<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration File No.: 333-51609
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 24, 2000)
$294,939,100
(APPROXIMATE)
INDYMAC ABS, INC.
DEPOSITOR
[GRAPHIC OMITTED]
SELLER AND MASTER SERVICER
HOME EQUITY MORTGAGE LOAN ASSET-BACKED TRUST,
SERIES SPMD 2000-B
ISSUER
DISTRIBUTIONS PAYABLE ON THE 25TH DAY OF EACH MONTH, COMMENCING IN AUGUST 2000
------------------
The following classes of certificates are being offered
pursuant to this prospectus accompanying prospectus:
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-8 IN THIS PROSPECTUS
SUPPLEMENT AND ON PAGE 14 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.
<TABLE>
<CAPTION>
INITIAL
CLASS CERTIFICATE PASS-THROUGH UNDERWRITING PROCEEDS TO
CLASS BALANCE(1) RATE PRICE TO PUBLIC DISCOUNT DEPOSITOR(5)
<S> <C> <C> <C> <C> <C>
AF-1 $112,582,000 8.08%(2) 99.9760637%(4) 0.225% 99.7510637%
MF-1 $ 4,077,000 8.58%(2) 99.9662895%(4) 0.300% 99.6662895%
MF-2 $ 4,076,000 9.02%(2) 99.9570422%(4) 0.425% 99.5320422%
BF $ 3,136,000 9.50%(2) 98.2138395%(4) 0.550% 97.6638395%
AV-1 $144,884,000 (2)(3) 100.0000000% 0.225% 99.7750000%
MV-1 $ 8,728,000 (2)(3) 100.0000000% 0.300% 99.7000000%
MV-2 $ 9,165,000 (2)(3) 100.0000000% 0.425% 99.5750000%
BV $ 8,291,000 (2)(3) 100.0000000% 0.550% 99.4500000%
R $ 100 N/A N/A N/A N/A
Total $294,939,100 $ 294,852,912.70 $ 736,836.25 $ 294,116,076.45
</TABLE>
(1) Subject to a permitted variance in the aggregate of
5%.
(2) As described under "Description of the
Certificates--Distributions" in this prospectus
supplement, the pass-through rates of these classes of
certificates are subject to a rate cap.
(3) The pass-through rate on the Class AV-1, Class MV-1,
Class MV-2 and Class BV certificates will vary as the
described under "Description of the
Certificates--Distributions" in this prospectus
supplement.
(4) Plus accrued interest from July 1, 2000.
(5) Before deducting expenses.
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.
Banc of America Securities LLC and Morgan Stanley & Co. Incorporated, as
underwriters, will purchase the offered certificates from the depositor. See
"Method of Distribution" in this prospectus supplement.
BANC OF AMERICA SECURITIES LLC
MORGAN STANLEY DEAN WITTER
July 26, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Summary ........................................... S-3
Offered Certificates ........................ S-3
Other Certificates .......................... S-3
Cut-off Date ................................ S-3
Closing Date ................................ S-3
Depositor ................................... S-3
Seller and Master Servicer .................. S-3
Trustee ..................................... S-3
Designations ................................ S-3
Distribution Dates .......................... S-4
Interest Payments ........................... S-4
Principal Payments .......................... S-4
Mortgage Loans .............................. S-4
Statistical Calculation Information ......... S-5
Pre-Funding Accounts and Capitalized
Interest Accounts ........................ S-5
Optional Termination ........................ S-6
Advances .................................... S-6
Credit Enhancement .......................... S-6
Ratings ..................................... S-7
Tax Status .................................. S-7
ERISA Considerations ........................ S-7
Legal Investment ............................ S-7
Risk Factors ...................................... S-8
The Mortgage Pool ................................. S-15
General ..................................... S-15
Assignment of the Mortgage Loans ............ S-25
Conveyance of Subsequent Mortgage
Loans .................................... S-26
Underwriting Standards ...................... S-26
Servicing of Mortgage Loans ....................... S-28
The Master Servicer ......................... S-28
Foreclosure, Delinquency and Loss
Experience ............................... S-29
Servicing Compensation and Payment
of Expenses .............................. S-30
Adjustment to Servicing Compensation
in Connection with Certain Prepaid
Mortgage Loans ........................... S-30
Advances .................................... S-31
Certain Modifications and Refinancings ...... S-31
Default Management Services ................. S-32
Description of the Certificates ................... S-32
General ..................................... S-32
Book-Entry Certificates ..................... S-32
Payments on Mortgage Loans; Accounts......... S-33
Distributions ............................... S-34
Priority of Distributions Among
Certificates ............................. S-34
Distributions of Interest and Principal ..... S-34
Calculation of One-Month LIBOR .............. S-39
Excess Reserve Fund Account ................. S-40
Overcollateralization Provisions ............ S-40
Structuring Assumptions ..................... S-41
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Optional Purchase of Defaulted Loans ........ S-46
Optional Termination ........................ S-46
The Trustee ................................. S-47
Restrictions on Transfer of the Class R
Certificates ............................. S-47
Yield, Prepayment and Maturity
Considerations ................................... S-48
General ..................................... S-48
Defaults in Delinquent Payments ............. S-48
Prepayment Considerations and Risks ......... S-48
Adjustable Rate Certificates ................ S-50
Fixed Rate Certificates ..................... S-50
Overcollateralization Provisions ............ S-51
Subordinated Certificates ................... S-51
Additional Information ...................... S-52
Weighted Average Lives of the Offered
Certificates ............................. S-52
Decrement Tables ............................ S-52
Last Scheduled Distribution Date ............ S-56
Use of Proceeds ................................... S-56
Federal Income Tax Consequences ................... S-56
ERISA Considerations .............................. S-58
Method of Distribution ............................ S-60
Legal Matters ..................................... S-61
Ratings ........................................... S-61
Annex I: Global Clearance, Settlement and
Tax Documentation Procedures ..................... A-1
PROSPECTUS
Prospectus Supplement or Current Report on
Form 8-K ......................................... 3
Available Information ............................. 3
Incorporation of Certain Documents by
Reference ........................................ 3
Reports to Securityholders ........................ 4
Summary of Terms .................................. 5
Risk Factors ...................................... 14
The Trust Fund .................................... 22
Use of Proceeds ................................... 27
The Depositor ..................................... 27
Loan Program ...................................... 27
Description of the Securities ..................... 29
Credit Enhancement ................................ 43
Yield and Prepayment Considerations ............... 46
The Agreements .................................... 48
Certain Legal Aspects of the Loans ................ 60
Federal Income Tax Consequences ................... 73
State Tax Considerations .......................... 91
ERISA Considerations .............................. 92
Legal Investment .................................. 96
Method of Distribution ............................ 97
Legal Matters ..................................... 97
Financial Information ............................. 98
Rating ............................................ 98
Index of Defined Terms ............................ 99
</TABLE>
S-2
<PAGE>
SUMMARY
o THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND DOES
NOT CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING YOUR
INVESTMENT DECISION. TO UNDERSTAND ALL OF THE TERMS OF AN OFFERING OF THE
CERTIFICATES, READ CAREFULLY THIS ENTIRE DOCUMENT AND THE ACCOMPANYING
PROSPECTUS.
o CERTAIN STATEMENTS CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS CONSIST OF
FORWARD-LOOKING STATEMENTS RELATING TO FUTURE ECONOMIC PERFORMANCE OR
PROJECTIONS AND OTHER FINANCIAL ITEMS. THESE STATEMENTS CAN BE IDENTIFIED
BY THE USE OF FORWARD-LOOKING WORDS SUCH AS "MAY," "WILL," "SHOULD,"
"EXPECTS," "BELIEVES," "ANTICIPATES," "ESTIMATES," OR OTHER COMPARABLE
WORDS. FORWARD-LOOKING STATEMENTS ARE SUBJECT TO A VARIETY OF RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER FROM THE PROJECTED
RESULTS. THOSE RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHERS, GENERAL
ECONOMIC AND BUSINESS CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE
WITH GOVERNMENTAL REGULATIONS, CUSTOMER PREFERENCES AND VARIOUS OTHER
MATTERS, MANY OF WHICH ARE BEYOND OUR CONTROL. BECAUSE WE CANNOT PREDICT
THE FUTURE, WHAT ACTUALLY HAPPENS MAY BE VERY DIFFERENT FROM WHAT WE
PREDICT IN OUR FORWARD-LOOKING STATEMENTS.
OFFERED CERTIFICATES
On the closing date, Home Equity Mortgage Loan Asset-Backed Trust, Series SPMD
2000-B will issue ten classes of certificates, nine 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, July 1, 2000; for any subsequent mortgage loan,
August 1, 2000.
CLOSING DATE
On or about July 28, 2000.
DEPOSITOR
IndyMac ABS, Inc., a Delaware corporation, is a limited purpose finance
subsidiary of IndyMac Intermediate Holdings, Inc. and an affiliate 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
The Bank of New York.
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.
S-3
<PAGE>
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 25th day of each calendar month
beginning in August 2000 to the holders of record of the certificates as of the
last business day of the month preceding the distributions. If the 25th day of
a month is not a business day, then the distributions will be made on the next
business day after the 25th day of the month.
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
S-4
<PAGE>
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 85.06% 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 14.94% 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 August 31, 2000.
Accordingly, the statistical profile of the final pool of mortgage loans
following the pre-funding period will vary somewhat from the statistical
profile of the statistical calculation initial mortgage loans presented in this
prospectus supplement.
The statistical calculation initial mortgage loans in loan group 1 consist of
995 fixed-rate mortgage loans with an aggregate outstanding principal balance
of approximately $103,450,037 as of July 1, 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 996 adjustable-rate mortgage
loans with an aggregate outstanding principal balance of approximately
$143,959,331 as of July 1, 2000, after giving effect to principal payments due
on or before that date.
As described in this prospectus supplement under "The Mortgage Pool", the
interest rates for the adjustable rate mortgage loans will generally adjust
semi-annually or annually, subject to certain caps and floors, as described
herein.
Approximately 99.10% 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 $52,590,633 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 $21,989,882 to purchase
additional fixed-rate mortgage loans for inclusion in loan group 1 and up to
$30,600,751 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:
S-5
<PAGE>
o the date on which the remaining pre-funding amount for both loan groups is
less than $100,000, and
o the close of business on August 31, 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.
Subordination
On each distribution date, classes of a certificate group that are lower in
order of payment priority than the other classes of that certificate group will
not receive payments until the classes that are higher in order of payment
priority have been paid. If there is not enough money from the mortgage loans
in a loan group on a distribution date to pay all classes of the related
certificate group, the subordinate classes of that certificate group are the
first to forego payment.
Application of Realized Losses
If on any distribution date, after the balances of the certificates of a
certificate group have been reduced by the amount of principal paid on that
date, the total principal balance of those certificates is greater than the
total principal balance of the mortgage loans in the related loan group plus
any amount remaining in the related pre-funding account, the principal balance
of the outstanding certificates in that group that are lowest in order of
payment priority will be reduced by the amount of that excess.
Overcollateralization
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 $125,439,919, the trust is issuing only $123,871,100 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
$174,560,081 the trust is issuing only $171,068,000 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
S-6
<PAGE>
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 Standard & Poor's, a division of The
McGraw-Hill Companies, Inc. and by Fitch, Inc.
<TABLE>
<CAPTION>
S&P Fitch
Class Rating Rating
------- -------- -------
<S> <C> <C>
A AAA AAA
R AAA AAA
M-1 AA AA
M-2 A A
B BBB BBB
</TABLE>
See "Ratings" in this prospectus supplement.
TAX STATUS
For federal income tax purposes, the trustee will elect to treat the trust as
including 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 offeredcertificates, see "Federal Income Tax Consequences" in
this prospectus supplement and in the prospectus.
ERISA CONSIDERATIONS
Subject to the considerations set forth in "ERISA Considerations" in this
prospectus supplement and in the prospectus, the 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.
S-7
<PAGE>
RISK FACTORS
o THE FOLLOWING INFORMATION, WHICH YOU SHOULD CAREFULLY CONSIDER, IDENTIFIES
CERTAIN SIGNIFICANT SOURCES OF RISK ASSOCIATED WITH AN INVESTMENT IN THE
CERTIFICATES. YOU SHOULD ALSO CAREFULLY CONSIDER THE INFORMATION SET FORTH
UNDER "RISK FACTORS" IN THE PROSPECTUS.
YOU MAY HAVE DIFFICULTY
SELLING YOUR CERTIFICATES... Each underwriter intends to make a secondary
market in the certificates purchased by it, but
no underwriter has any obligation to do so. We
cannot assure you that a secondary market will
develop or, if it develops, that it will
continue. Consequently, you may not be able to
sell your certificates readily or at prices that
will enable you to realize your desired yield.
The market values of the certificates are likely
to fluctuate; these fluctuations may be
significant and could result in significant
losses to you.
The secondary markets for mortgage backed
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.
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<PAGE>
If you buy a subordinated certificate you will
not receive any principal distributions until
August 2003 at the earliest, unless the related
Class A Certificates have been paid down to zero
before that date. As a result, your subordinated
certificate will be outstanding longer than
would be the case if principal were distributed
on a proportionate basis among the Class A
Certificates and the subordinated certificates.
Because your subordinated certificate is
outstanding longer, there is a greater period of
time during which losses on the mortgage loans
in the related loan group will affect your
subordinated certificate. Therefore the risk
that you will lose all or part of the money you
paid for the certificate also increases.
Investors in the offered certificates should
consider the risk that the subordination of the
related subordinated classes may not be
sufficient to protect your certificates from
loss.
EXCESS INTEREST FROM THE
MORTGAGE LOANS MAY NOT
PROVIDE ADEQUATE
CREDIT ENHANCEMENT........ Each group of mortgage loans is expected to
generate more interest than is needed to pay
interest on the related classes of certificates
because the weighted average interest rate on
those mortgage loans is expected to be higher
than the weighted average pass-through rate on
the related classes of certificates. If the
amount of interest generated by a group of
mortgage loans is more than the amount that is
needed to pay interest on the related
certificates, some of such "excess interest" will
be used to make additional principal payments on
the related certificates, some will be used to
pay interest on the related certificates that was
previously 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
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rate mortgage loans is different from the index
used to determine the pass-through rates on the
group 2 certificates, it is possible that the
pass-through rates on these certificates may be
higher than the interest rates on the related
mortgage loans. In that event, it may be
necessary to apply all or a portion of the
available excess interest to make required
payments of interest on the related classes of
certificates. As a result, excess interest may
be unavailable for any other purpose.
Investors in the offered certificates, and
particularly the Class B Certificates, should
consider the risk that the overcollateralization
may not be sufficient to protect your
certificates from loss. Excess interest and
overcollateralization are the only forms of
credit enhancement for the Class B Certificates.
RISK REGARDING
MORTGAGE RATES.............. The pass-through rate on each class of group 2
certificates adjusts monthly and is generally
based on one-month LIBOR. The mortgage rates on
the adjustable rate mortgage loans generally
adjust semi-annually and, in the case of
approximately 99.10% 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.
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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
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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 September
2000 distribution date.
JUNIOR LIEN PRIORITY COULD
RESULT IN PAYMENT DELAY
OR LOSS..................... Approximately 2.13% of the statistical
calculation initial mortgage loans in loan group
1 (by principal balance as of July 1, 2000) are
secured by second liens on mortgaged properties.
The master servicer has the power under certain
circumstances to consent to a new mortgage lien
on the mortgaged property having priority over
the mortgage loan in the trust fund. Mortgage
loans secured by second mortgages are entitled to
proceeds that remain from the sale of the related
mortgaged property after any related senior
mortgage loan and prior statutory liens have been
satisfied. In the event that the remaining
proceeds are insufficient to satisfy the mortgage
loans secured by second mortgages and prior liens
in the aggregate and the credit enhancement is
insufficient, you will bear the risk of delay in
distributions while any deficiency judgment
against the borrower is sought and the risk of
loss if the deficiency judgment cannot be
obtained or is not realized upon.
See "Certain Legal Aspects of the Loans" in the
prospectus.
INSOLVENCY MAY AFFECT THE
TIMING AND AMOUNT OF
DISTRIBUTIONS ON THE
CERTIFICATES The transfer of the mortgage loans by the seller
to the depositor will be characterized in the
pooling and servicing agreement as a sale
transaction. Nevertheless, in the event of
insolvency of the seller, the Federal Deposit
Insurance Corporation (referred to as the FDIC)
as conservator or receiver, could attempt to
recharacterize the sale of the mortgage loans to
the depositor as a borrowing secured by a pledge
of the mortgage loans. If such an attempt to
recharacterize the transfer of the mortgage loans
were successful, the FDIC could elect to
accelerate payment of the certificates and
liquidate the mortgage loans, with the holders of
the certificates entitled to no more than the
outstanding principal balances, if any, of the
classes of certificates, together with interest
thereon at the applicable pass-through rates. In
the event of an acceleration of the certificates,
the holders of the certificates would lose the
right to future payments of interest, might
suffer reinvestment losses in a lower interest
rate environment and may fail to recover their
initial investment. Further, with respect to an
acceleration by the FDIC, interest may be payable
only through the date of appointment of the FDIC
as conservator or receiver. The FDIC
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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 25.19% of the statistical
calculation initial mortgage loans, based on
principal balances as of July 1, 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;
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<PAGE>
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.
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<PAGE>
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 July 1, 2000 among IndyMac Bank, as seller and master servicer, the
depositor and the trustee or pursuant to the pooling and servicing agreement
and a subsequent transfer agreement dated as of the subsequent transfer date
among IndyMac Bank, as seller and master servicer, the depositor and the
trustee and will cause the mortgage loans to be assigned to the trustee for the
benefit of holders of the certificates. The mortgage loans purchased pursuant
to the pooling and servicing agreement shall be designated "initial mortgage
loans" and the mortgage loans purchased pursuant to the pooling and servicing
agreement and a subsequent transfer agreement shall be designated "subsequent
mortgage loans."
Under the pooling and servicing agreement, the seller will make certain
representations, warranties and covenants to the depositor relating to, among
other things, the due execution and enforceability of the pooling and servicing
agreement and certain characteristics of the mortgage loans and, subject to the
limitations described below under "--Assignment of Mortgage Loans," will be
obligated to repurchase or substitute a similar mortgage loan for any mortgage
loan as to which there exists deficient documentation or an uncured breach of
any representation, warranty or covenant if the breach of representation,
warranty or covenant materially and adversely affects the interests of the
certificateholders in that mortgage loan; provided, however, that the seller
will not be obligated to make any repurchase or substitution (or cure any
breach) if the breach constitutes fraud in the origination of the affected
mortgage loan and the seller did not have knowledge of the fraud. The seller
will represent and warrant to the depositor in the pooling and servicing
agreement that the mortgage loans were selected from among the outstanding
one-to four-family mortgage loans in the seller's sub-prime mortgage portfolio
as to which the representations and warranties set forth in the pooling and
servicing agreement can be made and that the selection was not made in a manner
intended to adversely affect the interests of the certificateholders. See "Loan
Program--Representations by Sellers; Repurchases" in the prospectus. Under the
pooling and servicing agreement, the depositor will assign all its right, title
and interest in and to the representations, warranties and covenants (including
the seller's repurchase obligation) to the trustee for the benefit of the
certificateholders. The depositor will make no representations or warranties
with respect to the mortgage loans and will have no obligation to repurchase or
substitute mortgage loans with deficient documentation or which are otherwise
defective. IndyMac Bank is selling the mortgage loans without recourse and will
have no obligation with respect to the certificates in its capacity as seller
other than the repurchase or substitution obligations described above. The
obligations of IndyMac Bank, as master servicer, with respect to the
certificates are limited to the master servicer's contractual servicing
obligations under the pooling and servicing agreement.
Certain information with respect to the statistical calculation 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 $247,409,367.38, 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
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<PAGE>
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, 587 mortgage loans
in loan group 1, representing approximately 60.25% of the cut-off date
principal balance of the statistical calculation initial mortgage loans in loan
group 1, and 814 mortgage loans in loan group 2, representing approximately
78.32% 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 6/6 Adjustable
Mortgage Loans and 2/28 Adjustable Mortgage Loans (each as defined below)) and
one year (in the case of 3/1 Adjustable Mortgage Loans and 5/1 Adjustable
Mortgage Loans (each as defined below)) thereafter (referred to as an
Adjustment Date), equal to (a) in the case of 2/28 Adjustable Mortgage Loans
and 6/6 Adjustable Mortgage Loans, the sum, rounded to the nearest one-eighth
of one percentage point (0.125%), of (i) the average of interbank offered rates
for six month U.S. dollar deposits in the London market (referred to as the
Index) based on quotations of major banks, as published either (x) by Fannie
Mae either 30 or 45 days prior to the Adjustment Date or (y) in the "Money
Rates" section of The Wall Street Journal as of the first business day of the
month prior to the Adjustment Date, as specified in the related mortgage note,
and (ii) the margin specified in the related mortgage note and (b) in the case
of the 3/1 Adjustable Mortgage Loans, the weekly average yield on U.S. Treasury
Securities adjusted to a constant maturity of one year as made available by the
Federal Reserve, in each case as specified in the related mortgage note;
provided, however, that the mortgage rate will not increase or decrease on any
Adjustment Date by more than (A) with respect to 824 statistical calculation
initial mortgage loans (representing approximately 84.17% of the statistical
calculation cut-off date principal balance of loan group 2), one percentage
point (1%), (B) with respect to 5 statistical calculation initial mortgage
loans (representing approximately 0.35% 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 150 statistical calculation initial mortgage loans
(representing approximately 13.77% of the statistical calculation cut-off date
principal balance of loan group 2), two percentage points (2.0%), (D) with
respect to 3 statistical calculation initial mortgage loans (representing
approximately 0.19% of the statistical calculation cut-off date principal
balance of loan group 2), three percentage points (3%), (E) with respect to 4
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 10 statistical
calculation initial mortgage loans (representing approximately 1.26% 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 85.85% 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 2/28 Adjustable Mortgage Loans).
Approximately 0.90% 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 6/6 Adjustable
Mortgage Loans). Approximately 13.25% 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
3/1 Adjustable Mortgage Loans).
With respect to the statistical calculation initial mortgage loans in loan
group 2, 9 statistical calculation initial mortgage loans (representing
approximately 0.90% of the statistical calculation cut-off date principal
balance of loan group 2) are subject to an initial rate cap of 1%, 828
statistical calculation initial mortgage loans (representing approximately
84.45% of the statistical calculation cut-off date principal balance of loan
group 2) are subject to an initial rate cap of 3% and 145 statistical
calculation initial mortgage loans (representing approximately 13.32% of the
statistical calculation cut-off date principal balance of loan group 2) are
subject to an initial rate cap of 5%.
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The 2/28 Adjustable Mortgage Loans will include "performance loans"
(referred to as Performance Loans) that provide borrowers the potential of a
margin reduction for good payment history. The payment history for the
Performance Loan is evaluated in the second month preceding the month in which
the Initial Rate Adjustment Date occurs. If the related borrower has made
scheduled payments in full since the origination of that loan with a maximum of
one late payment (which, however, cannot be in the month of evaluation) the
loan is eligible for a reduction (ranging from 0.50% to 1.00%) in the margin
used to calculate the mortgage rate. Approximately 27.79% 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 October 1998. All of the statistical calculation
initial mortgage loans in loan group 2 were originated on or after October
1999.
The latest stated maturity date of any statistical calculation initial
mortgage loan in loan group 1 is August 2030. The earliest stated maturity date
of any statistical calculation initial mortgage loan in loan group 1 is
November 2014. The latest stated maturity date of any statistical calculation
initial mortgage loan in loan group 2 is July 2030. The earliest stated
maturity date of any statistical calculation initial mortgage loan in loan
group 2 is November 2029.
As of the cut-off date, 0.23% of the statistical calculation initial
mortgage loans in loan group 1 and 0.14% of the statistical calculation initial
mortgage loans in loan group 2 were delinquent more than 30 days.
With respect to 70 statistical calculation initial mortgage loans
(representing approximately 6.56% 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 94 statistical calculation initial mortgage loans
(representing approximately 8.22% 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, 955
mortgage loans (representing approximately 97.87% 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 40 mortgage loans in loan group 1 (representing approximately 2.13% of the
statistical calculation cut-off date principal
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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 32 statistical calculation initial mortgage loans in loan group 1,
representing approximately 1.37% of the statistical calculation cut-off date
principal balance of the statistical calculation initial mortgage loans in loan
group 1, and except for 3 statistical calculation initial mortgage loans in
loan group 2, representing approximately 0.20% 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
S-18
<PAGE>
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.
S-19
<PAGE>
STATISTICAL CALCULATION LOAN GROUP 1
<TABLE>
<CAPTION>
ORIGINAL COMBINED LOAN-TO-VALUE RATIOS(1)
--------------------------------------------------------------------
ORGINAL 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
------------------------ ----------- ------------------- -----------
<S> <C> <C> <C>
10.00 -- 60.00 ......... 108 $ 8,005,922.12 7.74%
60.01 -- 65.00 ......... 32 2,557,363.17 2.47
60.01 -- 70.00 ......... 77 7,413,404.13 7.17
70.01 -- 75.00 ......... 121 13,189,291.61 12.75
75.01 -- 80.00 ......... 275 30,916,931.97 29.89
80.01 -- 85.00 ......... 79 9,677,277.09 9.35
85.01 -- 90.00 ......... 217 21,948,821.89 21.22
90.01 -- 95.00 ......... 86 9,741,024.52 9.42
--- ---------------- ------
Total ............. 995 $ 103,450,036.50 100.00%
=== ================ ======
</TABLE>
----------------------
(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 79.12%.
<TABLE>
<CAPTION>
ORIGINAL TERMS TO MATURITY(1)
----------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
ORIGINAL TERM TO MORTGAGE BALANCE PRINCIPAL
MATURITY (MONTHS) LOANS OUTSTANDING BALANCE
-------------------- ----------- ------------------- -----------
<S> <C> <C> <C>
180 -- 180 ......... 97 $ 6,128,182.57 5.92%
181 -- 240 ......... 17 1,031,801.65 1.00
301 -- 360 ......... 881 96,290,052.28 93.08
--- ---------------- ------
Total ............ 995 $ 103,450,036.50 100.00%
=== ================ ======
</TABLE>
----------------------
(1) The weighted average remaining term to maturity of the statistical
calculation initial mortgage loans in loan group 1 is expected to be
approximately 348 months.
<TABLE>
<CAPTION>
MORTGAGE RATES(1)
---------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
MORTGAGE RATES (%) LOANS OUTSTANDING BALANCE
------------------------ ----------- -------------------- -----------
<S> <C> <C> <C>
7.750-- 7.750 ......... 1 $ 90,000.00 0.09%
7.751-- 8.000 ......... 1 170,000.00 0.16
8.001-- 8.250 ......... 5 740,021.23 0.72
8.251-- 8.500 ......... 4 814,846.78 0.79
8.501-- 8.750 ......... 4 622,716.40 0.60
8.751-- 9.000 ......... 9 1,084,158.99 1.05
9.001-- 9.250 ......... 18 2,307,590.26 2.23
9.251-- 9.500 ......... 33 4,610,962.87 4.46
9.501-- 9.750 ......... 50 5,608,798.48 5.42
9.751--10.000 ......... 79 8,561,617.49 8.28
10.001--10.250 ......... 93 10,727,322.87 10.37
10.251--10.500 ......... 113 13,472,322.91 13.02
10.501--10.750 ......... 107 11,409,695.81 11.03
10.751--11.000 ......... 102 10,396,879.20 10.05
11.001--11.250 ......... 67 6,523,214.84 6.31
11.251--11.500 ......... 66 6,825,103.18 6.60
11.501--11.750 ......... 53 4,910,009.50 4.75
11.751--12.000 ......... 58 4,614,257.59 4.46
12.001--12.250 ......... 24 1,478,547.56 1.43
12.251--12.500 ......... 34 2,508,107.84 2.42
12.501--12.750 ......... 17 1,179,977.09 1.14
12.751--13.000 ......... 15 1,255,804.76 1.21
13.001--13.250 ......... 9 752,450.00 0.73
13.251--13.500 ......... 14 1,253,152.50 1.21
13.501--13.750 ......... 8 490,491.06 0.47
13.751--14.000 ......... 3 388,777.67 0.38
14.001--14.250 ......... 4 328,000.00 0.32
14.251--14.500 ......... 3 288,709.62 0.28
14.501--14.750 ......... 1 36,500.00 0.04
--- ----------------- ------
Total ............. 995 $ 103,450,036.50 100.00%
=== ================= ======
</TABLE>
----------------------
(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
10.762%. 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
10.738%.
<TABLE>
<CAPTION>
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
---------------------------------- ----------- ------------------- -----------
<S> <C> <C> <C>
$ 8,800.00 to 50,000.00......... 202 $ 7,497,067.34 7.25%
$ 50,000.01 to 100,000.00......... 394 29,343,295.72 28.36
$100,000.01 to 150,000.00......... 228 28,277,178.95 27.33
$150,000.01 to 200,000.00......... 88 15,294,376.33 14.78
$200,000.01 to 250,000.00......... 37 8,368,928.98 8.09
$250,000.01 to 300,000.00......... 25 6,847,047.67 6.62
$300,000.01 to 350,000.00......... 12 3,876,544.80 3.75
$350,000.01 to 400,000.00......... 2 760,000.00 0.73
$400,000.01 to 450,000.00......... 3 1,225,348.00 1.18
$450,000.01 to 500,000.00......... 3 1,400,832.53 1.35
$550,000.01 to 559,416.18......... 1 559,416.18 0.54
--- ----------------- ------
Total ....................... 995 $ 103,450,036.50 100.00%
=== ================= ======
</TABLE>
----------------------
(1) The average current principal balance of the statistical calculation
initial mortgage loans in loan group 1 is expected to be approximately
$103,970.
S-20
<PAGE>
<TABLE>
<CAPTION>
OCCUPANCY TYPES(1)
-------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
OCCUPANCY TYPE LOANS OUTSTANDING BALANCE
---------------------- ----------- -------------------- -----------
<S> <C> <C> <C>
Primary Home ......... 906 $ 96,636,150.80 93.41%
Investor ............. 78 5,792,684.48 5.60
Second Home .......... 11 1,021,201.22 0.99
--- ---------------- ------
Total .............. 995 $ 103,450,036.50 100.00%
=== ================ ======
</TABLE>
----------------------
(1) Based upon representations of the related mortgagors at the time of
origination.
<TABLE>
<CAPTION>
STATE DISTRIBUTION OF MORTGAGED PROPERTIES
---------------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
STATE OR TERRITORY LOANS OUTSTANDING BALANCE
------------------------------ ----------- -------------------- -----------
<S> <C> <C> <C>
California ................... 158 $ 21,598,384.53 20.88%
New York ..................... 113 14,052,070.55 13.58
Florida ...................... 77 7,347,927.97 7.10
New Jersey ................... 47 6,180,550.02 5.97
Texas ........................ 51 4,862,074.71 4.70
North Carolina ............... 52 3,837,584.98 3.71
Colorado ..................... 33 3,798,826.23 3.67
South Carolina ............... 48 3,349,857.76 3.24
Connecticut .................. 23 2,801,677.11 2.71
Georgia ...................... 33 2,741,615.76 2.65
Michigan ..................... 25 2,583,435.17 2.50
Washington ................... 19 2,371,768.98 2.29
Virginia ..................... 19 2,097,630.50 2.03
Tennessee .................... 31 1,948,216.49 1.88
Pennsylvania ................. 23 1,939,566.81 1.87
Maryland ..................... 19 1,923,702.37 1.86
Arizona ...................... 16 1,556,233.75 1.50
Oklahoma ..................... 17 1,405,455.63 1.36
Nevada ....................... 11 1,282,604.61 1.24
Oregon ....................... 13 1,196,312.36 1.16
Illinois ..................... 9 1,087,070.83 1.05
Wisconsin .................... 9 1,037,515.41 1.00
Massachusetts ................ 8 941,952.28 0.91
Missouri ..................... 10 910,422.55 0.88
Idaho ........................ 8 865,847.06 0.84
Ohio ......................... 13 832,445.68 0.80
New Hampshire ................ 7 771,433.00 0.75
Minnesota .................... 9 768,029.84 0.74
Indiana ...................... 9 709,159.46 0.69
Alaska ....................... 6 679,151.65 0.66
District of Columbia ......... 6 678,807.34 0.66
Hawaii ....................... 5 573,495.97 0.55
Kentucky ..................... 8 513,237.96 0.50
Arkansas ..................... 9 506,932.03 0.49
Montana ...................... 7 504,050.00 0.49
Utah ......................... 3 492,291.55 0.48
Iowa ......................... 7 404,453.47 0.39
New Mexico ................... 3 314,800.00 0.30
Maine ........................ 5 313,358.57 0.30
Vermont ...................... 4 287,859.88 0.28
Kansas ....................... 4 256,735.52 0.25
Louisiana .................... 5 231,513.09 0.22
Nebraska ..................... 4 230,415.00 0.22
Mississippi .................. 3 228,476.10 0.22
Delaware ..................... 2 169,457.65 0.16
West Virginia ................ 3 157,628.32 0.15
Wyoming ...................... 1 108,000.00 0.10
--- ---------------- ------
Total ................... 995 $ 103,450,036.50 100.00%
=== ================ ======
</TABLE>
<TABLE>
<CAPTION>
PURPOSE OF MORTGAGE LOANS
---------------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
LOAN PURPOSE LOANS OUTSTANDING BALANCE
------------------------------ ----------- -------------------- -----------
<S> <C> <C> <C>
Purchase ..................... 480 $ 52,005,200.06 50.27%
Refinance (Cash Out) ......... 344 35,430,359.66 34.25
Refinance (Rate or
Term) ...................... 171 16,014,476.78 15.48
--- ---------------- ------
Total ................... 995 $ 103,450,036.50 100.00%
=== ================ ======
</TABLE>
<TABLE>
<CAPTION>
DOCUMENTATION PROGRAMS FOR MORTGAGE LOANS(1)
-------------------------------------------------------------------------
AGGREGATE PERCENT OF
TYPE OF NUMBER OF PRINCIPAL AGGREGATE
DOCUMENTATION MORTGAGE BALANCE PRINCIPAL
PROGRAM LOANS OUTSTANDING BALANCE
---------------------------- ----------- -------------------- -----------
<S> <C> <C> <C>
Full Documentation ......... 729 $ 75,336,007.70 72.82%
Reduced
Documentation ............ 218 24,202,432.09 23.40
No Ratio ................... 21 1,988,432.94 1.92
No Documentation ........... 27 1,923,163.77 1.86
--- ---------------- ------
Total ................. 995 $ 103,450,036.50 100.00%
=== ================ ======
</TABLE>
----------------------
(1) The Full, Reduced, No Ratio, and No Documentation Programs are described
under the heading "--Underwriting Standards."
<TABLE>
<CAPTION>
TYPE OF MORTGAGE PROPERTIES
-----------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
PROPERTY TYPE LOANS OUTSTANDING BALANCE
-------------------------- ----------- -------------------- -----------
<S> <C> <C> <C>
Single Family
Residence/D-PUD ........ 612 $ 68,118,352.56 65.85%
Manufactured Home(1) ..... 184 12,710,112.71 12.29
PUD ...................... 64 8,619,955.19 8.33
Two Units ................ 37 4,580,570.82 4.43
Low Rise Condominium ..... 33 2,796,449.07 2.70
Three Units .............. 13 2,071,498.39 2.00
Cooperative .............. 28 1,869,049.83 1.81
Four Units ............... 11 1,613,981.80 1.56
Townhouse ................ 9 696,870.00 0.67
High Rise Condominium 4 373,196.13 0.36
--- ---------------- ------
Total ............... 995 $ 103,450,036.50 100.00%
=== ================ ======
</TABLE>
----------------------
(1) Treated as real property.
<TABLE>
<CAPTION>
FICO CREDIT SCORES FOR MORTGAGE LOANS
-------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
FICO CREDIT SCORE LOANS OUTSTANDING BALANCE
----------------------- ----------- ------------------- -----------
<S> <C> <C> <C>
500--549 .............. 94 $ 7,299,557.46 7.06%
550--599 .............. 358 35,702,190.38 34.51
600--649 .............. 402 45,713,062.57 44.19
650--699 .............. 103 10,720,072.79 10.36
700--749 .............. 19 2,261,330.05 2.19
750--784 .............. 12 896,307.80 0.87
Not Available ......... 7 857,515.45 0.83
--- ---------------- ------
Total ............... 995 $ 103,450,036.50 100.00%
=== ================ ======
</TABLE>
<TABLE>
<CAPTION>
CREDIT LEVELS FOR MORTGAGE LOANS(1)
--------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
CREDIT LEVEL LOANS OUTSTANDING BALANCE
----------------------- ----------- -------------------- -----------
<S> <C> <C> <C>
1 ..................... 273 $ 30,054,985.05 29.05%
1+ .................... 452 52,472,235.17 50.72
2 ..................... 124 10,504,825.50 10.15
3 ..................... 72 5,969,390.17 5.77
4 ..................... 32 2,017,233.78 1.95
Not Available ......... 42 2,431,366.83 2.35
--- ---------------- ------
Total ............... 995 $ 103,450,036.50 100.00%
=== ================ ======
</TABLE>
----------------------
(1) Credit Levels are assigned as described under the heading "--Underwriting
Standards."
S-21
<PAGE>
STATISTICAL CALCULATION LOAN GROUP 2
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS(1)
--------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
ORGINAL LOAN-TO-VALUE MORTGAGE BALANCE PRINCIPAL
RATIOS (%) LOANS OUTSTANDING BALANCE
----------------------- ----------- -------------------- -----------
<S> <C> <C> <C>
8.79-60.00 ........... 75 $ 12,767,524.22 8.87%
60.01-65.00 ........... 32 4,038,436.30 2.81
60.01-70.00 ........... 62 8,920,923.43 6.20
70.01-75.00 ........... 150 21,890,879.75 15.21
75.01-80.00 ........... 279 40,917,705.25 28.42
80.01-85.00 ........... 68 10,738,410.95 7.46
85.01-90.00 ........... 224 30,513,842.61 21.20
90.01-95.00 ........... 106 14,171,608.37 9.84
--- ---------------- ------
Total ............... 996 $ 143,959,330.88 100.00%
=== ================ ======
</TABLE>
----------------------
(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 79.14%.
<TABLE>
<CAPTION>
ORIGINAL TERMS TO MATURITY(1)
------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
ORIGINAL TERM TO MORTGAGE BALANCE PRINCIPAL
MATURITY (MONTHS) LOANS OUTSTANDING BALANCE
-------------------- ----------- --------------------- -----------
<S> <C> <C> <C>
360-360 ............ 996 $ 143,959,330.88 100.00%
--- ----------------- ------
Total ............ 996 $ 143,959,330.88 100.00%
=== ================= ======
</TABLE>
----------------------
(1) The weighted average remaining term to maturity of the statistical
calculation initial mortgage loans in loan group 2 is expected to be
approximately 360 months.
<TABLE>
<CAPTION>
CURRENT MORTGAGE RATES(1)
---------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
CURRENT MORTGAGE RATES MORTGAGE BALANCE PRINCIPAL
(%) LOANS OUTSTANDING BALANCE
------------------------ ----------- -------------------- -----------
<S> <C> <C> <C>
8.000- 8.000 .......... 2 $ 301,000.00 0.21%
8.001- 8.250 .......... 2 241,641.53 0.17
8.251- 8.500 .......... 6 1,074,946.93 0.75
8.501- 8.750 .......... 17 2,810,679.32 1.95
8.751- 9.000 .......... 35 6,240,413.50 4.33
9.001- 9.250 .......... 32 5,189,682.83 3.60
9.251- 9.500 .......... 85 12,434,954.41 8.64
9.501- 9.750 .......... 107 16,632,185.20 11.55
9.751-10.000 .......... 127 19,804,368.72 13.76
10.001-10.250 .......... 85 12,344,298.45 8.57
10.251-10.500 .......... 113 16,996,196.18 11.81
10.501-10.750 .......... 85 11,871,312.16 8.25
10.751-11.000 .......... 70 9,747,797.12 6.77
11.001-11.250 .......... 57 8,478,045.17 5.89
11.251-11.500 .......... 44 5,343,865.79 3.71
11.501-11.750 .......... 39 4,969,503.01 3.45
11.751-12.000 .......... 26 2,105,948.65 1.46
12.001-12.250 .......... 15 2,090,000.00 1.45
12.251-12.500 .......... 17 1,744,991.19 1.21
12.501-12.750 .......... 11 1,403,993.08 0.98
12.751-13.000 .......... 3 423,909.03 0.29
13.001-13.250 .......... 5 486,463.20 0.34
13.251-13.500 .......... 8 618,355.41 0.43
13.501-13.750 .......... 1 73,430.00 0.05
13.751-14.000 .......... 4 531,350.00 0.37
--- ---------------- ------
Total ............. 996 $ 143,959,330.88 100.00%
=== ================ ======
</TABLE>
----------------------
(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
10.330%. 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
10.301%.
<TABLE>
<CAPTION>
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
-------------------------------- ----------- ------------------- -----------
<S> <C> <C> <C>
$ 16,494.11 to 50,000.00..... 64 $ 2,528,198.22 1.76%
$ 50,000.01 to 100,000.00..... 317 24,301,574.55 16.88
$100,000.01 to 150,000.00..... 263 32,523,327.57 22.59
$150,000.01 to 200,000.00..... 159 27,793,178.18 19.31
$200,000.01 to 250,000.00..... 96 21,455,239.98 14.90
$250,000.01 to 300,000.00..... 38 10,517,649.74 7.31
$300,000.01 to 350,000.00..... 24 7,837,232.25 5.44
$350,000.01 to 400,000.00..... 15 5,697,438.01 3.96
$400,000.01 to 450,000.00..... 6 2,581,529.80 1.79
$450,000.01 to 500,000.00..... 5 2,393,744.94 1.66
$500,000.01 to 550,000.00..... 2 1,044,000.00 0.73
$550,000.01 to 600,000.00..... 2 1,128,000.00 0.78
$650,000.01 to 700,000.00..... 1 700,000.00 0.49
$700,000.01 to 750,000.00..... 2 1,492,217.64 1.04
$950,000.01 to 1,000,000.00..... 2 1,966,000.00 1.37
--- ---------------- ------
Total ..................... 996 $ 143,959,330.88 100.00%
=== ================ ======
</TABLE>
----------------------
(1) The average current principal balance of the statistical calculation
initial mortgage loans in loan group 2 is expected to be approximately
$144,537.
S-22
<PAGE>
<TABLE>
<CAPTION>
OCCUPANCY TYPES(1)
--------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
OCCUPANCY TYPE LOANS OUTSTANDING BALANCE
---------------------- ----------- --------------------- -----------
<S> <C> <C> <C>
Primary Home ......... 909 $ 135,268,909.92 93.96%
Investor ............. 79 7,299,835.31 5.07
Second Home .......... 8 1,390,585.65 0.97
--- ---------------- ------
Total .............. 996 $ 143,959,330.88 100.00%
=== ================ ======
</TABLE>
----------------------
(1) Based upon representations of the related mortgagors at the time of
origination.
<TABLE>
<CAPTION>
STATE DISTRIBUTION OF MORTGAGED PROPERTIES
----------------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
STATE OR TERRITORY LOANS OUTSTANDING BALANCE
------------------------------- ----------- -------------------- -----------
<S> <C> <C> <C>
California .................... 207 $ 40,733,623.57 28.30%
Texas ......................... 63 8,217,432.75 5.71
New Jersey .................... 49 8,121,418.78 5.64
New York ...................... 41 7,463,854.23 5.18
Arizona ....................... 27 5,098,533.79 3.54
Florida ....................... 51 4,987,383.29 3.46
Colorado ...................... 37 4,889,449.06 3.40
Minnesota ..................... 35 4,281,684.88 2.97
North Carolina ................ 42 4,276,060.23 2.97
Utah .......................... 27 3,840,724.68 2.67
Maryland ...................... 23 3,683,958.70 2.56
Connecticut ................... 18 3,654,881.72 2.54
Massachusetts ................. 22 3,470,510.89 2.41
Nevada ........................ 17 3,265,948.14 2.27
Washington .................... 23 3,081,393.08 2.14
Pennsylvania .................. 22 2,858,719.54 1.99
Virginia ...................... 16 2,580,517.87 1.79
Michigan ...................... 27 2,512,107.31 1.75
South Carolina ................ 26 2,373,726.49 1.65
Missouri ...................... 26 1,992,816.88 1.38
Illinois ...................... 13 1,920,122.92 1.33
Oregon ........................ 12 1,810,328.60 1.26
Georgia ....................... 14 1,796,363.10 1.25
Idaho ......................... 18 1,694,453.55 1.18
Iowa .......................... 24 1,691,705.83 1.18
Kansas ........................ 12 1,596,599.74 1.11
Tennessee ..................... 13 1,284,557.27 0.89
Vermont ....................... 9 1,262,244.61 0.88
Alaska ........................ 9 1,052,644.63 0.73
Montana ....................... 8 953,271.04 0.66
Hawaii ........................ 3 953,117.23 0.66
Ohio .......................... 9 806,360.94 0.56
Wisconsin ..................... 7 803,413.61 0.56
New Mexico .................... 5 560,146.24 0.39
New Hampshire ................. 5 505,361.22 0.35
Delaware ...................... 4 465,855.41 0.32
Indiana ....................... 4 408,172.03 0.28
Arkansas ...................... 1 399,500.00 0.28
Maine ......................... 3 382,505.20 0.27
Oklahoma ...................... 5 381,250.00 0.26
Rhode Island .................. 3 352,286.67 0.24
District of Columbia .......... 3 314,407.00 0.22
Wyoming ....................... 3 295,855.63 0.21
Louisiana ..................... 3 198,580.00 0.14
Kentucky ...................... 2 180,700.00 0.13
West Virginia ................. 1 128,648.86 0.09
South Dakota .................. 1 116,684.64 0.08
Alabama ....................... 1 106,349.03 0.07
North Dakota .................. 1 98,100.00 0.07
Nebraska ...................... 1 55,000.00 0.04
--- ---------------- ------
Total .................... 996 $ 143,959,330.88 100.00%
=== ================ ======
</TABLE>
<TABLE>
<CAPTION>
PURPOSE OF MORTGAGE LOANS
---------------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
LOAN PURPOSE LOANS OUTSTANDING BALANCE
------------------------------ ----------- -------------------- -----------
<S> <C> <C> <C>
Purchase ..................... 539 $ 73,959,830.60 51.38%
Refinance (Cash Out) ......... 333 53,375,395.73 37.08
Refinance (Rate or
Term) ...................... 124 16,624,104.55 11.55
--- ---------------- ------
Total ................... 996 $ 143,959,330.88 100.00%
=== ================ ======
</TABLE>
<TABLE>
<CAPTION>
DOCUMENTATION PROGRAMS FOR MORTGAGE LOANS(1)
-----------------------------------------------------------------------
AGGREGATE PERCENT OF
TYPE OF NUMBER OF PRINCIPAL AGGREGATE
DOCUMENTATION MORTGAGE BALANCE PRINCIPAL
PROGRAM LOANS OUTSTANDING BALANCE
-------------------------- ----------- -------------------- -----------
<S> <C> <C> <C>
Full Documentation ....... 702 $ 92,629,286.14 64.34%
Reduced Documentation..... 249 44,555,206.16 30.95
No Ratio ................. 29 4,478,277.60 3.11
No Documentation ......... 16 2,296,560.98 1.60
--- ---------------- ------
Total ............... 996 $ 143,959,330.88 100.00%
=== ================ ======
</TABLE>
----------------------
(1) The Full, Reduced, No Ratio, and No Documentation Programs are described
under the heading "--Underwriting Standards."
<TABLE>
<CAPTION>
TYPE OF MORTGAGE PROPERTIES
------------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
PROPERTY TYPE LOANS OUTSTANDING BALANCE
-------------------------- ----------- --------------------- -----------
<S> <C> <C> <C>
Single Family
Residence/D-PUD ........ 684 $ 104,634,561.99 72.68%
PUD ...................... 76 13,251,218.52 9.20
Manufactured Home(1) ..... 112 9,589,171.54 6.66
Two Units ................ 43 5,909,732.35 4.11
Low Rise Condominium ..... 43 5,776,072.68 4.01
Three Units .............. 13 1,740,169.14 1.21
Cooperative .............. 8 1,379,377.79 0.96
Four Units ............... 10 732,253.35 0.51
High Rise Condominium 3 485,150.00 0.34
Townhouse ................ 4 461,623.52 0.32
--- ---------------- ------
Total ............... 996 $ 143,959,330.88 100.00%
=== ================ ======
</TABLE>
----------------------
(1) Treated as real property.
<TABLE>
<CAPTION>
FICO CREDIT SCORES FOR MORTGAGE LOANS
-------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
FICO CREDIT SCORE LOANS OUTSTANDING BALANCE
----------------------- ----------- ------------------- -----------
<S> <C> <C> <C>
500-549 ............... 91 $ 9,892,997.88 6.87%
550-599 ............... 402 57,249,585.43 39.77
600-649 ............... 396 61,546,565.21 42.75
650-699 ............... 83 12,357,155.64 8.58
700-749 ............... 14 1,642,168.78 1.14
750-799 ............... 2 355,800.00 0.25
850-899 ............... 1 101,250.00 0.07
900-900 ............... 1 55,350.00 0.04
Not Available ......... 6 758,457.94 0.53
--- ---------------- ------
Total ............... 996 $ 143,959,330.88 100.00%
=== ================ ======
</TABLE>
<TABLE>
<CAPTION>
CREDIT LEVELS FOR MORTGAGE LOANS(1)
--------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
CREDIT LEVEL LOANS OUTSTANDING BALANCE
----------------------- ----------- -------------------- -----------
<S> <C> <C> <C>
1 ..................... 283 $ 42,273,083.04 29.36%
1+ .................... 476 72,949,214.94 50.67
2 ..................... 140 18,232,841.14 12.67
3 ..................... 76 8,273,856.12 5.75
4 ..................... 18 1,746,556.53 1.21
Not Available ......... 3 483,779.11 0.34
--- ---------------- ------
Total ............... 996 $ 143,959,330.88 100.00%
=== ================ ======
</TABLE>
----------------------
(1) Credit Levels are assigned as described under the heading "--Underwriting
Standards."
S-23
<PAGE>
<TABLE>
<CAPTION>
MARGIN(1)
------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
MARGIN (%) LOANS OUTSTANDING BALANCE
--------------------- ----------- -------------------- -----------
<S> <C> <C> <C>
4.750-4.750 ......... 2 $ 179,887.11 0.12%
4.751-5.000 ......... 122 19,578,271.42 13.60
5.001-5.250 ......... 2 386,747.27 0.27
5.251-5.500 ......... 302 43,277,719.51 30.06
5.501-5.750 ......... 97 12,003,441.30 8.34
5.751-6.000 ......... 115 16,757,219.32 11.64
6.001-6.250 ......... 92 14,098,770.59 9.79
6.251-6.500 ......... 105 13,487,221.50 9.37
6.501-6.750 ......... 43 5,563,916.80 3.86
6.751-7.000 ......... 38 6,976,026.08 4.85
7.001-7.250 ......... 11 1,137,384.16 0.79
7.251-7.500 ......... 33 4,882,133.49 3.39
7.501-7.750 ......... 8 1,797,628.84 1.25
7.751-8.000 ......... 13 2,065,109.53 1.43
8.001-8.250 ......... 3 681,000.00 0.47
8.251-8.500 ......... 6 538,055.41 0.37
8.751-9.000 ......... 2 276,350.00 0.19
9.001-9.250 ......... 2 272,448.55 0.19
--- ---------------- ------
Total ............. 996 $ 143,959,330.88 100.00%
=== ================ ======
</TABLE>
----------------------
(1) The weighted average Margin of the statistical calculation initial mortgage
loans in loan group 2 is expected to be approximately 5.976%.
<TABLE>
<CAPTION>
NEXT ADJUSTMENT DATES(1)
---------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
MONTHS LOANS OUTSTANDING BALANCE
------------------------ ----------- -------------------- -----------
<S> <C> <C> <C>
November, 2000 ......... 3 $ 478,349.12 0.33%
December, 2000 ......... 4 505,200.00 0.35
January, 2001 .......... 2 317,250.00 0.22
November, 2001 ......... 1 64,122.03 0.04
December, 2001 ......... 1 76,335.09 0.05
January, 2002 .......... 3 320,261.70 0.22
March, 2002 ............ 10 1,332,016.60 0.93
April, 2002 ............ 47 6,994,312.88 4.86
May, 2002 .............. 215 29,326,913.64 20.37
June, 2002 ............. 300 45,887,096.84 31.88
July, 2002 ............. 265 39,582,036.00 27.50
April, 2003 ............ 11 2,104,594.96 1.46
May, 2003 .............. 37 4,844,318.85 3.37
June, 2003 ............. 56 7,379,920.17 5.13
July, 2003 ............. 41 4,746,603.00 3.30
--- ---------------- ------
Total ............. 996 $ 143,959,330.88 100.00%
=== ================ ======
</TABLE>
----------------------
(1) The weighted average months to next Adjustment Date for the statistical
calculation initial mortgage loans in loan group 2 is expected to be 25
months.
<TABLE>
<CAPTION>
MAXIMUM RATES(1)
--------------------------------------------------------------------
AGGREGATE PERCENT OF
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGE BALANCE PRINCIPAL
MAXIMUM RATE (%) LOANS OUTSTANDING BALANCE
----------------------- ----------- -------------------- -----------
<S> <C> <C> <C>
15.000-15.000 ......... 2 $ 301,000.00 0.21%
15.001-15.250 ......... 2 241,641.53 0.17
15.251-15.500 ......... 6 1,074,946.93 0.75
15.501-15.750 ......... 17 2,810,679.32 1.95
15.751-16.000 ......... 35 6,240,413.50 4.33
16.001-16.250 ......... 33 5,445,232.83 3.78
16.251-16.500 ......... 88 13,422,703.90 9.32
16.501-16.500 ......... 108 16,806,985.20 11.67
16.751-17.000 ......... 127 19,804,368.72 13.76
17.001-17.250 ......... 84 12,088,748.45 8.40
17.251-17.500 ......... 110 16,008,446.69 11.12
17.501-17.750 ......... 85 11,985,674.68 8.33
17.751-18.000 ......... 70 9,747,797.12 6.77
18.001-18.250 ......... 57 8,478,045.17 5.89
18.251-18.500 ......... 45 5,438,316.05 3.78
18.501-18.750 ......... 38 4,680,340.49 3.25
18.751-19.000 ......... 26 2,105,948.65 1.46
19.001-19.250 ......... 15 2,090,000.00 1.45
19.251-19.500 ......... 16 1,650,540.93 1.15
19.501-19.750 ......... 11 1,403,993.08 0.98
19.751-20.000 ......... 3 423,909.03 0.29
20.001-20.250 ......... 5 486,463.20 0.34
20.251-20.500 ......... 8 618,355.41 0.43
20.501-20.750 ......... 1 73,430.00 0.05
20.751-21.000 ......... 4 531,350.00 0.37
--- ---------------- ------
Total ............... 996 $ 143,959,330.88 100.00%
=== ================ ======
</TABLE>
----------------------
(1) The weighted average Maximum Rate of the statistical calculation initial
mortgage loans in loan group 2 is expected to be approximately 17.318%.
S-24
<PAGE>
ASSIGNMENT OF THE MORTGAGE LOANS
Pursuant to the pooling and servicing agreement, on the closing date the
seller will sell, transfer, assign, set over and otherwise convey without
recourse to the depositor all right, title and interest of the seller, and the
depositor will sell, transfer, assign, set over and otherwise convey without
recourse to the trustee in trust for the benefit of the certificateholders all
right, title and interest of the depositor, in and to each 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-B, including all
principal and interest received on or with respect to the mortgage loans,
exclusive of principal and interest due on or prior to the cut-off date and the
pre-funded amount deposited in the pre-funding accounts on the closing date.
In connection with the transfer and assignment, the depositor will deliver
or cause to be delivered to the trustee, or a custodian for the trustee, among
other things, the original mortgage note (and any modification or amendment
thereto) endorsed in blank without recourse, except that the depositor may
deliver or cause to be delivered a lost note affidavit in lieu of any original
mortgage note that has been lost, the original mortgage creating a first or
second lien on the related mortgaged property with evidence of recording
indicated thereon, an assignment in recordable form of the mortgage, the title
policy with respect to the related mortgaged property and, if applicable, all
recorded intervening assignments of the mortgage and any riders or
modifications to the mortgage note and mortgage (except for any document not
returned from the public recording office, which will be delivered to the
trustee as soon as the same is available to the depositor). With respect to up
to 30% of the initial mortgage loans (referred to as Delayed Delivery Loans),
the depositor may deliver all or a portion of each related mortgage file to the
trustee not later than five business days after the closing date. Assignments
of the mortgage loans to the trustee (or its nominee) will be recorded in the
appropriate public office for real property records, except in states such as
California where, in the opinion of counsel, recording is not required to
protect the trustee's interest in the mortgage loan against the claim of any
subsequent transferee or any successor to or creditor of the depositor or the
seller.
The trustee will review each mortgage file within 90 days of the closing
date or subsequent transfer date, as applicable (or promptly after the
trustee's receipt of any document permitted to be delivered after the closing
date or subsequent transfer date, as applicable), and if any document in a
mortgage file is found to be missing or defective in a material respect and the
seller does not cure that defect within 90 days of notice thereof from the
trustee (or within a longer period not to exceed 720 days after the closing
date as provided in the pooling and servicing agreement in the case of missing
documents not returned from the public recording office), the seller will be
obligated to repurchase the related mortgage loan from the trust fund. Rather
than repurchase the mortgage loan as provided above, the seller may remove the
mortgage loan (referred to as deleted mortgage loan) from the trust fund and
substitute in its place another mortgage loan (a replacement mortgage loan);
however, substitution is permitted only within two years of the closing date
and may not be made unless an opinion of counsel is provided to the trustee to
the effect that substitution will not disqualify the trust fund as a REMIC or
result in a prohibited transaction tax under the Code. Any replacement mortgage
loan generally will, on the date of substitution, among other characteristics
set forth in the pooling and servicing agreement,
o have a principal balance, after deduction of all scheduled payments due
in the month of substitution, not in excess of, and not more than 10% less
than, the Stated Principal Balance of the deleted mortgage loan (the
amount of any shortfall to be deposited by the seller and held for
distribution to the certificateholders on the related distribution date
(referred to as a Substitution Adjustment Amount)),
o have a current Mortgage Rate not lower than, and not more than 1% per
annum higher than, that of the deleted mortgage loan,
o with respect to the mortgage loans in loan group 2, (a) have a mortgage
rate based upon the same Loan Index and a Margin at least equal to and not
greater than 50 basis points higher than the deleted mortgage loan, (b)
have a mortgage rate subject to a maximum rate that is no less than the
maximum Rate applicable to the deleted mortgage loan, (c) have Adjustment
Dates that are no more or less frequent than the deleted mortgage loan and
(d) not be a Performance Loan,
S-25
<PAGE>
o have a Loan-to-Value Ratio or Combined Loan-to-Value Ratio (as
applicable) not higher than that of the deleted mortgage loan,
o have a remaining term to maturity not greater than (and not more than
one year less than) that of the deleted mortgage loan, and
o comply with all of the representations and warranties set forth in the
agreement as of the date of substitution.
This cure, repurchase or substitution obligation constitutes the sole
remedy available to certificateholders or the trustee for omission of, or a
material defect in, a mortgage loan document.
CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS
On the closing date the excess of the aggregate class certificate balance
of the certificates over the principal balance of the initial mortgage loans on
July 1, 2000 (which excess is not expected to exceed $52,590,633) 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 July 1, 2000 from the seller and
sell those subsequent mortgage loans to the trust fund as described below. The
purchase price for each subsequent mortgage loan will equal the Stated
Principal Balance of such subsequent mortgage loan as of the date of
origination of such subsequent mortgage loan (unless such subsequent mortgage
loan was originated prior to July 1, 2000, in which case, as of August 1, 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
S-26
<PAGE>
IndyMac Bank as described herein under "Servicing of the Mortgage Loans--The
Master Servicer", began operating a mortgage conduit program in 1993 and began
in April 1995 to purchase mortgage loans made to borrowers with prior credit
difficulties (so-called "subprime mortgage loans"). All of the subprime
mortgage loans purchased by IndyMac Bank are "conventional non-conforming
mortgage loans" (i.e., loans which are not insured by the Federal Housing
Authority or partially guaranteed by the Veterans Administration and which do
not qualify for sale to Fannie Mae or Freddie Mac) secured by first or second
liens on one-to four-family residential properties.
IndyMac Bank purchases subprime mortgage loans from, or provides funding
for subprime mortgage loans originated by, banks, savings and loan
associations, mortgage bankers (which may or may not be affiliated with IndyMac
Bank) and mortgage brokers (each is referred to as a loan originator) either
under flow or bulk purchase arrangements, the terms of which may vary from loan
originator to loan originator. The loan originators are required to be HUD
approved mortgagees. In addition to purchasing mortgage loans from (or
providing funding to) loan originators, IndyMac Bank also engages in the direct
origination of mortgage loans.
IndyMac Bank's underwriting standards for subprime mortgage loans are
primarily intended to evaluate the value and adequacy of the mortgaged property
as collateral for the proposed mortgage loan, as well as the type and intended
use of the mortgaged property. Its underwriting standards are less stringent
than the standards generally acceptable to Fannie Mae and Freddie Mac with
regard to the borrower's credit standing and repayment ability. Borrowers who
qualify under the IndyMac Bank underwriting standards for subprime mortgage
loans generally have payment histories and debt-to-income ratios that would not
satisfy Fannie Mae and Freddie Mac underwriting guidelines and may have a
record of major derogatory credit items, such as outstanding judgments or prior
bankruptcies, or lower credit scores. As a result, the rates of delinquency,
bankruptcy and foreclosure for those mortgage loans could be higher, and may be
substantially higher, than that of mortgage loans underwritten in accordance
with Fannie Mae and Freddie Mac standards.
In the process of underwriting mortgage loans, IndyMac Bank may use its
"electronic Mortgage Information and Transaction System" (or "e-MITS"), a
proprietary, internet-based, point-of-sale automated underwriting and
risk-based pricing system to underwrite and price the mortgage loans. This
system uses proprietary credit and risk analysis information generated from
statistical analysis of IndyMac Bank's historical database of over 300,000
loans to determine the economic levels at which a given loan should be
approved. The system also incorporates information from models provided by
credit rating agencies. e-MITS analyzes over forty data elements relating to
the mortgager and the mortgaged property before rendering an approval and a
risk-based price. As with IndyMac Bank's traditional underwriting process, this
approval is subject to full and complete data verification. Loans approved by
e-MITS comply with IndyMac Bank's underwriting guidelines. As is the case with
loans that are not underwritten through e-MITS, exceptions to standard
underwriting guidelines are permitted where compensating factors are present or
in the context of negotiated bulk purchases.
Each of the subprime mortgage loans purchased or originated by IndyMac
Bank is assigned to one of six credit levels. The credit levels are, in
descending order of credit-worthiness, 0, 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
S-27
<PAGE>
limitation on the loan purpose. The maximum debt to income ratio for all loans
purchased or originated before March 2000, other than those with primary
mortgage insurance, was 55%. That limitation, however, may have been waived on
a case by case basis. The maximum debt to income ratio for all loans purchased
or originated after February 2000, other than those with primary mortgage
insurance, was 65%.
Under the Full/Alternate Documentation Program, the prospective borrower's
employment, income and assets are verified through written or telephonic
communications. Mortgage loans in all six credit levels may be submitted under
this program. Under each of the Reduced Documentation Program and the No Ratio
Program, more emphasis is placed on the value and adequacy of the mortgaged
property as collateral and other assets of the borrower than on credit
underwriting. Under each of these programs, certain credit underwriting
documentation concerning income or income verification and/or employment
verification is waived. Under the No Doc Program, credit underwriting
documentation concerning income, employment verification and asset verification
is waived and income ratios are not calculated.
Only mortgage loans for primary residences in credit Levels 0 and 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.
S-28
<PAGE>
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 December 31, 1997, December 31, 1998, December 31, 1999 and June 30, 2000
on approximately $496 million, $1.21 billion, $892 million and $1.16 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>
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
1997 1998 1999 2000
-------------- -------------- -------------- ---------
<S> <C> <C> <C> <C>
Total Number of Sub-Prime Mortgage
Loans in Portfolio ................. 4,446 10,989 7,890 10,038
Delinquent Mortgage Loans and Pending
Foreclosures at Period End(1):
30-59 days ....................... 4.25% 5.88% 5.81% 4.60%
60-89 days ....................... 1.03 1.96 1.60 1.39
90 days or more (excluding pending
foreclosures) ................... 2.81 1.77 0.96 0.73
----- ------ ----- ------
Total delinquencies ........... 8.10% 9.61% 8.36% 6.72%
===== ====== ===== ======
Foreclosures pending ................ 1.73% 2.11% 6.16% 3.98%
----- ------ ----- ------
Total delinquencies and
foreclosures pending ......... 9.83% 11.72% 14.52% 10.70%
===== ====== ===== ======
</TABLE>
----------
(1) As a percentage of the total number of loans master serviced or serviced.
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<PAGE>
The following table summarizes the loss experience on the dates indicated
of sub-prime mortgage loans originated or acquired by IndyMac Bank and serviced
or master serviced by IndyMac Bank and securitized by the depositor (does not
include loans that were part of First Federal's portfolio prior to its
acquisition by IndyMac Bancorp):
<TABLE>
<CAPTION>
CUMULATIVE NET CUMULATED STATED
LOSSES AMOUNT OF SECURITIES LOSS RATIO(1)
------------------ ---------------------- --------------
<S> <C> <C> <C>
As of December 31, 1997 ......... $ 0.00 $ 450,108,165.00 0.00%
As of December 31, 1998 ......... $ 880,972.00 $ 1,312,193,866.00 0.07%
As of December 31, 1999 ......... $ 1,686,327.00 $ 1,505,267,265.00 0.11%
As of June 30, 2000 ............. $ 4,945,402.39 $ 1,774,982,365.00 0.28%
</TABLE>
----------
(1) Loss Ratio represents cumulative net losses as a percentage of the
aggregate amount of securities issued.
Historically, a variety of factors, including the appreciation of real
estate values, has limited the master servicer's loss and delinquency
experience on its portfolio of serviced mortgage loans. There can be no
assurance that factors beyond the master servicer's control, such as national
or local economic conditions or downturns in the real estate markets of its
lending areas, will not result in increased rates of delinquencies and
foreclosure losses in the future. For example, a general deterioration of the
real estate market regions where the mortgaged properties are located may
result in increases in delinquencies of loans secured by real estate, slower
absorption rates of real estate into the market and lower sales prices for real
estate. A general weakening of the economy may result in decreases in the
financial strength of borrowers and decreases in the value of collateral
serving as collateral for loans. If the real estate market and economy continue
to decline, the master servicer may experience an increase in delinquencies on
the loans it services and higher net losses on liquidated loans.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The expense fees are payable out of the interest payments of each mortgage
loan. The expense fees will vary from mortgage loan to mortgage loan. As of the
cut-off date, the weighted average expense fee rate is expected to equal
approximately 0.54%. 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
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<PAGE>
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
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<PAGE>
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-B 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
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<PAGE>
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);
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<PAGE>
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 August and September 2000, any amounts
withdrawn from the related Capitalized Interest Account and on the
distribution date immediately following the end of the pre-funding period,
any amounts remaining in the related pre-funding account, excluding any
reinvestment earnings.
The "Remittance Period" with respect to any distribution date is the
period commencing on the second day of the month preceding the month in which
the distribution date occurs and ending on the first day of the month in which
the distribution date occurs.
DISTRIBUTIONS
Distributions on the certificates will be made by the trustee on the 25th
day of each month, or if that day is not a business day, on the first business
day thereafter (referred to as a distribution date), commencing in August 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
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<PAGE>
class of fixed rate certificates shall be increased by 0.50% (50 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, 0.29%; Class MV-1, 0.63%; Class MV-2, 1.05% and
Class BV, 2.00%.
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:
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<PAGE>
(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
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<PAGE>
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 79.50% for loan group 1 and approximately
66.00% for loan group 2, of the aggregate Stated Principal Balances of the
mortgage loans in that loan group as of the last day of the related Remittance
Period and (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
$627,199.59 for loan group 1 and $872,800.41 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 97.50% for loan group 1 and approximately 96.00% for loan
group 2, of the aggregate Stated Principal Balances of the mortgage loans in
that loan group as of the last day of the related Remittance Period and (B) the
aggregate Stated Principal Balance of the mortgage loans in that loan group as
of the last day of the related Remittance Period minus $627,199.59 for loan
group 1 and $872,800.41 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 86.00% for loan group 1 and
approximately 76.00% for loan group 2, of the aggregate Stated Principal
Balances of the mortgage loans in that loan group as of the last day of the
related Remittance Period and (B) the aggregate Stated Principal Balance of the
mortgage loans in that loan group as of the last day of the related Remittance
Period minus $627,199.59 for loan group 1 and $872,800.41 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
92.50% for loan group 1 and approximately 86.50% for loan group 2, of the
aggregate Stated Principal Balances of the mortgage loans
S-37
<PAGE>
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 $627,199.59 for loan
group 1 and $872,800.41 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 20.50% with respect to certificate group 1 and 34.00% 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 1.25% for loan group 1 and 2.00% 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 2.50% for loan group 1 and 4.00% for loan group 2, of
the aggregate Stated Principal Balance of the mortgage loans in that loan group
as of the last day of the related Remittance Period, subject to a minimum
amount equal to 0.50% for each loan group of the aggregate Stated Principal
Balance of the 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.
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<PAGE>
"Stepdown Date" means, with respect to each certificate group, the later
to occur of (i) the distribution date in August 2003 and (ii) the first
distribution date on which the Senior Enhancement Percentage (calculated for
this purpose only after taking into account distributions of principal on the
mortgage loans in the related loan group on the last day of the related
Remittance Period but prior to any applications of Principal Distribution
Amount to the Certificates) is greater than or equal to the related Senior
Specified Enhancement Percentage.
"Subordinated Amount" is described in "--Overcollateralization
Provisions."
"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
50% (in the case of loan group 1) or 40% (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
S-39
<PAGE>
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,
$10,000 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 0.25%, the amount to be held in the Excess Reserve Fund Account
(referred to as the Required Reserve Amount) on any distribution date
thereafter shall equal the greater of (i) 0.50% of the sum of the outstanding
Class Certificate Balance of the Adjustable Rate Certificates as of that
distribution date and (ii) $10,000 and shall be funded from amounts otherwise
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
S-40
<PAGE>
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 Amount" for that certificate group.
The required level of the Subordinated Amount with respect to a distribution
date and certificate group is the "Specified Subordinated Amount." As described
above, the Specified Subordinated Amount with respect to a loan group may, over
time, decrease, subject to certain floors and triggers. If a Trigger Event
occurs, the Specified Subordinated Amount for a loan group may not "step down".
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
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<PAGE>
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 July 28, 2000;
o distributions on the certificates are made on the 25th day of each
month, commencing on August 25, 2000, in accordance with the priorities
described herein;
o the mortgage loans prepayment rates with respect to the mortgage loans
in loan group 1 are a multiple of the applicable prepayment assumption and
with respect to the mortgage loans in loan group 2 are constant
percentages of CPR each as stated in the tables below;
o prepayments include 30 days' interest thereon;
o the optional termination is exercised (except with respect to the
weighted average life to maturity);
o the Specified Subordinated Amount for each loan group is initially as
specified herein and thereafter decreases in accordance with the
provisions herein;
o with respect to loan group 2, (a) the mortgage rate for each mortgage
loan is adjusted on its next rate adjustment date (and on subsequent
adjustment dates, if necessary) to a rate equal to the 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;
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<PAGE>
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 September 1, 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.
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>
1 1,272,368.32 10.5500 180 180 180
2 64,350.00 11.2500 180 180 180
3 399,593.98 10.5625 240 240 239
4 65,370.00 11.6445 240 240 240
5 35,083,095.90 10.7102 360 360 360
6 2,038,912.50 10.9085 360 360 359
7 2,200,879.77 11.6574 180 360 179
8 367,377.97 11.2120 180 180 180
9 35,000.00 12.0000 180 180 180
10 87,000.00 12.0000 240 240 240
11 10,875,589.64 11.0588 360 360 360
12 673,731.53 11.1179 360 360 359
13 1,708,469.11 10.7521 360 360 360
14 78,000.00 11.6250 360 360 360
15 1,257,395.48 10.4314 180 180 180
16 341,100.00 10.2795 240 240 240
17 36,433,407.72 10.6133 360 360 360
18 3,081,326.69 11.1376 360 360 360
19 344,453.47 10.8923 180 360 179
20 63,388.58 11.5000 180 360 177
21 171,000.00 10.3250 360 360 360
22 84,750.00 9.2500 360 360 360
23 410,968.98 9.8310 180 180 177
24 138,737.67 10.2090 240 240 239
25 5,464,564.45 10.9166 360 360 359
26 597,204.74 11.8898 360 360 359
27 112,000.00 9.5000 180 360 180
</TABLE>
S-43
<PAGE>
ASSUMED SUBSEQUENT MORTGAGE LOANS
<TABLE>
<CAPTION>
ORIGINAL
AMORTIZATION REMAINING
GROSS ORIGINAL TERM TERM TO TERM
PRINCIPAL COUPON TO MATURITY MATURITY TO MATURITY
GROUP BALANCES ($) RATE (%) (IN MONTHS) (IN MONTHS) (IN MONTHS)
-------- ---------------- ------------ --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
28 270,461.28 10.5500 180 180 180
29 13,678.57 11.2500 180 180 180
30 84,939.79 10.5625 240 240 240
31 13,895.39 11.6445 240 240 240
32 7,457,446.85 10.7102 360 360 360
33 433,401.93 10.9085 360 360 360
34 467,830.55 11.6574 180 360 180
35 78,091.79 11.2120 180 180 180
36 7,439.78 12.0000 180 180 180
37 18,493.18 12.0000 240 240 240
38 2,311,772.37 11.0588 360 360 360
39 143,211.91 11.1179 360 360 360
40 363,161.15 10.7521 360 360 360
41 16,580.09 11.6250 360 360 360
42 267,278.58 10.4314 180 180 180
43 72,506.00 10.2795 240 240 240
44 7,744,476.21 10.6133 360 360 360
45 654,982.96 11.1376 360 360 360
46 73,218.84 10.8923 180 360 180
47 13,474.21 11.5000 180 360 180
48 36,348.66 10.3250 360 360 360
49 18,014.90 9.2500 360 360 360
50 87,357.72 9.8310 180 180 180
51 29,490.81 10.2090 240 240 240
52 1,161,576.48 10.9166 360 360 360
53 126,944.97 11.8898 360 360 360
54 23,807.31 9.5000 180 360 180
</TABLE>
S-44
<PAGE>
LOAN GROUP 2
STATISTICAL CALCULATION INITIAL MORTGAGE LOANS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
INITIAL
GROSS MONTHS PERIODIC
PRINCIPAL COUPON GROSS TO NEXT RATE
GROUP BALANCES ($) RATE (%) MARGIN (%) CHANGE CAP (%)
------- ------------------ ------------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
54 24,119,868.47 10.3741 6.1059 24 2.9970
55 1,877,911.54 10.7019 6.4150 23 3.0000
56 3,843,892.88 11.3059 6.3916 36 5.0000
57 274,550.00 10.9880 6.3253 36 5.0000
58 1,100,300.00 10.6953 5.6230 6 1.0000
59 5,817,377.02 10.3444 5.9781 24 2.9799
60 425,900.00 10.3976 5.8990 24 3.0000
61 925,541.53 11.2125 5.8705 36 5.0000
62 122,400.00 11.3750 6.0000 36 5.0000
63 74,285,414.50 10.1229 5.8367 24 2.9938
64 8,039,025.72 10.6980 6.3148 24 2.9861
65 913,046.26 9.9284 5.4189 35 5.0000
66 106,149.12 9.6250 5.5000 5 1.0000
67 6,645,078.82 10.8377 6.5216 23 3.0041
68 419,981.58 10.9585 7.0868 23 3.0000
69 11,727,183.22 10.2990 5.7502 36 4.9868
70 645,563.09 10.7136 6.0595 36 5.0000
71 94,350.00 12.0000 7.6133 6 1.0000
72 88,800.00 10.8750 8.5000 24 3.0000
73 425,250.00 12.7500 7.5000 36 5.0000
74 1,863,737.13 10.8603 6.2261 23 3.0000
75 163,000.00 10.1894 5.8447 36 5.0000
76 35,010.00 11.5000 6.5000 36 5.0000
<CAPTION>
PERIODIC LIFETIME ORIGINAL TERM REMAINING TERM
RATE RATE TO MATURITY TO MATURITY
GROUP CAP (%) CAP (%) (IN MONTHS) (IN MONTHS) INDEX
------- ---------- ------------ --------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
54 1.2269 17.3622 360 360 6 Mo. LIBOR
55 1.0000 17.7019 360 359 6 Mo. LIBOR
56 2.0129 18.3059 360 360 1 Yr. CMT
57 2.0000 17.9880 360 360 1 Yr. CMT
58 1.0000 17.6953 360 360 6 Mo. LIBOR
59 1.0000 17.2812 360 360 6 Mo. LIBOR
60 1.0000 17.3976 360 360 6 Mo. LIBOR
61 2.0000 18.2125 360 360 1 Yr. CMT
62 2.0000 18.3750 360 360 1 Yr. CMT
63 1.1020 17.1075 360 360 6 Mo. LIBOR
64 1.0000 17.6980 360 360 6 Mo. LIBOR
65 2.4788 16.9284 360 359 1 Yr. CMT
66 1.0000 16.6250 360 359 6 Mo. LIBOR
67 1.0299 17.8377 360 359 6 Mo. LIBOR
68 1.0866 17.9585 360 359 6 Mo. LIBOR
69 2.0184 17.2990 360 360 1 Yr. CMT
70 2.0000 17.7136 360 360 1 Yr. CMT
71 1.0000 19.0000 360 360 6 Mo. LIBOR
72 1.0000 17.8750 360 360 6 Mo. LIBOR
73 2.0000 19.7500 360 360 1 Yr. CMT
74 1.0172 17.8603 360 359 6 Mo. LIBOR
75 2.0000 17.1894 360 360 1 Yr. CMT
76 2.0000 18.5000 360 360 1 Yr. CMT
</TABLE>
S-45
<PAGE>
ASSUMED SUBSEQUENT MORTGAGE LOANS
<TABLE>
<CAPTION>
INITIAL
GROSS MONTHS PERIODIC
PRINCIPAL COUPON GROSS TO NEXT RATE
GROUP BALANCES ($) RATE (%) MARGIN (%) CHANGE CAP(%)
------- ----------------- ------------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
77 5,127,045.73 10.3741 6.1059 24 2.9970
78 399,178.73 10.7019 6.4150 24 3.0000
79 817,078.03 11.3059 6.3916 36 5.0000
80 58,359.79 10.9880 6.3253 36 5.0000
81 233,885.54 10.6953 5.6230 6 1.0000
82 1,236,572.17 10.3444 5.9781 24 2.9799
83 90,531.54 10.3976 5.8990 24 3.0000
84 196,737.96 11.2125 5.8705 36 5.0000
85 26,017.99 11.3750 6.0000 36 5.0000
86 15,790,497.28 10.1229 5.8367 24 2.9938
87 1,708,817.47 10.6980 6.3148 24 2.9861
88 194,081.90 9.9284 5.4189 36 5.0000
89 22,563.61 9.6250 5.5000 6 1.0000
90 1,412,512.80 10.8377 6.5216 24 3.0041
91 89,273.49 10.9585 7.0868 24 3.0000
92 2,492,791.57 10.2990 5.7502 36 4.9868
93 137,224.28 10.7136 6.0595 36 5.0000
94 20,055.53 12.0000 7.6133 6 1.0000
95 18,875.79 10.8750 8.5000 24 3.0000
96 90,393.37 12.7500 7.5000 36 5.0000
97 396,165.74 10.8603 6.2261 24 3.0000
98 34,648.13 10.1894 5.8447 36 5.0000
99 7,441.91 11.5000 6.5000 36 5.0000
<CAPTION>
PERIODIC LIFETIME ORIGINAL TERM REMAINING TERM
RATE RATE TO MATURITY TO MATURITY
GROUP CAP (%) CAP (%) (IN MONTHS) (IN MONTHS) INDEX
------- ---------- ------------ --------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
77 1.2269 17.3622 360 360 6 Mo. LIBOR
78 1.0000 17.7019 360 360 6 Mo. LIBOR
79 2.0129 18.3059 360 360 1 Yr. CMT
80 2.0000 17.9880 360 360 1 Yr. CMT
81 1.0000 17.6953 360 360 6 Mo. LIBOR
82 1.0000 17.2812 360 360 6 Mo. LIBOR
83 1.0000 17.3976 360 360 6 Mo. LIBOR
84 2.0000 18.2125 360 360 1 Yr. CMT
85 2.0000 18.3750 360 360 1 Yr. CMT
86 1.1020 17.1075 360 360 6 Mo. LIBOR
87 1.0000 17.6980 360 360 6 Mo. LIBOR
88 2.4788 16.9284 360 360 1 Yr. CMT
89 1.0000 16.6250 360 360 6 Mo. LIBOR
90 1.0299 17.8377 360 360 6 Mo. LIBOR
91 1.0866 17.9585 360 360 6 Mo. LIBOR
92 2.0184 17.2990 360 360 1 Yr. CMT
93 2.0000 17.7136 360 360 1 Yr. CMT
94 1.0000 19.0000 360 360 6 Mo. LIBOR
95 1.0000 17.8750 360 360 6 Mo. LIBOR
96 2.0000 19.7500 360 360 1 Yr. CMT
97 1.0172 17.8603 360 360 6 Mo. LIBOR
98 2.0000 17.1894 360 360 1 Yr. CMT
99 2.0000 18.5000 360 360 1 Yr. CMT
</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.
S-46
<PAGE>
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.
S-47
<PAGE>
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
S-48
<PAGE>
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 2/28 Adjustable Mortgage Loans, the 3/1
Adjustable Mortgage Loans and the 5/1 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 2/28 Adjustable Mortgage Loans, the
3/1 Adjustable Mortgage Loans and the 5/1 Adjustable Mortgage Loans may differ
from that of the other ARMs. The 2/28 Adjustable Mortgage Loans, the 3/1
Adjustable Mortgage Loans and the 5/1 Adjustable Mortgage Loans may be subject
to greater rates of prepayments as they approach their initial Adjustment Dates
even if market interest rates are only slightly higher or lower than the
Mortgage Rates on the 2/28 Adjustable Mortgage Loans, the 3/1 Adjustable
Mortgage Loans or the 5/1 Adjustable Mortgage Loans (as the case may be) as
borrowers seek to avoid changes in their monthly payments.
As described under "The Mortgage Pool--Assignment of the Mortgage Loans"
herein, with respect to up to 30% of the initial mortgage loans, the depositor
may deliver all or a portion of each related mortgage file to the trustee not
later than five business days after the closing date. Should the seller fail to
deliver all or a portion of any such related mortgage file to the depositor or
other designee of the depositor or, at the depositor's direction, to the
trustee within the time periods described under "The Mortgage Pool--Assignment
of the Mortgage Loans" herein, the seller will be obligated to repurchase the
related mortgage loan from the trust fund or, in certain circumstances, remove
the mortgage loan from the trust fund and substitute in its place another
mortgage loan. Any repurchases pursuant to this provision would have the effect
of accelerating the rate of prepayments on the initial mortgage loans.
The pre-funding feature of the trust fund also presents a prepayment risk.
It is anticipated that the trust fund will use substantially all of the
pre-funded amount as the consideration for the acquisition of additional
mortgage loans during the funding period, although there can be no assurance
that all of such
S-49
<PAGE>
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.
S-50
<PAGE>
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
S-51
<PAGE>
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
S-52
<PAGE>
prepayment assumption, even if the weighted average remaining term to maturity
of the mortgage loans is consistent with the remaining terms to maturity of the
mortgage loans specified in the structuring assumptions.
Prepayment Scenarios
<TABLE>
<CAPTION>
SCENARIO I SCENARIO II SCENARIO III SCENARIO IV SCENARIO V
<S> <C> <C> <C> <C> <C>
Loan Group I (% of PPC) 0% 50% 100% 150% 200%
Loan Group II (% of CPR) 0% 15% 28% 35% 45%
</TABLE>
PERCENT OF INITIAL CLASS CERTIFICATE BALANCE OUSTANDING*
<TABLE>
<CAPTION>
CLASS AF-1 CLASS MF-1
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
July 25, 2001 ........ 99 92 85 78 70 100 100 100 100 100
July 25, 2002 ........ 99 80 63 48 34 100 100 100 100 100
July 25, 2003 ........ 98 70 46 28 14 100 100 100 100 100
July 25, 2004 ........ 97 60 36 21 11 100 100 80 47 25
July 25, 2005 ........ 96 52 28 14 0 100 100 62 31 0
July 25, 2006 ........ 95 44 21 0 0 100 100 48 0 0
July 25, 2007 ........ 94 39 16 0 0 100 88 37 0 0
July 25, 2008 ........ 92 34 0 0 0 100 77 0 0 0
July 25, 2009 ........ 91 30 0 0 0 100 68 0 0 0
July 25, 2010 ........ 89 26 0 0 0 100 59 0 0 0
July 25, 2011 ........ 88 23 0 0 0 100 52 0 0 0
July 25, 2012 ........ 86 20 0 0 0 100 45 0 0 0
July 25, 2013 ........ 83 17 0 0 0 100 39 0 0 0
July 25, 2014 ........ 81 15 0 0 0 100 34 0 0 0
July 25, 2015 ........ 76 13 0 0 0 100 29 0 0 0
July 25, 2016 ........ 73 0 0 0 0 100 0 0 0 0
July 25, 2017 ........ 70 0 0 0 0 100 0 0 0 0
July 25, 2018 ........ 67 0 0 0 0 100 0 0 0 0
July 25, 2019 ........ 64 0 0 0 0 100 0 0 0 0
July 25, 2020 ........ 60 0 0 0 0 100 0 0 0 0
July 25, 2021 ........ 55 0 0 0 0 100 0 0 0 0
July 25, 2022 ........ 51 0 0 0 0 100 0 0 0 0
July 25, 2023 ........ 46 0 0 0 0 100 0 0 0 0
July 25, 2024 ........ 41 0 0 0 0 92 0 0 0 0
July 25, 2025 ........ 36 0 0 0 0 80 0 0 0 0
July 25, 2026 ........ 30 0 0 0 0 68 0 0 0 0
July 25, 2027 ........ 24 0 0 0 0 53 0 0 0 0
July 25, 2028 ........ 17 0 0 0 0 38 0 0 0 0
July 25, 2029 ........ 9 0 0 0 0 20 0 0 0 0
July 25, 2030 ........ 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life to Maturity** .. 20.59 7.29 3.99 2.67 1.96 27.05 12.66 6.80 4.69 4.01
Weighted Average
Life to Call** ...... 20.56 6.65 3.55 2.44 1.80 26.98 11.35 5.94 4.25 3.71
<CAPTION>
CLASS MF-2
PREPAYMENT SCENARIO
---------------------------------------------------
DISTRIBUTION DATE I II III IV V
---------------------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial Percentage ... 100 100 100 100 100
July 25, 2001 ........ 100 100 100 100 100
July 25, 2002 ........ 100 100 100 100 100
July 25, 2003 ........ 100 100 100 100 100
July 25, 2004 ........ 100 100 80 47 25
July 25, 2005 ........ 100 100 62 31 0
July 25, 2006 ........ 100 100 48 0 0
July 25, 2007 ........ 100 88 37 0 0
July 25, 2008 ........ 100 77 0 0 0
July 25, 2009 ........ 100 68 0 0 0
July 25, 2010 ........ 100 59 0 0 0
July 25, 2011 ........ 100 52 0 0 0
July 25, 2012 ........ 100 45 0 0 0
July 25, 2013 ........ 100 39 0 0 0
July 25, 2014 ........ 100 34 0 0 0
July 25, 2015 ........ 100 29 0 0 0
July 25, 2016 ........ 100 0 0 0 0
July 25, 2017 ........ 100 0 0 0 0
July 25, 2018 ........ 100 0 0 0 0
July 25, 2019 ........ 100 0 0 0 0
July 25, 2020 ........ 100 0 0 0 0
July 25, 2021 ........ 100 0 0 0 0
July 25, 2022 ........ 100 0 0 0 0
July 25, 2023 ........ 100 0 0 0 0
July 25, 2024 ........ 92 0 0 0 0
July 25, 2025 ........ 80 0 0 0 0
July 25, 2026 ........ 68 0 0 0 0
July 25, 2027 ........ 53 0 0 0 0
July 25, 2028 ........ 38 0 0 0 0
July 25, 2029 ........ 20 0 0 0 0
July 25, 2030 ........ 0 0 0 0 0
Weighted Average
Life to Maturity** .. 27.04 12.48 6.66 4.57 3.80
Weighted Average
Life to Call** ...... 26.98 11.35 5.94 4.21 3.57
</TABLE>
----------
* Rounded to the nearest whole percentage.
** The weighed average life of a Certificate of any class is determined by
(I) multiplying the net reduction, if any, of the Certficate Principal
Balance by the number of years from the date of issuance of the
Certificate to the related Distribution Date, (ii) adding the results,
and (iii) dividing them by the aggregate of the net reductions of the
certificate principal balance described in (i) above.
S-53
<PAGE>
PERCENT OF INITIAL CLASS CERTIFICATE BALANCE OUSTANDING*
<TABLE>
<CAPTION>
CLASS BF CLASS AV-1
PREPAYMENT SCENARIO PREPAYMEMT SCENARIO
--------------------------------------------------- --------------------------------------------------
DISTRIBUTION DATE I II III IV V I II III IV V
---------------------- ---------- ---------- --------- --------- --------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage ... 100 100 100 100 100 100 100 100 100 100
July 25, 2001 ........ 100 100 100 100 100 99 82 66 58 46
July 25, 2002 ........ 100 100 100 100 100 99 66 42 30 16
July 25, 2003 ........ 100 100 100 100 100 98 53 24 12 0
July 25, 2004 ........ 100 100 80 47 18 98 41 21 12 0
July 25, 2005 ........ 100 100 62 27 0 97 34 15 9 0
July 25, 2006 ........ 100 100 48 0 0 96 29 11 0 0
July 25, 2007 ........ 100 88 36 0 0 96 25 8 0 0
July 25, 2008 ........ 100 77 0 0 0 95 21 0 0 0
July 25, 2009 ........ 100 68 0 0 0 94 17 0 0 0
July 25, 2010 ........ 100 59 0 0 0 92 15 0 0 0
July 25, 2011 ........ 100 52 0 0 0 91 12 0 0 0
July 25, 2012 ........ 100 45 0 0 0 90 10 0 0 0
July 25, 2013 ........ 100 39 0 0 0 88 9 0 0 0
July 25, 2014 ........ 100 31 0 0 0 86 7 0 0 0
July 25, 2015 ........ 100 23 0 0 0 84 6 0 0 0
July 25, 2016 ........ 100 0 0 0 0 81 0 0 0 0
July 25, 2017 ........ 100 0 0 0 0 79 0 0 0 0
July 25, 2018 ........ 100 0 0 0 0 75 0 0 0 0
July 25, 2019 ........ 100 0 0 0 0 72 0 0 0 0
July 25, 2020 ........ 100 0 0 0 0 68 0 0 0 0
July 25, 2021 ........ 100 0 0 0 0 63 0 0 0 0
July 25, 2022 ........ 100 0 0 0 0 58 0 0 0 0
July 25, 2023 ........ 100 0 0 0 0 52 0 0 0 0
July 25, 2024 ........ 92 0 0 0 0 45 0 0 0 0
July 25, 2025 ........ 80 0 0 0 0 38 0 0 0 0
July 25, 2026 ........ 68 0 0 0 0 32 0 0 0 0
July 25, 2027 ........ 53 0 0 0 0 26 0 0 0 0
July 25, 2028 ........ 36 0 0 0 0 18 0 0 0 0
July 25, 2029 ........ 10 0 0 0 0 10 0 0 0 0
July 25, 2030 ........ 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life to Maturity** .. 26.92 11.74 6.20 4.24 3.49 21.73 5.02 2.56 1.87 1.10
Weighted Average
Life to Call** ...... 26.91 11.28 5.90 4.13 3.43 21.70 4.77 2.41 1.73 1.10
<CAPTION>
CLASS MV-1
PREPAYMENT SCENARIO
--------------------------------------------------
DISTRIBUTION DATE I II III IV V
---------------------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial Percentage ... 100 100 100 100 100
July 25, 2001 ........ 100 100 100 100 100
July 25, 2002 ........ 100 100 100 100 100
July 25, 2003 ........ 100 100 100 100 91
July 25, 2004 ........ 100 100 53 63 91
July 25, 2005 ........ 100 87 38 23 0
July 25, 2006 ........ 100 73 27 0 0
July 25, 2007 ........ 100 62 19 0 0
July 25, 2008 ........ 100 52 0 0 0
July 25, 2009 ........ 100 44 0 0 0
July 25, 2010 ........ 100 37 0 0 0
July 25, 2011 ........ 100 31 0 0 0
July 25, 2012 ........ 100 26 0 0 0
July 25, 2013 ........ 100 22 0 0 0
July 25, 2014 ........ 100 18 0 0 0
July 25, 2015 ........ 100 15 0 0 0
July 25, 2016 ........ 100 0 0 0 0
July 25, 2017 ........ 100 0 0 0 0
July 25, 2018 ........ 100 0 0 0 0
July 25, 2019 ........ 100 0 0 0 0
July 25, 2020 ........ 100 0 0 0 0
July 25, 2021 ........ 100 0 0 0 0
July 25, 2022 ........ 100 0 0 0 0
July 25, 2023 ........ 100 0 0 0 0
July 25, 2024 ........ 100 0 0 0 0
July 25, 2025 ........ 96 0 0 0 0
July 25, 2026 ........ 81 0 0 0 0
July 25, 2027 ........ 65 0 0 0 0
July 25, 2028 ........ 46 0 0 0 0
July 25, 2029 ........ 24 0 0 0 0
July 25, 2030 ........ 0 0 0 0 0
Weighted Average
Life to Maturity** .. 27.68 9.72 5.29 4.74 5.83
Weighted Average
Life to Call** ...... 27.58 9.16 4.97 4.43 4.05
</TABLE>
----------
* Rounded to the nearest whole percentage
** The weighed average life of a Certificate of any class is determined by
(I) multiplying the net reduction, if any, of the Certficate Principal
Balance by the number of years from the date of issuance of the
Certificate to the related Distribution Date, (ii) adding the results,
and (iii) dividing them by the aggregate of the net reductions of the
certificate principal balance described in (i) above.
S-54
<PAGE>
PERCENT OF INITIAL CLASS CERTIFICATE BALANCE OUSTANDING*
<TABLE>
<CAPTION>
CLASS MV-2
PREPAYMENT SCENARIO
--------------------------------------------------
DISTRIBUTION DATE I II III IV V
----------------------------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial Percentage .......... 100 100 100 100 100
July 25, 2001 ............... 100 100 100 100 100
July 25, 2002 ............... 100 100 100 100 100
July 25, 2003 ............... 100 100 100 100 100
July 25, 2004 ............... 100 100 53 35 63
July 25, 2005 ............... 100 87 38 23 0
July 25, 2006 ............... 100 73 27 0 0
July 25, 2007 ............... 100 62 19 0 0
July 25, 2008 ............... 100 52 0 0 0
July 25, 2009 ............... 100 44 0 0 0
July 25, 2010 ............... 100 37 0 0 0
July 25, 2011 ............... 100 31 0 0 0
July 25, 2012 ............... 100 26 0 0 0
July 25, 2013 ............... 100 22 0 0 0
July 25, 2014 ............... 100 18 0 0 0
July 25, 2015 ............... 100 15 0 0 0
July 25, 2016 ............... 100 0 0 0 0
July 25, 2017 ............... 100 0 0 0 0
July 25, 2018 ............... 100 0 0 0 0
July 25, 2019 ............... 100 0 0 0 0
July 25, 2020 ............... 100 0 0 0 0
July 25, 2021 ............... 100 0 0 0 0
July 25, 2022 ............... 100 0 0 0 0
July 25, 2023 ............... 100 0 0 0 0
July 25, 2024 ............... 100 0 0 0 0
July 25, 2025 ............... 96 0 0 0 0
July 25, 2026 ............... 81 0 0 0 0
July 25, 2027 ............... 65 0 0 0 0
July 25, 2028 ............... 46 0 0 0 0
July 25, 2029 ............... 24 0 0 0 0
July 25, 2030 ............... 0 0 0 0 0
Weighted Average
Life to Maturity** ......... 27.67 9.63 5.15 4.41 4.31
Weighted Average
Life to Call** ............. 27.58 9.16 4.90 4.14 4.03
<CAPTION>
CLASS BV
PREPAYMENT SCENARIO
--------------------------------------------------
DISTRIBUTION DATE I II III IV V
----------------------------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial Percentage .......... 100 100 100 100 100
July 25, 2001 ............... 100 100 100 100 100
July 25, 2002 ............... 100 100 100 100 100
July 25, 2003 ............... 100 100 100 100 100
July 25, 2004 ............... 100 100 53 35 15
July 25, 2005 ............... 100 87 38 22 0
July 25, 2006 ............... 100 73 27 0 0
July 25, 2007 ............... 100 62 17 0 0
July 25, 2008 ............... 100 52 0 0 0
July 25, 2009 ............... 100 44 0 0 0
July 25, 2010 ............... 100 37 0 0 0
July 25, 2011 ............... 100 31 0 0 0
July 25, 2012 ............... 100 26 0 0 0
July 25, 2013 ............... 100 20 0 0 0
July 25, 2014 ............... 100 15 0 0 0
July 25, 2015 ............... 100 11 0 0 0
July 25, 2016 ............... 100 0 0 0 0
July 25, 2017 ............... 100 0 0 0 0
July 25, 2018 ............... 100 0 0 0 0
July 25, 2019 ............... 100 0 0 0 0
July 25, 2020 ............... 100 0 0 0 0
July 25, 2021 ............... 100 0 0 0 0
July 25, 2022 ............... 100 0 0 0 0
July 25, 2023 ............... 100 0 0 0 0
July 25, 2024 ............... 100 0 0 0 0
July 25, 2025 ............... 96 0 0 0 0
July 25, 2026 ............... 81 0 0 0 0
July 25, 2027 ............... 65 0 0 0 0
July 25, 2028 ............... 46 0 0 0 0
July 25, 2029 ............... 24 0 0 0 0
July 25, 2030 ............... 0 0 0 0 0
Weighted Average
Life to Maturity** ......... 27.64 9.26 4.89 4.08 3.63
Weighted Average
Life to Call** ............. 27.58 9.09 4.81 3.97 3.55
</TABLE>
----------
* Rounded to the nearest whole percentage
** The weighed average life of a Certificate of any class is determined by
(I) multiplying the net reduction, if any, of the Certficate Principal
Balance by the number of years from the date of issuance of the
Certificate to the related Distribution Date, (ii) adding the results,
and (iii) dividing them by the aggregate of the net reductions of the
certificate principal balance described in (i) above.
S-55
<PAGE>
LAST SCHEDULED DISTRIBUTION DATE
The last scheduled distribution dates for each Class of offered
certificates are as follows:
<TABLE>
<CAPTION>
LAST SCHEDULED
DISTRIBUTION DATE
-------------------
<S> <C>
Class AF-1 Certificates ......... July 25, 2030
Class MF-1 Certificates ......... May 25, 2030
Class MF-2 Certificates ......... March 25, 2030
Class BF Certificates ........... December 25, 2029
Class AV-1 Certificates ......... July 25, 2030
Class MV-1 Certificates ......... June 25, 2030
Class MV-2 Certificates ......... June 25, 2030
Class BV Certificates ........... April 25, 2030
Class R Certificates ............ September 25, 2030
</TABLE>
The last scheduled distribution date for each class of offered
certificates is the date on which the initial Class Certificate Balance set
forth on the cover page hereof for that class would be reduced to zero. The
last scheduled distribution dates for all Classes 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").
S-56
<PAGE>
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.
S-57
<PAGE>
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
S-58
<PAGE>
"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 an affiliate of Banc of America Securities LLC (Prohibited
Transaction Exemption 93-31, Exemption Application No. D-9105, 58 Fed. Reg.
28620 (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 PTCE 83-1, THE EXEMPTION OR ANY
OTHER ISSUED EXEMPTION 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:
S-59
<PAGE>
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 II 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 PTCE 83-1 as
described in the prospectus and the Exemption, and the potential consequences
in their specific circumstances, prior to making an investment in the offered
certificates. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment prudence and diversification, an
investment in the offered certificates is appropriate for the Plan, taking into
account the overall investment policy of the Plan and the composition of the
Plan's investment portfolio.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in an underwriting
agreement, dated July 24, 2000, Banc of America Securities LLC and Morgan
Stanley & Co. Incorporated (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.
<TABLE>
<CAPTION>
BANC OF AMERICA SECURITIES LLC MORGAN STANLEY & CO. INCORPORATED
-------------------------------- ----------------------------------
<S> <C> <C>
Class AF-1 .......... $ 90,065,600 $22,516,400
Class MF-1 .......... 3,261,600 815,400
Class MF-2 .......... 3,260,800 815,200
Class BF ............ 2,508,800 627,200
Class AV-1 .......... 115,907,200 28,976,800
Class MV-1 .......... 6,982,400 1,745,600
Class MV-2 .......... 7,332,000 1,833,000
Class BV ............ 6,632,800 1,658,200
Class R ............. 100
</TABLE>
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:
S-60
<PAGE>
<TABLE>
<CAPTION>
SELLING CONCESSION REALLOWANCE DISCOUNT
<S> <C> <C>
Class AF-1 .......... 0.1350% 0.0675%
Class MF-1 .......... 0.1800% 0.0900%
Class MF-2 .......... 0.2550% 0.1275%
Class BF ............ 0.3300% 0.1650%
Class AV-1 .......... 0.1350% 0.0675%
Class MV-1 .......... 0.1800% 0.0900%
Class MV-2 .......... 0.2550% 0.1275%
Class BV ............ 0.3300% 0.1650%
</TABLE>
After the initial public offering, the public offering prices, such
concessions and such discounts may be changed.
Each underwriter intends to make a secondary market in each class of the
offered certificates purchased by it, but no underwriter has any obligation to
do so. There can be no assurance that a 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 Banc of America Securities
LLC 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. Stroock & Stroock & Lavan LLP New York,
New York, will pass upon certain legal matters on behalf of the underwriters.
RATINGS
It is a condition to the issuance of the Class A Certificates that they be
rated AAA by S&P and AAA by Fitch. It is a condition to the issuance of the
Class R Certificates that they be rated at least AAA by S&P and Fitch. It is a
condition to the issuance of the Class M-1, Class M-2 and Class B Certificates
that they be rated at least AA, A and BBB, respectively, by S&P and Fitch.
The ratings assigned by S&P to mortgage pass-through certificates address
the likelihood of the receipt of all distributions on the mortgage loans by the
related certificateholders under the agreements pursuant to which the
certificates are issued, S&P's ratings take into consideration the credit
quality of the
S-61
<PAGE>
related mortgage pool, including any credit support providers, structural and
legal aspects associated with the certificates, and the extent to which the
payment stream on that mortgage pool is adequate to make payments required by
the certificates. S&P's ratings on the certificates do not, however, constitute
a statement regarding frequency of prepayments on the related mortgage loans.
The ratings of the rating agencies do not address the possibility that, as
a result of principal prepayments, certificateholders may receive a lower than
anticipated yield. The ratings on the adjustable rate certificates do not
address the likelihood of payment of any Basis Risk CarryForward Amount.
The ratings assigned to the offered certificates should be evaluated
independently from similar ratings on other types of securities. A rating is
not a recommendation to buy, sell or hold securities and may be subject to
revision or withdrawal at any time by the rating agencies.
The depositor has not requested a rating of the offered certificates by
any rating agency other than the rating agencies; there can be no assurance,
however, as to whether any other rating agency will rate the offered
certificates or, if it does, what rating would be assigned by any other rating
agency. The rating assigned by another rating agency to the offered
certificates could be lower than the respective ratings assigned by the rating
agencies.
S-62
<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-B (the "Global
Securities") will be available only in book-entry form. Investors in the Global
Securities may hold such Global Securities through any of The Depository Trust
Company ("DTC"), Clearstream, Luxembourg or Euroclear. The Global Securities
will be tradeable as home market instruments in both the European and U.S.
domestic markets. Initial settlement and all secondary trades will settle in
same-day funds.
Secondary market trading between investors holding Global Securities
through Clearstream, Luxembourg and Euroclear will be conducted in the ordinary
way in accordance with their normal rules and operating procedures and in
accordance with conventional Eurobond practice (i.e., seven calendar day
settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior mortgage pass-through certificate
issues.
Secondary cross-market trading between Clearstream, Luxembourg or
Euroclear and DTC Participants holding Certificates will be effected on a
delivery-against-payment basis through the respective Depositaries of
Clearstream, Luxembourg and Euroclear (in such capacity) and as DTC
Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name
of Cede & Co. as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect Participants in DTC. As a result, Clearstream, Luxembourg
and Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts as
DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to prior mortgage pass-through certificate
issues. Investor securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Clearstream,
Luxembourg or Euroclear accounts will follow the settlement procedures
applicable to conventional Eurobonds, except that there will be no temporary
global security and no "lock-up" or restricted period. Global Securities will
be credited to the securities custody accounts on the settlement date against
payment in same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior mortgage
pass-through certificate issues in same-day funds.
A-1
<PAGE>
Trading between Clearstream, Luxembourg and/or Euroclear
Participants. Secondary market trading between Clearstream, Luxembourg
Participants or Euroclear Participants will be settled using the procedures
applicable to conventional Eurobonds in same-day funds.
Trading between DTC Seller and Clearstream, Luxembourg or Euroclear
Purchaser. When Global Securities are to be transferred from the account of a
DTC Participant to the account of a Clearstream, Luxembourg Participant or a
Euroclear Participant, the purchaser will send instructions to Clearstream,
Luxembourg or Euroclear through a Clearstream, Luxembourg Participant or
Euroclear Participant at least one business day prior to settlement.
Clearstream, Luxembourg or Euroclear will instruct the respective Depositary,
as the case may be, to receive the Global Securities against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment date to and excluding the settlement date, on the basis of
either the actual number of days in such accrual period and a year assumed to
consist of 360 days or a 360-day year of twelve 30-day months, as applicable to
the related Class of Global Securities. For transactions settling on the 31st
of the month, payment will include interest accrued to and excluding the first
day of the following month. Payment will then be made by the respective
Depositary of the DTC Participant's account against delivery of the Global
Securities. After settlement has been completed, the Global Securities will be
credited to the respective clearing system and by the clearing system, in
accordance with its usual procedures, to the Clearstream, Luxembourg
Participant's or Euroclear Participant's account. The securities credit will
appear the next day (European time) and the cash debt will be back-valued to,
and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade fails),
the Clearstream, Luxembourg or Euroclear cash debt will be valued instead as of
the actual settlement date.
Clearstream, Luxembourg Participants and Euroclear Participants will need
to make available to the respective clearing systems the funds necessary to
process same-day funds settlement. The most direct means of doing so is to
preposition funds for settlement, either from cash on hand or existing lines of
credit, as they would for any settlement occurring within Clearstream,
Luxembourg or Euroclear. Under this approach, they may take on credit exposure
to Clearstream, Luxembourg or Euroclear until the Global Securities are
credited to their accounts one day later.
As an alternative, if Clearstream, Luxembourg or Euroclear has extended a
line of credit to them, Clearstream, Luxembourg Participants or Euroclear
Participants can elect not to preposition funds and allow that credit line to
be drawn upon the finance settlement. Under this procedure, Clearstream,
Luxembourg Participants or Euroclear Participants purchasing Global Securities
would incur overdraft charges for one day, assuming they cleared the overdraft
when the Global Securities were credited to their accounts. However, interest
on the Global Securities would accrue from the value date. Therefore, in many
cases the investment income on the Global Securities earned during that one-day
period may substantially reduce or offset the amount of such overdraft charges,
although this result will depend on each Clearstream, Luxembourg Participant's
or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective European Depositary for the benefit of Clearstream, Luxembourg
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two
DTC Participants.
Trading between Clearstream, Luxembourg or Euroclear Seller and DTC
Purchaser. Due to time zone differences in their favor, Clearstream, Luxembourg
Participants and Euroclear Participants may employ their customary procedures
for transactions in which Global Securities are to be transferred by the
respective clearing system, through the respective Depositary, to a DTC
Participant. The seller will send instructions to Clearstream, Luxembourg or
Euroclear through a Clearstream, Luxembourg Participant or Euroclear
Participant at least one business day prior to settlement. In these cases
Clearstream, Luxembourg or Euroclear will instruct the respective Depositary,
as appropriate, to deliver the Global Securities to the DTC Participant's
account against payment. Payment will include interest accrued on the Global
Securities from and including the last coupon payment to and excluding the
A-2
<PAGE>
settlement date on the basis of either the actual number of days in such
accrual period and a year assumed to consist of 360 days or a 360-day year of
twelve 30-day months, as applicable to the related Class of Global Securities.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. The
payment will then be reflected in the account of the Clearstream, Luxembourg
Participant or Euroclear Participant the following day, and receipt of the cash
proceeds in the Clearstream, Luxembourg Participant's or Euroclear
Participant's account would be back-valued to the value date (which would be
the preceding day, when settlement occurred in New York). Should the
Clearstream, Luxembourg Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the Clearstream, Luxembourg Participant's or Euroclear
Participant's account would instead be valued as of the actual settlement date.
Finally, day traders that use Clearstream, Luxembourg or Euroclear and
that purchase Global Securities from DTC Participants for delivery to
Clearstream, Luxembourg Participants or Euroclear Participants should note that
these trades would automatically fail on the sale side unless affirmative
action were taken. At least three techniques should be readily available to
eliminate this potential problem:
(a) borrowing through Clearstream, Luxembourg or Euroclear for one day
(until the purchase side of the day trade is reflected in their
Clearstream, Luxembourg or Euroclear accounts) in accordance with the
clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Clearstream, Luxembourg
or Euroclear account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at least
one day prior to the value date for the sale to the Clearstream, Luxembourg
Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Clearstream, Luxembourg or Euroclear (or through DTC if the holder has an
address outside the U.S.) will be subject to the 30% U.S. withholding tax that
generally applies to payments of interest (including original issue discount)
on registered debt issued by U.S. Persons, unless (i) each clearing system,
bank or other financial institution that holds customers securities in the
ordinary course of its trade or business in the chain of intermediaries between
such beneficial owner and the U.S. entity required to withhold tax complies
with applicable certification requirements and (ii) such beneficial owner takes
one of the following steps to obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-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.
A-3
<PAGE>
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.
A-4
<PAGE>
PROSPECTUS
INDYMAC ABS, INC.
Depositor
Asset Backed Certificates
Asset Backed Notes
(Issuable in Series)
------------------------
This Prospectus relates to the issuance of Asset Backed Certificates (the
'Certificates') and Asset Backed Notes (the 'Notes' and, together with the
Certificates, the 'Securities'), which may be sold from time to time in one or
more series (each, a 'Series') by IndyMac ABS, Inc. (the 'Depositor') or by a
Trust Fund (as defined below) on terms determined at the time of sale and
described in this Prospectus and the related Prospectus Supplement. The
Securities of a Series will consist of Certificates which evidence beneficial
ownership of a trust established by the Depositor (each, a 'Trust Fund'), and/or
Notes secured by the assets of a Trust Fund. As specified in the related
Prospectus Supplement, the Trust Fund for a Series of Securities will include
certain assets (the 'Trust Fund Assets') which will consist of the following
types of mortgage loans (the 'Loans'): (i) mortgage loans secured by first
and/or subordinate liens on one- to four-family residential properties,
including manufactured housing that is permanently affixed and treated as real
property under local law, or security interests in shares issued by cooperative
housing corporations (the 'Single Family Loans'), (ii) mortgage loans secured by
first and/or subordinate liens on small multifamily residential properties, such
as rental apartment buildings or projects containing five to fifty residential
units (the 'Multifamily Loans'), (iii) closed-end and/or revolving home equity
loans (the 'Home Equity Loans'), secured in whole or in part by first and/or
subordinate liens on one- to four-family residential properties and (iv) home
improvement installment sale contracts and installment loan agreements (the
'Home Improvement Contracts') that are either unsecured or secured by first or
subordinate liens on one- to four-family residential properties, or by purchase
money security interests in the home improvements financed thereby (the 'Home
Improvements'). The Trust Fund Assets will be acquired by the Depositor, either
directly or indirectly, from one or more institutions (each, a 'Seller'), which
may be affiliates of the Depositor, and conveyed by the Depositor to the related
Trust Fund. A Trust Fund also may include insurance policies, surety bonds, cash
accounts, reinvestment income, guaranties or letters of credit to the extent
described in the related Prospectus Supplement. See 'Index of Defined Terms' on
Page 99 of this Prospectus for the location of the definitions of certain
capitalized terms.
Each Series of Securities will be issued in one or more classes. Each class
of Certificates of a Series will evidence beneficial ownership of a specified
percentage (which may be 0%) or portion of future interest payments and a
specified percentage (which may be 0%) or portion of future principal payments
on the related Trust Fund Assets. Each class of Notes of a Series will be
secured by the related Trust Fund Assets or, if so specified in the related
Prospectus Supplement, a portion thereof. A Series of Securities may include one
or more classes that are senior in right of payment to one or more other classes
of Securities of such Series. One or more classes of Securities of a Series may
be entitled to receive distributions of principal, interest or any combination
thereof prior to one or more other classes of Securities of such Series or after
the occurrence of specified events, in each case as specified in the related
Prospectus Supplement.
(cover continued on next page)
------------------------
FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE
SECURITIES, SEE THE INFORMATION UNDER 'RISK FACTORS' ON PAGE 14.
------------------------
THE CERTIFICATES OF A GIVEN SERIES WILL REPRESENT BENEFICIAL INTERESTS IN,
AND THE NOTES OF A GIVEN SERIES WILL REPRESENT OBLIGATIONS OF, THE RELATED TRUST
FUND ONLY AND WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR,
THE MASTER SERVICER, ANY SELLER OR ANY AFFILIATES THEREOF, EXCEPT TO THE EXTENT
DESCRIBED IN THE RELATED PROSPECTUS SUPPLEMENT. THE SECURITIES AND THE LOANS
WILL NOT BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY
OR BY THE DEPOSITOR OR ANY OTHER PERSON OR ENTITY, EXCEPT IN EACH CASE TO THE
EXTENT DESCRIBED IN THE RELATED PROSPECTUS SUPPLEMENT. THE DEPOSITOR IS NOT A
GOVERNMENTAL AGENCY OR INSTRUMENTALITY NOR IS IT AFFILIATED WITH ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR
THE RELATED PROSPECTUS SUPPLEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
Prior to issuance there will have been no market for the Securities of any
Series and there can be no assurance that a secondary market for any Securities
will develop, or if it does develop, that it will continue or provide
Securityholders with a sufficient level of liquidity of investment. This
Prospectus may not be used to consummate sales of Securities of any Series
unless accompanied by a Prospectus Supplement.
Offers of the Securities may be made through one or more different methods,
including offerings through underwriters, as more fully described under 'Method
of Distribution' herein and in the related Prospectus Supplement.
April 24, 2000
<PAGE>
(continued from cover page)
Distributions to Securityholders will be made monthly, quarterly,
semi-annually or at such other intervals and on the dates specified in the
related Prospectus Supplement. Distributions on the Securities of a Series will
be made from the related Trust Fund Assets or proceeds thereof pledged for the
benefit of the Securityholders as specified in the related Prospectus
Supplement.
The related Prospectus Supplement will describe any insurance or guarantee
provided with respect to the related Series of Securities including, without
limitation, any insurance or guarantee provided by the Department of Housing and
Urban Development, the United States Department of Veterans' Affairs or any
private insurer or guarantor. The only obligations of the Depositor with respect
to a Series of Securities will be to obtain certain representations and
warranties from each Seller and to assign to the Trustee for the related Series
of Securities the Depositor's rights with respect to such representations and
warranties. The principal obligations of the Master Servicer named in the
related Prospectus Supplement with respect to the related Series of Securities
will be limited to its contractual servicing obligations, including any
obligation it may have to advance delinquent interest and/or principal payments
on the related Trust Fund Assets.
The yield on each class of Securities of a Series will be affected by, among
other things, the rate of payments of principal (including prepayments) on the
related Trust Fund Assets and the timing of receipt of such payments as
described under 'Risk Factors -- Prepayment and Yield Considerations' and 'Yield
and Prepayment Considerations' herein and in the related Prospectus Supplement.
A Trust Fund may be subject to early termination under the circumstances
described under 'The Agreements -- Termination'; Optional Termination herein and
in the related Prospectus Supplement.
If specified in the related Prospectus Supplement, one or more elections may
be made to treat a Trust Fund or specified portions thereof as a 'real estate
mortgage investment conduit' ('REMIC') or as a 'financial asset securitization
investment trust' ('FASIT') for federal income tax purposes. See 'Federal Income
Tax Consequences'.
2
<PAGE>
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES COVERED BY SUCH PROSPECTUS SUPPLEMENT,
WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO
DELIVER SUCH PROSPECTUS SUPPLEMENT AND THIS PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS AND PROSPECTUS SUPPLEMENT WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
PROSPECTUS SUPPLEMENT OR CURRENT REPORT ON FORM 8-K
The Prospectus Supplement or Current Report on Form 8-K relating to the
Securities of each Series to be offered hereunder will, among other things, set
forth with respect to such Securities, as appropriate: (i) the aggregate
principal amount, interest rate and authorized denominations of each class of
such Series of Securities; (ii) information as to the assets of the Trust Fund,
including the general characteristics of the related Trust Fund Assets included
therein and, if applicable, the insurance policies, surety bonds, guaranties,
letters of credit or other instruments or agreements included in the Trust Fund
or otherwise, and the amount and source of any reserve account or other cash
account; (iii) the circumstances, if any, under which the Trust Fund may be
subject to early termination; (iv) the circumstances, if any, under which the
Notes of such Series are subject to redemption; (v) the method used to calculate
the amount of principal to be distributed or paid with respect to each class of
Securities; (vi) the order of application of distributions or payments to each
of the classes within such Series, whether sequential, pro rata, or otherwise;
(vii) the Distribution Dates with respect to such Series; (viii) additional
information with respect to the method of distribution of such Securities; (ix)
whether one or more REMIC elections will be made with respect to the Trust Fund
and, if so, the designation of the regular interests and the residual interests;
(x) whether a FASIT election will be made with respect to the Trust Fund and, if
so, the designation of the regular interests and the ownership interest; (xi)
the aggregate original percentage ownership interest in the Trust Fund to be
evidenced by each class of Certificates; (xii) the stated maturity of each class
of Notes of such Series; (xiii) information as to the nature and extent of
subordination with respect to any class of Securities that is subordinate in
right of payment to any other class; and (xiv) information as to the Seller, the
Master Servicer and the Trustee.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
'Commission') a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Securities. This Prospectus, which forms a part of
the Registration Statement, and the Prospectus Supplement relating to each
Series of Securities contain descriptions of the material terms of the documents
referred to herein and therein, but do not contain all of the information set
forth in the Registration Statement pursuant to the Rules and Regulations of the
Commission. For further information, reference is made to such Registration
Statement and the exhibits thereto. Such Registration Statement and exhibits can
be inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at its Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at its Regional Offices located as follows:
Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and Northeast Regional Office, Seven World Trade Center, Suite 1300, New
York, New York 10048. The Commission also maintains a Web site at
http://www.sec.gov from which such Registration Statement and exhibits may be
obtained.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by or on behalf of the Trust Fund referred
to in the accompanying Prospectus Supplement with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the 'Exchange Act'), after the date of this Prospectus and prior to the
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termination of any offering of the Securities issued by such Trust Fund shall be
deemed to be incorporated by reference in this Prospectus and to be a part of
this Prospectus from the date of the filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for all purposes of this
Prospectus to the extent that a statement contained herein (or in the
accompanying Prospectus Supplement) or in any other subsequently filed document
which also is or is deemed to be incorporated by reference modifies or replaces
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus. Neither the Depositor nor the Master Servicer for any Series intends
to file with the Commission periodic reports with respect to the related Trust
Fund following completion of the reporting period required by Rule 15d-1 or
Regulation 15D under the Exchange Act, and accordingly such periodic reports
will not be filed for each Trust Fund subsequent to the first fiscal year of
such Trust Fund unless at the beginning of any subsequent fiscal year of such
Trust Fund the Securities of any Class issued by such Trust Fund are held of
record by 300 or more persons.
The Trustee or such other entity specified in the related Prospectus
Supplement on behalf of any Trust Fund will provide without charge to each
person to whom this Prospectus is delivered, on the written or oral request of
such person, a copy of any or all of the documents referred to above that have
been or may be incorporated by reference in this Prospectus (not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates). Such requests should be directed to the Corporate
Trust Office of the Trustee or the address of such other entity, in each case as
specified in the accompanying Prospectus Supplement. Included in the
accompanying Prospectus Supplement is the name, address, telephone number, and,
if available, facsimile number of the office or contact person at the Corporate
Trust Office of the Trustee or such other entity.
REPORTS TO SECURITYHOLDERS
Periodic and annual reports concerning the related Trust Fund for a Series
of Securities will be forwarded to Securityholders. However, such reports will
neither be examined nor reported on by an independent public accountant. See
'Description of the Securities -- Reports to Securityholders'.
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SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the related Prospectus
Supplement with respect to the Series of Securities offered thereby and to the
related Agreement (as such term is defined below) which will be prepared in
connection with each Series of Securities. Unless otherwise specified,
capitalized terms used and not defined in this Summary of Terms have the
meanings given to them in this Prospectus and in the related Prospectus
Supplement. See 'Index of Defined Terms' on page 99 of this Prospectus for the
location of the definitions of certain capitalized terms.
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Title of Securities....................... Asset Backed Certificates (the 'Certificates') and Asset
Backed Notes (the 'Notes' and, together with the
Certificates, the 'Securities'), which are issuable in
Series.
Depositor................................. IndyMac ABS, Inc., a Delaware corporation.
Trustee................................... The trustee(s) (the 'Trustee') for each Series of
Securities will be specified in the related Prospectus
Supplement. See 'The Agreements' herein for a
description of the Trustee's rights and obligations.
Master Servicer........................... The entity or entities named as Master Servicer (the
'Master Servicer') in the related Prospectus Supplement,
which may be an affiliate of the Depositor. See 'The
Agreements -- Certain Matters Regarding the Master
Servicer and the Depositor'.
Trust Fund Assets......................... Assets of the Trust Fund for a Series of Securities will
include certain assets (the 'Trust Fund Assets') which
will consist of the Loans, together with payments in
respect of such Trust Fund Assets, as specified in the
related Prospectus Supplement. At the time of issuance
of the Securities of the Series, the Depositor will
cause the Loans constituting the related Trust Fund to
be assigned to the Trustee, without recourse. The Loans
will be collected in a pool (each, a 'Pool') as of the
first day of the month of the issuance of the related
Series of Securities or such other date specified in the
related Prospectus Supplement (the 'Cut-off Date').
Trust Fund Assets also may include insurance policies,
surety bonds, cash accounts, reinvestment income,
guaranties or letters of credit to the extent described
in the related Prospectus Supplement. See 'Credit
Enhancement'. In addition, if the related Prospectus
Supplement so provides, the related Trust Fund Assets
will include the funds on deposit in an account (a
'Pre-Funding Account') which will be used to purchase
additional Loans during the period specified in such
Prospectus Supplement. See 'The Agreements --
Pre-Funding Account'.
Loans..................................... The Loans will consist of (i) mortgage loans secured by
first and/or subordinate liens on one- to four-family
residential properties, including manufactured housing
that is permanently affixed and treated as real property
under local law, or security interests in shares issued
by cooperative housing corporations (the 'Single Family
Loans'), (ii) mortgage loans secured by first and/or
subordinate liens on small multifamily residential
properties, such as rental apartment buildings or
projects containing five to fifty residential units (the
'Multifamily Loans'), (iii) closed-end loans (the
'Closed-End Loans') and/or revolving home equity loans
or certain balances thereof (the 'Revolving Credit Line
Loans,' together with the Closed-End Loans, the 'Home
Equity Loans')
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and (iv) home improvement installment sale contracts and
installment loan agreements (the 'Home Improvement
Contracts'). All Loans will have been purchased by the
Depositor, either directly or through an affiliate, from
one or more Sellers.
As specified in the related Prospectus Supplement, the
Home Equity Loans will, and the Home Improvement
Contracts may, be secured by mortgages or deeds of trust
or other similar security instruments creating a lien on
a Mortgaged Property (as defined below), which may be
subordinated to one or more senior liens on the
Mortgaged Property, as described in the related
Prospectus Supplement. As specified in the related
Prospectus Supplement, Home Improvement Contracts may be
unsecured or secured by purchase money security
interests in the Home Improvements financed thereby. If
so specified in the related Prospectus Supplement, the
Home Equity Loans and the Home Improvement Contracts may
include Loans (primarily for home improvement or debt
consolidation purposes) that are in amounts in excess of
the value of the related Mortgaged Properties at the
time of origination. The Mortgaged Properties and the
Home Improvements are collectively referred to herein as
the 'Properties'. All Properties will be located in the
United States, its territories or possessions.
Description of the Securities............. Each Security will represent a beneficial ownership
interest in, or be secured by the assets of, a Trust
Fund created by the Depositor pursuant to an Agreement
among the Depositor, the Master Servicer and the Trustee
for the related Series. The Securities of any Series may
be issued in one or more classes as specified in the
related Prospectus Supplement. A Series of Securities
may include one or more classes of senior Securities
(collectively, the 'Senior Securities') and one or more
classes of subordinate Securities (collectively, the
'Subordinated Securities'). Certain Series or classes of
Securities may be covered by insurance policies or other
forms of credit enhancement, in each case as described
under 'Credit Enhancement' herein and in the related
Prospectus Supplement.
One or more classes of Securities of each Series (i) may
be entitled to receive distributions allocable only to
principal, only to interest or to any combination
thereof; (ii) may be entitled to receive distributions
only of prepayments of principal throughout the lives of
the Securities or during specified periods; (iii) may be
subordinated in the right to receive distributions of
scheduled payments of principal, prepayments of
principal, interest or any combination thereof to one or
more other classes of Securities of such Series
throughout the lives of the Securities or during
specified periods; (iv) may be entitled to receive such
distributions only after the occurrence of events
specified in the related Prospectus Supplement; (v) may
be entitled to receive distributions in accordance with
a schedule or formula or on the basis of collections
from designated portions of the related Trust Fund
Assets; (vi) as to Securities entitled to distributions
allocable to interest, may be entitled to receive
interest at a fixed rate or a rate that is subject to
change from time to time; and (vii) as to Securities
entitled to distributions allocable to interest, may be
entitled to distributions
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allocable to interest only after the occurrence of
events specified in the related Prospectus Supplement
and may accrue interest until such events occur, in each
case as specified in the related Prospectus Supplement.
The timing and amounts of such distributions may vary
among classes or over time, as specified in the related
Prospectus Supplement.
Distributions on the Securities........... Distributions on the Securities entitled thereto will be
made monthly, quarterly, semi-annually or at such other
intervals and on the dates specified in the related
Prospectus Supplement (each, a 'Distribution Date') out
of the payments received in respect of the assets of the
related Trust Fund or Funds or other assets pledged for
the benefit of the Securities as described under 'Credit
Enhancement' herein to the extent specified in the
related Prospectus Supplement. The amount allocable to
payments of principal and interest on any Distribution
Date will be determined as specified in the related
Prospectus Supplement. The Prospectus Supplement for a
Series of Securities will describe the method for
allocating distributions among Securities of different
classes as well as the method for allocating
distributions among Securities for any particular class.
Unless otherwise specified in the related Prospectus
Supplement, the aggregate original principal balance of
the Securities will not exceed the aggregate
distributions allocable to principal that such
Securities will be entitled to receive. If specified in
the related Prospectus Supplement, the Securities will
have an aggregate original principal balance equal to
the aggregate unpaid principal balance of the Trust Fund
Assets as of the related Cut-off Date and will bear
interest in the aggregate at a rate equal to the
interest rate borne by the underlying Loans (the 'Loan
Rate') net of the aggregate servicing fees and any other
amounts specified in the related Prospectus Supplement,
or at such other interest rate as may be specified in
such Prospectus Supplement. If specified in the related
Prospectus Supplement, the aggregate original principal
balance of the Securities and interest rates on the
classes of Securities will be determined based on the
cash flow on the Trust Fund Assets.
The rate at which interest will be passed through or
paid to holders of each class of Securities entitled
thereto may be a fixed rate or a rate that is subject to
change from time to time from the time and for the
periods, in each case, as specified in the related
Prospectus Supplement. Any such rate may be calculated
on a loan-by-loan, weighted average or notional amount
in each case as described in the related Prospectus
Supplement.
Credit Enhancement........................ The assets in a Trust Fund or the Securities of one or
more classes in the related Series may have the benefit
of one or more types of credit enhancement as described
in the related Prospectus Supplement. The protection
against losses afforded by any such credit support may
be limited. The type, characteristics and amount of
credit enhancement will be determined based on the
characteristics of the Loans comprising the Trust Fund
Assets and other factors and will be established on the
basis of requirements of
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each Rating Agency rating the Securities of such Series.
See 'Credit Enhancement'.
A. Subordination.......................... A Series of Securities may consist of one or more
classes of Senior Securities and one or more classes of
Subordinated Securities. The rights of the holders of
the Subordinated Securities of a Series to receive
distributions with respect to the assets in the related
Trust Fund will be subordinated to such rights of the
holders of the Senior Securities of the same Series to
the extent described in the related Prospectus
Supplement. This subordination is intended to enhance
the likelihood of regular receipt by holders of Senior
Securities of the full amount of monthly payments of
principal and interest due them. The protection afforded
to the holders of Senior Securities of a Series by means
of the subordination feature will be accomplished by (i)
the preferential right of such holders to receive, prior
to any distribution being made in respect of the related
Subordinated Securities, the amounts of interest and/or
principal due them on each Distribution Date out of the
funds available for distribution on such date in the
related Security Account and, to the extent described in
the related Prospectus Supplement, by the right of such
holders to receive future distributions on the assets in
the related Trust Fund that would otherwise have been
payable to the holders of Subordinated Securities; (ii)
reducing the ownership interest (if applicable) of the
related Subordinated Securities; or (iii) a combination
of clauses (i) and (ii) above. If so specified in the
related Prospectus Supplement, subordination may apply
only in the event of certain types of losses not covered
by other forms of credit support, such as hazard losses
not covered by standard hazard insurance policies or
losses due to the bankruptcy or fraud of the borrower.
The related Prospectus Supplement will set forth
information concerning, among other things, the amount
of subordination of a class or classes of Subordinated
Securities in a Series, the circumstances in which such
subordination will be applicable, and the manner, if
any, in which the amount of subordination will decrease
over time.
B. Reserve Account........................ One or more reserve accounts or other cash accounts
(each, a 'Reserve Account') may be established and
maintained for each Series of Securities. The related
Prospectus Supplement will specify whether or not such
Reserve Accounts will be included in the corpus of the
Trust Fund for such Series and will also specify the
manner of funding such Reserve Accounts and the
conditions under which the amounts in any such Reserve
Accounts will be used to make distributions to holders
of Securities of a particular class or released from
such Reserve Accounts.
C. Letter of Credit....................... If so specified in the related Prospectus Supplement,
credit support may be provided by one or more letters of
credit. A letter of credit may provide limited
protection against certain losses in addition to or in
lieu of other credit support, such as losses resulting
from delinquent payments on the Loans in the related
Trust Fund, losses from risks not covered by standard
hazard insurance policies, losses due to bankruptcy of a
borrower and application of certain provisions of the
Bankruptcy Code, and losses due to denial of insurance
coverage due to misrepresentations made in connection
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with the origination or sale of a Loan. The issuer of
the letter of credit (the 'L/C Bank') will be obligated
to honor demands with respect to such letter of credit,
to the extent of the amount available thereunder, and to
provide funds under the circumstances and subject to
such conditions as are specified in the related
Prospectus Supplement. The liability of the L/C Bank
under its letter of credit will be reduced by the amount
of unreimbursed payments thereunder.
The maximum liability of a L/C Bank under its letter of
credit will be an amount equal to a percentage specified
in the related Prospectus Supplement of the initial
aggregate outstanding principal balance of the Loans in
the related Trust Fund or one or more classes of
Securities of the related Series (the 'L/C Percentage').
The maximum amount available at any time to be paid
under a letter of credit will be determined in the
manner specified therein and in the related Prospectus
Supplement.
D. Insurance Policies; Surety Bonds
and Guarantees.......................... If so specified in the related Prospectus Supplement,
credit support for a Series may be provided by an
insurance policy and/or a surety bond issued by one or
more insurance companies or sureties. Such certificate
guarantee insurance or surety bond will guarantee timely
distributions of interest and/or full distributions of
principal on the basis of a schedule of principal
distributions set forth in or determined in the manner
specified in the related Prospectus Supplement. If
specified in the related Prospectus Supplement, one or
more bankruptcy bonds, special hazard insurance
policies, other insurance or third-party guarantees may
be used to provide coverage for the risks of default or
types of losses set forth in such Prospectus Supplement.
E. Over-Collateralization................. If so provided in the Prospectus Supplement for a Series
of Securities, a portion of the interest payment on each
Loan may be applied as an additional distribution in
respect of principal to reduce the principal balance of
a certain class or classes of Securities and, thus,
accelerate the rate of payment of principal on such
class or classes of Securities.
F. Loan Pool Insurance Policy............. A mortgage pool insurance policy or policies may be
obtained and maintained for Loans relating to any Series
of Securities, which shall be limited in scope, covering
defaults on the related Loans in an initial amount equal
to a specified percentage of the aggregate principal
balance of all Loans included in the Pool as of the
related Cut-off Date.
G. FHA Insurance.......................... If specified in the related Prospectus Supplement, all
or a portion of the Loans in a Pool may be (i) insured
by the Federal Housing Administration (the 'FHA') and/or
(ii) partially guaranteed by the Department of Veterans'
Affairs (the 'VA'). See 'Certain Legal Aspects of the
Loans -- The Title I Program'.
H. Cross-Collateralization................ If specified in the related Prospectus Supplement,
separate classes of a Series of Securities may evidence
the beneficial ownership of, or be secured by, separate
groups of assets included in a Trust Fund. In such case,
credit support may be provided by a cross-
collateralization feature which requires that
distributions be made
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with respect to Securities evidencing a beneficial
ownership interest in, or secured by, one or more asset
groups prior to distributions to Subordinated Securities
evidencing a beneficial ownership interest in, or
secured by, other asset groups within the same Trust
Fund. See 'Credit
Enhancement -- Cross-Collateralization'.
If specified in the related Prospectus Supplement, the
coverage provided by one or more of the forms of credit
enhancement described in this Prospectus may apply
concurrently to two or more separate Trust Funds. If
applicable, the related Prospectus Supplement will
identify the Trust Funds to which such credit
enhancement relates and the manner of determining the
amount of coverage provided to such Trust Funds thereby
and of the application of such coverage to the
identified Trust Funds. See 'Credit
Enhancement -- Cross-Collateralization'.
Advances.................................. The Master Servicer and, if applicable, each mortgage
servicing institution that services a Loan in a Pool on
behalf of the Master Servicer (each, a 'Sub-Servicer')
may be obligated to advance amounts (each, an 'Advance')
corresponding to delinquent interest and/or principal
payments on such Loan (including, in the case of
Cooperative Loans, unpaid maintenance fees or other
charges under the related proprietary lease) until the
date, as specified in the related Prospectus Supplement,
following the date on which the related Property is sold
at a foreclosure sale or the related Loan is otherwise
liquidated. Any obligation to make Advances may be
subject to limitations as specified in the related
Prospectus Supplement. If so specified in the related
Prospectus Supplement, Advances may be drawn from a cash
account available for such purpose as described in such
Prospectus Supplement. Advances will be reimbursable to
the extent described under 'Description of the
Securities -- Advances' herein and in the related
Prospectus Supplement.
In the event the Master Servicer or Sub-Servicer fails
to make a required Advance, the Trustee may be obligated
to advance such amounts otherwise required to be
advanced by the Master Servicer or Sub-Servicer. See
'Description of the Securities -- Advances'.
Optional Termination...................... The Master Servicer or the party specified in the
related Prospectus Supplement, including the holder of
the residual interest in a REMIC or the holder of the
ownership interest in a FASIT, may have the option to
effect early retirement of a Series of Securities
through the purchase of the Trust Fund Assets. The
Master Servicer will deposit the proceeds of any such
purchase in the Security Account for each Trust Fund as
described under 'The Agreements -- Payments on Loans;
Deposit to Security Account'. Any such purchase of Trust
Fund Assets and property acquired in respect of Trust
Fund Assets evidenced by a Series of Securities will be
made at the option of the Master Servicer, such other
person or, if applicable, such holder of the REMIC
residual interest or FASIT ownership interest, at a
price specified in the related Prospectus Supplement.
The exercise of such right will effect early retirement
of the Securities of that Series, but the right of the
Master Servicer, such other person or, if applicable,
such holder of
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the REMIC residual interest or FASIT ownership interest,
to so purchase is subject to the principal balance of
the related Trust Fund Assets being less than the
percentage specified in the related Prospectus
Supplement of the aggregate principal balance of the
Trust Fund Assets at the Cut-off Date for the Series.
The foregoing is subject to the provision that if a
REMIC election is made with respect to a Trust Fund, any
repurchase will be made only in connection with a
'qualified liquidation' of the REMIC within the meaning
of Section 860F(g)(4) of the Code, and if a FASIT
election is made with respect to a Trust Fund, any
repurchase will be made only if such repurchase would
not be a prohibited transaction within the meaning of
section 860L(e)(2) of the Code.
Legal Investment.......................... The Prospectus Supplement for each series of Securities
will specify which, if any, of the classes of Securities
offered thereby constitute 'mortgage related securities'
for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ('SMMEA'). Classes of Securities
that qualify as 'mortgage related securities' will be
legal investments for certain types of institutional
investors to the extent provided in SMMEA, subject, in
any case, to any other regulations which may govern
investments by such institutional investors.
Institutions whose investment activities are subject to
review by federal or state authorities should consult
with their counsel or the applicable authorities to
determine whether an investment in a particular class of
Securities (whether or not such class constitutes a
'mortgage related security') complies with applicable
guidelines, policy statements or restrictions. See
'Legal Investment'.
Federal Income Tax Consequences........... The federal income tax consequences to Securityholders
will vary depending on whether one or more elections are
made to treat the Trust Fund or specified portions
thereof as either a REMIC or a FASIT under the
provisions of the Internal Revenue Code of 1986, as
amended (the 'Code'). The Prospectus Supplement for each
Series of Securities will specify whether such an
election will be made.
If a REMIC election or a FASIT election is made,
Securities representing regular interests in a REMIC or
FASIT will generally be treated as evidences of
indebtedness for federal income tax purposes. Stated
interest on such regular interests will be taxable as
ordinary income and taken into account using the accrual
method of accounting, regardless of the holder's normal
accounting method. If neither a REMIC election nor a
FASIT is made, interest (other than original issue
discount ('OID') on Securities that are characterized as
indebtedness for federal income tax purposes will be
includible in income by holders thereof in accordance
with their usual method of accounting.
Certain classes of Securities may be issued with OID. A
holder should be aware that the Code and the Treasury
regulations promulgated thereunder do not adequately
address certain issues relevant to prepayable
securities, such as the Securities.
Securityholders that will be required to report income
with respect to the related Securities under the accrual
method of accounting
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will do so without giving effect to delays and
reductions in distributions attributable to a default or
delinquency on the Loans, except possibly to the extent
that it can be established that such amounts are
uncollectible. As a result, the amount of income
(including OID) reported by a holder of a Security in
any period could significantly exceed the amount of cash
distributed to such holder in that period.
In the opinion of Brown & Wood LLP, if a REMIC election
is made with respect to a Series of Securities, then the
arrangement by which such Securities are issued will be
treated as a REMIC as long as all of the provisions of
the applicable Agreement are complied with. Securities
will be designated as 'regular interests' or 'residual
interests' in a REMIC. A REMIC generally will not be
subject to entity-level tax. Rather, the taxable income
or net loss of a REMIC will be taken into account by the
holders of residual interests. Such holders will report
their proportionate share of the taxable income of the
REMIC whether or not they receive cash distributions
from the REMIC attributable to such income. The portion
of the REMIC taxable income consisting of 'excess
inclusions' generally may not be offset by otherwise
allowable deductions of the holder, including net
operating loss deductions.
In the opinion of Brown & Wood LLP, if a FASIT election
is made with respect to a Series of Securities, then the
arrangement by which such Securities are issued will be
treated as a FASIT as long as all of the provisions of
the applicable Agreement are complied with. Securities
will be designated as regular interests or as the
ownership interest. The FASIT generally will not be
subject to an entity-level tax. Rather, the taxable
income or net loss of the FASIT will be taken into
account by the holder of the ownership interest whether
or not the holder receives cash distributions from the
FASIT attributable to such income. The ownership
interest generally must be held at all times by a
domestic C corporation (an 'Eligible Corporation').
Furthermore, certain regular interests referred to as
High-Yield interests are only suitable investments for
Eligible Corporations. Income derived from holding
ownership interests and income derived from holding
High-Yield interests generally may not be offset by
otherwise allowable deductions, including net operating
loss deductions.
In the opinion of Brown & Wood LLP, if a REMIC or a
FASIT election is not made with respect to a Series of
Securities, then the arrangement by which such
Securities are issued either will be classified as a
grantor trust under Subpart E, Part I of Subchapter J of
the Code or as a partnership. The Trust Fund will not be
a publicly traded partnership taxable as a corporation
as long as all of the provisions of the related
Agreement are complied with. If Notes are issued by such
Trust Fund, such Notes will be treated as indebtedness
for federal income tax purposes. The holders of the
Certificates issued by such Trust Fund will agree to
treat the Certificates either as equity interests in a
partnership or in a grantor trust.
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Generally, gain or loss will be recognized on a sale of
Securities in the amount equal to the difference between
the amount realized and the seller's tax basis in the
Securities sold.
The material federal income tax consequences for
investors associated with the purchase, ownership and
disposition of the Securities are set forth herein under
'Federal Income -- Tax Consequences'. The material
federal income tax consequences for investors associated
with the purchase, ownership and disposition of
Securities of any particular Series will be set forth
under the heading 'Federal Income Tax Consequences' in
the related Prospectus Supplement. See 'Federal Income
Tax Consequences'.
ERISA Considerations...................... A fiduciary of any employee benefit plan or other
retirement plan or arrangement subject to the Employee
Retirement Income Security Act of 1974, as amended
('ERISA'), or the Code should carefully review with its
legal advisors whether the purchase or holding of
Securities could give rise to a transaction prohibited
or not otherwise permissible under ERISA or the Code.
See 'ERISA Considerations'. Certain classes of
Securities may not be transferred unless the Trustee and
the Depositor are furnished with a letter of
representation or an opinion of counsel to the effect
that such transfer will not result in a violation of the
prohibited transaction provisions of ERISA and the Code
and will not subject the Trustee, the Depositor or the
Master Servicer to additional obligations. See
'Description of the Securities -- General' and 'ERISA
Considerations'.
Risk Factors.............................. For a discussion of certain risks associated with an
investment in the Securities, see 'Risk Factors' on
page 14 herein and in the related Prospectus Supplement.
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RISK FACTORS
Investors should consider the following factors in connection with the
purchase of the Securities.
LIMITED LIQUIDITY
No market for the Securities of any Series will exist prior to the issuance
thereof, and no assurance can be given that a secondary market will develop or,
if it does develop, that it will provide Securityholders with liquidity of
investment or will continue for the life of the Securities of such Series.
LIMITED SOURCE OF PAYMENTS -- NO RECOURSE TO SELLERS, DEPOSITOR OR MASTER
SERVICER
The Depositor does not have, nor is it expected to have, any significant
assets. Unless otherwise specified in the related Prospectus Supplement, the
Securities of a Series will be payable solely from the Trust Fund for such
Securities and will not have any claim against or security interest in the Trust
Fund for any other Series. There will be no recourse to the Depositor or any
other person for any failure to receive distributions on the Securities.
Further, at the times set forth in the related Prospectus Supplement, certain
Trust Fund Assets and/or any balance remaining in the Security Account
immediately after making all payments due on the Securities of such Series,
after making adequate provision for future payments on certain classes of
Securities and after making any other payments specified in the related
Prospectus Supplement, may be promptly released or remitted to the Depositor,
the Master Servicer, any credit enhancement provider or any other person
entitled thereto and will no longer be available for making payments to
Securityholders. Consequently, holders of Securities of each Series must rely
solely upon payments with respect to the Trust Fund Assets and the other assets
constituting the Trust Fund for a Series of Securities, including, if
applicable, any amounts available pursuant to any credit enhancement for such
Series, for the payment of principal of and interest on the Securities of such
Series.
The Securities will not represent an interest in or obligation of the
Depositor, the Master Servicer, any Seller or any of their respective
affiliates. The only obligations, if any, of the Depositor with respect to the
Trust Fund Assets or the Securities of any Series will be pursuant to certain
representations and warranties. The Depositor does not have, and is not expected
in the future to have, any significant assets with which to meet any obligation
to repurchase Loans with respect to which there has been a breach of any
representation or warranty which materially and adversely affects the interests
of the Securityholders in such Loans. If, for example, the Depositor were
required to repurchase a Loan, its only sources of funds to make such repurchase
would be from funds obtained (i) from the enforcement of a corresponding
obligation, if any, on the part of the related Seller or originator of such Loan
or (ii) to the extent provided in the related Prospectus Supplement, from a
Reserve Account or similar credit enhancement established to provide funds for
such repurchases.
The only obligations of any Seller with respect to Trust Fund Assets or the
Securities of any Series will be pursuant to certain representations and
warranties and certain document delivery requirements. A Seller may be required
to repurchase or substitute for any Loan with respect to which such
representations and warranties or certain document delivery requirements are
breached (and in the case of any such breach of representations and warranties,
such breach materially and adversely affects the interest of the Securityholders
in such Loan). There is no assurance, however, that such Seller will have the
financial ability to effect such repurchase or substitution. Although the Master
Servicer may be obligated to enforce such obligation to the extent described
under 'Loan Program -- Representations by Sellers; Repurchases,' the Master
Servicer will not be obligated to purchase or replace such Loan if the Seller
defaults on its obligation (nor will the Master Servicer otherwise be obligated
to purchase or replace any such Loan for any other reason).
CREDIT ENHANCEMENT -- LIMITATIONS
Although credit enhancement is intended to reduce the risk of delinquent
payments or losses to holders of Securities entitled to the benefit thereof, the
amount of such credit enhancement will be limited, as set forth in the related
Prospectus Supplement, and may be subject to periodic reduction in accordance
with a schedule or formula or otherwise decline, and could be depleted under
certain circumstances prior to the payment in full of the related Series of
Securities, and as a result Securityholders of the related Series may suffer
losses. Moreover, such credit enhancement may not cover all potential losses or
risks. For example, credit enhancement may or may not cover fraud or negligence
by a loan originator or other parties. In addition, the Trustee will generally
be permitted to reduce, terminate or substitute all or a portion of the credit
enhancement for any Series of
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Securities, provided the applicable Rating Agency indicates that the
then-current rating of the Securities of such Series will not be adversely
affected. See 'Credit Enhancement'.
PREPAYMENT AND YIELD CONSIDERATIONS
The timing of principal payments of the Securities of a Series will be
affected by a number of factors, including the following: (i) the extent of
prepayments (including for this purpose prepayments resulting from refinancing
or liquidations of the Loans due to defaults, casualties, condemnations and
repurchases by the Depositor or a Seller) of the Loans comprising the Trust
Fund, which prepayments may be influenced by a variety of factors including
general economic conditions, prevailing interest rate levels, the availability
of alternative financing and homeowner mobility, (ii) the manner of allocating
principal and/or payments among the classes of Securities of a Series as
specified in the related Prospectus Supplement, (iii) the exercise by the party
entitled thereto of any right of optional termination and (iv) the rate and
timing of payment defaults and losses incurred with respect to the Trust Fund
Assets. The repurchase of Loans by the Depositor or a Seller may result from
repurchases of Trust Fund Assets due to material breaches of the Depositor's or
such Seller's representations and warranties, as applicable. The yields to
maturity and weighted average lives of the Securities will be affected primarily
by the rate and timing of prepayment of the Loans comprising the Trust Fund
Assets. In addition, the yields to maturity and weighted average lives of the
Securities will be affected by the distribution of amounts remaining in any
Pre-Funding Account following the end of the related Funding Period. Any
reinvestment risks resulting from a faster or slower incidence of prepayment of
Loans held by a Trust Fund will be borne entirely by the holders of one or more
classes of the related Series of Securities. See 'Yield and Prepayment
Considerations' and 'The Agreements -- Pre-Funding Account'.
Interest payable on the Securities of a Series on a Distribution Date will
include all interest accrued during the period specified in the related
Prospectus Supplement. In the event interest accrues over a period ending two or
more days prior to a Distribution Date, the effective yield to Securityholders
will be reduced from the yield that would otherwise be obtainable if interest
payable on the Securities were to accrue through the day immediately preceding
each Distribution Date, and the effective yield (at par) to Securityholders will
be less than the indicated coupon rate. See 'Description of the
Securities -- Distributions on Securities -- Distributions of Interest'.
LOANS WITH BALLOON PAYMENTS HAVE GREATER RISK OF BORROWER DEFAULT
Certain of the Loans as of the related Cut-off Date may not be fully
amortizing over their terms to maturity and, thus, will require substantial
principal payments (i.e., balloon payments) at their stated maturity. Loans with
balloon payments involve a greater degree of risk because the ability of a
borrower to make a balloon payment typically will depend upon its ability either
to timely refinance the loan or to timely sell the related Property. The ability
of a borrower to accomplish either of these goals will be affected by a number
of factors, including the level of available mortgage rates at the time of sale
or refinancing, the borrower's equity in the related Property, the financial
condition of the borrower and tax laws. Losses on such Loans that are not
otherwise covered by the credit enhancement described in the applicable
Prospectus Supplement will be borne by the holders of one or more classes of
Securities of the related Series.
NATURE OF MORTGAGES
Property Values May Decline. The value of the Properties underlying the
Loans may decline over time. Among the factors that could adversely affect the
value of the Properties are an overall decline in the residential real estate
market in the areas in which the Properties are located or a decline in the
general condition of the Properties as a result of failure of borrowers to
maintain adequately the Properties or of natural disasters that are not
necessarily covered by insurance, such as earthquakes and floods. Such decline
could extinguish the value of the interest of a junior mortgagee in the Property
before having any effect on the interest of the related senior mortgagee. If
such a decline occurs, the actual rates of delinquencies, foreclosures and
losses on all Loans could be higher than those currently experienced in the
mortgage lending industry in general. Losses on such Loans that are not
otherwise covered by the credit enhancement described in the applicable
Prospectus Supplement will be borne by the holder of one or more classes of
Securities of the related Series.
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Delays Due to Liquidation of Properties. Even assuming that the Properties
provide adequate security for the Loans, substantial delays could be encountered
in connection with the liquidation of defaulted Loans and corresponding delays
in the receipt of related proceeds by Securityholders could occur. An action to
foreclose on a Property securing a Loan is regulated by state statutes and rules
and is subject to many of the delays and expenses of other lawsuits if defenses
or counterclaims are interposed, sometimes requiring several years to complete.
Furthermore, in some states an action to obtain a deficiency judgment is not
permitted following a nonjudicial sale of a Property. In the event of a default
by a borrower, these restrictions, among other things, may impede the ability of
the Master Servicer to foreclose on or sell the Property or to obtain
liquidation proceeds sufficient to repay all amounts due on the related Loan. In
addition, the Master Servicer will be entitled to deduct from related
liquidation proceeds all expenses reasonably incurred in attempting to recover
amounts due on defaulted Loans and not yet repaid, including payments to senior
lienholders, legal fees and costs of legal action, real estate taxes and
maintenance and preservation expenses.
Disproportionate Effect of Liquidation Expenses. Liquidation expenses with
respect to defaulted loans generally do not vary directly with the outstanding
principal balance of the loan at the time of default. Therefore, assuming that a
servicer took the same steps in realizing upon a defaulted loan having a small
remaining principal balance as it would in the case of a defaulted loan having a
large remaining principal balance, the amount realized after expenses of
liquidation would be smaller as a percentage of the outstanding principal
balance of the small loan than would be the case with the defaulted loan having
a large remaining principal balance.
Home Equity Loans; Junior Liens May Be More Difficult to Foreclose. Since
the mortgages and deeds of trust securing the Home Equity Loans and the Home
Improvement Contracts will be primarily junior liens subordinate to the rights
of the mortgagee under the related senior mortgage(s) or deed(s) of trust, the
proceeds from any liquidation, insurance or condemnation proceeds will be
available to satisfy the outstanding balance of such junior lien only to the
extent that the claims of such senior mortgagees have been satisfied in full,
including any related foreclosure costs. In addition, if a junior mortgagee
forecloses on the property securing a junior mortgage, it forecloses subject to
any senior mortgage and must either pay the entire amount due on any senior
mortgage to the related senior mortgagee at or prior to the foreclosure sale or
undertake the obligation to make payments on any such senior mortgage in the
event the mortgagor is in default thereunder in order to protect the junior
mortgagee's interest in the property. The Trust Fund will not have any source of
funds to satisfy any senior mortgages or make payments due to any senior
mortgagees and may therefore effectively be prevented from foreclosing on the
related property.
Certain states have imposed statutory and judicial restrictions that limit
the remedies of a secured lender in the event that the proceeds of any sale
under a deed of trust or other foreclosure proceedings are insufficient to pay
amounts owed to such secured lender. In certain states, including California, if
a lender simultaneously originates a loan secured by a senior lien on a
particular property and a loan secured by a junior lien on the same property,
such a lender as the holder of the junior lien may be precluded from obtaining a
deficiency judgment with respect to the excess of the aggregate amount owed
under both such loans over the proceeds of any sale under a deed of trust or
other foreclosure proceedings. See 'Certain Legal Aspects of the Loans -- Anti-
Deficiency Legislation; Bankruptcy Laws; Tax Liens'.
Consumer Protection Laws. Applicable state laws generally regulate interest
rates and other charges, require certain disclosures, and require licensing of
certain originators and servicers of Loans. In addition, most states have other
laws, public policy and general principles of equity relating to the protection
of consumers, unfair and deceptive acts and practices which may apply to the
origination, servicing and collection of the Loans. Depending on the provisions
of the applicable law and the specific facts and circumstances involved,
violations of these laws, policies and principles may limit the ability of the
Master Servicer to collect all or part of the principal of or interest on the
Loans, may entitle the borrower to a refund of amounts previously paid and, in
addition, could subject the Master Servicer to damages and administrative
sanctions. See 'Certain Legal Aspects of the Loans'.
MULTIFAMILY LOANS SUBJECT TO MORE RISKS THAN SINGLE FAMILY LOANS
Multifamily lending may be viewed as exposing the lender to a greater risk
of loss than single family residential lending. Owners of multifamily
residential properties rely on monthly lease payments from tenants to pay for
maintenance and other operating expenses of such properties, to fund capital
improvements and to
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service any mortgage loan and any other debt that may be secured by such
properties. Various factors, many of which are beyond the control of the owner
or operator of such a property, may affect the economic viability of that
property.
Changes in payment patterns by tenants may result from a variety of social,
legal and economic factors. Economic factors including the rate of inflation,
unemployment levels and relative rates offered for various types of housing may
be reflected in changes in payment patterns including increased risks of
defaults by tenants and higher vacancy rates. Adverse economic conditions,
either local or national, may limit the amount of rent that can be charged and
may result in a reduction in timely lease payments or a reduction in occupancy
levels. Occupancy and rent levels may also be affected by construction of
additional housing units, competition and local politics, including rent
stabilization or rent control laws and policies. In addition, the level of
mortgage interest rates may encourage tenants to purchase single family housing.
The Depositor is unable to determine and has no basis to predict whether, or to
what extent, economic, legal or social factors will affect future rental or
payment patterns.
The location and construction quality of a particular building may affect
the occupancy level as well as the rents that may be charged for individual
units. The characteristics of a neighborhood may change over time or in relation
to newer developments. The effects of poor construction quality will increase
over time in the form of increased maintenance and capital improvements. Even
good construction will deteriorate over time if adequate maintenance is not
performed in a timely fashion.
HOME IMPROVEMENT CONTRACTS AND HOME EQUITY LOANS MAY BE UNDERCOLLATERALIZED AND
SUBJECT TO GREATER RISK OF COLLECTION
If specified in the related Prospectus Supplement, the Trust Fund for any
Series may include Home Equity Loans and Home Improvement Contracts that were
originated with Loan-to-Value Ratios or Combined Loan-to-Value Ratios in excess
of the value of the related Mortgaged Property pledged as security therefor.
Under such circumstances, the Trust Fund for the related Series could be treated
as a general unsecured creditor as to any undercollateralized portion of any
such Loan. In the event of a default under a Loan that is undercollateralized,
the related Trust Fund will have recourse only against the borrower's assets
generally for the undercollateralized portion of the Loan, along with all other
general unsecured creditors of the borrower. In a bankruptcy or insolvency
proceeding relating to a borrower on any such Loan, the undercollateralized
obligations of the borrower with respect to such Loan will be treated as an
unsecured loan and may be discharged by the bankruptcy court even though such
obligations are not fully satisfied. Losses on any such undercollateralized
Loans that are not otherwise covered by the credit enhancement described in the
applicable Prospectus Supplement will be borne by the holder of one or more
classes of Securities of the related Series.
HOME IMPROVEMENT CONTRACTS MAY BE UNSECURED AND SUBJECT TO GREATER RISK OF
COLLECTION
If so specified in the related Prospectus Supplement, the Trust Fund for any
Series may include Home Improvement Contracts that are not secured by an
interest in real estate or otherwise. In the event of a default under a Loan
that is unsecured, the related Trust Fund will only have recourse against the
borrower's assets generally along with all other general unsecured creditors of
the borrower. In a bankruptcy or insolvency proceeding relating to a borrower on
any such Loan, the obligations of the borrower in respect to such Loan may be
discharged by the bankruptcy court even though such obligations are not fully
satisfied. Losses on any such unsecured Loans that are not otherwise covered by
the credit enhancement described in the applicable Prospectus Supplement will be
borne by the holder of one or more classes of Securities of the related Series.
CERTAIN ENVIRONMENTAL LIABILITIES MAY REDUCE AMOUNTS AVAILABLE TO
SECURITYHOLDERS
Real property pledged as security to a lender may be subject to certain
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the costs of cleanup.
In several states, such a lien has priority over the lien of an existing
mortgage against such property. In addition under the laws of some states and
under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ('CERCLA'), a lender may be liable, as an 'owner' or
'operator,' for costs of addressing releases or threatened releases of hazardous
substances that require remedy at a property, if agents or employees of the
lender have become sufficiently involved in the operations of the borrower,
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regardless of whether the environmental damage or threat was caused by a prior
owner. Such costs could result in a loss to the holders of one or more classes
of Securities of the related Series. A lender also risks such liability on
foreclosure of the related property. See 'Certain Legal Aspects of the
Loans -- Environmental Risks'.
CERTAIN OTHER LEGAL ASPECTS OF THE LOANS THAT MAY DELAY OR REDUCE AMOUNTS
AVAILABLE TO SECURITYHOLDERS
Consumer Protection Laws. The Loans may also be subject to federal laws,
including:
(i) the Federal Truth in Lending Act and Regulation Z promulgated
thereunder, which require certain disclosures to the borrowers regarding the
terms of the Loans;
(ii) the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age, race, color,
sex, religion, marital status, national origin, receipt of public assistance
or the exercise of any right under the Consumer Credit Protection Act, in
the extension of credit;
(iii) the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit experience; and
(iv) for Loans that were originated or closed after November 7, 1989,
the Home Equity Loan Consumer Protection Act of 1988, which requires
additional application disclosures, limits changes that may be made to the
loan documents without the borrower's consent and restricts a lender's
ability to declare a default or to suspend or reduce a borrower's credit
limit to certain enumerated events.
The Riegle Act. Certain mortgage loans may be subject to the Riegle
Community Development and Regulatory Improvement Act of 1994 (the 'Riegle Act')
which incorporates the Home Ownership and Equity Protection Act of 1994. These
provisions impose additional disclosure and other requirements on creditors with
respect to non-purchase money mortgage loans with high interest rates or high
up-front fees and charges. The provisions of the Riegle Act apply on a mandatory
basis to all mortgage loans originated on or after October 1, 1995. These
provisions can impose specific statutory liabilities upon creditors who fail to
comply with their provisions and may affect the enforceability of the related
loans. In addition, any assignee of the creditor would generally be subject to
all claims and defenses that the consumer could assert against the creditor,
including, without limitation, the right to rescind the mortgage loan.
Holder in Due Course Rules. The Home Improvement Contracts are also subject
to the Preservation of Consumers' Claims and Defenses regulations of the Federal
Trade Commission and other similar federal and state statutes and regulations
(collectively, the 'Holder in Due Course Rules'), which are intended to defeat
the ability of the transferor of a consumer credit contract which is the seller
of goods which gave rise to the transaction (and certain related lenders and
assignees) to transfer such contract free of notice of claims by the debtor
thereunder. The effect of the Holder in Due Course Rules is to subject the
assignee of such a Home Improvement Contract (such as the Trust Fund) to all
claims and defenses which the obligor under the Home Improvement Contract could
assert against the seller of the related goods. Liability under this rule is
limited to amounts paid under the Home Improvement Contract; however, the
obligor under the Home Improvement Contract also may be able to assert the rule
to set off remaining amounts due as a defense against a claim brought by the
Trust Fund against such obligor. See 'Certain Legal Aspects of the Loans'.
Violations of certain provisions of these federal laws may limit the ability
of the Master Servicer to collect all or part of the principal of or interest on
the Loans and in addition could subject the Trust Fund to damages and
administrative enforcement. Losses on such Loans that are not otherwise covered
by the credit enhancement described in the applicable Prospectus Supplement will
be borne by the holders of one or more classes of Securities of the related
Series. See 'Certain Legal Aspects of the Loans'.
RATING OF THE SECURITIES -- LIMITATIONS
It will be a condition to the issuance of a class of Securities offered
hereby that they be rated in one of the four highest rating categories by the
Rating Agency identified in the related Prospectus Supplement. Any such rating
would be based on, among other things, the adequacy of the value of the related
Trust Fund Assets and any credit enhancement with respect to such class and will
represent such Rating Agency's assessment solely of the likelihood that holders
of such class of Securities will receive payments to which such Securityholders
are
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entitled under the related Agreement. Such rating will not constitute an
assessment of the likelihood that principal prepayments on the related Loans
will be made, the degree to which the rate of such prepayments might differ from
that originally anticipated or the likelihood of early optional termination of
the Series of Securities. Such rating shall not be deemed a recommendation to
purchase, hold or sell Securities, inasmuch as it does not address market price
or suitability for a particular investor. Such rating will not address the
possibility that prepayment at higher or lower rates than anticipated by an
investor may cause such investor to experience a lower than anticipated yield or
that an investor purchasing a Security at a significant premium might fail to
recoup its initial investment under certain prepayment scenarios. In addition,
if such rating relates to a Series with a Pre-Funding Account, such rating will
not address the ability of the related Trust Fund to acquire Subsequent Loans,
any potential prepayment of the Securities resulting from distribution to
Securityholders of amounts remaining in the Pre-Funding Account following the
end of the Funding Period, or the effect on the yield to Securityholders
resulting therefrom.
There is also no assurance that any such rating will remain in effect for
any given period of time or that it may not be lowered or withdrawn entirely by
the Rating Agency in the future if in its judgment circumstances in the future
so warrant. In addition to being lowered or withdrawn due to any erosion in the
adequacy of the value of the Trust Fund Assets or any credit enhancement with
respect to a Series of Securities, such rating might also be lowered or
withdrawn because of, among other reasons, an adverse change in the financial or
other condition of a credit enhancement provider or a change in the rating of
such credit enhancement provider's long term debt.
The amount, type and nature of credit enhancement, if any, established with
respect to a class of Securities will be determined on the basis of criteria
established by each Rating Agency rating classes of such Series. Such criteria
are sometimes based upon an actuarial analysis of the behavior of similar loans
in a larger group. Such analysis is often the basis upon which each Rating
Agency determines the amount of credit enhancement required with respect to each
such class. There can be no assurance that the historical data supporting any
such actuarial analysis will accurately reflect future experience nor any
assurance that the data derived from a large pool of similar loans accurately
predicts the delinquency, foreclosure or loss experience of any particular pool
of Loans. No assurance can be given that the values of any Properties have
remained or will remain at their levels on the respective dates of origination
of the related Loans. If the residential real estate markets should experience
an overall decline in property values such that the outstanding principal
balances of the Loans in a particular Trust Fund and any secondary financing on
the related Properties become equal to or greater than the value of the
Properties, the rates of delinquencies, foreclosures and losses could be higher
than those now generally experienced in the mortgage lending industry. In
addition, adverse economic conditions (which may or may not affect real property
values) may affect the timely payment by mortgagors of scheduled payments of
principal and interest on the Loans and, accordingly, the rates of
delinquencies, foreclosures and losses with respect to any Trust Fund. To the
extent that such losses are not covered by credit enhancement, such losses will
be borne, at least in part, by the holders of one or more classes of Securities
of the related Series. See 'Rating'.
BOOK-ENTRY REGISTRATION MAY REDUCE LIQUIDITY OF THE SECURITIES
If issued in book-entry form, such registration may reduce the liquidity of
the Securities in the secondary trading market since investors may be unwilling
to purchase Securities for which they cannot obtain physical certificates. Since
transactions in book-entry Securities can be effected only through the
Depository Trust Company ('DTC'), participating organizations, Financial
Intermediaries and certain banks, the ability of a Securityholder to pledge a
book-entry Security to persons or entities that do not participate in the DTC
system may be limited due to lack of a physical certificate representing such
Securities. Securities Owners will not be recognized as Securityholders as such
term is used in the related Agreement, and Security Owners will be permitted to
exercise the rights of Securityholders only indirectly through DTC and its
Participants.
In addition, Securityholders may experience some delay in their receipt of
distributions of interest and principal on book-entry Securities since
distributions are required to be forwarded by the Trustee to DTC and DTC will
then be required to credit such distributions to the accounts of Depository
participants which thereafter will be required to credit them to the accounts of
Securityholders either directly or indirectly through Financial Intermediaries.
See 'Description of the Securities -- Book-Entry Registration of Securities'.
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PRE-FUNDING ACCOUNTS
Pre-Funded Amounts Not Used to Cover Losses. If so provided in the related
Prospectus Supplement, on the closing date specified in such Prospectus
Supplement (the 'Closing Date') the Depositor will deposit cash in an amount
(the 'Pre-Funded Amount') specified in such Prospectus Supplement into an
account (the 'Pre-Funding Account'). In no event shall the Pre-Funded Amount
exceed 50% of the initial aggregate principal amount of the Certificates and/or
Notes of the related Series of Securities. The Pre-Funded Amount will be used to
purchase Loans ('Subsequent Loans') in a period from the related Closing Date to
a date not more than one year after such Closing Date (such period, the 'Funding
Period') from the Depositor (which, in turn, will acquire such Subsequent Loans
from the Seller or Sellers specified in the related Prospectus Supplement). The
Pre-Funding Account will be maintained with the Trustee for the related Series
of Securities and is designed solely to hold funds to be applied by such Trustee
during the Funding Period to pay to the Depositor the purchase price for
Subsequent Loans. Monies on deposit in the Pre-Funding Account will not be
available to cover losses on or in respect of the related Loans.
Unused Pre-Funded Amounts at the end of Funding Period Will Be Distributed
As Principal Prepayment to Securityholders. To the extent that the entire
Pre-Funded Amount has not been applied to the purchase of Subsequent Loans by
the end of the related Funding Period, any amounts remaining in the Pre-Funding
Account will be distributed as a prepayment of principal to Securityholders on
the Distribution Date immediately following the end of the Funding Period, in
the amounts and pursuant to the priorities set forth in the related Prospectus
Supplement. Any reinvestment risk resulting from such prepayment will be borne
entirely by the holders of one or more classes of the related Series of
Securities.
BANKRUPTCY OR INSOLVENCY OF THE SELLER, THE DEPOSITOR OR THE MASTER SERVICER
COULD LEAD TO DELAY OR REDUCTION OF AMOUNTS PAYABLE TO SECURITYHOLDERS
The Seller and the Depositor will treat the transfer of the Loans by the
Seller to the Depositor as a sale for accounting purposes. The Depositor and the
Trust Fund will treat the transfer of Loans from the Depositor to the Trust Fund
as a sale for accounting purposes. As a sale of the Loans by the Seller to the
Depositor, the Loans would not be part of the Seller's bankruptcy estate and
would not be available to the Seller's creditors. However, in the event of the
insolvency of the Seller, it is possible that the bankruptcy trustee or a
creditor of the Seller may attempt to recharacterize the sale of the Loans as a
borrowing by the Seller, secured by a pledge of the Loans. Similarly, as a sale
of the Loans by the Depositor to the Trust Fund, the Loans would not be part of
the Depositor's bankruptcy estate and would not be available to the Depositor's
creditors. However, in the event of the insolvency of the Depositor, it is
possible that the bankruptcy trustee or a creditor of the Depositor may attempt
to recharacterize the sale of the Loans as a borrowing by the Depositor, secured
by a pledge of the Loans. In either case, this position, if argued before or
accepted by a court, could prevent timely payments of amounts due on the
Securities and result in a reduction of payments due on the Securities.
In the event of a bankruptcy or insolvency of the Master Servicer, the
bankruptcy trustee or receiver may have the power to prevent the Trustee or the
Securityholders from appointing a successor Servicer. The time period, if any,
during which cash collections may be commingled with the Master Servicer's own
funds prior to each Distribution Date will be specified in the related
Prospectus Supplement. In the event of the insolvency of the Master Servicer and
if such cash collections are commingled with the Master Servicer's own funds for
at least ten days, the Trust Fund will likely not have a perfected interest in
such collections since such collections would not have been deposited in a
segregated account within ten days after the collection thereof, and the
inclusion thereof in the bankruptcy estate of the Master Servicer may result in
delays in payment and failure to pay amounts due on the Securities of the
related Series.
In addition, federal and state statutory provisions, including the federal
bankruptcy laws and state laws affording relief to debtors, may interfere with
or affect the ability of the secured mortgage lender to realize upon its
security. For example, in a proceeding under Title 11 of the United States Code
Section 101 et seq. and the rules and regulations promulgated thereunder, as
amended (the 'Bankruptcy Code'), a lender may not foreclose on a mortgaged
property without the permission of the bankruptcy court. The rehabilitation plan
proposed by the debtor may provide, if the mortgaged property is not the
debtor's principal residence and the court determines that the value of the
mortgaged property is less than the principal balance of the mortgage loan, for
the reduction of the secured indebtedness to the value of the mortgaged property
as of the date of the commencement of the bankruptcy, rendering the lender a
general unsecured creditor for the difference, and also may reduce the
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monthly payments due under such mortgage loan, change the rate of interest and
alter the mortgage loan repayment schedule. The effect of any such proceedings
under the Bankruptcy Code, including but not limited to any automatic stay,
could result in delays in receiving payments on the Loans underlying a Series of
Securities and possible reductions in the aggregate amount of such payments.
HOLDERS OF ORIGINAL ISSUE DISCOUNT SECURITIES REQUIRED TO INCLUDE ORIGINAL ISSUE
DISCOUNT IN ORDINARY GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES AS IT ACCRUES
Debt Securities that are Compound Interest Securities will be, and certain
of the other Debt Securities may be, issued with original discount for federal
income tax purposes. A holder of Debt Securities issued with original issue
discount will be required to include original issue discount in ordinary gross
income for federal income tax purposes as it accrues, in advance of receipt of
the cash attributable to such income. Accrued but unpaid interest on the Debt
Securities that are Compound Interest Securities generally will be treated as
original issue discount for this purpose. See 'Federal Income Tax
Consequences -- Taxation of Debt Securities -- Interest and Acquisition
Discount' and ' -- Market Discount' herein.
VALUE OF TRUST FUND ASSETS COULD BE INSUFFICIENT TO PAY PRINCIPAL AND INTEREST
ON THE SECURITIES
There is no assurance that the market value of the Trust Fund Assets or any
other assets relating to a Series of Securities described under 'Credit
Enhancement' herein will at any time be equal to or greater than the principal
amount of the Securities of such Series then outstanding, plus accrued interest
thereon. Moreover, upon an event of default under the Agreement for a Series of
Securities and a sale of the related Trust Fund Assets or upon a sale of the
assets of a Trust Fund for a Series of Securities, the Trustee, the Master
Servicer, the credit enhancer, if any, and any other service provider specified
in the related Prospectus Supplement generally will be entitled to receive the
proceeds of any such sale to the extent of unpaid fees and other amounts owing
to such persons under the related Agreement prior to distributions to
Securityholders. Upon any such sale, the proceeds thereof may be insufficient to
pay in full the principal of and interest on the Securities of such Series.
DERIVATIVE TRANSACTIONS
The Trust may enter into privately negotiated, over-the-counter hedging
transactions with various counterparties, including interest rate and
securities-based swaps, caps, collars and floors (collectively, 'Derivative
Transactions') to effectively fix the rate of interest that a Trust Fund pays on
one or more borrowings or series of borrowings. See 'Description of the
Securities -- Derivative Transactions'.
Credit Risks. It is expected that if a Trust Fund enters into Derivative
Transactions it will do so with banks, financial institutions and recognized
dealers in Derivative Transactions. Entering into a Derivatives Transaction
directly with a counterparty subjects a Trust Fund to the credit risk that the
counterparty may default on an obligation to such Trust Fund. Such a risk
contrasts with transactions done through exchange markets, wherein credit risk
is reduced through the collection of variation margin and through the
interposition of a clearing organization as the guarantor of all transactions.
Clearing organizations transform the credit risk of individual counterparties
into the more remote risk of the failure of the clearing organization.
Additionally, the financial integrity of over-the-counter Derivative
Transactions is generally unsupported by other regulatory or self-regulatory
protections such as margin requirements, capital requirements, or financial
compliance programs. Therefore, there are much greater risks of defaults with
respect to over-the-counter privately negotiated Derivative Transactions than
with respect to exchange-traded transactions. If there is a default by the other
party to such a transaction, the related Trust Fund will have to rely on its
contractual remedies (which may be limited by bankruptcy, insolvency or similar
laws) pursuant to the agreements related to the Derivative Transactions.
Legal Enforceability Risks. Privately negotiated over-the-counter Derivative
Transactions subject a Trust Fund to the risks of (a) a single counterparty's
legal incapacity to enter into or perform its obligations under a given
Derivative Transaction or class of Derivative Transactions, rendering such
Derivative Transactions unenforceable, (b) a court or regulatory body declaring
that classes of Derivative Transactions are unlawful or not in compliance with
applicable laws or regulations, rendering them invalid and unenforceable, or
(c) legislation which may be proposed or enacted which may affect the legal,
regulatory or tax status of Derivative Transactions to the detriment of the
related Trust Fund's interests.
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Basis Risks. Successful use of Derivative Transactions depends upon the
ability to predict movements of the overall securities or interest rate markets.
There might be an imperfect correlation, or even no correlation, between price
movements of a Derivative Transaction and price movements of the investments or
instruments being hedged. If a Trust Fund enters into Derivative Transactions at
the wrong time or market conditions are predicted incorrectly, the Derivative
Transaction may result in a substantial loss to such Trust Fund and hence the
related Securityholders.
THE TRUST FUND
GENERAL
The Securities of each Series will represent interests in the assets of the
related Trust Fund, and the Notes of each Series will be secured by the pledge
of the assets of the related Trust Fund. The Trust Fund for each Series will be
held by the Trustee for the benefit of the related Securityholders. Each Trust
Fund will consist of certain assets (the 'Trust Fund Assets') consisting of a
pool (each, a 'Pool') comprised of Loans as specified in the related Prospectus
Supplement, together with payments in respect of such Loans, as specified in the
related Prospectus Supplement.* The Pool will be created on the first day of the
month of the issuance of the related Series of Securities or such other date
specified in the related Prospectus Supplement (the 'Cut-off Date'). The
Securities will be entitled to payment from the assets of the related Trust Fund
or Funds or other assets pledged for the benefit of the Securityholders, as
specified in the related Prospectus Supplement and will not be entitled to
payments in respect of the assets of any other trust fund established by the
Depositor.
The Trust Fund Assets will be acquired by the Depositor, either directly or
through affiliates, from originators or sellers which may be affiliates of the
Depositor (the 'Sellers'), and conveyed without recourse by the Depositor to the
related Trust Fund. Loans acquired by the Depositor will have been originated in
accordance with the underwriting criteria specified below under 'Loan
Program -- Underwriting Standards' or as otherwise described in the related
Prospectus Supplement. See 'Loan Program -- Underwriting Standards'.
The Depositor will cause the Trust Fund Assets to be assigned to the Trustee
named in the related Prospectus Supplement for the benefit of the holders of the
Securities of the related Series. The Master Servicer named in the related
Prospectus Supplement will service the Trust Fund Assets, either directly or
through other servicing institutions ('Sub-Servicers'), pursuant to a Pooling
and Servicing Agreement among the Depositor, the Master Servicer and the Trustee
with respect to a Series consisting of Certificates, or a master servicing
agreement (each, a 'Master Servicing Agreement') between the Trustee and the
Master Servicer with respect to a Series consisting of Certificates and Notes,
and will receive a fee for such services. See 'Loan Program' and 'The
Agreements'. With respect to Loans serviced by the Master Servicer through a
Sub-Servicer, the Master Servicer will remain liable for its servicing
obligations under the related Agreement as if the Master Servicer alone were
servicing such Loans.
As used herein, 'Agreement' means, with respect to a Series consisting of
Certificates, the Pooling and Servicing Agreement, and with respect to a Series
consisting of Certificates and Notes, the Trust Agreement, the Indenture and the
Master Servicing Agreement, as the context requires.
If so specified in the related Prospectus Supplement, a Trust Fund relating
to a Series of Securities may be a trust formed under the laws of the state
specified in the related Prospectus Supplement pursuant to a trust agreement
(each, a 'Trust Agreement') between the Depositor and the trustee of such Trust
Fund.
With respect to each Trust Fund, prior to the initial offering of the
related Series of Securities, the Trust Fund will have no assets or liabilities.
No Trust Fund is expected to engage in any activities other than acquiring,
managing and holding of the related Trust Fund Assets and other assets
contemplated herein specified
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* Whenever the terms 'Pool', 'Certificates', 'Notes' and 'Securities' are used
in this Prospectus, such terms will be deemed to apply, unless the context
indicates otherwise, to one specific Pool and the Securities of one Series
including the Certificates representing certain undivided interests in, and/or
Notes secured by the assets of, a single Trust Fund consisting primarily of
the Loans in such Pool. Similarly, the term 'Pass-Through Rate' will refer to
the pass-through rate borne by the Certificates and the term 'interest rate'
will refer to the interest rate borne by the Notes of one specific Series, as
applicable, and the term 'Trust Fund' will refer to one specific Trust Fund.
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and in the related Prospectus Supplement and the proceeds thereof, issuing
Securities and making payments and distributions thereon and certain related
activities. No Trust Fund is expected to have any source of capital other than
its assets and any related credit enhancement.
Unless otherwise specified in the related Prospectus Supplement, the only
obligations of the Depositor with respect to a Series of Securities will be to
obtain certain representations and warranties from the Sellers and, to the
extent such representations and warranties are not made by the Sellers directly
to the Trustee, to assign to the Trustee for such Series of Securities the
Depositor's rights with respect to such representations and warranties. See 'The
Agreements -- Assignment of the Trust Fund Assets'. The obligations of the
Master Servicer with respect to the Loans will consist principally of its
contractual servicing obligations under the related Agreement (including its
obligation to enforce the obligations of the Sub-Servicers or Sellers, or both,
as more fully described herein under 'Loan Program -- Representations by
Sellers; Repurchases' and 'The Agreements -- Sub-Servicing By Sellers' and
' -- Assignment of the Trust Fund Assets') and its obligation, if any, to make
certain cash advances in the event of delinquencies in payments of interest
and/or principal on or with respect to the Loans in the amounts described herein
under 'Description of the Securities -- Advances'. The obligations of the Master
Servicer to make advances may be subject to limitations, to the extent provided
herein and in the related Prospectus Supplement.
The following is a brief description of the assets expected to be included
in the Trust Funds. If specific information respecting the Trust Fund Assets is
not known at the time the related Series of Securities initially is offered,
more general information of the nature described below will be provided in the
related Prospectus Supplement, and specific information will be set forth in a
report on Form 8-K to be filed with the Securities and Exchange Commission
within fifteen days after the initial issuance of such Securities (the 'Detailed
Description'). A maximum of 5% of the Trust Fund Assets as they will be
constituted at the time that the applicable Detailed Description is filed will
deviate in any material respect from the Trust Fund Asset pool characteristics
(other than the aggregate number or amount of Loans) described in the related
Prospectus Supplement. A copy of the Agreement with respect to each Series of
Securities will be attached to the Form 8-K and will be available for inspection
at the corporate trust office of the Trustee specified in the related Prospectus
Supplement. A schedule of the Loans relating to such Series will be attached to
the Agreement delivered to the Trustee upon delivery of the Securities.
THE LOANS
General. Loans will consist of Single Family Loans, Multifamily Loans, Home
Equity Loans or Home Improvement Contracts. For purposes hereof, 'Home Equity
Loans' includes 'Closed-End Loans' and 'Revolving Credit Line Loans'. If so
specified, the Loans may include cooperative apartment loans ('Cooperative
Loans') secured by security interests in shares issued by private, non-profit,
cooperative housing corporations ('Cooperatives') and in the related proprietary
leases or occupancy agreements granting exclusive rights to occupy specific
dwelling units in such Cooperatives' buildings. As more fully described in the
related Prospectus Supplement, the Loans may be 'conventional' loans or loans
that are insured or guaranteed by a governmental agency such as the FHA or VA.
Unless otherwise specified in the related Prospectus Supplement, all of the
Loans in a Pool will have monthly payments due on the first, tenth, fifteenth,
twentieth or twenty-fifth day of each month. The payment terms of the Loans to
be included in a Trust Fund will be described in the related Prospectus
Supplement and may include any of the following features (or combination
thereof), all as described below or in the related Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate adjustable from time
to time in relation to an index (which will be specified in the related
Prospectus Supplement), a rate that is fixed for a period of time or under
certain circumstances and is followed by an adjustable rate, a rate that
otherwise varies from time to time, a rate that is 'stepped-up' or a rate
that is convertible from an adjustable rate to a fixed rate. Changes to an
adjustable rate may be subject to periodic limitations, maximum rates,
minimum rates or a combination of such limitations. Accrued interest may be
deferred and added to the principal of a Loan for such periods and under
such circumstances as may be specified in the related Prospectus Supplement.
Loans may provide for the payment of interest at a rate lower than the
specified interest rate borne by such Loan (the 'Loan Rate') for a period of
time or for the life of the Loan, and the amount of any difference may be
contributed from funds supplied by the seller of the Property or another
source.
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(b) Principal may be payable on a level debt service basis to fully
amortize the Loan over its term, may be calculated on the basis of an
assumed amortization schedule that is significantly longer than the original
term to maturity or on an interest rate that is different from the Loan Rate
or may not be amortized during all or a portion of the original term.
Payment of all or a substantial portion of the principal may be due on
maturity ('balloon payment'). Principal may include interest that has been
deferred and added to the principal balance of the Loan.
(c) Monthly payments of principal and interest may be fixed for the life
of the Loan, may increase over a specified period of time or may change from
period to period. Loans may include limits on periodic increases or
decreases in the amount of monthly payments and may include maximum or
minimum amounts of monthly payments.
(d) Prepayments of principal may be subject to a prepayment fee, which
may be fixed for the life of the Loan or may decline over time, and may be
prohibited for the life of the Loan or for certain periods ('lockout
periods'). Certain Loans may permit prepayments after expiration of the
applicable lockout period and may require the payment of a prepayment fee in
connection with any such subsequent prepayment. Other Loans may permit
prepayments without payment of a fee unless the prepayment occurs during
specified time periods. The Loans may include 'due on sale' clauses which
permit the mortgagee to demand payment of the entire Loan in connection with
the sale or certain transfers of the related Property. Other Loans may be
assumable by persons meeting the then applicable underwriting standards of
the related Seller.
A Trust Fund may contain certain Loans ('Buydown Loans') that include
provisions whereby a third party partially subsidizes the monthly payments of
the borrowers on such Loans during the early years of such Loans, the difference
to be made up from a fund (a 'Buydown Fund') contributed by such third party at
the time of origination of the Loan. A Buydown Fund will be in an amount equal
either to the discounted value or full aggregate amount of future payment
subsidies. The underlying assumption of buydown plans is that the income of the
borrower will increase during the buydown period as a result of normal increases
in compensation and inflation, so that the borrower will be able to meet the
full loan payments at the end of the buydown period. To the extent that this
assumption as to increased income is not fulfilled, the possibility of defaults
on Buydown Loans is increased. The related Prospectus Supplement will contain
information with respect to any Buydown Loan concerning limitations on the
interest rate paid by the borrower initially, on annual increases in the
interest rate and on the length of the buydown period.
The real property which secures repayment of the Loans is referred to as the
'Mortgaged Properties'. Home Improvement Contracts may, and the other Loans
will, be secured by mortgages or deeds of trust or other similar security
instruments creating a lien on a Mortgaged Property. In the case of Home Equity
Loans and the Home Improvement Contracts liens generally will be subordinated to
one or more senior liens on the related Mortgaged Properties as described in the
related Prospectus Supplement. As specified in the related Prospectus
Supplement, Home Improvement Contracts may be unsecured or secured by purchase
money security interests in the Home Improvements financed thereby. If so
specified in the related Prospectus Supplement, the Home Equity Loans and the
Home Improvement Contracts may include Loans (primarily for home improvement or
debt consolidation purposes) that are in amounts in excess of the value of the
related Mortgaged Properties at the time of origination. The Mortgaged
Properties and the Home Improvements are collectively referred to herein as the
'Properties'. The Properties may be located in any one of the fifty states, the
District of Columbia, Guam, Puerto Rico or any other territory of the United
States.
Loans with certain Loan-to-Value Ratios and/or certain principal balances
may be covered wholly or partially by primary mortgage guaranty insurance
policies (each, a 'Primary Mortgage Insurance Policy'). The existence, extent
and duration of any such coverage will be described in the applicable Prospectus
Supplement.
The aggregate principal balance of Loans secured by Properties that are
owner-occupied will be disclosed in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, the sole basis for a
representation that a given percentage of the Loans is secured by Single Family
Properties that are owner-occupied will be either (i) the making of a
representation by the borrower at origination of the Loan either that the
underlying Property will be used by the borrower for a period of at least six
months every year or that the borrower intends to use the Property as a primary
residence or (ii) a finding that the address of the underlying Property is the
borrower's mailing address.
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Single Family Loans. The Mortgaged Properties relating to Single Family
Loans will consist of detached or semi-detached one- to four-family dwelling
units, townhouses, rowhouses, individual condominium units, individual units in
planned unit developments, manufactured housing that is permanently affixed and
treated as real property under local law, security interests in shares issued by
cooperative housing corporations, and certain other dwelling units ('Single
Family Properties'). Single Family Properties may include vacation and second
homes, investment properties and leasehold interests. In the case of leasehold
interests, the remaining term of the leasehold and any sublease is at least as
long as the remaining term on the Loan, unless otherwise specified in the
related Prospectus Supplement.
Multifamily Loans. Mortgaged Properties which secure Multifamily Loans may
include small multifamily residential properties such as rental apartment
buildings or projects containing five to fifty residential units, including
mid-rise and garden apartments. Certain of the Multifamily Loans may be secured
by apartment buildings owned by Cooperatives. In such cases, the Cooperative
owns all the apartment units in the building and all common areas. The
Cooperative is owned by tenant-stockholders who, through ownership of stock,
shares or membership certificates in the corporation, receive proprietary leases
or occupancy agreements which confer exclusive rights to occupy specific
apartments or units. Generally, a tenant-stockholder of a Cooperative must make
a monthly payment to the Cooperative representing such tenant-stockholder's pro
rata share of the Cooperative's payments for its mortgage loan, real property
taxes, maintenance expenses and other capital or ordinary expenses. Those
payments are in addition to any payments of principal and interest the tenant-
stockholder must make on any loans to the tenant-stockholder secured by its
shares in the Cooperative. The Cooperative will be directly responsible for
building management and, in most cases, payment of real estate taxes and hazard
and liability insurance. A Cooperative's ability to meet debt service
obligations on a Multifamily Loan, as well as all other operating expenses, will
be dependent in large part on the receipt of maintenance payments from the
tenant-stockholders, as well as any rental income from units the Cooperative
might control. Unanticipated expenditures may in some cases have to be paid by
special assessments on the tenant-stockholders.
Home Equity Loans. The Mortgaged Properties relating to Home Equity Loans
will consist of Single Family Properties. As more fully described in the related
Prospectus Supplement, interest on each Revolving Credit Line Loan, excluding
introductory rates offered from time to time during promotional periods, is
computed and payable monthly on the average daily outstanding principal balance
of such Loan. Principal amounts on a Revolving Credit Line Loan may be drawn
down (up to a maximum amount as set forth in the related Prospectus Supplement)
or repaid under each Revolving Credit Line Loan from time to time, but may be
subject to a minimum periodic payment. Except to the extent provided in the
related Prospectus Supplement, the Trust Fund will not include any amounts
borrowed under a Revolving Credit Line Loan after the Cut-off Date. The full
amount of a Closed-End Loan is advanced at the inception of the Loan and
generally is repayable in equal (or substantially equal) installments of an
amount to fully amortize such Loan at its stated maturity. Except to the extent
provided in the related Prospectus Supplement, the original terms to stated
maturity of Closed-End Loans will not exceed 360 months. Under certain
circumstances, under either a Revolving Credit Line Loan or a Closed-End Loan, a
borrower may choose an interest only payment option and is obligated to pay only
the amount of interest which accrues on the Loan during the billing cycle. An
interest only payment option may be available for a specified period before the
borrower must begin paying at least the minimum monthly payment of a specified
percentage of the average outstanding balance of the Loan.
Home Improvement Contracts. The Trust Fund Assets for a Series of Securities
may consist, in whole or in part, of Home Improvement Contracts originated by a
home improvement contractor, a thrift or a commercial mortgage banker in the
ordinary course of business. The Home Improvements securing the Home Improvement
Contracts may include, but are not limited to, replacement windows, house
siding, new roofs, swimming pools, spas, kitchen and bathroom remodeling goods,
solar heating panels and other exterior and interior renovations and general
remodeling projects. As specified in the related Prospectus Supplement, the Home
Improvement Contracts will either be unsecured or secured by mortgages on Single
Family Properties which are generally subordinate to other mortgages on the same
Property, or secured by purchase money security interests in the Home
Improvements financed thereby. Except as otherwise specified in the related
Prospectus Supplement, the Home Improvement Contracts will be fully amortizing
and may have fixed interest rates or adjustable interest rates and may provide
for other payment characteristics as described below and in the related
Prospectus Supplement. The initial Loan-to-Value Ratio of a Home Improvement
Contract is computed in the manner described in the related Prospectus
Supplement. See 'Risk Factors -- Home Improvement Contracts and Home
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Equity Loans may be Undercollateralized and Subject to Greater Risk of
Collection ' and ' -- Home Improvement Contracts May be Unsecured and Subject to
Greater Risk of Collection '.
Additional Information. Each Prospectus Supplement will contain information,
as of the date of such Prospectus Supplement and to the extent then specifically
known to the Depositor, with respect to the Loans contained in the related Pool,
including (i) the aggregate outstanding principal balance and the average
outstanding principal balance of the Loans as of the applicable Cut-off Date,
(ii) the type of property securing the Loan (e.g., single family residences,
individual units in condominium apartment buildings, small multi-family
properties, other real property or Home Improvements), (iii) the original terms
to maturity of the Loans, (iv) the largest principal balance and the smallest
principal balance of any of the Loans, (v) the earliest origination date and
latest maturity date of any of the Loans, (vi) the Loan-to-Value Ratios or
Combined Loan-to-Value Ratios, as applicable, of the Loans, (vii) the Loan Rates
or annual percentage rates ('APR') or range of Loan Rates or APR's borne by the
Loans, (viii) the maximum and minimum per annum Loan Rates and (ix) the
geographical location of the Loans. If specific information respecting the Loans
is not known to the Depositor at the time the related Securities are initially
offered, more general information of the nature described above will be provided
in the related Prospectus Supplement, and specific information will be set forth
in the Detailed Description.
Unless otherwise specified in the related Prospectus Supplement, the
'Loan-to-Value Ratio' of a Loan at any given time is the fraction, expressed as
a percentage, the numerator of which is the original principal balance of the
related Loan and the denominator of which is the Collateral Value of the related
Property. Unless otherwise specified in the related Prospectus Supplement, the
'Combined Loan-to-Value Ratio' of a Loan at any given time is the ratio,
expressed as a percentage, of (i) the sum of (a) the original principal balance
of the Loan (or, in the case of a Revolving Credit Line Loan, the maximum amount
thereof available at origination) and (b) the outstanding principal balance at
the date of origination of the Loan of any senior mortgage loan(s) or, in the
case of any open-ended senior mortgage loan, the maximum available line of
credit with respect to such mortgage loan at origination, regardless of any
lesser amount actually outstanding at the date of origination of the Loan, to
(ii) the Collateral Value of the related Property. Unless otherwise specified in
the related Prospectus Supplement, the 'Collateral Value' of the Property, other
than with respect to certain Loans the proceeds of which were used to refinance
an existing mortgage loan (each, a 'Refinance Loan'), is the lesser of (a) the
appraised value determined in an appraisal obtained by the originator at
origination of such Loan and (b) the sales price for such Property. In the case
of Refinance Loans, the 'Collateral Value' of the related Property is generally
the appraised value thereof determined in an appraisal obtained at the time of
refinancing.
No assurance can be given that values of the Properties have remained or
will remain at their levels on the dates of origination of the related Loans. If
the residential real estate market should experience an overall decline in
property values such that the sum of the outstanding principal balances of the
Loans and any primary or secondary financing on the Properties, as applicable,
in a particular Pool become equal to or greater than the value of the
Properties, the actual rates of delinquencies, foreclosures and losses could be
higher than those now generally experienced in the mortgage lending industry. In
addition, adverse economic conditions and other factors (which may or may not
affect real property values) may affect the timely payment by borrowers of
scheduled payments of principal and interest on the Loans and, accordingly, the
actual rates of delinquencies, foreclosures and losses with respect to any Pool.
To the extent that such losses are not covered by subordination provisions or
alternative arrangements, such losses will be borne, at least in part, by the
holders of the Securities of the related Series.
SUBSTITUTION OF TRUST FUND ASSETS
Substitution of Trust Fund Assets will be permitted in the event of breaches
of representations and warranties with respect to any original Trust Fund Asset
or in the event certain documentation with respect to any Trust Fund Asset is
determined by the Trustee to be incomplete. See 'Loan Program -- Representations
by Sellers; Repurchases'. The period during which such substitution will be
permitted generally will be indicated in the related Prospectus Supplement.
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USE OF PROCEEDS
The net proceeds to be received from the sale of the Securities will be
applied by the Depositor to the purchase of Trust Fund Assets or will be used by
the Depositor for general corporate purposes. The Depositor expects to sell
Securities in Series from time to time, but the timing and amount of offerings
of Securities will depend on a number of factors, including the volume of Trust
Fund Assets acquired by the Depositor, prevailing interest rates, availability
of funds and general market conditions.
THE DEPOSITOR
IndyMac ABS, Inc., a Delaware corporation (the 'Depositor'), was
incorporated in April 1998 for the limited purpose of acquiring, owning and
transferring mortgage and mortgage related assets and selling interests therein
or bonds secured thereby. The Depositor is a limited purpose finance subsidiary
of IndyMac, Inc., a Delaware corporation. The Depositor maintains its principal
office at 155 North Lake Avenue, Pasadena, California 91101. Its telephone
number is (800) 669-2300.
Neither the Depositor nor any of the Depositor's affiliates will insure or
guarantee distributions on the Securities of any Series.
LOAN PROGRAM
The Loans will have been purchased by the Depositor, either directly or
through affiliates, from Sellers. Unless otherwise specified in the related
Prospectus Supplement, the Loans so acquired by the Depositor will have been
originated in accordance with the underwriting criteria specified below under
'Underwriting Standards'.
UNDERWRITING STANDARDS
Underwriting standards are applied by or on behalf of a lender to evaluate
the borrower's credit standing and repayment ability, and the value and adequacy
of the related Property as collateral. In general, a prospective borrower
applying for a Loan is required to fill out a detailed application designed to
provide to the underwriting officer pertinent credit information, including the
principal balance and payment history with respect to any senior mortgage, if
any, which, unless otherwise specified in the related Prospectus Supplement,
will be verified by the related Seller. As part of the description of the
borrower's financial condition, the borrower generally is required to provide a
current list of assets and liabilities and a statement of income and expenses,
as well as an authorization to apply for a credit report which summarizes the
borrower's credit history with local merchants and lenders and any record of
bankruptcy. In most cases, an employment verification is obtained from an
independent source (typically the borrower's employer) which verification
reports, among other things, the length of employment with that organization and
the borrower's current salary. If a prospective borrower is self-employed, the
borrower may be required to submit copies of signed tax returns. The borrower
may also be required to authorize verification of deposits at financial
institutions where the borrower has demand or savings accounts.
Unless otherwise specified in the related Prospectus Supplement, in
determining the adequacy of the property to be used as collateral, an appraisal
will generally be made of each property considered for financing. The appraiser
is generally required to inspect the property, issue a report on its condition
and, if applicable, verify construction, if new, has been completed. The
appraisal is generally based on the market value of comparable homes, the
estimated rental income (if considered applicable by the appraiser) and the cost
of replacing the home. The value of the property being financed, as indicated by
the appraisal, must be such that it currently supports, and is anticipated to
support in the future, the outstanding loan balance.
The maximum loan amount will vary depending upon a borrower's credit grade
and loan program but will not generally exceed $1,000,000. Variations in maximum
loan amount limits will be permitted based on compensating factors. Compensating
factors may generally include, to the extent specified in the related Prospectus
Supplement, low loan-to-value ratio, low debt-to-income ratio, stable
employment, favorable credit history and the nature of the underlying first
mortgage loan, if applicable.
Each Seller's underwriting standards will generally permit loans with
loan-to-value ratios at origination of up to 100% depending on the loan program,
type and use of the property, creditworthiness of the borrower and
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debt-to-income ratio. If so specified in the related Prospectus Supplement, a
Seller's underwriting criteria may permit loans with loan-to-value ratios at
origination in excess of 100%, such as for debt consolidation or home
improvement purposes. In addition, if so specified in the related Prospectus
Supplement, a Seller's underwriting criteria may permit unsecured loans for home
improvement purposes. Loan-to-value ratios may not be evaluated in the case of
Title I Loans.
After obtaining all applicable employment, credit and property information,
the related Seller may use a debt-to-income ratio to assist in determining
whether the prospective borrower has sufficient monthly income available to
support the payments of principal and interest on the mortgage loan in addition
to other monthly credit obligations. The 'debt-to-income ratio' is the ratio of
the borrower's total monthly payments to the borrower's gross monthly income.
The maximum monthly debt-to-income ratio will vary depending upon a borrower's
credit grade and loan program. Variations in the monthly debt-to-income ratio
limit will be permitted based on compensating factors to the extent specified in
the related Prospectus Supplement.
In the case of a Loan secured by a leasehold interest in real property, the
title to which is held by a third party lessor, the related Seller will, unless
otherwise specified in the related Prospectus Supplement, represent and warrant,
among other things, that the remaining term of the lease and any sublease is at
least as long as the remaining term on the Loan.
Certain of the types of Loans that may be included in a Trust Fund are
recently developed and may involve additional uncertainties not present in
traditional types of loans. For example, certain of such Loans may provide for
escalating or variable payments by the borrower. These types of Loans are
underwritten on the basis of a judgment that the borrowers have the ability to
make the monthly payments required initially. In some instances, a borrower's
income may not be sufficient to permit continued loan payments as such payments
increase. These types of Loans may also be underwritten primarily upon the basis
of Loan-to-Value Ratios or other favorable credit factors.
QUALIFICATIONS OF SELLERS
Each Seller will be required to satisfy the following qualifications. Each
Seller must be an institution experienced in originating and servicing loans of
the type contained in the related Pool in accordance with accepted practices and
prudent guidelines, and must maintain satisfactory facilities to originate and
service those loans. Unless otherwise specified in the related Prospectus
Supplement, each Seller must be (i) a seller/servicer approved by either the
Federal National Mortgage Association ('FNMA') or the Federal Home Loan Mortgage
Corporation ('FHLMC') and (ii) a mortgagee approved by HUD or an institution the
deposit accounts of which are insured by the Federal Deposit Insurance
Corporation (the 'FDIC').
REPRESENTATIONS BY SELLERS; REPURCHASES
Each Seller will have made representations and warranties in respect of the
Loans sold by such Seller and evidenced by all, or a part, of a Series of
Securities. Such representations and warranties may include, among other things:
(i) that title insurance (or in the case of Properties located in areas where
such policies are generally not available, an attorney's certificate of title)
and any required hazard insurance policy were effective at origination of each
Loan, other than Cooperative Loans and certain Home Equity Loans, and that each
policy (or certificate of title as applicable) remained in effect on the date of
purchase of the Loan from the Seller by or on behalf of the Depositor;
(ii) that the Seller had good title to each such Loan and such Loan was subject
to no offsets, defenses, counterclaims or rights of rescission except to the
extent that any buydown agreement may forgive certain indebtedness of a
borrower; (iii) that each Loan, other than Cooperative Loans, constituted a
valid lien on, or a perfected security interest with respect to, the Property
(subject only to permissible liens disclosed, if applicable, title insurance
exceptions, if applicable, the liens of nondelinquent current real property
taxes and assessments, if applicable, liens arising under federal, state or
local laws relating to hazardous wastes or hazardous substances, if applicable,
any liens for common charges, if applicable, and certain other exceptions
described in the Agreement); (iv) that there were no delinquent tax or
assessment liens against the Property; (v) that no required payment on a Loan
was delinquent more than the number of days specified in the related Prospectus
Supplement; and (vi) that each Loan was made in compliance with, and is
enforceable under, all applicable local, state and federal laws and regulations
in all material respects.
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If so specified in the related Prospectus Supplement, the representations
and warranties of a Seller in respect of a Loan will be made not as of the
Cut-off Date but as of the date on which such Seller sold the Loan to the
Depositor or one of its affiliates. Under such circumstances, a substantial
period of time may have elapsed between the sale date and the date of initial
issuance of the Series of Securities evidencing an interest in such Loan. Since
the representations and warranties of a Seller do not address events that may
occur following the sale of a Loan by such Seller, its repurchase obligation
described below will not arise if the relevant event that would otherwise have
given rise to such an obligation with respect to a Loan occurs after the date of
sale of such Loan by such Seller to the Depositor or its affiliates. However,
the Depositor will not include any Loan in the Trust Fund for any Series of
Securities if anything has come to the Depositor's attention that would cause it
to believe that the representations and warranties of a Seller will not be
accurate and complete in all material respects in respect of such Loan as of the
date of initial issuance of the related Series of Securities. If the Master
Servicer is also a Seller of Loans with respect to a particular Series of
Securities, such representations will be in addition to the representations and
warranties made by the Master Servicer in its capacity as a Master Servicer.
The Master Servicer or the Trustee, if the Master Servicer is the Seller,
will promptly notify the relevant Seller of any breach of any representation or
warranty made by it in respect of a Loan which materially and adversely affects
the interests of the Securityholders in such Loan. Unless otherwise specified in
the related Prospectus Supplement, if such Seller cannot cure any such breach on
or prior to the business day after the first Determination Date which is more
than 90 days after such Seller's receipt of notice from the Master Servicer or
the Trustee, as the case may be, then such Seller will be obligated either
(i) to repurchase such Loan from the Trust Fund at a price (the 'Purchase
Price') equal to 100% of the unpaid principal balance thereof as of the date of
the repurchase plus accrued interest thereon to the scheduled monthly payment
date for such Loan in the month following the month of repurchase at the Loan
Rate (less any Advances or amount payable as related servicing compensation if
the Seller is the Master Servicer) or (ii) substitute for such Loan a
replacement loan that satisfies the criteria specified in the related Prospectus
Supplement; provided, however, that such Seller will not be obligated to make
any such repurchase or substitution (or cure such breach) if such breach
constitutes fraud in the origination of the affected Loan and such Seller did
not have knowledge of such fraud. If a REMIC election is to be made with respect
to a Trust Fund, unless otherwise specified in the related Prospectus
Supplement, the Master Servicer or a holder of the related residual certificate
generally will be obligated to pay any prohibited transaction tax which may
arise in connection with any such repurchase or substitution and the Trustee
must have received a satisfactory opinion of counsel that such repurchase or
substitution will not cause the Trust Fund to lose its status as a REMIC or
otherwise subject the Trust Fund to a prohibited transaction tax. The Master
Servicer may be entitled to reimbursement for any such payment from the assets
of the related Trust Fund or from any holder of the related residual
certificate. See 'Description of the Securities -- General'. Except in those
cases in which the Master Servicer is the Seller, the Master Servicer will be
required under the relevant Agreement to enforce this obligation for the benefit
of the Trustee and the holders of the Securities, following the practices it
would employ in its good faith business judgment were it the owner of such Loan.
This repurchase or substitution obligation will constitute the sole remedy
available to holders of Securities or the Trustee for a breach of representation
by a Seller.
Neither the Depositor nor the Master Servicer (unless the Master Servicer is
a Seller) will be obligated to purchase or substitute a Loan if a Seller
defaults on its obligation to do so, and no assurance can be given that Sellers
will carry out their respective repurchase or substitution obligations with
respect to Loans.
DESCRIPTION OF THE SECURITIES
Each Series of Certificates will be issued pursuant to separate agreements
(each, a 'Pooling and Servicing Agreement' or a 'Trust Agreement') among the
Depositor, the Master Servicer and the Trustee. A form of Pooling and Servicing
Agreement and Trust Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. Each Series of Notes will be
issued pursuant to an indenture (the 'Indenture') between the related Trust Fund
and the entity named in the related Prospectus Supplement as trustee (the
'Trustee') with respect to such Series, and the related Loans will be serviced
by the Master Servicer pursuant to a Master Servicing Agreement. A form of
Indenture and Master Servicing Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. A Series of
Securities may consist of both Notes and Certificates. Each Agreement, dated as
of the related Cut-off Date, will be among the Depositor, the Master Servicer
and the Trustee for the benefit of the holders of the Securities of such Series.
The
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<PAGE>
provisions of each Agreement will vary depending upon the nature of the
Securities to be issued thereunder and the nature of the related Trust Fund. The
following are descriptions of the material provisions which may appear in each
Agreement. The descriptions are subject to, and are qualified in their entirety
by reference to, all of the provisions of the Agreement for each Series of
Securities and the applicable Prospectus Supplement. The Depositor will provide
a copy of the Agreement (without exhibits) relating to any Series without charge
upon written request of a holder of record of a Security of such Series
addressed to IndyMac ABS, Inc., 155 North Lake Avenue, Pasadena, California
91101, Attention: Secondary Marketing.
GENERAL
Unless otherwise specified in the related Prospectus Supplement, the
Securities of each Series will be issued in book-entry or fully registered form,
in the authorized denominations specified in the related Prospectus Supplement,
will, in the case of Certificates, evidence specified beneficial ownership
interests in, and in the case of Notes, be secured by, the assets of the related
Trust Fund created pursuant to each Agreement and will not be entitled to
payments in respect of the assets included in any other Trust Fund established
by the Depositor. Unless otherwise specified in the related Prospectus
Supplement, the Securities will not represent obligations of the Depositor or
any affiliate of the Depositor. Certain of the Loans may be guaranteed or
insured as set forth in the related Prospectus Supplement. Each Trust Fund will
consist of, to the extent provided in the related Agreement, (i) the Trust Fund
Assets, as from time to time are subject to the related Agreement (exclusive of
any amounts specified in the related Prospectus Supplement ('Retained
Interest')), including all payments of interest and principal received with
respect to the Loans after the Cut-off Date (to the extent not applied in
computing the principal balance of such Loans as of the Cut-off Date (the
'Cut-off Date Principal Balance')); (ii) such assets as from time to time are
required to be deposited in the related Security Account, as described below
under 'The Agreements -- Payments on Loans; Deposits to Security Account';
(iii) property which secured a Loan and which is acquired on behalf of the
Securityholders by foreclosure or deed in lieu of foreclosure and (iv) any
insurance policies or other forms of credit enhancement required to be
maintained pursuant to the related Agreement. If so specified in the related
Prospectus Supplement, a Trust Fund may also include one or more of the
following: reinvestment income on payments received on the Trust Fund Assets, a
Reserve Account, a mortgage pool insurance policy, a special hazard insurance
policy, a bankruptcy bond, one or more letters of credit, a surety bond,
guaranties or similar instruments.
Each Series of Securities will be issued in one or more classes. Each class
of Certificates of a Series will evidence beneficial ownership of a specified
percentage (which may be 0%) or portion of future interest payments and a
specified percentage (which may be 0%) or portion of future principal payments
on, and each class of Notes of a Series will be secured by, the related Trust
Fund Assets. A Series of Securities may include one or more classes that are
senior in right to payment to one or more other classes of Securities of such
Series. Certain Series or classes of Securities may be covered by insurance
policies, surety bonds or other forms of credit enhancement, in each case as
described under 'Credit Enhancement' herein and in the related Prospectus
Supplement. One or more classes of Securities of a Series may be entitled to
receive distributions of principal, interest or any combination thereof.
Distributions on one or more classes of a Series of Securities may be made prior
to one or more other classes, after the occurrence of specified events, in
accordance with a schedule or formula or on the basis of collections from
designated portions of the related Trust Fund Assets, in each case as specified
in the related Prospectus Supplement. The timing and amounts of such
distributions may vary among classes or over time as specified in the related
Prospectus Supplement.
Distributions of principal and interest (or, where applicable, of principal
only or interest only) on the related Securities will be made by the Trustee on
each Distribution Date (i.e., monthly, quarterly, semi-annually or at such other
intervals and on the dates as are specified in the related Prospectus
Supplement) in proportion to the percentages specified in the related Prospectus
Supplement. Distributions will be made to the persons in whose names the
Securities are registered at the close of business on the dates specified in the
related Prospectus Supplement (each, a 'Record Date'). Distributions will be
made in the manner specified in the related Prospectus Supplement to the persons
entitled thereto at the address appearing in the register maintained for holders
of Securities (the 'Security Register'); provided, however, that the final
distribution in retirement of the Securities will be made only upon presentation
and surrender of the Securities at the office or agency of the Trustee or other
person specified in the notice to Securityholders of such final distribution.
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The Securities will be freely transferable and exchangeable at the Corporate
Trust Office of the Trustee as set forth in the related Prospectus Supplement.
No service charge will be made for any registration of exchange or transfer of
Securities of any Series, but the Trustee may require payment of a sum
sufficient to cover any related tax or other governmental charge.
Under current law, the purchase and holding of certain classes of Securities
by or on behalf of any employee benefit plan or other retirement arrangement
(including individual retirement accounts and annuities, Keogh plans and
collective investment funds in which such plans, accounts or arrangements are
invested) subject to provisions of ERISA or the Code may result in prohibited
transactions, within the meaning of ERISA and the Code, or may subject the
Trustee, the Master Servicer or the Depositor to obligations or liabilities in
addition to those undertaken in the related Agreement. See 'ERISA
Considerations'. Under current law, the transfer of Securities of such a class
will not be registered unless the transferee (i) represents that it is not, and
is not purchasing on behalf of, any such plan, account or arrangement or
(ii) provides an opinion of counsel satisfactory to the Trustee and the
Depositor that the purchase of Securities of such a class by or on behalf of
such plan, account or arrangement is permissible under applicable law and will
not subject the Trustee, the Master Servicer or the Depositor to any obligation
or liability in addition to those undertaken in the Agreements.
As to each Series, an election may be made to treat the related Trust Fund
or designated portions thereof either as a REMIC or as a FASIT. The related
Prospectus Supplement will specify whether a REMIC or FASIT election is to be
made. Alternatively, the Agreement for a Series may provide that a REMIC or
FASIT election may be made at the discretion of the Depositor or the Master
Servicer and may only be made if certain conditions are satisfied. As to any
such Series, the terms and provisions applicable to the making of a REMIC or
FASIT election will be set forth in the related Prospectus Supplement. If a
REMIC election is made with respect to a Series, one of the classes will be
designated as evidencing the sole class of 'residual interests' in the related
REMIC, as defined in the Code. All other classes of Securities in such a Series
will constitute 'regular interests' in the related REMIC, as defined in the
Code. If a FASIT election is made with respect to a Series, one of the classes
will be designated as the ownership interest, as defined in the Code. All other
classes of Securities in such a Series will constitute 'regular interests' in
the related FASIT, as defined in the Code. As to each Series with respect to
which a REMIC or FASIT election is to be made, the Master Servicer or a holder
of the related residual in the case of a REMIC, and the holder of the related
ownership interest in the case of a FASIT, certificate will be obligated to take
all actions required in order to comply with applicable laws and regulations and
will be obligated to pay any prohibited transaction taxes. The Master Servicer,
unless otherwise provided in the related Prospectus Supplement, will be entitled
to reimbursement for any such payment from the assets of the Trust Fund or from
any holder of the related residual certificate in the case of a REMIC, or, from
the holder of the related ownership interest in the case of a FASIT.
DISTRIBUTIONS ON SECURITIES
General. In general, the method of determining the amount of distributions
on a particular Series of Securities will depend on the type of credit support,
if any, that is used with respect to such Series. See 'Credit Enhancement'. Set
forth below are descriptions of various methods that may be used to determine
the amount of distributions on the Securities of a particular Series. The
Prospectus Supplement for each Series of Securities will describe the method to
be used in determining the amount of distributions on the Securities of such
Series.
Distributions allocable to principal and interest on the Securities will be
made by the Trustee out of, and only to the extent of, funds in the related
Security Account, including any funds transferred from any Reserve Account (a
'Reserve Account'). As between Securities of different classes and as between
distributions of principal (and, if applicable, between distributions of
Principal Prepayments, as defined below, and scheduled payments of principal)
and interest, distributions made on any Distribution Date will be applied as
specified in the related Prospectus Supplement. The Prospectus Supplement will
also describe the method for allocating distributions among Securities of a
particular class.
Available Funds. All distributions on the Securities of each Series on each
Distribution Date will be made from the Available Funds described below, in
accordance with the terms described in the related Prospectus Supplement and
specified in the Agreement. 'Available Funds' for each Distribution Date will
generally equal the amount on deposit in the related Security Account on such
Distribution Date (net of related fees and expenses payable by the related Trust
Fund) other than amounts to be held therein for distribution on future
Distribution Dates.
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Distributions of Interest. Interest will accrue on the aggregate principal
balance of the Securities (or, in the case of Securities entitled only to
distributions allocable to interest, the aggregate notional amount) of each
class of Securities (the 'Class Security Balance') entitled to interest from the
date, at the pass-through rate or interest rate, as applicable (which in either
case may be a fixed rate or rate adjustable as specified in such Prospectus
Supplement), and for the periods specified in such Prospectus Supplement. To the
extent funds are available therefor, interest accrued during each such specified
period on each class of Securities entitled to interest (other than a class of
Securities that provides for interest that accrues, but is not currently
payable, referred to hereafter as 'Accrual Securities') will be distributable on
the Distribution Dates specified in the related Prospectus Supplement until the
aggregate Class Security Balance of the Securities of such class has been
distributed in full or, in the case of Securities entitled only to distributions
allocable to interest, until the aggregate notional amount of such Securities is
reduced to zero or for the period of time designated in the related Prospectus
Supplement. The original Class Security Balance of each Security will equal the
aggregate distributions allocable to principal to which such Security is
entitled. Distributions allocable to interest on each Security that is not
entitled to distributions allocable to principal will be calculated based on the
notional amount of such Security. The notional amount of a Security will not
evidence an interest in or entitlement to distributions allocable to principal
but will be used solely for convenience in expressing the calculation of
interest and for certain other purposes.
Interest payable on the Securities of a Series on a Distribution Date will
include all interest accrued during the period specified in the related
Prospectus Supplement. In the event interest accrues over a period ending two or
more days prior to a Distribution Date, the effective yield to Securityholders
will be reduced from the yield that would otherwise be obtainable if interest
payable on the Security were to accrue through the day immediately preceding
such Distribution Date, and the effective yield (at par) to Securityholders will
be less than the indicated coupon rate.
With respect to any class of Accrual Securities, if specified in the related
Prospectus Supplement, any interest that has accrued but is not paid on a given
Distribution Date will be added to the aggregate Class Security Balance of such
class of Securities on that Distribution Date. Distributions of interest on any
class of Accrual Securities will commence only after the occurrence of the
events specified in such Prospectus Supplement. Prior to such time, the
beneficial ownership interest in the Trust Fund or the principal balance, as
applicable, of such class of Accrued Securities, as reflected in the aggregate
Class Security Balance of such class of Accrual Securities, will increase on
each Distribution Date by the amount of interest that accrued on such class of
Accrual Securities during the preceding interest accrual period but that was not
required to be distributed to such class on such Distribution Date. Any such
class of Accrual Securities will thereafter accrue interest on its outstanding
Class Security Balance as so adjusted.
Distributions of Principal. The related Prospectus Supplement will specify
the method by which the amount of principal to be distributed on the Securities
on each Distribution Date will be calculated and the manner in which such amount
will be allocated among the classes of Securities entitled to distributions of
principal. The aggregate Class Security Balance of any class of Securities
entitled to distributions of principal generally will be the aggregate original
Class Security Balance of such class of Securities specified in such Prospectus
Supplement, reduced by all distributions reported to the holders of such
Securities as allocable to principal and, (i) in the case of Accrual Securities,
increased by all interest accrued but not then distributable on such Accrual
Securities and (ii) in the case of adjustable rate Securities, subject to the
effect of negative amortization, if applicable.
If so provided in the related Prospectus Supplement, one or more classes of
Securities will be entitled to receive all or a disproportionate percentage of
the payments of principal which are received from borrowers in advance of their
scheduled due dates and are not accompanied by amounts representing scheduled
interest due after the month of such payments ('Principal Prepayments') in the
percentages and under the circumstances or for the periods specified in such
Prospectus Supplement. Any such allocation of Principal Prepayments to such
class or classes of Securities will have the effect of accelerating the
amortization of such Securities while increasing the interests evidenced by one
or more other classes of Securities in the Trust Fund. Increasing the interests
of the other classes of Securities relative to that of certain Securities is
intended to preserve the availability of the subordination provided by such
other Securities. See 'Credit Enhancement -- Subordination'.
Unscheduled Distributions. If specified in the related Prospectus
Supplement, the Securities will be subject to receipt of distributions before
the next scheduled Distribution Date under the circumstances and in the manner
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described below and in such Prospectus Supplement. If applicable, the Trustee
will be required to make such unscheduled distributions on the day and in the
amount specified in the related Prospectus Supplement if, due to substantial
payments of principal (including Principal Prepayments) on the Trust Fund
Assets, the Trustee or the Master Servicer determines that the funds available
or anticipated to be available from the Security Account and, if applicable, any
Reserve Account, may be insufficient to make required distributions on the
Securities on such Distribution Date. Unless otherwise specified in the related
Prospectus Supplement, the amount of any such unscheduled distribution that is
allocable to principal will not exceed the amount that would otherwise have been
required to be distributed as principal on the Securities on the next
Distribution Date. Unless otherwise specified in the related Prospectus
Supplement, the unscheduled distributions will include interest at the
applicable pass-through rate (if any) or interest rate (if any) on the amount of
the unscheduled distribution allocable to principal for the period and to the
date specified in such Prospectus Supplement.
ADVANCES
To the extent provided in the related Prospectus Supplement, the Master
Servicer will be required to advance on or before each Distribution Date (from
its own funds, funds advanced by Sub-Servicers or funds held in the Security
Account for future distributions to the holders of Securities of the related
Series), an amount equal to the aggregate of payments of interest and/or
principal that were delinquent on the related Determination Date (as such term
is defined in the related Prospectus Supplement) and were otherwise not advanced
by any Sub-Servicer, subject to the Master Servicer's determination that such
advances may be recoverable out of late payments by borrowers, Liquidation
Proceeds, Insurance Proceeds or otherwise. In the case of Cooperative Loans, the
Master Servicer also may be required to advance any unpaid maintenance fees and
other charges under the related proprietary leases as specified in the related
Prospectus Supplement.
In making Advances, the Master Servicer will endeavor to maintain a regular
flow of scheduled interest and principal payments to holders of the Securities,
rather than to guarantee or insure against losses. If Advances are made by the
Master Servicer from cash being held for future distribution to Securityholders,
the Master Servicer will replace such funds on or before any future Distribution
Date to the extent that funds in the applicable Security Account on such
Distribution Date would be less than the amount required to be available for
distributions to Securityholders on such date. Any Master Servicer funds
advanced will be reimbursable to the Master Servicer out of recoveries on the
specific Loans with respect to which such Advances were made (e.g., late
payments made by the related borrower, any related Insurance Proceeds,
Liquidation Proceeds or proceeds of any Loan purchased by the Depositor, a
Sub-Servicer or a Seller pursuant to the related Agreement). Advances by the
Master Servicer (and any advances by a Sub-Servicer) also will be reimbursable
to the Master Servicer (or Sub-Servicer) from cash otherwise distributable to
Securityholders (including the holders of Senior Securities) to the extent that
the Master Servicer determines that any such Advances previously made are not
ultimately recoverable as described above. To the extent provided in the related
Prospectus Supplement, the Master Servicer also will be obligated to make
Advances, to the extent recoverable out of Insurance Proceeds, Liquidation
Proceeds or otherwise, in respect of certain taxes and insurance premiums not
paid by borrowers on a timely basis. Funds so advanced are reimbursable to the
Master Servicer to the extent permitted by the related Agreement. The
obligations of the Master Servicer to make advances may be supported by a cash
advance reserve fund, a surety bond or other arrangement of the type described
herein under 'Credit Enhancement,' in each case as described in the related
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, in the
event the Master Servicer or a Sub-Servicer fails to make a required Advance,
the Trustee will be obligated to make such Advance in its capacity as successor
servicer. If the Trustee makes such an Advance, it will be entitled to be
reimbursed for such Advance to the same extent and degree as the Master Servicer
or a Sub-Servicer is entitled to be reimbursed for Advances. See 'Description of
the Securities -- Distributions on Securities'.
REPORTS TO SECURITYHOLDERS
Unless otherwise specified in the related Prospectus Supplement, prior to or
concurrently with each distribution on a Distribution Date the Master Servicer
or the Trustee will furnish to each Securityholder of record of the related
Series a statement setting forth, to the extent applicable to such Series of
Securities, among other things:
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(i) the amount of such distribution allocable to principal, separately
identifying the aggregate amount of any Principal Prepayments and if so
specified in the related Prospectus Supplement, any applicable prepayment
penalties included therein;
(ii) the amount of such distribution allocable to interest;
(iii) the amount of any Advance;
(iv) the aggregate amount (a) otherwise allocable to the Subordinated
Securityholders on such Distribution Date and (b) withdrawn from the Reserve
Account, if any, that is included in the amounts distributed to the Senior
Securityholders;
(v) the outstanding principal balance or notional amount of each class
of the related Series after giving effect to the distribution of principal
on such Distribution Date;
(vi) the percentage of principal payments on the Loans (excluding
prepayments), if any, which each such class will be entitled to receive on
the following Distribution Date;
(vii) the percentage of Principal Prepayments on the Loans, if any,
which each such class will be entitled to receive on the following
Distribution Date;
(viii) the related amount of the servicing compensation retained or
withdrawn from the Security Account by the Master Servicer, and the amount
of additional servicing compensation received by the Master Servicer
attributable to penalties, fees, excess Liquidation Proceeds and other
similar charges and items;
(ix) the number and aggregate principal balances of Loans
(A) delinquent (exclusive of Loans in foreclosure) (1) 1 to 30 days, (2) 31
to 60 days, (3) 61 to 90 days and (4) 91 or more days and (B) in foreclosure
and delinquent (1) 1 to 30 days, (2) 31 to 60 days, (3) 61 to 90 days and
(4) 91 or more days, as of the close of business on the last day of the
calendar month preceding such Distribution Date;
(x) the book value of any real estate acquired through foreclosure or
grant of a deed in lieu of foreclosure;
(xi) the pass-through rate or interest rate, as applicable, if adjusted
from the date of the last statement, of any such class expected to be
applicable to the next distribution to such class;
(xii) if applicable, the amount remaining in any Reserve Account at the
close of business on the Distribution Date;
(xiii) the pass-through rate or interest rate, as applicable, as of the
day prior to the immediately preceding Distribution Date; and
(xiv) any amounts remaining under letters of credit, pool policies or
other forms of credit enhancement.
Where applicable, any amount set forth above may be expressed as a dollar
amount per single Security of the relevant class having the Percentage Interest
specified in the related Prospectus Supplement. The report to Securityholders
for any Series of Securities may include additional or other information of a
similar nature to that specified above.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or the Trustee will mail to each
Securityholder of record at any time during such calendar year a report (a) as
to the aggregate of amounts reported pursuant to (i) and (ii) above for such
calendar year or, in the event such person was a Securityholder of record during
a portion of such calendar year, for the applicable portion of such year and
(b) such other customary information as may be deemed necessary or desirable for
Securityholders to prepare their tax returns.
CATEGORIES OF CLASSES OF SECURITIES
The Securities of any Series may be comprised of one or more classes. Such
classes, in general, fall into different categories. The following chart
identifies and generally defines certain of the more typical categories. The
Prospectus Supplement for a series of Securities may identify the classes which
comprise such Series by reference to the following categories.
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<TABLE>
<CAPTION>
PRINCIPAL TYPES
<S> <C>
Accretion Directed............. A class that receives principal payments from the accreted
interest from specified Accrual Securities. An Accretion
Directed class also may receive principal payments from
principal paid on the underlying Trust Fund Assets for the
related Series.
Component Securities........... A class consisting of 'Components'. The Components of a
class of Component Securities may have different principal
and/or interest payment characteristics but together
constitute a single class. Each Component of a class of
Component Securities may be identified as falling into one
or more of the categories in this chart.
Notional Amount Securities..... A class having no principal balance and bearing interest on
the related notional amount. The notional amount is used for
purposes of the determination of interest distributions.
Planned Principal Class (also
sometimes referred to as
'PACs')...................... A class that is designed to receive principal payments using
a predetermined principal balance schedule derived by
assuming two constant prepayment rates for the underlying
Trust Fund Assets. These two rates are the endpoints for the
'structuring range' for the Planned Principal Class. The
Planned Principal Classes in any Series of Securities may be
subdivided into different categories (e.g., Primary Planned
Principal Classes, Secondary Planned Principal Classes and
so forth) having different effective structuring ranges and
different principal payment priorities. The structuring
range for the Secondary Planned Principal Categories of
Classes of a Series of Securities will be narrower than that
for the Primary Planned Principal Class of such Series.
Scheduled Principal Class...... A class that is designed to receive principal payments using
a predetermined principal balance schedule but is not
designated as a Planned Principal Class or Targeted
Principal Class. In many cases, the schedule is derived by
assuming two constant prepayment rates for the underlying
Trust Fund Assets. These two rates are the endpoints for the
'structuring range' for the Scheduled Principal Class.
Sequential Pay................. Classes that receive principal payments in a prescribed
sequence, that do not have predetermined principal balance
schedules and that under all circumstances receive payments
of principal continuously from the first Distribution Date
on which they receive principal until they are retired. A
single class that receives principal payments before or
after all other classes in the same Series of Securities may
be identified as a Sequential Pay class.
Strip.......................... A class that receives a constant proportion, or 'strip,' of
the principal payments on the underlying Trust Fund Assets.
Support Class (also sometimes
referred to as 'companion
classes').................... A class that receives principal payments on any Distribution
Date only if scheduled payments have been made on specified
Planned Principal Classes, Targeted Principal Classes and/or
Scheduled Principal Classes.
Targeted Principal Class (also
sometimes referred to as
'TACs')...................... A class that is designed to receive principal payments using
a predetermined principal balance schedule derived by
assuming a single constant prepayment rate for the
underlying Trust Fund Assets.
</TABLE>
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<TABLE>
<CAPTION>
CATEGORIES OF CLASSES DEFINITION
INTEREST TYPES
<S> <C>
Fixed Rate..................... A class with an interest rate that is fixed throughout the
life of the class.
Floating Rate.................. A class with an interest rate that resets periodically based
upon a designated index and that varies directly with
changes in such index.
Inverse Floating Rate.......... A class with an interest rate that resets periodically based
upon a designated index and that varies inversely with
changes in such index.
Variable Rate.................. A class with an interest rate that resets periodically and
is calculated by reference to the rate or rates of interest
applicable to specified assets or instruments (e.g., the
Loan Rates borne by the underlying Loans).
Interest Only.................. A class that receives some or all of the interest payments
made on the underlying Trust Fund Assets and little or no
principal. Interest Only classes have either a nominal
principal balance or a notional amount. A nominal principal
balance represents actual principal that will be paid on the
class. It is referred to as nominal since it is extremely
small compared to other classes. A notional amount is the
amount used as a reference to calculate the amount of
interest due on an Interest Only class that is not entitled
to any distributions in respect of principal.
Principal Only................. A class that does not bear interest and is entitled to
receive only distributions in respect of principal.
Partial Accrual................ A class that accretes a portion of the amount of accrued
interest thereon, which amount will be added to the
principal balance of such class on each applicable
Distribution Date, with the remainder of such accrued
interest to be distributed currently as interest on such
class. Such accretion may continue until a specified event
has occurred or until such Partial Accrual class is retired.
Accrual........................ A class that accretes the amount of accrued interest
otherwise distributable on such class, which amount will be
added as principal to the principal balance of such class on
each applicable Distribution Date. Such accretion may
continue until some specified event has occurred or until
such Accrual class is retired.
</TABLE>
INDICES APPLICABLE TO FLOATING RATE AND INVERSE FLOATING RATE CLASSES
LIBOR
Unless otherwise specified in the related Prospectus Supplement, on the
LIBOR Determination Date (as such term is defined in the related Prospectus
Supplement) for each class of Securities of a Series as to which the applicable
interest rate is determined by reference to an index denominated as LIBOR, the
Person designated in the related Agreement (the 'Calculation Agent') will
determine LIBOR in accordance with one of the two methods described below (which
method will be specified in the related Prospectus Supplement):
LIBO Method
If using this method to calculate LIBOR, the Calculation Agent will
determine LIBOR by reference to the quotations set forth on the Reuters Screen
LIBO Page (as defined in the International Swap Dealers Association, Inc. Code
of Standard Wording, Assumptions and Provisions for Swaps, 1986 Edition),
offered by the principal London office of each of the designated reference banks
meeting the criteria set forth below (the 'Reference Banks') for making
one-month United States dollar deposits in leading banks in the London Interbank
market, as of 11:00 a.m. (London time) on such LIBOR Determination Date. In lieu
of relying on the quotations for those Reference Banks that appear at such time
on the Reuters Screen LIBO Page, the Calculation Agent will request each of the
Reference Banks to provide such offered quotations at such time.
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<PAGE>
Under this method LIBOR will be established by the Calculation Agent on each
LIBOR Determination Date as follows:
(a) If on any LIBOR Determination Date two or more Reference Banks
provide such offered quotations, LIBOR for the next Interest Accrual Period
shall be the arithmetic mean of such offered quotations (rounded upwards if
necessary to the nearest whole multiple of 1/32%).
(b) If on any LIBOR Determination Date only one or none of the Reference
Banks provides such offered quotations, LIBOR for the next Interest Accrual
Period (as such term is defined in the related Prospectus Supplement) shall
be whichever is the higher of (i) LIBOR as determined on the previous LIBOR
Determination Date or (ii) the Reserve Interest Rate. The 'Reserve Interest
Rate' shall be the rate per annum which the Calculation Agent determines to
be either (i) the arithmetic mean (rounded upwards if necessary to the
nearest whole multiple of 1/32%) of the one-month United States dollar
lending rates that New York City banks selected by the Calculation Agent are
quoting, on the relevant LIBOR Determination Date, to the principal London
offices of at least two of the Reference Banks to which such quotations are,
in the opinion of the Calculation Agent, being so made or (ii) in the event
that the Calculation Agent can determine no such arithmetic mean, the lowest
one-month United States dollar lending rate which New York City banks
selected by the Calculation Agent are quoting on such LIBOR Determination
Date to leading European banks.
(c) If on any LIBOR Determination Date for a class specified in the
related Prospectus Supplement, the Calculation Agent is required but is
unable to determine the Reserve Interest Rate in the manner provided in
paragraph (b) above, LIBOR for the next Interest Accrual Period shall be
LIBOR as determined on the preceding LIBOR Determination Date, or, in the
case of the first LIBOR Determination Date, LIBOR shall be deemed to be the
per annum rate specified as such in the related Prospectus Supplement.
Each Reference Bank (i) shall be a leading bank engaged in transactions in
Eurodollar deposits in the international Eurocurrency market; (ii) shall not
control, be controlled by, or be under common control with the Calculation
Agent; and (iii) shall have an established place of business in London. If any
such Reference Bank should be unwilling or unable to act as such or if
appointment of any such Reference Bank is terminated, another leading bank
meeting the criteria specified above will be appointed.
BBA Method
If using this method of determining LIBOR, the Calculation Agent will
determine LIBOR on the basis of the British Bankers' Association ('BBA')
'Interest Settlement Rate' for one-month deposits in United States dollars as
found on Telerate page 3750 as of 11:00 a.m. London time on each LIBOR
Determination Date. Interest Settlement Rates currently are based on rates
quoted by eight BBA designated banks as being, in the view of such banks, the
offered rate at which deposits are being quoted to prime banks in the London
interbank market. Such Interest Settlement Rates are calculated by eliminating
the two highest rates and the two lowest rates, averaging the four remaining
rates, carrying the result (expressed as a percentage) out to six decimal
places, and rounding to five decimal places.
If on any LIBOR Determination Date, the Calculation Agent is unable to
calculate LIBOR in accordance with the method set forth in the immediately
preceding paragraph, LIBOR for the next Interest Accrual period shall be
calculated in accordance with the LIBOR method described above under 'LIBO
Method'.
The establishment of LIBOR on each LIBOR Determination Date by the
Calculation Agent and its calculation of the rate of interest for the applicable
classes for the related Interest Accrual Period shall (in the absence of
manifest error) be final and binding.
COFI
The Eleventh District Cost of Funds Index is designed to represent the
monthly weighted average cost of funds for savings institutions in Arizona,
California and Nevada that are member institutions of the Eleventh Federal Home
Loan Bank District (the 'Eleventh District'). The Eleventh District Cost of
Funds Index for a particular month reflects the interest costs paid on all types
of funds held by Eleventh District member institutions and is calculated by
dividing the cost of funds by the average of the total amount of those funds
outstanding at the end of that month and of the prior month and annualizing and
adjusting the result to reflect
37
<PAGE>
the actual number of days in the particular month. If necessary, before these
calculations are made, the component figures are adjusted by the Federal Home
Loan Bank of San Francisco ('FHLBSF') to neutralize the effect of events such as
member institutions leaving the Eleventh District or acquiring institutions
outside the Eleventh District. The Eleventh District Cost of Funds Index is
weighted to reflect the relative amount of each type of funds held at the end of
the relevant month. The major components of funds of Eleventh District member
institutions are: (i) savings deposits, (ii) time deposits, (iii) FHLBSF
advances, (iv) repurchase agreements and (v) all other borrowings. Because the
component funds represent a variety of maturities whose costs may react in
different ways to changing conditions, the Eleventh District Cost of Funds Index
does not necessarily reflect current market rates.
A number of factors affect the performance of the Eleventh District Cost of
Funds Index which may cause it to move in a manner different from indices tied
to specific interest rates, such as United States Treasury bills or LIBOR.
Because the liabilities upon which the Eleventh District Cost of Funds Index is
based were issued at various times under various market conditions and with
various maturities, the Eleventh District Cost of Funds Index may not
necessarily reflect the prevailing market interest rates on new liabilities of
similar maturities. Moreover, as stated above, the Eleventh District Cost of
Funds Index is designed to represent the average cost of funds for Eleventh
District savings institutions for the month prior to the month in which it is
due to be published. Additionally, the Eleventh District Cost of Funds Index may
not necessarily move in the same direction as market interest rates at all
times, since as longer term deposits or borrowings mature and are renewed at
prevailing market interest rates, the Eleventh District Cost of Funds Index is
influenced by the differential between the prior and the new rates on those
deposits or borrowings. In addition, movements of the Eleventh District Cost of
Funds Index, as compared to other indices tied to specific interest rates, may
be affected by changes instituted by the FHLBSF in the method used to calculate
the Eleventh District Cost of Funds Index.
The FHLBSF publishes the Eleventh District Cost of Funds Index in its
monthly Information Bulletin. Any individual may request regular receipt by mail
of Information Bulletins by writing the Federal Home Loan Bank of San Francisco,
P.O. Box 7948, 600 California Street, San Francisco, California 94120, or by
calling (415) 616-1000. The Eleventh District Cost of Funds Index may also be
obtained by calling the FHLBSF at (415) 616-2600.
The FHLBSF has stated in its Information Bulletin that the Eleventh District
Cost of Funds Index for a month 'will be announced on or near the last working
day' of the following month and also has stated that it 'cannot guarantee the
announcement' of such index on an exact date. So long as such index for a month
is announced on or before the tenth day of the second following month, the
interest rate for each class of Securities of a Series as to which the
applicable interest rate is determined by reference to an index denominated as
COFI (each, a class of 'COFI Securities') for the Interest Accrual Period
commencing in such second following month will be based on the Eleventh District
Cost of Funds Index for the second preceding month. If publication is delayed
beyond such tenth day, such interest rate will be based on the Eleventh District
Cost of Funds Index for the third preceding month.
Unless otherwise specified in the related Prospectus Supplement, if on the
tenth day of the month in which any Interest Accrual Period commences for a
class of COFI Securities the most recently published Eleventh District Cost of
Funds Index relates to a month prior to the third preceding month, the index for
such current Interest Accrual Period and for each succeeding Interest Accrual
Period will, except as described in the next to last sentence of this paragraph,
be based on the National Monthly Median Cost of Funds Ratio to SAIF-Insured
Institutions (the 'National Cost of Funds Index') published by the Office of
Thrift Supervision (the 'OTS') for the third preceding month (or the fourth
preceding month if the National Cost of Funds Index for the third preceding
month has not been published on such tenth day of an Interest Accrual Period).
Information on the National Cost of Funds Index may be obtained by writing the
OTS at 1700 G Street, N.W., Washington, D.C. 20552 or calling (202) 906-6677,
and the current National Cost of Funds Index may be obtained by calling
(202) 906-6988. If on any such tenth day of the month in which an Interest
Accrual Period commences the most recently published National Cost of Funds
Index relates to a month prior to the fourth preceding month, the applicable
index for such Interest Accrual Period and each succeeding Interest Accrual
Period will be based on LIBOR, as determined by the Calculation Agent in
accordance with the Agreement relating to such Series of Securities. A change of
index from the Eleventh District Cost of Funds Index to an alternative index
will result in a change in the index level, and, particularly if LIBOR is the
alternative index, could increase its volatility.
38
<PAGE>
The establishment of COFI by the Calculation Agent and its calculation of
the rates of interest for the applicable classes for the related Interest
Accrual Period shall (in the absence of manifest error) be final and binding.
Treasury Index
Unless otherwise specified in the related Prospectus Supplement, on the
Treasury Index Determination Date (as such term is defined in the related
Prospectus Supplement) for each class of Securities of a Series as to which the
applicable interest rate is determined by reference to an index denominated as a
Treasury Index, the Calculation Agent will ascertain the Treasury Index for
Treasury securities of the maturity and for the period (or, if applicable, date)
specified in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, the Treasury Index for any period means the
average of the yield for each business day during the period specified therein
(and for any date means the yield for such date), expressed as a per annum
percentage rate, on (i) U.S Treasury securities adjusted to the 'constant
maturity' (as further described below) specified in such Prospectus Supplement
or (ii) if no 'constant maturity' is so specified, U.S. Treasury securities
trading on the secondary market having the maturity specified in such Prospectus
Supplement, in each case as published by the Federal Reserve Board in its
Statistical Release No. H.15(519). Statistical Release No. H.15(519) is
published on Monday or Tuesday of each week and may be obtained by writing or
calling the Publications Department at the Board of Governors of the Federal
Reserve System, 21st and C Streets, Washington, D.C. 20551 (202) 452-3244. If
the Calculation Agent has not yet received Statistical Release No. H.15(519) for
such week, then it will use such Statistical Release from the immediately
preceding week.
Yields on U.S. Treasury securities at 'constant maturity' are derived from
the U.S. Treasury's daily yield curve. This curve, which relates the yield on a
security to its time to maturity, is based on the closing market bid yields on
actively traded Treasury securities in the over-the-counter market. These market
yields are calculated from composites of quotations reported by five leading
U.S. Government securities dealers to the Federal Reserve Bank of New York. This
method provides a yield for a given maturity even if no security with that exact
maturity is outstanding. In the event that the Treasury Index is no longer
published, a new index based upon comparable data and methodology will be
designated in accordance with the Agreement relating to the particular Series of
Securities. The Calculation Agent's determination of the Treasury Index, and its
calculation of the rates of interest for the applicable classes for the related
Interest Accrual Period shall (in the absence of manifest error) be final and
binding.
Prime Rate
Unless otherwise specified in the related Prospectus Supplement, on the
Prime Rate Determination Date (as such term is defined in the related Prospectus
Supplement) for each class of Securities of a Series as to which the applicable
interest rate is determined by reference to an index denominated as the Prime
Rate, the Calculation Agent will ascertain the Prime Rate for the related
Interest Accrual Period. Unless otherwise specified in the related Prospectus
Supplement, the Prime Rate for an Interest Accrual Period will be the 'Prime
Rate' as published in the 'Money Rates' section of The Wall Street Journal (or
if not so published, the 'Prime Rate' as published in a newspaper of general
circulation selected by the Calculation Agent in its sole discretion) on the
related Prime Rate Determination Date. If a prime rate range is given, then the
average of such range will be used. In the event that the Prime Rate is no
longer published, a new index based upon comparable data and methodology will be
designated in accordance with the Agreement relating to the particular Series of
Securities. The Calculation Agent's determination of the Prime Rate and its
calculation of the rates of interest for the related Interest Accrual Period
shall (in the absence of manifest error) be final and binding.
DERIVATIVE TRANSACTIONS
If specified in the related Prospectus Supplement, a Trust Fund may enter
into privately negotiated, over-the-counter hedging transactions with various
counterparties, including interest rate swaps, caps, collars and floors
(collectively, 'Derivative Transactions') to effectively fix the rate of
interest that such Trust Fund pays on one or more borrowings or series of
borrowings. Trust Funds will use these Derivative Transactions as hedges and not
as speculative investments. Derivative Transactions involve an agreement between
two parties to exchange payments that are based, respectively, on variable and
fixed rates of interest and that are calculated on
39
<PAGE>
the basis of a specified amount of principal for a specified period of time. Cap
and floor transactions involve an agreement between two parties in which the
first party agrees to make payments to the counterparty when a designated market
interest rate goes above (in the case of a cap) or below (in the case of a
floor) a designated level on predetermined dates or during a specified time
period. Collar transactions involve an agreement between two parties in which
the first party makes payments to the counterparty when a designated market
interest rate goes above a designated level of predetermined dates or during a
specified time period, and the counterparty makes payments to the first party
when a designated market interest rate goes below a designated level on
predetermined dates or during a specified time period.
BOOK-ENTRY REGISTRATION OF SECURITIES
As described in the related prospectus supplement, if not issued in fully
registered form, each class of securities will be registered as book-entry
certificates. Persons acquiring beneficial ownership interests in the securities
('Security Owners') will hold their securities through the Depository Trust
Company ('DTC') in the United States, or 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 securities
will be issued in one or more certificates which equal the aggregate principal
balance of the securities and will initially be registered in the name of Cede &
Co., the nominee of DTC. 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'). Except as
described below, no person acquiring a Book-Entry security (each, a 'beneficial
owner') will be entitled to receive a physical certificate representing such
security (a 'Definitive Security'). Unless and until Definitive Securities are
issued, it is anticipated that the only 'securityholders' of the securities will
be Cede & Co., as nominee of DTC. Security Owners are only permitted to exercise
their rights indirectly through Participants and DTC.
The beneficial owner's ownership of a Book-Entry security will be recorded
on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a 'Financial Intermediary') that maintains the
beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry security will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the beneficial owner's Financial Intermediary is not a DTC participant, and on
the records of Clearstream, Luxembourg or Euroclear, as appropriate).
Security Owners will receive all distributions of principal of, and interest
on, the securities from the trustee through DTC and DTC participants. While the
securities are outstanding (except under the circumstances described below),
under the rules, regulations and procedures creating and affecting DTC and its
operations (the 'Rules'), DTC is required to make bookentry transfers among
Participants on whose behalf it acts with respect to the securities and is
required to receive and transmit distributions of principal of, and interest on,
the securities. Participants and indirect participants with whom Security Owners
have accounts with respect to securities are similarly required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Security Owners. Accordingly, although Security Owners will not
possess certificates, the Rules provide a mechanism by which Security Owners
will receive distributions and will be able to transfer their interest.
Security Owners will not receive or be entitled to receive certificates
representing their respective interests in the securities, except under the
limited circumstances described below. Unless and until Definitive Securities
are issued, Security Owners who are not Participants may transfer ownership of
securities only through Participants and indirect participants by instructing
such Participants and indirect participants to transfer securities, by
book-entry transfer, through DTC for the account of the purchasers of such
securities, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of securities will be executed through DTC and the accounts of the
respective Participants at DTC will be debited and credited. Similarly, the
Participants and indirect participants will make debits or credits, as the case
may be, on their records on behalf of the selling and purchasing Security
Owners.
40
<PAGE>
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 herein) or Euroclear Participant (as defined herein) to a DTC
Participant will be received with value on the DTC settlement date but will be
available in the relevant Clearstream, Luxembourg or Euroclear cash account only
as of the business day following settlement in DTC.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between 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.
Clearstream, Luxembourg is incorporated under the laws of Luxembourg as a
professional depository. Clearstream, Luxembourg holds securities for its
participating organizations ('Clearstream, Luxembourg Participants') and
facilitates the clearance and settlement of securities transactions between
Clearstream, Luxembourg Participants through electronic book-entry changes in
accounts of Clearstream, Luxembourg Participants, thereby eliminating the need
for physical movement of certificates. Transactions may be settled in
Clearstream, Luxembourg in any of 28 currencies, including United States
dollars. Clearstream, Luxembourg provides to its Clearstream, Luxembourg
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 others, 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
('Euroclear Participants') and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York ('Morgan' and in such capacity, the
'Euroclear Operator'), under contract with Euroclear Clearance Systems S.C., a
Belgian cooperative corporation (the 'Belgian Cooperative'). All operations are
conducted by Morgan, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Belgian Cooperative. The Belgian cooperative establishes policy for Euroclear on
behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other professional
financial intermediaries. Indirect access to Euroclear is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
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<PAGE>
Morgan is the Belgian branch of a New York banking, corporation which is a
member bank of the Federal Reserve System. As such, it is regulated and examined
by the Board of Governors of the Federal Reserve System and the New York State
Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with Morgan are governed by
the Terms and Conditions Governing Use of Euroclear and the related Operating
Procedures of the Euroclear System and applicable Belgian law (collectively, the
'Terms and Conditions'). The Terms and Conditions govern transfers of securities
and cash within Euroclear, withdrawals of securities and cash from Euroclear,
and receipts of payments with respect to securities in Euroclear. All securities
in Euroclear are held on a fungible basis without attribution of specific
certificates to specific securities clearance accounts. The Euroclear Operator
acts under the Terms and Conditions only on behalf of Euroclear Participants,
and has no record of or relationship with persons holding through Euroclear
Participants.
Under a book-entry format, beneficial owners of the Book-Entry securities
may experience some delay in their receipt of payments, since such payments will
be forwarded by the trustee to Cede & Co., as nominee of DTC. Distributions with
respect to securities held through 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 'Federal Income Tax
Consequences -- Tax Treatment of Foreign Investors' and ' -- Tax Consequences to
Holders of the Notes -- Backup Withholding' herein. Because DTC can only act on
behalf of Financial Intermediaries, the ability of a beneficial owner to pledge
Book-Entry securities to persons or entities that do not participate in the
Depository system may be limited due to the lack of physical certificates for
such Book-Entry securities. In addition, issuance of the Book-Entry securities
in book-entry form may reduce the liquidity of such securities in the secondary
market since certain potential investors may be unwilling to purchase securities
for which they cannot obtain physical certificates.
Monthly and annual reports on the Trust will be provided to Cede & Co., as
nominee of DTC, and may be made available by Cede & Co. to beneficial owners
upon request, in accordance with the rules, regulations and procedures creating
and affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry securities of such beneficial owners are credited.
DTC has advised the trustee that, unless and until Definitive securities are
issued, DTC will take any action permitted to be taken by the holders of the
Book-Entry securities under the applicable Agreement only at the direction of
one or more Financial Intermediaries to whose DTC accounts the Book-Entry
securities are credited, to the extent that such actions are taken on behalf of
Financial Intermediaries whose holdings include such Book-Entry securities.
Clearstream, Luxembourg or the Euroclear Operator, as the case may be, will take
any other action permitted to be taken by a securityholder under the Agreement
on behalf of a 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 securities which conflict with actions taken with respect to other
securities.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Securities. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Securities and instructions for
reregistration, the trustee will issue Definitive securities, and thereafter the
trustee will recognize the holders of such Definitive securities as
securityholders under the applicable Agreement.
Although DTC, 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 under no
obligation to perform or continue to perform such procedures and such procedures
may be discontinued at any time.
None of the master servicer, the depositor or the trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry securities held by
Cede & Co., as nominee of DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
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CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided with respect to one or more classes of a
Series of Securities or with respect to the related Trust Fund Assets. Credit
enhancement may be in the form of a limited financial guaranty policy issued by
an entity named in the related Prospectus Supplement, the subordination of one
or more classes of the Securities of such Series, the establishment of one or
more Reserve Accounts, the use of a cross-collateralization feature, use of a
mortgage pool insurance policy, FHA Insurance, VA Guarantee, bankruptcy bond,
special hazard insurance policy, surety bond, letter of credit, guaranteed
investment contract, overcollateralization, or another method of credit
enhancement contemplated herein and described in the related Prospectus
Supplement, or any combination of the foregoing. Unless otherwise specified in
the related Prospectus Supplement, credit enhancement will not provide
protection against all risks of loss and will not guarantee repayment of the
entire principal balance of the Securities and interest thereon. If losses occur
which exceed the amount covered by credit enhancement or which are not covered
by the credit enhancement, Securityholders will bear their allocable share of
any deficiencies.
SUBORDINATION
If so specified in the related Prospectus Supplement, protection afforded to
holders of one or more classes of Securities of a Series by means of the
subordination feature may be accomplished by the preferential right of holders
of one or more other classes of such Series (the 'Senior Securities') to
distributions in respect of scheduled principal, Principal Prepayments, interest
or any combination thereof that otherwise would have been payable to holders of
Subordinated Securities under the circumstances and to the extent specified in
the related Prospectus Supplement. Protection may also be afforded to the
holders of Senior Securities of a Series by: (i) reducing the ownership interest
(if applicable) of the related Subordinated Securities; (ii) a combination of
the immediately preceding sentence and clause (i) above; or (iii) as otherwise
described in the related Prospectus Supplement. If so specified in the related
Prospectus Supplement, delays in receipt of scheduled payments on the Loans and
losses on defaulted Loans may be borne first by the various classes of
Subordinated Securities and thereafter by the various classes of Senior
Securities, in each case under the circumstances and subject to the limitations
specified in such Prospectus Supplement. The aggregate distributions in respect
of delinquent payments on the Loans over the lives of the Securities or at any
time, the aggregate losses in respect of defaulted Loans which must be borne by
the Subordinated Securities by virtue of subordination and the amount of the
distributions otherwise distributable to the Subordinated Securityholders that
will be distributable to Senior Securityholders on any Distribution Date may be
limited as specified in the related Prospectus Supplement. If aggregate
distributions in respect of delinquent payments on the Loans or aggregate losses
in respect of such Loans were to exceed an amount specified in the related
Prospectus Supplement, holders of Senior Securities would experience losses on
the Securities.
In addition to or in lieu of the foregoing, if so specified in the related
Prospectus Supplement, all or any portion of distributions otherwise payable to
holders of Subordinated Securities on any Distribution Date may instead be
deposited into one or more Reserve Accounts established with the Trustee or
distributed to holders of Senior Securities. Such deposits may be made on each
Distribution Date, for specified periods or until the balance in the Reserve
Account has reached a specified amount and, following payments from the Reserve
Account to holders of Senior Securities or otherwise, thereafter to the extent
necessary to restore the balance in the Reserve Account to required levels, in
each case as specified in the related Prospectus Supplement. Amounts on deposit
in the Reserve Account may be released to the holders of certain classes of
Securities at the times and under the circumstances specified in such Prospectus
Supplement.
If specified in the related Prospectus Supplement, various classes of Senior
Securities and Subordinated Securities may themselves be subordinate in their
right to receive certain distributions to other classes of Senior and
Subordinated Securities, respectively, through a cross-collateralization
mechanism or otherwise.
As between classes of Senior Securities and as between classes of
Subordinated Securities, distributions may be allocated among such classes
(i) in the order of their scheduled final distribution dates, (ii) in accordance
with a schedule or formula, (iii) in relation to the occurrence of events or
(iv) otherwise, in each case as specified in the related Prospectus Supplement.
As between classes of Subordinated Securities, payments to holders of Senior
Securities on account of delinquencies or losses and payments to any Reserve
Account will be allocated as specified in the related Prospectus Supplement.
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LETTER OF CREDIT
The letter of credit, if any, with respect to a Series of Securities will be
issued by the bank or financial institution specified in the related Prospectus
Supplement (the 'L/C Bank'). Under the letter of credit, the L/C Bank will be
obligated to honor drawings thereunder in an aggregate fixed dollar amount, net
of unreimbursed payments thereunder, equal to the percentage specified in the
related Prospectus Supplement of the aggregate principal balance of the Loans on
the related Cut-off Date or of one or more classes of Securities (the 'L/C
Percentage'). If so specified in the related Prospectus Supplement, the letter
of credit may permit drawings in the event of losses not covered by insurance
policies or other credit support, such as losses arising from damage not covered
by standard hazard insurance policies, losses resulting from the bankruptcy of a
borrower and the application of certain provisions of the Bankruptcy Code, or
losses resulting from denial of insurance coverage due to misrepresentations in
connection with the origination of a Loan. The amount available under the letter
of credit will, in all cases, be reduced to the extent of the unreimbursed
payments thereunder. The obligations of the L/C Bank under the letter of credit
for each Series of Securities will expire at the earlier of the date specified
in the related Prospectus Supplement or the termination of the Trust Fund. See
'The Agreements -- Termination: Optional Termination'. A copy of the letter of
credit for a Series, if any, will be filed with the Commission as an exhibit to
a Current Report on Form 8-K to be filed within 15 days of issuance of the
Securities of the related Series.
INSURANCE POLICIES, SURETY BONDS AND GUARANTIES
If so provided in the Prospectus Supplement for a Series of Securities,
deficiencies in amounts otherwise payable on such Securities or certain classes
thereof will be covered by insurance policies and/or surety bonds provided by
one or more insurance companies or sureties. Such instruments may cover, with
respect to one or more classes of Securities of the related series, timely
distributions of interest and/or full distributions of principal on the basis of
a schedule of principal distributions set forth in or determined in the manner
specified in the related Prospectus Supplement. In addition, if specified in the
related Prospectus Supplement, a Trust Fund may also include bankruptcy bonds,
special hazard insurance policies, other insurance or guaranties for the purpose
of (i) maintaining timely payments or providing additional protection against
losses on the assets included in such Trust Fund, (ii) paying administrative
expenses or (iii) establishing a minimum reinvestment rate on the payments made
in respect of such assets or principal payment rate on such assets. Such
arrangements may include agreements under which Securityholders are entitled to
receive amounts deposited in various accounts held by the Trustee upon the terms
specified in such Prospectus Supplement. A copy of any such instrument for a
series will be filed with the Commission as an exhibit to a Current Report on
Form 8-K to be filed with the Commission within 15 days of issuance of the
Securities of the related series.
OVER-COLLATERALIZATION
If so provided in the Prospectus Supplement for a Series of Securities, a
portion of the interest payment on each Loan may be applied as an additional
distribution in respect of principal to reduce the principal balance of a
certain class or classes of Securities and, thus, accelerate the rate of payment
of principal on such class or classes of Securities.
RESERVE ACCOUNTS
If specified in the related Prospectus Supplement, credit support with
respect to a Series of Securities will be provided by the establishment and
maintenance with the Trustee for such Series of Securities, in trust, of one or
more Reserve Accounts for such Series. The related Prospectus Supplement will
specify whether or not any such Reserve Accounts will be included in the Trust
Fund for such Series.
The Reserve Account for a Series will be funded (i) by the deposit therein
of cash, United States Treasury securities, instruments evidencing ownership of
principal or interest payments thereon, letters of credit, demand notes,
certificates of deposit or a combination thereof in the aggregate amount
specified in the related Prospectus Supplement, (ii) by the deposit therein from
time to time of certain amounts, as specified in the related Prospectus
Supplement to which the Subordinate Securityholders, if any, would otherwise be
entitled or (iii) in such other manner as may be specified in the related
Prospectus Supplement.
Any amounts on deposit in the Reserve Account and the proceeds of any other
instrument upon maturity will be held in cash or will be invested in 'Permitted
Investments' which, in general, will include obligations of the United States
and certain agencies thereof, certificates of deposit, certain commercial paper,
time deposits and bankers acceptances sold by eligible commercial banks and
certain repurchase agreements of United States
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government securities with eligible commercial banks. If a letter of credit is
deposited with the Trustee, such letter of credit will be irrevocable. Unless
otherwise specified in the related Prospectus Supplement, any instrument
deposited therein will name the Trustee, in its capacity as trustee for the
holders of the Securities, as beneficiary and will be issued by an entity
acceptable to each Rating Agency that rates the Securities of the related
Series. Additional information with respect to such instruments deposited in the
Reserve Accounts will be set forth in the related Prospectus Supplement.
Any amounts so deposited and payments on instruments so deposited will be
available for withdrawal from the Reserve Account for distribution to the
holders of Securities of the related Series for the purposes, in the manner and
at the times specified in the related Prospectus Supplement.
POOL INSURANCE POLICIES
If specified in the related Prospectus Supplement, a separate pool insurance
policy ('Pool Insurance Policy') will be obtained for the Pool and issued by the
insurer (the 'Pool Insurer') named in such Prospectus Supplement. Each Pool
Insurance Policy will, subject to the limitations described therein, cover loss
by reason of default in payment on Loans in the Pool in an amount equal to a
percentage specified in such Prospectus Supplement of the aggregate principal
balance of such Loans on the Cut-off Date which are not covered as to their
entire outstanding principal balances by Primary Mortgage Insurance Policies. As
more fully described in the related Prospectus Supplement, the Master Servicer
will present claims thereunder to the Pool Insurer on behalf of itself, the
Trustee and the holders of the Securities of the related Series. The Pool
Insurance Policies, however, are not blanket policies against loss, since claims
thereunder may only be made respecting particular defaulted Loans and only upon
satisfaction of certain conditions precedent as described in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, the Pool Insurance Policies will not cover losses due to a failure
to pay or denial of a claim under a Primary Mortgage Insurance Policy.
Unless otherwise specified in the related Prospectus Supplement, the
original amount of coverage under each Pool Insurance Policy will be reduced
over the life of the related Securities by the aggregate dollar amount of claims
paid less the aggregate of the net amounts realized by the Pool Insurer upon
disposition of all foreclosed properties. The amount of claims paid will include
certain expenses incurred by the Master Servicer as well as accrued interest on
delinquent Loans to the date of payment of the claim, unless otherwise specified
in the related Prospectus Supplement. Accordingly, if aggregate net claims paid
under any Pool Insurance Policy reach the original policy limit, coverage under
that Pool Insurance Policy will be exhausted and any further losses will be
borne by the related Securityholders.
CROSS-COLLATERALIZATION
If specified in the related Prospectus Supplement, the beneficial ownership
of separate groups of assets included in a Trust Fund may be evidenced by
separate classes of the related Series of Securities. In such case, credit
support may be provided by a cross-collateralization feature which requires that
distributions be made with respect to Securities evidencing a beneficial
ownership interest in, or secured by, one or more asset groups within the same
Trust Fund prior to distributions to Subordinated Securities evidencing a
beneficial ownership interest in, or secured by, one or more other asset groups
within such Trust Fund. Cross-collateralization may be provided by (i) the
allocation of certain excess amounts generated by one or more asset groups to
one or more other asset groups within the same Trust Fund or (ii) the allocation
of losses with respect to one or more asset groups to one or more other asset
groups within the same Trust Fund. Such excess amounts will be applied and/or
such losses will be allocated to the class or classes of Subordinated Securities
of the related Series then outstanding having the lowest rating assigned by any
Rating Agency or the lowest payment priority, in each case to the extent and in
the manner more specifically described in the related Prospectus Supplement. The
Prospectus Supplement for a Series which includes a cross-collateralization
feature will describe the manner and conditions for applying such
cross-collateralization feature.
If specified in the related Prospectus Supplement, the coverage provided by
one or more of the forms of credit enhancement described in this Prospectus may
apply concurrently to two or more separate Trust Funds. If applicable, the
related Prospectus Supplement will identify the Trust Funds to which such credit
enhancement relates and the manner of determining the amount of coverage
provided to such Trust Funds thereby and of the application of such coverage to
the identified Trust Funds.
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YIELD AND PREPAYMENT CONSIDERATIONS
The yields to maturity and weighted average lives of the Securities will be
affected primarily by the amount and timing of principal payments received on or
in respect of the Trust Fund Assets included in the related Trust Fund. The
original terms to maturity of the Loans in a given Pool will vary depending upon
the type of Loans included therein. Each Prospectus Supplement will contain
information with respect to the type and maturities of the Loans in the related
Pool. The related Prospectus Supplement will specify the circumstances, if any,
under which the related Loans will be subject to prepayment penalties. The
prepayment experience on the Loans in a Pool will affect the weighted average
life of the related Series of Securities.
The rate of prepayment on the Loans cannot be predicted. Home equity loans
and home improvement contracts have been originated in significant volume only
during the past few years and the Depositor is not aware of any publicly
available studies or statistics on the rate of prepayment of such loans.
Generally, home equity loans and home improvement contracts are not viewed by
borrowers as permanent financing. Accordingly, such Loans may experience a
higher rate of prepayment than traditional first mortgage loans. On the other
hand, because home equity loans such as the Revolving Credit Line Loans
generally are not fully amortizing, the absence of voluntary borrower
prepayments could cause rates of principal payments lower than, or similar to,
those of traditional fully-amortizing first mortgage loans. The prepayment
experience of the related Trust Fund may be affected by a wide variety of
factors, including general economic conditions, prevailing interest rate levels,
the availability of alternative financing, homeowner mobility and the frequency
and amount of any future draws on any Revolving Credit Line Loans. Other factors
that might be expected to affect the prepayment rate of a pool of home equity
mortgage loans or home improvement contracts include the amounts of, and
interest rates on, the underlying senior mortgage loans, and the use of first
mortgage loans as long-term financing for home purchase and subordinate mortgage
loans as shorter-term financing for a variety of purposes, including home
improvement, education expenses and purchases of consumer durables such as
automobiles. Accordingly, such Loans may experience a higher rate of prepayment
than traditional fixed-rate mortgage loans. In addition, any future limitations
on the right of borrowers to deduct interest payments on home equity loans for
federal income tax purposes may further increase the rate of prepayments of the
Loans. The enforcement of a 'due-on-sale' provision (as described below) will
have the same effect as a prepayment of the related Loan. See 'Certain Legal
Aspects of the Loans -- Due-on-Sale Clauses'. The yield to an investor who
purchases Securities in the secondary market at a price other than par will vary
from the anticipated yield if the rate of prepayment on the Loans is actually
different than the rate anticipated by such investor at the time such Securities
were purchased.
Collections on Revolving Credit Line Loans may vary because, among other
things, borrowers may (i) make payments during any month as low as the minimum
monthly payment for such month or, during the interest-only period for certain
Revolving Credit Line Loans and, in more limited circumstances, Closed-End
Loans, with respect to which an interest-only payment option has been selected,
the interest and the fees and charges for such month or (ii) make payments as
high as the entire outstanding principal balance plus accrued interest and the
fees and charges thereon. It is possible that borrowers may fail to make the
required periodic payments. In addition, collections on the Loans may vary due
to seasonal purchasing and the payment habits of borrowers.
Unless otherwise specified in the related Prospectus Supplement,
substantially all conventional Loans will contain due-on-sale provisions
permitting the mortgagee to accelerate the maturity of the loan upon sale or
certain transfers by the borrower of the related Property. Loans insured by the
FHA, and Single Family Loans partially guaranteed by the VA, are assumable with
the consent of the FHA and the VA, respectively. Thus, the rate of prepayments
on such Loans may be lower than that of conventional Loans bearing comparable
interest rates. The Master Servicer generally will enforce any due-on-sale or
due-on-encumbrance clause, to the extent it has knowledge of the conveyance or
further encumbrance or the proposed conveyance or proposed further encumbrance
of the Property and reasonably believes that it is entitled to do so under
applicable law; provided, however, that the Master Servicer will not take any
enforcement action that would impair or threaten to impair any recovery under
any related insurance policy. See 'The Agreements -- Collection Procedures' and
'Certain Legal Aspects of the Loans' for a description of certain provisions of
each Agreement and certain legal developments that may affect the prepayment
experience on the Loans.
The rate of prepayments with respect to conventional mortgage loans has
fluctuated significantly in recent years. In general, if prevailing rates fall
significantly below the Loan Rates borne by the Loans, such Loans are
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more likely to be subject to higher prepayment rates than if prevailing interest
rates remain at or above such Loan Rates. Conversely, if prevailing interest
rates rise appreciably above the Loan Rates borne by the Loans, such Loans are
more likely to experience a lower prepayment rate than if prevailing rates
remain at or below such Loan Rates. However, there can be no assurance that such
will be the case.
When a full prepayment is made on a Loan, the borrower is charged interest
on the principal amount of the Loan so prepaid only for the number of days in
the month actually elapsed up to the date of the prepayment, rather than for a
full month. The effect of prepayments in full will be to reduce the amount of
interest passed through or paid in the following month to holders of Securities
because interest on the principal amount of any Loan so prepaid will generally
be paid only to the date of prepayment. Partial prepayments in a given month may
be applied to the outstanding principal balances of the Loans so prepaid on the
first day of the month of receipt or the month following receipt. In the latter
case, partial prepayments will not reduce the amount of interest passed through
or paid in such month. Unless otherwise specified in the related Prospectus
Supplement, neither full nor partial prepayments will be passed through or paid
until the month following receipt.
Even assuming that the Properties provide adequate security for the Loans,
substantial delays could be encountered in connection with the liquidation of
defaulted Loans and corresponding delays in the receipt of related proceeds by
Securityholders could occur. An action to foreclose on a Property securing a
Loan is regulated by state statutes and rules and is subject to many of the
delays and expenses of other lawsuits if defenses or counterclaims are
interposed, sometimes requiring several years to complete. Furthermore, in some
states an action to obtain a deficiency judgment is not permitted following a
nonjudicial sale of a property. In the event of a default by a borrower, these
restrictions among other things, may impede the ability of the Master Servicer
to foreclose on or sell the Property or to obtain liquidation proceeds
sufficient to repay all amounts due on the related Loan. In addition, the Master
Servicer will be entitled to deduct from related liquidation proceeds all
expenses reasonably incurred in attempting to recover amounts due on defaulted
Loans and not yet repaid, including payments to senior lienholders, legal fees
and costs of legal action, real estate taxes and maintenance and preservation
expenses.
Liquidation expenses with respect to defaulted mortgage loans generally do
not vary directly with the outstanding principal balance of the loan at the time
of default. Therefore, assuming that a servicer took the same steps in realizing
upon a defaulted mortgage loan having a small remaining principal balance as it
would in the case of a defaulted mortgage loan having a large remaining
principal balance, the amount realized after expenses of liquidation would be
smaller as a percentage of the remaining principal balance of the small mortgage
loan than would be the case with the other defaulted mortgage loan having a
large remaining principal balance.
Applicable state laws generally regulate interest rates and other charges,
require certain disclosures, and require licensing of certain originators and
servicers of Loans. In addition, most have other laws, public policy and general
principles of equity relating to the protection of consumers, unfair and
deceptive acts and practices which may apply to the origination, servicing and
collection of the Loans. Depending on the provisions of the applicable law and
the specific facts and circumstances involved, violations of these laws,
policies and principles may limit the ability of the Master Servicer to collect
all or part of the principal of or interest on the Loans, may entitle the
borrower to a refund of amounts previously paid and, in addition, could subject
the Master Servicer to damages and administrative sanctions.
If the rate at which interest is passed through or paid to the holders of
Securities of a Series is calculated on a Loan-by-Loan basis, disproportionate
principal prepayments among Loans with different Loan Rates will affect the
yield on such Securities. In most cases, the effective yield to Securityholders
will be lower than the yield otherwise produced by the applicable pass-through
rate or interest rate and purchase price, because while interest will accrue on
each Loan from the first day of the month (unless otherwise specified in the
related Prospectus Supplement), the distribution of such interest will not be
made earlier than the month following the month of accrual.
Under certain circumstances, the Master Servicer, the holders of the
residual interests in a REMIC or any person specified in the related Prospectus
Supplement may have the option to purchase the assets of a Trust Fund thereby
effecting earlier retirement of the related Series of Securities. See 'The
Agreements -- Termination; Optional Termination'.
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The relative contribution of the various factors affecting prepayment may
vary from time to time. There can be no assurance as to the rate of payment of
principal of the Trust Fund Assets at any time or over the lives of the
Securities.
The Prospectus Supplement relating to a Series of Securities will discuss in
greater detail the effect of the rate and timing of principal payments
(including prepayments), delinquencies and losses on the yield, weighted average
lives and maturities of such Securities.
THE AGREEMENTS
Set forth below is a description of the material provisions of each
Agreement which are not described elsewhere in this Prospectus. The description
is subject to, and qualified by reference to, the provisions of each Agreement.
Where particular provisions or terms used in the Agreements are referred to,
such provisions or terms are as specified in the Agreements.
ASSIGNMENT OF THE TRUST FUND ASSETS
Assignment of the Loans. At the time of issuance of the Securities of a
Series, the Depositor will cause the Loans comprising the related Trust Fund to
be assigned to the Trustee, without recourse, together with all principal and
interest received (if the Contracts are sold based on actual principal balances)
or scheduled to be received (if the Contracts are sold based on scheduled
principal balances) by or on behalf of the Depositor on or with respect to such
Loans after the Cut-off Date and other than any Retained Interest specified in
the related Prospectus Supplement. The Trustee will, concurrently with such
assignment, deliver such Securities to the Depositor in exchange for the Loans.
Each Loan will be identified in a schedule appearing as an exhibit to the
related Agreement. Such schedule will include information as to the outstanding
principal balance of each Loan after application of payments due on or before
the Cut-off Date, as well as information regarding the Loan Rate or APR, the
maturity of the Loan, the Loan-to-Value Ratios or Combined Loan-to-Value Ratios,
as applicable, at origination and certain other information.
Unless otherwise specified in the related Prospectus Supplement, the
Agreement will require that, on or prior to the Closing Date, the Depositor will
also deliver or cause to be delivered to the Trustee (or to the custodian
hereinafter referred to) as to each Single Family Loan or Multifamily Loan,
among other things, (i) the mortgage note or contract endorsed without recourse
in blank or to the order of the Trustee, (ii) the mortgage, deed of trust or
similar instrument (a 'Mortgage') with evidence of recording indicated thereon
(except for any Mortgage not returned from the public recording office, in which
case the Depositor will deliver or cause to be delivered a copy of such Mortgage
together with a certificate that the original of such Mortgage was delivered to
such recording office), (iii) an assignment of the Mortgage to the Trustee,
which assignment will be in recordable form in the case of a Mortgage assignment
and (iv) such other security documents, including those relating to any senior
interests in the Property, as may be specified in the related Prospectus
Supplement or the related Agreement. Unless otherwise specified in the related
Prospectus Supplement, the Depositor will promptly cause the assignments of the
related Loans to be recorded in the appropriate public office for real property
records, except in states in which the Seller has reasonably determined (in
certain circumstances, as evidenced by an opinion of counsel acceptable to the
Trustee) that such recording is not required to protect the Trustee's interest
in such Loans against the claim of any subsequent transferee or any successor to
or creditor of the Depositor or the originator of such Loans.
With respect to any Loans that are Cooperative Loans, the Depositor will
cause to be delivered to the Trustee the related original cooperative note
endorsed without recourse in blank or to the order of the Trustee, the original
security agreement, the proprietary lease or occupancy agreement, the
recognition agreement, an executed financing agreement and the relevant stock
certificate, related blank stock powers and any other document specified in the
related Prospectus Supplement. The Depositor will cause to be filed in the
appropriate office an assignment and a financing statement evidencing the
Trustee's security interest in each Cooperative Loan.
With respect to any Loans that are Home Equity Loans, the related Prospectus
Supplement will specify whether the documents relating to such Loans will be
required to be delivered to the Trustee (or a custodian) and whether assignments
of the related Mortgage to the Trustee will be recorded. In the event documents
are not required to be delivered, they will be retained by the Master Servicer,
which may also be the Seller.
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With respect to the Home Improvement Contracts, the related Prospectus
Supplement will specify whether the documents relating to such Contracts will be
required to be delivered to the Trustee (or a custodian). Notwithstanding the
foregoing, unless otherwise specified in the related Prospectus Supplement, the
Depositor will not deliver to the Trustee the original Mortgage securing a Home
Improvement Contract. In order to give notice of the right, title and interest
of Securityholders to the Home Improvement Contracts, the Depositor will cause a
UCC-1 financing statement to be executed by the Depositor or the Seller
identifying the Trustee as the secured party and identifying all Home
Improvement Contracts as collateral. Unless otherwise specified in the related
Prospectus Supplement, the Home Improvement Contracts will not be stamped or
otherwise marked to reflect their assignment to the Trustee. Therefore, if,
through negligence, fraud or otherwise, a subsequent purchaser were able to take
physical possession of the Home Improvement Contracts without notice of such
assignment, the interest of Securityholders in the Home Improvement Contracts
could be defeated. See 'Certain Legal Aspects of the Loans -- The Home
Improvement Contracts'.
The Trustee (or the custodian) will review the loan documents that have been
delivered to it within the time period specified in the related Prospectus
Supplement after receipt thereof, and the Trustee (or the custodian) will hold
such documents in trust for the benefit of the related Securityholders. Unless
otherwise specified in the related Prospectus Supplement, if any such document
is found to be missing or defective in any material respect, the Trustee (or
such custodian) will notify the Master Servicer and the Depositor, and the
Master Servicer will notify the related Seller. If such Seller cannot cure the
omission or defect within the time period specified in the related Prospectus
Supplement after receipt of such notice, such Seller will be obligated to either
(i) purchase the related Loan from the Trust Fund at the Purchase Price or
(ii) if so specified in the related Prospectus Supplement, remove such Loan from
the Trust Fund and substitute in its place one or more other Loans that meets
certain requirements set forth therein. There can be no assurance that a Seller
will fulfill this purchase or substitution obligation. Although the Master
Servicer may be obligated to enforce such obligation to the extent described
above under 'Loan Program -- Representations by Sellers; Repurchases,' the
Master Servicer will not be obligated to purchase or replace such Loan if the
Seller defaults on its obligation (nor will the Master Servicer otherwise be
obligated to purchase or replace any such Loan for any other reason). Unless
otherwise specified in the related Prospectus Supplement, this obligation of the
Seller to cure, purchase or substitute constitutes the sole remedy available to
the Securityholders or the Trustee for omission of, or a material defect in, a
constituent document.
Notwithstanding the foregoing provisions, with respect to a Trust Fund for
which a REMIC election is to be made, no purchase or substitution of a Loan will
be made if such purchase or substitution would result in a prohibited
transaction tax under the Code (unless the Master Servicer or a holder of the
related residual certificate otherwise pays such prohibited transaction from its
own funds as described herein). See 'Loan Program -- Representations by Sellers;
Repurchases'.
The Trustee will be authorized to appoint a custodian pursuant to a
custodial agreement to maintain possession of and, if applicable, to review the
documents relating to the Loans as agent of the Trustee.
NO RECOURSE TO SELLERS, DEPOSITOR OR MASTER SERVICER
As described above under ' -- Assignment of the Loans,' the Depositor will
cause the Loans comprising the related Trust Fund to be assigned to the Trustee,
without recourse. However, each Seller will be obligated to repurchase or
substitute for any Loan as to which certain representations and warranties are
breached where such breach materially and adversely affects the interests of the
Securityholders, or for failure to deliver certain documents relating to the
Loans as described herein under 'Assignment of the Loans' and 'Loan
Program -- Representations by Sellers; Repurchases'. These obligations to
purchase or substitute constitute the sole remedy available to the
Securityholders or the Trustee for a breach of any such representation or
failure to deliver a constituent document.
PAYMENTS ON LOANS; DEPOSITS TO SECURITY ACCOUNT
The Master Servicer will establish and maintain or cause to be established
and maintained with respect to the related Trust Fund a separate account or
accounts for the collection of payments on the related Trust Fund Assets in the
Trust Fund (the 'Security Account') which, unless otherwise specified in the
related Prospectus Supplement, must be either (i) maintained with a depository
institution the debt obligations of which (or in the
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case of a depository institution that is the principal subsidiary of a holding
company, the obligations of which) are rated in one of the two highest rating
categories by the Rating Agency or Rating Agencies that rated one or more
classes of the related Series of Securities, (ii) an account or accounts the
deposits in which are fully insured by either the Bank Insurance Fund (the
'BIF') of the FDIC or the Savings Association Insurance Fund (as successor to
the Federal Savings and Loan Insurance Corporation ('SAIF')), (iii) an account
or accounts the deposits in which are insured by the BIF or SAIF (to the limits
established by the FDIC), and the uninsured deposits in which are otherwise
secured such that, as evidenced by an opinion of counsel, the Securityholders
have a claim with respect to the funds in the Security Account or a perfected
first priority security interest against any collateral securing such funds that
is superior to the claims of any other depositors or general creditors of the
depository institution with which the Security Account is maintained or (iv) an
account or accounts otherwise acceptable to each Rating Agency. The collateral
eligible to secure amounts in the Security Account is limited to Permitted
Investments. A Security Account may be maintained as an interest bearing account
or the funds held therein may be invested pending each succeeding Distribution
Date in Permitted Investments. Unless otherwise specified in the related
Prospectus Supplement, the Master Servicer or its designee will be entitled to
receive any such interest or other income earned on funds in the Security
Account as additional compensation and will be obligated to deposit in the
Security Account the amount of any loss immediately as realized. The Security
Account may be maintained with the Master Servicer or with a depository
institution that is an affiliate of the Master Servicer, provided it meets the
standards set forth above.
The Master Servicer will deposit or cause to be deposited in the Security
Account for each Trust Fund, to the extent applicable and unless otherwise
specified in the related Prospectus Supplement and provided in the Agreement,
the following payments and collections received or advances made by or on behalf
of it subsequent to the Cut-off Date (other than payments due on or before the
Cut-off Date and exclusive of any amounts representing Retained Interest):
(i) all payments on account of principal, including Principal
Prepayments and, if specified in the related Prospectus Supplement, any
applicable prepayment penalties, on the Loans;
(ii) all payments on account of interest on the Loans, net of applicable
servicing compensation;
(iii) all proceeds (net of unreimbursed payments of property taxes,
insurance premiums and similar items ('Insured Expenses') incurred, and
unreimbursed Advances made, by the Master Servicer, if any) of the hazard
insurance policies and any Primary Mortgage Insurance Policies, to the
extent such proceeds are not applied to the restoration of the property or
released to the Mortgagor in accordance with the Master Servicer's normal
servicing procedures (collectively, 'Insurance Proceeds') and all other cash
amounts (net of unreimbursed expenses incurred in connection with
liquidation or foreclosure ('Liquidation Expenses') and unreimbursed
Advances made, by the Master Servicer, if any) received and retained in
connection with the liquidation of defaulted Loans, by foreclosure or
otherwise ('Liquidation Proceeds'), together with any net proceeds received
on a monthly basis with respect to any properties acquired on behalf of the
Securityholders by foreclosure or deed in lieu of foreclosure;
(iv) all proceeds of any Loan or property in respect thereof purchased
by the Master Servicer, the Depositor or any Seller as described under 'Loan
Program -- Representations by Sellers; Repurchases' or ' -- Assignment of
Trust Fund Assets' above and all proceeds of any Loan repurchased as
described under ' -- Termination; Optional Termination' below;
(v) all payments required to be deposited in the Security Account with
respect to any deductible clause in any blanket insurance policy described
under ' -- Hazard Insurance' below;
(vi) any amount required to be deposited by the Master Servicer in
connection with losses realized on investments for the benefit of the Master
Servicer of funds held in the Security Account and, to the extent specified
in the related Prospectus Supplement, any payments required to be made by
the Master Servicer in connection with prepayment interest shortfalls; and
(vii) all other amounts required to be deposited in the Security Account
pursuant to the Agreement.
The Master Servicer (or the Depositor, as applicable) may from time to time
direct the institution that maintains the Security Account to withdraw funds
from the Security Account for the following purposes:
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(i) to pay to the Master Servicer the servicing fees described in the
related Prospectus Supplement, the master servicing fees (subject to
reduction) and, as additional servicing compensation, earnings on or
investment income with respect to funds in the amounts in the Security
Account credited thereto;
(ii) to reimburse the Master Servicer for Advances, such right of
reimbursement with respect to any Loan being limited to amounts received
that represent late recoveries of payments of principal and/or interest on
such Loan (or Insurance Proceeds or Liquidation Proceeds with respect
thereto) with respect to which such Advance was made;
(iii) to reimburse the Master Servicer for any Advances previously made
which the Master Servicer has determined to be nonrecoverable;
(iv) to reimburse the Master Servicer from Insurance Proceeds for
expenses incurred by the Master Servicer and covered by the related
insurance policies;
(v) to reimburse the Master Servicer for unpaid master servicing fees
and unreimbursed out-of-pocket costs and expenses incurred by the Master
Servicer in the performance of its servicing obligations, such right of
reimbursement being limited to amounts received representing late recoveries
of the payments for which such advances were made;
(vi) to reimburse the Master Servicer or the Depositor for expenses
incurred and reimbursable pursuant to the Agreement;
(vii) to withdraw any amount deposited in the Security Account and not
required to be deposited therein; and
(viii) to clear and terminate the Security Account upon termination of
the Agreement.
In addition, unless otherwise specified in the related Prospectus
Supplement, on or prior to the business day immediately preceding each
Distribution Date, the Master Servicer shall withdraw from the Security Account
the amount of Available Funds, to the extent on deposit, for deposit in an
account maintained by the Trustee for the related Series of Securities.
PRE-FUNDING ACCOUNT
If so provided in the related Prospectus Supplement, the Master Servicer
will establish and maintain a Pre-Funding Account, in the name of the related
Trustee on behalf of the related Securityholders, into which the Depositor will
deposit cash in an amount equal to the Pre-Funded Amount on the related Closing
Date. The Pre-Funding Account will be maintained with the Trustee for the
related Series of Securities and is designed solely to hold funds to be applied
by such Trustee during the Funding Period to pay to the Depositor the purchase
price for Subsequent Loans. Monies on deposit in the Pre-Funding Account will
not be available to cover losses on or in respect of the related Loans. The
Pre-Funded Amount will not exceed 50% of the initial aggregate principal amount
of the Certificates and Notes of the related Series. The Pre-Funded Amount will
be used by the related Trustee to purchase Subsequent Loans from the Depositor
from time to time during the Funding Period. The Funding Period, if any, for a
Trust Fund will begin on the related Closing Date and will end on the date
specified in the related Prospectus Supplement, which in no event will be later
than the date that is one year after the related Closing Date. Monies on deposit
in the Pre-Funding Account may be invested in Permitted Investments under the
circumstances and in the manner described in the related Agreement. Earnings on
investment of funds in the Pre-Funding Account will be deposited into the
related Security Account or such other trust account as is specified in the
related Prospectus Supplement and losses will be charged against the funds on
deposit in the Pre-Funding Account. Any amounts remaining in the Pre-Funding
Account at the end of the Funding Period will be distributed to the related
Securityholders in the manner and priority specified in the related Prospectus
Supplement, as a prepayment of principal of the related Securities.
In addition, if so provided in the related Prospectus Supplement, on the
related Closing Date the Depositor will deposit in an account (the 'Capitalized
Interest Account') cash in such amount as is necessary to cover shortfalls in
interest on the related Series of Securities that may arise as a result of
utilization of the Pre-Funding Account as described above. The Capitalized
Interest Account shall be maintained with the Trustee for the related Series of
Securities and is designed solely to cover the above-mentioned interest
shortfalls. Monies on deposit in the Capitalized Interest Account will not be
available to cover losses on or in respect of the related Loans. To the extent
that the entire amount on deposit in the Capitalized Interest Account has not
been applied
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to cover shortfalls in interest on the related Series of Securities by the end
of the Funding Period, any amounts remaining in the Capitalized Interest Account
will be paid to the Depositor.
SUB-SERVICING BY SELLERS
Each Seller of a Loan or any other servicing entity may act as the
Sub-Servicer for such Loan pursuant to an agreement (each, a 'Sub-Servicing
Agreement'), which will not contain any terms inconsistent with the related
Agreement. While each Sub-Servicing Agreement will be a contract solely between
the Master Servicer and the Sub-Servicer, the Agreement pursuant to which a
Series of Securities is issued will provide that, if for any reason the Master
Servicer for such Series of Securities is no longer the Master Servicer of the
related Loans, the Trustee or any successor Master Servicer must recognize the
Sub-Servicer's rights and obligations under such Sub-Servicing Agreement.
All references in this Prospectus and in the Prospectus Supplement for any
Series to actions, rights or duties of the Master Servicer will be deemed to
include any one or more Sub-Servicers acting on the Master Servicer's behalf.
Notwithstanding the foregoing, unless otherwise provided in the related
Prospectus Supplement, the Master Servicer will remain liable for its servicing
duties and obligations under the Master Servicing Agreement as if the Master
Servicer alone were servicing the Loans.
COLLECTION PROCEDURES
The Master Servicer will make reasonable efforts to collect all payments
called for under the Loans and will, consistent with each Agreement and any Pool
Insurance Policy, Primary Mortgage Insurance Policy, FHA Insurance, VA Guaranty,
bankruptcy bond or alternative arrangements, follow such collection procedures
as are customary with respect to loans that are comparable to the Loans.
Consistent with the above, the Master Servicer may, in its discretion,
(i) waive any assumption fee, late payment or other charge in connection with a
Loan and (ii) to the extent not inconsistent with the coverage of such Loan by a
Pool Insurance Policy, Primary Mortgage Insurance Policy, FHA Insurance, VA
Guaranty, bankruptcy bond or alternative arrangements, if applicable, arrange
with a borrower a schedule for the liquidation of delinquencies running for no
more than 125 days after the applicable due date for each payment. To the extent
the Master Servicer is obligated to make or cause to be made Advances, such
obligation will remain during any period of such an arrangement.
In any case in which property securing a Loan has been, or is about to be,
conveyed by the mortgagor or obligor, the Master Servicer will, to the extent it
has knowledge of such conveyance or proposed conveyance, exercise or cause to be
exercised its rights to accelerate the maturity of such Loan under any
due-on-sale clause applicable thereto, but only if the exercise of such rights
is permitted by applicable law and will not impair or threaten to impair any
recovery under any Primary Mortgage Insurance Policy. If these conditions are
not met or if the Master Servicer reasonably believes it is unable under
applicable law to enforce such due-on-sale clause or if such Loan is a mortgage
loan insured by the FHA or partially guaranteed by the VA, the Master Servicer
will enter into or cause to be entered into an assumption and modification
agreement with the person to whom such property has been or is about to be
conveyed, pursuant to which such person becomes liable for repayment of the Loan
and, to the extent permitted by applicable law, the mortgagor remains liable
thereon. Any fee collected by or on behalf of the Master Servicer for entering
into an assumption agreement will be retained by or on behalf of the Master
Servicer as additional servicing compensation. See 'Certain Legal Aspects of the
Loans -- Due-on-Sale Clauses'. In connection with any such assumption, the terms
of the related Loan may not be changed.
With respect to Cooperative Loans, any prospective purchaser will generally
have to obtain the approval of the board of directors of the relevant
Cooperative before purchasing the shares and acquiring rights under the related
proprietary lease or occupancy agreement. See 'Certain Legal Aspects of the
Loans'. This approval is usually based on the purchaser's income and net worth
and numerous other factors. Although the Cooperative's approval is unlikely to
be unreasonably withheld or delayed, the necessity of acquiring such approval
could limit the number of potential purchasers for those shares and otherwise
limit the Trust Fund's ability to sell and realize the value of those shares.
In general a 'tenant-stockholder' (as defined in Code Section 216(b)(2) of a
corporation that qualifies as a 'cooperative housing corporation' within the
meaning of Code Section 216(b)(1) is allowed a deduction for amounts paid or
accrued within his taxable year to the corporation representing his
proportionate share of
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certain interest expenses and certain real estate taxes allowable as a deduction
under Code Section 216(a) to the corporation under Code Sections 163 and 164. In
order for a corporation to qualify under Code Section 216(b)(1) for its taxable
year in which such items are allowable as a deduction to the corporation, such
Section requires, among other things, that at least 80% of the gross income of
the corporation be derived from its tenant-stockholders (as defined in Code
Section 216(b)(2)). By virtue of this requirement, the status of a corporation
for purposes of Code Section 216(b)(1) must be determined on a year-to-year
basis. Consequently, there can be no assurance that Cooperatives relating to the
Cooperative Loans will qualify under such Section for any particular year. In
the event that such a Cooperative fails to qualify for one or more years, the
value of the collateral securing any related Cooperative Loans could be
significantly impaired because no deduction would be allowable to
tenant-stockholders under Code Section 216(a) with respect to those years. In
view of the significance of the tax benefits accorded tenant-stockholders of a
corporation that qualifies under Code Section 216(b)(1), the likelihood that
such a failure would be permitted to continue over a period of years appears
remote.
HAZARD INSURANCE
Except as otherwise specified in the related Prospectus Supplement, the
Master Servicer will require the mortgagor or obligor on each Loan to maintain a
hazard insurance policy providing for no less than the coverage of the standard
form of fire insurance policy with extended coverage customary for the type of
Property in the state in which such Property is located. Such coverage will be
in an amount that is at least equal to the lesser of (i) the maximum insurable
value of the improvements securing such Loan or (ii) the greater of (y) the
outstanding principal balance of the Loan and (z) an amount such that the
proceeds of such policy shall be sufficient to prevent the mortgagor and/or the
mortgagee from becoming a co-insurer. All amounts collected by the Master
Servicer under any hazard policy (except for amounts to be applied to the
restoration or repair of the Property or released to the mortgagor or obligor in
accordance with the Master Servicer's normal servicing procedures) will be
deposited in the related Security Account. In the event that the Master Servicer
maintains a blanket policy insuring against hazard losses on all the Loans
comprising part of a Trust Fund, it will conclusively be deemed to have
satisfied its obligation relating to the maintenance of hazard insurance. Such
blanket policy may contain a deductible clause, in which case the Master
Servicer will be required to deposit from its own funds into the related
Security Account the amounts which would have been deposited therein but for
such clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements securing a Loan by fire,
lightning, explosion, smoke, windstorm and hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the Loans may have been underwritten
by different insurers under different state laws in accordance with different
applicable forms and therefore may not contain identical terms and conditions,
the basic terms thereof are dictated by respective state laws, and most such
policies typically do not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other water-related
causes, earth movement (including earthquakes, landslides and mud flows),
nuclear reactions, wet or dry rot, vermin, rodents, insects or domestic animals,
theft and, in certain cases, vandalism and hurricanes. The foregoing list is
merely indicative of certain kinds of uninsured risks and is not intended to be
all inclusive. If the Property securing a Loan is located in a federally
designated special flood area at the time of origination, the Master Servicer
will require the mortgagor or obligor to obtain and maintain flood insurance.
The hazard insurance policies covering properties securing the Loans
typically contain a clause which in effect requires the insured at all time to
carry insurance of a specified percentage (generally 80% to 90%) of the full
replacement value of the insured property in order to recover the full amount of
any partial loss. If the insured's coverage falls below this specified
percentage, then the insurer's liability in the event of partial loss will not
exceed the larger of (i) the actual cash value (generally defined as replacement
cost at the time and place of loss, less physical depreciation) of the
improvements damaged or destroyed or (ii) such proportion of the loss as the
amount of insurance carried bears to the specified percentage of the full
replacement cost of such improvements. Since the amount of hazard insurance the
Master Servicer may cause to be maintained on the improvements securing the
Loans declines as the principal balances owing thereon decrease, and since
improved real estate generally has appreciated in value over time in the past,
the effect of this requirement in the event of partial loss may be that hazard
insurance proceeds will be insufficient to restore fully the damaged property.
If
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specified in the related Prospectus Supplement, a special hazard insurance
policy will be obtained to insure against certain of the uninsured risks
described above. See 'Credit Enhancement'.
The Master Servicer will not require that a standard hazard or flood
insurance policy be maintained on the cooperative dwelling relating to any
Cooperative Loan. Generally, the Cooperative itself is responsible for
maintenance of hazard insurance for the property owned by the Cooperative and
the tenant-stockholders of that Cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to such borrower's cooperative dwelling or such
Cooperative's building could significantly reduce the value of the collateral
securing such Cooperative Loan to the extent not covered by other credit
support.
If the Property securing a defaulted Loan is damaged and proceeds, if any,
from the related hazard insurance policy are insufficient to restore the damaged
Property, the Master Servicer is not required to expend its own funds to restore
the damaged Property unless it determines (i) that such restoration will
increase the proceeds to Securityholders on liquidation of the Loan after
reimbursement of the Master Servicer for its expenses and (ii) that such
expenses will be recoverable by it from related Insurance Proceeds or
Liquidation Proceeds.
If recovery on a defaulted Loan under any related Insurance Policy is not
available for the reasons set forth in the preceding paragraph, or if the
defaulted Loan is not covered by an Insurance Policy, the Master Servicer will
be obligated to follow or cause to be followed such normal practices and
procedures as it deems necessary or advisable to realize upon the defaulted
Loan. If the proceeds of any liquidation of the Property securing the defaulted
Loan are less than the principal balance of such Loan plus interest accrued
thereon that is payable to Securityholders, the Trust Fund will realize a loss
in the amount of such difference plus the aggregate of expenses incurred by the
Master Servicer in connection with such proceedings and which are reimbursable
under the Agreement. In the unlikely event that any such proceedings result in a
total recovery which is, after reimbursement to the Master Servicer of its
expenses, in excess of the principal balance of such Loan plus interest accrued
thereon that is payable to Securityholders, the Master Servicer will be entitled
to withdraw or retain from the Security Account amounts representing its normal
servicing compensation with respect to such Loan and, unless otherwise specified
in the related Prospectus Supplement, amounts representing the balance of such
excess, exclusive of any amount required by law to be forwarded to the related
borrower, as additional servicing compensation.
If the Master Servicer or its designee recovers Insurance Proceeds which,
when added to any related Liquidation Proceeds and after deduction of certain
expenses reimbursable to the Master Servicer, exceed the principal balance of
such Loan plus interest accrued thereon that is payable to Securityholders, the
Master Servicer will be entitled to withdraw or retain from the Security Account
amounts representing its normal servicing compensation with respect to such
Loan. In the event that the Master Servicer has expended its own funds to
restore the damaged Property and such funds have not been reimbursed under the
related hazard insurance policy, it will be entitled to withdraw from the
Security Account out of related Liquidation Proceeds or Insurance Proceeds an
amount equal to such expenses incurred by it, in which event the Trust Fund may
realize a loss up to the amount so charged. Since Insurance Proceeds cannot
exceed deficiency claims and certain expenses incurred by the Master Servicer,
no such payment or recovery will result in a recovery to the Trust Fund which
exceeds the principal balance of the defaulted Loan together with accrued
interest thereon. See 'Credit Enhancement'.
The proceeds from any liquidation of a Loan will be applied in the following
order of priority: first, to reimburse the Master Servicer for any unreimbursed
expenses incurred by it to restore the related Property and any unreimbursed
servicing compensation payable to the Master Servicer with respect to such Loan;
second, to reimburse the Master Servicer for any unreimbursed Advances with
respect to such Loan; third, to accrued and unpaid interest (to the extent no
Advance has been made for such amount) on such Loan; and fourth, as a recovery
of principal of such Loan.
REALIZATION UPON DEFAULTED LOANS
Primary Mortgage Insurance Policies. If so specified in the related
Prospectus Supplement, the Master Servicer will maintain or cause to be
maintained, as the case may be, in full force and effect, a Primary
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Mortgage Insurance Policy with regard to each Loan for which such coverage is
required. Primary Mortgage Insurance Policies reimburse certain losses sustained
by reason of defaults in payments by borrowers. The Master Servicer will not
cancel or refuse to renew any such Primary Mortgage Insurance Policy in effect
at the time of the initial issuance of a Series of Securities that is required
to be kept in force under the applicable Agreement unless the replacement
Primary Mortgage Insurance Policy for such cancelled or nonrenewed policy is
maintained with an insurer whose claims-paying ability is sufficient to maintain
the current rating of the classes of Securities of such Series that have been
rated.
FHA Insurance; VA Guaranties. Loans designated in the related Prospectus
Supplement as insured by the FHA will be insured by the FHA as authorized under
the United States Housing Act of 1937, as amended. In addition to the Title I
Program of the FHA, see 'Certain Legal Aspects of the Loans -- Title I Program,'
certain Loans will be insured under various FHA programs including the standard
FHA 203(b) program to finance the acquisition of one- to four-family housing
units and the FHA 245 graduated payment mortgage program. These programs
generally limit the principal amount and interest rates of the mortgage loans
insured. Loans insured by FHA generally require a minimum down payment of
approximately 5% of the original principal amount of the loan. No FHA-insured
Loans relating to a Series may have an interest rate or original principal
amount exceeding the applicable FHA limits at the time of origination of such
loan.
Loans designated in the related Prospectus Supplement as guaranteed by the
VA will be partially guaranteed by the VA under the Serviceman's Readjustment
Act of 1944, as amended (a 'VA Guaranty'). The Serviceman's Readjustment Act of
1944, as amended, permits a veteran (or in certain instances the spouse of a
veteran) to obtain a mortgage loan guaranty by the VA covering mortgage
financing of the purchase of a one- to four-family dwelling unit at interest
rates permitted by the VA. The program has no mortgage loan limits, requires no
down payment from the purchaser and permits the guaranty of mortgage loans of up
to 30 years' duration. However, no Loan guaranteed by the VA will have an
original principal amount greater than five times the partial VA guaranty for
such Loan. The maximum guaranty that may be issued by the VA under a VA
guaranteed mortgage loan depends upon the original principal amount of the
mortgage loan, as further described in 38 United States Code Section 1803(a), as
amended.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal servicing compensation to be paid to the Master Servicer in
respect of its master servicing activities for each Series of Securities will be
equal to the percentage per annum described in the related Prospectus Supplement
(which may vary under certain circumstances) of the outstanding principal
balance of each Loan, and such compensation will be retained by it from
collections of interest on such Loan in the related Trust Fund (the 'Master
Servicing Fee'). As compensation for its servicing duties, a Sub-Servicer or, if
there is no Sub-Servicer, the Master Servicer will be entitled to a monthly
servicing fee as described in the related Prospectus Supplement. In addition,
the Master Servicer or Sub-Servicer will retain all prepayment charges,
assumption fees and late payment charges, to the extent collected from
borrowers, and any benefit that may accrue as a result of the investment of
funds in the applicable Security Account (unless otherwise specified in the
related Prospectus Supplement).
The Master Servicer will, to the extent provided in the related Prospectus
Supplement, pay or cause to be paid certain ongoing expenses associated with
each Trust Fund and incurred by it in connection with its responsibilities under
the related Agreement, including, without limitation, payment of the fees and
disbursements of the Trustee, any custodian appointed by the Trustee, the
certificate registrar and any paying agent, and payment of expenses incurred in
enforcing the obligations of Sub-Servicers and Sellers. The Master Servicer will
be entitled to reimbursement of expenses incurred in enforcing the obligations
of Sub-Servicers and Sellers under certain limited circumstances. Certain other
expenses may be borne by the related Trust Fund as specified in the related
Prospectus Supplement.
EVIDENCE AS TO COMPLIANCE
Each Agreement will provide that on or before a specified date in each year,
a firm of independent public accountants will furnish a statement to the Trustee
to the effect that, on the basis of the examination by such firm conducted
substantially in compliance with the Uniform Single Attestation Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FHLMC, the
servicing by or on behalf of the Master Servicer
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of mortgage loans or private asset backed securities, or under pooling and
servicing agreements substantially similar to each other (including the related
Agreement) was conducted in compliance with such agreements except for any
significant exceptions or errors in records that, in the opinion of the firm,
the Audit Program for Mortgages serviced for FHLMC, or the Uniform Single
Attestation Program for Mortgage Bankers, it is required to report. In rendering
its statement such firm may rely, as to matters relating to the direct servicing
of Loans by Sub-Servicers, upon comparable statements for examinations conducted
substantially in compliance with the Uniform Single Attestation Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FHLMC (rendered
within one year of such statement) of firms of independent public accountants
with respect to the related Sub-Servicer.
Each Agreement will also provide for delivery to the Trustee, on or before a
specified date in each year, of an annual statement signed by an officer of the
Master Servicer to the effect that the Master Servicer has fulfilled its
obligations under the Agreement throughout the preceding year.
Copies of the annual accountants' statement and the statement of an officer
of the Master Servicer may be obtained by Securityholders of the related Series
without charge upon written request to the Master Servicer at the address set
forth in the related Prospectus Supplement.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE DEPOSITOR
The Master Servicer under each Pooling and Servicing Agreement or Master
Servicing Agreement, as applicable, will be named in the related Prospectus
Supplement. The entity serving as Master Servicer may be an affiliate of the
Depositor and may otherwise have normal business relationships with the
Depositor or the Depositor's affiliates.
Each Agreement will provide that the Master Servicer may not resign from its
obligations and duties under the Agreement except upon a determination that its
duties thereunder are no longer permissible under applicable law. The Master
Servicer may, however, be removed from its obligations and duties as set forth
in the Agreement. No such resignation will become effective until the Trustee or
a successor servicer has assumed the Master Servicer's obligations and duties
under the Agreement.
Each Agreement will further provide that neither the Master Servicer, the
Depositor nor any director, officer, employee, or agent of the Master Servicer
or the Depositor will be under any liability to the related Trust Fund or
Securityholders for any action taken or for refraining from the taking of any
action in good faith pursuant to the Agreement, or for errors in judgment;
provided, however, that neither the Master Servicer, the Depositor nor any such
person will be protected against any liability which would otherwise be imposed
by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. Each Agreement will further provide that the
Master Servicer, the Depositor and any director, officer, employee or agent of
the Master Servicer or the Depositor will be entitled to indemnification by the
related Trust Fund and will be held harmless against any loss, liability or
expense incurred in connection with any legal action relating to the Agreement
or the Securities, other than any loss, liability or expense related to any
specific Loan or Loans (except any such loss, liability or expense otherwise
reimbursable pursuant to the Agreement) and any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. In addition, each Agreement will provide that
neither the Master Servicer nor the Depositor will be under any obligation to
appear in, prosecute or defend any legal action which is not incidental to its
respective responsibilities under the Agreement and which in its opinion may
involve it in any expense or liability. The Master Servicer or the Depositor
may, however, in its discretion undertake any such action which it may deem
necessary or desirable with respect to the Agreement and the rights and duties
of the parties thereto and the interests of the Securityholders thereunder. In
such event, the legal expenses and costs of such action and any liability
resulting therefrom will be expenses, costs and liabilities of the Trust Fund
and the Master Servicer or the Depositor, as the case may be, will be entitled
to be reimbursed therefor out of funds otherwise distributable to
Securityholders.
Except as otherwise specified in the related Prospectus Supplement, any
person into which the Master Servicer may be merged or consolidated, or any
person resulting from any merger or consolidation to which the Master Servicer
is a party, or any person succeeding to the business of the Master Servicer,
will be the successor of the Master Servicer under each Agreement, provided that
such person is qualified to sell mortgage loans to,
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and service mortgage loans on behalf of, FNMA or FHLMC and further provided that
such merger, consolidation or succession does not adversely affect the then
current rating or ratings of the class or classes of Securities of such Series
that have been rated.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
Pooling and Servicing Agreement; Master Servicing Agreement. Except as
otherwise specified in the related Prospectus Supplement, Events of Default
under each Agreement will consist of (i) any failure by the Master Servicer to
distribute or cause to be distributed to Securityholders of any class any
required payment which continues unremedied for five days after the giving of
written notice of such failure to the Master Servicer by the Trustee or the
Depositor, or to the Master Servicer, the Depositor and the Trustee by the
holders of Securities of such class evidencing not less than 25% of the total
distributions allocated to such class ('Percentage Interests'); (ii) any failure
by the Master Servicer duly to observe or perform in any material respect any of
its other covenants or agreements in the Agreement, which failure materially
affects the rights of Securityholders and continues unremedied for sixty days
after the giving of written notice of such failure to the Master Servicer by the
Trustee or the Depositor, or to the Master Servicer, the Depositor and the
Trustee by the holders of Securities of any class evidencing not less than 25%
of the aggregate Percentage Interests constituting such class; and
(iii) certain events of insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceeding and certain actions by or on behalf of the
Master Servicer indicating its insolvency, reorganization or inability to pay
its obligations.
If specified in the related Prospectus Supplement, the Agreement will permit
the Trustee to sell the Trust Fund Assets and the other assets of the Trust Fund
described under 'Credit Enhancement' herein in the event that payments in
respect thereto are insufficient to make payments required in the Agreement. The
assets of the Trust Fund will be sold only under the circumstances and in the
manner specified in the related Prospectus Supplement.
Unless otherwise provided in the related Prospectus Supplement, so long as
an Event of Default under an Agreement remains unremedied, the Depositor or the
Trustee may, and at the direction of holders of Securities of any class
evidencing not less than 66 2/3% of the aggregate Percentage Interests
constituting such class and under such other circumstances as may be specified
in such Agreement, the Trustee shall terminate all of the rights and obligations
of the Master Servicer under the Agreement relating to such Trust Fund and in
and to the related Trust Fund Assets, whereupon the Trustee will succeed to all
of the responsibilities, duties and liabilities of the Master Servicer under the
Agreement, including, if specified in the related Prospectus Supplement, the
obligation to make Advances, and will be entitled to similar compensation
arrangements. In the event that the Trustee is unwilling or unable so to act, it
may appoint, or petition a court of competent jurisdiction for the appointment
of, a mortgage loan servicing institution with a net worth of a least
$10,000,000 to act as successor to the Master Servicer under the Agreement.
Pending such appointment, the Trustee is obligated to act in such capacity. The
Trustee and any such successor may agree upon the servicing compensation to be
paid, which in no event may be greater than the compensation payable to the
Master Servicer under the Agreement.
Unless otherwise provided in the related Prospectus Supplement, no
Securityholder, solely by virtue of such holder's status as a Securityholder,
will have any right under any Agreement to institute any proceeding with respect
to such Agreement, unless such holder previously has given to the Trustee
written notice of default and unless the holders of Securities of any class of
such Series evidencing not less than 66 2/3% of the aggregate Percentage
Interests constituting such class have made written request upon the Trustee to
institute such proceeding in its own name as Trustee thereunder and have offered
to the Trustee reasonable indemnity, and the Trustee for 60 days has neglected
or refused to institute any such proceeding.
Indenture. Except as otherwise specified in the related Prospectus
Supplement, Events of Default under the Indenture for each Series of Notes
include: (i) a default in the payment of any principal of or interest on any
Note of such Series which continues unremedied for five days after the giving of
written notice of such default is given as specified in the related Prospectus
Supplement; (ii) failure to perform in any material respect any other covenant
of the Depositor or the Trust Fund in the Indenture which continues for a period
of thirty (30) days after notice thereof is given in accordance with the
procedures described in the related Prospectus Supplement; (iii) certain events
of bankruptcy, insolvency, receivership or liquidation of the Depositor or the
Trust Fund; or (iv) any other Event of Default provided with respect to Notes of
that Series including but not
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limited to certain defaults on the part of the issuer, if any, of a credit
enhancement instrument supporting such Notes.
If an Event of Default with respect to the Notes of any Series at the time
outstanding occurs and is continuing, either the Trustee or the holders of a
majority of the then aggregate outstanding amount of the Notes of such Series
may declare the principal amount (or, if the Notes of that Series have an
interest rate of 0%, such portion of the principal amount as may be specified in
the terms of that Series, as provided in the related Prospectus Supplement) of
all the Notes of such Series to be due and payable immediately. Such declaration
may, under certain circumstances, be rescinded and annulled by the holders of
more than 50% of the Percentage Interests of the Notes of such Series.
If, following an Event of Default with respect to any Series of Notes, the
Notes of such Series have been declared to be due and payable, the Trustee may,
in its discretion, notwithstanding such acceleration, elect to maintain
possession of the collateral securing the Notes of such Series and to continue
to apply distributions on such collateral as if there had been no declaration of
acceleration if such collateral continues to provide sufficient funds for the
payment of principal of and interest on the Notes of such Series as they would
have become due if there had not been such a declaration. In addition, the
Trustee may not sell or otherwise liquidate the collateral securing the Notes of
a Series following an Event of Default, other than a default in the payment of
any principal or interest on any Note of such Series for five days or more,
unless (a) the holders of 100% of the Percentage Interests of the Notes of such
Series consent to such sale, (b) the proceeds of such sale or liquidation are
sufficient to pay in full the principal of and accrued interest, due and unpaid,
on the outstanding Notes of such Series at the date of such sale or (c) the
Trustee determines that such collateral would not be sufficient on an ongoing
basis to make all payments on such Notes as such payments would have become due
if such Notes had not been declared due and payable, and the Trustee obtains the
consent of the holders of 66 2/3% of the Percentage Interests of the Notes of
such Series.
In the event that the Trustee liquidates the collateral in connection with
an Event of Default involving a default for five days or more in the payment of
principal of or interest on the Notes of a Series, the Indenture provides that
the Trustee will have a prior lien on the proceeds of any such liquidation for
unpaid fees and expenses. As a result, upon the occurrence of such an Event of
Default, the amount available for distribution to the Noteholders would be less
than would otherwise be the case. However, the Trustee may not institute a
proceeding for the enforcement of its lien except in connection with a
proceeding for the enforcement of the lien of the Indenture for the benefit of
the Noteholders after the occurrence of such an Event of Default.
Except as otherwise specified in the related Prospectus Supplement, in the
event the principal of the Notes of a Series is declared due and payable, as
described above, the holders of any such Notes issued at a discount from par may
be entitled to receive no more than an amount equal to the unpaid principal
amount thereof less the amount of such discount which is unamortized.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing with respect
to a Series of Notes, the Trustee shall be under no obligation to exercise any
of the rights or powers under the Indenture at the request or direction of any
of the holders of Notes of such Series, unless such holders offered to the
Trustee security or indemnity satisfactory to it against the costs, expenses and
liabilities which might be incurred by it in complying with such request or
direction. Subject to such provisions for indemnification and certain
limitations contained in the Indenture, the holders of a majority of the then
aggregate outstanding amount of the Notes of such Series shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee with respect to the Notes of such Series, and the holders of a majority
of the then aggregate outstanding amount of the Notes of such Series may, in
certain cases, waive any default with respect thereto, except a default in the
payment of principal or interest or a default in respect of a covenant or
provision of the Indenture that cannot be modified without the waiver or consent
of all the holders of the outstanding Notes of such Series affected thereby.
AMENDMENT
Except as otherwise specified in the related Prospectus Supplement, each
Agreement may be amended by the Depositor, the Master Servicer and the Trustee,
without the consent of any of the Securityholders, (i) to cure any ambiguity or
mistake; (ii) to correct any defective provision therein or to supplement any
provision therein
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which may be inconsistent with any other provision therein; (iii) to add to the
duties of the Depositor, the Seller or the Master Servicer; (iv) to add any
other provisions with respect to matters or questions arising thereunder or
(v) to modify, alter, amend, add to or rescind any of the terms or provisions
contained in such Agreement; provided, however, that any such action pursuant to
clauses (iv) or (v) above, will not, as evidenced by an opinion of counsel,
adversely affect in any material respect the interests of any Securityholder;
provided, however, that no opinion of counsel will be required if the person
requesting such amendment obtains a letter from each Rating Agency requested to
rate the class or classes of Securities of such Series stating that such
amendment will not result in the downgrading or withdrawal of the respective
ratings then assigned to such Securities. In addition, if a REMIC or FASIT
election is made with respect to a Trust Fund, the related Agreement may be
amended to modify, eliminate or add to any of its provisions to such extent as
may be necessary or helpful to maintain the qualification of the related Trust
Fund as a REMIC or as a FASIT, avoid or minimize the risk of the imposition of
any tax on the REMIC or FASIT or to comply with any other provision of the Code,
provided that the Trustee has received an opinion of counsel to the effect that
such action is necessary or helpful to maintain such qualification, avoid or
minimize the risk of imposition of such a tax or comply with any such
requirement of the Code, as the case may be. Except as otherwise specified in
the related Prospectus Supplement, each Agreement may also be amended by the
Depositor, the Master Servicer and the Trustee with the consent of holders of
Securities of such Series evidencing not less than 66 2/3% of the aggregate
Percentage Interests of each class affected thereby for the purpose of adding
any provisions to or changing in an manner or eliminating any of the provisions
of the Agreement or of modifying in any manner the rights of the holders of the
related Securities; provided, however, that no such amendment may (i) reduce in
any manner the amount of or delay the timing of, payments received on Loans
which are required to be distributed on any Security without the consent of the
holder of such Security, (ii) adversely affect in any material respect the
interests of the holders of any class of Securities in a manner other than as
described in the immediately preceding clause (i), without the consent of the
holders of Securities of such class evidencing not less than 66 2/3% of the
Percentage Interests of such class, or (iii) reduce the aforesaid percentage of
Securities of any class the holders of which are required to consent to any such
amendment without the consent of the holders of all Securities of such class
covered by such Agreement then outstanding. If a REMIC or FASIT election is made
with respect to a Trust Fund, the Trustee will not be entitled to consent to an
amendment to the related Agreement without having first received an opinion of
counsel to the effect that such amendment will not cause such Trust Fund to fail
to qualify as a REMIC or as a FASIT, as the case may be.
TERMINATION; OPTIONAL TERMINATION
Pooling and Servicing Agreement; Trust Agreement. Unless otherwise specified
in the related Agreement, the obligations created by each Pooling and Servicing
Agreement and Trust Agreement for each Series of Securities will terminate upon
the payment to the related Securityholders of all amounts held in the Security
Account or by the Master Servicer and required to be paid to them pursuant to
such Agreement following the later of (i) the final payment of or other
liquidation of the last of the Trust Fund Assets subject thereto or the
disposition of all property acquired upon foreclosure of any such Trust Fund
Assets remaining in the Trust Fund and (ii) the purchase by the Master Servicer
or, if specified in the related Prospectus Supplement, by the holder of a call
right with respect to the Trust Fund Assets after the passage of a specified
period of time or after the principal balance of the Trust Fund Assets or the
Securities has been reduced to a specified level.
Unless otherwise specified by the related Prospectus Supplement, any such
purchase of Trust Fund Assets and property acquired in respect of Trust Fund
Assets will be made at the option of the Master Servicer or such other person at
a price specified in the related Prospectus Supplement. The exercise of such
right will effect early retirement of the Securities of that Series, but the
right of the Master Servicer or such other person to so purchase is subject to
the principal balance of the related Trust Fund Assets being less than the
percentage specified in the related Prospectus Supplement of the aggregate
principal balance of the Trust Fund Assets at the Cut-off Date for the Series.
The foregoing is subject to the provision that if a REMIC election is made with
respect to a Trust Fund, any repurchase pursuant to clause (ii) above will be
made only in connection with a 'qualified liquidation' of the REMIC within the
meaning of Section 860F(g)(4) of the Code.
Indenture. The Indenture will be discharged with respect to a Series of
Notes (except with respect to certain continuing rights specified in the
Indenture) upon the delivery to the Trustee for cancellation of all the Notes of
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such Series or, with certain limitations, upon deposit with the Trustee of funds
sufficient for the payment in full of all of the Notes of such Series.
In addition to such discharge with certain limitations, the Indenture will
provide that, if so specified with respect to the Notes of any Series, the
related Trust Fund will be discharged from any and all obligations in respect of
the Notes of such Series (except for certain obligations relating to temporary
Notes and exchange of Notes, to register the transfer of or exchange Notes of
such Series, to replace stolen, lost or mutilated Notes of such Series, to
maintain paying agencies and to hold monies for payment in trust) upon the
deposit with the Trustee, in trust, of money and/or direct obligations of or
obligations guaranteed by the United States of America which through the payment
of interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of and each
installment of interest on the Notes of such Series on the last scheduled
Distribution Date for such Notes and any installment of interest on such Notes
in accordance with the terms of the Indenture and the Notes of such Series. In
the event of any such defeasance and discharge of Notes of such Series, holders
of Notes of such Series would be able to look only to such money and/or direct
obligations for payment of principal and interest, if any, on their Notes until
maturity.
THE TRUSTEE
The Trustee under each Agreement will be named in the applicable Prospectus
Supplement. The commercial bank or trust company serving as Trustee may have
normal banking relationships with the Depositor, the Master Servicer and any of
their respective affiliates.
CERTAIN LEGAL ASPECTS OF THE LOANS
The following discussion contains summaries, which are general in nature, of
certain legal matters relating to the Loans. Because such legal aspects are
governed primarily by applicable state law (which laws may differ
substantially), the descriptions do not, except as expressly provided below,
reflect the laws of any particular state, nor encompass the laws of all states
in which the security for the Loans is situated. The descriptions are qualified
in their entirety by reference to the applicable federal laws and the
appropriate laws of the states in which Loans may be originated.
GENERAL
The Loans for a Series may be secured by deeds of trust, mortgages, security
deeds or deeds to secure debt, depending upon the prevailing practice in the
state in which the property subject to the loan is located. Deeds of trust are
used almost exclusively in California instead of mortgages. A mortgage creates a
lien upon the real property encumbered by the mortgage, which lien is generally
not prior to the lien for real estate taxes and assessments. Priority between
mortgages depends on their terms and generally on the order of recording with a
state or county office. There are two parties to a mortgage, the mortgagor, who
is the borrower and owner of the mortgaged property, and the mortgagee, who is
the lender. Under the mortgage instrument, the mortgagor delivers to the
mortgagee a note or bond and the mortgage. Although a deed of trust is similar
to a mortgage, a deed of trust formally has three parties, the borrower-property
owner called the trustor (similar to a mortgagor), a lender (similar to a
mortgagee) called the beneficiary, and a third-party grantee called the trustee.
Under a deed of trust, the borrower grants the property, irrevocably until the
debt is paid, in trust, generally with a power of sale, to the trustee to secure
payment of the obligation. A security deed and a deed to secure debt are special
types of deeds which indicate on their face that they are granted to secure an
underlying debt. By executing a security deed or deed to secure debt, the
grantor conveys title to, as opposed to merely creating a lien upon, the subject
property to the grantee until such time as the underlying debt is repaid. The
trustee's authority under a deed of trust, the mortgagee's authority under a
mortgage and the grantee's authority under a security deed or deed to secure
debt are governed by law and, with respect to some deeds of trust, the
directions of the beneficiary.
Cooperatives. Certain of the Loans may be Cooperative Loans. The Cooperative
owns all the real property that comprises the project, including the land,
separate dwelling units and all common areas. The Cooperative is directly
responsible for project management and, in most cases, payment of real estate
taxes and hazard and liability insurance. If there is a blanket mortgage on the
Cooperative and/or underlying land, as is generally the case, the Cooperative,
as project mortgagor, is also responsible for meeting these mortgage
obligations. A
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blanket mortgage is ordinarily incurred by the Cooperative in connection with
the construction or purchase of the Cooperative's apartment building. The
interest of the occupant under proprietary leases or occupancy agreements to
which that Cooperative is a party are generally subordinate to the interest of
the holder of the blanket mortgage in that building. If the Cooperative is
unable to meet the payment obligations arising under its blanket mortgage, the
mortgagee holding the blanket mortgage could foreclose on that mortgage and
terminate all subordinate proprietary leases and occupancy agreements. In
addition, the blanket mortgage on a Cooperative may provide financing in the
form of a mortgage that does not fully amortize with a significant portion of
principal being due in one lump sum at final maturity. The inability of the
Cooperative to refinance this mortgage and its consequent inability to make such
final payment could lead to foreclosure by the mortgagee providing the
financing. A foreclosure in either event by the holder of the blanket mortgage
could eliminate or significantly diminish the value of any collateral held by
the lender who financed the purchase by an individual tenant-stockholder of
Cooperative shares or, in the case of a Trust Fund including Cooperative Loans,
the collateral securing the Cooperative Loans.
The Cooperative is owned by tenant-stockholders who, through ownership of
stock, shares or membership certificates in the corporation, receive proprietary
leases or occupancy agreements which confer exclusive rights to occupy specific
units. Generally, a tenant-stockholder of a Cooperative must make a monthly
payment to the Cooperative representing such tenant-stockholder's pro rata share
of the Cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a Cooperative and accompanying rights is financed through a
Cooperative share loan evidenced by a promissory note and secured by a security
interest in the occupancy agreement or proprietary lease and in the related
Cooperative shares. The lender takes possession of the share certificate and a
counterpart of the proprietary lease or occupancy agreement, and a financing
statement covering the proprietary lease or occupancy agreement and the
Cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of Cooperative
shares.
FORECLOSURE
Deed of Trust. Foreclosure of a deed of trust is generally accomplished by a
non-judicial sale under a specific provision in the deed of trust which
authorizes the trustee to sell the property at public auction upon any default
by the borrower under the terms of the note or deed of trust. In certain states,
such foreclosure also may be accomplished by judicial action in the manner
provided for foreclosure of mortgages. In addition to any notice requirements
contained in a deed of trust, in some states (such as California), the trustee
must record a notice of default and send a copy to the borrower-trustor, to any
person who has recorded a request for a copy of any notice of default and notice
of sale, to any successor in interest to the borrower-trustor, to the
beneficiary of any junior deed of trust and to certain other persons. In some
states (including California), the borrower-trustor has the right to reinstate
the loan at any time following default until shortly before the trustee's sale.
In general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a statutorily prescribed reinstatement period, cure a
monetary default by paying the entire amount in arrears plus other designated
costs and expenses incurred in enforcing the obligation. Generally, state law
controls the amount of foreclosure expenses and costs, including attorney's
fees, which may be recovered by a lender. After the reinstatement period has
expired without the default having been cured, the borrower or junior lienholder
no longer has the right to reinstate the loan and must pay the loan in full to
prevent the scheduled foreclosure sale. If the deed of trust is not reinstated
within any applicable cure period, a notice of sale must be posted in a public
place and, in most states (including California), published for a specific
period of time in one or more newspapers. In addition, some state laws require
that a copy of the notice of sale be posted on the property and sent to all
parties having an interest of record in the real property.
Mortgages. Foreclosure of a mortgage is generally accomplished by judicial
action. The action is initiated by the service of legal pleadings upon all
parties having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties. Judicial foreclosure proceedings are often not contested by any of the
parties. When the mortgagee's right to foreclosure is
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contested, the legal proceedings necessary to resolve the issue can be time
consuming. After the completion of a judicial foreclosure proceeding, the court
generally issues a judgment of foreclosure and appoints a referee or other court
officer to conduct the sale of the property. In some states, mortgages may also
be foreclosed by advertisement, pursuant to a power of sale provided in the
mortgage.
Although foreclosure sales are typically public sales, frequently no third
party purchaser bids in excess of the lender's lien because of the difficulty of
determining the exact status of title to the property, the possible
deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender often purchases the property from the trustee
or referee for an amount equal to the principal amount outstanding under the
loan, accrued and unpaid interest and the expenses of foreclosure in which event
the mortgagor's debt will be extinguished or the lender may purchase for a
lesser amount in order to preserve its right against a borrower to seek a
deficiency judgment in states where such judgment is available. Thereafter,
subject to the right of the borrower in some states to remain in possession
during the redemption period, the lender will assume the burden of ownership,
including obtaining hazard insurance and making such repairs at its own expense
as are necessary to render the property suitable for sale. The lender will
commonly obtain the services of a real estate broker and pay the broker's
commission in connection with the sale of the property. Depending upon market
conditions, the ultimate proceeds of the sale of the property may not equal the
lender's investment in the property. Any loss may be reduced by the receipt of
any mortgage guaranty insurance proceeds.
Courts have imposed general equitable principles upon foreclosure, which are
generally designed to mitigate the legal consequences to the borrower of the
borrower's defaults under the loan documents. Some courts have been faced with
the issue of whether federal or state constitutional provisions reflecting due
process concerns for fair notice require that borrowers under deeds of trust
receive notice longer than that prescribed by statute. For the most part, these
cases have upheld the notice provisions as being reasonable or have found that
the sale by a trustee under a deed of trust does not involve sufficient state
action to afford constitutional protection to the borrower.
When the beneficiary under a junior mortgage or deed of trust cures the
default and reinstates or redeems by paying the full amount of the senior
mortgage or deed of trust, the amount paid by the beneficiary so to cure or
redeem becomes a part of the indebtedness secured by the junior mortgage or deed
of trust. See 'Junior Mortgages; Rights of Senior Mortgagees' below.
Cooperative Loans. The Cooperative shares owned by the tenant-stockholder
and pledged to the lender are, in almost all cases, subject to restrictions on
transfer as set forth in the Cooperative's certificate of incorporation and
bylaws, as well as the proprietary lease or occupancy agreement, and may be
cancelled by the Cooperative for failure by the tenant-stockholder to pay rent
or other obligations or charges owed by such tenant-stockholder, including
mechanics' liens against the cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement generally
permits the Cooperative to terminate such lease or agreement in the event an
obligor fails to make payments or defaults in the performance of covenants
required thereunder. Typically, the lender and the Cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder on its obligations
under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the Cooperative will recognize the
lender's lien against proceeds from the sale of the Cooperative apartment,
subject, however, to the Cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the Cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the Cooperative Loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure on a
Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring
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the Cooperative shares or assigning the proprietary lease. Generally, the lender
is not limited in any rights it may have to dispossess the tenant-stockholders.
In some states, foreclosure on the Cooperative shares is accomplished by a
sale in accordance with the provisions of Article 9 of the Uniform Commercial
Code (the 'UCC') and the security agreement relating to those shares. Article 9
of the UCC requires that a sale be conducted in a 'commercially reasonable'
manner. Whether a foreclosure sale has been conducted in a 'commercially
reasonable' manner will depend on the facts in each case. In determining
commercial reasonableness, a court will look to the notice given the debtor and
the method, manner, time, place and terms of the foreclosure. Generally, a sale
conducted according to the usual practice of banks selling similar collateral
will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperative to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds remaining, the
lender must account to the tenant-stockholder for the surplus. Conversely, if a
portion of the indebtedness remains unpaid, the tenant-stockholder is generally
responsible for the deficiency. See 'Anti-Deficiency Legislation and Other
Limitations on Lenders' below.
In the case of foreclosure on a building which was converted from a rental
building to a building owned by a Cooperative under a non-eviction plan, some
states require that a purchaser at a foreclosure sale take the property subject
to rent control and rent stabilization laws which apply to certain tenants who
elected to remain in the building but who did not purchase shares in the
Cooperative when the building was so converted.
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to unforeseen
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the payment of the
costs of clean-up. In several states such a lien has priority over the lien of
an existing mortgage against such property. In addition, under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
('CERCLA'), the United States Environmental Protection Agency ('EPA') may impose
a lien on property where EPA has incurred clean-up costs. However, a CERCLA lien
is subordinate to pre-existing, perfected security interests.
Under the laws of some states, and under CERCLA, it is conceivable that a
secured lender may be held liable as an 'owner' or 'operator' for the costs of
addressing releases or threatened releases of hazardous substances at a
Property, even though the environmental damage or threat was caused by a prior
or current owner or operator. CERCLA imposes liability for such costs on any and
all 'responsible parties,' including owners or operators. However, CERCLA
excludes from the definition of 'owner or operator' a secured creditor who holds
indicia of ownership primarily to protect its security interest (the 'secured
creditor exclusion') but without 'participating in the management' of the
Property. Thus, if a lender's activities begin to encroach on the actual
management of a contaminated facility or property, the lender may incur
liability as an 'owner or operator' under CERCLA. Similarly, if a lender
forecloses and takes title to a contaminated facility or property, the lender
may incur CERCLA liability in various circumstances, including, but not limited
to, when it holds the facility or property as an investment (including leasing
the facility or property to third party), or fails to market the property in a
timely fashion.
Whether actions taken by a lender would constitute participation in the
management of a mortgaged property, or the business of a borrower, so as to
render the secured creditor exemption unavailable to a lender has been a matter
of judicial interpretation of the statutory language, and court decisions have
been inconsistent. In 1990, the Court of Appeals for the Eleventh Circuit
suggested that the mere capacity of the lender to influence a borrower's
decisions regarding disposal of hazardous substances was sufficient
participation in the management of the borrower's business to deny the
protection of the secured creditor exemption to the lender.
This ambiguity appears to have been resolved by the enactment of the Asset
Conservation, Lender Liability and Deposit Insurance Protection Act of 1996,
which was signed into law by President Clinton on September 30, 1996. This
legislation provides that in order to be deemed to have participated in the
management of a mortgaged property, a lender must actually participate in the
operational affairs of the property or the borrower. The legislation also
provides that participation in the management of the property does not include
'merely
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having the capacity to influence, or unexercised right to control' operations.
Rather, a lender will lose the protection of the secured creditor exemption only
if it exercises decision-making control over the borrower's environmental
compliance and hazardous substance handling and disposal practices, or assumes
day-to-day management of all operational functions of the mortgaged property.
If a lender is or becomes liable, it can bring an action for contribution
against any other 'responsible parties,' including a previous owner or operator,
who created the environmental hazard, but those persons or entities may be
bankrupt or otherwise judgment proof. The costs associated with environmental
cleanup may be substantial. It is conceivable that such costs arising from the
circumstances set forth above would result in a loss to Certificateholders.
CERCLA does not apply to petroleum products, and the secured creditor
exclusion does not govern liability for cleanup costs under federal laws other
than CERCLA, in particular Subtitle I of the federal Resource Conservation and
Recovery Act ('RCRA'), which regulates underground petroleum storage tanks
(except heating oil tanks). The EPA has adopted a lender liability rule for
underground storage tanks under Subtitle I of RCRA. Under such rule, a holder of
a security interest in an underground storage tank or real property containing
an underground storage tank is not considered an operator of the underground
storage tank as long as petroleum is not added to, stored in or dispensed from
the tank. In addition, under the Asset Conservation, Lender Liability and
Deposit Insurance Protection Act of 1996, the protections accorded to lenders
under CERCLA are also accorded to the holders of security interests in
underground storage tanks. It should be noted, however, that liability for
cleanup of petroleum contamination may be governed by state law, which may not
provide for any specific protection for secured creditors, or alternatively, may
not impose liability on secured creditors at all.
Except as otherwise specified in the related Prospectus Supplement, at the
time the Loans were originated, no environmental assessment or a very limited
environmental assessment of the Properties was conducted.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In certain
other states (including California), this right of redemption applies only to
sales following judicial foreclosure, and not to sales pursuant to a
non-judicial power of sale. In most states where the right of redemption is
available, statutory redemption may occur upon payment of the foreclosure
purchase price, accrued interest and taxes. In other states, redemption may be
authorized if the former borrower pays only a portion of the sums due. The
effect of a statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed property. The exercise of a right of redemption
would defeat the title of any purchaser from the lender subsequent to
foreclosure or sale under a deed of trust. Consequently, the practical effect of
the redemption right is to force the lender to retain the property and pay the
expenses of ownership until the redemption period has run. In some states, there
is no right to redeem property after a trustee's sale under a deed of trust.
ANTI-DEFICIENCY LEGISLATION; BANKRUPTCY LAWS; TAX LIENS
Certain states have imposed statutory and judicial restrictions that limit
the remedies of a beneficiary under a deed of trust or a mortgagee under a
mortgage. In some states, including California, statutes and case law limit the
right of the beneficiary or mortgagee to obtain a deficiency judgment against
borrowers financing the purchase of their residence or following sale under a
deed of trust or certain other foreclosure proceedings. A deficiency judgment is
a personal judgment against the borrower equal in most cases to the difference
between the amount due to the lender and the fair market value of the real
property at the time of the foreclosure sale. In certain states, including
California, if a lender simultaneously originates a loan secured by a senior
lien on a particular property and a loan secured by a junior lien on the same
property, such a lender as the holder of the junior lien may be precluded from
obtaining a deficiency judgment with respect to the excess of the aggregate
amount owed under both such loans over the proceeds of any sale under a deed of
trust or other foreclosure proceedings. As a result of these prohibitions, it is
anticipated that in most instances the Master Servicer will utilize the
non-judicial foreclosure remedy and will not seek deficiency judgments against
defaulting borrowers.
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Some state statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement, when applicable, is that lenders
will usually proceed first against the security rather than bringing a personal
action against the borrower. In some states, exceptions to the anti-deficiency
statutes are provided for in certain instances where the value of the lender's
security has been impaired by acts or omissions of the borrower, for example, in
the event of waste of the property. Finally, other statutory provisions limit
any deficiency judgment against the former borrower following a foreclosure sale
to the excess of the outstanding debt over the fair market value of the property
at the time of the public sale. The purpose of these statutes is generally to
prevent a beneficiary or a mortgagee from obtaining a large deficiency judgment
against the former borrower as a result of low or no bids at the foreclosure
sale.
Generally, Article 9 of the UCC governs foreclosure on Cooperative shares
and the related proprietary lease or occupancy agreement. Some courts have
interpreted section 9-504 of the UCC to prohibit a deficiency award unless the
creditor establishes that the sale of the collateral (which, in the case of a
Cooperative Loan, would be the shares of the Cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
and state laws affording relief to debtors, may interfere with or affect the
ability of the secured mortgage lender to realize upon its security. For
example, in a proceeding under the Bankruptcy Code, a lender may not foreclose
on a mortgaged property without the permission of the bankruptcy court. The
rehabilitation plan proposed by the debtor may provide, if the mortgaged
property is not the debtor's principal residence and the court determines that
the value of the mortgaged property is less than the principal balance of the
mortgage loan, for the reduction of the secured indebtedness to the value of the
mortgaged property as of the date of the commencement of the bankruptcy,
rendering the lender a general unsecured creditor for the difference, and also
may reduce the monthly payments due under such mortgage loan, change the rate of
interest and alter the mortgage loan repayment schedule. The effect of any such
proceedings under the Bankruptcy Code, including but not limited to any
automatic stay, could result in delays in receiving payments on the Loans
underlying a Series of Securities and possible reductions in the aggregate
amount of such payments.
The federal tax laws provide priority to certain tax liens over the lien of
a mortgage or secured party.
DUE-ON-SALE CLAUSES
Unless otherwise specified in the related Prospectus Supplement, each
conventional Loan will contain a due-on-sale clause which will generally provide
that if the mortgagor or obligor sells, transfers or conveys the Property, the
loan or contract may be accelerated by the mortgagee or secured party. Court
decisions and legislative actions have placed substantial restriction on the
right of lenders to enforce such clauses in many states. For instance, the
California Supreme Court in August 1978 held that due-on-sale clauses were
generally unenforceable. However, the Garn-St Germain Depository Institutions
Act of 1982 (the 'Garn-St Germain Act'), subject to certain exceptions, preempts
state constitutional, statutory and case law prohibiting the enforcement of
due-on-sale clauses. As a result, due-on-sale clauses have become generally
enforceable except in those states whose legislatures exercised their authority
to regulate the enforceability of such clauses with respect to mortgage loans
that were (i) originated or assumed during the 'window period' under the Garn-St
Germain Act which ended in all cases not later than October 15, 1982 and
(ii) originated by lenders other than national banks, federal savings
institutions and federal credit unions. FHLMC has taken the position in its
published mortgage servicing standards that, out of a total of eleven 'window
period states,' five states (Arizona, Michigan, Minnesota, New Mexico and Utah)
have enacted statutes extending, on various terms and for varying periods, the
prohibition on enforcement of due-on-sale clauses with respect to certain
categories of window period loans. Also, the Garn-St Germain Act does
'encourage' lenders to permit assumption of loans at the original rate of
interest or at some other rate less than the average of the original rate and
the market rate.
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As to loans secured by an owner-occupied residence, the Garn-St Germain Act
sets forth nine specific instances in which a mortgagee covered by the Act may
not exercise its rights under a due-on-sale clause, notwithstanding the fact
that a transfer of the property may have occurred. The inability to enforce a
due-on-sale clause may result in transfer of the related Property to an
uncreditworthy person, which could increase the likelihood of default or may
result in a mortgage bearing an interest rate below the current market rate
being assumed by a new home buyer, which may affect the average life of the
Loans and the number of Loans which may extend to maturity. In addition, under
federal bankruptcy law, due-on-sale clauses may not be enforceable in bankruptcy
proceedings and may, under certain circumstances, be eliminated in any modified
mortgage resulting from such bankruptcy proceeding.
ENFORCEABILITY OF PREPAYMENT AND LATE PAYMENT FEES
Forms of notes, mortgages and deeds of trust used by lenders may contain
provisions obligating the borrower to pay a late charge if payments are not
timely made, and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon the late charges which a lender may
collect from a borrower for delinquent payments. Certain states also limit the
amounts that a lender may collect from a borrower as an additional charge if the
loan is prepaid. Under certain state laws, prepayment charges may not be imposed
after a certain period of time following the origination of mortgage loans with
respect to prepayments on loans secured by liens encumbering owner-occupied
residential properties. Since many of the Properties will be owner-occupied, it
is anticipated that prepayment charges may not be imposed with respect to many
of the Loans. The absence of such a restraint on prepayment, particularly with
respect to fixed rate Loans having higher Loan Rates, may increase the
likelihood of refinancing or other early retirement of such loans or contracts.
Late charges and prepayment fees are typically retained by servicers as
additional servicing compensation.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control Act
of 1980, enacted in March 1980 ('Title V') provides that state usury limitations
shall not apply to certain types of residential first mortgage loans originated
by certain lenders after March 31, 1980. The Office of Thrift Supervision, as
successor to the Federal Home Loan Bank Board, is authorized to issue rules and
regulations and to publish interpretations governing implementation of Title V.
The statute authorized the states to reimpose interest rate limits by adopting,
before April 1, 1983, a law or constitutional provision which expressly rejects
an application of the federal law. Fifteen states adopted such a law prior to
the April 1, 1983 deadline. In addition, even where Title V is not so rejected,
any state is authorized by the law to adopt a provision limiting discount points
or other charges on mortgage loans covered by Title V. Certain states have taken
action to reimpose interest rate limits and/or to limit discount points or other
charges.
THE HOME IMPROVEMENT CONTRACTS
General. The Home Improvement Contracts other than those Home Improvement
Contracts that are unsecured or secured by mortgages on real estate (such Home
Improvement Contracts are hereinafter referred to in this section as
'contracts') generally are 'chattel paper' or constitute 'purchase money
security interests' each as defined in the UCC. Pursuant to the UCC, the sale of
chattel paper is treated in a manner similar to perfection of a security
interest in chattel paper. Under the related Agreement, the Depositor will
transfer physical possession of the contracts to the Trustee or a designated
custodian or may retain possession of the contracts as custodian for the
Trustee. In addition, the Depositor will make an appropriate filing of a UCC-1
financing statement in the appropriate states to, among other things, give
notice of the Trust Fund's ownership of the contracts. Unless otherwise
specified in the related Prospectus Supplement, the contracts will not be
stamped or otherwise marked to reflect their assignment from the Depositor to
the Trustee. Therefore, if through negligence, fraud or otherwise, a subsequent
purchaser were able to take physical possession of the contracts without notice
of such assignment, the Trust Fund's interest in the contracts could be
defeated.
Security Interests in Home Improvements. The contracts that are secured by
the Home Improvements financed thereby grant to the originator of such contracts
a purchase money security interest in such Home Improvements to secure all or
part of the purchase price of such Home Improvements and related services. A
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financing statement generally is not required to be filed to perfect a purchase
money security interest in consumer goods. Such purchase money security
interests are assignable. In general, a purchase money security interest grants
to the holder a security interest that has priority over a conflicting security
interest in the same collateral and the proceeds of such collateral. However, to
the extent that the collateral subject to a purchase money security interest
becomes a fixture, in order for the related purchase money security interest to
take priority over a conflicting interest in the fixture, the holder's interest
in such Home Improvement must generally be perfected by a timely fixture filing.
In general, a security interest does not exist under the UCC in ordinary
building material incorporated into an improvement on land. Home Improvement
Contracts that finance lumber, bricks, other types of ordinary building material
or other goods that are deemed to lose such characterization upon incorporation
of such materials into the related property, will not be secured by a purchase
money security interest in the Home Improvement being financed.
Enforcement of Security Interest in Home Improvements. So long as the Home
Improvement has not become subject to the real estate law, a creditor can
repossess a Home Improvement securing a contract by voluntary surrender, by
'self-help' repossession that is 'peaceful' (i.e., without breach of the peace)
or, in the absence of voluntary surrender and the ability to repossess without
breach of the peace, by judicial process. The holder of a contract must give the
debtor a number of days' notice, which varies from 10 to 30 days depending on
the state, prior to commencement of any repossession. The UCC and consumer
protection laws in most states place restrictions on repossession sales,
including requiring prior notice to the debtor and commercial reasonableness in
effecting such a sale. The law in most states also requires that the debtor be
given notice of any sale prior to resale of the unit that the debtor may redeem
at or before such resale.
Under the laws applicable in most states, a creditor is entitled to obtain a
deficiency judgment from a debtor for any deficiency on repossession and resale
of the property securing the debtor's loan. However, some states impose
prohibitions or limitations on deficiency judgments, and in many cases the
defaulting borrower would have no assets with which to pay a judgment.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws and general equitable principles, may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment.
Consumer Protection Laws. The so-called 'Holder-in-Due Course' rule of the
Federal Trade Commission is intended to defeat the ability of the transferor of
a consumer credit contract which is the seller of goods which gave rise to the
transaction (and certain related lenders and assignees) to transfer such
contract free of notice of claims by the debtor thereunder. The effect of this
rule is to subject the assignee of such a contract to all claims and defenses
which the debtor could assert against the seller of goods. Liability under this
rule is limited to amounts paid under a contract; however, the obligor also may
be able to assert the rule to set off remaining amounts due as a defense against
a claim brought by the Trustee against such obligor. Numerous other federal and
state consumer protection laws impose requirements applicable to the
origination, servicing and enforcement of the contracts, including the Truth in
Lending Act, the Federal Trade Commission Act, the Fair Credit Billing Act, the
Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Fair Debt
Collection Practices Act and the Uniform Consumer Credit Code. In the case of
some of these laws, the failure to comply with their provisions may affect the
enforceability of the related contract.
Applicability of Usury Laws. Title V of the Depository Institutions
Deregulation and Monetary Control Act of 1980, as amended ('Title V'), provides
that, subject to the following conditions, state usury limitations shall not
apply to any contract which is secured by a first lien on certain kinds of
consumer goods. The contracts would be covered if they satisfy certain
conditions governing, among other things, the terms of any prepayments, late
charges and deferral fees and requiring a 30-day notice period prior to
instituting any action leading to repossession of the related unit.
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
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INSTALLMENT CONTRACTS
The Loans may also consist of installment sale contracts. Under an
installment sale contract ('Installment Contract') the seller (hereinafter
referred to in this section as the 'lender') retains legal title to the property
and enters into an agreement with the purchaser hereinafter referred to in this
section as the 'borrower') for the payment of the purchase price, plus interest,
over the term of such contract. Only after full performance by the borrower of
the contract is the lender obligated to convey title to the property to the
purchaser. As with mortgage or deed of trust financing, during the effective
period of the Installment Contract, the borrower is generally responsible for
maintaining the property in good condition and for paying real estate taxes,
assessments and hazard insurance premiums associated with the property.
The method of enforcing the rights of the lender under an Installment
Contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to its terms. The terms of Installment Contracts
generally provide that upon a default by the borrower, the borrower loses his or
her right to occupy the property, the entire indebtedness is accelerated, and
the buyer's equitable interest in the property is forfeited. The lender in such
a situation does not have to foreclose in order to obtain title to the property,
although in some cases a quiet title action is in order if the borrower has
filed the Installment Contract in local land records and an ejectment action may
be necessary to recover possession. In a few states, particularly in cases of
borrower default during the early years of an Installment Contract, the courts
will permit ejectment of the buyer and a forfeiture of his or her interest in
the property. However, most state legislatures have enacted provisions by
analogy to mortgage law protecting borrowers under Installment Contracts from
the harsh consequences of forfeiture. Under such statutes, a judicial or
nonjudicial foreclosure may be required, the lender may be required to give
notice of default and the borrower may be granted some grace period during which
the Installment Contract may be reinstated upon full payment of the default
amount and the borrower may have a post-foreclosure statutory redemption right.
In other states, courts in equity may permit a borrower with significant
investment in the property under an Installment Contract for the sale of real
estate to share in the proceeds of sale of the property after the indebtedness
is repaid or may otherwise refuse to enforce the forfeiture clause.
Nevertheless, generally speaking, the lender's procedures for obtaining
possession and clear title under an Installment Contract in a given state are
simpler and less time-consuming and costly than are the procedures for
foreclosing and obtaining clear title to a property subject to one or more
liens.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act of
1940, as amended (the 'Relief Act'), a borrower who enters military service
after the origination of such borrower's Loan (including a borrower who is a
member of the National Guard or is in reserve status at the time of the
origination of the Loan and is later called to active duty) may not be charged
interest above an annual rate of 6% during the period of such borrower's active
duty status, unless a court orders otherwise upon application of the lender. It
is possible that such interest rate limitation could have an effect, for an
indeterminate period of time, on the ability of the Master Servicer to collect
full amounts of interest on certain of the Loans. Unless otherwise provided in
the related Prospectus Supplement, any shortfall in interest collections
resulting from the application of the Relief Act could result in losses to
Securityholders. The Relief Act also imposes limitations which would impair the
ability of the Master Servicer to foreclose on an affected Loan during the
borrower's period of active duty status. Moreover, the Relief Act permits the
extension of a Loan's maturity and the re-adjustment of its payment schedule
beyond the completion of military service. Thus, in the event that such a Loan
goes into default, there may be delays and losses occasioned by the inability to
realize upon the Property in a timely fashion.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGEES
To the extent that the Loans comprising the Trust Fund for a Series are
secured by mortgages which are junior to other mortgages held by other lenders
or institutional investors, the rights of the Trust Fund (and therefore the
Securityholders), as mortgagee under any such junior mortgage, are subordinate
to those of any mortgagee under any senior mortgage. The senior mortgagee has
the right to receive hazard insurance and condemnation proceeds and to cause the
property securing the Loan to be sold upon default of the mortgagor, thereby
extinguishing the junior mortgagee's lien unless the junior mortgagee asserts
its subordinate interest in the property in foreclosure litigation and,
possibly, satisfies the defaulted senior mortgage. A junior mortgagee
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may satisfy a defaulted senior loan in full and, in some states, may cure a
default and bring the senior loan current, in either event adding the amounts
expended to the balance due on the junior loan. In most states, absent a
provision in the mortgage or deed of trust, no notice of default is required to
be given to a junior mortgagee.
The standard form of the mortgage used by most institutional lenders confers
on the mortgagee the right both to receive all proceeds collected under any
hazard insurance policy and all awards made in connection with condemnation
proceedings, and to apply such proceeds and awards to any indebtedness secured
by the mortgage, in such order as the mortgagee may determine. Thus, in the
event improvements on the property are damaged or destroyed by fire or other
casualty, or in the event the property is taken by condemnation, the mortgagee
or beneficiary under senior mortgages will have the prior right to collect any
insurance proceeds payable under a hazard insurance policy and any award of
damages in connection with the condemnation and to apply the same to the
indebtedness secured by the senior mortgages. Proceeds in excess of the amount
of senior mortgage indebtedness, in most cases, may be applied to the
indebtedness of a junior mortgage.
Another provision sometimes found in the form of the mortgage or deed of
trust used by institutional lenders obligates the mortgagor to pay before
delinquency all taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee under the mortgage. Upon a
failure of the mortgagor to perform any of these obligations, the mortgagee is
given the right under certain mortgages to perform the obligation itself, at its
election, with the mortgagor agreeing to reimburse the mortgagee for any sums
expended by the mortgagee on behalf of the mortgagor. All sums so expended by
the mortgagee become part of the indebtedness secured by the mortgage.
The form of credit line trust deed or mortgage generally used by most
institutional lenders which make Revolving Credit Line Loans typically contains
a 'future advance' clause, which provides, in essence, that additional amounts
advanced to or on behalf of the borrower by the beneficiary or lender are to be
secured by the deed of trust or mortgage. Any amounts so advanced after the
Cut-off Date with respect to any Mortgage will not be included in the Trust
Fund. The priority of the lien securing any advance made under the clause may
depend in most states on whether the deed of trust or mortgage is called and
recorded as a credit line deed of trust or mortgage. If the beneficiary or
lender advances additional amounts, the advance is entitled to receive the same
priority as amounts initially advanced under the trust deed or mortgage,
notwithstanding the fact that there may be junior trust deeds or mortgages and
other liens which intervene between the date of recording of the trust deed or
mortgage and the date of the future advance, and notwithstanding that the
beneficiary or lender had actual knowledge of such intervening junior trust
deeds or mortgages and other liens at the time of the advance. In most states,
the trust deed or mortgage lien securing mortgage loans of the type which
includes home equity credit lines applies retroactively to the date of the
original recording of the trust deed or mortgage, provided that the total amount
of advances under the home equity credit line does not exceed the maximum
specified principal amount of the recorded trust deed or mortgage, except as to
advances made after receipt by the lender of a written notice of lien from a
judgment lien creditor of the trustor.
THE TITLE I PROGRAM
General. Certain of the Loans contained in a Trust Fund may be loans insured
under the FHA Title I Credit Insurance program created pursuant to Sections 1
and 2(a) of the National Housing Act of 1934 (the 'Title I Program'). Under the
Title I Program, the FHA is authorized and empowered to insure qualified lending
institutions against losses on eligible loans. The Title I Program operates as a
coinsurance program in which the FHA insures up to 90% of certain losses
incurred on an individual insured loan, including the unpaid principal balance
of the loan, but only to the extent of the insurance coverage available in the
lender's FHA insurance coverage reserve account. The owner of the loan bears the
uninsured loss on each loan.
The types of loans which are eligible for insurance by the FHA under the
Title I Program include property improvement loans ('Property Improvement Loans'
or 'Title I Loans'). A Property Improvement Loan or Title I Loan means a loan
made to finance actions or items that substantially protect or improve the basic
livability or utility of a property and includes single family improvement
loans.
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There are two basic methods of lending or originating such loans which
include a 'direct loan' or a 'dealer loan'. With respect to a direct loan, the
borrower makes application directly to a lender without any assistance from a
dealer, which application may be filled out by the borrower or by a person
acting at the direction of the borrower who does not have a financial interest
in the loan transaction, and the lender may disburse the loan proceeds solely to
the borrower or jointly to the borrower and other parties to the transaction.
With respect to a dealer loan, the dealer, who has a direct or indirect
financial interest in the loan transaction, assists the borrower in preparing
the loan application or otherwise assists the borrower in obtaining the loan
from lender and the lender may distribute proceeds solely to the dealer or the
borrower or jointly to the borrower and the dealer or other parties. With
respect to a dealer Title I Loan, a dealer may include a seller, a contractor or
supplier of goods or services.
Loans insured under the Title I Program are required to have fixed interest
rates and, generally, provide for equal installment payments due weekly,
biweekly, semi-monthly or monthly, except that a loan may be payable quarterly
or semi-annually in order to correspond with the borrower's irregular flow of
income. The first or last payments (or both) may vary in amount but may not
exceed 150% of the regular installment payment, and the first scheduled payment
may be due no later than two months from the date of the loan. The note must
contain a provision permitting full or partial prepayment of the loan. The
interest rate may be established by the lender and must be fixed for the term of
the loan and recited in the note. Interest on an insured loan must accrue from
the date of the loan and be calculated on a simple interest basis. The lender
must assure that the note and all other documents evidencing the loan are in
compliance with applicable federal, state and local laws.
Each insured lender is required to use prudent lending standards in
underwriting individual loans and to satisfy the applicable loan underwriting
requirements under the Title I Program prior to its approval of the loan and
disbursement of loan proceeds. Generally, the lender must exercise prudence and
diligence to determine whether the borrower and any co-maker is solvent and an
acceptable credit risk, with a reasonable ability to make payments on the loan
obligation. The lender's credit application and review must determine whether
the borrower's income will be adequate to meet the periodic payments required by
the loan, as well as the borrower's other housing and recurring expenses, which
determination must be made in accordance with the expense-to-income ratios
published by the Secretary of HUD.
Under the Title I Program, the FHA does not review or approve for
qualification for insurance the individual loans insured thereunder at the time
of approval by the lending institution (as is typically the case with other
federal loan programs). If, after a loan has been made and reported for
insurance under the Title I Program, the lender discovers any material
misstatement of fact or that the loan proceeds have been misused by the
borrower, dealer or any other party, it shall promptly report this to the FHA.
In such case, provided that the validity of any lien on the property has not
been impaired, the insurance of the loan under the Title I Program will not be
affected unless such material misstatements of fact or misuse of loan proceeds
was caused by (or was knowingly sanctioned by) the lender or its employees.
Requirements for Title I Loans. The maximum principal amount for Title I
Loans must not exceed the actual cost of the project plus any applicable fees
and charges allowed under the Title I Program; provided that such maximum amount
does not exceed $25,000 (or the current applicable amount) for a single family
property improvement loan. Generally, the term of a Title I Loan may not be less
than six months nor greater than 20 years and 32 days. A borrower may obtain
multiple Title I Loans with respect to multiple properties, and a borrower may
obtain more than one Title I Loan with respect to a single property, in each
case as long as the total outstanding balance of all Title I Loans in the same
property does not exceed the maximum loan amount for the type of Title I Loan
thereon having the highest permissible loan amount.
Borrower eligibility for a Title I Loan requires that the borrower have at
least a one-half interest in either fee simple title to the real property, a
lease thereof for a term expiring at least six months after the final maturity
of the Title I Loan or a recorded land installment contract for the purchase of
the real property, and that the borrower have equity in the property being
improved at least equal to the amount of the Title I Loan if such loan amount
exceeds $15,000. Any Title I Loan in excess of $7,500 must be secured by a
recorded lien on the improved property which is evidenced by a mortgage or deed
of trust executed by the borrower and all other owners in fee simple.
The proceeds from a Title I Loan may be used only to finance property
improvements which substantially protect or improve the basic livability or
utility of the property as disclosed in the loan application. The Secretary of
HUD has published a list of items and activities which cannot be financed with
proceeds from any
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Title I Loan and from time to time the Secretary of HUD may amend such list of
items and activities. With respect to any dealer Title I Loan, before the lender
may disburse funds, the lender must have in its possession a completion
certificate on a HUD approved form, signed by the borrower and the dealer. With
respect to any direct Title I Loan, the borrower is required to submit to the
lender, promptly upon completion of the improvements but not later than six
months after disbursement of the loan proceeds with one six month extension if
necessary, a completion certificate, signed by the borrower. The lender or its
agent is required to conduct an on-site inspection on any Title I Loan where the
principal obligation is $7,500 or more, and on any direct Title I Loan where the
borrower fails to submit a completion certificate.
FHA Insurance Coverage. Under the Title I Program the FHA establishes an
insurance coverage reserve account for each lender which has been granted a
Title I insurance contract. The amount of insurance coverage in this account is
10% of the amount disbursed, advanced or expended by the lender in originating
or purchasing eligible loans registered with FHA for Title I insurance, with
certain adjustments. The balance in the insurance coverage reserve account is
the maximum amount of insurance claims the FHA is required to pay. Loans to be
insured under the Title I Program will be registered for insurance by the FHA
and the insurance coverage attributable to such loans will be included in the
insurance coverage reserve account for the originating or purchasing lender
following the receipt and acknowledgment by the FHA of a loan report on the
prescribed form pursuant to the Title I regulations. The FHA charges a fee of
0.50% per annum of the net proceeds (the original balance) of any eligible loan
so reported and acknowledged for insurance by the originating lender. The FHA
bills the lender for the insurance premium on each insured loan annually, on
approximately the anniversary date of the loan's origination. If an insured loan
is prepaid during the year, FHA will not refund the insurance premium, but will
abate any insurance charges falling due after such prepayment.
Under the Title I Program the FHA will reduce the insurance coverage
available in the lender's FHA insurance coverage reserve account with respect to
loans insured under the lender's contract of insurance by (i) the amount of the
FHA insurance claims approved for payment relating to such insured loans and
(ii) the amount of insurance coverage attributable to insured loans sold by the
lender. The balance of the lender's FHA insurance coverage reserve account will
be further adjusted as required under Title I or by the FHA, and the insurance
coverage therein may be earmarked with respect to each or any eligible loans
insured thereunder, if a determination is made by the Secretary of HUD that it
is in its interest to do so. Originations and acquisitions of new eligible loans
will continue to increase a lender's insurance coverage reserve account balance
by 10% of the amount disbursed, advanced or expended in originating or acquiring
such eligible loans registered with the FHA for insurance under the Title I
Program. The Secretary of HUD may transfer insurance coverage between insurance
coverage reserve accounts with earmarking with respect to a particular insured
loan or group of insured loans when a determination is made that it is in the
Secretary's interest to do so.
The lender may transfer (except as collateral in a bona fide loan
transaction) insured loans and loans reported for insurance only to another
qualified lender under a valid Title I contract of insurance. Unless an insured
loan is transferred with recourse or with a guaranty or repurchase agreement,
the FHA, upon receipt of written notification of the transfer of such loan in
accordance with the Title I regulations, will transfer from the transferor's
insurance coverage reserve account to the transferee's insurance coverage
reserve account an amount, if available, equal to 10% of the actual purchase
price or the net unpaid principal balance of such loan (whichever is less).
However, under the Title I Program not more than $5,000 in insurance coverage
shall be transferred to or from a lender's insurance coverage reserve account
during any October 1 to September 30 period without the prior approval of the
Secretary of HUD.
Claims Procedures Under Title I. Under the Title I Program the lender may
accelerate an insured loan following a default on such loan only after the
lender or its agent has contacted the borrower in a face-to-face meeting or by
telephone to discuss the reasons for the default and to seek its cure. If the
borrower does not cure the default or agree to a modification agreement or
repayment plan, the lender will notify the borrower in writing that, unless
within 30 days the default is cured or the borrower enters into a modification
agreement or repayment plan, the loan will be accelerated and that, if the
default persists, the lender will report the default to an appropriate credit
agency. The lender may rescind the acceleration of maturity after full payment
is due and reinstate the loan only if the borrower brings the loan current,
executes a modification agreement or agrees to an acceptable repayment plan.
Following acceleration of maturity upon a secured Title I Loan, the lender
may either (a) proceed against the property under any security instrument or
(b) make a claim under the lender's contract of insurance. If the
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lender chooses to proceed against the property under a security instrument (or
if it accepts a voluntary conveyance or surrender of the property), the lender
may file an insurance claim only with the prior approval of the Secretary of
HUD.
When a lender files an insurance claim with the FHA under the Title I
Program, the FHA reviews the claim, the complete loan file and documentation of
the lender's efforts to obtain recourse against any dealer who has agreed
thereto, certification of compliance with applicable state and local laws in
carrying out any foreclosure or repossession, and evidence that the lender has
properly filed proofs of claims, where the borrower is bankrupt or deceased.
Generally, a claim for reimbursement for loss on any Title I Loan must be filed
with the FHA no later than nine months after the date of default of such loan.
Concurrently with filing the insurance claim, the lender shall assign to the
United States of America the lender's entire interest in the loan note (or a
judgment in lieu of the note), in any security held and in any claim filed in
any legal proceedings. If, at the time the note is assigned to the United
States, the Secretary has reason to believe that the note is not valid or
enforceable against the borrower, the FHA may deny the claim and reassign the
note to the lender. If either such defect is discovered after the FHA has paid a
claim, the FHA may require the lender to repurchase the paid claim and to accept
a reassignment of the loan note. If the lender subsequently obtains a valid and
enforceable judgment against the borrower, the lender may resubmit a new
insurance claim with an assignment of the judgment. The FHA may contest any
insurance claim and make a demand for repurchase of the loan at any time up to
two years from the date the claim was certified for payment and may do so
thereafter in the event of fraud or misrepresentation on the part of the lender.
Under the Title I Program the amount of an FHA insurance claim payment, when
made, is equal to the Claimable Amount, up to the amount of insurance coverage
in the lender's insurance coverage reserve account. For the purposes hereof, the
'Claimable Amount' means an amount equal to 90% of the sum of: (a) the unpaid
loan obligation (net unpaid principal and the uncollected interest earned to the
date of default) with adjustments thereto if the lender has proceeded against
property securing such loan; (b) the interest on the unpaid amount of the loan
obligation from the date of default to the date of the claim's initial
submission for payment plus 15 calendar days (but not to exceed 9 months from
the date of default), calculated at the rate of 7% per annum; (c) the
uncollected court costs; (d) the attorney's fees not to exceed $500; and
(e) the expenses for recording the assignment of the security to the United
States.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws impose substantive
requirements upon mortgage lenders in connection with the origination, servicing
and enforcement of loans secured by Single Family Properties. These laws include
the federal Truth-in-Lending Act and Regulation Z promulgated thereunder, Real
Estate Settlement Procedures Act and Regulation B promulgated thereunder, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act and
related statutes and regulations. In particular, Regulation Z, requires certain
disclosures to the borrowers regarding the terms of the Loans; the Equal Credit
Opportunity Act and Regulation B promulgated thereunder prohibit discrimination
on the basis of age, race, color, sex, religion, marital status, national
origin, receipt of public assistance or the exercise of any right under the
Consumer Credit Protection Act, in the extension of credit; the Fair Credit
Reporting Act regulates the use and reporting of information related to the
borrower's credit experience. Certain provisions of these laws impose specific
statutory liabilities upon lenders who fail to comply therewith. In addition,
violations of such laws may limit the ability of the Sellers to collect all or
part of the principal of or interest on the Loans and could subject the Sellers
and in some cases their assignees to damages and administrative enforcement.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the anticipated material federal income tax
consequences of the purchase, ownership, and disposition of the Securities and
is based on advice of Brown & Wood LLP, special counsel to the Depositor. The
summary is based upon the provisions of the Code, the regulations promulgated
thereunder, including, where applicable, proposed regulations, and the judicial
and administrative rulings and decisions now in effect, all of which are subject
to change or possible differing interpretations. The statutory provisions,
regulations, and interpretations on which this summary is based are subject to
change, and such a change could apply retroactively.
The summary does not purport to deal with all aspects of federal income
taxation that may affect particular investors in light of their individual
circumstances, nor with certain types of investors subject to special treatment
under the federal income tax laws. This summary focuses primarily upon investors
who will hold Securities as 'capital assets' (generally, property held for
investment) within the meaning of Section 1221 of the Code, but much of the
discussion is applicable to other investors as well. Prospective Investors are
advised to consult their own tax advisers concerning the federal, state, local
and any other tax consequences to them of the purchase, ownership and
disposition of the Securities.
The federal income tax consequences to Securityholders will vary depending
on whether (i) the Securities of a Series are classified as indebtedness;
(ii) an election is made to treat the Trust Fund relating to a particular Series
of Securities as a REMIC or as a FASIT; (iii) the Securities represent interests
in a grantor trust; or (iv) the Trust Fund relating to a particular Series of
Certificates is classified as a partnership. The Prospectus Supplement for each
Series of Securities will specify how the Securities will be treated for federal
income tax purposes and will discuss whether a REMIC or a FASIT election, if
any, will be made with respect to such Series. Prior to issuance of each Series
of Securities, the Depositor shall file with the Commission a Form 8-K on behalf
of the related Trust Fund containing an opinion of Brown & Wood LLP with respect
to the validity of the information set forth under 'Federal Income Tax
Consequences' herein and in the related Prospectus Supplement.
TAXATION OF DEBT SECURITIES
Interest and Acquisition Discount. Securities representing regular
interests in a REMIC are generally treated as evidences of indebtedness issued
by the REMIC. Securities representing regular interests in a FASIT are treated
as debt instruments. Stated interest on regular interests in REMICs and regular
interests in FASITs will be taxable as ordinary income and taken into account
using the accrual method of accounting, regardless of the Securityholder's
normal accounting method. Thus, a taxpayer may be required to report income in
respect of a FASIT or REMIC regular interest before actually receiving a
corresponding cash distribution. Interest (other than original issue discount)
on Securities (other than Regular Interest Securities) that are characterized as
indebtedness for federal income tax purposes will be includible in income by
holders thereof in accordance with their usual methods of accounting. Securities
characterized as debt for federal income tax purposes, including regular
interests in REMICs or FASITs, will be referred to hereinafter collectively as
'Debt Securities'.
Debt Securities that are Compound Interest Securities (i.e., debt securities
that accrete the amount of accrued interest and add that amount to the principal
balance of the securities until maturity or until some specified event has
occurred) will, and certain of the other Debt Securities may, be issued with
'original issue discount' ('OID'). The following discussion is based in part on
the rules governing OID which are set forth in Sections 1271-1275 of the Code
and the Treasury regulations issued thereunder, (the 'OID Regulations'). A
Securityholder should be aware, however, that the OID Regulations do not
adequately address certain issues relevant to prepayable securities, such as the
Debt Securities.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Debt Security and its issue price. A holder of
a Debt Security must include such OID in gross 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.
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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.
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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
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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
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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.
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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
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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
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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
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Disqualified Organizations from owning a Residual Interest Security. In
addition, no transfer of a Residual Interest Security will be permitted unless
the proposed transferee shall have furnished to the Trustee an affidavit
representing and warranting that it is neither a Disqualified Organization nor
an agent or nominee acting on behalf of a Disqualified Organization.
If a Residual Interest Security is transferred to a Disqualified
Organization after March 31, 1988 (in violation of the restrictions set forth
above), a substantial tax can be imposed on the transferor of such Residual
Interest Security at the time of the transfer. In addition, if a Disqualified
Organization holds an interest in a pass-through entity after March 31, 1988
(including, among others, a partnership, trust, real estate investment trust,
regulated investment company, or any person holding as nominee), that owns a
Residual Interest Security, the pass-through entity will be required to pay an
annual tax on its allocable share of the excess inclusion income of the REMIC.
Under the REMIC Regulations, if a Residual Interest Security is a
'noneconomic residual interest,' as described below, a transfer of a Residual
Interest Security to a United States person will be disregarded for all Federal
tax purposes unless no significant purpose of the transfer was to impede the
assessment or collection of tax. A Residual Interest Security is a 'noneconomic
residual interest' unless, at the time of the transfer (i) the present value of
the expected future distributions on the Residual Interest Security at least
equals the product of the present value of the anticipated excess inclusions and
the highest rate of tax for the year in which the transfer occurs and (ii) the
transferor reasonably expects that the transferee will receive distributions
from the REMIC at or after the time at which the taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes. If a
transfer of a Residual Interest is disregarded, the transferor would be liable
for any Federal income tax imposed upon taxable income derived by the transferee
from the REMIC. The REMIC Regulations provide no guidance as to how to determine
if a significant purpose of a transfer is to impede the assessment or collection
of tax. A similar type of limitation exists with respect to certain transfers of
residual interests by foreign persons to United States persons. See ' -- Tax
Treatment of Foreign Investors'.
Mark to Market Rules. Prospective purchasers of a REMIC Residual Interest
Security should be aware that a REMIC Residual Interest Security acquired after
January 3, 1995 cannot be marked-to-market.
ADMINISTRATIVE MATTERS
The REMIC's books must be maintained on a calendar year basis and the REMIC
must file an annual federal income tax return. The REMIC will also be subject to
the procedural and administrative rules of the Code applicable to partnerships,
including the determination of any adjustments to, among other things, items of
REMIC income, gain, loss, deduction, or credit, by the IRS in a unified
administrative proceeding.
TAXATION OF THE FASIT AND ITS HOLDERS
In the opinion of Brown & Wood LLP, special counsel to the Depositor, if a
FASIT election is made with respect to a Series of Securities, then the
arrangement by which the Securities of that Series are issued will be treated as
a FASIT so long as all of the provisions of the related Agreement are complied
with.
The Small Business and Job Protection Act of 1996 added Sections 860H
through 860L to the Code (the 'FASIT Provisions'), which provide for a new type
of entity for federal income tax purposes known as a 'financial asset
securitization investment trust' (a 'FASIT'). Although the FASIT provisions of
the Code became effective on September 1, 1997, no Treasury regulations or other
administrative guidance have been issued with respect to those provisions.
Accordingly, definitive guidance cannot be provided with respect to many aspects
of the tax treatment of FASIT regular interest holders. Investors should also
note that the FASIT discussion contained herein constitutes only a summary of
the U.S. federal income tax consequences to the holders of FASIT interests. With
respect to each Series of FASIT regular interests, the related Prospectus
Supplement will provide a detailed discussion regarding the federal income tax
consequences associated with the particular transaction.
FASIT interests will be classified as either FASIT regular interests, which
generally will be treated as debt for federal income tax purposes, or FASIT
ownership interests, which generally are not treated as debt for such purposes,
but rather as representing rights and responsibilities with respect to the
taxable income or loss of the related FASIT. The Prospectus Supplement for each
Series of Securities will indicate which Securities of such Series will be
designated as regular interests, and which, if any, will be designated as
ownership interests.
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Qualification as a FASIT. A Trust Fund will qualify as a FASIT if (i) a
FASIT election is in effect, (ii) certain tests concerning (A) the composition
of the FASIT's assets and (B) the nature of the investors' interests in the
FASIT are met on a continuing basis, and (iii) the Trust Fund is not a regulated
investment company as defined in Section 851(a) of the Code.
Asset Composition. For a Trust Fund to be eligible for FASIT status,
substantially all of the Trust Fund Assets must consist of 'permitted assets' as
of the close of the third month beginning after the closing date and at all
times thereafter (the 'FASIT Qualification Test'). Permitted assets include
(i) cash or cash equivalents, (ii) debt instruments with fixed terms that would
qualify as regular interests if issued by a REMIC (generally, instruments that
provide for interest at a fixed rate, a qualifying variable rate, or a
qualifying interest-only ('IO') type rate), (iii) foreclosure property,
(iv) certain hedging instruments (generally, interest and currency rate swaps
and credit enhancement contracts) that are reasonably required to guarantee or
hedge against the FASIT's risks associated with being the obligor on FASIT
interests, (v) contract rights to acquire qualifying debt instruments or
qualifying hedging instruments, (vi) FASIT regular interest, and (vii) REMIC
regular interests. Permitted assets do not include any debt instruments issued
by the holder of the FASIT's ownership interest or by any person related to such
holder.
Interests in a FASIT. In addition to the foregoing asset qualification
requirements, the interests in a FASIT also must meet certain requirements. All
of the interests in a FASIT must belong to either of the following: (i) one or
more classes of regular interests or (ii) a single class of ownership interest
that is held by a fully taxable domestic C Corporation.
A FASIT interest generally qualifies as a regular interest if (i) it is
designated as a regular interest, (ii) it has a stated maturity no greater than
thirty years, (iii) it entitles its holder to a specified principal amount,
(iv) the issue price of the interest does not exceed 125% of its stated
principal amount, (v) the yield to maturity of the interest is less than the
applicable Treasury rate published by the IRS plus 5%, and (vi) if it pays
interest, such interest is payable at either (a) a fixed rate with respect to
the principal amount of the regular interest or (b) a permissible variable rate
with respect to such principal amount. Permissible variable rates for FASIT
regular interests are the same as those for REMIC regular interests (i.e.,
certain qualified floating rates and weighted average rates). Interest will
generally be considered to be based on a permissible variable rate if (i) such
interest is unconditionally payable at least annually, (ii) the issue price of
the debt instrument does not exceed the total noncontingent principal payments
and (iii) interest is based on a 'qualified floating rate,' an 'objective rate,'
a combination of a single fixed rate and one or more 'qualified floating rate,'
one 'qualified inverse floating rate,' or a combination of 'qualified floating
rates' that do not operate in a manner that significantly accelerates or defers
interest payments on such FASIT regular interest.
If an interest in a FASIT fails to meet one or more of the requirements set
out in clauses (iii), (iv), or (v) in the immediately preceding paragraph, but
otherwise meets all requirements to be treated as a FASIT, it may still qualify
as a type of regular interest known as a 'High-Yield Interest'. In addition, if
an interest in a FASIT fails to meet the requirement of clause (vi), but the
interest payable on the interest consists of a specified portion of the interest
payments on permitted assets and that portion does not vary over the life of the
security, the interest will also qualify as a High-Yield Interest. A High-Yield
Interest may be held only by domestic C corporations that are fully subject to
corporate income tax ('Eligible Corporations'), other FASITs, and dealers in
securities who acquire such interests as inventory, rather than for investment.
In addition, holders of High-Yield Interests are subject to limitations on of
income derived from such interest.
Consequences of Disqualification. If a Trust Fund fails to comply with one
or more of ongoing requirements for FASIT status during any taxable year, the
Code provides that its FASIT status may be lost for that year and thereafter. If
FASIT status is lost, the treatment of the former FASIT and interests therein
for federal income tax purposes is uncertain. Although the Code authorizes the
Treasury to issue regulations that address situations where a failure to meet
the requirements for FASIT status occurs inadvertently and in good faith, such
regulations have not yet been issued. It is possible that disqualification
relief might be accompanied by sanctions, such as the imposition of a corporate
tax on all or a portion of the FASIT's income for the period of time in which
the requirements for FASIT status are not satisfied.
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TREATMENT OF FASIT REGULAR INTERESTS
Payments received by holders of FASIT regular interests generally will be
accorded the same tax treatment under the Code as payments received on other
taxable debt instruments. Holders of FASIT regular interests must report income
from such Securities under an accrual method of accounting, even if they
otherwise would have used the cash receipts and disbursements method. If the
FASIT regular interests is sold, the holder generally will recognize gain or
loss upon the sale. See ' -- Taxation of Debt Securities' above.
TREATMENT OF HIGH-YIELD INTEREST
High-Yield Interests are subject to special rules regarding the eligibility
of holders of such interest, and the ability of such holders to offset income
derived from those interests with losses. High-Yield Interests only may be held
by Eligible Corporations, other FASITs, and dealers in securities who acquire
such interests as inventory. If a securities dealer (other than an Eligible
Corporation) initially acquires a High-Yield Interest as inventory, but later
begins to hold it for investment, the dealer will be subject to an excise tax
equal to the income from the High-Yield Interest multiplied by the highest
corporate income tax rate. In addition, transfers of High-Yield Interests to
disqualified holders will be disregarded for federal income tax purposes, and
the transferor will continue to be treated as the holder of the High-Yield
Interest.
The holder of a High-Yield Interest may not use non-FASIT current losses or
net operating loss carryforwards or carrybacks to offset any income derived from
the High-Yield Interest, for either regular federal income tax purposes or for
alternative minimum tax purposes. In addition, the FASIT provisions contain an
anti-abuse rule that imposes corporate income tax on income derived from a FASIT
regular interest that is held by a pass-through entity (other than another
FASIT) that issues debt or equity securities backed by the FASIT regular
interest and that have the same features as High-Yield Interests.
TAX TREATMENT OF FASIT OWNERSHIP INTERESTS
A FASIT ownership interest represents the residual equity interest in a
FASIT. As such, the holder of a FASIT ownership interest determines its taxable
income by taking into account all assets, liabilities, and items of income,
gain, deduction, loss, and credit of a FASIT. In general, the character of the
income to the holder of a FASIT ownership interest will be the same as the
character of such income to the FASIT, except that any tax-exempt interest
income taken into account by the holder of a FASIT ownership interest is treated
as ordinary income. In determining that taxable income, the holder of a FASIT
ownership interest must determine the amount of interest, original issue
discount, market discount, and premium recognized with respect to the FASIT's
assets and the FASIT regular interests issued by the FASIT according to a
constant yield methodology and under an accrual method of accounting. In
addition, holders of FASIT Ownership Securities are subject to the same
limitations on their ability to use losses to offset income from their FASIT
regular interests as are holders of High-Yield Interest.
Rules similar to the wash sale rules applicable to REMIC residual interests
also will apply to FASIT ownership interests. Accordingly, losses on
dispositions of a FASIT ownership interest generally will be disallowed where
within six months before or after the disposition, the seller of such interest
acquires any other FASIT ownership interest that is economically comparable to a
FASIT ownership interest. In addition, if any security that is sold or
contributed to a FASIT by the holders of the related FASIT ownership interest
was required to be marked-to-market under section 475 of the Code by such
holder, then section 475 of the Code will continue to apply to such securities,
except that the amount realized under the mark-to-market rules or the
securities' value after applying special valuation rules contained in the FASIT
provisions. Those special valuation rules generally require that the value of
debt instruments that are not traded on an established securities market be
determined by calculating the present value of the reasonably expected payments
under the instrument using a discount rate of 120% of the applicable Federal
rate, compounded semi-annually.
The holder of a FASIT ownership interest will be subject to a tax equal to
100% of the net income derived by the FASIT from any 'prohibited transactions'.
Prohibited transactions include (i) the receipt of income derived from assets
that are not permitted assets, (ii) certain dispositions of permitted assets,
(iii) the receipt of any income derived from any loan originated by a FASIT, and
(iv) in certain cases, the receipt of income representing a servicing fee or
other compensation. Any Series of Securities for which a FASIT election is made
generally will be structured in order to avoid application of the prohibited
transaction tax.
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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,
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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.
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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
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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
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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
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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).
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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
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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
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locality. Therefore, potential investors should consult their own tax advisors
with respect to the various state and local tax consequences of an investment in
the Securities.
ERISA CONSIDERATIONS
The following describes certain considerations under ERISA and the Code,
which apply only to Securities of a Series that are not divided into subclasses.
If Securities are divided into subclasses the related Prospectus Supplement will
contain information concerning considerations relating to ERISA and the Code
that are applicable to such Securities.
ERISA imposes requirements on employee benefit plans (and on certain other
retirement plans and arrangements, including individual retirement accounts and
annuities, Keogh plans and collective investment funds and separate accounts in
which such plans, accounts or arrangements are invested) (collectively 'Plans')
subject to ERISA and on persons who are fiduciaries with respect to such Plans.
Generally, ERISA applies to investments made by Plans. Among other things, ERISA
requires that the assets of Plans be held in trust and that the trustee, or
other duly authorized fiduciary, have exclusive authority and discretion to
manage and control the assets of such Plans. ERISA also imposes certain duties
on persons who are fiduciaries of Plans. Under ERISA, any person who exercises
any authority or control respecting the management or disposition of the assets
of a Plan is considered to be a fiduciary of such Plan (subject to certain
exceptions not here relevant). Certain employee benefit plans, such as
governmental plans (as defined in ERISA Section 3(32)) and, if no election has
been made under Section 410(d) of the Code, church plans (as defined in ERISA
Section 3(33)), are not subject to ERISA requirements. Accordingly, assets of
such plans may be invested in Securities without regard to the ERISA
considerations described above and below, subject to the provisions of
applicable state law. Any such plan which is qualified and exempt from taxation
under Code Sections 401(a) and 501(a), however, is subject to the prohibited
transaction rules set forth in Code Section 503.
On November 13, 1986, the United States Department of Labor (the 'DOL')
issued final regulations concerning the definition of what constitutes the
assets of a Plan. (Labor Reg. Section 2510.3-101) Under this regulation, the
underlying assets and properties of corporations, partnerships and certain other
entities in which a Plan makes an 'equity' investment could be deemed for
purposes of ERISA to be assets of the investing Plan in certain circumstances.
However, the regulation provides that, generally, the assets of a corporation or
partnership in which a Plan invests will not be deemed for purposes of ERISA to
be assets of such Plan if the equity interest acquired by the investing Plan is
a publicly-offered security. A publicly-offered security, as defined in the
Labor Reg. Section 2510.3-101, is a security that is widely held, freely
transferable and registered under the Securities Exchange Act of 1934, as
amended.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA prohibits a broad range of transactions
involving Plan assets and persons ('Parties in Interest') having certain
specified relationships to a Plan and imposes additional prohibitions where
Parties in Interest are fiduciaries with respect to such Plan. Because the Loans
may be deemed Plan assets of each Plan that purchases Securities, an investment
in the Securities by a Plan might be a prohibited transaction under ERISA
Sections 406 and 407 and subject to an excise tax under Code Section 4975 unless
a statutory or administrative exemption applies.
In Prohibited Transaction Exemption 83-1 ('PTE 83-1'), which amended
Prohibited Transaction Exemption 81-7, the DOL exempted from ERISA's prohibited
transaction rules certain transactions relating to the operation of residential
mortgage pool investment trusts and the purchase, sale and holding of 'mortgage
pool pass-through certificates' in the initial issuance of such certificates.
PTE 83-1 permits, subject to certain conditions, transactions which might
otherwise be prohibited between Plans and Parties in Interest with respect to
those Plans related to the origination, maintenance and termination of mortgage
pools consisting of mortgage loans secured by first or second mortgages or deeds
of trust on single-family residential property, and the acquisition and holding
of certain mortgage pool pass-through certificates representing an interest in
such mortgage pools by Plans. If the general conditions (discussed below) of
PTE 83-1 are satisfied, investments by a Plan in Securities that represent
interests in a Pool consisting of Loans ('Single Family Securities') will be
exempt from the prohibitions of ERISA Sections 406(a) and 407 (relating
generally to transactions with Parties in Interest who are not fiduciaries) if
the Plan purchases the Single Family Securities at no more than fair market
value and will be exempt from the prohibitions of ERISA Sections 406(b)(1) and
(2) (relating generally to transactions with fiduciaries) if, in addition, the
purchase is approved by an independent fiduciary, no sales
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commission is paid to the pool sponsor, the Plan does not purchase more than 25%
of all Single Family Securities, and at least 50% of all Single Family
Securities are purchased by persons independent of the pool sponsor or pool
trustee. PTE 83-1 does not provide an exemption for transactions involving
Subordinate Securities. Accordingly, unless otherwise provided in the related
Prospectus Supplement, no transfer of a Subordinate Security or a Security which
is not a Single Family Security may be made to a Plan.
The discussion in this and the next succeeding paragraph applies only to
Single Family Securities. The Depositor believes that, for purposes of
PTE 83-1, the term 'mortgage pass-through certificate' would include:
(i) Securities issued in a Series consisting of only a single class of
Securities; and (ii) Securities issued in a Series in which there is only one
class of those particular Securities; provided that the Securities in the case
of clause (i), or the Securities in the case of clause (ii), evidence the
beneficial ownership of both a specified percentage of future interest payments
(greater than 0%) and a specified percentage (greater than 0%) of future
principal payments on the Loans. It is not clear whether a class of Securities
that evidences the beneficial ownership in a Trust Fund divided into Loan
groups, beneficial ownership of a specified percentage of interest payments only
or principal payments only, or a notional amount of either principal or interest
payments, or a class of Securities entitled to receive payments of interest and
principal on the Loans only after payments to other classes or after the
occurrence of certain specified events would be a 'mortgage pass-through
certificate' for purposes of PTE 83-1.
PTE 83-1 sets forth three general conditions which must be satisfied for any
transaction to be eligible for exemption: (i) the maintenance of a system of
insurance or other protection for the pooled mortgage loans and property
securing such loans, and for indemnifying Securityholders against reductions in
pass-through payments due to property damage or defaults in loan payments in an
amount not less than the greater of one percent of the aggregate principal
balance of all covered pooled mortgage loans or the principal balance of the
largest covered pooled mortgage loan; (ii) the existence of a pool trustee who
is not an affiliate of the pool sponsor; and (iii) a limitation on the amount of
the payment retained by the pool sponsor, together with other funds inuring to
its benefit, to not more than adequate consideration for selling the mortgage
loans plus reasonable compensation for services provided by the pool sponsor to
the Pool. The Depositor believes that the first general condition referred to
above will be satisfied with respect to the Securities in a Series issued
without a subordination feature, or the Securities only in a Series issued with
a subordination feature, provided that the subordination and Reserve Account,
subordination by shifting of interests, the pool insurance or other form of
credit enhancement described under 'Credit Enhancement' herein (such
subordination, pool insurance or other form of credit enhancement being the
system of insurance or other protection referred to above) with respect to a
Series of Securities is maintained in an amount not less than the greater of one
percent of the aggregate principal balance of the Loans or the principal balance
of the largest Loan. See 'Description of the Securities' herein. In the absence
of a ruling that the system of insurance or other protection with respect to a
Series of Securities satisfies the first general condition referred to above,
there can be no assurance that these features will be so viewed by the DOL. The
Trustee will not be affiliated with the Depositor.
Each Plan fiduciary who is responsible for making the investment decisions
whether to purchase or commit to purchase and to hold Single Family Securities
must make its own determination as to whether the first and third general
conditions, and the specific conditions described briefly in the preceding
paragraph, of PTE 83-1 have been satisfied, or as to the availability of any
other prohibited transaction exemptions. Each Plan fiduciary should also
determine whether, under the general fiduciary standards of investment prudence
and diversification, an investment in the Securities is appropriate for the
Plan, taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
The DOL has granted to certain underwriters individual administrative
exemptions (the 'Underwriter Exemptions') from certain of the prohibited
transaction rules of ERISA and the related excise tax provisions of
Section 4975 of the Code with respect to the initial purchase, the holding and
the subsequent resale by Plans of certificates in pass-through trusts that
consist of certain receivables, loans and other obligations that meet the
conditions and requirements of the Underwriter Exemptions.
While each Underwriter Exemption is an individual exemption separately
granted to a specific underwriter, the terms and conditions which generally
apply to the Underwriter Exemptions are substantially identical, and include the
following:
(1) the acquisition of the certificates by a Plan is on terms (including
the price for the certificates) that are at least as favorable to the Plan
as they would be in an arm's-length transaction with an unrelated party;
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(2) the rights and interest evidenced by the certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by other
certificates of the trust fund;
(3) the certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic rating
categories from Standard & Poor's Ratings Group, a Division of The
McGraw-Hill Companies ('S&P'), Moody's Investors Service, Inc. ('Moody's'),
Duff & Phelps Credit Rating Co. ('DCR') or Fitch IBCA, Inc. ('Fitch');
(4) the trustee must not be an affiliate of any other member of the
Restricted Group as defined below;
(5) the sum of all payments made to and retained by the underwriters in
connection with the distribution of the certificates represents not more
than reasonable compensation for underwriting the certificates; the sum of
all payments made to and retained by the seller pursuant to the assignment
of the loans to the trust fund represents not more than the fair market
value of such loans; the sum of all payments made to and retained by the
servicer and any other servicer represents not more than reasonable
compensation for such person's services under the agreement pursuant to
which the loans are pooled and reimbursements of such person's reasonable
expenses in connection therewith; and
(6) the Plan investing in the certificates is an 'accredited investor'
as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933 as amended.
The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist solely of assets of the
type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been rated in
one of the three highest rating categories of S&P, Moody's, Fitch or DCR for
at least one year prior to the Plan's acquisition of certificates; and
(iii) certificates evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at least one year
prior to any Plan's acquisition of certificates.
Moreover, the Underwriter Exemptions generally provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when
the Plan fiduciary causes a Plan to acquire certificates in a trust as to which
the fiduciary (or its affiliate) is an obligor on the receivables held in the
trust provided that, among other requirements: (i) in the case of an acquisition
in connection with the initial issuance of certificates, at least fifty percent
(50%) of each class of certificates in which Plans have invested is acquired by
persons independent of the Restricted Group, (ii) such fiduciary (or its
affiliate) is an obligor with respect to five percent (5%) or less of the fair
market value of the obligations contained in the trust; (iii) the Plan's
investment in certificates of any class does not exceed twenty-five percent
(25%) of all of the certificates of that class outstanding at the time of the
acquisition; and (iv) immediately after the acquisition, no more than
twenty-five percent (25%) of the assets of the Plan with respect to which such
person is a fiduciary is invested in certificates representing an interest in
one or more trusts containing assets sold or serviced by the same entity. The
Underwriter Exemptions do not apply to Plans sponsored by the Seller, the
related Underwriter, the Trustee, the Master Servicer, any insurer with respect
to the Loans, any obligor with respect to Loans included in the Trust Fund
constituting more than five percent (5%) of the aggregate unamortized principal
balance of the assets in the Trust Fund, or any affiliate of such parties (the
'Restricted Group').
The Prospectus Supplement for each Series of Securities will indicate the
classes of Securities, if any, offered thereby as to which it is expected that
an Underwriter Exemption will apply.
The Underwriter Exemption contains several requirements, some of which
differ from those in PTE 83-l. The Underwriter Exemption contains an expanded
definition of 'certificate' which includes an interest which entitles the holder
to pass-through payments of principal, interest and/or other payments. The
Underwriter Exemption contains an expanded definition of 'trust' which permits
the trust corpus to consist of secured consumer receivables. The definition of
'trust,' however, does not include any investment pool unless, inter alia,
(i) the investment pool consists only of assets of the type which have been
included in other investment pools, (ii) certificates evidencing interests in
such other investment pools have been purchased by investors other than Plans
for at least one year prior to the Plan's acquisition of certificates pursuant
to the Underwriter Exemption and (iii) certificates in such other investment
pools have been rated in one of the three highest generic rating categories of
the four credit rating agencies noted below. Generally, the Underwriter
Exemption holds that the
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acquisition of the certificates by a Plan must be on terms (including the price
for the certificates) that are at least as favorable to the Plan as they would
be in an arm's length transaction with an unrelated party. The Underwriter
Exemption requires that the rights and interests evidenced by the certificates
not be 'subordinated' to the rights and interests evidenced by other
certificates of the same trust. The Underwriter Exemption requires that
certificates acquired by a Plan have received a rating at the time of their
acquisition that is in one of the three highest generic rating categories of
S&P, Moody's, Fitch or DCR. The Underwriter Exemption specifies that the pool
trustee must not be an affiliate of the pool sponsor, nor an affiliate of the
Underwriter, the pool servicer, any obligor with respect to mortgage loans
included in the trust constituting more than five percent of the aggregate
unamortized principal balance of the assets in the trust, or any affiliate of
such entities. Finally, the Underwriter Exemption stipulates that any Plan
investing in the certificates must be an 'accredited investor' as defined in
Rule 501(a)(1) of Regulation D of the Securities and Exchange Commission under
the Securities Act of 1933.
On July 21, 1997, the DOL published in the Federal Register an amendment to
the Underwriter Exemption which extends exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. The amendment generally
allows mortgage loans or other secured receivables (the 'obligations')
supporting payments to certificate-holders, and having a value equal to no more
than twenty-five percent (25%) of the total principal amount of the certificates
being offered by the trust, to be transferred to the trust within a 90-day or
three-month period following the closing date (the 'pre-funding period') instead
of requiring that all such obligations be either identified or transferred on or
before the closing date. The relief is available when the following conditions
are met:
(1) The ratio of the amount allocated to the pre-funding account to the
total principal amount of the certificates being offered (the 'pre-funding
limit') must not exceed twenty-five percent (25%).
(2) All obligations transferred after the closing date (the 'additional
obligations') must meet the same terms and conditions for eligibility as the
original obligations used to create the trust, which terms and conditions
have been approved by a rating agency.
(3) The transfer of such additional obligations to the trust during the
pre-funding period must not result in the certificates to be covered by the
Underwriter Exemption receiving a lower credit rating from a rating agency
upon termination of the pre-funding period than the rating that was obtained
at the time of the initial issuance of the certificates by the trust.
(4) Solely as a result of the use of pre-funding, the weighted average
annual percentage interest rate (the 'average interest rate') for all of the
obligations in the trust at the end of the pre-funding period must not be
more than 1.0% lower than the average interest rate for the obligations
which were transferred to the trust on the closing date.
(5) In order to ensure that the characteristics of the additional
obligations are substantially similar to the original obligations which were
transferred to the trust,
(i) the characteristics of the additional obligations must be
monitored by an insurer or other credit support provider which is
independent of the depositor; or
(ii) an independent accountant retained by the depositor must provide
the depositor with a letter (with copies provided to each rating agency
rating the certificates, the related underwriter and the related trustee)
stating whether or not the characteristics of the additional obligations
conform to the characteristics described in the related prospectus or
prospectus supplement and/or pooling and servicing agreement. In
preparing such letter, the independent accountant must use the same type
of procedures as were applicable to the obligations which were
transferred to the trust as of the closing date.
(6) The pre-funding period must end no later than three months or 90
days after the closing date or earlier in certain circumstances if the
pre-funding account falls below the minimum level specified in the pooling
and servicing agreement or an event of default occurs.
(7) Amounts transferred to any pre-funding account and/or capitalized
interest account used in connection with the pre-funding may be invested
only in certain permitted investments.
(8) The related prospectus supplement must describe:
(i) any pre-funding account and/or capitalized interest account used
in connection with a pre-funding account;
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(ii) the duration of the pre-funding period;
(iii) the percentage and/or dollar amount of the pre-funding Limit
for the trust; and
(iv) that the amount remaining in the pre-funding account at the end
of the pre-funding period will be remitted to certificate holders as
repayments of principal.
(9) The related pooling and servicing agreement must describe the
permitted investments for the pre-funding account and/or capitalized
interest account and, if not disclosed in the related prospectus or
prospectus supplement, the terms and conditions for eligibility of
additional obligations.
Any Plan fiduciary which proposes to cause a Plan to purchase Securities
should consult with its counsel concerning the impact of ERISA and the Code, the
applicability of PTE 83-1 and the Underwriter Exemption, and the potential
consequences in their specific circumstances, prior to making such investment.
Moreover, each Plan fiduciary should determine whether under the general
fiduciary standards of investment prudence and diversification an investment in
the Securities is appropriate for the Plan, taking into account the overall
investment policy of the Plan and the composition of the Plan's investment
portfolio.
LEGAL INVESTMENT
The Prospectus Supplement for each series of Securities will specify which,
if any, of the classes of Securities offered thereby constitute 'mortgage
related securities' for purposes of the Secondary Mortgage Market Enhancement
Act of 1984 ('SMMEA'). Classes of Securities that qualify as 'mortgage related
securities' will be legal investments for persons, trusts, corporations,
partnerships, associations, business trusts, and business entities (including
depository institutions, life insurance companies and pension funds) created
pursuant to or existing under the laws of the United States or of any state
(including the District of Columbia and Puerto Rico) whose authorized
investments are subject to state regulations to the same extent as, under
applicable law, obligations issued by or guaranteed as to principal and interest
by the United States or any such entities. Under SMMEA, if a state enacts
legislation prior to October 4, 1991 specifically limiting the legal investment
authority of any such entities with respect to 'mortgage related securities,'
securities will constitute legal investments for entities subject to such
legislation only to the extent provided therein. Approximately twenty-one states
adopted such legislation prior to the October 4, 1991 deadline. SMMEA provides,
however, that in no event will the enactment of any such legislation affect the
validity of any contractual commitment to purchase, hold or invest in
securities, or require the sale or other disposition of securities, so long as
such contractual commitment was made or such securities were acquired prior to
the enactment of such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in Securities
without limitations as to the percentage of their assets represented thereby,
federal credit unions may invest in mortgage related securities, and national
banks may purchase securities for their own account without regard to the
limitations generally applicable to investment securities set forth in
12 U.S.C. 24 (Seventh), subject in each case to such regulations as the
applicable federal authority may prescribe. In this connection, federal credit
unions should review the National Credit Union Administration ('NCUA') Letter to
Credit Unions No. 96, as modified by Letter to Credit Unions No. 108, which
includes guidelines to assist federal credit unions in making investment
decisions for mortgage related securities and the NCUA's regulation 'Investment
and Deposit Activities' (12 C.F.R. Part 703), which sets forth certain
restrictions on investment by federal credit unions in mortgage related
securities (in each case whether or not the class of Securities under
consideration for purchase constituted a 'mortgage related security'). The NCUA
issued final regulations effective December 2, 1991 that restrict and in some
instances prohibit the investment by Federal Credit Unions in certain types of
mortgage related securities.
All depository institutions considering an investment in the Securities
(whether or not the class of Securities under consideration for purchase
constitutes a 'mortgage related security') should review the Federal Financial
Institutions Examination Council's Supervisory Policy Statement on the
Securities Activities (to the extent adopted by their respective regulators)
(the 'Policy Statement') setting forth, in relevant part, certain securities
trading and sales practices deemed unsuitable for an institution's investment
portfolio, and guidelines for (and restrictions on) investing in mortgage
derivative products, including 'mortgage related securities,' which are
'high-risk mortgage securities' as defined in the Policy Statement. According to
the Policy Statement, such 'high-risk mortgage securities' include securities
such as Securities not entitled to distributions allocated
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to principal or interest, or Subordinated Securities. Under the Policy
Statement, it is the responsibility of each depository institution to determine,
prior to purchase (and at stated intervals thereafter), whether a particular
mortgage derivative product is a 'high-risk mortgage security,' and whether the
purchase (or retention) of such a product would be consistent with the Policy
Statement.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to 'prudent investor' provisions, percentage-of-assets limits and provisions
which may restrict or prohibit investment in securities which are not 'interest
bearing' or 'income paying,' or in securities which are issued in book-entry
form.
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Securities or to purchase
Securities representing more than a specified percentage of the investor's
assets. Investors should consult their own legal advisors in determining whether
and to what extent the Securities constitute legal investments for such
investors.
METHOD OF DISTRIBUTION
Securities are being offered hereby in Series from time to time (each Series
evidencing or relating to a separate Trust Fund) through any of the following
methods:
1. By negotiated firm commitment underwriting and public reoffering by
underwriters;
2. By agency placements through one or more placement agents primarily
with institutional investors and dealers; and
3. By placement directly by the Depositor with institutional investors.
A Prospectus Supplement will be prepared for each Series which will describe
the method of offering being used for that Series and will set forth the
identity of any underwriters thereof and either the price at which such Series
is being offered, the nature and amount of any underwriting discounts or
additional compensation to such underwriters and the proceeds of the offering to
the Depositor, or the method by which the price at which the underwriters will
sell the Securities will be determined. Each Prospectus Supplement for an
underwritten offering will also contain information regarding the nature of the
underwriters' obligations, any material relationship between the Depositor and
any underwriter and, where appropriate, information regarding any discounts or
concessions to be allowed or reallowed to dealers or others and any arrangements
to stabilize the market for the Securities so offered. In firm commitment
underwritten offerings, the underwriters will be obligated to purchase all of
the Securities of such Series if any such Securities are purchased. Securities
may be acquired by the underwriters for their own accounts and may be resold
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. In addition, if so stated in the related Prospectus
Supplement, such Prospectus Supplement and this Prospectus may be used by
Countrywide Securities Corporation, an affiliate of IndyMac ABS, Inc. and
IndyMac, Inc., in connection with offers and sales related to market making
transactions in the Securities in which Countrywide Securities Corporation acts
as principal. Countrywide Securities Corporation may also act as agent in such
transactions. Sales in such transactions will be made at prices related to
prevailing prices at the time of sale.
Underwriters and agents may be entitled under agreements entered into with
the Depositor to indemnification by the Depositor against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribution with respect to payments which such underwriters or agents
may be required to make in respect thereof.
If a Series is offered other than through underwriters, the Prospectus
Supplement relating thereto will contain information regarding the nature of
such offering and any agreements to be entered into between the Depositor and
purchasers of Securities of such Series.
LEGAL MATTERS
The validity of the Securities of each Series, including certain federal
income tax consequences with respect thereto, will be passed upon for the
Depositor by Brown & Wood LLP, One World Trade Center, New York, New York 10048.
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FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of Securities
and no Trust Fund will engage in any business activities or have any assets or
obligations prior to the issuance of the related Series of Securities.
Accordingly, no financial statements with respect to any Trust Fund will be
included in this Prospectus or in the related Prospectus Supplement.
RATING
It is a condition to the issuance of the Securities of each Series offered
hereby and by the Prospectus Supplement that they shall have been rated in one
of the four highest rating categories by the nationally recognized statistical
rating agency or agencies (each, a 'Rating Agency') specified in the related
Prospectus Supplement.
Any such rating would be based on, among other things, the adequacy of the
value of the Trust Fund Assets and any credit enhancement with respect to such
class and will reflect such Rating Agency's assessment solely of the likelihood
that holders of a class of Securities of such class will receive payments to
which such Securityholders are entitled under the related Agreement. Such rating
will not constitute an assessment of the likelihood that principal prepayments
on the related Loans will be made, the degree to which the rate of such
prepayments might differ from that originally anticipated or the likelihood of
early optional termination of the Series of Securities. Such rating should not
be deemed a recommendation to purchase, hold or sell Securities, inasmuch as it
does not address market price or suitability for a particular investor. Each
security rating should be evaluated independently of any other security rating.
Such rating will not address the possibility that prepayment at higher or lower
rates than anticipated by an investor may cause such investor to experience a
lower than anticipated yield or that an investor purchasing a Security at a
significant premium might fail to recoup its initial investment under certain
prepayment scenarios.
There is also no assurance that any such rating will remain in effect for
any given period of time or that it may not be lowered or withdrawn entirely by
the Rating Agency in the future if in its judgment circumstances in the future
so warrant. In addition to being lowered or withdrawn due to any erosion in the
adequacy of the value of the Trust Fund Assets or any credit enhancement with
respect to a Series, such rating might also be lowered or withdrawn among other
reasons, because of an adverse change in the financial or other condition of a
credit enhancement provider or a change in the rating of such credit enhancement
provider's long term debt.
The amount, type and nature of credit enhancement, if any, established with
respect to a Series of Securities will be determined on the basis of criteria
established by each Rating Agency rating classes of such Series. Such criteria
are sometimes based upon an actuarial analysis of the behavior of mortgage loans
in a larger group. Such analysis is often the basis upon which each Rating
Agency determines the amount of credit enhancement required with respect to each
such class. There can be no assurance that the historical data supporting any
such actuarial analysis will accurately reflect future experience nor any
assurance that the data derived from a large pool of mortgage loans accurately
predicts the delinquency, foreclosure or loss experience of any particular pool
of Loans. No assurance can be given that values of any Properties have remained
or will remain at their levels on the respective dates of origination of the
related Loans. If the residential real estate markets should experience an
overall decline in property values such that the outstanding principal balances
of the Loans in a particular Trust Fund and any secondary financing on the
related Properties become equal to or greater than the value of the Properties,
the rates of delinquencies, foreclosures and losses could be higher than those
now generally experienced in the mortgage lending industry. In additional,
adverse economic conditions (which may or may not affect real property values)
may affect the timely payment by mortgagors of scheduled payments of principal
and interest on the Loans and, accordingly, the rates of delinquencies,
foreclosures and losses with respect to any Trust Fund. To the extent that such
losses are not covered by credit enhancement, such losses will be borne, at
least in part, by the holders of one or more classes of the Securities of the
related Series.
98
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INDEX OF DEFINED TERMS
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<S> <C>
Accretion Directed................. 35
Accrual............................ 36
Accrual Securities................. 32
Advance............................ 10
Agreement.......................... 22
APR................................ 26
Available Funds.................... 31
Balloon Payment.................... 24
Bankruptcy Code.................... 20
Belgian Cooperative................ 41
Beneficial Owner................... 40
BIF................................ 50
Book-Entry Securities.............. 40
Buydown Fund....................... 24
Buydown Loans...................... 24
Calculation Agent.................. 36
Capitalized Interest Account....... 51
Cash Flow Bond Method.............. 85
CERCLA............................. 17, 63
Certificates....................... 1, 5, 22
Claimable Amount................... 72
Class Security Balance............. 32
Clearstream, Luxembourg
Participants..................... 41
Closed-End Loans................... 5, 23
Closing Date....................... 20
Code............................... 11
COFI Securities.................... 38
Collateral Value................... 26
Combined Loan-to-Value Ratio....... 26
Commission......................... 3
Component Securities............... 35
Components......................... 35
Cooperative Loans.................. 23
Cooperatives....................... 23
Cut-off Date....................... 5, 22
Cut-off Date Principal Balance..... 30
DCR................................ 94
Debt Securities.................... 73
Definitive Security................ 40
Depositor.......................... 1, 27
Derivative Transactions............ 21,39
Detailed Description............... 23
Distribution Date.................. 7
DOL................................ 92
DTC................................ 19, 40
Eleventh District.................. 37
Eligible Corporation............... 12, 82
EPA................................ 63
ERISA.............................. 13
Euroclear Operator................. 41
Euroclear Participants............. 41
European Depositaries.............. 40
Exchange Act....................... 3
FASIT.............................. 2, 81
FASIT Provisions................... 81
FDIC............................... 28
FHA................................ 9
FHLBSF............................. 38
FHLMC.............................. 28
Financial Intermediary............. 40
Fitch.............................. 94
Fixed Rate......................... 36
Floating Rate...................... 36
FNMA............................... 28
Funding Period..................... 20
Garn-St Germain Act................ 65
Holder in Due Course Rules......... 18
Home Equity Loans.................. 1, 5, 23
Home Improvement Contracts......... 1, 6
Home Improvements.................. 1
Indenture.......................... 29
Installment Contract............... 68
Insurance Proceeds................. 50
Insured Expenses................... 50
Interest Only...................... 36
Interest Weighted Securities....... 76
Inverse Floating Rate.............. 36
L/C Bank........................... 9, 44
L/C Percentage..................... 9, 44
Liquidation Expenses............... 50
Liquidation Proceeds............... 50
Loan Rate.......................... 7, 23
Loans.............................. 1
Loan-to-Value Ratio................ 26
Lockout periods.................... 24
Master Servicer.................... 5
Master Servicing Agreement......... 22
Master Servicing Fee............... 55
Moody's............................ 94
Morgan............................. 41
Mortgage........................... 48
Mortgaged Properties............... 24
Multifamily Loans.................. 1, 5
National Cost of Funds Index....... 38
NCUA............................... 96
Nonresidents....................... 87
Notes.............................. 1, 5, 22
Notional Amount Securities......... 35
OID................................ 11, 73
OID Regulations.................... 73
OTS................................ 38
PACs............................... 35
</TABLE>
99
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<TABLE>
<CAPTION>
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<S> <C>
Partial Accrual.................... 36
Parties in Interest................ 92
Pass-Through Rate.................. 22
Pass-Through Securities............ 84
Pay-Through Security............... 75
Percentage Interests............... 57
Permitted Investments.............. 44
Planned Principal Class............ 35
Plans.............................. 92
Policy Statement................... 96
Pool............................... 5, 22
Pool Insurance Policy.............. 45
Pool Insurer....................... 45
Pooling and Servicing Agreement.... 29
Pre-Funded Amount.................. 20
Pre-Funding Account................ 5, 20
Prepayment Assumption.............. 75
Primary Mortgage Insurance
Policy........................... 24
Prime Rate......................... 39
Principal Only..................... 36
Principal Prepayments.............. 32
Properties......................... 6, 24
Property Improvement Loans......... 69
PTE 83-1........................... 92
Purchase Price..................... 29
Rating Agency...................... 98
Ratio Strip Securities............. 85
RCRA............................... 64
Record Date........................ 30
Reference Banks.................... 36
Refinance Loan..................... 26
Relevant Depositary................ 40
Relief Act......................... 68
REMIC.............................. 2
Reserve Account.................... 8, 31
Residual Interest Security......... 79
Restricted Group................... 94
Retained Interest.................. 30
Revolving Credit Line Loans........ 5, 23
Riegle Act......................... 18
Rules.............................. 40
S&P................................ 94
SAIF............................... 50
Scheduled Principal Class.......... 35
Securities......................... 1, 5, 22
Security Account................... 49
Security Owners.................... 40
Security Register.................. 30
Securityholders.................... 40
Seller............................. 1
Sellers............................ 22
Senior Securities.................. 6, 43
Sequential Pay..................... 35
Servicing Fee...................... 84
Single Family Loans................ 1, 5
Single Family Properties........... 25
Single Family Securities........... 92
SMMEA.............................. 11, 96
Strip.............................. 35
Stripped Securities................ 84
Subordinated Securities............ 6
Subsequent Loans................... 20
Sub-Servicer....................... 10
Sub-Services....................... 22
Sub-Servicing Agreement............ 52
Support Class...................... 35
TACs............................... 35
Targeted Principal Class........... 35
Terms and Conditions............... 42
TIN................................ 86
Title I Loans...................... 69
Title I Program.................... 69
Title V............................ 66, 67
Trust Agreement.................... 22, 29
Trust Fund......................... 1
Trust Fund Assets.................. 1, 5, 22
Trustee............................ 5, 29
U.S. Person........................ 91
UCC................................ 63
Underwriter Exemptions............. 93
VA................................. 9
VA Guaranty........................ 55
Variable Rate...................... 36
</TABLE>
100
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
HOME EQUITY MORTGAGE LOAN ASSET-BACKED TRUST,
SERIES SPMD 2000-B
ISSUER
INDYMAC ABS, INC.
DEPOSITOR
INDYMAC [LOGO]
SELLER AND MASTER SERVICER
$294,939,100
HOME EQUITY MORTGAGE LOAN ASSET-BACKED CERTIFICATES,
SERIES SPMD 2000-B
-----------------------------
PROSPECTUS SUPPLEMENT
-----------------------------
BANC OF AMERICA SECURITIES LLC
MORGAN STANLEY DEAN WITTER
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-B 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-B Home Equity Loan Asset-Backed
Certificates and with respect to their unsold allotments or subscriptions. In
addition, all dealers selling the Series SPMD 2000-B Home Equity Mortgage Loan
Asset-Backed Certificates will be required to deliver a prospectus supplement
and prospectus until October 24, 2000.
July 26, 2000
