lake Avenue
Pasadena, California 91101
(800) 669-2300
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
--
Richard H. Wohl
IndyMac ABS, Inc.
155 North Lake Avenue
Pasadena, California 91101
(800) 669-2300
(Name, address, including zip code, and telephone number, including area code, of agent for service)
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With a copy to:
Edward J. Fine, Esq.
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
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Approximate date of commencement of proposed sale to the public: From time to
time on or after the effective date of the registration statement, as
determined by market conditions.
--
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [x]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
of the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
======================================== ================== ================ ====================== =================
Proposed Proposed
Maximum Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Registration
Securities to Be Registered Registered(1)(2) Per Unit(2) Offering Price(2) Fee
---------------------------------------- ------------------ ---------------- ---------------------- -----------------
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Asset Backed Certificates and Asset $3,370,717,845 100% $3,370,717,845 $901,361.76 (3)
Backed Notes
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(1) This Registration Statement relates to the offering from time to time
of $3,370,717,845 aggregate principal amount of Asset Backed
Certificates and Asset Backed Notes.
(2) Estimated for the purpose of calculating the registration fee.
(3) $370,717,845 in securities are being carried forward and $109,361.76
of the filing fee is associated with the securities being carried
forward and was previously paid with the Registrant's registration
statement No. 333-51609. A registration fee of $264 was previously
paid in connection with the filing of this registration statement on
October 2, 2000.
--
Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus
included in this Registration Statement is a combined prospectus and relates
to Registration Statement No. 333-51609 as previously filed by the Registrant.
That Registration Statement was declared effective on August 21, 1998.
--
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
prospectus supplement is not an offer to sell these securities and we are not
soliciting offers to buy these securities in any state where the offer or sale
is not permitted.
Prospectus Supplement
(To Prospectus dated [ ], 200[ ])
$[ ]
(Approximate)
IndyMac Home Equity Loan Trust 200[ ]-[ ]
Issuer
Home Equity Loan Asset Backed Certificates, Series 200[ ]-[ ]
Class [ ] Certificates
IndyMac ABS, Inc.
Depositor
[Logo of IndyMac Bank, F.S.B.]
Seller and Master Servicer
Consider carefully the risk factors beginning on page [S-12] in this
prospectus supplement and on page [3] in the prospectus.
The certificates represent obligations of the trust only and do not represent
an interest in or obligation of CWABS, Inc., [IndyMac Bank Home Loans, Inc.]
or any of their affiliates.
This prospectus supplement may be used to offer and sell the certificates only
if accompanied by the prospectus.
The Certificates
The Class [ ] certificates have an original principal balance of $[ ]
subject to a permitted variance of plus or minus [10]%.
Per $1,000 of
Certificates Total
------------------- -----------------
Price to Public............... $[ ] $[ ]
Underwriting Discount......... $[ ] $[ ]
Proceeds, before expenses,
to the Depositor............ $[ ] $[ ]
The Trust Fund
The trust fund will own a pool consisting of [two] loan groups of home
equity revolving credit line loans made or to be made in the future under
certain home equity revolving credit line loan agreements. The loans will be
secured by first or second deeds of trust or mortgages on one- to four-family
residential properties and will bear interest at rates that adjust based on
the prime rate. The trust fund will also initially include funds from the sale
of the certificates in excess of the cut-off date principal balances. These
excess funds are expected to be used to acquire additional home equity
revolving credit line loans after the cut-off date. The Class [ ] Certificates
will represent an interest in loan group [ ] only.
The Policy
[Certificate Insurer] will issue an irrevocable and unconditional
certificate guaranty insurance policy which will guarantee certain payments to
certificateholders.
[Certificate Insurer Logo]
Neither the SEC nor any state securities commission has approved the
certificates offered by this prospectus supplement or determined that this
prospectus supplement or the prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
[Underwriter] will offer the certificates subject to prior sale and
subject to its right to reject orders in whole or in part. The certificates
will be issued in [book-entry form] on or about [ ], 200[ ] and will be
offered in the United States [and Europe].
[Underwriter]
[ ], 200[ ]
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TABLE OF CONTENTS
<PAGE>
PROSPECTUS SUPPLEMENT
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Page
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Summary...........................................S-3
Risk Factors.....................................S-11
The Master Servicer..............................S-18
The Home Equity Loan Program.....................S-19
Description of the Mortgage Loans................S-21
Maturity and Prepayment Considerations...........S-32
Pool Factor and Trading Information..............S-35
Description of the Certificates..................S-36
Description of the Purchase Agreement............S-74
Use of Proceeds..................................S-75
Material Federal Income Tax Consequences.........S-75
State Taxes......................................S-80
ERISA Considerations.............................S-80
Legal Investment Considerations..................S-83
Underwriting.....................................S-83
Legal Matters....................................S-84
Experts..........................................S-84
Ratings..........................................S-84
Index of Defined Terms...........................S-86
Annex I.........................................A-I-1
PROSPECTUS
Page
----
Important Notice About Information in This
Prospectus and Each Accompanying Prospectus
Supplement........................................2
Risk Factors........................................3
The Trust Fund.....................................13
Use of Proceeds....................................19
The Depositor......................................19
Loan Program.......................................20
Description of the Securities......................22
Credit Enhancement.................................36
Yield and Prepayment Considerations................40
The Agreements.....................................42
Certain Legal Aspects of the Loans.................56
Federal Income Tax Consequences....................69
State Tax Considerations...........................89
ERISA Considerations...............................89
Legal Investment...................................94
Method of Distribution.............................94
Legal Matters......................................95
Financial Information..............................95
Rating.............................................95
Index to Defined Terms.............................96
<PAGE>
Summary
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.
Trust Fund
IndyMac Home Equity Loan Trust 200[o]-[o]. The trust fund will own a pool of
home equity revolving credit line loans made or to be made in the future under
certain home equity revolving credit line loan agreements. The loans will be
secured by first or second deeds of trust or mortgages on one- to four-family
residential properties and will bear interest at rates that adjust based on
the prime rate. We sometimes refer to these loans as home equity loans or
mortgage loans. [The original principal balance of the certificates will
exceed the aggregate cut-off date principal balances of the home equity loans
initially transferred to the trust fund. Funds in an amount equal to this
excess are expected to be used to acquire additional home equity loans that
are not included in the cut-off date pool. Until they are so used, they will
be held in the trust fund.]
[We will be dividing the mortgage loans in the trust fund into [two] groups.
Each will be referred to as a loan group. The ownership interest of each loan
group will be allocated between the Class [o] Certificates and the Class [o]
Certificates, as applicable, and a single transferor interest. The Class [o]
Certificates will initially represent approximately a 100% interest in loan
group [o] and the Class [o] Certificates will initially represent
approximately a 100% interest in loan group [o]. The percentage interests in
each loan group represented by the certificates will vary over time. The
percentage interests in the trust fund not represented by the certificates
will be represented by the transferor interest, which will also vary over
time.
The Offered Certificates
IndyMac Home Equity Loan Trust 200[o]-[o] will issue [o] classes of Home
Equity Loan Asset Backed Certificates and a Transferor's Interest. Only the
Class [o] Certificates are offered by this prospectus supplement.
Other Certificates
IndyMac Home Equity Loan Trust 200[o]-[o] is also issuing the Class [o]
Certificates and the Transferor's Interest. As described in this prospectus
supplement, except for limited cross-collateralization, the Class [o]
Certificates are not supported by the mortgage loans in loan group [o], the
group that supports the offered certificates. As described in this prospectus
supplement, a portion of the Transferor's Interest is subordinated in right of
payment to the Class [ ] and Class [ ] Certificates. Information regarding the
Cut-off Date Class [ ] Certificates and the Transferor's Interest is included
in this prospectus supplement chiefly to provide you with a better
understanding of the Class [ ] Certificates.
Depositor
IndyMac ABS, Inc., 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.
See "The Depositor" in the prospectus.
Seller and Master Servicer
[IndyMac Bank, F.S.B.]
See "The Master Servicer" in this prospectus supplement.
Trustee
[Name of Trustee].
Certificate Insurer
[Certificate Insurer], will insure the Class [ ] Certificates as described in
this prospectus supplement.
See "Description of the Certificates--The Certificate Insurer" in this
prospectus supplement.
Pooling and Servicing Agreement
The certificates will be issued pursuant to the pooling and servicing
agreement among the seller and master servicer, the depositor, [Fannie Mae]
and the trustee under which the trust fund will be formed.
Cut-off Date
[ ], 200[ ].
Closing Date
On or about [ ], 200[ ].
Distribution Dates
The trustee will make distributions on the [ ]th day of each calendar month
beginning in [ ] 200[ ]. If the [ ]th day of a month is not a business day,
then distributions will be made on the next business day after the [ ]th day
of the month.
Record Date
The [last] day preceding a distribution date or, if the certificates are no
longer book-entry certificates, the last day of the month preceding a
distribution date.
Denominations
The Class [ ] Certificates will be issued in minimum denominations of
$[25,000] and multiples of $[1,000] in excess thereof.
Registration of Certificates
The Class [ ] Certificates will initially be issued in book-entry form.
Persons acquiring beneficial ownership interests in the Class [ ] Certificates
may elect to hold their beneficial interests through The Depository Trust
Company, in the United States, or Clearstream, Luxembourg or the Euroclear
System, in Europe.
See "Description of Certificates--Book-Entry Certificates" in this prospectus
supplement.
The Mortgage Loans
General
The mortgage loans are revolving lines of credit. During the applicable draw
period, each borrower may borrow amounts from time to time up to the maximum
amount of that borrower's line of credit. If borrowed amounts are repaid, they
can again be borrowed.
The pool balance equals the aggregate of the principal balances of all
mortgage loans in [both] loan groups. The loan group balance of a loan group
equals the aggregate of the principal balances of all mortgage loans in that
loan group. The principal balance of a mortgage loan (other than a liquidated
mortgage loan) on any day is equal to
o its cut-off date principal balance, plus
o any additional balances in respect of that mortgage loan, minus
o all collections credited against the principal balance of that mortgage
loan prior to that day.
Once a mortgage loan is finally liquidated, its principal balance will be
zero.
Loan Rate
Interest on each mortgage loan is payable monthly and computed on the related
daily outstanding principal balance for each day in the billing cycle. The
loan rate is a variable rate per annum equal to the sum of
o the highest prime rate published in the Money Rates table of The Wall
Street Journal as of the first business day of each calendar month
and
o a margin.
The loan rate is subject to applicable usury limits and certain maximum rates.
Loan rates are adjusted monthly on the first business day of the calendar
month preceding the due date. As to each mortgage loan, the due date is the
fifteenth day of each month.
Principal Payments
Each home equity loan features a draw period during which the loan may be
drawn upon, immediately followed by a repayment period during which the loan
must be repaid. In general, home equity loans with [ ]-year draw periods have
[ ]-year repayment periods. These [ ]-year draw periods are generally
extendible for an additional [ ] years with the approval of the master
servicer.
Statistics
The statistical information presented in this prospectus supplement concerning
the pool of mortgage loans does not reflect all of the mortgage loans which
will be included in the pool on the closing date. Instead, such statistical
information relates to statistical calculation loan groups which include the
number and principal balances of only mortgage loans originated by the seller
through the statistic calculation date and included in the applicable loan
group. The aggregate principal balance of each statistic calculation loan
group as of the statistic calculation date is the statistic calculation loan
group balance. The statistic calculation date is [ ], 200[ ].
Unless otherwise noted, all statistical percentages in this prospectus
supplement are measured by the aggregate principal balance of the applicable
statistic calculation loan group on the statistic calculation date.
See "Description of the Mortgage Loans" in this prospectus supplement for
additional information concerning the statistic calculation pool and the
mortgage loans in general.
Summary of Loans in Statistic Calculation Loan Group [ ] (as of Statistic
Calculation Date)
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Loan Group [ ] Statistic Calculation Date Balance ....................$
Weighted Average Combined Loan-to-Value Ratio ......................... %
Weighted Average Margin ............................................... %
Range of Principal Balances...........................................$ 0.00 to $
Average Principal Balance ............................................$
Range of Credit Limits ...............................................$ to $
Average Credit Limit .................................................$
Origination Period .................................................... through
Range of Loan Rates ................................................... % to %
Weighted Average Loan Rate ............................................ %
Weighted Average Maximum Loan Rate .................................... %
Weighted Average Minimum Loan Rate .................................... %
Maximum Credit Utilization Rate........................................ %
Average Credit Utilization Rate ....................................... %
Weighted Average Credit Utilization Rate .............................. %
Percentage of Pool Secured by 1st Liens ............................... %
Percentage of Pool Secured by 2nd Liens ............................... %
Weighted Average Second Mortgage Ratio ................................ %
Percentage with Mortgaged Properties in:
[California] ..................................................... %
[Michigan] ....................................................... %
[Colorado]........................................................ %
[Illinois]........................................................ %
[Florida] ........................................................ %
Range of Remaining Term to Scheduled Maturity.......................... months to months
Weighted Average Remaining Term to Scheduled Maturity.................. months
Percentage Single Family Residences.................................... %
Percent Owner Occupied................................................. %
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The Class [ ] Certificates
Certificate Rate
The certificate rate on the Class [ ] Certificates may change from
distribution date to distribution date. On any distribution date the
certificate rate for the Class [ ] Certificates will equal the least of:
o LIBOR plus [ ]% per annum,
o the weighted average of the loan rates on the mortgage loans in loan
group [ ] minus certain fees, expenses and minimum spread requirements,
and
o [ ] % per annum.
However, on any payment date for which the certificate rate for the Class [ ]
Certificates has been determined pursuant to the weighted average of the net
loan rates on the mortgage loans in loan group [ ], the excess, if any, of the
lesser of
A. [ ]% per annum and
B. LIBOR + [ ]% per annum over the certificate rate will be paid (with
interest at the rate of LIBOR + [ ]% per annum, but not at a rate in excess of
[ ]% per annum) to the Class [ ] Certificates on subsequent distribution
dates to the extent that funds are available in the priority described in this
prospectus supplement.
See "Description of the Certificates--Interest" in this prospectus supplement.
Interest Period
For each distribution date and class of certificates, the period beginning on
the prior distribution date (or in the case of the first distribution date,
beginning on the closing date) and ending on the day before the applicable
distribution date. The trustee will calculate interest based on the actual
number of days in the interest period and a year assumed to consist of 360
days.
Certificate Principal Balance
The original principal balance of either class of certificates may be reduced
or increased by not more than [ 10] % depending on the aggregate principal
balance of the mortgage loans in the related loan group actually delivered on
the closing date.
Principal
The amount of principal distributed on a class of certificates on a
distribution date will depend on whether the distribution date occurs during
the managed amortization period or the rapid amortization period.
The managed amortization period begins on the closing date and ends on the
earlier of
o the distribution date in [ ] and
o the existence of a rapid amortization event.
The rapid amortization period begins on the first distribution date after the
end of the managed amortization period.
See "Description of Certificates--Principal" in this prospectus supplement.
[Additional Loan Account
On the closing date approximately $[ ] will be deposited into an additional
loan account held as a part of the trust fund. These funds represent the
excess of the original principal balance of the Class [ ] Certificates over
the cut-off date principal balance of the mortgage loans in loan group [ ]
initially transferred to the trust fund. These funds are expected to be used
through [ ] to acquire additional home equity loans that are not included in
the cut-off date pool. Any additional home equity loans acquired by the trust
fund after the cut-off date will have been underwritten using generally the
same guidelines as were used to select the initial mortgage loans in the trust
fund, and the trust fund will have the benefit of substantially the same
representations and warranties covering the initial mortgage loans in the
trust fund. The purchase of these additional home equity loans is in addition
to the ongoing purchase of additional balances during the managed amortization
period with the proceeds of principal repayments received on the trust fund's
mortgage loan portfolio. Any funds remaining in the additional loan account on
[ ] will be used to prepay the Class [ ] Certificates on the first
Distribution Date.]
Termination
The trust fund will terminate on the distribution date following the later of
A. payment in full of all amounts owing to the certificate insurer [and any
third party credit enhancer] and
B. the earliest of
o the distribution date on which the principal balance of both classes of
certificates have been reduced to zero,
o the final payment or other liquidation of the last mortgage loan in the
trust fund,
o the optional transfer of the mortgage loans to the owner of the transferor
interest, as described below, and
o the distribution date in [ ].
The mortgage loans in the trust fund will be subject to optional transfer to
the owner of the transferor interest on any distribution date on or after
which
o the combined principal balance of both classes of certificates is reduced
to any amount less than or equal to [10]% of the original combined
principal balance of the certificates and
o all amounts due and owing to the certificate insurer [and any third party
credit enhancer], including any unreimbursed draws on the policy [and any
third party enhancement], together with interest on such amounts, have
been paid as provided [either] in the insurance agreement under which the
policy is issued [or in accordance with any third party credit
enhancement].
See "Description of the Certificates--Termination; Retirement of the
Certificates" in this prospectus supplement and "The Agreements--Termination;
Optional Termination" in the prospectus.
Credit Enhancement
General
The trust fund includes various mechanisms that are intended to protect
certificateholders against losses on the mortgage loans.
Excess Interest
The trustee will distribute certain interest collections on the mortgage loans
in each loan group to cover losses which would otherwise be allocated to the
certificates related to that loan group, and to the extent described in this
prospectus supplement, to the certificates related to the other loan group.
Limited Subordination of Transferor Interest
The portion of each loan group in the trust fund that is not represented by
the certificates is the transferor interest. [Initially, the transferor
interest will be $0. The transferor interest is expected to grow as interest
collections in excess of trustee fees, amounts due the certificate insurer,
interest accrued on the certificates and certain loss amounts due on the
certificates are applied as principal distributions on the certificates,
thereby creating overcollateralization of the certificates. For each loan
group, once the required level of overcollateralization is reached, the
acceleration feature for the related Class of Class [ ] Certificates will
cease, unless it is necessary to maintain the required level of
overcollateralization.] The transferor interest also is the mechanism which
absorbs changes in the amount of the mortgage loans in the related loan group
due to new borrowings and repayments. In certain circumstances, amounts that
would be distributed on the transferor interest will instead be distributed on
the certificates. IndyMac Bank, F.S.B. (or one of its affiliates) will be the
owner of the transferor interest on the closing date.
See "Description of the Certificates--Limited Subordination of Transferor
Interest" in this prospectus supplement.
Policy
The policy will irrevocably and unconditionally guarantee on each distribution
date to the trustee for the benefit of the certificateholders the full and
complete payment of the guaranteed distributions consisting of
o the guaranteed principal distribution amount with respect to the
certificates for such distribution date, and
o accrued and unpaid interest due on the certificates.
The effect of the policy is to guarantee the timely payment of interest on,
and the ultimate payment of the principal amount of, the certificates. [The
policy does not cover payment of basis risk carryforward.]
In addition, the policy will guarantee the payment of the outstanding
certificate principal balance on the distribution date in [ ] (after giving
effect to all other amounts distributable and allocable to principal on that
distribution date).
In the absence of payments under the policy, certificateholders will directly
bear the credit and other risks associated with their percentage interest in
the trust fund.
See "Description of the Certificates--The Policy" in this prospectus
supplement.
[Limited Crosscollateralization
The pooling and servicing agreement will allow for some limited
cross--collateralization, in that certain excess cashflows from either loan
group on any distribution date will be applied to the funding of certain
deficiencies in interest and principal with respect to the certificates
related to the other loan group.]
[Reserve Fund
On the closing date, an account will be set up in the name of the trustee on
behalf of the Certificateholders, but will not be funded. Once the required
level of overcollateralization for a loan group has been reached, excess
cashflow from that loan group may be deposited in the reserve fund on future
distribution dates until the amount reaches a specified level. Amounts in the
reserve fund may be used to cover shortfalls in amounts required to be
distributed as interest to either Class of Class [ ] Certificates or to cover
losses on the mortgage loans in either loan group.]
Material Federal Income Tax Consequences
Subject to the qualifications described under "Material Federal Income Tax
Consequences" in this prospectus supplement, Brown & Wood LLP, special tax
counsel to the depositor, is of the opinion that, under existing law, a
certificate will be treated as a debt instrument for federal income tax
purposes as of the closing date. Furthermore, special tax counsel to the
depositor is of the opinion that neither the trust fund nor any portion of the
trust fund will be treated as either an association or a publicly traded
partnership taxable as a corporation or as a taxable mortgage pool.
See "Material Federal Income Tax Consequences" in this prospectus supplement
and "Federal Income Tax Consequences" in the prospectus for additional
information concerning the application of federal income tax laws.
ERISA Considerations
The certificates may be purchased by a pension or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974 or Section 4975
of the Internal Revenue Code of 1986, or by an entity investing the assets of
an employee benefit plan, so long as certain conditions are met. 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 Considerations
The Class [ ] Certificates will not constitute mortgage related securities for
purposes of the Secondary Mortgage Market Enhancement Act of 1984, because not
all of the mortgages securing the loans are first mortgages. Accordingly, many
institutions with legal authority to invest in comparably rated securities
based solely on first mortgages may not be legally authorized to invest in the
Class [ ] Certificates.
See "Legal Investment" in the prospectus.
Certificate Rating
The certificates will not be offered unless they are each rated [ ] by [Rating
Agency] and [ ] by [Rating Agency] A rating is not a recommendation to buy,
sell or hold securities. These ratings may be lowered or withdrawn at any time
by either of the rating agencies.
See "Ratings" in this prospectus supplement and "Risk Factors--Rating of
Securities Does Not Assure Their Payment" in the prospectus.
Some 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.
Risk Factors
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.
<TABLE>
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You may have difficulty selling your
certificates.............................. The underwriter intends to make a secondary market in the
certificates purchased by it, but has no 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 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 that are especially sensitive to prepayment, credit, or
interest rate risk, or that have been structured to meet the
investment requirements of limited categories of investors.
Cash flow disruptions could cause payment
delays and losses......................... Substantial delays could result while liquidating delinquent mortgage
loans. Resulting shortfalls in distributions to certificateholders
could occur if the certificate insurer were unable to perform its
obligations under the policy. 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, you could experience a loss
if the certificate insurer were unable to perform its obligations
under the policy.
Yield and reinvestment may be adversely
affected by unpredictability of
prepayments............................... During the period that a borrower may borrow money under the borrower's
line of credit, the borrower may make monthly payments only for the accrued
interest or may also repay some or all of the amount previously borrowed. In
addition, borrowers may borrow additional amounts up to the maximum amounts of
their lines of credit. As a result, the amount each loan group receives in any
month (and in turn the amount distributed to the holders of the related class
of certificates) may change significantly. Even during the repayment period,
borrowers generally may prepay their mortgage loans at any time without
penalty. However, prepayments on loans secured by property in California and
certain other jurisdictions may be subject to account termination fees during
the first five years after origination of the loan. Generally, revolving home
equity loans are not viewed by borrowers as permanent financing. The mortgage
loans may be repaid at faster rates than traditional mortgage loans. The trust
fund's prepayment experience may be affected by a wide variety of factors,
including:
o general economic conditions,
o interest rates,
o the availability of alternative financing and
o homeowner mobility.
In addition, substantially all of the mortgage loans contain due-on-sale
provisions and the master servicer intends to enforce those provisions unless
doing so is not permitted by applicable law or the master servicer, in a
manner consistent with reasonable commercial practice, permits the purchaser
of the mortgaged property in question to assume the mortgage loan. See
"Description of the Certificates" in this prospectus supplement and "Certain
Legal Aspects of the Loans-Due-on-Sale Clauses" in the prospectus for a
description of certain provisions of the credit line agreements that may
affect the prepayment experience on the mortgage loans.
The yield to maturity and weighted average life of your certificates will be
affected primarily by
o the rate and timing of repayments and prepayments on the mortgage loans in
your loan group as compared with the creation and amount, if any, of
additional balances and,
o the realization of liquidation loss amounts.
You bear the reinvestment risks resulting from a faster or slower rate of
principal payments than you expected. [You also bear the reinvestment risk if
by [ ] all of the funds in the additional loan account have not been used to
acquire additional home equity loans, which would result in a prepayment of
the Class [ ] Certificates in an amount equal to the amount remaining in the
additional loan account on that date.] See "Maturity and Prepayment
Considerations" in this prospectus supplement and "Yield and Prepayment
Considerations" in the prospectus.
Withdrawal or downgrading
of initial ratings will affect
the value of the certificates............. The rating of the certificates will depend primarily on an assessment by the
rating agencies of the mortgage loans and upon the financial strength of the
certificate insurer. Any reduction in a rating assigned to the financial
strength of the certificate insurer may result in a reduction in the rating of
the certificates. A reduction in the rating assigned to the certificates
probably would reduce the market value of the certificates and may affect your
ability to sell them.
The rating by each of the rating agencies of the certificates is not a
recommendation to purchase, hold or sell the certificates since that rating
does not address the market price or suitability for a particular investor.
The rating agencies may reduce or withdraw the ratings on the certificates at
any time they deem appropriate. In general, the ratings address credit risk
and do not address the likelihood of prepayments.
Junior lien priority could result in
payment delay or loss..................... The mortgage loans are secured by mortgages which generally are second
mortgages. 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 certificate insurer is unable to perform
its obligations under the policy, you will bear
o the risk of delay in distributions while any deficiency judgment
against the borrower is sought and
o 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.
Distributions to and rights of [The seller] will treat its sale of the mortgage loans to depositor as a sale
investors could be adversely of the mortgage loans. [However, in the event of insolvency of [IndyMac Bank,
affected by the the bankruptcy F.S.B.], the Federal Deposit Insurance Corporation (referred to as the FDIC)
or insolvency of certain parties.......... 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 payments on
the notes and liquidate the mortgage loans with the holders of the notes
entitled to no more than the outstanding principal balances, if any, of the
classes of notes together with interest thereon at the applicable note rate.
In the event of the acceleration of the notes, the holders of the notes 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 the 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 payment in the notes and possible reductions in the
amount of such payments could occur]. [In the event of [the Seller's]
bankruptcy, the trustee in bankruptcy of [the Seller] may argue that the
mortgage loans were not sold but were only pledged to secure a loan to [the
Seller]. If that argument is made you could experience delays or reductions in
payments on the notes.] The depositor will warrant in the sale and servicing
agreement that the transfer of the mortgage loans by it to the trust fund is
either a valid transfer and assignment of the mortgage loans to the trust fund
or the grant to the trust fund of a security interest in the mortgage loans.
If certain events relating to the bankruptcy or insolvency of the transferor
were to occur, [no further additional home equity loans would be acquired with
any funds remaining in the additional loan account,] additional balances would
not be sold to the trust fund, and the rapid amortization period would
commence.
If the master servicer becomes bankrupt, [the bankruptcy trustee or
receiver][FDIC] may have the power to prevent the appointment of a successor
master servicer.
Developments in [California]
could have disproportionate
effect on the pool of mortgage
loans due to geographic Approximately [ ]% of the mortgage loans in statistic calculation loan group [ ]
concentration of mortgaged properties.... and approximately [ ]% of the mortgage loans in statistic calculation loan
group [ ] are secured by mortgaged properties which are located in the State
of [California]. After the statistic calculation date, the geographic
concentration could change as a result of the addition or removal of mortgage
loans, prepayments and/or the creation of additional balances. 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;
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.
Master servicer has ability to
change the terms of the The master servicer may agree to changes in the terms of a credit line
mortgage loans............................ agreement, provided that such changes
o do not materially and adversely affect the interest of the related
certificateholders [, any third party credit enhancer or] the certificate
insurer, and
o are consistent with prudent business practice.
In addition, the master servicer, within certain limitations, may increase the
credit limit of the related mortgage loan or reduce the loan rate for that
mortgage loan. Any such increase in the credit limit of a mortgage loan would
increase the combined loan-to-value ratio of that mortgage loan and,
accordingly, would increase the risk of the related class of certificates'
investment in such mortgage loan. In addition, any reduction in the loan rate
of a mortgage loan would reduce the related loan group's excess cash flow
available to absorb losses.
Your return could be adversely affected
by delinquent mortgage
loans..................................... The trust fund may include mortgage loans which are [59] or fewer
days delinquent as of [ ] (the cut-off date for the pool of
mortgage loans). We expect that the principal balance of mortgage
loans which are between [30] days and [59] days delinquent as of the
cut-off date will not exceed approximately $[ ]. Mortgage loans
that are already delinquent may increase the risk that the trust fund
will experience a loss if
o there are not sufficient funds from the investor interest collections to
cover the investor loss amounts for any distribution date,
o amounts intended to provide protection for the certificates that are
otherwise payable to the owner of the transferor interest have been
exhausted and
o the certificate insurer fails to perform its obligations under the policy.
Effect of loan rates on the The certificates accrue interest at a rate based on the one-month LIBOR index
certificates.............................. plus a specified margin, but are subject to a cap [based, in part, on the
interest rates on the mortgage loans].
The mortgage loans have interest rates that are based on the prime rate, and
have periodic and maximum limitations on adjustments to the loan rate. As a
result, the certificates may accrue less interest than they would accrue if
the certificate rate were based solely on the LIBOR index plus the specified
margin.
A variety of factors could limit the certificate rate. Some of these factors
are described below:
o Each certificate rate adjusts [monthly] while the loan rates on the
mortgage loans may adjust less frequently. Consequently, the loan rates
may limit increases in one or both certificate rates for extended periods
in a rising interest rate environment.
o The prime rate may respond to different economic and market factors than
LIBOR and thus may increase or decrease at different times. As a result,
it is possible that the loan rates may decline while LIBOR is stable or
rising. It is also possible that both the loan rates and LIBOR may either
decline or increase during the same period, but that the loan rates may
decline more rapidly or increase more slowly than LIBOR.
These factors may adversely affect the yield to maturity on the certificates.
For a discussion of additional risks pertaining to the certificates, see "Risk
Factors" in the prospectus.
[Certain rights may be affected by the
issuance of [two] classes of certificates The ability to declare an event of master servicing termination or to
from a single trust fund.................. amend the pooling and servicing agreement rests with the certificate
insurer and the holders of specified percentages of the certificates in both
groups. In addition, under certain circumstances the third party credit
enhancer will have such rights as they relate to the Class [ ] Certificates.
As a result you may have less ability to control certain actions than you
would have had if only a single class of certificates had been issued from the
trust fund.]
</TABLE>
The Master Servicer
General
[IndyMac Bank, F.S.B. ("IndyMac Bank") will service the mortgage loans
consisting of [adjustable] rate home equity revolving credit line loans made
or to be made in the future in accordance with the sale and servicing
agreement. The mortgage loans will be secured by either first or second deeds
of trust or mortgages on the residential properties that are one- to
four-family properties, condominiums and planned unit developments.
IndyMac Bank may perform any of its obligations under the pooling and
servicing agreement dated as of [ ], 200[ ] among IndyMac ABS, Inc., as
depositor, IndyMac Bank, as seller and master servicer [Name of third party
enhancer, if any] and [Name of trustee], as trustee, through one or more
subservicers. Notwithstanding any such subservicing arrangement, the master
servicer will remain liable for its servicing duties and obligations under the
pooling and servicing agreement as if the master servicer alone were servicing
the mortgage loans. As of the Closing Date, the master servicer will service
the mortgage loans without subservicing arrangements.]
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 master servicing agreement
employing the same degree of skill and care which it employs n 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 sale and servicing agreement through one or more
subservicers selected by the master servicer. Notwithstanding any subservicing
agreement, the master will remain liable for its servicing duties and
obligations under the sale 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 home
equity revolving credit line 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 sale and servicing agreement through one
or more subservicers.
If the servicing of any mortgage loan were to be transferred from a
subservicer to Indy Mac 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 ___, 200_, IndyMac Bank provided servicing for approximately $___
billion in conventional mortgage loans, of which approximately $[ ]
comprised home equity loans.]
The Home Equity Loan Program
Underwriting Procedures Relating to Home Equity Loans
The following is a description of the underwriting procedures customarily
employed by the seller with respect to home equity loans. The underwriting
process is intended to assess the applicant's credit standing and repayment
ability, and the value and adequacy of the real property security as
collateral for the proposed loan. Exceptions to the seller's underwriting
guidelines will be made when compensating factors are present. Such factors
include the borrower's employment stability, favorable credit history, equity
in the related property and the nature of the underlying first mortgage loan.
[Description of Specific Underwriting Procedures Relating to Home Equity Loans
to be Included in the Prospectus Supplement for an Actual Transaction]
Servicing of the Mortgage Loans
The master servicer has established standard policies for the servicing
and collection of the home equity loans. Servicing includes, but is not
limited to,
o the collection and aggregation of payments relating to the mortgage loans;
o the supervision of delinquent mortgage loans, loss mitigation efforts,
foreclosure proceedings and, if applicable, the disposition of the
mortgaged properties; and
o the preparation of tax related information in connection with the mortgage
loans.
[Description of Specific Servicing Procedures Relating to Home Equity Loans to
be Included in the Prospectus Supplement for an Actual Transaction]
Servicing and charge-off policies and collection practices may change
over time in accordance with, among other things, the master servicer's
business judgment, changes in the portfolio and applicable laws and
regulations.
Foreclosure and Delinquency Experience
[The following table summarizes the delinquency and foreclosure
experience, respectively, on the dates indicated, of home equity loans
serviced by the master servicer. The delinquency and foreclosure percentages
may be affected by the size and relative lack of seasoning of the servicing
portfolio because many of such loans were not outstanding long enough to give
rise to some or all of the periods of delinquency indicated in the chart
below. Accordingly, the information should not be considered as a basis for
assessing the likelihood, amount or severity of delinquency or losses on the
mortgage loans and no assurances can be given that the foreclosure and
delinquency experience presented in the table below will be indicative of such
experience on the mortgage loans:
For the purposes of the following table,
o The period of delinquency is based on the number of days payments are
contractually past due.
o Certain total percentages and dollar amounts may not equal the sum of the
percentages and dollar amounts indicated in the columns due to differences
in rounding.
o "Foreclosure Rate" is the dollar amount of mortgage loans in foreclosure
as a percentage of the total principal balance of mortgage loans
outstanding as of the date indicated.
o "Bankruptcy Rate" is the dollar amount of mortgage loans for which the
related borrower has declared bankruptcy as a percentage of the total
principal balance of mortgage loans outstanding as of the date indicated.]
<TABLE>
<CAPTION>
Delinquency and Foreclosure Experience
As of [ ] As of [ ] As of [ ]
------------------------ ----------------------- -----------------------
Principal Principal Principal
Balance Percentage Balance Percentage Balance Percentage
----------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Portfolio.......................... $[ ] -- $[ ] -- $[ ] --
Delinquency percentage
30-59 Days.................. $[ ] [ ]% $[ ] [ ]% $[ ] [ ]%
60-89 Days.................. $[ ] [ ]% $[ ] [ ]% $[ ] [ ]%
90+ Days.................... $[ ] [ ]% $[ ] [ ]% $[ ] [ ]%
----------- ------------ ----------- ------------ ----------- ------------
Total................... $[ ] [ ]% $[ ] [ ]% $[ ] [ ]%
=========== ============ =========== ============ =========== ============
Foreclosure Rate................... $[ ] [ ]% $[ ] [ ]% $[ ] [ ]%
----------- ------------ ----------- ------------ ----------- ------------
Bankruptcy Rate.................... $[ ] [ ]% $[ ] [ ]% $[ ] [ ]%
----------- ------------ ----------- ------------ ----------- ------------
----------- ------------ ----------- ------------ ----------- ------------
</TABLE>
Description of the Mortgage Loans
General
[Certain statistical information concerning the pool of mortgage loans
(such pool is referred to as the "Statistic Calculation Pool" and each such
mortgage loan is referred to as a "Statistic Calculation Pool Mortgage Loan")
is set forth below. The mortgage pool will be divided into [two] groups of
mortgage loans (each is referred to as a loan group)--loan group [ ] and loan
group [ ]. The Class [ ] Certificates will represent an interest in loan group
[ ] only. Loan group [ ] information is included chiefly to provide a better
understanding about the trust fund. A detailed description of the mortgage
loans actually delivered (the "Detailed Description") will be available to
purchasers of the Certificates at or before, and will be filed on Form 8-K
with the Securities and Exchange Commission within fifteen days after,
delivery of the Certificates. The Detailed Description will specify the
aggregate of the principal balances of the mortgage loans included in the
trust fund as of the cut-off date (the "cut-off date pool balance") and will
also include, among other things, the following information regarding such
mortgage loans:
o the outstanding principal balances of such mortgage loans as of [ ], 200[
] (referred to as the "cut-off date") [or the related transfer date],
o the lien priorities of such mortgage loans,
o the loan rates borne by such mortgage loans as of the cut-off date,
o the combined loan-to-value ratios of such mortgage loans,
o the remaining term to scheduled maturity of such mortgage loans,
o the type of properties securing such mortgage loans,
o the geographical distribution of such mortgage loans by state and
o the credit limits and Credit Limit Utilization Rates of such mortgage
loans as of the cut-off date.
[The Detailed Description speaks as of the cut-off date and consequently does
not include any Additional Home Equity Loans purchased with the funds in the
additional loan accounts.] The mortgage loans will have been originated
pursuant to credit line agreements and will be secured by mortgages or deeds
of trust, which are either first or second mortgages or deeds of trust, on
mortgaged properties expected to be located in [49 states and the District of
Columbia] as of the cut-off date. The mortgaged properties securing the
mortgage loans will consist of residential properties that are one- to
four-family properties. See "--Mortgage Loan Terms" below.
Information regarding the Statistical Calculation Pool Mortgage Loans as
of [ ], 200[ ] (the "Statistic Calculation Date") can be found on the
tables on pages S-__ through S-__.]
Mortgage Loan Terms
[General. A borrower may access a mortgage loan by writing a check in a
minimum amount of $[ ]. The mortgage loans bear interest at a variable rate
which changes monthly on the first business day of the related month with
changes in the applicable Index Rate. The Statistic Calculation Pool Mortgage
Loans are subject to a maximum per annum interest rate ranging from [ ]% to [
]% per annum, subject to applicable usury limitations. See "Certain Legal
Aspects of the Loans, Applicability of Usury Laws" in the prospectus. The
daily periodic rate on the mortgage loans (i.e., the loan rate) is the sum of
the Index Rate plus the applicable margin, divided by 365 days. The margin
generally ranges between [ ]% and [ ]%. The "Index Rate" is based on the
highest "prime rate" (the "Index") published in the "Money Rates" table of The
Wall Street Journal as of the first business day of each calendar month.
The second mortgage ratio for a mortgage loan is the credit limit for the
related mortgage loan, provided such mortgage loan was in the second lien
position, divided by the sum of such credit limit and the outstanding
principal balance of any mortgage loan senior to the related mortgage loan as
of the date of related loan application. The weighted average second mortgage
loan ratio for the Loan Group [ ] Statistic Calculation Pool Mortgage Loans
was approximately [ ]%. The weighted average second mortgage ratio for the
Loan Group [ ] Statistic Calculation Pool Mortgage Loans was approximately [
]%.
IndyMac Bank [generally offers][may offer] introductory loan rates on its
home equity lines of credit. The introductory rate applies to payments made
during the [first three months] after origination. After such introductory
period, the loan rate will adjust to the Index Rate plus the applicable
margin.
In general, the home equity loans may be drawn upon during a draw period
of [either five years of three years]. Home equity loans with a draw period of
[five] years (which generally may be extendible for an additional [five]
years, upon IndyMac Bank's approval) constitute approximately [ ]% of the Loan
Group [ ] Statistic Calculation Pool Mortgage Loans and approximately [ ]% of
the Loan Group [ ] Statistic Calculation Pool Mortgage Loans, each by
Statistic Calculation Date Principal Balance. These loans are generally
subject to a [fifteen] year repayment period following the end of the draw
period. During this repayment period, the outstanding principal balance of the
loan will be paid in monthly installments equal to [1/180] of the outstanding
principal balance as of the end of the draw period. Home equity loans with a
draw period of [three] years constitute approximately [ ]% of the Loan Group [
] Statistic Calculation Pool Mortgage Loans and approximately [ ]% of the Loan
Group [ ] Statistic Calculation Pool Mortgage Loans, each by Statistic
Calculation Date Principal Balance. These loans are generally subject to a
[ten] year repayment period following the end of the draw period. During this
repayment period, the outstanding principal balance of the loan will be paid
in monthly installments equal to [1/120] of the outstanding principal balance
as of the end of the draw period.
The minimum payment due during the draw period will be equal to the
finance charges accrued on the outstanding principal balance of the home
equity loan during the related billing period, any such amounts past due and
any other charges owed. The minimum payment due during the repayment period
will be equal to the sum of the finance charges accrued on the outstanding
principal balance of the mortgage loan during the related billing period, any
amounts past due, any other charges owed and the principal payment described
above.
The "principal balance" of a mortgage loan (other than a Liquidated
Mortgage Loan) on any day is equal to
o its principal balance as of the cut-off date for the mortgage loans
purchased on the Closing Date [and as of the relevant date for the
additional home equity loan] plus
o any Additional Balances in respect of such mortgage loan, minus
o all collections credited against the principal balance of such mortgage
loan in accordance with the related credit line agreement prior to such
day.
The principal balance of a Liquidated Mortgage Loan after final recovery of
related liquidation proceeds shall be zero.
Difference between Statistic Calculation Pool and Cut-of Date Pool. The
statistical information presented in this Prospectus Supplement for each loan
group reflects the mortgage loans originated by the seller through the
Statistic Calculation Date, and is based on the number and the principal
balances of such mortgage loans in each loan group as of the Statistic
Calculation Date. The depositor expects that the actual pool as of the Closing
Date will represent approximately $[ ] aggregate principal balance of
mortgage loans. Loan group [ ], which has a Statistic Calculation Date
Principal Balance of approximately $[ ], is expected to have a cut-off date
principal balance of approximately $[ ]. Loan group [ ], which has a
Statistic Calculation Date Principal Balance of approximately $[ ], is
expected to have a cut-off date principal balance of $[ ]. [The trust also
will include approximately $[ ] for loan group [ ] and $[ ] for loan
group [ ] in the relevant additional loan accounts that may be applied to the
purchase of additional mortgage loans as described below.] The [initial]
mortgage loans to be included in the cut-off date pool will represent mortgage
loans originated or to be originated by the seller on or prior to the cut-off
date and sold by the seller to the depositor, and by the depositor to the trust
fund, on the Closing Date. In addition, with respect to the Statistic
Calculation Pool Mortgage Loans, as to which statistical information is
presented herein, some amortization will occur and some Additional Balances
may be created prior to the cut-off date. Moreover, certain Statistic
Calculation Pool Mortgage Loans may prepay in full or may be determined not to
meet the eligibility requirements for the final cut-off date pool and as a
result may not be included in the cut-off date pool. As a result of the
foregoing, the statistical distribution of characteristics as of the cut-off
date for the cut-off date mortgage loan pool will vary from the statistical
distribution of such characteristics of each Statistic Calculation Loan Group
as presented in this Prospectus Supplement, although such variance will not be
material. In the event that the seller does not, as of the cut-off date, have
the full amount of mortgage loans which the depositor expects to purchase from
the seller and sell to the trust fund on such date (i.e. approximately $[ ]
aggregate principal balance of mortgage loans), the depositor may reduce the
size of the offering. Likewise, if the seller has more mortgage loans than
anticipated, the depositor may increase the size of the offering. The original
principal amount of either class of Certificates may not decrease or increase
by more than [10]%. [For each loan group, the excess of the original principal
balance of the related certificates over the cut-off date principal balance of
that loan group will be deposited into an account (the account for loan group
[ ], the "Additional Loan Account"). These funds are expected to be used to
acquire additional home equity loans not in the cut-off date pool (these loans
for loan group [ ], the "Additional Home Equity Loans"). Consequently, the
statistical distribution characteristics of loan group [ ] after the addition
of Additional Home Equity Loans will vary from that of both the loan group [ ]
cut-off date mortgage loan pool and the Loan Group [ ] Statistical Calculation
Pool Mortgage Loans. Any funds remaining in the Additional Loan Account on [ ]
will be used to prepay the Class [ ] Certificates on the first Distribution
Date].
The sum of the columns below may not equal the total indicated for each
loan group due to rounding. The following tables describe the Statistic
Calculation Pool Mortgage Loans in each loan group and the related mortgaged
properties based upon the Loan Group [ ] Statistic Calculation Pool or the
Loan Group [ ] Statistic Calculation Pool, as applicable, as of the close of
business on the Statistic Calculation Date:]
<PAGE>
<TABLE>
<CAPTION>
LOAN GROUP [ ]
Principal Balances
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Range of Principal Balances Loans Balance Principal Balance
--------------------------- --------- --------- -----------------
<S> <C> <C> <C> <C>
$ -$ ................................... $ %
$ -$ ...................................
$ -$ ...................................
$ -$ ...................................
$ -$ ...................................
$ -$ ...................................
$ -$ ...................................
$ -$ ...................................
$ -$ ...................................
$ -$ ...................................
$ -$ ...................................
$ -$ ...................................
$ -$ ...................................
$ -$ ...................................
--------- --------- -----------------
$ -$
$
Total................................................ $ 100.00%
========= ========= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Combined Loan-to-Value Ratios(1)
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Range of Combined Loan-to-Value Loans Balance Principal Balance
------------------------------- ------------ --------------- ---------------------
<S> <C> <C> <C> <C>
Less Than %......................................... $ %
- ..........................................
- ..........................................
- ..........................................
- ..........................................
- ..........................................
- ..........................................
- ..........................................
- ..........................................
- ..........................................
- ..........................................
- ..........................................
- ..........................................
- ..........................................
- ..........................................
------------ --------------- ---------------------
Total.................................................... $ 100.00%
============ =============== =====================
---------------
(1) [The ratio (expressed as a percentage) of (A) the sum of (i) the credit limit of the mortgage loans and (ii) any
outstanding principal balances of mortgage loans senior or of equal priority to the mortgage loans (calculated
generally at the date of origination of the mortgage loans) to (B) the lesser of (i) the appraised value of the
related mortgaged property as set forth in loan files at such date of origination or (ii) in the case of a
mortgaged property purchased within one year of the origination of the related mortgage loan, the purchase price
of such mortgaged property.]
</TABLE>
<TABLE>
<CAPTION>
Loan Rates(1)
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Range of Loan Rates Loans Balance Principal Balance
------------------------------- ------------ --------------- ---------------------
<S> <C> <C> <C> <C>
- %............................................. $ %
- ..............................................
- ..............................................
- ..............................................
- ..............................................
- ..............................................
- ..............................................
- ..............................................
- ..............................................
- ..............................................
- ..............................................
- ..............................................
- ..............................................
- ..............................................
- ..............................................
------------ --------------- ---------------------
Total.................................................... $ 100.00%
============ =============== =====================
---------------
(1) Approximately [ ]% of the Loan Group [ ] Statistic Calculation Pool Mortgage Loans by Statistic Calculation Date
Principal Balance are currently subject to an introductory rate of [ ]% per annum and [ ]% of the Loan Group [ ]
Statistic Calculation Pool Mortgage Loans by Statistic Calculation Date Principal Balance are currently subject
to an introductory rate of [ ]% per annum.
</TABLE>
<TABLE>
<CAPTION>
Geographic Distribution(1)
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
State Loans Balance Principal Balance
-------------- --------- ------------- --------------------
<S> <C> <C> <C>
............................................................ $ %
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
............................................................
--------- ------------- --------------------
Total.................................................. $ 100.00%
========= ============= ====================
------------------
(1) [Geographic location is determined by the address of the mortgaged property securing the related mortgage loan.]
</TABLE>
<TABLE>
<CAPTION>
Property Type
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Property Type Loans Balance Principal Balance
---------------------------------------------------------------- ------------ --------------- -------------------
<S> <C> <C> <C>
Single Family............................................... $ %
PUD.........................................................
Lo Condo....................................................
2-4 Units...................................................
------------ --------------- -------------------
Total.................................................. $ 100.00%
============ =============== ===================
</TABLE>
<TABLE>
<CAPTION>
Lien Priority
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Lien Priority Loans Balance Principal Balance
---------------------------------------------------------------- ------------ --------------- -------------------
<S> <C> <C> <C>
1st Liens................................................... $ %
2nd Liens...................................................
------------ --------------- -------------------
Total.................................................. $ 100.00%
============ =============== ===================
</TABLE>
<TABLE>
<CAPTION>
Margins
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Range of Margins Loans Balance Principal Balance
---------------------------------------------------------------- ------------ --------------- -------------------
<S> <C> <C> <C>
%........................................................... $ %
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
------------ --------------- -------------------
Total....................................................... $ 100.00%
============ =============== ===================
</TABLE>
<TABLE>
<CAPTION>
Credit Limit Utilization Rates(1)
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Range of Credit Mortgage Principal Date Aggregate
Limit Utilization Rates Loans Balance Principal Balance
---------------------------------------------------------------- ------------ --------------- -------------------
<S> <C> <C> <C>
%........................................................... $ %
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
- .....................................................
------------ --------------- -------------------
Total....................................................... $ 100.00%
============ =============== ===================
---------------
(1) [The "Credit Limit Utilization Rate" is determined by dividing the Loan Group [ ] Statistic Calculation Date Balance
by the aggregate of the credit limits of the related credit line agreements.]
</TABLE>
<TABLE>
<CAPTION>
Maximum Rates
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Maximum Rates Loans Balance Principal Balance
---------------------------------------------------------------- ------------ --------------- -------------------
<S> <C> <C> <C>
%........................................................... $ %
.....................................................
.....................................................
.....................................................
.....................................................
------------ --------------- -------------------
Total....................................................... $ 100.00%
============ =============== ===================
</TABLE>
<TABLE>
<CAPTION>
Months Remaining to Scheduled Maturity(1)
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Range of Months Remaining to Scheduled Maturity Loans Balance Principal Balance
---------------------------------------------------------------- ------------ --------------- -------------------
<S> <C> <C> <C>
- ..................................................... $ %
- .....................................................
- .....................................................
- .....................................................
------------ --------------- -------------------
Total....................................................... $ 100.00%
============ =============== ===================
---------------
(1) [Assumes that the Draw Period for Loan Group [ ] Statistic Calculation Pool Mortgage Loans with (a) five year
draw periods and fifteen year repayment periods will be extended for an additional five years and (b) five year draw
periods and ten year repayment periods will not be extended.]
</TABLE>
<TABLE>
<CAPTION>
Origination Year
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Origination Year Loans Balance Principal Balance
---------------------------------------------------------------- ------------ --------------- -------------------
<S> <C> <C> <C>
............................................................ $ %
............................................................
------------ --------------- -------------------
Total.................................................. $ 100.00%
============ =============== ===================
</TABLE>
<TABLE>
<CAPTION>
Delinquency Status
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Number of Days Delinquent Loans Balance Principal Balance
---------------------------------------------------------------- ------------ --------------- -------------------
<S> <C> <C> <C>
Current..................................................... $ %
------------ --------------- -------------------
Total.................................................. $ 100.00%
============ =============== ===================
</TABLE>
<TABLE>
<CAPTION>
Credit Limits
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Range of Credit Limits Loans Balance Principal Balance
---------------------------------------------------------------- ------------ --------------- -------------------
<S> <C> <C> <C>
$ -$ .............................. $ %
$ -$ ..............................
$ -$ ..............................
$ -$ ..............................
$ -$ ..............................
$ -$ ..............................
$ -$ ..............................
$ -$ ..............................
$ -$ ..............................
$ -$ ..............................
$ -$ ..............................
$ -$ ..............................
$ -$ ..............................
$ -$ ..............................
$ -$ ..............................
$ -$ ..............................
$ -$ ..............................
------------ --------------- -------------------
Total................................ $ 100.00%
============ =============== ===================
</TABLE>
<PAGE>
Conveyance of Mortgage Loans
The obligation of the trust fund to purchase mortgage loans for loan
group [ ] on the Closing Date is subject to the following requirements, any of
which requirements may be waived or modified in any respect by the Certificate
Insurer:
o such mortgage loan may not be 60 or more days delinquent as of the
Closing Date;
o the remaining term to stated maturity of such mortgage loan will not
exceed [ ] months;
o such mortgage loan will be secured by a mortgage in a first or second
lien position;
o such mortgage loan will not have, a loan rate less than [ ]%;
o such mortgage loan will be otherwise acceptable to the Certificate
Insurer;
o following the purchase of such mortgage loan by the trust fund, the
mortgage loans as of the Closing Date
(a) will have a weighted average loan rate of at least [ ]%;
(b) will have a weighted average remaining term to stated maturity of
not more than [ ] months;
(c) will have a weighted average Combined Loan-to-Value Ratio of not
more than [ ]%;
(d) will have no mortgage loan with a principal balance in excess of
$[ ];
(e) will have a concentration in any one state not in excess [ ]%;
and will have a concentration in any one zip code not in excess of
[ ]%;
(f) will have not more than [ ]% in aggregate principal balance of
mortgage loans relating to non-owner occupied properties; and
(g) will not have more than [ ]% in aggregate principal balance of
mortgage loans that were appraised electronically;
o such mortgage loan shall have a Combined Loan-to-Value Ratio not in
excess of [ ];
o such mortgage loan will have a credit limit between $[ ] and
$[ ];
o such mortgage loan will have a margin between [ ]% and [ ]%; and
o such mortgage loan will comply with the representations and
warranties in the pooling and servicing agreement.
The trust fund may acquire Additional Home Equity Loans through [ ] that
will be included in loan group [ ] so long as they conform to the criteria
listed above. Each Additional Home Equity Loan will have been underwritten
substantially in accordance with the criteria described under "The Home Equity
Loan Program--Underwriting Procedures Relating to Home Equity Loans."
Additional Home Equity Loans will be purchased using amounts on deposit in the
Additional Loan Account at a cash purchase price of [100]% of their principal
balance on a designated cut-off date before [ ]. The amount paid from the
Additional Loan Account for Additional Home Equity Loans will not include
accrued interest. Following each purchase of Additional Home Equity Loans, the
aggregate principal balance of loan group [ ] will increase by an amount equal
to the aggregate principal balance of the Additional Home Equity Loans so
acquired and the amount in the Additional Loan Account will decrease
accordingly.
Any conveyance of Additional Home Equity Loans is subject to various
conditions including:
o that they satisfy substantially the same loan representations and
warranties as the initial home equity loans;
o that they were identified by means of a selection process reasonably
believed not to be adverse to the interests of the holders of the
certificates and the Certificate Insurer;
o that the trust fund receive opinions of counsel acceptable to the
Certificate Insurer and the trustee with respect to the validity of
the conveyance of the Additional Home Equity Loans; and
o that as of their cut-off date, each Additional Home Equity Loan
satisfied the eligibility requirements that the mortgage loans had to
satisfy on the closing date.
[The Additional Loan Account
The assets of the trust fund will include the Additional Loan Account
that will contain approximately $[ ] on the closing date representing the
excess of the original principal balance of the Class [ ] Certificates over
the cut-off date principal balance of the mortgage loans in loan group [ ]
initially transferred to the trust fund on the closing date. Monies in the
Additional Loan Account are expected to be used to purchase Additional Home
Equity Loans through [ ]. The Additional Loan Account will be part of the
trust fund, but will not be available to cover losses on the mortgage loans.
Any funds remaining on deposit in the Additional Loan Account on [ ] will be
used to prepay the Class [ ] Certificates on the first Distribution Date. Net
income on investment of funds in the Additional Loan Account will be paid to
the master servicer, and will not be available for payment on the
Certificates.]
Maturity and Prepayment Considerations
The pooling and servicing agreement, except as otherwise described
herein, provides that the Certificateholders will be entitled to receive on
each distribution date distributions of principal, in the amounts described
under "Description of the Certificates--Distributions on the Certificates"
herein, until the certificate principal balance is reduced to zero. During the
Managed Amortization Period, Certificateholders will receive amounts from
principal collections based upon the applicable Investor Fixed Allocation
Percentage for the related loan group, subject to reduction as described
below. [In addition, the funds remaining in the Additional Loan Account on [ ]
after the purchase of any Additional Home Equity Loans on that date will be
used to prepay the Class [ ] Certificates on the first Distribution Date.]
With respect to any date of calculation on or prior to the first distribution
date on which the balance of the Transferor Interest with respect to such loan
group is equal to the applicable Required Transferor Subordinated Amount, the
"Investor Fixed Allocation Percentage" will equal the greater of (i) [ ]% and
(ii) 100% minus the percentage obtained by dividing the amount of the
Transferor Interest allocable to a loan group at the beginning of such
Collection Period by the loan group balance at the beginning of such
Collection Period. Thereafter, the Investor Fixed Allocation Percentage will
equal [ ]%. During the related Rapid Amortization Period, Certificateholders
will receive amounts from principal collections based solely upon the Investor
Fixed Allocation Percentage for the related loan group. Because prior
distributions of principal collections to Certificateholders serve to reduce
the related Investor Floating Allocation Percentage but may not change the
related Investor Fixed Allocation Percentage in all instances, allocations of
principal collections from the mortgage loans in a loan group based on the
related Investor Fixed Allocation Percentage may result in distributions of
principal to the Certificateholders in amounts that are, in most cases,
greater relative to the declining balance of the mortgage loans in that loan
group than would be the case if the related Investor Floating Allocation
Percentage were used to determine the percentage of principal collections from
the mortgage loans in that loan group distributed to Certificateholders. This
is especially true during the Rapid Amortization Period when the
Certificateholders are entitled to receive their respective Investor Principal
Collections and not a lesser amount. In addition, respective Investor Interest
Collections may be distributed as principal to Certificateholders of
Certificates in a particular loan group in connection with the applicable
Accelerated Principal Distribution Amount, if any. Moreover, to the extent of
losses allocable to the Certificateholders of Certificates related to a
particular loan group, those Certificateholders may also receive as payment of
principal the amount of such losses from the related Investor Interest
Collections, Investor Interest Collections from the other loan group, the
Subordinated Transferor Collections, [the Reserve Fund,] or, in some
instances, draws under the Policy [or payments under any third party
enhancement]. The level of losses may therefore affect the rate of payment of
principal on the Certificates.
[As of the closing date, the Transferor Interest with respect to each
loan group will be $0. The Transferor Interest is expected to grow in the
early months of the transaction due to the payment of the applicable
Accelerated Principal Distribution Amount.] [In addition,] to the extent
obligors make more draws than principal payments on the mortgage loans in a
loan group, the Transferor Interest may grow. An increase in the Transferor
Interest due to additional draws may also result in Certificateholders
receiving principal at a greater rate during the Rapid Amortization Period
because the Certificateholders' share of principal collections on the mortgage
loans in a loan group is based upon the applicable Investor Fixed Allocation
Percentage (without reduction). The pooling and servicing agreement permits
the Transferor, at its option, but subject to the satisfaction of certain
conditions specified in the pooling and servicing agreement, including the
conditions described below, to remove certain mortgage loans from a loan group
at any time during the life of the trust fund, so long as the portion of the
Transferor Interest related to the applicable loan group (after giving effect
to such removal) is not less than the related Minimum Transferor Interest.
Such removals may affect the rate at which principal is distributed to
Certificateholders by reducing the overall loan group balance and thus the
related amount of principal collections. See "Description of the
Certificates--Optional Transfers of Mortgage Loans to the Transferor" herein.
All of the mortgage loans may be prepaid in full or in part at any time.
However, mortgage loans secured by mortgaged properties in [ ] are subject to
an account termination fee equal to the lesser of $[ ] or [ ] months
interest on the amount prepaid, to the extent the prepaid amount exceeds [ ]%
of the unpaid principal balance, if the account is terminated on or before its
[ ] year anniversary. In addition, mortgage loans secured by mortgaged
properties in other jurisdictions may be subject to account termination fees
to the extent permitted by law. In general, such account termination fees do
not exceed $[ ] and do not apply to accounts terminated subsequent to a
date designated in the related mortgage note which, depending on the
jurisdiction, ranges between [ ] months and [ ] years following origination.
The prepayment experience with respect to the mortgage loans in a loan group
will affect the weighted average life of the related Certificates.
The rate of prepayment on the mortgage loans cannot be predicted.
Generally, it is assumed that home equity revolving credit lines are not
viewed by borrowers as permanent financing. Accordingly, the mortgage loans
may experience a higher rate of prepayment than traditional first mortgage
loans. On the other hand, because the mortgage loans amortize as described
under "Description of the Mortgage Loans--Mortgage Loan Terms" herein, rates
of principal payments on the mortgage loans will generally be slower than
those of traditional fully-amortizing first mortgages in the absence of
prepayments on such mortgage loans. The prepayment experience of the mortgage
loans in a loan group may be affected by a wide variety of factors, including
general economic conditions, prevailing interest rate levels, the availability
of alternative financing, homeowner mobility, the frequency and amount of any
future draws on the credit line agreements and changes affecting the
deductibility for federal income tax purposes of interest payments on home
equity credit lines. Substantially all of the mortgage loans contain
"due-on-sale" provisions, and the master servicer intends to enforce such
provisions, unless
o such enforcement is not permitted by applicable law or
o the master servicer, in a manner consistent with reasonable
commercial practice, permits the purchaser of the related mortgaged
property to assume the mortgage loan.
The enforcement of a "due-on-sale" provision will have the same effect as a
prepayment of the related mortgage loan. See "Certain Legal Aspects of the
Loans--Due-on-Sale Clauses" in the prospectus.
The seller is not required to deliver certain documents relating to the
mortgage loans to the trustee until [30] days after the Closing Date [(or in
the case of the Additional Home Equity Loans, until 21 days after they are
acquired by the trust fund)]. See "Description of the Certificates--Assignment
of Mortgage Loans" herein. Should the seller fail to deliver all or a portion
of such documents with respect to any such mortgage loan to the depositor, or,
at the depositor's direction, to the trustee within such period, the seller
will be obligated to accept the transfer of such mortgage loan from the trust
fund. Upon such transfer, the principal balance of such mortgage loan will be
deducted from the related loan group balance, thus reducing the amount of the
Transferor Interest related to such loan group. If the deduction would cause
such portion of the Transferor Interest to become less than the related
Minimum Transferor Interest at such time, the seller will be obligated to
either substitute an Eligible Substitute Mortgage Loan or make a deposit into
the Collection Account in an amount equal to the amount by which such portion
of the Transferor Interest would be reduced to less than the related Minimum
Transferor Interest at such time. Any such deduction, substitution or deposit,
will be treated under the pooling and servicing agreement as a payment in full
of such mortgage loan.
The yield to an investor who purchases the Certificates in the secondary
market at a price other than par will vary from the anticipated yield if the
rate of prepayment on the mortgage loans in the related loan group is actually
different than the rate anticipated by such investor at the time such
Certificates were purchased.
Collections on the mortgage loans may vary because, among other things,
borrowers may make payments during any month as low as the minimum monthly
payment for such month or as high as the entire outstanding principal balance
plus accrued interest and the fees and charges thereon. It is possible that
borrowers may fail to make scheduled payments. Collections on the mortgage
loans may vary due to seasonal purchasing and payment habits of borrowers.
No assurance can be given as to the level of prepayments that will be
experienced by the trust fund and it can be expected that a portion of
borrowers will not prepay their mortgage loans to any significant degree. See
"Yield and Prepayment Considerations" in the prospectus.
Pool Factor and Trading Information
The "Pool Factor" is a seven-digit decimal which the master servicer will
compute monthly expressing the Certificate Principal Balance of each class of
certificates as of each distribution date (after giving effect to any
distribution of principal to that class of certificates on such distribution
date) as a proportion of the Original Certificate Principal Balance. On the
Closing Date, the Pool Factor for each class of certificates will be
1.0000000. See "Description of the Certificates--Distributions on the
Certificates" herein. Thereafter, the Pool Factor for each class of
certificates will decline to reflect reductions in the related certificate
principal balance resulting from distributions of principal to that class of
certificates and the related Invested Amount of any unreimbursed Liquidation
Loss Amounts from mortgage loans in the related loan group.
Pursuant to the pooling and servicing agreement, monthly reports
concerning the Invested Amount, the Pool Factor and various other items of
information for each class of certificates will be made available to the
Certificateholders. In addition, within [60] days after the end of each
calendar year, beginning with the 200[ ] calendar year, information for tax
reporting purposes will be made available to each person who has been a
Certificateholder of record at any time during the preceding calendar year.
See "Description of the Certificates--Book-Entry Certificates" and "--Reports
to Certificateholders" herein.
Description of the Certificates
The Home Equity Loan Asset Backed Certificates Class [ ] and Class [ ]
(each is sometimes referred to as a "Class"), Series 200[ ]-[ ] (the
"Certificates") will be issued pursuant to the pooling and servicing
agreement. The form of the pooling and servicing agreement has been filed as
an exhibit to the Registration Statement of which this Prospectus Supplement
and the Prospectus is a part. The following is a description of the material
provisions of the pooling and servicing agreement. Wherever particular
sections or defined terms of the pooling and servicing agreement are referred
to, such sections or defined terms are hereby incorporated herein by
reference.
General
The Class [ ] Certificates will be issued in denominations of $[25,000]
and multiples of $[1,000] in excess thereof and will evidence specified
undivided interests in loan group [ ]. Together with the Transferor's Interest
and the Class [ ] Certificates (which are not offered by this prospectus
supplement), they comprise IndyMac Home Equity Loan Trust 200[ ]-[ ] (referred
to as the trust fund). The property of the trust fund will consist of, to the
extent provided in the pooling and servicing agreement:
o the principal balance of each mortgage loan as of the cut-off date
(referred to as the cut-off date principal balance), plus any new
advances made in respect thereof under the applicable credit line
agreement during the life of the trust fund ("Additional Balances");
o collections on the mortgage loans received after the cut-off date
(exclusive of payments in respect of accrued interest due on or prior
to the cut-off date);
o mortgaged properties relating to the mortgage loans that are acquired
by foreclosure or deed in lieu of foreclosure;
o the Collection Account for the Certificates (excluding net earnings
thereon);
o [the Additional Loan Account and the similar account for loan group 1
and any additional loans purchased with their proceeds;]
o [the Reserve Fund (excluding net earnings thereon);]
o the Policy and any further credit enhancement for the Class [ ]
Certificates only; and
o an assignment of the depositor's rights under the Purchase Agreement.
Definitive Certificates (as defined below), if issued, will be transferable
and exchangeable at the corporate trust office of the trustee, which will
initially maintain the Security Register for the Certificates. See
"--Book-Entry Certificates" below. No service charge will be made for any
registration of exchange or transfer of Certificates, but the trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge.
The aggregate undivided interest in the trust fund represented by the
Certificates as of the Closing Date is expected to equal approximately $[ ]
(the "Original Invested Amount"), which represents approximately [100]% of the
sum of the cut-off date pool balance [and the additional loan accounts]. As of
the Closing Date, the Class [ ] Certificates are expected to equal
approximately $[ ] (the "Class [ ] Original Invested Amount"), which
represents approximately [100]% of the sum of the cut-off date loan group [ ]
principal balance [and approximately $[ ] deposited in the related
additional loan account]. The "Class [ ] Original Certificate Principal
Balance" is expected to equal approximately $[ ]. As of the Closing Date,
the Class [ ] Certificates are expected to equal approximately $[ ] (the
"Class [ ] Original Invested Amount"), which represents approximately [100]%
of the sum of the cut-off date loan group [ ] principal balance [and the
amount deposited in the Additional Loan Account]. The "Class [ ] Original
Certificate Principal Balance" is expected to equal approximately $[ ]. [Of
the Class [ ] Original Invested Amount approximately $[ ] represents the
proceeds deposited into the Additional Loan Account which may be used through
[ ] to purchase additional home equity loans for addition to loan group [ ].
Following the Closing Date, the "Invested Amount" for each class of
certificates with respect to any distribution date will be an amount equal to
the Original Invested Amount for such class of certificates minus
o the amount of the related Investor Principal Collections previously
distributed on such class of certificates [and any return of the
related additional loan account funds], minus
o an amount equal to the product of the related Investor Floating
Allocation Percentage and the Liquidation Loss Amounts on the
mortgage loans in the related loan group (each as defined herein) for
such distribution date.
For each class of certificates, the principal amount of the outstanding
Certificates in that class (the "Certificate Principal Balance") on any
distribution date is equal to the applicable Original Certificate Principal
Balance minus the aggregate of amounts actually distributed as principal to
the certificates in that class. See "--Distributions on the Certificates"
below. Each Certificate represents the right to receive payments of interest
at the related Certificate Rate and payments of principal as described below.
The remaining interest in the mortgage loans in the trust fund will be
represented by a single transferor interest (the "Transferor Interest") that
will be owned by the transferor. In each loan group, the portion of the
Transferor Interest in that loan group, as of any date of determination, will
equal the related loan group balance as of the close of business on the day
preceding such date of determination, less the Invested Amount for such loan
group as of the close of business on the preceding distribution date. The
Required Transferor Subordinated Amount initially is approximately $[ ],
which, in the aggregate, will represent approximately [ ]% of the cut-off date
loan group [ ] balance [and the amount originally deposited in the related
additional loan account plus approximately [ ]% of the cut-off date loan group
[ ] balance and the amount originally deposited in the Additional Loan
Account], but the pooling and servicing agreement requires the Transferor
Interest (once it is fully funded) to be at least equal to the Minimum
Transferor Interest (as defined in this prospectus supplement). The owner of
the Transferor Interest (the "Transferor") will initially be the seller (or
one of its affiliates). In general, the loan group balance of each loan group
will vary each day as principal is paid on the mortgage loans in that loan
group, liquidation losses are incurred and Additional Balances are drawn down
by borrowers on mortgage loans in that loan group and transferred to the
related loan group.
[The Certificate Insurer will require, based upon the terms and
conditions of the Insurance Agreement, that the portion of the Transferor's
Interest with respect to each class of certificates be maintained at the
related Required Transferor Subordinated Amount with respect to such class.
The portion of the Transferor's Interest related to each class of
certificates as of the closing date will be zero, which is less than the
initial Required Transferor Subordinated Amount, thus requiring an increase in
the Transferor's Interest on future Distribution Dates until it equals the
Required Transferor Subordinated Amount.
With respect to each class of certificates, certain excess cashflow will
be applied as a payment of principal of that class of certificates on each
Distribution Date to increase or maintain the portion of the Transferor's
Interest related to that class to or at the Required Transferor Subordinated
Amount for such class for such Distribution Date. The amount of such excess
cashflow with respect to a class of certificates so applied as a payment of
principal on a Distribution Date is an "Accelerated Principal Distribution
Amount" for the related class of certificates. The requirement to maintain the
Transferor's Interest at the Required Transferor Subordinated Amount, or to
increase it to the Required Transferor Subordinated Amount, is not an
obligation of the seller, the master servicer, the trustee, the Certificate
Insurer or any other person.
The pooling and servicing agreement requires excess cashflow not required
to maintain or achieve the Required Transferor Subordinated Amount of the
related class of certificates to be applied to the funding of a reserve fund,
which has been required by the Certificate Insurer to be established and
maintained with respect to the certificates (the "Reserve Fund"). The amount
on deposit in the Reserve Fund will not exceed the excess of (x) the sum of
the Required Transferor Subordinated Amounts with respect to each class of
certificates over (y) the sum of the portion of the Transferor's Interest with
respect to each class of certificates. Amounts in the Reserve Fund may only be
withdrawn therefrom and applied in accordance with the terms of the pooling
and servicing agreement.
The Certificate Insurer may permit the Required Transferor Subordinated
Amount for a class of certificates to decrease or "step down" over time,
subject to certain floors and triggers. The dollar amount of any decrease in a
Required Transferor Subordinated Amount is an "Overcollateralization Reduction
Amount," which, with respect to each class of certificates, may result in a
release of cash from the trust fund in an amount up to such
Overcollateralization Reduction Amounts (net of any Reimbursement Amounts due
to the Certificate Insurer), and/or result in the removal of cash or mortgage
loans from the trust fund on Distribution Dates occurring after such
step-downs take effect. The dollar amount of any Overcollateralization
Reduction Amount with respect to a class will first be released from the
Reserve Fund, to the extent of the amount on deposit therein. If the amount on
deposit in the Reserve Fund with respect to a class is not sufficient to fund
the full amount of such Overcollateralization Reduction Amount with respect to
such class, then an amount equal to the remaining portion of such
Overcollateralization Reduction Amount will be released from the monthly
cashflow with respect to such class, thus reducing the portion of the
Transferor's Interest for such class.]
The Transferor has the right to sell or pledge the Transferor Interest at
any time, provided
o the Rating Agencies have notified the Transferor and the Trustee in
writing that such action will not result in the reduction or
withdrawal of the ratings assigned to the Certificates without regard
to the Policy [or any other third party credit enhancements], and
o certain other conditions specified in the pooling and servicing
agreement are satisfied.
Book-Entry Certificates
The Class [ ] Certificates will initially be book-entry certificates.
Persons acquiring beneficial ownership interests in the Class [ ] Certificates
("Certificate Owners") may elect to hold their Class [ ] Certificates through
the Depository Trust Company in the United States, or Clearstream, Luxembourg
or Euroclear in Europe, if they are participants of such systems, or
indirectly through organizations which are participants in such systems. The
book-entry certificates will be issued in one or more certificates which equal
the aggregate principal balance of the Certificates and will initially be
registered in the name of Cede & Co., the nominee of DTC. Clearstream,
Luxembourg and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in Clearstream,
Luxembourg's and Euroclear's names on the books of their respective
depositaries which in turn will hold such positions in customers' securities
accounts in the depositaries' names on the books of DTC. Citibank N.A. will
act as depositary for Clearstream, Luxembourg and The Chase Manhattan Bank
will act as depositary for Euroclear (in such capacities, individually the
"Relevant Depositary" and collectively the "European Depositaries"). Investors
may hold such beneficial interests in the book-entry certificates in minimum
denominations representing Certificate Principal Balances of $[25,000] and in
multiples of $[1,000] in excess thereof. One investor in the book-entry
certificates may hold a beneficial interest therein that is not an integral
multiple of $[1,000]. Except as described below, no person acquiring a
book-entry certificate (each, a "beneficial owner") will be entitled to
receive a definitive certificate representing such Certificate. Unless and
until definitive certificates are issued, it is anticipated that the only
"certificateholder" of the Certificates will be Cede & Co., as nominee of DTC.
Certificate Owners will not be Certificateholders as that term is used in the
pooling and servicing agreement. Certificate Owners are only permitted to
exercise their rights indirectly through the participating organizations that
utilize the services of DTC, including securities brokers and dealers, banks
and trust companies and clearing corporations and certain other organizations
("Participants") and DTC.
The beneficial owner's ownership of a book-entry certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or
other financial intermediary (each, a "Financial Intermediary") that maintains
the beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such book-entry certificate will be recorded on
the records of DTC (or of a participating firm that acts as agent for the
Financial Intermediary, whose interest will in turn be recorded on the records
of DTC, if the beneficial owner's Financial Intermediary is not a DTC
participant and on the records of Clearstream, Luxembourg or Euroclear, as
appropriate).
Certificate Owners will receive all distributions of principal of, and
interest on, the Certificates from the trustee through DTC and DTC
participants. While the Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required
to make book-entry transfers among Participants on whose behalf it acts with
respect to the Certificates and is required to receive and transmit
distributions of principal of, and interest on, the Certificates. Participants
and organizations which have indirect access to the DTC system, such as banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants"), with whom Certificate Owners have accounts with
respect to Certificates are similarly required to make book-entry transfers
and receive and transmit such distributions on behalf of their respective
Certificate Owners. Accordingly, although Certificate Owners will not possess
certificates, the Rules provide a mechanism by which Certificate Owners will
receive distributions and will be able to transfer their interest.
Certificate Owners will not receive or be entitled to receive
certificates representing their respective interests in the Certificates,
except under the limited circumstances described below. Unless and until
definitive certificates are issued, Certificate Owners who are not
Participants may transfer ownership of Certificates only through Participants
and Indirect Participants by instructing such Participants and Indirect
Participants to transfer Certificates, by book-entry transfer, through DTC for
the account of the purchasers of such Certificates, which account is
maintained with their respective Participants. Under the Rules and in
accordance with DTC's normal procedures, transfers of ownership of
Certificates will be executed through DTC and the accounts of the respective
Participants at DTC will be debited and credited. Similarly, the Participants
and Indirect Participants will make debits or credits, as the case may be, on
their records on behalf of the selling and purchasing Certificate Owners.
Because of time zone differences, credits of securities received in
Clearstream, Luxembourg or Euroclear as a result of a transaction with a
Participant will be made during subsequent securities settlement processing
and dated the business day following the DTC settlement date. Such credits or
any transactions in such securities settled during such processing will be
reported to the relevant Euroclear or Clearstream, Luxembourg Participants on
such business day. Cash received in Clearstream, Luxembourg or Euroclear as a
result of sales of securities by or through a Clearstream, Luxembourg
Participant (as defined below) or Euroclear Participant (as defined below) to
a DTC Participant will be received with value on the DTC settlement date but
will be available in the relevant Clearstream, Luxembourg or Euroclear cash
account only as of the business day following settlement in DTC. For
information with respect to tax documentation procedures relating to the
Certificates, see "Material Federal Income Tax Consequences--Foreign
Investors" and "--Backup Withholding" herein and "Global Clearance, Settlement
And Tax Documentation Procedures--Certain U.S. Federal Income Tax
Documentation Requirements" in Annex 1 hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Clearstream, Luxembourg Participants and Euroclear
Participants will occur in accordance with their respective rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Clearstream,
Luxembourg Participants or Euroclear Participants, on the other, will be
effected in DTC in accordance with DTC rules on behalf of the relevant
European international clearing system by the Relevant Depositary; however,
such cross-market transactions will require delivery of instructions to the
relevant European international clearing system by the counterparty in such
system in accordance with its rules and procedures and within its established
deadlines (European time). The relevant European international clearing system
will, if the transaction meets its settlement requirements, deliver
instructions to the Relevant Depositary to take action to effect final
settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment in accordance with normal procedures for same day
funds settlement applicable to DTC. Clearstream, Luxembourg Participants and
Euroclear Participants may not deliver instructions directly to the European
Depositaries.
DTC, which is a New York-chartered limited purpose trust company,
performs services for its participants, some of which (and/or their
representatives) own DTC. In accordance with its normal procedures, DTC is
expected to record the positions held by each DTC participant in the
book-entry certificates, whether held for its own account or as a nominee for
another person. In general, beneficial ownership of book-entry certificates
will be subject to the rules, regulations and procedures governing DTC and DTC
participants as in effect from time to time.
Clearstream Banking, societe anonyme, 67 Bd Grande-Duchesse Charlotte,
L-2967 Luxembourg ("Clearstream, Luxembourg"), was incorporated in 1970 as
"Cedel S.A.," a company with limited liability under Luxembourg law (a societe
anonyme). Cedel S.A. subsequently changed its name to Cedelbank. On 10 January
2000, Cedelbank's parent company, Cedel International, societe anonyme ("CI")
merged its clearing, settlement and custody business with that of Deutsche
Borse Clearing AG ("DBC"). The merger involved the transfer by CI of
substantially all of its assets and liabilities (including its shares in CB)
to a new Luxembourg company, New Cedel International, societe anonyme ("New
CI"), which is 50% owned by CI and 50% owned by DBC's parent company Deutsche
Borse AG. The shareholders of these two entities are banks, securities dealers
and financial institutions. Cedel International currently has 92 shareholders,
including U.S. financial institutions or their subsidiaries. No single entity
may own more than 5 percent of Cedel International's stock.
Further to the merger, the Board of Directors of New Cedel International
decided to re-name the companies in the group in order to give them a cohesive
brand name. The new brand name that was chosen is "Clearstream." With effect
from 14 January 2000 New CI has been renamed "Clearstream International,
societe anonyme." On 18 January 2000, Cedelbank was renamed "Clearstream
Banking, societe anonyme," and Cedel Global Services was renamed "Clearstream
Services, societe anonyme."
On 17 January 2000 DBC was renamed "Clearstream Banking AG." This means
that there are now two entities in the corporate group headed by Clearstream
International which share the name "Clearstream Banking," the entity
previously named "Cedelbank" and the entity previously named "Deutsche Brse
Clearing AG."
Clearstream, Luxembourg holds securities for its customers and
facilitates the clearance and settlement of securities transactions between
Clearstream, Luxembourg customers through electronic book-entry changes in
accounts of Clearstream, Luxembourg customers, thereby eliminating the need
for physical movement of certificates. Transactions may be settled by
Clearstream, Luxembourg in any of 36 currencies, including United States
dollars. Clearstream, Luxembourg provides to its customers, among other
things, services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing.
Clearstream, Luxembourg also deals with domestic securities markets in over 30
countries through established depository and custodial relationships.
Clearstream, Luxembourg is registered as a bank in Luxembourg, and as such is
subject to regulation by the Commission de Surveillance du Secteur Financier,
"CSSF," which supervises Luxembourg banks. Clearstream, Luxembourg's customers
are world-wide financial institutions including underwriters, securities
brokers and dealers, banks, trust companies and clearing corporations.
Clearstream, Luxembourg's U.S. customers are limited to securities brokers and
dealers, and banks. Currently, Clearstream, Luxembourg has approximately 2,000
customers located in over 80 countries, including all major European
countries, Canada, and the United States. Indirect access to Clearstream,
Luxembourg is available to other institutions that clear through or maintain a
custodial relationship with an account holder of Clearstream, Luxembourg.
Clearstream, Luxembourg has established an electronic bridge with Morgan
Guaranty Trust Company of New York as the Operator of the Euroclear System
(MGT/EOC) in Brussels to facilitate settlement of trades between Clearstream,
Luxembourg and MGT/EOC.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement
of certificates and any risk from lack of simultaneous transfers of securities
and cash. Transactions may now be settled in any of 32 currencies, including
United States dollars. Euroclear includes various other services, including
securities lending and borrowing and interfaces with domestic markets in
several countries generally similar to the arrangements for cross-market
transfers with DTC described above. Euroclear is operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York (the "Euroclear
Operator"), under contract with Euroclear Clearance Systems S.C., a Belgian
cooperative corporation (the "Cooperative"). All operations are conducted by
the Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for Euroclear on behalf of
Euroclear Participants. Euroclear Participants include banks (including
central banks), securities brokers and dealers and other professional
financial intermediaries. Indirect access to Euroclear is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipts of payments
with respect to securities in Euroclear. All securities in Euroclear are held
on a fungible basis without attribution of specific certificates to specific
securities clearance accounts. The Euroclear Operator acts under the Terms and
Conditions only on behalf of Euroclear Participants, and has no record of or
relationship with persons holding through Euroclear Participants.
Distributions on the book-entry certificates will be made on each
distribution date by the trustee to DTC. DTC will be responsible for crediting
the amount of such payments to the accounts of the applicable DTC participants
in accordance with DTC's normal procedures. Each DTC participant will be
responsible for disbursing such payments to the beneficial owners of the
book-entry certificates that it represents and to each Financial Intermediary
for which it acts as agent. Each such Financial Intermediary will be
responsible for disbursing funds to the beneficial owners of the book-entry
certificates that it represents.
Under a book-entry format, beneficial owners of the book-entry
certificates may experience some delay in their receipt of payments, since
such payments will be forwarded by the Trustee to Cede & Co. Distributions
with respect to Certificates held through Clearstream, Luxembourg or Euroclear
will be credited to the cash accounts of Clearstream, Luxembourg Participants
or Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by the Relevant Depositary. Such
distributions will be subject to tax reporting in accordance with relevant
United States tax laws and regulations. See "Material Federal Income Tax
Consequences--Foreign Investors" and "--Backup Withholding" herein. Because
DTC can only act on behalf of Financial Intermediaries, the ability of a
beneficial owner to pledge book-entry certificates to persons or entities that
do not participate in the depository system, or otherwise take actions in
respect of such book-entry certificates, may be limited due to the lack of
physical certificates for such book-entry certificates. In addition, issuance
of the book-entry certificates in book-entry form may reduce the liquidity of
such Certificates in the secondary market since certain potential investors
may be unwilling to purchase Certificates for which they cannot obtain
definitive certificates.
Monthly and annual reports on the trust fund provided by the master
servicer to Cede & Co., as nominee of DTC, may be made available to beneficial
owners upon request, in accordance with the rules, regulations and procedures
creating and affecting DTC or the Relevant Depositary, and to the Financial
Intermediaries to whose DTC accounts the book-entry certificates of such
beneficial owners are credited.
DTC has advised the transferor and the trustee that, unless and until
definitive certificates are issued, DTC will take any action permitted to be
taken by the holders of the book-entry certificates under the pooling and
servicing agreement only at the direction of one or more Financial
Intermediaries to whose DTC accounts the book-entry certificates are credited,
to the extent that such actions are taken on behalf of Financial
Intermediaries whose holdings include such book-entry certificates.
Clearstream, Luxembourg or the Euroclear Operator, as the case may be, will
take any other action permitted to be taken by a Certificateholder under the
pooling and servicing agreement on behalf of a Clearstream, Luxembourg
Participant or Euroclear Participant only in accordance with its relevant
rules and procedures and subject to the ability of the Relevant Depositary to
effect such actions on its behalf through DTC. DTC may take actions, at the
direction of the related Participants, with respect to some Certificates which
conflict with actions taken with respect to other Certificates.
Definitive certificates will be issued to beneficial owners of the
book-entry certificates, or their nominees, rather than to DTC, only if
o DTC or the transferor advises the trustee in writing that DTC is no
longer willing, qualified or able to discharge properly its
responsibilities as nominee and depositary with respect to the
book-entry certificates and the transferor or the trustee is unable
to locate a qualified successor,
o the transferor, at its sole option, elects to terminate a book-entry
system through DTC or
o after the occurrence of an Event of Servicing Termination (as defined
herein), beneficial owners having Percentage Interests aggregating
not less than 51% of the Certificate Principal Balance of the
book-entry certificates advise the trustee and DTC through the
Financial Intermediaries and the DTC participants in writing that the
continuation of a book-entry system through DTC (or a successor
thereto) is no longer in the best interests of beneficial owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
definitive certificates. Upon surrender by DTC of the global certificate or
certificates representing the book-entry certificates and instructions for
re-registration, the trustee will issue definitive certificates, and
thereafter the trustee will recognize the holders of such definitive
certificates as Certificateholders under the pooling and servicing agreement.
Although DTC, Clearstream, Luxembourg and Euroclear have agreed to the
foregoing procedures in order to facilitate transfers of Certificates among
participants of DTC, Clearstream, Luxembourg and Euroclear, they are under no
obligation to perform or continue to perform such procedures and such
procedures may be discontinued at any time.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended
to serve as a representation, warranty, or contract modification of any kind.
Assignment of Mortgage Loans
At the time of issuance of the Certificates, the depositor will transfer
to the trust fund [the amounts to be deposited into the additional loan
accounts and] all of its interest in each mortgage loan acquired on the
closing date (including any Additional Balances arising in the future),
related credit line agreements, mortgages and certain other related documents
(collectively, the "Related Documents"), including all collections received on
each such mortgage loan after the cut-off date (exclusive of payments in
respect of accrued interest due on or before the cut-off date). The trustee,
concurrently with such transfer, will deliver the Certificates to the
depositor and the Transferor Certificate (as defined in the pooling and
servicing agreement) to the transferor. [Subsequent closings may occur for the
purchase of Additional Home Equity Loans on dates specified by the depositor
through [ ], 200[ ]. On those closing dates the depositor will transfer to the
trust fund all of its interest in the Additional Home Equity Loans being
acquired by the trust fund that day, the Related Documents and all collections
received on the Additional Home Equity Loans after a date designated in
connection with the transfer.] Each mortgage loan transferred to the trust
fund will be identified on a mortgage loan schedule delivered to the trustee
pursuant to the pooling and servicing agreement. Such schedule will include
information as to the cut-off date principal balance of each mortgage loan as
well as information with respect to the loan rate.
The pooling and servicing agreement will require that
o on the [initial] Closing Date, with respect to not less than [50]% of
the mortgage loans transferred to the trust fund on that date;
o not later than [30] days after the initial Closing Date, with respect
to the [remaining] mortgage loans; [and]
o [not later than [21] days after the relevant closing date, with
respect to the Additional Home Equity Loans,]
[IndyMac Bank] deliver to the depositor for delivery to the trustee or, at the
depositor's direction, directly to the trustee, the mortgage notes related to
the mortgage loans endorsed in blank and the Related Documents.
In lieu of delivery of original documentation, [IndyMac Bank] may deliver
documents which have been imaged optically upon delivery of an opinion of
counsel that such documents are enforceable to the same extent as the
originals and do not impair the enforceability of the transfer to the trust
fund of the mortgage loans, provided the retention of such documents in such
format will not result in a reduction in the then current rating of the
Certificates, without regard to the Policy [or any other third party credit
enhancements].
[In addition, with respect to any of the mortgage loans, in lieu of
transferring the related mortgage to the trustee as one of the Related
Documents, the Depositor may at its discretion provide evidence that the
related mortgage is held through the MERS(R) System. In addition, the mortgage
for some or all of the mortgage loans in the trust fund that are not already
held in the MERS(R) System may, at the discretion of the master servicer, in
the future be held through the MERS(R) System. For any mortgage held through
the MERS(R) System, the mortgage is recorded in the name of the Mortgage
Electronic Registration System, Inc. or MERS, as nominee for the owner of the
mortgage loan, and subsequent assignments of the mortgage were, or in the
future may be, at the discretion of the master servicer, registered
electronically through the MERS(R) System. For each of these mortgage loans,
MERS serves as a mortgagee of record on the mortgage solely as a nominee in an
administrative capacity on behalf of the trustee, and does not have any
interest in that mortgage loan.]
Within 90 days of the Closing Date with respect to the mortgage loans
acquired on the Closing Date [and within 90 days of the relevant closing date
with respect to Additional Home Equity Loans], the trustee will review the
mortgage loans and the Related Documents and if any mortgage loan or Related
Document is found to be defective in any material respect and such defect is
not cured within 90 days following notification thereof to the seller and the
depositor by the trustee, the seller will be obligated to accept the transfer
of such mortgage loan from the trust fund. Upon such transfer, the principal
balance of such mortgage loan will be deducted from the applicable loan group
balance, thus reducing the amount of the Transferor Interest. If the deduction
would cause the portion of the Transferor Interest related to that loan group
to become less than the related Minimum Transferor Interest at such time (a
"Transfer Deficiency"), the seller will be obligated to either substitute an
Eligible Substitute mortgage loan and/or make a deposit into the Collection
Account in the amount (the "Transfer Deposit Amount") equal to the amount by
which the portion of the Transferor Interest related to that loan group would
be reduced to less than the related Minimum Transferor Interest at such time.
Any such deduction, substitution or deposit, will be treated under the pooling
and servicing agreement as a payment in full of such mortgage loan. Any
Transfer Deposit Amount will be treated as a principal collection on the
related loan group. Notwithstanding the foregoing, however, no such transfer
shall be considered to have occurred unless and until all required deposits to
the Collection Account are actually made. The obligation of the seller to
accept a transfer of a Defective Mortgage Loan and to make any required
deposits are the sole remedies regarding any defects in the mortgage loans and
Related Documents available to the trustee or the Certificateholders.
An "Eligible Substitute Mortgage Loan" is a mortgage loan substituted by
the seller for a defective mortgage loan which must, on the date of such
substitution,
o have an outstanding principal balance (or in the case of a
substitution of more than one mortgage loan for a Defective Mortgage
Loan, an aggregate principal balance) that is not [10]% more or less
than the Transfer Deficiency relating to such Defective Mortgage
Loan;
o have a loan rate not less than the loan rate of the Defective
Mortgage Loan and not more than [1]% in excess of the loan rate of
such Defective Mortgage Loan;
o have a loan rate based on the same Index with adjustments to such
loan rate made on the same Interest Rate Adjustment Date as that of
the Defective Mortgage Loan;
o have a margin that is not less than the margin of the Defective
Mortgage Loan and not more than [100] basis points higher than the
margin for the Defective Mortgage Loan;
o have a mortgage of the same or higher level of priority as the
mortgage relating to the Defective Mortgage Loan;
o have a remaining term to maturity not more than [six] months earlier
and not more than [60] months later than the remaining term to
maturity of the Defective Mortgage Loan;
o comply with each representation and warranty as to the mortgage loans
set forth in the pooling and servicing agreement (deemed to be made
as of the date of substitution);
o in general, have an original combined loan-to-value ratio not greater
than that of the Defective Mortgage Loan; and
o satisfy certain other conditions specified in the pooling and
servicing agreement.
To the extent the principal balance of an Eligible Substitute Mortgage Loan is
less than the principal balance of the related Defective Mortgage Loan and to
the extent that the Transferor Interest would be reduced below the Minimum
Transferor Interest, the seller will be required to make a deposit to the
Collection Account equal to such difference.
The seller will make certain representations and warranties as to the
accuracy in all material respects of certain information furnished to the
trustee with respect to each mortgage loan (e.g., cut-off date principal
balance and loan rate). In addition, the seller will represent and warrant on
the Closing Date that at the time of transfer to the depositor, the seller has
transferred or assigned all of its interest in each mortgage loan and the
Related Documents, free of any lien[, and likewise represent and warrant on
each relevant closing date with respect to each Additional Home Equity Loan]
(subject to certain exceptions). Upon discovery of a breach of any such
representation and warranty which materially and adversely affects the
interests of the Certificateholders, the Certificate Insurer [or any other
third party credit enhancer] in the related mortgage loan and Related
Documents, the seller will have a period of 90 days after discovery or notice
of the breach to effect a cure. If the breach cannot be cured within the
90-day period, the seller will be obligated to accept a transfer of the
Defective Mortgage Loan from the trust fund. The same procedure and
limitations that are set forth in the second preceding paragraph for the
transfer of Defective Mortgage Loans will apply to the transfer of a mortgage
loan that is required to be transferred because of such breach of a
representation or warranty in the pooling and servicing agreement that
materially and adversely affects the interests of the Certificateholders.
Mortgage loans required to be transferred to the seller as described in
the preceding paragraphs are referred to as "Defective Mortgage Loans."
Pursuant to the pooling and servicing agreement, the master servicer will
service and administer the mortgage loans as more fully set forth above.
Amendments to Credit Line Agreements
Subject to applicable law and to certain limitations described in the
pooling and servicing agreement, the master servicer may change the terms of
the credit line agreements at any time provided that such changes
o do not adversely affect the interest of the Certificateholders, the
Certificate Insurer [or any other third party credit enhancer], and
o are consistent with prudent business practice.
In addition, the pooling and servicing agreement permits the master servicer,
within certain limitations described therein, to increase the credit limit of
the related mortgage loan or reduce the margin for such mortgage loan.
Optional Transfers of Mortgage Loans to the Transferor
In order to permit the transferor to remove mortgage loans from [either]
loan group at such times, if any, as the portion of the Transferor Interest
related to that loan group exceeds the level required by the Certificate
Insurer[, any other third party credit enhancer] and the Rating Agencies, on
any Distribution Date the transferor may, but shall not be obligated to,
remove on such distribution date (the "Transfer Date") from the loan group,
certain mortgage loans without notice to the Certificateholders. The
transferor is permitted to designate the mortgage loans to be removed.
Mortgage loans so designated will only be removed upon satisfaction of the
following conditions:
o the portion of the Transferor Interest (allocable to that loan group)
as of such Transfer Date (after giving effect to such removal)
exceeds the Minimum Transferor Interest;
o the transferor shall have delivered to the trustee a "Mortgage Loan
Schedule" containing a list of all mortgage loans remaining in the
related loan group after such removal;
o the transferor shall represent and warrant that no selection
procedures which the transferor reasonably believes are adverse to
the interests of the Certificateholders, the Certificate Insurer [or
any other third party credit enhancer] were used by the transferor in
selecting such mortgage loans;
o in connection with each such retransfer of mortgage loans, the Rating
Agencies and the Certificate Insurer shall have been notified of the
proposed transfer and prior to the Transfer Date no Rating Agency has
notified the transferor or the Certificate Insurer in writing that
such transfer would result in a reduction or withdrawal of the
ratings assigned to either class of Certificates without regard to
the Policy [or any other third party credit enhancement]; and
o the Transferor shall have delivered to the Trustee and the
Certificate Insurer an officer's certificate confirming the four
conditions preceding this one.
As of any date of determination within any Collection Period, the "Minimum
Transferor Interest" for either loan group is an amount equal to [the lesser
of (a) [5]% of the related loan group balance at the end of the immediately
preceding Collection Period and (b) the Transferor Interest as of the Closing
Date].
Payments on Mortgage Loans; Deposits to Collection Account
The trustee shall establish and maintain on behalf of the master servicer
an account (the "Collection Account") in trust for the Certificateholders, the
Transferor, the Certificate Insurer [and any other third party credit
enhancer], as their interests may appear. The Collection Account will be an
Eligible Account (as defined herein). Subject to the investment provision
described in the following paragraphs, within two business days of receipt by
the master servicer of amounts in respect of the mortgage loans (excluding
amounts representing administrative charges, annual fees, taxes, assessments,
credit insurance charges, insurance proceeds to be applied to the restoration
or repair of a mortgaged property or similar items), the master servicer will
deposit such amounts in the Collection Account.
Amounts so deposited may be invested in Eligible Investments (as
described in the pooling and servicing agreement) maturing no later than one
business day prior to the next distribution date or on such Distribution Date
if approved by the Rating Agencies, the Certificate Insurer [and any other
third party credit enhancer]. Not later than the [third] business day prior to
each distribution date (the "Determination Date"), the master servicer will
notify the trustee of the amount of such deposit to be included in funds
available for the related distribution date.
An "Eligible Account" is
o an account that is maintained with a depository institution whose
debt obligations throughout the time of any deposit therein have the
highest short-term debt rating by the Rating Agencies,
o one or more accounts with a depository institution having a minimum
long-term unsecured debt rating of ["BBB" by Standard & Poor's and
"Baa3" by Moody's], which accounts are fully insured by either the
Savings Association Insurance Fund ("SAIF") or the Bank Insurance
Fund ("BIF") of the Federal Deposit Insurance Corporation established
by such fund,
o a segregated trust account maintained with the trustee or an
affiliate of the trustee in its fiduciary capacity or
o otherwise acceptable to each Rating Agency and the Certificate
Insurer as evidenced by a letter from each Rating Agency and the
Certificate Insurer to the trustee, without reduction or withdrawal
of each Rating Agency's then current ratings of the Certificates
without regard to the Policy [or any other third party credit
enhancement).
Eligible Investments are specified in the pooling and servicing agreement
and are limited to
o obligations of the United States or any agency thereof, provided the
timely payment of such obligations are backed by the full faith and
credit of the United States;
o general obligations of or obligations guaranteed by any state of the
United States or the District of Columbia receiving the highest
long-term debt rating of each Rating Agency, or such tower rating as
will not result in the downgrading or withdrawal of the ratings then
assigned to the Certificates by each Rating Agency without regard to
the Policy [or any other third party credit enhancement];
o commercial paper issued by [IndyMac Bank, F.S.B.] or any of its
affiliates; provided that such commercial paper is rated no tower
than ["A-I" by Standard & Poor's and "P-2" by Moody's] and the
long-term debt of [IndyMac Bank, F.S.B.] is rated at least [A3 by
Moody's], or such lower ratings as will not result in the downgrading
or withdrawal of the rating then assigned to the Certificates by any
Rating Agency without regard to the Policy [or any other third party
credit enhancement];
o commercial or finance company paper which is then receiving the
highest commercial or finance company paper rating of each Rating
Agency, or such lower rating as will not result in the downgrading or
withdrawal of the ratings then assigned to the Certificates by any
Rating Agency without regard to the Policy [or any other third party
credit enhancement];
o certificates of deposit, demand or time deposits, or bankers'
acceptances issued by any depository institution or trust company
incorporated under the laws of the United States or of any state
thereof and subject to supervision and examination by federal and/or
state banking authorities, provided that the commercial paper and/or
long-term unsecured debt obligations of such depository institution
or trust company (or in the case of the principal depository
institution in a holding company system, the commercial paper or
long-term unsecured debt obligations of such holding company, but
only if Moody's is not a Rating Agency) are then rated one of the two
highest long-term and the highest short-term ratings of each Rating
Agency for such securities, or such lower ratings as will not result
in the downgrading or withdrawal of the rating then assigned to the
Certificates by any Rating Agency without regard to the Policy [or
any other third party credit enhancement];
o demand or time deposits or certificates of deposit issued by any bank
or trust company or savings institution to the extent that such
deposits are fully insured by the FDIC;
o guaranteed reinvestment agreements issued by any bank, insurance
company or other corporation containing, at the time of the issuance
of such agreements, such terms and conditions as will not result in
the downgrading or withdrawal of the rating then assigned to the
Certificates by any Rating Agency without regard to the Policy [or
any other third party credit enhancement];
o repurchase obligations with respect to any security described in the
first and second bullet points, in either case entered into with a
depository institution or trust company (acting as principal)
described in the fifth bullet point;
o securities (other than stripped bonds, stripped coupons or
instruments sold at a purchase price in excess of 115% of the face
amount thereof) bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States or any
state thereof which, at the time of such investment, have one of the
two highest ratings of each Rating Agency (except if the Rating
Agency is Moody's, such rating shall be the highest commercial paper
rating of Moody's for any such securities), or such lower rating as
will not result in the downgrading or withdrawal of the rating then
assigned to the Certificates by any Rating Agency without regard to
the Policy [or any other third party credit enhancement], as
evidenced by a signed writing delivered by each Rating Agency;
o interests in any money market fund which at the date of acquisition
of the interests in such fund and throughout the time such interests
are held in such fund has the highest applicable rating by each
Rating Agency or such lower rating as will not result in the
downgrading or withdrawal of the ratings then assigned to the
Certificates by each Rating Agency without regard to the Policy [or
any other third party credit enhancement];
o short term investment funds sellered by any trust company or national
banking association incorporated under the laws of the United States
or any state thereof which on the date of acquisition has been rated
by each Rating Agency in their respective highest applicable rating
category or such lower rating as will not result in the downgrading
or withdrawal of the ratings then assigned to the Certificates by
each Rating Agency without regard to the Policy [or any other third
party credit enhancement]; and
o such other investments having a specified stated maturity and bearing
interest or sold at a discount acceptable to each Rating Agency as
will not result in the downgrading or withdrawal of the rating then
assigned to the Certificates by any Rating Agency without regard to
the Policy [or any other third party credit enhancement], as
evidenced by a signed writing delivered by each Rating Agency;
provided that no such instrument shall be an Eligible Investment if such
instrument evidences the right to receive
o interest only payments with respect to the obligations underlying
such instrument or
o both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments
with respect to such instrument provide a yield to maturity at par
greater than 120% of the yield to maturity at par of the underlying
obligations;
and provided, further, that no instrument described hereunder may be purchased
at a price greater than par if such instrument may be prepaid or called at a
price less than its purchase price prior to its stated maturity.
Allocations and Collections
All collections on the mortgage loans will generally be allocated in
accordance with the credit line agreements between amounts collected in
respect of interest and amounts collected in respect of principal. As to any
distribution date, "Interest Collections" will be determined on a loan group
basis and will be equal to the amounts collected during the related Collection
Period (as defined herein), including without limitation such portion of Net
Liquidation Proceeds, allocated to interest pursuant to the terms of the
credit line agreements less
o Servicing Fees for the related Collection Period and
o amounts payable to the master servicer pursuant to the pooling and
servicing agreement as reimbursement of optional advances of the
interest component of any delinquent monthly payments on the mortgage
loans.
As to any distribution date, "Principal Collections" will be determined
on a loan group basis and will be equal to the sum of
o the amounts collected during the related Collection Period, including
without limitation such portion of Net Liquidation Proceeds,
allocated to principal pursuant to the terms of the credit line
agreements and
o any Transfer Deposit Amounts.
"Net Liquidation Proceeds" with respect to a mortgage loan are equal to
the liquidation proceeds, reduced by related expenses, but not including the
portion, if any, of such amount that exceeds the principal balance of the
mortgage loan plus accrued and unpaid interest thereon to the end of the
Collection Period during which such mortgage loan became a Liquidated Mortgage
Loan. "Liquidation Proceeds" are the proceeds (excluding any amounts drawn on
the Policy) received in connection with the liquidation of any mortgage loan,
whether through trustee's sale, foreclosure sale or otherwise.
With respect to any distribution date and loan group, the portion of
interest collections allocable to the related class of Certificates ("Investor
Interest Collections") will equal the product of (a) Interest Collections for
such Distribution Date and loan group and (b) the Investor Floating Allocation
Percentage for such loan group. With respect to any distribution date and loan
group, the "Investor Floating Allocation Percentage" is the percentage
equivalent of a fraction determined by dividing the Invested Amount at the
close of business on the preceding distribution date (or the Closing Date in
the case of the first distribution date) by the loan group balance for such
loan group at the beginning of the related Collection Period. The remaining
amount of interest collections will be allocated to the portion of the
Transferor Interest related to that loan group.
With respect to the mortgage loans in each loan group, principal
collections will be allocated between the Certificateholders and the
transferor ("Investor Principal Collections" and "Transferor Principal
Collections," respectively) as described herein.
The trustee will apply any amounts drawn under the Policy as provided in
the pooling and servicing agreement.
With respect to any date and loan group, the "loan group balance" will be
equal to the aggregate of the principal balances of all mortgage loans in that
loan group as of such date. The principal balance of a mortgage loan (other
than a Liquidated Mortgage Loan) on any day is equal to its cut-off date
principal balance, plus (1) any Additional Balances in respect of such
mortgage loan minus (2) all collections credited against the principal balance
of such mortgage loan in accordance with the related credit line agreement
prior to such day. The principal balance of a Liquidated Mortgage Loan after
final recovery of related liquidation proceeds shall be zero.
Distributions on the Certificates
Beginning with the first distribution date (which will occur on [ ]),
distributions on the Certificates will be made by the trustee or the Paying
Agent on each distribution date to the persons in whose names such
Certificates are registered at the close of business on the day prior to each
distribution date or, if the Certificates are no longer book-entry
certificates, at the close of business on the record date (which is the [last]
day of the month preceding such distribution date). The term "distribution
date" means the [fifteenth] day of each month or, if such day is not a
business day, then the first business day thereafter. Distributions on the
Class [ ] Certificates will be made by check or money order mailed (or upon
the request of a Certificateholder owning Certificates having denominations
aggregating at least $[1,000,000], by wire transfer or as otherwise agreed by
such Certificateholder and the trustee) to the address of the person entitled
thereto (which, in the case of book-entry certificates, will be DTC or its
nominee) as it appears on the certificate register in amounts calculated as
described herein on the determination date. However, the final distribution in
respect of the Certificates will be made only upon presentation and surrender
thereof at the office or the agency of the trustee specified in the notice to
Certificateholders of such final distribution. For purposes of the pooling and
servicing agreement, a "business day" is any day other than (1) a Saturday or
Sunday or (2) a day on which banking institutions in the states of New York[,
California or Illinois] are required or authorized by law to be closed.
Application of Interest Collections. On each distribution date, the
trustee or the Paying Agent will apply the Investor Interest Collections for
loan group [ ] in the following manner and order of priority:
(1) as payment to the trustee for the related fee for services rendered
pursuant to the pooling and servicing agreement;
(2) as payment to the Certificate Insurer for the portion of the premium
for the Policy related to loan group [ ];
(3) as payment to Certificateholders for the interest accrued at the
related certificate rate and any overdue accrued interest (with
interest thereon to the extent permitted by applicable law) on the
Certificate Principal Balance of the Certificates;
(4) to pay to Certificateholders the related Investor Loss Amount for
such Distribution Date;
(5) as payment to Certificateholders for any related Investor Loss Amount
for a previous distribution date that was not previously (a) funded by
related Investor Interest Collections, (b) absorbed by a reduction in
the related portion of the Transferor Interest, (c) funded by related
Subordinated Transferor Collections as described below[, (d)
previously funded by the Reserve Fund, (e) previously funded pursuant
to clause (9) below] or (f) funded by draws on the Policy;
(6) to reimburse the Certificate Insurer for prior draws made from the
Policy (with interest thereon);
(7) to pay to Certificateholders principal on the Certificates until the
related portion of the Transferor Interest equals the related Required
Transferor Subordinated Amount (such amount so paid, the "Accelerated
Principal Distribution Amount");
(8) in respect of any other amounts owed to the Certificate Insurer
pursuant to the Insurance Agreement;
(9) [to pay to the other class of certificates any deficiency in items
(3), (4) and (5) above, after taking into account the allocation of
100% of such other Class' Investor Interest Collections relating to
such other Class on such distribution date (the amount of one Class'
remaining Investor Interest Collections which is allocated with
respect to the other Class on such distribution date is a "Crossover
Amount");]
(10) [to the Reserve Fund for application in accordance with the pooling
and servicing agreement, to the extent that the sum of the portion of
the Transferor's Interest for [both] loan groups as of such
distribution date is less than the sum of the Required Transferor
Subordinated Amounts for [both] loan groups as of such distribution
date;]
(11) as payment to the master servicer for certain amounts that may be
required to be paid to the master servicer pursuant to the pooling and
servicing agreement;
(12) [to pay to the Certificateholders any Basis Risk Carryforward with
respect to such Certificates;] and
(13) to pay to the transferor to the extent permitted as described
herein.
Payments to Certificateholders pursuant to clause (3) will be interest
payments on the Certificates. Payments to Certificateholders pursuant to
clauses (4), (5) and (7) will be principal payments on the Certificates and
will therefore reduce the related Certificate Principal Balance; however,
payments pursuant to clause (7) will not reduce the related Invested Amount.
The Accelerated Principal Distribution Amount for a Class is not guaranteed by
the Policy.
[On each distribution date, if Investor Interest Collections with respect
to a Class of Certificates, plus any Crossover Amount available from the other
Class of Certificates, are insufficient to pay the amounts specified in items
(3), (4) and (5) above with respect to a Class of Certificates, the amount of
such insufficiency shall be withdrawn from the Reserve Fund to the extent of
funds on deposit therein.]
[The amount on deposit in the Reserve Fund will not exceed the excess of
(x) the sum of the Required Transferor Subordinated Amounts with respect to
[both] loan groups over (y) the sum of the portion of the Transferor's
Interest with respect to each loan group. Amounts in the Reserve Fund may only
be withdrawn therefrom and applied in accordance with the terms of the pooling
and servicing agreement.]
To the extent that Investor Interest Collections from a loan group are
applied to pay the interest on the related class of Certificates, Investor
Interest Collections for that loan group may be insufficient to cover related
Investor Loss Amounts. If such insufficiency exists after the related
Available Transferor Subordinated Amount[, the Crossover Amount and the
Reserve Fund] [have each been] [has] reduced to zero and results in the
related Certificate Principal Balance exceeding the related Invested Amount, a
draw will be made on the Policy in accordance with the terms of the Policy.
"Liquidation Loss Amount" means with respect to any Liquidated Mortgage
Loan, the unrecovered principal balance thereof at the end of the Collection
Period in which such mortgage loan became a Liquidated Mortgage Loan, after
giving effect to the Net Liquidation Proceeds in connection therewith. The
"Investor Loss Amount" for a loan group shall be the product of the Investor
Floating Allocation Percentage for that loan group and the Liquidation Loss
Amount for that loan group for such distribution date.
A "Liquidated Mortgage Loan" means, as to any distribution date, any
mortgage loan in respect of which the master servicer has determined, based on
the servicing procedures specified in the pooling and servicing agreement, as
of the end of the preceding Collection Period, that all Liquidation Proceeds
which it expects to recover with respect to the disposition of the mortgage
loan or the related mortgaged property have been recovered. The Investor Loss
Amount for a loan group will be allocated to the Certificates related to that
loan group.
As to any distribution date, the "Collection Period" is the calendar
month preceding each distribution date (or, in the case of the first
Collection Period, the period beginning after the cut-off date and ending on
the last day of [ ], 200[ ]).
Interest will be distributed on each distribution date at the applicable
certificate rate for the related Interest Period (as defined below). The
"certificate rate" for the Class [ ] Certificates for a Distribution Date will
generally equal a per annum rate equal to [the least of:]
(a) the sum of
o the London Interbank offered rate for one-month [Eurodollar]
deposits ("LIBOR"), calculated as specified below, as of the
second LIBOR Business Day prior to the immediately preceding
Distribution Date (or as of two LIBOR Business Days prior to the
Closing Date, in the case of the first distribution date) plus
o [ ]%
(b) a per annum rate equal to the weighted average of the loan rates of
the mortgage loans in loan group [ ] (weighted on the basis of the daily
average balance of each mortgage loan included in loan group [ ], during the
related billing cycle prior to the Collection Period relating to such
distribution date) net of
o the Servicing Fee Rate,
o the rate at which the fee payable to the trustee is calculated,
o the rate at which the premium payable to the Certificate Insurer
is calculated [and,
(c) [ ]%.]
[However, on any distribution date for which the certificate rate for a class
of certificates has been determined pursuant to clause (b) of the preceding
sentence, the excess of
o the amount of interest that would have accrued on those certificates
during the related Interest Period had such amount been determined
pursuant to clause (a) of the definition of the preceding sentence
(but not at a rate in excess of [ ]% per annum) over
o the interest actually accrued on those certificates during such
Interest Period (such excess is referred to as "Basis Risk
Carryforward")
will accrue interest at the certificate rate calculated pursuant to clause
(a), [but not to exceed clause (c)] (as adjusted from time to time) and will
be paid on subsequent distribution dates to the extent funds are available
therefor.]
Interest on the Certificates in respect of any distribution date will
accrue on the Certificate Principal Balance from the preceding distribution
date (or in the case of the first distribution date, from the Closing Date)
through the day preceding such distribution date (each such period, an
"Interest Period") on the basis of the actual number of days in the Interest
Period and a 360-day year. Interest payments on the Certificates will be
funded from Investor Interest Collections, Subordinated Transferor
Collections, [the Reserve Fund,] and, if necessary, from draws on the Policy.
Calculation of the LIBOR Rate. On the second LIBOR business day
immediately preceding each distribution date, the trustee shall determine
LIBOR for the Interest Period commencing on such distribution date. LIBOR for
the first Interest Period will be determined on the second LIBOR business day
preceding the Closing Date. LIBOR will equal the rate for United States dollar
deposits for one month which appears on the Telerate Screen Page 3750 as of
11:00 A.M., London time, on the second LIBOR business day prior to the first
day of such Interest Period. "Telerate Screen Page 3750" means the display
designated as page 3750 on the Bridge Telerate Service (or such other page as
may replace page 3750 on that service for the purpose of displaying London
interbank offered rates of major banks). If such rate does not appear on such
page (or such other page as may replace that page on that service, or if such
service is no longer offered, such other service for displaying LIBOR or
comparable rates as may be selected by the depositor after consultation with
the trustee), the rate will be the Reference Bank Rate. The "Reference Bank
Rate" will be determined on the basis of the rates at which deposits in United
States dollars are offered by the reference banks (which shall be three major
banks that are engaged in transactions in the London interbank market,
selected by the depositor after consultation with the trustee) as of 11:00
A.M., London time, on the day that is two LIBOR business days prior to the
immediately preceding distribution date to prime banks in the London interbank
market for a period of one month in amounts approximately equal to the
principal amount of the Certificates then outstanding. The trustee will
request the principal London office of each of the reference banks to provide
a quotation of its rate. If at least two such quotations are provided, the
rate will be the arithmetic mean of the quotations. If on such date fewer than
two quotations are provided as requested, the rate will be the arithmetic mean
of the rates quoted by one or more major banks in New York City, selected by
the depositor after consultation with the trustee, as of 11:00 A.M., New York
City time, on such date for loans in United States dollars to leading European
banks for a period of one month in amounts approximately equal to the
principal amount of the Certificates then outstanding. If no such quotations
can be obtained, the rate will be LIBOR for the preceding Interest Period.
"LIBOR business day" means any day other than (a) a Saturday or a Sunday or
(b) a day on which banking institutions in the State of New York or in the
city of London, England are required or authorized by law to be closed.
Transferor Collections. Collections allocable to the Transferor Interest
in respect of a loan group will be distributed to the transferor only to the
extent that such distribution will not reduce the amount of the portion of the
Transferor Interest relating to that loan group as of the related distribution
date below the applicable Minimum Transferor Interest. Amounts not distributed
to the transferor because of such limitations will be retained in the
Collection Account until the portion of the Transferor Interest relating to
each loan group exceeds the applicable Minimum Transferor Interest, at which
time such excess shall be released to the transferor. If any such amounts are
still retained in the Collection Account upon the commencement of the Rapid
Amortization Period, such amounts will be paid to the Certificateholders of
the related class of certificates as a reduction of the related Certificate
Principal Balance.
Distributions of Principal Collections. For each loan group, the period
beginning on the Closing Date and, unless a Rapid Amortization Event shall
have earlier occurred, through and including the Distribution Date in [ ] (the
"Managed Amortization Period"), the amount of principal collections payable to
Certificateholders as of each distribution date during the Managed
Amortization Period will equal, to the extent funds are available therefor,
the Scheduled Principal Collections Distribution Amount for such loan group
and distribution date. On any distribution date during the Managed
Amortization Period, the "Scheduled Principal Collections Distribution Amount"
for a loan group shall equal the lesser of the applicable Maximum Principal
Payment and the applicable Alternative Principal Payment. With respect to any
loan group and distribution date, the "Maximum Principal Payment" will equal
the product of the Investor Fixed Allocation Percentage for that loan group
and principal collections for such loan group and distribution date. With
respect to any loan group and distribution date, the "Alternative Principal
Payment" for that loan group will equal the greater of
o the amount (not less than zero) of Principal Collections for such
loan group and distribution date less the aggregate of Additional
Balances created on the mortgage loans in that loan group during the
related Collection Period; and
o [ ]% of the Certificate Principal Balance immediately prior to such
distribution date.
Beginning with the first distribution date following the end of the
Managed Amortization Period (such period, the "Rapid Amortization Period"),
the amount of principal collections payable to Certificateholders on each
distribution date will be equal to the Maximum Principal Payment for that loan
group.
If on any distribution date the Required Transferor Subordinated Amount
for a loan group is reduced below the then existing Available Transferor
Subordinated Amount for that loan group, the amount of principal collections
from the mortgage loans in that loan group payable to Certificateholders on
such distribution date will be correspondingly reduced by the amount of such
reduction.
The amount of Principal Collections for a loan group to be distributed to
Certificateholders on the first Distribution Date will reflect Principal
Collections and Additional Balances from the mortgage loans in that loan group
during the first Collection Period which is the period beginning on the
cut-off date and ending on the last day of [ ].
Distributions of Principal Collections from the mortgage loans in a loan
group based upon the related Investor Fixed Allocation Percentage may result
in distributions of principal to the related Certificateholders in amounts
that are greater relative to the declining balance of that loan group than
would be the case if the related Investor Floating Allocation Percentage were
used to determine the percentage of principal collections distributed in
respect of such Invested Amount. Principal Collections from the mortgage loans
in a loan group not allocated to the Certificateholders will be allocated to
the portion of the Transferor Interest related to that loan group. The
aggregate distributions of principal to the Certificateholders will not exceed
the Original Certificate Principal Balance.
In addition, to the extent of funds available therefor (including funds
available under the Policy), on the distribution date in [ ],
Certificateholders will be entitled to receive as a payment of principal an
amount equal to the outstanding Certificate Principal Balance.
The Paying Agent. The Paying Agent shall initially be the trustee,
together with any successor thereto in such capacity (the "Paying Agent"). The
Paying Agent shall have the revocable power to withdraw funds from the
Collection Account for the purpose of making distributions to the
Certificateholders.
Limited Subordination of Transferor Interest
If Investor Interest Collections[, Crossover Amounts and amounts on
deposit in the Reserve Fund] on any distribution date are insufficient to pay
(i) accrued interest due and any overdue accrued interest (with interest
thereon to the extent permitted by applicable law) on the related Certificates
and (ii) the applicable Investor Loss Amount on such distribution date (such
insufficiency being the "Required Amount"), a portion of the Interest
Collections from the mortgage loans in that loan group and principal
collections allocable to the portion of the Transferor Interest related to
that loan group (but not in excess of the applicable Available Transferor
Subordinated Amount) (the "Subordinated Transferor Collections") will be
applied to cover the Required Amount for that loan group. The portion of the
Required Amount for a loan group in respect of clause (ii) above not covered
by such Subordinated Transferor Collections will be reallocated to the portion
of the Transferor Interest related to that loan group, thereby reducing the
Transferor Interest (up to the applicable remaining Available Transferor
Subordinated Amount and not in excess of the Investor Loss Amounts for that
loan group). The portion of the Required Amount not covered by the application
of funds pursuant to the provisions of the preceding sentence may then be
satisfied by amounts available from the remaining Available Transferor
Subordinated Amount from the other loan group. If such Investor Interest
Collections for a loan group[, Crossover Amounts, amounts on deposit in the
Reserve Fund] and the amount of Subordinated Transferor Collections which have
been so applied to cover the applicable Required Amount are together
insufficient to pay the amounts set forth in item (i) of the definition of
Required Amount, then a draw will be made on the Policy to cover the amount of
such shortfall. In addition, if on any distribution date on which the
Available Transferor Subordinated Amount for a loan group is reduced to zero
the Certificate Principal Balance for that loan group exceeds the applicable
Invested Amount (after giving effect to all allocations and distributions with
respect to principal to be made on the Certificates on such distribution
date), a draw will be made on the Policy in the amount of such excess for such
distribution date. See "--The Policy."
With respect to any distribution date and loan group, the "Available
Transferor Subordinated Amount" shall equal the lesser of the portion of the
Transferor Interest for that loan group and the related Required Transferor
Subordinated Amount for such distribution date.
Rapid Amortization Events
As described above, the Managed Amortization Period will continue through
and including the distribution date in [ ], unless a Rapid Amortization Event
occurs prior to such date. "Rapid Amortization Event" refers to any of the
following events:
(a) the failure on the part of the seller
o to make a payment or deposit required under the pooling and
servicing agreement within three business days after the date
such payment or deposit is required to be made,
o to observe or perform in any material respect any other
covenants or agreements of the seller set forth in the pooling
and servicing agreement, which failure continues unremedied for
a period of 60 days after written notice;
(b) any representation or warranty made by the seller in the pooling and
servicing agreement proves to have been incorrect in any material respect when
made and continues to be incorrect in any material respect for a period of 60
days after written notice and as a result of which the interests of the
Certificateholders, the Certificate Insurer [or any other third party credit
enhancer] are materially and adversely affected; provided, however, that a
Rapid Amortization Event shall not be deemed to occur if the seller has
purchased or made a substitution for the related mortgage loan or mortgage
loans if applicable during such period (or within an additional 60 days with
the consent of the trustee) in accordance with the provisions of the pooling
and servicing agreement;
(c) the occurrence of certain events of bankruptcy, insolvency or
receivership relating to the transferor; or
(d) the trust fund becomes subject to regulation by the Securities and
Exchange Commission as an investment company within the meaning of the
Investment Company Act of 1940, as amended.
In the case of any event described in clause (a) or (b), a Rapid
Amortization Event will be deemed to have occurred only if, after the
applicable grace period, if any, described in such clauses, either the trustee
or Certificateholders holding Certificates evidencing more than 51% of the
aggregate principal amount of the Certificates, the Certificate Insurer (so
long as there is no default by the Certificate Insurer in the performance of
its obligations under the Policy) [or any other third party credit enhancer],
by written notice to the depositor and the master servicer (and to the
trustee, if given by the Certificate Insurer, [any other third party credit
enhancer] or the Certificateholders) declare that a Rapid Amortization Event
has occurred as of the date of such notice. In the case of any event described
in clause (c) or (d), a Rapid Amortization Event will be deemed to have
occurred without any notice or other action on the part of the trustee, the
Certificate Insurer or the Certificateholders immediately upon the occurrence
of such event.
In addition to the consequences of a Rapid Amortization Event discussed
above, if the transferor voluntarily files a bankruptcy petition or goes into
liquidation or any person is appointed a receiver or bankruptcy trustee of the
transferor, on the day of any such filing or appointment no further Additional
Balances will be transferred to the trust fund, the transferor will
immediately cease to transfer Additional Balances to the trust fund and the
transferor will promptly give notice to the trustee of any such filing or
appointment. Within 15 days, the trustee will publish a notice of the
liquidation or the filing or appointment stating that the Trustee intends to
sell, dispose of or otherwise liquidate the mortgage loans in a commercially
reasonable manner and to the best of its ability. Unless otherwise instructed
within a specified period by Certificateholders representing undivided
interests aggregating more than 51% of the aggregate principal amount of the
Certificates, the trustee will sell, dispose of or otherwise liquidate the
mortgage loans in a commercially reasonable manner and on commercially
reasonable terms. Any proceeds will be treated as collections allocable to the
Certificateholders and the Investor Fixed Allocation Percentage of such
remaining proceeds and will be distributed to the Certificateholders on the
date such proceeds are received . If the portion of such proceeds allocable to
the Certificateholders are not sufficient to pay in full the remaining amount
due on the Certificates, the Policy will cover such shortfall.
Notwithstanding the foregoing, if a conservator, receiver or
trustee-in-bankruptcy is appointed for the transferor and no Rapid
Amortization Event exists other than such conservatorship, receivership or
insolvency of the transferor, the conservator, receiver or
trustee-in-bankruptcy may have the power to prevent the commencement of the
Rapid Amortization Period.
The Policy
[On or before the Closing Date, the Policy will be issued by the
Certificate Insurer pursuant to the provisions of the pooling and servicing
agreement and the Insurance and Indemnity Agreement (the "Insurance
Agreement") to be dated as of the Closing Date, among the seller, the
depositor, the master servicer, the trustee and the Certificate Insurer.
The Policy will irrevocably and unconditionally guarantee payment on each
distribution date to the trustee for the benefit of the Certificateholders of
each class of Certificates the full and complete payment of Insured Amounts
with respect to the related Certificates for such distribution date. An
"Insured Amount" shall equal with respect to each class of Certificates as of
any distribution date any shortfall in amounts available in the Collection
Account to pay [(a)] (i) the Guaranteed Principal Distribution Amount (as
defined herein) with respect to the related Certificates for such distribution
date and (ii) accrued and unpaid interest due on the related Certificates
(together, the "Guaranteed Distributions"), with such Guaranteed Distributions
having been calculated in accordance with the original terms of the
Certificates or the pooling and servicing agreement after giving effect to
amendments or modifications to which the Certificate Insurer has given its
prior written consent and (b) any Preference Amount (as defined herein) which
occurs prior to the related determination date. The effect of the Policy is to
guarantee the timely payment of interest on, and the ultimate payment of the
principal amount of, all of the Certificates. [The Policy does not cover any
Basis Risk Carryforward.]
The "Guaranteed Principal Distribution Amount" for any Class of
Certificates and distribution date (other than the distribution date in [ ] on
which the sum of the Available Transferor Subordinated Amounts for [both] loan
groups and the Reserve Fund has been reduced to or equals zero, shall be the
amount, if any, by which the Certificate Principal Balance of such Class of
Certificates (after giving effect to all other amounts distributable and
allocable to principal on the Certificates) exceeds the related Invested
Amount as of such distribution date (after giving effect to all other amounts
distributable and allocable to principal on the Certificates for such
distribution date) and on the distribution date in [ ] (after giving effect to
all other amounts distributable and allocable to principal on such
distribution date) any amount necessary to pay the outstanding Certificate
Principal Balance.
A "Preference Amount" means any amount previously distributed to a
Certificateholder that is recoverable and recovered as a voidable preference
by a trustee in bankruptcy pursuant to the United States Bankruptcy Code, as
amended from time to time, in accordance with a final nonappealable order of a
court having competent jurisdiction. If the Certificate Insurer is required to
pay any Preference Amount, the Certificate Insurer will pay such amount on the
later of
(a) the date when due to be paid pursuant to the order referred to below
or
(b) the first to occur of
o the fourth Business Day following Receipt by the Certificate
Insurer from the trustee of (A) a certified copy of the order of
the court or other governmental body which exercised jurisdiction
to the effect that the Certificateholder is required to return
the amount of any Guaranteed Distributions distributed with
respect to the Certificates during the term of the related Policy
because such distributions were avoidable preferences under
applicable bankruptcy law, (B) a certificate of the
Certificateholder that the order has been entered and is not
subject to any stay and (C) an assignment duly executed and
delivered by the Certificateholder, in such form as is reasonably
required by the Certificate Insurer and provided to the
Certificateholder by the Certificate Insurer, irrevocably
assigning to the Certificate Insurer all rights and claims of the
Certificateholder arising under the Certificates against the
debtor which made such preference payment or otherwise with
respect to such preference payment, or
o the date of Receipt by the Certificate Insurer from the trustee
of the items referred to in clauses (A), (B) and (C) above if, at
least four Business Days prior to Receipt, the Certificate
Insurer shall have received written notice from the trustee that
such items were to be delivered on such date and such date was
specified in such notice
Payment of claims on the Policy will be made by the Certificate Insurer
following Receipt by the Certificate Insurer of the appropriate notice for
payment (and any other required documentation) on the later to occur of (i)
12:00 noon, New York City time, on the second Business Day following Receipt
of such notice for payment and (ii) 12:00 noon, New York City time, on the
relevant Distribution Date.
The terms "Receipt" and "Received," with respect to the Policy, mean
actual delivery to the Certificate Insurer prior to 12:00 noon, New York City
time, on a business day; delivery either on a day that is not a business day
or after 12:00 noon, New York City time, shall be deemed to be Received on the
next succeeding business day. If any notice or certificate given under the
Policy by the trustee is not in proper form or is not properly completed,
executed or delivered, it shall be deemed not to have been Received, and the
Certificate Insurer shall promptly so advise the trustee and the trustee may
submit an amended notice.
Under the Policy, "business day" means any day other than (i) a Saturday
or Sunday or (ii) a day on which banking institutions in the states of New
York, [California or Illinois or the city in which the corporate trust office
of the trustee or the Certificate Insurer is located], are authorized or
obligated by law or executive order to be closed.
The Certificate Insurer's obligations under the Policy in respect of
Insured Amounts shall be discharged to the extent funds are transferred to the
trustee as provided in the Policy, whether or not such funds are properly
applied by the trustee.
The Certificate Insurer shall be subrogated to the rights of each
Certificateholder to receive payments of principal and interest, as
applicable, with respect to distributions on the Certificates to the extent of
any payment by the Certificate Insurer under the Policy. To the extent the
Certificate Insurer pays Insured Amounts, either directly or indirectly (as by
paying through the Trustee), to the Certificateholders, the Certificate
Insurer will be subrogated to the rights of the Certificateholders, as
applicable, with respect to such Insured Amounts and shall be deemed to the
extent of the payments so made to be a registered Certificateholder for
purposes of payment.
The terms of the Policy cannot be modified, altered or affected by any
other agreement or instrument, or by the merger, consolidation or dissolution
of the seller. The Policy by its terms may not be cancelled or revoked. The
Policy is governed by the laws of the State of [New York].
Insured Amounts shall be paid only at the time set forth in the Policy
and no accelerated Insured Amounts shall be paid regardless of any
acceleration of the Certificates, unless such acceleration is at the sole
option of the Certificate Insurer. The Policy does not cover shortfalls, if
any, attributable to the liability of the trust fund or the trustee for
withholding taxes, if any (including interest and penalties in respect of any
such liability).
Capitalized terms used in the Policy and not otherwise defined in the
Policy shall have the respective meanings set forth in the pooling and
servicing agreement as of the date of execution of the Policy, without giving
effect to any subsequent amendment or modification to the pooling and
servicing agreement unless such amendment or modification has been approved in
writing by the Certificate Insurer.
Pursuant to the terms of the pooling and servicing agreement, unless a
Certificate Insurer default exists, the Certificate Insurer shall be deemed to
be the Holder of the Certificates for certain purposes (other than with
respect to payment on the Certificates), will be entitled to exercise all
rights of the Certificateholders thereunder without the consent of such
Holders, and the Holders of the Certificates may exercise such rights only
with the prior written consent of the Certificate Insurer. In addition, the
Certificate Insurer will have certain additional rights as a third party
beneficiary to the pooling and servicing agreement.]
The Certificate Insurer
The following information set forth in this section has been provided by
[Certificate Insurer] (the "Certificate Insurer"). Accordingly, none of the
depositor, the seller and master servicer[, any third party credit. enhancer]
or the underwriter makes any representation as to the accuracy and
completeness of such information.
[Description of Certificate Insurer, including Financial Information]
Reports to Certificateholders
Concurrently with each distribution to the Certificateholders, the master
servicer will forward to the trustee for mailing to such Certificateholder a
statement setting forth among other items:
(i) the Investor Floating Allocation Percentage for each loan group
for the preceding Collection Period;
(ii) the amount being distributed to each class of certificates;
(iii) the amount of interest included in such distribution and the
related certificate rate for each class of certificates;
(iv) the amount, if any, of overdue accrued interest for a class of
certificates included in such distribution (and the amount of
interest thereon to the extent permitted by applicable law);
(v) the amount, if any, of the remaining overdue accrued interest for
a class of certificates after giving effect to such distribution;
(vi) the amount, if any, of principal included in such distribution;
(vii) the amount, if any, of the reimbursement of previous [Investor
Loss Amounts][Liquidation Loss Amounts] for a class of
certificates included in such distribution,
(viii) [the amount, if any, of Basis Risk Carryforward for a class of
certificates paid and the amount, if any, of Basis Risk
Carryforward accrued;]
(ix) the amount, if any, of the aggregate unreimbursed [Investor Loss
Amounts][Liquidation Loss Amounts] for a class of certificates
after giving effect to such distribution;
(x) the Servicing Fee for such distribution date;
(xi) [for each class of certificates:] the Invested Amount, [and] the
Certificate Principal Balance [and the Pool Factor], each after
giving effect to such distribution;
(xii) the loan group balance of each loan group as of the end of the
preceding Collection Period;
(xiii) the number and aggregate principal balances of the mortgage loans
in each loan group as to which the minimum monthly payment is
delinquent for 30-59 days, 60-89 days and 90 or more days,
respectively, as of the end of the preceding Collection Period;
(xiv) the book value of any real estate in each loan group which is
acquired by the trust fund through foreclosure or grant of deed
in lieu of foreclosure;
(xv) the amount of any draws on the Policy [or payments under third
party credit enhancement for loan group [ ]];
(xvi) [the amount on deposit in the Reserve Fund on the preceding
distribution date, after giving effect to all distributions made
on that date, the amount withdrawn from the Reserve Fund with
respect to this distribution date, and the amount remaining on
deposit in the Reserve Fund;] and
(xvii) [with respect to the first and second distribution dates, the
number and aggregate balance of any mortgage loans in [either]
loan group not delivered to the trustee within 30 days after the
Closing Date.]
In the case of information furnished pursuant to clauses (iii), (iv),
(v), (vi), (vii) and (viii) above, the amounts shall be expressed as a dollar
amount per $[1,000] increment of Certificates.
Within 60 days after the end of each calendar year commencing in 200[ ],
the master servicer will be required to forward to the Trustee a statement
containing the information set forth in clauses (iii) and (vi) above
aggregated for such calendar year.
Collection and Other Servicing Procedures on Mortgage Loans
The master servicer will make reasonable efforts to collect all payments
called for under the mortgage loans and will, consistent with the pooling and
servicing agreement, follow such collection procedures as it follows from time
to time with respect to the home equity loans in its servicing portfolio
comparable to the mortgage loans. Consistent with the above, the master
servicer may in its discretion waive any late payment charge or any assumption
or other fee or charge that may be collected in the ordinary course of
servicing the mortgage loans.
With respect to the mortgage loans, the master servicer may arrange with
a borrower a schedule for the payment of interest due and unpaid for a period,
provided that any such arrangement is consistent with the master servicer's
policies with respect to the mortgage loans it owns or services. In accordance
with the terms of the pooling and servicing agreement, the master servicer may
consent under certain circumstances to the placing of a subsequent senior lien
in respect of a mortgage loan.
Hazard Insurance
The pooling and servicing agreement provides that the master servicer
maintain certain hazard insurance on the mortgaged properties relating to the
mortgage loans. While the terms of the related credit line agreements
generally require borrowers to maintain certain hazard insurance, the master
servicer will not monitor the maintenance of such insurance.
The pooling and servicing agreement requires the master servicer to
maintain for any mortgaged property relating to a mortgage loan acquired upon
foreclosure of a mortgage loan, or by deed in lieu of such foreclosure, hazard
insurance with extended coverage in an amount equal to the lesser of
o the maximum insurable value of such mortgaged property or
o the outstanding balance of such mortgage loan plus the outstanding
balance on any mortgage loan senior to such mortgage loan at the time
of foreclosure or deed in lieu of foreclosure, plus accrued interest
and the master servicer's good faith estimate of the related
liquidation expenses to be incurred in connection therewith.
The pooling and servicing agreement provides that the master servicer may
satisfy its obligation to cause hazard policies to be maintained by
maintaining a blanket policy insuring against losses on such mortgaged
properties. If such blanket policy contains a deductible clause, the master
servicer will be obligated to deposit in the Collection Account the sums which
would have been deposited therein but for such clause. The master servicer
will satisfy these requirements by maintaining a blanket policy. As set forth
above, all amounts collected by the master servicer (net of any reimbursements
to the master servicer) under any hazard policy (except for amounts to be
applied to the restoration or repair of the mortgaged property) will
ultimately be deposited in the Collection Account.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property by fire,
lightning, explosion, smoke, windstorm and hail, and the like, strike and
civil commotion, subject to the conditions and exclusions specified in each
policy. Although the policies relating to the mortgage loans will be
underwritten by different insurers and therefore will not contain identical
terms and conditions, the basic terms thereof are dictated by state laws and
most of such policies typically do not cover any physical damage resulting
from the following: war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), nuclear reactions, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases, vandalism. The foregoing list
is merely indicative of certain kinds of uninsured risks and is not intended
to be all-inclusive or an exact description of the insurance policies relating
to the mortgaged properties.
Realization Upon Defaulted Mortgage Loans
The master servicer will foreclose upon or otherwise comparably convert
to ownership mortgaged properties securing such of the mortgage loans as come
into default when, in accordance with applicable servicing procedures under
the pooling and servicing agreement, no satisfactory arrangements can be made
for the collection of delinquent payments. In connection with such foreclosure
or other conversion, the master servicer will follow such practices as it
deems necessary or advisable and as are in keeping with its general mortgage
servicing activities, provided the master servicer will not be required to
expend its own funds in connection with foreclosure or other conversion,
correction of default on a related senior mortgage loan or restoration of any
property unless, in its sole judgment, such foreclosure, correction or
restoration will increase net liquidation proceeds. The master servicer will
be reimbursed out of liquidation proceeds [and, if necessary, from other
collections on or in respect of the mortgage loans,] for advances of its own
funds as liquidation expenses before any net liquidation proceeds are
distributed to Certificateholders or the transferor.
Optional Purchase of Defaulted Loan
The master servicer may, at its option, purchase from the trust fund any
mortgage loan which is delinquent in payment for 91 days or more. Any such
purchase shall be at a price equal to 100% of the principal balance of such
mortgage loan plus accrued interest thereon at the applicable loan rate from
the date through which interest was last paid by the related mortgagor to the
first day of the month in which such amount is to be distributed to
Certificateholders.
Servicing Compensation and Payment of Expenses
With respect to each Collection Period, the master servicer will receive
from interest received on the mortgage loans a portion of such interest
collections as a monthly Servicing Fee in the amount equal to [ ]% per annum
("Servicing Fee Rate") on the aggregate principal balances of the mortgage
loans as of the first day of the related Collection Period. All assumption
fees, late payment charges and other fees and charges, to the extent collected
from borrowers, will be retained by the master servicer as additional
servicing compensation.
The master servicer will pay certain ongoing expenses associated with the
trust fund and incurred by it in connection with its responsibilities under
the pooling and servicing agreement. In addition, the master servicer will be
entitled to reimbursement for certain expenses incurred by it in connection
with defaulted mortgage loans and in connection with the restoration of
mortgaged properties, such right of reimbursement being prior to the rights of
Certificateholders to receive any related net liquidation proceeds and, if
necessary, other collections on or in respect of the mortgage loans.
Evidence as to Compliance
The pooling and servicing agreement provides for delivery on or before
[May 31] in each year, beginning [May 31, 200[ ]], to the trustee of an annual
statement signed by an officer of the master servicer to the effect that the
master servicer has fulfilled its material obligations under the pooling and
servicing agreement throughout the preceding fiscal year, except as specified
in such statement.
On or before [May 31] of each year, beginning [May 31, 200[ ]], the
master servicer will furnish a report prepared by a firm of nationally
recognized independent public accountants (who may also render other services
to the master servicer or the transferor) to the trustee, the Certificate
Insurer[, any other third party credit enhancer] and the Rating Agencies to
the effect that such firm has examined certain documents and the records
relating to servicing of the mortgage loans under the pooling and servicing
agreement and that, on the basis of such examination, such firm believes that
such servicing was conducted in compliance with the pooling and servicing
agreement except for (a) such exceptions as such firm believes to be
immaterial and (b) such other exceptions as shall be set forth in such report.
Certain Matters Regarding the Master Servicer and the Transferor
The pooling and servicing agreement provides that the master servicer may
not resign from its obligations and duties thereunder, except in connection
with a permitted transfer of servicing, unless
(a) such duties and obligations are no longer permissible under
applicable law or are in material conflict by reason of applicable law
with any other activities of a type and nature presently carried on by
it or its affiliate or
(b) upon the satisfaction of the following conditions:
o the master servicer has proposed a successor servicer to the
trustee in writing and such proposed successor servicer is
reasonably acceptable to the trustee;
o the Rating Agencies have confirmed to the trustee that the
appointment of such proposed successor servicer as the master
servicer will not result in the reduction or withdrawal of the
then current rating of the certificates without regard to the
Policy [or any other third party credit enhancement]; and
o such proposed successor servicer is reasonably acceptable to the
Certificate Insurer.
No such resignation will become effective until the trustee or a
successor servicer has assumed the master servicer's obligations and duties
under the pooling and servicing agreement.
The master servicer may perform any of its duties and obligations under
the pooling and servicing agreement through one or more subservicers or
delegates, which may be affiliates of the master servicer. Notwithstanding any
such arrangement, the master servicer will remain liable and obligated to the
trustee and the Certificateholders for the master servicer's duties and
obligations under the pooling and servicing agreement, without any diminution
of such duties and obligations and as if the master servicer itself were
performing such duties and obligations.
The pooling and servicing agreement provides that the master servicer
will indemnify the trust fund and the trustee from and against any loss,
liability, expense, damage or injury suffered or sustained as a result of the
master servicer's actions or omissions in connection with the servicing and
administration of the mortgage loans which are not in accordance with the
provisions of the pooling and servicing agreement. Under the pooling and
servicing agreement, the transferor will indemnify an injured party for the
entire amount of any losses, claims, damages or liabilities arising out of or
based on the pooling and servicing agreement to the extent described therein
(other than losses resulting from defaults under the mortgage loans). In the
event of an Event of Servicing Termination (as defined below) resulting in the
assumption of servicing obligations by a successor master servicer, the
successor master servicer will indemnify the transferor for any losses,
claims, damages and liabilities of the transferor as described in this
paragraph arising from the successor master servicer's actions or omissions.
The pooling and servicing agreement provides that neither the depositor, the
transferor nor the master servicer nor their directors, officers, employees or
agents will be under any other liability to the trust fund, the trustee, the
Certificateholders or any other person for any action taken or for refraining
from taking any action pursuant to the pooling and servicing agreement.
However, neither the depositor, the transferor nor the master servicer will be
protected against any liability which would otherwise be imposed by reason of
willful misconduct, bad faith or gross negligence of the depositor, the
transferor or the master servicer in the performance of its duties under the
pooling and servicing agreement or by reason of reckless disregard of its
obligations thereunder. In addition, the pooling and servicing agreement
provides that the master servicer will not be under any obligation to appear
in, prosecute or defend any legal action which is not incidental to its
servicing responsibilities under the pooling and servicing agreement and which
in its opinion may expose it to any expense or liability. The master servicer
may, in its sole discretion, undertake any such legal action which it may deem
necessary or desirable with respect to the pooling and servicing agreement and
the rights and duties of the parties thereto and the interest of the
Certificateholders thereunder.
Any corporation into which the master servicer may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the master servicer shall be a party, or any
corporation succeeding to the business of the master servicer shall be the
successor of the master servicer under the pooling and servicing agreement,
without the execution or filing of any paper or any further act on the part of
any of the parties thereto, anything in the pooling and servicing agreement to
the contrary notwithstanding.
Events of Servicing Termination
"Events of Servicing Termination" will consist of:
(i) any failure by the master servicer to deposit in the Collection
Account any deposit required to be made under the pooling and
servicing agreement, which failure continues unremedied for five
business days [(or, if the master servicer is permitted to remit
collections in respect of the mortgage loans to the Collection
Account on a monthly basis as described under "--Payments on
Mortgage Loans; Deposits to Collection Account," three business
days)] after the giving of written notice of such failure to the
master servicer by the trustee, or to the master servicer and the
trustee by the Certificate Insurer or Certificateholders
evidencing an aggregate undivided interest in the Trust Fund of at
least 25% of the aggregate Certificate Principal Balance;
(ii) any failure by the master servicer duly to observe or perform in
any material respect any other of its covenants or agreements in
the Certificates or the pooling and servicing agreement which, in
each case, materially and adversely affects the interests of the
Certificateholders[, any other third party credit enhancer] or the
Certificate Insurer and continues unremedied for 60 days after the
giving of written notice of such failure to the master servicer by
the trustee, or to the master servicer and the trustee by the
Certificate Insurer[, any other third party credit enhancer] or
Certificateholders evidencing an aggregate, undivided interest in
the trust fund of at least 25% of the aggregate Certificate
Principal Balance; or
(iii) certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings relating to the
master servicer and certain actions by the master servicer
indicating insolvency, reorganization or inability to pay its
obligations. Under certain other circumstances, the Certificate
Insurer or the holders of Certificates evidencing an aggregate,
undivided interest in the trust fund of at least 66 2/3% of the
aggregate Certificate Principal Balance may deliver written notice
to the master servicer terminating all the rights and obligations
of the master servicer under the pooling and servicing agreement.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (i) above for a period of ten or more business days
or referred to under clause (ii) above for a period of 60 or more business
days, shall not constitute an Event of Servicing Termination if such delay or
failure could not be prevented by the exercise of reasonable diligence by the
master servicer and such delay or failure was caused by an act of God or other
similar occurrence. Upon the occurrence of any such event the master servicer
shall not be relieved from using its best efforts to perform its obligations
in a timely manner in accordance with the terms of the pooling and servicing
agreement and the master servicer shall provide the trustee, the depositor,
the transferor, the Certificate Insurer[, any other third party credit
enhancer] and the Certificateholders prompt notice of such failure or delay by
it, together with a description of its efforts to so perform its obligations.
Rights Upon an Event of Servicing Termination
So long as an Event of Servicing Termination remains unremedied, either
the trustee, or Certificateholders evidencing an aggregate undivided interest
in the trust fund of at least 66 2/3% of the aggregate Certificate Principal
Balance [(with the consent of the Certificate Insurer)] or the Certificate
Insurer, may terminate all of the rights and obligations of the master
servicer under the pooling and servicing agreement, whereupon the trustee will
succeed to all the responsibilities, duties and liabilities of the master
servicer under the pooling and servicing agreement and will be entitled to
similar compensation arrangements. In the event that the trustee would be
obligated to succeed the master servicer but is unwilling or unable so to act,
it may appoint, or petition a court of competent jurisdiction for the
appointment of, a housing and home finance institution or other mortgage loan
or home equity loan servicer with all licenses and permits required to perform
its obligations under the pooling and servicing agreement and having a net
worth of at least $[ ] and acceptable to the Certificate Insurer to act as
successor to the master servicer under the pooling and servicing agreement.
Pending such appointment, the trustee will be obligated to act in such
capacity unless prohibited by law. Such successor will be entitled to receive
the same compensation that the master servicer would otherwise have received
(or such lesser compensation as the trustee and such successor may agree
upon). A receiver or conservator for the master servicer may be empowered to
prevent the termination and replacement of the master servicer where the Event
of Servicing Termination that has occurred is an Insolvency Event.
Amendment
The pooling and servicing agreement may be amended from time to time by
the seller, the master servicer, the depositor and the trustee and with the
consent of the Certificate Insurer, but without the consent of the
Certificateholders,
o to cure any ambiguity,
o to correct any defective provision or to correct or supplement any
provisions therein which may be inconsistent with any other
provisions of the pooling and servicing agreement,
o to add to the duties of the depositor, the seller, [the transferor]
or the master servicer,
o [to add or amend any provisions of the pooling and servicing
agreement as required by the Rating Agencies in order to maintain or
improve any rating of the Certificates (it being understood that,
after obtaining the ratings in effect on the Closing Date, neither
the transferor, the seller, the depositor, the trustee nor the master
servicer is obligated to obtain, maintain, or improve any such
rating),]
o to add any other provisions with respect to matters or questions
arising under the pooling and servicing agreement [or the Policy
which shall not be inconsistent with the provisions of the pooling
and servicing agreement [or any other third party credit
enhancement],]
o [to comply with any requirement imposed by the Code (as defined
herein)] or
o [to modify, alter, amend, add to or rescind any of the terms or
provisions contained in the pooling and servicing agreement][to
increase the limits set forth in the pooling and servicing agreement
as to the amount of senior liens which the master servicer may
consent to,] provided that such action will not, as evidenced by an
opinion of counsel, materially and adversely affect the interests of
any Certificateholder, the Certificate Insurer [or any other third
party credit enhancer];
provided, that any such amendment will not be deemed to materially and
adversely affect the Certificateholders and no such opinion will be required
to be delivered if the person requesting such amendment obtains a letter from
the Rating Agencies stating that such amendment would not result in a
downgrading of the then current rating of the Certificates without regard to
the Policy [or any other third party credit enhancement.
The pooling and servicing agreement may also be amended from time to time
by [the seller,] the master servicer, the depositor, and the trustee [and the
master servicer and the Certificate Insurer may from time to time consent to
the amendment of the Policy,] with the consent of the Certificateholders with
certificates evidencing at least 51% of the Certificate Principal Balance of
the affected class and the Certificate Insurer for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of the pooling and servicing agreement or of modifying in any manner the
rights of the Certificateholders, provided that no such amendment will
o reduce in any manner the amount of, or delay the timing of, payments
on the Certificates or distributions or payments under the Policy
which are required to be made on any Certificate without the consent
of the Holder of such Certificate,
o [adversely affect in any material respect the interests of the
Certificate Insurer [or any other third party credit enhancer].]
o reduce the aforesaid percentage required to consent to any such
amendment, without the consent of the Holders of all Certificates
then outstanding or
o adversely affect in any material respect the interests of the holders
of any Class of Certificates in a manner other than described next to
the first bullet point above, without the consent of the olders of
certificates of such Class evidencing, as to such Class, percentage
interests aggregating 66 2/3%.
Termination; Retirement of the Certificates
The trust fund will terminate on the distribution date following the
later of
(A) payment in full of all amounts owing to the Certificate Insurer [and
any other third party credit enhancer] and
(B) the earliest of
o the distribution date on which the Certificate Principal Balance
of each class of certificates has been reduced to zero,
o the final payment or other liquidation of the last mortgage loan
in the trust fund,
o the optional transfer to the transferor of the certificates, as
described below; and
o the distribution date in [ ].
The certificates will be subject to optional transfer to the transferor
on any distribution date on or after which the aggregate Certificate Principal
Balance [of both classes of certificates] is reduced to an amount less than or
equal to [10]% of the aggregate Original Certificate Principal Balance [for
both classes of certificates] and all amounts due and owing to the Certificate
Insurer [and any other third party credit enhancer] including any unreimbursed
draws on the Policy [and unreimbursed payments under other third party credit
enhancement], together with interest thereon, as provided under the Insurance
Agreement, have been paid. The transfer price will be equal to the sum of
o the outstanding Certificate Principal Balance of each class of
certificates plus accrued and unpaid interest thereon at the
applicable Certificate Rate through the day preceding the final
distribution date [and
o an amount equal to any Basis Risk Carryforward for each class of
certificates plus accrued and unpaid interest thereon.]
In no event, however, will the trust fund created by the pooling and servicing
agreement continue for more than 21 years after the death of certain
individuals named in the pooling and servicing agreement. Written notice of
termination of the pooling and servicing agreement will be given to each
certificateholder, and the final distribution will be made only upon surrender
and cancellation of the certificates at an office or agency appointed by the
trustee which will be specified in the notice of termination.
[In addition, Certificates must be prepaid and redeemed in part with any
funds remaining in the relevant additional loan account on [ ] after the
purchase of any Additional Home Equity Loans on that day.]
The Trustee
[Name of trustee], a [national] banking association with its principal
place of business in [State], has been named trustee pursuant to the pooling
and servicing agreement.
The commercial bank or trust company serving as trustee may own
Certificates and have normal banking relationships with the depositor, the
master servicer, the seller and the Certificate Insurer and/or their
affiliates.
The trustee may resign at any time, in which event the depositor will be
obligated to appoint a successor trustee, as approved by the Certificate
Insurer. The depositor may also remove the trustee if the trustee ceases to be
eligible to continue as such under the pooling and servicing agreement or if
the trustee becomes insolvent. Upon becoming aware of such circumstances, the
depositor will be obligated to appoint a successor trustee, as approved by the
Certificate Insurer. Any resignation or removal of the trustee and appointment
of a successor trustee will not become effective until acceptance of the
appointment by the successor trustee.
No holder of a Certificate will have any right under the pooling and
servicing agreement to institute any proceeding with respect to the pooling
and servicing agreement unless such holder previously has given to the trustee
written notice of default and unless Certificateholders evidencing an
aggregate, undivided interest in the trust fund of at least 51% of the
aggregate Certificate Principal Balance have made written requests upon the
trustee to institute such proceeding in its own name as trustee thereunder and
have offered to the trustee reasonable indemnity and the trustee for 60 days
has neglected or refused to institute any such proceeding. The trustee will be
under no obligation to exercise any of the trusts or powers vested in it by
the pooling and servicing agreement or to make any investigation of matters
arising thereunder or to institute, conduct or defend any litigation
thereunder or in relation thereto at the request, order or direction of any of
the Certificateholders, unless such Certificateholders have offered to the
trustee reasonable security or indemnity against the cost, expenses and
liabilities which may be incurred therein or thereby.
Certain Activities
The Trust Fund will not borrow money, make loans, invest in securities
for the purpose of exercising control, underwrite securities, (except as
provided in the pooling and servicing agreement) engage in the purchase and
sale (or turnover) of investments, offer securities in exchange for property
(except the Certificates for the mortgage loans), or repurchase or otherwise
reacquire its securities. See "--Evidence as to Compliance" above for
information regarding reports as to the compliance by the master servicer with
the terms of the pooling and servicing agreement.
Description of the Purchase Agreement
The mortgage loans to be transferred to the trust fund by the depositor
will be purchased by the depositor from the seller pursuant to a purchase
agreement (the "Purchase Agreement") to be entered into between the depositor,
as purchaser of the mortgage loans, and the seller, as transferor of the
mortgage loans. Under the Purchase Agreement, the seller will agree to
transfer the mortgage loans and related Additional Balances to the depositor.
Pursuant to the pooling and servicing agreement, the mortgage loans will be
immediately transferred by the depositor to the trust fund, and the depositor
will assign its rights in, to and under the Purchase Agreement to the trust
fund. The following is a description of the material provisions of the
Purchase Agreement.
Transfers of Mortgage Loans
Pursuant to the Purchase Agreement, the seller will transfer and assign
to the depositor, all of its interest in the mortgage loans [(including any
Additional Home Equity Loans)] and all of the Additional Balances thereafter
created. The purchase price of the mortgage loans is a specified percentage of
the face amount thereof as of the time of transfer and is payable by the
depositor in cash. The purchase price of each Additional Balance comprising
the principal balance of a mortgage loan is the amount of such Additional
Balance.
Representations and Warranties
The seller will represent and warrant to the depositor that, among other
things, as of the Closing Date, it is duly organized and in good standing and
that it has the authority to consummate the transactions contemplated by the
Purchase Agreement. The seller will also represent and warrant to the
depositor that, among other things, immediately prior to the sale of the
mortgage loans to the depositor, the seller was the sole owner and holder of
the mortgage loans free and clear of any and all liens and security interests.
The seller will make similar representations and warranties in the pooling and
servicing agreement. The seller will also represent and warrant to the
depositor that, among other things, as of the Closing Date, (a) the Purchase
Agreement constitutes a legal, valid and binding obligation of the seller and
(b) the Purchase Agreement constitutes a valid sale to the depositor of all
right, title and interest of the seller in and to the mortgage loans and the
proceeds thereof.
Assignment to Trust Fund
The seller will expressly acknowledge and consent to the depositor's
transfer of its rights relating to the mortgage loans under the pooling and
servicing agreement to the trust fund. The seller also will agree to perform
its obligations under the Purchase Agreement for the benefit of the trust
fund.
Termination
The Purchase Agreement will terminate upon the termination of the trust
fund.
Use of Proceeds
The net proceeds to be received from the sale of the Class [ ]
Certificates will be applied by the depositor towards the purchase of the
initial loan group [ ] mortgage loans [and the deposit to the Additional Loan
Account].
Material Federal Income Tax Consequences
General
The following discussion, which summarizes the material U.S. federal
income tax aspects of the purchase, ownership and disposition of the
Certificates, is based on the provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), the Treasury Regulations thereunder, and published
rulings and court decisions in effect as of the date hereof, all of which are
subject to change, possibly retroactively. This discussion does not address
every aspect of the U.S. federal income tax laws which may be relevant to
Certificate Owners in light of their personal investment circumstances or to
certain types of Certificate Owners subject to special treatment under the
U.S. federal income tax laws (for example, banks and life insurance
companies). Accordingly, investors should consult their tax advisors regarding
U.S. federal, state, local, foreign and any other tax consequences to them of
investing in the Certificates.
Characterization of the Certificates as Indebtedness
Based on the application of existing law to the facts as set forth in the
pooling and servicing agreement and other relevant documents and assuming
compliance with the terms of the pooling and servicing agreement as in effect
on the date of issuance of the Certificates, Brown & Wood LLP, special tax
counsel to the depositor (`"Tax Counsel"), is of the opinion that the
Certificates will be treated as debt instruments for federal income tax
purposes as of such date. Accordingly, upon issuance, the Certificates will be
treated as "Debt Securities" as described in the Prospectus. Furthermore,
special tax counsel to the depositor is of the opinion that neither the trust
fund nor any portion of the trust fund will be treated as either an
association or a publicly traded partnership taxable as a corporation or as a
taxable mortgage pool. See "Federal Income Tax Consequences" in the
prospectus.
The transferor and the Certificateholders express in the pooling and
servicing agreement their intent that, for applicable tax purposes, the
Certificates will be indebtedness secured by the mortgage loans. The
transferor, the depositor and the Certificateholders, by accepting the
Certificates, and each Certificate Owner by its acquisition of a beneficial
interest in a Certificate, have agreed to treat the Certificates as
indebtedness for U.S. federal income tax purposes. However, because different
criteria are used to determine the non-tax accounting characterization of the
transaction, the Transferor intends to treat this transaction as a sale of an
interest in the principal balances of the mortgage loans for financial
accounting purposes.
In general, whether for U.S. federal income tax purposes a transaction
constitutes a sale of property or a loan, the repayment of which is secured by
property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction rather than its form or the manner in
which it is labeled. While the Internal Revenue Service and the courts have
set forth several factors to be taken into account in determining whether the
substance of a transaction is a sale of property or a secured loan, the
primary factor in making this determination is whether the transferee has
assumed the risk of loss or other economic burdens relating to the property
and has obtained the benefits of ownership thereof. Tax Counsel has analyzed
and relied on several factors in reaching its opinion that the weight of the
benefits and burdens of ownership of the mortgage loans has been retained by
the transferor and has not been transferred to the Certificate Owners.
In some instances, courts have held that a taxpayer is bound by the
particular form it has chosen for a transaction, even if the substance of the
transaction does not accord with its form. Tax Counsel has advised that the
rationale of those cases will not apply to this transaction, because the form
of the transaction as reflected in the operative provisions of the documents
either accords with the characterization of the Certificates as debt or
otherwise makes the rationale of those cases inapplicable to this situation.
Taxation of Interest Income of Certificate Owners
Assuming that the Certificate Owners are holders of debt obligations for
U.S. federal income tax purposes, the Certificates generally will be taxable
as Debt Securities. See "Federal Income Tax Consequences" in the prospectus.
While it is not anticipated that the Certificates will be issued at a
greater than de minimis discount, under Treasury regulations (the "OID
Regulations") it is possible that the Certificates could nevertheless be
deemed to have been issued with original issue discount ("OID") if the
interest were not treated as "unconditionally payable" under the OID
Regulations. If such regulations were to apply, all of the taxable income to
be recognized with respect to the Certificates would be includible in income
of Certificate Owners as OID, but would not be includible again when the
interest is actually received. See "Federal Income Tax Consequences--Taxation
of Debt Securities; Interest and Acquisition Discount" in the prospectus for a
discussion of the application of the OID rules if the Certificates are in fact
issued at a greater than de minimis discount or are treated as having been
issued with OID under the OID Regulations. For purposes of calculating OID, it
is likely that the Certificates will be treated as Pay-Through Securities.
Possible Classification of the Certificates as a Partnership or Association
Taxable as a Corporation
The opinion of Tax Counsel is not binding on the courts or the IRS. It is
possible that the IRS could assert that, for purposes of the Code, the
transaction contemplated by this Prospectus Supplement and the accompanying
Prospectus with respect to the Certificates constitutes a sale of the mortgage
loans (or an interest therein) to the Certificate Owners and that the proper
classification of the legal relationship between the transferor and the
Certificate Owners resulting from this transaction is that of a partnership, a
publicly traded partnership treated as a corporation, or an association
taxable as a corporation. Since Tax Counsel has advised that the Certificates
will be treated as indebtedness in the hands of the Certificateholders for
U.S. federal income tax purposes, the transferor will not attempt to comply
with U.S. federal income tax reporting requirements applicable to partnerships
or corporations.
If it were determined that this transaction created an entity classified
as a corporation (including a publicly traded partnership taxable as a
corporation), the trust fund would be subject to U.S. federal income tax at
corporate income tax rates on the income it derives from the mortgage loans,
which would reduce the amounts available for distribution to the Certificate
Owners. Cash distributions to the Certificate Owners generally would be
treated as dividends for tax purposes to the extent of such corporation's
earnings and profits.
If the transaction were treated as creating a partnership between the
Certificate Owners and the transferor, the partnership itself would not be
subject to U.S. federal income tax (unless it were to be characterized as a
publicly traded partnership taxable as a corporation); rather, the transferor
and each Certificate Owner would be taxed individually on their respective
distributive shares of the partnership's income, gain, loss, deductions and
credits. The amount and timing of items of income and deductions of the
Certificate Owner could differ if the Certificates were held to constitute
partnership interests rather than indebtedness. Assuming that all of the
provisions of the pooling and servicing agreement, as in effect on the date of
the issuance, are complied with, it is the opinion of Tax Counsel that the
trust fund will not be treated as either an association or a partnership
taxable as a corporation or as a taxable mortgage pool.
Possible Classification as a Taxable Mortgage Pool
In relevant part, Section 7701(i) of the Code provides that any entity
(or a portion of an entity) that is a "taxable mortgage pool" will be
classified as a taxable corporation and will not be permitted to file a
consolidated U.S. federal income tax return with another corporation. Any
entity (or a portion of any entity) will be a taxable mortgage pool if (i)
substantially all of its assets consist of debt instruments, more than 50% of
which are real estate mortgages, (ii) the entity is the obligor under debt
obligations with two or more maturities, and (iii) under the terms of the
entity's debt obligations (or an underlying arrangement), payments on such
debt obligations bear a relationship to the debt instruments held by the
entity.
Assuming that all of the provisions of the pooling and servicing
agreement, as in effect on the date of issuance, are complied with, Tax
Counsel is of the opinion that neither the trust fund nor any portion of the
trust fund will be a taxable mortgage pool under Section 7701(i) of the Code
because payments on each loan group support only one class of indebtedness.
The opinion of Tax Counsel is not binding on the IRS or the courts. If
the IRS were to contend successfully (or future regulations were to provide)
that the arrangement created by the pooling and servicing agreement is a
taxable mortgage pool, such arrangement would be subject to U.S. federal
corporate income tax on its taxable income generated by ownership of the
mortgage loans. Such a tax might reduce amounts available for distributions to
Certificate Owners. The amount of such a tax would depend upon whether
distributions to Certificate Owners would be deductible as interest expense in
computing the taxable income of such an arrangement as a taxable mortgage
pool.
Foreign Investors
In general, subject to certain exceptions, interest (including OID) paid
on a Certificate to a nonresident alien individual, foreign corporation or
other non-United States person is not subject to U.S. federal income tax,
provided that such interest is not effectively connected with a trade or
business of the recipient in the United States and the Certificate Owner
provides the required foreign person information certification. See "Federal
Income Tax Consequences--Tax Treatment of Foreign Investors" in the
prospectus.
Interest paid (or accrued) to a Certificateholder who is a non-U.S.
Person will be considered "portfolio interest," and generally will not be
subject to U.S. federal income and withholding tax, provided, that (i) the
interest is not effectively connected with the conduct of a trade or business
within the United States by the non-U.S. Person, (ii) the non-U.S. Person
provides the trust fund or other person who is otherwise required to withhold
U.S. tax with respect to the Certificate with an appropriate statement (on
Form W-8 or other similar form), signed under penalties of perjury, certifying
that the beneficial owner of the Certificate is a foreign person and providing
that non-U.S. person's name and address. If a Certificate is held through a
securities clearing organization or certain other financial institutions, the
organization or institution may provide the relevant signed statement to the
withholding agent; in that case, however, the signed statement must be
accompanied by a Form W-8 or substitute form provided by the non-U.S. Person
that owns that interest in the mortgage loan. If such interest does not
constitute portfolio interest, then it will be subject to U.S. federal income
and withholding tax at a rate of 30%, unless reduced or eliminated pursuant to
an applicable tax treaty and the non-U.S. Person provides the Trust Fund, or
an organization or financial institution described above, with an appropriate
statement (e.g., a Form 1001), signed under penalties of perjury, to that
effect.
Final regulations dealing with backup withholding and information
reporting on income paid to foreign persons and related matters (the "New
Withholding Regulations") were published in the Federal Register on October
14, 1997. In general, the New Withholding Regulations do not significantly
alter the substantive withholding and information reporting requirements, but
do unify current certification procedures and forms and clarify reliance
standards. The New Withholding Regulations generally will be effective for
payments made after December 31, 2000, subject to certain transition rules.
The Discussion set forth above does not take the New Withholding Regulations
into account. Prospective Non-U.S. Persons who own interests in Mortgage Loans
are strongly urged to consult their own tax advisor with respect to the New
Withholding Regulations.
If the interests of the Certificate Owners were deemed to be partnership
interests, the partnership would be required, on a quarterly basis, to pay
withholding tax equal to the product, for each foreign partner, of such
foreign partner's distributive share of "effectively connected" income of the
partnership multiplied by the highest rate of tax applicable to that foreign
partner. In addition, a corporate foreign partner would be subject to branch
profits tax. Each non-foreign partner would be required to certify to the
partnership that it is not a foreign person. The tax withheld from each
foreign partner would be credited against such foreign partner's U.S. income
tax liability.
In addition, the interest paid on Certificates could be subject to a 30%
withholding tax (or lower treaty rate) either because the interest on the
mortgage loans does not appear to satisfy the requirements to be treated as
"portfolio interest" under the Code, or because, even if such mortgage loan
interest were to be treated as portfolio interest, interest payments on the
Certificates could be treated as "guaranteed payments" within the meaning of
the partnership provisions of the Code.
If the trust fund were taxable as a corporation, distributions to foreign
persons, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30%, unless such rate were reduced by an applicable
tax treaty.
Backup Withholding
Certain Certificate Owners may be subject to backup withholding at the
rate of 31% with respect to interest paid on the Certificates if the
Certificate Owner, upon issuance, fails to supply the trustee or his broker
with his taxpayer identification number, furnish an incorrect taxpayer
identification number, fail to report interest, dividends, or other
"reportable payments" (as defined in the Code) properly, or, under certain
circumstances, fail to provide the Trustee or his broker with a certified
statement, under penalty of perjury, that he is not subject to backup
withholding.
The trustee will be required to report annually to the IRS, and to each
Certificateholder of record, the amount of interest paid (and OID accrued, if
any) on the Certificates (and the amount of interest withheld for U.S. federal
income taxes, if any) for each calendar year, except as to exempt holders
(generally, holders that are corporations, certain tax-exempt organizations or
nonresident aliens who provide certification as to their status as
nonresidents). As long as the only "Certificateholder" of record is Cede &
Co., as nominee for DTC, Certificate Owners and the IRS will receive tax and
other information including the amount of interest paid on the Certificates
owned from Participants and Indirect Participants rather than from the
trustee. (The trustee, however, will respond to requests for necessary
information to enable Participants, Indirect Participants and certain other
persons to complete their reports.) Each non-exempt Certificate Owner will be
required to provide, under penalty of perjury, a certificate on IRS Form W-9
containing his or her name, address, correct federal taxpayer identification
number and a statement that he or she is not subject to backup withholding.
Should a nonexempt Certificate Owner fail to provide the required
certification, the Participants or Indirect Participants (or the Paying Agent)
will be required to withhold 31% of the interest (and principal) otherwise
payable to the holder, and remit the withheld amount to the IRS as a credit
against the holder's federal income tax liability.
As previously mentioned, the New Withholding Regulations were published
in the Federal Register on October 14, 1997 and generally will be effective
for payments made after December 31, 2000, subject to certain transition
rules. The Discussion set forth above does not take the New Withholding
Regulations into account. Prospective Non-U.S. Persons who own Regular
Certificates are strongly urged to consult their own tax advisor with respect
to the New Withholding Regulations.
State Taxes
The depositor makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Certificates under the tax laws of
any state. Investors considering an investment in the Certificates should
consult their own tax advisors regarding such tax consequences.
All investors should consult their own tax advisors regarding the
federal, state, local or foreign income tax consequences of the purchase,
ownership and disposition of the Certificates.
ERISA Considerations
[The fiduciary of any pension or other employee benefit plan (a "Plan")
which proposes to cause such Plan to acquire any of the Certificates should
consult with its counsel with respect to the potential consequences under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
Code, of the Plan's acquisition and ownership of such Certificates. See "ERISA
Considerations" in the prospectus.
Section 406 of ERISA prohibits "parties in interest" with respect to an
employee benefit plan subject to ERISA from engaging in certain transactions
involving such 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
"disqualified persons" and employee benefit plans or other arrangements
(including, but not limited to, individual retirement accounts) described
under that Section (together with employee benefit plans subject to ERISA,
"Plans"); ERISA authorizes the imposition of civil penalties for prohibited
transactions involving Plans not subject to the requirements of Section 4975
of the Code. Any Plan fiduciary which proposes to cause a Plan to acquire the
Offered Certificates should consult with its counsel with respect to the
potential consequences under ERISA and the Code of the Plan's acquisition and
ownership of such Certificates. See "ERISA Considerations" in the prospectus.
Certain employee benefit plans, including governmental plans and certain
church plans, are not subject to ERISA's requirements. Accordingly, assets of
such plans may be invested in the Certificates without regard to the ERISA
considerations described herein and in the prospectus, subject to the
provisions of other applicable federal and state law. Any such plan that is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the
Code may nonetheless be subject to the prohibited transaction rules set forth
in Section 503 of the Code.
Except as noted above, investments by Plans are subject to ERISA's
general fiduciary requirements, including
o the requirement of investment prudence and diversification and
o 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 Certificates
should consider, among other factors, the extreme sensitivity of the
investment to the rate of principal payments (including prepayments) on the
mortgage loans.
[In Prohibited Transaction Exemption 83-1 (the "Exemption"), the
Department of Labor ("DOL") exempted from ERISA's prohibited transaction rules
o certain transactions relating to the operation of residential
mortgage pool investment trusts and
o the purchase, sale and holding of "mortgage pool pass-through
certificates" in the initial issuance of such certificates.
The Exemption permits, subject to certain conditions, transactions that might
otherwise be prohibited between Plans and "parties in interest" with respect
to those Plans related to
o 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
o the acquisition and holding of certain mortgage pool pass-through
certificates representing an interest in such mortgage pools by
Plans.
If the general conditions of the Exemption are satisfied, investments by a
Plan in certificates that represent interests in a mortgage pool consisting of
mortgage loans representing loans for single family homes ("Single Family
Certificates") 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
o the Plan purchases the Single Family Certificates at no more than
fair market value and
o the Certificates are not subordinated to the other Certificates
issued by the same pool,
and will be exempt from the prohibitions of ERISA Sections 406(b)(1) and (2)
(relating generally to transactions with fiduciaries) if, in addition,
o the purchase is approved by an independent fiduciary,
o no sales commission is paid to the pool seller,
o a Plan does not purchase more than twenty-five percent (25%) of all
Single Family Certificates and
o at least fifty percent (50%) of all Single Family Certificates are
purchased by persons independent of the pool seller or pool trustee.
It is believed that the Exemption will apply to the acquisition and holding of
the Class [ ] Certificates by Plans and that all conditions of the Exemption
other than those within the control of the investors will be met.
Any Plan fiduciary considering whether to purchase any Class [ ]
Certificates on behalf of a Plan should consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment. Among other things,
before purchasing any Class [ ] Certificates, a fiduciary of a Plan subject to
the fiduciary responsibility provisions of ERISA or an employee benefit plan
subject to the prohibited transaction provisions of the Code should make its
own determination as to the availability of the exemptive relief provided in
the Exemption, and also consider the availability of any other prohibited
transaction exemptions.]
[The U.S. Department of Labor has granted to [Underwriter] an
administrative exemption (Prohibited Transaction Exemption[ ]; Exemption
Application No.[ ], Fed. Reg. [ ] ([ ]) (the "Exemption") from certain of the
prohibited transaction rules of ERISA and the related excise tax provisions of
Section 4975 of the Code with respect to the initial purchase, the holding and
the subsequent resale by Plans of certificates in pass-through trusts that
consist of certain receivables, loans and other obligations and the servicing,
operation and management of such asset-backed pass-through trusts; provided
that the conditions and requirements of the Exemption are met. The Exemption
will apply to the acquisition, holding and resale of the Certificates by a
Plan provided that certain conditions are met. For a general description of
the Exemption and the conditions that must be satisfied for the exemption to
apply, see "ERISA Considerations" in the prospectus.
It is believed that the Exemption will apply to the acquisition and
holding of the Class [ ] Certificates by Plans and that all conditions of the
Exemption other than those within the control of the investors will be met.]
Any Plan fiduciary considering whether to purchase any Certificates on
behalf of a Plan should consult with its counsel regarding the applicability
of the fiduciary responsibility and prohibited transaction provisions of ERISA
and the Code to such investment. Among other things, before purchasing any
Certificates, a fiduciary of a Plan subject to the fiduciary responsibility
provisions of ERISA or an employee benefit plan subject to the prohibited
transaction provisions of the Code should make its own determination as to the
availability of the exemptive relief provided in the Exemption, and also
consider the availability of any other prohibited transaction exemptions.
Legal Investment Considerations
Although, as a condition to their issuance, the Class [ ] Certificates
will be rated in the highest rating category of each of the Rating Agencies,
the Class [ ] Certificates will not constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984
("SMMEA"), because not all of the mortgages securing the mortgage loans are
first mortgages. Accordingly, many institutions with legal authority to invest
in comparably rated securities based on first mortgage loans may not be
legally authorized to invest in the Class [ ] Certificates, which because they
evidence interests in a pool that includes junior mortgage loans are not
"mortgage related securities" under SMMEA. See "Legal Investment" in the
prospectus.
Underwriting
Subject to the terms and conditions set forth in the underwriting
agreement, dated [ ], 200[ ], between the depositor and [ ] ("[ ]"), which is
an affiliate of the depositor, the seller and the master servicer), the
depositor has agreed to sell to [ ], and [ ] has agreed to purchase from the
depositor, the Class [ ] Certificates.
In the underwriting agreement, [ ] has agreed, subject to the terms and
conditions set forth therein, to purchase all the Certificates offered hereby
if any of the Certificates are purchased.
The depositor has been advised by [ ] that it proposes initially to offer
the Class [ ] Certificates to the public in Europe and the United States at
the offering price set forth on the cover page hereof and to certain dealers
at such price less a discount not in excess of [ ]% of the Certificate
denominations. [ ] may allow and such dealers may reallow a discount not in
excess of [ ]% of the Certificate denominations to certain other dealers.
After the initial public offering, the public offering price, such concessions
and such discounts may be changed.
Until the distribution of the Class [ ] Certificates is completed, rules
of the Securities and Exchange Commission may limit the ability of [ ] and
certain selling group members to bid for and purchase the Class [ ]
Certificates. As an exception to these rules, [ ] is permitted to engage in
certain transactions that stabilize the price of the Class [ ] Certificates.
Such transactions consist of bids or purchases for the purposes of pegging,
fixing or maintaining the price of the Class [ ] 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 [ ] makes any representation or prediction as
to the direction or magnitude of any effect that the transactions described
above may have on the prices of the Certificates. In addition, neither the
depositor nor [ ] makes any representation that [ ] will engage in such
transactions or that such transactions, once commenced, will not be
discontinued without notice.
The underwriting agreement provides that the depositor will indemnify [ ]
against certain civil liabilities, including liabilities under the Act.
Legal Matters
Certain legal matters with respect to the Certificates will be passed
upon for the Depositor by Brown & Wood LLP, New York, New York. [ ], will pass
upon certain legal matters on behalf of the underwriters.
Experts
[The consolidated financial statements of the [Certificate Insurer] and
its subsidiaries, as of [month] [day], [year] and [year] and for each of the
years in the [number]-year period ended [month] [day], [year], are
incorporated by reference herein and in the registration statement in reliance
upon the report of [ ], independent certified public accountants, incorporated
by reference herein, and upon the authority of said firm as experts in
accounting and auditing.]
Ratings
It is a condition to the issuance of the Class [ ] Certificates that they
be rated [ ] by [Rating Agency] and [ ] by [Rating Agency] (each a "Rating
Agency").
A securities rating addresses the likelihood of the receipt by
Certificateholders of distributions on the mortgage loans. The rating takes
into consideration the characteristics of the mortgage loans and the
structural and legal aspects associated with the Certificates. The ratings on
the Certificates do not, however, constitute statements regarding the
likelihood or frequency of prepayments on the mortgage loans or the
possibility that Certificateholders might realize a lower than anticipated
yield. [The ratings on the Certificates do not address the likelihood of the
receipt by Certificateholders of Basis Risk Carryforward.]
The ratings assigned to the Class [ ] Certificates will depend primarily
upon the financial strength of the Certificate Insurer. Any reduction in a
rating assigned to the financial strength of the Certificate Insurer below the
ratings initially assigned to the Certificates may result in a reduction of
one or more of the ratings assigned to the Certificates.
A securities rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each securities rating should be evaluated
independently of similar ratings on different securities.
The depositor has not requested a rating of the Certificates by any
rating agency other than the Rating Agencies; there can be no assurance,
however, as to whether any other rating agency will rate the Certificates or,
if it does, what rating would be assigned by such other rating agency. The
rating assigned by such other rating agency to the Certificates could be lower
than the respective ratings assigned by the Rating Agencies.
<PAGE>
Index of Defined Terms
Page
----
Accelerated Principal Distribution Amount..S-39, S-55
Additional Balances..............................S-37
Additional Home Equity Loans.....................S-25
Additional Loan Account..........................S-25
Alternative Principal Payment....................S-58
Available Transferor Subordinated Amount.........S-60
Bankruptcy Rate..................................S-21
Basis Risk Carryforward..........................S-57
Beneficial Owner.................................S-40
BIF..............................................S-50
Business Day.....................................S-63
Cedel S.A........................................S-42
Certificate Insurer..............................S-64
Certificate Owners...............................S-40
Certificate Principal Balance....................S-38
Certificate Rate.................................S-56
Certificateholder..........................S-40, S-79
Certificates.....................................S-36
CI.............................................. S-42
Class............................................S-36
Class [ ] Original Certificate Principal
Balance........................................S-38
Class [ ] Original Invested Amount.............S-38
Class [ ] Original Certificate Principal
Balance........................................S-38
Clearstream, Luxembourg..........................S-42
Code.............................................S-75
Collection Account...............................S-49
Collection Period................................S-56
Cooperative......................................S-43
Credit Limit Utilization Rate....................S-30
Crossover Amount.................................S-55
cut-off date.....................................S-22
cut-off date pool balance........................S-22
DBC..............................................S-42
Debt Securities..................................S-75
Defective Mortgage Loans.........................S-48
Detailed Description.............................S-22
Determination Date...............................S-50
Distribution Date................................S-54
DOL..............................................S-81
DTC.............................................A-I-1
Eligible Account.................................S-50
Eligible Substitute Mortgage Loan................S-47
ERISA............................................S-80
Euroclear Operator...............................S-43
Euroclear Participants...........................S-43
European Depositaries............................S-40
Events of Servicing Termination..................S-69
Exemption..................................S-81, S-82
Financial Intermediary...........................S-40
First Federal....................................S-19
Foreclosure Rate.................................S-21
Global Securities...............................A-I-1
Guaranteed Distributions.........................S-62
Guaranteed Principal Distribution Amount.........S-62
Holdings.........................................S-19
Index............................................S-23
Index Rate.......................................S-23
Indirect Participants............................S-41
IndyMac Bank.....................................S-19
Insurance Agreement..............................S-61
Insured Amount...................................S-61
Interest Collections.............................S-52
Interest Period..................................S-57
Invested Amount..................................S-38
Investor Fixed Allocation Percentage.............S-34
Investor Floating Allocation Percentage..........S-53
Investor Interest Collections....................S-53
Investor Loss Amount.............................S-56
Investor Principal Collections...................S-53
LIBOR............................................S-56
LIBOR Business Day...............................S-58
Liquidated Mortgage Loan.........................S-56
Liquidation Loss Amount..........................S-56
Liquidation Proceeds.............................S-53
Loan Group Balance...............................S-53
Managed Amortization Period......................S-58
Maximum Principal Payment........................S-58
Minimum Transferor Interest......................S-49
Mortgage Loan Schedule...........................S-49
Mortgage Pool Pass-Through Certificates..........S-81
Net Liquidation Proceeds.........................S-53
New CI...........................................S-42
New Withholding Regulations......................S-78
OID..............................................S-76
OID Regulations..................................S-76
Original Invested Amount.........................S-37
Overcollateralization Reduction Amount...........S-39
Participants.....................................S-40
Paying Agent.....................................S-59
Plan.............................................S-80
Plans............................................S-80
Pool Factor......................................S-36
Preference Amount................................S-62
principal balance................................S-24
Principal Collections............................S-53
Purchase Agreement...............................S-74
Rapid Amortization Event.........................S-60
Rapid Amortization Period........................S-58
Receipt..........................................S-63
Received.........................................S-63
Reference Bank Rate..............................S-57
Related Documents................................S-45
Required Amount..................................S-59
Reserve Fund.....................................S-39
Rules............................................S-41
SAIF.............................................S-50
Scheduled Principal Collections Distribution
Amount.........................................S-58
Servicing Fee Rate...............................S-67
Single Family Certificates.......................S-81
SMMEA............................................S-83
Statistic Calculation Date.......................S-22
Statistic Calculation Pool.......................S-22
Statistic Calculation Pool Mortgage Loan.........S-22
Subordinated Transferor Collections..............S-59
Tax Counsel......................................S-75
Taxable Mortgage Pool............................S-77
Telerate Screen Page 3750........................S-57
Terms and Conditions.............................S-43
Transfer Date....................................S-49
Transfer Deficiency..............................S-47
Transfer Deposit Amount..........................S-47
Transferor.......................................S-38
Transferor Interest..............................S-38
Transferor Principal Collections.................S-53
U.S. Person.....................................A-I-5
<PAGE>
Annex I
GLOBAL CLEARANCE, SETTLEMENT AND TAX
DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Home Equity
Loan Asset Backed Certificates, Series [200[ ]-[ ] ](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
tradable as home market instruments in both the European and U.S. domestic
markets. Initial settlement and all secondary trades will settle in same-day
funds.
Secondary market trading between investors holding interests in Global
Securities through Clearstream, Luxembourg and Euroclear will be conducted in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice. Secondary market trading between
investors holding interests in Global Securities through DTC will be conducted
according to the rules and procedures applicable to U.S. corporate debt
obligations.
Secondary cross-market trading between investors holding interests in
Global Securities through Clearstream, Luxembourg or Euroclear and investors
holding interests in Global Securities through DTC Participants will be
effected on a delivery-against-payment basis through the respective
depositories of Clearstream, Luxembourg and Euroclear (in such capacity) and
other DTC Participants.
Although DTC, Euroclear and Clearstream, Luxembourg are expected to
follow the procedures described below in order to facilitate transfers of
interests in the Global Securities among participants of DTC, Euroclear and
Clearstream, Luxembourg, they are under no obligation to perform or continue
to perform such procedures, and such procedures may be discontinued at any
time. Neither the Issuer nor the Trustee will have any responsibility for the
performance by DTC, Euroclear and Clearstream, Luxembourg or their respective
participants or indirect participants of their respective obligations under
the rules and procedures governing their obligations.
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
The Global Securities will be registered 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. Clearstream, Luxembourg and Euroclear will
hold positions on behalf of their participants through their respective
depositories, which in turn will hold such positions in accounts as DTC
Participants.
Investors electing to hold interests in Global Securities through DTC
Participants, rather than through Clearstream, Luxembourg or Euroclear
accounts, will be subject to the settlement practices applicable to similar
issues of pass-through certificates. Investors' securities custody accounts
will be credited with their holdings against payment in same-day funds on the
settlement date.
Investors electing to hold interests in 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. Interests in
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.
Transfers between DTC Participants. Secondary market trading between DTC
Participants will be settled using the DTC procedures applicable to similar
issues of pass-through certificates in same-day funds.
Transfers between Clearstream, Luxembourg and/or Euroclear Participants.
Secondary market trading between Clearstream, Luxembourg Participants or
Euroclear Participants and/or investors holding interests in Global Securities
through them will be settled using the procedures applicable to conventional
eurobonds in same-day funds.
Transfers between DTC seller and Clearstream, Luxembourg or Euroclear
purchaser. When interests in Global Securities are to be transferred on behalf
of a seller from the account of a DTC Participant to the account of a
Clearstream, Luxembourg Participant or a Euroclear Participant or a purchaser,
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 the
Euroclear Operator will instruct its respective depository to receive an
interest in the Global Securities against payment. Payment will include
interest accrued on the Global Securities from and including the last
distribution date to but excluding the settlement date. Payment will then be
made by the respective depository to the DTC Participant's account against
delivery of an interest in the Global Securities. After such settlement has
been completed, such interest 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 credit of such interest will appear on the next business day and
the cash debit 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 through
DTC on the intended value date (i.e., the trade fails), the Clearstream,
Luxembourg or Euroclear cash debit 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 system the funds necessary to
process same-day funds settlement. The most direct means of doing so is to
pre-position funds for settlement from cash on hand, in which case such
Clearstream, Luxembourg Participants or Euroclear Participants will take on
credit exposure to Clearstream, Luxembourg or the Euroclear Operator until
interests in the Global Securities are credited to their accounts one day
later.
As an alternative, if Clearstream, Luxembourg or the Euroclear Operator
has extended a line of credit to them, Clearstream, Luxembourg Participants or
Euroclear Participants can elect not to pre-position funds and allow that
credit line to be drawn upon. Under this procedure, Clearstream, Luxembourg
Participants or Euroclear Participants receiving interests in Global
Securities for purchasers would incur overdraft charges for one day, to the
extent they cleared the overdraft when interests in the Global Securities were
credited to their accounts. However, interest on the Global Securities would
accrue from the value date. Therefore, the investment income on the interest
in the Global Securities earned during that one-day period would tend to
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 through DTC will take place during New York business
hours, DTC Participants are subject to DTC procedures for transferring
interests in Global Securities to the respective depository of Clearstream,
Luxembourg or Euroclear 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 seller settling the sale
through a DTC Participant, a cross-market transaction will settle no
differently than a sale to a purchaser settling through a DTC Participant.
Finally, intra-day traders that use Clearstream, Luxembourg Participants
or Euroclear Participants to purchase interests in Global Securities from DTC
Participants or sellers settling through them for delivery to Clearstream,
Luxembourg Participants or Euroclear Participants should note that these
trades will automatically fail on the sale side unless affirmative action is
taken. At least three techniques should be available to eliminate this
potential condition:
(a) borrowing interests in Global Securities through Clearstream,
Luxembourg or Euroclear for one day (until the purchase side of the
intra-day trade is reflected in the relevant Clearstream, Luxembourg or
Euroclear accounts) in accordance with the clearing system's customary
procedures;
(b) borrowing interests in Global Securities in the United States
from a DTC Participant no later than one day prior to settlement, which
would give sufficient time for such interests to be reflected in the
relevant Clearstream, Luxembourg or Euroclear accounts 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.
Transfers 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 interests in Global Securities are to be
transferred by the respective clearing system, through the respective
depository, to a DTC Participant. The seller will send instructions to
Clearstream, Luxembourg or the Euroclear Operator through a Clearstream,
Luxembourg Participant or Euroclear Participant at least one business day
prior to settlement. Clearstream, Luxembourg or Euroclear will instruct its
respective depository to credit an interest in 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 distribution date
to but excluding the settlement date. The payment will then be reflected in
the account of the Clearstream, Luxembourg Participant or Euroclear
Participant the following business 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 through DTC in New York). 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.
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 United States) will be subject to the 30% U.S. withholding
tax that generally applies to payments of interest (including original issue
discount) on registered debt issued by U.S. Persons, unless (i) each clearing
system, bank or other financial institution that holds customers' securities
in the ordinary course of its trade or business in the chain of intermediaries
between such Beneficial Owner and the U.S. entity required to withhold tax
complies with applicable certification requirements and (ii) such Beneficial
Owner takes one of the following steps to obtain an exemption or reduced tax
rate:
Exemption for non-U.S. Persons (Form W-8 or W-8BEN). Beneficial Owners of
Certificates that are non-U.S. Persons can obtain a complete exemption from
the withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status) or Form W-8BEN (Certificate of Foreign Status of Beneficial Ownership
for United States Tax Withholding). If the information shown on Form W-8
changes a new Form W-8 must be filed within 30 days of such change. As of
December 31, 2000 only Form W-8BEN will be acceptable.
Exemption for non-U.S. Persons with effectively connected income (Form
4224 or 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 4224 (Exemption
from Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States) or Form W-8ECI (Certificate of Foreign
Person's Claim for Exemption from Withholding or Income Effectively Connected
with the Conduct of a Trade or Business in the United States). As of December
31, 2000, only Form W-8ECI will be acceptable.
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001 or Form W-8BEN). Non-U.S. Persons that are Beneficial
Owners residing in a country that has a tax treaty with the United States can
obtain an exemption or reduced tax rate (depending on the treaty terms) by
filing Form 1001 (Ownership, Exemption or Reduced Rate Certificate) or Form
W-8BEN (Certificate of Foreign Status of Beneficial Ownership 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-8. Form 1001 may be filed by the Beneficial Owner or his agent.
As of December 31, 2000 only Form W-8BEN will be acceptable.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Beneficial Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W 8, Form 1001 and Form 4224 are effective
until December 31, 2000. Form W-8BEN and Form W-8ECI are effective until the
third succeeding calendar year from the date the form is signed.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership or other entity treated as a
corporation or partnership for federal income tax purposes created or
organized in or under the laws of the United States, any State thereof or the
District of Columbia or (iii) an estate the income of which is includable in
gross income for United States tax purposes, regardless of its source or (iv)
a trust if a court within the United States is able to exercise primary
supervision of the administration of the trust and one or more United States
fiduciaries have the authority to control all substantial decisions of the
trust. This summary does not deal with all aspects of U.S. Federal income tax
withholding that may be relevant to foreign holders of the Global Securities.
Investors are advised to consult their own tax advisors for specific tax
advice concerning their holding and disposing of the Global Securities.
<PAGE>
$[ ]
(Approximate)
IndyMac Home Equity Loan Trust 200[ ]-[ ]
INDYMAC ABS, INC.
Depositor
[INDYMAC BANK LOGO]
Seller and Master Servicer
Revolving Home Equity Loan
Asset Backed Certificates, Series 200[ ]-[ ]
------------------------------------
PROSPECTUS SUPPLEMENT
------------------------------------
[Underwriter]
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with different information.
We are not offering the Series 200[ ]-[ ] Home Equity Loan Asset Backed
Certificates in any state where the offer is not permitted.
Dealers will deliver a prospectus supplement and prospectus when acting
as underwriters of the Series 200[ ]-[ ] Home Equity Loan Asset Backed
Certificates and with respect to their unsold allotments or subscriptions. In
addition, all dealers selling the Series 200[ ]-[ ] Home Equity Loan Asset
Backed Certificates will be required to deliver a prospectus supplement and
prospectus until [ ], 200[ ].
[ .........], 200[ ]
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
prospectus supplement is not an offer to sell these securities and we are not
soliciting offers to buy these securities in any state where the offer or sale
is not permitted.
Prospectus Supplement
(To Prospectus dated [ ], 200[ ])
$[ ]
(Approximate)
IndyMac ABS, Inc.
Depositor
[Logo of IndyMac Bank]
Seller and Master Servicer
IndyMac Home Equity Loan Trust 200[ ]-[ ]
Series 200[ ]-[ ]
Issuer
-----------------------
Consider carefully
the risk factors
beginning on page
[S-12] in this
prospectus The Notes
supplement and on The Class [ ] [and Class [ ]]notes
page [3] in the have [an] original principal balance[s] of
prospectus. $[ ] [and $[ ], respectively, each]
The notes represent subject to a permitted variance of plus or
non-recourse minus [5]%.
obligations of the Per $1,000 of
trust only and do not Notes Total
represent an interest Price to Public....... $[ ] $[ ]
in or obligation of Underwriting Discount. $[ ] $[ ]
IndyMac ABS, Inc., Proceeds, before
IndyMac Bank, expenses, to the
F.S.B. or any of Depositor............. $[ ] $[ ]
their affiliates. The Trust Fund
This prospectus The trust fund will own a pool consisting
supplement may be of [two] loan groups of home equity revolving
used to offer and credit line loans made or to be made in the
sell the notes only if future under certain home equity revolving
accompanied by the credit line loan agreements. The loans will be
prospectus. secured by first or second deeds of trust or
----------------------- mortgages on one- to four-family residential
properties and will bear interest at rates
that adjust based on the prime rate. [The
trust fund will also initially include funds
from the sale of the notes in excess of the
cut-off date principal balances. These excess
funds are expected to be used to acquire
additional home equity revolving credit line
loans after the cut-off date.] The Class [ ]
notes will represent an interest in loan group
[ ] only.]
The Policy
[Note Insurer] will issue an irrevocable
and unconditional note guaranty insurance policy
which will guarantee certain payments to
noteholders.
[Note Insurer Logo]
Neither the SEC nor any state securities commission has approved the
notes offered by this prospectus supplement or determined that this prospectus
supplement or the prospectus is accurate or complete. Any representation to
the contrary is a criminal offense.
[Underwriter] will offer the notes subject to prior sale and subject
to its right to reject orders in whole or in part. The notes will be issued in
book-entry form on or about [ ], 200[ ] and will be offered in [the
United States and Europe].
[Underwriter]
[ ], 200[ ]
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
---------------------
Page
----
Summary...........................................S-3
Risk Factors.....................................S-12
The Trust........................................S-18
The Note Insurer.................................S-21
The Master Servicer..............................S-21
The Home Equity Loan Program.....................S-22
Description of the Mortgage Loans................S-24
Maturity and Prepayment Considerations...........S-48
Pool Factor......................................S-51
Description of the Notes.........................S-51
Description of the Indenture.....................S-64
Description of the Sale and Servicing Agreement..S-77
Description of the Purchase Agreement............S-87
Use of Proceeds..................................S-88
Material Federal Income Tax Consequences.........S-88
State Taxes......................................S-93
ERISA Considerations.............................S-93
Legal Investment Considerations..................S-95
Underwriting.....................................S-95
Legal Matters....................................S-96
Experts..........................................S-96
Ratings..........................................S-96
Index of Defined Terms...........................S-98
Annex I.........................................A-I-1
PROSPECTUS
-----------
Page
----
Important Notice About Information in This
Prospectus and Each Accompanying
Prospectus Supplement.............................2
Risk Factors........................................3
The Trust Fund.....................................13
Use of Proceeds....................................19
The Depositor......................................19
Loan Program.......................................20
Description of the Securities......................22
Credit Enhancement.................................36
Yield and Prepayment Considerations................40
The Agreements.....................................42
Certain Legal Aspects of the Loans.................56
Federal Income Tax Consequences....................69
State Tax Considerations...........................89
ERISA Considerations...............................89
Legal Investment...................................94
Method of Distribution.............................94
Legal Matters......................................95
Financial Information..............................95
Rating.............................................95
Index to Defined Terms.............................96
<PAGE>
Summary
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
notes, read carefully this entire document and the accompanying prospectus.
Trust Fund
IndyMac Home Equity Loan Trust 200[ ]-[ ]. The trust fund will own a pool of
home equity revolving credit line loans made or to be made in the future under
certain home equity revolving credit line loan agreements. The loans will be
secured by first or second deeds of trust or mortgages on one- to four-family
residential properties and will bear interest at rates that adjust based on
the prime rate. We sometimes refer to these loans as home equity loans or
mortgage loans. [The original principal balance of the notes will exceed the
aggregate cut-off date principal balances of the home equity loans initially
transferred to the trust fund. Funds in an amount equal to this excess are
expected to be used to acquire additional home equity loans that are not
included in the cut-off date pool. Until they are so used, they will be held
in the trust fund.]
We will be dividing the mortgage loans in the trust fund into [two] groups.
Each will be referred to as a loan group. The repayment of the Class [ ] Notes
will be secured by a security interest in loan group [ ] and the repayment of
the Class [ ] Notes will be secured by a security interest in loan group [ ].
Likewise, holders of Class [ ] Notes will receive payments from collections on
mortgage loans in loan group [ ] and holders of Class [ ] Notes will receive
payments from collections on mortgage loans in loan group [ ].
[The Offered Notes
IndyMac Home Equity Loan Trust 200[ ]-[ ] will issue [ ] classes of Home
Equity Loan Asset Backed Notes and a transferor's interest. Only the Class [ ]
Notes are offered by this prospectus supplement.]
[Other Notes
IndyMac Home Equity Loan Trust 200[ ]-[ ] is also issuing the Class [ ] Notes
and the transferor's interest. As described in this prospectus supplement,
except for limited cross-collateralization, the Class [ ] Notes are not
supported by the mortgage loans in loan group [ ], the group that supports the
offered notes. A portion of the transferor's interest is subordinated in right
of payment to the payment of the notes. Information regarding the Class [ ]
Notes and the transferor's interest is included in this prospectus supplement
chiefly to provide you with a better understanding of the Class [ ] Notes.]
Depositor
IndyMac ABS, Inc., 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.
See "The Depositor" in the prospectus.
Seller and Master Servicer
[IndyMac Bank, F.S.B.]
See "The Master Servicer" in this prospectus supplement.
Indenture Trustee
[Name of Indenture Trustee].
Owner Trustee
[Name of Owner Trustee].
Note Insurer
[Note Insurer][, will insure the [Class [ ]] Notes as described in this
prospectus supplement].
See "The Note Insurer" in this prospectus supplement.
Indenture
The notes will be issued pursuant to an indenture between the owner trustee
and the indenture trustee.
Cut-off Date
[ ], 200[ ].
Closing Date
On or about [ ], 200[ ].
Payment dates
The indenture trustee will make distributions on the [ ]th day of each
calendar month beginning in [ ] 200[ ]. If the [ ]th day of a month is not a
business day, then payments will be made on the next business day after the [
]th day of the month.
Record Date
The [last] day preceding a payment date or, if the notes are no longer
book-entry notes, the last day of the month preceding a payment date.
Denominations
[The Class [ ] Notes will be issued in minimum denominations of] $[1,000]
and multiples in excess of that.
Registration of Notes
The [Class [ ]] Notes will initially be issued in book-entry form. Persons
acquiring beneficial ownership interests in the [Class [ ]] Notes may elect to
hold their beneficial interests through The Depository Trust Company, in the
United States, or Clearstream, Luxembourg or the Euroclear System, in Europe.
See "Description of Notes -- Book-Entry Notes" in this prospectus supplement.
The Mortgage Loans
General
The mortgage loans are revolving lines of credit. During the applicable draw
period, each borrower may borrow additional amounts from time to time up to
the maximum amount of that borrower's line of credit. If borrowed amounts are
repaid, they can again be borrowed.
The pool balance equals the aggregate of the principal balances of all
mortgage loans in [both] loan groups. The loan group balance of a loan group
equals the aggregate of the principal balances of all mortgage loans in that
loan group. The principal balance of a mortgage loan (other than a liquidated
mortgage loan) on any day is equal to
o its cut-off date principal balance,
plus
o any additional borrowings on that mortgage loan,
minus
o all collections credited against the principal balance of that mortgage
loan before that day.
Once a mortgage loan is finally liquidated, its principal balance will be
zero.
Loan Rate
Interest on each mortgage loan is payable monthly and computed on the related
daily outstanding principal balance for each day in the billing cycle. The
loan rate is a variable rate per annum equal to the sum of
o [the Index]
and
o a margin.
The loan rate is subject to applicable usury limits and certain maximum rates.
Loan rates are adjusted monthly on the first business day of the calendar
month preceding the due date. The due date for each mortgage loan is the
[fifteenth] day of each month.
Principal Payments
Each home equity loan features a draw period during which the loan may be
drawn on, immediately followed by a repayment period during which the loan
must be repaid. In general, home equity loans with [ ]-year draw periods have
[ ]-year repayment periods. These [ ]-year draw periods are generally
extendible for an additional [ ] years with the approval of the master
servicer.
Statistics
The statistical information presented in this prospectus supplement concerning
the pool of mortgage loans does not reflect all of the mortgage loans that
will be included in the pool on the closing date. Instead, this statistical
information relates to statistical calculation loan groups that include the
number and principal balances only of mortgage loans originated by the seller
through the statistic calculation date and included in the applicable loan
group. The aggregate principal balance of each statistic calculation loan
group as of the statistic calculation date is the statistic calculation loan
group balance. The statistic calculation date is [ ], 200[ ].
Unless otherwise noted, all statistical percentages in this prospectus
supplement are measured by the aggregate principal balance of the applicable
statistic calculation loan group on the statistic calculation date.
See "Description of the Mortgage Loans" in this prospectus supplement for
additional information concerning the statistic calculation pool and the
mortgage loans in general.
Summary of Loans in Statistic Calculation Loan Group [ ] (as of
Statistic Calculation Date)
Loan Group [ ] Statistic
Calculation Date Balance...... $[ ]
Weighted Average Combined
Loan-to-Value Ratio........... [ ]%
Weighted Average Margin....... [ ]%
Range of Principal Balances... $[ ] to $[ ]
Average Principal Balance..... $[ ]
Range of Credit Limits........ $[ ] to $[ ]
Average Credit Limit.......... $[ ]
Origination Period............ [ ] through [ ]
Range of Loan Rates [ ]% to [ ]%
Weighted Average Loan Rate [ ]%
Weighted Average Maximum Loan
Rate [ ]%
Weighted Average Minimum Loan
Rate.......................... [ ]%
Maximum Credit Utilization
Rate [ ]%
Average Credit Utilization
Rate [ ]%
Weighted Average Credit
Utilization Rate.............. [ ]%
Percentage of Pool Secured by
1st liens..................... [ ]%
Percentage of Pool Secured by
2nd liens [ ]%
Weighted Average Second
Mortgage Ratio................ [ ]%
Percentage with Mortgaged
Properties in: [ ]%
[California]............ [ ]%
[Michigan].............. [ ]%
[Colorado].............. [ ]%
[Illinois].............. [ ]%
[Florida]............... [ ]%
Range of Remaining Term to [ ] months to [ ] months
Scheduled Maturity............
Weighted Average Remaining
Term to Scheduled Maturity.... [ ] months
Percentage Single Family
Residences.................... [ ]%
Percent Owner Occupied........ [ ]%
[Summary of Loans in Statistic
Calculation Loan Group [ ] (as of
Statistic Calculation Date)
Loan Group [ ] Statistic
Calculation Date Balance...... $[ ]
Weighted Average Combined
Loan-to-Value Ratio.............. [ ]%
Weighted Average Margin....... [ ]%
Range of Principal Balances... $[ ] to $[ ]
Average Principal Balance..... $[ ]
Range of Credit Limits........ $[ ] to $[ ]
Average Credit Limit.......... $[ ]
Origination Period............ [ ] through [ ]
Range of Loan Rates [ ]% to [ ]%
Weighted Average Loan Rate [ ]%
Weighted Average Maximum Loan
Rate [ ]%
Weighted Average Minimum Loan
Rate.......................... [ ]%
Maximum Credit Utilization
Rate [ ]%
Average Credit Utilization
Rate [ ]%
Weighted Average Credit
Utilization Rate.............. [ ]%
Percentage of Pool Secured by
1st liens..................... [ ]%
Percentage of Pool Secured by
2nd liens [ ]%
Weighted Average Second
Mortgage Ratio................ [ ]%
Percentage with Mortgaged
Properties in: [ ]%
[California]............ [ ]%
[Michigan].............. [ ]%
[Colorado].............. [ ]%
[Illinois].............. [ ]%
[Florida]............... [ ]%
Range of Remaining Term to [ ] months to [ ] months
Scheduled Maturity............
Weighted Average Remaining
Term to Scheduled Maturity.... [ ] months
Percentage Single Family
Residences.................... [ ]%
Percent Owner Occupied........ [ ]%
]
The [Class [ ]] Notes
Note Rate
[Class [ ] Notes]
The note rate on the Class [ ] Notes may change from payment date to payment
date. On any payment date the note rate for the [Class [ ]] Notes will equal
[the least of]:
o LIBOR plus [ ]% per annum,
o [the weighted average of the loan rates on the mortgage loans in loan
group [ ] minus certain fees, expenses and minimum spread requirements,
and
o [ ]% per annum.]
[However, on any payment date for which the note rate for the Class [ ] Notes
has been determined pursuant to the weighted average of the net loan rates on
the mortgage loans in loan group [ ], the excess of the lesser of
A. [ ]% per annum and
B. LIBOR + [ ]% per annum
over the note rate will be paid (with interest at the rate of LIBOR + [ ]% per
annum, but not at a rate in excess of [ ]% per annum) on the Class [ ] Notes
on subsequent payment dates to the extent that funds are available in the
priority described in this prospectus supplement.]
[Class [ ] Notes
The note rate on the Class [ ] Notes may change from payment date to payment
date. On any payment date the note rate for the Class [ ] Notes will equal
[the least of]:
o LIBOR plus [ ]% per annum,
o [the weighted average of the loan rates on the mortgage loans in loan
group [ ] minus certain fees, expenses and minimum spread requirements,
and
o [ ]% per annum.]
[However, on any payment date for which the note rate for the Class [ ] Notes
has been determined pursuant to the weighted average of the net loan rates on
the mortgage loans in loan group [ ], the excess of the lesser of
A. [ ]% per annum and
B. LIBOR + [ ]% per annum
over the note rate will be paid (with interest at the rate of LIBOR + [ ]% per
annum, but not at a rate in excess of [ ]% per annum) on the Class [ ] Notes
on subsequent payment dates to the extent that funds are available in the
priority described in this prospectus supplement.]]
See "Description of the Notes -- Payments on the Notes -- Application of
Interest Collections" in this prospectus supplement.
Interest Period
For each payment date and class of notes, the period beginning on the prior
payment date (or in the case of the first payment date, beginning on the
closing date) and ending on the day before the applicable payment date. The
indenture trustee will calculate interest based on the actual number of days
in the interest period and a year assumed to consist of 360 days.
Note Principal Balance
The original principal balance of the classes of notes may be reduced or
increased by not more than [5]% depending on the aggregate principal balance
of the mortgage loans in the related loan group actually delivered on the
closing date.
Principal
The amount of principal paid on a class of notes on a payment date will depend
on whether the payment date occurs during the managed amortization period or
the rapid amortization period.
The managed amortization period begins on the closing date and ends on the
earlier of
o the payment date in [ ] and
o the existence of a rapid amortization event.
The rapid amortization period begins on the first payment date after the end
of the managed amortization period.
See "Description of Notes -- Payments on the Notes -- Distributions of
Principal Collections" in this prospectus supplement.
[Additional Loan Account
On the closing date approximately $[ ] will be deposited into an additional
loan account [for loan group [ ] and approximately $[ ] will be deposited into
an additional loan account for loan group [ ], each] held as a part of the
trust fund. These funds represent the excess of the original principal balance
of the Class [ ] [and Class [ ]] Notes [,as applicable,] over the cut-off date
principal balance of the mortgage loans in [their related] loan group [ ]
initially transferred to the trust fund. These funds are expected to be used
through [ ] to acquire additional home equity loans that are not included in
the cut-off date pool. Any additional home equity loans acquired by the trust
fund after the cut-off date will have been underwritten using generally the
same guidelines as were used to select the initial mortgage loans in the trust
fund, and the trust fund will have the benefit of substantially the same
representations and warranties covering the initial mortgage loans in the
trust fund. The purchase of these additional home equity loans is in addition
to the ongoing purchase of additional balances during the managed amortization
period with the proceeds of principal repayments received on the trust fund's
mortgage loan portfolio. Any funds remaining in the additional loan account[s]
on [ ] will be used to prepay the [Class [ ]] [related class of] Notes on the
first payment date following such date.]
Termination
The trust fund will terminate on the payment date following the later of
A. payment in full of all amounts owing to the note insurer [and any third
party credit enhancer] and
B. the earliest of
o the payment date on which the principal balance of [both] classes of
notes have been reduced to zero,
o the final payment or other liquidation of the last mortgage loan in the
trust fund,
o the optional transfer of the mortgage loans to the owner of the
transferor interest, as described below, and
o the payment date in [ ].
The mortgage loans in the trust fund will be subject to optional transfer to
the owner of the transferor interest on any payment date on or after which
o the combined principal balance of both classes of notes is reduced to any
amount less than or equal to [10]% of the original combined principal
balance of the notes and
o all amounts due and owing to the note insurer [and any third party credit
enhancer], including any unreimbursed draws on the policy [and any third
party enhancement], together with interest on those amounts, have been
paid as provided [either] in the insurance agreement under which the
policy is issued [or in accordance with any third party credit
enhancement].
See "Description of the Indenture -- Termination; Retirement of the Notes" in
this prospectus supplement and "The Agreements -- Termination; Optional
Termination" in the prospectus.
Credit Enhancement
General
The trust fund includes various mechanisms that are intended to protect
noteholders against losses on the mortgage loans.
Excess Interest
The indenture trustee will distribute certain interest collections on the
mortgage loans in each loan group to cover losses that would otherwise be
allocated to the notes related to that loan group, and to the extent described
in this prospectus supplement, to the notes related to the other loan group.
Limited Subordination of Transferor Interest
The sum of the amounts by which the loan group balance of each loan group in
the trust fund exceeds the principal balance of its related notes is the
transferor interest. Initially, the transferor interest will be $[__]. The
transferor interest is expected to grow as interest collections in excess of
trustee fees, amounts due the note insurer, interest accrued on the notes and
certain loss amounts due on the notes are applied as principal payments on the
notes, thereby creating overcollateralization of the notes. For each loan
group, once the required level of overcollateralization is reached, the
acceleration feature for the related class of notes will cease, unless it is
necessary to maintain the required level of overcollateralization. The
transferor interest is also the mechanism that absorbs changes in the
principal amount of mortgage loans in a loan group due to new borrowings and
repayments. In certain circumstances, amounts that would be distributed on the
transferor interest will instead be distributed on the notes. IndyMac Bank,
F.S.B. (or one of its affiliates) will be the owner of the transferor interest
on the closing date.
See "Description of the Notes -- Limited Subordination of Transferor Interest"
in this prospectus supplement.
Policy
The policy will irrevocably and unconditionally guarantee on each payment date
to the indenture trustee for the benefit of the noteholders the full and
complete payment of the guaranteed distributions consisting of
o the guaranteed principal distribution amount with respect to the notes
for the payment date, and
o accrued and unpaid interest due on the notes.
The effect of the policy is to guarantee the timely payment of interest on,
and the ultimate payment of the principal amount of, the notes. The policy
does not cover payment of basis risk carryforward.
In addition, the policy will guarantee the payment of the outstanding note
principal balance on the payment date in [ ] (after giving effect to all other
amounts distributable and allocable to principal on that payment date).
In the absence of payments under the policy, noteholders will directly bear
the credit and other risks associated with their percentage interest in the
trust fund.
See "Description of the Indenture -- The Policy" in this prospectus
supplement.
[Limited Crosscollateralization
The indenture will allow for limited cross-collateralization, in that certain
excess cashflows from either loan group on any payment date will be applied to
the funding of certain deficiencies in interest and principal on the notes
related to the other loan group.]
[Reserve Fund
On the closing date, an account will be set up in the name of the indenture
trustee on behalf of the noteholders, but will not be funded. Once the
required level of overcollateralization for a loan group has been reached,
excess cashflow from that loan group may be deposited in the reserve fund on
future payment dates until the amount reaches a specified level. Amounts in
the reserve fund may be used to cover shortfalls in amounts required to be
distributed as interest to either Class of Class [ ] Notes or to cover losses
on the mortgage loans in either loan group.]
Material Federal Income Tax Consequences
Subject to the qualifications described under "Material Federal Income Tax
Consequences" in this prospectus supplement, Brown & Wood LLP, special tax
counsel to the depositor, is of the opinion that, under existing law, a note
will be treated as a debt instrument for federal income tax purposes as of the
closing date. Furthermore, special tax counsel to the depositor is of the
opinion that neither the trust fund nor any portion of the trust fund will be
treated as either an association or a publicly traded partnership taxable as a
corporation or as a taxable mortgage pool.
See "Material Federal Income Tax Consequences" in this prospectus supplement
and "Federal Income Tax Consequences in the prospectus for additional
information concerning the application of federal income tax laws.
ERISA Considerations
Generally, the notes may be purchased by a pension or other employee benefit
plan subject to the Employee Retirement Income Security Act of 1974 or Section
4975 of the Internal Revenue Code of 1986, or by an entity investing the
assets of an employee benefit plan, so long as certain conditions are met. A
fiduciary of an employee benefit plan or an individual retirement account must
determine that the purchase of a note 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 Considerations
The [Class [ ]] Notes will not constitute mortgage related securities for
purposes of the Secondary Mortgage Market Enhancement Act of 1984, because not
all of the mortgages securing the loans are first mortgages. Accordingly, many
institutions with legal authority to invest in comparably rated securities
based solely on first mortgages may not be legally authorized to invest in the
[Class [ ]] Notes.
See "Legal Investment" in the prospectus.
Note Rating
The notes will not be offered unless they are each rated [ ] by [Rating
Agency] and [ ] by [Rating Agency] A rating is not a recommendation to buy,
sell or hold securities. These ratings may be lowered or withdrawn at any time
by either of the rating agencies.
See "Ratings" in this prospectus supplement and "Rating" in the prospectus.
Some 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.
<PAGE>
Risk Factors
o The following information, which you should carefully consider,
identifies certain significant sources of risk associated with an
investment in the notes. You should also carefully consider the
information under "Risk Factors" in the prospectus.
<TABLE>
<CAPTION>
<S> <C>
You may have difficulty selling The underwriter intends to make a secondary market in
your notes........................... the notes purchased by it, but has no 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 notes
readily or at prices that will enable you to realize
your desired yield. The market values of the notes are
likely to fluctuate; these fluctuations may be
significant and could result in significant losses to
you.
The secondary markets for 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
that are especially sensitive to prepayment, credit,
or interest rate risk, or that have been structured to
meet the investment requirements of limited categories
of investors.
Cash flow disruptions could cause payment Substantial delays could result while liquidating delinquent
delays and losses.................... mortgage loans. Resulting shortfalls in distributions to
noteholders could occur if the note insurer were
unable to perform its obligations under the policy.
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 noteholders. If any of the mortgaged properties
fail to provide adequate security for the related
mortgage loans, you could experience a loss if the
note insurer were unable to perform its obligations
under the policy.
Yield and reinvestment may be adversely
affected by unpredictability of During the period that a borrower may borrow money under the
prepayments.......................... borrower's line of credit, the borrower may make monthly payments
only for the accrued interest or may also repay some
or all of the amount previously borrowed. In addition,
borrowers may borrow additional amounts up to the
maximum amounts of their lines of credit. As a result,
the amount each loan group receives in any month (and
in turn the amount distributed to the holders of the
related class of notes) may change significantly. Even
during the repayment period, borrowers generally may
prepay their mortgage loans at any time without
penalty. [However, prepayments on loans secured by
property in California and certain other jurisdictions
may be subject to account termination fees during the
first five years after origination of the loan.]
Generally, revolving home equity loans are not viewed
by borrowers as permanent financing. The mortgage
loans may be repaid at faster rates than traditional
mortgage loans. The trust fund's prepayment experience
may be affected by a wide variety of factors,
including:
o general economic conditions,
o interest rates,
o the availability of alternative financing and
o homeowner mobility.
In addition, substantially all of the mortgage loans
contain due-on-sale provisions and the master servicer
intends to enforce those provisions unless doing so is
not permitted by applicable law or the master servicer
permits the purchaser of the mortgaged property in
question to assume the mortgage loan in a manner
consistent with reasonable commercial practice. See
"Description of the Notes" in this prospectus
supplement and "Certain Legal Aspects of the Loans --
Due-on-Sale Clauses" in the prospectus for a
description of certain provisions of the credit line
agreements that may affect the prepayment experience
on the mortgage loans.
The yield to maturity and weighted average life of
your notes will be affected primarily by
o the rate and timing of repayments and prepayments
on the mortgage loans in your loan group as compared
with the creation and amount of additional balances and
o the realization of liquidation loss amounts.
You bear the reinvestment risks resulting from a
faster or slower rate of principal payments than you
expected. [You also bear the reinvestment risk if by [
] all of the funds in the additional loan account[s]
have not been used to acquire additional home equity
loans, which would result in a prepayment of [each
class of] [the Class [ ]] Notes in an amount equal to
the amount remaining in [its related] [the] additional
loan account on that date.] See "Maturity and
Prepayment Considerations" in this prospectus
supplement and "Yield and Prepayment Considerations"
in the prospectus.
Withdrawal or downgrading of initial The rating of the notes will depend primarily on an assessment by
ratings will affect the value of the the rating agencies of the mortgage loans and upon the financial
notes................................ strength of the note insurer. Any reduction in a rating assigned
to the financial strength of the note insurer may
result in a reduction in the rating of the notes. A
reduction in the rating assigned to the notes probably
would reduce the market value of the notes and may
affect your ability to sell them.
The rating by each of the rating agencies of the notes
is not a recommendation to purchase, hold or sell the
notes since that rating does not address the market
price or suitability for a particular investor. The
rating agencies may reduce or withdraw the ratings on
the notes at any time they deem appropriate. In
general, the ratings address credit risk and do not
address the likelihood of prepayments.
Junior lien priority could result in The mortgage loans are secured by mortgages that generally are
payment delay or loss................ second mortgages. 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. If the remaining proceeds
are insufficient to satisfy the mortgage loans secured
by second mortgages and prior liens in the aggregate
and the note insurer is unable to perform its
obligations under the policy, you will bear
o the risk of delay in payments while any deficiency
judgment against the borrower is sought and
o the risk of loss if the deficiency judgment cannot be
obtained or is not realized on.
<PAGE>
See "Certain Legal Aspects of the Loans" in the
prospectus.
Distributions to and rights of investors [The seller] will treat its sale of the mortgage loans to the
could be adversely affected by the depositor as a sale of the mortgage loans. [However, in the event
bankruptcy or insolvency of certain of insolvency of [IndyMac Bank, F.S.B.], the Federal Deposit
parties.............................. 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 payments on the notes and liquidate the
mortgage loans with the holders of the notes entitled
to no more than the outstanding principal balances, if
any, of the classes of notes. Together with interest
thereon at the applicable note rate. In the event of
the acceleration of the notes, the holders of the
notes 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 the 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 payment in the
notes and possible reductions in the amount of such
payments could occur]. [In the event of [the Seller's]
bankruptcy, the trustee in bankruptcy of [the Seller]
may argue that the mortgage loans were not sold but
were only pledged to secure a loan to [the Seller]. If
that argument is made you could experience delays or
reductions in payments on the notes.] The depositor
will warrant in the sale and servicing agreement that
the transfer of the mortgage loans by it to the trust
fund is either a valid transfer and assignment of the
mortgage loans to the trust fund or the grant to the
trust fund of a security interest in the mortgage
loans.
If certain events relating to the bankruptcy or
insolvency of the transferor were to occur, [no
further additional home equity loans would be acquired
with any funds remaining in the additional loan
account,] additional balances would not be sold to the
trust fund, and the rapid amortization period would
commence.
If the master servicer becomes bankrupt, [the
bankruptcy trustee or receiver][FDIC] may have the
power to prevent the appointment of a successor master
servicer.
Developments in [California]
could have Approximately [ ]% of the mortgage loans in statistic
disproportionate effect on calculation loan group [ ] and approximately [ ]% of the
the pool of mortgage loans mortgage loans in statistic calculation loan group [ ] are
due to geographic secured by mortgaged properties located in the State of [California].
concentration of mortgaged After the statistic calculation date, the geographic
properties.......................... concentration could change because of the addition or
removal of mortgage loans, prepayments or the creation
of additional balances. 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;
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.
Master servicer has ability to change the The master servicer may agree to changes in the terms of a credit
terms of the mortgage loans.......... line agreement if the changes
o do not materially and adversely affect the interest of
the related noteholders[, any third party credit enhancer]
or the note insurer, and
o are consistent with prudent business practice.
In addition, the master servicer, within certain
limitations, may increase the credit limit related to
a mortgage loan or reduce the loan rate for a mortgage
loan. Any increase in the credit limit related to a
mortgage loan would increase the combined
loan-to-value ratio of that mortgage loan and,
accordingly, would increase the risk of the related
class of notes' investment in the mortgage loan. In
addition, any reduction in the loan rate of a mortgage
loan would reduce the related loan group's excess cash
flow available to absorb losses.
Your return could be adversely affected The trust fund may include mortgage loans that are 59 or fewer
by delinquent mortgage loans......... days delinquent as of [ ] (the cut-off date for the
pool of mortgage loans). We expect that the principal balance of
mortgage loans that are between 30 days and 59 days delinquent as
of the cut-off date will not exceed approximately $[ ].
Mortgage loans that are already delinquent may increase the risk
that the trust fund will experience a loss if
o the investor interest collections are not sufficient to
cover the investor loss amounts for any payment date,
o amounts intended to provide protection for the notes
that are otherwise payable to the owner of the transferor
interest have been exhausted and
o the note insurer fails to perform its obligations under
the policy.
Effect of loan rates on the The notes accrue interest at a rate based on the one-month LIBOR
notes................................ index plus a specified margin, but are subject to a cap [based in
part on the interest rates on the mortgage loans].
The mortgage loans have interest rates that are based
on the [Index], and have periodic and maximum
limitations on adjustments to the loan rate. As a
result, the notes may accrue less interest than they
would accrue if the note rate were based solely on the
LIBOR index plus the specified margin.
A variety of factors could limit the note rate. Some
of these factors are described below:
o Each note rate adjusts [monthly] while the loan
rates on the mortgage loans may adjust less
frequently. Consequently, the loan rates may limit
increases in one or both note rates for extended
periods in a rising interest rate environment.
o The [Index] may respond to different economic and
market factors than LIBOR and thus may increase or
decrease at different times. As a result, the loan
rates could decline while LIBOR is stable or rising.
And although both the loan rates and LIBOR may either
decline or increase during the same period, the loan
rates could decline more rapidly or increase more
slowly than LIBOR.
These factors may adversely affect the yield to
maturity on the notes.
[Certain rights may be affected
by the issuance of [two] The ability to declare an event of master servicing
classes of notes secured by a termination under the sale and servicing agreement or
single trust fund..................... an event of default under the indenture, or to amend
the sale and servicing agreement or the indenture
rests with the note insurer and the holders of
specified percentages of the notes in both groups. [In
addition, under certain circumstances the third party
credit enhancer will have those rights as they relate
to the Class [ ] Notes.] As a result you may have less
ability to control certain actions than you would have
had if only a single class of notes had been issued.]
For a discussion of additional risks pertaining to the
notes, see "Risk Factors" in the prospectus.
</TABLE>
The Trust
General
IndyMac Home Equity Loan Trust 200[ ]-[ ] is a business trust formed
under the laws of the State of Delaware pursuant to the Trust Agreement, dated
[ , 200[ ]], between IndyMac ABS, Inc., as depositor, and [Name of owner
trustee], as owner trustee, to enter into the transactions described in this
prospectus supplement. After its formation, the trust will not engage in any
activity other than
o acquiring, holding and managing the mortgage loans and the
other assets of the trust and their proceeds,
o issuing the Notes and the transferor's interest,
o making payments on the Notes and the transferor's interest, and
o engaging in other activities that are appropriate in connection
these activities.
The trust's principal offices are located in [Wilmington, Delaware],
in care of [Name of owner trustee], as owner trustee, at its address below.
Trust Assets
The property of the trust will generally consist of:
o the principal balance of each mortgage loan as of the cut-off date
(referred to as the cut-off date principal balance), plus any new advances
made on it under the applicable credit line agreement during the life of the
trust fund ("Additional Balances");
o collections on the mortgage loans received after the cut-off date
(exclusive of payments of accrued interest due on or before the cut-off date);
o mortgaged properties relating to the mortgage loans that are
acquired by foreclosure or deed in lieu of foreclosure;
o the collection account for the Notes (excluding its net earnings);
o [the Additional Loan Account[s] and any additional loans purchased
with their proceeds;]
o [the Reserve Fund (excluding its net earnings);]
o the Policy and any further credit enhancement for the Notes; and
o an assignment of the depositor's rights under the purchase
agreement.
The assets of the trust comprising loan group [ ], the related
collection account, [the related Additional Loan Account, the Reserve Fund,]
the Policy, and the depositor's rights under the agreement under which it
purchased the mortgage loans will be pledged to the indenture trustee as
security for the Class [ ] Notes pursuant to the indenture. [The assets of the
trust comprising loan group [ ], the related collection account, [the related
Additional Loan Account, the Reserve Fund,] the Policy, and the depositor's
rights under the agreement under which it purchased the mortgage loans will be
pledged to the indenture trustee as security for the Class [ ] Notes pursuant
to the indenture.]
A substantial portion of the economic interest in the mortgage loans,
and consequently the trust, is related to the repayment of the Notes and
subject to the lien of the indenture. All of the remaining interest in the
mortgage loans in the trust fund will be represented by a single transferor
interest that will be owned by the transferor.
The transferor has the right to sell or pledge the transferor
interest at any time, if
o the Rating Agencies have notified the transferor and the indenture
trustee in writing that the action will not result in the reduction or
withdrawal of the ratings assigned to the Notes without regard to the Policy
[or any other third party credit enhancements], and
o certain other conditions specified in the trust agreement are
satisfied.
The owner trustee and any of its affiliates may hold Notes in their
own names or as pledgees. To meet the legal requirements of certain
jurisdictions, the owner trustee may appoint co-trustees or separate trustees
of any part of the trust fund under the trust agreement. All rights and
obligations conferred or imposed on the owner trustee by the sale and
servicing agreement and the trust agreement will be conferred or imposed on
any separate trustee or co-trustee. In any jurisdiction in which the owner
trustee or indenture trustee is incompetent or unqualified to perform any act,
the separate trustee or co-trustee will perform the act solely at the
direction of the owner trustee.
The owner trustee may resign at any time, in which event the
indenture trustee must appoint a successor acceptable to the Note Insurer. The
indenture trustee may also remove the owner trustee if it ceases to be
eligible to continue as such under the trust agreement or becomes legally
unable to act or becomes insolvent. Any resignation or removal of the owner
trustee and appointment of a successor will not become effective until
acceptance of the appointment by the successor.
Duties of the Owner Trustee
The owner trustee will make no representations as to the validity or
sufficiency of the trust agreement, the Notes, or of any mortgage loans or
related documents, and will not be accountable for the use or application by
the depositor or the master servicer of any funds paid to the depositor or the
master servicer on the Notes, or the mortgage loans, or the investment of any
monies by the master servicer before being deposited into the collection
accounts. The owner trustee will be required to perform only those duties
specifically required of it under the trust agreement. Generally, those duties
will be limited to the receipt of the various certificates, reports or other
instruments required to be furnished to the owner trustee under the trust
agreement, in which case it will only be required to examine them to determine
whether they conform to the requirements of the trust agreement.
Certain Activities
The Trust Fund will not borrow money, make loans, invest in
securities for the purpose of exercising control, underwrite securities,
except as provided in the trust agreement, engage in the purchase and sale (or
turnover) of investments, offer securities in exchange for property (except
the Notes for the mortgage loans), or repurchase or otherwise reacquire its
securities. See "Description of the Sale and Servicing Agreement -- Evidence
as to Compliance" above for information regarding reports as to the compliance
by the master servicer with the sale and servicing agreement.
Termination
In no event, however, will the trust fund created by the trust
agreement continue for more than 21 years after the death of certain
individuals named in the sale and servicing agreement. Written notice of
termination of the trust agreement will be given to each noteholder, and the
final distribution will be made only upon surrender and cancellation of the
Notes at an office or agency appointed by the indenture trustee which will be
specified in the notice of termination.
The Owner Trustee
[Name of owner trustee] will act as the owner trustee under the trust
agreement. [Name of owner trustee] is a Delaware banking corporation and its
principal officers are located at [ ], [Wilmington, Delaware].
The Note Insurer
The following information in this section has been provided by [Note
Insurer] (the "Note Insurer"). Accordingly, none of the depositor, the seller
and master servicer[, any third party credit enhancer] or the underwriter
makes any representation as to the accuracy and completeness of the
information in this section.
[Description of Note Insurer, including financial information]
The Master Servicer
General
[IndyMac Bank, F.S.B. ("IndyMac Bank") will service the mortgage
loans consisting of [adjustable] rate home equity revolving credit line loans
made or to be made in the future in accordance with the sale and servicing
agreement. The mortgage loans will be secured by either first or second deeds
of trust or mortgages on the residential properties that are one- to
four-family properties, condominiums and planned unit developments.
IndyMac Bank may perform any of its obligations under the sale and
servicing agreement dated as of [ ], 200[ ] among IndyMac ABS, Inc., as
depositor, IndyMac Bank, as seller and master servicer [Name of third party
enhancer, if any] and [Name of owner trustee], as owner trustee, through one
or more subservicers. Notwithstanding any subservicing arrangement, the master
servicer will remain liable for its servicing obligations under the sale and
servicing agreement as if the master servicer alone were servicing the
mortgage loans. As of the Closing Date, the master servicer will service the
mortgage loans without subservicing arrangements.]
The Master Servicer
[IndyMac 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 sale and servicing
agreement employing the same degree of skill and care which it employs n
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 sale and servicing agreement through one or
more subservicers selected by the master servicer. Notwithstanding any
subservicing agreement, the master will remain liable for its servicing duties
and obligations under the sale 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 home
equity revolving credit line 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 [__%]
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 sale and servicing agreement through one or more subservicers.
If the servicing of any mortgage loan were to be transferred from a
subservicer to Indy Mac 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 ______, 200_, IndyMac Bank provided servicing for approximately
$___ billion in conventional mortgage loans, of which approximately $[ ]
comprised home equity loans.]
The Home Equity Loan Program
Underwriting Procedures Relating to Home Equity Loans
The following is a description of the underwriting procedures
customarily employed by the seller with respect to home equity loans. The
underwriting process is intended to assess the applicant's credit standing and
repayment ability, and the value and adequacy of the real property security as
collateral for the proposed loan. Exceptions to the seller's underwriting
guidelines will be made when compensating factors are present. These factors
include the borrower's employment stability, favorable credit history, equity
in the related property and the nature of the underlying first mortgage loan
[Description of Specific Underwriting Procedures to be Included in the
Prospectus Supplement for an Actual Transaction]
Servicing of the Mortgage Loans
[The master servicer has established standard policies for the
servicing and collection of the home equity loans. Servicing includes, but is
not limited to,
o the collection and aggregation of payments relating to the mortgage
loans;
o the supervision of delinquent mortgage loans, loss mitigation
efforts, foreclosure proceedings and, if applicable, the disposition of the
mortgaged properties; and
o the preparation of tax related information in connection with the
mortgage loans.
[Description of Specific Servicing Standards to be Included in the Prospectus
Supplement for an Actual Transaction]
Foreclosure and Delinquency 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 following table summarizes the delinquency and foreclosure
experience, respectively, on the dates indicated, of home equity loans
serviced by the master servicer. The delinquency and foreclosure percentages
may be affected by the size and relative lack of seasoning of the servicing
portfolio because many of the loans were not outstanding long enough to give
rise to some or all of the periods of delinquency indicated in the chart
below. Accordingly, the information should not be considered a basis for
assessing the likelihood, amount, or severity of delinquencies or losses on
the mortgage loans in the loan groups. The foreclosure and delinquency
experience presented in the table below may not be indicative of the
foreclosure and delinquency experience the mortgage loans in the loan groups
will experience.
For the purposes of the following table:
o The period of delinquency is based on the number of days payments
are contractually past due.
o Certain total percentages and dollar amounts may not equal the sum
of the percentages and dollar amounts indicated in the columns due to
differences in rounding.
o "Foreclosure Rate" is the dollar amount of mortgage loans in
foreclosure as a percentage of the total principal balance of mortgage loans
outstanding as of the date indicated.
o "Bankruptcy Rate" is the dollar amount of mortgage loans for which
the related borrower has declared bankruptcy as a percentage of the total
principal balance of mortgage loans outstanding as of the date indicated.]
<TABLE>
<CAPTION>
Delinquency and Foreclosure Experience
As of [ ] As of [ ] As of [ ]
Principal Principal Principal
Balance Percentage Balance Percentage Balance Percentage
<S> <C> <C> <C> <C> <C> <C>
Portfolio................... $[ ] -- $[ ] -- $[ ] --
Delinquency percentage
30-59 Days............ $[ ] [ ]% $[ ] [ ]% $[ ] [ ]%
60-89 Days............ [ ] [ ] [ ] [ ] [ ] [ ]
90+ Days.............. [ ] [ ] [ ] [ ] [ ] [ ]
Total.............. $[ ] [ ]% $[ ] [ ]% $[ ] [ ]%
Foreclosure Rate............ $[ ] [ ]% $[ ] [ ]% $[ ] [ ]%
Bankruptcy Rate............. $[ ] [ ]% $[ ] [ ]% $[ ] [ ]%
</TABLE>
Historically, a variety of factors, including the appreciation of
real estate values, have 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 its services and higher net losses on liquidated
loans.
Description of the Mortgage Loans
General
[Certain statistical information concerning the pool of mortgage
loans is set forth below (the pool is referred to as the "Statistic
Calculation Pool" and each mortgage loan is referred to as a "Statistic
Calculation Pool Mortgage Loan"). The mortgage pool will be divided into [two]
groups of mortgage loans (each is referred to as a loan group) -- loan group [
] and loan group [ ]. The repayment of the Class [ ] Notes will be secured by
a security interest in loan group [ ] only [and the repayment of the Class [ ]
Notes will be secured by a security interest in loan group [ ].] [Loan group [
] information is included chiefly to provide a better understanding about the
trust fund.] A detailed description of the mortgage loans actually delivered
(the "Detailed Description") will be available to purchasers of the Notes at
or before, and will be filed on Form 8-K with the Securities and Exchange
Commission within fifteen days after, delivery of the Notes. The Detailed
Description will specify the aggregate of the principal balances of the
mortgage loans included in the trust fund as of the cut-off date and will also
include, among other things, the following information regarding the mortgage
loans:
o the outstanding principal balances of the mortgage loans as of [ ],
200[ ] (the cut-off date) [or the related transfer date],
o the lien priorities of the mortgage loans,
o the loan rates borne by the mortgage loans as of the cut-off date,
o the combined loan-to-value ratios of the mortgage loans,
o the remaining term to scheduled maturity of the mortgage loans,
o the type of properties securing the mortgage loans,
o the geographical distribution of the mortgage loans by state and
o the credit limits and credit limit utilization rates of the
mortgage loans as of the cut-off date.
[The Detailed Description speaks as of the cut-off date and
consequently does not include any Additional Home Equity Loans purchased with
the funds in the additional loan accounts.] The mortgage loans will have been
originated pursuant to credit line agreements and will be secured by mortgages
or deeds of trust. The mortgages and deeds of trust are either first or second
mortgages or deeds of trust on mortgaged properties expected to be located in
[49 states and the District of Columbia] as of the cut-off date. The mortgaged
properties securing the mortgage loans will consist of residential properties
that are one- to four-family properties. See " -- Mortgage Loan Terms" below.
Information regarding the Statistical Calculation Pool Mortgage Loans
as of [ ], 200[ ] (the "Statistic Calculation Date") can be found on the
tables on pages [S-__] through [S-__].]
Mortgage Loan Terms
[General. A borrower may access a mortgage loan by writing a check in
a minimum amount of $[ ]. The mortgage loans bear interest at a variable rate
that changes monthly on the first business day of the related month with
changes in the applicable index rate. The Statistic Calculation Pool Mortgage
Loans are subject to a maximum per annum interest rate ranging from [ ]% to [
]% per annum, subject to applicable usury limitations. See "Certain Legal
Aspects of the Loans -- Applicability of Usury Laws" in the prospectus. The
daily periodic rate on the mortgage loans (i.e., the loan rate) is the sum of
the index rate plus the applicable margin, divided by 365 days. The margin
generally ranges between [ ]% and [ ]%. The index rate is based on the highest
"prime rate" published in the "Money Rates" table of The Wall Street Journal
as of the first business day of each calendar month.
The second mortgage ratio for a mortgage loan in a second lien
position is the credit limit for the related mortgage loan divided by the sum
of the credit limit and the outstanding principal balance of any mortgage loan
senior to the related mortgage loan as of the date of related loan
application. The weighted average second mortgage loan ratio for the Loan
Group [ ] Statistic Calculation Pool Mortgage Loans was approximately [ ]%.
The weighted average second mortgage ratio for the Loan Group [ ] Statistic
Calculation Pool Mortgage Loans was approximately [ ]%.
IndyMac Bank generally offers introductory loan rates on its home
equity lines of credit. The introductory rate applies to payments made during
the [first three months or first six months] after origination. After the
introductory period, the loan rate will adjust to the index rate plus the
applicable margin.
In general, the home equity loans may be drawn on during a draw
period of either [five] years or [three] years. Home equity loans with a draw
period of [five] years (which generally may be extendible for an additional
[five] years, with IndyMac Bank's approval) constitute approximately [ ]% of
the Loan Group [ ] Statistic Calculation Pool Mortgage Loans and approximately
[ ]% of the Loan Group [ ] Statistic Calculation Pool Mortgage Loans, each by
Statistic Calculation Date Principal Balance. Home equity loans with a draw
period of [three] years (which generally may be extendible for an additional
[three] years, with IndyMac Bank's approval) constitute approximately [ ]% of
the Loan Group [ ] Statistic Calculation Pool Mortgage Loans and approximately
[ ]% of the Loan Group [ ] Statistic Calculation Pool Mortgage Loans, each by
Statistic Calculation Date Principal Balance. Mortgage loans with a [five]
year draw period are generally subject to a [fifteen] year repayment period
following the end of the draw period. Mortgage loans with a [three] year draw
period are generally subject to a [ten] year repayment period following the
end of the draw period. During this repayment period, the outstanding
principal balance of the loan will be paid in monthly installments equal to
[1/180] of the outstanding principal balance at the end of the draw period for
loans with a [five] year draw period or [1/120] of the outstanding principal
balance at the end of the draw period for loans with a [three] year draw
period.
The minimum payment due during the draw period will be equal to the
finance charges accrued on the outstanding principal balance of the home
equity loan during the related billing period, any past due finance charges
and any other charges owed. The minimum payment due during the repayment
period will be equal to the sum of the finance charges accrued on the
outstanding principal balance of the mortgage loan during the related billing
period, any amounts past due, any other charges owed and the principal payment
described above.
The principal balance of a mortgage loan (other than a Liquidated
Mortgage Loan) on any day is equal to
o its principal balance as of the cut-off date for the mortgage loans
purchased on the Closing Date [and as of the relevant date for the additional
home equity loans] plus
o any Additional Balances for the mortgage loan, minus
o all collections credited against the principal balance of the
mortgage loan in accordance with the related credit line agreement before the
relevant day.
The principal balance of a Liquidated Mortgage Loan after final recovery of
related liquidation proceeds shall be zero.
Difference between Statistic Calculation Pool and Cut-off Date Pool.
The statistical information presented in this prospectus supplement for each
loan group reflects the mortgage loans originated by the seller through the
Statistic Calculation Date, and is based on the number and the principal
balances of the mortgage loans in each loan group as of the Statistic
Calculation Date. The depositor expects that the actual pool as of the Closing
Date will represent approximately $[ ] aggregate principal balance of mortgage
loans. Loan group [ ], which has a Statistic Calculation Date Principal
Balance of approximately $[ ], is expected to have a cut-off date principal
balance of approximately $[ ]. Loan group [ ], which has a Statistic
Calculation Date Principal Balance of approximately $[ ], is expected to have
a cut-off date principal balance of $[ ]. [The trust also will include
approximately $[ ] for loan group [ ] and $[ ] for loan group [ ] in the
relevant additional loan accounts that may be applied to the purchase of
additional mortgage loans as described below.] The [initial] mortgage loans to
be included in the cut-off date pool will represent mortgage loans originated
by the seller on or before the cut-off date and sold by the seller to the
depositor, and by the depositor to the trust fund, on the Closing Date. In
addition, with respect to the Statistic Calculation Pool Mortgage Loans, as to
which statistical information is presented in this prospectus supplement, some
amortization will occur and some Additional Balances may be created before the
cut-off date. Moreover, certain Statistic Calculation Pool Mortgage Loans may
prepay in full or may be determined not to meet the eligibility requirements
for the final cut-off date pool and as a result may not be included in the
cut-off date pool. As a result of the foregoing, the statistical distribution
of characteristics as of the cut-off date for the cut-off date mortgage loan
pool will vary from the statistical distribution of characteristics of each
Statistic Calculation Loan Group as presented in this prospectus supplement,
although the variance will not be material. If the seller does not, as of the
cut-off date, have the full amount of mortgage loans that the depositor
expects to purchase from the seller and sell to the trust fund on the cut-off
date (i.e. approximately $[ ] aggregate principal balance of mortgage loans),
the depositor may reduce the size of the offering. Likewise, if the seller has
more mortgage loans than anticipated, the depositor may increase the size of
the offering. The original principal amount of either class of Notes may not
decrease or increase by more than [5]%. [For each loan group, the excess of
the original principal balance of the related Notes over the cut-off date
principal balance of that loan group will be deposited into an account (the
account for loan group [ ], the "Additional Loan Account"). These funds are
expected to be used to acquire additional home equity loans not in the cut-off
date pool (these loans for loan group [ ], the "Additional Home Equity
Loans"). Consequently, the statistical distribution characteristics of loan
group [ ] after the addition of Additional Home Equity Loans will vary from
that of both the loan group [ ] cut-off date mortgage loan pool and the Loan
Group [ ] Statistical Calculation Pool Mortgage Loans. Any funds remaining in
the Additional Loan Account on [ ] will be used to prepay the Class [ ] Notes
on the first payment date].
The sum of the columns below may not equal the total indicated for
each loan group due to rounding. The following tables describe the Statistic
Calculation Pool Mortgage Loans in each loan group and the related mortgaged
properties based upon the Loan Group [ ] Statistic Calculation Pool or the
Loan Group [ ] Statistic Calculation Pool, as applicable, as of the close of
business on the Statistic Calculation Date:
<PAGE>
<TABLE>
<CAPTION>
LOAN GROUP [ ]
Principal Balances
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Range of Principal Balances Loans Balance Principal Balance
<S> <C> <C> <C> <C> <C>
$ -$ ....................... $ %
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ ....................... ---------- ------------ -------
$ -$ .......................
Total.................................. $ 100.00%
========== ============ ========
</TABLE>
The combined loan-to-value ratio in the following table is a fraction
whose numerator is the sum of (i) the credit limit of the mortgage loans and
(ii) any outstanding principal balances of mortgage loans senior or of equal
priority to the mortgage loans (calculated generally at the date of
origination of the mortgage loans) and whose denominator is the lesser of (i)
the appraised value of the related mortgaged property as stated in loan files
at the date of origination or (ii) in the case of a mortgaged property
purchased within one year of the origination of the related mortgage loan, the
purchase price of the mortgaged property.
<PAGE>
<TABLE>
<CAPTION>
Combined Loan-to-Value Ratios
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Range of Combined Loan-to-Value Ratios Loans Balance Principal Balance
<S> <C> <C> <C>
Less than %................................ $ %
- ..................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- ................................. ---------- ------------- --------
Total...................................... $ 100.00%
========== ============= ========
</TABLE>
The loan rates in the following table reflect the fact that
approximately [ ]% of the Loan Group [ ] Statistic Calculation Pool Mortgage
Loans by Statistic Calculation Date Principal Balance are currently subject to
an introductory rate of [ ]% per annum and [ ]% of the Loan Group [ ]
Statistic Calculation Pool Mortgage Loans by Statistic Calculation Date
Principal Balance are currently subject to an introductory rate of [ ]% per
annum.
<TABLE>
<CAPTION>
Loan Rates
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Loans Balance Principal Balance
<S> <C> <C> <C>
Less than %................................ $ %
- ..................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- ................................. --------- ------------ -------
Total...................................... $ 100.00%
========= ============ ========
</TABLE>
<PAGE>
Geographic Distribution
<TABLE>
<CAPTION>
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
State Loans Balance Principal Balance
<S> <C> <C> <C>
........................................... $ %
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
........................................... -------- ----------- --------
Total...................................... $ 100.00%
========= =========== =========
</TABLE>
The geographic location used for the above table is determined by the
address of the mortgaged property securing the related mortgage loan.
<TABLE>
<CAPTION>
Property Type
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Property Type Loans Balance Principal Balance
<S> <C> <C> <C>
Single Family................................... $ %
PUD.............................................
Condominium.....................................
2-4 Family...................................... ---------- --------- --------
Total...................................... $ 100.00%
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Lien Priority
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Lien Property Loans Balance Principal Balance
<S> <C> <C> <C>
1st Liens....................................... $ %
2nd Liens....................................... --------- -------- -------
Total...................................... $ 100.00%
========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Margins
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Range of Margins Loans Balance Principal Balance
<S> <C> <C> <C>
%.......................................... $ %
- ..................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- ................................. --------- --------- --------
Total...................................... $ 100.00%
========= ========= =========
</TABLE>
The credit limit utilization rates in the following table are
determined by dividing the Loan Group [ ] Statistic Calculation Date Balance
for the particular grouping by the aggregate of the credit limits of the
related credit line agreements.
<TABLE>
<CAPTION>
Credit Limit Utilization Rates
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Range of Credit Mortgage Principal Date Aggregate
Limit Utilization Rates Loans Balance Principal Balance
<S> <C> <C> <C>
%.......................................... $ %
- ..................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- ................................. ---------- ---------- -------
Total...................................... $ 100.00%
========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
Maximum Rates
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Maximum Rates Loans Balance Principal Balance
<S> <C> <C> <C>
%............................................... $ %
................................................
................................................
................................................
................................................
................................................ --------- --------- -------
Total...................................... $ 100.00%
========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
Months Remaining to Scheduled Maturity
Percentage of
Loan Group [ ]
Aggregate Statistic
Range of Months Number of Unpaid Calculation
Remaining to Mortgage Principal Date Aggregate
Scheduled Maturity Loans Balance Principal Balance
<S> <C> <C>
-.......................................... $ %
- .................................
- .................................
- ................................. --------- --------- --------
Total...................................... $ 100.00%
========= ========= =========
</TABLE>
The above table assumes that the draw period for Loan Group [ ]
Statistic Calculation Pool Mortgage Loans with (a) five year draw periods and
fifteen year repayment periods will be extended for an additional five years
and (b) five year draw periods and ten year repayment periods will not be
extended.
<TABLE>
<CAPTION>
Origination Year
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Origination Year Loans Balance Principal Balance
<S> <C> <C> <C>
........................................... $ %
........................................... -------- --------- -------
Total...................................... $ 100.00%
======== ========= ========
</TABLE>
Delinquency Status
<TABLE>
<CAPTION>
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Number of Days Delinquent Loans Balance Principal Balance
<S> <C> <C> <C>
Current......................................... ______ $_________ _______%
Total...................................... 100.00%
====== ========== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Credit Limits
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Range of Credit Limits Loans Balance Principal Balance
<S> <C> <C> <C> <C> <C>
$ -$ ....................... $ %
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ ....................... -------- ---------- ---------
Total.................................. $ 100.00%
======== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOAN GROUP [ ]
Principal Balances
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Range of Principal Balances Loans Balance Principal Balance
<S> <C> <C> <C> <C> <C>
$ -$ ....................... $ %
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ ....................... --------- -------- -------
Total.................................. $ 100.00%
========= ======== =======
</TABLE>
The combined loan-to-value ratio in the following table is a fraction
whose numerator is the sum of (i) the credit limit of the mortgage loans and
(ii) any outstanding principal balances of mortgage loans senior or of equal
priority to the mortgage loans (calculated generally at the date of
origination of the mortgage loans) and whose denominator is the lesser of (i)
the appraised value of the related mortgaged property as stated in loan files
at the date of origination or (ii) in the case of a mortgaged property
purchased within one year of the origination of the related mortgage loan, the
purchase price of the mortgaged property.
<PAGE>
<TABLE>
<CAPTION>
Combined Loan-to-Value Ratios
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Range of Combined Loan-to-Value Ratios Loans Balance Principal Balance
<S> <C> <C> <C>
Less than %................................ $ %
- ..................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- ................................. -------- ---------- -------
Total...................................... $ 100.00%
======== ========== ========
</TABLE>
The loan rates in the following table reflect the fact that
approximately [ ]% of the Loan Group [ ] Statistic Calculation Pool Mortgage
Loans by Statistic Calculation Date Principal Balance are currently subject to
an introductory rate of [ ]% per annum and [ ]% of the Loan Group [ ]
Statistic Calculation Pool Mortgage Loans by Statistic Calculation Date
Principal Balance are currently subject to an introductory rate of [ ]% per
annum.
<TABLE>
<CAPTION>
Loan Rates
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Loans Balance Principal Balance
<S> <C> <C> <C>
Less than %................................ $ %
- ..................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- ................................. ---------- --------- -------
Total...................................... $ 100.00%
========== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Geographic Distribution
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
State Loans Balance Principal Balance
<S> <C> <C> <C>
........................................... $ %
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
........................................... --------- --------- -------
Total...................................... $ 100.00%
========= ========= =======
</TABLE>
The geographic location used for the above table is determined by the
address of the mortgaged property securing the related mortgage loan.
<TABLE>
<CAPTION>
Property Type
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Property Type Loans Balance Principal Balance
<S> <C> <C> <C>
Single Family................................... $ %
PUD........................................
Lo Condo...................................
2-4 Units....................................... ------- -------- -------
Total...................................... $ 100.00%
======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
Lien Priority
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Lien Property Loans Balance Principal Balance
<S> <C> <C> <C>
1st Liens....................................... $ %
2nd Liens....................................... -------- ---------- ---------
Total...................................... $ 100.00%
======== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Margins
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Range of Margins Loans Balance Principal Balance
<S> <C> <C> <C>
%.......................................... $ %
- ..................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- ................................. -------- ----------- --------
Total...................................... $ 100.00%
======== =========== =========
</TABLE>
The credit limit utilization rates in the following table are
determined by dividing the Loan Group [ ] Statistic Calculation Date Balance
for the particular grouping by the aggregate of the credit limits of the
related credit line agreements.
<TABLE>
<CAPTION>
Credit Limit Utilization Rates
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Range of Credit Mortgage Principal Date Aggregate
Limit Utilization Rates Loans Balance Principal Balance
<S> <C> <C> <C>
%.......................................... $ %
- ..................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- .................................
- ................................. -------- -------- -------
Total...................................... $ 100.00%
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Maximum Rates
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Maximum Rates Loans Balance Principal Balance
<S> <C> <C> <C>
%............................................... $ %
................................................
................................................
................................................
................................................
................................................ --------- ---------- -------
Total...................................... $ 100.00%
========= ========== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Months Remaining to Scheduled Maturity
Percentage of
Loan Group [ ]
Aggregate Statistic
Range of Months Number of Unpaid Calculation
Remaining to Mortgage Principal Date Aggregate
Scheduled Maturity Loans Balance Principal Balance
<S> <C> <C> <C>
-.......................................... $ %
- .................................
- .................................
- ................................. ------- ---------- --------
Total...................................... $ 100.00%
======= ========== ========
</TABLE>
The above table assumes that the draw period for Loan Group [ ]
Statistic Calculation Pool Mortgage Loans with (a) five year draw periods and
fifteen year repayment periods will be extended for an additional five years
and (b) five year draw periods and ten year repayment periods will not be
extended.
<TABLE>
<CAPTION>
Origination Year
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Origination Year Loans Balance Principal Balance
<S> <C> <C> <C>
........................................... $ %
........................................... ---------- ---------- -------
Total...................................... $ 100.00%
========== ========== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Delinquency Status
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Number of Days Delinquent Loans Balance Principal Balance
<S> <C> <C> <C>
Current......................................... _________ $_________ _______%
Total...................................... 100.00%
========= ========== ========
</TABLE>
<TABLE>
<CAPTION>
Credit Limits
Percentage of
Loan Group [ ]
Aggregate Statistic
Number of Unpaid Calculation
Mortgage Principal Date Aggregate
Range of Credit Limits Loans Balance Principal Balance
<S> <C> <C> <C>
$ -$ ....................... $ %
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ .......................
$ -$ ....................... --------- --------- -------
Total.................................. $ 100.00%
========= ========= ========
</TABLE>
Conveyance of Mortgage Loans
The obligation of the trust fund to purchase mortgage loans [for loan
group [ ]] on the Closing Date is subject to the following requirements, any
of which requirements may be waived or modified in any respect by the Note
Insurer:
o the mortgage loan may not be [60] or more days delinquent as of the
Closing Date;
o the remaining term to stated maturity of the mortgage loan will not
exceed [ ] months;
o the mortgage loan will be secured by a mortgage in a first or
second lien position;
o the mortgage loan will not have a loan rate less than [ ]%;
o the mortgage loan will be otherwise acceptable to the Note Insurer;
o following the purchase of the mortgage loan by the trust fund, the
mortgage loans as of the Closing Date
(a) will have a weighted average loan rate of at least [ ]%;
(b) will have a weighted average remaining term to stated
maturity of not more than [ ] months;
(c) will have a weighted average combined loan-to-value ratio
of not more than [ ]%;
(d) will have no mortgage loan with a principal balance in
excess of $[ ];
(e) will have a concentration in any one state not in excess
of [ ]%; and will have a concentration in any one zip code
not in excess of [ ]%;
(f) will have not more than [ ]% in aggregate principal
balance of mortgage loans relating to non-owner occupied
properties; and
(g) will not have more than [ ]% in aggregate principal
balance of mortgage loans that were appraised electronically;
o the mortgage loan shall have a combined loan-to-value ratio not in
excess of [ ];
o the mortgage loan will have a credit limit between $[ ] and $[ ];
o the mortgage loan will have a margin between [ ]% and [ ]%; and
o the mortgage loan will comply with the representations and
warranties in the sale and servicing agreement.
The trust fund may acquire Additional Home Equity Loans through [ ]
[that will be included in loan group [ ]] so long as they conform to the
criteria listed above. Each Additional Home Equity Loan will have been
underwritten substantially in accordance with the criteria described under
"The Home Equity Loan Program -- Underwriting Procedures Relating to Home
Equity Loans." Additional Home Equity Loans will be purchased using amounts on
deposit in the Additional Loan Account[s] at a cash purchase price of [100]%
of their principal balance on a designated cut-off date before [ ]. The amount
paid from the Additional Loan Account[s] for Additional Home Equity Loans will
not include accrued interest. Following each purchase of Additional Home
Equity Loans [for a loan group], the aggregate principal balance of [the
relevant] loan group [ ] will increase by an amount equal to the aggregate
principal balance of the Additional Home Equity Loans so acquired and the
amount in the Additional Loan Account will decrease accordingly.
Any conveyance of Additional Home Equity Loans is subject to various
conditions including:
o that they satisfy substantially the same loan representations and
warranties as the initial home equity loans;
o that they were identified by means of a selection process
reasonably believed not to be adverse to the interests of the holders of the
Notes and the Note Insurer;
o that the trust fund receive opinions of counsel acceptable to the
Note Insurer and the indenture trustee with respect to the validity of the
conveyance of the Additional Home Equity Loans; and
o that as of their cut-off date, each Additional Home Equity Loan
satisfied the eligibility requirements that the mortgage loans had to satisfy
on the closing date.
[The Additional Loan Account
The assets of the trust fund will include the Additional Loan
Account[s] that will contain approximately $[ ] on the closing date
representing the excess of the original principal balance of the [Class [ ]]
Notes over the cut-off date principal balance of the mortgage loans [in loan
group [ ]] initially transferred to the trust fund on the closing date. Monies
in the Additional Loan Account[s] are expected to be used to purchase
Additional Home Equity Loans through [ ]. The Additional Loan Account[s] will
be part of the trust fund, but will not be available to cover losses on the
mortgage loans. Any funds remaining on deposit in the Additional Loan
Account[s] on [ ] will be used to prepay the [relevant class of] [Class [ ]]
Notes on the first payment date. Net income on investment of funds in the
Additional Loan Account[s] will be paid to the master servicer, and will not
be available for payment on the Notes.]
Maturity and Prepayment Considerations
The sale and servicing agreement, except as otherwise described in
this prospectus supplement, provides that the noteholders will be entitled to
receive on each payment date distributions of principal, in the amounts
described under "Description of the Notes -- Distributions on the Notes,"
until the Note principal balance is reduced to zero. During the Managed
Amortization Period, noteholders will receive amounts from principal
collections based on the applicable Investor Fixed Allocation Percentage for
the related loan group, subject to reduction as described below. [In addition,
the funds remaining in the Additional Loan Account[s] on [ ] after the
purchase of any Additional Home Equity Loans on that date will be used to
prepay the [relevant class of] [Class [ ]] Notes on the first payment date.]
For any date of calculation through the first payment date on which
the balance of the transferor interest for a loan group is greater than or
equal to the applicable Required Transferor Subordinated Amount, the "Investor
Fixed Allocation Percentage" will equal the greater of (i) [ ]% and (ii) 100%
minus the percentage obtained by dividing the amount of the transferor
interest allocable to a loan group at the beginning of the relevant Collection
Period by the loan group balance at the beginning of the relevant Collection
Period. Thereafter, the Investor Fixed Allocation Percentage will equal [ ]%.
During a Rapid Amortization Period, noteholders will receive amounts from
principal collections based solely on the Investor Fixed Allocation Percentage
for the related loan group. Because prior distributions of principal
collections to noteholders serve to reduce the related Investor Floating
Allocation Percentage but may not change the related Investor Fixed Allocation
Percentage in all instances, allocations of principal collections from the
mortgage loans in a loan group based on the related Investor Fixed Allocation
Percentage may result in distributions of principal to the noteholders in
amounts that are, in most cases, greater relative to the declining balance of
the mortgage loans in that loan group than would be the case if the related
Investor Floating Allocation Percentage were used to determine the percentage
of principal collections from the mortgage loans in that loan group
distributed to noteholders. This is especially true during the Rapid
Amortization Period when the noteholders are entitled to receive their
respective Investor Principal Collections and not a lesser amount.
In addition, respective Investor Interest Collections may be
distributed as principal to noteholders of Notes in a particular loan group in
connection with the applicable Accelerated Principal Distribution Amount, if
any. Moreover, to the extent of losses allocable to the Notes related to a
particular loan group, those noteholders may also receive the amount of those
losses as payment of principal from the related Investor Interest Collections,
Investor Interest Collections from the other loan group, the Subordinated
Transferor Collections, [the Reserve Fund,] or, in some instances, draws under
the Policy [or payments under any third party enhancement]. The level of
losses may therefore affect the rate of payment of principal on the Notes.
[As of the closing date, the transferor interest with respect to each
loan group will be $0. The transferor interest is expected to grow in the
early months of the transaction due to the payment of the applicable
Accelerated Principal Distribution Amount.] [In addition,] to the extent
obligors make more draws than principal payments on the mortgage loans in a
loan group, the transferor interest may grow. An increase in the transferor
interest due to additional draws may also result in noteholders receiving
principal at a greater rate during the Rapid Amortization Period because the
noteholders' share of principal collections on the mortgage loans in a loan
group is based on the applicable Investor Fixed Allocation Percentage (without
reduction). The sale and servicing agreement and the indenture permit the
transferor, at its option, but subject to the satisfaction of certain
conditions specified in the sale and servicing agreement, including the
conditions described below, to remove certain mortgage loans from a loan group
and release them from the lien of the indenture at any time during the life of
the trust fund, so long as the portion of the transferor interest related to
the applicable loan group (after giving effect to the removal) is not less
than the related Minimum Transferor Interest. See "Description of the Sale and
Servicing Agreement -- Optional Transfers of Mortgage Loans to the
Transferor."
All of the mortgage loans may be prepaid in full or in part at any
time. [However, mortgage loans secured by mortgaged properties in [ ] are
subject to an account termination fee equal to the lesser of $[ ] or [ ]
months interest on the amount prepaid, to the extent the prepaid amount
exceeds [ ]% of the unpaid principal balance, if the account is terminated on
or before its [ ] year anniversary.] In addition, mortgage loans secured by
mortgaged properties [in other jurisdictions] may be subject to account
termination fees to the extent permitted by law. In general, account
termination fees do not exceed $[ ] and do not apply to accounts terminated
after a date designated in the related mortgage note that, depending on the
jurisdiction, ranges between [ ] months and [ ] years following origination.
The prepayment experience of the mortgage loans in a loan group will affect
the weighted average life of the related Notes.
The rate of prepayment on the mortgage loans cannot be predicted.
Generally, it is assumed that home equity revolving credit lines are not
viewed by borrowers as permanent financing. Accordingly, the mortgage loans
may experience a higher rate of prepayment than traditional first mortgage
loans. On the other hand, because the mortgage loans amortize as described
under "Description of the Mortgage Loans -- Mortgage Loan Terms," rates of
principal payments on the mortgage loans will generally be slower than those
of traditional fully-amortizing first mortgages in the absence of prepayments
on the mortgage loans. The prepayment experience of the mortgage loans in a
loan group may be affected by a wide variety of factors, including general
economic conditions, prevailing interest rate levels, the availability of
alternative financing, homeowner mobility, the frequency and amount of any
future draws on the credit line agreements and changes affecting the
deductibility for federal income tax purposes of interest payments on home
equity credit lines. Substantially all of the mortgage loans contain
"due-on-sale" provisions, and the master servicer intends to enforce them,
unless
o enforcement is not permitted by applicable law or
o the master servicer permits the purchaser of the related mortgaged
property to assume the mortgage loan in a manner consistent with reasonable
commercial practice.
The enforcement of a "due-on-sale" provision will have the same
effect as a prepayment of the related mortgage loan. See "Certain Legal
Aspects of the Loans -- Due-on-Sale Clauses" in the prospectus.
The seller is not required to deliver certain documents relating to
the mortgage loans to the indenture trustee until [30] days after the Closing
Date [(or in the case of the Additional Home Equity Loans, until 21 days after
they are acquired by the trust fund)]. See "Description of the Sale and
Servicing Agreement -- Assignment of Mortgage Loans." Should the seller fail
to deliver all or a portion of the required documents for any mortgage loan to
the depositor, or, at the depositor's direction, to the indenture trustee
within the required period, the seller must accept the transfer of the
mortgage loan from the trust fund. The principal balance of any mortgage loan
so transferred will be deducted from the related loan group balance, thus
reducing the amount of the transferor interest related to relevant loan group.
If the deduction would cause the portion of the transferor interest related to
the relevant loan group to become less than the related Minimum Transferor
Interest at the time, the seller must either substitute an Eligible Substitute
Mortgage Loan or make a deposit into the collection account equal to the
amount by which the portion of the transferor interest would be reduced to
less than the related Minimum Transferor Interest at the time. Except to the
extent substituted for by an Eligible Substitute Mortgage Loan, the transfer
of the mortgage loan out of the trust fund will be treated as a payment in
full of the mortgage loan.
The yield to an investor who purchases the Notes in the secondary
market at a price other than par will vary from the anticipated yield if the
rate of prepayment on the mortgage loans in the related loan group is actually
different than the rate anticipated by the investor at the time the Notes were
purchased.
Collections on the mortgage loans may vary because, among other
things, borrowers may make payments during any month as low as the minimum
monthly payment for the month or as high as the entire outstanding principal
balance plus accrued interest and the fees and charges on the mortgage loan.
Borrowers may fail to make scheduled payments. Collections on the mortgage
loans may vary due to seasonal purchasing and payment habits of borrowers.
We cannot predict the level of prepayments that will be experienced
by the trust fund and investors may expect that a portion of borrowers will
not prepay their mortgage loans to any significant degree. See "Yield and
Prepayment Considerations" in the prospectus.
Pool Factor
The pool factor is a seven-digit decimal that the indenture trustee
will compute monthly expressing the Note principal balance of each class of
Notes as of each payment date as a proportion of the Original Note Principal
Balance after giving effect to any distribution of principal to that class of
Notes on the payment date. On the Closing Date, the pool factor for each class
of Notes will be 1.0000000. See "Description of the Notes -- Distributions on
the Notes." Thereafter, the pool factor for each class of Notes will decline
to reflect reductions in the related Note principal balance resulting from
distributions of principal to that class of Notes and the related Invested
Amount of any unreimbursed Liquidation Loss Amounts from mortgage loans in the
related loan group.
Pursuant to the sale and servicing agreement and the indenture,
monthly reports concerning the Invested Amount, the pool factor and various
other items of information for each class of Notes will be made available to
the noteholders. In addition, within [60] days after the end of each calendar
year, beginning with the 200[ ]calendar year, information for tax reporting
purposes will be made available to each person who has been a noteholder of
record at any time during the preceding calendar year. See "Description of the
Notes -- Book-Entry Notes" and "Description of the Indenture -- Reports to
Noteholders."
Description of the Notes
The Home Equity Loan Asset Backed Notes Class [ ] and Class [ ] (each
is sometimes referred to as a "Class"), Series 200[ ]-[ ] (the "Notes") will
be issued pursuant to the indenture. The form of the indenture has been filed
as an exhibit to the Registration Statement of which this prospectus
supplement and the prospectus is a part.
General
The [Class [ ]] Notes will be issued in denominations of $[1,000] and
multiples in excess of that. The repayment of the Class [ ] Notes will be
secured by a securities interest in loan group [ ] and the repayment of the
Class [ ] Notes [(which are not offered by this prospectus supplement)] will
be secured by a security interest in loan group [ ].
Definitive Notes, if issued, will be transferable and exchangeable at
the corporate trust office of the indenture trustee, which will initially
maintain the note register for the Notes. See " -- Book-Entry Notes" below. No
service charge will be made for any registration of exchange or transfer of
Notes, but the indenture trustee may require payment of a sum sufficient to
cover any tax or other governmental charge.
The aggregate undivided interest in the trust fund represented by the
Notes as of the Closing Date is expected to equal approximately $[ ] (the
"Original Invested Amount"), which represents approximately 100% of the sum of
the cut-off date pool balance [and the additional loan accounts].
As of the Closing Date, the principal balance of the Class [ ] Notes
is expected to equal approximately $[ ] (the "Class [ ] Original Invested
Amount"), which represents approximately 100% of the sum of the cut-off date
loan group [ ] principal balance [and approximately $[ ] deposited in the
related additional loan account]. The "Class [ ] Original Note Principal
Balance" is expected to equal approximately $[ ].
As of the Closing Date, the principal balance of the Class [ ] Notes
is expected to equal approximately $[ ] (the "Class [ ] Original Invested
Amount"), which represents approximately 100% of the sum of the cut-off date
loan group [ ] principal balance [and the amount deposited in the Additional
Loan Account]. The "Class [ ]Original Note Principal Balance" is expected to
equal approximately $[ ]. [Of the Class [ ] Original Invested Amount
approximately $[ ] represents the proceeds deposited into the Additional Loan
Account which may be used through [ ] to purchase additional home equity loans
for addition to loan group [ ].]
Following the Closing Date, the "Invested Amount" for each class of
Notes for any payment date will be an amount equal to the Original Invested
Amount for the class of Notes minus
o the amount of the related Investor Principal Collections previously
distributed on the class of Notes [and any return of the related additional
loan account funds], and minus
o an amount equal to the product of the related Investor Floating
Allocation Percentage and the Liquidation Loss Amounts on the mortgage loans
in the related loan group for the payment date.
For each class of Notes, the principal amount of the outstanding
Notes in that class on any payment date is equal to the applicable Original
Note Principal Balance minus the aggregate of amounts actually distributed as
principal to the Notes in that class. See " -- Distributions on the Notes"
below. Each Note represents the right to receive payments of interest at the
related note rate and payments of principal as described below.
The residual interest in the mortgage loans in the trust fund will be
represented by a single transferor interest that will be owned by the
transferor. The portion of the transferor interest related to a loan group, as
of any date of determination, will equal the related loan group balance as of
the close of business on the day preceding the date of determination, less the
Invested Amount for the loan group as of the close of business on the
preceding payment date.
The Required Transferor Subordinated Amount initially is
approximately $[ ], which, in the aggregate, will represent approximately [ ]%
of the cut-off date loan group [ ] balance [and the amount originally
deposited in the related additional loan account] plus approximately [ ]% of
the cut-off date loan group [ ] balance [and the amount originally deposited
in the Additional Loan Account], but the indenture requires the transferor
interest (once it is fully funded) to be at least equal to the Minimum
Transferor Interest. The owner of the transferor interest will initially be
the seller (or one of its affiliates). In general, the loan group balance of
each loan group will vary each day as principal is paid on the mortgage loans
in that loan group, liquidation losses are incurred and Additional Balances
are drawn down by borrowers on mortgage loans in that loan group and
transferred to the related loan group.
The Note Insurer requires, based on the Insurance Agreement, that the
portion of the transferor's interest related to each class of Notes be
maintained at the related Required Transferor Subordinated Amount for the
class. The portion of the transferor's interest related to each class of Notes
as of the closing date will be zero, which is less than the initial Required
Transferor Subordinated Amount, thus requiring an increase in the transferor's
interest on future payment dates until it equals the Required Transferor
Subordinated Amount.
Book-Entry Notes
The [Class [ ]] Notes will be book-entry notes. Persons acquiring
beneficial ownership interests in the [Class [ ]] Notes may elect to hold
their [Class [ ]] Notes through the Depository Trust Company in the United
States, or Clearstream, Luxembourg or Euroclear in Europe, if they are
participants of those systems, or indirectly through organizations that are
participants in those systems. The book-entry notes will be issued in one or
more notes that equal the aggregate principal balance of the [Class [ ]] Notes
and will initially be registered in the name of Cede & Co., 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 and Euroclear's names on the books of their
respective depositaries, which in turn will hold 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. Investors may hold
beneficial interests in the book-entry notes in minimum denominations
representing [Class [ ]] Note principal balances of $[1,000] and in multiples
in excess of that. Except as described below, no person acquiring a book-entry
note will be entitled to receive a definitive note representing the [Class [
]] Note. Until definitive notes are issued, Cede & Co., as nominee of DTC, is
expected to be the only "noteholder" of the [Class [ ]] Notes. Beneficial
owners of [Class [ ]] Notes will not be noteholders as that term is used in
the indenture. Beneficial owners of [Class [ ]] Notes are only permitted to
exercise their rights indirectly through the participating organizations that
use the services of DTC, including securities brokers and dealers, banks and
trust companies and clearing corporations and certain other organizations and
DTC.
The beneficial owner's ownership of a book-entry note will be
recorded on the records of the brokerage firm, bank, thrift institution or
other financial intermediary that maintains the beneficial owner's account for
that purpose. In turn, the financial intermediary's ownership of the
book-entry note 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).
Beneficial owners of [Class [ ]] Notes will receive all distributions
of principal of, and interest on, the [Class [ ]] Notes from the indenture
trustee through DTC and DTC participants. While the [Class [ ]] Notes are
outstanding (except under the circumstances described below), under the rules,
regulations and procedures creating and affecting DTC and its operations (the
"Rules"), DTC must make book-entry transfers among participants on whose
behalf it acts with respect to the [Class [ ]] Notes and must receive and
transmit distributions of principal of, and interest on, the [Class [ ]]
Notes. Participants and organizations that have indirect access to the DTC
system, such as banks, brokers, dealers, trust companies and other indirect
participants that clear through or maintain a custodial relationship with a
participant, either directly or indirectly, with whom beneficial owners of
[Class [ ]] Notes have accounts for [Class [ ]] Notes are similarly required
to make book-entry transfers and receive and transmit distributions on behalf
of their respective beneficial owners of [Class [ ]] Notes. Accordingly,
although beneficial owners of [Class [ ]] Notes will not possess [Class [ ]]
Notes, the Rules provide a mechanism by which beneficial owners of [Class [ ]]
Notes will receive distributions and will be able to transfer their interest.
Beneficial owners of [Class [ ]] Notes will not receive or be
entitled to receive notes representing their respective interests in the
[Class [ ]] Notes, except under the limited circumstances described below.
Until definitive notes are issued, beneficial owners of [Class [ ]] Notes who
are not participants may transfer ownership of [Class [ ]] Notes only through
participants and indirect participants by instructing them to transfer [Class
[ ]] Notes, by book-entry transfer, through DTC for the account of the
purchasers of the [Class [ ]] Notes, which account is maintained with their
respective participants. Under the Rules and in accordance with DTC's normal
procedures, transfers of ownership of [Class [ ]] Notes will be executed
through DTC and the accounts of the respective participants at DTC will be
debited and credited. Similarly, the participants and indirect participants
will make debits or credits, as the case may be, on their records on behalf of
the selling and purchasing beneficial owners of [Class [ ]] Notes.
Because of time zone differences, credits of securities received in
Clearstream, Luxembourg or Euroclear as a result of a transaction with a
participant will be made during subsequent securities settlement processing
and dated the business day following the DTC settlement date. Those credits or
any transactions in those securities will be reported to the relevant
Euroclear or Clearstream, Luxembourg participants on the business day
following the DTC settlement date. Cash received in Clearstream, Luxembourg or
Euroclear as a result of sales of securities by or through a Clearstream,
Luxembourg participant or Euroclear participant to a DTC participant will be
received with value on the DTC settlement date but will be available in the
relevant Clearstream, Luxembourg or Euroclear cash account only as of the
business day following settlement in DTC. For information with respect to tax
documentation procedures relating to the Notes, see "Material Federal Income
Tax Consequences -- Foreign Investors" and " -- Backup Withholding" herein and
"Global Clearance, Settlement And Tax Documentation Procedures -- Certain U.S.
Federal Income Tax Documentation Requirements" in Annex I hereto.
Transfers between participants will occur in accordance with DTC
rules. Transfers between Clearstream, Luxembourg participants and Euroclear
participants will occur in accordance with their respective rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Clearstream,
Luxembourg participants or Euroclear participants, on the other, will be
effected in DTC in accordance with DTC rules and on behalf of the relevant
European international clearing system by the relevant depositary. However,
these cross market transactions will require delivery of instructions to the
relevant European international clearing system by the counterparty in the
relevant European international clearing system in accordance with its rules
and procedures and within its established deadlines (European time). The
relevant European international clearing system will, if the transaction meets
its settlement requirements, deliver instructions to the relevant depositary
to take action to effect final settlement on its behalf by delivering or
receiving securities in DTC, and making or receiving payment in accordance
with normal procedures for same day funds settlement applicable to DTC.
Clearstream, Luxembourg participants and Euroclear participants may not
deliver instructions directly to the European depositaries.
DTC, which is a New York-chartered limited purpose trust company,
performs services for its participants, some of which (or their
representatives) own DTC. In accordance with its normal procedures, DTC is
expected to record the positions held by each DTC participant in the
book-entry notes, whether held for its own account or as a nominee for another
person. In general, beneficial ownership of book-entry notes will be subject
to the rules, regulations and procedures governing DTC and DTC participants as
in effect from time to time.
Clearstream Banking, societe anonyme, 67 Bd Grande-Duchesse
Charlotte, L-2967 Luxembourg ("Clearstream, Luxembourg"), was incorporated in
1970 as "Cedel S.A," a company with limited liability under Luxembourg law (a
societe anonyme). Cedel S.A. subsequently changed its name to Cedelbank. On 10
January 2000, Cedelbank's parent company, Cedel International, societe anonyme
merged its clearing, settlement and custody business with that of Deutsche
Borse Clearing AG. The merger involved the transfer by Cedel International of
substantially all of its assets and liabilities to a new Luxembourg company,
New Cedel International, societe anonyme, which is 50% owned by Cedel
International and 50% owned by Deutsche Borse Clearing AG's parent company
Deutsche Borse AG. The shareholders of these two entities are banks,
securities dealers and financial institutions. Cedel International currently
has 92 shareholders, including U.S. financial institutions or their
subsidiaries. No single entity may own more than 5 percent of Cedel
International's stock.
In furtherance of the merger, the Board of Directors of New Cedel
International decided to re-name the companies in the group to give them a
cohesive brand name. The new brand name that was chosen is "Clearstream."
Effective 14 January 2000, New Cedel International has been renamed
"Clearstream International, societe anonyme." On 18 January 2000, Cedelbank
was renamed "Clearstream Banking, societe anonyme," and Cedel Global Services
was renamed "Clearstream Services, societe anonyme."
On 17 January 2000 Deutsche Borse Clearing AG was renamed
"Clearstream Banking AG." This means that there are now two entities in the
corporate group headed by Clearstream International which share the name
"Clearstream Banking," the entity previously named "Cedelbank" and the entity
previously named "Deutsche Borse Clearing AG."
Clearstream, Luxembourg holds securities for its customers and
facilitates the clearance and settlement of securities transactions between
Clearstream, Luxembourg customers through electronic book-entry changes in
accounts of Clearstream, Luxembourg customers, thereby eliminating the need
for physical movement of notes. Transactions may be settled by Clearstream,
Luxembourg in any of 36 currencies, including United States Dollars.
Clearstream, Luxembourg provides to its customers, among other things,
services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing.
Clearstream, Luxembourg also deals with domestic securities markets in over 30
countries through established depository and custodial relationships.
Clearstream, Luxembourg is registered as a bank in Luxembourg, and as such is
subject to regulation by the Commission de Surveillance du Secteur Financier,
which supervises Luxembourg banks. Clearstream, Luxembourg's customers are
world-wide financial institutions including underwriters, securities brokers
and dealers, banks, trust companies and clearing corporations. Clearstream,
Luxembourg's U.S. customers are limited to securities brokers and dealers, and
banks. Currently, Clearstream, Luxembourg has approximately 2,000 customers
located in over 80 countries, including all major European countries, Canada,
and the United States. Indirect access to Clearstream, Luxembourg is available
to other institutions that clear through or maintain a custodial relationship
with an account holder of Clearstream, Luxembourg. Clearstream, Luxembourg has
established an electronic bridge with Morgan Guaranty Trust Company of New
York as the Operator of the Euroclear System (MGT/EOC) in Brussels to
facilitate settlement of trades between Clearstream, Luxembourg and MGT/EOC.
Euroclear was created in 1968 to hold securities for participants of
Euroclear and to clear and settle transactions between Euroclear participants
through simultaneous electronic book-entry delivery against payment, thereby
eliminating the need for physical movement of notes and any risk from lack of
simultaneous transfers of securities and cash. Transactions may now be settled
in any of 32 currencies, including United States dollars. Euroclear includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. Euroclear is
operated by the Brussels, Belgium office of Morgan Guaranty Trust Company of
New York under contract with Euroclear Clearance Systems S.C., a Belgian
cooperative corporation. All operations are conducted by the Euroclear
operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear operator, not 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.
The Euroclear operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law. The Terms and Conditions govern transfers of securities and cash
within Euroclear, withdrawals of securities and cash from Euroclear, and
receipts of payments with respect to securities in Euroclear. All securities
in Euroclear are held on a fungible basis without attribution of specific
notes to specific securities clearance accounts. The Euroclear operator acts
under the Terms and Conditions only on behalf of Euroclear participants, and
has no record of or relationship with persons holding through Euroclear
participants.
Distributions on the book-entry notes will be made on each payment
date by the indenture trustee to DTC. DTC will be responsible for crediting
the amount of the distributions to the accounts of the applicable DTC
participants in accordance with DTC's normal procedures. Each DTC participant
will be responsible for disbursing the distributions to the beneficial owners
of the book-entry notes that it represents and to each financial intermediary
for which it acts as agent. Each financial intermediary will be responsible
for disbursing funds to the beneficial owners of the book-entry notes that it
represents.
Under a book-entry format, beneficial owners of the book-entry notes
may experience some delay in their receipt of payments, since payments will be
forwarded by the indenture trustee to Cede & Co. Distributions on [Class [ ]]
Notes held through Clearstream, Luxembourg or Euroclear will be credited to
the cash accounts of Clearstream, Luxembourg participants or Euroclear
participants in accordance with the relevant system's rules and procedures, to
the extent received by the relevant depositary. The distributions will be
subject to tax reporting in accordance with relevant United States tax laws
and regulations. See "Material Federal Income Tax Consequences -- Foreign
Investors" and " -- Backup Withholding." Because DTC can only act on behalf of
financial intermediaries, the ability of a beneficial owner to pledge
book-entry notes to persons or entities that do not participate in the
depository system, or otherwise take actions in respect of book-entry notes,
may be limited due to the lack of physical notes for book-entry notes. In
addition, issuance of the book-entry notes in book-entry form may reduce the
liquidity of [Class [ ]] Notes in the secondary market since certain potential
investors may be unwilling to purchase [Class [ ]] Notes for which they cannot
obtain definitive notes.
Monthly and annual reports on the trust fund provided by the master
servicer to Cede & Co., as nominee of DTC, may be made available to beneficial
owners upon request, in accordance with the rules, regulations and procedures
creating and affecting DTC or the relevant depositary, and to the financial
intermediaries to whose DTC accounts the book-entry notes of the beneficial
owners are credited.
DTC has advised the transferor and the indenture trustee that, until
definitive notes are issued, DTC will take any action permitted to be taken by
the holders of the book-entry notes under the indenture only at the direction
of one or more financial intermediaries to whose DTC accounts the book-entry
notes are credited, to the extent that the actions are taken on behalf of
financial intermediaries whose holdings include the book-entry notes.
Clearstream, Luxembourg or the Euroclear operator, as the case may be, will
take any other action permitted to be taken by a noteholder under the
indenture on behalf of a Clearstream, Luxembourg participant or Euroclear
participant only in accordance with its relevant rules and procedures and
subject to the ability of the relevant depositary to effect the actions on its
behalf through DTC. DTC may take actions, at the direction of the related
participants, for some [Class [ ]] Notes that conflict with actions taken for
other [Class [ ]] Notes.
Definitive notes will be issued to beneficial owners of the
book-entry notes, or their nominees, rather than to DTC, only if
o DTC or the transferor advises the indenture trustee in writing that
DTC is no longer willing, qualified or able to discharge properly its
responsibilities as nominee and depositary with respect to the book-entry
notes and the transferor or the indenture trustee is unable to locate a
qualified successor,
o the transferor, at its sole option, elects to terminate a
book-entry system through DTC or
o after the occurrence of an Event of Servicing Termination,
beneficial owners having interests aggregating not less than 51% of the Note
principal balance of the book-entry notes advise the indenture trustee and DTC
through the financial intermediaries and the DTC participants in writing that
the continuation of a book-entry system through DTC (or a successor thereto)
is no longer in the best interests of beneficial owners.
Upon the availability of definitive notes, the indenture trustee will
be required to notify all beneficial owners of the occurrence of the event
resulting in their availability and the availability through DTC of definitive
notes. Upon surrender by DTC of the global notes representing the book-entry
notes and instructions for re-registration, the indenture trustee will issue
definitive notes, and thereafter the indenture trustee will recognize the
holders of definitive notes as noteholders under the indenture.
Although DTC, Clearstream, Luxembourg and Euroclear have agreed to
the foregoing procedures to facilitate transfers of [Class [ ]] Notes among
participants of DTC, Clearstream, Luxembourg and Euroclear, they are under no
obligation to perform or continue to perform these procedures and these
procedures may be discontinued at any time.
The foregoing information with respect to DTC has been provided for
informational purposes only and is not a representation, warranty, or contract
modification of any kind by DTC.
Distributions on the Notes
Beginning with the first payment date (which will occur on [ ]),
distributions on the Notes will be made by the indenture trustee or the paying
agent on each payment date to the persons in whose names the Notes are
registered at the close of business on the day before each payment date or, if
the Notes are no longer book-entry notes, at the close of business on the
record date (which is the [last] day of the month preceding the payment date).
The term payment date means the [fifteenth] day of each month or, if that day
is not a business day, then the next business day. Generally, distributions on
the [Class [ ]] Notes will be made by check or money order mailed to the
address of the person entitled to it (which, in the case of book-entry notes,
will be DTC or its nominee) as it appears on the note register on the
determination date. At the request of a noteholder owning at least
$[1,000,000] principal amount of Notes, distributions will be made by wire
transfer or as otherwise agreed between the noteholder and the indenture
trustee. However, the final distribution on the Notes will be made only on
their presentation and surrender at the office or the agency of the indenture
trustee specified in the notice to noteholders of the final distribution. A
"business day" is any day other than a Saturday or Sunday or a day on which
banking institutions in the states of New York, [California or [ ]] are
required or authorized by law to be closed.
Application of Interest Collections. On each payment date, the
indenture trustee or a paying agent will apply the Investor Interest
Collections for [a] loan group [ ] in the following order of priority:
(1) to pay the indenture trustee's fees under the indenture and the
owner trustee's fees under the trust;
(2) to pay the Note Insurer for the portion of the premium for the
Policy [related to loan group [ ]];
(3) to pay noteholders the interest accrued at the related note rate
and any overdue accrued interest (with interest on overdue
interest to the extent permitted by applicable law) on the
principal balance of the Notes;
(4) to pay noteholders the related Investor Loss Amount for the
payment date;
(5) to pay noteholders for any related Investor Loss Amount for a
previous payment date that was not previously (a) funded by
related Investor Interest Collections, (b) absorbed by a
reduction in the related portion of the transferor interest, (c)
funded by related Subordinated Transferor Collections [, (d)
funded by the Reserve Fund, (e) funded pursuant to clause (9)
below] or (f) funded by draws on the Policy;
(6) to reimburse the Note Insurer for prior draws made from the
Policy (with interest on the draws);
(7) to pay noteholders the principal of the Notes until the related
portion of the transferor interest equals the related Required
Transferor Subordinated Amount (the principal so paid, the
"Accelerated Principal Distribution Amount");
(8) to pay any other amounts owed to the Note Insurer pursuant to
the Insurance Agreement;
(9) [to pay the other class of notes any deficiency in items (3),
(4) and (5) above, after taking into account the allocation of
100% of the other class' Investor Interest Collections on the
payment date (the amount of one class' remaining Investor
Interest Collections allocated to the other class on a payment
date is a "Crossover Amount");]
(10) [to the Reserve Fund for application in accordance with the
indenture, to the extent that the sum of the portion of the
transferor's interest for [both] loan groups as of the payment
date is less than the sum of the Required Transferor
Subordinated Amounts for [both] loan groups as of the payment
date;]
(11) to pay the master servicer amounts required to be paid pursuant
to the sale and servicing agreement;
(12) to pay the noteholders any Basis Risk Carryforward of the Notes;
and
(13) the remaining amounts to the transferor.
Payments to noteholders pursuant to clause (3) will be interest
payments on the Notes. Payments to noteholders pursuant to clauses (4), (5)
and (7) will be principal payments on the Notes and will therefore reduce the
related Note principal balance; however, payments pursuant to clause (7) will
not reduce the related Invested Amount. The Accelerated Principal Distribution
Amount for a Class is not guaranteed by the Policy.
[On each payment date, if Investor Interest Collections for a class
of Notes, plus any Crossover Amount available from the other class of Notes,
are insufficient to pay the amounts specified in items (3), (4) and (5) above
for a class of Notes, the amount of the insufficiency shall be withdrawn from
the Reserve Fund to the extent of funds on deposit in it.]
[The amount on deposit in the Reserve Fund will not exceed the excess
of (x) the sum of the Required Transferor Subordinated Amounts for [both] loan
groups over (y) the sum of the portion of the transferor's interest for each
loan group. Amounts in the Reserve Fund may only be withdrawn and applied in
accordance with the indenture.]
To the extent that Investor Interest Collections from a loan group
are applied to pay the interest on the related class of Notes, Investor
Interest Collections for that loan group may be insufficient to cover related
Investor Loss Amounts. If this insufficiency exists after the related
Available Transferor Subordinated Amount[, the Crossover Amount and the
Reserve Fund] [have each] [has] been reduced to zero and results in the
related Note principal balance exceeding the related Invested Amount, a draw
will be made on the Policy in accordance with the Policy.
The "Investor Loss Amount" for a loan group is the product of the
Investor Floating Allocation Percentage for that loan group and the
Liquidation Loss Amount for that loan group for the payment date. The Investor
Loss Amount for a loan group will be allocated to the Notes related to that
loan group.
The "Liquidation Loss Amount" for any Liquidated Mortgage Loan is its
unrecovered principal balance at the end of the Collection Period in which the
mortgage loan became a Liquidated Mortgage Loan, after giving effect to its
Net Liquidation Proceeds.
A "Liquidated Mortgage Loan" means, as to any payment date, any
mortgage loan in respect of which the master servicer has determined, based on
the servicing procedures specified in the sale and servicing agreement, as of
the end of the preceding Collection Period, that all liquidation proceeds that
it expects to recover in the disposition of the mortgage loan or the related
mortgaged property have been recovered.
The "Collection Period" related to a payment date is the calendar
month preceding the payment date (or, in the case of the first Collection
Period, the period beginning on the cut-off date and ending on the last day of
[ ], 200[ ]).
Interest will be distributed on each payment date at the applicable
note rate for the related Interest Period. The note rate for the [Class [ ]]
Notes for a payment date will generally equal a per annum rate equal to [the
least of]:
(a) the sum of
o the London Interbank offered rate for one-month United States
dollar deposits ("LIBOR"), plus
o [ ]% [for the Class [ ] Notes and [ ]% for the Class [ ] Notes];
(b) [a per annum rate equal to the weighted average of the loan rates of the
mortgage loans in loan group [ ] net of
o the servicing fee rate,
o the rate at which the fees payable to the indenture trustee and the
owner trustee are calculated,
o the rate at which the premium payable to the Note Insurer [and the
guaranty fee to Fannie Mae are each] [is] calculated and,
o commencing with the payment date in [ ], [ ]% per annum, weighted
on the basis of the daily average balance of each mortgage loan included in
loan group [ ], during the related billing cycle before the Collection Period
relating to the payment date, and
(c) [ ]%.]
However, on any payment date for which the note rate for a class of notes has
been determined pursuant to clause (b) of note rate, the excess of
o the amount of interest that would have accrued on those notes
during the related Interest Period had interest been determined pursuant to
clause (a) of note rate (but not at a rate in excess of [ ]% per annum) over
o the interest actually accrued on those notes during the Interest
Period (the excess is referred to as "Basis Risk Carryforward")
will accrue interest at the note rate calculated pursuant to clause (a) (as
adjusted from time to time), but not to exceed clause (c), and will be paid on
subsequent payment dates to the extent funds are available therefor.
Interest on the Notes for any payment date will accrue on the Note
principal balance from the preceding payment date (or in the case of the first
payment date, from the Closing Date) through the day preceding the payment
date (each period, an "Interest Period") on the basis of the actual number of
days in the Interest Period and a 360-day year. Interest payments on the Notes
will be funded from Investor Interest Collections, Subordinated Transferor
Collections, [the Reserve Fund,] and, if necessary, from draws on the Policy.
Calculation of the LIBOR Rate. On each reset date, the indenture
trustee shall determine LIBOR for the Interest Period commencing on the
payment date. The reset date for each Interest Period is the second LIBOR
business day before the payment date. LIBOR for the first Interest Period will
be determined on the second LIBOR business day before the Closing Date. LIBOR
will equal the rate for United States dollar deposits for one month that
appears on the Telerate Screen Page 3750 as of 11:00 A.M., London time, on the
reset date for an Interest Period. Telerate Screen Page 3750 means the display
designated as page 3750 on the Bridge Telerate Service (or any page replacing
page 3750 on that service for the purpose of displaying London interbank
offered rates of major banks). If such rate does not appear on Telerate Screen
Page 3750 (or if that service is no longer offered, another service for
displaying LIBOR or comparable rates selected by the depositor after
consultation with the indenture trustee), the rate will be the reference bank
rate. The reference bank rate will be determined on the basis of the rates at
which deposits in United States dollars are offered by the reference banks as
of 11:00 a.m., London time, on the reset date for the Interest Period to prime
banks in the London interbank market for a period of one month in amounts
approximately equal to the principal amount of the Notes then outstanding. The
reference banks will be three major banks that are engaged in transactions in
the London interbank market selected by the depositor after consultation with
the indenture trustee. The indenture trustee will request the principal London
office of each of the reference banks to provide a quotation of its rate. If
at least two such quotations are provided, the rate will be the arithmetic
mean of the quotations. If on the reset date fewer than two quotations are
provided as requested, the rate will be the arithmetic mean of the rates
quoted by one or more major banks in New York City, selected by the depositor
after consultation with the indenture trustee, as of 11:00 A.M., New York City
time, on the reset date for loans in United States dollars to leading European
banks for a period of one month in amounts approximately equal to the
principal amount of the Notes then outstanding. If no such quotations can be
obtained, the rate will be LIBOR for the preceding Interest Period. LIBOR
business day means any day other than a Saturday or a Sunday or a day on which
banking institutions in the State of New York or in the city of London,
England are required or authorized by law to be closed.
Transferor Collections. Collections allocable to the transferor
interest in respect of a loan group will be distributed to the transferor only
to the extent that the distribution will not reduce the amount of the portion
of the transferor interest relating to that loan group as of the related
payment date below the applicable Minimum Transferor Interest. Amounts not
distributed to the transferor because of these limitations will be retained in
the collection account until the portion of the transferor interest relating
to each loan group exceeds the applicable Minimum Transferor Interest, at
which time the excess shall be released to the transferor. Any of these
amounts in the collection account at the start of the Rapid Amortization
Period will be paid to the noteholders of the related class of notes as a
reduction of the related Note principal balance.
Distributions of Principal Collections. For each loan group, the
period beginning on the Closing Date and, unless a Rapid Amortization Event
shall have earlier occurred, through and including the payment date in [ ] is
the "Managed Amortization Period." The amount of principal collections payable
to noteholders for each payment date during the Managed Amortization Period
will equal, to the extent funds are available therefor, the Scheduled
Principal Collections Distribution Amount for the loan group and payment date.
The Scheduled Principal Collections Distribution Amount for the first
Collection Period is computed for the period beginning on the cut-off date and
ending on the last day of [ ]. On any payment date during the Managed
Amortization Period, the "Scheduled Principal Collections Distribution Amount"
for a loan group is the lesser of the applicable Maximum Principal Payment and
the applicable Alternative Principal Payment. For any loan group and payment
date, the "Maximum Principal Payment" is the product of the Investor Fixed
Allocation Percentage for the loan group and principal collections for the
loan group and payment date. For any loan group and payment date, the
"Alternative Principal Payment" for the loan group is the sum of the amount of
principal collections for the loan group and payment date minus the aggregate
of Additional Balances created on the mortgage loans in that loan group during
the related Collection Period, but not less than zero.
Beginning with the first payment date following the end of the
Managed Amortization Period (the "Rapid Amortization Period"), the amount of
principal collections payable to noteholders on each payment date will be
equal to the Maximum Principal Payment for that loan group.
If on any payment date the Required Transferor Subordinated Amount
for a loan group is reduced below the then existing Available Transferor
Subordinated Amount for that loan group, the amount of principal collections
from the mortgage loans in that loan group payable to noteholders on the
payment date will be correspondingly reduced by the amount of the reduction.
Distributions of principal collections from the mortgage loans in a
loan group based on the related Investor Fixed Allocation Percentage may
result in distributions of principal to the related noteholders in amounts
that are greater relative to the declining balance of that loan group than
would be the case if the related Investor Floating Allocation Percentage were
used to determine the percentage of principal collections distributed in
respect of such Invested Amount. Principal collections from the mortgage loans
in a loan group not allocated to the noteholders will be allocated to the
portion of the transferor interest related to that loan group. The aggregate
distributions of principal to the noteholders will not exceed the Original
Note Principal Balance.
In addition, to the extent of funds available therefor (including
funds available under the Policy), on the payment date in [ ], noteholders
will be entitled to receive as a payment of principal an amount equal to the
outstanding Note principal balance.
The Paying Agent. The paying agent shall initially be the indenture
trustee. The paying agent shall have the revocable power to withdraw funds
from the collection account for the purpose of making distributions to the
noteholders.
Limited Subordination of Transferor Interest
If Investor Interest Collections[, Crossover Amounts and amounts on
deposit in the Reserve Fund] on any payment date are insufficient to pay (i)
accrued interest due and any overdue accrued interest (with interest on
overdue interest to the extent permitted by applicable law) on the related
Notes and (ii) the applicable Investor Loss Amount on the payment date (the
insufficiency being the "Required Amount"), a portion of the interest
collections from the mortgage loans in that loan group and principal
collections allocable to the portion of the transferor interest related to
that loan group (but not in excess of the applicable Available Transferor
Subordinated Amount) (the "Subordinated Transferor Collections") will be
applied to cover the Required Amount for that loan group. The portion of the
Required Amount for a loan group in respect of clause (ii) above not covered
by the Subordinated Transferor Collections will be reallocated to the portion
of the transferor interest related to that loan group, thereby reducing the
transferor interest (up to the applicable remaining Available Transferor
Subordinated Amount and not in excess of the Investor Loss Amounts for that
loan group). The portion of the Required Amount not covered by the application
of funds pursuant to the preceding sentence may then be satisfied by amounts
available from the remaining Available Transferor Subordinated Amount from the
other loan group. If the Investor Interest Collections for a loan group[,
Crossover Amounts, amounts on deposit in the Reserve Fund] and the amount of
Subordinated Transferor Collections that have been so applied to cover the
applicable Required Amount are together insufficient to pay the amounts in
item (i) of the definition of Required Amount, then a draw will be made on the
Policy to cover the amount of the shortfall. In addition, if on any payment
date on which the Available Transferor Subordinated Amount for a loan group is
reduced to zero the Note principal balance for that loan group exceeds the
applicable Invested Amount (after giving effect to all allocations and
distributions of principal to be made on the Notes on the payment date), a
draw will be made on the Policy in the amount of the excess. See "Description
of the Indenture -- The Policy."
The "Available Transferor Subordinated Amount" for any payment date
and loan group is the lesser of the portion of the transferor interest for
that loan group and the related Required Transferor Subordinated Amount for
the payment date.
Description of the Indenture
The following is a description of the material provisions of the
indenture. Wherever particular defined terms of the indenture are referred to,
the defined terms are incorporated in this prospectus supplement by this
reference.
Payments on Mortgage Loans; Deposits to Collection Account
The master servicer will establish and maintain a collection account
in trust for the noteholders, the transferor, the Note Insurer [and any other
third party credit enhancer], as their interests may appear. The collection
account will be an Eligible Account. Except for amounts representing
administrative charges, annual fees, taxes, assessments, credit insurance
charges, insurance proceeds to be applied to the restoration or repair of a
mortgaged property, or similar items, the master servicer will deposit all
amounts collected on the mortgage loans in the collection account within two
business days of receipt.
Amounts deposited in the collection account may be invested in
Eligible Investments maturing no later than one business day before the next
payment date or on the next payment date if approved by the Rating Agencies,
the Note Insurer [and any other third party credit enhancer]. Not later than
the [fifth] business day before each payment date (the "Determination Date"),
the master servicer will notify the indenture trustee of the amount of the
deposit to be included in funds available for the related payment date.
An "Eligible Account" is
o an account that is maintained with a depository institution whose
debt obligations throughout the time of any deposit in it have the highest
short-term debt rating by the Rating Agencies,
o an account with a depository institution having a minimum long-term
unsecured debt rating of ["BBB" by Standard & Poor's and "Baa3" by Moody's],
which accounts are fully insured by either the Savings Association Insurance
Fund or the Bank Insurance Fund of the Federal Deposit Insurance Corporation,
o a segregated trust account maintained with the indenture trustee or
an affiliate of the indenture trustee in its fiduciary capacity or
o otherwise acceptable to each Rating Agency and the Note Insurer as
evidenced by a letter from each Rating Agency and the Note Insurer to the
indenture trustee, without reduction or withdrawal of each Rating Agency's
then current ratings of the Notes without regard to the Policy [or any other
third party credit enhancement].
Eligible Investments are limited to:
o obligations of the United States;
o obligations of any agency of the United States the timely payment
of which are backed by the full faith and credit of the United States;
o general obligations of or obligations guaranteed by any state of
the United States or the District of Columbia receiving the highest long-term
debt rating of each Rating Agency, or such lower rating as will not result in
the downgrading or withdrawal of the ratings then assigned to the Notes by
each Rating Agency without regard to the Policy [or any other third party
credit enhancement];
o commercial paper issued by [IndyMac Bank, F.S.B.] or any of its
affiliates that is rated no lower than ["A-1" by Standard & Poor's and "P-2"
by Moody's] if the long-term debt of [IndyMac Bank, F.S.B.] is rated at least
[A3 by Moody's], or such lower ratings as will not result in the downgrading
or withdrawal of the rating then assigned to the Notes by any Rating Agency
without regard to the Policy [or any other third party credit enhancement];
o commercial or finance company paper that is then receiving the
highest commercial or finance company paper rating of each Rating Agency, or
such lower rating as will not result in the downgrading or withdrawal of the
ratings then assigned to the Notes by any Rating Agency without regard to the
Policy [or any other third party credit enhancement];
o notes of deposit, demand or time deposits, or bankers' acceptances
issued by any depository institution or trust company incorporated under the
laws of the United States or any of its states and subject to supervision and
examination by federal or state banking authorities, if the commercial paper
or long term unsecured debt obligations of the depository institution or trust
company (or in the case of the principal depository institution in a holding
company system, the commercial paper or long-term unsecured debt obligations
of the holding company, but only if Moody's is not a Rating Agency) are then
rated one of the two highest long-term and the highest short-term ratings of
each Rating Agency for the securities, or such lower ratings as will not
result in the downgrading or withdrawal of the rating then assigned to the
Notes by any Rating Agency without regard to the Policy [or any other third
party credit enhancement];
o demand or time deposits or notes of deposit issued by any bank or
trust company or savings institution to the extent that the deposits are fully
insured by the FDIC;
o guaranteed reinvestment agreements issued by any bank, insurance
company or other corporation containing, at the time of the issuance of the
agreements, such conditions as will not result in the downgrading or
withdrawal of the rating then assigned to the Notes by any Rating Agency
without regard to the Policy [or any other third party credit enhancement];
o repurchase obligations with respect to any security described in
the first and second bullet points, in either case entered into with a
depository institution or trust company (acting as principal) described in the
fifth bullet point;
o securities (other than stripped bonds, stripped coupons, or
instruments sold at a purchase price in excess of 115% of their face amount)
bearing interest or sold at a discount issued by any corporation incorporated
under the laws of the United States or any of its states that, at the time of
the investment, have one of the two highest ratings of each Rating Agency
(except if the Rating Agency is Moody's, the rating shall be the highest
commercial paper rating of Moody's for the securities), or such lower rating
as will not result in the downgrading or withdrawal of the rating then
assigned to the Notes by any Rating Agency without regard to the Policy [or
any other third party credit enhancement], as evidenced by a signed writing
delivered by each Rating Agency;
o interests in any money market fund that at the date of acquisition
of the interests in the fund and throughout the time the interests are held
has the highest applicable rating by each Rating Agency, or such lower rating
as will not result in the downgrading or withdrawal of the ratings then
assigned to the Notes by each Rating Agency without regard to the Policy [or
any other third party credit enhancement];
o short term investment funds sold by any trust company or national
banking association incorporated under the laws of the United States or any of
its states that on the date of acquisition has been rated by each Rating
Agency in their respective highest applicable rating category, or such lower
rating as will not result in the downgrading or withdrawal of the ratings then
assigned to the Notes by each Rating Agency without regard to the Policy [or
any other third party credit enhancement]; and
o any other investments having a specified stated maturity and
bearing interest or sold at a discount acceptable to each Rating Agency that
will not result in the downgrading or withdrawal of the rating then assigned
to the Notes by any Rating Agency without regard to the Policy [or any other
third party credit enhancement], as evidenced by a signed writing delivered by
each Rating Agency.
However, no instrument is an Eligible Investment if it evidences the right to
receive
o interest only payments on the obligations underlying it or
o both principal and interest payments derived from obligations
underlying the instrument and the interest and principal payments from the
instrument provide a yield to maturity at par greater than 120% of the yield
to maturity at par of the underlying obligations.
No instrument otherwise described as an Eligible Investment may be purchased
at a price greater than par if it may be prepaid or called at a price less
than its purchase price before its stated maturity.
Allocations and Collections
All collections on the mortgage loans will generally be allocated in
accordance with the credit line agreements between interest and principal.
Interest collections for any payment date will be determined on a loan group
basis and will be equal to the amounts collected during the related Collection
Period allocated to interest pursuant to the credit line agreements, including
portions of net liquidation proceeds, less
o servicing fees for the related Collection Period and
o amounts payable to the master servicer pursuant to the sale and
servicing agreement as reimbursement of optional advances of the interest
component of any delinquent monthly payments on the mortgage loans.
Principal collections will be determined for any payment date on a loan group
basis and will be equal to the sum of
o the amounts collected during the related Collection Period
allocated to principal pursuant to the credit line agreements, including
portions of net liquidation proceeds, and
o any Transfer Deposit Amounts.
Net liquidation proceeds of a mortgage loan are the liquidation
proceeds reduced by related expenses, but not in excess of the principal
balance of the mortgage loan plus accrued and unpaid interest thereon to the
end of the Collection Period during which the mortgage loan became a
Liquidated Mortgage Loan. Liquidation proceeds are the proceeds (excluding any
amounts drawn on the Policy) received in connection with the liquidation of
any mortgage loan, whether through trustee's sale, foreclosure sale or
otherwise.
The portion of interest collections allocable to the related class of
Notes ("Investor Interest Collections") for any payment date and loan group
will equal the product of (a) interest collections for the payment date and
loan group and (b) the Investor Floating Allocation Percentage for the loan
group. The "Investor Floating Allocation Percentage" for any payment date and
loan group is a fraction whose numerator is the Invested Amount at the close
of business on the preceding payment date (or the Closing Date in the case of
the first payment date) and whose denominator is the loan group balance for
the loan group at the beginning of the related Collection Period. The
remaining amount of interest collections will be allocated to the portion of
the transferor interest related to that loan group.
Principal collections on the mortgage loans in each loan group will
be allocated between the noteholders and the transferor ("Investor Principal
Collections" and "Transferor Principal Collections," respectively).
The indenture trustee will apply any amounts drawn under the Policy
as provided in the indenture.
The loan group balance for any date and loan group is the aggregate
of the principal balances of all mortgage loans in that loan group as of the
date. The principal balance of a mortgage loan (other than a Liquidated
Mortgage Loan) on any day is equal to its cut-off date principal balance, plus
(1) any Additional Balances for the mortgage loan minus (2) all collections
credited against the principal balance of the mortgage loan in accordance with
the related credit line agreement before the day. The principal balance of a
Liquidated Mortgage Loan after final recovery of related liquidation proceeds
shall be zero.
Certain excess cashflow for each class of Notes will be applied as a
payment of principal of that class of Notes on each payment date to increase
or maintain the portion of the transferor's interest related to that class to
or at the Required Transferor Subordinated Amount for the class for the
payment date. The amount of the excess cashflow of a class of Notes so applied
as a payment of principal on a payment date is an "Accelerated Principal
Distribution Amount" for the related class of Notes. The requirement to
maintain the transferor's interest at the Required Transferor Subordinated
Amount, or to increase it to the Required Transferor Subordinated Amount, is
not an obligation of the seller, the master servicer, the indenture trustee,
the Note Insurer or any other person.
[The indenture requires excess cashflow not required to maintain or
achieve the Required Transferor Subordinated Amount of the related class of
Notes to be applied to the funding of a reserve fund, which has been required
by the Note Insurer to be established and maintained for the Notes (the
"Reserve Fund"). The amount on deposit in the Reserve Fund will not exceed the
excess of (x) the sum of the Required Transferor Subordinated Amounts for each
class of Notes over (y) the sum of the portion of the transferor's interest
related to each class of Notes. Amounts in the Reserve Fund may only be
withdrawn and applied in accordance with the indenture.]
[The Note Insurer may permit the Required Transferor Subordinated
Amount for a class of Notes to decrease or "step down" over time, subject to
certain floors and triggers. The dollar amount of any decrease in a Required
Transferor Subordinated Amount is an "Overcollateralization Reduction Amount"
which, with respect to each class of Notes, may result in a release of cash
from the trust fund in an amount up to the Overcollateralization Reduction
Amounts (net of any Reimbursement Amounts due to the Note Insurer), or result
in the removal of cash or mortgage loans from the trust fund on payment dates
occurring after the step-downs take effect. The dollar amount of any
Overcollateralization Reduction Amount for a class will first be released from
the Reserve Fund, to the extent of the amount on deposit. If the amount on
deposit in the Reserve Fund for a class is not sufficient to fund the full
amount of the Overcollateralization Reduction Amount for the class, then an
amount equal to the remaining portion of the Overcollateralization Reduction
Amount will be released from the monthly cashflow for the class, thus reducing
the portion of the transferor's interest for the class.]
The Policy
[The Policy will be issued by the Note Insurer by the Closing Date
pursuant to the Insurance and Indemnity Agreement (the "Insurance Agreement")
to be dated as of the Closing Date, among the seller, the depositor, the
master servicer, the indenture trustee and the Note Insurer.
The Policy will irrevocably and unconditionally guarantee payment on
each payment date to the indenture trustee for the benefit of the noteholders
of each class of Notes the full and complete payment of Insured Amounts with
respect to the related Notes for the payment date. An "Insured Amount" for
each class of Notes as of any payment date is any shortfall in amounts
available in the collection account to pay (a) (i) the Guaranteed Principal
Distribution Amount for the related Notes for the payment date and (ii) the
Guaranteed Distributions for the related Notes for the payment date and (b)
any Preference Amount that occurs before the related determination date. The
effect of the Policy is to guarantee the timely payment of interest on, and
the ultimate payment of the principal amount of, all of the Notes. The Policy
does not cover any Basis Risk Carryforward.
The "Guaranteed Principal Distribution Amount" for any class of Notes
on the payment date in [ ] is the amount needed to pay the outstanding
principal balance of the Notes, and for any other payment date on which the
sum of the Available Transferor Subordinated Amounts for [both] loan groups
and the Reserve Fund has been reduced to or equals zero, is the amount by
which the Note principal balance of the class of Notes exceeds the related
Invested Amount as of the payment date. All calculations under the Policy are
after giving effect to all other amounts distributable and allocable to
principal on the Notes for the payment date.
"Guaranteed Distributions" are accrued and unpaid interest for a
payment date due on the related Notes calculated in accordance with the
original terms of the Notes or the indenture after giving effect to amendments
or modifications to which the Note Insurer has given its written consent.
A "Preference Amount" means any amount previously distributed to a
noteholder that is recoverable and recovered as a voidable preference by a
trustee in bankruptcy pursuant to the United States Bankruptcy Code, as
amended from time to time, in accordance with a final nonappealable order of a
court having competent jurisdiction.
Payment of claims on the Policy will be made by the Note Insurer
following receipt by the Note Insurer of the appropriate notice for payment
(and any other required documentation) on the later to occur of (i) 12:00
NOON, New York City time, on the second Business Day following Receipt of the
notice for payment and (ii) 12:00 NOON, New York City time, on the relevant
payment date.
Receipt means actual delivery to the Note Insurer and occurs on the
day delivered if delivered before 12:00 NOON, New York City time, on a
business day, or on the next business day if delivered either on a day that is
not a business day or after 12:00 NOON, New York City time. If any notice or
note given under the Policy by the indenture trustee is not in proper form or
is not properly completed, executed or delivered, it is not received, and the
Note Insurer shall promptly so advise the indenture trustee and the indenture
trustee may submit an amended notice.
Under the Policy, "business day" means any day other than a Saturday
or Sunday or a day on which banking institutions in the states of New York,
California or Illinois or the city in which the corporate trust office of the
indenture trustee or the Note Insurer is located are authorized or obligated
by law or executive order to be closed.
The Note Insurer's obligations under the Policy with respect to
Insured Amounts will be discharged to the extent funds are transferred to the
indenture trustee as provided in the Policy, whether or not the funds are
properly applied by the indenture trustee. The Note Insurer will be subrogated
to the rights of each noteholder to receive payments of principal and
interest, as applicable, on the Notes to the extent of any payment by the Note
Insurer under the Policy. The Policy cannot be modified, altered or affected
by any other agreement or instrument, or by the merger, consolidation or
dissolution of the seller. The Policy by its terms may not be cancelled or
revoked. The Policy is governed by the laws of the State of New York.
Insured Amounts will be paid only at the time stated in the Policy
and no accelerated Insured Amounts shall be paid regardless of any
acceleration of the Notes, unless the acceleration is at the sole option of
the Note Insurer. The Policy does not cover shortfalls attributable to the
liability of the trust fund or the indenture trustee for withholding taxes, if
any (including interest and penalties in respect of any such liability).
Pursuant to the sale and servicing agreement, unless a Note Insurer
default exists, the Note Insurer will be treated as a noteholder for certain
purposes, will be entitled to exercise all rights of the noteholders under the
indenture without the consent of the noteholders, and the noteholders may
exercise their rights under the indenture only with the written consent of the
Note Insurer. In addition, the Note Insurer will have certain additional
rights as a third party beneficiary to the sale and servicing agreement and
the indenture.]
Rapid Amortization Events
The Managed Amortization Period will continue through and including
the payment date in [ ], unless a Rapid Amortization Event occurs before then.
"Rapid Amortization Event" refers to any of the following events:
(a) the failure of the seller
o to make a payment or deposit required under the sale and servicing
agreement within three business days after the date the payment or deposit
must be made,
o to record assignments of mortgage loans when required pursuant to
the sale and servicing agreement or
o to observe or perform in any material respect any other covenants
or agreements of the seller in the sale and servicing agreement, which failure
materially and adversely affects the interests of the noteholders, the Note
Insurer [or any other third party credit enhancer] and, with certain
exceptions, continues unremedied for a period of 60 days after written notice;
(b) any representation or warranty made by the seller or the depositor in the
sale and servicing agreement proves to have been incorrect in any material
respect when made and continues to be incorrect in any material respect for a
period of 60 days after written notice and as a result of which the interests
of the noteholders, the Note Insurer [or any other third party credit
enhancer] are materially and adversely affected; except that a Rapid
Amortization Event will not occur if the seller has purchased or made a
substitution for the related mortgage loan or mortgage loans if applicable
during the period (or within an additional 60 days with the consent of the
indenture trustee) in accordance with the provisions of the sale and servicing
agreement;
(c) the occurrence of certain events of bankruptcy, insolvency or receivership
relating to the transferor;
(d) the trust fund becomes subject to regulation by the Securities and
Exchange Commission as an investment company within the meaning of the
Investment Company Act of 1940, as amended; or
(e) the aggregate of all draws under the Policy [or amounts paid pursuant to
third party credit enhancement for loan group [ ]] incurred during the Managed
Amortization Period exceeds [ ]% of the Original Invested Amount.
If any event described in clause (a) or (b) occurs, a Rapid
Amortization Event will occur only if, after the applicable grace period,
either the indenture trustee or noteholders holding Notes evidencing more than
51% of the aggregate principal amount of the Notes, the Note Insurer (so long
as there is no default by the Note Insurer in the performance of its
obligations under the Policy) [or any other third party credit enhancer], by
written notice to the transferor, the depositor and the master servicer (and
to the indenture trustee, if given by the Note Insurer, [any other third party
credit enhancer] or the noteholders) declare that a Rapid Amortization Event
has occurred. If any event described in clause (c), (d) or (e) occurs, a Rapid
Amortization Event will occur without any notice or other action on the part
of the indenture trustee, the Note Insurer or the noteholders immediately on
the occurrence of the event.
Notwithstanding the foregoing, if a conservator, receiver or
trustee-in-bankruptcy is appointed for the transferor and no Rapid
Amortization Event exists other than the conservatorship, receivership or
insolvency of the transferor, the conservator, receiver or
trustee-in-bankruptcy may have the power to prevent the commencement of the
Rapid Amortization Period.
Reports to Noteholders
Concurrently with each distribution to the noteholders, the master
servicer will forward to the indenture trustee for mailing to each noteholder
a statement setting forth among other items:
(i) the Investor Floating Allocation Percentage for each loan group
for the preceding Collection Period;
(ii) the amount being distributed to each class of Notes;
(iii) the amount of interest included in the distribution and the
related note rate for each class of Notes;
(iv) the amount of overdue accrued interest for a class of Notes
included in the distribution (and the amount of interest or
overdue interest to the extent permitted by applicable law);
(v) the amount of the remaining overdue accrued interest for a
class of Notes after giving effect to the distribution;
(vi) the amount of principal included in the distribution;
(vii) the amount of the reimbursement of previous Investor Loss
Amounts for a class of notes included in the distribution;
(viii) the amount of Basis Risk Carryforward for a class of notes
paid and the amount of Basis Risk Carryforward accrued;
(ix) the amount of the aggregate unreimbursed Investor Loss Amounts
for a class of notes after giving effect to the distribution;
(x) the servicing fee for the payment date;
(xi) for each class of notes: the Invested Amount, the Note
principal balance and the pool factor, each after giving effect
to the distribution;
(xii) the loan group balance of each loan group as of the end of the
preceding Collection Period;
(xiii) the number and aggregate principal balances of the mortgage
loans in each loan group as to which the minimum monthly
payment is delinquent for 30-59 days, 60-89 days and 90 or
more days, respectively, as of the end of the preceding
Collection Period;
(xiv) the book value of any real estate in each loan group that is
acquired by the trust fund through foreclosure or grant of
deed in lieu of foreclosure;
(xv) the amount of any draws on the Policy [or payments under third
party credit enhancement for loan group [ ]];
(xvi) [the amount on deposit in the Reserve Fund on the preceding
payment date, after giving effect to all distributions made on
that date, the amount withdrawn from the Reserve Fund with
respect to this payment date, and the amount remaining on
deposit in the Reserve Fund;] and
(xvii) with respect to the first and second payment dates, the number
and aggregate balance of any mortgage loans in [either] loan
group not delivered to the indenture trustee within 30 days
after the Closing Date.
The amounts in clauses (iii), (iv), (v), (vi), (vii) and (viii) above
shall be expressed as a dollar amount per $1,000 increment of Notes.
Within 60 days after the end of each calendar year commencing in 200[
], the master servicer will be required to forward to the indenture trustee a
statement containing the information in clauses (iii) and (vi) above
aggregated for the calendar year.
Events of Default under the Indenture
Events of Default under the indenture include:
o a default in the payment of any interest when it becomes due and
continuance of the default for five days;
o a default in the payment of any principal when it becomes due;
o failure by the trust to perform in any material respect any
covenant or agreement under the indenture (other than a covenant covered under
the first bullet point of this paragraph) or the breach of a representation or
warranty of the trust under the indenture or the sale and servicing agreement,
that continues for thirty days after notice of it is given; and
o certain events of bankruptcy, insolvency, receivership, or
liquidation of the trust.
Remedies on Event of Default under the Indenture
If an event of default under the indenture has occurred and is
continuing, either the indenture trustee or noteholders representing a
majority of the then outstanding principal amount of the Notes may declare the
principal amount of the Notes payable immediately. A declaration of
acceleration may be rescinded by noteholders representing a majority of the
then outstanding principal amount of the Notes. [Although a declaration of
acceleration has occurred, the indenture trustee may elect not to liquidate
the assets of the trust if the assets are generating sufficient cash to pay
interest and principal as it becomes due without taking into account the
declaration of acceleration.]
The indenture trustee may not sell or otherwise liquidate the assets
of the trust following an event of default unless
o the holders of 100% of the Notes and the Note Insurer consent to
the sale, or
o the proceeds of the sale or liquidation are sufficient to pay all
amounts due to the noteholders and the Note Insurer, or
o the indenture trustee determines that the trust fund would not
be sufficient on an ongoing basis to make all payments on the
Notes as they become due and the indenture trustee obtains the
consent of the holders of 66 2/3% of the aggregate
outstanding principal balance of the Notes.
No noteholder may institute any proceeding with respect to the
indenture unless the Note Insurer has consented in writing to the institution
of the proceeding and the holder has previously notified the indenture trustee
of a default and unless noteholders representing not less than [25]% of the
aggregate outstanding principal balance of the Notes have requested the
indenture trustee to institute the proceeding and have offered the indenture
trustee reasonable indemnity, the indenture trustee for 60 days has neglected
or refused to institute the proceeding and the indenture trustee has not
received an inconsistent written request from noteholders representing a
majority of the aggregate outstanding principal balance of the Notes during
the 60-day period. The indenture trustee is not obligated to exercise any of
the trusts or powers vested in it unless the noteholders requesting the action
have offered the indenture trustee reasonable security or indemnity against
the costs, expenses and liabilities that may be incurred and the Note Insurer
has consented to the action.
Certain Matters Regarding the Indenture Trustee and the Depositor
Neither the depositor, the indenture trustee nor any director,
officer or employee of the depositor of the indenture trustee will be liable
to the trust or the noteholders for taking any action or for refraining from
the taking of any action in good faith pursuant to the indenture, or for
errors in judgment. However, none of the depositor, the indenture trustee or
any of their directors, officers or employees will be protected against any
liability that would otherwise be imposed on them for willful malfeasance, bad
faith or gross negligence in the performance of their duties or for their
reckless disregard of their obligations under the indenture.
The indenture trustee and any of its affiliates may hold Notes in
their own names or as pledgees. To meet the legal requirements of certain
jurisdictions, the indenture trustee may appoint co-trustees or separate
trustees of any part of the trust fund under the indenture. All rights and
obligations conferred or imposed on the indenture trustee by the indenture
will be conferred or imposed on any separate trustee or co-trustee. In any
jurisdiction in which the indenture trustee is incompetent or unqualified to
perform certain acts, the separate trustee or co-trustee will perform the acts
solely at the direction of the indenture trustee.
Duties of the Indenture Trustee
The indenture trustee will make no representations about the validity
or sufficiency of the indenture, the Notes (other than their execution and
authentication) or of any mortgage loans or related documents, and will not be
accountable for the use or application by the depositor or the master servicer
of any funds paid to the depositor or the master servicer on the Notes or the
mortgage loans, or the use or investment of any monies by the master servicer
before being deposited into a collection account. So long as no event of
default under the indenture has occurred and is continuing, the indenture
trustee will be required to perform only those duties specifically required of
it under the indenture. Generally, those duties will be limited to the receipt
of the various certificates, reports or other instruments required to be
furnished to the indenture trustee under the indenture, in which case it will
only be required to examine them to determine whether they conform to the
requirements of the indenture. The indenture trustee will not be charged with
knowledge of a failure by the master servicer to perform its duties under the
trust agreement or sale and servicing agreement unless the indenture trustee
has actual knowledge of the failure.
Amendment
The indenture provides that, without the consent of any noteholder
but with the consent of the Note Insurer and notice to the trust and the
indenture trustee, the trust may enter into one or more supplemental
indentures (which will conform to the provisions of the Trust Indenture Act of
1939, as amended (the "TIA")), in form satisfactory to the indenture trustee,
for any of the following purposes:
o to correct or amplify the description of any property at any time
subject to the lien of the indenture, or better to assure, convey
and confirm to the indenture trustee any property subject or
required to be subjected to the lien of the indenture, or to subject
to the lien of the indenture additional property;
o to add to the covenants of the trust for the benefit of the
noteholders, or to surrender any right of the trust in the
indenture;
o to convey, transfer, assign, mortgage or pledge any property to the
indenture trustee;
o to cure any ambiguity, to correct or supplement any provision in the
indenture or in any supplemental indenture that may be inconsistent
with any other provision in the indenture or in any supplemental
indenture;
o to make any other provisions with respect to matters arising under
the indenture or in any supplemental indenture if the action will
not materially and adversely affect the interests of the noteholders
or the Note Insurer;
o to evidence and provide for the acceptance of the appointment under
the indenture of a successor trustee and to add to or change any of
the provisions of the indenture necessary to facilitate the
administration of its trusts by more than one trustee; or
o to modify, eliminate or add to the provisions of the indenture to
the extent necessary to effect the qualification of the indenture
under the TIA or under any similar federal statute enacted after the
date of the indenture and to add to the indenture other provisions
required by the TIA.
No supplemental indentures will be entered into unless the indenture trustee
shall have received an opinion of counsel to the effect that entering into the
supplemental indenture will not have any material adverse tax consequences to
the noteholders.
The indenture also provides that the indenture trustee, at the
request of the trust, may, with prior notice to the Note Insurer and with the
consent of the Note Insurer and the Noteholders affected thereby representing
not less than a majority of the aggregate outstanding principal balance of the
Notes, enter into a supplemental indenture to add any provisions to, or change
in any manner or eliminate any of the provisions of, the indenture or to
modify in any manner the rights of the noteholders, except that no
supplemental indenture may, without the consent of each noteholder affected
thereby:
o change the date of payment of any installment of principal of or
interest on any Note, or reduce its principal amount or interest
rate, change the provisions of the indenture relating to the
application of collections on, or the proceeds of the sale of, the
corpus of the trust to payment of principal or interest on the
Notes, or change any place of payment where, or the coin or currency
in which, any Note or its interest is payable, or impair the right
to institute suit for the enforcement of the provisions of the
indenture requiring the application of funds available therefor to
the payment of any such amount due on the Notes on or after the
respective dates they become due;
o reduce the percentage of the outstanding principal balances of the
Notes the consent of the holders of which is required for any
supplemental indenture, or the consent of the holders of which is
required for any waiver of compliance with provisions of the
indenture or defaults under the indenture and their consequences;
o modify or alter the provisions of the proviso to the definition of
the term "Outstanding" in the indenture or modify or alter the
exception in the definition of the term "Holder";
o reduce the percentage of the outstanding principal balances of the
Notes required to direct the indenture trustee to direct the trust
to sell or liquidate the corpus of the trust pursuant to the
indenture;
o modify any provision of the amendment provisions of the indenture
except to increase any percentage specified in the indenture or to
provide that certain additional provisions of the indenture cannot
be modified or waived without the consent of each Noteholder
affected thereby;
o modify any of the provisions of the indenture in such manner as to
affect the calculation of the amount of any payment of interest or
principal due on any Note on any payment date; or
o permit the creation of any lien ranking before or on a parity with
the lien of the indenture on any part of the trust fund or, except
as otherwise permitted or contemplated in the indenture, terminate
the lien of the indenture on any property at any time subject
thereto or deprive any noteholders of the security provided by the
lien of the indenture.
Termination; Retirement of the Notes
The indenture will terminate on the payment date following the later
of
(A) payment in full of all amounts owing to the Note Insurer [and
any other third party credit enhancer] and
(B) the earliest of
o the payment date on which the Note principal balance of
each class of Notes has been reduced to zero,
o the final payment or other liquidation of the last
mortgage loan in the trust fund,
o the optional transfer to the transferor of the mortgage
loans, as described below; and
o the payment date in [ ].
The mortgage loans will be subject to optional transfer to the
transferor on any payment date on or after which the aggregate Note principal
balance of both classes of Notes is reduced to an amount less than or equal to
[ ]% of the aggregate Original Note Principal Balance for both classes of
Notes and all amounts due to the Note Insurer [and any other third party
credit enhancer] including any unreimbursed draws on the Policy [and
unreimbursed payments under other third party credit enhancement], together
with interest thereon, as provided under the Insurance Agreement, have been
paid. The transfer price will be equal to the sum of
o the outstanding Note principal balance of each class of Notes plus
accrued and unpaid interest on them at the applicable note rate through the
day preceding the final payment date and
o an amount equal to any Basis Risk Carryforward for each class of
Notes plus accrued and unpaid interest on it.
[In addition, Notes must be prepaid and redeemed in part with any
funds remaining in the relevant additional loan account on [ ] after the
purchase of any Additional Home Equity Loans on that day.]
The Indenture Trustee
[Name of indenture trustee], a [ ] banking association with its
principal place of business in [ ], is the indenture trustee.
The commercial bank or trust company serving as indenture trustee may
own Notes and have normal banking relationships with the master servicer, the
transferor and the Note Insurer and their affiliates.
The indenture trustee may resign at any time, in which event the
trust must appoint a successor indenture trustee with the consent of the Note
Insurer. The Note Insurer may also remove the indenture trustee if the
indenture trustee ceases to be eligible to continue as such under the
indenture or if the indenture trustee becomes insolvent. Any resignation or
removal of the indenture trustee and appointment of a successor indenture
trustee will not become effective until acceptance of the appointment by the
successor indenture trustee.
Description of the Sale and Servicing Agreement
Assignment of Mortgage Loans
At the time of issuance of the Notes, the depositor will transfer to
the trust fund [the amounts to be deposited into the additional loan accounts
and] all of its interest in each mortgage loan acquired on the closing date
(including any Additional Balances arising in the future), related credit line
agreements, mortgages and certain other related documents (collectively, the
"Related Documents"), including all collections received on each mortgage loan
after the cut-off date (exclusive of payments of accrued interest due on or
before the cut-off date). The owner trustee, concurrently with the transfer,
will deliver the Notes to the depositor and the transferor certificate to the
transferor. [Subsequent closings may occur for the purchase of Additional Home
Equity Loans on dates specified by the depositor through [ ], 200[ ]. On those
closing dates the depositor will transfer to the trust fund all of its
interest in the Additional Home Equity Loans being acquired by the trust fund
that day, the Related Documents and all collections received on the Additional
Home Equity Loans after a date designated in connection with the transfer.]
Each mortgage loan transferred to the trust fund will be identified on a
mortgage loan schedule delivered to the owner trustee pursuant to the sale and
servicing agreement. The mortgage loan schedule will include information as to
the cut-off date principal balance of each mortgage loan as well as
information with respect to the loan rate.
The sale and servicing agreement will require that [IndyMac Bank]
deliver to the depositor for delivery to the owner trustee or, at the
depositor's direction, directly to the owner trustee, the mortgage notes
related to the mortgage loans endorsed in blank and the Related Documents
o on the [initial] Closing Date, with respect to not less than [50]%
of the mortgage loans transferred to the trust fund on that date;
o not later than [30] days after the initial Closing Date, with
respect to the [remaining] mortgage loans; [and]
o [not later than [21] days after the relevant closing date, with
respect to the Additional Home Equity Loans.]
In lieu of delivery of original documentation, [IndyMac Bank] may
deliver documents that have been imaged optically on delivery of an opinion of
counsel that the imaged documents are enforceable to the same extent as the
originals and do not impair the enforceability of the transfer to the trust
fund of the mortgage loans, provided the retention of the imaged documents in
the delivered format will not result in a reduction in the then current rating
of the Notes without regard to the Policy [or any other third party credit
enhancements].
[In addition, with respect to any of the mortgage loans, in lieu of
transferring the related mortgage to the trustee as one of the Related
Documents, the depositor may at its discretion provide evidence that the
related mortgage is held through the MERS(R) System. In addition, the mortgage
for some or all of the mortgage loans in the trust fund that are not already
held in the MERS(R) System may, at the discretion of the master servicer, in
the future be held through the MERS(R) System. For any mortgage held through
the MERS(R) System, the mortgage is recorded in the name of the Mortgage
Electronic Registration System, Inc. or MERS, as nominee for the owner of the
mortgage loan, and subsequent assignments of the mortgage were, or in the
future may be, at the discretion of the master servicer, registered
electronically through the MERS(R) System. For each of these mortgage loans,
MERS serves as a mortgagee of record on the mortgage solely as a nominee in an
administrative capacity on behalf of the owner trustee, and does not have any
interest in that mortgage loan.]
Within 90 days of the Closing Date with respect to the mortgage loans
acquired on the Closing Date [and within 90 days of the relevant closing date
with respect to Additional Home Equity Loans], the indenture trustee will
review the mortgage loans and the Related Documents and if any mortgage loan
or Related Document is found to be defective in any material respect and the
defect is not cured within 90 days following notification of it to the seller
and the depositor by the indenture trustee, the seller must accept the
transfer of the mortgage loan from the trust fund. The principal balance of
any mortgage loan so transferred will be deducted from the applicable loan
group balance, thus reducing the amount of the transferor interest. If the
deduction would cause the portion of the transferor interest related to the
loan group to become less than the related Minimum Transferor Interest at the
time (a "Transfer Deficiency"), the seller must either substitute an Eligible
Substitute Mortgage Loan or make a deposit into the collection account (the
"Transfer Deposit Amount") equal to the amount by which the portion of the
transferor interest related to that loan group would be reduced to less than
the related Minimum Transferor Interest at the time. Except to the extent
substituted for by an Eligible Substitute Mortgage Loan, the transfer of the
mortgage loan out of the trust fund will be treated under the sale and
servicing agreement as a payment in full of the mortgage loan. Any Transfer
Deposit Amount will be treated as a principal collection on the related loan
group. No transfer shall be considered to have occurred unless all required
deposits to the collection account are actually made. The obligation of the
seller to accept a transfer of a Defective Mortgage Loan and to make any
required deposits are the sole remedies for any defects in the mortgage loans
and Related Documents available to the owner trustee, the indenture trustee or
the noteholders.
An "Eligible Substitute Mortgage Loan" is a mortgage loan substituted
by the seller for a defective mortgage loan that must, on the date of
substitution,
o have a principal balance (or in the case of a substitution of more
than one mortgage loan for a Defective Mortgage Loan, an aggregate principal
balance) outstanding that is not [10]% more or less than the Transfer
Deficiency relating to the Defective Mortgage Loan;
o have a loan rate not less than the loan rate of the Defective
Mortgage Loan and not more than 1% in excess of the loan rate of the Defective
Mortgage Loan;
o have a loan rate based on the same index (prime rate) with
adjustments to the loan rate made on the same Interest Rate Adjustment Date as
that of the Defective Mortgage Loan;
o have a margin that is not less than the margin of the Defective
Mortgage Loan and not more than [ ] basis points higher than the margin for
the Defective Mortgage Loan;
o have a mortgage of the same or higher level of priority as the
mortgage relating to the Defective Mortgage Loan;
o have a remaining term to maturity not more than [six] months
earlier and not more than [60] months later than the remaining term to
maturity of the Defective Mortgage Loan;
o comply with each representation and warranty regarding the mortgage
loans in the sale and servicing agreement (deemed to be made as of the date of
substitution);
o have an original combined loan-to-value ratio not greater than that
of the Defective Mortgage Loan; and
o satisfy certain other conditions specified in the sale and
servicing agreement.
The seller will make certain representations and warranties as to the
accuracy in all material respects of certain information furnished to the
owner trustee on behalf of the trust fund with respect to each mortgage loan
(e.g., cut-off date principal balance and loan rate). In addition, the seller
will represent and warrant on the Closing Date that at the time of transfer to
the depositor, the seller has transferred or assigned all of its interest in
each mortgage loan and the Related Documents, free of any lien[, and likewise
represent and warrant on each relevant closing date with respect to each
Additional Home Equity Loan]. Upon discovery of a breach of any representation
and warranty that materially and adversely affects the interests of the
noteholders, the Note Insurer [or any other third party credit enhancer] in
the related mortgage loan and Related Documents, the seller will have a period
of 90 days after discovery or notice of the breach to effect a cure. If the
breach cannot be cured within the 90-day period, the seller must accept a
transfer of the Defective Mortgage Loan from the trust fund. The same
procedure and limitations as in the second preceding paragraph for the
transfer of Defective Mortgage Loans will apply to the transfer of a mortgage
loan that must be transferred because of a breach of a representation or
warranty in the sale and servicing agreement that materially and adversely
affects the interests of the noteholders.
Mortgage loans required to be transferred to the seller as described
in the preceding paragraphs are referred to as "Defective Mortgage Loans."
Amendments to Credit Line Agreements
Subject to applicable law and to certain limitations described in the
sale and servicing agreement, the master servicer may change the terms of the
credit line agreements at any time provided that the changes
o do not materially and adversely affect the interest of the
noteholders, the Note Insurer [or any other third party credit enhancer], and
o are consistent with prudent business practice.
In addition, the sale and servicing agreement permits the master servicer,
within certain limits, to increase the credit limit of the related mortgage
loan or reduce the margin for the mortgage loan.
Optional Transfers of Mortgage Loans to the Transferor
To permit the transferor to reduce the transferor interest any time
the portion of the transferor interest related to a loan group exceeds the
level required by the Note Insurer[, any other third party credit enhancer]
and the Rating Agencies, on any payment date the transferor may, but is not
obligated to, remove on the payment date (the "Transfer Date") from the loan
group, certain mortgage loans without notice to the noteholders. The
transferor is permitted to designate the mortgage loans to be removed.
Mortgage loans so designated will only be removed upon satisfaction of the
following conditions:
o no Rapid Amortization Event has occurred;
o the portion of the transferor interest allocable to the loan group
as of the Transfer Date (after giving effect to the removal) exceeds the
Minimum Transferor Interest;
o the transfer of any mortgage loans from [either] loan group on any
Transfer Date during the Managed Amortization Period will not, in the
reasonable belief of the transferor, cause a Rapid Amortization Event or an
event that with notice or lapse of time or both would constitute a Rapid
Amortization Event to occur;
o the transferor delivers to the owner trustee and the indenture
trustee a mortgage loan schedule containing a list of all mortgage loans
remaining in the related loan group after the removal;
o the transferor represents and warrants that no selection procedures
that the transferor reasonably believes are adverse to the interests of the
noteholders, the Note Insurer [or any other third party credit enhancer] were
used by the transferor in selecting the mortgage loans;
o in connection with each retransfer of mortgage loans, the Rating
Agencies and the Note Insurer shall have been notified of the proposed
transfer and before the Transfer Date no Rating Agency has notified the
transferor or the Note Insurer in writing that the transfer would result in a
reduction or withdrawal of the ratings assigned to either class of Notes
without regard to the Policy [or any other third party credit enhancement];
and
o the transferor shall have delivered to the owner trustee, the
indenture trustee and the Note Insurer an officer's note confirming the six
conditions preceding this one.
As of any date of determination within any Collection Period, the "Minimum
Transferor Interest" for either loan group is an amount equal to [the lesser
of (a) 5% of the related loan group balance at the end of the immediately
preceding Collection Period and (b) 1.5% of the cut-off date balance of the
related loan group].
Collection and Other Servicing Procedures on Mortgage Loans
The master servicer will make reasonable efforts to collect all
payments called for under the mortgage loans and will, consistent with the
sale and servicing agreement, follow collection procedures it follows
servicing home equity loans in its servicing portfolio comparable to the
mortgage loans. Consistent with the above, the master servicer may in its
discretion waive any late payment charge or any assumption or other fee or
charge that may be collected in the ordinary course of servicing the mortgage
loans.
The master servicer may arrange with a borrower of a mortgage loan a
schedule for the payment of interest due and unpaid for a period so long as
the arrangement is consistent with the master servicer's policies with respect
to mortgage loans it owns or services. In accordance with the sale and
servicing agreement, the master servicer may consent under certain
circumstances to the placing of a subsequent senior lien ahead of a mortgage
loan.
Hazard Insurance
The sale and servicing agreement provides that the master servicer
maintain hazard insurance on the mortgaged properties relating to the mortgage
loans. While the related credit line agreements generally require borrowers to
maintain hazard insurance, the master servicer will not monitor the
maintenance of hazard insurance.
The sale and servicing agreement requires the master servicer to
maintain for any mortgaged property relating to a mortgage loan acquired in
foreclosure of a mortgage loan, or by deed in lieu of foreclosure, hazard
insurance with extended coverage in an amount equal to the lesser of
o the maximum insurable value of the mortgaged property or
o the outstanding balance of the mortgage loan plus the outstanding
balance on any mortgage loan senior to the mortgage loan at the time of
foreclosure or deed in lieu of foreclosure, plus accrued interest and the
master servicer's good faith estimate of the related liquidation expenses to
be incurred in connection therewith.
The sale and servicing agreement provides that the master servicer may satisfy
its obligation to cause hazard policies to be maintained by maintaining a
blanket policy insuring against losses on the mortgaged properties. If the
blanket policy contains a deductible clause, the master servicer must deposit
in the collection account the sums that would have been deposited but for the
deductible. The master servicer will satisfy these requirements by maintaining
a blanket policy. As stated above, all amounts collected by the master
servicer (net of any reimbursements to the master servicer) under any hazard
policy (except for amounts to be applied to the restoration or repair of the
mortgaged property) will ultimately be deposited in the collection account.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements on the property
by fire, lightning, explosion, smoke, windstorm and hail, and the like, strike
and civil commotion, subject to the conditions and exclusions specified in
each policy. Although the policies relating to the mortgage loans will be
underwritten by different insurers and therefore will not contain identical
terms, their basic terms are dictated by state laws and most of them 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 mudflows), nuclear reactions, wet or dry rot,
vermin, rodents, insects or domestic animals, theft and, in certain cases,
vandalism. The foregoing list is merely indicative of certain kinds of
uninsured risks and is not intended to be all-inclusive or an exact
description of the insurance policies relating to the mortgaged properties.
Realization On Defaulted Mortgage Loans
The master servicer will foreclose on or otherwise comparably convert
to ownership mortgaged properties securing mortgage loans that come into
default when, in accordance with applicable servicing procedures under the
sale and servicing agreement, no satisfactory arrangements can be made for the
collection of delinquent payments. In connection with a foreclosure or other
conversion, the master servicer will follow practices it deems appropriate and
in keeping with its general mortgage servicing activities. The master servicer
need not expend its own funds in connection with any foreclosure or other
conversion, correction of default on a related senior mortgage loan, or
restoration of any property unless, in its sole judgment, the expenditure of
funds in the foreclosure, correction or restoration will increase net
liquidation proceeds. The master servicer will be reimbursed out of
liquidation proceeds and, if necessary, from other collections on the mortgage
loans for advances of its own funds as liquidation expenses before any net
liquidation proceeds are distributed to noteholders or the transferor.
Optional Purchase of Defaulted Loan
The master servicer may, at its option, purchase from the trust fund
any mortgage loan that is delinquent in payment for 91 days or more. Any
purchase of a delinquent mortgage loan will be at a price equal to 100% of the
principal balance of the mortgage loan plus accrued interest at the applicable
loan rate from the date through which interest was last paid by the related
mortgagor to the first day of the month in which the purchase proceeds are to
be distributed to noteholders.
Servicing Compensation and Payment of Expenses
The master servicer will receive from interest received on the
mortgage loans for each Collection Period a portion of the interest
collections as a monthly servicing fee in the amount equal to [ ]% per annum
on the aggregate principal balances of the mortgage loans as of the first day
of the related Collection Period. All assumption fees, late payment charges
and other fees and charges, to the extent collected from borrowers, will be
retained by the master servicer as additional servicing compensation.
The master servicer will pay certain ongoing expenses associated with
the trust fund and incurred by it in connection with its responsibilities
under the sale and servicing agreement. In addition, the master servicer will
be entitled to reimbursement for certain expenses incurred by it in connection
with defaulted mortgage loans and in connection with the restoration of
mortgaged properties, its right of reimbursement being before the rights of
noteholders to receive any related net liquidation proceeds and, if necessary,
other collections on the mortgage loans.
Evidence as to Compliance
The sale and servicing agreement provides for delivery by [May 31] in
each year, beginning [May 31, [200[ ]], to the indenture trustee of an annual
statement signed by an officer of the master servicer to the effect that the
master servicer has fulfilled its material obligations under the sale and
servicing agreement throughout the preceding fiscal year, except as specified
in the statement.
By [May 31] of each year, beginning [May 31, [200[ ]], the master
servicer will furnish a report prepared by a firm of nationally recognized
independent public accountants (who may also render other services to the
master servicer or the transferor) to the indenture trustee, the Note
Insurer[, any other third party credit enhancer] and the Rating Agencies to
the effect that it has examined certain documents and the records relating to
servicing of the mortgage loans under the sale and servicing agreement and
that, on the basis of its examination, the firm believes that such servicing
was conducted in compliance with the sale and servicing agreement except for
exceptions the firm believes to be immaterial and any other exceptions
specified in the report.
Certain Matters Regarding the Master Servicer and the Transferor
The sale and servicing agreement provides that the master servicer
may not resign as master servicer, except in connection with a permitted
transfer of servicing, unless
(a) its obligations as master servicer are no longer permissible
under applicable law or are in material conflict by reason of
applicable law with any other activities of a type and nature
presently carried on by it or its affiliate or
(b) on satisfaction of the following conditions:
o the master servicer has proposed a successor servicer to
the indenture trustee in writing and the proposed
successor servicer is reasonably acceptable to the
indenture trustee;
o the Rating Agencies have confirmed to the trustee that the
appointment of the proposed successor servicer as the
master servicer will not result in the reduction or
withdrawal of the then current rating of the Notes without
regard to the Policy [or any other third party credit
enhancement]; and
o the proposed successor servicer is reasonably acceptable
to the Note Insurer.
No resignation of the master servicer will become effective until the
indenture trustee or a successor servicer has assumed the master servicer's
duties under the sale and servicing agreement.
The master servicer may perform any of its obligations under the sale
and servicing agreement through subservicers or delegates, which may be
affiliates of the master servicer. Notwithstanding any subservicing
arrangement, the master servicer will remain liable to the indenture trustee
and the noteholders for the master servicer's obligations under the sale and
servicing agreement, without any diminution of its obligations and as if the
master servicer itself were performing the obligations.
The sale and servicing agreement provides that the master servicer
will indemnify the trust fund and the owner trustee against any loss,
liability, expense, damage or injury suffered as a result of the master
servicer's actions or omissions in connection with the servicing and
administration of the mortgage loans that are not in accordance with the sale
and servicing agreement. Under the sale and servicing agreement, the
transferor will indemnify an injured party for the entire amount of any
losses, claims, damages or liabilities arising out of the sale and servicing
agreement to the extent provided in the sale and servicing agreement (other
than losses resulting from defaults under the mortgage loans). The sale and
servicing agreement provides that other than the indemnification by the master
servicer neither the depositor, the transferor nor the master servicer nor
their directors, officers, employees or agents will be liable to the trust
fund, the owner trustee, the noteholders or any other person for any action
taken or for refraining from taking any action pursuant to the sale and
servicing agreement. However, neither the depositor, the transferor nor the
master servicer will be protected against any liability that would otherwise
be imposed for willful misconduct, bad faith or gross negligence of the
depositor, the transferor or the master servicer in the performance of its
duties under the sale and servicing agreement or for reckless disregard of its
obligations under the sale and servicing agreement. In addition, the sale and
servicing agreement provides that the master servicer need not appear in,
prosecute or defend any legal action that is not incidental to its servicing
responsibilities under the sale and servicing agreement and that in its
opinion may expose it to any expense or liability. The master servicer may, in
its sole discretion, undertake any legal action that it deems appropriate with
respect to the sale and servicing agreement.
Events of Servicing Termination
The "Events of Servicing Termination" are:
(i) any failure by the master servicer to deposit in the
collection account any deposit required to be made under the
sale and servicing agreement, which failure continues
unremedied for five business days (or, if the master servicer
is permitted to remit collections on the mortgage loans to the
collection account on a monthly basis as described under "--
Payments on Mortgage Loans; Deposits to Collection Account,"
three business days) after the giving of written notice of the
failure to the master servicer by the indenture trustee, or to
the master servicer and the indenture trustee by the Note
Insurer [, any other third party credit enhancer] or
noteholders evidencing an aggregate undivided interest in the
trust fund of at least 25% of the aggregate Note principal
balance;
(ii) any failure by the master servicer duly to observe or perform
in any material respect any other of its covenants or
agreements in the Notes or the sale and servicing agreement
that, in each case, materially and adversely affects the
interests of the noteholders[, any other third party credit
enhancer] or the Note Insurer and continues unremedied for 60
days after the giving of written notice of the failure to the
master servicer by the indenture trustee, or to the master
servicer and the indenture trustee by the Note Insurer[, any
other third party credit enhancer] or noteholders evidencing
an aggregate, undivided interest in the trust fund of at least
25% of the aggregate Note principal balance; or
(iii) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings
relating to the master servicer and certain actions by the
master servicer indicating insolvency, reorganization or
inability to pay its obligations.
Under certain other circumstances, the Note Insurer or the holders of
Notes evidencing an aggregate, undivided interest in the trust fund of at
least 51% of the aggregate Note principal balance may deliver written notice
to the master servicer terminating all the rights and obligations of the
master servicer under the sale and servicing agreement.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (i) above for a period of five or more business days
or referred to under clause (ii) above for a period of 60 or more days, will
not constitute an Event of Servicing Termination if the delay or failure could
not be prevented by the exercise of reasonable diligence by the master
servicer and the delay or failure was caused by an act of God or other similar
occurrence. The master servicer shall not be relieved from using its best
efforts to perform its obligations in a timely manner in accordance with the
sale and servicing agreement by an act of God or other similar occurrence, and
the master servicer shall provide the indenture trustee, the depositor, the
transferor, the Note Insurer[, any other third party credit enhancer] and the
noteholders prompt notice of any failure or delay by it, together with a
description of its efforts to perform its obligations.
Rights After an Event of Servicing Termination
So long as an Event of Servicing Termination remains unremedied,
either the indenture trustee, or noteholders evidencing an aggregate undivided
interest in the trust fund of at least 51% of the aggregate Note principal
balance (with the consent of the Note Insurer) or the Note Insurer, may
terminate all of the rights and obligations of the master servicer under the
sale and servicing agreement, whereupon the indenture trustee will succeed to
all the obligations of the master servicer under the sale and servicing
agreement and will be entitled to similar compensation arrangements. If the
indenture trustee would be obligated to succeed the master servicer but is
unwilling or unable so to act, it may appoint, or petition a court of
competent jurisdiction for the appointment of, a housing and home finance
institution or other mortgage loan or home equity loan servicer with all
licenses and permits required to perform its obligations under the sale and
servicing agreement and having a net worth of at least $[ ] and acceptable to
the Note Insurer to act as successor to the master servicer under the sale and
servicing agreement. Pending such appointment, the indenture trustee must act
as master servicer unless prohibited by law. The successor master servicer
will be entitled to receive the same compensation that the master servicer
would otherwise have received (or such lesser compensation as the indenture
trustee and the successor may agree on). A receiver or conservator for the
master servicer may be empowered to prevent the termination and replacement of
the master servicer where the Event of Servicing Termination that has occurred
is an insolvency event.
Amendment
The sale and servicing agreement may be amended from time to time by
the seller, the master servicer, the depositor and the indenture trustee and
with the consent of the Note Insurer, but without the consent of the
noteholders,
o to cure any ambiguity,
o to correct any defective provision or to correct or supplement any
provisions in it that may be inconsistent with any other provisions of the
sale and servicing agreement,
o to add to the duties of the depositor, the seller, the transferor
or the master servicer,
o to add or amend any provisions of the sale and servicing agreement
as required by the Rating Agencies to maintain or improve any rating of the
Notes (after obtaining the ratings in effect on the Closing Date, neither the
transferor, the seller, the depositor, the owner trustee, the indenture
trustee nor the master servicer must obtain, maintain, or improve any rating),
o to add any other provisions with respect to matters arising under
the sale and servicing agreement or the Policy that are not be inconsistent
with the sale and servicing agreement [or any other third party credit
enhancement],
o to comply with any requirement of the Internal Revenue Code or
o to increase the limits in the sale and servicing agreement as to
the amount of senior liens that the master servicer may consent to, if the
amendment will not, as evidenced by an opinion of counsel, materially and
adversely affect the interests of any noteholder, the Note Insurer [or any
other third party credit enhancer].
No amendment will be considered to materially and adversely affect the
noteholders and no opinion of counsel will be required to be delivered if the
person requesting the amendment obtains a letter from the Rating Agencies
stating that the amendment would not result in a downgrading of the then
current rating of the Notes without regard to the Policy [or any other third
party credit enhancement].
The sale and servicing agreement may also be amended from time to
time by the seller, the master servicer, the depositor, and the owner trustee
on behalf of the trust fund, and the master servicer and the Note Insurer may
from time to time consent to the amendment of the Policy, with the consent at
least 51% of the Note principal balance of the affected class and the Note
Insurer for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of the sale and servicing agreement or of
modifying in any manner the rights of the noteholders, so long as the
amendment does not
o reduce in any manner the amount of, or delay the timing of,
payments on the Notes or distributions or payments under the Policy that are
required to be made on any Note without the consent of each affected
noteholder,
o reduce the aforesaid percentage required to consent to any such
amendment, without the consent of all the noteholders
o adversely affect in any material respect the interests of the Note
Insurer [or any other third party credit enhancer].
The mortgage loans will be subject to optional transfer to the
transferor on any payment date on or after which the aggregate Note principal
balance [of both classes of Notes] is reduced to an amount less than or equal
to [10]% of the aggregate Original Note Principal Balance [for both classes of
Notes] and all amounts due and owing to the Note Insurer [and any other third
party credit enhancer] including any unreimbursed draws on the Policy [and
unreimbursed payments under other third party credit enhancement], together
with interest on the draws, as provided under the Insurance Agreement, have
been paid. The transfer price will be equal to the sum of
o the outstanding Note principal balance of each class of Notes plus
accrued interest at the applicable note rate through the day preceding the
final payment date and
o an amount equal to any Basis Risk Carryforward for each class of
Notes plus accrued interest.
Description of the Purchase Agreement
The mortgage loans to be transferred to the trust fund by the
depositor will be purchased by the depositor from the seller pursuant to a
purchase agreement to be entered into between the depositor, as purchaser of
the mortgage loans, and the seller, as transferor of the mortgage loans. Under
the purchase agreement, the seller will agree to transfer the mortgage loans
and related Additional Balances to the depositor. Pursuant to the sale and
servicing agreement, the mortgage loans will be immediately transferred by the
depositor to the trust fund, and the depositor will assign its rights under
the purchase agreement to the trust fund. The following is a description of
the material provisions of the purchase agreement.
Transfers of Mortgage Loans
Pursuant to the purchase agreement, the seller will transfer and
assign to the depositor, all of its interest in the mortgage loans [(including
any Additional Home Equity Loans)] and all of the Additional Balances
subsequently created. The purchase price of the mortgage loans is a specified
percentage of their face amount as of the time of transfer and is payable by
the depositor in cash. The purchase price of each Additional Balance
comprising the principal balance of a mortgage loan is the amount of the
Additional Balance.
Representations and Warranties
The seller will represent and warrant to the depositor that, among
other things, as of the Closing Date, it is duly organized and in good
standing and that it has the authority to consummate the transactions
contemplated by the purchase agreement. The seller will also represent and
warrant to the depositor that, among other things, immediately before the sale
of the mortgage loans to the depositor, the seller was the sole owner and
holder of the mortgage loans free and clear of any liens and security
interests. The seller will make similar representations and warranties in the
sale and servicing agreement. The seller will also represent and warrant to
the depositor that, among other things, as of the Closing Date, the purchase
agreement constitutes a valid and legally binding obligation of the seller and
a valid sale to the depositor of all interest of the seller in the mortgage
loans and their proceeds.
Assignment to Trust Fund
The seller will expressly acknowledge and consent to the depositor's
transfer of its rights relating to the mortgage loans under the sale and
servicing agreement to the trust fund and the security interest granted in
those rights under the indenture. The seller also will agree to perform its
obligations under the purchase agreement for the benefit of the trust fund.
Termination
The purchase agreement will terminate on the termination of the trust
fund.
Use of Proceeds
The net proceeds to be received from the sale of the [Class [ ]]
Notes will be applied by the depositor towards the purchase of the initial
[loan group [ ]] mortgage loans [and the deposit to the Additional Loan
Account].
Material Federal Income Tax Consequences
General
The following discussion, which summarizes the material U.S. federal
income tax aspects of the purchase, ownership and disposition of the Notes, is
based on the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury Regulations thereunder, and published rulings and court
decisions in effect as of the date hereof, all of which are subject to change,
possibly retroactively. This discussion does not address every aspect of the
U.S. federal income tax laws which may be relevant to beneficial owners of
[Class [ ]] Notes in light of their personal investment circumstances or to
certain types of beneficial owners of [Class [ ]] Notes subject to special
treatment under the U.S. federal income tax laws (for example, banks and life
insurance companies). Accordingly, investors should consult their tax advisors
regarding U.S. federal, state, local, foreign and any other tax consequences
to them of investing in the Notes.
Characterization of the Notes as Indebtedness
Based on the application of existing law to the facts established by
the indenture and other relevant documents and assuming compliance with the
indenture as in effect on the date of issuance of the Notes, Brown & Wood LLP,
special tax counsel to the depositor ("Tax Counsel"), is of the opinion that
the Notes will be treated as debt instruments for federal income tax purposes
as of such date. Accordingly, upon issuance, the Notes will be treated as
"Debt Securities" as described in the prospectus. Furthermore, special tax
counsel to the depositor is of the opinion that neither the trust fund nor any
portion of the trust fund will be treated as either an association or a
publicly traded partnership taxable as a corporation or as a taxable mortgage
pool. See "Federal Income Tax Consequences" in the prospectus.
The transferor and the noteholders express in the sale and servicing
agreement their intent that, for applicable tax purposes, the Notes will be
indebtedness secured by the mortgage loans. The transferor, the depositor and
the noteholders, by accepting the Notes, and each Note Owner by its
acquisition of a beneficial interest in a Note, have agreed to treat the Notes
as indebtedness for U.S. federal income tax purposes. However, because
different criteria are used to determine the non-tax accounting
characterization of the transaction, the transferor intends to treat this
transaction as a sale of an interest in the principal balances of the mortgage
loans for financial accounting purposes.
In general, whether for U.S. federal income tax purposes a
transaction constitutes a sale of property or a loan, the repayment of which
is secured by property, is a question of fact, the resolution of which is
based upon the economic substance of the transaction rather than its form or
the manner in which it is labeled. While the Internal Revenue Service and the
courts have set forth several factors to be taken into account in determining
whether the substance of a transaction is a sale of property or a secured
loan, the primary factor in making this determination is whether the
transferee has assumed the risk of loss or other economic burdens relating to
the property and has obtained the benefits of ownership thereof. Tax Counsel
has analyzed and relied on several factors in reaching its opinion that the
weight of the benefits and burdens of ownership of the mortgage loans has been
retained by the transferor and has not been transferred to the beneficial
owners of [Class [ ]] Notes.
In some instances, courts have held that a taxpayer is bound by the
particular form it has chosen for a transaction, even if the substance of the
transaction does not accord with its form. Tax Counsel has advised that the
rationale of those cases will not apply to this transaction, because the form
of the transaction as reflected in the operative provisions of the documents
either accords with the characterization of the Notes as debt or otherwise
makes the rationale of those cases inapplicable to this situation.
Taxation of Interest Income of Beneficial Owners
Assuming that the beneficial owners of [Class [ ]] Notes are holders
of debt obligations for U.S. federal income tax purposes, the Notes generally
will be taxable as Debt Securities. See "Federal Income Tax Consequences" in
the prospectus.
While it is not anticipated that the Notes will be issued at a
greater than de minimis discount, under Treasury regulations (the "OID
Regulations") it is possible that the Notes could nevertheless be deemed to
have been issued with original issue discount ("OID") if the interest were not
treated as "unconditionally payable" under the OID Regulations. If such
regulations were to apply, all of the taxable income to be recognized with
respect to the Notes would be includible in income of beneficial owners of
[Class [ ]] Notes as OID, but would not be includible again when the interest
is actually received. See "Federal Income Tax Consequences -- Taxation of Debt
Securities; Interest and Acquisition Discount" in the prospectus for a
discussion of the application of the OID rules if the Notes are in fact issued
at a greater than de minimis discount or are treated as having been issued
with OID under the OID Regulations. For purposes of calculating OID, it is
likely that the Notes will be treated as Pay-Through Securities.
Possible Classification of the Notes as a Partnership or Association Taxable
as a Corporation
The opinion of Tax Counsel is not binding on the courts or the IRS.
It is possible that the IRS could assert that, for purposes of the Code, the
transaction contemplated by this prospectus Supplement and the accompanying
prospectus with respect to the Notes constitutes a sale of the mortgage loans
(or an interest therein) to the beneficial owners of [Class [ ]] Notes and
that the proper classification of the legal relationship between the
transferor and the beneficial owners of [Class [ ]] Notes resulting from this
transaction is that of a partnership, a publicly traded partnership treated as
a corporation, or an association taxable as a corporation. Since Tax Counsel
has advised that the Notes will be treated as indebtedness in the hands of the
noteholders for U.S. federal income tax purposes, the transferor will not
attempt to comply with U.S. federal income tax reporting requirements
applicable to partnerships or corporations.
If it were determined that this transaction created an entity
classified as a corporation (including a publicly traded partnership taxable
as a corporation), the trust fund would be subject to U.S. federal income tax
at corporate income tax rates on the income it derives from the mortgage
loans, which would reduce the amounts available for distribution to the
beneficial owners of [Class [ ]] Notes. Cash distributions to the beneficial
owners of [Class [ ]] Notes generally would be treated as dividends for tax
purposes to the extent of such corporation's earnings and profits.
If the transaction were treated as creating a partnership between the
beneficial owners of [Class [ ]] Notes and the transferor, the partnership
itself would not be subject to U.S. federal income tax (unless it were to be
characterized as a publicly traded partnership taxable as a corporation);
rather, the transferor and each Note Owner would be taxed individually on
their respective distributive shares of the partnership's income, gain, loss,
deductions and credits. The amount and timing of items of income and
deductions of the Note Owner could differ if the Notes were held to constitute
partnership interests rather than indebtedness. Assuming that all of the
provisions of the trust agreement, as in effect on the date of the issuance,
are complied with, it is the opinion of Tax Counsel that the trust fund will
not be treated as either an association or a partnership taxable as a
corporation or as a taxable mortgage pool.
Possible Classification as a Taxable Mortgage Pool
In relevant part, Section 7701(i) of the Code provides that any
entity (or a portion of an entity) that is a "taxable mortgage pool" will be
classified as a taxable corporation and will not be permitted to file a
consolidated U.S. federal income tax return with another corporation. Any
entity (or a portion of any entity) will be a taxable mortgage pool if (i)
substantially all of its assets consist of debt instruments, more than 50% of
which are real estate mortgages, (ii) the entity is the obligor under debt
obligations with two or more maturities, and (iii) under the entity's debt
obligations (or an underlying arrangement), payments on the debt obligations
bear a relationship to the debt instruments held by the entity.
Assuming that all of the provisions of the sale and servicing
agreement and the trust agreement, as in effect on the date of issuance, are
complied with, Tax Counsel is of the opinion that neither the trust fund nor
any portion of the trust fund will be a taxable mortgage pool under Section
7701(i) of the Code because payments on each loan group support only one class
of indebtedness.
The opinion of Tax Counsel is not binding on the IRS or the courts.
If the IRS were to contend successfully (or future regulations were to
provide) that the arrangement created by the sale and servicing agreement and
the trust agreement is a taxable mortgage pool, the arrangement would be
subject to U.S. federal corporate income tax on its taxable income generated
by ownership of the mortgage loans. That a tax might reduce amounts available
for distributions to beneficial owners of [Class [ ]] Notes. The amount of the
tax would depend upon whether distributions to beneficial owners of [Class [
]] Notes would be deductible as interest expense in computing the taxable
income of such an arrangement as a taxable mortgage pool.
Foreign Investors
In general, subject to certain exceptions, interest (including OID)
paid on a Note to a nonresident alien individual, foreign corporation or other
non-United States person is not subject to U.S. federal income tax, provided
that the interest is not effectively connected with a trade or business of the
recipient in the United States and the Note Owner provides the required
foreign person information certification. See "Federal Income Tax Consequences
-- Tax Treatment of Foreign Investors" in the prospectus.
Interest paid (or accrued) to a noteholder who is a non-U.S. Person
will be considered "portfolio interest" and generally will not be subject to
United States federal income tax and withholding tax, provided, that (i) the
interest is not effectively connected with the conduct of a trade or business
within the United States by the non-U.S. Person, (ii) the non-U.S. Person
provides the trust fund or other person who is otherwise required to withhold
U.S. tax with respect to the Note with an appropriate statement (on Form W-8
or other similar form), signed under penalties of perjury, certifying that the
beneficial owner of the Note is a foreign person and providing that non-U.S.
person's name and address. If a Note is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide the relevant signed statement to the withholding
agent; in that case, however, the signed statement must be accompanied by a
Form W-8 or substitute form provided by the non-U.S. Person that owns that
interest in the mortgage loan. If the interest does not constitute portfolio
interest, then it will be subject to U.S. federal income and withholding tax
at a rate of 30%, unless reduced or eliminated pursuant to an applicable tax
treaty and the non-U.S. Person provides the Trust Fund, or an organization or
financial institution described above, with an appropriate statement (e.g., a
Form 1001), signed under penalties of perjury, to that effect.
Final regulations dealing with backup withholding and information
reporting on income paid to foreign persons and related matters (the "New
Withholding Regulations") were published in the Federal Register on October
14, 1997. In general, the New Withholding Regulations do not significantly
alter the substantive withholding and information reporting requirements, but
do unify current certification procedures and forms and clarify reliance
standards. The New Withholding Regulations generally will be effective for
payments made after December 31, 2000, subject to certain transition rules.
The discussion above does not take the New Withholding Regulations into
account. Prospective Non-U.S. Persons who own interests in Mortgage Loans are
strongly urged to consult their own tax advisor with respect to the New
Withholding Regulations.
If the interests of the beneficial owners of [Class [ ]] Notes were
deemed to be partnership interests, the partnership would be required, on a
quarterly basis, to pay withholding tax equal to the product, for each foreign
partner, of the foreign partner's distributive share of "effectively
connected" income of the partnership multiplied by the highest rate of tax
applicable to that foreign partner. In addition, a corporate foreign partner
would be subject to branch profits tax. Each non-foreign partner would be
required to certify to the partnership that it is not a foreign person. The
tax withheld from each foreign partner would be credited against the foreign
partner's U.S. income tax liability.
In addition, the interest paid on Notes could be subject to a 30%
withholding tax (or lower treaty rate) either because the interest on the
mortgage loans does not appear to satisfy the requirements to be treated as
"portfolio interest" under the Code, or because, even if the mortgage loan
interest were to be treated as portfolio interest, interest payments on the
Notes could be treated as "guaranteed payments" within the meaning of the
partnership provisions of the Code.
If the trust fund were taxable as a corporation, distributions to
foreign persons, to the extent treated as dividends, would generally be
subject to withholding at the rate of 30%, unless the rate were reduced by an
applicable tax treaty.
Backup Withholding
Certain beneficial owners of [Class [ ]] Notes may be subject to
backup withholding at the rate of 31% with respect to interest paid on the
Notes if the Note Owner, upon issuance, fails to supply the indenture trustee
or his broker with his taxpayer identification number, furnish an incorrect
taxpayer identification number, fail to report interest, dividends, or other
"reportable payments" (as defined in the Code) properly, or, under certain
circumstances, fail to provide the indenture trustee or his broker with a
certified statement, under penalty of perjury, that he is not subject to
backup withholding.
The indenture trustee will be required to report annually to the IRS,
and to each noteholder of record, the amount of interest paid (and OID
accrued, if any) on the Notes (and the amount of interest withheld for U.S.
federal income taxes, if any) for each calendar year, except as to exempt
holders (generally, holders that are corporations, certain tax-exempt
organizations or nonresident aliens who provide certification as to their
status as nonresidents). As long as the only "noteholder" of record is Cede &
Co., as nominee for DTC, beneficial owners of [Class [ ]] Notes and the IRS
will receive tax and other information including the amount of interest paid
on the Notes owned from participants and indirect participants rather than
from the indenture trustee. (The indenture trustee, however, will respond to
requests for necessary information to enable participants, indirect
participants and certain other persons to complete their reports.) Each
non-exempt Note Owner will be required to provide, under penalty of perjury, a
note on IRS Form W-9 containing his or her name, address, correct federal
taxpayer identification number and a statement that he or she is not subject
to backup withholding. Should a nonexempt Note Owner fail to provide the
required certification, the participants or indirect participants (or the
paying agent) will be required to withhold 31% of the interest (and principal)
otherwise payable to the holder, and remit the withheld amount to the IRS as a
credit against the holder's federal income tax liability.
As previously mentioned, the New Withholding Regulations were
published in the Federal Register on October 14, 1997 and generally will be
effective for payments made after December 31, 2000, subject to certain
transition rules. The discussion above does not take the New Withholding
Regulations into account. Prospective Non-U.S. Persons who own Regular Notes
are strongly urged to consult their own tax advisor with respect to the New
Withholding Regulations.
State Taxes
The depositor makes no representations regarding the tax consequences
of purchase, ownership or disposition of the Notes under the tax laws of any
state. Investors considering an investment in the Notes should consult their
own tax advisors regarding such tax consequences.
All investors should consult their own tax advisors regarding the
federal, state, local or foreign income tax consequences of the purchase,
ownership and disposition of the Notes.
ERISA Considerations
Fiduciaries of employee benefit plans and certain other retirement
plans and arrangements that are subject to ERISA or corresponding provisions
of the Code, including individual retirement accounts and annuities, Keogh
plans and collective investment funds in which the plans, accounts, annuities
or arrangements are invested, persons acting on behalf of a plan, or persons
using the assets of a plan, should review carefully with their legal advisors
whether the purchase or holding of the Notes could either give rise to a
transaction that is prohibited under ERISA or the Code or cause the collateral
securing the Notes to be treated as plan assets for purposes of regulations of
the Department of Labor in 29 C.F.R. 2510.3-101 (the "Plan Asset Regulation").
Prohibited Transactions
General. Section 406 of ERISA prohibits parties in interest or
disqualified persons with respect to a plan from engaging in certain
transactions (including loans) involving a plan and its assets unless a
statutory, regulatory or administrative exemption applies to the transaction.
Section 4975 of the Code imposes certain excise taxes (or, in some cases, a
civil penalty may be assessed pursuant to section 502(i) of ERISA) on parties
in interest or disqualified persons which engage in non-exempt prohibited
transactions.
Plan Asset Regulation and The Notes. The United States Department of
Labor has issued the Plan Asset Regulation concerning the definition of what
constitutes the assets of the plan for purposes of ERISA and the prohibited
transaction provisions of the Code. The Plan Asset Regulation describes the
circumstances under which the assets of an entity in which a plan invests will
be considered to be "plan assets" such that any person who exercises control
over the assets would be subject to ERISA's fiduciary standards. Under the
Plan Asset Regulation, generally when a plan invests in another entity, the
plan's assets do not include, solely by reason of the investment, any of the
underlying assets of the entity. However, the Plan Asset Regulation provides
that, if a plan acquires an "equity interest" in an entity, the assets of the
entity will be treated as assets of the plan investor unless certain
exceptions not applicable here apply.
Under the Plan Asset Regulation, the term "equity interest" is
defined as any interest in an entity other than an instrument that is treated
as indebtedness under "applicable local law" and which has no "substantial
equity features." If the Notes are not treated as equity interests in the
issuer for purposes of the Plan Asset Regulation, a plan's investment in the
Notes would not cause the assets of the issuer to be deemed plan assets.
However, the issuer, the master servicer, a servicer, the indenture trustee
and the underwriter may be the sponsor of or investment advisor with respect
to one or more plans. Because they may receive certain benefits in connection
with the sale of the Notes, the purchase of Notes using plan assets over which
any of them has investment authority might be deemed to be a violation of the
prohibited transaction rules of ERISA and the Code for which no exemption may
be available.
The Notes may not be purchased with the assets of a plan if the
issuer, the master servicer, a servicer, the indenture trustee, the
underwriter or any of their respective affiliates:
o has investment or administrative discretion with respect
to the plan assets;
o has authority or responsibility to give, or regularly
gives, investment advice with respect to the plan assets,
for a fee and pursuant to an agreement or understanding
that the advice (i) will serve as a primary basis for
investment decisions with respect o the plan assets, and
(ii) will be based on the particular investment needs for
the plan; or
o is an employer maintaining or contributing to the plan.
If the Notes are deemed to be equity interests in the issuer, the
issuer could be considered to hold plan assets because of a plan's investment
in the Notes. In that event, the master servicer and other persons exercising
management or discretionary control over the assets of the issuer may be
deemed to be fiduciaries with respect to investing plans and thus subject to
the fiduciary responsibility provisions of Title 1 of ERISA, including the
prohibited transaction provisions of section 406 of ERISA, and section 4975 of
the Code with respect to transactions involving the issuer's assets. We cannot
assure you that any statutory, regulatory or administrative exemption will
apply to all prohibited transactions that might arise in connection with the
purchase or holding of a equity interest in the issuer by a plan.
Without regard to whether the Notes are considered to be equity
interests in the issuer, certain affiliates of the issuer or the master
servicer might be considered or might become parties in interest or
disqualified persons with respect to a plan. In either case, the acquisition
or holding of Notes by or on behalf of the plan could be considered to give
rise to an indirect prohibited transaction within the meaning of ERISA and the
Code, unless it is subject to one or more exemptions such as Prohibited
Transaction Class Exemption ("PTCE") 84-14, which exempts certain transactions
effected on behalf of a plan by a "qualified professional asset manager"; PTCE
90-1, which exempts certain transactions involving insurance company pooled
separate accounts; PTCE-91-38, which exempts certain transactions involving
bank collective investment funds; PTCE 95-60, which exempts certain
transactions involving insurance company general accounts; or PTCE 96-23,
which exempts certain transactions effected on behalf of a plan by certain
"in-house asset managers." Each purchaser or transferee of a Note that is a
plan investor shall be deemed to have represented that the relevant conditions
for exemptive relief under at least one of the foregoing exemptions have been
satisfied.
The sale of Notes to a plan is in no respect a representation by the
issuer or the underwriter that this investment meets all relevant legal
requirements with respect to investments by plans generally or any particular
plan, or that this investment is appropriate for plans generally or any
particular plan.
Any plan investor proposing to invest in the Notes should consult
with its counsel to confirm that the investment will not result in a
prohibited transaction that is not subject to an exemption and will satisfy
the other requirements of ERISA and the Code applicable to plans.
Legal Investment Considerations
Although, as a condition to their issuance, the [Class [ ]] Notes
will be rated in the highest rating category of each of the Rating Agencies,
the [Class [ ]] Notes will not constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984, because not
all of the mortgages securing the mortgage loans are first mortgages.
Accordingly, many institutions with legal authority to invest in comparably
rated securities based on first mortgage loans may not be legally authorized
to invest in the [Class [ ]] Notes, which because they evidence interests in a
pool that includes junior mortgage loans are not "mortgage related securities"
under SMMEA. See "Legal Investment" in the prospectus.
Underwriting
Pursuant to the underwriting agreement, dated [ ], 200[ ], between
the depositor and [ ] ("[ ]"), [which is an affiliate of the depositor, the
seller and the master servicer,] the depositor has agreed to sell to [ ], and
[ ] has agreed to purchase from the depositor, the [Class [ ]] Notes.
Pursuant and subject to the underwriting agreement, [ ] has agreed to
purchase all the [Class [ ]] Notes if any of the [Class [ ]] Notes are
purchased.
The depositor has been advised by [ ] that it proposes initially to
offer the [Class [ ]] Notes to the public in Europe and the United States at
the offering price on the cover page and to certain dealers at the offering
price less a discount not in excess of [ ]% of the Note denominations. [ ] may
allow and the dealers may reallow a discount not in excess of [ ]% of the Note
denominations to certain other dealers. After the initial public offering, the
public offering price, the concessions and the discounts may be changed.
Until the distribution of the [Class [ ]] Notes is completed, rules
of the Securities and Exchange Commission may limit the ability of [ ] and
certain selling group members to bid for and purchase the [Class [ ]] Notes.
As an exception to these rules, [ ] is permitted to engage in certain
transactions that stabilize the price of the [Class [ ]] Notes. Stabilizing
transactions consist of bids or purchases for the purposes of pegging, fixing
or maintaining the price of the [Class [ ]] Notes. 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 stabilizing purchases. Neither the depositor nor [ ] makes any
representation or prediction as to the direction or magnitude of any effect
that the stabilizing transactions may have on the prices of the Notes. In
addition, neither the depositor nor [ ] makes any representation that [ ] will
engage in stabilizing transactions or that stabilizing transactions, once
commenced, will not be discontinued without notice.
The underwriting agreement provides that the depositor will indemnify
[ ] against certain civil liabilities, including liabilities under the Act.
Legal Matters
Certain legal matters with respect to the Notes will be passed on for
the depositor by Brown & Wood LLP, New York, New York. [ ], will pass on
certain legal matters on behalf of the underwriters.
Experts
[The consolidated financial statements of [Note Insurer] and
subsidiaries, as of [month] [day], [year] and [year] and for each of the years
in the [number]-year period ended [month] [day], [year], are incorporated by
reference in this prospectus supplement and in the registration statement in
reliance upon the report of [ ], independent certified public accountants,
incorporated by reference in this prospectus supplement, and on the authority
of that firm as experts in accounting and auditing.]
Ratings
It is a condition to the issuance of the Class [ ] [and Class [ ]]
Notes that they [each] be rated [ ] by [Rating Agency] and [ ] by [Rating
Agency] (each a "Rating Agency").
A securities rating addresses the likelihood of the receipt by
noteholders of distributions on the mortgage loans. The rating takes into
consideration the characteristics of the mortgage loans and the structural and
legal aspects associated with the [Class [ ]] Notes. The ratings on the [Class
[ ]] Notes do not, however, constitute statements regarding the likelihood or
frequency of prepayments on the mortgage loans or the possibility that
noteholders might realize a lower than anticipated yield. The ratings on the
[Class [ ]] Notes do not address the likelihood of the receipt by noteholders
of Basis Risk Carryforward.
The ratings assigned to the [Class [ ]] Notes will depend primarily
upon the financial strength of the Note Insurer. Any reduction in a rating
assigned to the financial strength of the Note Insurer below the ratings
initially assigned to the [Class [ ]] Notes may result in a reduction of one
or more of the ratings assigned to the [Class [ ]] Notes.
A securities rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each securities rating should be evaluated
independently of similar ratings on different securities.
The depositor has not requested a rating of the [Class [ ]] Notes by
any rating agency other than the Rating Agencies; however, we cannot assure
you that no other rating agency will rate the [Class [ ]] Notes or, if it
does, what rating would be assigned by another rating agency. The rating
assigned by another rating agency to the [Class [ ]] Notes could be lower than
the respective ratings assigned by the Rating Agencies.
<PAGE>
Index of Defined Terms
Page
----
Accelerated Principal Distribution Amount..........61
Additional Balances................................19
Additional Home Equity Loans.......................27
Additional Loan Account............................27
Alternative Principal Payment......................65
Available Transferor Subordinated Amount...........66
Bankruptcy Rate....................................23
Basis Risk Carryforward............................63
Business day.......................................61
Class..............................................53
Class [ ] Original Invested Amount...............54
Class [ ] Original Note Principal Balance........54
Clearstream, Luxembourg............................57
Code...............................................90
Collection Period..................................63
Crossover Amount...................................62
Debt Securities....................................91
Defective Mortgage Loans...........................82
Detailed Description...............................24
Determination Date.................................67
DTC.............................................A-I-1
Eligible Account...................................67
Eligible Substitute Mortgage Loan..................81
Events of Servicing Termination....................87
First Federal......................................21
Foreclosure Rate...................................23
Global Securities...............................A-I-1
Guaranteed Distributions...........................71
Guaranteed Principal Distribution Amount...........71
Holdings...........................................21
IndyMac Bank.......................................21
Insurance Agreement................................71
Insured Amount.....................................71
Interest Period....................................64
Investor Fixed Allocation Percentage...............51
Investor Floating Allocation Percentage............70
Investor Interest Collections......................69
Investor Loss Amount...............................62
Investor Principal Collections.....................70
LIBOR..............................................63
Liquidated Mortgage Loan...........................63
Liquidation Loss Amount............................62
Managed Amortization Period........................65
Maximum Principal Payment..........................65
Minimum Transferor Interest........................83
New Withholding Regulations........................94
Note Insurer.......................................21
Notes..............................................53
OID................................................92
OID Regulations....................................92
Original Invested Amount...........................54
Overcollateralization Reduction Amount.............70
Plan Asset Regulation..............................96
Preference Amount..................................71
PTCE...............................................97
Rapid Amortization Event...........................72
Rapid Amortization Period..........................65
Rating Agency......................................99
Related Documents..................................79
Required Amount....................................66
Reserve Fund.......................................70
Rules..............................................56
Scheduled Principal Collections
Distribution Amount..............................65
Statistic Calculation Date.........................25
Statistic Calculation Pool.........................24
Statistic Calculation Pool Mortgage Loan...........24
Subordinated Transferor Collections................66
Tax Counsel........................................91
Taxable mortgage pool..............................93
TIA................................................77
Transfer Date......................................82
Transfer Deficiency................................81
Transfer Deposit Amount............................81
Transferor Principal Collections...................70
U.S. Person.....................................A-I-5
<PAGE>
Annex I
GLOBAL CLEARANCE, SETTLEMENT AND TAX
DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Home
Equity Loan Asset Backed Notes, Series [200[ ]-[ ]] (the "Global Securities")
will be available only in book-entry form. Investors in the Global Securities
may hold them 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 interests in
Global Securities through Clearstream, Luxembourg and Euroclear will be
conducted in accordance with their normal rules and operating procedures and
in accordance with conventional eurobond practice. Secondary market trading
between investors holding interests in Global Securities through DTC will be
conducted according to the rules and procedures applicable to U.S. corporate
debt obligations.
Secondary cross-market trading between investors holding interests in
Global Securities through Clearstream, Luxembourg or Euroclear and investors
holding interests in Global Securities through DTC participants will be
effected on a delivery-against-payment basis through the respective
depositories of Clearstream, Luxembourg and Euroclear (in that capacity) and
other DTC participants.
Although DTC, Euroclear and Clearstream, Luxembourg are expected to
follow the procedures described below to facilitate transfers of interests in
the Global Securities among participants of DTC, Euroclear and Clearstream,
Luxembourg, they are under no obligation to perform or continue to perform
those procedures, and those procedures may be discontinued at any time.
Neither the Issuer nor the indenture trustee will have any responsibility for
the performance by DTC, Euroclear and Clearstream, Luxembourg or their
respective participants or indirect participants of their respective
obligations under the rules and procedures governing their obligations.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless the holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
Initial Settlement
The Global Securities will be registered 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. Clearstream, Luxembourg and Euroclear will
hold positions on behalf of their participants through their respective
depositories, which in turn will hold the positions in accounts as DTC
participants.
Investors electing to hold interests in Global Securities through DTC
participants, rather than through Clearstream, Luxembourg or Euroclear
accounts, will be subject to the settlement practices applicable to similar
issues of pass-through notes. Investors" securities custody accounts will be
credited with their holdings against payment in same-day funds on the
settlement date.
Investors electing to hold interests in 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. Interests in
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.
Transfers between DTC Participants. Secondary market trading between
DTC participants will be settled using the DTC procedures applicable to
similar issues of pass-through notes in same-day funds.
Transfers between Clearstream, Luxembourg and/or Euroclear
Participants. Secondary market trading between Clearstream, Luxembourg
participants or Euroclear participants and/or investors holding interests in
Global Securities through them will be settled using the procedures applicable
to conventional eurobonds in same-day funds.
Transfers between DTC seller and Clearstream, Luxembourg or Euroclear
purchaser. When interests in Global Securities are to be transferred on behalf
of a seller from the account of a DTC participant to the account of a
Clearstream, Luxembourg participant or a Euroclear participant or a purchaser,
the purchaser will send instructions to Clearstream, Luxembourg or Euroclear
through a Clearstream, Luxembourg participant or Euroclear participant at
least one business day before settlement. Clearstream, Luxembourg or the
Euroclear operator will instruct its respective depository to receive an
interest in the Global Securities against payment. Payment will include
interest accrued on the Global Securities from and including the last payment
date to but excluding the settlement date. Payment will then be made by the
respective depository to the DTC participant's account against delivery of an
interest in the Global Securities. After settlement has been completed, the
interest 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 credit of the
interest will appear on the next business day and the cash debit 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 through DTC on the intended value
date (i.e., the trade fails), the Clearstream, Luxembourg or Euroclear cash
debit 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 system the funds necessary
to process same-day funds settlement. The most direct means of doing so is to
pre-position funds for settlement from cash on hand, in which case the
Clearstream, Luxembourg participants or Euroclear participants will take on
credit exposure to Clearstream, Luxembourg or the Euroclear operator until
interests in the Global Securities are credited to their accounts one day
later.
As an alternative, if Clearstream, Luxembourg or the Euroclear
operator has extended a line of credit to them, Clearstream, Luxembourg
participants or Euroclear participants can elect not to pre-position funds and
allow that credit line to be drawn upon. Under this procedure, Clearstream,
Luxembourg participants or Euroclear participants receiving interests in
Global Securities for purchasers would incur overdraft charges for one day, to
the extent they cleared the overdraft when interests in the Global Securities
were credited to their accounts. However, interest on the Global Securities
would accrue from the value date. Therefore, the investment income on the
interest in the Global Securities earned during that one-day period would tend
to offset the amount of the overdraft charges, although this result will
depend on each Clearstream, Luxembourg participant's or Euroclear
participant's particular cost of funds.
Since the settlement through DTC will take place during New York
business hours, DTC participants are subject to DTC procedures for
transferring interests in Global Securities to the respective depository of
Clearstream, Luxembourg or Euroclear 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 seller
settling the sale through a DTC participant, a cross-market transaction will
settle no differently than a sale to a purchaser settling through a DTC
participant.
Finally, intra-day traders that use Clearstream, Luxembourg
participants or Euroclear participants to purchase interests in Global
Securities from DTC participants or sellers settling through them for delivery
to Clearstream, Luxembourg participants or Euroclear participants should note
that these trades will automatically fail on the sale side unless affirmative
action is taken. At least three techniques should be available to eliminate
this potential condition:
(a) borrowing interests in Global Securities through
Clearstream, Luxembourg or Euroclear for one day (until the purchase
side of the intra-day trade is reflected in the relevant Clearstream,
Luxembourg or Euroclear accounts) in accordance with the clearing
system's customary procedures;
(b) borrowing interests in Global Securities in the United
States from a DTC participant no later than one day before
settlement, which would give sufficient time for the interests to be
reflected in the relevant Clearstream, Luxembourg or Euroclear
accounts 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 before the value date for the sale to
the Clearstream, Luxembourg participant or Euroclear participant.
Transfers 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 interests in Global Securities are to be
transferred by the respective clearing system, through the respective
depository, to a DTC participant. The seller will send instructions to
Clearstream, Luxembourg or the Euroclear operator through a Clearstream,
Luxembourg participant or Euroclear participant at least one business day
before settlement. Clearstream, Luxembourg or Euroclear will instruct its
respective depository to credit an interest in 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 payment date to
but excluding the settlement date. The payment will then be reflected in the
account of the Clearstream, Luxembourg participant or Euroclear participant
the following business 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 through DTC in New York). 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.
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 United States) 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 the Beneficial Owner and the U.S. entity required to withhold tax
complies with applicable certification requirements and (ii) the beneficial
owner takes one of the following steps to obtain an exemption or reduced tax
rate:
Exemption for non-U.S. Persons ([Form W-8 or] W-8BEN). Beneficial
Owners of Notes that are non-U.S. Persons can obtain a complete exemption from
the withholding tax by filing a signed [Form W-8 (Note of Foreign Status) or]
Form W-8BEN (Note of Foreign Status of Beneficial Ownership for United States
Tax Withholding). If the information shown on Form [W-8] changes a new Form
[W-8] must be filed within 30 days of the change. [As of December 31, 2000
only Form W-8BEN will be acceptable.]
Exemption for non-U.S. Persons with effectively connected income
([Form 4224 or] 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 4224
(Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States) or] Form W-8ECI (Note of
Foreign Person's Claim for Exemption from Withholding or Income Effectively
Connected with the Conduct of a Trade or Business in the United States). [As
of December 31, 2000, only Form W-8ECI will be acceptable.]
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries ([Form 1001 or] Form W-8BEN). Non-U.S. Persons that are Beneficial
Owners residing in a country that has a tax treaty with the United States can
obtain an exemption or reduced tax rate (depending on the treaty terms) by
filing [Form 1001 (Ownership, Exemption or Reduced Rate Note) or] Form W-8BEN
(Note of Foreign Status of Beneficial Ownership 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-8].
Form [1001] may be filed by the Beneficial Owner or his agent. [As of December
31, 2000 only Form W-8BEN will be acceptable.]
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
[U.S. Federal Income Tax Reporting Procedure. The Beneficial Owner of
a Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency).
Form W-8, Form 1001 and Form 4224 are effective until December 31, 2000. Form
W-8BEN and Form W-8ECI are effective until the third succeeding calendar year
from the date the form is signed.]
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership or other entity treated as a
corporation or partnership for federal income tax purposes created or
organized in or under the laws of the United States, any State thereof or the
District of Columbia or (iii) an estate the income of which is includable in
gross income for United States tax purposes, regardless of its source or (iv)
a trust if a court within the United States is able to exercise primary
supervision of the administration of the trust and one or more United States
fiduciaries have the authority to control all substantial decisions of the
trust. This summary does not deal with all aspects of U.S. Federal income tax
withholding that may be relevant to foreign holders of the Global Securities.
Investors are advised to consult their own tax advisors for specific tax
advice concerning their holding and disposing of the Global Securities.
<PAGE>
$[ ]
(Approximate)
IndyMac Home Equity Loan Trust 200[ ]-[ ]
INDYMAC ABS, INC.
Depositor
[Logo]
Seller and Master Servicer
Revolving Home Equity Loan
Asset Backed Notes, Series 200[ ]-[ ]
-----------------
PROSPECTUS SUPPLEMENT
-----------------
[Underwriter]
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with different information.
We are not offering the Series 200[ ]-[ ] Home Equity Loan Asset
Backed Notes in any state where the offer is not permitted.
Dealers will deliver a prospectus supplement and prospectus when
acting as underwriters of the Series 200[ ]-[ ] Home Equity Loan Asset Backed
Notes and with respect to their unsold allotments or subscriptions. In
addition, all dealers selling the Series 200[ ]-[ ] Home Equity Loan Asset
Backed Notes will be required to deliver a prospectus supplement and
prospectus until [ ], 200[ ].
[ ], 200[ ]
<PAGE>
SUBJECT TO COMPLETION, DATED , 2000
PROSPECTUS SUPPLEMENT
(To Prospectus dated , 2000)
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
prospectus supplement is not an offer to sell these securities and we are not
soliciting offers to buy these securities in any state where the offer or sale
is not permitted.
$ (Approximate)
IndyMac ABS, Inc.
Depositor
[LOGO]
Seller and Master Servicer
Home Equity Mortgage Loan Asset-Backed Trust,
Series SPMD 2000-
Issuer
Consider carefully the risk factors beginning on page S-8 in this prospectus
supplement and on page 4 in the prospectus. The certificates represent
obligations of the trust 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. The following
classes of certificates are being offered pursuant to this prospectus
supplement and the accompanying prospectus:
Distributions payable on the th day of each month, commencing in 2000
<TABLE>
<CAPTION>
Initial Class
Certificate Pass-Through Underwriting Proceeds To
Class Balance Rate Price To Public Discount Depositor
----- ------- ---- --------------- -------- ---------
<S> <C> <C> <C> <C> <C>
AF-1 $ % % % %
MF-1 $ % % % %
MF-2 $ % % % %
BF $ % % % %
AV-1 $ % % % %
MV-1 $ % % % %
MV-2 $ % % % %
BV $ % % % %
R $ % % % %
--------- ----------- --------------- ------------ -----------
Total $ $ $ $
=============== ============ ===========
</TABLE>
Neither the SEC nor any state securities commission has approved these
securities or determined that this prospectus supplement or the prospectus is
accurate or complete. Any representation to the contrary is a criminal
offense.
[Name of Underwriter], as underwriters, will purchase the offered
certificates from the depositor. See "Method of Distribution" in this
prospectus supplement.
[Name of Underwriter]
, 2000
<PAGE>
TABLE OF CONTENTS
SUMMARY.................................................................... s-1
RISK FACTORS................................................................s-8
THE MORTGAGE POOL..........................................................s-14
General.................................................................S-14
Assignment of the Mortgage Loans........................................S-36
Conveyance of Subsequent Mortgage Loans.................................S-38
Underwriting Standards..................................................S-39
SERVICING OF MORTGAGE LOANS................................................S-41
The Master Servicer.....................................................S-41
Foreclosure, Delinquency and Loss Experience............................S-42
Servicing Compensation and Payment of Expenses..........................S-44
Adjustment to Servicing Compensation in
Connection with Certain Prepaid Mortgage Loans...................... ..S-44
Advances................................................................S-45
Certain Modifications and Refinancings..................................S-45
Default Management Services.............................................S-46
DESCRIPTION OF THE CERTIFICATES............................................S-46
General.................................................................S-46
Book-Entry Certificates.................................................S-47
Payments on Mortgage Loans; Accounts....................................S-48
Distributions...........................................................S-49
Priority of Distributions Among Certificates............................S-49
Distributions of Interest and Principal.................................S-50
Calculation of One-Month LIBOR..........................................S-57
Excess Reserve Fund Account.............................................S-58
Overcollateralization Provisions........................................S-58
Structuring Assumptions.................................................S-60
Optional Purchase of Defaulted Loans....................................S-63
Optional Termination....................................................S-64
The Trustee.............................................................S-64
Restrictions on Transfer of the Class R Certificates....................S-64
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS..............................S-64
General.................................................................S-64
Defaults in Delinquent Payments.........................................S-65
Prepayment Considerations and Risks.....................................S-65
Adjustable Rate Certificates............................................S-67
Fixed Rate Certificates.................................................S-68
Overcollateralization Provisions........................................S-68
Subordinated Certificates...............................................S-69
Additional Information..................................................S-70
Weighted Average Lives of the Offered Certificates......................S-70
Decrement Tables........................................................S-71
Prepayment Scenarios....................................................S-71
Last Scheduled Distribution Date........................................S-73
USE OF PROCEEDS............................................................S-73
FEDERAL INCOME TAX CONSEQUENCES............................................S-73
General.................................................................S-73
Taxation of Regular Interests...........................................S-74
Status of the Offered Certificates......................................S-75
The Cap Contract Component..............................................S-75
The Class R Certificate.................................................S-75
ERISA CONSIDERATIONS.......................................................S-76
METHOD OF DISTRIBUTION.....................................................S-78
LEGAL MATTERS..............................................................S-80
RATINGS....................................................................S-80
INDEX OF DEFINED TERMS.....................................................S-80
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES..............S-83
Initial Settlement......................................................S-83
Secondary Market Trading................................................S-84
Certain U.S. Federal Income Tax Documentation Requirements..............S-86
<PAGE>
-------------------------------------------------------------------------------
SUMMARY
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.
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- will issue classes of certificates, of which are being
offered pursuant to this prospectus supplement and the accompanying
prospectus. The classes of certificates that are being offered by this
prospectus supplement and the accompanying prospectus 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.
[Other Certificates
In addition to the offered certificates, the trust fund will issue
the 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 X Certificates is
provided only to permit a better understanding of the offered certificates.]
Cut-off Date
For any initial mortgage loan, ________, 2000; for any subsequent
mortgage loan, , 2000.
Closing Date
On or about , 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
[ ]
Designations
Each class of certificates will have different characteristics.
Certain of these characteristics are reflected in the following general
designations.
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 MF-1, Class MF-2, Class BF and Class R
Certificates.
o Group 2 Certificates
Class AV-1, 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 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-1 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
o Fixed Rate Certificates
Group 1 and Class R Certificates
o Physical Certificates
Class X and Class R Certificates
o Book-Entry Certificates
All classes of certificates except the Physical Certificates.
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.
Distribution Dates
The trustee will make distributions on the th day of each calendar
month beginning in 2000 to the holders of record of the certificates as of the
last business day of the month preceding the distributions. If the th day of a
month is not a business day, then the distributions will be made on the next
business day after the ____ th day of the month.
Interest Payments
The interest rate for each class of fixed-rate certificates is
specified on the cover page of this prospectus supplement, 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 that 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.
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 additional 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 additional 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 initial 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 concerning the initial mortgage loans relates to a statistical
calculation pool that comprises % of the initial mortgage loans that will be
included in the trust fund as of the closing date. The pool of initial
mortgage loans for which information is presented in this prospectus
supplement is referred to herein as the statistical calculation mortgage pool
and the initial mortgage loans for which information is presented in this
prospectus supplement are referred to herein as statistical calculation
initial mortgage loans. 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, although % of the initial mortgage
loans that will be included in the mortgage pool as of the closing date are
not included in the statistical calculation mortgage pool.
The initial mortgage loans will be transferred to the trust fund on
the closing date. The additional 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 , 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 initial mortgage loans presented in
this prospectus supplement.
The statistical calculation initial mortgage loans in loan group 1
consist of fixed-rate mortgage loans with an aggregate outstanding principal
balance of approximately $ as of , 2000, after giving effect to principal
payments due on or before that date. The statistical calculation initial
mortgage loans in loan group 2 consist of adjustable-rate mortgage loans with
an aggregate outstanding principal balance of approximately $ as of , 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 % of the statistical calculation initial 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.
Pre-Funding Accounts and Capitalized Interest Accounts
At closing, the seller will deposit up to $ into two separate
pre-funding accounts, to be used to acquire additional mortgage loans from the
seller during the pre-funding period.
Of this amount, the trust fund will apply up to $ to purchase
additional fixed-rate mortgage loans for inclusion in loan group 1 and up to $
to purchase additional ____ adjustable-rate mortgage loans for inclusion in
loan group 2.
The purchase of additional mortgage loans will occur only during the
pre-funding period, which generally terminates upon the earlier of:
o the date on which the remaining pre-funding amount for both loan
groups is less than $ , and
o the close of business on , 2000.
At closing, the seller also 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 certain holders of
certificates against shortfalls in payments received on the mortgage loans.
This transaction employs the following forms of credit enhancement.
(a) 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.
(b) 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 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.
(c) Overcollateralization
Although the sum of the total principal balance of the mortgage loans
in loan group 1 and the amount on deposit in the related pre-funding account
is approximately $ , the trust is issuing only $ total principal amount of
certificates related to loan group 1. Similarly, although the sum of the total
principal balance of the mortgage loans in loan group 2 and the amount on
deposit in the related pre-funding account is approximately $ the trust is
issuing only $ total principal amount of certificates related to loan group 2.
The certificates are therefore "overcollateralized," and 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 falls below what is required, the excess interest
described in the next section will be paid to the certificates as principal.
This will have the effect of reducing the principal balance of the
certificates faster than the principal balance of the mortgage loans in the
related loan group so that the required level of overcollateralization is
reached.
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
will be used to pay interest on the related certificates that was previously
earned but not paid, and some of such excess interest will 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.
Ratings
The classes of certificates listed below will not be offered unless
they are assigned the following ratings by and by .
<PAGE>
CLASS RATING] RATING
A
R
M-1
M-2
B
See "Ratings" in this prospectus supplement.
Tax Status
For federal income tax purposes, the trustee will elect to treat the
trust as including two 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 offered certificates, 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 Class A 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-1 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.
<PAGE>
RISK FACTORS
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 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
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 yield on the Class B Certificate is 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 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 earned 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 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 % of the group 2 statistical calculation initial mortgage
loans, only after a two, three or five 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 interest
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 WAC Cap." Although it is intended that the amount by which
a certificateholder's interest payment has been reduced by operation of the
Group 2 WAC 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
equal to the weighted average of the net mortgage rates on the fixed-rate
mortgage loans called the Group 1 WAC Cap. 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 WAC Cap on any distribution date will not
be entitled to receive the amount of such reduction from the excess funds on
any future distribution date.
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 mortgage loans generally cannot
prepay their mortgage loans during the first one, two, three, four 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 life 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 WAC Cap can have the effect of reducing the
Group 1 WAC Cap, and prepayments on adjustable-rate mortgage loans with
interest rates in excess of the Group 2 WAC Cap can have the effect of
reducing the Group 2 WAC Cap. In the event that either the Group 1 WAC Cap or
the Group 2 WAC Cap is in effect on any distribution date, the reduction of
the Group 1 WAC Cap or the Group 2 WAC Cap will have the effect of reducing
the pass-through rates paid to 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.
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 by the
end of the pre-funding period for that purpose, 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 _________________ 2000
distribution date.
Junior lien priority could result in payment delay or loss
Approximately % of the statistical calculation initial mortgage loans
in loan group 1 (by principal balance as of , 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 % of the statistical calculation initial mortgage
loans, based on principal balances as of , 2000, expected to be in the trust
fund on the closing date 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;
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 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) 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.
For a discussion of additional risks pertaining to the certificates,
see "Risk Factors" in the prospectus.
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 , 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
initial 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, 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 initial 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 initial mortgage loans is expected to
be approximately $ , which is referred to as the statistical calculation
cut-off date principal balance. The initial mortgage loans provide for the
amortization of the amount financed over a series of substantially equal
monthly payments. 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, substantially all of the statistical calculation
initial mortgage loans had stated terms to maturity of 30 years. Each of the
statistical calculation initial 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 initial
mortgage loans (referred to as scheduled payments) either earlier or later
than the scheduled Due Dates thereof will not affect the amortization schedule
or the relative application of those payments to principal and interest.
Of the statistical calculation initial mortgage loans, mortgage loans
in loan group 1, representing approximately % of the cut-off date principal
balance of the statistical calculation initial mortgage loans in loan group 1,
and mortgage loans in loan group 2, representing approximately % of the
cut-off date principal balance of the statistical calculation initial 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 initial 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 from state to state.
With respect to the statistical calculation initial 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 Adjustable
Mortgage Loans and Adjustable Mortgage Loans (each as defined below)) and one
year (in the case of Adjustable Mortgage Loans and Adjustable Mortgage Loans
(each as defined below)) thereafter (referred to as an Adjustment Date), equal
to (a) in the case of Adjustable Mortgage Loans and 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
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 or decrease on any
Adjustment Date by more than (A) with respect to statistical calculation
initial mortgage loans (representing approximately % of the statistical
calculation cut-off date principal balance of loan group 2), one percentage
point (1%), (B) with respect to statistical calculation initial mortgage loans
(representing approximately % of the statistical calculation cut-off date
principal balance of loan group 2), one and one-half percentage points (1.5%),
(C) with respect to statistical calculation initial mortgage loans
(representing approximately % of the statistical calculation cut-off date
principal balance of loan group 2), two percentage points (2.0%), (D) with
respect statistical calculation initial mortgage loans (representing
approximately % of the statistical calculation cut-off date principal balance
of loan group 2), three percentage points (3%), (E) with respect to
statistical calculation initial mortgage loans (representing approximately
0.25% of the statistical calculation cut-off date principal balance of loan
group 2), five percentage points (5%) and (F) with respect to statistical
calculation initial mortgage loans (representing approximately % of the
cut-off date principal balance of loan group 2), seven percentage points or
greater (7%) (referred to as the Periodic Rate Cap). Approximately % of the
statistical calculation initial 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 Adjustable Mortgage Loans). Approximately % of the
statistical calculation initial 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 Adjustable Mortgage Loans). Approximately
% of the statistical calculation initial 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 Adjustable Mortgage Loans).
With respect to the statistical calculation initial mortgage loans in
loan group 2, statistical calculation initial mortgage loans (representing
approximately % of the statistical calculation cut-off date principal balance
of loan group 2) are subject to an initial rate cap of 1%, statistical
calculation initial mortgage loans (representing approximately % of the
statistical calculation cut-off date principal balance of loan group 2) are
subject to an initial rate cap of 3% and statistical calculation initial
mortgage loans (representing approximately % of the statistical calculation
cut-off date principal balance of loan group 2) are subject to an initial rate
cap of 5%.
The 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 % to %) in the margin used to
calculate the mortgage rate. Approximately % of the mortgage loans in loan
group 2 are Performance Loans.
All of the statistical calculation initial 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). The statistical calculation initial mortgage loans in
loan group 2 are generally not subject to minimum mortgage rates. Effective
with the first payment due on a statistical calculation initial 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 initial 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 initial mortgage loans in loan group 1
are subject to the "due-on-sale" provisions included therein.
All of the statistical calculation initial mortgage loans in loan
group 1 were originated on or after . All of the statistical calculation
initial mortgage loans in loan group 2 were originated on or after .
The latest stated maturity date of any statistical calculation
initial mortgage loan in loan group 1 is . The earliest stated maturity date
of any statistical calculation initial mortgage loan in loan group 1 is . The
latest stated maturity date of any statistical calculation initial mortgage
loan in loan group 2 is . The earliest stated maturity date of any statistical
calculation initial mortgage loan in loan group 2 is .
As of the cut-off date, % of the statistical calculation initial
mortgage loans in loan group 1 and % of the statistical calculation initial
mortgage loans in loan group 2 were delinquent more than 30 days.
With respect to statistical calculation initial mortgage loans
(representing approximately % of the statistical calculation cut-off date
principal balance of the statistical calculation initial mortgage loans in
loan group 1) the lender (rather than the borrower) acquired the primary
mortgage guaranty insurance and charged the related borrower an interest
premium.
With respect to statistical calculation initial mortgage loans
(representing approximately % of the statistical calculation cut-off date
principal balance of the statistical calculation initial mortgage loans in
loan group 2) the lender (rather than the borrower) acquired the primary
mortgage guaranty insurance and charged the related borrower an interest
premium.
[None] of the statistical calculation initial mortgage loans in
either of the loan groups were originated in connection with the relocation of
employees of various corporate employers. None of the statistical calculation
initial mortgage loans in loan group 2 are convertible into fixed-rate
mortgage loans.
Of the statistical calculation initial mortgage loans in loan group
1, mortgage loans (representing approximately % of the statistical
calculation cut-off date principal balance of the initial mortgage loans in
loan group 1) are secured by first liens on the related mortgaged properties,
and mortgage loans in loan group 1 (representing approximately % of the
statistical calculation cut-off date principal balance of the statistical
calculation initial mortgage loans in loan group 1) are secured by second
liens on the related mortgaged properties. All of the statistical calculation
initial mortgage loans in loan group 2 are secured by first liens on the
related mortgaged properties.
[No] statistical calculation initial 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 initial mortgage loan
in loan group 2 had a Loan-to-Value Ratio at origination of more than 95%.
Except for statistical calculation initial mortgage loans in loan group 1,
representing approximately % of the statistical calculation cut-off date
principal balance of the statistical calculation initial mortgage loans in
loan group 1, and except for statistical calculation initial mortgage loans in
loan group 2, representing approximately % of the statistical calculation
cut-off date principal balance of the mortgage loans in loan group 2, each
statistical calculation initial 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 primary mortgage guaranty insurance policy issued by
a mortgage insurance company acceptable to Fannie Mae, Freddie Mac or any
nationally recognized statistical rating organization, which policy provides
coverage of a portion of the original principal balance of the related
mortgage loan equal to the product of the original principal balance thereof
and a fraction, the numerator of which is the excess of the original principal
balance of the related mortgage loan over 75% of the lesser of the appraised
value and selling price of the related mortgaged property and the denominator
of which is the original principal balance of the related mortgage loan, plus
accrued interest thereon and related foreclosure expenses. 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. 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.
"FICO Credit Scores" are obtained by many mortgage lenders in
connection with mortgage loan applications to help access a borrower's
credit-worthiness. FICO Credit Scores are generated by models developed by a
third party which analyze data on consumers in order to establish patterns
which are believed to be indicative of the borrower's probability of default.
The FICO Credit Score is based on a borrower's historical credit data,
including, among other things, payment history, delinquencies on accounts,
levels of outstanding indebtedness, length of credit history, types of credit,
and bankruptcy experience. FICO Credit Scores range from approximately 250 to
approximately 900, with higher scores indicating an individual with a more
favorable credit history compared to an individual with a lower score.
However, a FICO Credit Score purports only to be a measurement of the relative
degree of risk a borrower represents to a lender, i.e., that a borrower with a
higher score is statistically expected to be less likely to default in payment
than a borrower with a lower score. In addition, it should be noted that FICO
Credit Scores were developed to indicate a level of default probability over a
two-year period which does not correspond to the life of a mortgage loan.
Furthermore, FICO Credit Scores were not developed specifically for use in
connection with mortgage loans, but for consumer loans in general. Therefore,
a FICO Credit Score does not take into consideration the effect of mortgage
loan characteristics (which may differ from consumer loan characteristics) on
the probability of repayment by the borrower. There can be no assurance that a
FICO Credit Score will be an accurate predictor of the likely risk or quality
of the related mortgage loan.
The following information sets forth in tabular format certain
information, as of the cut-off date, as to the statistical calculation initial
mortgage loans in each loan group. Other than with respect to rates of
interest, percentages (approximate) are stated by Stated Principal Balance of
the 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.
***
<PAGE>
STATISTICAL CALCULATION LOAN GROUP 1
ORIGINAL COMBINED LOAN-TO-VALUE RATIOS(1)
ORIGINAL LOAN-TO-VALUE AGGREGATE PERCENT OF
RATIOS OR COMBINED NUMBER OF PRINCIPAL AGGREGATE
LOAN-TO-VALUE RATIOS MORTGAGE BALANCE PRINCIPAL
(AS APPLICABLE)(%) LOANS OUTSTANDING BALANCE
------------------ ----- ----------- -------
10.00 -60.00 $ %
60.01 -65.00
60.01 -70.00
70.01 -75.00
75.01 -80.00
80.01 -85.00
85.01 -90.00
90.01 -95.00
Total $ 100.00%
(1) The weighted average Original Combined Loan-to-Value Ratio of the
statistical calculation initial mortgage loans in loan group 1 is expected to
be approximately %.
===============================================================================
ORIGINAL TERMS TO MATURITY(1)
AGGREGATE PERCENT OF
ORIGINAL TERM NUMBER OF PRINCIPAL AGGREGATE
TO MATURITY MORTGAGE BALANCE PRINCIPAL
(MONTHS) LOANS OUTSTANDING BALANCE
-------- ----- ----------- -------
180 -180 $ %
181 -240
301 -360
Total $ 100.00%
(1) The weighted average remaining term to maturity of the statistical
calculation initial mortgage loans in loan group 1 is expected to be
approximately months.
<PAGE>
MORTGAGE RATES(1)
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE MORTGAGE BALANCE PRINCIPAL
RATES (%) LOANS OUTSTANDING BALANCE
--------- ----- ----------- -------
7.750-7.750 $ %
7.751-8.000
8.001-8.250
8.251-8.500
8.501-8.750
8.751-9.000
9.001-9.250
9.251-9.500
9.501-9.750
9.751-10.000
10.001-10.250
10.251-10.500
10.501-10.750
10.751-11.000
11.001-11.250
11.251-11.500
11.501-11.750
11.751-12.000
12.001-12.250
12.251-12.500
12.501-12.750
12.751-13.000
13.001-13.250
13.251-13.500
13.501-13.750
13.751-14.000
14.001-14.250
14.251-14.500
14.501-14.750
Total $ 100%
(1) The statistical calculation initial mortgage loans in loan group 1 with
lender acquired mortgage insurance are shown in the preceding table at
mortgage rates inclusive of the interest premium charged by the related
lenders. As of the cut-off date, the weighted average mortgage rate of the
statistical calculation initial mortgage loans in loan group 1 without
adjusting for the interest premium is expected to be approximately %. 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 initial mortgage loans in loan
group 1 is expected to be approximately %.
<PAGE>
CURRENT MORTGAGE LOAN PRINCIPAL BALANCE(1)
AGGREGATE PERCENT OF
RANGE OF CURRENT NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE LOAN MORTGAGE BALANCE PRINCIPAL
PRINCIPAL BALANCE LOANS OUTSTANDING BALANCE
----------------- ----- ----------- -------
$8,800.00 to 50,000.00 $ %
$50,000.01 to 100,000.00
$100,000.01 to 150,000.00
$150,000.01 to 200,000.00
$200,000.01 to 250,000.00
$250,000.01 to 300,000.00
$300,000.01 to 350,000.00
$350,000.01 to 400,000.00
$400,000.01 to 450,000.00
$450,000.01 to 500,000.00
$550,000.01 to 559,416.18
Total $ 100%
(1) The average current principal balance of the statistical calculation
initial mortgage loans in loan group 1 is expected to be approximately
$ .
OCCUPANCY TYPES(1)
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
OCCUPANCY MORTGAGE BALANCE PRINCIPAL
TYPE LOANS OUTSTANDING BALANCE
---- ----- ----------- -------
Primary Home $ %
Investor
Second Home
Total $ 100.00%
(1) Based upon representations of the related mortgagors at the time of
origination.
<PAGE>
STATE DISTRIBUTION OF MORTGAGED PROPERTIES
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
STATE OR TERRITORY LOANS OUTSTANDING BALANCE
------------------ ----- ----------- -------
California $ %
New York
Florida
New Jersey
Texas
North Carolina
Colorado
South Carolina
Connecticut
Georgia
Michigan
Washington
Virginia
Tennessee
Pennsylvania
Maryland
Arizona
Oklahoma
Nevada
Oregon
Illinois
Wisconsin
Massachusetts
Missouri
Idaho
Ohio
New Hampshire
Minnesota
Indiana
Alaska
District of Columbia
Hawaii
Kentucky
Arkansas
Montana
Utah
Iowa
New Mexico
Maine
Vermont
Kansas
Louisiana
Nebraska
Mississippi
Delaware
West Virginia
Wyoming
Total $ 100.00%
PURPOSE OF MORTGAGE LOANS
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
LOAN PURPOSE LOANS OUTSTANDING BALANCE
------------ ----- ----------- -------
Purchase $ %
Refinance (Cash Out)
Refinance (Rate or Term)
Total $ 100.00%
DOCUMENTATION PROGRAMS FOR MORTGAGE LOANS(1)
AGGREGATE PERCENT OF
TYPE OF NUMBER OF PRINCIPAL AGGREGATE
DOCUMENTATION MORTGAGE BALANCE PRINCIPAL
PROGRAM LOANS OUTSTANDING BALANCE
------- ----- ----------- -------
Full Documentation $ %
Reduced Documentation
No Ratio
No Documentation
Total 100.00%
$
(1) The Full, Reduced, No Ratio, and No Documentation Programs are described
under the heading "--Underwriting Standards."
<PAGE>
TYPE OF MORTGAGE PROPERTIES
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
PROPERTY TYPE LOANS OUTSTANDING BALANCE
------------- ----- ----------- -------
Single Family $ %
Residence/D-PUD
Manufactured Home(1)
PUD
Two Units
Low Rise Condominium
Three Units
Cooperative
Four Units
Townhouse
High Rise Condominium
Total $ 100.00%
(1) Treated as real property.
FICO CREDIT SCORES FOR MORTGAGE LOANS
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
FICO CREDIT SCORE LOANS OUTSTANDING BALANCE
500-549 $ %
550-599
600-649
650-699
700-749
750-784
Not Available
Total $ 100.00%
<PAGE>
CREDIT LEVELS FOR MORTGAGE LOANS(1)
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
CREDIT LEVEL LOANS OUTSTANDING BALANCE
------------ ----- ----------- -------
1 $ %
1+
2
3
4
Not Available
Total $ 100.00%
(1) Credit Levels are assigned as described under the heading "--Underwriting
Standards."
STATISTICAL CALCULATION LOAN GROUP 2
ORIGINAL LOAN-TO-VALUE RATIOS(1)
AGGREGATE PERCENT OF
ORIGINAL NUMBER OF PRINCIPAL AGGREGATE
LOAN-TO-VALUE MORTGAGE BALANCE PRINCIPAL
RATIOS (%) LOANS OUTSTANDING BALANCE
---------- ----- ----------- -------
8.79-60.00 $ %
60.01-65.00
60.01-70.00
70.01-75.00
75.01-80.00
80.01-85.00
85.01-90.00
90.01-95.00
Total $ 100.00%
(1) The weighted average Original Loan-to-Value Ratio of the statistical
calculation initial mortgage loans in loan group 2 is expected to be
approximately %.
<PAGE>
ORIGINAL TERMS TO MATURITY(1)
ORIGINAL AGGREGATE PERCENT OF
TERM TO NUMBER OF PRINCIPAL AGGREGATE
MATURITY MORTGAGE BALANCE PRINCIPAL
(MONTHS) LOANS OUTSTANDING BALANCE
-------- ----- ----------- -------
360-360 $ 100.00%
Total $ 100.00%
(1) The weighted average remaining term to maturity of the statistical
calculation initial mortgage loans in loan group 2 is expected to be
approximately months.
CURRENT MORTGAGE RATES(1)
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
CURRENT MORTGAGE MORTGAGE BALANCE PRINCIPAL
RATES(%) LOANS OUTSTANDING BALANCE
-------- ----- ----------- -------
8.000-8.000 $ %
8.001-8.250
8.251-8.500
8.501-8.750
8.751-9.000
9.001-9.250
9.251-9.500
9.501-9.750
9.751-10.000
10.001-10.250
10.251-10.500
10.501-10.750
10.751-11.000
11.001-11.250
11.251-11.500
11.501-11.750
11.751-12.000
12.001-12.250
12.251-12.500
12.501-12.750
12.751-13.000
13.001-13.250
13.251-13.500
13.501-13.750
13.751-14.000
Total $ 100.00%
(1 The statistical calculation initial mortgage loans in loan group 2 with
lender acquired mortgage insurance are shown in the preceding table at
mortgage rates inclusive of the interest premium charged by the related
lenders. As of the cut-off date, the weighted average mortgage rate of the
statistical calculation initial mortgage loans in loan group 2 without
adjusting for the interest premium is expected to be approximately %. 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 initial mortgage loans in loan
group 2 is expected to be approximately %.
CURRENT MORTGAGE LOAN PRINCIPAL BALANCE(1)
AGGREGATE PERCENT OF
RANGE OF CURRENT NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE LOAN MORTGAGE BALANCE PRINCIPAL
PRINCIPAL BALANCE LOANS OUTSTANDING BALANCE
----------------- ----- ----------- -------
$16,494.11 to 50,000.00 $ %
$50,000.01 to 100,000.00
$100,000.01 to 150,000.00
$150,000.01 to 200,000.00
$200,000.01 to 250,000.00
$250,000.01 to 300,000.00
$300,000.01 to 350,000.00
$350,000.01 to 400,000.00
$400,000.01 to 450,000.00
$450,000.01 to 500,000.00
$500,000.01 to 550,000.00
$550,000.01 to 600,000.00
$650,000.01 to 700,000.00
$700,000.01 to 750,000.00
$950,000.01 to 1,000,000.00
Total $ 100.00%
(1) The average current principal balance of the statistical calculation
initial mortgage loans in loan group 2 is expected to be approximately $ .
OCCUPANCY TYPES(1)
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
OCCUPANCY MORTGAGE BALANCE PRINCIPAL
TYPE LOANS OUTSTANDING BALANCE
---- ----- ----------- -----------
Primary Home $ %
Investor
Second Home
Total $ 100.00%
(1) Based upon representations of the related mortgagors at the time of
origination.
STATE DISTRIBUTION OF MORTGAGED PROPERTIES
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
STATE OR TERRITORY LOANS OUTSTANDING BALANCE
------------------ ----- ----------- -------
California $ %
Texas
New Jersey
New York
Arizona
Florida
Colorado
Minnesota
North Carolina
Utah
Maryland
Connecticut
Massachusetts
Nevada
Washington
Pennsylvania
Virginia
Michigan
South Carolina
Missouri
Illinois
Oregon
Georgia
Idaho
Iowa
Kansas
Tennessee
Vermont
Alaska
Montana
Hawaii
Ohio
Wisconsin
New Mexico
New Hampshire
Delaware
Indiana
Arkansas
Maine
Oklahoma
Rhode Island
District of Columbia
Wyoming
Louisiana
Kentucky
West Virginia
South Dakota
Alabama
North Dakota
Nebraska
Total $ 100.00%
PURPOSE OF MORTGAGE LOANS
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
LOAN PURPOSE LOANS OUTSTANDING BALANCE
------------ ----- ----------- -------
Purchase $ %
Refinance (Cash Out)
Refinance (Rate or
Term)
Total $ 100.00%
DOCUMENTATION PROGRAMS FOR MORTGAGE LOANS(1)
Full Documentation $ %
Reduced Documentation
No Ratio
No Documentation
Total $ 100.00%
(1) The Full, Reduced, No Ratio, and No Documentation Programs are described
under the heading "--Underwriting Standards."
<PAGE>
TYPE OF MORTGAGE PROPERTIES
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
PROPERTY TYPE LOANS OUTSTANDING BALANCE
------------- ----- ----------- -------
Single Family Residence/D-PUD $ %
PUD
Manufactured Home(1)
Two Units
Low Rise Condominium
Three Units
Cooperative
Four Units
High Rise Condominium
Townhouse
Total $ 100.00%
(1) Treated as real property.
FICO CREDIT SCORES FOR MORTGAGE LOANS
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
FICO MORTGAGE BALANCE PRINCIPAL
CREDIT SCORE LOANS OUTSTANDING BALANCE
------------ ----- ----------- -------
500-549 $ %
550-599
600-649
650-699
700-749
750-799
850-899
900-900
Not Available
Total $ 100.00%
<PAGE>
CREDIT LEVELS FOR MORTGAGE LOANS(1)
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
CREDIT LEVEL LOANS OUTSTANDING BALANCE
------------ ----- ----------- -------
1 $ %
1+
2
3
4
Not Available
Total $ 100.00%
(1) Credit Levels are assigned as described under the heading "--Underwriting
Standards."
MARGIN(1)
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
MARGIN (%) LOANS OUTSTANDING BALANCE
----- ----------- -------
4.750-4.750 $ %
4.751-5.000
5.001-5.250
5.251-5.500
5.501-5.750
5.751-6.000
6.001-6.250
6.251-6.500
6.501-6.750
6.751-7.000
7.001-7.250
7.251-.500
7.501-7.750
7.751-8.000
8.001-8.250
8.251-8.500
8.751-9.000
9.001-9.250
Total $ 100.00%
(1) The weighted average Margin of the statistical calculation initial
mortgage loans in loan group 2 is expected to be approximately %.
NEXT ADJUSTMENT DATES(1)
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
MONTHS LOANS OUTSTANDING BALANCE
------ ----- ----------- -------
November, 2000 $ %
December, 2000
January, 2001
November, 2001
December, 2001
January, 2002
March, 2002
April, 2002
May, 2002
June, 2002
July, 2002
April, 2003
May, 2003
June, 2003
July, 2003
Total $ 100.00%
(1) The weighted average months to next Adjustment Date for the statistical
calculation initial mortgage loans in loan group 2 is expected to be ________
months.
<PAGE>
MAXIMUM RATES(1)
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MAXIMUM MORTGAGE BALANCE PRINCIPAL
RATE (%) LOANS OUTSTANDING BALANCE
-------- ----- ----------- -------
15.000-15.000 $ %
15.001-15.250
15.251-15.500
15.501-15.750
15.751-16.000
16.001-16.250
16.251-16.500
16.501-16.500
16.751-17.000
17.001-17.250
17.251-17.500
17.501-17.750
17.751-18.000
18.001-18.250
18.251-18.500
18.501-18.750
18.751-19.000
19.001-19.250
19.251-19.500
19.501-19.750
19.751-20.000
20.001-20.250
20.251-20.500
20.501-20.750
20.751-21.000
Total $ 100.00%
============== ======
(1) The weighted average Maximum Rate of the statistical calculation initial
mortgage loans in loan group 2 is expected to be approximately %.
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 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- , 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 % 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,
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 , 2000 (which excess is not expected to exceed $ ) 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 , 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 date of
origination of such subsequent mortgage loan (unless such subsequent mortgage
loan was originated prior to , 2000, in which case, as of , 2000) 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, 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 [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, I+, I, II, III and IV. 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 IV 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 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 I+
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.]
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 June 30, 2000, the former IndyMac, Inc. provided servicing for
approximately $15.97 billion in conventional mortgages loans, of which
approximately $1.16 billion comprised sub-prime mortgage loans.
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 , , and on approximately
$______ , ______ $______ , ______ $_______ million _______ and _______ $______
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.
<TABLE>
<CAPTION>
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Total Number of Sub-Prime Mortgage Loans in _______ ______ ______ ______
Portfolio
Delinquent Mortgage Loans and Pending
Foreclosures at Period End(1):
30-59 days % % % %
60-89 days
90 days or more (excluding pending foreclosures)
Total delinquencies % % % %
Foreclosures pending % % % %
Total delinquencies and foreclosures pending % % % %
</TABLE>
(1)As a percentage of the total number of loans master serviced or serviced.
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):
CUMULATIVE NET CUMULATED STATED
LOSSES AMOUNT OF SECURITIES LOSS RATIO(1)
------ -------------------- -------------
As of December 31, $ $ %
As of December 31, $ $ %
As of December 31, $ $ %
As of $ $ %
(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 %. The expense fees consist of (a) master servicing
compensation, (b) servicing compensation, (c) fees payable to trustee in
respect of its activities as trustee under the pooling and servicing agreement
and (d) lender-paid primary mortgage insurance premiums. 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, prepayment 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 and the distribution account. The adjusted net
mortgage rate of a mortgage loan is the mortgage loan's mortgage rate (net of
the interest premium charged by the related lenders for any lender-acquired
primary mortgage insurance) 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 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
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 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- will consist of the following certificates: (a) Class AF-1 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-1 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), and (c) the Class R Certificates
(referred to as the Residual Certificates). The classes of offered
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. In addition to the offered certificates, the trust fund will issue
the Class X Certificates. The Class X Certificates are not being offered
hereby. Any information contained in the prospectus supplement with respect to
the Class X Certificates is provided only to permit a better understanding of
the offered certificates.
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 Certificates will be
issued as a single certificate in a denomination of $100.
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 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 with 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 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 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 dates in and 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
th 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), commencing in
2000, to the persons in whose names the certificates are registered at the
close of business on the last business day of the month preceding the month of
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 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"; and
o to deposit into the Excess Reserve Fund Account to cover any Basis
Risk CarryForward Amount and then to be released to the Class X Certificates,
in each case subject to certain limitations set forth herein under
"--Distributions of Interest and Principal."
Distributions of Interest and Principal
The pass-through rates for each class of fixed rate certificates
shall be as set forth on the cover page hereof, provided, however, that after
the first optional termination date, the pass-through rate for each class of
fixed rate certificates shall be increased by % ( basis points) per annum. In
addition, the pass-through rate for each class of fixed rate certificates will
be limited to the Group I WAC Cap for that distribution date. The pass-through
rate 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
weighted average of the maximum lifetime mortgage rates on the mortgage loans
in loan group 2 less the expense fee rate (referred to as the Group 2 Maximum
Cap), and (z) the weighted average of the mortgage rates then in effect on the
beginning of the related Remittance Period on the mortgage loans in loan group
2 minus the expense fee rate (referred to as the Group 2 WAC Cap). In addition
to the foregoing, after the optional termination date, the pass-through margin
for the Class AV-1 certificates shall be [doubled] and the pass-through margin
for the Class MV-1, Class MV-2 and Class BV certificates shall be multiplied
by [1.5].
The "pass-through margin" for each class of adjustable rate
certificates is as follows: Class AV-1, %; Class MV-1, %; Class MV-2, % and
Class BV, %.
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) with respect to which 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, sequentially to the Class
R and Class AF-1 Certificates, in that order, until the respective Class
Certificate Balances thereof are reduced to zero;
(2) in the case of certificate group 2, to the Class AV-1
Certificates until the Class Certificate Balance thereof is reduced to zero;
(y) for each certificate group, sequentially to the related Class
M-1, Class M-2 and Class B Certificates, in that order, 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, to the Class AF-1
Certificates, until the Class Certificate Balance thereof is reduced to zero;
(2) in the case of certificate group 2, to the Class AV-1
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 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 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 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 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;
(b) to the holders of the Class M-1 Certificates, any Unpaid
Interest Amounts for that class;
(c) to the holders of the Class M-1 Certificates, any Unpaid
Realized Loss Amount for that class;
(d) to the holders of the Class M-2 Certificates, any Unpaid
Interest Amounts for that class;
(e) to the holders of the Class M-2 Certificates, any Unpaid
Realized Loss Amount for that class;
(f) to the holders of the Class B Certificates, any Unpaid Interest
Amounts for that class;
(g) to the holders of the Class B Certificates, any Unpaid Realized
Loss Amount for that class;
(h) to the Excess Reserve Fund Account the amount of any Basis Risk
Payment for such distribution date;
(i) from funds on deposit in the Excess Reserve Fund Account, an
amount equal to any Basis Risk CarryForward Amount with respect to
the Adjustable Rate Certificates for such distribution date in the
same order and priority in which Accrued Certificate Interest is
allocated among those classes of Certificates;
(j) to the Class X Certificates those amounts as described in the
pooling and servicing agreement; and
(k) 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."
"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.
"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 % for loan
group 1 and approximately % 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 $ for loan group 1 and $ 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 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 % for loan group 1
and approximately % 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 $ for loan group 1 and $ 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 % for loan group 1
and approximately % 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 $ for loan group 1 and $ 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 % for loan group 1 and approximately % 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 $ for
loan group 1 and $ for loan group 2.
"Excess Subordinated Amount" is described in "--Overcollateralization
Provisions."
"Extra Principal Distribution Amount" means, as of any distribution
date 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.
"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 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 and (v) 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 % with respect to certificate group 1 and % 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 prior to the Stepdown Date for the related certificate group, an amount
equal to % for loan group 1 and % for loan group 2, of the cut-off date
principal balance of the mortgage loans in the related loan group; with
respect to each loan group on and after the Stepdown Date for the related
certificate group, an amount equal to % for loan group 1 and % 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 % for each loan group of the aggregate Stated
Principal Balance of the mortgage loans in that loan group as of the
respective cut-off dates, provided, however, that if, on any distribution
date, 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 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."
"Subordinated Deficiency" is described in "--Overcollateralization
Provisions."
"Subordination Reduction Amount" 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 % (in the case of loan group 1) or % (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 clause (i) 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.
"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 and (2) the Required Reserve Amount for
that date, provided however that with respect to any Distribution Date the
payment cannot exceed the amount otherwise distributable on the Class X
Certificates.
If on any Distribution Date, the pass-through rate for any class of
group 2 certificates is based upon the Group 2 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 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 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 the Group 2 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 Basis 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. Holders of each of the Adjustable Rate Certificates 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 that class of Certificates. On the closing date, $
will be deposited into the Excess Reserve Fund Account. Thereafter, if the
Group 2 WAC Cap exceeds the pass-through rate on the Class BV Certificates by
less than %, 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) % of the sum of the outstanding
Class Certificate Balance of the Adjustable Rate Certificates as of that
distribution date and (ii) $ and shall be funded from amounts otherwise to be
paid to 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 be applied as an accelerated payment of principal of the certificates of
the related certificate group, but only to the limited extent hereafter
described.
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 paid
to the holders of the Class X Certificates 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 principal 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 Amount2" 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". Total Monthly Excess Spread will then be applied to the
payment in reduction of principal of the class or classes of certificates in
the related certificate group then entitled to distributions of principal
during the period that the related loan group is unable to meet the
performance tests described in the definition of "Trigger Event."
Subordination Reduction Amount. In the event that a Specified
Subordinated Amount is permitted to decrease or "step down" on a distribution
date in the future, or in the event that 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 Holders of
the Class X Certificates 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 holders of the Class X
Certificates 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 (referred to as the Subordination Reduction Amount for that
distribution date). 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.
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
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 22.00% 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 , 2000;
o distributions on the certificates are made on the 25th day of each
month, commencing on , 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 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 [6.89125%] and of One-Year
CMT is [6.12%] 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%];
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 , 2000.
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.
<PAGE>
LOAN GROUP 1
Statistical Calculation Initial 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 ($) RATE (%) (IN MONTHS) (IN MONTHS) (IN MONTHS)
<S> <C> <C> <C> <C> <C>
Assumed Subsequent Mortgage Loans
ORIGINAL
AMORTIZATION REMAINING
GROSS ORIGINAL TERM TERM TO TERM
PRINCIPAL COUPON TO MATURITY MATURITY TO MATURITY
GROUP BALANCES ($) RATE (%) (IN MONTHS) (IN MONTHS) (IN MONTHS)
</TABLE>
<PAGE>
LOAN GROUP 2
Statistical Calculation Initial Mortgage Loans as of the Cut-off Date
<TABLE>
<CAPTION>
INITIAL ORIGINAL REMAINING
GROSS MONTHS PERIODIC PERIODIC LIFETIME TERM TERM
PRINCIPAL COUPON GROSS TO NEXT RATE RATE RATE TO MATURITY TO MATURITY
GROUP BALANCES ($) RATE (%) MARGIN (%) CHANGE CAP (%) CAP (%) CAP (%) (IN MONTHS) (IN MONTHS) INDEX
----- ------------ -------- ---------- ------ ------- ------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assumed Subsequent Mortgage Loans
</TABLE>
<TABLE>
<CAPTION>
INITIAL ORIGINAL REMAINING
GROSS MONTHS PERIODIC PERIODIC LIFETIME TERM TERM
PRINCIPAL COUPON GROSS TO NEXT RATE RATE RATE TO MATURITY TO MATURITY
GROUP BALANCES ($) RATE (%) MARGIN (%) CHANGE CAP(%) CAP (%) CAP (%) (IN MONTHS) (IN MONTHS) INDEX
----- ------------ -------- ---------- ------ ------ ------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
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 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 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 Carryover
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
[The Bank of New York 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 The Bank of New
York. Offered certificates may be surrendered at the Corporate Trust Office of
the trustee located at 101 Barclay Street, 12E, New York, New York 10286,
Attention: Corporate Trust-MBS Administration or at any other addresses as the
trustee may designate from time to time.]
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.
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 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 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 life 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 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 Adjustable Mortgage Loans, the
Adjustable Mortgage Loans and the Adjustable Mortgage Loans) will not have
their initial Adjustment Date until 2, 3 or 5 years after the origination
thereof. The prepayment experience of the Adjustable Mortgage Loans, the
Adjustable Mortgage Loans and the Adjustable Mortgage Loans may differ from
that of the other ARMs. The Adjustable Mortgage Loans, the Adjustable Mortgage
Loans and the 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 Adjustable Mortgage Loans, the Adjustable Mortgage Loans or the 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.
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 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, 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 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 WAC Cap, the rate of interest actually paid on the related Group 1
Certificates would be lower than would otherwise be the case. Additionally,
unlike with respect to the Group 2 certificateholders, there is no provision
by which a Group 1 Certificateholder's interest payment which has been reduced
by operation of the Group 1 WAC Cap on any distribution date will be paid to
such certificateholder from the excess funds 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 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 reverse 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 Basic Principal Distribution Amount to be made to the holders of
the offered certificates include 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.
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.
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.
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> <C>
Loan Group I (% of PPC) % % % % %
Loan Group II (% of CPR) % % % % %
</TABLE>
Percent of Initial Class Certificate Balance Outstanding*
<TABLE>
<CAPTION>
CLASS AF-1 CLASS MF-1 CLASS MF-2
PREPAYMENT SCENARIO PREPAYMENT SCENARIO PREPAYMENT SCENARIO
DISTRIBUTION DATE I II III IV V I II III IV V I II III IV V
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
</TABLE>
Weighted Average Life
to Maturity**
Weighted Average Life
to Call**
*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 Certificate 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.
Percent of Initial Class Certificate Balance Outstanding*
<TABLE>
<CAPTION>
CLASS BF CLASS AV-1 CLASS MV-1
PREPAYMENT SCENARIO PREPAYMENT SCENARIO PREPAYMENT SCENARIO
DISTRIBUTION DATE I II III IV V I II III IV V I II III IV V
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
</TABLE>
Weighted Average Life
to Maturity**
Weighted Average Life to Call**
*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 Certificate 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.
Percent of Initial Class Certificate Balance Outstanding*
<TABLE>
<CAPTION>
CLASS MV-2 CLASS BV
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
</TABLE>
Weighted Average Life
to Maturity**
Weighted Average Life to Call**
*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 Certificate 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.
Last Scheduled Distribution Date
The last scheduled distribution dates for each Class of offered
certificates are as follows:
LAST SCHEDULED
DISTRIBUTION DATE
Class AF-1 Certificates
Class MF-1 Certificates
Class MF-2 Certificates
Class BF Certificates
Class AV-1 Certificates
Class MV-1 Certificates
Class MV-2 Certificates
Class BV Certificates
Class R Certificates
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 except for the Class R
Certificates have been calculated on the basis of the structuring assumptions
and the assumptions that no prepayments are received on the mortgage loans and
each monthly payment of principal of and interest on the mortgage loans is
timely received. The last scheduled distribution date for the Class R
Certificates is the month after the month of the last scheduled payment of the
latest maturing mortgage loan in the trust fund.
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
a "Lower Tier REMIC" and an "Upper Tier REMIC" organized in two-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 sole Class of residual interest in
each of the Lower Tier REMIC and the Upper Tier REMIC. In addition, each of
the Adjustable Rate Certificates will represent a beneficial interest in the
right to receive payments from the Excess Reserve Fund Account. Elections will
be made to treat the Lower Tier REMIC 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, the
Lower Tier REMIC 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 an Adjustable Rate Certificate 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 an Adjustable Rate
Certificate and on a Fixed Rate 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 Adjustable Rate Certificates and the Fixed Rate 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 Adjustable Rate Certificates
and the Fixed Rate 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 an Adjustable
Rate Certificate or Fixed Rate 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 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 an Adjustable Rate Certificate will be attributable to the Cap
Contract component of such Certificate. The portion of the overall 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.
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.
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
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 [ ] (Prohibited Transaction Exemption [ ],
Exemption Application No. D-[ ], [ ] Fed. Reg. [ ] (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.]
On July 21, 1997, the Department of Labor published in the Federal
Register an amendment to the Exemption, which extends exemptive relief to
certain mortgage-backed and asset-backed securities transactions using
pre-funding accounts for trusts issuing pass-through certificates. The
amendment generally allows mortgage loans or other secured receivables
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 trust, to be transferred to the trust 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 Class A 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 Subordinated Certificates and the
Class R Certificates may not meet the requirements of the Exemption or any
other exemption issued under ERISA, the purchase and holding of the
Subordinated Certificates and 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 Subordinated Certificates
and 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;
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.
This representation shall be deemed to have been made to the trustee
by the transferee's acceptance of a Subordinated Certificate. In the event
that the representation is violated, or any attempt to transfer to a plan or
person acting on behalf of a Plan or using 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 the
Exemption, as described in the prospectus, 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 and conditions set forth in an underwriting
agreement, dated , 2000, and (referred to as the underwriters) have 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.
Class AF-1 $ $
Class MF-1
Class MF-2
Class BF
Class AV-1
Class MV-1
Class MV-2
Class BV
Class R
The depositor has been advised that the underwriters propose
initially to offer the offered certificates, other than the Class R
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:
SELLING CONCESSION REALLOWANCE DISCOUNT
Class AF-1 % %
Class MF-1 % %
Class MF-2 % %
Class BF % %
Class AV-1 % %
Class MV-1 % %
Class MV-2 % %
Class BV % %
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 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 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.
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. 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 that
they be rated by and by . It is a condition to the issuance of the Class R
Certificates that they be rated at least by and . 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 , and , respectively, by and .
The ratings assigned by to mortgage pass-through certificates address
the likelihood of the receipt of all distributions on the mortgage loans by
the related certificateholders under the agreements pursuant to which the
certificates are issued, 's ratings take into consideration the credit quality
of the related mortgage pool, including any credit support providers,
structural and legal aspects associated with the certificates, and the extent
to which the payment stream on that mortgage pool is adequate to make payments
required by the certificates. '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; 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.
<PAGE>
Index of Defined Terms
_______ Adjustable Mortgage Loans..........................................S-16
60+ Day Delinquent Loan....................................................S-53
Accrued Certificate Interest...............................................S-51
Adjustable Mortgage Loans..................................................S-15
Adjustment Date............................................................S-16
advance....................................................................S-44
Applied Realized Loss Amount...............................................S-51
Available Funds............................................................S-44
Basic Principal Distribution Amount........................................S-52
Basis Risk CarryForward Amount.............................................S-56
Basis Risk Payment.........................................................S-56
Cap Contracts..............................................................S-72
capital asset..............................................................S-72
Class A Principal Distribution Amount......................................S-52
Class B Principal Distribution Amount......................................S-52
Class Certificate Balance..................................................S-45
Class M-1 Principal Distribution Amount....................................S-52
Class M-2 Principal Distribution Amount....................................S-52
Class X Certificates.......................................................S-45
Code.......................................................................S-72
Collateral Value...........................................................S-19
Combined Loan-to-Value Ratio...............................................S-18
Compensating Interest......................................................S-43
conventional non-conforming mortgage loans.................................S-38
CPR........................................................................S-58
cut-off date pool principal balance........................................S-41
Delayed Delivery Loans.....................................................S-36
deleted mortgage loan......................................................S-36
Depository.................................................................S-46
determination date.........................................................S-44
disqualified persons.......................................................S-74
distribution account.......................................................S-47
distribution date..........................................................S-48
DTC........................................................................S-83
Due Date...................................................................S-15
electronic Mortgage Information and Transaction System.....................S-39
ERISA......................................................................S-74
Euroclear..................................................................S-46
event of default...........................................................S-44
Excess Reserve Fund Account................................................S-56
Excess Subordinated Amount.................................................S-53
Extra Principal Distribution Amount........................................S-53
FDIC.......................................................................S-12
FICO Credit Scores.........................................................S-19
First Federal..............................................................S-40
Full/Alternate Documentation Program.......................................S-39
Global Securities..........................................................S-83
Group 1 Class A Certificates...............................................S-45
Group 1 Mezzanine Certificates.............................................S-45
Group 1 Subordinated Certificates..........................................S-45
Group 1 WAC Cap............................................................S-66
Group 1 WAC Cap............................................................S-10
Group 2 Class A Certificates...............................................S-45
Group 2 Maximum Cap........................................................S-49
Group 2 Mezzanine Certificates.............................................S-45
Group 2 Subordinated Certificates..........................................S-45
Group 2 WAC Cap............................................................S-49
Group 2 WAC Cap............................................................S-10
Holdings...................................................................S-40
Index......................................................................S-16
IndyMac Bank...............................................................S-14
Initial Rate Adjustment Date...............................................S-15
insurance company general account..........................................S-76
insurance proceeds.........................................................S-47
Interest Accrual Period....................................................S-66
last scheduled distribution date...........................................S-71
LIBOR Determination Date...................................................S-55
liquidated mortgage loan...................................................S-63
liquidation proceeds.......................................................S-47
Loan Index.................................................................S-10
Loan-to-Value Ratio........................................................S-18
Lower Tier REMIC...........................................................S-72
Maximum Rate...............................................................S-17
Net Monthly Excess Cashflow................................................S-58
New Proposed Regulations...................................................S-74
No Doc Program.............................................................S-40
No Ratio Program...........................................................S-39
OID........................................................................S-72
One-Month LIBOR............................................................S-55
Optional Termination Date..................................................S-62
parties in interest........................................................S-74
pass-through margin........................................................S-49
Performance Loans..........................................................S-16
Periodic Rate Cap..........................................................S-16
Plan.......................................................................S-74
plan assets................................................................S-76
Prepayment Penalty Period..................................................S-15
Principal Distribution Amount..............................................S-49
Principal Remittance Amount................................................S-53
Prohibited Transaction Class Exemption 95-60...............................S-76
PTCE 95-60.................................................................S-76
real estate assets.........................................................S-73
Realized Loss..............................................................S-53
Reduced Documentation Program..............................................S-39
Reference Banks............................................................S-56
Refinance Loan.............................................................S-19
Remittance Period..........................................................S-43
replacement mortgage loan..................................................S-36
Required Reserve Amount....................................................S-56
Residual Certificates......................................................S-45
scheduled payments.........................................................S-15
Senior Enhancement Percentage..............................................S-53
Senior Specified Enhancement Percentage....................................S-53
Specified Subordinated Amount..............................................S-54
Stated Principal Balance...................................................S-54
Stated Principal Balances..................................................S-15
Stepdown Date..............................................................S-54
Subordinated Amount........................................................S-54
Subordinated Deficiency....................................................S-54
Subordination Deficiency...................................................S-57
Subordination Reduction Amount.............................................S-54
subprime mortgage loans....................................................S-38
Substitution Adjustment Amount.............................................S-36
Tax Counsel................................................................S-72
Telerate Page 3750.........................................................S-56
Total Monthly Excess Spread................................................S-54
Trigger Event..............................................................S-54
U.S. Person................................................................S-87
underwriters...............................................................S-76
Unpaid Interest Amounts....................................................S-54
Unpaid Realized Loss Amount................................................S-55
Upper Tier REMIC...........................................................S-72
<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- (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.
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
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-8 or 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-8 (Certificate of
Foreign Status) or Form W-8BEN Certificate of Foreign Status of Beneficial
Owners for United States Tax Withholding. If the information shown on Form W-8
changes, a new Form W-8 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 4224 or 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 4224
(Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States) or 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. After December 31, 2000 only Form W-8ECI will be acceptable.
Exemption or Reduced Rate for non-U.S. Persons Resident in Treaty
Countries (Form 1001 or Form W-8BEN). Non-U.S. Persons that are Certificate
Owners residing in a country that has a tax treaty with the United States can
obtain an exemption or reduced tax rate (depending on the treaty terms) by
filing Form 1001 (Ownership, Exemption or Reduced Rate Certificate) or 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-8. Form 1001 may be filed by the Certificate Owners or his agent. After
December 31, 2000 only Form W-8BEN will be acceptable.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of
a Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8, Form 1001 and Form 4224 are effective
until December 31, 2000. Form W-8BEN and Form W-8ECI are effective until the
third succeeding calendar year from the date the form is signed.
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.
<PAGE>
Home Equity Mortgage Loan Asset-Backed Trust,
Series SPMD 2000-
Issuer
IndyMac ABS, Inc.
Depositor
GRAPHIC OMITTED
IGT: "72643indymacbanklogo.eps"
Seller and Master Servicer
$
Home Equity Mortgage Loan Asset-Backed Certificates,
Series SPMD 2000-
PROSPECTUS SUPPLEMENT
[Name of Underwriter]
[Name of Underwriter]
You should rely only on the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus. We have not
authorized anyone to provide you with different information.
We are not offering the Series SPMD 2000- Home Equity Mortgage Loan
Asset-Backed Certificates in any state where the offer is not permitted.
Dealers will deliver a prospectus supplement and prospectus when acting as
underwriters of the Series SPMD 2000- Home Equity Loan Asset-Backed
Certificates and with respect to their unsold allotments or subscriptions. In
addition, all dealers selling the Series SPMD 2000- Home Equity Mortgage Loan
Asset-Backed Certificates will be required to deliver a prospectus supplement
and prospectus until , 2000.
, 2000
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS
IndyMac ABS, Inc.
Depositor
Asset Backed Certificates
Asset Backed Notes
(Issuable in Series)
The Trusts
Please carefully consider Each trust will be established to hold assets in
our discussion of some its trust fund transferred to it by IndyMac ABS,
of the risks of Inc. The assets in each trust fund will be
investing in the specified in the prospectus supplement for the
securities under "Risk particular trust and will generally consist of:
Factors" beginning on
page 4. o mortgage loans secured by first and/or
subordinate liens on one- to four-family
residential properties, including manufactured
housing that is permanently affixed and treated
as real property under local law, or security
interests in shares issued by cooperative
housing corporations,
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.
[______________, 2000]
<PAGE>
TABLE OF CONTENTS
Page
----
Important Notice About Information In This
Prospectus and Each Accompanying
Prospectus Supplement............................3
RISK FACTORS........................................4
THE TRUST FUND.....................................16
General.........................................16
The Loans.......................................17
Substitution of Trust Fund Assets...............21
Available Information...........................21
Incorporation of Certain Documents
by Reference..................................22
USE OF PROCEEDS....................................22
THE DEPOSITOR......................................22
LOAN PROGRAM.......................................23
Underwriting Standards..........................23
Qualifications of Sellers.......................24
Representations by Sellers; Repurchases.........24
DESCRIPTION OF THE SECURITIES......................25
General.........................................26
Distributions on Securities.....................28
Advances........................................29
Reports to Securityholders......................30
Categories of Classes of Securities.............31
Indices Applicable to Floating Rate and
Inverse Floating Rate Classes.................32
Derivative Transactions.........................35
Book-Entry Registration of Securities...........36
CREDIT ENHANCEMENT.................................39
General.........................................39
Subordination...................................39
Letter of Credit................................40
Insurance Policies, Surety Bonds and
Guaranties....................................40
Over-Collateralization..........................41
Reserve Accounts................................41
Pool Insurance Policies.........................41
Cross-Collateralization.........................42
YIELD AND PREPAYMENT CONSIDERATIONS................42
THE AGREEMENTS.....................................44
Assignment of the Trust Fund Assets.............45
Payments on Loans; Deposits to Security
Account.......................................46
Pre-Funding Account.............................48
Sub-Servicing by Sellers........................49
Collection Procedures...........................49
Hazard Insurance................................50
Realization Upon Defaulted Loans................52
Servicing and Other Compensation and
Payment of Expenses...........................53
Evidence as to Compliance.......................53
Certain Matters Regarding the Master
Servicer and the Depositor....................53
Events of Default; Rights Upon Event
of Default....................................54
Amendment.......................................56
Termination; Optional Termination...............57
The Trustee.....................................58
CERTAIN LEGAL ASPECTS OF THE LOAN..................58
General.........................................58
Foreclosure and Repossession....................59
Environmental Risks.............................61
Rights of Redemption............................62
Anti-Deficiency Legislation and Other
Limitations on Lenders........................63
Due-On-Sale Clauses.............................64
Prepayment Charges and Late Payment Fees........64
Applicability of Usury Laws.....................64
Home Improvement Contracts......................65
Installment Contracts...........................66
Soldiers' and Sailors' Civil Relief Act.........66
Junior Mortgages and Rights of Senior
Mortgagees....................................67
The Title I Program.............................68
Consumer Protection Laws........................71
FEDERAL INCOME TAX CONSEQUENCES....................71
General.........................................71
Taxation of Debt Securities.....................72
Taxation of the REMIC and its Holders...........76
REMIC Expenses; Single Class REMICs.............76
Taxation of the REMIC...........................77
Taxation of Holders of Residual Interest
Securities....................................77
Administrative Matters..........................80
Taxation of the FASIT and its Holders...........80
Treatment of FASIT Regular Interests............82
Treatment of High-Yield Interest................82
Tax Treatment of FASIT Ownership Interests......83
Tax Status as a Grantor Trust...................83
Sale or Exchange................................86
Miscellaneous Tax Aspects.......................86
Tax Treatment of Foreign Investors..............86
Tax Characterization of the Trust Fund
as a Partnership..............................87
Tax Consequences to Holders of the Notes........87
Tax Consequences to Holders of
the Certificates..............................88
STATE TAX CONSIDERATIONS...........................91
ERISA CONSIDERATIONS...............................91
LEGAL INVESTMENT...................................96
METHOD OF DISTRIBUTION.............................97
LEGAL MATTERS......................................97
FINANCIAL INFORMATION..............................98
RATING.............................................98
INDEX OF DEFINED TERMS.............................99
<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].
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 The applicable prospectus supplement may provide
payments-no recourse that securities will be or payable from trust
to sellers, depositor funds other than their associated trust fund,
master servicer 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
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 Credit enhancement is intended reduce the effect
not be sufficient to of loan losses. But to credit enhancements may
protect you from losses 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
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 number of factors, including:
Affected By Prepayments
and By the Allocation of o the extent of prepayments on the loans in
Distributions to the the related trust fund,
Securities
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.
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 Interest payable on the securities of a series
Affected By Delayed on each distribution date will include all
Interest Payments 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 Some of the mortgage loans held in the trust
on balloon payment fund may not be fully amortizing over their
mortgages 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 loans
Declines in Property held in the trust fund may decline over time.
Values May Adversely Among the factors that could reduce the value of
Affect You the properties are:
o an overall decline in the residential
real estate market in the areas in
which they are located,
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 held
May Adversely Affect You 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.
Disproportionate Effect Liquidation expenses of defaulted loans
of Liquidation Expenses generally do not vary directly with the
May 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 the
Securing Home Equity 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 under
Could Adversely Affect the related senior mortgage(s) or deed(s) of
You 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 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 and
May Adversely Affect You 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 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
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 greater risk of loss than single family
if your securities are residential lending. Owners of multifamily
backed by multifamily residential properties rely on monthly lease
loans 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
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 equity loans and home improvement contracts that
your securities are backed were originated with loan-to-value ratios or
by partially unsecured home combined loan-to-value ratios in excess of the
improvement contracts and value of the related mortgaged property. Under
home equity loans 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.
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 Any class of securities issued under this
does not assure their prospectus and the accompanying prospectus
payment 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.
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 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 Transactions in book-entry securities can be
Transfer 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.
Pre-Funding Accounts The prospectus supplement for a series of
Pre-Funding Accounts securities may provide that on the closing date
Will Not Be Used to for that series, the depositor will deposit cash
Cover Losses into a on the Loans 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 Any amounts remaining in a pre-funding account
Paid as Principal to at the end of the period specified in the
Securityholders 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 The seller and the depositor will treat the
may affect the timing and transfer of the loans held in the trust fund by
amount of distributions on the seller to the depositor as a sale for
the 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 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.
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 securities will be, and certain other debt
required to include securities may be, issued with original issue
original issue discount discount for federal income tax purposes. A
in ordinary gross income holder of debt securities issued with original
as it accrues 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 than the principal amount of the securities of
fund 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 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.
Legal Enforceability Privately negotiated, over-the-counter
Risks 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 Defined
Terms" beginning on page [99].
<PAGE>
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.
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* 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.
<PAGE>
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),
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. 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.
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 dated (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 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 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.
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 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.
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 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
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.
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 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 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 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 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;
(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.
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.
Categories of Classes Definition
Principal Types
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.
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.
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.
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 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.
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 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.
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 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.
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 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.
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 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 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.
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.
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.
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
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
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 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 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
the maximum insurable value of the improvements securing the loan or
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 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 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 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.
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.
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;
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 of such
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 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
(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.
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 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 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.
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.
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 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.
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 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.
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.
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.
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.
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 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,
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.
Federal Income Tax Consequences
General
The following is a summary of the anticipated material federal income tax
consequences of the purchase, ownership, and disposition of the Securities and
is based on advice of Brown & Wood LLP, special counsel to the Depositor. The
summary is based upon the provisions of the Code, the regulations promulgated
thereunder, including, where applicable, proposed regulations, and the
judicial and administrative rulings and decisions now in effect, all of which
are subject to change or possible differing interpretations. The statutory
provisions, regulations, and interpretations on which this summary is based
are subject to change, and such a change could apply retroactively.
The summary does not purport to deal with all aspects of federal income
taxation that may affect particular investors in light of their individual
circumstances, nor with certain types of investors subject to special
treatment under the federal income tax laws. This summary focuses primarily
upon investors who will hold Securities as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the Code,
but much of the discussion is applicable to other investors as well.
Prospective Investors are advised to consult their own tax advisers concerning
the federal, state, local and any other tax consequences to them of the
purchase, ownership and disposition of the Securities.
The federal income tax consequences to Securityholders will vary
depending on whether (i) the Securities of a Series are classified as
indebtedness; (ii) an election is made to treat the Trust Fund relating to a
particular Series of Securities as a REMIC or as a FASIT; (iii) the Securities
represent interests in a grantor trust; or (iv) the Trust Fund relating to a
particular Series of Certificates is classified as a partnership. The
Prospectus Supplement for each Series of Securities will specify how the
Securities will be treated for federal income tax purposes and will discuss
whether a REMIC or a FASIT election, if any, will be made with respect to such
Series. Prior to issuance of each Series of Securities, the Depositor shall
file with the Commission a Form 8-K on behalf of the related Trust Fund
containing an opinion of Brown & Wood LLP with respect to the validity of the
information set forth under "Federal Income Tax Consequences" herein and in
the related Prospectus Supplement.
Taxation of Debt Securities
Interest and Acquisition Discount. Securities representing regular
interests in a REMIC are generally treated as evidences of indebtedness issued
by the REMIC. Securities representing regular interests in a FASIT are treated
as debt instruments. Stated interest on regular interests in REMICs and
regular interests in FASITs will be taxable as ordinary income and taken into
account using the accrual method of accounting, regardless of the
Securityholder's normal accounting method. Thus, a taxpayer may be required to
report income in respect of a FASIT or REMIC regular interest before actually
receiving a corresponding cash distribution. Interest (other than original
issue discount) on Securities (other than Regular Interest Securities) that
are characterized as indebtedness for federal income tax purposes will be
includible in income by holders thereof in accordance with their usual methods
of accounting. Securities characterized as debt for federal income tax
purposes, including regular interests in REMICs or FASITs, will be referred to
hereinafter collectively as "Debt Securities".
Debt Securities that are Compound Interest Securities (i.e., debt
securities that accrete the amount of accrued interest and add that amount to
the principal balance of the securities until maturity or until some specified
event has occurred) will, and certain of the other Debt Securities may, be
issued with "original issue discount" ("OID"). The following discussion is
based in part on the rules governing OID which are set forth in Sections
1271-1275 of the Code and the Treasury regulations issued thereunder, (the
"OID Regulations"). A Securityholder should be aware, however, that the OID
Regulations do not adequately address certain issues relevant to prepayable
securities, such as the Debt Securities.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Debt Security and its issue price. A holder
of a Debt Security must include such OID in gross income as ordinary interest
income as it accrues under a method taking into account an economic accrual of
the discount. In general, OID must be included in income in advance of the
receipt of the cash representing that income. The amount of OID on a Debt
Security will be considered to be zero if it is less than a de minimis amount
determined under the Code.
The issue price of a Debt Security is the first price at which a
substantial amount of Debt Securities of that class are sold (excluding sales
to bond houses, brokers, underwriters or wholesalers). If less than a
substantial amount of a particular class of Debt Securities is sold for cash
on or prior to the related Closing Date, the issue price for such class will
be treated as the fair market value of such class on such Closing Date. The
issue price of a Debt Security generally includes the amount paid by an
initial Debt Security holder for accrued interest that relates to a period
prior to the issue date of the Debt Security. ("pre-issuance accrued
interest"). The issue price of a Debt Security may, however, be computed
without regard to such pre-issuance accrued interest if such pre-issuance
accrued interest will be paid on the first payment date following the date of
issuance. This alternative is available only if the first payment date occurs
within one year of the date of issuance. Under this alternative, the payment
of pre-issuance accrued interest will be treated as a non-taxable return of
capital and not as a payment of interest. The stated redemption price at
maturity of a Debt Security includes the original principal amount of the Debt
Security, but generally will not include stated interest if it is "qualified
stated interest".
Under the OID Regulations, qualified stated interest generally means
interest payable at a single fixed rate or qualified variable rate (as
described below) provided that such interest payments are unconditionally
payable at intervals of one year or less during the entire term of the Debt
Security. The OID Regulations state that interest payments are unconditionally
payable only if a late payment or nonpayment is expected to be penalized or
reasonable remedies exist to compel payment or the Debt Security otherwise
provides terms and conditions that make the likelihood of late payment or
nonpayment a remote contingency. Certain Debt Securities may provide for
default remedies in the event of late payment or nonpayment of interest. The
interest on such Debt Securities will be unconditionally payable and
constitute qualified stated interest, not OID. However, absent clarification
of the OID Regulations, where Debt Securities do not provide for default
remedies, the interest payments will be included in the Debt Security's stated
redemption price at maturity and taxed as OID. Interest is payable at a single
fixed rate only if the rate appropriately takes into account the length of the
interval between payments. Distributions of interest on Debt Securities with
respect to which deferred interest will accrue, will not constitute qualified
stated interest payments, in which case the stated redemption price at
maturity of such Debt Securities includes all distributions of interest as
well as principal thereon. Where the interval between the issue date and the
first Distribution Date on a Debt Security is either longer or shorter than
the interval between subsequent Distribution Dates, all or part of the
interest foregone, in the case of the longer interval, and all of the
additional interest, in the case of the shorter interval, will be included in
the stated redemption price at maturity and tested under the de minimis rule
described below. In the case of a Debt Security with a long first period which
has non-de minimis OID, all stated interest in excess of interest payable at
the effective interest rate for the long first period will be included in the
stated redemption price at maturity and the Debt Security will generally have
OID. Holders of Debt Securities should consult their own tax advisors to
determine the issue price and stated redemption price at maturity of a Debt
Security.
Under the de minimis rule, OID on a Debt Security will be considered to
be zero if such OID is less than 0.25% of the stated redemption price at
maturity of the Debt Security multiplied by the weighted average maturity of
the Debt Security. For this purpose, the weighted average maturity of the Debt
Security is computed as the sum of the amounts determined by multiplying the
number of full years (i.e., rounding down partial years) from the issue date
until each distribution in reduction of stated redemption price at maturity is
scheduled to be made by a fraction, the numerator of which is the amount of
each distribution included in the stated redemption price at maturity of the
Debt Security and the denominator of which is the stated redemption price at
maturity of the Debt Security. Holders generally must report de minimis OID
pro rata as principal payments are received, and such income will be capital
gain if the Debt Security is held as a capital asset. However, accrual method
holders may elect to accrue all de minimis OID as well as market discount
under a constant interest method.
Debt Securities may provide for interest based on a qualified variable
rate. Under the OID Regulations, interest is treated as payable at a qualified
variable rate and not as contingent interest if, generally, (i) such interest
is unconditionally payable at least annually, (ii) the issue price of the debt
instrument does not exceed the total noncontingent principal payments and
(iii) interest is based on a "qualified floating rate," an "objective rate,"
or a combination of "qualified floating rates" that do not operate in a manner
that significantly accelerates or defers interest payments on such Debt
Security. In the case of Compound Interest Securities, certain Interest
Weighted Securities (as defined herein), and certain of the other Debt
Securities, none of the payments under the instrument will be considered
qualified stated interest, and thus the aggregate amount of all payments will
be included in the stated redemption price.
The OID Regulations do not contain provisions specifically interpreting
Code Section 1272(a)(6). Until the Treasury issues guidance to the contrary,
the Trustee intends to base its computation on Code Section 1272(a)(6) and the
OID Regulations as described in this Prospectus. However, because no
regulatory guidance currently exists under Code Section 1272(a)(6), there can
be no assurance that such methodology represents the correct manner of
calculating OID.
The holder of a Debt Security issued with OID must include in gross
income, for all days during its taxable year on which it holds such Debt
Security, the sum of the "daily portions" of such original issue discount. The
amount of OID includible in income by a holder will be computed by allocating
to each day during a taxable year a pro rata portion of the original issue
discount that accrued during the relevant accrual period. In the case of a
Debt Security that is not a regular interest in a REMIC or a FASIT and the
principal payments on which are not subject to acceleration resulting from
prepayments on the Loans, the amount of OID includible in income of a
Securityholder for an accrual period (generally the period over which interest
accrues on the debt instrument) will equal the product of the yield to
maturity of the Debt Security and the adjusted issue price of the Debt
Security, reduced by any payments of qualified stated interest. The adjusted
issue price is the sum of its issue price plus prior accruals or OID, reduced
by the total payments made with respect to such Debt Security in all prior
periods, other than qualified stated interest payments.
The amount of OID to be included in income by a holder of a debt
instrument, such as certain classes of the Debt Securities, that is subject to
acceleration due to prepayments on other debt obligations securing such
instruments (a "Pay-Through Security"), is computed by taking into account the
anticipated rate of prepayments assumed in pricing the debt instrument (the
"Prepayment Assumption"). The amount of OID that will accrue during an accrual
period on a Pay-Through Security is the excess (if any) of the sum of (a) the
present value of all payments remaining to be made on the Pay-Through Security
as of the close of the accrual period and (b) the payments during the accrual
period of amounts included in the stated redemption price of the Pay-Through
Security, over the adjusted issue price of the Pay-Through Security at the
beginning of the accrual period. The present value of the remaining payments
is to be determined on the basis of three factors: (i) the original yield to
maturity of the Pay-Through Security (determined on the basis of compounding
at the end of each accrual period and properly adjusted for the length of the
accrual period), (ii) events which have occurred before the end of the accrual
period and (iii) the assumption that the remaining payments will be made in
accordance with the original Prepayment Assumption. The effect of this method
is to increase the portions of OID required to be included in income by a
holder to take into account prepayments with respect to the Loans at a rate
that exceeds the Prepayment Assumption, and to decrease (but not below zero
for any period) the portions of original issue discount required to be
included in income by a holder of a Pay-Through Security to take into account
prepayments with respect to the Loans at a rate that is slower than the
Prepayment Assumption. Although original issue discount will be reported to
holders of Pay-Through Securities based on the Prepayment Assumption, no
representation is made to holders that Loans will be prepaid at that rate or
at any other rate.
The Depositor may adjust the accrual of OID on a class of Debt Securities
in a manner that it believes to be appropriate, to take account of realized
losses on the Loans, although the OID Regulations do not provide for such
adjustments. If the IRS were to require that OID be accrued without such
adjustments, the rate of accrual of OID for a class Debt Securities could
increase.
Certain classes of Debt Securities may represent more than one class of
REMIC or FASIT regular interests. Unless otherwise provided in the related
Prospectus Supplement, the Trustee intends, based on the OID Regulations, to
calculate OID on such Securities as if, solely for the purposes of computing
OID, the separate regular interests were a single debt instrument.
A subsequent holder of a Debt Security will also be required to include
OID in gross income, but such a holder who purchases such Debt Security for an
amount that exceeds its adjusted issue price will be entitled (as will an
initial holder who pays more than a Debt Security's issue price) to offset
such OID by comparable economic accruals of portions of such excess.
Effects of Defaults and Delinquencies. Holders will be required to report
income with respect to REMIC or FASIT regular interests under an accrual
method without giving effect to delays and reductions in distributions
attributable to a default or delinquency on the Loans, except possibly to the
extent that it can be established that such amounts are uncollectible. As a
result, the amount of income (including OID) reported by a holder of such a
Security in any period could significantly exceed the amount of cash
distributed to such holder in that period. The holder will eventually be
allowed a loss (or will be allowed to report a lesser amount of income) to the
extent that the aggregate amount of distributions on the Securities is
deducted as a result of a Loan default. However, the timing and character of
such losses or reductions in income are uncertain and, accordingly, holders of
Securities should consult their own tax advisors on this point.
Interest Weighted Securities. It is not clear how income should be
accrued with respect to REMIC or FASIT regular interests or Stripped
Securities (as defined under "--Tax Status as a Grantor Trust; General"
herein) the payments on which consist solely or primarily of a specified
portion of the interest payments on qualified mortgages held by the REMIC, on
debt instruments held by the FASIT, or on Loans underlying Pass-Through
Securities ("Interest Weighted Securities"). The Issuer intends to take the
position that all of the income derived from an Interest Weighted Security
should be treated as OID and that the amount and rate of accrual of such OID
should be calculated by treating the Interest Weighted Security as a Compound
Interest Security. However, in the case of Interest Weighted Securities that
are entitled to some payments of principal and that are REMIC or FASIT regular
interests the Internal Revenue Service could assert that income derived from
an Interest Weighted Security should be calculated as if the Security were a
security purchased at a premium equal to the excess of the price paid by such
holder for such Security over its stated principal amount, if any. Under this
approach, a holder would be entitled to amortize such premium only if it has
in effect an election under Section 171 of the Code with respect to all
taxable debt instruments held by such holder, as described below.
Alternatively, the Internal Revenue Service could assert that an Interest
Weighted Security should be taxable under the rules governing bonds issued
with contingent payments. Such treatment may be more likely in the case of
Interest Weighted Securities that are Stripped Securities as described below.
See "--Tax Status as a Grantor Trust-Discount or Premium on Pass-Through
Securities".
Variable Rate Debt Securities. In the case of Debt Securities bearing
interest at a rate that varies directly, according to a fixed formula, with an
objective index, it appears that (i) the yield to maturity of such Debt
Securities and (ii) in the case of Pay-Through Securities, the present value
of all payments remaining to be made on such Debt Securities, should be
calculated as if the interest index remained at its value as of the issue date
of such Securities. Because the proper method of adjusting accruals of OID on
a variable rate Debt Security is uncertain, holders of variable rate Debt
Securities should consult their own tax advisers regarding the appropriate
treatment of such Securities for federal income tax purposes.
Market Discount. A purchaser of a Security may be subject to the market
discount rules of Sections 1276-1278 of the Code. A holder that acquires a
Debt Security with more than a prescribed de minimis amount of "market
discount" (generally, the excess of the principal amount of the Debt Security
over the purchaser's purchase price) will be required to include accrued
market discount in income as ordinary income in each month, but limited to an
amount not exceeding the principal payments on the Debt Security received in
that month and, if the Securities are sold, the gain realized. Such market
discount would accrue in a manner to be provided in Treasury regulations but,
until such regulations are issued, such market discount would in general
accrue either (i) on the basis of a constant yield (in the case of a
Pay-Through Security, taking into account a prepayment assumption) or (ii) in
the ratio of (a) in the case of Securities (or in the case of a Pass-Through
Security (as defined herein), as set forth below, the Loans underlying such
Security) not originally issued with original issue discount, stated interest
payable in the relevant period to total stated interest remaining to be paid
at the beginning of the period or (b) in the case of Securities (or, in the
case of a Pass-Through Security, as described below, the Loans underlying such
Security) originally issued at a discount, OID in the relevant period to total
OID remaining to be paid.
Section 1277 of the Code provides that, regardless of the origination
date of the Debt Security (or, in the case of a Pass-Through Security, the
Loans), the excess of interest paid or accrued to purchase or carry a Security
(or, in the case of a Pass-Through Security, as described below, the
underlying Loans) with market discount over interest received on such Security
is allowed as a current deduction only to the extent such excess is greater
than the market discount that accrued during the taxable year in which such
interest expense was incurred. In general, the deferred portion of any
interest expense will be deductible when such market discount is included in
income, including upon the sale, disposition, or repayment of the Security (or
in the case of a Pass-Through Security, an underlying Loan). A holder may
elect to include market discount in income currently as it accrues, on all
market discount obligations acquired by such holder during the taxable year
such election is made and thereafter, in which case the interest deferral rule
will not apply.
Premium. A holder who purchases a Debt Security (other than an Interest
Weighted Security to the extent described above) at a cost greater than its
stated redemption price at maturity, generally will be considered to have
purchased the Security at a premium, which it may elect to amortize as an
offset to interest income on such Security (and not as a separate deduction
item) on a constant yield method. Although no regulations addressing the
computation of premium accrual on securities similar to the Securities have
been issued, the legislative history of the 1986 Act indicates that premium is
to be accrued in the same manner as market discount. Accordingly, it appears
that the accrual of premium on a class of Pay-Through Securities will be
calculated using the prepayment assumption used in pricing such class. If a
holder makes an election to amortize premium on a Debt Security, such election
will apply to all taxable debt instruments (including all REMIC and FASIT
regular interests and all pass-through certificates representing ownership
interests in a trust holding debt obligations) held by the holder at the
beginning of the taxable year in which the election is made, and to all
taxable debt instruments acquired thereafter by such holder, and will be
irrevocable without the consent of the IRS. Purchasers who pay a premium for
the Securities should consult their tax advisers regarding the election to
amortize premium and the method to be employed.
Regulations dealing with amortizable bond premium specifically do not
apply to prepayable debt instruments described in Code Section 1272(a)(6) such
as the Securities. Absent further guidance from the IRS, the Trustee intends
to account for amortizable bond premium in the manner described above.
Prospective purchasers of the Securities should consult their tax advisors
regarding the possible application of the Amortizable Bond Premium
Regulations.
Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit a holder of a Debt Security to elect to accrue all
interest, discount (including de minimis market or original issue discount)
and premium in income as interest, based on a constant yield method for Debt
Securities acquired on or after April 4, 1994. If such an election were to be
made with respect to a Debt Security with market discount, the holder of the
Debt Security would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such holder of the Debt Security acquires during the year
of the election or thereafter. Similarly, a holder of a Debt Security that
makes this election for a Debt Security that is acquired at a premium will be
deemed to have made an election to amortize bond premium with respect to all
debt instruments having amortizable bond premium that such holder owns or
acquires. The election to accrue interest, discount and premium on a constant
yield method with respect to a Debt Security is irrevocable.
Taxation of the REMIC and its Holders
General. In the opinion of Brown & Wood LLP, special counsel to the
Depositor, if a REMIC election is made with respect to a Series of Securities,
then the arrangement by which the Securities of that Series are issued will be
treated as a REMIC as long as all of the provisions of the applicable
Agreement are complied with. Securities will be designated as "Regular
Interests" or "Residual Interests" in a REMIC, as specified in the related
Prospectus Supplement.
Except to the extent specified otherwise in a Prospectus Supplement, if a
REMIC election is made with respect to a Series of Securities, (i) Securities
held by a domestic building and loan association will constitute "a regular or
a residual interest in a REMIC" within the meaning of Code Section
7701(a)(19)(C)(xi) (assuming that at least 95% of the REMIC's assets consist
of cash, government securities, "loans secured by an interest in real
property," and other types of assets described in Code Section
7701(a)(19)(C)); and (ii) Securities held by a real estate investment trust
will constitute "real estate assets" within the meaning of Code Section
856(c)(5)(B), and income with respect to the Securities will be considered
"interest on obligations secured by mortgages on real property or on interests
in real property" within the meaning of Code Section 856(c)(3)(B) (assuming,
for both purposes, that at least 95% of the REMIC's assets are qualifying
assets). If less than 95% of the REMIC's assets consist of assets described in
(i) or (ii) above, then a Security will qualify for the tax treatment
described in (i), (ii) or (iii) in the proportion that such REMIC assets are
qualifying assets.
The Small Business Job Protection Act of 1996, as part of the repeal of
the bad debt reserve method for thrift institutions, repealed the application
of Code Section 593(d) to any taxable year beginning after December 31, 1995.
REMIC Expenses; Single Class REMICs
As a general rule, all of the expenses of a REMIC will be taken into
account by holders of the Residual Interest Securities. In the case of a
"single class REMIC," however, the expenses will be allocated, under Treasury
regulations, among the holders of the Regular Interest Securities and the
holders of the Residual Interest Securities (as defined herein) on a daily
basis in proportion to the relative amounts of income accruing to each holder
on that day. In the case of a holder of a Regular Interest Security who is an
individual or a "pass-through interest holder" (including certain pass-through
entities but not including real estate investment trusts), such expenses will
be deductible only to the extent that such expenses, plus other "miscellaneous
itemized deductions" of the holder, exceed 2% of such holder's adjusted gross
income. In addition, for taxable years beginning after December 31, 1990, the
amount of itemized deductions otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds the applicable amount (which
amount will be adjusted for inflation for taxable years beginning after 1990)
will be reduced by the lesser of (i) 3% of the excess of adjusted gross income
over the applicable amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for such taxable year. The reduction or disallowance of
this deduction may have a significant impact on the yield of the Regular
Interest Security to such a holder. In general terms, a single class REMIC is
one that either (i) would qualify, under existing Treasury regulations, as a
grantor trust if it were not a REMIC (treating all interests as ownership
interests, even if they would be classified as debt for federal income tax
purposes) or (ii) is similar to such a trust and which is structured with the
principal purpose of avoiding the single class REMIC rules. Unless otherwise
specified in the related Prospectus Supplement, the expenses of the REMIC will
be allocated to holders of the related residual interest securities.
Taxation of the REMIC
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level tax. Rather, the
taxable income or net loss of a REMIC is taken into account by the holders of
residual interests. As described above, the regular interests are generally
taxable as debt of the REMIC.
Calculation of REMIC Income. The taxable income or net loss of a REMIC is
determined under an accrual method of accounting and in the same manner as in
the case of an individual, with certain adjustments. In general, the taxable
income or net loss will be the difference between (i) the gross income
produced by the REMIC's assets, including stated interest and any original
issue discount or market discount on loans and other assets and (ii)
deductions, including stated interest and original issue discount accrued on
Regular Interest Securities, amortization of any premium with respect to
Loans, and servicing fees and other expenses of the REMIC. A holder of a
Residual Interest Security that is an individual or a "pass-through interest
holder" (including certain pass-through entities, but not including real
estate investment trusts) will be unable to deduct servicing fees payable on
the loans or other administrative expenses of the REMIC for a given taxable
year, to the extent that such expenses, when aggregated with such holder's
other miscellaneous itemized deductions for that year, do not exceed two
percent of such holder's adjusted gross income.
For purposes of computing its taxable income or net loss, the REMIC
should have an initial aggregate tax basis in its assets equal to the
aggregate fair market value of the regular interests and the residual
interests on the Startup Day (generally, the day that the interests are
issued). That aggregate basis will be allocated among the assets of the REMIC
in proportion to their respective fair market values.
The OID provisions of the Code apply to loans of individuals originated
on or after March 2, 1984, and the market discount provisions apply to loans
originated after July 18, 1984. Subject to possible application of the de
minimis rules, the method of accrual by the REMIC of OID income on such loans
will be equivalent to the method under which holders of Pay-Through Securities
accrue original issue discount (i.e., under the constant yield method taking
into account the Prepayment Assumption). The REMIC will deduct OID on the
Regular Interest Securities in the same manner that the holders of the Regular
Interest Securities include such discount in income, but without regard to the
de minimis rules. See "Taxation of Debt Securities" above. However, a REMIC
that acquires loans at a market discount must include such market discount in
income currently, as it accrues, on a constant interest basis.
To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the life
of the loans (taking into account the Prepayment Assumption) on a constant
yield method. Although the law is somewhat unclear regarding recovery of
premium attributable to loans originated on or before such date, it is
possible that such premium may be recovered in proportion to payments of loan
principal.
Prohibited Transactions and Contributions Tax. The REMIC will be subject
to a 100% tax on any net income derived from a "prohibited transaction". For
this purpose, net income will be calculated without taking into account any
losses from prohibited transactions or any deductions attributable to any
prohibited transaction that resulted in a loss. In general, prohibited
transactions include: (i) subject to limited exceptions, the sale or other
disposition of any qualified mortgage transferred to the REMIC; (ii) subject
to a limited exception, the sale or other disposition of a cash flow
investment; (iii) the receipt of any income from assets not permitted to be
held by the REMIC pursuant to the Code; or (iv) the receipt of any fees or
other compensation for services rendered by the REMIC. It is anticipated that
a REMIC will not engage in any prohibited transactions in which it would
recognize a material amount of net income. In addition, subject to a number of
exceptions, a tax is imposed at the rate of 100% on amounts contributed to a
REMIC after the close of the three-month period beginning on the Startup Day.
The holders of Residual Interest Securities will generally be responsible for
the payment of any such taxes imposed on the REMIC. To the extent not paid by
such holders or otherwise, however, such taxes will be paid out of the Trust
Fund and will be allocated pro rata to all outstanding classes of Securities
of such REMIC.
Taxation of Holders of Residual Interest Securities
The holder of a Security representing a residual interest (a "Residual
Interest Security") will take into account the "daily portion" of the taxable
income or net loss of the REMIC for each day during the taxable year on which
such holder held the Residual Interest Security. The daily portion is
determined by allocating to each day in any calendar quarter its ratable
portion of the taxable income or net loss of the REMIC for such quarter, and
by allocating that amount among the holders (on such day) of the Residual
Interest Securities in proportion to their respective holdings on such day.
The holder of a Residual Interest Security must report its proportionate
share of the taxable income of the REMIC whether or not it receives cash
distributions from the REMIC attributable to such income or loss. The
reporting of taxable income without corresponding distributions could occur,
for example, in certain REMIC issues in which the loans held by the REMIC were
issued or acquired at a discount, since mortgage prepayments cause recognition
of discount income, while the corresponding portion of the prepayment could be
used in whole or in part to make principal payments on REMIC Regular Interests
issued without any discount or at an insubstantial discount (if this occurs,
it is likely that cash distributions will exceed taxable income in later
years). Taxable income may also be greater in earlier years of certain REMIC
issues as a result of the fact that interest expense deductions, as a
percentage of outstanding principal on REMIC Regular Interest Securities, will
typically increase over time as lower yielding Securities are paid, whereas
interest income with respect to loans will generally remain constant over time
as a percentage of loan principal.
In any event, because the holder of a residual interest is taxed on the
net income of the REMIC, the taxable income derived from a Residual Interest
Security in a given taxable year will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pretax yield. Therefore, the after-tax
yield on the Residual Interest Security may be less than that of such a bond
or instrument.
Limitation on Losses. The amount of the REMIC's net loss that a holder
may take into account currently is limited to the holder's adjusted basis at
the end of the calendar quarter in which such loss arises. A holder's basis in
a Residual Interest Security will initially equal such holder's purchase
price, and will subsequently be increased by the amount of the REMIC's taxable
income allocated to the holder, and decreased (but not below zero) by the
amount of distributions made and the amount of the REMIC's net loss allocated
to the holder. Any disallowed loss may be carried forward indefinitely, but
may be used only to offset income of the REMIC generated by the same REMIC.
The ability of holders of Residual Interest Securities to deduct net losses
may be subject to additional limitations under the Code, as to which such
holders should consult their tax advisers.
Distributions. Distributions on a Residual Interest Security (whether at
their scheduled times or as a result of prepayments) will generally not result
in any additional taxable income or loss to a holder of a Residual Interest
Security. If the amount of such payment exceeds a holder's adjusted basis in
the Residual Interest Security, however, the holder will recognize gain
(treated as gain from the sale of the Residual Interest Security) to the
extent of such excess.
Sale or Exchange. A holder of a Residual Interest Security will recognize
gain or loss on the sale or exchange of a Residual Interest Security equal to
the difference, if any, between the amount realized and such holder's adjusted
basis in the Residual Interest Security at the time of such sale or exchange.
Except to the extent provided in regulations, which have not yet been issued,
any loss upon disposition of a Residual Interest Security will be disallowed
if the selling holder acquires any residual interest in a REMIC or similar
mortgage pool within six months before or after such disposition.
Excess Inclusions. The portion of the REMIC taxable income of a holder of
a Residual Interest Security consisting of "excess inclusion" income may not
be offset by other deductions or losses, including net operating losses, on
such holder's federal income tax return. Further, if the holder of a Residual
Interest Security is an organization subject to the tax on unrelated business
income imposed by Code Section 511, such holder's excess inclusion income will
be treated as unrelated business taxable income of such holder. In addition,
under Treasury regulations yet to be issued, if a real estate investment
trust, a regulated investment company, a common trust fund, or certain
cooperatives were to own a Residual Interest Security, a portion of dividends
(or other distributions) paid by the real estate investment trust (or other
entity) would be treated as excess inclusion income. If a Residual Security is
owned by a foreign person excess inclusion income is subject to tax at a rate
of 30% which may not be reduced by treaty, is not eligible for treatment as
"portfolio interest" and is subject to certain additional limitations. See
"Tax Treatment of Foreign Investors". The Small Business Job Protection Act of
1996 has eliminated the special rule permitting Section 593 institutions
("thrift institutions") to use net operating losses and other allowable
deductions to offset their excess inclusion income from REMIC residual
certificates that have "significant value" within the meaning of the REMIC
Regulations, effective for taxable years beginning after December 31, 1995,
except with respect to residual certificates continuously held by a thrift
institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides three
rules for determining the effect on excess inclusions on the alternative
minimum taxable income of a residual holder. First, alternative minimum
taxable income for such residual holder is determined without regard to the
special rule that taxable income cannot be less than excess inclusions.
Second, a residual holder's alternative minimum taxable income for a tax year
cannot be less than excess inclusions for the year. Third, the amount of any
alternative minimum tax net operating loss deductions must be computed without
regard to any excess inclusions. These rules are effective for tax years
beginning after December 31, 1986, unless a residual holder elects to have
such rules apply only to tax years beginning after August 20, 1996.
The excess inclusion portion of a REMIC's income is generally equal to
the excess, if any, of REMIC taxable income for the quarterly period allocable
to a Residual Interest Security, over the daily accruals for such quarterly
period of (i) 120% of the long term applicable federal rate on the Startup Day
multiplied by (ii) the adjusted issue price of such Residual Interest Security
at the beginning of such quarterly period. The adjusted issue price of a
Residual Interest at the beginning of each calendar quarter will equal its
issue price (calculated in a manner analogous to the determination of the
issue price of a Regular Interest), increased by the aggregate of the daily
accruals for prior calendar quarters, and decreased (but not below zero) by
the amount of loss allocated to a holder and the amount of distributions made
on the Residual Interest Security before the beginning of the quarter. The
long-term federal rate, which is announced monthly by the Treasury Department,
is an interest rate that is based on the average market yield of outstanding
marketable obligations of the United States government having remaining
maturities in excess of nine years.
Under the REMIC Regulations, in certain circumstances, transfers of
Residual Securities may be disregarded. See "--Restrictions on Ownership and
Transfer of Residual Interest Securities" and "--Tax Treatment of Foreign
Investors" below.
Restrictions on Ownership and Transfer of Residual Interest Securities.
As a condition to qualification as a REMIC, reasonable arrangements must be
made to prevent the ownership of a REMIC residual interest by any
"Disqualified Organization". Disqualified Organizations include the United
States, any State or political subdivision thereof, any foreign government,
any international organization, or any agency or instrumentality of any of the
foregoing, a rural electric or telephone cooperative described in Section
1381(a)(2)(C) of the Code, or any entity exempt from the tax imposed by
Sections 1-1399 of the Code, if such entity is not subject to tax on its
unrelated business income. Accordingly, the applicable Pooling and Servicing
Agreement will prohibit Disqualified Organizations from owning a Residual
Interest Security. In addition, no transfer of a Residual Interest Security
will be permitted unless the proposed transferee shall have furnished to the
Trustee an affidavit representing and warranting that it is neither a
Disqualified Organization nor an agent or nominee acting on behalf of a
Disqualified Organization.
If a Residual Interest Security is transferred to a Disqualified
Organization after March 31, 1988 (in violation of the restrictions set forth
above), a substantial tax can be imposed on the transferor of such Residual
Interest Security at the time of the transfer. In addition, if a Disqualified
Organization holds an interest in a pass-through entity after March 31, 1988
(including, among others, a partnership, trust, real estate investment trust,
regulated investment company, or any person holding as nominee), that owns a
Residual Interest Security, the pass-through entity will be required to pay an
annual tax on its allocable share of the excess inclusion income of the REMIC.
Under the REMIC Regulations, if a Residual Interest Security is a
"noneconomic residual interest," as described below, a transfer of a Residual
Interest Security to a United States person will be disregarded for all
Federal tax purposes unless no significant purpose of the transfer was to
impede the assessment or collection of tax. A Residual Interest Security is a
"noneconomic residual interest" unless, at the time of the transfer (i) the
present value of the expected future distributions on the Residual Interest
Security at least equals the product of the present value of the anticipated
excess inclusions and the highest rate of tax for the year in which the
transfer occurs and (ii) the transferor reasonably expects that the transferee
will receive distributions from the REMIC at or after the time at which the
taxes accrue on the anticipated excess inclusions in an amount sufficient to
satisfy the accrued taxes. If a transfer of a Residual Interest is
disregarded, the transferor would be liable for any Federal income tax imposed
upon taxable income derived by the transferee from the REMIC. The REMIC
Regulations provide no guidance as to how to determine if a significant
purpose of a transfer is to impede the assessment or collection of tax. A
similar type of limitation exists with respect to certain transfers of
residual interests by foreign persons to United States persons. See "--Tax
Treatment of Foreign Investors".
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
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 "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 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 permitted assets, (iii) the receipt of any income derived from any loan
originated by a FASIT, and (iv) in certain cases, the receipt of income
representing a servicing fee or other compensation. Any Series of Securities
for which a FASIT election is made generally will be structured in order to
avoid application of the prohibited transaction tax.
Tax Status as a Grantor Trust
In the absence of a REMIC or FASIT election, a Trust Fund generally will
be classified as a grantor trust if (i) there is either only one class of
Securities that evidences the entire undivided beneficial ownership of the
Trust Fund Assets, or, if there is more than one class of Securities, each
class represents a direct investment in the Trust Fund Assets, and (ii) no
power exists under the related Agreement to vary the investment of the
Securityholders. If these conditions are satisfied, the related Prospectus
Supplement will recite that in the opinion of Brown & Wood LLP, special
counsel to the Depositor, the Trust Fund relating to a Series of Securities
will be classified for federal income tax purposes as a grantor trust under
Subpart E, Part I of Subchapter J of the Code (the Securities of such Series,
"Pass-Through Securities"). In some Series there will be no separation of the
principal and interest payments on the Loans. In such circumstances, a holder
will be considered to have purchased a pro rata undivided interest in each of
the Loans. In other cases ("Stripped Securities"), sale of the Securities will
produce a separation in the ownership of all or a portion of the principal
payments from all or a portion of the interest payments on the Loans.
Each holder must report on its federal income tax return its share of the
gross income derived from the Loans (not reduced by the amount payable as fees
to the Trustee and the Servicer and similar fees (collectively, the "Servicing
Fee")), at the same time and in the same manner as such items would have been
reported under the holder's tax accounting method had it held its interest in
the Loans directly, received directly its share of the amounts received with
respect to the Loans, and paid directly its share of the Servicing Fees. In
the case of Pass-Through Securities other than Stripped Securities, such
income will consist of a pro rata share of all of the income derived from all
of the Loans and, in the case of Stripped Securities, such income will consist
of a pro rata share of the income derived from each stripped bond or stripped
coupon in which the holder owns an interest. The holder of a Security will
generally be entitled to deduct such Servicing Fees under Section 162 or
Section 212 of the Code to the extent that such Servicing Fees represent
"reasonable" compensation for the services rendered by the Trustee and the
Servicer (or third parties that are compensated for the performance of
services). In the case of a noncorporate holder, however, Servicing Fees (to
the extent not otherwise disallowed, e.g., because they exceed reasonable
compensation) will be deductible in computing such holder's regular tax
liability only to the extent that such fees, when added to other miscellaneous
itemized deductions, exceed 2% of adjusted gross income and may not be
deductible to any extent in computing such holder's alternative minimum tax
liability. In addition, for taxable years beginning after December 31, 1990,
the amount of itemized deductions otherwise allowable for the taxable year for
an individual whose adjusted gross income exceeds the applicable amount (which
amount will be adjusted for inflation in taxable years beginning after 1990)
will be reduced by the lesser of (i) 3% of the excess of adjusted gross income
over the applicable amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for such taxable year.
Discount or Premium on Pass-Through Securities. The holder's purchase
price of a Pass-Through Security is to be allocated among the Loans in
proportion to their fair market values, determined as of the time of purchase
of the Securities. In the typical case, the Trustee (to the extent necessary
to fulfill its reporting obligations) will treat each Loan as having a fair
market value proportional to the share of the aggregate principal balances of
all of the Loans that it represents, since the Securities, unless otherwise
specified in the related Prospectus Supplement, will have a relatively uniform
interest rate and other common characteristics. To the extent that the portion
of the purchase price of a Pass-Through Security allocated to a Loan (other
than to a right to receive any accrued interest thereon and any undistributed
principal payments) is less than or greater than the portion of the principal
balance of the Loan allocable to the Security, the interest in the Loan
allocable to the Pass-Through Security will be deemed to have been acquired at
a discount or premium, respectively.
The treatment of any discount will depend on whether the discount
represents OID or market discount. In the case of a Loan with OID in excess of
a prescribed de minimis amount or a Stripped Security, a holder of a Security
will be required to report as interest income in each taxable year its share
of the amount of OID that accrues during that year in the manner described
above. OID with respect to a Loan could arise, for example, by virtue of the
financing of points by the originator of the Loan, or by virtue of the
charging of points by the originator of the Loan in an amount greater than a
statutory de minimis exception, in circumstances under which the points are
not currently deductible pursuant to applicable Code provisions. Any market
discount or premium on a Loan will be includible in income, generally in the
manner described above, except that in the case of Pass-Through Securities,
market discount is calculated with respect to the Loans underlying the
Certificate, rather than with respect to the Security. A holder that acquires
an interest in a Loan originated after July 18, 1984 with more than a de
minimis amount of market discount (generally, the excess of the principal
amount of the Loan over the purchaser's allocable purchase price) will be
required to include accrued market discount in income in the manner set forth
above. See "--Taxation of Debt Securities; Market Discount" and "--Premium"
above.
In the case of market discount on a Pass-Through Security attributable to
Loans originated on or before July 18, 1984, the holder generally will be
required to allocate the portion of such discount that is allocable to a loan
among the principal payments on the Loan and to include the discount allocable
to each principal payment in ordinary income at the time such principal
payment is made. Such treatment would generally result in discount being
included in income at a slower rate than discount would be required to be
included in income using the method described in the preceding paragraph.
Stripped Securities. A Stripped Security may represent a right to receive
only a portion of the interest payments on the Loans, a right to receive only
principal payments on the Loans, or a right to receive certain payments of
both interest and principal. Certain Stripped Securities ("Ratio Strip
Securities") may represent a right to receive differing percentages of both
the interest and principal on each Loan. Pursuant to Section 1286 of the Code,
the separation of ownership of the right to receive some or all of the
interest payments on an obligation from ownership of the right to receive some
or all of the principal payments results in the creation of "stripped bonds"
with respect to principal payments and "stripped coupons" with respect to
interest payments. Section 1286 of the Code applies the OID rules to stripped
bonds and stripped coupons. For purposes of computing original issue discount,
a stripped bond or a stripped coupon is treated as a debt instrument issued on
the date that such stripped interest is purchased with an issue price equal to
its purchase price or, if more than one stripped interest is purchased, the
ratable share of the purchase price allocable to such stripped interest.
Servicing fees in excess of reasonable servicing fees ("excess
servicing") will be treated under the stripped bond rules. If the excess
servicing fee is less than 100 basis points (i.e., 1% interest on the Loan
principal balance) or the Securities are initially sold with a de minimis
discount (assuming no prepayment assumption is required), any non-de minimis
discount arising from a subsequent transfer of the Securities should be
treated as market discount. The IRS appears to require that reasonable
servicing fees be calculated on a Loan by Loan basis, which could result in
some Loans being treated as having more than 100 basis points of interest
stripped off.
OID Regulations and judicial decisions provide no direct guidance as to
how the interest and original issue discount rules are to apply to Stripped
Securities and other Pass-Through Securities. Under the method described above
for Pay-Through Securities (the "Cash Flow Bond Method"), a prepayment
assumption is used and periodic recalculations are made which take into
account with respect to each accrual period the effect of prepayments during
such period. However, the 1986 Act does not, absent Treasury regulations,
appear specifically to cover instruments such as the Stripped Securities which
technically represent ownership interests in the underlying Loans, rather than
being debt instruments "secured by" those loans. For tax years beginning after
August 5, 1997 the Taxpayer Relief Act of 1997 may allow use of the Cash Flow
Bond Method with respect to Stripped Securities and other Pass-Through
Securities because it provides that such method applies to any pool of debt
instruments the yield on which may be affected by prepayments. Nevertheless,
it is believed that the Cash Flow Bond Method is a reasonable method of
reporting income for such Securities, and it is expected that OID will be
reported on that basis unless otherwise specified in the related Prospectus
Supplement. In applying the calculation to Pass-Through Securities, the
Trustee will treat all payments to be received by a holder with respect to the
underlying Loans as payments on a single installment obligation. The IRS
could, however, assert that original issue discount must be calculated
separately for each Loan underlying a Security.
Under certain circumstances, if the Loans prepay at a rate faster than
the Prepayment Assumption, the use of the Cash Flow Bond Method may accelerate
a holder's recognition of income. If, however, the Loans prepay at a rate
slower than the Prepayment Assumption, in some circumstances the use of this
method may decelerate a holder's recognition of income.
In the case of a Stripped Security that is an Interest Weighted Security,
the Trustee intends, absent contrary authority, to report income to Security
holders as OID, in the manner described above for Interest Weighted
Securities.
Possible Alternative Characterizations. The characterizations of the
Stripped Securities described above are not the only possible interpretations
of the applicable Code provisions. Among other possibilities, the IRS could
contend that (i) in certain Series, each non-Interest Weighted Security is
composed of an unstripped undivided ownership interest in Loans and an
installment obligation consisting of stripped principal payments; (ii) the
non-Interest Weighted Securities are subject to the contingent payment
provisions of the Contingent Regulations; or (iii) each Interest Weighted
Stripped Security is composed of an unstripped undivided ownership interest in
Loans and an installment obligation consisting of stripped interest payments.
Given the variety of alternatives for treatment of the Stripped
Securities and the different federal income tax consequences that result from
each alternative, potential purchasers are urged to consult their own tax
advisers regarding the proper treatment of the Securities for federal income
tax purposes.
Character as Qualifying Loans. In the case of Stripped Securities, there
is no specific legal authority existing regarding whether the character of the
Securities, for federal income tax purposes, will be the same as the Loans.
The IRS could take the position that the Loans' character is not carried over
to the Securities in such circumstances. Pass-Through Securities will be, and,
although the matter is not free from doubt, Stripped Securities should be
considered to represent "real estate assets" within the meaning of Section
856(c)(5)(B) of the Code and "loans secured by an interest in real property"
within the meaning of Section 7701(a)(19)(C)(v) of the Code; and interest
income attributable to the Securities should be considered to represent
"interest on obligations secured by mortgages on real property or on interests
in real property" within the meaning of Section 856(c)(3)(B) of the Code.
Reserves or funds underlying the Securities may cause a proportionate
reduction in the above-described qualifying status categories of Securities.
Sale or Exchange
Subject to the discussion below with respect to Trust Funds classified as
partnerships made, a holder's tax basis in its Security is the price such
holder pays for a Security, plus amounts of original issue or market discount
included in income and reduced by any payments received (other than qualified
stated interest payments) and any amortized premium. Gain or loss recognized
on a sale, exchange, or redemption of a Security, measured by the difference
between the amount realized and the Security's basis as so adjusted, will
generally be capital gain or loss, assuming that the Security is held as a
capital asset. In the case of a Security held by a bank, thrift, or similar
institution described in Section 582 of the Code, however, gain or loss
realized on the sale or exchange of a REMIC or FASIT regular interest will be
taxable as ordinary income or loss. In addition, gain from the disposition of
a REMIC regular interest that might otherwise be capital gain will be treated
as ordinary income to the extent of the excess, if any, of (i) the amount that
would have been includible in the holder's income if the yield on such REMIC
regular interest Security had equaled 110% of the applicable federal rate as
of the beginning of such holder's holding period, over the amount of ordinary
income actually recognized by the holder with respect to such REMIC regular
interest. In general, the maximum tax rate on ordinary income for individual
taxpayers is 39.6% and the maximum tax rate on long-term capital gains for
such taxpayers is 28%. The maximum tax rate on both ordinary income and
long-term capital gains of corporate taxpayers is 35%.
The Taxpayer Relief Act of 1997 reduces the maximum rates on long-term
capital gains recognized on capital assets held by individual taxpayers for
more than eighteen months as of the date of disposition (and would further
reduce the maximum rates on such gains in the year 2001 and thereafter for
certain individual taxpayers who meet specified conditions). Prospective
investors should consult their own tax advisors concerning these tax law
changes.
Miscellaneous Tax Aspects
Backup Withholding. Subject to the discussion below with respect to Trust
Funds classified as partnerships, a holder, other than a holder of a REMIC
Residual Security, may, under certain circumstances, be subject to "backup
withholding" at a rate of 31% with respect to distributions or the proceeds of
a sale of certificates to or through brokers that represent interest or
original issue discount on the Securities. This withholding generally applies
if the holder of a Security (i) fails to furnish the Trustee with its taxpayer
identification number ("TIN"); (ii) furnishes the Trustee an incorrect TIN;
(iii) fails to report properly interest, dividends or other "reportable
payments" as defined in the Code; or (iv) under certain circumstances, fails
to provide the Trustee or such holder's securities broker with a certified
statement, signed under penalty of perjury, that the TIN provided is its
correct number and that the holder is not subject to backup withholding.
Backup withholding will not apply, however, with respect to certain payments
made to holders, including payments to certain exempt recipients (such as
exempt organizations) and to certain Nonresidents (as defined below). holders
should consult their tax advisers as to their qualification for exemption from
backup withholding and the procedure for obtaining the exemption.
The Trustee will report to the holders and to the Servicer for each
calendar year the amount of any "reportable payments" during such year and the
amount of tax withheld, if any, with respect to payments on the Securities.
Tax Treatment of Foreign Investors
Subject to the discussion below with respect to Trust Funds classified as
partnerships election is made, under the Code, unless interest (including OID)
paid on a Security (other than a Residual Interest Security) is considered to
be "effectively connected" with a trade or business conducted in the United
States by a nonresident alien individual, foreign partnership or foreign
corporation ("Nonresidents"), such interest will normally qualify as portfolio
interest (except where (i) the recipient is a holder, directly or by
attribution, of 10% or more of the capital or profits interest in the issuer
or (ii) the recipient is a controlled foreign corporation to which the issuer
is a related person) and will be exempt from federal income tax. Upon receipt
of appropriate ownership statements, the issuer normally will be relieved of
obligations to withhold tax from such interest payments. These provisions
supersede the generally applicable provisions of United States law that would
otherwise require the issuer to withhold at a 30% rate (unless such rate were
reduced or eliminated by an applicable tax treaty) on, among other things,
interest and other fixed or determinable, annual or periodic income paid to
Nonresidents. Holders of Pass-Through Securities and Stripped Securities,
including Ratio Strip Securities, however, may be subject to withholding to
the extent that the Loans were originated on or before July 18, 1984.
Interest and OID of Securityholders who are Nonresidents are not subject
to withholding if they are effectively connected with a United States business
conducted by the holder. They will, however, generally be subject to the
regular United States income tax.
Payments to holders of Residual Interest Securities who are Nonresidents
will generally be treated as interest for purposes of the 30% (or lower treaty
rate) United States withholding tax. Holders should assume that such income
does not qualify for exemption from United States withholding tax as
"portfolio interest". It is clear that, to the extent that a payment
represents a portion of REMIC taxable income that constitutes excess inclusion
income, a holder of a Residual Interest Security will not be entitled to an
exemption from or reduction of the 30% (or lower treaty rate) withholding tax
rule. If the payments are subject to United States withholding tax, they
generally will be taken into account for withholding tax purposes only when
paid or distributed (or when the Residual Interest Security is disposed of).
The Treasury has statutory authority, however, to promulgate regulations which
would require such amounts to be taken into account at an earlier time in
order to prevent the avoidance of tax. Such regulations could, for example,
require withholding prior to the distribution of cash in the case of Residual
Interest Securities that do not have significant value. Under the REMIC
Regulations, if a Residual Interest Security has tax avoidance potential, a
transfer of a Residual Interest Security to a Nonresident will be disregarded
for all federal tax purposes. A Residual Interest Security has tax avoidance
potential unless, at the time of the transfer the transferor reasonably
expects that the REMIC will distribute to the transferee residual interest
holder amounts that will equal at least 30% of each excess inclusion, and that
such amounts will be distributed at or after the time at which the excess
inclusions accrue and not later than the calendar year following the calendar
year of accrual. If a Nonresident transfers a Residual Interest Security to a
United States person, and if the transfer has the effect of allowing the
transferor to avoid tax on accrued excess inclusions, then the transfer is
disregarded and the transferor continues to be treated as the owner of the
Residual Interest Security for purposes of the withholding tax provisions of
the Code. See "--Excess Inclusions".
Tax Characterization of the Trust Fund as a Partnership
In the absence of a REMIC or FASIT election, a Trust Fund that is not
classified as a grantor trust will be classified as a partnership for federal
tax purposes. Brown & Wood LLP, special counsel to the Depositor, will deliver
its opinion that a Trust Fund classified as a partnership will not be a
publicly traded partnership taxable as a corporation for federal income tax
purposes. This opinion will be based on the assumption that the terms of the
Trust Agreement and related documents will be complied with, and on counsel's
conclusions that the nature of the income of the Trust Fund will exempt it
from the rule that certain publicly traded partnerships are taxable as
corporations or the issuance of the Securities has been structured as a
private placement under an IRS safe harbor, so that the Trust Fund will not be
characterized as a publicly traded partnership taxable as a corporation.
If the Trust Fund were taxable as a corporation for federal income tax
purposes, the Trust Fund would be subject to corporate income tax on its
taxable income. The Trust Fund's taxable income would include all its income,
possibly reduced by its interest expense on the Notes. Any such corporate
income tax could materially reduce cash available to make payments on the
Notes and distributions on the Certificates, and Certificateholders could be
liable for any such tax that is unpaid by the Trust Fund.
Tax Consequences to Holders of the Notes
Treatment of the Notes as Indebtedness. The Trust Fund will agree, and
the Noteholders will agree by their purchase of Notes, to treat the Notes as
debt for federal income tax purposes. Special counsel to the Depositor will,
except as otherwise provided in the related Prospectus Supplement, advise the
Depositor that the Notes will be classified as debt for federal income tax
purposes. The tax treatment of the Notes is described under the caption
"Taxation of Debt Securities" set forth above.
Tax Consequences to Holders of the Certificates
Treatment of the Trust Fund as a Partnership. The Trust Fund and the
Master Servicer will agree, and the Certificateholders will agree by their
purchase of Certificates, to treat the Trust Fund as a partnership for
purposes of federal and state income tax, franchise tax and any other tax
measured in whole or in part by income, with the assets of the partnership
being the assets held by the Trust Fund, the partners of the partnership being
the Certificateholders, and the Notes being debt of the partnership. However,
the proper characterization of the arrangement involving the Trust Fund, the
Certificates, the Notes, the Trust Fund and the Servicer is not clear because
there is no authority on transactions closely comparable to that contemplated
herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Trust Fund. Any such
characterization would not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership.
Indexed Securities, etc. The following discussion assumes that all
payments on the Certificates are denominated in U.S. dollars, none of the
Certificates are Indexed Securities or Strip Certificates, and that a Series
of Securities includes a single class of Certificates. If these conditions are
not satisfied with respect to any given Series of Certificates, additional tax
considerations with respect to such Certificates will be disclosed in the
applicable Prospectus Supplement.
Partnership Taxation. As a partnership, the Trust Fund will not be
subject to federal income tax. Rather, each Certificateholder will be required
to separately take into account such holder's allocated share of income,
gains, losses, deductions and credits of the Trust Fund. The Trust Fund's
income will consist primarily of interest and finance charges earned on the
Loans (including appropriate adjustments for market discount, OID and bond
premium) and any gain upon collection or disposition of Loans. The Trust
Fund's deductions will consist primarily of interest accruing with respect to
the Notes, servicing and other fees, and losses or deductions upon collection
or disposition of Loans.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents). The Trust Agreement will
provide, in general, that the Certificateholders will be allocated taxable
income of the Trust Fund for each month equal to the sum of (i) the interest
that accrues on the Certificates in accordance with their terms for such
month, including interest accruing at the Pass-Through Rate for such month and
interest on amounts previously due on the Certificates but not yet
distributed; (ii) any Trust Fund income attributable to discount on the Loans
that corresponds to any excess of the principal amount of the Certificates
over their initial issue price (iii) prepayment premium payable to the
Certificateholders for such month; and (iv) any other amounts of income
payable to the Certificateholders for such month. Such allocation will be
reduced by any amortization by the Trust Fund of premium on Loans that
corresponds to any excess of the issue price of Certificates over their
principal amount. All remaining taxable income of the Trust Fund will be
allocated to the Company. Based on the economic arrangement of the parties,
this approach for allocating Trust Fund income should be permissible under
applicable Treasury regulations, although no assurance can be given that the
IRS would not require a greater amount of income to be allocated to
Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Pass-Through
Rate plus the other items described above even though the Trust Fund might not
have sufficient cash to make current cash distributions of such amount. Thus,
cash basis holders will in effect be required to report income from the
Certificates on the accrual basis and Certificateholders may become liable for
taxes on Trust Fund income even if they have not received cash from the Trust
Fund to pay such taxes. In addition, because tax allocations and tax reporting
will be done on a uniform basis for all Certificateholders but
Certificateholders may be purchasing Certificates at different times and at
different prices, Certificateholders may be required to report on their tax
returns taxable income that is greater or less than the amount reported to
them by the Trust Fund.
All of the taxable income allocated to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated
business taxable income" generally taxable to such a holder under the Code.
An individual taxpayer's share of expenses of the Trust Fund (including
fees to the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or
in part and might result in such holder being taxed on an amount of income
that exceeds the amount of cash actually distributed to such holder over the
life of the Trust Fund.
The Trust Fund intends to make all tax calculations relating to income
and allocations to Certificateholders on an aggregate basis. If the IRS were
to require that such calculations be made separately for each Loan, the Trust
Fund might be required to incur additional expense but it is believed that
there would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Loans were not issued with
OID, and, therefore, the Trust Fund should not have OID income. However, the
purchase price paid by the Trust Fund for the Loans may be greater or less
than the remaining principal balance of the Loans at the time of purchase. If
so, the Loan will have been acquired at a premium or discount, as the case may
be. (As indicated above, the Trust Fund will make this calculation on an
aggregate basis, but might be required to recompute it on a Loan by Loan
basis.)
If the Trust Fund acquires the Loans at a market discount or premium, the
Trust Fund will elect to include any such discount in income currently as it
accrues over the life of the Loans or to any such premium against interest
income on the Loans. As indicated above, a portion of such market discount
income or premium deduction may be allocated to Certificateholders.
Section 708 Termination. Pursuant to final regulations issued on May 9,
1997 under Code Section 708, a sale or exchange of 50% or more of the capital
and profits in a partnership would cause a deemed contribution of assets of
the partnership (the "old partnership") to a new partnership (the "new
partnership") in exchange for interests in the new partnership. Such interests
would be deemed distributed to the partners of the old partnership in
liquidation thereof, which would not constitute a sale or exchange.
Accordingly under these new regulations, if the Trust Fund were characterized
as a partnership and a sale of Certificates terminated the partnership under
Code Section 708, the purchaser's basis in its ownership interest would not
change.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates
sold. A Certificateholder's tax basis in a Certificate will generally equal
the holder's cost increased by the holder's share of Trust Fund income
(includible in income) and decreased by any distributions received with
respect to such Certificate. In addition, both the tax basis in the
Certificates and the amount realized on a sale of a Certificate would include
the holder's share of the Notes and other liabilities of the Trust Fund. A
holder acquiring Certificates at different prices may be required to maintain
a single aggregate adjusted tax basis in such Certificates, and, upon sale or
other disposition of some of the Certificates, allocate a portion of such
aggregate tax basis to the Certificates sold (rather than maintaining a
separate tax basis in each Certificate for purposes of computing gain or loss
on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share
of unrecognized accrued market discount on the Loans would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust Fund does not expect to have any other
assets that would give rise to such special reporting requirements. Thus, to
avoid those special reporting requirements, the Trust Fund will elect to
include market discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise
to a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust
Fund's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the
Certificateholders in proportion to the principal amount of Certificates owned
by them as of the close of the last day of such month. As a result, a holder
purchasing Certificates may be allocated tax items (which will affect its tax
liability and tax basis) attributable to periods before the actual
transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or
losses of the Trust Fund might be reallocated among the Certificateholders.
The Trust Fund's method of allocation between transferors and transferees may
be revised to conform to a method permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder
had. The tax basis of the Trust Fund's assets will not be adjusted to reflect
that higher (or lower) basis unless the Trust Fund were to file an election
under Section 754 of the Code. In order to avoid the administrative
complexities that would be involved in keeping accurate accounting records, as
well as potentially onerous information reporting requirements, the Trust Fund
will not make such election. As a result, Certificateholders might be
allocated a greater or lesser amount of Trust Fund income than would be
appropriate based on their own purchase price for Certificates.
Administrative Matters. The Owner Trustee is required to keep or have
kept complete and accurate books of the Trust Fund. Such books will be
maintained for financial reporting and tax purposes on an accrual basis and
the fiscal year of the Trust Fund will be the calendar year. The Trustee will
file a partnership information return (IRS Form 1065) with the IRS for each
taxable year of the Trust Fund and will report each Certificateholder's
allocable share of items of Trust Fund income and expense to holders and the
IRS on Schedule K-1. The Trust Fund will provide the Schedule K-l information
to nominees that fail to provide the Trust Fund with the information statement
described below and such nominees will be required to forward such information
to the beneficial owners of the Certificates. Generally, holders must file tax
returns that are consistent with the information return filed by the Trust
Fund or be subject to penalties unless the holder notifies the IRS of all such
inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust
Fund with a statement containing certain information on the nominee, the
beneficial owners and the Certificates so held. Such information includes (i)
the name, address and taxpayer identification number of the nominee and (ii)
as to each beneficial owner (x) the name, address and identification number of
such person, (y) whether such person is a United States person, a tax-exempt
entity or a foreign government, an international organization, or any wholly
owned agency or instrumentality of either of the foregoing and (z) certain
information on Certificates that were held, bought or sold on behalf of such
person throughout the year. In addition, brokers and financial institutions
that hold Certificates through a nominee are required to furnish directly to
the Trust Fund information as to themselves and their ownership of
Certificates. A clearing agency registered under Section 17A of the Exchange
Act is not required to furnish any such information statement to the Trust
Fund. The information referred to above for any calendar year must be
furnished to the Trust Fund on or before the following January 31. Nominees,
brokers and financial institutions that fail to provide the Trust Fund with
the information described above may be subject to penalties.
The Depositor will be designated as the tax matters partner in the
related Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which
the partnership information return is filed. Any adverse determination
following an audit of the return of the Trust Fund by the appropriate taxing
authorities could result in an adjustment of the returns of the
Certificateholders, and, under certain circumstances, a Certificateholder may
be precluded from separately litigating a proposed adjustment to the items of
the Trust Fund. An adjustment could also result in an audit of a
Certificateholder's returns and adjustments of items not related to the income
and losses of the Trust Fund.
Tax Consequences to Foreign Certificateholders. It is not clear whether
the Trust Fund would be considered to be engaged in a trade or business in the
United States for purposes of federal withholding taxes with respect to
non-U.S. Persons because there is no clear authority dealing with that issue
under facts substantially similar to those described herein. Although it is
not expected that the Trust Fund would be engaged in a trade or business in
the United States for such purposes, the Trust Fund will withhold as if it
were so engaged in order to protect the Trust Fund from possible adverse
consequences of a failure to withhold. The Trust Fund expects to withhold on
the portion of its taxable income, as calculated for this purpose which may
exceed the distributions to Certificateholders, that is allocable to foreign
Certificateholders pursuant to Section 1446 of the Code, as if such income
were effectively connected to a U.S. trade or business, at a rate of 35% for
foreign holders that are taxable as corporations and 39.6% for all other
foreign holders. Subsequent adoption of Treasury regulations or the issuance
of other administrative pronouncements may require the Trust Fund to change
its withholding procedures. In determining a holder's withholding status, the
Trust Fund may rely on IRS Form W-8, IRS Form W-9 or the holder's
certification of nonforeign status signed under penalties of perjury.
The term "U.S. Person" means a citizen or resident of the United States,
a corporation, partnership or (other entity treated as a corporation or
partnership) created or organized in or under the laws of the United States or
any state thereof including the District of Columbia (other than a partnership
that is not treated as a United States person under any applicable Treasury
regulations), or an estate whose income is subject to U.S. federal income tax
regardless of its source of income, or a trust if a court within the United
States is able to exercise primary supervision of the administration of the
trust and one or more United States persons have the authority to control all
substantial decisions of the trust. Notwithstanding the preceding sentence, to
the extent provided in regulations, certain trusts in existence on August 20,
1996 and treated as United States persons prior to such date that elect to
continue to be so treated also shall be considered U.S. Persons.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the
branch profits tax) on its share of the Trust Fund's income. Each foreign
holder must obtain a taxpayer identification number from the IRS and submit
that number to the Trust Fund on Form W-8 in order to assure appropriate
crediting of the taxes withheld. A foreign holder generally would be entitled
to file with the IRS a claim for refund with respect to taxes withheld by the
Trust Fund taking the position that no taxes were due because the Trust Fund
was not engaged in a U.S. trade or business. However, interest payments made
(or accrued) to a Certificateholder who is a foreign person generally will be
considered guaranteed payments to the extent such payments are determined
without regard to the income of the Trust Fund. If these interest payments are
properly characterized as guaranteed payments, then the interest will not be
considered "portfolio interest". As a result, Certificateholders will be
subject to United States federal income tax and withholding tax at a rate of
30 percent, unless reduced or eliminated pursuant to an applicable treaty. In
such case, a foreign holder would only be entitled to claim a refund for that
portion of the taxes in excess of the taxes that should be withheld with
respect to the guaranteed payments.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding
tax of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
State Tax Considerations
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences," potential investors should consider the state and
local income tax consequences of the acquisition, ownership, and disposition
of the Securities. State and local income tax law may differ substantially
from the corresponding federal law, and this discussion does not purport to
describe any aspect of the income tax laws of any state or locality.
Therefore, potential investors should consult their own tax advisors with
respect to the various state and local tax consequences of an investment in
the Securities.
ERISA Considerations
The following describes certain considerations under ERISA and the Code,
which apply only to Securities of a Series that are not divided into
subclasses. If Securities are divided into subclasses the related Prospectus
Supplement will contain information concerning considerations relating to
ERISA and the Code that are applicable to such Securities.
ERISA imposes requirements on employee benefit plans (and on certain
other retirement plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and
separate accounts in which such plans, accounts or arrangements are invested)
(collectively "Plans") subject to ERISA and on persons who are fiduciaries
with respect to such Plans. Generally, ERISA applies to investments made by
Plans. Among other things, ERISA requires that the assets of Plans be held in
trust and that the trustee, or other duly authorized fiduciary, have exclusive
authority and discretion to manage and control the assets of such Plans. ERISA
also imposes certain duties on persons who are fiduciaries of Plans. Under
ERISA, any person who exercises any authority or control respecting the
management or disposition of the assets of a Plan is considered to be a
fiduciary of such Plan (subject to certain exceptions not here relevant).
Certain employee benefit plans, such as governmental plans (as defined in
ERISA Section 3(32)) and, if no election has been made under Section 410(d) of
the Code, church plans (as defined in ERISA Section 3(33)), are not subject to
ERISA requirements. Accordingly, assets of such plans may be invested in
Securities without regard to the ERISA considerations described above and
below, subject to the provisions of applicable state law. Any such plan which
is qualified and exempt from taxation under Code Sections 401(a) and 501(a),
however, is subject to the prohibited transaction rules set forth in Code
Section 503.
On November 13, 1986, the United States Department of Labor (the "DOL")
issued final regulations concerning the definition of what constitutes the
assets of a Plan. (Labor Reg. Section 2510.3-101) Under this regulation, the
underlying assets and properties of corporations, partnerships and certain
other entities in which a Plan makes an "equity" investment could be deemed
for purposes of ERISA to be assets of the investing Plan in certain
circumstances. However, the regulation provides that, generally, the assets of
a corporation or partnership in which a Plan invests will not be deemed for
purposes of ERISA to be assets of such Plan if the equity interest acquired by
the investing Plan is a publicly-offered security. A publicly-offered
security, as defined in the Labor Reg. Section 2510.3-101, is a security that
is widely held, freely transferable and registered under the Securities
Exchange Act of 1934, as amended.
In addition to the imposition of general fiduciary standards of
investment prudence and diversification, ERISA prohibits a broad range of
transactions involving Plan assets and persons ("Parties in Interest") having
certain specified relationships to a Plan and imposes additional prohibitions
where Parties in Interest are fiduciaries with respect to such Plan. Because
the Loans may be deemed Plan assets of each Plan that purchases 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.
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.
Each Plan fiduciary who is responsible for making the investment
decisions whether to purchase or commit to purchase and to hold Single Family
Securities must make its own determination as to whether the first and third
general conditions, and the specific conditions described briefly in the
preceding paragraph, of PTE 83-1 have been satisfied, or as to the
availability of any other prohibited transaction exemptions. Each Plan
fiduciary should also determine whether, under the general fiduciary standards
of investment prudence and diversification, an investment in the Securities is
appropriate for the Plan, taking into account the overall investment policy of
the Plan and the composition of the Plan's investment portfolio.
The DOL has granted to certain underwriters individual administrative
exemptions (the "Underwriter Exemptions") from certain of the prohibited
transaction rules of ERISA and the related excise tax provisions of Section
4975 of the Code with respect to the initial purchase, the holding and the
subsequent resale by Plans of certificates in pass-through trusts that consist
of certain receivables, loans and other obligations that meet the conditions
and requirements of the Underwriter Exemptions.
While each Underwriter Exemption is an individual exemption separately
granted to a specific underwriter, the terms and conditions which generally
apply to the Underwriter Exemptions are substantially identical, and include
the following:
(1) the acquisition of the certificates by a Plan is on terms (including
the price for the certificates) that are at least as favorable to the Plan as
they would be in an arm's-length transaction with an unrelated party;
(2) the rights and interest evidenced by the certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by other
certificates of the trust fund;
(3) the certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic rating
categories from Standard & Poor's Ratings Group, a Division of The McGraw-Hill
Companies ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps
Credit Rating Co. ("DCR") or Fitch IBCA, Inc. ("Fitch") (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 certificates represents not more than
reasonable compensation for underwriting the certificates; the sum of all
payments made to and retained by the seller pursuant to the assignment of the
loans to the trust fund represents not more than the fair market value of such
loans; the sum of all payments made to and retained by the servicer and any
other servicer represents not more than reasonable compensation for such
person's services under the agreement pursuant to which the loans are pooled
and reimbursements of such person's reasonable expenses in connection
therewith; and
(6) the Plan investing in the certificates is an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933 as amended.
The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist solely of assets of the
type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been rated in
one of the three highest rating categories of S&P, Moody's, Fitch or DCR for
at least one year prior to the Plan's acquisition of certificates; and
(iii) certificates evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at least one year
prior to any Plan's acquisition of certificates.
Moreover, the Underwriter Exemptions generally provide relief from
certain self-dealing/conflict of interest prohibited transactions that may
occur when the Plan fiduciary causes a Plan to acquire certificates in a trust
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 certificates, at least fifty percent
(50%) of each class of certificates in which Plans have invested is acquired
by persons independent of the Restricted Group, (ii) such fiduciary (or its
affiliate) is an obligor with respect to five percent (5%) or less of the fair
market value of the obligations contained in the trust; (iii) the Plan's
investment in certificates of any class does not exceed twenty-five percent
(25%) of all of the certificates of that class outstanding at the time of the
acquisition; and (iv) immediately after the acquisition, no more than
twenty-five percent (25%) of the assets of the Plan with respect to which such
person is a fiduciary is invested in certificates representing an interest in
one or more trusts containing assets sold or serviced by the same entity. The
Underwriter Exemptions do not apply to Plans sponsored by the Seller, the
Underwriter, the Trustee, the Master Servicer, any insurer with respect to the
Loans, any obligor with respect to Loans included in the Trust Fund
constituting more than five percent (5%) of the aggregate unamortized
principal balance of the assets in the Trust Fund, or any affiliate of such
parties (the "Restricted Group").
On July 21, 1997, the DOL published in the Federal Register an amendment
to the Underwriter Exemption which extends exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. The amendment generally
allows mortgage loans or other secured receivables (the "obligations")
supporting payments to certificate-holders, and having a value equal to no
more than twenty-five percent (25%) of the total principal amount of the
certificates being offered by the trust, to be transferred to the trust within
a 90-day or three-month period following the closing date (the "pre-funding
period") instead of requiring that all such obligations be either identified
or transferred on or before the closing date. The relief is available when the
following conditions are met:
(1) The ratio of the amount allocated to the pre-funding account to the
total principal amount of the certificates being offered (the "pre-funding
limit") must not exceed twenty-five percent (25%).
(2) All obligations transferred after the closing date (the "additional
obligations") must meet the same terms and conditions for eligibility as the
original obligations used to create the trust, which terms and conditions have
been approved by a rating agency.
(3) The transfer of such additional obligations to the trust during the
pre-funding period must not result in the certificates to be covered by the
Underwriter Exemption receiving a lower credit rating from a rating agency
upon termination of the pre-funding period than the rating that was obtained
at the time of the initial issuance of the certificates by the trust.
(4) Solely as a result of the use of pre-funding, the weighted average
annual percentage interest rate (the "average interest rate") for all of the
obligations in the trust at the end of the pre-funding period must not be more
than 1.0% lower than the average interest rate for the obligations which were
transferred to the trust on the closing date.
(5) In order to ensure that the characteristics of the additional
obligations are substantially similar to the original obligations which were
transferred to the trust,
(i) the characteristics of the additional obligations must be monitored
by an insurer or other credit support provider which is independent of the
depositor; or
(ii) an independent accountant retained by the depositor must provide the
depositor with a letter (with copies provided to each rating agency rating the
certificates, the related underwriter and the related trustee) stating whether
or not the characteristics of the additional obligations conform to the
characteristics described in the related prospectus or prospectus supplement
and/or pooling and servicing agreement. In preparing such letter, the
independent accountant must use the same type of procedures as were applicable
to the obligations which were transferred to the trust as of the closing date.
(6) The pre-funding period must end no later than three months or 90 days
after the closing date or earlier in certain circumstances if the pre-funding
account falls below the minimum level specified in the pooling and servicing
agreement or an event of default occurs.
(7) Amounts transferred to any pre-funding account and/or capitalized
interest account used in connection with the pre-funding may be invested only
in certain permitted investments.
(8) The related prospectus supplement must describe:
(i) any pre-funding account and/or capitalized interest account used in
connection with a pre-funding account;
(ii) the duration of the pre-funding period;
(iii) the percentage and/or dollar amount of the pre-funding Limit for
the trust; and
(iv) that the amount remaining in the pre-funding account at the end of
the pre-funding period will be remitted to certificate holders as repayments
of principal.
(9) The related pooling and servicing agreement must describe the
permitted investments for the pre-funding account and/or capitalized interest
account and, if not disclosed in the related prospectus or prospectus
supplement, the terms and conditions for eligibility of additional
obligations.
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 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:
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.
<PAGE>
Index of Defined Terms
additional obligations.............................94
APR................................................20
average interest rate..............................95
BIF................................................47
Capitalized Interest Account.......................49
Cash Flow Bond Method..............................85
CERCLA.............................................61
Class Security Balance.............................28
Code...............................................27
contracts..........................................64
DCR................................................93
DOL................................................92
DTC................................................36
Eleventh District..................................33
Eligible Corporations..............................81
ERISA..............................................27
excess servicing...................................84
FASIT..............................................80
FASIT Provisions...................................80
FASIT Qualification Test...........................81
FASIT Trust........................................80
FDIC...............................................24
FHA................................................17
FHLBSF.............................................34
FHLMC..............................................24
Fitch..............................................93
FNMA...............................................24
Garn-St Germain Act................................63
Interest Weighted Securities.......................74
IO.................................................81
Loan Rate..........................................18
Moody's............................................93
National Cost of Funds Index.......................34
New Arrangement....................................82
new partnership....................................89
New Proposed Regulations...........................79
Nonresidents.......................................86
obligations........................................94
OID................................................72
OID Regulations....................................72
old partnership....................................89
OTS................................................34
Parties in Interest................................92
Pass-Through Securities............................83
Pay-Through Security...............................73
Plans..............................................91
pre-funding limit..................................94
pre-funding period.................................94
pre-issuance accrued interest......................72
Prepayment Assumption..............................73
PTCE...............................................92
PTE 83-1...........................................92
Purchase Price.....................................25
Ratio Strip Securities.............................84
RCRA...............................................62
Relief Act.........................................66
Residual Interest Security.........................77
Restricted Group...................................94
S&P................................................93
SAIF...............................................47
Security Account...................................46
Servicing Fee......................................83
Single Family Properties...........................19
Single Family Securities...........................92
SMMEA..............................................96
Stripped Securities................................83
thrift institutions................................78
TIN................................................86
Title I Loans......................................67
Title I Program....................................67
Title V............................................64
Trust Fund Assets..................................16
UCC................................................61
Underwriter Exemptions.............................93
VA.................................................17
VA Guaranty........................................52
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution*
The following table sets forth the estimated expenses in connection with the
issuance and distribution of the Securities being registered under this
Registration Statement, other than underwriting discounts and commissions:
SEC registration fee................................... $ 792,000
Printing and engraving expenses........................ $ 40,000
Legal fees and expenses................................ $ 80,000
Trustee fees and expenses.............................. $ 25,000
Accounting fees and expenses........................... $ 30,000
Rating agency fees..................................... $ 80,000
Miscellaneous.......................................... $ 10,000
-----------
Total............................................ $ 1,057,000
===========
-----------
* All amounts except the SEC registration fee are estimates of aggregate
expenses incurred or to be incurred in connection with the issuance and
distribution of a Series of Securities in an aggregate principal amount
assumed for these purposes to be equal to $150,000,000 of Securities
registered hereby.
Item 15. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of Delaware empowers a
corporation to indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason of the fact
that he or she is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with such action, suit or proceeding if the
person indemnified acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his or her conduct was unlawful. No indemnification may be
made in respect to any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court may deem proper. Section 145 further provides
that to the extent a director or officer of a corporation has been successful
on the merits or otherwise in defense of any action, suit or proceeding
referred to above, or in the defense of any claim, issue or matter therein, he
or she shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him or her in connection therewith.
The Certificate of Incorporation and Bylaws of the Registrant provide, in
effect, that, to the extent and under the circumstances permitted by Section
145 of the General Corporation Law of Delaware, the Registrant shall indemnify
any person who was or is a party or is threatened to be made a party to any
action, suit or proceeding of the type described above by reason of the fact
that he or she is or was a director, officer, employee or agent of the
Registrant.
<PAGE>
Item 16. Exhibits.
1.1 -- Form of Underwriting Agreement
3.1 -- Certificate of Incorporation of the Registrant.*
3.2 -- By-laws of the Registrant.*
4.1 -- Form of Pooling and Servicing Agreement relating to Revolving Home
Equity Loan Asset Backed Certificates.
4.2 -- Form of Sale and Servicing Agreement relating to Revolving Home
Equity Loan Asset Backed Notes.
4.3 -- Form of Pooling and Servicing Agreement relating to Home Equity
Mortgage Loan Asset Backed Certificates.
4.4 -- Form of Trust Agreement.
4.5 -- Form of Indenture.
4.6 -- Form of Master Servicing Agreement.
5.1(a) -- Opinion of Brown & Wood LLP as to legality of the Securities
5.1(b) -- Opinion of Richards, Layton & Finger as to the legality of the
Securities
8.1 -- Opinion of Brown & Wood LLP as to certain tax matters (included in
Exhibit 5.1(a))
10.1 -- Form of Loan Purchase Agreement*
23.1(a)-- Consent of Brown & Wood LLP (included in Exhibits 5.1(a) and 8.1
hereof)
23.1(b)-- Consent of Richards, Layton & Finger (included in Exhibit 5.1(b)
hereof)
----------
* Incorporated by reference from the Registrant's Registration Statement
(No. 333-51609).
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most
recent post-effective amendment hereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in this Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective Registration Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of a Trust Fund's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934, as amended, that is incorporated
by reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act of 1933, as amended, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act of 1933, as
amended, and will be governed by the final adjudication of such issue.
(d) The undersigned Registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act of 1939 in accordance
with the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Trust Indenture Act of 1939.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the city of Pasadena, state of
California on the 1st day of November, 2000.
IndyMac ABS, Inc.
By /s/ Richard H. Wohl
.......................................
Name: Richard H. Wohl
Title: Chairman of the Board,
President and Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement Amendment has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C> <C>
/s/ Richard H. Wohl Chairman of the Board, President November 1, 2000
------------------- and Director
Richard H. Wohl (Principal Executive Officer)
*
==================== Executive Vice President, Chief November 1, 2000
Carmella L. Grahn Financial Officer and Director
(Principal Financial and Accounting
* Officer)
==================== Director November 1, 2000
Jeffrey P. Grogin
*By /s/ Richard H. Wohl
Richard H. Wohl
Attorney-in-Fact
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
Sequential
No. Description of Exhibit Page Number
----------- ---------------------- -----------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement.................................................
3.1 -- Certificate of Incorporation of the Registrant*................................
3.2 -- By-laws of the Registrant*.....................................................
4.1 -- Form of Pooling and Servicing Agreement relating to Revolving Home Equity
Loan Asset Backed Certificates.................................................
4.2 -- Form of Sale and Servicing Agreement relating to Revolving Home Equity
Loan Asset Backed Notes........................................................
4.3 -- Form of Pooling and Servicing Agreement relating to Home Equity Mortgage Loan Asset
Backed Certificates............................................................
4.4 -- Form of Trust Agreement........................................................
4.5 -- Form of Indenture..............................................................
4.6 -- Form of Master Servicing Agreement.............................................
5.1(a) -- Opinion of Brown & Wood LLP as to legality of the Securities...................
5.1(b) -- Opinion of Richards, Layton & Finger as to legality of the Securities..........
8.1 -- Opinion of Brown & Wood LLP as to certain tax matters
(included in Exhibit 5.1(a))...................................................
10.1 -- Form of Loan Purchase Agreement*...............................................
23.1(a) -- Consent of Brown & Wood LLP (included in Exhibits 5.1(a) and 8.1)..............
23.1(b) -- Consent of Richards, Layton & Finger (included in Exhibits 5.1(b) hereof)......
-----------
* Incorporated by reference from the Registrant's Registration Statement (No. 333-51609)
</TABLE>
