<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1998
REGISTRATION NO. [ - ]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
NATIONS MORTGAGE SECURITIES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN GOVERNING INSTRUMENTS)
DELAWARE APPLIED FOR
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
201 NORTH TRYON STREET, 5TH FLOOR
CHARLOTTE, NORTH CAROLINA 28255
(704) 388-4515
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
THOMAS W. NEARY
SENIOR VICE PRESIDENT
NATIONS MORTGAGE SECURITIES CORPORATION
201 NORTH TRYON STREET, 5TH FLOOR
CHARLOTTE, NORTH CAROLINA 28255
(704) 388-4503
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------
COPIES TO:
JORDAN M. SCHWARTZ, ESQ. A. BRADLEY IVES, ESQ.
PATRICK T. QUINN, ESQ. KENNEDY COVINGTON LOBDELL & HICKMAN,
CADWALADER, WICKERSHAM & TAFT L.L.P.
100 MAIDEN LANE 100 NORTH TRYON STREET, 42ND FLOOR
NEW YORK, NEW YORK 10038 CHARLOTTE, NORTH CAROLINA 28202
(212) 504-6000 (704) 331-7400
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective.
---------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED BEING REGISTERED PER UNIT (1) OFFERING PRICE FEE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Pass-Through
Certificates (2)...... $1,000,000.00 100% $1,000,000.00 $295
</TABLE>
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- -------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee.
(2) This Registration Statement also registers an indeterminate amount of
Securities which may be sold by NationsBanc Montgomery Securities LLC in
market making transactions, to the extent required.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER +
+TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF +
+THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD +
+BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUPPLEMENT, SUBJECT TO COMPLETION, DATED MAY 21, 1998
$ (APPROXIMATE)
NATIONS MORTGAGE SECURITIES CORPORATION
SELLER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 199-
PRINCIPAL AND INTEREST PAYABLE MONTHLY, COMMENCING IN 199
----------
The Series 199- Mortgage Pass-Through Certificates (the "CERTIFICATES") will
consist of five classes of senior certificates designated as the Class A-1,
Class A-2, Class A-3, Class A-R and Class A-PO Certificates, respectively, and
collectively as the "CLASS A CERTIFICATES" or the "SENIOR CERTIFICATES" and six
classes of subordinated certificates designated as the Class B-1, Class B-2,
Class B-3, Class B-4, Class B-5 and Class B-6 Certificates, respectively, and
collectively as, the "SUBORDINATED CERTIFICATES" or the "CLASS B CERTIFICATES."
Only the classes of Certificates identified in the table below (collectively,
the "OFFERED CERTIFICATES") are being offered hereby.
(Continued on next page)
----------
THESE SECURITIES DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF NATIONSBANC
MORTGAGE SECURITIES CORPORATION OR ANY AFFILIATE THEREOF. NEITHER THESE
SECURITIES NOR THE UNDERLYING MORTGAGE LOANS WILL BE INSURED OR GUARANTEED BY
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 SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
CLASS INITIAL PRINCIPAL PASS-THROUGH CLASS INITIAL PRINCIPAL PASS-THROUGH
DESIGNATION BALANCE(1) RATE DESIGNATION BALANCE(1) RATE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A-1.............. $ % Class A-R $ %
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Class A-2.............. $ % Class B-1 $ %
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Class A-3.............. $ % Class B-2 $ %
- --------------------------------------------------------------------------------------------------
Class B-3 $ %
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</TABLE>
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(1) Approximate. The initial Class Principal Balances are subject to adjustment
as described herein.
----------
PROSPECTIVE INVESTORS IN THE OFFERED CERTIFICATES SHOULD CONSIDER THE FACTORS
DISCUSSED UNDER "RISK FACTORS" IN THIS PROSPECTUS SUPPLEMENT BEGINNING ON PAGE
S- AND IN THE PROSPECTUS BEGINNING ON PAGE .
----------
The Offered Certificates will be purchased from the Seller by [Underwriter]
(the "UNDERWRITER") and will be offered by the Underwriter from time to time to
the public in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. Proceeds to the Seller are expected to be
approximately % of the aggregate initial principal balance of the Class A
Certificates being offered, approximately % of the aggregate initial principal
balance of the Class B-1 Certificates, approximately % of the aggregate
initial principal balance of the Class B-2 Certificates and approximately % of
the aggregate initial principal balance of the Class B-3 Certificates, plus, in
each case, accrued interest thereon at the rate of % per annum, from ,
199 to (but not including) , 199 , before deducting expenses payable by
the Seller estimated to be $ . The price to be paid to the Seller by the
Underwriter for the Classes of Class A Certificates being offered has not been
allocated among such Classes. See "Underwriting" herein.
[This Prospectus Supplement and the Prospectus may be used by NationsBanc
Montgomery Securities LLC, an affiliate of the Seller and the Servicer, in
connection with offers and sales related to market-making transactions in the
Offered Certificates. NationsBanc Montgomery Securities LLC may act as
principal or agent in such transactions. Such sales will be made at prices
related to prevailing market prices at the time of sale.]
The Offered Certificates are offered by the Underwriter, subject to prior
sale, when, as and if delivered to and accepted by the Underwriter and subject
to certain other conditions. The Underwriter reserves the right to withdraw,
cancel or modify such offer without notice and to reject any order in whole or
in part. It is expected that the Offered Certificates will be available for
delivery through the facilities of The Depository Trust Company or, in the case
of the Class A-R, Class B-1, Class B-2 and Class B-3 Certificates, at the
offices of [ ], [ ], in each case, on or about [ , 199 ].
----------
[UNDERWRITER]
The date of this Prospectus Supplement is , 199 .
<PAGE>
The Certificates will evidence in the aggregate the entire beneficial
ownership interest in a trust fund (the "TRUST ESTATE") established by Nations
Mortgage Securities Corporation (the "SELLER") and consisting primarily of a
pool of fixed interest rate, conventional, monthly-pay, fully-amortizing, one-
to four-family, residential first mortgage loans having original terms to
stated maturity of approximately [ ] years (the "MORTGAGE LOANS"), other than
the Fixed Retained Yield described herein. The servicing of the Mortgage Loans
will be performed by NationsBanc Mortgage Corporation ("NATIONSBANC MORTGAGE"
or in its capacity as servicer, the "SERVICER"). The Mortgage Loans will be
acquired by the Seller on the date of issuance of the Certificates from
NationsBanc Mortgage, and will have been originated by NationsBanc Mortgage or
acquired by NationsBanc Mortgage from various other entities.
Distributions in respect of interest and principal will be made on the 25th
day of each month (or, if such day is not a business day, the business day
following the 25th day) (each, a "DISTRIBUTION DATE"), commencing in [
199 ], to the holders of Offered Certificates, as described herein under
"Description of the Certificates".
The yield to maturity of the Offered Certificates will be sensitive in
varying degrees to the rate and timing of principal payments (including
prepayments, which may be made at any time without penalty) on the Mortgage
Loans. Investors in the Offered Certificates should consider the associated
risks, including, in the case of Offered Certificates purchased at a discount,
the risk that a slower than anticipated rate of payments in respect of
principal (including prepayments) on the Mortgage Loans could result in an
actual yield that is lower than anticipated and, in the case of Offered
Certificates purchased at a premium, that a faster than anticipated rate of
payments in respect of principal (including prepayments) on the Mortgage Loans
could result in an actual yield that is lower than anticipated or in the
failure of such investors to fully recover their initial investments. In
addition, the yield to maturity of each Class of Subordinated Certificates
will be more sensitive to the amount and timing of losses on the Mortgage
Loans and the occurrence of certain interest shortfalls than the Classes to
which they are subordinate. See "Risk Factors", "Description of the
Certificates--Interest," "--Principal (Including Prepayments)" and "--
Subordination of Class B Certificates" herein and "Prepayment and Yield
Considerations" herein and in the Prospectus.
The Offered Certificates, other than the Class A-R, Class B-1, Class B-2 and
Class B-3 Certificates, will be issued only in book-entry form (the "Book-
Entry Certificates"), and purchasers thereof will not be entitled to receive
definitive certificates except in the limited circumstances set forth herein.
The Book-Entry Certificates will be registered in the name of Cede & Co., as
nominee of The Depository Trust Company, which will be the "holder" or
"Certificateholder" of such Certificates, as such terms are used herein. See
"Description of the Certificates" herein.
There is currently no secondary market for the Offered Certificates and
there can be no assurance that a secondary market will develop or, if such a
market does develop, that it will provide Certificateholders with liquidity of
investment at any particular time or for the life of the Offered Certificates.
The Underwriter intends to act as a market maker in the Offered Certificates
purchased by the Underwriter, subject to applicable provisions of federal and
state securities laws and other regulatory requirements, but is under no
obligation to do so and any such market making may be discontinued at any
time. There can be no assurance that any investor will be able to sell an
Offered Certificate at a price equal to or greater than the price at which
such Certificate was purchased. In addition, the Class A-R, Class B-1, Class
B-2 and Class B-3 Certificates are subject to various transfer restrictions
described herein. See "ERISA Considerations" and "Description of the
Certificates--Restrictions on Transfer of the Class A-R and Class B
Certificates" herein and "Certain Federal Income Tax Consequences--Federal
Income Tax Consequences for REMIC Certificates--Taxation of Residual
Certificates--Tax-Related Restrictions on Transfer of Residual Certificates"
in the Prospectus.
An election will be made to treat the Trust Estate as a real estate mortgage
investment conduit (the "REMIC") for federal income tax purposes. See "Federal
Income Tax Considerations" herein,
The Offered Certificates are part of a separate Series of Certificates being
offered by the Seller pursuant to the Prospectus dated [ , 199 ]
accompanying this Prospectus Supplement. Any prospective investor
S-2
<PAGE>
should not purchase any Offered Certificates described herein unless it shall
have received the Prospectus and this Prospectus Supplement. The Prospectus
shall not be considered complete without this Prospectus Supplement. The
Prospectus contains important information regarding this offering which is not
contained herein, and prospective investors are urged to read, in full, the
Prospectus and this Prospectus Supplement.
Until [ , 199 ], all dealers effecting transactions in the Offered
Certificates, whether or not participating in this distribution, may be
required to deliver a Prospectus Supplement and Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus Supplement and
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
S-3
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
SUMMARY INFORMATION....................................................... S-5
RISK FACTORS.............................................................. S-15
Prepayments May Adversely Affect Yield.................................. S-15
Subordination of Subordinated Certificates Increases Risk of Loss....... S-15
Rights of Beneficial Owners May Be Limited By Book-Entry System for
Certain Classes of Class A Certificates................................ S-15
Certificates May Not Be Appropriate For Individual Investors............ S-16
DESCRIPTION OF THE CERTIFICATES........................................... S-17
Denominations; Form of Certificates..................................... S-17
Distributions........................................................... S-17
Interest................................................................ S-19
Principal (Including Prepayments)....................................... S-22
Calculation of Amount to be Distributed on the Certificates............. S-22
Allocation of Amount to be Distributed on the Class A Certificates...... S-27
Additional Rights of the Class A-R Certificateholder.................... S-27
Periodic Advances....................................................... S-27
Restrictions on Transfer of the Class A-R and Class B Certificates...... S-28
Subordination of Class B Certificates................................... S-29
Allocation of Losses.................................................... S-30
DESCRIPTION OF THE MORTGAGE LOANS......................................... S-33
General................................................................. S-33
Mortgage Loan Underwriting.............................................. S-34
Mortgage Loan Data...................................................... S-35
Mortgage Loan Data...................................................... S-37
Mandatory Repurchase or Substitution of Mortgage Loans.................. S-39
DELINQUENCY AND FORECLOSURE EXPERIENCE.................................... S-40
PREPAYMENT AND YIELD CONSIDERATIONS....................................... S-43
Yield Considerations with Respect to the Class B-2 and Class B-3
Certificates........................................................... S-47
POOLING AND SERVICING AGREEMENT........................................... S-50
General................................................................. S-50
Distributions........................................................... S-50
Voting.................................................................. S-50
Trustee................................................................. S-50
Special Servicing Agreements............................................ S-51
Optional Termination.................................................... S-51
Servicer Custodial Account.............................................. S-
Fixed Retained Yield; Servicing Compensation and Payment of Expenses.... S-52
Servicer Defaults....................................................... S-52
FEDERAL INCOME TAX CONSIDERATIONS......................................... S-53
Regular Certificates.................................................... S-53
Residual Certificate.................................................... S-53
ERISA CONSIDERATIONS...................................................... S-55
LEGAL INVESTMENT.......................................................... S-56
SECONDARY MARKET.......................................................... S-56
UNDERWRITING.............................................................. S-57
LEGAL MATTERS............................................................. S-57
USE OF PROCEEDS........................................................... S-57
RATINGS................................................................... S-57
INDEX OF SIGNIFICANT PROSPECTUS SUPPLEMENT DEFINITIONS.................... S-59
</TABLE>
S-4
<PAGE>
SUMMARY INFORMATION
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
accompanying prospectus (the "Prospectus"). Capitalized terms used in this
Prospectus Supplement and not otherwise defined herein have the meanings
assigned in the Prospectus. See "Index of Significant Prospectus Supplement
Definitions" herein and "Index of Significant Definitions" in the Prospectus.
Title of Securities....... Mortgage Pass-Through Certificates, Series 199 -
(the "CERTIFICATES").
Seller.................... Nations Mortgage Securities Corporation (the
"SELLER"). The Mortgage Loans will have been
acquired by the Seller from NationsBanc Mortgage
Corporation ("NATIONSBANC MORTGAGE"), an affiliate
of the Seller. See "Description of the Mortgage
Loans" in this Prospectus Supplement.
Servicer.................. NationsBanc Mortgage (in its capacity as servicer,
the "SERVICER") will service all of the Mortgage
Loans. See "NationsBanc Mortgage" and "Servicing of
the Mortgage Loans" in the Prospectus.
Trustee................... [Trustee] (the "TRUSTEE"). See "Pooling and
Servicing Agreement--Trustee" in this Prospectus
Supplement.
Rating of Certificates.... It is a condition to the issuance of the Offered
Certificates that they shall have received at least
the following ratings from [ (" ")] and, if
applicable, [ (" ") and together with , the
"RATING AGENCIES"]:
RATINGS OF OFFERED CERTIFICATES
<TABLE>
<CAPTION>
CLASS [ ] [ ]
----- ---- ----
<S> <C> <C>
Class A.............................................
Class M.............................................
Class B-1...........................................
Class B-2...........................................
</TABLE>
The ratings of [ ] and [ ] are not
recommendations to buy, sell or hold such
Certificates and may be subject to revision or
withdrawal at any time by the assigning rating
agency. The ratings do not address the possibility
that, as a result of principal prepayments, holders
of such Certificates may receive a lower than
anticipated yield. See "--Effects of Prepayments on
Investment Expectations" below and "Ratings" in
this Prospectus Supplement.
Description of The Offered Certificates consist of five Classes of
Certificates.............. senior certificates, designated as the Class A-1,
Class A-2, Class A-3, Class A-PO and Class A-R
Certificates (collectively, the "CLASS A
CERTIFICATES") and six Classes of subordinated
certificates, designated as the Class B-1, Class B-
2, Class B-3, Class B-4, Class B-5 and Class B-6
Certificates (collectively, the "SUBORDINATED
CERTIFICATES" or the "CLASS B
S-5
<PAGE>
CERTIFICATES"). The Class A Certificates (other
than the Class A-PO Certificates) and the Class B-
1, Class B-2 and Class B-3 Certificates are
referred to in this Prospectus Supplement
collectively as the "OFFERED CERTIFICATES." The
Class A-PO, Class B-4, Class B-5 and Class B-6
Certificates are not offered hereby and may be
retained or sold by the Seller.
The Offered Certificates belong to the following
categories:
<TABLE>
<CAPTION>
CATEGORIES CLASSES
---------- -------
<S> <C>
Accretion Directed Classes....... Class A-1 Certificates
Accrual Certificates............. Class A-2 Certificates
Fixed Rate Certificates.......... All Classes of Offered Certificates
</TABLE>
See "Description of the Certificates--Categories of
Classes of Certificates" in the Prospectus.
The Certificates will have an approximate aggregate
initial principal balance of $ . Any difference
between the aggregate principal balance of the
Certificates as of the date of issuance of the
Certificates and the approximate aggregate initial
principal balance thereof as of the date of this
Prospectus Supplement will not exceed 5% of the
aggregate initial principal balance of the
Certificates, and will be allocated among the
various Classes of Certificates so as to retain
materially the characteristics thereof described
herein.
The following table sets forth for each Class
indicated the approximate undivided interest in the
principal balance of the Mortgage Loans that is
expected to be evidenced in the aggregate by such
Class as of the Closing Date.
<TABLE>
<CAPTION>
APPROXIMATE INITIAL
CLASS UNDIVIDED INTEREST
----- --------------------
<S> <C>
Class A (other than Class A-PO)........... %
Class A-PO*............................... %
----------
Class A (all Classes)............... %
Class B-1................................. %
Class B-2................................. %
Class B-3................................. %
Classes B-4, B-5 and B-6.................. %
---------
Total............................... %
=========
</TABLE>
--------
* The Class A-PO Certificates in the aggregate
represent an approximate % initial interest in
the principal balances of the Discount Mortgage
Loans.
The following table sets forth for the Class A and
Class B Certificates the approximate undivided
interest in the Pool Balance (Non-PO Portion) that
is expected to be evidenced in the aggregate
thereby as of the Closing Date.
S-6
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE INITIAL
UNDIVIDED INTEREST
---------------------
CLASS PERCENTAGE IN DOLLARS
----- ---------- ----------
<S> <C> <C>
Class A (other than Class A-PO)......... % $
Class B.................................
------ ---
Totals.................................. 100.00% $
====== ===
</TABLE>
The relative interests in the initial Pool Balance
(Non-PO Portion) represented by the Class A
Certificates in the aggregate (other than the Class
A-PO Certificates) and the Class B Certificates are
subject to change over time because of the
disproportionate allocation of certain unscheduled
principal payments to the Class A Certificates
(other than the Class A-PO Certificates) for a
specified period and the allocation of certain
losses and certain shortfalls first to the Classes
of Class B Certificates in reverse numerical order
prior to the allocation of such losses and
shortfalls to the Class A Certificates, as
discussed in "Description of the Certificates--
Distributions" and "--Subordination of Class B
Certificates" in this Prospectus Supplement.
Forms of Certificates;
Denominations............ The Offered Certificates will be issued either in
book-entry form or in fully-registered,
certificated form. The table under "Description of
the Certificates--Denominations; Form of
Certificates" in this Prospectus Supplement sets
forth the original certificate form, the minimum
denomination and the incremental denomination of
the Offered Certificates. The Offered Certificates
are not intended to be directly or indirectly held
or beneficially owned in amounts lower than such
minimum denominations. See "Description of the
Certificates--Denominations; Form of Certificates"
in this Prospectus Supplement.
Mortgage Loans............
General. The Mortgage Loans, which are the source
of distributions to holders of the Certificates,
will consist of conventional, fixed interest rate,
monthly-pay, fully-amortizing, one- to four-family,
residential first mortgage loans, which have
original terms to stated maturity of approximately
[ ] years, [with the exception of [ ] Mortgage
Loans having original terms to stated maturity of
approximately [ ] years, and] which may include
loans secured by cooperative housing corporations.
The Mortgage Loans are expected to have the further
specifications set forth in the following table and
under the heading "Description of the Mortgage
Loans" in this Prospectus Supplement.
S-7
<PAGE>
SELECTED MORTGAGE LOAN DATA(1)
(as of the Cut-Off Date)
<TABLE>
<S> <C>
Cut-Off Date: , 199
Number of Mortgage Loans: [ ]
Aggregate Unpaid Principal Balance(2): $[ ]
Range of Unpaid Principal Balances(2): $[ ] to $ [ ]
Average Unpaid Principal Balance(2): $[ ]
Range of Mortgage Interest Rates: [ ]% to [ ]%
Weighted Average Mortgage Interest Rate(2): [ ]%
Range of Remaining Terms to Stated Maturity: [ ] months to [ ] months
Weighted Average Remaining Term to Stated Maturi-
ty(2): [ ] months
Range of Original Loan-to-Value Ratios(2): [ ]% to [ ]%
Weighted Average Original Loan-to-Value Ratio(2): [ ]%
Geographic Concentration of Mortgaged Properties Se-
curing Mortgage Loans in Excess of 5% of the Aggre-
gate Unpaid Principal Balance(2): [State]
[State]
[State]
[State]
Maximum Five-Digit Zip Code Concentration2: [ ]%
</TABLE>
- --------
(1) Information concerning the Discount Mortgage Loans and Premium Mortgage
Loans is set forth under "Description of the Mortgage Loans--General."
(2) Approximate.
Changes to Pool. Mortgage Loans may be removed from
the pool, or a substitution may be made for certain
Mortgage Loans, in advance of the issuance of the
Certificates (which is expected to occur on or
about [ , 199 ] (the "CLOSING DATE")), in the
circumstances described under "Description of the
Mortgage Loans" in this Prospectus Supplement.
Subsequent to the issuance of the Certificates,
certain Mortgage Loans may be removed from the pool
through repurchase or, under certain circumstances,
through substitution by the Seller, in the
circumstances described under "Description of the
Mortgage Loans--Mandatory Repurchase or
Substitution of Mortgage Loans" in this Prospectus
Supplement.
Optional Termination...... The Servicer is entitled, subject to certain
conditions relating to the then-remaining size of
the pool, to purchase all outstanding Mortgage
Loans in the pool and thereby effect early
retirement of the Certificates. See "Pooling and
Servicing Agreement--Optional Termination" in this
Prospectus Supplement.
Underwriting Standards.... The Mortgage Loans were generally originated in
conformity with the underwriting standards
described in the Prospectus under the heading "The
Mortgage Loan Programs--Mortgage Loan Underwriting"
(the "UNDERWRITING STANDARDS"). In certain
instances, exceptions to the Underwriting Standards
may have been granted by NationsBanc Mortgage. See
"The Mortgage Loan Programs--Mortgage Loan
Underwriting" in the Prospectus.
S-8
<PAGE>
Distributions of
Principal and Interest... On each Distribution Date the Pool Distribution
Amount, which consists of those payments,
recoveries, advances and other receipts in respect
of the Mortgage Loans which are available for
distribution on such date, will be distributed
generally in the following order of priority:
First, to the holders of the Class A Certificates
in respect of interest which they are entitled to
receive on such Distribution Date;
Second, to the holders of the Class A
Certificates in respect of principal which they are
entitled to receive on such Distribution Date; and
Third, to the holders of the Class B Certificates
in numerical order (i.e., first to the Class B-1
Certificates, then the Class B-2 Certificates,
etc.) in respect of interest and principal which
they are entitled to receive on such Distribution
Date.
Notwithstanding the foregoing, investors in Class
A-2 Certificates should be aware that they will not
receive interest distributions until the Accretion
Termination Date. Prior to the Accretion
Termination Date, interest which would otherwise be
distributed on the Class A-2 Certificates will be
added to the principal balance of the Class A-2
Certificates and will be distributed instead as
principal to the holders of the Class or Classes of
Certificates specified under "Description of the
Certificates--Principal (Including Prepayments)" in
this Prospectus Supplement. In addition, investors
in the Class A-PO Certificates should be aware that
the portion, if any, of principal to which they are
entitled on a Distribution Date which consists of
the Class A-PO Deferred Amount will only be paid
out of amounts otherwise distributable on such
Distribution Date as principal on the Class B
Certificates.
The amount of interest which will accrue on each
Class of Offered Certificates each month is equal
to (i) 1/12th of the Pass-Through Rate for such
Class multiplied by the outstanding principal
balance of such Class on the related Distribution
Date minus (ii) the amount of certain interest
shortfalls arising from the timing of prepayments
on the Mortgage Loans and interest losses allocated
to such Class, as described under "Description of
the Certificates--Interest" in this Prospectus
Supplement. The calculation of the amount of
principal which each Class of Offered Certificates
is entitled to receive on each Distribution Date
and the allocation of interest and priority of
principal distributions among the Class A
Certificates are described under "Description of
the Certificates--Distributions," "--Interest" and
"--Principal (Including Prepayments)" in this
Prospectus Supplement.
Credit Enhancement........ The rights of the holders of each Class of Class B
Certificates to receive distributions will be
subordinated to the rights of the holders of the
Class A Certificates and the Classes of Class B
Certificates, if any, with lower numerical
designations to receive distributions, to the
extent described herein.
S-9
<PAGE>
In general, the protection afforded the holders of
more senior Classes of Certificates by means of
this subordination will be effected in two ways:
(i) by the preferential right of the holders of
such Classes to receive, prior to any distribution
being made on any Distribution Date in respect of
more junior Classes of Certificates, the amounts of
interest and principal due the holders of the more
senior Classes of Certificates (other than the
Class A-PO Deferred Amount) and, if necessary, by
the right of such holders to receive future
distributions on the Mortgage Loans that would
otherwise have been allocated to the holders of the
more junior Classes of Certificates and (ii) by the
allocation to the more junior Classes of
Certificates (in inverse order of seniority), until
their respective principal balances have been
reduced to zero, of losses resulting from the
liquidation of defaulted Mortgage Loans or the
bankruptcy of mortgagors prior to the allocation of
such losses to the more senior Classes of
Certificates (other than certain excess losses
arising from special hazards, mortgagor fraud or
mortgagor bankruptcy). See "Description of the
Certificates--Distributions" and "--Subordination
of Class B Certificates" in this Prospectus
Supplement.
In addition, in order to increase the period during
which the principal balances of the Class B
Certificates remain available as credit enhancement
to the Class A Certificates, a disproportionate
amount of prepayments and certain unscheduled
recoveries with respect to the Mortgage Loans will
be allocated to the Class A Certificates (other
than the Class A-PO Certificates). This allocation
has the effect of accelerating the amortization of
the Class A Certificates (other than the Class A-PO
Certificates) while, in the absence of losses in
respect of the liquidation of defaulted Mortgage
Loans or losses resulting from the bankruptcy of
mortgagors, increasing the percentage interest in
the principal balance of the Mortgage Loans
evidenced by the Class B Certificates. See
"Description of the Certificates" and "Prepayment
and Yield Considerations" in this Prospectus
Supplement.
After the principal balances of the Class B
Certificates have been reduced to zero, the
principal portion of all losses (other than the
portion attributable to the Class A-PO
Certificates, if any) will be allocated to the
Class A Certificates (other than the Class A-PO
Certificates). To the extent such losses arise with
respect to Discount Mortgage Loans, principal
losses will be shared among the Class A
Certificates, according to their respective
interests in such Mortgage Loans. The principal
portion of any losses borne by the Class A
Certificates (other than losses borne by the Class
A-PO Certificates) will be shared pro rata by the
Classes of Class A Certificates (other than the
Class A-PO Certificates) based on their then-
outstanding principal balances (or, in the case of
the Class A-2 Certificates, their initial principal
balance, if lower) and the interest portion of such
losses will be shared pro rata by such Classes
based on interest accrued. See "Description of the
Certificates--Interest" and "--Subordination of
Class B Certificates--Allocation of Losses" in this
Prospectus Supplement.
S-10
<PAGE>
THE YIELD TO MATURITY ON EACH CLASS OF CLASS B
CERTIFICATES WILL BE MORE SENSITIVE TO LOSSES DUE
TO LIQUIDATIONS OF THE MORTGAGE LOANS (AND THE
TIMING THEREOF) THAN THAT ON THE MORE SENIOR
CLASSES OF CERTIFICATES, IN THE EVENT THAT THE
AGGREGATE PRINCIPAL BALANCE OF THE CLASSES OF
CERTIFICATES THAT ARE JUNIOR TO IT HAS BEEN REDUCED
TO ZERO.
See "Description of the Certificates--Subordination
of Class B Certificates" in this Prospectus
Supplement.
Effects of Prepayments on
Investment Expectations.. The Offered Certificates were structured assuming,
among other things that prepayments on the Mortgage
Loans occur at a constant rate of % [SPA] [CPR].
However, the actual rate of prepayment of principal
on the Mortgage Loans cannot be predicted. The
investment performance of the Offered Certificates
may vary materially and adversely from the
investment expectations of investors due to
prepayments on the Mortgage Loans being higher or
lower than anticipated by investors. In addition,
the Class A Certificates (other than the Class A-PO
Certificates) in the aggregate will be more
sensitive to prepayments on the Mortgage Loans than
the Subordinated Certificates due to the
disproportionate allocation of such prepayments to
investors in such Class A Certificates then
entitled to principal distributions during the nine
years beginning on the first Distribution Date. See
"Description of the Certificates--Principal
(Including Prepayments)" and "Prepayment and Yield
Considerations" in this Prospectus Supplement. The
actual yield to the holder of an Offered
Certificate may not be equal to the yield
anticipated at the time of purchase of the
Certificate or, notwithstanding that the actual
yield is equal to the yield anticipated at that
time, the total return on investment expected by
the investor or the expected weighted average life
of the Certificate may not be realized. These
effects are summarized below. In deciding whether
to purchase any Offered Certificates, an investor
should make an independent decision as to the
appropriate prepayment assumptions to be used.
Yield. If an investor purchases an Offered
Certificate at an amount equal to its unpaid
principal balance (that is, at "par"), the
effective yield to that investor (assuming that
there are no interest shortfalls and assuming the
full return of the investor's invested principal)
will approximate the Pass-Through Rate on that
Certificate. If an investor pays less or more than
the unpaid principal balance of an Offered
Certificate (that is, buys the Certificate at a
"discount" or "premium," respectively), then, based
on the assumptions set forth in the preceding
sentence, the effective yield to the investor will
be higher or lower, respectively, than the stated
interest rate on the Certificate, because such
discount or premium will be amortized over the life
of the Certificate. Any deviation in the actual
rate of prepayments on the Mortgage Loans from the
rate assumed by the investor will affect the period
of time over which, or the rate at which, the
discount or
S-11
<PAGE>
premium will be amortized and, consequently, will
change the investor's actual yield from that
anticipated. The timing of receipt of prepayments
may also affect the investor's actual yield. AN
INVESTOR THAT PURCHASES ANY OFFERED CERTIFICATES AT
A DISCOUNT SHOULD CONSIDER THE RISK THAT A SLOWER
THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS ON THE
MORTGAGE LOANS WILL RESULT IN AN ACTUAL YIELD THAT
IS LOWER THAN SUCH INVESTOR'S EXPECTED YIELD. AN
INVESTOR THAT PURCHASES ANY OFFERED CERTIFICATES AT
A PREMIUM SHOULD CONSIDER THE RISK THAT A FASTER
THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS ON THE
MORTGAGE LOANS WILL RESULT IN AN ACTUAL YIELD THAT
IS LOWER THAN SUCH INVESTOR'S EXPECTED YIELD AND
SHOULD CONSIDER THE RISK THAT A RAPID RATE OF
PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS COULD
RESULT IN THE FAILURE OF SUCH INVESTOR TO FULLY
RECOVER ITS INITIAL INVESTMENT.
Reinvestment Risk. As stated above, if an Offered
Certificate is purchased at par, fluctuations in
the rate of distributions of principal will
generally not affect the yield to maturity of that
Certificate. However, the total return on any
investor's investment, including an investor who
purchases at par, will be reduced to the extent
that principal distributions received on its
Certificate cannot be reinvested at a rate as high
as the stated interest rate of the Certificate.
Investors in the Offered Certificates should
consider the risk that rapid rates of prepayments
on the Mortgage Loans may coincide with periods of
low prevailing market interest rates. During
periods of low prevailing market interest rates,
mortgagors may be expected to prepay or refinance
Mortgage Loans that carry interest rates
significantly higher than then-current interest
rates for mortgage loans. Consequently, the amount
of principal distributions available to an investor
for reinvestment at such low prevailing interest
rates may be relatively large. Conversely, slow
rates of prepayments on the Mortgage Loans may
coincide with periods of high prevailing market
interest rates. During such periods, it is less
likely that mortgagors will elect to prepay or
refinance Mortgage Loans and, therefore, the amount
of principal distributions available to an investor
for reinvestment at such high prevailing interest
rates may be relatively small.
Weighted Average Life Volatility. One indication of
the impact of varying prepayment speeds on a
security is the change in its weighted average
life. The "weighted average life" of an Offered
Certificate is the average amount of time that will
elapse between the date of issuance of the
Certificate and the date on which each dollar in
reduction of the principal balance of the
Certificate is distributed to the investor. Low
rates of prepayment may result in the extension of
the weighted average life of a Certificate; high
rates, in the shortening of such weighted average
life.
In general, if the weighted average life of a
Certificate purchased at par is extended beyond
that initially anticipated, such Certificate's
market value may be adversely affected even though
the yield to maturity on the Certificate is
unaffected.
S-12
<PAGE>
The weighted average lives of the Offered
Certificates, under various prepayment scenarios,
are displayed in the tables appearing under the
heading "Prepayment and Yield Considerations" in
this Prospectus Supplement.
Federal Income Tax
Status.................... An election will be made to treat the Trust Estate
as a real estate mortgage investment conduit (the
"REMIC") for federal income tax purposes. The Class
A-1, Class A-2, Class A-3, Class A-PO, Class B-1,
Class B-2, Class B-3, Class B-4, Class B-5 and
Class B-6 Certificates will constitute "regular
interests" in the REMIC and the Class A-R
Certificate will constitute the "residual interest"
in the REMIC.
The Regular Certificates (as defined herein)
generally will be treated as newly originated debt
instruments for federal income tax purposes.
Beneficial owners of the Regular Certificates will
be required to report income thereon in accordance
with the accrual method of accounting. It is
anticipated that certain of the Classes of
Certificates will be issued with original issue
discount as described under "Federal Income Tax
Considerations" in this Prospectus Supplement.
The holder of the Class A-R Certificate will be
required to include the taxable income or loss of
the REMIC in determining its federal taxable
income. It is anticipated that all or a substantial
portion of the taxable income of the REMIC
includible by the Class A-R Certificateholder will
be treated as "excess inclusion" income subject to
special limitations for federal income tax
purposes. AS A RESULT, THE EFFECTIVE AFTER-TAX
RETURN OF THE CLASS A-R CERTIFICATE MAY BE
SIGNIFICANTLY LOWER THAN WOULD BE THE CASE IF THE
CLASS A-R CERTIFICATE WERE TAXED AS A DEBT
INSTRUMENT, OR MAY BE NEGATIVE. FURTHER,
SIGNIFICANT RESTRICTIONS APPLY TO THE TRANSFER OF
THE CLASS A-R CERTIFICATE. THE CLASS A-R
CERTIFICATE WILL BE CONSIDERED A "NONECONOMIC
RESIDUAL INTEREST," CERTAIN TRANSFERS OF WHICH MAY
BE DISREGARDED FOR FEDERAL INCOME TAX PURPOSES.
See "Description of the Certificates--Restrictions
on Transfer of the Class A-R and Class B
Certificates" and "Federal Income Tax
Considerations" in this Prospectus Supplement and
"Certain Federal Income Tax Consequences--Federal
Income Tax Consequences for REMIC Certificates" in
the Prospectus.
ERISA Considerations...... A fiduciary of an employee benefit plan or other
retirement plan or arrangement subject to Title I
of 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"), or a governmental plan, as defined in
Section 3(32) of ERISA, subject to any federal,
state or local law ("SIMILAR LAW") which is, to a
material extent, similar to theforegoing provisions
of ERISA or the Code (collectively, a "PLAN"),
should carefully review with its legal advisors
whether the purchase or holding of Offered
Certificates could give rise to a transaction
prohibited or not otherwise permissible under
ERISA,
S-13
<PAGE>
the Code or Similar Law. BECAUSE THE CLASS B-1,
CLASS B-2 AND CLASS B-3 CERTIFICATES ARE
SUBORDINATED TO THE CLASS A CERTIFICATES WITH
RESPECT TO CERTAIN LOSSES, THE CLASS B-1, CLASS B-2
AND CLASS B-3 CERTIFICATES MAY NOT BE TRANSFERRED
UNLESS THE TRANSFEREE HAS DELIVERED (I) A
REPRESENTATION LETTER TO THE TRUSTEE AND THE SELLER
STATING EITHER (A) THAT THE TRANSFEREE IS NOT A
PLAN AND IS NOT ACTING ON BEHALF OF A PLAN OR USING
THE ASSETS OF A PLAN TO EFFECT SUCH PURCHASE OR (B)
SUBJECT TO CERTAIN CONDITIONS DESCRIBED HEREIN,
THAT THE SOURCE OF FUNDS USED TO PURCHASE SUCH
CERTIFICATES IS AN "INSURANCE COMPANY GENERAL
ACCOUNT" OR (II) AN OPINION OF COUNSEL AND SUCH
OTHER DOCUMENTATION AS DESCRIBED UNDER "DESCRIPTION
OF THE CERTIFICATES--RESTRICTIONS ON TRANSFER OF
THE CLASS A-R AND CLASS B CERTIFICATES" IN THIS
PROSPECTUS SUPPLEMENT RELATING TO THE OFFERING OF
SUCH CERTIFICATES. THE CLASS A-R CERTIFICATE MAY
NOT BE PURCHASED BY OR TRANSFERRED TO A PLAN OR A
PERSON ACTING ON BEHALF OF OR INVESTING THE ASSETS
OF A PLAN. See "Description of the Certificates--
Restrictions on Transfer of the Class A-R and Class
B Certificates" and "ERISA Considerations" in this
Prospectus Supplement and in the Prospectus.
Legal Investment.......... The Class A and Class B-1 Certificates will
constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended (the "SMMEA")
so long as they are rated in one of the two highest
rating categories by at least one nationally
recognized statistical rating organization. The
Class B-2 and Class B-3 Certificates will not
constitute "mortgage related securities" under
SMMEA. Prospective purchasers whose investment
activities are subject to legal investment laws and
regulations, regulatory capital requirements or
review by regulatory authorities may be subject to
restrictions on investment in the Offered
Certificates and should consult their own legal,
tax and accounting advisors in determining the
suitability of and consequences to them of the
purchase, ownership and disposition of the Offered
Certificates. See "Legal Investment" in the
Prospectus.
S-14
<PAGE>
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of Certificates.
PREPAYMENTS MAY ADVERSELY AFFECT YIELD
The rate of distributions in reduction of the principal balance of any Class
of Offered Certificates, the aggregate amount of distributions of principal
and interest on any Class of Offered Certificates and the yield to maturity of
any Class of Offered Certificates will be directly related to the rate of
payments of principal on the Mortgage Loans in the Trust Estate and the amount
and timing of mortgagor defaults resulting in Realized Losses. The rate of
principal payments on the Mortgage Loans will in turn be affected by, among
other things, the amortization schedules of the Mortgage Loans, the rate of
principal prepayments (including partial prepayments and those resulting from
refinancing) thereon by mortgagors, liquidations of defaulted Mortgage Loans,
repurchases of Mortgage Loans by the Seller as a result of defective
documentation or breaches of representations and warranties, optional purchase
by the Seller of defaulted Mortgage Loans and optional purchase by the
Servicer of all of the Mortgage Loans in connection with the termination of
the Trust Estate. See "Prepayment and Yield Considerations" and "Pooling and
Servicing Agreement--Optional Termination" herein and "The Pooling and
Servicing Agreement--Assignment of Mortgage Loans to the Trustee," "--Optional
Purchases" and "--Termination; Optional Purchase of Mortgage Loans" in the
Prospectus. Mortgagors are permitted to prepay the Mortgage Loans, in whole or
in part, at any time without penalty.
The rate of payments (including prepayments) on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors. If
prevailing rates for similar mortgage loans fall below the Mortgage Interest
Rates on the Mortgage Loans, the rate of prepayment would generally be
expected to increase. Conversely, if interest rates on similar mortgage loans
rise above the Mortgage Interest Rates on the Mortgage Loans, the rate of
prepayment would generally be expected to decrease. The rate of prepayment on
the Mortgage Loans may also be influenced by programs and incentives offered
by mortgage originators (including NationsBanc Mortgage), on a general or
targeted basis, to encourage refinancing.
An investor that purchases any Offered Certificates at a discount should
consider the risk that a slower than anticipated rate of principal payments on
the Mortgage Loans will result in an actual yield that is lower than such
investor's expected yield. An investor that purchases any Offered Certificates
at a premium should consider the risk that a faster than anticipated rate of
principal payments on the Mortgage Loans will result in an actual yield that
is lower than such investor's expected yield.
See "Summary Information--Effects of Prepayments on Investment Expectations"
and "Prepayment and Yield Considerations" herein.
SUBORDINATION OF SUBORDINATED CERTIFICATES INCREASES RISK OF LOSS
The rights of the holders of each Class of Class B Certificates to receive
distributions with respect to the Mortgage Loans in the Trust Estate will be
subordinated to such rights of the holders of the Class A Certificates and the
Classes of Class B Certificates, if any, with lower numerical designations,
all to the extent described herein under "Description of the Certificates--
Subordination of Class B Certificates." In addition, Realized Losses, other
than Excess Losses, will be allocated to the Class B Certificates in the
reverse order in which they are entitled to distributions of principal before
being allocated to the Class A Certificates. Accordingly, the Class B
Certificates are more likely to experience losses as a result of the
occurrence of losses or interest shortfalls on the Mortgage Loans.
RIGHTS OF BENEFICIAL OWNERS MAY BE LIMITED BY BOOK-ENTRY SYSTEM FOR CERTAIN
CLASSES OF CLASS A CERTIFICATES
Transactions in the Book-Entry Certificates generally can be effected only
through DTC, DTC Participants and Indirect DTC Participants. The ability of a
Beneficial Owner to pledge Book-Entry Certificates and the
S-15
<PAGE>
liquidity of the Book-Entry Certificates in general may be limited due to the
lack of a physical certificate for such Book-Entry Certificates. In addition,
Beneficial Owners may experience delays in their receipt of payments. See
"Risk Factors--Book-Entry System for Certain Classes of Certificates" and
"Description of the Certificates--Book-Entry Form" in the Prospectus.
CERTIFICATES MAY NOT BE APPROPRIATE FOR INDIVIDUAL INVESTORS
The Offered Certificates may not be an appropriate investment for individual
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:
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 Mortgage Loans;
The rate of principal distributions on, and the weighted average life of,
the Offered Certificates will be sensitive to the uncertain rate and timing of
principal prepayments on the Mortgage Loans and the priority of principal
distributions among the Classes of Certificates, and as such the Offered
Certificates may be inappropriate investments for an investor requiring a
distribution of a particular amount of principal on a specific date or an
otherwise predictable stream of distributions;
There can be no assurance that an investor will 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 thereto;
or
There can be no assurance that a secondary market for the Offered
Certificates will develop or that, if a secondary market does develop, it will
provide Certificateholders with liquidity of investment.
Individual investors considering the purchase of an Offered Certificate
should also carefully consider the further risks and other special
considerations discussed above and under the headings "Summary Information --
Effects of Prepayments on Investment Expectations" and "Prepayment and Yield
Considerations" herein and in the Prospectus under the heading "Risk Factors."
See "Risk Factors" in the Prospectus for a description of certain other
risks and special considerations applicable to the Offered Certificates.
S-16
<PAGE>
DESCRIPTION OF THE CERTIFICATES
DENOMINATIONS; FORM OF CERTIFICATES
Offered Certificates issued in fully registered, certificated form are
referred to herein as "DEFINITIVE CERTIFICATES." Distributions of principal
of, and interest on, the Definitive Certificates will be made by the Trustee
or other paying agent directly to holders of Definitive Certificates in
accordance with the procedures set forth in the Pooling and Servicing
Agreement. The Definitive Certificates will be transferable and exchangeable
at the offices of the Trustee or other certificate registrar. No service
charge will be imposed for any registration of transfer or exchange, but the
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith.
Offered Certificates, other than those initially issued as Definitive
Certificates, will be issued in book-entry form and are referred to herein as
"BOOK-ENTRY CERTIFICATES." Each Class of the Book-Entry Certificates initially
will be represented by one physical certificate registered in the name of Cede
& Co. ("CEDE"), as nominee of The Depository Trust Company ("DTC"), which will
be the "holder" or "Certificateholder" of such Certificates, as such terms are
used herein. No person acquiring an interest in the Book-Entry Certificates (a
"BENEFICIAL OWNER") will be entitled to receive a Definitive Certificate
representing such person's interest in the Book-Entry Certificates, except as
set forth under "Description of the Certificates--Book-Entry Form" in the
Prospectus. Unless and until Definitive Certificates are issued under the
limited circumstances described therein, all references to actions taken by
Certificateholders or holders shall, in the case of the Book-Entry
Certificates, refer to actions taken by DTC upon instructions from its DTC
Participants (as defined under "Description of the Certificates--Book-Entry
Form" in the Prospectus), and all references herein to distributions, notices,
reports and statements to Certificateholders or holders shall, in the case of
the Book-Entry Certificates, refer to distributions, notices, reports and
statements to DTC or Cede, as the registered holder of the Book-Entry
Certificates, as the case may be, for distribution to Beneficial Owners in
accordance with DTC procedures. See "Description of the Certificates--Book-
Entry Form" in the Prospectus.
The following table sets forth the original certificate form, the minimum
denomination and the incremental denomination of the Offered Certificates. The
Offered Certificates are not intended to be and should not be directly or
indirectly held or beneficially owned in amounts lower than such minimum
denominations.
FORM AND DENOMINATIONS OF OFFERED CERTIFICATES
<TABLE>
<CAPTION>
ORIGINAL MINIMUM INCREMENTAL
CLASS CERTIFICATE FORM DENOMINATION DENOMINATION
----- ---------------- ------------ ------------
<S> <C> <C> <C>
Classes A-1, A-2 and A-3.......... Book-Entry $100,000 $1,000
Class A-R......................... Definitive $ 100 N/A
Classes B-1, B-2 and B-3.......... Definitive $100,000 $1,000
</TABLE>
DISTRIBUTIONS
Distributions of interest and in reduction of principal balance to holders
of each Class of Certificates will be made monthly, to the extent of each
Class's entitlement thereto, on the 25th day of each month (or, if such day is
not a business day, the business day following the 25th day) (each, a
"DISTRIBUTION DATE"), beginning in [ ] 199[ ]. The "Determination Date"
with respect to each Distribution Date will be the 17th day of each month (or,
if such day is not a business day, the preceding business day). Distributions
will be made on each Distribution Date by the Trustee, or a paying agent on
its behalf, to holders of record (which, in the case of the Book-Entry
Certificates, will be Cede, as nominee for DTC) at the close of business on
the last business day of the preceding month (each, a "RECORD DATE").
The aggregate amount available for distribution to Certificateholders on
each Distribution Date will be the Pool Distribution Amount. The "POOL
DISTRIBUTION AMOUNT" for a Distribution Date will be the sum of all
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<PAGE>
previously undistributed payments or other receipts on account of principal
(including principal prepayments and Liquidation Proceeds in respect of
principal, if any), and interest on or in respect of the Mortgage Loans
received by the Trustee on or prior to the Remittance Date in the month in
which such Distribution Date occurs, plus (i) all Periodic Advances made and
(ii) all other amounts (including any insurance proceeds and Compensating
Interest) placed in the Certificate Account by the Servicer pursuant to the
Pooling and Servicing Agreement, but excluding the following:
(a) amounts received as late payments of principal or interest respecting
which one or more unreimbursed Periodic Advances has been made;
(b) to the extent permitted by the Pooling and Servicing Agreement, that
portion of Liquidation Proceeds with respect to a Mortgage Loan that
represents any unreimbursed Periodic Advances;
(c) those portions of each payment of interest on a particular Mortgage
Loan which represent (i) the applicable Servicing Fee and (ii) the Fixed
Retained Yield, if any;
(d) all amounts representing scheduled payments of principal and interest
due after the Due Date occurring in the month in which such Distribution
Date occurs;
(e) all principal prepayments in full, all partial principal prepayments,
all proceeds of any Mortgage Loans or property acquired in respect thereof,
or liquidated pursuant to the Pooling and Servicing Agreement, including
net Partial Liquidation Proceeds but excluding any Net Foreclosure Profits
(as defined under "Description of the Certificates" in the Prospectus), and
other unscheduled receipts in respect of principal of the Mortgage Loans
other than proceeds of a repurchase of a Mortgage Loan by the Seller or
amounts deposited by the Seller in the Certificate Account in connection
with the substitution of a Mortgage Loan (collectively, "UNSCHEDULED
PRINCIPAL RECEIPTS") that were received by the Servicer after the
Unscheduled Principal Receipt Period relating to such Distribution Date,
and all related payments of interest on such amounts;
(f) all repurchase proceeds with respect to Mortgage Loans repurchased by
the Seller on or following the Due Date in the month in which such
Distribution Date occurs and the excess of the unpaid principal balance of
any defective Mortgage Loan for which a Mortgage Loan was substituted over
the unpaid principal balance of such substituted Mortgage Loan on or
following the Due Date in the month in which such Distribution Date occurs;
(g) to the extent permitted by the Pooling and Servicing Agreement, that
portion of Liquidation Proceeds or insurance proceeds with respect to a
Mortgage Loan or proceeds of any REO Property which represents any unpaid
Servicing Fee to which the Servicer is entitled, or which represents unpaid
Fixed Retained Yield, and the portion of net Liquidation Proceeds used to
reimburse any unreimbursed Periodic Advances;
(h) all amounts representing certain expenses reimbursable to the
Servicer and other amounts permitted to be retained by the Servicer or the
Trustee or withdrawn or the Trustee from the Certificate Account pursuant
to the Pooling and Servicing Agreement;
(i) reinvestment earnings on payments received in respect of the Mortgage
Loans or on other amounts on deposit in the Certificate Account;
(j) Net Foreclosure Profits; and
(k) generally, the amount of any recoveries in respect of principal which
had previously been allocated as a loss to one or more Classes of
Certificates.
The "REMITTANCE DATE" with respect to any Distribution Date will be the
[24th] day of each month (or, if any such day is not a business day, the
preceding business day).
"PARTIAL LIQUIDATION PROCEEDS" are Liquidation Proceeds received by the
Servicer on a Mortgage Loan prior to such Mortgage Loan becoming a Liquidated
Loan.
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<PAGE>
On each Distribution Date, the Pool Distribution Amount will be allocated
among the Classes of Certificates and distributed to the holders thereof of
record as of the related Record Date as follows (the "POOL DISTRIBUTION AMOUNT
ALLOCATION"):
first, to the Classes of Class A Certificates, pro rata based on their
respective Interest Accrual Amounts, in an aggregate amount up to the sum
of their Interest Accrual Amounts with respect to such Distribution Date;
provided that prior to the Accretion Termination Date, an amount equal to
the amount that would otherwise be distributable in respect of interest to
the Class A-2 Certificates pursuant to this provision will be distributed
in reduction of the Principal Balances of the Class A-1 and Class A-2
Certificates as set forth below under "--Principal (Including
Prepayments)--Allocation of Amount to be Distributed on the Class A
Certificates";
second, to the Classes of Class A Certificates, pro rata based on their
respective unpaid Interest Shortfall Amounts, in an aggregate amount up to
the sum of their Interest Shortfall Amounts; provided that prior to the
Accretion Termination Date, an amount equal to the amount that would
otherwise be distributable as interest shortfalls to the Class A-2
Certificates pursuant to this provision will be distributed in reduction of
the Principal Balances of the Class A-1 and Class A-2 Certificates as set
forth below under "--Principal (Including Prepayments)--Allocation of
Amount to be Distributed on the Class A Certificates";
third, concurrently, pro rata to the Class A Certificates (other than the
Class A-PO Certificates), based on the Class A Non-PO Optimal Principal
Amount, and the Class A-PO Certificates, based on the Class A-PO Optimal
Principal Amount, (A) to the Class A Certificates (other than the Class A-
PO Certificates) in an aggregate amount up to the Classes of Class A Non-PO
Optimal Principal Amount, such distribution to be allocated among such
Classes in accordance with the priorities set forth below under "--
Principal (Including Prepayments)--Allocation of Amount to be Distributed
on the Class A Certificates" and (B) to the Class A-PO Certificates in an
amount up to the Class A-PO Optimal Principal Amount;
fourth, to the Class A-PO Certificates in an amount up to the Class A-PO
Deferred Amount, but only from amounts otherwise distributable (without
regard to this priority) to the Class B Certificates, in inverse order of
priority pursuant to priority fifth clause (C) of this Pool Distribution
Amount Allocation; and
fifth, sequentially, to the Class B-1, Class B-2, Class B-3, Class B-4,
Class B-5 and Class B-6 Certificates so that each such Class shall receive
(A) first, an amount up to its Interest Accrual Amount with respect to such
Distribution Date, (B) then, an amount up to its previously unpaid Interest
Shortfall Amounts and (C) finally, an amount up to its Class B Optimal
Principal Amount before any Classes of Class B Certificates with higher
numerical designations receive any payments in respect of interest or
principal; provided, however, that the amount distributable pursuant to
this priority fifth clause (C) to any Classes of Class B Certificates will
be reduced by the amount, if any, otherwise distributable as principal
hereunder used to pay the Class A-PO Deferred Amount in accordance with
priority fourth.
The undivided percentage interest (the "PERCENTAGE INTEREST") represented by
any Offered Certificate of a Class in distributions to such Class will be
equal to the percentage obtained by dividing the initial principal balance of
such Certificate by the aggregate initial principal balance of all
Certificates of such Class.
INTEREST
The amount of interest that will accrue on each Class of Certificates, other
than the Class A-PO Certificates, during each month, after taking into account
any Non-Supported Interest Shortfalls and the interest portion of certain
losses allocated to such Class, is referred to herein as the "INTEREST ACCRUAL
AMOUNT" for such Class.
The Interest Accrual Amount for each Class of Certificates, other than the
Class A-PO Certificates, will equal (a) the product of (i) 1/12th of the Pass-
Through Rate for such Class and (ii) the outstanding Principal Balance of such
Class minus (b) the sum of (i) any Non-Supported Interest Shortfall allocable
to such Class, (ii) the interest portion of any Excess Losses allocable to
such Class and (iii) the interest portion of any Realized
S-19
<PAGE>
Losses, other than the interest portion of any Excess Losses, allocable to
such Class on or after the Cross-Over Date. The pass-through rate for each
Class of Offered Certificates (the "PASS-THROUGH RATE"), is the percentage set
forth on the cover of this Prospectus Supplement.
No interest will accrue on the Class A-PO Certificates.
The "PRINCIPAL BALANCE" of a Class of Class A Certificates (other than the
Class A-PO Certificates) as of any Determination Date will be the principal
balance of such Class on the date of initial issuance of the Class A
Certificates plus, in the case of the Class A-2 Certificates, the Class A-2
Accrual Distribution Amounts, as described under "--Principal (Including
Prepayments)" below, previously added to the Principal Balance of the Class A-
2 Certificates, less (i) all amounts previously distributed to holders of
Certificates of such Class in reduction of the principal balance of such Class
and (ii) such Class's pro rata share of the principal portion of Excess Losses
allocated through such Determination Date to the holders of Class A
Certificates (other than the Class A-PO Certificates) in the manner described
herein under "--Subordination of Class B Certificates--Allocation of Losses."
After the Cross-Over Date, the Principal Balance of a Class of Class A
Certificates (other than the Class A-PO Certificates) may be subject to
further reduction in an amount equal to such Class's pro rata share of the
difference, if any, between (a) the Class A Non-PO Principal Balance as of
such Determination Date without regard to this provision and (b) the
difference between (i) the Adjusted Pool Amount for the preceding Distribution
Date and (ii) the Adjusted Pool Amount (PO Portion) for the preceding
Distribution Date. Any pro rata allocation among the Classes of Class A
Certificates described in this paragraph will be made among the Classes of
Class A Certificates (other than the Class A-PO Certificates) on the basis of
their then-outstanding Principal Balances or, in the case of the Class A-2
Certificates, their initial Principal Balance, if lower.
The "PRINCIPAL BALANCE" of the Class A-PO Certificates as of any
Determination Date will be the principal balance of such Class on the date of
initial issuance of the Class A Certificates less (i) all amounts previously
distributed to the holders of the Class A-PO Certificates pursuant to
priorities third clause (B) and fourth of the Pool Distribution Amount
Allocation and (ii) the principal portion of Excess Losses allocated through
such Determination Date to the Class A-PO Certificates in the manner described
herein under "--Subordination of Class B Certificates--Allocation of Losses."
After the Cross-Over Date, the Principal Balance of the Class A-PO
Certificates will be subject to further reduction in an amount equal to the
excess, if any, of (a) the Principal Balance of the Class A-PO Certificates as
of such Determination Date without regard to this provision over (b) the
Adjusted Pool Amount (PO Portion) for the preceding Distribution Date.
The "PRINCIPAL BALANCE" of a Class of Class B Certificates as of any
Determination Date will be the lesser of (a) the principal balance of such
Class on the date of initial issuance of the Class B Certificates less (i) all
amounts previously distributed to holders of such Class in reduction of the
principal balance thereof and (ii) the principal portion of Excess Losses
allocated through such Determination Date to the holders of such Class in the
manner described under "--Subordination of Class B Certificates--Allocation of
Losses" and (b) the Adjusted Pool Amount as of the preceding Distribution Date
less the sum of (i) the Class A Principal Balance and (ii) the Principal
Balances of the Classes of Class B Certificates with lower numerical
designations, each as of such Determination Date.
The "CLASS A PRINCIPAL BALANCE" as of any Determination Date will be equal
to the sum of the Principal Balances of the Classes of Class A Certificates as
of such date.
The "CLASS A NON-PO PRINCIPAL BALANCE" as of any Determination Date will be
equal to the sum of the Principal Balances of the Classes of Class A
Certificates (other than the Class A-PO Certificates) as of such date.
The "CLASS B PRINCIPAL BALANCE" as of any date will be equal to the sum of
the Principal Balances of the Classes of Class B Certificates as of such date.
The "AGGREGATE PRINCIPAL BALANCE" as of any date will be equal to the sum of
the Class A Principal Balance and the Class B Principal Balance as of such
date.
S-20
<PAGE>
The "AGGREGATE NON-PO PRINCIPAL BALANCE" as of any date will be equal to the
sum of the Class A Non-PO Principal Balance and the Class B Principal Balance
as of such date.
With respect to any Distribution Date, the "ADJUSTED POOL AMOUNT" will equal
the Cut-Off Date Aggregate Principal Balance of the Mortgage Loans minus the
sum of (i) all amounts in respect of principal received in respect of the
Mortgage Loans (including amounts received as Periodic Advances, principal
prepayments and Liquidation Proceeds in respect of principal) and distributed
to holders of the Certificates on such Distribution Date and all prior
Distribution Dates and (ii) the principal portion of all Realized Losses
(other than Debt Service Reductions) incurred on the Mortgage Loans from the
Cut-Off Date through the end of the month preceding such Distribution Date.
With respect to any Distribution Date, the "ADJUSTED POOL AMOUNT (PO
PORTION)" will equal the sum as to each Mortgage Loan outstanding at the Cut-
Off Date of the product of (A) the PO Fraction for such Mortgage Loan and (B)
the principal balance of such Mortgage Loan as of the Cut-Off Date less the
sum of (i) all amounts in respect of principal received in respect of such
Mortgage Loan (including amounts received as Periodic Advances, principal
prepayments and Liquidation Proceeds in respect of principal) and distributed
to holders of the Certificates on such Distribution Date and all prior
Distribution Dates and (ii) the principal portion of any Realized Loss (other
than a Debt Service Reduction) incurred on such Mortgage Loan from the Cut-Off
Date through the end of the month preceding the month in which such
Distribution Date occurs.
The "NET MORTGAGE INTEREST RATE" on each Mortgage Loan will be equal to the
Mortgage Interest Rate on such Mortgage Loan as stated in the related mortgage
note minus the sum of (i) the Servicing Fee Rate of [ ]% per annum and (ii)
the Fixed Retained Yield rate, if any, for such Mortgage Loan. See "Pooling
and Servicing Agreement--Fixed Retained Yield; Servicing Compensation and
Payment of Expenses" herein.
When mortgagors prepay principal, or when principal is recovered through
foreclosure sales or other liquidations of defaulted Mortgage Loans, or when
other Unscheduled Principal Receipts occur, a full month's interest for the
month of payment or recovery may not be paid or recovered, resulting in
interest shortfalls to the extent that such payment or recovery is not
included in the distribution to Certificateholders made in the month in which
it is received. Interest shortfalls resulting from full or partial principal
prepayments made by mortgagors ("MORTGAGOR PREPAYMENTS") are referred to
herein as "PREPAYMENT INTEREST SHORTFALLS." The Servicer will be obligated, on
or before each Distribution Date, to pay to the Trustee for the benefit of
Certificateholders, from the Servicer's own funds (including amounts otherwise
payable to the Servicer in respect of such Distribution Date as Servicing
Fees) an amount (such amount, "COMPENSATING INTEREST") equal to the lesser of
(i) the aggregate Prepayment Interest Shortfall with respect to such
Distribution Date and (ii) the aggregate Servicing Fees relating to mortgagor
payments or other recoveries distributed on such Distribution Date.
As to any Distribution Date, Prepayment Interest Shortfalls to the extent
that they exceed Compensating Interest for such Distribution Date are referred
to herein as "NON-SUPPORTED INTEREST SHORTFALLS" and will be allocated to (i)
the Class A Certificates according to the percentage obtained by dividing the
then-outstanding Class A Non-PO Principal Balance by the Aggregate Non-PO
Principal Balance and (ii) the Class B Certificates according to the
percentage obtained by dividing the then-outstanding Class B Principal Balance
by the Aggregate Non-PO Principal Balance. Such allocation of the Non-
Supported Interest Shortfall will reduce the amount of interest due to be
distributed to holders of Certificates then entitled to distributions in
respect of interest. Any such reduction in respect of interest allocated to
the Class A Certificates will be allocated among the Class A Certificates, pro
rata, on the basis of their respective Interest Accrual Amounts, without
regard to any reduction pursuant to this paragraph, for such Distribution
Date. Any such reduction in respect of interest allocated to the Class B
Certificates will be allocated among such Classes of Class B Certificates, pro
rata, on the basis of their respective Interest Accrual Amounts, without
regard to any reduction pursuant to this paragraph, for such Distribution
Date.
Any interest shortfalls arising from Unscheduled Principal Receipts that are
not Mortgagor Prepayments will not be offset by Compensating Interest, but
instead will be borne first by the Classes of Class B Certificates in reverse
numerical order and then pro rata by the Class A Certificates based on
interest accrued. See
S-21
<PAGE>
"--Subordination of Class B Certificates" herein. After the Cross-Over Date
all interest shortfalls arising from Unscheduled Principal Receipts, other
than Prepayment Interest Shortfalls covered by Compensating Interest, will be
treated as Non-Supported Interest Shortfalls and allocated in reduction of
interest accrued on the Class A Certificates.
The interest portion of any Excess Losses will be allocated among the
Classes of Certificates pro rata based on their respective Interest Accrual
Amounts, without regard to any reduction pursuant to this paragraph, for such
Distribution Date.
Allocations of the interest portion of Realized Losses (other than Excess
Losses) first to the Classes of Class B Certificates in reverse numerical
order will result from the priority of distribution first to the holders of
the Class A Certificates and then to the holders of the Classes of Class B
Certificates in numerical order of the Pool Distribution Amount as described
above under "--Distributions."
On each Distribution Date on which the amount available to be distributed in
respect of interest on a Class of Certificates pursuant to the Pool
Distribution Amount Allocation is less than such Class's Interest Accrual
Amount, the amount of any such deficiency (as to each Class, an "INTEREST
SHORTFALL AMOUNT" ) will be added to the amount of interest distributable on
such Class on subsequent Distribution Dates, but only for so long as such
Class's Principal Balance is greater than zero. No interest will accrue on any
Interest Shortfall Amounts.
Prior to the Accretion Termination Date, any amounts which would otherwise
be distributed in respect of its Interest Accrual Amount or unpaid Interest
Shortfall Amounts on the Class A-2 Certificates will instead be distributed in
reduction of the Principal Balances of the Class A-1 and Class A-2
Certificates, as described under "--Principal (Including Payments)--Allocation
of Amounts to be Distributed on the Class A Certificates" below, and the
Principal Balance of the Class A-2 Certificates will be increased by a
corresponding amount. The "ACCRETION TERMINATION DATE" will be the earlier to
occur of (i) the Distribution Date following the Distribution Date on which
the Principal Balance of the Class A-1 Certificates has been reduced to zero
or (ii) the Cross-Over Date.
PRINCIPAL (INCLUDING PREPAYMENTS)
The principal balance of a Certificate at any time is equal to the product
of the related Class's Principal Balance and such Certificate's Percentage
Interest, and represents the maximum specified dollar amount (exclusive of (i)
any interest that may accrue on such Certificate (other than interest added to
the Principal Balance of the Class A-2 Certificates) and (ii) in the case of
the Class A-R Certificate, any additional amounts to which the holder of such
Certificate may be entitled as described below under "--Additional Rights of
the Class A-R Certificateholder") to which the holder thereof is entitled from
the cash flow on the Mortgage Loans at such time, and will decline to the
extent of distributions in reduction of the principal balance of, and
allocations of losses to, such Certificate. The approximate initial Principal
Balance of each Class of Offered Certificates is set forth on the cover of
this Prospectus Supplement. The initial Principal Balance of the Class A-PO
Certificates will be approximately $[ ].
Calculation of Amount to be Distributed on the Certificates
Distributions in reduction of the principal balance of the Class A
Certificates (other than the Class A-PO Certificates) will be made on each
Distribution Date pursuant to the Pool Distribution Amount Allocation, in an
aggregate amount equal to the Class A Non-PO Principal Distribution Amount.
The "CLASS A NON-PO PRINCIPAL DISTRIBUTION AMOUNT" with respect to any
Distribution Date will be equal to the sum of (i) the Class A-2 Accrual
Distribution Amount, if any, with respect to such Distribution Date and (ii)
the Class A Non-PO Principal Amount with respect to such Distribution Date.
The "CLASS A-2 ACCRUAL DISTRIBUTION AMOUNT" with respect to any Distribution
Date will be equal to the sum of (i) the portion, if any, of current interest
allocated but not distributed with respect to the Class A-2 Certificates on
such Distribution Date in accordance with priority first of the Pool
Distribution Amount
S-22
<PAGE>
Allocation and (ii) the portion, if any, of the unpaid Interest Shortfall
Amounts allocated but not distributed with respect to the Class A-2
Certificates on such Distribution Date in accordance with priority second of
the Pool Distribution Amount Allocation.
The "CLASS A NON-PO PRINCIPAL AMOUNT" with respect to any Distribution Date
will be equal to the amount distributed pursuant to priority third clause (A)
of the Pool Distribution Amount Allocation, in an aggregate amount up to the
Class A Non-PO Optimal Principal Amount.
Distributions in reduction of the Principal Balance of the Class A-PO
Certificates will be made on each Distribution Date in an aggregate amount
equal to the Class A-PO Distribution Amount. The "CLASS A-PO DISTRIBUTION
AMOUNT" with respect to any Distribution Date will be equal to the sum of (i)
the amount distributed pursuant to priority third clause (B) of the Pool
Distribution Amount Allocation, in an aggregate amount up to the Class A-PO
Optimal Principal Amount and (ii) the amount distributed pursuant to priority
fourth of the Pool Distribution Amount Allocation, in an aggregate amount up
to the Class A-PO Deferred Amount.
Distributions in reduction of the principal balances of the Class B-1, Class
B-2 and Class B-3 Certificates will be made on each Distribution Date first to
the Class B-1 Certificates, second to the Class B-2 Certificates and then to
the Class B-3 Certificates, pursuant to priority fifth clause (C) of the Pool
Distribution Amount Allocation, in an aggregate amount with respect to each
such Class (the "CLASS B-1 PRINCIPAL DISTRIBUTION AMOUNT," "CLASS B-2
PRINCIPAL DISTRIBUTION AMOUNT" and "CLASS B-3 PRINCIPAL DISTRIBUTION AMOUNT,"
respectively) up to the Class B Optimal Principal Amount for such Class.
The "CLASS A NON-PO OPTIMAL PRINCIPAL AMOUNT," the "CLASS B OPTIMAL
PRINCIPAL AMOUNT" for each Class of Class B Certificates and the "CLASS A-PO
OPTIMAL PRINCIPAL AMOUNT" with respect to each Distribution Date will be an
amount equal to the sum for each outstanding Mortgage Loan (including each
defaulted Mortgage Loan, other than a Liquidated Loan, with respect to which
the related Mortgaged Property has been acquired by the Trust Estate) of the
product of:
(A) (i) in the case of the Class A Non-PO Optimal Principal Amount and
the Class B Optimal Principal Amount, the Non-PO Fraction for such Mortgage
Loan and (ii) in the case of the Class A-PO Optimal Principal Amount, the
PO Fraction for such Mortgage Loan; and
(B) the sum of:
(i) the applicable Class Percentage of (x) the scheduled payment of
principal due on such Mortgage Loan on the first day of the month in
which the Distribution Date occurs, less (y) if the Bankruptcy Loss
Amount is zero, the principal portion of Debt Service Reductions with
respect to such Mortgage Loan;
(ii) the applicable Class Prepayment Percentage of all Unscheduled
Principal Receipts that were received by the Servicer with respect to
such Mortgage Loan during the Unscheduled Principal Receipt Period
relating to such Distribution Date;
(iii) the applicable Class Prepayment Percentage of the Scheduled
Principal Balance of such Mortgage Loan which, during the month
preceding the month of such Distribution Date was repurchased by the
Seller, as described under the heading "Description of the Mortgage
Loans-- Mandatory Repurchase or Substitution of Mortgage Loans" herein;
and
(iv) the applicable Class Percentage of the excess of the unpaid
principal balance of any defective Mortgage Loan for which a Mortgage
Loan was substituted during the month preceding the month in which such
Distribution Date occurs over the unpaid principal balance of such
substituted Mortgage Loan, less the amount allocable to the principal
portion of any unreimbursed advances in respect of such defective
Mortgage Loan. See "The Pooling and Servicing Agreement--Assignment of
the Mortgage Loans to the Trustee" in the Prospectus.
S-23
<PAGE>
The "CLASS PERCENTAGE" will equal (i) the Class A Percentage, in the case of
the calculation of the Class A Non-PO Optimal Principal Amount; (ii) the
applicable Class B Percentage, in the case of the calculation of the Class B
Optimal Principal Amount for a Class of Class B Certificates; and (iii) 100%
in the case of the calculation of the Class A-PO Optimal Principal Amount.
The "CLASS PREPAYMENT PERCENTAGE" will equal (i) the Class A Prepayment
Percentage, in the case of the calculation of the Class A Non-PO Optimal
Principal Amount; (ii) the applicable Class B Prepayment Percentage, in the
case of the calculation of the Class B Optimal Principal Amount for a Class of
Class B Certificates; and (iii) 100% in the case of the calculation of the
Class A-PO Optimal Principal Amount.
The "CLASS A-PO DEFERRED AMOUNT" for any Distribution Date prior to the
Cross-Over Date will equal the difference between (A) the sum of (i) the
amount by which the Class A-PO Optimal Principal Amount for all prior
Distribution Dates exceeds the amounts distributed to the Class A-PO
Certificates on such prior Distribution Dates pursuant to priority third,
clause (B) of the Pool Distribution Amount Allocation, but only to the extent
such shortfall is not attributable to Realized Losses allocated to the Class
A-PO Certificates as described in "--Subordination of Class B Certificates--
Allocation of Losses" below and (ii) the sum of the product for each Discount
Mortgage Loan which became a Liquidated Loan at any time on or prior to the
last day of the Unscheduled Principal Receipt Period for the current
Distribution Date of (a) the PO Fraction for such Discount Mortgage Loan and
(b) an amount equal to the principal portion of Realized Losses (other than
Bankruptcy Losses due to Debt Service Reductions) incurred with respect to
such Discount Mortgage Loan other than Excess Losses and (B) amounts
distributed on the Class A-PO Certificates on prior Distribution Dates
pursuant to priority fourth of the Pool Distribution Amount Allocation. On or
after the Cross-Over Date, the Class A-PO Deferred Amount will be zero. No
interest will accrue on any Class A-PO Deferred Amount.
The principal distribution to the holders of a Class of Class B Certificates
will be reduced on any Distribution Date on which (i) the Principal Balance of
such Class of Class B Certificates on the following Determination Date would
be reduced to zero as a result of principal distributions or allocation of
losses and (ii) the Principal Balance of any Class A Certificates or any Class
of Class B Certificates with a lower numerical designation, would be subject
to reduction on such Determination Date as a result of allocation of Realized
Losses (other than Excess Losses). The amount of any such reduction in the
principal distributed to the holders of such Class of Class B Certificates
will instead be distributed pro rata to the holders of any Class (other than
the Class A-PO Certificates) senior in priority which is entitled to receive
distributions in accordance with the Pool Distribution Amount Allocation.
Generally, in the event that there is any recovery of an amount in respect
of principal which had previously been allocated as a Realized Loss to any
Class of Certificates, such Class will be entitled to its pro rata share of
such recovery in an amount up to the amount by which the Principal Balance of
such Class was reduced as a result of such Realized Loss.
The "UNSCHEDULED PRINCIPAL RECEIPT PERIOD" for any Distribution Date is the
calendar month preceding the month in which such Distribution Date occurs.
The "SCHEDULED PRINCIPAL BALANCE" of a Mortgage Loan as of any Distribution
Date is the unpaid principal balance of such Mortgage Loan as specified in the
amortization schedule at the time relating thereto (before any adjustment to
such schedule by reason of bankruptcy (other than Deficient Valuations),
moratorium or similar waiver or grace period) as of the Due Date occurring in
the month preceding the month in which such Distribution Date occurs, after
giving effect to any Deficient Valuations occurring prior to such Due Date, to
the payment of principal due on such Due Date irrespective of any delinquency
in payment by the mortgagor and to any Unscheduled Principal Receipts received
or applied prior to such Due Date.
A "REALIZED LOSS" is any Liquidated Loan Loss (including any Special Hazard
Loss and any Fraud Loss) or any Bankruptcy Loss. A "LIQUIDATED LOAN" is a
defaulted Mortgage Loan as to which the Servicer has
S-24
<PAGE>
determined that all recoverable liquidation and insurance proceeds have been
received. A "LIQUIDATED LOAN LOSS" on a Liquidated Loan is equal to the
excess, if any, of (i) the unpaid principal balance of such Liquidated Loan,
plus accrued interest thereon in accordance with the amortization schedule at
the Net Mortgage Interest Rate through the last day of the month in which such
Mortgage Loan was liquidated, over (ii) net Liquidation Proceeds. For purposes
of calculating the amount of any Liquidated Loan Loss, all net Liquidation
Proceeds (after reimbursement of any previously unreimbursed Periodic Advance)
will be applied first to accrued interest and then to the unpaid principal
balance of the Liquidated Loan. A "SPECIAL HAZARD LOSS" is (A) a Liquidated
Loan Loss suffered by a Mortgaged Property on account of direct physical loss
exclusive of (i) any loss covered by a standard hazard insurance policy or, if
the Mortgaged Property is located in an area identified in the Federal
Register by the Federal Emergency Management Agency as having special flood
hazards, a flood insurance policy, of the types described in the Prospectus
under "Servicing of the Mortgage Loans--Insurance Policies" and (ii) any loss
caused by or resulting from (a) normal wear and tear, (b) dishonest acts of
the Trustee or the Servicer or (c) errors in design, faulty workmanship or
faulty materials, unless the collapse of the property or a part thereof ensues
or (B) a Liquidated Loan Loss arising from or relating to the presence or
suspected presence of hazardous wastes or substances on a Mortgaged Property.
A "FRAUD LOSS" is a Liquidated Loan Loss incurred on a Liquidated Loan as to
which there was fraud in the origination of such Mortgage Loan. A "BANKRUPTCY
LOSS" is a Debt Service Reduction or a Deficient Valuation. A "DEBT SERVICE
REDUCTION" means a reduction in the amount of monthly payments due to certain
bankruptcy proceedings, but does not include any permanent forgiveness of
principal. A "DEFICIENT VALUATION" with respect to a Mortgage Loan means a
valuation by a court of the Mortgaged Property in an amount less than the
outstanding indebtedness under the Mortgage Loan or any reduction in the
amount of monthly payments that results in a permanent forgiveness of
principal, which valuation or reduction results from a bankruptcy proceeding.
The "NON-PO FRACTION" with respect to any Mortgage Loan will equal the Net
Mortgage Interest Rate for such Mortgage Loan divided by [ ]%, but will not
be greater than 1.0.
The "POOL BALANCE (NON-PO PORTION)" is the sum for each outstanding Mortgage
Loan of the product of (i) the Non-PO Fraction for such Mortgage Loan and (ii)
the Scheduled Principal Balance of such Mortgage Loan as of such Distribution
Date.
The "PO FRACTION" with respect to any Mortgage Loan with a Net Mortgage
Interest Rate less than [ ]% (a "DISCOUNT MORTGAGE LOAN") will equal the
difference between 1.0 and the Non-PO Fraction for such Mortgage Loan. The PO
Fraction with respect to each Mortgage Loan that is not a Discount Mortgage
Loan (a "PREMIUM MORTGAGE LOAN") will be zero.
The "POOL BALANCE (PO PORTION)" is the sum for each Discount Mortgage Loan
of the product of the Scheduled Principal Balance of such Discount Mortgage
Loan and the PO Fraction for such Discount Mortgage Loan.
The "CLASS A PERCENTAGE" for any Distribution Date occurring on or prior to
the Cross-Over Date is the percentage (subject to rounding), which in no event
will exceed 100%, obtained by dividing the Class A Non-PO Principal Balance as
of such date (before taking into account distributions in reduction of
principal balance on such date) by the Pool Balance (Non-PO Portion). The
Class A Percentage for the first Distribution Date will be approximately
[ ]%. The Class A Percentage for each Distribution Date occurring after the
Cross-Over Date will be 100%.
S-25
<PAGE>
The "CLASS A PREPAYMENT PERCENTAGE" for any Distribution Date will be the
percentage indicated below:
<TABLE>
<CAPTION>
DISTRIBUTION DATE OCCURRING IN CLASS A PREPAYMENT PERCENTAGE
------------------------------ -----------------------------
<S> <C>
through ........................... 100%;
through ........................... the Class A Percentage, plus 70%
of the Subordinated Percentage;
through ........................... the Class A Percentage, plus 60%
of the Subordinated Percentage;
through ........................... the Class A Percentage, plus 40%
of the Subordinated Percentage;
through ........................... the Class A Percentage, plus 20%
of the Subordinated Percentage;
and
and thereafter .................... the Class A Percentage;
</TABLE>
provided, however, that if on any of the foregoing Distribution Dates the
Class A Percentage exceeds the initial Class A Percentage, the Class A
Prepayment Percentage for such Distribution Date will once again equal 100%.
See "Prepayment and Yield Considerations" herein and in the Prospectus.
Notwithstanding the foregoing, no reduction of the Class A Prepayment
Percentage will occur on any Distribution Date if (i) as of such Distribution
Date as to which any such reduction applies, the average outstanding principal
balance on such Distribution Date and for the preceding five Distribution
Dates on the Mortgage Loans that were delinquent 60 days or more (including
for this purpose any Mortgage Loans in foreclosure and Mortgage Loans with
respect to which the related Mortgaged Property has been acquired by the Trust
Estate) is greater than or equal to 50% of the sum of the then-outstanding
Class B Principal Balance, or (ii) for any Distribution Date, cumulative
Realized Losses with respect to the Mortgage Loans exceed the percentages of
the principal balance of the Subordinated Certificates as of the Cut-Off Date
(the "ORIGINAL SUBORDINATED PRINCIPAL BALANCE") indicated below:
<TABLE>
<CAPTION>
PERCENTAGE OF ORIGINAL
DISTRIBUTION DATE OCCURRING IN SUBORDINATED PRINCIPAL BALANCE
------------------------------ ------------------------------
<S> <C>
through ............................. 30%
through ............................. 35%
through ............................. 40%
through ............................. 45%
and thereafter ...................... 50%
</TABLE>
This disproportionate allocation of certain unscheduled payments in respect
of principal will have the effect of accelerating the amortization of the
Class A Certificates (other than the Class A-PO Certificates) while, in the
absence of Realized Losses, increasing the interest in the principal balance
of the Mortgage Loans evidenced by the Class B Certificates. Increasing the
respective interest of the Class B Certificates relative to that of the Class
A Certificates (other than the Class A-PO Certificates) is intended to
preserve the availability of the subordination provided by the Class B
Certificates. See "--Subordination of Class B Certificates" below. The
"SUBORDINATED PERCENTAGE" for any Distribution Date will be calculated as the
difference between 100% and the Class A Percentage for such date. The
"SUBORDINATED PREPAYMENT PERCENTAGE" for any Distribution Date will be
calculated as the difference between 100% and the Class A Prepayment
Percentage for such date.
The "CLASS B PERCENTAGE" and "CLASS B PREPAYMENT PERCENTAGE" for a Class of
Class B Certificates will equal the portion of the Subordinated Percentage and
Subordinated Prepayment Percentage, as the case may be, represented by the
fraction, the numerator of which is the then-outstanding Principal Balance for
such Class of Class B Certificates and the denominator of which is the sum of
the Principal Balances of the Classes of Class B Certificates entitled to
principal distributions for such Distribution Date as described below. In the
event that a Class of Class B Certificates is not entitled to principal
distributions for such Distribution Date, the Class B Percentage and Class B
Prepayment Percentage for such Class will both be 0% with respect to such
Distribution Date.
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<PAGE>
In the event that on any Distribution Date the Current Fractional Interest
of any Class of Class B Certificates is less than the Original Fractional
Interest of such Class, then the Classes of Certificates that are subordinate
to such Class will not be entitled to distributions in respect of principal
and the Principal Balances of such subordinated Classes will not be used to
determine the Class B Percentage and Class B Prepayment Percentage of the
Classes of Class B Certificates that are senior to such subordinated Classes
for such Distribution Date. The Class B-6 Certificates will not have original
or current fractional interests which are required to be maintained as
described above.
The "ORIGINAL FRACTIONAL INTEREST" of a Class of Class B Certificates is the
percentage obtained by dividing the sum of the initial Principal Balances of
the Classes of Certificates that are subordinate to such Class by the initial
Aggregate Non-PO Principal Balance. The "CURRENT FRACTIONAL INTEREST" of a
Class of Class B Certificates for any Distribution Date is the percentage
obtained by dividing the sum of the then-outstanding Principal Balances of the
Classes of Certificates that are subordinate to such Class by the then-
outstanding Aggregate Non-PO Principal Balance.
The following table sets forth the expected approximate Original Fractional
Interest for each Class of Class B Certificates on the date of issuance of the
Certificates.
<TABLE>
<CAPTION>
APPROXIMATE
ORIGINAL
FRACTIONAL
CLASS INTEREST
----- -----------
<S> <C>
B-1.............................................................. %
B-2.............................................................. %
B-3.............................................................. %
B-4.............................................................. %
B-5.............................................................. %
B-6.............................................................. N/A
</TABLE>
Allocation of Amount to be Distributed on the Class A Certificates
[Insert Payment Priorities]
ADDITIONAL RIGHTS OF THE CLASS A-R CERTIFICATEHOLDER
The Class A-R Certificate will remain outstanding for as long as the Trust
Estate shall exist, whether or not such Class is receiving current
distributions of principal or interest. The holder of the Class A-R
Certificate will be entitled to receive the proceeds of the remaining assets
of the Trust Estate, if any, on the final Distribution Date for the
Certificates, after distributions in respect of any accrued but unpaid
interest on the Certificates and after distributions in reduction of principal
balance have reduced the principal balances of the Certificates to zero. It is
not anticipated that there will be any assets remaining in the Trust Estate on
the final Distribution Date following the distributions of interest and in
reduction of principal balance made on the Certificates on such date.
In addition, the Class A-R Certificateholder will be entitled on each
Distribution Date to receive any Pool Distribution Amount remaining after all
distributions pursuant to the Pool Distribution Amount Allocation have been
made and any Net Foreclosure Profits, as described under "Description of the
Certificates" in the Prospectus. It is not anticipated that there will be any
such Net Foreclosure Profits or undistributed portion of the Pool Distribution
Amounts.
PERIODIC ADVANCES
If, on any Determination Date, payments of principal and interest due on any
Mortgage Loan in the Trust Estate on the related Due Date have not been
received, the Servicer will be required to advance on or before the related
Distribution Date for the benefit of holders of the Certificates an amount in
cash equal to all delinquent
S-27
<PAGE>
payments of principal and interest due on each Mortgage Loan in the Trust
Estate (with interest adjusted to the applicable Net Mortgage Interest Rate)
not previously advanced, but only to the extent that the Servicer believes
that such amounts will be recoverable by it from liquidation proceeds or other
recoveries in respect of the related Mortgage Loan (each, a "PERIODIC
ADVANCE"). Upon the Servicer's failure to make a required Periodic Advance,
the Trustee will be required to make such Periodic Advance.
The Pooling and Servicing Agreement provides that any advance of the kind
described in the preceding paragraph may be reimbursed to the Servicer or the
Trustee, as applicable, at any time from funds available in the Servicer
Custodial Account or the Certificate Account, as the case may be, to the
extent that (i) such funds represent receipts on, or liquidation, insurance,
purchase or repurchase proceeds in respect of, the Mortgage Loans to which the
advance relates or (ii) the Servicer or the Trustee, as applicable, has
determined in good faith that the advancing party will be unable to recover
such advance from funds of the type referred to in clause (i) above.
RESTRICTIONS ON TRANSFER OF THE CLASS A-R AND CLASS B CERTIFICATES
The Class A-R Certificate will be subject to the following restrictions on
transfer, and the Class A-R Certificate will contain a legend describing such
restrictions.
The REMIC provisions of the Code impose certain taxes on (i) transferors of
residual interests to, or agents that acquire residual interests on behalf of,
Disqualified Organizations and (ii) certain Pass-Through Entities (as defined
in the Prospectus) that have Disqualified Organizations as beneficial owners.
No tax will be imposed on a Pass-Through Entity (other than an "electing large
partnership" as defined in the Prospectus) with respect to the Class A-R
Certificate to the extent it has received an affidavit from the owner thereof
that such owner is not a Disqualified Organization or a nominee for a
Disqualified Organization. The Pooling and Servicing Agreement will provide
that no legal or beneficial interest in the Class A-R Certificate may be
transferred to or registered in the name of any person unless (i) the proposed
purchaser provides to the Trustee an affidavit (or, to the extent acceptable
to the Trustee, a representation letter signed under penalty of perjury) to
the effect that, among other items, such transferee is not a Disqualified
Organization (as defined in the Prospectus) and is not purchasing the Class A-
R Certificate as an agent for a Disqualified Organization (i.e., as a broker,
nominee, or other middleman thereof) and (ii) the transferor states in writing
to the Trustee that it has no actual knowledge that such affidavit or letter
is false. Further, such affidavit or letter requires the transferee to affirm
that it (i) historically has paid its debts as they have come due and intends
to do so in the future, (ii) understands that it may incur tax liabilities
with respect to the Class A-R Certificate in excess of cash flows generated
thereby, (iii) intends to pay taxes associated with holding the Class A-R
Certificate as such taxes become due and (iv) will not transfer the Class A-R
Certificate to any person or entity that does not provide a similar affidavit
or letter. The transferor must certify in writing to the Trustee that, as of
the date of the transfer, it had no knowledge or reason to know that the
affirmations made by the transferee pursuant to the preceding sentence were
false.
In addition, the Class A-R Certificate may not be purchased by or
transferred to any person that is not a U.S. Person, unless (i) such person
holds such Class A-R Certificate in connection with the conduct of a trade or
business within the United States and furnishes the transferor and the Trustee
with an effective Internal Revenue Service Form 4224 or (ii) the transferee
delivers to both the transferor and the Trustee an opinion of a nationally
recognized tax counsel to the effect that such transfer is in accordance with
the requirements of the Code and the regulations promulgated thereunder and
that such transfer of the Class A-R Certificate will not be disregarded for
federal income tax purposes. The term "U.S. Person" means a citizen or
resident of the United States, a corporation, partnership (except to the
extent provided in the applicable Treasury regulations) or other entity
created or organized in or under the laws of the United States or any
political subdivision thereof, an estate that is subject to United States
federal income tax regardless of the source of its income, or a trust if a
court within the United States is able to exercise primary supervision over
the administration of such trust, and one or more United States fiduciaries
have the authority to control all substantial decisions of such trust (or, to
the extent provided in applicable Treasury regulations, certain trusts in
existence on August 20, 1996 which are eligible to elect to be treated as U.S.
Persons).
S-28
<PAGE>
The Pooling and Servicing Agreement will provide that any attempted or
purported transfer in violation of these transfer restrictions will be null
and void and will vest no rights in any purported transferee. Any transferor
or agent to whom the Trustee provides information as to any applicable tax
imposed on such transferor or agent may be required to bear the cost of
computing or providing such information. See "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates--Taxation
of Residual Certificates--Tax-Related Restrictions on Transfer of Residual
Certificates" in the Prospectus.
The Class A-R Certificate may not be purchased by or transferred to any
person which is an employee benefit plan or other retirement plan or
arrangement subject to Title I of ERISA or Code Section 4975 (an "ERISA PLAN")
or which is a governmental plan, as defined in Section 3(32) of ERISA, subject
to any federal, state or local law ("SIMILAR LAW") which is, to a material
extent, similar to the foregoing provisions of ERISA or the Code
(collectively, with an ERISA Plan, a "PLAN"), or any person acting on behalf
of or investing the assets of such Plan. See "ERISA Considerations" herein and
in the Prospectus.
Under current law the purchase and holding of the Class B Certificates by or
on behalf of a Plan may result in "prohibited transactions" within the meaning
of ERISA and Code Section 4975 or Similar Law. Transfer of the Class B
Certificates will not be made unless the transferee (i) executes a
representation letter in form and substance satisfactory to the Trustee
stating that (a) it is not, and is not acting on behalf of, any such Plan or
using the assets of any such Plan to effect such purchase or (b) if it is an
insurance company, that the source of funds used to purchase the Class B
Certificates is an "insurance company general account" (as such term is
defined in Section V(e) of Prohibited Transaction Class Exemption 95-60 ("PTE
95-60"), 60 Fed. Reg. 35925 (July 12, 1995)) and there is no Plan with respect
to which the amount of such general account's reserves and liabilities for the
contract(s) held by or on behalf of such Plan and all other Plans maintained
by the same employer (or affiliate thereof as defined in Section V(a)(1) of
PTE 95-60) or by the same employee organization exceeds 10% of the total of
all reserves and liabilities of such general account (as such amounts are
determined under Section I(a) of PTE 95-60) at the date of acquisition or (ii)
provides (A) an opinion of counsel in form and substance satisfactory to the
Trustee that the purchase or holding of the Class B Certificates by or on
behalf of such Plan will not result in the assets of the Trust Estate being
deemed to be "plan assets" and subject to the prohibited transaction
provisions of ERISA, the Code or Similar Law and will not subject the Seller,
the Servicer or the Trustee to any obligation in addition to those undertaken
in the Pooling and Servicing Agreement and (B) such other opinions of counsel,
officers' certificates and agreements as the Seller or the Servicer may
require in connection with such transfer. The Class B Certificates will
contain a legend describing such restrictions on transfer and the Pooling and
Servicing Agreement will provide that any attempted or purported transfer in
violation of these transfer restrictions will be null and void and will vest
no rights in any purported transferee. See "ERISA Considerations" herein and
in the Prospectus.
SUBORDINATION OF CLASS B CERTIFICATES
The rights of the holders of the Class B Certificates to receive
distributions with respect to the Mortgage Loans in the Trust Estate will be
subordinated to such rights of the holders of the Class A Certificates and the
rights of the holders of the Classes of Class B Certificates with higher
numerical designations to receive distributions with respect to the Mortgage
Loans in the Trust Estate will be subordinated to such rights of the holders
of Classes of Class B Certificates with lower numerical designations, all to
the extent described below. This subordination is intended to enhance the
likelihood of timely receipt by the holders of more senior Certificates of the
full amount of their scheduled monthly payments of interest and principal and
to afford the holders of the more senior Certificates protection against
Realized Losses, as more fully described below. If Realized Losses exceed the
credit support provided through subordination to a given Class of Certificates
or if Excess Losses occur, all or a portion of such losses will be borne by
such Class of Certificates.
The protection afforded to the holders of more senior Classes of
Certificates by means of the subordination feature will be accomplished by the
preferential right of such holders to receive, prior to any distribution being
made on a Distribution Date in respect of the more junior Classes of
Certificates, the amounts of principal and interest due such holders on each
Distribution Date out of the Pool Distribution Amount with respect to such
S-29
<PAGE>
date and, if necessary, by the right of such holders to receive future
distributions on the Mortgage Loans that would otherwise have been payable to
the holders of the more junior Classes of Certificates. Because of the
priority in which the Class A Non PO Distribution Amount is allocated among
the Class of Class A Certificates (other than the Class A PO Certificates),
the application of this subordination to cover Realized Losses experienced in
periods prior to the periods in which a Class of Class A Certificates is
entitled to distributions in reduction of principal balance will decrease the
protection provided by the subordination to any such Class.
Amounts distributed to holders of Subordinated Certificates will not be
available to cover delinquencies or Realized Losses in respect of subsequent
Distribution Dates.
Allocation of Losses
Realized Losses (other than Excess Losses) will not be allocated to the
holders of the Class A Certificates until the date on which the amount of
principal payments on the Mortgage Loans to which the holders of the
Subordinated Certificates are entitled has been reduced to zero as a result of
the allocation of losses to the Subordinated Certificates, i.e., the
Distribution Date preceding the Distribution Date for which the Subordinated
Percentage is equal to zero (the "CROSS-OVER DATE"). Prior to such time, such
Realized Losses will be allocated to the Classes of Class B Certificates
sequentially in reverse numerical order, until the Principal Balance of each
such Class has been reduced to zero.
The allocation of the principal portion of a Realized Loss (other than a
Debt Service Reduction or Excess Loss) will be effected through the adjustment
of the Principal Balance of the most subordinate Class then outstanding in
such amount as is necessary to cause the Aggregate Principal Balance to equal
the Adjusted Pool Amount.
Allocations to the Classes of Class B Certificates of (i) the principal
portion of Debt Service Reductions, (ii) the interest portion of Realized
Losses (other than Excess Losses), (iii) any interest shortfalls resulting
from delinquencies for which the Servicer, the Master Servicer or the Trustee
does not advance, (iv) any interest shortfalls or losses resulting from the
application of the Soldiers' and Sailors' Civil Relief Act of 1940, as more
fully described under "Certain Legal Aspects of the Mortgage Loans--Soldiers'
and Sailors' Civil Relief Act" in the Prospectus and (v) any interest
shortfalls resulting from the timing of the receipt of Unscheduled Principal
Receipts (other than Mortgagor Prepayments) with respect to Mortgage Loans
will result from the priority of distributions of the Pool Distribution Amount
first to the Class A Certificates and then to the Classes of Class B
Certificates in numerical order as described above under "--Distributions."
The allocation of the principal portion of Realized Losses (other than
Excess Losses) in respect of the Mortgage Loans allocated on or after the
Cross-Over Date will be effected through the adjustment on any Determination
Date of the Class A Non-PO Principal Balance and the Principal Balance of the
Class A-PO Certificates such that (i) the Class A Non-PO Principal Balance
equals the Adjusted Pool Amount less the Adjusted Pool Amount (PO Portion) as
of the preceding Distribution Date and (ii) the Principal Balance of the Class
A-PO Certificates equals the Adjusted Pool Amount (PO Portion) as of the
preceding Distribution Date. The principal portion of such Realized Losses
allocated to the Class A Certificates (other than the Class A-PO Certificates)
will be allocated to such outstanding Classes of Class A Certificates pro rata
in accordance with their Principal Balances or, in the case of the Class A-2
Certificates, their initial Principal Balance, if lower. The interest portion
of any Realized Loss allocated on or after the Cross-Over Date will be
allocated among the outstanding Classes of Class A Certificates pro rata in
accordance with their respective Interest Accrual Amounts, without regard to
any reduction pursuant to this sentence. Any such losses will be allocated
among the outstanding Class A Certificates within each Class pro rata in
accordance with their respective Percentage Interests.
If the Pool Distribution Amount is not sufficient to cover the amount of
principal payable to the holders of the Class A Certificates on a particular
Distribution Date, then the percentage of principal payments on the Mortgage
Loans to which the holders of the Class A Certificates (other than the Class
A-PO Certificates) will be
S-30
<PAGE>
entitled (i.e., the Class A Percentage) on and after the next Distribution
Date will be proportionately increased, thereby reducing, as a relative
matter, the respective interest of the Class B Certificates in future payments
of principal on the Mortgage Loans in the Trust Estate.
Special Hazard Losses, Fraud Losses and Bankruptcy Losses other than Excess
Losses, will be allocated solely to the Classes of Class B Certificates in
reverse numerical order. Special Hazard Losses, Fraud Losses and Bankruptcy
Losses in excess of the Special Hazard Loss Amount, the Fraud Loss Amount and
the Bankruptcy Loss Amount, respectively, are "EXCESS SPECIAL HAZARD LOSSES,"
"EXCESS FRAUD LOSSES" and "EXCESS BANKRUPTCY LOSSES," respectively, and are
referred to herein collectively as "EXCESS LOSSES."
Any Excess Losses will be allocated (i) with respect to the principal
portion of such losses (a) to the outstanding Classes of the Class A
Certificates (other than the Class A-PO Certificates) and Class B Certificates
pro rata based on their outstanding Principal Balances in proportion to the
Non-PO Fraction of such losses and (b) in respect of Discount Mortgage Loans,
to the Class A-PO Certificates in proportion to the PO Fraction of such losses
and (ii) with respect to the interest portion of such losses, to the Class A
and Class B Certificates pro rata based on interest accrued by reducing their
respective Interest Accrual Amounts. The principal portion of any such losses
so allocated to the Class A Certificates (other than the Class A-PO
Certificates) will be allocated to such outstanding Classes of Class A
Certificates pro rata in accordance with their then-outstanding Principal
Balances or, in the case of the Class A-2 Certificates, their initial
Principal Balance, if lower. Any losses allocated to a Class of Certificates
will be allocated among the outstanding Certificates within such Class pro
rata in accordance with their respective Percentage Interests.
Upon initial issuance of the Certificates, the "SPECIAL HAZARD LOSS AMOUNT"
with respect thereto will be equal to approximately [ ]% (approximately $[ ])
of the Cut-Off Date Aggregate Principal Balance of the Mortgage Loans. As of
any Distribution Date, the Special Hazard Loss Amount will equal the initial
Special Hazard Loss Amount less the sum of (A) any Special Hazard Losses
allocated solely to the Class B Certificates and (B) the Adjustment Amount.
The "ADJUSTMENT AMOUNT" on each anniversary of the Cut-Off Date will be equal
to the amount, if any, by which the Special Hazard Amount, without giving
effect to the deduction of the Adjustment Amount for such anniversary, exceeds
the greatest of (i) 1.00% (or, if greater than 1.00%, the highest percentage
of Mortgage Loans by principal balance in any California zip code) times the
aggregate principal balance of all the Mortgage Loans on such anniversary,
(ii) twice the principal balance of the single Mortgage Loan having the
largest principal balance, and (iii) that amount which is necessary to
maintain the original ratings assigned to the Class A, Class B-1, Class B-2
and Class B-3 Certificates by the applicable Rating Agenc[y][ies], as
evidenced by letters to that effect delivered by such Rating Agenc[y][ies] to
the Servicer and the Trustee. On and after the Cross-Over Date, the Special
Hazard Loss Amount will be zero.
Upon initial issuance of the Certificates, the "FRAUD LOSS AMOUNT" with
respect thereto will be equal to approximately 2.00% (approximately $[ ]) of
the Cut-Off Date Aggregate Principal Balance of the Mortgage Loans. As of any
Distribution Date prior to the first anniversary of the Cut-Off Date, the
Fraud Loss Amount will equal the initial Fraud Loss Amount minus the aggregate
amount of Fraud Losses allocated solely to the Class B Certificates through
the related Determination Date. As of any Distribution Date from the first
through fifth anniversary of the Cut-Off Date, the Fraud Loss Amount will be
an amount equal to (1) the lesser of (a) the Fraud Loss Amount as of the most
recent anniversary of the Cut-Off Date and (b) 1.00% of the aggregate
principal balance of all of the Mortgage Loans as of the most recent
anniversary of the Cut-Off Date minus (2) the aggregate amounts allocated
solely to the Class B Certificates with respect to Fraud Losses since the most
recent anniversary of the Cut-Off Date through the related Determination Date.
On and after the Cross-Over Date or after the fifth anniversary of the Cut-Off
Date, the Fraud Loss Amount will be zero.
Upon initial issuance of the Certificates, the "BANKRUPTCY LOSS AMOUNT" with
respect thereto will be equal to approximately [ ]% (approximately $[ ]) of
the Cut-Off Date Aggregate Principal Balance of the Mortgage Loans. As of any
Distribution Date prior to the first anniversary of the Cut-Off Date, the
Bankruptcy Loss Amount will equal the initial Bankruptcy Loss Amount minus the
aggregate amount of Bankruptcy Losses allocated solely to the Class B
Certificates through the related Determination Date. As of any Distribution
Date
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on or after the first anniversary of the Cut-Off Date, the Bankruptcy Loss
Amount will equal the excess, if any, of (1) the lesser of (a) the Bankruptcy
Loss Amount as of the business day next preceding the most recent anniversary
of the Cut-Off Date and (b) an amount, if any, calculated pursuant to the
terms of the Pooling and Servicing Agreement, which amount as calculated will
provide for a reduction in the Bankruptcy Loss Amount, over (2) the aggregate
amount of Bankruptcy Losses allocated solely to the Class B Certificates since
such anniversary. The Bankruptcy Loss Amount and the related coverage levels
described above may be reduced or modified upon written confirmation from each
Rating Agency that such reduction or modification will not adversely affect
the then-current ratings assigned to the Certificates by it. Such a reduction
or modification may adversely affect the coverage provided by subordination
with respect to Bankruptcy Losses. On and after the Cross-Over Date, the
Bankruptcy Loss Amount will be zero.
Notwithstanding the foregoing, the provisions relating to subordination will
not be applicable in connection with a Bankruptcy Loss so long as the Servicer
has notified the Trustee in writing that the Servicer is diligently pursuing
any remedies that may exist in connection with the representations and
warranties made regarding the related Mortgage Loan and when (A) the related
Mortgage Loan is not in default with regard to the payments due thereunder or
(B) delinquent payments of principal and interest under the related Mortgage
Loan and any premiums on any applicable Standard Hazard Insurance Policy and
any related escrow payments in respect of such Mortgage Loan are being
advanced on a current basis by the Servicer, in either case without giving
effect to any Debt Service Reduction.
As a result of the mechanism described above, the risk of Special Hazard
Losses, Fraud Losses and Bankruptcy Losses will be borne solely by the Class B
Certificates to a lesser extent (i.e., only up to the Special Hazard Loss
Amount, Fraud Loss Amount and Bankruptcy Loss Amount, respectively) than the
risk of other Realized Losses, which will be allocated first to the Class B
Certificates in reverse numerical order to the full extent of their initial
Principal Balances.
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<PAGE>
DESCRIPTION OF THE MORTGAGE LOANS(1)
GENERAL
The Mortgage Loans to be included in the Trust Estate will be fixed interest
rate, conventional, monthly pay, fully amortizing, one-to four-family,
residential first mortgage loans having original terms to stated maturity of
approximately [ ] years, which may include loans secured by shares ("CO-OP
SHARES") issued by private non-profit housing corporations ("COOPERATIVES"),
and the related proprietary leases or occupancy agreements granting exclusive
rights to occupy specified units in such Cooperatives' buildings. The Mortgage
Loans are expected to include [ ] promissory notes, to have an aggregate
unpaid principal balance as of the Cut-Off Date (the "CUT-OFF DATE AGGREGATE
PRINCIPAL BALANCE") of approximately $[ ] to be secured by first liens (the
"MORTGAGES") on one- to four-family residential properties (the "MORTGAGED
PROPERTIES") and to have the additional characteristics described below and in
the Prospectus.
As of the Cut-Off Date, it is expected that [ ] of the Mortgage Loans,
representing approximately [ ]% of the Cut-Off Date Aggregate Principal
Balance of the Mortgage Loans, will be Buy-Down Loans. As of the Cut-Off Date,
it is expected that [ ] of the Mortgage Loans will be secured by Co-op Shares.
See "The Trust Estates--Mortgage Loans" in the Prospectus.
Each of the Mortgage Loans is subject to a due-on-sale clause. See "Certain
Legal Aspects of the Mortgage Loans--"Due-on-Sale" Clauses" and "Servicing of
the Mortgage Loans--Enforcement of Due-on-Sale Clauses; Realization Upon
Defaulted Mortgage Loans" in the Prospectus.
As of the Cut-Off Date, each Mortgage Loan is expected to have an unpaid
principal balance of not less than approximately $[ ] or more than
approximately $[ ], and the average unpaid principal balance of the Mortgage
Loans is expected to be approximately $[ ]. The latest stated maturity date of
any of the Mortgage Loans is expected to be [ , ]; however, the actual date
on which any Mortgage Loan is paid in full may be earlier than the stated
maturity date due to unscheduled payments of principal. Based on information
supplied by the mortgagors in connection with their loan applications at
origination, [ ] of the Mortgaged Properties are expected to be owner occupied
primary residences. See "The Mortgage Loan Programs--Mortgage Loan
Underwriting" in the Prospectus.
As of the Cut-Off Date, there were [ ] Discount Mortgage Loans having an
aggregate unpaid principal balance of approximately $[ ], a range of unpaid
principal balances of approximately $[ ] to approximately
- --------
(1) The description in this Prospectus Supplement of the Trust Estate and the
properties securing the Mortgage Loans to be included in the Trust Estate
are based upon the expected characteristics of the Mortgage Loans at the
close of business on the Cut-Off Date, as adjusted for the scheduled
principal payments due on or before such date. Notwithstanding the
foregoing, any of such Mortgage Loans may be excluded from the Trust
Estate (i) as a result of principal prepayment thereof in full or (ii) if,
as a result of delinquencies or otherwise, the Seller otherwise deems such
exclusion necessary or desirable. In either event, other Mortgage Loans
may be included in the Trust Estate. The Seller believes that the
information set forth herein with respect to the expected characteristics
of the Mortgage Loans on the Cut-Off Date is representative of the
characteristics as of the Cut-Off Date of the Mortgage Loans to be
included in the Trust Estate as it will be constituted at the time the
Certificates are issued, although the Cut-Off Date Aggregate Principal
Balance, the range of Mortgage Interest Rates and maturities, and certain
other characteristics of the Mortgage Loans in the Trust Estate may vary.
In the event that any of the characteristics as of the Cut-Off Date of the
Mortgage Loans that constitute the Trust Estate on the date of initial
issuance of the Certificates vary materially from those described herein,
revised information regarding the Mortgage Loans will be made available to
purchasers of the Offered Certificates, on or before such issuance date,
and a Current Report on Form 8-K containing such information will be filed
with the Securities and Exchange Commission within 15 days following such
date.
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<PAGE>
$[ ] an average unpaid principal balance of approximately $[ ], a range of
Mortgage Interest Rates from [ ]% to [ ]% per annum, a weighted average
Mortgage Interest Rate of approximately [ ]% per annum, a range of remaining
terms to stated maturity of [ ] months to [ ] months, a weighted average
remaining term to stated maturity of approximately [ ] months, a range of
original Loan-to-Value Ratios of [ ]% to [ ]%, a weighted average original
Loan-to-Value Ratio of approximately [ ]% and the following geographic
concentration of Mortgaged Properties securing Mortgage Loans in excess of
[ ]% of the aggregate unpaid principal balance of the Discount Mortgage Loans:
approximately [ ]% in [STATES].
As of the Cut-Off Date, there were [ ] Mortgage Loans that were not Discount
Mortgage Loans ("PREMIUM MORTGAGE LOANS") having an aggregate unpaid principal
balance of approximately $[ ], a range of unpaid principal balances of
approximately $[ ] to approximately $[ ], an average unpaid principal balance
of approximately $[ ], a range of Mortgage Interest Rates from [ ]% to [ ]%
per annum, a weighted average Mortgage Interest Rate of approximately [ ]% per
annum, a range of remaining terms to stated maturity of [ ] months to [ ]
months, a weighted average remaining term to stated maturity of approximately
[ ] months, a range of original Loan-to-Value Ratios of [ ]% to [ ]%, a
weighted average original Loan-to-Value Ratio of approximately [ ]% and the
following geographic concentration of Mortgaged Properties securing Mortgage
Loans in excess of [ ]% of the aggregate unpaid principal balance of the
Premium Mortgage Loans: approximately [ ]% in [STATES].
Certain geographic regions, including California, have, in recent years,
experienced and such regions or others in the future may experience natural
disasters, including, without limitation, earthquakes, fires, floods and
hurricanes. Any deterioration in housing prices in the states in which the
Mortgaged Properties are located and any deterioration in the economic
conditions in such states which adversely affects the ability of borrowers to
make payments on the Mortgage Loans may increase the likelihood of losses on
the Mortgage Loans. A concentration of the Mortgage Loans in such states may
therefore result in a greater risk of loss than had such concentration not
been present. Such losses, if they occur, may have an adverse effect on the
yield to maturity of the Offered Certificates and more particularly on the
Class M and the Class B Certificates offered hereby, especially the Class B-2
Certificates.
As to Mortgaged Properties in regions that have recently experienced natural
disasters, neither the Seller nor the Servicer has undertaken the physical
inspection of such Mortgaged Properties. As a result, there can be no
assurance that material damage to any Mortgaged Property in an affected region
has not occurred. In the Pooling and Servicing Agreement, the Seller will
represent and warrant that, as of the date of issuance of the Certificates,
each Mortgaged Property is undamaged by flood, water, fire, earthquake or
earth movement, windstorm, tornado or similar casualty (excluding casualty
from the presence of hazardous wastes or hazardous substances, as to which the
Seller makes no representation) so as to adversely affect the value of such
Mortgaged Property as security for such Mortgage Loan or the use for which
such premises were intended. In the event of a breach of such representation
with respect to a Mortgaged Property which materially and adversely affects
the interests of Certificateholders in the related Mortgage Loan, the Seller
will be obligated to repurchase or substitute for such Mortgage Loan, as
described under "The Mortgage Loan Programs--Representations and Warranties"
and "The Pooling and Servicing Agreement--Assignment of Mortgage Loans to the
Trustee" in the Prospectus. Repurchase of any such Mortgage Loan will affect
in varying degrees the yields and weighted average lives of the Classes of
Offered Certificates and could adversely affect the yield of any Offered
Certificates purchased at a premium.
MORTGAGE LOAN UNDERWRITING
The Mortgage Loans were originated in conformity with the underwriting
standards described in the Prospectus under the heading "The Mortgage Loan
Programs Mortgage Loan Underwriting" (the "UNDERWRITING STANDARDS") as applied
by NationsBanc Mortgage or by eligible originators to whom NationsBanc
Mortgage had delegated all underwriting functions. In certain instances,
exceptions to the Underwriting Standards may have been granted by NationsBanc
Mortgage. See "The Mortgage Loan Programs--Mortgage Loan Underwriting" in the
Prospectus.
S-34
<PAGE>
MORTGAGE LOAN DATA
Set forth below is a description of certain additional characteristics of
the Mortgage Loans as of the Cut-Off Date (except as otherwise indicated).
MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
PERCENTAGE OF CUT-
NUMBER OF AGGREGATE UNPAID OFF DATE AGGREGATE
MORTGAGE INTEREST RATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
%....................... $ %
%.......................
%.......................
%.......................
%.......................
%.......................
%.......................
%.......................
%.......................
%.......................
%.......................
%.......................
%.......................
%.......................
%.......................
%.......................
%.......................
--- --- ------
Total................. $ 100.00%
=== === ======
</TABLE>
As of the Cut-Off Date, the weighted average Mortgage Interest Rate of the
Mortgage Loans is expected to be approximately [ ]% per annum. The Net
Mortgage Interest Rate of each Mortgage Loan will be equal to the Mortgage
Interest Rate of such Mortgage Loan minus the sum of (a) the applicable
Servicing Fee Rate and (b) the Fixed Retained Yield, if any, for such Mortgage
Loan. As of the Cut-Off Date, the weighted average Net Mortgage Interest Rate
of the Mortgage Loans is expected to be approximately [ ]% per annum.
MORTGAGE LOAN DOCUMENTATION LEVELS
<TABLE>
<CAPTION>
PERCENTAGE OF CUT-
NUMBER OF AGGREGATE UNPAID OFF DATE AGGREGATE
DOCUMENTATION LEVEL MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Full Documentation...... $ %
Income Verification.....
Asset Verification......
Preferred Processing....
--- --- ------
Total................. $ 100.00%
=== === ======
</TABLE>
Documentation levels vary depending upon several factors, including loan
amount, Loan-to-Value Ratio and the type and purpose of the Mortgage Loan.
Asset, income and mortgage verifications were obtained for Mortgage Loans
processed with "full documentation." In the case of "preferred processing,"
neither asset nor income verifications were obtained. In most instances, a
verification of the borrower's employment was obtained.
S-35
<PAGE>
However, for all of the Mortgage Loans, a credit report on the borrower and a
property appraisal were obtained. See "The Mortgage Loan Programs--Mortgage
Loan Underwriting" in the Prospectus.
REMAINING TERMS TO STATED MATURITY
<TABLE>
<CAPTION>
PERCENTAGE OF CUT-
REMAINING STATED NUMBER OF AGGREGATE UNPAID OFF DATE AGGREGATE
TERM (MONTHS) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
$ %
--- --- ------
Total................. $ 100.00%
=== === ======
</TABLE>
As of the Cut-Off Date, the weighted average remaining term to stated
maturity of the Mortgage Loans is expected to be approximately 359 months.
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
PERCENTAGE OF CUT-
NUMBER OF AGGREGATE UNPAID OFF DATE AGGREGATE
YEAR OF ORIGINATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
$ %
--- ---- ------
Total................. $ 100.00%
=== ==== ======
</TABLE>
It is expected that the earliest month and year of origination of any
Mortgage Loan was [ ] and the latest month and year of origination was [ ].
MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF CUT-
NUMBER OF AGGREGATE UNPAID OFF DATE AGGREGATE
PROPERTY MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Single-family detached.. $ %
Two- to four-family
units..................
Condominiums............
High-rise (greater than
four stories)..........
Low-rise (four stories
or less)...............
Planned unit
developments...........
Townhouses..............
Cooperative Units.......
--- ---- ------
Total................. $ 100.00%
=== ==== ======
</TABLE>
S-36
<PAGE>
MORTGAGE LOAN DATA
Set forth below is a description of certain additional expected
characteristics of the Mortgage Loans as of the Cut-Off Date (except as
otherwise indicated).
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF CUT-
NUMBER OF UNPAID PRINCIPAL OFF DATE AGGREGATE
GEOGRAPHIC AREA MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
--------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
$ %
---- ------
Total................. $ 100.00%
==== ======
</TABLE>
No more than approximately [ ]% of the Cut-Off Date Aggregate Principal
Balance of the Mortgage Loans is expected to be secured by Mortgaged
Properties located in any one five-digit zip code.
ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
PERCENTAGE OF CUT-
ORIGINAL LOAN-TO- NUMBER OF AGGREGATE UNPAID OFF DATE AGGREGATE
VALUE RATIO MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
50% or less............. $ %
50.01-55.00%............
55.01-60.00%............
60.01-65.00%............
65.01-70.00%............
70.01-75.00%............
75.01-80.00%............
80.01-85.00%............
85.01-90.00%............
90.01-95.00%............
--- ---- ------
Total................. $ 100.00%
=== ==== ======
</TABLE>
As of the Cut-Off Date, the minimum and maximum Loan-to-Value Ratios at
origination of the Mortgage Loans are expected to be [ ]% and [ ]%,
respectively, and the weighted average Loan-to-Value Ratio at origination of
the Mortgage Loans is expected to be approximately [ ]%. The Loan-to-Value
Ratio of a Mortgage Loan is calculated using the lesser of (i) the appraised
value of the related Mortgaged Property, as established by an appraisal
obtained by the originator from an appraiser at the time of origination and
(ii) the sale price for such property. For the purpose of calculating the
Loan-to-Value Ratio of any Mortgage Loan that is the result of the refinancing
(including a refinancing for "equity take out" purposes) of an existing
mortgage loan, the appraised value of the related Mortgaged Property is
generally determined by reference to an appraisal obtained in connection with
the origination of the replacement loan. There can be no assurance that such
appraisal, which is based on the independent judgment of an appraiser and not
an arms-length sales transaction,
S-37
<PAGE>
is an accurate representation of the market value of a Mortgaged Property. See
"The Trust Estates--Mortgage Loans" in the Prospectus. No assurance can be
given that the values of the Mortgaged Properties securing the Mortgage Loans
have remained or will remain at the levels used in calculating the Loan-to-
Value Ratios shown above. The Seller has taken no action to establish the
current value of any Mortgaged Property. See "Risk Factors--Risks of the
Mortgage Loans" in the Prospectus. It is expected that [ ] of the Mortgage
Loans having Loan-to-Value Ratios at origination in excess of [ ]%,
representing approximately [ ]% (by Cut-Off Date Aggregate Principal Balance)
of the Mortgage Loans, were originated without primary mortgage insurance.
ORIGINAL MORTGAGE LOAN PRINCIPAL BALANCES
<TABLE>
<CAPTION>
PERCENTAGE OF CUT-
ORIGINAL MORTGAGE LOAN NUMBER OF AGGREGATE UNPAID OFF DATE AGGREGATE
PRINCIPAL BALANCE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------------- --------------- ------------------ ------------------
<S> <C> <C> <C>
Less than or equal
to$200,000............. $ %
$200,001-$250,000.......
$250,001-$300,000.......
$300,001-$350,000.......
$350,001-$400,000.......
$400,001-$450,000.......
$450,001-$500,000.......
$500,001-$550,000.......
$550,001-$600,000.......
$600,001-$650,000.......
$650,001-$700,000.......
$700,001-$750,000.......
$800,001-$850,000.......
$900,001-$950,000.......
--- ---- ------
Total................. $ 100.00%
=== ==== ======
As of the Cut-Off Date, the average unpaid principal balance of the Mortgage
Loans is expected to be approximately $[ ]. As of the Cut-Off Date, the
weighted average Loan-to-Value Ratio at origination and the maximum Loan-to-
Value Ratio at origination of the Mortgage Loans which had original principal
balances in excess of $[ ] are expected to be approximately [ ]% and [ ]%,
respectively. See "The Trust Estates--Mortgage Loans" in the Prospectus.
ORIGINATORS OF MORTGAGE LOANS
<CAPTION>
PERCENTAGE OF CUT-
NUMBER OF AGGREGATE UNPAID OFF DATE AGGREGATE
ORIGINATOR MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------- --------------- ------------------ ------------------
<S> <C> <C> <C>
NationsBanc Mortgage or
Affiliates............. $ %
Other Originators.......
--- ---- ------
Total................. $ %
=== ==== ======
</TABLE>
No single "Other Originator" is expected to have accounted for more than
[ ]% of the Cut-Off Date Aggregate Principal Balance.
S-38
<PAGE>
PURPOSES OF MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF CUT-
NUMBER OF AGGREGATE UNPAID OFF DATE AGGREGATE
LOAN PURPOSE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------ -------------- ----------------- ------------------
<S> <C> <C> <C>
Purchase................ $
Rate/Term Refinance.....
Equity Take Out
Refinance..............
--- ---- ------
Total................. $ 100.00%
=== ==== ======
</TABLE>
In general, in the case of a Mortgage Loan made for "rate/term" refinance
purposes, substantially all of the proceeds are used to pay in full the
principal balance of a previous mortgage loan of the mortgagor with respect to
a Mortgaged Property and to pay origination and closing costs associated with
such refinancing. However, in the case of a Mortgage Loan made for "equity
take out" refinance purposes, all or a portion of the proceeds are generally
retained by the mortgagor for uses unrelated to the Mortgaged Property. The
amount of such proceeds retained by the mortgagor may be substantial. See "The
Mortgage Loan Programs--Mortgage Loan Underwriting" in the Prospectus.
MANDATORY REPURCHASE OR SUBSTITUTION OF MORTGAGE LOANS
The Seller is required, with respect to Mortgage Loans that are found by the
Trustee to have defective documentation, or in respect of which the Seller has
breached a representation or warranty, either to repurchase such Mortgage
Loans or, if within two years of the date of initial issuance of the
Certificates, to substitute new Mortgage Loans therefor. Any Mortgage Loan so
substituted must, among other things, have an unpaid principal balance equal
to or less than the Scheduled Principal Balance of the Mortgage Loan for which
it is being substituted (after giving effect to the scheduled principal
payment due in the month of substitution on the Mortgage Loan for which a new
Mortgage Loan is being substituted), a Loan-to-Value Ratio less than or equal
to, and a Mortgage Interest Rate equal to that of the Mortgage Loan for which
it is being substituted. See "Prepayment and Yield Considerations" herein and
"The Pooling and Servicing Agreement--Assignment of Mortgage Loans to the
Trustee" in the Prospectus.
S-39
<PAGE>
DELINQUENCY AND FORECLOSURE EXPERIENCE
[The following tables set forth certain information concerning recent
delinquency, foreclosure and loan loss experience on the conventional mortgage
loans included in NationsBanc Mortgage's mortgage loan servicing portfolio
which were originated by NationsBanc Mortgage for its own account or for the
account of an affiliate or acquired by NationsBanc Mortgage for its own
account or for the account of an affiliate and underwritten to NationsBanc
Mortgage's underwriting standards (the "PROGRAM LOANS") and on the Program
Loans which are fixed interest rate mortgage loans ("FIXED PROGRAM LOANS").
See "Description of the Mortgage Loans" herein and "The Mortgage Loan
Programs--Mortgage Loan Underwriting" in the Prospectus. The delinquency,
foreclosure and loan loss experience represents the recent experience of
NationsBanc Mortgage. There can be no assurance that the delinquency,
foreclosure and loan loss experience set forth with respect to NationsBanc
Mortgage's total servicing portfolio of Program Loans, which includes both
fixed and adjustable interest rate mortgage loans and loans having a variety
of original terms to stated maturity, and NationsBanc Mortgage's servicing
portfolio of Fixed Program Loans which includes loans having a variety of
payment characteristics, [such as Subsidy Loans, Buy Down Loans and Balloon
Loans,] will be representative of the results that may be experienced with
respect to the Mortgage Loans included in the Trust Estate. Furthermore, there
can be no assurance that the future experience on the Mortgage Loans generally
or the Mortgage Loans serviced by NationsBanc Mortgage, all of which are fixed
interest rate mortgage loans having original terms to stated maturity of
months will be comparable to that of the total Program Loans or Fixed Program
Loans.
The following tables reflect rapid growth during recent periods in
NationsBanc Mortgage's mortgage loan servicing portfolio as a result of the
substantially higher volume of new loan originations and acquisitions of
recently originated mortgage loans. Delinquencies, foreclosures and loan
losses generally are expected to occur more frequently after the first full
year of the life of mortgage loans. Accordingly, because a large number of
mortgage loans serviced by NationsBanc Mortgage have been recently originated,
the current level of delinquencies, foreclosures and loan losses may not be
representative of the levels which may be experienced over the lives of such
mortgage loans. If the volume of NationsBanc Mortgage's new loan originations
and acquisitions does not continue to grow at the rate experienced in recent
years, the levels of delinquencies, foreclosures and loan losses as
percentages of NationsBanc Mortgage's total servicing portfolio could rise
significantly above the rates indicated in the following tables.]
S-40
<PAGE>
TOTAL PROGRAM LOANS
<TABLE>
<CAPTION>
BY DOLLAR BY DOLLAR BY DOLLAR
BY NO. AMOUNT BY NO. AMOUNT BY NO. AMOUNT
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
-------- --------- -------- --------- -------- ---------
AS OF AS OF AS OF
DECEMBER 31, 199 DECEMBER 31, 199 DECEMBER 31, 199
------------------ ------------------ ------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio of
Program Loan........... $ $ $
----- ----- -----
Period of Delinquency(1)
30 to 59 days......... $ $ $
60 to 89 days.........
90 days or more.......
Total Delinuent Loans... $ $ $
----- ----- -----
Percent of Portfolio.... % % % % % %
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, 199 DECEMBER 31, 199 DECEMBER 31, 199
------------------ ------------------ ------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Foreclosures(2)......... $ $ $
Foreclosure Ratio(3).... % % %
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, 199 DECEMBER 31, 199 DECEMBER 31, 199
------------------ ------------------ ------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net Gain(4)............. $( ) $( ) $( )
Net Gain (Loss)(5)...... 0% 0% 0%
</TABLE>
- --------
(1) The indicated periods of delinquency are based on the number of days past
due, based on a 30-day month. No mortgage loan is considered delinquent
for these purposes until one month has passed since its contractual due
date. A mortgage loan is no longer considered delinquent once foreclosure
proceedings have commenced.
(2) Includes loans in the applicable portfolio for which foreclosure
proceedings had been instituted or with respect to which the related
property had been acquired as of the dates indicated.
(3) Foreclosures as a percentage of total loans in the applicable portfolio at
the end of each period.
(4) Does not include gain or loss with respect to loans in the applicable
portfolio for which foreclosure proceedings had been instituted but not
completed as of the dates indicated, or for which the related properties
have been acquired in foreclosure proceedings but not yet sold.
(5) Net gain (loss) as a percentage of total loans in the applicable portfolio
at the end of each period.
S-41
<PAGE>
FIXED PROGRAM LOANS
<TABLE>
<CAPTION>
BY DOLLAR BY DOLLAR BY DOLLAR
BY NO. AMOUNT BY NO. AMOUNT BY NO. AMOUNT
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
-------- --------- -------- --------- -------- ---------
AS OF AS OF AS OF
DECEMBER 31, 199 DECEMBER 31, 199 DECEMBER 31, 199
------------------ ------------------ ------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio of
Program Loan........... -- $ -- $ -- $
Period of
Delinquency(1).........
30 to 59 days......... $ $ $
60 to 89 days.........
90 days or more....... -- -- -- -- -- --
Total Delinuent Loans... -- $ -- $ -- $
--- --- --- --- --- ---
Percent of Portfolio.... % % % % % %
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, 199 DECEMBER 31, 199 DECEMBER 31, 199
---------------- ---------------- ----------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Foreclosures(2).............. $ $ $
Foreclosure Ratio(3)......... % % %
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, 199 DECEMBER 31, 199 DECEMBER 31, 199
---------------- ---------------- ----------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Net Gain(4).................. $( ) $( ) $( )
Net Gain (Loss)(5)........... ( )% ( )% ( )%
</TABLE>
- --------
(1) The indicated periods of delinquency are based on the number of days past
due, based on a 30 day month. No mortgage loan is considered delinquent
for these purposes until one month has passed since its contractual due
date. A mortgage loan is no longer considered delinquent once foreclosure
proceedings have commenced.
(2) Includes loans in the applicable portfolio for which foreclosure
proceedings had been instituted or with respect to which the related
property had been acquired as of the dates indicated.
(3) Foreclosures as a percentage of total loans in the applicable portfolio at
the end of each period.
(4) Does not include gain or loss with respect to loans in the applicable
portfolio for which foreclosure proceedings had been instituted but not
completed as of the dates indicated, or for which the related properties
have been acquired in foreclosure proceedings but not yet sold.
(5) Net gain (loss) as a percentage of total loans in the applicable portfolio
at the end of each period.
The likelihood that a mortgagor will become delinquent in the payment of his
or her mortgage loan, the rate of any subsequent foreclosures, and the
severity of any loan loss experience, may be affected by a number of factors
related to a borrower's personal circumstances, including, but not limited to,
unemployment or change in employment (or in the case of self employed
mortgagors or mortgagors relying on commission income, fluctuations in
income), marital separation and the mortgagor's equity in the related
mortgaged property. In addition, delinquency, foreclosure and loan loss
experience may be sensitive to adverse economic conditions, either nationally
or regionally, may exhibit seasonal variations and may be influenced by the
level of interest rates and servicing decisions on the applicable mortgage
loans. Regional economic conditions (including declining real estate values)
may particularly affect delinquency, foreclosure and loan loss experience on
mortgage loans to the extent that mortgaged properties are concentrated in
certain geographic areas. Furthermore, the level of foreclosures reported is
affected by the length of time legally required to complete the foreclosure
process and take title to the related property, which varies from jurisdiction
to jurisdiction. The changes in the delinquency, foreclosure and loan loss
experience of NationsBanc Mortgage's servicing portfolio during the periods
set forth in the preceding table may be attributable to factors such as those
described above, although there can be no assurance as to whether these
changes are the result of any particular factor or a combination of factors.
The delinquency, foreclosure and loan loss experience on the Mortgage Loans
serviced by NationsBanc Mortgage may be particularly affected to the extent
that the related Mortgaged Properties are concentrated in areas which
experience adverse economic conditions or declining real estate values. See
"Description of the Mortgage Loans" in the Prospectus Supplement.
S-42
<PAGE>
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of distributions in reduction of the principal balance of any Class
of the Offered Certificates, the aggregate amount of distributions on any
Class of the Offered Certificates and the yield to maturity of any Class of
the Offered Certificates purchased at a discount or premium will be directly
related to the rate of payments of principal on the Mortgage Loans in the
Trust Estate and the amount and timing of mortgagor defaults resulting in
Realized Losses. Prepayments (which, as used herein, include all unscheduled
payments of principal, including payments as the result of liquidations,
purchases and repurchases) of the Mortgage Loans in the Trust Estate will
result in distributions to Certificateholders then entitled to distributions
in respect of principal of amounts which would otherwise be distributed over
the remaining terms of such Mortgage Loans. Since the rate of prepayment on
the Mortgage Loans will depend on future events and a variety of factors (as
described more fully below and in the Prospectus under "Prepayment and Yield
Considerations"), no assurance can be given as to such rate or the rate of
principal payments on any Class of the Offered Certificates or the aggregate
amount of distributions on any Class of the Offered Certificates.
The rate of principal payments on the Mortgage Loans will in turn be
affected by the amortization schedules of the Mortgage Loans, the rate of
principal prepayments (including partial prepayments and those resulting from
refinancing) thereon by mortgagors, liquidations of defaulted Mortgage Loans,
repurchases by the Seller of Mortgage Loans as a result of defective
documentation or breaches of representations and warranties and optional
purchase by the Servicer of all of the Mortgage Loans in connection with the
termination of the Trust Estate. See "Description of the Mortgage Loans--
Mandatory Repurchase or Substitution of Mortgage Loans" and "Pooling and
Servicing Agreement--Optional Termination" herein and "The Pooling and
Servicing Agreement--Assignment of Mortgage Loans to the Trustee," "--Optional
Purchases" and "--Termination; Optional Purchase of Mortgage Loans" in the
Prospectus. Mortgagors are permitted to prepay the Mortgage Loans, in whole or
in part, at any time without penalty. The rate of payments (including
prepayments) on pools of mortgage loans is also influenced by a variety of
economic, geographic, social and other factors. If prevailing rates for
similar mortgage loans fall below the Mortgage Interest Rates on the Mortgage
Loans, the rate of prepayment would generally be expected to increase.
Conversely, if interest rates on similar mortgage loans rise above the
Mortgage Interest Rates on the Mortgage Loans, the rate of prepayment would
generally be expected to decrease. The rate of prepayment on the Mortgage
Loans may also be influenced by programs or incentives offered by mortgage
loan originators (including NationsBanc Mortgage), servicers (including
NationsBanc Mortgage) and mortgage loan brokers to encourage refinancing
through such originators, servicers and brokers, including, but not limited
to, general or targeted solicitations (which may be based on characteristics
including, but not limited to, the mortgage loan interest rate or payment
history and the geographic location of the Mortgaged Property), reduced or
nominal origination fees or closing costs, pre-approved applications, waiver
of pre-closing interest accrued with respect to a refinanced loan prior to the
pay-off of such loan, or other financial incentives. See "Prepayment and Yield
Considerations--Weighted Average Life of Certificates" in the Prospectus. In
addition, NationsBanc Mortgage or third parties may enter into agreements with
borrowers providing for the bi-weekly payment of principal and interest on the
related mortgage loan, thereby accelerating payment of the mortgage loan
resulting in partial prepayments.
Other factors affecting prepayment of mortgage loans include changes in
mortgagors' housing needs, job transfers, unemployment or, in the case of
self-employed mortgagors or mortgagors relying on commission income,
substantial fluctuations in income, significant declines in real estate values
and adverse economic conditions either generally or in particular geographic
areas, mortgagors' equity in the Mortgaged Properties, including the use of
second or "home equity" mortgage loans by mortgagors or the use of the
properties as second or vacation homes, and servicing decisions, such as,
without limitation, the decision as to whether to foreclose on a Mortgage Loan
or to modify the terms of the related Mortgage Note and decisions as to the
timing of any foreclosure. In addition, all of the Mortgage Loans contain due-
on-sale clauses which will generally be exercised upon the sale of the related
Mortgaged Properties. Consequently, acceleration of mortgage payments as a
result of any such sale will affect the level of prepayments on the Mortgage
Loans. The extent to which defaulted Mortgage Loans are assumed by transferees
of the related Mortgaged Properties will also affect the
S-43
<PAGE>
rate of principal payments. The rate of prepayment and, therefore, the yield
to maturity of the Offered Certificates will be affected by the extent to
which (i) the Seller elects to repurchase, rather than substitute for,
Mortgage Loans which are found by the Trustee to have defective documentation
or with respect to which the Seller has breached a representation or warranty,
(ii) a Servicer elects to encourage the refinancing of any defaulted Mortgage
Loan rather than to permit an assumption thereof by a mortgagor or (iii) the
Servicer agrees to modify the payment terms of a Mortgage Note rather than
foreclose on the related Mortgage Loan. See "Servicing of the Mortgage Loans--
Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage Loans"
in the Prospectus.
As described under "Description of the Certificates--Principal (Including
Prepayments)" herein, all or a disproportionate percentage of principal
prepayments on the Mortgage Loans (including liquidations and repurchases of
Mortgage Loans) will be distributed, to the extent of the Non-PO Fraction, to
the holders of the Class A Certificates (other than the Class A-PO
Certificates) then entitled to distributions in respect of principal during
the nine years beginning on the first Distribution Date, and, to the extent
that such principal prepayments are made in respect of a Discount Mortgage
Loan, to the Class A-PO Certificates in proportion to the interest of the
Class A-PO Certificates in such Discount Mortgage Loan represented by the PO
Fraction.
THE YIELD TO MATURITY OF THE OFFERED CERTIFICATES WILL BE SENSITIVE IN
VARYING DEGREES TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS, WHICH MAY BE MADE AT ANY TIME WITHOUT PENALTY) ON THE MORTGAGE
LOANS. INVESTORS IN THE OFFERED CERTIFICATES SHOULD CONSIDER THE ASSOCIATED
RISKS, INCLUDING, IN THE CASE OF OFFERED CERTIFICATES PURCHASED AT A DISCOUNT,
THE RISK THAT A SLOWER THAN ANTICIPATED RATE OF PAYMENTS IN RESPECT OF
PRINCIPAL (INCLUDING PREPAYMENTS) ON THE MORTGAGE LOANS COULD RESULT IN AN
ACTUAL YIELD THAT IS LOWER THAN ANTICIPATED AND, IN THE CASE OF OFFERED
CERTIFICATES PURCHASED AT A PREMIUM THAT A FASTER THAN ANTICIPATED RATE OF
PAYMENTS IN RESPECT OF PRINCIPAL (INCLUDING PREPAYMENTS) ON THE MORTGAGE LOANS
COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN ANTICIPATED. INVESTORS
PURCHASING OFFERED CERTIFICATES AT A PREMIUM SHOULD ALSO CONSIDER THE RISK
THAT A RAPID RATE OF PAYMENTS IN RESPECT OF PRINCIPAL (INCLUDING PREPAYMENTS)
ON THE MORTGAGE LOANS COULD RESULT IN THE FAILURE OF SUCH INVESTORS TO FULLY
RECOVER THEIR INITIAL INVESTMENTS. An investor is urged to make an investment
decision with respect to any Class of Offered Certificates based on the
anticipated yield to maturity of such Class of Offered Certificates resulting
from its purchase price and such investor's own determination as to
anticipated Mortgage Loan prepayment rates under a variety of scenarios.
The timing of changes in the rate of prepayment on the Mortgage Loans may
significantly affect the actual yield to maturity experienced by an investor
who purchases an Offered Certificate at a price other than par, even if the
average rate of principal payments experienced over time is consistent with
such investor's expectation. In general, the earlier a prepayment of principal
on the underlying Mortgage Loans, the greater the effect on such investor's
yield to maturity. As a result, the effect on such investor's yield 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 would not be fully offset by a subsequent
like reduction (or increase) in the rate of principal payments.
The yield to maturity on the Classes of Class B Certificates with higher
numerical designations will generally be more sensitive to losses than the
Classes with lower numerical designations because the entire amount of such
losses (except for the portion of Excess Losses allocated to the Class A
Certificates and Classes of Class B Certificates with lower numerical
designations) will be allocable to the Classes of Class B Certificates in
reverse numerical order, except as provided herein. To the extent not covered
by Periodic Advances, delinquencies on Mortgage Loans will also have a
relatively greater effect on the yield to maturity on the Classes of Class B
Certificates with higher numerical designations because amounts otherwise
distributable to holders of the Class B Certificates will be made available to
protect the holders of the Class A Certificates against interruptions in
distributions due to such unadvanced mortgagor delinquencies. Such unadvanced
delinquencies, even if subsequently cured, may affect the timing of the
receipt of distributions by the holders of the Class B Certificates.
S-44
<PAGE>
The actual yield to maturity experienced by an investor may also be affected
by the occurrence of interest shortfalls resulting from Unscheduled Principal
Receipts to the extent, if any, to which such interest shortfalls are not
covered by Compensating Interest or the subordination. See "Description of the
Certificates--Interest" herein.
The yield to maturity on the Offered Certificates and more particularly on
the Class B 1, Class B 2 and especially the Class B-3 Certificates, may be
affected by the geographic concentration of the Mortgaged Properties securing
the Mortgage Loans. In recent periods, California, the New York metropolitan
area, the Washington D.C. metropolitan area and several other regions in the
United States have experienced significant declines in housing prices. In
addition, California and several other regions have experienced natural
disasters, including earthquakes, floods and hurricanes, which may adversely
affect property values. See "Description of the Mortgage Loans." Any
deterioration in housing prices in California, as well as the other states in
which the Mortgaged Properties are located, and any deterioration of economic
conditions in such states which adversely affects the ability of borrowers to
make payments on the Mortgage Loans, may increase the likelihood of losses on
the Mortgage Loans. Such losses, if they occur, may have an adverse effect on
the yield to maturity of the Offered Certificates and more particularly on the
Class B Certificates offered hereby, especially the Class B 3 Certificates.
No representation is made as to the rate of principal payments on the
Mortgage Loans or as to the yield to maturity of any Class of Offered
Certificates.
An investor should consider the risk that rapid rates of prepayments on the
Mortgage Loans, and therefore of amounts distributable in reduction of
principal balance of the Offered Certificates, may coincide with periods of
low prevailing interest rates. During such periods, the effective interest
rates on securities in which an investor may choose to reinvest amounts
distributed in reduction of the principal balance of such investor's Offered
Certificate may be lower than the applicable Pass-Through Rate. Conversely,
slower rates of prepayments on the Mortgage Loans, and therefore of amounts
distributable in reduction of principal balance of the Offered Certificates,
may coincide with periods of high prevailing interest rates. During such
periods, the amount of principal distributions available to an investor for
reinvestment at such high prevailing interest rates may be relatively small.
DUE TO THE SPECIAL TAX TREATMENT OF RESIDUAL INTERESTS, THE AFTER-TAX RETURN
OF THE CLASS A-R CERTIFICATE MAY BE SIGNIFICANTLY LOWER THAN WOULD BE THE CASE
IF THE CLASS A-R CERTIFICATE WERE TAXED AS A DEBT INSTRUMENT, OR MAY BE
NEGATIVE. See "Federal Income Tax Considerations" herein.
As referred to herein, the "WEIGHTED AVERAGE LIFE" of a Class of Offered
Certificates refers to the average amount of time that will elapse from the
date of issuance of such Class until each dollar in reduction of the principal
balance of such Class is distributed to the investor.
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. The model used in this Prospectus Supplement, the Standard
Prepayment Assumption ("SPA"), represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of new
mortgage loans. A prepayment assumption of 100% SPA assumes constant
prepayment rates of 0.2% per annum of the then outstanding principal balance
of such mortgage loans in the first month of the life of the mortgage loans
and an additional 0.2% per annum in each month thereafter until the thirtieth
month. Beginning in the thirtieth month and in each month thereafter during
the life of the mortgage loans, 100% SPA assumes a constant prepayment rate of
6% per annum each month. As used in the table below, "0% SPA" assumes
prepayment rates equal to 0% of SPA, i.e., no prepayments. SPA 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 Mortgage Loans.
The tables set forth below have been prepared on the basis of the
characteristics of the Mortgage Loans that are expected to be included in the
Trust Estate, as described under "Description of the Mortgage Loans." The
S-45
<PAGE>
tables set forth below have been prepared assuming, among other things, the
following (the "STRUCTURING ASSUMPTIONS"): (i) the scheduled payment in each
month for each Mortgage Loan has been based on its outstanding balance as of
the first day of the month preceding the month of such payment, its Mortgage
Interest Rate and its remaining term to stated maturity, so that such
scheduled payments would amortize the remaining balance by its remaining term
to maturity, (ii) scheduled monthly payments of the principal and interest on
the Mortgage Loans will be timely received on the first day of each month
(with no defaults), commencing in 199 , (iii) the Seller does not
repurchase any Mortgage Loan, as described under "Description of the Mortgage
Loans--Mandatory Repurchase or Substitution of Mortgage Loans" herein, and the
Servicer does not exercise its option to purchase the Mortgage Loans and
thereby cause a termination of the Trust Estate, (iv) principal prepayments in
full on the Mortgage Loans will be received on the last day of each month
commencing in 199 at the respective constant percentages of SPA set
forth in the tables and there are no partial principal prepayments or
Prepayment Interest Shortfalls, (v) the Certificates will be issued on
199 and (vi) distributions to Certificateholders will be made on the 25th day
of each month, commencing in 199 .
It is highly unlikely that the Mortgage Loans will prepay at any constant
rate, that all of the Mortgage Loans will prepay at the same rate or that the
Mortgage Loans will not experience any losses. In addition, there may be
differences between the characteristics of the mortgage loans ultimately
included in the Trust Estate and the Mortgage Loans which are assumed to be
included, as described above. Any difference may have an effect upon the
actual percentages of initial Principal Balances of the Classes of
Certificates outstanding, the actual weighted average lives of the Classes of
Certificates and the date on which the Principal Balance of any Class of
Certificates is reduced to zero.
Based upon the foregoing assumptions, the following tables indicate the
weighted average life of each Class of Offered Certificates, and set forth the
percentages of the initial Principal Balance of each Class of Offered
Certificates that would be outstanding after each of the dates shown at the
constant percentages of SPA presented.
PERCENTAGE OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING FOR:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
CERTIFICATES AT THE CERTIFICATES AT THE
FOLLOWING PERCENTAGES OF SPA FOLLOWING PERCENTAGES OF SPA
---------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution Date....... 0% % % % % % % 0% % % % % % % %
Initial.................
Weighted Average Life
(years)(1).............
</TABLE>
<TABLE>
<CAPTION>
CLASS A-3 CLASS A-R
CERTIFICATES AT THE CERTIFICATE AT THE
FOLLOWING PERCENTAGES OF SPA FOLLOWING PERCENTAGES OF SPA
--------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution Date....... 0% % % % % % % % % % % % % %
Initial.................
Weighted Average Life
(years)(1).............
</TABLE>
- --------
(1) The weighted average life of an Offered Certificate is determined by (i)
multiplying the amount of net reduction of principal balance by the number
of years from the date of the issuance of such Certificate to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by
the aggregate net reduction of principal balance referred to in clause
(i).
* Indicates a percentage greater than zero but less than 0.5% of the initial
principal balance of such Class.
S-46
<PAGE>
PERCENTAGE OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING FOR:
<TABLE>
<CAPTION>
CLASS M, CLASS B-1 AND CLASS B-2
CERTIFICATES AT THE FOLLOWING PERCENTAGES OF SPA
------------------------------------------------
DISTRIBUTION DATE % % % % % % %
- ----------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial.................
Weighted Average Life
(years)(1).............
</TABLE>
- --------
(1) The weighted average life of an Offered Certificate is determined by (i)
multiplying the amount of net reduction of principal balance by the number
of years from the date of the issuance of such Certificate to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by
the aggregate net reduction of principal balance referred to in clause
(i).
* Indicates a percentage greater than zero but less than 0.5% of the initial
principal balance of such Class.
Interest accrued on the Offered Certificates will be reduced by the amount
of any interest portions of Realized Losses allocated to such Certificates as
described under "Description of the Certificates--Interest" herein. The yield
on the Offered Certificates will be less than the yield otherwise produced by
their respective Pass-Through Rates and the prices at which such Certificates
are purchased because the interest which accrues on the Mortgage Loans during
each month will not be passed through to Certificateholders until the 25th day
of the month following the end of such month (or if such 25th day is not a
business day, the following business day).
The Seller intends to file certain additional yield tables and other
computational materials with respect to one or more Classes of Offered
Certificates with the Securities and Exchange Commission in a Report on Form
8-K. See "Incorporation of Certain Information by Reference" in the
Prospectus. Such tables and materials will have been prepared by the
Underwriter at the request of certain prospective investors, based on
assumptions provided by, and satisfying the special requirements of, such
investors. Such tables and assumptions may be based on assumptions that differ
from the Structuring Assumptions. Accordingly, such tables and other materials
may not be relevant to or appropriate for investors other than those
specifically requesting them.
YIELD CONSIDERATIONS WITH RESPECT TO THE CLASS B-2 AND CLASS B-3 CERTIFICATES
Defaults on mortgage loans may be measured relative to a default standard or
model. The model used in this Prospectus Supplement, the standard default
assumption ("SDA"), represents an assumed rate of default each month relative
to the then-outstanding performing principal balance of a pool of new mortgage
loans. A default assumption of 100% SDA assumes constant default rates of
0.02% per annum of the then-outstanding principal balance of such mortgage
loans in the first month of the life of the mortgage loans and an additional
0.02% per annum in each month thereafter until the 30th month. Beginning in
the 30th month and in each month thereafter through the 60th month of the life
of the mortgage loans, 100% SDA assumes a constant default rate of 0.60% per
annum each month. Beginning in the 61st month and in each month thereafter
through the 120th month of the life of the mortgage loans, 100% SDA assumes
that the constant default rate declines each month
S-47
<PAGE>
by 0.0095% per annum, and that the constant default rate remains at 0.03% per
annum in each month after the 120th month. For the purposes of the following
tables, it is assumed that there is no delay between the default and
liquidation of the mortgage loans. As used in the following tables, "0% SDA"
assumes default rates equal to 0% of SDA (no defaults). SDA does not purport
to be a historical description of default experience or a prediction of the
anticipated rate of default of any pool of mortgage loans, including the
Mortgage Loans.
The following tables indicate the sensitivity of the pre-tax yield to
maturity on the Class B-2 and Class B-3 Certificates to various rates of
prepayment and varying levels of aggregate Realized Losses. The tables set
forth below are based upon, among other things, the Structuring Assumptions
(other than the assumption that no defaults shall have occurred with respect
to the Mortgage Loans) and the additional assumption that liquidations (other
than those scenarios indicated as 0% of SDA (no defaults)) occur monthly on
the last day of the preceding month (other than on a Due Date) at the
percentages of SDA set forth in the table.
In addition, it was assumed that (i) Realized Losses on liquidations of 20%
or 40% of the outstanding principal balance of such liquidated Mortgage Loans,
as indicated in the tables below (referred to as a "LOSS SEVERITY
PERCENTAGE"), will occur at the time of liquidation, (ii) there are no Special
Hazard Losses, Fraud Losses or Bankruptcy Losses and (iii) the Class B-2 and
Class B-3 Certificates are purchased on [ , 199 ] at assumed purchase
prices equal to [ ]% and [ ]%, respectively, of the Principal Balances
thereof plus accrued interest from [ , 199 ] to (but not including) [
, 199 ].
It is highly unlikely that the Mortgage Loans will have the precise
characteristics referred to herein or that they will prepay or liquidate at
any of the rates specified or that the Realized Losses will be incurred
according to one particular pattern. The assumed percentages of SDA and SPA
and the loss severities shown in the tables below are for illustrative
purposes only and the Seller makes no representations with respect to the
reasonableness of such assumptions or that the actual rates of prepayment and
liquidation and loss severity experience of the Mortgage Loans will in any way
correspond to any of the assumptions made herein. For these reasons, and
because the timing of cash flows is critical to determining yield, pre-tax
yields to maturity of the Class B-2 and Class B-3 Certificates are likely to
differ from the pre-tax yields to maturity shown below in the tables.
The pre-tax yields to maturity set forth in the following tables were
calculated by determining the monthly discount rates which, when applied to
the assumed streams of cash flows to be paid on the Class B-2 and Class B-3
Certificates, would cause the discounted present value of such assumed streams
of cash flows to equal the aggregate assumed purchase prices of the Class B-2
and Class B-3 Certificates set forth above. In all cases, monthly rates were
then converted to the semi-annual corporate bond equivalent yields shown
below. Implicit in the use of any discounted present value or internal rate of
return calculations such as these is the assumption that intermediate cash
flows are reinvested at the discount rate or internal rate of return. Thus,
these calculations do not take into account the different interest rates at
which investors may be able to reinvest funds received by them as
distributions on the Class B-2 and Class B-3 Certificates. Consequently, these
yields do not purport to reflect the total return on any investment in the
Class B-2 and Class B-3 Certificates when such reinvestment rates are
considered.
SENSITIVITY OF PRE-TAX YIELDS TO MATURITY OF THE CLASS B-2
CERTIFICATES TO PREPAYMENTS AND REALIZED LOSSES
<TABLE>
<CAPTION>
LOSS PERCENTAGE OF SPA
SEVERITY ---------------------------------
PERCENTAGE OF SDA PERCENTAGE 0% [ ]% [ ]% [ ]% [ ]% [ ]% [ ]%
- ----------------- ---------- --- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
[ ]%...............................
[ ]%...............................
[ ]%...............................
[ ]%...............................
[ ]%...............................
[ ]%...............................
[ ]%...............................
</TABLE>
S-48
<PAGE>
SENSITIVITY OF PRE-TAX YIELDS TO MATURITY OF THE CLASS B-3
CERTIFICATES TO PREPAYMENTS AND REALIZED LOSSES
<TABLE>
<CAPTION>
LOSS PERCENTAGE OF SPA
SEVERITY ---------------------------------
PERCENTAGE OF SDA PERCENTAGE 0% [ ]% [ ]% [ ]% [ ]% [ ]% [ ]%
- ----------------- ---------- --- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
[ ]%...............................
[ ]%...............................
[ ]%...............................
[ ]%...............................
[ ]%...............................
[ ]%...............................
[ ]%...............................
</TABLE>
The following table sets forth the amount of Realized Losses that would be
incurred with respect to the Mortgage Loans, expressed as a percentage of the
aggregate outstanding principal balance of the Mortgage Loans as of the Cut-
Off Date.
AGGREGATE REALIZED LOSSES
<TABLE>
<CAPTION>
LOSS PERCENTAGE OF SPA
SEVERITY ---------------------------------
PERCENTAGE OF SDA PERCENTAGE 0% [ ]% [ ]% [ ]% [ ]% [ ]% [ ]%
- ----------------- ---------- --- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
[ ]%...............................
[ ]%...............................
[ ]%...............................
[ ]%...............................
[ ]%...............................
[ ]%...............................
</TABLE>
Investors are urged to make their investment decisions based on their
determinations as to anticipated rates of prepayment and Realized Losses under
a variety of scenarios. Investors in Class B-2 and Class B-3 Certificates
should fully consider the risk that Realized Losses on the Mortgage Loans
could result in the failure of such investors to fully recover their
investments.
S-49
<PAGE>
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement to be dated as of the date of initial issuance of the Certificates
(the "POOLING AND SERVICING AGREEMENT") among the Seller, the Servicer and the
Trustee. Reference is made to the Prospectus for important additional
information regarding the terms and conditions of the Pooling and Servicing
Agreement and the Certificates. See "Description of the Certificates,"
"Servicing of the Mortgage Loans" and "The Pooling and Servicing Agreement" in
the Prospectus.
The Trust Estate created pursuant to the Pooling and Servicing Agreement
will consist of (i) the Mortgage Loans as described under "Description of the
Mortgage Loans," (ii) such assets as from time to time are identified as
deposited in any account held for the benefit of the Certificateholders, (iii)
any Mortgaged Properties acquired on behalf of the Certificateholders by
foreclosure or by deed in lieu of foreclosure after the date of original
issuance of the Certificates and (iv) the rights of the Trustee to receive the
proceeds of all insurance policies and performance bonds, if any, required to
be maintained pursuant to the Pooling and Servicing Agreement.
DISTRIBUTIONS
Distributions (other than the final distribution in retirement of the
Offered Certificates of each Class) will be made by check mailed to the
address of the person entitled thereto as it appears on the Certificate
Register. However, with respect to any holder of an Offered Certificate
evidencing at least a $[ ] initial Principal Balance, distributions will be
made on each Distribution Date by wire transfer in immediately available
funds. The final distribution in respect of each Class of Offered Certificates
will be made only upon presentation and surrender of the related Certificate
at the office or agency appointed by the Trustee specified in the notice of
final distribution with respect to the related Class. See "Description of the
Certificates--General" in the Prospectus.
DTC will receive distributions on the Book-Entry Certificates from the
Trustee and transmit them to participants for distribution to Beneficial
Owners or their nominees.
VOTING
With respect to any provisions of the Pooling and Servicing Agreement
providing for the action, consent or approval of the holders of all
Certificates evidencing specified Voting Interests in the Trust Estate, the
holders of each Class of Certificates will be entitled to a pro rata portion
of the aggregate Voting Interest represented by all Certificates based on the
outstanding Principal Balance of such Class. Each Certificateholder of a Class
will have a Voting Interest equal to the product of the Voting Interest to
which such Class is collectively entitled and the Percentage Interest in such
Class represented by such holder's Certificates. With respect to any
provisions of the Pooling and Servicing Agreement providing for action,
consent or approval of each Class of Certificates or specified Classes of
Certificates, each Certificateholder of a Class will have a Voting Interest in
such Class equal to such holder's Percentage Interest in such Class. Unless
Definitive Certificates are issued as described above, Beneficial Owners of
Book-Entry Certificates may exercise their voting rights only through
Participants.
TRUSTEE
The Trustee for the Certificates will be [ ], a national banking
association. The corporate trust office of the Trustee is located at [
]. [The Trustee will be responsible for monitoring the compliance of the
Servicer with the Pooling and Servicing Agreement.] See "The Pooling and
Servicing Agreement--The Trustee" in the Prospectus. In addition, the Trustee
will be required to make Periodic Advances to the limited extent described
herein if the Servicer fails to make a Periodic Advance required by the
related Pooling and Servicing Agreement. The Trustee will calculate
distributions on, and the allocation of losses to, the Certificateholders
based on information supplied to it by the Servicer. See "Description of the
Certificates--Periodic Advances" herein. Under the Pooling and Servicing
Agreement, any good faith interpretation of the Trustee of any provisions of
the Pooling and Servicing Agreement relating to the distributions to be made
on or
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<PAGE>
the allocation of any losses to the Certificates which the Trustee concludes
are ambiguous or unclear will be binding on Certificateholders.
SPECIAL SERVICING AGREEMENTS
The Pooling and Servicing Agreement may permit the Servicer to enter into a
special servicing agreement with an unaffiliated holder of a Class of Class B
Certificates or of a class of securities representing interests in one or more
Classes of Class B Certificates and/or other subordinated mortgage pass-
through certificates. Pursuant to such an agreement, such holder may instruct
the Servicer to commence or delay foreclosure proceedings with respect to
delinquent Mortgage Loans. Such commencement or delay at such holder's
direction will be taken by the Servicer only after such holder deposits a
specified amount of cash with the Servicer. Such cash will be available for
distribution to Certificateholders if Liquidation Proceeds are less than they
otherwise may have been had the Servicer acted pursuant to its normal
servicing procedures.
OPTIONAL TERMINATION
At its option, the Servicer may purchase from the Trust Estate all of the
Mortgage Loans, and thereby effect early retirement of the Certificates, on
any Distribution Date when the Pool Scheduled Principal Balance is less than
[ ]% of the Cut-Off Date Aggregate Principal Balance. Any such purchase will
be made only in connection with a "qualified liquidation" of the REMIC within
the meaning of Section 860F(a)(4)(A) of the Code. The purchase price will
generally be equal to the unpaid principal balance of each Mortgage Loan plus
the fair market value of other property (including any Mortgaged Property
title to which has been acquired by the Trust Estate ("REO PROPERTY")) in the
Trust Estate plus accrued interest. In the event the Trust Estate is
liquidated as described above, holders of the Certificates, to the extent
funds are available, will receive the unpaid principal balance of their
Certificates and any accrued and unpaid interest thereon. The amount, if any,
remaining in the Certificate Account after the payment of all principal and
interest on the Certificates and expenses of the REMIC will be distributed to
the holder of the Class A-R Certificate. See "Description of the
Certificates--Additional Rights of the Class A-R Certificateholder" herein and
"The Pooling and Servicing Agreement--Termination; Optional Purchase of
Mortgage Loans" in the Prospectus. The exercise of the foregoing option will
be in the Seller's sole discretion. Without limitation, the Servicer may enter
into agreements with third parties to (i) exercise such option at the
direction of such third party or (ii) forbear from the exercise of such
option.
SERVICER CUSTODIAL ACCOUNT
The Servicer is required to establish and maintain a custodial account for
principal and interest (the "SERVICER CUSTODIAL ACCOUNT"), into which it will
deposit all collections of principal (including principal prepayments and
Liquidation Proceeds in respect of principal, if any) on the Mortgage Loans,
interest (net of Servicing Fees) on the Mortgage Loans, related insurance
proceeds, advances made from the Servicer's own funds and the proceeds of any
purchase of a related Mortgage Loan for breach of a representation or warranty
or the sale of a Mortgaged Property in connection with liquidation of the
related Mortgage Loan. The Servicer Custodial Account is required to be held
in a depository institution and invested in the manner specified in the
Pooling and Servicing Agreement. Funds in such account must be held separate
and apart from the assets of the Servicer and generally may not be commingled
with funds held by the Servicer with respect to mortgage loans other than the
Mortgage Loans.
Not later than the Remittance Date, the Servicer is obligated to remit to
the Certificate Account all amounts on deposit in the Servicer Custodial
Account as of the close of business on the business day preceding the
Remittance Date other than the following:
(a) amounts received as late payments of principal or interest respecting
which the Servicer previously has made one or more unreimbursed Periodic
Advances;
(b) any unreimbursed Periodic Advances of the Servicer with respect to
Liquidated Loans;
(c) those portions of each payment of interest on a particular Mortgage
Loan which represent the applicable Servicing Fee, as adjusted where
applicable in respect of Compensating Interest as described under
"Description of the Certificates--Interest";
S-51
<PAGE>
(d) all amounts representing scheduled payments of principal and interest
due after the Due Date occurring in the month in which such Distribution
Date occurs;
(e) all Unscheduled Principal Receipts received by the Servicer after the
Unscheduled Principal Receipt Period with respect to such Distribution
Date, and all related payments of interest on such amounts;
(f) all amounts representing certain expenses reimbursable to the
Servicer and any other amounts permitted to be retained by the Servicer or
withdrawn by the Servicer from the Servicer Custodial Account pursuant to
the Pooling and Servicing Agreement;
(g) all amounts in the nature of late fees, assumption fees, prepayment
fees and similar fees which the Servicer is entitled to retain as
additional servicing compensation; and
(h) reinvestment earnings on payments received in respect of the Mortgage
Loans or on other amounts on deposit in the Servicer Custodial Account.
FIXED RETAINED YIELD; SERVICING COMPENSATION AND PAYMENT OF EXPENSES
A fixed percentage of the interest on each Mortgage Loan (the "FIXED
RETAINED YIELD") with a per annum Mortgage Interest Rate greater than (i) the
sum of (a) [ ]% and (b) the Servicing Fee Rate, which will be determined on a
loan by loan basis and will equal the Mortgage Interest Rate on each Mortgage
Loan minus the rate described in clause (i), will not be included in the Trust
Estate. There will be no Fixed Retained Yield on any Mortgage Loan with a
Mortgage Interest Rate equal to or less than the rate described in clause (i).
See "Servicing of the Mortgage Loans-- Fixed Retained Yield, Servicing
Compensation and Payment of Expenses" in the Prospectus for further
information regarding Fixed Retained Yield.
The primary compensation payable to the Servicer is the aggregate of the
Servicing Fees applicable to the Mortgage Loans. The Servicing Fee applicable
to each Mortgage Loan is expressed as a fixed percentage (the "SERVICING FEE
RATE") of the Scheduled Principal Balance of such Mortgage Loan as of the
first day of each month. The Servicing Fee Rate for each Mortgage Loan will be
a fixed percentage rate per annum. The Servicing Fee Rate for each Mortgage
Loan is [ ]% per annum. In addition to the Servicing Fees, late payment fees,
loan assumption fees and prepayment fees with respect to the Mortgage Loans,
and any interest or other income earned on collections with respect to the
Mortgage Loans pending remittance to the Certificate Account, will be paid to,
or retained by, the Servicer as additional servicing compensation.
The Servicer will pay all routine expenses, including fees of the Trustee
incurred in connection with its responsibilities under the Pooling and
Servicing Agreement, subject to certain rights of reimbursement as described
in the Prospectus. The servicing fees and other expenses of the REMIC will be
allocated to the holder of the Class A-R Certificate who is an individual,
estate or trust (whether such Certificate is held directly or through certain
pass-through entities) as additional gross income without a corresponding
distribution of cash, and any such investor (or its owners, in the case of a
pass-through entity) may be limited in its ability to deduct such expenses for
regular tax purposes and may not be able to deduct such expenses to any extent
for alternative minimum tax purposes. See "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates--
Limitations on Deduction of Certain Expenses" in the Prospectus.
SERVICER DEFAULTS
The Trustee will have the right pursuant to the Pooling and Servicing
Agreement to terminate the Servicer in certain events, including the breach by
the Servicer of any of its material obligations under the Pooling and
Servicing Agreement. In the event of such termination, the Trustee is required
to assume certain of the Servicer's servicing obligations under the Pooling
and Servicing Agreement, including the obligation to make Periodic Advances
(limited as provided herein under the heading "Description of the
Certificates--Periodic Advances"), until such time as a successor servicer is
appointed. Any successor Servicer, including the Trustee, will be entitled to
compensation arrangements similar to those provided to the Servicer. See
"Servicing of the Mortgage Loans--Fixed Retained Yield, Servicing Compensation
and Payment of Expenses" in the Prospectus.
S-52
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion represents the opinion of [Cadwalader, Wickersham &
Taft] [Kennedy Covington Lobdell & Hickman, L.L.P.] as to the anticipated
material federal income tax consequences of the purchase, ownership and
disposition of the Offered Certificates.
An election will be made to treat the Trust Estate, and the Trust Estate
will qualify, as a REMIC for federal income tax purposes. Each Class of
Offered Certificates (other than the Class A R Certificate) (collectively, the
"REGULAR CERTIFICATES"), together with each Class of Certificates not offered
hereby, will be designated as the regular interests in the REMIC, and the
Class A-R Certificate will be designated as the residual interest in the
REMIC. The Class A-R Certificate is a "RESIDUAL CERTIFICATE" for purposes of
the Prospectus. The assets of the REMIC will include the Mortgage Loans,
together with the amounts held by the Trustee in the Certificate Account, the
hazard insurance policies and primary mortgage insurance policies, if any,
relating to the Mortgage Loans and any property that secured a Mortgage Loan
that is acquired by foreclosure or deed in lieu of foreclosure.
The Offered Certificates will be treated as "loans . . . secured by an
interest in real property which is . . . residential real property" for
domestic building and loan associations, "real estate assets" for real estate
investment trusts and, except for the Class A-R Certificate, "qualified
mortgages" for another REMIC and "permitted assets" for a financial asset
securitization investment trust, to the extent described in the Prospectus.
REGULAR CERTIFICATES
The Regular Certificates generally will be treated as newly-originated debt
instruments for federal income tax purposes. Beneficial Owners (or, in the
case of Definitive Certificates, holders) of the Regular Certificates will be
required to report income on such Certificates in accordance with the accrual
method of accounting.
The Class A-2 Certificates will be issued with original issue discount in an
amount equal to the excess of the sum of all distributions of principal and
interest (whether current or accrued) thereon over their issue price
(including accrued interest). It is anticipated that the Class A-3, Class B-1,
Class B-2 and Class B-3 Certificates will be issued with original issue
discount in an amount equal to the excess of their initial principal balances
(plus three days of interest at the Pass-Through Rate thereon) over their
respective issue prices (including accrued interest). It is also anticipated
that the Class A-1 Certificates will be issued with de minimis original issue
discount for federal income tax purposes. Finally, it is anticipated that the
Class A-PO, Class B-4, Class B-5 and Class B-6 Certificates, which are not
offered hereby, will be issued with original issue discount for federal income
tax purposes.
The Prepayment Assumption (as defined in the Prospectus) that the Servicer
intends to use in determining the rate of accrual of original issue discount
and whether the original issue discount is considered de minimis will be
calculated using [ ]% of [SPA] [CPR]. No representation is made as to the
actual rate at which the Mortgage Loans will prepay.
RESIDUAL CERTIFICATE
The holder of the Class A-R Certificate must include the taxable income or
loss of the REMIC in determining its federal taxable income. The Class A-R
Certificate will remain outstanding for federal income tax purposes until
there are no Certificates of any other Class outstanding. PROSPECTIVE
INVESTORS ARE CAUTIONED THAT THE CLASS A-R CERTIFICATEHOLDER'S REMIC TAXABLE
INCOME AND THE TAX LIABILITY THEREON MAY EXCEED, AND MAY SUBSTANTIALLY EXCEED,
CASH DISTRIBUTIONS TO SUCH HOLDER DURING CERTAIN PERIODS, IN WHICH EVENT, THE
HOLDER THEREOF MUST HAVE SUFFICIENT ALTERNATIVE SOURCES OF FUNDS TO PAY SUCH
TAX LIABILITY. Furthermore, it is anticipated that all or a substantial
portion of the taxable income of the REMIC includible by the holder of the
Class A-R Certificate will be treated as "excess inclusion" income, resulting
in (i) the inability of such holder to use net operating losses to offset such
income from the REMIC, (ii) the treatment of such income as
S-53
<PAGE>
"unrelated business taxable income" to certain holders who are otherwise tax-
exempt, and (iii) the treatment of such income as subject to 30% withholding
tax to certain non-U.S. investors, with no exemption or treaty reduction.
The Class A-R Certificate will be considered a "noneconomic residual
interest," with the result that transfers thereof would be disregarded for
federal income tax purposes if any significant purpose of the transferor was
to impede the assessment or collection of tax. Accordingly, the Class A R
Certificate is subject to certain restrictions on transfer and any prospective
transferee thereof will be required to furnish to the Trustee an affidavit as
described herein under "Description of the Certificates--Restrictions on
Transfer of the Class A-R and Class B Certificates." See "Certain Federal
Income Tax Consequences--Federal Income Tax Consequences for REMIC
Certificates," "--Taxation of Residual Certificates --Limitations on Offset or
Exemption of REMIC Income" and "--Tax-Related Restrictions on Transfer of
Residual Certificates--Noneconomic Residual Interests" in the Prospectus.
An individual, trust or estate that holds the Class A-R Certificate (whether
such Certificate is held directly or indirectly through certain pass-through
entities) also may have additional gross income with respect to, but may be
subject to limitations on the deductibility of, Servicing Fees on the Mortgage
Loans and other administrative expenses of the REMIC in computing such
holder's regular tax liability, and may not be able to deduct such fees or
expenses to any extent in computing such holder's alternative minimum tax
liability. In addition, some portion of a purchaser's basis, if any, in the
Class A-R Certificate may not be recovered until termination of the REMIC.
Furthermore, the federal income tax consequences of any consideration paid to
a transferee on a transfer of the Class A-R Certificate are unclear. The
preamble to the REMIC Regulations indicates that the Internal Revenue Service
anticipates providing guidance with respect to the federal tax treatment of
such consideration. Any transferee receiving consideration with respect to the
Class A-R Certificate should consult its tax advisors.
DUE TO THE SPECIAL TAX TREATMENT OF RESIDUAL INTERESTS, THE EFFECTIVE AFTER-
TAX RETURN OF THE CLASS A-R CERTIFICATE MAY BE SIGNIFICANTLY LOWER THAN WOULD
BE THE CASE IF THE CLASS A-R CERTIFICATE WERE TAXED AS A DEBT INSTRUMENT, OR
MAY BE NEGATIVE.
See "Certain Federal Income Tax Consequences" in the Prospectus.
S-54
<PAGE>
ERISA CONSIDERATIONS
The Class A-R Certificate may not be purchased by or transferred to a Plan
or a person acting on behalf of or investing the assets of a Plan. See
"Description of the Certificates--Restrictions on Transfer of the Class A-R
and Class B Certificates" herein.
Because the Class B Certificates are subordinated to the Class A
Certificates, the Class B Certificates may not be transferred unless the
transferee has delivered (i) a representation letter to the Trustee and the
Seller stating either (a) that the transferee is not a Plan and is not acting
on behalf of a Plan or using the assets of a Plan to effect such purchase or
(b) subject to the conditions described herein, that the source of funds used
to purchase the Class B Certificates is an "insurance company general account"
or (ii) an opinion of counsel and such other documentation as described herein
under "Description of the Certificates--Restrictions on Transfer of the Class
A-R and Class B Certificates" herein.
Accordingly, the following discussion applies to the Class A Certificates
(other than the Class A-R Certificate) offered hereby and does not purport to
discuss the considerations under ERISA, Code Section 4975 or Similar Law with
respect to the purchase, acquisition or resale of the Class A-R or Class B
Certificates.
As described in the Prospectus under "ERISA Considerations," ERISA and the
Code impose certain duties and restrictions on ERISA Plans and certain persons
who perform services for ERISA Plans. Comparable duties and restrictions may
exist under Similar Law on governmental plans and certain persons who perform
services for governmental plans. For example, unless exempted, investment by a
Plan in the Class A Certificates may constitute a prohibited transaction under
ERISA, the Code or Similar Law. There are certain exemptions issued by the
United States Department of Labor (the "DOL") that may be applicable to an
investment by an ERISA Plan in the Class A Certificates, including the
individual administrative exemption described below and Prohibited Transaction
Class Exemption 83-1 ("PTE 83-1"). For a further discussion of the individual
administrative exemption and PTE 83-1, including the necessary conditions to
their applicability, and other important factors to be considered by an ERISA
Plan contemplating investing in the Class A Certificates, see "ERISA
Considerations" in the Prospectus.
On [ ], the DOL issued to the Underwriter an individual administrative
exemption, Prohibited Transaction Exemption [ ] (the "EXEMPTION"), from
certain of the prohibited transaction rules of ERISA with respect to the
initial purchase, the holding and the subsequent resale by an ERISA Plan of
certificates in pass-through trusts that meet the conditions and requirements
of the Exemption. The Exemption might apply to the acquisition, holding and
resale of the Class A Certificates by an ERISA Plan, provided that specified
conditions are met.
Among the conditions which would have to be satisfied for the Exemption to
apply to the acquisition by an ERISA Plan of the Class A Certificates is the
condition that the ERISA Plan investing in the Class A Certificates 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, as
amended (the "SECURITIES ACT").
Before purchasing a Class A Certificate, a fiduciary of an ERISA Plan should
make its own determination as to the availability of the exemptive relief
provided in the Exemption or the availability of any other prohibited
transaction exemptions (including PTE 83-1), and whether the conditions of any
such exemption will be applicable to the Class A Certificates, and a fiduciary
of a governmental plan should make its own determination as to the need for
and availability of any exemptive relief under Similar Law. Any fiduciary of
an ERISA Plan considering whether to purchase a Class A Certificate should
also carefully review with its own legal advisors the applicability of the
fiduciary duty provisions of ERISA and the prohibited transaction provisions
of ERISA and the Code to such investment. See "ERISA Considerations" in the
Prospectus.
S-55
<PAGE>
LEGAL INVESTMENT
The Class A and Class B 1 Certificates constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984, as amended ("SMMEA") so long as they are rated in one of the two highest
rating categories by at least one nationally recognized statistical rating
organization. The Class B-2 and Class B-3 Certificates will not constitute
"mortgage related securities" under SMMEA. Prospective purchasers whose
investment activities are subject to legal investment laws and regulations,
regulatory capital requirements or review by regulatory authorities may be
subject to restrictions on investment in the Offered Certificates and should
consult their own legal, tax and accounting advisors in determining the
suitability of and consequences to them of the purchase, ownership and
disposition of the Offered Certificates. See "Legal Investment" in the
Prospectus.
SECONDARY MARKET
There will not be any market for the Offered Certificates prior to the
issuance thereof. The Underwriter intends to act as a market maker in the
Offered Certificates subject to applicable provisions of federal and state
securities laws and other regulatory requirements, but is under no obligation
to do so. There can be no assurance that a secondary market in the Offered
Certificates will develop or, if such a market does develop, that it will
provide holders of Offered Certificates with liquidity of investment at any
particular time or for the life of the Offered Certificates. As a source of
information concerning the Certificates and the Mortgage Loans, prospective
investors in Certificates may obtain copies of the reports included in monthly
statements to Certificateholders described under "The Pooling and Servicing
Agreement--Reports to Certificateholders" in the Prospectus upon written
request to the Trustee at the Corporate Trust Office.
S-56
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated
[ ] and the terms agreement dated [ , 199 ] (together, the "UNDERWRITING
AGREEMENT") among NationsBanc Mortgage, the Seller and [Underwriter] (the
"UNDERWRITER"), as underwriter, the Offered Certificates are being purchased
from the Seller by the Underwriter upon issuance thereof. The Underwriter is
committed to purchase all of the Offered Certificates if any Offered
Certificates are purchased. The Underwriter has advised the Seller that it
proposes to offer the Offered Certificates, from time to time, for sale in
negotiated transactions or otherwise at prices determined at the time of sale.
Proceeds to the Seller from the sale of the Offered Certificates are expected
to be approximately [ ]% of the initial aggregate principal balance of the
Class A Certificates offered hereby, approximately [ ]% of the aggregate
principal balance of the Class B-1 Certificates, approximately [ ]% of the
aggregate initial principal balance of the Class B-2 Certificates and
approximately [ ]% of the aggregate initial principal balance of the Class B-3
Certificates plus, in each case, accrued interest thereon at the rate of [ ]%
per annum, from [ , 199 ] to (but not including) [ , 199 ], before
deducting expenses payable by the Seller. The Underwriter is [not] an
affiliate of the Seller. The Underwriter has advised the Seller that it has
not allocated the purchase price paid to the Seller for the Classes of Class A
Certificates among such Classes. The Underwriter and any dealers that
participate with the Underwriter in the distribution of the Offered
Certificates may be deemed to be underwriters, and any discounts or
commissions received by them and any profit on the resale of Offered
Certificates by them may be deemed to be underwriting discounts or
commissions, under the Securities Act.
[This Prospectus Supplement and Prospectus may be used by NationsBanc
Montgomery Securities LLC, which is an affiliate of the Depositor, to the
extent required, in connection with market making transactions in the Offered
Certificates. NationsBanc Montgomery Securities LLC may act as principal or
agent in such transaction.]
The Underwriting Agreement provides that the Seller or NationsBanc Mortgage
will indemnify the Underwriter against certain civil liabilities under the
Securities Act or contribute to payments which such Underwriter may be
required to make in respect thereof.
LEGAL MATTERS
The validity of the Offered Certificates and certain tax matters with
respect thereto will be passed upon for the Seller by [Cadwalader, Wickersham
& Taft, New York, New York] [Kennedy Covington Lobdell & Hickman, L.L.P.,
Charlotte, North Carolina]. Certain legal matters will be passed upon for the
Underwriter by [ ], [ ].
USE OF PROCEEDS
The net proceeds to be received from the sale of the Offered Certificates
will be applied by the Seller to the purchase from NationsBanc Mortgage of the
Mortgage Loans underlying the Certificates.
RATINGS
It is a condition to the issuance of the Class A Certificates offered hereby
that each Class will have been rated [ ] by [ ] and [ ] by [ ]. It
is a condition to the issuance of the Class M Certificates that they will have
been rated at least [ ] by [ ] and [ ] by [ ]. It is a condition to the
issuance of the Class B-1 and Class B-2 Certificates that they will have been
rated [ ] by [ ]. A security rating is not a recommendation to buy, sell
or hold securities and may be subject to revision or withdrawal at any time by
the assigning rating agency. Each security rating should be evaluated
independently of any other security rating.
S-57
<PAGE>
The ratings assigned by [ ] to mortgage pass-through certificates
address the likelihood of the receipt by certificateholders of all
distributions to which they are entitled under the transaction structure.
[ ]'s ratings reflect its analysis of the riskiness of the mortgage loans
and its analysis of the structure of the transaction as set forth in the
operative documents. [ ]'s ratings do not address the effect on the
certificates' yield attributable to prepayments or recoveries on the
underlying mortgage loans. In addition, the ratings of the Class A-R
Certificate do not assess the likelihood of return to an investor in the Class
A-R Certificate, except to the extent of the Principal Balance thereof and
interest thereon.
The ratings of [ ] on mortgage pass-through certificates address the
likelihood of the receipt by certificateholders of all distributions of
principal and interest to which such certificateholders are entitled.
[ ]'s rating opinions address the structural, legal and issuer aspects
associated with the certificates, including the nature of the underlying
mortgage loans and the credit quality of the credit support provider, if any.
[ ]'s ratings on pass-through certificates do not represent any assessment
of the likelihood that principal prepayments may differ from those originally
anticipated and consequently any adverse effect the timing of such prepayments
could have on an investor's anticipated yield.
The Seller has not requested a rating on the Offered Certificates of any
Class by any rating agency other than [ ] and [ ], although data with
respect to the Mortgage Loans may have been provided to other rating agencies
solely for their informational purposes. There can be no assurance that any
rating assigned by any other rating agency to the Offered Certificates will be
as high as those assigned by [ ] and [ ].
S-58
<PAGE>
INDEX OF SIGNIFICANT
PROSPECTUS SUPPLEMENT DEFINITIONS
<TABLE>
<S> <C>
A
Accretion Termination Date.......... S-22
Adjusted Pool Amount................ S-21
Adjusted Pool Amount (PO Portion)... S-21
Adjustment Amount................... S-31
Aggregate Non-PO Principal Balance.. S-21
Aggregate Principal Balance......... S-20
B
Bankruptcy Loss..................... S-25
Bankruptcy Loss Amount.............. S-31
Beneficial Owner.................... S-17
Book-Entry Certificates............. S-2
C
Cede................................ S-17
Certificateholder................... S-2
Certificates........................ S-1
Class A Certificates................ S-1
Class A Non-PO Optimal Principal
Amount............................. S-23
Class A Non-PO Principal Amount..... S-23
Class A Non-PO Principal Balance.... S-20
Class A Non-PO Principal
Distribution Amount................ S-22
Class A Percentage.................. S-25
Class A Prepayment Percentage....... S-26
Class A Principal Balance........... S-20
Class A-2 Accrual Distribution
Amount............................. S-22
Class A-PO Deferred Amount.......... S-24
Class A-PO Distribution Amount...... S-23
Class A-PO Optimal Principal
Amount............................. S-23
Class B Certificates................ S-1
Class B Optimal Principal Amount.... S-23
Class B Percentage.................. S-26
Class B Prepayment Percentage....... S-26
Class B Principal Balance........... S-20
Class B-1 Principal Distribution
Amount............................. S-23
Class B-2 Principal Distribution
Amount............................. S-23
Class B-3 Principal Distribution
Amount............................. S-23
Class Percentage.................... S-24
Class Prepayment Percentage......... S-24
Closing Date........................ S-8
Code................................ S-13
Compensating Interest............... S-21
Co-op Shares........................ S-33
Cooperatives........................ S-33
Cross-Over Date..................... S-30
</TABLE>
<TABLE>
<S> <C>
Current Fractional Interest......... S-27
Cut-Off Date Aggregate Principal
Balance............................ S-33
D
Debt Service Reduction.............. S-25
Deficient Valuation................. S-25
Definitive Certificates............. S-17
Determination Date.................. S-17
Discount Mortgage Loan.............. S-25
Distribution Date................... S-2
DOL................................. S-55
DTC................................. S-17
E
ERISA............................... S-13
ERISA Plan.......................... S-29
Excess Bankruptcy Losses............ S-31
Excess Fraud Losses................. S-31
Excess Losses....................... S-31
Excess Special Hazard Losses........ S-31
Exemption........................... S-55
F
Fixed Program Loans................. S-40
Fixed Retained Yield................ S-52
Fraud Loss.......................... S-25
Fraud Loss Amount................... S-31
I
Interest Accrual Amount............. S-19
Interest Shortfall Amount........... S-22
L
Liquidated Loan..................... S-24
Liquidated Loan Loss................ S-25
Loss Severity Percentage............ S-48
M
Mortgage Loans...................... S-2
Mortgaged Properties................ S-33
Mortgages........................... S-33
Mortgagor Prepayments............... S-21
N
NationsBanc Mortgage................ S-2
Net Mortgage Interest Rate.......... S-21
Non-PO Fraction..................... S-25
Non-Supported Interest Shortfalls... S-21
</TABLE>
S-59
<PAGE>
<TABLE>
<S> <C>
O
Offered Certificates............. S-1
Original Fractional Interest..... S-27
Original Subordinated Principal
Balance......................... S-26
P
Partial Liquidation Proceeds..... S-18
Pass-Through Rate................ S-20
Percentage Interest.............. S-19
Periodic Advance................. S-28
Plan............................. S-13
PO Fraction...................... S-25
Pool Balance (Non-PO Portion).... S-25
Pool Balance (PO Portion)........ S-25
Pool Distribution Amount......... S-17
Pool Distribution Amount
Allocation...................... S-19
Pooling and Servicing Agreement.. S-50
Premium Mortgage Loans........... S-25
Prepayment Interest Shortfalls... S-21
Principal Balance................ S-20
Program Loans.................... S-40
Prospectus....................... S-5
PTE 83-1......................... S-55
PTE 95-60........................ S-29
R
Rating Agencies.................. S-5
Realized Loss.................... S-24
Record Date...................... S-17
Regular Certificates............. S-53
REMIC............................ S-2
Remittance Date.................. S-18
REO Property..................... S-51
</TABLE>
<TABLE>
<S> <C>
S
Residual Certificates........... S-53
Scheduled Principal Balance..... S-24
SDA............................. S-47
Securities Act.................. S-55
Seller.......................... S-2
Senior Certificates............. S-1
Servicer........................ S-2
Servicer Custodial Account...... S-51
Servicing Fee Rate.............. S-52
Similar Law..................... S-13
SMMEA........................... S-55
SPA............................. S-45
Special Hazard Loss............. S-25
Special Hazard Loss Amount...... S-31
Structuring Assumptions......... S-45
Subordinated Certificates....... S-1
Subordinated Percentage......... S-26
Subordinated Prepayment
Percentage..................... S-26
T
Trust Estate.................... S-2
Trustee......................... S-5
U
U.S. Person..................... S-28
Underwriter..................... S-1
Underwriting Agreement.......... S-57
Underwriting Standards.......... S-8
Unscheduled Principal Receipt
Period......................... S-24
Unscheduled Principal Receipts.. S-18
W
Weighted Average Life........... S-45
</TABLE>
S-60
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER +
+TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF +
+THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD +
+BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 21, 1998
PROSPECTUS
NATIONS MORTGAGE SECURITIES CORPORATION
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
-----------
Nations Mortgage Securities Corporation (the "SELLER") may sell from time to
time, under this Prospectus and applicable Prospectus Supplements, Mortgage
Pass-Through Certificates (the "CERTIFICATES"), issuable in series (each, a
"SERIES") consisting of one or more classes (each, a "CLASS") of Certificates.
The Certificates of a Series will represent beneficial ownership interests in
a separate trust formed by the Seller. The property of each such trust (for
each Series, the "TRUST ESTATE") will be comprised primarily of conventional
fixed or adjustable interest rate mortgage loans (the "MORTGAGE LOANS"),
secured by first liens on one- to four-family residential properties. The
Mortgage Loans will have been acquired by the Seller from its affiliate,
NationsBanc Mortgage Corporation ("NATIONSBANC MORTGAGE"), or from another
affiliate of the Seller and will have been underwritten either to NationsBanc
Mortgage's underwriting standards or to standards specified in the applicable
Prospectus Supplement. All of the Mortgage Loans will be serviced by
NationsBanc Mortgage and/or one or more other servicers (each, a "SERVICER").
In the event that NationsBanc Mortgage is not the servicer of all the Mortgage
Loans related to a Series, NationsBanc Mortgage or a third-party master
servicer will act as master servicer with respect to the related Trust Estate
(in such capacity, the "MASTER SERVICER").
Each Series of Certificates may include one or more Classes of Certificates
(the "SUBORDINATED CERTIFICATES") that are subordinate in right of
distributions or otherwise to one or more of the other Classes of such Series
(the "SENIOR CERTIFICATES"). If specified in the applicable Prospectus
Supplement, the relative interests of the Senior Certificates and the
Subordinated Certificates of a Series in the Trust Estate may be subject to
adjustment from time to time on the basis of distributions received in respect
thereof and losses allocated to the Subordinated Certificates. If and to the
extent specified in the Prospectus Supplement, credit support may be provided
for any Series of Certificates, or any Classes thereof, in the form of a
limited guarantee, financial guaranty insurance policy, surety bond, letter of
credit, mortgage pool insurance policy, special hazard insurance policy,
mortgagor bankruptcy bond, reserve fund, cross-support or other form of credit
enhancement as described herein or therein.
Except for the Seller's limited obligations in connection with certain
breaches of its representations and warranties and NationsBanc Mortgage's
obligations as Servicer (or Master Servicer), the Certificates will not
represent obligations of the Seller or NationsBanc Mortgage, or any affiliate
of the Seller or NationsBanc Mortgage.
If specified in the applicable Prospectus Supplement, an election will be
made to treat the Trust Estate (or one or more segregated pools of assets
therein) underlying a Series of Certificates as a "real estate mortgage
investment conduit" (a "REMIC") for federal income tax purposes. See "Certain
Federal Income Tax Consequences."
There will have been no public market for the Certificates of any Series
prior to the offering thereof. No assurance can be given that such a market
will develop, or that if such a market does develop, it will provide
Certificateholders with liquidity of investment or will continue for the life
of the Certificates.
PROSPECTIVE INVESTORS IN THE CERTIFICATES SHOULD CONSIDER THE FACTORS
DISCUSSED UNDER "RISK FACTORS" IN THIS PROSPECTUS ON PAGE 11.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------
The Certificates may be sold from time to time through one or more different
methods, including through underwriting syndicates led by one or more managing
underwriters or through one or more underwriters acting alone. See "Plan of
Distribution." Affiliates of the Seller may from time to time act as agents or
underwriters in connection with the sale of the Certificates.
This Prospectus may not be used to consummate sales of Certificates unless
accompanied by the Prospectus Supplement relating to the offering of such
Certificates.
THE DATE OF THIS PROSPECTUS IS , 199
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REPORTS
The Trustee will prepare and forward to the Certificateholders of each
Series statements containing information with respect to principal and
interest payments and the related Trust Estate, as described herein and in the
applicable Prospectus Supplement for such Series. No information contained in
such reports will have been examined or reported upon by an independent public
accountant. See "The Pooling and Servicing Agreement-- Reports to
Certificateholders." In addition, each Servicer for each Series will furnish
to the Trustee a statement from a firm of independent public accountants with
respect to the examination of certain documents and records relating to a
random sample of mortgage loans serviced by such Servicer pursuant to the
related Underlying Servicing Agreement and/or other similar agreements. See
"Servicing of the Mortgage Loans--Evidence as to Compliance." Copies of the
statements provided to the Trustee will be furnished to Certificateholders of
each Series upon request addressed to the Trustee for the applicable Series.
ADDITIONAL INFORMATION
This Prospectus contains, and the Prospectus Supplement for each Series of
Certificates will contain, a summary of the material terms of the documents
referred to herein and therein, but neither contains nor will contain all of
the information set forth in the Registration Statement of which this
Prospectus is a part. For further information, reference is made to such
Registration Statement and the exhibits thereto which the Seller has filed
with the Securities and Exchange Commission (the "COMMISSION"), Washington,
D.C., under the Securities Act of 1933, as amended (the "SECURITIES ACT").
Statements contained in this Prospectus and any Prospectus Supplement as to
the contents of any contract or other document referred to are summaries and,
in each instance, reference is made to the copy of the contract or other
document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. Copies of the
Registration Statement may be obtained from the Public Reference Section of
the Commission, Washington, D.C. 20549 upon payment of the prescribed charges,
or may be examined free of charge at the Commission's offices, 450 Fifth
Street N.W., Washington, D.C. 20549 or at the regional offices of the
Commission located at Suite 1300, 7 World Trade Center, New York, New York
10048 and Suite 1400, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661-2511. The Commission also maintains a site on the World Wide
Web at "http://www.sec.gov" at which users can view and download copies of
reports, proxy and information statements and other information filed
electronically through the Electronic Data Gathering, Analysis and Retrieval
("EDGAR") system. The Seller has filed the Registration Statement, including
all exhibits thereto, through the EDGAR system and therefore such materials
should be available by logging onto the Commission's Web site. The Commission
maintains computer terminals providing access to the EDGAR system at each of
the offices referred to above. Copies of any documents incorporated herein by
reference will be provided to each person to whom a Prospectus is delivered
upon written or oral request directed to Nations Mortgage Securities
Corporation, 201 North Tryon Street, 5th Floor, Charlotte, N.C. 28255,
telephone number (704) 388-4515.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Seller with respect to a Trust Estate pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), prior to the termination of an offering of
Certificates evidencing interests therein. The Seller will provide to each
person to whom this Prospectus is delivered, without charge, upon request of
any such person, a copy of any or all of the documents incorporated herein by
reference other than the exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Requests should be
directed to the Seller in writing at 201 North Tryon Street, 5th Floor,
Charlotte, North Carolina 28255 or by telephone at (704) 388-4515.
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TABLE OF CONTENTS
PROSPECTUS
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REPORTS.................................................................... 2
ADDITIONAL INFORMATION..................................................... 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.......................... 2
SUMMARY OF PROSPECTUS...................................................... 7
Title of Securities...................................................... 7
Seller................................................................... 7
Servicer(s).............................................................. 7
Master Servicer.......................................................... 7
The Trust Estates........................................................ 7
Description of the Certificates.......................................... 8
Distributions on the Certificates........................................ 8
Cut-Off Date............................................................. 8
Distribution Dates....................................................... 8
Record Dates............................................................. 8
Credit Enhancement....................................................... 9
Periodic Advances........................................................ 9
Forms of Certificates.................................................... 9
Optional Purchase of All Mortgage Loans.................................. 10
ERISA Limitations........................................................ 10
Tax Status............................................................... 10
Legal Investment......................................................... 10
Rating................................................................... 10
RISK FACTORS............................................................... 11
Limited Liquidity........................................................ 11
Limited Obligations...................................................... 11
Limitations, Reduction and Substitution of Credit Enhancement............ 11
Risks of the Mortgage Loans.............................................. 11
Yield and Prepayment Considerations...................................... 12
Book-Entry System for Certain Classes of Certificates.................... 13
THE TRUST ESTATES.......................................................... 13
General.................................................................. 13
Mortgage Loans........................................................... 13
Fixed Rate Loans....................................................... 14
Adjustable Rate Loans.................................................. 14
Graduated Payment Loans................................................ 15
Subsidy Loans.......................................................... 15
Buy-Down Loans......................................................... 16
Balloon Loans.......................................................... 16
Pledged Asset Mortgage Loans........................................... 17
THE SELLER................................................................. 17
NATIONSBANC MORTGAGE....................................................... 17
THE MORTGAGE LOAN PROGRAMS................................................. 18
Mortgage Loan Production Sources......................................... 18
Acquisition of Mortgage Loans from Correspondents........................ 18
Mortgage Loan Underwriting............................................... 18
Representations and Warranties........................................... 20
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DESCRIPTION OF THE CERTIFICATES........................................... 21
General................................................................. 21
Definitive Form......................................................... 22
Book-Entry Form......................................................... 22
Distributions to Certificateholders..................................... 24
General............................................................... 24
Net Foreclosure Profits............................................... 25
Distributions of Interest............................................. 25
Distributions of Principal............................................ 26
Categories of Classes of Certificates................................... 27
Other Credit Enhancement................................................ 29
Limited Guarantee..................................................... 30
Financial Guaranty Insurance Policy or Surety Bond.................... 30
Letter of Credit...................................................... 30
Pool Insurance Policy................................................. 30
Special Hazard Insurance Policy....................................... 30
Mortgagor Bankruptcy Bond............................................. 30
Reserve Fund.......................................................... 30
Cross Support......................................................... 30
PREPAYMENT AND YIELD CONSIDERATIONS....................................... 31
Pass-Through Rates...................................................... 31
Scheduled Delays in Distributions....................................... 31
Effect of Principal Prepayments......................................... 31
Weighted Average Life of Certificates................................... 32
SERVICING OF THE MORTGAGE LOANS........................................... 33
The Master Servicer..................................................... 33
The Servicers........................................................... 34
Payments on Mortgage Loans.............................................. 35
Periodic Advances and Limitations Thereon............................... 37
Collection and Other Servicing Procedures............................... 38
Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage
Loans.................................................................. 39
Insurance Policies...................................................... 40
Fixed Retained Yield, Servicing Compensation and Payment of Expenses.... 41
Evidence as to Compliance............................................... 42
CERTAIN MATTERS REGARDING THE MASTER SERVICER............................. 43
THE POOLING AND SERVICING AGREEMENT....................................... 44
Assignment of Mortgage Loans to the Trustee............................. 44
Optional Purchases...................................................... 46
Reports to Certificateholders........................................... 46
List of Certificateholders.............................................. 47
Events of Default....................................................... 47
Rights Upon Event of Default............................................ 47
Amendment............................................................... 48
Termination; Optional Purchase of Mortgage Loans........................ 49
The Trustee............................................................. 49
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS............................... 50
General................................................................. 50
Foreclosure............................................................. 50
Foreclosure on Shares of Cooperatives................................... 51
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Rights of Redemption.................................................... 52
Anti-Deficiency Legislation and Other Limitations on Lenders............ 52
Soldiers' and Sailors' Civil Relief Act and Similar Laws................ 53
Environmental Considerations............................................ 54
"Due-on-Sale" Clauses................................................... 56
Applicability of Usury Laws............................................. 57
Enforceability of Certain Provisions.................................... 57
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................... 58
Federal Income Tax Consequences for REMIC Certificates.................. 58
General................................................................. 58
Status of REMIC Certificates............................................ 58
Qualification as a REMIC................................................ 59
Taxation of Regular Certificates........................................ 61
General............................................................... 61
Original Issue Discount............................................... 61
Acquisition Premium................................................... 63
Variable Rate Regular Certificates.................................... 63
Market Discount....................................................... 64
Premium............................................................... 65
Election to Treat All Interest Under the Constant Yield Method........ 66
Treatment of Losses................................................... 66
Sale or Exchange of Regular Certificates.............................. 67
Taxation of Residual Certificates....................................... 67
Taxation of REMIC Income.............................................. 67
Basis and Losses...................................................... 68
Treatment of Certain Items of REMIC Income and Expense................ 69
Limitations on Offset or Exemption of REMIC Income.................... 70
Tax-Related Restrictions on Transfer of Residual Certificates......... 70
Sale or Exchange of a Residual Certificate............................ 73
Mark to Market Regulations............................................ 73
Taxes That May Be Imposed on the REMIC Pool............................. 73
Prohibited Transactions............................................... 73
Contributions to the REMIC Pool After the Startup Day................. 74
Net Income from Foreclosure Property.................................. 74
Liquidation of the REMIC Pool........................................... 74
Administrative Matters.................................................. 74
Limitations on Deduction of Certain Expenses............................ 75
Taxation of Certain Foreign Investors................................... 75
Regular Certificates.................................................. 75
Residual Certificates................................................. 76
Backup Withholding...................................................... 76
Reporting Requirements.................................................. 77
Federal Income Tax Consequences for Certificates as to Which No REMIC
Election Is Made....................................................... 77
General............................................................... 77
Tax Status............................................................ 78
Premium and Discount.................................................. 78
Premium............................................................... 79
Market Discount....................................................... 79
Recharacterization of Servicing Fees.................................. 79
Stripped Certificates................................................... 80
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General................................................................ 80
Status of Stripped Certificates........................................ 81
Taxation of Stripped Certificates...................................... 82
Original Issue Discount................................................ 82
Sale or Exchange of Stripped Certificates.............................. 82
Reporting Requirements and Backup Withholding............................ 83
Taxation of Certain Foreign Investors.................................... 83
ERISA CONSIDERATIONS....................................................... 84
General.................................................................. 84
Certain Requirements Under ERISA......................................... 84
General................................................................ 84
Parties in Interest/Disqualified Persons............................... 84
Delegation of Fiduciary Duty........................................... 85
Administrative Exemptions................................................ 85
Individual Administrative Exemptions................................... 85
PTE 83-1............................................................... 86
Exempt Plans............................................................. 87
Unrelated Business Taxable Income--Residual Certificates................. 87
LEGAL INVESTMENT........................................................... 88
PLAN OF DISTRIBUTION....................................................... 89
USE OF PROCEEDS............................................................ 91
LEGAL MATTERS.............................................................. 91
RATING..................................................................... 91
INDEX OF SIGNIFICANT DEFINITIONS........................................... 92
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SUMMARY OF PROSPECTUS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus, and by reference to the
information with respect to each Series of Certificates contained in the
applicable Prospectus Supplement. Certain capitalized terms used and not
otherwise defined herein shall have the meanings given elsewhere in this
Prospectus. See the "Index of Significant Definitions" beginning on page 102.
Title of Securities..... Mortgage Pass-Through Certificates (Issuable in
Series).
Seller.................. Nations Mortgage Securities Corporation (the
"SELLER"), a direct, wholly-owned subsidiary of
NationsBanc Mortgage Corporation ("NATIONSBANC
MORTGAGE"), which is an indirect, wholly-owned
subsidiary of NationsBank of Texas, N.A. Mortgage
Corporation. See "The Seller."
Servicer(s)............. NationsBanc Mortgage and/or, to the extent specified
in the applicable Prospectus Supplement, one or more
other entities identified therein (each, a
"SERVICER"), will service the Mortgage Loans
contained in each Trust Estate. Each Servicer will
perform certain servicing functions with respect to
the Mortgage Loans serviced by it pursuant to the
related Pooling and Servicing Agreement or a separate
Servicing Agreement (each, an "UNDERLYING SERVICING
AGREEMENT"). See "Servicing of the Mortgage Loans."
Master Servicer......... In the event that NationsBanc Mortgage is not the
servicer of all the Mortgage Loans related to a
Series, NationsBanc Mortgage or a third-party master
servicer will act as master servicer (in such
capacity, the "MASTER SERVICER"). The Master Servicer
will supervise the Servicers pursuant to a Pooling
and Servicing Agreement. In addition, the Master
Servicer will generally be required to make Periodic
Advances (to the extent described herein) with
respect to the Mortgage Loans in each Trust Estate to
the extent that the related Servicer fails to make a
required Periodic Advance. See "Servicing of the
Mortgage Loans--The Master Servicer" and "--Periodic
Advances and Limitations Thereon."
The Trust Estates....... Each Trust Estate will be formed and each Series of
Certificates will be issued pursuant to a pooling and
servicing agreement (each, a "POOLING AND SERVICING
AGREEMENT") among the Seller, the Servicer (or, if
applicable the Master Servicer) and the Trustee
specified in the applicable Prospectus Supplement.
Each Trust Estate will consist of the related
Mortgage Loans (other than the Fixed Retained Yield
(as defined herein), if any) and certain other
related property, as specified in the applicable
Prospectus Supplement. The Mortgage Loans will be
conventional, fixed or adjustable interest rate
mortgage loans secured by first liens on one- to
four-family residential properties.
The Mortgage Loans will have been acquired by the
Seller from its affiliate, NationsBanc Mortgage, or
from another affiliate of the Seller. The Mortgage
Loans will have been originated by NationsBanc
Mortgage or will have been acquired by NationsBanc
Mortgage or such other affiliate directly or
indirectly from other affiliated or unaffiliated
mortgage loan originators. All of the Mortgage Loans
will have been underwritten either to NationsBanc
Mortgage's standards or to standards specified in
7
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the applicable Prospectus Supplement. See "The Trust
Estates" and "The Mortgage Loan Programs--Mortgage
Loan Underwriting."
The particular characteristics or expected
characteristics of the Mortgage Loans and a
description of the other property, if any, included
in a Trust Estate will be set forth in the applicable
Prospectus Supplement.
Description of the Each Series of Certificates will include one or more
Certificates........... Classes. A Class of Certificates will be entitled, to
the extent of funds available, to either (i)
principal and interest payments in respect of the
related Mortgage Loans, (ii) principal distributions,
with no interest distributions, (iii) interest
distributions, with no principal distributions or
(iv) such other distributions as are described in the
applicable Prospectus Supplement.
Distributions on the Interest. With respect to each Series of
Certificates........... Certificates, interest on the related Mortgage Loans
at the weighted average of the applicable Mortgage
Interest Rates thereof (net of servicing fees and
certain other amounts as described herein or in the
applicable Prospectus Supplement), will be passed
through to holders of the related Classes of
Certificates in the aggregate, in accordance with the
particular terms of each such Class of Certificates.
See "Description of the Certificates--Distributions
to Certificateholders--Distributions of Interest"
herein. Except as otherwise specified in the
applicable Prospectus Supplement, interest on each
Class of Certificates of each Series will accrue at
the pass-through rate for each Class indicated in the
applicable Prospectus Supplement (each, a "PASS-
THROUGH RATE") on the outstanding principal balance
or notional amount thereof.
Principal. With respect to a Series of Certificates,
principal payments (including prepayments) will be
passed through to holders of the related Certificates
or otherwise applied in accordance with the related
Pooling and Servicing Agreement on each Distribution
Date. Distributions in reduction of principal balance
will be allocated among the Classes of Certificates
of a Series in the manner specified in the applicable
Prospectus Supplement. See "Description of the
Certificates--Distributions to Certificateholders--
Distributions of Principal."
Cut-Off Date............ The date specified in the applicable Prospectus
Supplement.
Distribution Dates...... Distributions on the Certificates will generally be
made on the 25th day (or, if such day is not a
business day, the business day following the 25th
day) of each month, commencing with the month
following the month in which the applicable Cut-Off
Date occurs (each, a "DISTRIBUTION DATE"). If so
specified in the applicable Prospectus Supplement,
distributions on Certificates may be made on a
different day of each month or may be made quarterly,
or semi-annually, on the dates specified in such
Prospectus Supplement.
Record Dates............ Distributions will be made on each Distribution Date
to Certificateholders of record at the close of
business on (unless a different date is specified in
the applicable Prospectus Supplement) the last
business day of the month preceding the month in
which such Distribution Date occurs (each, a "RECORD
DATE").
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Credit Enhancement...... A Series of Certificates may include one or more
Classes of Senior Certificates and one or more
Classes of Subordinated Certificates. The rights of
the holders of Subordinated Certificates of a Series
to receive distributions with respect to the related
Mortgage Loans will be subordinated to such rights of
the holders of the Senior Certificates of the same
Series to the extent and in the manner specified in
the applicable Prospectus Supplement. This
subordination is intended to enhance the likelihood
of the timely receipt by the Senior
Certificateholders of their proportionate share of
scheduled monthly principal and interest payments on
the related Mortgage Loans and to protect them
against losses. This protection will be effected by
(i) the preferential right of the Senior
Certificateholders to receive, prior to any
distribution being made in respect of the related
Subordinated Certificates on each Distribution Date,
current distributions on the related Mortgage Loans
of principal and interest due them on each
Distribution Date out of the funds available for
distributions on such date, (ii) by the right of such
holders to receive future distributions on the
Mortgage Loans that would otherwise have been payable
to the holders of Subordinated Certificates and/or
(iii) by the prior allocation to the Subordinated
Certificates of all or a portion of losses realized
on the underlying Mortgage Loans.
If so specified in the applicable Prospectus
Supplement, the Certificates of any Series, or any
one or more Classes thereof, may be entitled to the
benefits of a limited guarantee, financial guaranty
insurance policy, surety bond, letter of credit,
mortgage pool insurance policy, reserve fund, cross-
support or other form of credit enhancement as
specified in the applicable Prospectus Supplement.
See "Description of the Certificates--Other Credit
Enhancement."
Periodic Advances....... In the event of delinquencies in payments on any
Mortgage Loan, the Servicer servicing such Mortgage
Loan will be obligated to make advances of cash
("PERIODIC ADVANCES") to the Servicer Custodial
Account or the Certificate Account to the extent that
such Servicer determines such Periodic Advances would
be recoverable from future payments and collections
on such Mortgage Loan. Any such Periodic Advances
will be reimbursable to such Servicer as described
herein and in the applicable Prospectus Supplement.
The Master Servicer or Trustee will, in certain
circumstances, be required to make Periodic Advances
upon a Servicer default. See "Servicing of the
Mortgage Loans--Periodic Advances and Limitations
Thereon."
Forms of Certificates... The Certificates will be issued either (i) in book-
entry form ("BOOK-ENTRY CERTIFICATES") through the
facilities of The Depository Trust Company ("DTC") or
(ii) in fully registered, certificated form
("DEFINITIVE CERTIFICATES").
An investor in a Class of Book-Entry Certificates
will not receive a physical certificate representing
its ownership interest in such Book-Entry
Certificates, except under extraordinary
circumstances which are discussed in "Description of
the Certificates--Definitive Form" in this
Prospectus. Instead, DTC will effect payments and
transfers by means of its electronic recordkeeping
services, acting through certain participating
organizations.
9
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This may result in certain delays in receipt of
distributions by an investor and may restrict an
investor's ability to pledge its securities. The
rights of investors in the Book-Entry Certificates
may generally only be exercised through DTC and its
participating organizations. See "Description of the
Certificates--Book-Entry Form" in this Prospectus.
Optional Purchase of
All Mortgage Loans..... If so specified in the Prospectus Supplement with
respect to a Series, all, but not less than all, of
the Mortgage Loans in the related Trust Estate and
any property acquired in respect thereof at the time,
may be purchased by the Seller, NationsBanc Mortgage
or such other party as is specified in the applicable
Prospectus Supplement, in the manner and at the price
specified in such Prospectus Supplement. In the event
that an election is made to treat the related Trust
Estate (or one or more segregated pools of assets
therein) as a REMIC, any such purchase will be
effected only pursuant to a "qualified liquidation,"
as defined under Section 860F(a)(4)(A) of the
Internal Revenue Code of 1986, as amended (the
"CODE"). Exercise of the right of purchase will
effect the early retirement of the Certificates of
that Series. See "Prepayment and Yield
Considerations."
ERISA Limitations....... A fiduciary of any employee benefit plan subject to
the fiduciary responsibility provisions of the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), including the "prohibited
transaction" rules thereunder, and to the
corresponding provisions of the Code, should
carefully review with its own legal advisors whether
the purchase or holding of Certificates could give
rise to a transaction prohibited or otherwise
impermissible under ERISA or the Code. See "ERISA
Considerations."
Tax Status.............. The treatment of the Certificates for federal income
tax purposes will be determined by whether a REMIC
election is made with respect to a Series of
Certificates and, if a REMIC election is made, by
whether the Certificates are Regular Interests or
Residual Interests. See "Certain Federal Income Tax
Consequences."
Legal Investment........ The applicable Prospectus Supplement will specify
whether the Class or Classes of Certificates offered
will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement
Act of 1984. Investors whose investment authority is
subject to legal restrictions should consult their
own legal advisors to determine whether and to what
extent such Certificates constitute legal investments
for them. See "Legal Investment" herein and in the
applicable Prospectus Supplement.
Rating.................. It is a condition to the issuance of the Certificates
of any Series offered pursuant to this Prospectus and
a Prospectus Supplement that each Class be rated in
one of the four highest rating categories by at least
one nationally recognized statistical rating
organization (a "RATING AGENCY"). A security rating
is not a recommendation to buy, sell or hold the
Certificates of any Series and is subject to revision
or withdrawal at any time by the assigning rating
agency. Further, such ratings do not address the
effect of prepayments on the yield anticipated by an
investor.
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RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of Certificates.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates of
any Series will develop or, if it does develop, that it will provide
Certificateholders with liquidity of investment or that it will continue for
the life of the Certificates of any Series. The Prospectus Supplement for any
Series of Certificates may indicate that an underwriter specified therein
intends to establish a secondary market in such Certificates, however no
underwriter will be obligated to do so. Unless specified in the applicable
Prospectus Supplement, the Certificates will not be listed on any securities
exchange.
LIMITED OBLIGATIONS
Except for any related insurance policies and any reserve fund or credit
enhancement described in the applicable Prospectus Supplement, Mortgage Loans
included in the related Trust Estate will be the sole source of payments on
the Certificates of a Series. The Certificates of any Series will not
represent an interest in or obligation of the Seller, NationsBanc Mortgage,
the Trustee or any of their affiliates, except for Seller's limited
obligations with respect to certain breaches of its representations and
warranties and NationsBanc Mortgage's obligations as Servicer or as Master
Servicer. Neither the Certificates of any Series nor the related Mortgage
Loans will be guaranteed or insured by any governmental agency or
instrumentality, the Seller, NationsBanc Mortgage, the Trustee, any of their
affiliates or any other person. Consequently, in the event that payments on
the Mortgage Loans are insufficient or otherwise unavailable to make all
payments required on the Certificates, there will be no recourse to the
Seller, NationsBanc Mortgage, the Trustee or, except as specified in the
applicable Prospectus Supplement, any other entity.
LIMITATIONS, REDUCTION AND SUBSTITUTION OF CREDIT ENHANCEMENT
With respect to each Series of Certificates, credit enhancement may be
provided in limited amounts to cover certain types of losses on the underlying
Mortgage Loans. Credit enhancement will be provided in one or more of the
forms referred to herein, including, but not limited to: subordination of
other Classes of Certificates of the same Series; a limited guarantee; a
financial guaranty insurance policy; a surety bond; a letter of credit; a
mortgage pool insurance policy; a special hazard insurance policy; a mortgagor
bankruptcy bond; a reserve fund; cross-support; and any combination thereof.
See "Description of the Certificates--Other Credit Enhancement." Regardless of
the form of credit enhancement provided, the amount of coverage will be
limited in amount and in most cases will be subject to periodic reduction in
accordance with a schedule or formula. Furthermore, such credit enhancements
may provide only very limited coverage as to certain types of losses, and may
provide no coverage as to certain other types of losses. All or a portion of
the credit enhancement for any Series of Certificates will generally be
permitted to be reduced, terminated or substituted for, in the sole discretion
of the Master Servicer, if each applicable Rating Agency indicates that the
then current rating thereof will not be adversely affected. In the event
losses exceed the amount of coverage provided by any credit enhancement or
losses of a type not covered by any credit enhancement occur, such losses will
be borne by the holders of the related Certificates (or certain Classes
thereof). The rating of any Series of Certificates by any applicable Rating
Agency may be lowered following the initial issuance thereof as a result of
the downgrading of the obligations of any applicable credit support provider,
or as a result of losses on the related Mortgage Loans in excess of the levels
contemplated by such Rating Agency at the time of its initial rating analysis.
None of the Seller, NationsBanc Mortgage or any of their affiliates will have
any obligation to replace or supplement any credit enhancement, or to take any
other action to maintain any rating of any Class of Certificates. See
"Description of the Certificates--Other Credit Enhancement."
RISKS OF THE MORTGAGE LOANS
An investment in securities such as the Certificates, which generally
represent interests in pools of residential mortgage loans, may be affected
by, among other things, a decline in real estate values and changes
11
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in the mortgagor's financial condition. No assurance can be given that the
values of the Mortgaged Properties securing the Mortgage Loans underlying any
Series of Certificates have remained or will remain at their levels on the
dates of origination of the related Mortgage Loans. If the residential real
estate market should experience an overall decline in property values such
that the outstanding balances of the Mortgage Loans contained in a particular
Trust Estate, and any secondary financing on the Mortgaged Properties, become
equal to or greater than the value of the Mortgaged Properties, the actual
rates of delinquencies, foreclosures and losses could be higher than those now
generally experienced in the mortgage lending industry and those experienced
in NationsBanc Mortgage's or other Servicers' servicing portfolios. In
addition to risk factors related to the residential real estate market
generally, certain geographic regions of the United States from time to time
will experience weaker regional economic conditions and housing markets or be
directly or indirectly affected by natural disasters or civil disturbances
such as earthquakes, hurricanes, floods, eruptions or riots and, consequently,
will experience higher rates of loss and delinquency than on mortgage loans
generally. Although Mortgaged Properties located in certain identified flood
zones will be required to be covered, to the maximum extent available, by
flood insurance, as described under "Servicing of the Mortgage Loans--
Insurance Policies," no Mortgaged Properties will otherwise be required to be
insured against earthquake damage or any other loss not covered by Standard
Hazard Insurance Policies, as described under "Servicing of the Mortgage
Loans--Insurance Policies." Adverse economic conditions generally, in
particular geographic areas or industries, or affecting particular segments of
the borrowing community (such as mortgagors relying on commission income and
self-employed mortgagors) and other factors which may or may not affect real
property values (including the purposes for which the Mortgage Loans were made
and the uses of the Mortgaged Properties) may affect the timely payment by
mortgagors of scheduled payments of principal and interest on the Mortgage
Loans and, accordingly, the actual rates of delinquencies, foreclosures and
losses with respect to any Trust Estate. The Mortgage Loans underlying certain
Series of Certificates may be concentrated in certain regions, and such
concentration may present risk considerations in addition to those generally
present for similar mortgage-backed securities without such concentration. See
"The Mortgage Loan Programs--Mortgage Loan Underwriting" and "Prepayment and
Yield Considerations--Weighted Average Life of Certificates." To the extent
that such losses are not covered by the applicable credit enhancement, holders
of Certificates of the Series evidencing interests in the related Trust Estate
will bear all risk of loss resulting from default by mortgagors and will have
to look primarily to the value of the Mortgaged Properties for recovery of the
outstanding principal and unpaid interest on the defaulted Mortgage Loans. See
"The Trust Estates--Mortgage Loans" and "The Mortgage Loan Programs--Mortgage
Loan Underwriting."
YIELD AND PREPAYMENT CONSIDERATIONS
The yield of the Certificates of each Series will depend in part on the rate
of principal payment on the Mortgage Loans (including prepayments,
liquidations due to defaults and mortgage loan repurchases). Such yield may be
adversely affected, depending upon whether a particular Certificate is
purchased at a premium or discount price, by a higher or lower than
anticipated rate of prepayments on the related Mortgage Loans. In particular,
the yield on Classes of Certificates entitling the holders thereof primarily
or exclusively to payments of interest or primarily or exclusively to payments
of principal will be extremely sensitive to the rate of prepayments on the
related Mortgage Loans. In addition, the yield on certain Classes of
Certificates may be relatively more sensitive to the rate of prepayment of
specified Mortgage Loans than the yield on other Classes of Certificates. In
particular, prepayments are influenced by a number of factors, including
prevailing mortgage market interest rates, local and national economic
conditions, homeowner mobility and the ability of the borrower to obtain
refinancing. In addition, the yield to investors may be adversely affected by
interest shortfalls which may result from the timing of the receipt of
prepayments or liquidations to the extent that such interest shortfalls are
not covered by aggregate Servicing Fees or other mechanisms specified in the
applicable Prospectus Supplement. The yield to investors in Classes of
Certificates will be adversely affected to the extent that losses on the
Mortgage Loans in the related Trust Estate are allocated to such Classes and
may be adversely affected to the extent of unadvanced delinquencies on the
Mortgage Loans in the related Trust Estate. Classes of Certificates identified
in the applicable Prospectus Supplement as Subordinated Certificates are more
likely to be affected by delinquencies and losses than Classes of Senior
Certificates. See "Prepayment and Yield Considerations."
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BOOK-ENTRY SYSTEM FOR CERTAIN CLASSES OF CERTIFICATES
Since transactions in the Classes of Book-Entry Certificates of any Series
generally can be effected only through DTC, DTC Participants and Indirect DTC
Participants, the ability of a Beneficial Owner to pledge Book-Entry
Certificates to persons or entities that do not participate in the DTC system,
or to otherwise act with respect to such Book-Entry Certificates, may be
limited due to the lack of a physical certificate for such Book-Entry
Certificates. In addition, under a book-entry format, Beneficial Owners may
experience delays in their receipt of payments, since distributions will be
made by the Master Servicer, or a Paying Agent on behalf of the Master
Servicer, to Cede, as nominee for DTC. Also, issuance of the Book-Entry
Certificates in book-entry form may reduce the liquidity thereof in any
secondary trading market that may develop therefor because investors may be
unwilling to purchase securities for which they cannot obtain delivery of
physical certificates. See "Description of the Certificates--Book-Entry Form."
THE TRUST ESTATES
GENERAL
The Trust Estate for each Series of Certificates will consist primarily of
Mortgage Loans evidenced by promissory notes (the "MORTGAGE NOTES") secured by
mortgages, deeds of trust or other instruments creating first liens (the
"MORTGAGES") on some or all of the following six types of property (as so
secured, the "MORTGAGED PROPERTIES"), to the extent set forth in the
applicable Prospectus Supplement: (i) one- to four-family detached residences,
(ii) townhouses, (iii) condominium units, (iv) units within planned unit
developments, (v) long-term leases with respect to any of the foregoing, and
(vi) shares issued by private non-profit housing corporations ("COOPERATIVES")
and the related proprietary leases or occupancy agreements granting exclusive
rights to occupy specified units in such cooperatives' buildings. In addition,
a Trust Estate will also include (i) amounts held from time to time in the
related Certificate Account, (ii) the Seller's interest in any primary
mortgage insurance, hazard insurance, title insurance or other insurance
policies relating to a Mortgage Loan, (iii) any property which initially
secured a Mortgage Loan and which has been acquired by foreclosure or
trustee's sale or deed in lieu of foreclosure or trustee's sale, (iv) if
applicable, and to the extent set forth in the applicable Prospectus
Supplement, any reserve fund or funds, (v) if applicable, and to the extent
set forth in the applicable Prospectus Supplement, contractual obligations of
any person to make payments in respect of any form of credit enhancement or
any interest subsidy agreement and (vi) such other assets as may be specified
in the applicable Prospectus Supplement. The Trust Estate will not include the
portion of interest on the Mortgage Loans which constitutes the Fixed Retained
Yield, if any. See "Servicing of the Mortgage Loans--Fixed Retained Yield,
Servicing Compensation and Payment of Expenses."
MORTGAGE LOANS
The Mortgage Loans will have been acquired by the Seller from its affiliate,
NationsBanc Mortgage, or from another affiliate of the Seller. The Mortgage
Loans will have been originated by NationsBanc Mortgage or will have been
acquired by NationsBanc Mortgage or such other affiliate from other affiliated
or unaffiliated mortgage loan originators. Each Mortgage Loan will have been
underwritten either to NationsBanc Mortgage's standards or to such other
standards set forth in the applicable Prospectus Supplement. See "The Mortgage
Loan Programs--Mortgage Loan Production Sources" and "--Mortgage Loan
Underwriting." The Prospectus Supplement for each Series will set forth the
respective number and principal amounts of Mortgage Loans (i) originated by
NationsBanc Mortgage and (ii) purchased by NationsBanc Mortgage or any other
affiliate of the Seller from unaffiliated mortgage loan originators through
NationsBanc Mortgage's or such affiliate's mortgage loan purchase programs.
Each of the Mortgage Loans will be secured by a Mortgage on a Mortgaged
Property located in any of the 50 states or the District of Columbia.
If specified in the applicable Prospectus Supplement, the Mortgage Loans may
be secured by leases on real property under circumstances that NationsBanc
Mortgage determines in its discretion are commonly acceptable
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to institutional mortgage investors. A Mortgage Loan secured by a lease on
real property is secured not by a fee simple interest in the Mortgaged
Property but rather by a lease under which the mortgagor has the right, for a
specified term, to use the related real estate and the residential dwelling
located thereon. Generally, a Mortgage Loan will be secured by a lease only if
the use of leasehold estates as security for mortgage loans is customary in
the area where the Mortgaged Property is located, the lease is not subject to
any prior lien that could result in termination of the lease and the term of
the lease ends at least five years beyond the maturity date of the related
Mortgage Loan. The provisions of each lease securing a Mortgage Loan will
expressly permit (i) mortgaging of the leasehold estate, (ii) assignment of
the lease without the lessor's consent and (iii) acquisition by the holder of
the Mortgage, in its own or its nominee's name, of the rights of the lessee
upon foreclosure or assignment in lieu of foreclosure, unless alternative
arrangements provide the holder of the Mortgage with substantially similar
protections. No lease will contain provisions which (i) provide for
termination upon the lessee's default without the holder of the Mortgage being
entitled to receive written notice of, and opportunity to cure, such default,
(ii) provide for termination in the event of damage or destruction as long as
the Mortgage is in existence or (iii) prohibit the holder of the Mortgage from
being insured under the hazard insurance policy or policies related to the
premises.
The Prospectus Supplement will set forth the geographic distribution of
Mortgaged Properties and the number and aggregate unpaid principal balances of
the Mortgage Loans by category of Mortgaged Property. The Prospectus
Supplement for each Series will also set forth the range of original terms to
maturity of the Mortgage Loans in the Trust Estate, the weighted average
remaining term to stated maturity at the Cut-Off Date of such Mortgage Loans,
the earliest and latest months of origination of such Mortgage Loans, the
range of Mortgage Interest Rates borne by such Mortgage Loans, if such
Mortgage Loans have varying Net Mortgage Interest Rates, the weighted average
Net Mortgage Interest Rate at the Cut-Off Date of such Mortgage Loans, the
range of loan-to-value ratios at the time of origination of such Mortgage
Loans and the range of principal balances at origination of such Mortgage
Loans.
The information with respect to the Mortgage Loans and Mortgaged Properties
described in the preceding two paragraphs may be presented in the Prospectus
Supplement for a Series as ranges in which the actual characteristics of such
Mortgage Loans and Mortgaged Properties are expected to fall. In all such
cases, information as to the final characteristics of the Mortgage Loans and
Mortgaged Properties will be available in a Current Report on Form 8-K which
will be filed with the Commission within 15 days of the initial issuance of
the related Series.
The Mortgage Loans in a Trust Estate will generally have monthly payments
due on the first of each month (each, a "DUE DATE") but may, if so specified
in the applicable Prospectus Supplement, have payments due on a different day
of each month and will be of one of the following types of mortgage loans:
a. Fixed Rate Loans. If so specified in the applicable Prospectus
Supplement, a Trust Estate may contain fixed-rate, fully-amortizing Mortgage
Loans providing for level monthly payments of principal and interest and terms
at origination or modification of not more than 30 years. If specified in the
applicable Prospectus Supplement, fixed rates on certain Mortgage Loans may be
converted to adjustable rates after origination of such Mortgage Loans and
upon the satisfaction of other conditions specified in the applicable
Prospectus Supplement. If so specified in the applicable Prospectus
Supplement, the Pooling and Servicing Agreement will require the Seller or
another party to repurchase each such converted Mortgage Loan at the price set
forth in the applicable Prospectus Supplement. A Trust Estate containing
fixed-rate Mortgage Loans may contain convertible Mortgage Loans which have
converted from an adjustable interest rate prior to the formation of the Trust
Estate and which are subject to no further conversions.
b. Adjustable Rate Loans. If so specified in the applicable Prospectus
Supplement, a Trust Estate may contain adjustable-rate, fully-amortizing
Mortgage Loans having an original or modified term to maturity of not more
than 30 years with a related Mortgage Interest Rate which generally adjusts
initially either six months, one, three, five, seven or ten years subsequent
to the initial Due Date, and thereafter at either six-month, one-year or other
intervals over the term of the Mortgage Loan to equal the sum of a fixed
margin set forth in the related
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Mortgage Note and an index. The applicable Prospectus Supplement will set
forth the relevant index and the highest, lowest and weighted average margin
with respect to the adjustable-rate Mortgage Loans in the related Trust
Estate. The applicable Prospectus Supplement will also indicate any periodic
or lifetime limitations on the adjustment of any Mortgage Rate.
If specified in the applicable Prospectus Supplement, adjustable rates on
certain Mortgage Loans may be converted to fixed rates after origination of
such Mortgage Loans and upon the satisfaction of the conditions specified in
the applicable Prospectus Supplement. If specified in the applicable
Prospectus Supplement, the Seller or another party will generally be required
to repurchase each such converted Mortgage Loan at the price set forth in the
applicable Prospectus Supplement. A Trust Estate containing adjustable-rate
Mortgage Loans may contain convertible Mortgage Loans which have converted
from a fixed interest rate prior to the formation of the Trust Estate.
If so specified in the applicable Prospectus Supplement, a Trust Estate may
contain adjustable-rate Mortgage Loans which have Mortgage Interest Rates that
generally adjust monthly or may adjust at other intervals as specified in the
applicable Prospectus Supplement. The scheduled monthly payment will be
adjusted as and when described in the applicable Prospectus Supplement (at
intervals which may be different from those at which the Mortgage Interest
Rate is adjusted) to an amount that would fully amortize the Mortgage Loan
over its remaining term on a level debt service basis. Increases in the
scheduled monthly payment may be subject to certain limitations, as specified
in the applicable Prospectus Supplement, which may result in negative
amortization of principal. If an adjustment to the Mortgage Interest Rate on
such a Mortgage Loan causes the amount of interest accrued thereon in any
month to exceed the current scheduled monthly payment on such mortgage loan,
the resulting amount of interest that has accrued but is not then payable
("DEFERRED INTEREST") will be added to the principal balance of such Mortgage
Loan.
c. Graduated Payment Loans. If so specified in the applicable Prospectus
Supplement, a Trust Estate may contain fixed-rate, graduated-payment Mortgage
Loans having original or modified terms to maturity of not more than 30 years
with monthly payments during the first year calculated on the basis of an
assumed interest rate which is a specified percentage below the Mortgage Rate
on such Mortgage Loan. Such monthly payments increase at the beginning of the
second year by a specified percentage of the monthly payment during the
preceding year and each year specified thereafter to the extent necessary to
amortize the Mortgage Loan over the remainder of its term or other shorter
period. Mortgage Loans incorporating such graduated payment features may
include (i) "GRADUATED PAY MORTGAGE LOANS," pursuant to which amounts
constituting Deferred Interest are added to the principal balances of such
Mortgage Loans, (ii) "TIERED PAYMENT MORTGAGE LOANS," pursuant to which, if
the amount of interest accrued in any month exceeds the current scheduled
payment for such month, such excess amounts are paid from a subsidy account
(usually funded by a home builder or family member) established at closing and
(iii) "GROWING EQUITY MORTGAGE LOANS," for which the monthly payments increase
at a rate which has the effect of amortizing the loan over a period shorter
than the stated term.
d. Subsidy Loans. If so specified in the applicable Prospectus Supplement, a
Trust Estate may contain Mortgage Loans subject to temporary interest subsidy
agreements ("SUBSIDY LOANS") pursuant to which the monthly payments made by
the related mortgagors will be less than the scheduled monthly payments on
such Mortgage Loans with the present value of the resulting difference in
payment ("SUBSIDY PAYMENTS") being provided by the employer of the mortgagor,
generally on an annual basis. Subsidy Payments will generally be placed in a
custodial account ("SUBSIDY ACCOUNT") by the related Servicer. Despite the
existence of a subsidy program, a mortgagor remains primarily liable for
making all scheduled payments on a Subsidy Loan and for all other obligations
provided for in the related Mortgage Note and Mortgage Loan.
Subsidy Loans are offered by employers generally through either a graduated
or fixed subsidy loan program, or a combination thereof. The terms of the
subsidy agreements relating to Subsidy Loans generally range from one to ten
years. The subsidy agreements relating to Subsidy Loans made under a graduated
program generally will provide for subsidy payments that result in effective
subsidized interest rates between three percentage points and five percentage
points below the Mortgage Interest Rates specified in the related Mortgage
Notes. Generally,
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under a graduated program, the subsidized rate for a Mortgage Loan will
increase approximately one percentage point per year until it equals the full
Mortgage Interest Rate. For example, if the initial subsidized interest rate
is five percentage points below the Mortgage Interest Rate in year one, the
subsidized rate will increase to four percentage points below the Mortgage
Interest Rate in year two, and likewise until year six, when the subsidized
rate will equal the Mortgage Interest Rate. Where the subsidy agreements
relating to Subsidy Loans are in effect for longer than five years, the
subsidized interest rates generally increase at smaller percentage increments
for each year. The subsidy agreements relating to Subsidy Loans made under a
fixed program generally will provide for subsidized interest rates at fixed
percentages (generally one percentage point to two percentage points) below
the Mortgage Interest Rates for specified periods, generally not in excess of
ten years. Subsidy Loans are also offered pursuant to combination
fixed/graduated programs. The subsidy agreements relating to such Subsidy
Loans generally will provide for an initial fixed subsidy of up to five
percentage points below the related Mortgage Interest Rate for up to five
years, and then a periodic reduction in the subsidy for up to five years, at
an equal fixed percentage per year until the subsidized rate equals the
Mortgage Interest Rate.
Generally, employers may terminate subsidy programs in the event of (i) the
mortgagor's death, retirement, resignation or termination of employment, (ii)
the full prepayment of the Subsidy Loan by the mortgagor, (iii) the sale or
transfer by the mortgagor of the related Mortgaged Property as a result of
which the mortgagee is entitled to accelerate the Subsidy Loan pursuant to the
"due-on-sale" clause contained in the Mortgage, or (iv) the commencement of
foreclosure proceedings or the acceptance of a deed in lieu of foreclosure. In
addition, some subsidy programs provide that if prevailing market rates of
interest on mortgage loans similar to a Subsidy Loan are less than the
Mortgage Interest Rate of such Subsidy Loan, the employer may request that the
mortgagor refinance such Subsidy Loan and may terminate the related subsidy
agreement if the mortgagor fails to refinance such Subsidy Loan. In the event
the mortgagor refinances such Subsidy Loan, the new loan will not be included
in the Trust Estate. See "Prepayment and Yield Considerations." In the event a
subsidy agreement is terminated, the amount remaining in the Subsidy Account
will be returned to the employer, and the mortgagor will be obligated to make
the full amount of all remaining scheduled payments, if any. The mortgagor's
reduced monthly housing expense as a consequence of payments under a subsidy
agreement is used by NationsBanc Mortgage in determining certain expense-to-
income ratios utilized in underwriting a Subsidy Loan. See "The Mortgage Loan
Programs--Mortgage Loan Underwriting."
e. Buy-Down Loans. If so specified in the applicable Prospectus Supplement,
a Trust Estate may contain Mortgage Loans subject to temporary buy-down plans
("BUY-DOWN LOANS") pursuant to which the monthly payments made by the
mortgagor during the early years of the Mortgage Loan will be less than the
scheduled monthly payments on the Mortgage Loan. The resulting difference in
payment will be compensated for from an amount contributed by the seller of
the related Mortgaged Property or another source, including the originator of
the Mortgage Loan (generally on a present value basis) and, if so specified in
the applicable Prospectus Supplement, placed in a custodial account (the "BUY-
DOWN FUND") by the related Servicer. If the mortgagor on a Buy-Down Loan
prepays such Mortgage Loan in its entirety, or defaults on such Mortgage Loan
and the Mortgaged Property is sold in liquidation thereof, during the period
when the mortgagor is not obligated, by virtue of the buy-down plan, to pay
the full monthly payment otherwise due on such loan, the unpaid principal
balance of such Buy-Down Loan will be reduced by the amounts remaining in the
Buy-Down Fund with respect to such Buy-Down Loan, and such amounts will be
deposited in the Servicer Custodial Account or the Certificate Account, net of
any amounts paid with respect to such Buy-Down Loan by any insurer, guarantor
or other person pursuant to a credit enhancement arrangement described in the
applicable Prospectus Supplement.
f. Balloon Loans. If so specified in the applicable Prospectus Supplement,
a Trust Estate may contain Mortgage Loans which are amortized over a fixed
period not exceeding 30 years but which have shorter terms to maturity
("BALLOON LOANS") that causes the outstanding principal balance of the related
Mortgage Loan to be due and payable at the end of a certain specified period
(the "BALLOON PERIOD"). The borrower of such Balloon Loan will be obligated to
pay the entire outstanding principal balance of the Balloon Loan at the end of
the related Balloon Period. In the event the related mortgagor refinances a
Balloon Loan at maturity, the new loan will not be included in the Trust
Estate. See "Prepayment and Yield Considerations" herein.
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g. Pledged Asset Mortgage Loans. If so specified in the applicable
Prospectus Supplement, a Trust Estate may contain fixed-rate mortgage loans
having original terms to stated maturity of not more than 30 years which are
either (i) secured by a security interest in additional collateral (normally
securities) owned by the borrower or (ii) supported by a third party guarantee
(usually a parent of the borrower); which is in turn secured by a security
interest in collateral (usually securities) owned by such guarantor (any such
loans, "PLEDGED ASSET MORTGAGE LOANS," and any such collateral, "ADDITIONAL
COLLATERAL"). Generally, the amount of such Additional Collateral will not
exceed 30% of the amount of such loan, and the requirement to maintain
Additional Collateral will terminate when the principal amount of the loan is
paid down to a predetermined amount.
A Trust Estate may also include other types of first-lien, residential
Mortgage Loans to the extent set forth in the applicable Prospectus
Supplement.
THE SELLER
Nations Mortgage Securities Corporation (the "SELLER") is a direct, wholly-
owned subsidiary of NationsBanc Mortgage Corporation and an indirect, wholly-
owned subsidiary of NationsBank of Texas, N.A. The Seller was incorporated in
the State of Delaware on February 18, 1998.
The limited purposes of the Seller are, in general, to acquire, own and sell
mortgage loans; to issue, acquire, own, hold and sell mortgage pass-through
securities which represent ownership interests in mortgage loans, collections
thereon and related properties; and to engage in any acts which are incidental
to, or necessary, suitable or convenient to accomplish, the foregoing.
The Seller maintains its principal office at 201 North Tryon Street, 5th
Floor, Charlotte, N.C. 28255. Its telephone number is (704) 388-4515.
At the time of the formation of any Trust Estate, the Seller will be the
sole owner of all the related Mortgage Loans. The Seller will have acquired
the Mortgage Loans included in any Trust Estate from NationsBanc Mortgage or
from another affiliate of the Seller. Except to the extent otherwise specified
in the applicable Prospectus Supplement, the Seller's only obligation with
respect to the Certificates of any Series will be to repurchase or substitute
for Mortgage Loans in a Trust Estate in the event of defective documentation
or upon the breach of certain representations and warranties made by the
Seller. See "The Pooling and Servicing Agreement--Assignment of Mortgage Loans
to the Trustee."
NATIONSBANC MORTGAGE
NationsBanc Mortgage Corporation ("NATIONSBANC MORTGAGE") was incorporated
in the State of Texas on July 10, 1972. NationsBanc Mortgage is engaged
principally in the business of (i) originating and purchasing residential
mortgage loans in its own name and (ii) servicing residential mortgage loans
for its own account or for the account of others. NationsBanc Mortgage is a
direct, wholly-owned subsidiary of NationsBank of Texas, N.A. and an indirect,
wholly-owned subsidiary of NationsBank Corporation. The executive offices of
NationsBanc Mortgage are located at 201 North Tryon Street, 14th Floor,
Charlotte, N.C. 28255, and its telephone number is (704) 388-4503.
NationsBanc Mortgage is an approved servicer of Fannie Mae ("FNMA"), Federal
Home Loan Mortgage Corporation ("FHLMC") and the Government National Mortgage
Association. As of , 199 , NationsBanc Mortgage had a net worth of
approximately $ million.
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THE MORTGAGE LOAN PROGRAMS
MORTGAGE LOAN PRODUCTION SOURCES
NationsBanc Mortgage conducts its mortgage loan originations through more
than 200 loan production offices and operates regional sales and service
centers in California, Florida, Georgia, North Carolina, Tennessee and Texas.
Primary sources of originations are (i) direct contact with borrowers, (ii)
realtors, (iii) relocation services, (iv) customer referrals from NationsBank
of Texas, N.A. and other affiliates and (v) mortgage brokers and similar
entities. NationsBanc Mortgage receives applications from home mortgage loans
on toll-free telephone numbers that can be called from anywhere in the United
States.
In addition, NationsBanc Mortgage acquires qualifying mortgage loans from
unaffiliated lenders (the "CORRESPONDENTS"). See "--Acquisition of Mortgage
Loans from Correspondents" below.
NationsBanc Mortgage may directly contact prospective borrowers, including
borrowers with mortgage loans currently serviced by NationsBanc Mortgage,
through general and targeted solicitations. Such solicitations are made
through direct mailings, mortgage loan statements and bank statement inserts,
coupon books, advertisements and by telephone.
ACQUISITION OF MORTGAGE LOANS FROM CORRESPONDENTS
In order to be an approved participant in NationsBanc Mortgage's
Correspondent loan purchase programs, lending institutions must (i) meet and
maintain certain net worth and other financial standards, (ii) demonstrate
experience in originating residential mortgage loans, (iii) meet and maintain
certain operational qualification standards and licenses, (iv) adhere to
quality control policies and procedures and (v) evaluate each loan for
consistency with NationsBanc Mortgage underwriting guidelines and represent
that each loan was underwritten in accordance with NationsBanc Mortgage
standards.
Except as described below, NationsBanc Mortgage reviews each mortgage loan
for compliance with its underwriting guidelines before accepting delivery from
its Correspondents. The contractual agreements with Correspondents may provide
the commitment by NationsBanc Mortgage to accept the delivery of a certain
dollar amount of mortgage loans over a specific period of time; this
commitment may allow for the delivery of mortgage loans one at a time or in
multiples as aggregated by the Correspondent. May of the contractual
agreements allow the delegation of all underwriting functions to the
Correspondent, which will result in NationsBanc Mortgage not performing any
underwriting functions prior to the acquisition of the loan but instead
relying on such lenders' representations. When delegated underwriting is used
NationsBanc Mortgage may do either post-purchase reviews of samplings of
mortgage loans or subsequent quality control audits regarding the lender's
compliance with NationsBanc Mortgage's underwriting standards. Except as
described above, NationsBanc Mortgage reviews each mortgage loan for
compliance with its underwriting guidelines and acceptance is contingent upon
the loans being found to satisfy program standards.
MORTGAGE LOAN UNDERWRITING
NationsBanc Mortgage underwriting guidelines are intended to evaluate the
mortgagor's credit standing and repayment ability and the value and adequacy
of the mortgaged property as collateral. NationsBanc Mortgage's underwriting
guidelines are applied in a standard procedure which is intended to comply
with applicable federal and state laws and regulations. With respect to
NationsBanc Mortgage underwriting guidelines, as well as any other
underwriting guidelines that may be applicable to the Mortgage Loans, such
underwriting standards generally include a set of specific criteria pursuant
to which the underwriting evaluation is made. However, the application of such
underwriting guidelines does not imply that each specific criteria was
satisfied individually. NationsBanc Mortgage will have considered a Mortgage
Loan to be originated in accordance with a given set of underwriting
guidelines if, based on an overall qualitative evaluation, the loan is in
substantial compliance with such underwriting guidelines. A Mortgage Loan may
be considered to comply with a set of underwriting standards, even if one or
more specific criteria included in such underwriting standards were not
satisfied, if other
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factors compensated for the criteria that were not satisfied or the Mortgage
Loan is considered to be in substantial compliance with the underwriting
standards.
Initially, a prospective mortgagor is required to fill out a detailed
industry standard application designed to provide pertinent credit
information. As part of the description of the prospective mortgagor's
financial condition, the applicant is required to provide current information
describing assets and liabilities and a statement of income and expenses, as
well as an authorization to apply for a credit report which summarizes the
applicant's credit history with merchants and lenders and any record of
bankruptcy. In addition, an employment verification is obtained from the
applicant's employer wherein the employer reports the length of employment
with that organization, the current salary and an indication as to whether it
is expected that the applicant will continue such employment in the future. If
a prospective mortgagor is self-employed, the applicant is required to submit
copies of signed tax returns. The applicant also authorizes deposit
verification at all financial institutions where the applicant has accounts.
In lieu of employment and deposit verifications, NationsBanc Mortgage will
accept copies of federal withholding IRS (W-2) forms, current payroll earnings
statements and account statements. NationsBanc Mortgage may, as part of its
overall evaluation of the applicant's creditworthiness, use a credit scoring
system or mortgage scoring system to evaluate in a statistical manner the
expected performance of a Mortgage Loan based on the pertinent credit
information concerning the applicant provided through national credit bureaus,
certain other information provided by the applicant and an assessment of
specific mortgage loan characteristics, including loan-to-value ratio and type
of loan product.
In addition, NationsBanc Mortgage maintains alternative underwriting
guidelines for certain qualifying Mortgage Loans underwritten through an
underwriting program "Limited or Reduced Documentation Guidelines" designed to
streamline the loan underwriting process. Certain reduced loan documentation
programs may not require income, employment or asset verifications. Generally,
in order to be eligible for a reduced loan documentation program, the
mortgaged property must have a loan-to-value ratio which supports the amount
of the Mortgage Loan and the mortgagor must have a good credit history.
Eligibility for such program may be determined by use of a credit scoring
model.
Once all applicable employment and deposit documentation and the credit
report are received, a determination is made as to whether the prospective
mortgagor has sufficient monthly income available to meet the mortgagor's
monthly obligations on the proposed mortgage loan and other expenses related
to the mortgaged property (such as property taxes, hazard insurance and
maintenance and utility costs) and to meet other financial obligations and
monthly living expenses.
To determine the adequacy of the mortgaged property as collateral, an
independent appraisal is made of each property considered for financing. The
appraiser is required to inspect the property and verify that it is in
acceptable condition and that construction, if recent, has been completed. The
appraisal is based on various factors including the appraiser's estimate of
values, giving appropriate weight to both the market value of comparable
housing, as well as the cost of replacing the property.
Certain states where the Mortgaged Properties securing the Mortgage Notes
are located are "anti-deficiency" states where, in general, lenders providing
credit on one-to-four-family properties must look solely to the property for
repayment in the event of foreclosure, see "Certain Legal Aspects of the
Mortgage Loans--Anti-Deficiency Legislation and Other Limitations on Lenders."
NationsBanc Mortgage's underwriting guidelines in all states (including anti-
deficiency states) require that the value of the property being financed, as
indicated by the independent appraisal, currently supports and is anticipated
to support in the future the outstanding loan balance and provides sufficient
value to mitigate the effects of adverse shifts in real estate values,
although there can be no assurance that such value will support the
outstanding loan balance in the future.
Mortgage Loans will not generally have had at origination a Loan-to-Value
Ratio in excess of 95%. However, if so specified in the applicable Prospectus
Supplement, Mortgage Loans that had Loan-to-Value Ratios at origination in
excess of 95% may be included in the related Trust Estate. The "LOAN-TO-VALUE
RATIO" is the ratio, expressed as a percentage, of the principal amount of the
Mortgage Loan at origination to the lesser
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of (i) the appraised value of the related Mortgaged Property, as established
by an appraisal obtained by the originator generally no more than four months
prior to origination (or, with respect to newly constructed properties, no
more than twelve months prior to origination), or (ii) the sale price for such
property. In some instances, the Loan-to-Value Ratio may be based on an
appraisal that was obtained by the originator more than four months prior to
origination, provided that (i) a recertification of the original appraisal is
obtained and (ii) the original appraisal was obtained no more than twelve
months prior to origination. For the purpose of calculating the Loan-to-Value
Ratio of any Mortgage Loan that is the result of the refinancing (including a
refinancing for "equity take out" purposes) of an existing mortgage loan, the
appraised value of the related Mortgaged Property is generally determined by
reference to an appraisal obtained in connection with the origination of the
replacement loan.
Except as described in the related Prospectus Supplement, Mortgage Loans
originated by NationsBanc Mortgage with Loan-to-Value Ratios in excess of 80%
and Mortgage Loans secured by second homes or vacation homes will be covered
by primary mortgage insurance. In such cases, the excess over 75% (or such
lower percentage as NationsBanc Mortgage may require at origination) will be
covered by primary mortgage insurance from an approved primary mortgage
insurance company until the unpaid principal balance of the Mortgage Loan is
reduced to an amount that will result in a Loan-to-Value Ratio less than or
equal to 80%. The Prospectus Supplement will specify the number and percentage
of Mortgage Loans contained in the Trust Estate for a particular Series of
Certificates (i) with Loan-to-Value Ratios at origination in excess of 80% or
(ii) secured by second homes or vacation homes which were originated without
primary mortgage insurance.
REPRESENTATIONS AND WARRANTIES
In connection with the transfer of the Mortgage Loans related to any Series
by the Seller to the Trust Estate, the Seller will generally make certain
representations and warranties regarding the Mortgage Loans. In certain cases
where the Seller acquired some or all of the Mortgage Loans related to a
Series from a Correspondent, if so indicated in the applicable Prospectus
Supplement, the Seller may, rather than itself making representations and
warranties, cause the representations and warranties made by the Correspondent
in connection with its sale of Mortgage Loans to NationsBanc Mortgage or to
another affiliate of the Seller to be assigned to the Trust Estate. In such
cases, the Correspondent's representations and warranties may have been made
as of a date prior to the date of execution of the Pooling and Servicing
Agreement. Unless otherwise provided in the applicable Prospectus Supplement,
such representations and warranties (whether made by the Seller or another
party) will generally include the following with respect to the Mortgage
Loans, or each Mortgage Loan, as the case may be: (i) the schedule of Mortgage
Loans appearing as an exhibit to such Pooling and Servicing Agreement is
correct in all material respects at the date or dates respecting which such
information is furnished as specified therein; (ii) immediately prior to the
transfer and assignment contemplated by the Pooling and Servicing Agreement,
the Seller is the sole owner and holder of the Mortgage Loan, free and clear
of any and all liens, pledges, charges or security interests of any nature and
has full right and authority to sell and assign the same; (iii) to the
knowledge of the representing party, no Mortgage Note or Mortgage is subject
to any right of rescission, set-off, counterclaim or defense; (iv) the
Mortgage Loan is covered by a title insurance policy (or in the case of any
Mortgage Loan secured by a Mortgaged Property located in a jurisdiction where
such policies are generally not available, an opinion of counsel of the type
customarily rendered in such jurisdiction in lieu of title insurance is
instead received); (v) the Mortgage is a valid, subsisting and enforceable
first lien on the related Mortgaged Property; (vi) the Mortgaged Property is
undamaged by water, fire, earthquake or earth movement, windstorm, flood,
tornado or similar casualty (excluding casualty from the presence of hazardous
wastes or hazardous substances, as to which no representation is made), so as
to affect adversely the value of the Mortgaged Property as security for the
Mortgage Loan or the use for which the premises were intended; (vii) all
payments required to be made up to the Due Date immediately preceding the Cut-
Off Date for such Mortgage Loan under the terms of the related Mortgage Note
have been made and no Mortgage Loan had more than one delinquency in the 12
months preceding the Cut-Off Date; and (viii) any and all requirements of any
federal, state or local law with respect to the origination of the Mortgage
Loans including, without limitation, usury, truth-in-lending, real estate
settlement procedures, consumer credit protection, equal credit opportunity or
disclosure laws applicable to the Mortgage Loans have been complied with.
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No representations or warranties are made by the Seller or any other party
as to the environmental condition of any Mortgaged Property including the
absence, presence or effect of hazardous wastes or hazardous substances on
such Mortgaged Property or any effect from the presence or effect of hazardous
wastes or hazardous substances on, near or emanating from such Mortgaged
Property. See "Certain Legal Aspects of the Mortgage Loans--Environmental
Considerations" below.
See "The Pooling and Servicing Agreement--Assignment of Mortgage Loans to
the Trustee" for a description of the limited remedies available in connection
with breaches of the foregoing representations and warranties.
DESCRIPTION OF THE CERTIFICATES
GENERAL
Each Series of Certificates will include one or more Classes. Any Class of
Certificates may consist of two or more non-severable components, each of
which may exhibit any of the principal or interest payment characteristics
described herein with respect to a Class of Certificates. A Series may include
one or more Classes of Certificates entitled, to the extent of funds
available, to (i) principal and interest distributions in respect of the
related Mortgage Loans, (ii) principal distributions, with no interest
distributions, (iii) interest distributions, with no principal distributions
or (iv) such other distributions as are described in the applicable Prospectus
Supplement.
Each Series of Certificates will be issued pursuant to a Pooling and
Servicing Agreement (the "POOLING AND SERVICING AGREEMENT") among the Seller,
NationsBanc Mortgage as the Servicer (or, if applicable, the Master Servicer),
and the Trustee named in the applicable Prospectus Supplement. An illustrative
form of Pooling and Servicing Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summaries describe certain provisions common to the Certificates and to each
Pooling and Servicing Agreement. The summaries do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all
of the provisions of the Pooling and Servicing Agreement for each Series of
Certificates and the applicable Prospectus Supplement. Wherever particular
sections or defined terms of the Pooling and Servicing Agreement are referred
to, such sections or defined terms are thereby incorporated herein by
reference from the form of Pooling and Servicing Agreement filed as an exhibit
to the Registration Statement.
Unless otherwise specified in the applicable Prospectus Supplement,
distributions to holders of Certificates (the "CERTIFICATEHOLDERS") of all
Series (other than the final distribution in retirement of the Certificates)
will be made by check mailed to the address of the person entitled thereto
(which in the case of Book-Entry Certificates will be Cede as nominee for DTC)
as it appears on the certificate register, except that, with respect to any
holder of a Certificate evidencing not less than a certain minimum
denomination set forth in the applicable Prospectus Supplement, distributions
will be made by wire transfer in immediately available funds, provided that
the Trustee or the Paying Agent acting on behalf of the Trustee shall have
been furnished with appropriate wiring instructions not less than seven
business days prior to the related Distribution Date. The final distribution
in retirement of Certificates will be made only upon presentation and
surrender of the Certificates at the office or agency maintained by the
Trustee or other entity for such purpose, as specified in the final
distribution notice to Certificateholders.
Each Series of Certificates will represent ownership interests in the
related Trust Estate. An election may be made to treat the Trust Estate (or
one or more segregated pools of assets therein) with respect to a Series of
Certificates as a REMIC. If such an election is made, such Series will consist
of one or more Classes of Certificates that will represent "regular interests"
within the meaning of Code Section 860G(a)(1) (such Class or Classes
collectively referred to as the "REGULAR CERTIFICATES") and one Class of
Certificates with respect to each REMIC that will be designated as the
"residual interest" within the meaning of Code Section 860G(a)(2) (the
"RESIDUAL CERTIFICATES") representing the right to receive distributions as
specified in the Prospectus Supplement for such Series. See "Certain Federal
Income Tax Consequences."
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The Seller may sell certain Classes of the Certificates of a Series,
including one or more Classes of Subordinated Certificates, in privately
negotiated transactions exempt from registration under the Securities Act.
Alternatively, if so specified in a Prospectus Supplement relating to such
Subordinated Certificates, the Seller may offer one or more Classes of the
Subordinated Certificates of a Series by means of this Prospectus and such
Prospectus Supplement.
DEFINITIVE FORM
Certificates of a Series that are issued in fully-registered, certificated
form are referred to herein as "DEFINITIVE CERTIFICATES." Distributions of
principal of, and interest on, the Definitive Certificates will be made
directly to holders of Definitive Certificates in accordance with the
procedures set forth in the Pooling and Servicing Agreement. The Definitive
Certificates of a Series offered hereby and by means of the applicable
Prospectus Supplements will be transferable and exchangeable at the office or
agency maintained by the Trustee or such other entity for such purpose set
forth in the applicable Prospectus Supplement. No service charge will be made
for any transfer or exchange of Definitive Certificates, but the Trustee or
such other entity may require payment of a sum sufficient to cover any tax or
other governmental charge in connection with such transfer or exchange.
In the event that an election is made to treat the Trust Estate (or one or
more segregated pools of assets therein) as a REMIC, the "residual interest"
thereof will be issued as a Definitive Certificate. No legal or beneficial
interest in all or any portion of any "residual interest" may be transferred
without the receipt by the transferor and the Trustee of an affidavit signed
by the transferee stating, among other things, that the transferee (i) is not
a disqualified organization within the meaning of Code Section 860E(e) or an
agent (including a broker, nominee or middleman) thereof and (ii) understands
that it may incur tax liabilities in excess of any cash flows generated by the
residual interest. Further, the transferee must state in the affidavit that it
(a) historically has paid its debts as they have come due, (b) intends to pay
its debts as they come due in the future and (c) intends to pay taxes
associated with holding the residual interest as they become due. The
transferor must certify to the Trustee that, as of the time of the transfer,
it has no actual knowledge that any of the statements made in the transferee
affidavit are false and no reason to know that the statements made by the
transferee pursuant to clauses (a), (b) and (c) of the preceding sentence are
false. See "Certain Federal Income Tax Consequences--Federal Income Tax
Consequences for REMIC Certificates--Taxation of Residual Certificates--Tax-
Related Restrictions on Transfer of Residual Certificates."
BOOK-ENTRY FORM
Each Class of the Book-Entry Certificates of a Series initially will be
represented by one or more physical certificates registered in the name of
Cede & Co. ("CEDE"), as nominee of DTC, which will be the "holder" or
"Certificateholder" of such Certificates, as such terms are used herein. No
person acquiring an interest in a Book-Entry Certificate (a "BENEFICIAL
OWNER") will be entitled to receive a Definitive Certificate representing such
person's interest in the Book-Entry Certificate, except as set forth below.
Unless and until Definitive Certificates are issued under the limited
circumstances described herein, all references to actions taken by
Certificateholders or holders shall, in the case of the Book-Entry
Certificates, refer to actions taken by DTC upon instructions from its DTC
Participants, and all references herein to distributions, notices, reports and
statements to Certificateholders or holders shall, in the case of the Book-
Entry Certificates, refer to distributions, notices, reports and statements to
DTC or Cede, as the registered holder of the Book-Entry Certificates, as the
case may be, for distribution to Beneficial Owners in accordance with DTC
procedures.
DTC is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to Section 17A of the Securities Exchange Act of
1934, as amended. DTC was created to hold securities for its participating
organizations ("DTC PARTICIPANTS") and to facilitate the clearance and
settlement of securities transactions among DTC Participants through
electronic book entries, thereby eliminating the need for physical movement of
certificates. DTC
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Participants include securities brokers and dealers (which may include any
underwriter identified in the Prospectus Supplement applicable to any Series),
banks, trust companies and clearing corporations. Indirect access to the DTC
system also is available to banks, brokers, dealers, trust companies and other
institutions that clear through or maintain a custodial relationship with a
DTC Participant, either directly or indirectly ("INDIRECT DTC PARTICIPANTS").
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "RULES"), DTC is required to make book-entry transfers of
Book-Entry Certificates among DTC Participants on whose behalf it acts with
respect to the Book-Entry Certificates and to receive and transmit
distributions of principal of and interest on the Book-Entry Certificates. DTC
Participants and Indirect DTC Participants with which Beneficial Owners have
accounts with respect to the Book-Entry Certificates similarly are required to
make book-entry transfers and receive and transmit such payments on behalf of
their respective Beneficial Owners.
Beneficial Owners that are not DTC Participants or Indirect DTC Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Book-Entry Certificates may do so only through DTC Participants
and Indirect DTC Participants. In addition, Beneficial Owners will receive all
distributions of principal and interest from the Trustee, or a Paying Agent on
behalf of the Trustee, through DTC Participants. DTC will forward such
distributions to its DTC Participants, which thereafter will forward them to
Indirect DTC Participants or Beneficial Owners. Beneficial Owners will not be
recognized by the Trustee, any Servicer, or the Master Servicer or any Paying
Agent as Certificateholders, as such term is used in the Pooling and Servicing
Agreement, and Beneficial Owners will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and its DTC Participants.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect DTC Participants and certain banks, the ability of a
Beneficial Owner to pledge Book-Entry Certificates to persons or entities that
do not participate in the DTC system, or to otherwise act with respect to such
Book-Entry Certificates, may be limited due to the lack of a physical
certificate for such Book-Entry Certificates. In addition, under a book-entry
format, Beneficial Owners may experience delays in their receipt of payments,
since distributions will be made by the Trustee, or a Paying Agent on behalf
of the Trustee, to Cede, as nominee for DTC.
DTC has advised the Seller that it will take any action permitted to be
taken by a Certificateholder under the Pooling and Servicing Agreement only at
the direction of one or more DTC Participants to whose accounts with DTC the
Book-Entry Certificates are credited. Additionally, DTC has advised the Seller
that it will take such actions with respect to specified Voting Interests only
at the direction of and on behalf of DTC Participants whose holdings of Book-
Entry Certificates evidence such specified Voting Interests. DTC may take
conflicting actions with respect to Voting Interests to the extent that DTC
Participants whose holdings of Book-Entry Certificates evidence such Voting
Interests authorize divergent action.
None of the Seller, any Servicer, the Master Servicer or the Trustee will
have any responsibility for any aspect of the records relating to or payments
made on account of beneficial ownership interests of the Book-Entry
Certificates held by Cede, as nominee for DTC, or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests. In
the event of the insolvency of DTC, a DTC Participant or an Indirect DTC
Participant in whose name Book-Entry Certificates are registered, the ability
of the Beneficial Owners of such Book-Entry Certificates to obtain timely
payment and, if the limits of applicable insurance coverage by the Securities
Investor Protection Corporation are exceeded or if such coverage is otherwise
unavailable, ultimate payment, of amounts distributable with respect to such
Book-Entry Certificates may be impaired.
The Book-Entry Certificates will be converted to Definitive Certificates and
reissued to Beneficial Owners or their nominees, rather than to DTC or its
nominee, only if (i) the Trustee is advised in writing that DTC is no longer
willing or able to discharge properly its responsibilities as depository with
respect to the Book-Entry Certificates and the Trustee is unable to locate a
qualified successor, (ii) the Servicer or the Master Servicer, as applicable,
at its option, elects to terminate the book-entry system through DTC or (iii)
after the occurrence of a
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dismissal or resignation of the Servicer or the Master Servicer, as
applicable, under the Pooling and Servicing Agreement, Beneficial Owners
representing not less than 51% of the Voting Interests of the outstanding
Book-Entry Certificates advise the Trustee through DTC, in writing, that the
continuation of a book-entry system through DTC (or a successor thereto) is no
longer in the Beneficial Owners' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee will be required to notify all Beneficial Owners
through DTC Participants of the availability of Definitive Certificates. Upon
surrender by DTC of the physical certificates representing the Book-Entry
Certificates and receipt of instructions for re-registration, the Trustee will
reissue the Book-Entry Certificates as Definitive Certificates to Beneficial
Owners. The procedures relating to payment on and transfer of Certificates
initially issued as Definitive Certificates will thereafter apply to those
Book-Entry Certificates that have been reissued as Definitive Certificates.
DISTRIBUTIONS TO CERTIFICATEHOLDERS
General. On each Distribution Date, each holder of a Certificate of a Class
will be entitled to receive its Certificate's Percentage Interest of the
portion of the Pool Distribution Amount allocated to such Class. The undivided
percentage interest (the "PERCENTAGE INTEREST") represented by any Certificate
of a Class in distributions to such Class will be equal to the percentage
obtained by dividing the initial principal balance (or notional amount) of
such Certificate by the aggregate initial principal balance (or notional
amount) of all Certificates of such Class.
In general, the funds available for distribution to Certificateholders of a
Series of Certificates with respect to each Distribution Date for such Series
(the "POOL DISTRIBUTION AMOUNT") will be the sum of all previously
undistributed payments or other receipts on account of principal (including
principal prepayments and Liquidation Proceeds, if any) and interest on or in
respect of the related Mortgage Loans received by the related Servicer after
the Cut-Off Date (except for amounts due on or prior to the Cut-Off Date), or
received by the related Servicer on or prior to the Cut-Off Date but due after
the Cut-Off Date, in either case received on or prior to the business day
preceding the Determination Date in the month in which such Distribution Date
occurs, plus all Periodic Advances with respect to payments due to be received
on the Mortgage Loans on the Due Date preceding such Distribution Date, but
excluding the following:
(a) amounts received as late payments of principal or interest respecting
which one or more unreimbursed Periodic Advances has been made;
(b) that portion of Liquidation Proceeds with respect to a Mortgage Loan
which represents any unreimbursed Periodic Advances;
(c) those portions of each payment of interest on a particular Mortgage
Loan which represent (i) the Fixed Retained Yield, if any, (ii) the
applicable Servicing Fee, (iii) the applicable Master Servicing Fee, if
any, (iv) the Trustee Fee and (v) any other amounts described in the
applicable Prospectus Supplement;
(d) all amounts representing scheduled payments of principal and interest
due after the Due Date occurring in the month in which such Distribution
Date occurs;
(e) all proceeds (including Liquidation Proceeds other than, in certain
cases as specified in the applicable Prospectus Supplement, Liquidation
Proceeds which were received prior to the related Servicer's determination
that no further recoveries on a defaulted Mortgage Loan will be forthcoming
("PARTIAL LIQUIDATION PROCEEDS")) of any Mortgage Loans, or property
acquired in respect thereof, that were liquidated, foreclosed, purchased or
repurchased pursuant to the applicable Pooling and Servicing Agreement,
which proceeds were received on or after the Due Date occurring in the
month in which such Distribution Date occurs and all principal prepayments
in full, partial principal prepayments and Partial Liquidation Proceeds
received by the related Servicer on or after the Determination Date (or,
with respect to any such amount, and if specified in the applicable
Prospectus Supplement, the Due Date) occurring in the month in which such
Distribution Date occurs, and all related payments of interest on such
amounts;
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(f) that portion of Liquidation Proceeds which represents any unpaid
Servicing Fees, Master Servicing Fee or any Trustee Fee to which the
related Servicer, the Trustee or the Master Servicer, respectively, is
entitled and any unpaid Fixed Retained Yield;
(g) if an election has been made to treat the applicable Trust Estate as
a REMIC, any Net Foreclosure Profits with respect to such Distribution
Date;
(h) all amounts representing certain expenses reimbursable to the Master
Servicer or any Servicer and other amounts permitted to be withdrawn by the
Master Servicer or such Servicer from the Certificate Account, in each case
pursuant to the applicable Pooling and Servicing Agreement;
(i) all amounts in the nature of late fees, assumption fees, prepayment
fees and similar fees which the related Servicer is entitled to retain
pursuant to the applicable Underlying Servicing Agreement or applicable
Pooling and Servicing Agreement;
(j) reinvestment earnings on payments received in respect of the Mortgage
Loans; and
(k) any recovery of an amount in respect of principal which had
previously been allocated as a realized loss to such Series of
Certificates.
The applicable Prospectus Supplement for a Series will describe any
variation in the calculation of the Pool Distribution Amount for such Series.
"NET FORECLOSURE PROFITS" with respect to a Distribution Date will be the
excess of (i) the amount by which any aggregate profits on liquidated Mortgage
Loans with respect to which net Liquidation Proceeds exceed the unpaid
principal balance thereof plus accrued interest thereon at the Mortgage
Interest Rate over (ii) aggregate realized losses on liquidated Mortgage Loans
with respect to which net Liquidation Proceeds are less than the unpaid
principal balance thereof plus accrued interest thereon at the Mortgage
Interest Rate.
Distributions of Interest. With respect to each Series of Certificates,
interest on the related Mortgage Loans at the weighted average of the
applicable Net Mortgage Interest Rates thereof, will be passed through monthly
to holders of the related Classes of Certificates in the aggregate, in
accordance with the particular terms of each such Class of Certificates. The
"NET MORTGAGE INTEREST RATE" for each Mortgage Loan in a given period will
equal the mortgage interest rate for such Mortgage Loan in such period, as
specified in the related Mortgage Note (the "MORTGAGE INTEREST RATE"), less
the portion thereof, if any, not contained in the Trust Estate (the "FIXED
RETAINED YIELD"), and less amounts payable to the Servicer for servicing the
Mortgage Loan (the "SERVICING FEE"), the fee payable to the Master Servicer,
if any (the "MASTER SERVICING FEE"), the fee payable to the Trustee (the
"TRUSTEE FEE") and any related expenses specified in the applicable Prospectus
Supplement.
Interest will accrue on the principal balance (or notional amount, as
described below) of each Class of Certificates entitled to interest at the
Pass-Through Rate for such Class indicated in the applicable Prospectus
Supplement (which may be a fixed rate or an adjustable rate) from the date and
for the periods specified in such Prospectus Supplement. To the extent the
Pool Distribution Amount is available therefor, interest accrued during each
such specified period on each Class of Certificates entitled to interest
(other than a Class that provides for interest that accrues, but is not
currently payable, referred to hereinafter as "ACCRUAL CERTIFICATES") will be
distributable on the Distribution Dates specified in the applicable Prospectus
Supplement until the principal balance (or notional amount) of such Class has
been reduced to zero. Distributions allocable to interest on each Certificate
that is not entitled to distributions allocable to principal will generally be
calculated based on the notional amount of such Certificate. The notional
amount of a Certificate will not evidence an interest in or entitlement to
distributions allocable to principal but will be solely for convenience in
expressing the calculation of interest and for certain other purposes.
With respect to any Class of Accrual Certificates, any interest that has
accrued but is not paid on a given Distribution Date will be added to the
principal balance of such Class of Certificates on that Distribution Date.
Distributions of interest on each Class of Accrual Certificates will commence
only after the occurrence of the
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events or the existence of the circumstance specified in such Prospectus
Supplement and, prior to such time, or in the absence of such circumstances,
the principal balance of such Class will increase on each Distribution Date by
the amount of interest that accrued on such Class during the preceding
interest accrual period but that was not required to be distributed to such
Class on such Distribution Date. Any such Class of Accrual Certificates will
thereafter accrue interest on its outstanding principal balance as so
adjusted.
Distributions of Principal. The principal balance of any Class of
Certificates entitled to distributions of principal will generally be the
original principal balance of such Class specified in such Prospectus
Supplement, reduced by all distributions reported to the holders of such
Certificates as allocable to principal and any losses on the related Mortgage
Loans allocated to such Class of Certificates and (i) in the case of Accrual
Certificates, increased by all interest accrued but not then distributable on
such Accrual Certificates and (ii) in the case of a Series of Certificates
representing interests in a Trust Estate containing adjustable-rate Mortgage
Loans, increased by any Deferred Interest allocable to such Class. The
principal balance of a Class of Certificates generally represents the maximum
specified dollar amount (exclusive of any interest that may accrue on such
Class to which the holder thereof is entitled from the cash flow on the
related Mortgage Loans at such time) and will decline to the extent of
distributions in reduction of the principal balance of, and allocations of
losses to, such Class. Certificates with no principal balance will not receive
distributions in respect of principal. The applicable Prospectus Supplement
will specify the method by which the amount of principal to be distributed on
the Certificates on each Distribution Date will be calculated and the manner
in which such amount will be allocated among the Classes of Certificates
entitled to distributions of principal.
If so provided in the applicable Prospectus Supplement, one or more Classes
of Senior Certificates will be entitled to receive all or a disproportionate
percentage of the payments of principal that are received from borrowers in
advance of their scheduled due dates and are not accompanied by amounts
representing scheduled interest due after the months of such payments or of
other unscheduled principal receipts or recoveries in the percentages and
under the circumstances or for the periods specified in such Prospectus
Supplement. Any such allocation of principal prepayments or other unscheduled
receipts or recoveries in respect of principal to such Class or Classes of
Senior Certificates will have the effect of accelerating the amortization of
such Senior Certificates while increasing the interests evidenced by the
Subordinated Certificates in the Trust Estate. Increasing the interests of the
Subordinated Certificates relative to that of the Senior Certificates is
intended to preserve the availability of the subordination provided by the
Subordinated Certificates.
If specified in the applicable Prospectus Supplement, the rights of the
holders of the Subordinated Certificates of a Series of Certificates for which
credit enhancement is provided through subordination to receive distributions
with respect to the Mortgage Loans in the related Trust Estate will be
subordinated to such rights of the holders of the Senior Certificates of the
same Series to the extent described below, except as otherwise set forth in
such Prospectus Supplement. This subordination is intended to enhance the
likelihood of regular receipt by holders of Senior Certificates of the full
amount of scheduled monthly payments of principal and interest due them and to
provide limited protection to the holders of the Senior Certificates against
losses due to mortgagor defaults.
The protection afforded to the holders of Senior Certificates of a Series of
Certificates for which credit enhancement is provided by the subordination
feature described above will be effected by (i) the preferential right of such
holders to receive, prior to any distribution being made in respect of the
related Subordinated Certificates on each Distribution Date, current
distributions on the related Mortgage Loans of principal and interest due them
on each Distribution Date out of the funds available for distribution on such
date in the related Certificate Account, (ii) by the right of such holders to
receive future distributions on the Mortgage Loans that would otherwise have
been payable to the holders of Subordinated Certificates and/or (iii) by the
prior allocation to the Subordinated Certificates of all or a portion of
losses realized on the related Mortgage Loans.
Losses realized on liquidated Mortgage Loans (other than Excess Special
Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses as described
below) will be allocated to the holders of Subordinated Certificates through a
reduction of the amount of principal payments on the Mortgage Loans to which
such holders are entitled before any corresponding reduction is made in
respect of the Senior Certificate.
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A "SPECIAL HAZARD LOSS" is a loss on a liquidated Mortgage Loan occurring as
a result of a hazard not insured against under a standard hazard insurance
policy of the type described herein under "Servicing of the Mortgage Loans--
Insurance Policies." A "FRAUD LOSS" is a loss on a liquidated Mortgage Loan as
to which there was fraud in the origination of such Mortgage Loan. A
"BANKRUPTCY LOSS" is a loss on a liquidated Mortgage Loan attributable to
certain actions which may be taken by a bankruptcy court in connection with a
Mortgage Loan, including a reduction by a bankruptcy court of the principal
balance of or the interest rate on a Mortgage Loan or an extension of its
maturity. Special Hazard Losses in excess of the amount specified in the
applicable Prospectus Supplement (the "SPECIAL HAZARD LOSS AMOUNT") are
"EXCESS SPECIAL HAZARD LOSSES." Fraud Losses in excess of the amount specified
in the applicable Prospectus Supplement (the "FRAUD LOSS AMOUNT") are "EXCESS
FRAUD LOSSES." Bankruptcy losses in excess of the amount specified in the
applicable Prospectus Supplement (the "BANKRUPTCY LOSS AMOUNT") are "EXCESS
BANKRUPTCY LOSSES." Any Excess Special Hazard Losses, Excess Fraud Losses or
Excess Bankruptcy Losses with respect to a Series will be allocated on a pro
rata basis among the related Classes of Senior and Subordinated Certificates.
An allocation of a loss on a "pro rata basis" among two or more Classes of
Certificates means an allocation on a pro rata basis to each such Class of
Certificates on the basis of their then-outstanding principal balances in the
case of the principal portion of a loss or based on the accrued interest
thereon in the case of an interest portion of a loss.
Since the Special Hazard Loss Amount, Fraud Loss Amount and Bankruptcy Loss
Amount for a Series of Certificates are each expected to be less than the
amount of principal payments on the Mortgage Loans to which the holders of the
Subordinated Certificates of such Series are initially entitled (such amount
being subject to reduction, as described above, as a result of allocation of
losses on liquidated Mortgage Loans that are not Special Hazard Losses, Fraud
Losses or Bankruptcy Losses), the holders of Subordinated Certificates of such
Series will bear the risk of Special Hazard Losses, Fraud Losses and
Bankruptcy Losses to a lesser extent than they will bear other losses on
liquidated Mortgage Loans.
Although the subordination feature described above is intended to enhance
the likelihood of timely payment of principal and interest to the holders of
Senior Certificates, shortfalls could result in certain circumstances. For
example, a shortfall in the payment of principal otherwise due the holders of
Senior Certificates could occur if losses realized on the Mortgage Loans in a
Trust Estate were exceptionally high and were concentrated in a particular
month.
The holders of Subordinated Certificates will not be required to refund any
amounts previously properly distributed to them, regardless of whether there
are sufficient funds on a subsequent Distribution Date to make a full
distribution to holders of each Class of Senior Certificates of the same
Series.
CATEGORIES OF CLASSES OF CERTIFICATES
The Certificates of any Series may be comprised of one or more Classes. Such
Classes, in general, fall into different categories. The following chart
identifies and generally defines certain of the more typical categories. The
Prospectus Supplement for a Series of Certificates may identify the Classes
which comprise such Series by reference to the following categories or another
category specified in the Prospectus Supplement.
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PRINCIPAL TYPES
CATEGORIES OF CLASSES DEFINITIONS
Accretion Directed
Class................... A Class that receives principal payments from the
accreted interest from specified Accrual Classes.
An Accretion Directed Class also may receive
principal payments from principal paid on the
Mortgage Loans for the related Series.
Component Class.......... A Class consisting of "COMPONENTS." The Components
of a Class of Component Certificates may have
different principal and/or interest payment
characteristics but together constitute a single
class and do not represent severable interests.
Each Component of a Class of Component Certificates
may be identified as falling into one or more of
the categories in this chart.
Notional Amount Class.... 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 Amortization
Class (also sometimes
referred to as
a "PAC")................ 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 Mortgage Loans.
These two rates are the endpoints for the
"structuring range" for the Planned Amortization
Class. The Planned Amortization Classes in any
Series of Certificates may be subdivided into
different categories (e.g., Planned Amortization
Class I ("PAC I"), Planned Amortization Class II
("PAC II") and so forth) derived using different
structuring ranges.
Scheduled Amortization
Class................... A Class that is designed to receive principal
payments using a predetermined principal balance
schedule but is not designated as a Planned
amortization Class or Targeted Amortization Class.
The schedule is derived by assuming either two
constant prepayment rates or a single constant
prepayment rate for the underlying Mortgage Loans.
In the former case, the two rates are the endpoints
for the "structuring range" for the Scheduled
Amortization Class and such range generally is
narrower than that for a Planned Amortization
Class. Typically, the Support Class for the
applicable Series of Certificates generally will
represent a smaller percentage of the Scheduled
Amortization Class than a Support Class generally
would represent in relation to a Planned
Amortization Class or a Targeted Amortization
Class.
Sequential Pay Class..... Classes that are entitled to receive principal
payments in a prescribed sequence, that do not have
predetermined principal balance schedules and that,
in most cases, are entitled to receive payments of
principal continuously from the first Distribution
Date on which they receive principal until they are
retired. A single Class is entitled to receive
principal payments before or after other Classes in
the same Series of Certificates may be identified
as a Sequential Pay Class.
Strip Class.............. A Class that is entitled to receive a constant
proportion, or "strip," of the principal payments
on the underlying Mortgage Loans.
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Support Class
(also sometimes referred
to as a
"Companion Class")...... A Class that is entitled to receive principal
payments on any Distribution Date only if scheduled
payments have been made on specified Planned
Amortization Classes, Targeted Amortization Classes
and/or Scheduled Amortization Classes.
Targeted Amortization
Class (also sometimes
referred to as
a "TAC")................ 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 Mortgage Loans.
INTEREST TYPES
CATEGORIES OF CLASS DEFINITIONS
Accrual Class............ 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.
Fixed Rate Class......... A Class with an interest rate that is fixed
throughout the life of the Class.
Floating Rate Class...... A Class with an interest rate that resets
periodically based upon a designated index and that
varies directly with changes in such index.
Interest Only Class...... A Class that is entitled to receive some or all of
the interest payments made on the Mortgage Loans
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.
Inverse Floating Rate
Class................... A Class with an interest rate that resets
periodically based upon a designated index and that
varies inversely with changes in such index and
with changes in the interest rate payable on the
related Floating Rate Class.
Principal Only Class..... A Class that does not bear interest and is entitled
to receive only distributions in respect of
principal.
Variable Rate Class...... A Class with an interest rate that resets
periodically and is calculated by reference to the
rate or rates of interest applicable to the
Mortgage Loans.
OTHER CREDIT ENHANCEMENT
In addition to, or in substitution for, the subordination discussed above,
credit enhancement may be provided with respect to any Series of Certificates
in any other manner which may be described in the applicable Prospectus
Supplement, including, but not limited to, credit enhancement through an
alternative form of subordination and/or one or more of the methods described
below.
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Limited Guarantee. If so specified in the Prospectus Supplement with respect
to a Series of Certificates, credit enhancement may be provided in the form of
a limited guarantee issued by a guarantor named therein.
Financial Guaranty Insurance Policy or Surety Bond. If so specified in the
Prospectus Supplement with respect to a Series of Certificates, credit
enhancement may be provided in the form of a financial guaranty insurance
policy or a surety bond issued by an insurer named therein.
Letter of Credit. Alternative credit support with respect to a Series of
Certificates may be provided by the issuance of a letter of credit by the bank
or financial institution specified in the applicable Prospectus Supplement.
The coverage, amount and frequency of any reduction in coverage provided by a
letter of credit issued with respect to a Series of Certificates will be set
forth in the Prospectus Supplement relating to such Series.
Pool Insurance Policy. If so specified in the Prospectus Supplement relating
to a Series of Certificates, the Seller will obtain a pool insurance policy
for the Mortgage Loans in the related Trust Estate. The pool insurance policy
will cover any loss (subject to the limitations described in the applicable
Prospectus Supplement) by reason of default to the extent a related Mortgage
Loan is not covered by any primary mortgage insurance policy. The amount and
principal terms of any such coverage will be set forth in the Prospectus
Supplement.
Special Hazard Insurance Policy. If so specified in the applicable
Prospectus Supplement, for each Series of Certificates as to which a pool
insurance policy is provided, the Seller will also obtain a special hazard
insurance policy for the related Trust Estate in the amount set forth in such
Prospectus Supplement. The special hazard insurance policy will, subject to
the limitations described in the applicable Prospectus Supplement, protect
against loss by reason of damage to Mortgaged Properties caused by certain
hazards not insured against under the standard form of hazard insurance policy
for the respective states in which the Mortgaged Properties are located. The
amount and principal terms of any such coverage will be set forth in the
Prospectus Supplement.
Mortgagor Bankruptcy Bond. If so specified in the applicable Prospectus
Supplement, losses resulting from a bankruptcy proceeding relating to a
mortgagor affecting the Mortgage Loans in a Trust Estate with respect to a
Series of Certificates will be covered under a mortgagor bankruptcy bond (or
any other instrument that will not result in a downgrading of the rating of
the Certificates of a Series by the Rating Agency or Rating Agencies that
rated such Series). Any mortgagor bankruptcy bond or such other instrument
will provide for coverage in an amount meeting the criteria of the Rating
Agency or Rating Agencies rating the Certificates of the related Series, which
amount will be set forth in the applicable Prospectus Supplement. The
principal terms of any such coverage will be set forth in the Prospectus
Supplement.
Reserve Fund. If so specified in the applicable Prospectus Supplement,
credit enhancement with respect to a Series of Certificates may be provided by
the establishment of one or more reserve funds (each, a "RESERVE FUND") for
such Series.
The Reserve Fund for a Series may be funded (i) by the deposit therein of
cash, U.S. Treasury securities or 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 applicable Prospectus Supplement, (ii) by the deposit therein
from time to time of certain amounts, as specified in the applicable
Prospectus Supplement, to which the certain Classes of Certificates would
otherwise be entitled or (iii) in such other manner as may be specified in the
applicable Prospectus Supplement.
Cross Support. If specified in the applicable Prospectus Supplement, the
beneficial ownership of separate groups of Mortgage Loans included in a Trust
Estate may be evidenced by separate Classes of Certificates. In such case,
credit support may be provided by a cross support feature which requires that
distributions be made with respect to certain Classes from mortgage loan
payments that would otherwise be distributed to Subordinated Certificates
evidencing a beneficial ownership interest in other loan groups within the
same Trust Estate. The applicable Prospectus Supplement for a Series that
includes a cross support feature will describe the specific operation of any
such cross support feature.
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PREPAYMENT AND YIELD CONSIDERATIONS
PASS-THROUGH RATES
Any Class of Certificates of a Series may have a fixed Pass-Through Rate, or
a Pass-Through Rate which varies based on changes in an index or based on
changes with respect to the underlying Mortgage Loans (such as, for example,
varying on the basis of changes in the weighted average Net Mortgage Interest
Rate of the underlying Mortgage Loans).
The Prospectus Supplement for each Series will specify the range and the
weighted average of the Mortgage Interest Rates and, if applicable, Net
Mortgage Interest Rates for the Mortgage Loans underlying such Series as of
the Cut-Off Date. If the Trust Estate includes adjustable-rate Mortgage Loans
or includes Mortgage Loans with different Net Mortgage Interest Rates, the
weighted average Net Mortgage Interest Rate may vary from time to time as set
forth below. See "The Trust Estates." The Prospectus Supplement for a Series
will also specify the initial Pass-Through Rate for each Class of Certificates
of such Series and will specify whether each such Pass-Through Rate is fixed
or is variable.
The Net Mortgage Interest Rate for any adjustable-rate Mortgage Loan will
change with any changes in the index specified in the applicable Prospectus
Supplement on which such Mortgage Interest Rate adjustments are based, subject
to any applicable periodic or aggregate caps or floors on the related Mortgage
Interest Rate. The weighted average Net Mortgage Interest Rate with respect to
any Series may vary due to changes in the Net Mortgage Interest Rates of
adjustable-rate Mortgage Loans, to the timing of the Mortgage Interest Rate
readjustments of such Mortgage Loans and to different rates of payment of
principal of fixed- or adjustable-rate Mortgage Loans bearing different
Mortgage Interest Rates.
SCHEDULED DELAYS IN DISTRIBUTIONS
At the date of initial issuance of the Certificates of each Series offered
hereby, the initial purchasers of a Class of Certificates may be required to
pay accrued interest at the applicable Pass-Through Rate for such Class from
the Cut-Off Date for such Series to, but not including, the date of issuance.
The effective yield to Certificateholders will be below the yield otherwise
produced by the applicable Pass-Through Rate because the distribution of
principal and interest which is due on each Due Date will not be made until
the 25th day (or, if such day is not a business day, the first business day
following the 25th day) of the month in which such Due Date occurs (or until
such other Distribution Date specified in the applicable Prospectus
Supplement).
EFFECT OF PRINCIPAL PREPAYMENTS
When a Mortgage Loan is prepaid in full, the mortgagor pays interest on the
amount prepaid only to the date of prepayment and not thereafter. Liquidation
Proceeds and amounts received in settlement of insurance claims are also
likely to include interest only to the time of payment or settlement. When a
Mortgage Loan is prepaid in full or in part, an interest shortfall may result
depending on the timing of the receipt of the prepayment and the timing of
when those prepayments are passed through to Certificateholders. To partially
mitigate this reduction in yield, the Pooling and Servicing Agreement and/or
Underlying Servicing Agreements relating to a Series may provide, to the
extent specified in the applicable Prospectus Supplement, that with respect to
certain principal prepayments received, the applicable Servicer or the Master
Servicer will be obligated, on or before each Distribution Date, to pay an
amount equal to the lesser of (i) the aggregate interest shortfall with
respect to such Distribution Date resulting from such principal prepayments by
mortgagors and (ii) all or a portion of the Servicer's or the Master
Servicer's, as applicable, servicing compensation for such Distribution Date
specified in the applicable Prospectus Supplement. No comparable interest
shortfall coverage will be provided by the Servicer or the Master Servicer
with respect to liquidations of any Mortgage Loans. Any interest shortfall
arising from liquidations will be covered by means of the subordination of the
rights of Subordinated Certificateholders or any other credit support
arrangements.
A lower rate of principal prepayments than anticipated would negatively
affect the total return to investors in any Certificates of a Series that are
offered at a discount to their principal amount and a higher rate of principal
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prepayments than anticipated would negatively affect the total return to
investors in the Certificates of a Series that are offered at a premium to
their principal amount. The yield on Certificates that are entitled solely or
disproportionately to distributions of principal or interest may be
particularly sensitive to prepayment rates, and further information with
respect to yield on such Certificates will be included in the applicable
Prospectus Supplement.
WEIGHTED AVERAGE LIFE OF CERTIFICATES
The Mortgage Loans may be prepaid in full or in part at any time. The
Mortgage Loans generally will not provide for a prepayment penalty but may so
provide if indicated in the related Prospectus Supplement. Fixed- rate
Mortgage Loans generally will contain due-on-sale clauses permitting the
mortgagee to accelerate the maturities of the Mortgage Loans upon conveyance
of the related Mortgaged Properties, and adjustable-rate Mortgage Loans
generally will permit creditworthy borrowers to assume the then-outstanding
indebtedness on the Mortgage Loans.
Prepayments on Mortgage Loans are commonly measured relative to a prepayment
standard or model. The Prospectus Supplement for each Series of Certificates
may describe one or more such prepayment standards or models and contain
tables setting forth the weighted average life of each Class and the
percentage of the original aggregate principal balance of each Class that
would be outstanding on specified Distribution Dates for such Series and the
projected yields to maturity on certain Classes thereof, in each case based on
the assumptions stated in such Prospectus Supplement, including assumptions
that prepayments on the Mortgage Loans are made at rates corresponding to
various percentages of the prepayment standard or model specified in such
Prospectus Supplement.
There is no assurance that prepayment of the Mortgage Loans underlying a
Series of Certificates will conform to any level of the prepayment standard or
model specified in the applicable Prospectus Supplement. A number of factors,
including but not limited to homeowner mobility, economic conditions, natural
disasters, changes in mortgagors' housing needs, job transfers, unemployment
or, in the case of borrowers relying on commission income and self-employed
borrowers, significant fluctuations in income or adverse economic conditions,
mortgagors' net equity in the properties securing the mortgage loans,
including the use of second or "home equity" mortgage loans by mortgagors or
the use of the properties as second or vacation homes, servicing decisions,
enforceability of due-on-sale clauses, mortgage market interest rates,
mortgage recording taxes, competition among mortgage loan originators
resulting in reduced refinancing costs, reduction in documentation
requirements and willingness to accept higher loan-to-value ratios, and the
availability of mortgage funds, may affect prepayment experience. In general,
however, if prevailing mortgage interest rates fall below the Mortgage
Interest Rates borne by the Mortgage Loans underlying a Series of
Certificates, the prepayment rates of such Mortgage Loans are likely to be
higher than if prevailing rates remain at or above the rates borne by such
Mortgage Loans. Conversely, if prevailing mortgage interest rates rise above
the Mortgage Interest Rates borne by the Mortgage Loans, the Mortgage Loans
are likely to experience a lower prepayment rate than if prevailing rates
remain at or below such Mortgage Interest Rates. However, there can be no
assurance that prepayments will rise or fall according to such changes in
mortgage interest rates. It should be noted that Certificates of a Series may
evidence an interest in a Trust Estate with different Mortgage Interest Rates.
Accordingly, the prepayment experience of such Certificates will to some
extent be a function of the mix of interest rates of the Mortgage Loans. In
addition, the terms of the Underlying Servicing Agreements will require the
related Servicer to enforce any due-on-sale clause to the extent it has
knowledge of the conveyance or the proposed conveyance of the underlying
Mortgaged Property; provided, however, that any enforcement action that the
Servicer determines would jeopardize any recovery under any related primary
mortgage insurance policy will not be required and provided, further, that the
Servicer may permit the assumption of defaulted Mortgage Loans. See "Servicing
of the Mortgage Loans--Enforcement of Due-on-Sale Clauses; Realization Upon
Defaulted Mortgage Loans" and "Certain Legal Aspects of the Mortgage Loans--
Due-On-Sale Clauses" for a description of certain provisions of each Pooling
and Servicing Agreement and certain legal developments that may affect the
prepayment experience on the Mortgage Loans.
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At the request of the mortgagor, a Servicer, including NationsBanc Mortgage,
may allow the refinancing of a Mortgage Loan in any Trust Estate serviced by
such Servicer by accepting prepayments thereon and permitting a new loan
secured by a Mortgage on the same property. Upon such refinancing, the new
loan will not be included in the Trust Estate. A mortgagor may be legally
entitled to require the Servicer to allow such a refinancing. Any such
refinancing will have the same effect as a prepayment in full of the related
Mortgage Loan. In this regard a Servicer may, from time to time, implement
programs designed to encourage refinancing through such Servicer, including
but not limited to general or targeted solicitations, or the offering of pre-
approved applications, reduced or nominal origination fees or closing costs,
or other financial incentives. A Servicer may also encourage refinancing of
defaulted Mortgage Loans, including Mortgage Loans that would permit
creditworthy borrowers to assume the outstanding indebtedness.
The Seller will be obligated, under certain circumstances, to repurchase
certain of the Mortgage Loans. In addition, if specified in the applicable
Prospectus Supplement, the Pooling and Servicing Agreement will permit, but
not require, the Seller, and the terms of certain insurance policies relating
to the Mortgage Loans may permit the applicable insurer, to purchase any
Mortgage Loan which is in default or as to which default is reasonably
foreseeable. The proceeds of any such purchase or repurchase will be deposited
in the related Certificate Account and such purchase or repurchase will have
the same effect as a prepayment in full of the related Mortgage Loan. See "The
Pooling and Servicing Agreement--Assignment of Mortgage Loans to the Trustee"
and "--Optional Purchases." In addition, if so specified in the applicable
Prospectus Supplement, the Seller or another person identified therein will
have the option to purchase all, but not less than all, of the Mortgage Loans
in any Trust Estate under the limited conditions specified in such Prospectus
Supplement. For any Series of Certificates for which an election has been made
to treat the Trust Estate (or one or more segregated pools of assets therein)
as a REMIC, any such purchase or repurchase may be effected only pursuant to a
"qualified liquidation," as defined in Code Section 860F(a)(4)(A). See "The
Pooling and Servicing Agreement--Termination; Optional Purchase of Mortgage
Loans."
SERVICING OF THE MORTGAGE LOANS
The following includes a summary of the material provisions of the form of
Pooling and Servicing Agreement that has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. Such summary
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all of the provisions of the Pooling and Servicing
Agreement for each Series of Certificates and the applicable Prospectus
Supplement.
THE MASTER SERVICER
In the event that NationsBanc Mortgage is not the Servicer with respect to
all the Mortgage Loans related to a Series, NationsBanc Mortgage or a third-
party master servicer will act as the Master Servicer with respect to such
Series of Certificates. See "NationsBanc Mortgage" above. The Master Servicer
generally will be responsible under each Pooling and Servicing Agreement for,
among other things, (i) administering and supervising the performance by the
Servicers of their duties and responsibilities under the Underlying Servicing
Agreements, (ii) oversight of payments received on Mortgage Loans, (iii)
preparation of periodic reports to the Trustee with respect to the foregoing
matters, (iv) performing certain of the servicing obligations of a terminated
Servicer as described below under "--The Servicers" and (v) making advances of
delinquent payments of principal and interest on the Mortgage Loans to the
limited extent described below under the heading "--Periodic Advances and
Limitations Thereon," if such amounts are not advanced by a Servicer. The
Master Servicer will also perform additional duties as described in the
applicable Pooling and Servicing Agreement. The Master Servicer will be
entitled to receive a portion of the interest payments on the Mortgage Loans
included in the Trust Estate for such a Series to cover its fees as Master
Servicer. The Master Servicer may subcontract with any other entity the
obligations of the Master Servicer under any Pooling and Servicing Agreement.
The Master Servicer will remain primarily liable for any such contractor's
performance in accordance with the applicable Pooling and Servicing Agreement.
The Master Servicer may be released from its obligations in certain
circumstances. See "Certain Matters Regarding the Master Servicer."
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Each Prospectus Supplement relating to such a Series of Certificates will
contain information concerning recent delinquency, foreclosure and loan loss
experience on the mortgage loans included in NationsBanc Mortgage's servicing
portfolio which were originated or acquired by NationsBanc Mortgage for its
own account ("PROGRAM LOANS"), and, if available, on those Program Loans
having payment terms generally similar to those of the Mortgage Loans in the
related Trust Estate. NationsBanc Mortgage's total servicing portfolio of
Program Loans as of any date may include loans having a variety of payment
characteristics, including adjustable-rate mortgage loans and loans subject to
subsidy agreements, and the overall delinquency, foreclosure and loan loss
experience of the Program Loans taken as a whole may differ from that of the
Mortgage Loans contained in any given Trust Estate and from that of mortgage
servicers generally.
THE SERVICERS
With respect to any Series as to which NationsBanc Mortgage is the Servicer
of all related Mortgage Loans, NationsBanc Mortgage will provide certain
customary servicing functions pursuant to the related Pooling and Servicing
Agreement. For each Series as to which NationsBanc Mortgage is not the sole
Servicer, as specified in the applicable Prospectus Supplement, one or more
Servicers (which may include NationsBanc Mortgage) will provide certain
customary servicing functions with respect to Mortgage Loans pursuant to
separate Underlying Servicing Agreements with the Seller or an affiliate
thereof. The rights of the Seller or such affiliate under the applicable
Underlying Servicing Agreements in respect of the Mortgage Loans included in
the Trust Estate for any such Series will be assigned (directly or indirectly)
to the Trustee for the benefit of Certificateholders of such Series. The
Servicers may be entitled to withhold their Servicing Fees and certain other
fees and charges from remittances of payments received on Mortgage Loans
serviced by them.
Each Servicer generally will be approved by FNMA or FHLMC as a servicer of
mortgage loans and must be approved by the Master Servicer. In determining
whether to approve a Servicer, the Master Servicer will review the credit of
the Servicer, including capitalization ratios, liquidity, profitability and
other similar items that indicate financial ability to perform its
obligations. In addition, the Master Servicer's mortgage servicing personnel
will review the Servicer's servicing record and evaluate the ability of the
Servicer to conform with required servicing procedures. Once a Servicer is
approved, the Master Servicer will continue to monitor on an annual basis the
financial position and servicing performance of the Servicer.
The duties to be performed by each Servicer include collection and
remittance of principal and interest payments on the Mortgage Loans,
administration of mortgage escrow accounts, collection of insurance claims,
foreclosure procedures, and, if necessary, the advance of funds to the extent
certain payments are not made by the mortgagor and have not been determined by
the Servicer to be not recoverable under the applicable insurance policies
with respect to such Series, from proceeds of liquidation of such Mortgage
Loans or otherwise. Each Servicer also will provide such accounting and
reporting services as are necessary to enable the Master Servicer to provide
required information to the Trustee with respect to the Mortgage Loans
included in the Trust Estate for such Series. Each Servicer is entitled to a
periodic Servicing Fee equal to a specified percentage of the outstanding
principal balance of each Mortgage Loan serviced by such Servicer. With the
consent of the Master Servicer, any of the servicing obligations of a Servicer
may be delegated to another person approved by the Master Servicer. In
addition, certain limited duties of a Servicer may be delegated without
consent.
The Trustee, or if so provided in the applicable Pooling and Servicing
Agreement, the Master Servicer, may terminate a Servicer who has failed to
comply with its covenants or breached one of its representations contained in
the Underlying Servicing Agreement or in certain other circumstances. Upon
termination of a Servicer by the Trustee or the Master Servicer, the Master
Servicer will assume certain servicing obligations of the terminated Servicer,
or, at its option, may appoint a substitute Servicer acceptable to the Trustee
to assume the servicing obligations of the terminated Servicer. The Master
Servicer's obligations to act as substitute Servicer following the termination
of an Underlying Servicing Agreement will not, however, require the Master
Servicer to purchase a Mortgage Loan from the Trust Estate due to a breach by
the terminated Servicer of a representation or warranty in respect of such
Mortgage Loan.
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PAYMENTS ON MORTGAGE LOANS
The Trustee for each Series will establish and maintain a separate trust
account in the name of the Trustee (the "CERTIFICATE ACCOUNT"). Each such
account must be maintained with a depository institution (the "DEPOSITORY")
either (i) whose long-term debt obligations (or, in the case of a Depository
which is part of a holding company structure, the long-term debt obligations
of such parent holding company) are, at the time of any deposit therein rated
in at least one of the two highest rating categories by the Rating Agency or
Rating Agencies rating the Certificates of such Series, or (ii) that is
otherwise acceptable to the Rating Agency or Rating Agencies rating the
Certificates of such Series and, if a REMIC election has been made, that would
not cause the related Trust Estate (or one or more segregated pools of assets
therein) to fail to qualify as a REMIC. To the extent that the portion of
funds deposited in the Certificate Account at any time exceeds the limit of
insurance coverage established by the Federal Deposit Insurance Corporation
(the "FDIC"), such excess will be subject to loss in the event of the failure
of the Depository. Such insurance coverage will be based on the number of
holders of Certificates, rather than the number of underlying mortgagors.
Holders of the Subordinated Certificates of a Series will bear any such loss
up to the amount of principal payments on the related Mortgage Loans to which
such holders are entitled.
Pursuant to the applicable Underlying Servicing Agreements, if any, with
respect to a Series, each Servicer will be required to establish and maintain
one or more accounts (collectively, the "SERVICER CUSTODIAL ACCOUNT") into
which the Servicer will be required to deposit on a daily basis amounts
received with respect to Mortgage Loans serviced by such Servicer included in
the Trust Estate for such Series, as more fully described below. To the extent
that NationsBanc Mortgage is the only Servicer with respect to a Series, it
will deposit such amounts on a daily basis into the a Servicer Custodial
Account maintained pursuant to the related Pooling and Servicing Agreement.
Each Servicer Custodial Account must be a separate custodial account insured
to the available limits by the FDIC or otherwise acceptable to the applicable
Rating Agencies (such acceptable account, an "ELIGIBLE CUSTODIAL ACCOUNT") and
limited to funds held with respect to a particular Series, unless the
Underlying Servicing Agreement specifies that a Servicer may establish an
account which is an eligible account to serve as a unitary Servicer Custodial
Account both for such Series and for other Series of Certificates for which
NationsBanc Mortgage is the Master Servicer and having the same financial
institution acting as Trustee and to be maintained in the name of such
financial institution, in its respective capacities as Trustee for each such
Series.
Each Servicer will be required to deposit in the Certificate Account for
each Series of Certificates on the date the Certificates are issued any
amounts representing scheduled payments of principal and interest on the
Mortgage Loans serviced by such Servicer due after the applicable Cut-Off Date
but received on or prior thereto. Each Servicer will be required, not later
than the 24th calendar day of each month or such earlier day as may be
specified in the Pooling and Servicing Agreement or the applicable Underlying
Servicing Agreement (the "REMITTANCE DATE"), to remit to the Master Servicer
for deposit in an Eligible Custodial Account maintained by the Master Servicer
in the name of the Trustee (the "MASTER SERVICER CUSTODIAL ACCOUNT") or, if
NationsBanc Mortgage is the sole Servicer, to remit to the Trustee for deposit
in the Certificate Account, the following payments and collections received or
made by such Servicer with respect to the Mortgage Loans serviced by such
Servicer subsequent to the applicable Cut-Off Date (other than (a) payments
due on or before the Cut-Off Date and (b) amounts held for future
distribution):
(i) all payments on account of principal, including prepayments, and
interest;
(ii) all amounts received by the Servicer in connection with the
liquidation of defaulted Mortgage Loans or property acquired in respect
thereof, whether through foreclosure sale or otherwise, including payments
in connection with defaulted Mortgage Loans received from the mortgagor
other than amounts required to be paid to the mortgagor pursuant to the
terms of the applicable Mortgage Loan or otherwise pursuant to law
("LIQUIDATION PROCEEDS") less, to the extent permitted under the applicable
Underlying Servicing Agreement, the amount of any expenses incurred in
connection with the liquidation of such Mortgage Loans;
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(iii) all proceeds received by the Servicer under any title, hazard or
other insurance policy covering any such Mortgage Loan, other than proceeds
to be applied to the restoration or repair of the property subject to the
related Mortgage or released to the mortgagor in accordance with the
Underlying Servicing Agreement;
(iv) all Periodic Advances made by the Servicer;
(v) all amounts withdrawn from Buy-Down Funds or Subsidy Funds, if any,
with respect to such Mortgage Loans, in accordance with the terms of the
respective agreements applicable thereto;
(vi) all proceeds of any such Mortgage Loans or property acquired in
respect thereof purchased or repurchased pursuant to the Pooling and
Servicing Agreement or the Underlying Servicing Agreement; and
(vii) all other amounts required to be deposited therein pursuant to the
applicable Pooling and Servicing Agreement or the Underlying Servicing
Agreement.
Notwithstanding the foregoing, if at any time the sums in (a) any Servicer
Custodial Account, other than any Eligible Custodial Account, exceed $100,000
or (b) any such Servicer Custodial Account, in certain circumstances, exceed
such amount less than $100,000 as shall have been specified by the Trustee,
each Servicer will be required within one business day to withdraw such excess
funds from such account and remit such amounts to the Master Servicer
Custodial Account or the Certificate Account.
Notwithstanding the foregoing, each Servicer will be entitled, at its
election, either (a) to withhold and pay itself the applicable Servicing Fee
from any payment or other recovery on account of interest as received and
prior to deposit in the Servicer Custodial Account or (b) to withdraw from the
Servicer Custodial Account the applicable Servicing Fee after the entire
payment or recovery has been deposited in such account.
The Master Servicer or Trustee will deposit in the Certificate Account any
Periodic Advances made by the Master Servicer or Trustee, as applicable, in
the event of a Servicer default not later than the Distribution Date on which
such amounts are required to be distributed. All other amounts deposited in
the Master Servicer Custodial Account (other than Master Servicing Fees and,
to the extent the Master Servicer is entitled thereto under the applicable
Pooling and Servicing Agreement, interest on amounts in the Master Servicer
Custodial Account) are required to be remitted by the Master Servicer to the
Trustee for deposit in the Certificate Account not later than the business day
preceding the applicable Distribution Date. On each Distribution Date, the
Trustee will withdraw from the Certificate Account and remit to
Certificateholders all amounts allocable to the Pool Distribution Amount for
such Distribution Date.
If a Servicer, the Master Servicer or the Trustee deposits in the
Certificate Account for a Series any amount not required to be deposited
therein, the Trustee may at any time withdraw such amount from such account
for itself or for remittance to such Servicer or the Master Servicer, as
applicable. Funds on deposit in the Certificate Account may be invested in
certain investments acceptable to the Rating Agencies ("ELIGIBLE INVESTMENTS")
maturing in general not later than the business day preceding the next
Distribution Date. In the event that an election has been made to treat the
Trust Estate (or one or more segregated pools of assets therein) with respect
to a Series as a REMIC, no such Eligible Investments will be sold or disposed
of at a gain prior to maturity unless the Trustee has received an opinion of
counsel or other evidence satisfactory to it that such sale or disposition
will not cause the Trust Estate (or segregated pool of assets) to be subject
to the tax on "prohibited transactions" imposed by Code Section 860F(a)(1),
otherwise subject the Trust Estate (or segregated pool of assets) to tax, or
cause the Trust Estate (or any segregated pool of assets) to fail to qualify
as a REMIC while any Certificates of the Series are outstanding. Except as
otherwise specified in the applicable Prospectus Supplement, all income and
gain realized from any such investment will be for the account of the Trustee
as additional compensation and all losses from any such investment will be
deposited by the Trustee out of its own funds to the Certificate Account
immediately as realized.
The Trustee is permitted, from time to time, to make withdrawals from the
Certificate Account for the following purposes, to the extent permitted in the
applicable Pooling and Servicing Agreement (and, in the case
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of Servicer or Master Servicer reimbursements by the Trustee, only to the
extent funds in the respective Servicer Custodial Account or Master Servicer
Custodial Account are not sufficient therefor):
(i) to reimburse the Master Servicer, itself or any Servicer for
Advances;
(ii) to reimburse any Servicer for liquidation expenses and for amounts
expended by the Master Servicer or any Servicer, as applicable, in
connection with the restoration of damaged property;
(iii) to pay to the Master Servicer the applicable Master Servicing Fee
and any other amounts constituting additional master servicing
compensation, to pay itself the applicable Trustee Fee, to pay any other
fees described in the applicable Prospectus Supplement; and to pay to the
owner thereof any Fixed Retained Yield;
(iv) to reimburse the Master Servicer or any Servicer for certain
expenses (including taxes paid on behalf of the Trust Estate) incurred by
and recoverable by or reimbursable to the Master Servicer or the Servicer,
as applicable;
(v) to pay to the Seller, a Servicer or the Master Servicer with respect
to each Mortgage Loan or property acquired in respect thereof that has been
repurchased by the Seller or purchased by a Servicer or the Master Servicer
all amounts received thereon and not distributed as of the date as of which
the purchase price of such Mortgage Loan was determined;
(vi) to pay to itself any interest earned on or investment income earned
with respect to funds in the Certificate Account (all such interest or
income to be withdrawn not later than the next Distribution Date);
(vii) to pay to the Master Servicer, the Servicer and itself from net
Liquidation Proceeds allocable to interest, the amount of any unpaid Master
Servicing Fee, Servicing Fees or Trustee Fees and any unpaid assumption
fees, late payment charges or other mortgagor charges on the related
Mortgage Loan;
(viii) to withdraw from the Certificate Account any amount deposited in
such account that was not required to be deposited therein; and
(ix) to clear and terminate the Certificate Account.
The Trustee will be authorized to appoint a paying agent (the "PAYING
AGENT") to make distributions, as agent for the Trustee, to Certificateholders
of a Series. If the Paying Agent for a Series is not the Trustee for such
Series, the Trustee will, on each Distribution Date, deposit in immediately
available funds in an account designated by any such Paying Agent the amount
required to be distributed to the Certificateholders on such Distribution
Date.
The Trustee will cause any Paying Agent to execute and deliver to the
Trustee an instrument in which such Paying Agent agrees with the Trustee that
such Paying Agent will hold all amounts deposited with it by the Trustee for
distribution to Certificateholders in trust for the benefit of
Certificateholders until such amounts are distributed to Certificateholders or
otherwise disposed of as provided in the applicable Pooling and Servicing
Agreement.
PERIODIC ADVANCES AND LIMITATIONS THEREON
Generally each Servicer will be required to make (i) Periodic Advances to
cover delinquent payments of principal and interest on such Mortgage Loan and
(ii) other advances of cash ("OTHER ADVANCES" and, collectively with Periodic
Advances, "ADVANCES") to cover (a) delinquent payments of taxes, insurance
premiums, and other escrowed items and (b) rehabilitation expenses and
foreclosure costs, including reasonable attorneys' fees, in either case unless
such Servicer has determined that any subsequent payments on that Mortgage
Loan or from the borrower will ultimately not be available to reimburse such
Servicer for such amounts. The failure of the Servicer to make any required
Periodic Advances or Other Advances under an Underlying Servicing Agreement
constitutes a default under such agreement for which the Servicer will be
terminated. Upon default by a Servicer other than NationsBanc Mortgage, the
Master Servicer may, and upon default by NationsBanc Mortgage the Trustee may,
in each case if so provided in the Pooling and Servicing Agreement, be
required to make Periodic Advances to the extent necessary to make required
distributions on
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certain Certificates or certain Other Advances, provided that the Master
Servicer or Trustee, as applicable, determines that funds will ultimately be
available to reimburse it from proceeds of the related Mortgaged Property. In
the case of Certificates of any Series for which credit enhancement is
provided in the form of a mortgage pool insurance policy, the Seller may
obtain an endorsement to the mortgage pool insurance policy which obligates
the pool insurer to advance delinquent payments of principal and interest. The
pool insurer would only be obligated under such endorsement to the extent the
mortgagor fails to make such payment and the Master Servicer or Trustee fails
to make a required advance.
The advance obligation of the Master Servicer and Trustee may be further
limited to an amount specified by the Rating Agency rating the Certificates.
Any such Periodic Advances by the Servicers, the Master Servicer or Trustee,
as the case may be, must be deposited into the applicable Servicer Custodial
Account or the Certificate Account and will be due no later than the business
day before the Distribution Date to which such delinquent payment relates.
Advances by the Servicers, the Master Servicer or Trustee, as the case may be,
will be reimbursable out of insurance proceeds or Liquidation Proceeds of, or,
except for Other Advances, future payments on, the Mortgage Loans for which
such amounts were advanced. If an Advance made by a Servicer, the Master
Servicer or the Trustee later proves, or is deemed by the Master Servicer or
the Trustee, to be unrecoverable, such Servicer, the Master Servicer or the
Trustee, as the case may be, will be entitled to reimbursement from funds in
the Certificate Account prior to the distribution of payments to the
Certificateholders to the extent provided in the Pooling and Servicing
Agreement.
Any Periodic Advances made by a Servicer, the Master Servicer or the Trustee
with respect to Mortgage Loans included in the Trust Estate for any Series are
intended to enable the Trustee to make timely payment of the scheduled
distributions of principal and interest on the Certificates of such Series.
However, none of the Master Servicer, the Trustee, any Servicer or any other
person will, except as otherwise specified in the applicable Prospectus
Supplement, insure or guarantee the Certificates of any Series or the Mortgage
Loans included in the Trust Estate for any Certificates.
COLLECTION AND OTHER SERVICING PROCEDURES
Each Servicer will be required by the related Underlying Servicing Agreement
to make reasonable efforts to collect all payments called for under the
Mortgage Loans and, consistent with the applicable Underlying Servicing
Agreement or the Pooling and Servicing Agreement and any applicable agreement
governing any form of credit enhancement, to follow such collection procedures
as it follows with respect to mortgage loans serviced by it that are
comparable to the Mortgage Loans. Consistent with the above, the Servicer may,
in its discretion, (i) waive any prepayment charge, assumption fee, late
payment charge or any other charge in connection with the prepayment of a
Mortgage Loan and (ii) arrange with a mortgagor a schedule for the liquidation
of deficiencies running for not more than 180 days (or such longer period to
which the Master Servicer and any applicable pool insurer or primary mortgage
insurer have consented) after the applicable Due Date.
Under each Underlying Servicing Agreement or the Pooling and Servicing
Agreement, each Servicer, to the extent permitted by law, will establish and
maintain one or more escrow accounts (each such account, a "ESCROW ACCOUNT")
in which each such Servicer will be required to deposit any payments made by
mortgagors in advance for taxes, assessments, primary mortgage (if applicable)
and hazard insurance premiums and other similar items. Withdrawals from the
Escrow Account may be made to effect timely payment of taxes, assessments,
mortgage and hazard insurance, to refund to mortgagors amounts determined to
be overages, to pay interest to mortgagors on balances in the Escrow Account,
if required, and to clear and terminate such account. Each Servicer will be
responsible for the administration of its Escrow Account. A Servicer will be
obligated to advance certain amounts which are not timely paid by the
mortgagors, to the extent that it determines, in good faith, that they will be
recoverable out of insurance proceeds, liquidation proceeds, or otherwise.
Alternatively, in lieu of establishing a Escrow Account, a Servicer may
procure a performance bond or other form of insurance coverage, in an amount
acceptable to the Master Servicer and each Rating Agency rating the related
Series of Certificates, covering loss occasioned by the failure to escrow such
amounts.
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ENFORCEMENT OF DUE-ON-SALE CLAUSES; REALIZATION UPON DEFAULTED MORTGAGE LOANS
With respect to each Mortgage Loan having a fixed interest rate, the
applicable Underlying Servicing Agreement or Pooling and Servicing Agreement
will generally provide that, when any Mortgaged Property is about to be
conveyed by the mortgagor, the Servicer will, to the extent it has knowledge
of such prospective conveyance, exercise its rights to accelerate the maturity
of such Mortgage Loan under the "due-on-sale" clause applicable thereto, if
any, unless it is not exercisable under applicable law or if such exercise
would result in loss of insurance coverage with respect to such Mortgage Loan
or would, in the Servicer's judgment, be reasonably likely to result in
litigation by the mortgagor and such Servicer, if applicable, has not obtained
the Master Servicer's consent to such exercise. In either case, the Servicer
is authorized to take or enter into an assumption and modification agreement
from or with the person to whom such Mortgaged Property has been or is about
to be conveyed, pursuant to which such person becomes liable under the
Mortgage Note and, unless prohibited by applicable state law, the mortgagor
remains liable thereon, provided that the Mortgage Loan will continue to be
covered by any pool insurance policy and any related primary mortgage
insurance policy and the Mortgage Interest Rate with respect to such Mortgage
Loan and the payment terms shall remain unchanged. The Servicer will also be
authorized, with the prior approval of the pool insurer and the primary
mortgage insurer, if any, to enter into a substitution of liability agreement
with such person, pursuant to which the original mortgagor is released from
liability and such person is substituted as mortgagor and becomes liable under
the Mortgage Note.
Each Underlying Servicing Agreement and Pooling and Servicing Agreement with
respect to a Series will require the Servicer or the Master Servicer, as the
case may be, to present claims to the insurer under any insurance policy
applicable to the Mortgage Loans included in the Trust Estate for such Series
and to take such reasonable steps as are necessary to permit recovery under
such insurance policies with respect to defaulted Mortgage Loans, or losses on
the Mortgaged Property securing the Mortgage Loans.
Each Servicer is obligated to realize upon defaulted Mortgage Loans in
accordance with its normal servicing practices, which will conform generally
to those of prudent mortgage lending institutions which service mortgage loans
of the same type in the same jurisdictions. Notwithstanding the foregoing,
each Servicer is authorized to permit the assumption of a defaulted Mortgage
Loan rather than to foreclose or accept a deed-in-lieu of foreclosure if, in
the Servicer's judgment, the default is unlikely to be cured and the assuming
borrower meets NationsBanc Mortgage's applicable underwriting guidelines. In
connection with any such assumption, the Mortgage Interest Rate and the
payment terms of the related Mortgage Note will not be changed. Each Servicer
may also, with the consent of the Master Servicer, modify the payment terms of
Mortgage Loans that are in default, or as to which default is reasonably
foreseeable, that remain in the Trust Estate rather than foreclose on such
Mortgage Loans; provided that no such modification shall forgive principal
owing under such Mortgage Loan or permanently reduce the interest rate on such
Mortgage Loan. Any such modification will be made only upon the determination
by the Servicer and, if applicable, the Master Servicer that such modification
is likely to increase the proceeds of such Mortgage Loan over the amount
expected to be collected pursuant to foreclosure. See also "The Pooling and
Servicing Agreement--Optional Purchases," with respect to the Seller's right
to repurchase Mortgage Loans that are in default, or as to which default is
reasonably foreseeable. Further, a Servicer may encourage the refinancing of
such defaulted Mortgage Loans, including Mortgage Loans that would permit
creditworthy borrowers to assume the outstanding indebtedness.
In the case of foreclosure or of damage to a Mortgaged Property from an
uninsured cause, the Servicer will not be required to expend its own funds to
foreclose or restore any damaged property, unless it reasonably determines (i)
that such foreclosure or restoration will increase the proceeds to
Certificateholders of such Series of liquidation of the Mortgage Loan after
reimbursement to the related Servicer for its expenses and (ii) that such
expenses will be recoverable to it through Liquidation Proceeds or any
applicable insurance policy in respect of such Mortgage Loan. In the event
that Servicer has expended its own funds for foreclosure or to restore damaged
property, it will be entitled to be reimbursed from the Certificate Account
for such Series an amount equal to all costs and expenses incurred by it.
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NationsBanc Mortgage will not be obligated to, and any other Servicer will
not (except with the express written approval of the Master Servicer),
foreclose on any Mortgaged Property which it believes may be contaminated with
or affected by hazardous wastes or hazardous substances. See "Certain Legal
Aspects of the Mortgage Loans--Environmental Considerations." If a Servicer
does not foreclose on a Mortgaged Property, the Certificateholders of the
related Series may experience a loss on the related Mortgage Loan. A Servicer
will not be liable to the Certificateholders if it fails to foreclose on a
Mortgaged Property which it believes may be so contaminated or affected, even
if such Mortgaged Property is, in fact, not so contaminated or affected.
Conversely, a Servicer will not be liable to the Certificateholders if, based
on its belief that no such contamination or effect exists, the Servicer
forecloses on a Mortgaged Property and takes title to such Mortgaged Property,
and thereafter such Mortgaged Property is determined to be so contaminated or
affected.
The Servicer may foreclose against property securing a defaulted Mortgage
Loan either by foreclosure, by sale or by strict foreclosure and in the event
a deficiency judgment is available against the mortgagor or other person (see
"Certain Legal Aspects of the Mortgage Loans--Anti-Deficiency Legislation and
Other Limitations on Lenders" for a discussion of the availability of
deficiency judgments), may proceed for the deficiency. It is anticipated that
in most cases the Servicer will not seek deficiency judgments, and will not be
required under the applicable Underlying Servicing Agreement to seek
deficiency judgments. In lieu of foreclosure, each Servicer may arrange for
the sale by the borrower of the Mortgaged Property related to a defaulted
Mortgage Loan to a third party, rather than foreclosing upon and selling such
Mortgaged Property.
With respect to a Trust Estate (or any segregated pool of assets therein) as
to which a REMIC election has been made, if the Trustee acquires ownership of
any Mortgaged Property as a result of a default or reasonably foreseeable
default of any Mortgage Loan secured by such Mortgaged Property, the Trustee
or Master Servicer will be required to dispose of such property prior to the
close of the third calendar year following the year the Trust Estate acquired
such property (or such shorter period as is provided in the applicable
Underlying Servicing Agreement) unless the Trustee (a) receives an opinion of
counsel to the effect that the holding of the Mortgaged Property by the Trust
Estate will not cause the Trust Estate to be subject to the tax on "prohibited
transactions" imposed by Code Section 860F(a)(1) or cause the Trust Estate (or
any segregated pool of assets therein as to which one or more REMIC elections
have been made or will be made) to fail to qualify as a REMIC or (b) applies
for and is granted an extension of the applicable period in the manner
contemplated by Code Section 856(e)(3). The Servicer also will be required to
administer the Mortgaged Property in a manner which does not cause the
Mortgaged Property to fail to qualify as "foreclosure property" within the
meaning of Code Section 860G(a)(8) or result in the receipt by the Trust
Estate of any "net income from foreclosure property" within the meaning of
Code Section 860G(c)(2), respectively. In general, this would preclude the
holding of the Mortgaged Property by a party acting as a dealer in such
property or the receipt of rental income based on the profits of the lessee of
such property. See "Certain Federal Income Tax Consequences."
INSURANCE POLICIES
Each Servicer will be required to cause to be maintained for each Mortgage
Loan a standard hazard insurance policy issued by a generally acceptable
insurer insuring the improvements on the Mortgaged Property underlying such
Mortgage Loan against loss by fire, with extended coverage (a "STANDARD HAZARD
INSURANCE POLICY"). Such Standard Hazard Insurance Policy will be required to
be in an amount at least equal to the lesser of 100% of the insurable value of
the improvements on the Mortgaged Property or the principal balance of such
Mortgage Loan; provided, however, that such insurance may not be less than the
minimum amount required to fully compensate for any damage or loss on a
replacement cost basis. Each Servicer will also maintain on property acquired
upon foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan, a
Standard Hazard Insurance Policy in an amount that is at least equal to the
lesser of 100% of the insurable value of the improvements which are a part of
such property or the principal balance of such Mortgage Loan plus accrued
interest and liquidation expenses; provided, however, that such insurance may
not be less than the minimum amount required to fully compensate for any
damage or loss on a replacement cost basis. Any amounts collected under any
such policies (other than amounts to be applied to the restoration or repair
of the Mortgaged Property or released to the borrower in accordance with
normal servicing procedures) will be deposited in the Servicer Custodial
Account for remittance to the Certificate Account by the applicable Servicer.
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The Standard Hazard Insurance Policies covering the Mortgage Loans generally
will cover physical damage to, or destruction of, the improvements on the
Mortgaged Property caused by fire, lightning, explosion, smoke, windstorm,
hail, riot, strike and civil commotion, subject to the conditions and
exclusions particularized in each policy. Because the Standard Hazard
Insurance Policies relating to such Mortgage Loans will be underwritten by
different insurers and will cover Mortgaged Properties located in various
states, such policies will not contain identical terms and conditions. The
most significant terms thereof, however, generally will be determined by state
law and generally will be similar. Most such policies typically will not cover
any physical damage resulting from the following: war, revolution,
governmental actions, floods and other water-related causes, earth movement
(including earthquakes, landslides and mudflows), nuclear reaction, wet or dry
rot, vermin, rodents, insects or domestic animals, hazardous wastes or
hazardous substances, theft and, in certain cases, vandalism. The foregoing
list is merely indicative of certain kinds of uninsured risks and is not all-
inclusive.
In general, if the improvements on a Mortgaged Property are located in an
area identified in the Federal Register by the Federal Emergency Management
Agency as having special flood hazards (and such flood insurance has been made
available) each Underlying Servicing Agreement will require the related
Servicer to cause to be maintained a flood insurance policy meeting the
requirements of the current guidelines of the Federal Insurance Administration
with a generally acceptable insurance carrier. Generally, the Underlying
Servicing Agreement will require that such flood insurance be in an amount not
less than the least of (i) the outstanding principal balance of the Mortgage
Loan, (ii) the full insurable value of the improvements, or (iii) the maximum
amount of insurance which is available under the National Flood Insurance Act
of 1968, as amended. NationsBanc Mortgage does not provide financing for flood
zone properties located in communities not participating in the National Flood
Insurance Program or if available insurance coverage is, in its judgment,
unrealistically low.
Each Servicer may maintain a blanket policy insuring against hazard losses
on all of the Mortgaged Properties in lieu of maintaining the required
Standard Hazard Insurance Policies and may maintain a blanket policy insuring
against special hazards in lieu of maintaining any required flood insurance.
Each Servicer will be liable for the amount of any deductible under a blanket
policy if such amount would have been covered by a required Standard Hazard
Insurance Policy or flood insurance, had it been maintained.
Any losses incurred with respect to Mortgage Loans due to uninsured risks
(including earthquakes, mudflows, floods and hazardous wastes or hazardous
substances) or insufficient hazard insurance proceeds will adversely affect
distributions to the Certificateholders.
FIXED RETAINED YIELD, SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Fixed Retained Yield with respect to any Mortgage Loan is that portion, if
any, of interest at the Mortgage Interest Rate that is not included in the
related Trust Estate. The Prospectus Supplement for a Series will specify
whether there is any Fixed Retained Yield with respect to the Mortgage Loans
of such Series. If so, the Fixed Retained Yield will be established on a loan-
by-loan basis and will be specified in the schedule of Mortgage Loans attached
as an exhibit to the applicable Pooling and Servicing Agreement. NationsBanc
Mortgage, as Servicer, may deduct the Fixed Retained Yield from mortgagor
payments as received or deposit such payments in the Servicer Custodial
Account or Certificate Account for such Series and then either withdraw the
Fixed Retained Yield from the Servicer Custodial Account or Certificate
Account or request the Master Servicer or the Trustee to withdraw the Fixed
Retained Yield from the Master Servicer Custodial Account or the Certificate
Account for remittance to NationsBanc Mortgage. In the case of any Fixed
Retained Yield with respect to Mortgage Loans serviced by a Servicer other
than NationsBanc Mortgage, the Master Servicer or the Trustee will make
withdrawals from the Master Servicer Custodial Account or the Certificate
Account for the purpose of remittances to NationsBanc Mortgage as owner of the
Fixed Retained Yield. Notwithstanding the foregoing, with respect to any
payment of interest received by NationsBanc Mortgage, as Servicer, relating to
a Mortgage Loan (whether paid by the mortgagor or received as Liquidation
Proceeds, insurance proceeds or otherwise) which is less than the full amount
of interest then due with respect to such Mortgage Loan, the owner of the
Fixed Retained Yield with respect to such Mortgage Loan will bear a ratable
share of such interest shortfall.
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For each Series of Certificates, each Servicer will be entitled to be paid
the Servicing Fee on the related Mortgage Loans serviced by such Servicer
until termination of the applicable Underlying Servicing Agreement, or if
NationsBanc Mortgage is the sole Servicer, the Pooling and Servicing
Agreement. A Servicer, at its election, will pay itself the Servicing Fee for
a Series with respect to each Mortgage Loan by (a) withholding the Servicing
Fee from any scheduled payment of interest prior to deposit of such payment in
the Servicer Custodial Account for such Series or (b) withdrawing the
Servicing Fee from the Servicer Custodial Account after the entire interest
payment has been deposited in such account. A Servicer may also pay itself out
of the Liquidation Proceeds of a Mortgage Loan or other recoveries with
respect thereto, or withdraw from the Servicer Custodial Account or request
the Master Servicer or the Trustee to withdraw from the Master Servicer
Custodial Account or the Certificate Account for remittance to the Servicer
such amounts after the deposit thereof in such accounts, or if such
Liquidation Proceeds or other recoveries are insufficient, from Net
Foreclosure Profits with respect to the related Distribution Date the
Servicing Fee in respect of such Mortgage Loan to the extent provided in the
applicable Pooling and Servicing Agreement. The Servicing Fee or the range of
Servicing Fees with respect to the Mortgage Loans underlying the Certificates
of a Series will be specified in the applicable Prospectus Supplement.
Additional servicing compensation in the form of prepayment charges,
assumption fees, late payment charges or otherwise will be retained by the
Servicers.
Each Servicer will pay all expenses incurred in connection with the
servicing of the Mortgage Loans serviced by such Servicer underlying a Series,
including, without limitation, payment of the Standard Hazard Insurance Policy
premiums. The Servicer will be entitled, in certain circumstances, to
reimbursement from the Certificate Account of Periodic Advances, of Other
Advances made by it to pay taxes, insurance premiums and similar items with
respect to any Mortgaged Property or for expenditures incurred by it in
connection with the restoration, foreclosure or liquidation of any Mortgaged
Property (to the extent of Liquidation Proceeds or insurance policy proceeds
in respect of such Mortgaged Property) and of certain losses against which it
is indemnified by the Trust Estate.
As set forth in the preceding paragraph, a Servicer may be entitled to
reimbursement for certain expenses incurred by it, and payment of additional
fees for certain extraordinary services rendered by it (provided that such
fees do not exceed those which would be charged by third parties for similar
services) in connection with the liquidation of defaulted Mortgage Loans and
related Mortgaged Properties. In the event that claims are either not made or
are not fully paid from any applicable form of credit enhancement, the related
Trust Estate will suffer a loss to the extent that Liquidation Proceeds, after
reimbursement of the Servicing Fee and the expenses of the Servicer, are less
than the principal balance of the related Mortgage Loan.
EVIDENCE AS TO COMPLIANCE
Each Servicer will deliver annually to the Trustee or Master Servicer, as
applicable, on or before the date specified in the applicable Pooling and
Servicing Agreement or Underlying Servicing Agreement, an Officer's
Certificate stating that (i) a review of the activities of such Servicer
during the preceding calendar year and of performance under the applicable
Pooling and Servicing Agreement or Underlying Servicing Agreement has been
made under the supervision of such officer, and (ii) to the best of such
officer's knowledge, based on such review, such Servicer has fulfilled all its
obligations under the applicable Pooling and Servicing Agreement or Underlying
Servicing Agreement throughout such year, or, if there has been a default in
the fulfillment of any such obligation, specifying each such default known to
such officer and the nature and status thereof. Such Officer's Certificate
shall be accompanied by a statement of a firm of independent public
accountants to the effect that, on the basis of an examination of certain
documents and records relating to a random sample of the mortgage loans being
serviced by such Servicer pursuant to such Pooling and Servicing Agreement or
Underlying Servicing Agreement and/or other similar agreements, conducted
substantially in compliance with the Uniform Single Audit Program for Mortgage
Bankers, the servicing of such mortgage loans was conducted in compliance with
the provisions of the applicable Underlying Servicing Agreement and other
similar agreements, except for (i) such exceptions as such firm believes to be
immaterial and (ii) such other exceptions as are set forth in such statement.
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The Master Servicer will deliver annually to the Trustee, on or before the
date specified in the applicable Pooling and Servicing Agreement, an Officer's
Certificate stating that such officer has received, with respect to each
Servicer, the Officer's Certificate and accountant's statement described in
the preceding paragraph, and, that on the basis of such officer's review of
such information, each Servicer has fulfilled all its obligations under the
applicable Underlying Servicing Agreement throughout such year, or, if there
has been a default in the fulfillment of any such obligation, specifying each
such default known to such officer and the nature and status thereof.
CERTAIN MATTERS REGARDING THE MASTER SERVICER
In the event that NationsBanc Mortgage is not the Servicer with respect to
all the Mortgage Loans related to a Series, NationsBanc Mortgage will act as
the Master Servicer with respect to such Series of Certificates. The Master
Servicer may not resign from its obligations and duties under the Pooling and
Servicing Agreement for each Series without the consent of the Trustee, except
upon its determination that its duties thereunder are no longer permissible
under applicable law or are in material conflict by reason of applicable law
with any other activities of a type and nature carried on by it. No such
resignation will become effective until the Trustee for such Series or a
successor master servicer has assumed the Master Servicer's obligations and
duties under the Pooling and Servicing Agreement. If the Master Servicer
resigns for any of the foregoing reasons and the Trustee is unable or
unwilling to assume responsibility for its duties under the Pooling and
Servicing Agreement, it may appoint another institution to so act as described
under "The Pooling and Servicing Agreement--Rights Upon Event of Default"
below.
The Pooling and Servicing Agreement will also provide that neither the
Master Servicer nor any subcontractor, nor any partner, director, officer,
employee or agent of any of them, will be under any liability to the Trust
Estate or the Certificateholders, for the taking of any action or for
refraining from the taking of any action in good faith pursuant to the Pooling
and Servicing Agreement, or for errors in judgment; provided, however, that
neither the Master Servicer, any subcontractor, nor any such person will be
protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence in the performance of his
or its duties or by reason of reckless disregard of his or its obligations and
duties thereunder. The Pooling and Servicing Agreement will further provide
that the Master Servicer, any subcontractor, and any partner, director,
officer, employee or agent of either of them shall be entitled to
indemnification by the Trust Estate and will be held harmless against any
loss, liability or expense incurred in connection with any legal action
relating to the Pooling and Servicing Agreement or the Certificates, other
than any loss, liability or expense incurred by reason of willful misfeasance,
bad faith or gross negligence in the performance of its duties thereunder or
by reason of reckless disregard of its obligations and duties thereunder. In
addition, the Pooling and Servicing Agreement will provide that the Master
Servicer will not be under any obligation to appear in, prosecute or defend
any legal action that is not incidental to its duties under the Pooling and
Servicing Agreement and that in its opinion may involve it in any expense or
liability. The Master Servicer may, however, in its discretion, undertake any
such action deemed by it necessary or desirable with respect to the Pooling
and Servicing Agreement and the rights and duties of the parties thereto and
the interests of the Certificateholders thereunder. In such event, the legal
expenses and costs of such action and any liability resulting therefrom will
be expenses, costs and liabilities of the Trust Estate and the Master Servicer
will be entitled to be reimbursed therefor out of the Certificate Account, and
any loss to the Trust Estate arising from such right of reimbursement will be
allocated first to the Subordinated Certificate of a Series before being
allocated to the related Senior Certificates, or if such Series does not
contain Subordinated Certificates, pro rata among the various Classes of
Certificates unless otherwise specified in the applicable Pooling and
Servicing Agreement.
Any person into which the Master Servicer may be merged or consolidated, or
any person resulting from any merger, conversion or consolidation to which the
Master Servicer is a party, or any person succeeding to the business through
the transfer of substantially all of its assets or all assets relating to such
business, or otherwise, of the Master Servicer will be the successor of the
Master Servicer under the Pooling and Servicing Agreement for each Series
provided that such successor or resulting entity has a net worth of not less
than $15,000,000 and is qualified to service mortgage loans for FNMA or FHLMC.
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The Master Servicer also has the right to assign its rights and delegate its
duties and obligations under the Pooling and Servicing Agreement for each
Series; provided that, if the Master Servicer desires to be released from its
obligations under the Pooling and Servicing Agreement, (i) the purchaser or
transferee accepting such assignment or delegation is qualified to service
mortgage loans for FNMA or FHLMC, (ii) the purchaser is satisfactory to the
Trustee for such Series, in the reasonable exercise of its judgment, and
executes and delivers to the Trustee an agreement, in form and substance
reasonably satisfactory to the Trustee, which contains an assumption by such
purchaser or transferee of the due and punctual performance and observance of
each covenant and condition to be performed or observed by the Master Servicer
under the Pooling and Servicing Agreement from and after the date of such
agreement; and (iii) each applicable Rating Agency's rating of any
Certificates for such Series in effect immediately prior to such assignment,
sale or transfer would not be qualified, downgraded or withdrawn as a result
of such assignment, sale or transfer and the Certificates would not be placed
on credit review status by any such Rating Agency. The Master Servicer will be
released from its obligations under the Pooling and Servicing Agreement upon
any such assignment and delegation, except that the Master Servicer will
remain liable for all liabilities and obligations incurred by it prior to the
time that the conditions contained in clauses (i), (ii) and (iii) above are
met.
THE POOLING AND SERVICING AGREEMENT
ASSIGNMENT OF MORTGAGE LOANS TO THE TRUSTEE
The Seller will have acquired the Mortgage Loans included in each Trust
Estate from NationsBanc Mortgage or another affiliate of the Seller pursuant
to an agreement (the "SALE AGREEMENT"). In connection with the conveyance of
the Mortgage Loans to the Seller, NationsBanc Mortgage or such other affiliate
will (i) agree to deliver to the Seller all of the documents which the Seller
is required to deliver to the Trustee; (ii) make certain representations and
warranties to the Seller which will be the basis of certain of the Seller's
representations and warranties to the Trustee or assign the representations
and warranties made by a Correspondent; and (iii) agree to repurchase or
substitute (or assign rights to a comparable agreement of a Correspondent) for
any Mortgage Loan for which any document is not delivered or is found to be
defective in any material respect, or which Mortgage Loan is discovered at any
time not to be in conformance with the representations and warranties
NationsBanc Mortgage or such other affiliate has made to the Seller and the
breach of such representations and warranties materially and adversely affects
the interests of the Certificateholders in the related Mortgage Loan, if
NationsBanc Mortgage or such other affiliate cannot deliver such document or
cure such defect or breach within 60 days after notice thereof. Such agreement
will inure to the benefit of the Trustee and is intended to help ensure the
Seller's performance of its limited obligation to repurchase or substitute for
Mortgage Loans. See "The Mortgage Loan Programs--Representations and
Warranties" above.
At the time of issuance of each Series of Certificates, the Mortgage Loans
in the related Trust Estate will, pursuant to the applicable Pooling and
Servicing Agreement, be assigned to the Trustee for the benefit of the
Certificateholders, together with all principal and interest received on or
with respect to such Mortgage Loans after the applicable Cut-Off Date other
than principal and interest due and payable on or before such Cut-Off Date and
interest attributable to the Fixed Retained Yield on such Mortgage Loans, if
any. See "Servicing of the Mortgage Loans--Fixed Retained Yield, Servicing
Compensation and Payment of Expenses." The Trustee or its agent will,
concurrently with such assignment, authenticate and deliver the Certificates
evidencing such Series to the Seller in exchange for the Mortgage Loans. Each
Mortgage Loan will be identified in a schedule appearing as an exhibit to the
applicable Pooling and Servicing Agreement. Each such schedule will include,
among other things, the unpaid principal balance as of the close of business
on the applicable Cut-Off Date, the maturity date and the Mortgage Interest
Rate for each Mortgage Loan in the related Trust Estate.
In addition, with respect to each Mortgage Loan in a Trust Estate, the
mortgage or other promissory note, any assumption, modification or conversion
to fixed interest rate agreement, a mortgage assignment in recordable form and
the recorded Mortgage (or other documents as are required under applicable law
to create perfected security interest in the Mortgaged Property in favor of
the Trustee) will be delivered to the Trustee or, if indicated
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in the applicable Prospectus Supplement, to a custodian; provided that, in
instances where recorded documents cannot be delivered due to delays in
connection with recording, copies thereof, certified by the Seller to be true
and complete copies of such documents sent for recording, may be delivered and
the original recorded documents will be delivered promptly upon receipt. The
assignment of each Mortgage will be recorded promptly after the initial
issuance of Certificates for the related Trust Estate, except in states where,
in the opinion of counsel acceptable to the Trustee, such 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
Seller, NationsBanc Mortgage or another affiliate that sold the Mortgage Loan
to the Seller, or the originator of such Mortgage Loan. Notwithstanding the
foregoing, with respect to any Mortgage which has been recorded in the name of
Mortgage Electronic Registration Systems, Inc. ("MERS") or its designee, no
mortgage assignment in favor of the Trustee will be required to be prepared or
delivered. Instead, the Trustee and the applicable Servicers will be required
to take all actions as are necessary to cause the applicable Trust Estate to
be shown as the owner of the related Mortgage Loan on the records of MERS for
purposes of the system of recording transfers of beneficial ownership of
mortgages maintained by MERS.
The Trustee or custodian will hold such documents in trust for the benefit
of Certificateholders of the related Series and will review such documents
within 180 days of the date of the applicable Pooling and Servicing Agreement.
If any document is not delivered or is found to be defective in any material
respect, or if the Seller is in breach of any of its representations and
warranties, and such breach materially and adversely affects the interests of
the Certificateholders in a Mortgage Loan, and the Seller cannot deliver such
document or cure such defect or breach within 60 days after written notice
thereof, the Seller will, within 60 days of such notice, either repurchase the
related Mortgage Loan from the Trustee at a price equal to the then unpaid
principal balance thereof, plus accrued and unpaid interest at the applicable
Mortgage Interest Rate (minus any Fixed Retained Yield) through the last day
of the month in which such repurchase takes place, or (in the case of a Series
for which one or more REMIC elections have been or will be made, unless the
maximum period as may be provided by the Code or applicable regulations of the
Department of the Treasury ("TREASURY REGULATIONS") shall have elapsed since
the execution of the applicable Pooling and Servicing Agreement) substitute
for such Mortgage Loan a new mortgage loan having characteristics such that
the representations and warranties of the Seller made pursuant to the
applicable Pooling and Servicing Agreement (except for representations and
warranties as to the correctness of the applicable schedule of mortgage loans)
would not have been incorrect had such substitute Mortgage Loan originally
been a Mortgage Loan. In the case of a repurchased Mortgage Loan, the purchase
price will be deposited by the Seller in the related Certificate Account. In
the case of a substitute Mortgage Loan, the mortgage file relating thereto
will be delivered to the Trustee or the custodian and the Seller will deposit
in the Certificate Account, an amount equal to the excess of (i) the unpaid
principal balance of the Mortgage Loan for which it is being substituted (the
"REMOVED MORTGAGE LOAN"), over (ii) the unpaid principal balance of the
substitute Mortgage Loan, together with interest on such excess at the
Mortgage Interest Rate (minus any Fixed Retained Yield) to the next scheduled
Due Date of the Removed Mortgage Loan. In no event will any substitute
Mortgage Loan have (i) an unpaid principal balance greater than the scheduled
principal balance calculated in accordance with the amortization schedule (the
"SCHEDULED PRINCIPAL BALANCE") of the Mortgage Loan for which it is
substituted (after giving effect to the scheduled principal payment due in the
month of substitution on the Removed Mortgage Loan), or (ii) a term greater
than, a Mortgage Interest Rate less than, a Mortgage Interest Rate more than
two percent per annum greater than or a loan-to-value ratio greater than, the
Removed Mortgage Loan. If substitution is to be made for an adjustable-rate
Mortgage Loan, the substitute Mortgage Loan will have (i) an unpaid principal
balance no greater than the Scheduled Principal Balance of the Removed
Mortgage Loan (after giving effect to the scheduled principal payment due in
the month of substitution on the Removed Mortgage Loan), (ii) a loan-to-value
ratio less than or equal to, and a Mortgage Interest Rate at least equal to,
that of the Removed Mortgage Loan, and (iii) will bear interest based on the
same index, margin and frequency of adjustment as the Removed Mortgage Loan.
The repurchase obligation and the mortgage substitution referred to above will
constitute the sole remedies available to the Certificateholders or the
Trustee with respect to missing or defective documents or breach of the
Seller's representations and warranties.
If no custodian is named in the related Pooling and Servicing Agreement, the
Trustee will be authorized to appoint a custodian to maintain possession of
the documents relating to the Mortgage Loans and to conduct the
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review of such documents described above. Any custodian so appointed will keep
and review such documents as the Trustee's agent under a custodial agreement.
OPTIONAL PURCHASES
Subject to the provisions of the applicable Pooling and Servicing Agreement,
the Seller or the Master Servicer may, at such party's option, repurchase (i)
any Mortgage Loan which is in default or as to which default is reasonably
foreseeable if, in the Seller's or the Master Servicer's judgment, the related
default is not likely to be cured by the borrower or default is not likely to
be averted, up to the limit specified in such Pooling and Servicing Agreement
and (ii) any Mortgage Loan as to which the originator of such Mortgage Loan
breached a representation or warranty to NationsBanc Mortgage regarding the
characteristics of such Mortgage Loan, at a price equal to the unpaid
principal balance thereof plus accrued interest thereon and under the
conditions set forth in the applicable Prospectus Supplement.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise specified or modified in the related Pooling and Servicing
Agreement for each Series, the Trustee will prepare and include with each
distribution to Certificateholders of record of such Series a statement
setting forth the following information, if applicable:
(i) the amount of such distribution allocable to principal of the related
Mortgage Loans, separately identifying the aggregate amount of any
principal prepayments included therein, the amount of such distribution
allocable to interest on the related Mortgage Loans and the aggregate
unpaid principal balance of the Mortgage Loans evidenced by each Class
after giving effect to the principal distributions on such Distribution
Date;
(ii) the amount of servicing compensation with respect to the related
Trust Estate and such other customary information as is required to enable
Certificateholders to prepare their tax returns;
(iii) the amount by which the Servicing Fee or Master Servicing Fee, as
applicable, for the related Distribution Date has been reduced by interest
shortfalls due to prepayments;
(iv) the aggregate amount of any Periodic Advances by the Servicer, the
Master Servicer or the Trustee included in the amounts actually distributed
to the Certificateholders;
(v) to each holder of a Certificate entitled to the benefits of payments
under any form of credit enhancement:
(a) the amounts so distributed under any such form of credit
enhancement on the applicable Distribution Date; and
(b) the amount of coverage remaining under any such form of credit
enhancement, after giving effect to any payments thereunder and other
amounts charged thereto on the Distribution Date;
(vi) in the case of a Class of Certificates with a variable Pass-Through
Rate, such Pass-Through Rate;
(vii) the book value of any collateral acquired by the Trust Estate
through foreclosure or otherwise;
(viii) the unpaid principal balance of any Mortgage Loan as to which the
Servicer has notified the Master Servicer and/or the Trustee that such
Servicer has determined not to foreclose because it believes the related
Mortgaged Property may be contaminated with or affected by hazardous wastes
or hazardous substances; and
(ix) the number and aggregate principal amount of Mortgage Loans one
month, two months and three or more months delinquent.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee will furnish a report to each Certificateholder of
record at any time during such calendar year such information as required by
the Code and applicable regulations thereunder to enable Certificateholders to
prepare their tax returns. In the event that an election has been made to
treat the Trust Estate (or one or more segregated pools of assets therein)
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as a REMIC, the Trustee will be required to prepare and sign the federal and
applicable state and local income tax returns of the REMIC. See "Certain
Federal Income Tax Consequences--Administrative Matters."
LIST OF CERTIFICATEHOLDERS
The Pooling and Servicing Agreement for each Series will require the Trustee
to provide access to the most current list of names and addresses of
Certificateholders of such Series to any group of five or more
Certificateholders who advise the Trustee in writing that they desire to
communicate with other Certificateholders with respect to their rights under
the Pooling and Servicing Agreement or under the Certificates.
EVENTS OF DEFAULT
Events of Default under the Pooling and Servicing Agreement for each Series
include (i) any failure by NationsBanc Mortgage, as Master Servicer or, if
NationsBanc Mortgage is the sole servicer, as Servicer, to make a required
deposit which continues unremedied for three business days after the giving of
written notice of such failure to NationsBanc Mortgage by the Trustee for such
Series, or to NationsBanc Mortgage and the Trustee by the holders of
Certificates of such Series having voting rights allocated to such
Certificates ("VOTING INTERESTS") aggregating not less than 25% of the Voting
Interests allocated to all Certificates for such Series; (ii) any failure by
NationsBanc Mortgage duly to observe or perform in any material respect any
other of its covenants or agreements in the Pooling and Servicing Agreement
which continues unremedied for 60 days (or 30 days in the case of a failure to
maintain any pool insurance policy required to be maintained pursuant to the
Pooling and Servicing Agreement) after the giving of written notice of such
failure to NationsBanc Mortgage by the Trustee, or to NationsBanc Mortgage and
the Trustee by the holders of Certificates aggregating not less than 25% of
the Voting Interests; (iii) certain events of insolvency, readjustment of
debt, marshaling of assets and liabilities or similar proceedings and certain
action by NationsBanc Mortgage indicating its insolvency, reorganization or
inability to pay its obligations; and (iv) it and any subservicer appointed by
it becoming ineligible to service for both FNMA and FHLMC (unless remedied
within 90 days).
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default remains unremedied under the Pooling and
Servicing Agreement for a Series, the Trustee for such Series or holders of
Certificates of such Series evidencing not less than 66 2/3% of the Voting
Interests in the Trust Estate for such Series may terminate all of the rights
and obligations of NationsBanc Mortgage, as Master Servicer or as sole
Servicer, under the Pooling and Servicing Agreement and in and to the Mortgage
Loans (other than NationsBanc Mortgage's right to recovery of the aggregate
Servicing Fees or Master Servicing Fees, as applicable, due prior to the date
of termination, and other expenses and amounts advanced pursuant to the terms
of the Pooling and Servicing Agreement, which rights NationsBanc Mortgage will
retain under all circumstances), whereupon the Trustee will succeed to all the
responsibilities, duties and liabilities of NationsBanc Mortgage under the
Pooling and Servicing Agreement and will be entitled to monthly compensation
not to exceed the aggregate fees together with the other compensation to which
NationsBanc Mortgage is entitled under the Pooling and Servicing Agreement. In
the event that the Trustee is unwilling or unable so to act, it may select,
pursuant to the public bid procedure described in the applicable Pooling and
Servicing Agreement, or petition a court of competent jurisdiction to appoint,
a housing and home finance institution, bank or mortgage servicing institution
with a net worth of at least $10,000,000 to act as successor to NationsBanc
Mortgage, as Master Servicer or as sole Servicer, under the provisions of the
Pooling and Servicing Agreement; provided however, that until such a successor
Master Servicer or Servicer is appointed and has assumed the responsibilities,
duties and liabilities of NationsBanc Mortgage under the Pooling and Servicing
Agreement, the Trustee shall continue as the successor to NationsBanc Mortgage
as described above. In the event such public bid procedure is utilized, the
successor would be entitled to compensation in an amount equal to the
aggregate fees, together with the other compensation to which NationsBanc
Mortgage, as Master Servicer or as sole Servicer, is entitled under the
Pooling and Servicing Agreement, and NationsBanc Mortgage would be entitled to
receive the net profits, if any, realized from the sale of its rights and
obligations under the Pooling and Servicing Agreement.
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During the continuance of any Event of Default under the Pooling and
Servicing Agreement for a Series, the Trustee for such Series will have the
right to take action to enforce its rights and remedies and to protect and
enforce the rights and remedies of the Certificateholders of such Series, and
holders of Certificates evidencing not less than 25% of the Voting Interests
for such Series may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred upon the Trustee. However, the Trustee will not be under any
obligation to pursue any such remedy or to exercise any of such trusts or
powers unless such Certificateholders have offered the Trustee reasonable
security or indemnity against the cost, expenses and liabilities which may be
incurred by the Trustee thereby. Also, the Trustee may decline to follow any
such direction if the Trustee determines that the action or proceeding so
directed may not lawfully be taken or would involve it in personal liability
or be unjustly prejudicial to the non-assenting Certificateholders.
No Certificateholder of a Series, solely by virtue of such holder's status
as a Certificateholder, will have any right under the Pooling and Servicing
Agreement for such Series to institute any proceeding with respect to the
Pooling and Servicing Agreement, unless (i) such holder previously has given
to the Trustee for such Series written notice of default and (ii) the holders
of Certificates evidencing not less than 25% of the Voting Interests for such
Series have made written request upon the Trustee to institute such proceeding
in its own name as Trustee thereunder and have offered to the Trustee
reasonable indemnity and the Trustee for 60 days has neglected or refused to
institute any such proceeding.
AMENDMENT
Each Pooling and Servicing Agreement may be amended by the Seller, the
Servicer (or if there is more than one Servicer, the Master Servicer) and the
Trustee without the consent of the Certificateholders, (i) to cure any
ambiguity or mistake, (ii) to correct or supplement any provision therein that
may be inconsistent with any other provision therein, (iii) if a REMIC
election has been made, to modify, eliminate or add to any of its provisions
to such extent as shall be necessary to maintain the qualification of the
Trust Estate (or one or more segregated pools of assets therein) as a REMIC at
all times that any Certificates are outstanding or to avoid or minimize the
risk of the imposition of any tax on the Trust Estate pursuant to the Code
that would be a claim against the Trust Estate, provided that the Trustee has
received an opinion of counsel to the effect that such action is necessary or
desirable to maintain such qualification or to avoid or minimize the risk of
the imposition of any such tax and such action will not, as evidenced by such
opinion of counsel, adversely affect in any material respect the interests of
any Certificateholder, (iv) to change the timing and/or nature of deposits
into the Certificate Account, provided that such change will not, as evidenced
by an opinion of counsel, adversely affect in any material respect the
interests of any Certificateholder and that such change will not adversely
affect the then current rating assigned to any Certificates, as evidenced by a
letter from each Rating Agency to such effect, (v) if a REMIC election has
been made, to add to, modify or eliminate any provisions therein restricting
transfers of Residual Certificates to certain disqualified organizations
described below under "Certain Federal Income Tax Consequences--Federal Income
Tax Consequences for REMIC Certificates--Taxation of Residual Certificates--
Tax-Related Restrictions on Transfer of Residual Certificates," (vi) to make
certain provisions with respect to the denominations of, and the manner of
payments on, certain Classes of Certificates initially retained by the Seller
or an affiliate, or (vii) to make any other provisions with respect to matters
or questions arising under such Pooling and Servicing Agreement that are not
inconsistent with the provisions thereof, provided that such action will not,
as evidenced by an opinion of counsel, adversely affect in any material
respect the interests of the Certificateholders of the related Series. The
Pooling and Servicing Agreement may also be amended by the Seller, the
Servicer (or if there is more than one Servicer, the Master Servicer) and the
Trustee with the consent of the holders of Certificates evidencing interests
aggregating not less than 66 2/3% of the Voting Interests evidenced by the
Certificates of each Class affected thereby, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of such Pooling and Servicing Agreement or of modifying in any manner the
rights of the Certificateholders; provided, however, that no such amendment
may (i) reduce in any manner the amount of, or delay the timing of, any
payments received on or with respect to Mortgage Loans that are required to be
distributed on any Certificate, without the consent of the holder of such
Certificate, (ii) adversely affect in any material respect the interests of
the holders of a Class of Certificates of a
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Series in a manner other than that set forth in (i) above without the consent
of the holders of Certificates aggregating not less than 66 2/3% of the Voting
Interests evidenced by such Class, or (iii) reduce the aforesaid percentage of
Certificates of any Class or Subclass, the holders of which are required to
consent to such amendment, without the consent of the holders of all
Certificates of such affected Class then outstanding. Notwithstanding the
foregoing, the Trustee will not consent to any such amendment if such
amendment would subject the Trust Estate (or any segregated pool of assets
therein) to tax or, if a REMIC election has been made, cause the Trust Estate
(or any segregated pool of assets therein) to fail to qualify as a REMIC.
TERMINATION; OPTIONAL PURCHASE OF MORTGAGE LOANS
The obligations created by the Pooling and Servicing Agreement for a Series
of Certificates will terminate on the Distribution Date following the final
payment or other liquidation of the last Mortgage Loan subject thereto and the
disposition of all property acquired upon foreclosure of any such Mortgage
Loan. In no event, however, will the trust created by the Pooling and
Servicing Agreement continue beyond the expiration of 21 years from the death
of the last survivor of certain persons named in such Pooling and Servicing
Agreement. For each Series of Certificates, the Trustee will give written
notice of termination of the Pooling and Servicing Agreement to each
Certificateholder, and the final distribution will be made only upon surrender
and cancellation of the Certificates at an office or agency appointed by the
Seller and specified in the notice of termination.
If so provided in the applicable Prospectus Supplement, the Pooling and
Servicing Agreement for each Series of Certificates will permit, but not
require, the Seller, NationsBanc Mortgage or such other party as is specified
in the applicable Prospectus Supplement, to purchase from the Trust Estate for
such Series all remaining Mortgage Loans at the time and price specified in
such Prospectus Supplement. In the event that such party has caused the
related Trust Estate (or any segregated pool of assets therein) to be treated
as a REMIC, any such purchase will be effected only pursuant to either (a) a
"clean up call" as defined in Treasury Regulations Section 1.860G-2(j) or (b)
a "qualified liquidation" as defined in Code Section 860F(a)(4)(A). Any
qualified liquidation will effect early retirement of the Certificates of that
Series, but the right so to purchase may be exercised only after the aggregate
principal balance of the Mortgage Loans for such Series at the time of
purchase is less than a specified percentage of the aggregate principal
balance at the Cut-Off Date for the Series, or after the date set forth in the
applicable Prospectus Supplement. A clean up call will result in the early
retirement of one or more Classes of Certificates as specified in the related
Prospectus Supplement. Such a clean up call may be effected only when the
outstanding principal balance of each Class to be redeemed is 10% or less of
the original principal balance of such Class.
THE TRUSTEE
The Trustee under each Pooling and Servicing Agreement (the "Trustee") will
be named in the applicable Prospectus Supplement. The commercial bank or trust
company serving as Trustee may have normal banking relationships with the
Seller or any of its affiliates.
The Trustee generally will be responsible under each Pooling and Servicing
Agreement for providing general administrative services for the Trust Estate
for any such Series, including, among other things, (i) monitoring the amounts
on deposit in various trust accounts; (ii) calculation of the amounts payable
to Certificateholders on each Distribution Date; (iii) preparation of federal
and applicable state and local tax and information returns; (iv) preparation
of reports, if any, required under the Securities and Exchange Act of 1934, as
amended; (v) maintaining any mortgage pool insurance policy, mortgagor
bankruptcy bond, special hazard insurance policy or other form of credit
enhancement that may be required with respect to any Series; and (vi) making
Periodic Advances on the Mortgage Loans to the limited extent described under
"Servicing of Mortgage Loans--Periodic Advances and Limitations Thereon," if
such amounts are not advanced by a Servicer or the Master Servicer.
The Trustee may resign at any time, in which event the Master Servicer or,
if there is no Master Servicer, the Servicer will be obligated to appoint a
successor trustee. The Master Servicer or, if there is no Master
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Servicer, the Servicer may also remove the Trustee if the Trustee ceases to be
eligible to act as Trustee under the Pooling and Servicing Agreement, if the
Trustee becomes insolvent or in order to change the situs of the Trust Estate
for state tax reasons. Upon becoming aware of such circumstances, the Master
Servicer or, if there is no Master Servicer, the Servicer will become
obligated to appoint a successor trustee. The Trustee may also be removed at
any time by the holders of Certificates evidencing not less than 51% of the
Voting Interests in the Trust Estate, except that any Certificate registered
in the name of the Seller, NationsBanc Mortgage or any affiliate thereof will
not be taken into account in determining whether the requisite Voting Interest
in the Trust Estate necessary to effect any such removal has been obtained.
Any resignation and removal of the Trustee, and the appointment of a successor
trustee, will not become effective until acceptance of such appointment by the
successor trustee. The Trustee, and any successor trustee, must have a
combined capital and surplus of at least $50,000,000, or be a member of a bank
holding system, the aggregate combined capital and surplus of which is at
least $50,000,000, provided that the Trustee's and any such successor
trustee's separate capital and surplus shall at all times be at least the
amount specified in Section 310(a)(2) of the Trust Indenture Act of 1939, as
amended, and will be subject to supervision or examination by federal or state
authorities.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans which are general in nature. Because such legal aspects are
governed by applicable state law (which laws may differ substantially), the
summaries do not purport to be complete, to reflect the laws of any particular
state or to encompass the laws of all states in which the security for the
Mortgage Loans is situated. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the Mortgage
Loans.
GENERAL
The Mortgage Loans will, in general, be secured by either first mortgages or
first deeds of trust, depending upon the prevailing practice in the state in
which the underlying property is located. A mortgage creates a lien upon the
real property described in the mortgage. There are two parties to a mortgage:
the mortgagor, who is the borrower (or, in the case of a Mortgage Loan secured
by a property that has been conveyed to an inter vivos revocable trust, the
settlor of such trust); and the mortgagee, who is the lender. In a mortgage
instrument state, the mortgagor delivers to the mortgagee a note or bond
evidencing the loan and the mortgage. Although a deed of trust is similar to a
mortgage, a deed of trust has three parties: a borrower called the trustor
(similar to a mortgagor), a lender called the beneficiary (similar to a
mortgagee), 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 loan. The trustee's authority under a deed of trust and the mortgagee's
authority under a mortgage are governed by the express provisions of the deed
of trust or mortgage, applicable law, and, in some cases, with respect to the
deed of trust, the directions of the beneficiary.
FORECLOSURE
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in
completion of the foreclosure occasionally may result from difficulties in
locating necessary parties defendant. When the mortgagee's right of
foreclosure is contested, the legal proceedings necessary to resolve the issue
can be time-consuming. After the completion of a judicial foreclosure
proceeding, the court may issue a judgment of foreclosure and appoint a
receiver or other 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. Foreclosure of a mortgage by advertisement is
essentially similar to foreclosure of a deed of trust by non-judicial power of
sale.
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property to a third party upon any default by the
borrower under the terms of the note or deed of trust. In certain states, such
foreclosure also may be
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accomplished by judicial action in the manner provided for foreclosure of
mortgages. In some states, the trustee must record a notice of default and
send a copy to the borrower-trustor and to any person who has recorded a
request for a copy of a notice of default and notice of sale. In addition, the
trustee must provide notice in some states to any other individual having an
interest of record in the real property, including any junior lienholders. 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, published
for a specified 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 property.
In some states, 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 reinstatement period, cure the default by paying
the entire amount in arrears plus the costs and expenses incurred in enforcing
the obligation. Certain state laws control the amount of foreclosure expenses
and costs, including attorneys' fees, which may be recovered by a lender.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical
condition of the property may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the property at the
foreclosure sale. Rather, it is common for the lender to purchase the property
from the trustee or receiver for an amount equal to the unpaid principal
amount of the note, accrued and unpaid interest and the expenses of
foreclosure. Thereafter, subject to the right of the borrower in some states
to remain in possession during the redemption period, the lender will assume
the burdens 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 commonly will obtain the services of a real estate broker
and pay the broker a 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 mortgage insurance proceeds, if any, or by
judicial action against the borrower for the deficiency, if such action is
permitted by law. See "--Anti-Deficiency Legislation and Other Limitations on
Lenders" below.
FORECLOSURE ON SHARES OF COOPERATIVES
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 by-laws, as well
as in the proprietary lease or occupancy agreement, and may be canceled 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 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 a 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.
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Recognition agreements also provide that in the event of a foreclosure on a
cooperative loan, the lender must obtain the approval or consent of the
cooperative as required by the proprietary lease before transferring the
cooperative shares or assigning the proprietary lease. Generally, the lender
is not limited by the agreement in any rights it may have to dispossess the
tenant-stockholders.
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 corporation 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.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust and/or foreclosure of
a mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure 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 some states, the right to redeem is an equitable right. The effect
of a right of redemption is to delay the ability of the lender to sell the
foreclosed property. The exercise of a right of redemption would defeat the
title of any purchaser at a foreclosure sale, or of any purchaser from the
lender subsequent to judicial foreclosure or sale under a deed of trust.
Consequently, the practical effect of the redemption right is to force the
lender to maintain the property and pay the expenses of ownership until the
redemption period has run.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In
some states, statutes limit the right of the beneficiary or mortgagee to
obtain a deficiency judgment against the borrower following foreclosure or
sale under a deed of trust. A deficiency judgment is a personal judgment
against the former borrower equal in most cases to the difference between the
amount due to the lender and the net amount realized upon the foreclosure
sale.
Some state statutes may 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.
Other statutory provisions may 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 such sale. The
purpose of these statutes is 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.
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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.
Generally, Article 9 of the UCC governs foreclosure on cooperative shares
and the related proprietary lease or occupancy agreement and foreclosure on
the beneficial interest in a land trust. 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 Mortgage
Loan secured by shares of a cooperative, would be such shares and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
A Servicer generally will not be required under the applicable Underlying
Servicing Agreement or Pooling and Servicing Agreement to pursue deficiency
judgments on the Mortgage Loans even if permitted by law.
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 a secured mortgage lender to realize upon its security. For
example, numerous statutory provisions under the United States Bankruptcy
Code, 11 U.S.C. Sections 101 et seq. (the "BANKRUPTCY CODE"), may interfere
with or affect the ability of the Seller to obtain payment of a Mortgage Loan,
to realize upon collateral and/or enforce a deficiency judgment. For example,
under federal bankruptcy law, virtually all actions (including foreclosure
actions and deficiency judgment proceedings) are automatically stayed upon the
filing of a bankruptcy petition, and often no interest or principal payments
are made during the course of the bankruptcy proceeding. In a case under the
Bankruptcy Code, the secured party is precluded from foreclosing without
authorization from the bankruptcy court. In addition, a court with federal
bankruptcy jurisdiction may permit a debtor through his or her Chapter 11 or
Chapter 13 plan to cure a monetary default in respect of a Mortgage Loan by
paying arrearages within a reasonable time period and reinstating the original
mortgage loan payment schedule even though the lender accelerated the mortgage
loan and final judgment of foreclosure had been entered in state court
(provided no foreclosure sale had yet occurred) prior to the filing of the
debtor's petition. Some courts with federal bankruptcy jurisdiction have
approved plans, based on the particular facts of the case, that effected the
curing of a mortgage loan default by paying arrearages over a number of years.
If a Mortgage Loan is secured by property not consisting solely of the
debtor's principal residence, the Bankruptcy Code also permits such Mortgage
Loan to be modified. Such modifications may include reducing the amount of
each monthly payment, changing the rate of interest, altering the repayment
schedule, and reducing the lender's security interest to the value of the
property, thus leaving the lender in the position of a general unsecured
creditor for the difference between the value of the property and the
outstanding balance of the Mortgage Loan. Some courts have permitted such
modifications when the Mortgage Loan is secured both by the debtor's principal
residence and by personal property.
If a court relieves a borrower's obligation to repay amounts otherwise due
on a Mortgage Loan, the Servicer will not be required to advance such amounts,
and any loss in respect thereof will be borne by the Certificateholders.
The Code provides priority to certain tax liens over the lien of the
mortgage or deed of trust. The laws of some states provide priority to certain
tax liens over the lien of the mortgage or deed of trust. Numerous federal and
some state consumer protection laws impose substantive requirements upon
mortgage lenders in connection with the origination, servicing and enforcement
of mortgage loans. These laws include the federal Truth in Lending Act, Real
Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair Credit
Billing Act, Fair Credit Reporting Act and related statutes and regulations.
These federal laws and state laws impose specific statutory liabilities upon
lenders who originate or service mortgage loans and who fail to comply with
the provisions of the law. In some cases, this liability may affect assignees
of the mortgage loans.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT AND SIMILAR LAWS
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 Mortgage Loan (including
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a borrower who is a member of the National Guard or is in reserve status at
the time of the origination of the Mortgage 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 action could have an
effect, for an indeterminate period of time, on the ability of the Servicer to
collect full amounts of interest on certain of the Mortgage Loans in a Trust
Estate. Any shortfall in interest collections resulting from the application
of the Relief Act could result in losses to the holders of the Certificates of
the related Series. Further, the Relief Act imposes limitations which would
impair the ability of the Servicer to foreclose on an affected Mortgage Loan
during the borrower's period of active duty status. Thus, in the event that
such a Mortgage Loan goes into default, there may be delays and losses
occasioned by the inability to realize upon the Mortgaged Property in a timely
fashion. Certain states have enacted comparable legislation which may
interfere with or affect the ability of the Servicer to timely collect
payments of principal and interest on, or to foreclose on, Mortgage Loans of
borrowers in such states who are active or reserve members of the armed
services.
ENVIRONMENTAL CONSIDERATIONS
A lender may be subject to unforeseen environmental risks when taking a
security interest in real or personal property. Property subject to such a
security interest may be subject to federal, state, and local laws and
regulations relating to environmental protection. Such laws may regulate,
among other things: emissions of air pollutants; discharges of wastewater or
storm water; generation, transport, storage or disposal of hazardous waste or
hazardous substances; operation, closure and removal of underground storage
tanks; removal and disposal of asbestos-containing materials; management of
electrical or other equipment containing polychlorinated biphenyls ("PCBS").
Failure to comply with such laws and regulations may result in significant
penalties, including civil and criminal fines. Under the laws of certain
states, environmental contamination on a property may give rise to a lien on
the property to ensure the availability and/or reimbursement of cleanup costs.
Generally all subsequent liens on such property are subordinated to such a
lien and, in some states, even prior recorded liens are subordinated to such
liens ("SUPERLIENS"). In the latter states, the security interest of the
Trustee in a property that is subject to such a Superlien could be adversely
affected. Environmental contamination on a property is likely to have a
negative impact on the value of such property, which may lead to losses on the
related Series of Certificates.
Under the federal Comprehensive Environmental Response Compensation and
Liability Act, as amended ("CERCLA"), and under state law in certain states, a
secured party which takes a deed in lieu of foreclosure, purchases a mortgaged
property at a foreclosure sale, operates a mortgaged property or undertakes
certain types of activities that may constitute management of the mortgaged
property may become liable in certain circumstances for the costs of remedial
action ("CLEANUP COSTS") if hazardous wastes or hazardous substances have been
released or disposed of on the property. Such Cleanup Costs may be
substantial. CERCLA imposes strict, as well as joint and several liability for
environmental remediation and/or damage costs on several classes of
"potentially responsible parties," including current "owners and/or operators"
of property, irrespective of whether those owners or operators caused or
contributed to contamination on the property. In addition, owners and
operators of properties that generate hazardous substances that are disposed
of at other "off-site" locations may held strictly, jointly and severally
liable for environmental remediation and/or damages at those off-site
locations. Many states also have laws that are similar to CERCLA. Liability
under CERCLA or under similar state law could exceed the value of the property
itself as well as the aggregate assets of the property owner.
The law is unclear as to whether and under what precise circumstances
cleanup costs, or the obligation to take remedial actions, could be imposed on
a secured lender such as the Trust Estate. Under the laws of some states and
under CERCLA, a lender may be liable as an "owner or operator" for costs of
addressing releases or threatened releases of hazardous substances on a
mortgaged property if such lender or its agents or employees have
"participated in the management" of the operations of the borrower, even
though the environmental damage or threat was caused by a prior owner or
current owner or operator or other third party. Excluded from CERCLA's
definition of "owner or operator," is a person "who without participating in
the management of . . . [the] facility, holds indicia of ownership primarily
to protect his security interest" (the "secured-creditor
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exemption"). This exemption for holders of a security interest such as a
secured lender applies only to the extent that a lender seeks to protect its
security interest in the contaminated facility or property. Thus, if a
lender's activities begin to encroach on the actual management of such
facility or property, the lender faces potential liability as an "owner or
operator" under CERCLA. Similarly, when a lender forecloses and takes title to
a contaminated facility or property, the lender may incur potential CERCLA
liability in various circumstances, including among others, when it holds the
facility or property as an investment (including leasing the facility or
property to a third party), fails to market the property in a timely fashion
or fails to properly address environmental conditions at the property or
facility.
The Resource Conservation and Recovery Act, as amended ("RCRA"), contains a
similar secured-creditor exemption for those lenders who hold a security
interest in a petroleum underground storage tank ("UST") or in real estate
containing a UST, or that acquire title to a petroleum UST or facility or
property on which such a UST is located. As under CERCLA, a lender may lose
its secured-creditor exemption and be held liable under RCRA as a UST owner or
operator if such lender or its employees or agents participate in the
management of the UST. In addition, if the lender takes title to or possession
of the UST or the real estate containing the UST, under certain circumstances
the secured-creditor exemption may be deemed to be unavailable.
A decision in May 1990 of the United States Court of Appeals for the
Eleventh Circuit in United States v. Fleet Factors Corp. very narrowly
construed CERCLA's secured-creditor exemption. The court's opinion suggested
that a lender need not have involved itself in the day-to-day operations of
the facility or participated in decisions relating to hazardous waste to be
liable under CERCLA; rather, liability could attach to a lender if its
involvement with the management of the facility were broad enough to support
the inference that the lender had the capacity to influence the borrower's
treatment of hazardous waste. The court added that a lender's capacity to
influence such decisions could be inferred from the extent of its involvement
in the facility's financial management. A subsequent decision by the United
States Court of Appeals for the Ninth Circuit in In re Bergsoe Metal Corp.,
apparently disagreeing with, but not expressly contradicting, the Fleet
Factors court, held that a secured lender had no liability absent "some actual
management of the facility" on the part of the lender.
Court decisions have taken varying views of the scope of the secured-
creditor exemption, leading to administrative and legislative efforts to
provide guidance to lenders on the scope of activities that would trigger
CERCLA and/or RCRA liability. Until recently, these efforts have failed to
provide substantial guidance.
On September 30, 1996 the President signed into law (the Asset Conservation,
Lender Liability and Deposit Insurance Protection Act of 1996 (the "ASSET
CONSERVATION ACT"). The Asset Conservation Act was intended to clarify the
scope of the secured creditor exemption under both CERCLA and RCRA. The Asset
Conservation Act more clearly defined the kinds of "participation in
management" that would trigger liability under CERCLA and specified certain
activities that would not constitute "participation in management" or
otherwise result in a forfeiture of the secured-creditor exemption prior to
foreclosure or during a workout period. The Asset Conservation Act also
clarified the extent of protection against liability under CERCLA in the event
of foreclosure and authorized certain regulatory clarifications of the scope
of the secured-creditor exemption for purposes of RCRA, similar to the
statutory protections under CERCLA. However, since the courts have not yet had
the opportunity to interpret the new statutory provisions, the scope of the
additional protections offered by the Asset Conservation Act is not fully
defined. It also is important to note that the Asset Conservation Act does not
offer complete protection to lenders and that the risk of liability remains.
If a secured lender does become liable, it may be entitled to bring an
action for contribution against the owner or operator who created the
environmental contamination or against some other liable party, but that
person or entity may be bankrupt or otherwise judgment-proof. It is therefore
possible that cleanup or other environmental liability costs could become a
liability of the Trust Estate and occasion a loss to the Trust Estate and to
Certificateholders in certain circumstances. The new secured creditor
amendments to CERCLA, also, would not necessarily affect the potential for
liability in actions by either a state or a private party under other federal
or state laws which may impose liability on "owners or operators" but do not
incorporate the secured-creditor exemption.
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Traditionally, residential mortgage lenders have not taken steps to evaluate
whether hazardous wastes or hazardous substances are present with respect to
any mortgaged property prior to the origination of the mortgage loan or prior
to foreclosure or accepting a deed-in-lieu of foreclosure. Accordingly,
neither the Seller nor NationsBanc Mortgage has made such evaluations prior to
the origination of the Mortgage Loans, nor does NationsBanc Mortgage require
that such evaluations be made by originators who have sold the Mortgage Loans
to NationsBanc Mortgage. [Neither the Seller nor NationsBanc Mortgage is
required to undertake any such evaluations prior to foreclosure or accepting a
deed-in-lieu of foreclosure.] Neither the Seller nor NationsBanc Mortgage
makes any representations or warranties or assumes any liability with respect
to: the environmental condition of such Mortgaged Property; the absence,
presence or effect of hazardous wastes or hazardous substances on any
Mortgaged Property; any casualty resulting from the presence or effect of
hazardous wastes or hazardous substances on, near or emanating from such
Mortgaged Property; the impact on Certificateholders of any environmental
condition or presence of any substance on or near such Mortgaged Property; or
the compliance of any Mortgaged Property with any environmental laws, nor is
any agent, person or entity otherwise affiliated with the Seller authorized or
able to make any such representation, warranty or assumption of liability
relative to any such Mortgaged Property. See "The Mortgage Loan Programs--
Representations and Warranties" and "Servicing of the Mortgage Loans--
Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage Loans"
above.
"DUE-ON-SALE" CLAUSES
The forms of note, mortgage and deed of trust relating to conventional
Mortgage Loans may contain a "due-on-sale" clause permitting acceleration of
the maturity of a loan if the borrower transfers its interest in the property.
In recent years, court decisions and legislative actions placed substantial
restrictions on the right of lenders to enforce such clauses in many states.
However, effective October 15, 1982, Congress enacted the Garn-St Germain
Depository Institutions Act of 1982 (the "GARN ACT") which purports to preempt
state laws which prohibit the enforcement of "due-on-sale" clauses by
providing among other matters, that "due-on-sale" clauses in certain loans
(which loans may include the Mortgage Loans) made after the effective date of
the Garn Act are enforceable, within certain limitations as set forth in the
Garn Act and the regulations promulgated thereunder. "DUE-ON-SALE" clauses
contained in mortgage loans originated by federal savings and loan
associations or federal savings banks are fully enforceable pursuant to
regulations of the Office of Thrift Supervision ("OTS"), as successor to the
Federal Home Loan Bank Board ("FHLBB"), which preempt state law restrictions
on the enforcement of such clauses. Similarly, "due-on-sale" clauses in
mortgage loans made by national banks and federal credit unions are now fully
enforceable pursuant to preemptive regulations of the Comptroller of the
Currency and the National Credit Union Administration, respectively.
The Garn Act created a limited exemption from its general rule of
enforceability for "due-on-sale" clauses in certain mortgage loans ("WINDOW
PERIOD LOANS") which were originated by non-federal lenders and made or
assumed in certain states ("WINDOW PERIOD STATES") during the period, prior to
October 15, 1982, in which that state prohibited the enforcement of "due-on-
sale" clauses by constitutional provision, statute or statewide court decision
(the "WINDOW PERIOD"). Though neither the Garn Act nor the OTS regulations
actually names the Window Period States, FHLMC has taken the position, in
prescribing mortgage loan servicing standards with respect to mortgage loans
which it has purchased, that the Window Period States were: Arizona, Arkansas,
California, Colorado, Georgia, Iowa, Michigan, Minnesota, New Mexico, Utah and
Washington. Under the Garn Act, unless a Window Period State took action by
October 15, 1985, the end of the Window Period, to further regulate
enforcement of "due-on-sale" clauses in Window Period Loans, "due-on-sale"
clauses would become enforceable even in Window Period Loans. Five of the
Window Period States (Arizona, Minnesota, Michigan, New Mexico and Utah) have
taken actions which restrict the enforceability of "due-on-sale" clauses in
Window Period Loans beyond October 15, 1985. The actions taken vary among such
states.
By virtue of the Garn Act, a Servicer may generally be permitted to
accelerate any conventional Mortgage Loan which contains a "due-on-sale"
clause upon transfer of an interest in the property subject to the mortgage or
deed of trust. With respect to any Mortgage Loan secured by a residence
occupied or to be occupied by the borrower, this ability to accelerate will
not apply to certain types of transfers, including (i) the granting of a
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leasehold interest which has a term of three years or less and which does not
contain an option to purchase; (ii) a transfer to a relative resulting from
the death of a borrower, or a transfer where the spouse or children become an
owner of the property in each case where the transferee(s) will occupy the
property; (iii) a transfer resulting from a decree of dissolution of marriage,
legal separation agreement or from an incidental property settlement agreement
by which the spouse becomes an owner of the property; (iv) the creation of a
lien or other encumbrance subordinate to the lender's security instrument
which does not relate to a transfer of rights of occupancy in the property
(provided that such lien or encumbrance is not created pursuant to a contract
for deed); (v) a transfer by devise, descent or operation of law on the death
of a joint tenant or tenant by the entirety; (vi) a transfer into an inter
vivos trust in which the borrower is the beneficiary and which does not relate
to a transfer of rights of occupancy; and (vii) other transfers as set forth
in the Garn Act and the regulations thereunder. The extent of the effect of
the Garn Act on the average lives and delinquency rates of the Mortgage Loans
cannot be predicted. See "Prepayment and Yield Considerations."
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 OTS as successor
to the FHLBB is authorized to issue rules and regulations and to publish
interpretations governing implementation of Title V. The statute authorized
any state to reimpose interest rate limits by adopting before April 1, 1983, a
law or constitutional provision which expressly rejects application of the
federal law. Fifteen states have adopted laws reimposing or reserving the
right to reimpose interest rate limits. In addition, even where Title V is not
so rejected, any state is authorized to adopt a provision limiting certain
other loan charges.
The Seller will represent and warrant in the Pooling and Servicing Agreement
to the Trustee for the benefit of Certificateholders that all Mortgage Loans
are originated in full compliance with applicable state laws, including usury
laws. See "The Pooling and Servicing Agreement--Assignment of Mortgage Loans
to the Trustee."
ENFORCEABILITY OF CERTAIN PROVISIONS
Standard forms of note, mortgage and deed of trust generally 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 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 the Pooling and Servicing Agreement, late charges
and prepayment fees (to the extent permitted by law and not waived by the
Servicer) will be retained by the Servicer as additional servicing
compensation.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required lenders to reinstate loans or recast
payment schedules to accommodate borrowers who are suffering from temporary
financial disability. In some cases, courts have limited the right of lenders
to foreclose if the default under the mortgage instrument is not monetary,
such as the borrower failing to adequately maintain the property or the
borrower executing a second mortgage or deed of trust affecting the property.
In other cases, some courts have been faced with the issue of whether federal
or state constitutional provisions reflecting due process concerns for
adequate notice require that borrowers under the deeds of trust receive
notices in addition to the statutorily-prescribed minimum requirements. 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 or
under a mortgage having a power of sale does not involve sufficient state
action to afford constitutional protections to the borrower.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following general discussion represents the opinion of Cadwalader,
Wickersham & Taft or Kennedy Covington Lobdell & Hickman, L.L.P. as to the
anticipated material federal income tax consequences of the purchase,
ownership and disposition of Certificates. The discussion below does not
purport to address all federal income tax consequences that may be applicable
to particular categories of investors, some of which may be subject to special
rules. The authorities on which this discussion is based are subject to change
or differing interpretations, and any such change or interpretation could
apply retroactively. This discussion reflects the applicable provisions of the
Code, as well as regulations (the "REMIC REGULATIONS") promulgated by the U.S.
Department of the Treasury. Investors should consult their own tax advisors in
determining the federal, state, local and any other tax consequences to them
of the purchase, ownership and disposition of Certificates.
For purposes of this discussion, where the applicable Prospectus Supplement
provides for a Fixed Retained Yield with respect to the Mortgage Loans of a
Series of Certificates, references to the Mortgage Loans will be deemed to
refer to that portion of the Mortgage Loans held by the Trust Estate that does
not include the Fixed Retained Yield. References to a "holder" or
"Certificateholder" in this discussion generally mean the Beneficial Owner of
a Certificate.
FEDERAL INCOME TAX CONSEQUENCES FOR REMIC CERTIFICATES
GENERAL
With respect to a particular Series of Certificates, an election may be made
to treat the Trust Estate or one or more segregated pools of assets therein as
one or more REMICs within the meaning of Code Section 860D. A Trust Estate or
a portion or portions thereof as to which one or more REMIC elections will be
made will be referred to as a "REMIC POOL." For purposes of this discussion,
Certificates of a Series as to which one or more REMIC elections are made are
referred to as "REMIC CERTIFICATES" and will consist of one or more Classes of
"REGULAR CERTIFICATES" and one Class of "RESIDUAL CERTIFICATES" in the case of
each REMIC Pool. Qualification as a REMIC requires ongoing compliance with
certain conditions. With respect to each Series of REMIC Certificates,
Cadwalader, Wickersham & Taft or Kennedy Covington Lobdell & Hickman, L.L.P.,
counsel to the Seller, has advised the Seller that in each firm's opinion,
assuming (i) the making of an appropriate election, (ii) compliance with the
Pooling and Servicing Agreement, and (iii) compliance with any changes in the
law, including any amendments to the Code or applicable Treasury regulations
thereunder, each REMIC Pool will qualify as a REMIC. In such case, the Regular
Certificates will be considered to be "regular interests" in the REMIC Pool
and generally will be treated for federal income tax purposes as if they were
newly originated debt instruments, and the Residual Certificates will be
considered to be "residual interests" in the REMIC Pool. The Prospectus
Supplement for each Series of Certificates will indicate whether one or more
REMIC elections with respect to the related Trust Estate will be made, in
which event references to "REMIC" or "REMIC POOL" herein shall be deemed to
refer to each such REMIC Pool.
STATUS OF REMIC CERTIFICATES
REMIC Certificates held by a domestic building and loan association will
constitute "a regular or residual interest in a REMIC" within the meaning of
Code Section 7701(a)(19)(C)(xi) in the same proportion that the assets of the
REMIC Pool would be treated as "loans . . . secured by an interest in real
property which is . . . residential real property" within the meaning of Code
Section 7701(a)(19)(C)(v) or as other assets described in Code Section
7701(a)(19)(C). REMIC Certificates held by a real estate investment trust will
constitute "real estate assets" within the meaning of Code Section
856(c)(4)(A), and interest on the Regular Certificates and income with respect
to Residual Certificates will be considered "interest on obligations secured
by mortgages on real property or on interests in real property" within the
meaning of Code Section 856(c)(3)(B) in the same proportion that, for both
purposes, the assets of the REMIC Pool would be so treated. If at all times
95% or more of the assets of the REMIC Pool qualify for each of the foregoing
treatments, the REMIC Certificates will qualify for the corresponding status
in their entirety. For purposes of Code Section 856(c)(4)(A), payments of
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principal and interest on the Mortgage Loans that are reinvested pending
distribution to holders of REMIC Certificates qualify for such treatment.
Where two REMIC Pools are a part of a tiered structure they will be treated as
one REMIC for purposes of the tests described above respecting asset ownership
of more or less than 95%. In addition, if the assets of the REMIC include Buy-
Down Loans, it is possible that the percentage of such assets constituting
"loans . . . secured by an interest in real property which is . . .
residential real property" for purposes of Code Section 7701(a)(19)(C)(v), may
be required to be reduced by the amount of the related Buy-Down Funds. REMIC
Certificates held by a regulated investment company will not constitute
"Government securities" within the meaning of Code Section 851(b)(3)(A)(i).
REMIC Certificates held by certain financial institutions will constitute an
"evidence of indebtedness" within the meaning of Code Section 582(c)(1). The
Small Business Job Protection Act of 1996 (the "SBJPA OF 1996") repealed the
reserve method for bad debts of domestic building and loan associations and
mutual savings banks, and thus has eliminated the asset category of
"qualifying real property loans" in former Code Section 593(d) for taxable
years beginning after December 31, 1995. The requirement in the SBJPA of 1996
that such institutions must "recapture" a portion of their existing bad debt
reserves is suspended if a certain portion of their assets are maintained in
"residential loans" under Code Section 7701(a)(19)(C)(v), but only if such
loans were made to acquire, construct or improve the related real property and
not for the purpose of refinancing. However, no effort will be made to
identify the portion of the Mortgage Loans of any Series meeting this
requirement, and no representation is made in this regard.
QUALIFICATION AS A REMIC
In order for the REMIC Pool to qualify as a REMIC, there must be ongoing
compliance on the part of the REMIC Pool with the requirements set forth in
the Code. The REMIC Pool must fulfill an asset test, which requires that no
more than a de minimis portion of the assets of the REMIC Pool, as of the
close of the third calendar month beginning after the "STARTUP DAY" (which for
purposes of this discussion is the date of issuance of the REMIC Certificates)
and at all times thereafter, may consist of assets other than "qualified
mortgages" and "permitted investments." The REMIC Regulations provide a safe
harbor pursuant to which the de minimis requirement will be met if at all
times the aggregate adjusted basis of the nonqualified assets is less than 1%
of the aggregate adjusted basis of all the REMIC Pool's assets. An entity that
fails to meet the safe harbor may nevertheless demonstrate that it holds no
more than a de minimis amount of nonqualified assets. A REMIC Pool also must
provide "reasonable arrangements" to prevent its residual interests from being
held by "disqualified organizations" or agents thereof and must furnish
applicable tax information to transferors or agents that violate this
requirement. See "--Taxation of Residual Certificates--Tax-Related
Restrictions on Transfer of Residual Certificates--Disqualified
Organizations."
A qualified mortgage is any obligation that is principally secured by an
interest in real property and that is either transferred to the REMIC Pool on
the Startup Day or is purchased by the REMIC Pool within a three-month period
thereafter pursuant to a fixed price contract in effect on the Startup Day.
Qualified mortgages include whole mortgage loans, such as the Mortgage Loans,
and, generally, certificates of beneficial interest in a grantor trust that
holds mortgage loans, regular interests in another REMIC, such as lower-tier
regular interests in a tiered REMIC and regular interests in a Financial Asset
Securitization Investment Trust (a "FASIT") within the meaning of Code Section
860L if 95% or more of the value of the assets of the FASIT is at all times
attributable to whole mortgage loans such as the Mortgage Loans. The REMIC
Regulations specify that loans secured by timeshare interests and shares held
by a tenant stockholder in a cooperative housing corporation can be qualified
mortgages. A qualified mortgage includes a qualified replacement mortgage,
which is any property that would have been treated as a qualified mortgage if
it were transferred to the REMIC Pool on the Startup Day and that is received
either (i) in exchange for any qualified mortgage within a three-month period
thereafter or (ii) in exchange for a "defective obligation" within a two-year
period thereafter. A "defective obligation" includes (i) a mortgage in default
or as to which default is reasonably foreseeable, (ii) a mortgage as to which
a customary representation or warranty made at the time of transfer to the
REMIC Pool has been breached, (iii) a mortgage that was fraudulently procured
by the mortgagor, and (iv) a mortgage that was not in fact principally secured
by real property (but only if such mortgage is disposed of within 90 days of
discovery). A Mortgage
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Loan that is "defective" as described in clause (iv) that is not sold or, if
within two years of the Startup Day, exchanged, within 90 days of discovery,
ceases to be a qualified mortgage after such 90-day period.
Permitted investments include cash flow investments, qualified reserve
assets, and foreclosure property. A cash flow investment is an investment,
earning a return in the nature of interest, of amounts received on or with
respect to qualified mortgages for a temporary period, not exceeding 13
months, until the next scheduled distribution to holders of interests in the
REMIC Pool. A qualified reserve asset is any intangible property held for
investment that is part of any reasonably required reserve maintained by the
REMIC Pool to provide for payments of expenses of the REMIC Pool or amounts
due on the regular or residual interests in the event of defaults (including
delinquencies) on the qualified mortgages, lower than expected reinvestment
returns, prepayment interest shortfalls and certain other contingencies. The
reserve fund will be disqualified if more than 30% of the gross income from
the assets in such fund for the year is derived from the sale or other
disposition of property held for less than three months, unless required to
prevent a default on the regular interests caused by a default on one or more
qualified mortgages. A reserve fund must be reduced "promptly and
appropriately" as payments on the Mortgage Loans are received. Foreclosure
property is real property acquired by the REMIC Pool in connection with the
default or imminent default of a qualified mortgage and generally not held
beyond the close of the third calendar year following the year in which such
property is acquired with an extension that may be granted by the Internal
Revenue Service.
In addition to the foregoing requirements, the various interests in a REMIC
Pool also must meet certain requirements. All of the interests in a REMIC Pool
must be either of the following: (i) one or more classes of regular interests
or (ii) a single class of residual interests on which distributions, if any,
are made pro rata. A regular interest is an interest in a REMIC Pool that is
issued on the Startup Day with fixed terms, is designated as a regular
interest, and unconditionally entitles the holder to receive a specified
principal amount (or other similar amount), and provides that interest
payments (or other similar amounts), if any, at or before maturity either are
payable based on a fixed rate or a qualified variable rate, or consist of a
specified, nonvarying portion of the interest payments on qualified mortgages.
Such a specified portion may consist of a fixed number of basis points, a
fixed percentage of the total interest, or a qualified variable rate, inverse
variable rate or difference between two fixed or qualified variable rates on
some or all of the qualified mortgages. The specified principal amount of a
regular interest that provides for interest payments consisting of a
specified, nonvarying portion of interest payments on qualified mortgages may
be zero. A residual interest is an interest in a REMIC Pool other than a
regular interest that is issued on the Startup Day and that is designated as a
residual interest. An interest in a REMIC Pool may be treated as a regular
interest even if payments of principal with respect to such interest are
subordinated to payments on other regular interests or the residual interest
in the REMIC Pool, and are dependent on the absence of defaults or
delinquencies on qualified mortgages or permitted investments, lower than
reasonably expected returns on permitted investments, unanticipated expenses
incurred by the REMIC Pool or prepayment interest shortfalls. Accordingly, the
Regular Certificates of a Series will constitute one or more classes of
regular interests, and the Residual Certificates with respect to that Series
will constitute a single class of residual interests on which distributions
are made pro rata.
If an entity, such as the REMIC Pool, fails to comply with one or more of
the ongoing requirements of the Code for REMIC status during any taxable year,
the Code provides that the entity will not be treated as a REMIC for such year
and thereafter. In this event, an entity with multiple classes of ownership
interests may be treated as a separate association taxable as a corporation
under Treasury regulations, and the Regular Certificates may be treated as
equity interests therein. The Code, however, authorizes the Treasury
Department to issue regulations that address situations where failure to meet
one or more of the requirements for REMIC status occurs inadvertently and in
good faith, and disqualification of the REMIC Pool would occur absent
regulatory relief. Investors should be aware, however, that the Conference
Committee Report to the Tax Reform Act of 1986 (the "1986 Act") indicates that
the relief may be accompanied by sanctions, such as the imposition of a
corporate tax on all or a portion of the REMIC Pool's income for the period of
time in which the requirements for REMIC status are not satisfied.
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TAXATION OF REGULAR CERTIFICATES
General
In general, interest, original issue discount, and market discount on a
Regular Certificate will be treated as ordinary income to a holder of the
Regular Certificate (the "REGULAR CERTIFICATEHOLDER"), and principal payments
on a Regular Certificate will be treated as a return of capital to the extent
of the Regular Certificateholder's basis in the Regular Certificate allocable
thereto. Regular Certificateholders must use the accrual method of accounting
with regard to Regular Certificates, regardless of the method of accounting
otherwise used by such Regular Certificateholders.
Original Issue Discount
Compound Interest Certificates will be, and other classes of Regular
Certificates may be, issued with "original issue discount" within the meaning
of Code Section 1273(a). Holders of any Class of Regular Certificates having
original issue discount generally must include original issue discount in
ordinary income for federal income tax purposes as it accrues, in accordance
with a constant interest method that takes into account the compounding of
interest, in advance of receipt of the cash attributable to such income. The
following discussion is based in part on temporary and final Treasury
regulations issued on February 2, 1994, as amended on June 14, 1996, (the "OID
REGULATIONS") under Code Sections 1271 through 1273 and 1275 and in part on
the provisions of the 1986 Act. Regular Certificateholders should be aware,
however, that the OID Regulations do not adequately address certain issues
relevant to prepayable securities, such as the Regular Certificates. To the
extent such issues are not addressed in such regulations, it is anticipated
that the Trustee will apply the methodology described in the Conference
Committee Report to the 1986 Act. No assurance can be provided that the
Internal Revenue Service will not take a different position as to those
matters not currently addressed by the OID Regulations. Moreover, the OID
Regulations include an anti-abuse rule allowing the Internal Revenue Service
to apply or depart from the OID Regulations where necessary or appropriate to
ensure a reasonable tax result in light of the applicable statutory
provisions. A tax result will not be considered unreasonable under the anti-
abuse rule in the absence of a substantial effect on the present value of a
taxpayer's tax liability. Investors are advised to consult their own tax
advisors as to the discussion herein and the appropriate method for reporting
interest and original issue discount with respect to the Regular Certificates.
Each Regular Certificate (except to the extent described below with respect
to a Regular Certificate on which principal is distributed in a single
installment or by lots of specified principal amounts upon the request of a
Certificateholder or by random lot (a "NON-PRO RATA CERTIFICATE")) will be
treated as a single installment obligation for purposes of determining the
original issue discount includible in a Regular Certificateholder's income.
The total amount of original issue discount on a Regular Certificate is the
excess of the "stated redemption price at maturity" of the Regular Certificate
over its "issue price." The issue price of a Class of Regular Certificates
offered pursuant to this Prospectus generally is the first price at which a
substantial amount of such Class is sold to the public (excluding bond houses,
brokers and underwriters). Although unclear under the OID Regulations, it is
anticipated that the Trustee will treat the issue price of a Class as to which
there is no substantial sale as of the issue date or that is retained by the
Seller as the fair market value of that Class as of the issue date. The issue
price of a Regular Certificate also includes any amount paid by an initial
Regular Certificateholder for accrued interest that relates to a period prior
to the issue date of the Regular Certificate, unless the Regular
Certificateholder elects on its federal income tax return to exclude such
amount from the issue price and to recover it on the first Distribution Date.
The stated redemption price at maturity of a Regular Certificate always
includes the original principal amount of the Regular Certificate, but
generally will not include distributions of interest if such distributions
constitute "qualified stated interest." Under the OID Regulations, qualified
stated interest generally means interest payable at a single fixed rate or a
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 Regular Certificate. Because there is no penalty or
default remedy in the case of nonpayment of interest with respect to a Regular
Certificate, it is possible that no interest on any Class of Regular
Certificates will be treated as qualified stated interest. However, except as
provided in the following
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three sentences or in the applicable Prospectus Supplement, because the
underlying Mortgage Loans provide for remedies in the event of default, it is
anticipated that the Trustee will treat interest with respect to the Regular
Certificates as qualified stated interest. Distributions of interest on a
Compound Interest Certificate, or on other Regular Certificates with respect
to which deferred interest will accrue, will not constitute qualified stated
interest, in which case the stated redemption price at maturity of such
Regular Certificates includes all distributions of interest as well as
principal thereon. Likewise, it is anticipated that the Trustee will treat an
interest-only Class or a Class on which interest is substantially
disproportionate to its principal amount (a so-called "super-premium" Class)
as having no qualified stated interest. Where the interval between the issue
date and the first Distribution Date on a Regular Certificate is shorter than
the interval between subsequent Distribution Dates, the interest attributable
to the additional days will be included in the stated redemption price at
maturity.
Under a de minimis rule, original issue discount on a Regular Certificate
will be considered to be zero if such original issue discount is less than
0.25% of the stated redemption price at maturity of the Regular Certificate
multiplied by the weighted average maturity of the Regular Certificate. For
this purpose, the weighted average maturity of the Regular Certificate is
computed as the sum of the amounts determined by multiplying the number of
full years (i.e., rounding down partial years) from the issue date until each
distribution in reduction of stated redemption price at maturity is scheduled
to be made by a fraction, the numerator of which is the amount of each
distribution included in the stated redemption price at maturity of the
Regular Certificate and the denominator of which is the stated redemption
price at maturity of the Regular Certificate. The Conference Committee Report
to the 1986 Act provides that the schedule of such distributions should be
determined in accordance with the assumed rate of prepayment of the Mortgage
Loans (the "PREPAYMENT ASSUMPTION") and the anticipated reinvestment rate, if
any, relating to the Regular Certificates. The Prepayment Assumption with
respect to a Series of Regular Certificates will be set forth in the
applicable Prospectus Supplement. Holders generally must report de minimis
original issue discount pro rata as principal payments are received, and such
income will be capital gain if the Regular Certificate is held as a capital
asset. Under the OID Regulations, however, Regular Certificateholders may
elect to accrue all de minimis original issue discount as well as market
discount and market premium, under the constant yield method. See "--Election
to Treat All Interest Under the Constant Yield Method."
A Regular Certificateholder generally must include in gross income for any
taxable year the sum of the "daily portions," as defined below, of the
original issue discount on the Regular Certificate accrued during an accrual
period for each day on which it holds the Regular Certificate, including the
date of purchase but excluding the date of disposition. The Trustee will treat
the monthly period ending on the day before each Distribution Date as the
accrual period. With respect to each Regular Certificate, a calculation will
be made of the original issue discount that accrues during each successive
full accrual period (or shorter period from the date of original issue) that
ends on the day before the related Distribution Date on the Regular
Certificate. The Conference Committee Report to the 1986 Act states that the
rate of accrual of original issue discount is intended to be based on the
Prepayment Assumption. Other than as discussed below with respect to a Non-Pro
Rata Certificate, the original issue discount accruing in a full accrual
period would be the excess, if any, of (i) the sum of (a) the present value of
all of the remaining distributions to be made on the Regular Certificate as of
the end of that accrual period, and (b) the distributions made on the Regular
Certificate during the accrual period that are included in the Regular
Certificate's stated redemption price at maturity, over (ii) the adjusted
issue price of the Regular Certificate at the beginning of the accrual period.
The present value of the remaining distributions referred to in the preceding
sentence is calculated based on (i) the yield to maturity of the Regular
Certificate at the issue date, (ii) events (including actual prepayments) that
have occurred prior to the end of the accrual period, and (iii) the Prepayment
Assumption. For these purposes, the adjusted issue price of a Regular
Certificate at the beginning of any accrual period equals the issue price of
the Regular Certificate, increased by the aggregate amount of original issue
discount with respect to the Regular Certificate that accrued in all prior
accrual periods and reduced by the amount of distributions included in the
Regular Certificate's stated redemption price at maturity that were made on
the Regular Certificate in such prior periods. The original issue discount
accruing during any accrual period (as determined in this paragraph) will then
be divided by the number of days in the
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period to determine the daily portion of original issue discount for each day
in the period. With respect to an initial accrual period shorter than a full
accrual period, the daily portions of original issue discount must be
determined according to an appropriate allocation under any reasonable method.
Under the method described above, the daily portions of original issue
discount required to be included in income by a Regular Certificateholder
generally will increase to take into account prepayments on the Regular
Certificates as a result of prepayments on the Mortgage Loans that exceed the
Prepayment Assumption, and generally will decrease (but not below zero for any
period) if the prepayments are slower than the Prepayment Assumption. An
increase in prepayments on the Mortgage Loans with respect to a Series of
Regular Certificates can result in both a change in the priority of principal
payments with respect to certain Classes of Regular Certificates and either an
increase or decrease in the daily portions of original issue discount with
respect to such Regular Certificates.
In the case of a Non-Pro Rata Certificate, it is anticipated that the
Trustee will determine the yield to maturity of such Certificate based upon
the anticipated payment characteristics of the Class as a whole under the
Prepayment Assumption. In general, the original issue discount accruing on
each Non-Pro Rata Certificate in a full accrual period would be its allocable
share of the original issue discount with respect to the entire Class, as
determined in accordance with the preceding paragraph. However, in the case of
a distribution in retirement of the entire unpaid principal balance of any
Non-Pro Rata Certificate (or portion of such unpaid principal balance), (a)
the remaining unaccrued original issue discount allocable to such Certificate
(or to such portion) will accrue at the time of such distribution, and (b) the
accrual of original issue discount allocable to each remaining Certificate of
such Class (or the remaining unpaid principal balance of a partially redeemed
Non-Pro Rata Certificate after a distribution of principal has been received)
will be adjusted by reducing the present value of the remaining payments on
such Class and the adjusted issue price of such Class to the extent
attributable to the portion of the unpaid principal balance thereof that was
distributed. The Seller believes that the foregoing treatment is consistent
with the "pro rata prepayment" rules of the OID Regulations, but with the rate
of accrual of original issue discount determined based on the Prepayment
Assumption for the Class as a whole. Investors are advised to consult their
tax advisors as to this treatment.
Acquisition Premium
A purchaser of a Regular Certificate at a price greater than its adjusted
issue price but less than its stated redemption price at maturity will be
required to include in gross income the daily portions of the original issue
discount on the Regular Certificate reduced pro rata by a fraction, the
numerator of which is the excess of its purchase price over such adjusted
issue price and the denominator of which is the excess of the remaining stated
redemption price at maturity over the adjusted issue price. Alternatively,
such a subsequent purchaser may elect to treat all such acquisition premium
under the constant yield method, as described below under the heading "--
Election to Treat All Interest Under the Constant Yield Method."
Variable Rate Regular Certificates
Regular Certificates may provide for interest based on a variable rate.
Under the OID Regulations, interest is treated as payable at a variable rate
if, generally, (i) the issue price does not exceed the original principal
balance by more than a specified amount and (ii) the interest compounds or is
payable at least annually at current values of (a) one or more "qualified
floating rates," (b) a single fixed rate and one or more qualified floating
rates, (c) a single "objective rate," or (d) a single fixed rate and a single
objective rate that is a "qualified inverse floating rate." A floating rate is
a qualified floating rate if variations in the rate can reasonably be expected
to measure contemporaneous variations in the cost of newly borrowed funds,
where such rate is subject to a fixed multiple that is greater than 0.65 but
not more than 1.35. Such rate may also be increased or decreased by a fixed
spread or subject to a fixed cap or floor, or a cap or floor that is not
reasonably expected as of the issue date to affect the yield of the instrument
significantly. An objective rate is any rate (other than a qualified floating
rate) that is determined using a single fixed formula and that is based on
objective financial or economic information, provided that such information is
not (i) within the control of the issuer or a related party or (ii)
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unique to the circumstances of the issuer or a related party. A qualified
inverse floating rate is a rate equal to a fixed rate minus a qualified
floating rate that inversely reflects contemporaneous variations in the cost
of newly borrowed funds; an inverse floating rate that is not a qualified
inverse floating rate may nevertheless be an objective rate. A Class of
Regular Certificates may be issued under this Prospectus that does not have a
variable rate under the foregoing rules, for example, a Class that bears
different rates at different times during the period it is outstanding such
that it is considered significantly "front-loaded" or "back-loaded" within the
meaning of the OID Regulations. It is possible that such a Class may be
considered to bear "contingent interest" within the meaning of the OID
Regulations. The OID Regulations, as they relate to the treatment of
contingent interest, are by their terms not applicable to Regular
Certificates. However, if final regulations dealing with contingent interest
with respect to Regular Certificates apply the same principles as the OID
Regulations, such regulations may lead to different timing of income inclusion
than would be the case under the OID Regulations for non-contingent debt
instruments. Furthermore, application of such principles could lead to the
characterization of gain on the sale of contingent interest Regular
Certificates as ordinary income. Investors should consult their tax advisors
regarding the appropriate treatment of any Regular Certificate that does not
pay interest at a fixed rate or variable rate as described in this paragraph.
Under the REMIC Regulations, a Regular Certificate (i) bearing a rate that
qualifies as a variable rate under the OID Regulations that is tied to current
values of a variable rate (or the highest, lowest or average of two or more
variable rates, including a rate based on the average cost of funds of one or
more financial institutions), or a positive or negative multiple of such a
rate (plus or minus a specified number of basis points), or that represents a
weighted average of rates on some or all of the Mortgage Loans, including such
a rate that is subject to one or more caps or floors, or (ii) bearing one or
more such variable rates for one or more periods, or one or more fixed rates
for one or more periods, and a different variable rate or fixed rate for other
periods, qualifies as a regular interest in a REMIC. Accordingly, unless
otherwise indicated in the applicable Prospectus Supplement, it is anticipated
that the Trustee will treat Regular Certificates that qualify as regular
interests under this rule in the same manner as obligations bearing a variable
rate for original issue discount reporting purposes.
The amount of original issue discount with respect to a Regular Certificate
bearing a variable rate of interest will accrue in the manner described above
under "--Original Issue Discount," with the yield to maturity and future
payments on such Regular Certificate generally to be determined by assuming
that interest will be payable for the life of the Regular Certificate based on
the initial rate (or, if different, the value of the applicable variable rate
as of the pricing date) for the relevant Class. Unless required otherwise by
applicable final regulations, it is anticipated that the Trustee will treat
such variable interest as qualified stated interest, other than variable
interest on an interest-only or super-premium Class, which will be treated as
non-qualified stated interest includible in the stated redemption price at
maturity. Ordinary income reportable for any period will be adjusted based on
subsequent changes in the applicable interest rate index.
Although unclear under the OID Regulations, unless required otherwise by
applicable final regulations, it is anticipated that the Trustee will treat
Regular Certificates bearing an interest rate that is a weighted average of
the net interest rates on Mortgage Loans as having qualified stated interest,
except to the extent that initial "teaser" rates cause sufficiently "back-
loaded" interest to create more than de minimis original issue discount. The
yield on such Regular Certificates for purposes of accruing original issue
discount will be a hypothetical fixed-rate based on the fixed rates, in the
case of fixed rate Mortgage Loans, and initial "teaser rates" followed by
fully indexed rates, in the case of adjustable-rate Mortgage Loans. In the
case of adjustable-rate Mortgage Loans, the applicable index used to compute
interest on the Mortgage Loans in effect on the pricing date (or possibly the
issue date) will be deemed to be in effect beginning with the period in which
the first weighted average adjustment date occurring after the issue date
occurs. Adjustments will be made in each accrual period either increasing or
decreasing the amount of ordinary income reportable to reflect the actual
Pass-Through Rate on the Regular Certificates.
Market Discount
A purchaser of a Regular Certificate also may be subject to the market
discount rules of Code Sections 1276 through 1278. Under these sections and
the principles applied by the OID Regulations in the context of original
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issue discount, "market discount" is the amount by which the purchaser's
original basis in the Regular Certificate (i) is exceeded by the then-current
principal amount of the Regular Certificate, or (ii) in the case of a Regular
Certificate having original issue discount, is exceeded by the adjusted issue
price of such Regular Certificate at the time of purchase. Such purchaser
generally will be required to recognize ordinary income to the extent of
accrued market discount on such Regular Certificate as distributions
includible in the stated redemption price at maturity thereof are received, in
an amount not exceeding any such distribution. Such market discount would
accrue in a manner to be provided in Treasury regulations and should take into
account the Prepayment Assumption. The Conference Committee Report to the 1986
Act provides that until such regulations are issued, such market discount
would accrue either (i) on the basis of a constant interest rate, or (ii) in
the ratio of stated interest allocable to the relevant period to the sum of
the interest for such period plus the remaining interest as of the end of such
period, or in the case of a Regular Certificate issued with original issue
discount, in the ratio of original issue discount accrued for the relevant
period to the sum of the original issue discount accrued for such period plus
the remaining original issue discount as of the end of such period. Such
purchaser also generally will be required to treat a portion of any gain on a
sale or exchange of the Regular Certificate as ordinary income to the extent
of the market discount accrued to the date of disposition under one of the
foregoing methods, less any accrued market discount previously reported as
ordinary income as partial distributions in reduction of the stated redemption
price at maturity were received. Such purchaser will be required to defer
deduction of a portion of the excess of the interest paid or accrued on
indebtedness incurred to purchase or carry a Regular Certificate over the
interest distributable thereon. The deferred portion of such interest expense
in any taxable year generally will not exceed the accrued market discount on
the Regular Certificate for such year. Any such deferred interest expense is,
in general, allowed as a deduction not later than the year in which the
related market discount income is recognized or the Regular Certificate is
disposed of. As an alternative to the inclusion of market discount in income
on the foregoing basis, the Regular Certificateholder may elect to include
market discount in income currently as it accrues on all market discount
instruments acquired by such Regular Certificateholder in that taxable year or
thereafter, in which case the interest deferral rule will not apply. See "--
Election to Treat All Interest Under the Constant Yield Method" below
regarding an alternative manner in which such election may be deemed to be
made.
By analogy to the OID Regulations, market discount with respect to a Regular
Certificate will be considered to be zero if such market discount is less than
0.25% of the remaining stated redemption price at maturity of such Regular
Certificate multiplied by the weighted average maturity of the Regular
Certificate (determined as described above in the third paragraph under "--
Original Issue Discount") remaining after the date of purchase. It appears
that de minimis market discount would be reported in a manner similar to de
minimis original issue discount. See "--Original Issue Discount" above.
Treasury regulations implementing the market discount rules have not yet been
issued, and therefore investors should consult their own tax advisors
regarding the application of these rules. Investors should also consult
Revenue Procedure 92-67 concerning the elections to include market discount in
income currently and to accrue market discount on the basis of the constant
yield method.
Premium
A Regular Certificate purchased at a cost greater than its remaining stated
redemption price at maturity generally is considered to be purchased at a
premium. If the Regular Certificateholder holds such Regular Certificate as a
"capital asset" within the meaning of Code Section 1221, the Regular
Certificateholder may elect under Code Section 171 to amortize such premium
under the constant yield method. Such election will apply to all debt
obligations acquired by the Regular Certificateholder at a premium held in
that taxable year or thereafter, unless revoked with the permission of the
Internal Revenue Service. The Conference Committee Report to the 1986 Act
indicates a Congressional intent that the same rules that apply to the accrual
of market discount on installment obligations will also apply to amortizing
bond premium under Code Section 171 on installment obligations such as the
Regular Certificates, although it is unclear whether the alternatives to the
constant interest method described above under "--Market Discount" are
available. Amortizable bond premium will be treated as an offset to interest
income on a Regular Certificate, rather than as a separate deduction item. See
"--Election to Treat All Interest Under the Constant Yield Method" below
regarding an alternative manner in which the Code Section 171 election may be
deemed to be made.
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Election to Treat All Interest Under the Constant Yield Method
A holder of a debt instrument such as a Regular Certificate may elect to
treat all interest that accrues on the instrument using the constant yield
method, with none of the interest being treated as qualified stated interest.
For purposes of applying the constant yield method to a debt instrument
subject to such an election, (i) "interest" includes stated interest, original
issue discount, de minimis original issue discount, market discount and de
minimis market discount, as adjusted by any amortizable bond premium or
acquisition premium and (ii) the debt instrument is treated as if the
instrument were issued on the holder's acquisition date in the amount of the
holder's adjusted basis immediately after acquisition. It is unclear whether,
for this purpose, the initial Prepayment Assumption would continue to apply or
if a new prepayment assumption as of the date of the holder's acquisition
would apply. A holder generally may make such an election on an instrument by
instrument basis or for a class or group of debt instruments. However, if the
holder makes such an election with respect to a debt instrument with
amortizable bond premium or with market discount, the holder is deemed to have
made elections to amortize bond premium or to report market discount income
currently as it accrues under the constant yield method, respectively, for all
premium bonds held or market discount bonds acquired by the holder in the same
taxable year or thereafter. The election is made on the holder's federal
income tax return for the year in which the debt instrument is acquired and is
irrevocable except with the approval of the Internal Revenue Service.
Investors should consult their own tax advisors regarding the advisability of
making such an election.
Treatment of Losses
Regular Certificateholders will be required to report income with respect to
Regular Certificates on the accrual method of accounting, without giving
effect to delays or reductions in distributions attributable to defaults or
delinquencies on the Mortgage Loans, except to the extent it can be
established that such amounts are uncollectible. Accordingly, the holder of a
Regular Certificate, particularly a Subordinated Certificate, may have income,
or may incur a diminution in cash flow as a result of a default or
delinquency, but may not be able to take a deduction (subject to the
discussion below) for the corresponding loss until a subsequent taxable year.
In this regard, investors are cautioned that while they may generally cease to
accrue interest income if it reasonably appears that the interest will be
uncollectible, the Internal Revenue Service may take the position that
original issue discount must continue to be accrued in spite of its
uncollectibility until the debt instrument is disposed of in a taxable
transaction or becomes worthless in accordance with the rules of Code Section
166. To the extent the rules of Code Section 166 regarding bad debts are
applicable, it appears that Regular Certificateholders that are corporations
or that otherwise hold the Regular Certificates in connection with a trade or
business should in general be allowed to deduct as an ordinary loss such loss
with respect to principal sustained during the taxable year on account of any
such Regular Certificates becoming wholly or partially worthless, and that, in
general, Regular Certificateholders that are not corporations and do not hold
the Regular Certificates in connection with a trade or business should be
allowed to deduct as a short-term capital loss any loss sustained during the
taxable year on account of a portion of any such Regular Certificates becoming
wholly worthless. Although the matter is not free from doubt, such non-
corporate Regular Certificateholders should be allowed a bad debt deduction at
such time as the principal balance of such Regular Certificates is reduced to
reflect losses resulting from any liquidated Mortgage Loans. The Internal
Revenue Service, however, could take the position that non-corporate holders
will be allowed a bad debt deduction to reflect such losses only after all the
Mortgage Loans remaining in the Trust Estate have been liquidated or the
applicable Class of Regular Certificates has been otherwise retired. The
Internal Revenue Service could also assert that losses on the Regular
Certificates are deductible based on some other method that may defer such
deductions for all holders, such as reducing future cash flow for purposes of
computing original issue discount. This may have the effect of creating
"negative" original issue discount which would be deductible only against
future positive original issue discount or otherwise upon termination of the
Class. Regular Certificateholders are urged to consult their own tax advisors
regarding the appropriate timing, amount and character of any loss sustained
with respect to such Regular Certificates. While losses attributable to
interest previously reported as income should be deductible as ordinary losses
by both corporate and non-corporate holders, the Internal Revenue Service may
take the position that losses attributable to accrued original issue discount
may only be deducted as capital losses in the case of non-corporate holders
who do not hold the Regular Certificates in connection with a trade or
business. Special loss rules are applicable to banks and thrift
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institutions, including rules regarding reserves for bad debts. Such taxpayers
are advised to consult their tax advisors regarding the treatment of losses on
Regular Certificates.
Sale or Exchange of Regular Certificates
If a Regular Certificateholder sells or exchanges a Regular Certificate, the
Regular Certificateholder will recognize gain or loss equal to the difference,
if any, between the amount received and its adjusted basis in the Regular
Certificate. The adjusted basis of a Regular Certificate generally will equal
the cost of the Regular Certificate to the seller, increased by any original
issue discount or market discount previously included in the seller's gross
income with respect to the Regular Certificate and reduced by amounts included
in the stated redemption price at maturity of the Regular Certificate that
were previously received by the seller, by any amortized premium and by any
recognized losses.
Except as described above with respect to market discount, and except as
provided in this paragraph, any gain or loss on the sale or exchange of a
Regular Certificate realized by an investor who holds the Regular Certificate
as a capital asset will be capital gain or loss and will be long-term, mid-
term or short-term depending on whether the Regular Certificate has been held
for the applicable holding period (as described below). Such gain will be
treated as ordinary income (i) if a Regular Certificate is held as part of a
"conversion transaction" as defined in Code Section 1258(c), up to the amount
of interest that would have accrued on the Regular Certificateholder's net
investment in the conversion transaction at 120% of the appropriate applicable
federal rate under Code Section 1274(d) in effect at the time the taxpayer
entered into the transaction minus any amount previously treated as ordinary
income with respect to any prior disposition of property that was held as part
of such transaction, (ii) in the case of a non-corporate taxpayer, to the
extent such taxpayer has made an election under Code Section 163(d)(4) to have
net capital gains taxed as investment income at ordinary income rates, or
(iii) to the extent that such gain does not exceed the excess, if any, of (a)
the amount that would have been includible in the gross income of the holder
if its yield on such Regular Certificate were 110% of the applicable federal
rate as of the date of purchase, over (b) the amount of income actually
includible in the gross income of such holder with respect to such Regular
Certificate. In addition, gain or loss recognized from the sale of a Regular
Certificate by certain banks or thrift institutions will be treated as
ordinary income or loss pursuant to Code Section 582(c). Capital gains of
certain non-corporate taxpayers generally are subject to a lower maximum tax
rate (28%) than ordinary income of such taxpayers (39.6%) for property held
for more than one year but not more than 18 months, and a still lower maximum
tax rate (20%) for property held for more than 18 months. The maximum tax rate
for corporations is the same with respect to both ordinary income and capital
gains.
TAXATION OF RESIDUAL CERTIFICATES
Taxation of REMIC Income
Generally, the "daily portions" of REMIC taxable income or net loss will be
includible as ordinary income or loss in determining the federal taxable
income of holders of Residual Certificates ("RESIDUAL HOLDERS"), and will not
be taxed separately to the REMIC Pool. The daily portions of REMIC taxable
income or net loss of a Residual Holder are determined by allocating the REMIC
Pool's taxable income or net loss for each calendar quarter ratably to each
day in such quarter and by allocating such daily portion among the Residual
Holders in proportion to their respective holdings of Residual Certificates in
the REMIC Pool on such day. REMIC taxable income is generally determined in
the same manner as the taxable income of an individual using the accrual
method of accounting, except, in addition to certain other adjustments, that
(i) the limitations on deductibility of investment interest expense and
expenses for the production of income do not apply, (ii) all bad loans will be
deductible as business bad debts and (iii) the limitation on the deductibility
of interest and expenses related to tax-exempt income will apply. The REMIC
Pool's gross income includes interest, original issue discount income and
market discount income, if any, on the Mortgage Loans, reduced by amortization
of any premium on the Mortgage Loans, plus income from amortization of issue
premium, if any, on the Regular Certificates, plus income on reinvestment of
cash flows and reserve assets, plus any cancellation of indebtedness income
upon allocation of realized losses to the Regular Certificates. The REMIC
Pool's deductions include interest and
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original issue discount expense on the Regular Certificates, servicing fees on
the Mortgage Loans, other administrative expenses of the REMIC Pool and
realized losses on the Mortgage Loans. The requirement that Residual Holders
report their pro rata share of taxable income or net loss of the REMIC Pool
will continue until there are no Certificates of any Class of the related
Series outstanding.
The taxable income recognized by a Residual Holder in any taxable year will
be affected by, among other factors, the relationship between the timing of
recognition of interest and original issue discount or market discount income
or amortization of premium with respect to the Mortgage Loans, on the one
hand, and the timing of deductions for interest (including original issue
discount) or income from amortization of issue premium on the Regular
Certificates on the other hand. In the event that an interest in the Mortgage
Loans is acquired by the REMIC Pool at a discount, and one or more of such
Mortgage Loans is prepaid, the Residual Holder may recognize taxable income
without being entitled to receive a corresponding amount of cash because (i)
the prepayment may be used in whole or in part to make distributions in
reduction of principal on the Regular Certificates and (ii) the discount on
the Mortgage Loans which is includible in income may exceed the deduction
allowed upon such distributions on those Regular Certificates on account of
any unaccrued original issue discount relating to those Regular Certificates.
When there is more than one Class of Regular Certificates that distribute
principal sequentially, this mismatching of income and deductions is
particularly likely to occur in the early years following issuance of the
Regular Certificates when distributions in reduction of principal are being
made in respect of earlier Classes of Regular Certificates to the extent that
such Classes are not issued with substantial discount or are issued at a
premium. If taxable income attributable to such a mismatching is realized, in
general, losses would be allowed in later years as distributions on the later
maturing Classes of Regular Certificates are made. Taxable income may also be
greater in earlier years than in later years as a result of the fact that
interest expense deductions, expressed as a percentage of the outstanding
principal amount of such a Series of Regular Certificates, may increase over
time as distributions in reduction of principal are made on the lower yielding
Classes of Regular Certificates, whereas, to the extent the REMIC Pool
consists of fixed- rate Mortgage Loans, interest income with respect to any
given Mortgage Loan will remain constant over time as a percentage of the
outstanding principal amount of that loan. Consequently, Residual Holders must
have sufficient other sources of cash to pay any federal, state, or local
income taxes due as a result of such mismatching or unrelated deductions
against which to offset such income, subject to the discussion of "excess
inclusions" below under "--Limitations on Offset or Exemption of REMIC
Income." The timing of such mismatching of income and deductions described in
this paragraph, if present with respect to a Series of Certificates, may have
a significant adverse effect upon a Residual Holder's after-tax rate of
return. In addition, a Residual Holder's taxable income during certain periods
may exceed the income reflected by such Residual Holder for such periods in
accordance with generally accepted accounting principles. Investors should
consult their own accountants concerning the accounting treatment of their
investment in Residual Certificates.
Basis and Losses
The amount of any net loss of the REMIC Pool that may be taken into account
by the Residual Holder is limited to the adjusted basis of the Residual
Certificate as of the close of the quarter (or time of disposition of the
Residual Certificate if earlier), determined without taking into account the
net loss for the quarter. The initial adjusted basis of a purchaser of a
Residual Certificate is the amount paid for such Residual Certificate. Such
adjusted basis will be increased by the amount of taxable income of the REMIC
Pool reportable by the Residual Holder and will be decreased (but not below
zero), first, by a cash distribution from the REMIC Pool and, second, by the
amount of loss of the REMIC Pool reportable by the Residual Holder. Any loss
that is disallowed on account of this limitation may be carried over
indefinitely with respect to the Residual Holder as to whom such loss was
disallowed and may be used by such Residual Holder only to offset any income
generated by the same REMIC Pool.
A Residual Holder will not be permitted to amortize directly the cost of its
Residual Certificate as an offset to its share of the taxable income of the
related REMIC Pool. However, that taxable income will not include cash
received by the REMIC Pool that represents a recovery of the REMIC Pool's
basis in its assets. Such recovery of basis by the REMIC Pool will have the
effect of amortization of the issue price of the Residual
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Certificates over their life. However, in view of the possible acceleration of
the income of Residual Holders described above under "--Taxation of REMIC
Income," the period of time over which such issue price is effectively
amortized may be longer than the economic life of the Residual Certificates.
A Residual Certificate may have a negative value if the net present value of
anticipated tax liabilities exceeds the present value of anticipated cash
flows. The REMIC Regulations appear to treat the issue price of such a
residual interest as zero rather than such negative amount for purposes of
determining the REMIC Pool's basis in its assets. The preamble to the REMIC
Regulations states that the Internal Revenue Service may provide future
guidance on the proper tax treatment of payments made by a transferor of such
a residual interest to induce the transferee to acquire the interest, and
Residual Holders should consult their own tax advisors in this regard.
Further, to the extent that the initial adjusted basis of a Residual Holder
(other than an original holder) in the Residual Certificate is greater than
the corresponding portion of the REMIC Pool's basis in the Mortgage Loans, the
Residual Holder will not recover a portion of such basis until termination of
the REMIC Pool unless future Treasury regulations provide for periodic
adjustments to the REMIC income otherwise reportable by such holder. The REMIC
Regulations currently in effect do not so provide. See "--Treatment of Certain
Items of REMIC Income and Expense--Market Discount" below regarding the basis
of Mortgage Loans to the REMIC Pool and "--Sale or Exchange of a Residual
Certificate" below regarding possible treatment of a loss upon termination of
the REMIC Pool as a capital loss.
Treatment of Certain Items of REMIC Income and Expense
Although the Seller intends to compute REMIC income and expense in
accordance with the Code and applicable regulations, the authorities regarding
the determination of specific items of income and expense are subject to
differing interpretations. The Seller makes no representation as to the
specific method that it will use for reporting income with respect to the
Mortgage Loans and expenses with respect to the Regular Certificates and
different methods could result in different timing of reporting of taxable
income or net loss to Residual Holders or differences in capital gain versus
ordinary income.
Original Issue Discount and Premium. Generally, the REMIC Pool's deductions
for original issue discount and income from amortization of issue premium will
be determined in the same manner as original issue discount income on Regular
Certificates as described above under "--Taxation of Regular Certificates--
Original Issue Discount" and "--Variable Rate Regular Certificates," without
regard to the de minimis rule described therein, and "--Premium."
Market Discount. The REMIC Pool will have market discount income in respect
of Mortgage Loans if, in general, the basis of the REMIC Pool in such Mortgage
Loans is exceeded by their unpaid principal balances. The REMIC Pool's basis
in such Mortgage Loans is generally the fair market value of the Mortgage
Loans immediately after the transfer thereof to the REMIC Pool. The REMIC
Regulations provide that such basis is equal in the aggregate to the issue
prices of all regular and residual interests in the REMIC Pool. The accrued
portion of such market discount would be recognized currently as an item of
ordinary income in a manner similar to original issue discount. Market
discount income generally should accrue in the manner described above under
"--Taxation of Regular Certificates--Market Discount."
Premium. Generally, if the basis of the REMIC Pool in the Mortgage Loans
exceeds the unpaid principal balances thereof, the REMIC Pool will be
considered to have acquired such Mortgage Loans at a premium equal to the
amount of such excess. As stated above, the REMIC Pool's basis in Mortgage
Loans is the fair market value of the Mortgage Loans, based on the aggregate
of the issue prices of the regular and residual interests in the REMIC Pool
immediately after the transfer thereof to the REMIC Pool. In a manner
analogous to the discussion above under "--Taxation of Regular Certificates--
Premium," a person that holds a Mortgage Loan as a capital asset under Code
Section 1221 may elect under Code Section 171 to amortize premium on Mortgage
Loans originated after September 27, 1985 under the constant yield method.
Amortizable bond premium will be treated as an offset to interest income on
the Mortgage Loans, rather than as a separate deduction item. Because
substantially all of the mortgagors on the Mortgage Loans are expected to be
individuals, Code Section 171 will
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not be available for premium on Mortgage Loans originated on or prior to
September 27, 1985. Premium with respect to such Mortgage Loans may be
deductible in accordance with a reasonable method regularly employed by the
holder thereof. The allocation of such premium pro rata among principal
payments should be considered a reasonable method; however, the Internal
Revenue Service may argue that such premium should be allocated in a different
manner, such as allocating such premium entirely to the final payment of
principal.
Limitations on Offset or Exemption of REMIC Income
A portion (or all) of the REMIC taxable income includible in determining the
federal income tax liability of a Residual Holder will be subject to special
treatment. That portion, referred to as the "excess inclusion," is equal to
the excess of REMIC taxable income for the calendar quarter allocable to a
Residual Certificate over the daily accruals for such quarterly period of (i)
120% of the long-term applicable federal rate that would have applied to the
Residual Certificate (if it were a debt instrument) on the Startup Day under
Code Section 1274(d), multiplied by (ii) the adjusted issue price of such
Residual Certificate at the beginning of such quarterly period. For this
purpose, the adjusted issue price of a Residual Certificate at the beginning
of a quarter is the issue price of the Residual Certificate, plus the amount
of such daily accruals of REMIC income described in this paragraph for all
prior quarters, decreased by any distributions made with respect to such
Residual Certificate prior to the beginning of such quarterly period.
Accordingly, the portion of the REMIC Pool's taxable income that will be
treated as excess inclusions will be a larger portion of such income as the
adjusted issue price of the Residual Certificates diminishes.
The portion of a Residual Holder's REMIC taxable income consisting of the
excess inclusions generally may not be offset by other deductions, including
net operating loss carryforwards, on such Residual Holder's return. However,
net operating loss carryovers are determined without regard to excess
inclusion income. Further, if the Residual Holder is an organization subject
to the tax on unrelated business income imposed by Code Section 511, the
Residual Holder's excess inclusions will be treated as unrelated business
taxable income of such Residual Holder for purposes of Code Section 511. In
addition, REMIC taxable income is subject to 30% withholding tax with respect
to certain persons who are not U.S. Persons (as defined below under "--Tax-
Related Restrictions on Transfer of Residual Certificates--Foreign
Investors"), and the portion thereof attributable to excess inclusions is not
eligible for any reduction in the rate of withholding tax (by treaty or
otherwise). See "--Taxation of Certain Foreign Investors--Residual
Certificates" below. Finally, if a real estate investment trust or a regulated
investment company owns a Residual Certificate, a portion (allocated under
Treasury regulations yet to be issued) of dividends paid by the real estate
investment trust or regulated investment company could not be offset by net
operating losses of its shareholders, would constitute unrelated business
taxable income for tax-exempt shareholders, and would be ineligible for
reduction of withholding to certain persons who are not U.S. Persons. The
SBJPA 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 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 SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on the alternative minimum taxable income of a
Residual Holder. First, alternative minimum taxable income for a Residual
Holder is determined without regard to the special rule, discussed above, that
taxable income cannot be less than excess inclusions. Second, a Residual
Holder's alternative minimum taxable income for a taxable year cannot be less
than the excess inclusions for the year. Third, the amount of any alternative
minimum tax net operating loss deduction must be computed without regard to
any excess inclusions. These rules are effective for taxable years beginning
after December 31, 1986, unless a Residual Holder elects to have such rules
apply only to taxable years beginning after August 20, 1996.
Tax-Related Restrictions on Transfer of Residual Certificates
Disqualified Organizations. If any legal or beneficial interest in a
Residual Certificate is transferred to a Disqualified Organization (as defined
below), a tax would be imposed in an amount equal to the product of (i)
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the present value of the total anticipated excess inclusions with respect to
such Residual Certificate for periods after the transfer and (ii) the highest
marginal federal income tax rate applicable to corporations. The REMIC
Regulations provide that the anticipated excess inclusions are based on actual
prepayment experience to the date of the transfer and projected payments based
on the Prepayment Assumption. The present value rate equals the applicable
federal rate under Code Section 1274(d) as of the date of the transfer for a
term ending with the last calendar quarter in which excess inclusions are
expected to accrue. Such rate is applied to the anticipated excess inclusions
from the end of the remaining calendar quarters in which they arise to the
date of the transfer. Such a tax generally would be imposed on the transferor
of the Residual Certificate, except that where such transfer is through an
agent (including a broker, nominee or other middleman) for a Disqualified
Organization, the tax would instead be imposed on such agent. However, a
transferor of a Residual Certificate would in no event be liable for such tax
with respect to a transfer if the transferee furnishes to the transferor an
affidavit stating that the transferee is not a Disqualified Organization and,
as of the time of the transfer, the transferor does not have actual knowledge
that such affidavit is false. The tax also may be waived by the Internal
Revenue Service if the Disqualified Organization promptly disposes of the
Residual Certificate and the transferor pays income tax at the highest
corporate rate on the excess inclusion for the period the Residual Certificate
is actually held by the Disqualified Organization.
In addition, if a Pass-Through Entity (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
such entity, then a tax is imposed on such entity equal to the product of (i)
the amount of excess inclusions that are allocable to the interest in the
Pass-Through Entity during the period such interest is held by such
Disqualified Organization, and (ii) the highest marginal federal corporate
income tax rate. Such tax would be deductible from the ordinary gross income
of the Pass-Through Entity for the taxable year. The Pass-Through Entity would
not be liable for such tax if it has received an affidavit from such record
holder that it is not a Disqualified Organization or stating such holder's
taxpayer identification number and, during the period such person is the
record holder of the Residual Certificate, the Pass-Through Entity does not
have actual knowledge that such affidavit is false.
For taxable years beginning on or after January 1, 1998, if an "electing
large partnership" holds a Residual Certificate, all interests in the electing
large partnership are treated as held by Disqualified Organizations for
purposes of the tax imposed upon a Pass-Through Entity by Section 860E(c) of
the Code. An exception to this tax, otherwise available to a Pass-Through
Entity that is furnished certain affidavits by record holders of interests in
the entity and that does not know such affidavits are false, is not available
to an electing large partnership.
For these purposes, (i) "DISQUALIFIED ORGANIZATION" means the United States,
any state or political subdivision thereof, any foreign government, any
international organization, any agency or instrumentality of any of the
foregoing (provided, that such term does not include an instrumentality if all
of its activities are subject to tax and a majority of its board of directors
is not selected by any such governmental entity), any cooperative organization
furnishing electric energy or providing telephone service to persons in rural
areas as described in Code Section 1381(a)(2)(C), and any organization (other
than a farmers' cooperative described in Code Section 521) that is exempt from
taxation under the Code unless such organization is subject to the tax on
unrelated business income imposed by Code Section 511, (ii) "PASS-THROUGH
ENTITY" means any regulated investment company, real estate investment trust,
common trust fund, partnership, trust or estate and certain corporations
operating on a cooperative basis, and (iii) an "ELECTING LARGE PARTNERSHIP"
means any partnership having more than 100 members during the preceding tax
year (other than certain service partnerships and commodity pools), which
elect to apply simplified reporting provisions under the Code. Except as may
be provided in Treasury regulations, any person holding an interest in a Pass-
Through Entity as a nominee for another will, with respect to such interest,
be treated as a Pass-Through Entity.
The Pooling and Servicing Agreement with respect to a Series will provide
that no legal or beneficial interest in a Residual Certificate may be
transferred or registered unless (i) the proposed transferee furnishes to the
Seller and the Trustee an affidavit providing its taxpayer identification
number and stating that such transferee is the beneficial owner of the
Residual Certificate and is not a Disqualified Organization and is not
purchasing
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such Residual Certificate on behalf of a Disqualified Organization (i.e., as a
broker, nominee or middleman thereof) and (ii) the transferor provides a
statement in writing to the Seller and the Trustee that it has no actual
knowledge that such affidavit is false. Moreover, the Pooling and Servicing
Agreement will provide that any attempted or purported transfer in violation
of these transfer restrictions will be null and void and will vest no rights
in any purported transferee. Each Residual Certificate with respect to a
Series will bear a legend referring to such restrictions on transfer, and each
Residual Holder will be deemed to have agreed, as a condition of ownership
thereof, to any amendments to the related Pooling and Servicing Agreement
required under the Code or applicable Treasury regulations to effectuate the
foregoing restrictions. Information necessary to compute an applicable excise
tax must be furnished to the Internal Revenue Service and to the requesting
party within 60 days of the request, and the Seller or the Trustee may charge
a fee for computing and providing such information.
Noneconomic Residual Interests. The REMIC Regulations would disregard
certain transfers of Residual Certificates, in which case the transferor would
continue to be treated as the owner of the Residual Certificates and thus
would continue to be subject to tax on its allocable portion of the net income
of the REMIC Pool. Under the REMIC Regulations, a transfer of a noneconomic
residual interest (as defined below) to a Residual Holder (other than a
Residual Holder who is not a U.S. Person, as defined below under "--FOREIGN
INVESTORS") is disregarded for all federal income tax purposes if a
significant purpose of the transferor is to impede the assessment or
collection of tax. A residual interest in a REMIC (including a residual
interest with a positive value at issuance) 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 at least equals the
product of the present value of the anticipated excess inclusions and the
highest federal corporate income tax rate in effect 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 taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes on each excess inclusion. The
anticipated excess inclusions and the present value rate are determined in the
same manner as set forth above under "--Disqualified Organizations." The REMIC
Regulations explain that a significant purpose to impede the assessment or
collection of tax exists if the transferor, at the time of the transfer,
either knew or should have known that the transferee would be unwilling or
unable to pay taxes due on its share of the taxable income of the REMIC. A
safe harbor is provided if (i) the transferor conducted, at the time of the
transfer, a reasonable investigation of the financial condition of the
transferee and found that the transferee historically had paid its debts as
they came due and found no significant evidence to indicate that the
transferee would not continue to pay its debts as they came due in the future,
and (ii) the transferee represents to the transferor that it understands that,
as the holder of the non-economic residual interest, the transferee may incur
tax liabilities in excess of any cash flows generated by the interest and that
the transferee intends to pay taxes associated with holding the residual
interest as they become due. The Pooling and Servicing Agreement with respect
to each Series of Certificates will require the transferee of a Residual
Certificate to certify to the matters in the preceding sentence as part of the
affidavit described above under the heading "--Disqualified Organizations."
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Certificate that has "tax avoidance potential" to a "foreign person"
will be disregarded for all federal tax purposes. This rule appears intended
to apply to a transferee who is not a U.S. Person (as defined below), unless
such transferee's income is effectively connected with the conduct of a trade
or business within the United States. A Residual Certificate is deemed to have
tax avoidance potential unless, at the time of the transfer, (i) the future
value of expected distributions equals at least 30% of the anticipated excess
inclusions after the transfer, and (ii) the transferor reasonably expects that
the transferee will receive sufficient distributions from the REMIC Pool at or
after the time at which the excess inclusions accrue and prior to the end of
the next succeeding taxable year for the accumulated withholding tax liability
to be paid. If the non-U.S. Person transfers the Residual Certificate back to
a U.S. Person, the transfer will be disregarded and the foreign transferor
will continue to be treated as the owner unless arrangements are made so that
the transfer does not have the effect of allowing the transferor to avoid tax
on accrued excess inclusions.
The Prospectus Supplement relating to the Certificates of a Series may
provide that a Residual Certificate may not be purchased by or transferred to
any person that is not a U.S. Person or may describe the circumstances
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and restrictions pursuant to which such a transfer may be made. The term "U.S.
PERSON" means a citizen or resident of the United States, a corporation,
partnership (except to the extent provided in applicable Treasury Regulations)
or other entity created or organized in or under the laws of the United States
or any political subdivision thereof, an estate that is subject to U.S.
federal income tax regardless of the source of its income, or a trust if a
court within the United States is able to exercise primary supervision over
the administration of such trust, and one or more such U.S. Persons have the
authority to control all substantial decisions of such trust (or, to the
extent provided in applicable Treasury regulations, certain trusts in
existence on August 20, 1996 which are eligible to elect to be treated as U.S.
Persons).
Sale or Exchange of a Residual Certificate
Upon the sale or exchange of a Residual Certificate, the Residual Holder
will recognize gain or loss equal to the excess, if any, of the amount
realized over the adjusted basis (as described above under "--Basis and
Losses") of such Residual Holder in such Residual Certificate at the time of
the sale or exchange. In addition to reporting the taxable income of the REMIC
Pool, a Residual Holder will have taxable income to the extent that any cash
distribution to it from the REMIC Pool exceeds such adjusted basis on that
Distribution Date. Such income will be treated as gain from the sale or
exchange of the Residual Certificate. It is possible that the termination of
the REMIC Pool may be treated as a sale or exchange of a Residual Holder's
Residual Certificate, in which case, if the Residual Holder has an adjusted
basis in its Residual Certificate remaining when its interest in the REMIC
Pool terminates, and if it holds such Residual Certificate as a capital asset
under Code Section 1221, then it will recognize a capital loss at that time in
the amount of such remaining adjusted basis.
Any gain on the sale of a Residual Certificate will be treated as ordinary
income (i) if a Residual Certificate is held as part of a "conversion
transaction" as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the Residual Certificateholder's net investment in
the conversion transaction at 120% of the appropriate applicable Federal rate
in effect at the time the taxpayer entered into the transaction minus any
amount previously treated as ordinary income with respect to any prior
disposition of property that was held as a part of such transaction or (ii) in
the case of a non-corporate taxpayer, to the extent such taxpayer has made an
election under Code Section 163(d)(4) to have net capital gains taxed as
investment income at ordinary income rates. In addition, gain or loss
recognized from the sale of a Residual Certificate by certain banks or thrift
institutions will be treated as ordinary income or loss pursuant to Code
Section 582(c).
The Conference Committee Report to the 1986 Act provides that, except as
provided in Treasury regulations yet to be issued, the wash sale rules of Code
Section 1091 will apply to dispositions of Residual Certificates where the
seller of the Residual Certificate, during the period beginning six months
before the sale or disposition of the Residual Certificate and ending six
months after such sale or disposition, acquires (or enters into any other
transaction that results in the application of Code Section 1091) any residual
interest in any REMIC or any interest in a "taxable mortgage pool" (such as a
non-REMIC owner trust) that is economically comparable to a Residual
Certificate.
Mark to Market Regulations
The Internal Revenue Service has issued final regulations (the "MARK TO
MARKET REGULATIONS") under Code Section 475 relating to the requirement that a
securities dealer mark to market securities held for sale to customers. This
mark-to-market requirement applies to all securities of a dealer, except to
the extent that the dealer has specifically identified a security as held for
investment. The Mark to Market Regulations provide that, for purposes of this
mark-to-market requirement, a Residual Certificate is not treated as a
security and thus may not be marked to market. The Mark to Market Regulations
apply to all Residual Certificates acquired on or after January 4, 1995.
TAXES THAT MAY BE IMPOSED ON THE REMIC POOL
Prohibited Transactions
Income from certain transactions by the REMIC Pool, called prohibited
transactions, will not be part of the calculation of income or loss includible
in the federal income tax returns of Residual Holders, but rather will be
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taxed directly to the REMIC Pool at a 100% rate. Prohibited transactions
generally include (i) the disposition of a qualified mortgage other than for
(a) substitution within two years of the Startup Day for a defective
(including a defaulted) obligation (or repurchase in lieu of substitution of a
defective (including a defaulted) obligation at any time) or for any qualified
mortgage within three months of the Startup Day, (b) foreclosure, default, or
imminent default of a qualified mortgage, (c) bankruptcy or insolvency of the
REMIC Pool, or (d) a qualified (complete) liquidation, (ii) the receipt of
income from assets that are not the type of mortgages or investments that the
REMIC Pool is permitted to hold, (iii) the receipt of compensation for
services, or (iv) the receipt of gain from disposition of cash flow
investments other than pursuant to a qualified liquidation. Notwithstanding
(i) and (iv) of the preceding sentence, it is not a prohibited transaction to
sell REMIC Pool property to prevent a default on Regular Certificates as a
result of a default on qualified mortgages or to facilitate a clean-up call
(generally, an optional prepayment of the remaining principal balance of a
Class of Regular Certificates to save administrative costs when no more than a
small percentage of the Certificates is outstanding). The REMIC Regulations
indicate that the modification of a qualified mortgage generally will not be
treated as a disposition if it is occasioned by a default or reasonably
foreseeable default, an assumption of the Mortgage Loan, the waiver of a due-
on-sale or due-on-encumbrance clause, or the conversion of an interest rate by
a mortgagor pursuant to the terms of a convertible adjustable rate Mortgage
Loan.
Contributions to the REMIC Pool After the Startup Day
In general, the REMIC Pool will be subject to a tax at a 100% rate on the
value of any property contributed to the REMIC Pool after the Startup Day.
Exceptions are provided for cash contributions to the REMIC Pool (i) during
the three months following the Startup Day, (ii) made to a qualified reserve
fund by a Residual Holder, (iii) in the nature of a guarantee, (iv) made to
facilitate a qualified liquidation or clean-up call, and (v) as otherwise
permitted in Treasury regulations yet to be issued. It is not anticipated that
there will be any contributions to the REMIC Pool after the Startup Day.
Net Income from Foreclosure Property
The REMIC Pool will be subject to federal income tax at the highest
corporate rate on "net income from foreclosure property," determined by
reference to the rules applicable to real estate investment trusts. Generally,
property acquired by deed in lieu of foreclosure would be treated as
"foreclosure property" for a period not exceeding the close of the third
calendar year after the year in which the REMIC Pool acquired such property,
with a possible extension. Net income from foreclosure property generally
means gain from the sale of a foreclosure property that is inventory property
and gross income from foreclosure property other than qualifying rents and
other qualifying income for a real estate investment trust. It is not
anticipated that the REMIC Pool will have any taxable net income from
foreclosure property.
LIQUIDATION OF THE REMIC POOL
If a REMIC Pool adopts a plan of complete liquidation, within the meaning of
Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in the
REMIC Pool's final tax return a date on which such adoption is deemed to
occur, and sells all of its assets (other than cash) within a 90-day period
beginning on such date, the REMIC Pool will not be subject to the prohibited
transaction rules on the sale of its assets, provided that the REMIC Pool
credits or distributes in liquidation all of the sale proceeds plus its cash
(other than amounts retained to meet claims) to holders of Regular
Certificates and Residual Holders within the 90-day period.
ADMINISTRATIVE MATTERS
The REMIC Pool will be required to maintain its books on a calendar year
basis and to file federal income tax returns for federal income tax purposes
in a manner similar to a partnership. The form for such income tax return is
Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return. The
Trustee will be required to sign the REMIC Pool's returns. Treasury
regulations provide that, except where there is a single Residual Holder for
an entire taxable year, the REMIC Pool will be subject to the procedural and
administrative
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rules of the Code applicable to partnerships, including the determination by
the Internal Revenue Service of any adjustments to, among other things, items
of REMIC income, gain, loss, deduction, or credit in a unified administrative
proceeding. The Servicer or, if there is more than one Servicer, the Master
Servicer will be obligated to act as "tax matters person," as defined in
applicable Treasury regulations, with respect to the REMIC Pool, in its
capacity as either Residual Holder or agent of the Residual Holders. If the
Code or applicable Treasury regulations do not permit the Servicer or the
Master Servicer, as applicable, to act as tax matters person in its capacity
as agent of the Residual Holders, the Residual Holder chosen by the Residual
Holders or such other person specified pursuant to Treasury regulations will
be required to act as tax matters person.
LIMITATIONS ON DEDUCTION OF CERTAIN EXPENSES
An investor who is an individual, estate, or trust will be subject to
limitation with respect to certain itemized deductions described in Code
Section 67, to the extent that such itemized deductions, in the aggregate, do
not exceed 2% of the investor's adjusted gross income. In addition, Code
Section 68 provides that itemized deductions otherwise allowable for a taxable
year of an individual taxpayer will be reduced by the lesser of (i) 3% of the
excess, if any, of adjusted gross income over $124,500 for 1998 ($62,250 in
the case of a married individual filing a separate return) (subject to
adjustment for inflation in subsequent years), or (ii) 80% of the amount of
itemized deductions otherwise allowable for such year. In the case of a REMIC
Pool, such deductions may include deductions under Code Section 212 for the
Servicing Fee and all administrative and other expenses relating to the REMIC
Pool, or any similar expenses allocated to the REMIC Pool with respect to a
regular interest it holds in another REMIC. Such investors who hold REMIC
Certificates either directly or indirectly through certain pass-through
entities may have their pro rata share of such expenses allocated to them as
additional gross income, but may be subject to such limitation on deductions.
In addition, such expenses are not deductible at all for purposes of computing
the alternative minimum tax, and may cause such investors to be subject to
significant additional tax liability. Temporary Treasury regulations provide
that the additional gross income and corresponding amount of expenses
generally are to be allocated entirely to the holders of Residual Certificates
in the case of a REMIC Pool that would not qualify as a fixed investment trust
in the absence of a REMIC election. However, such additional gross income and
limitation on deductions will apply to the allocable portion of such expenses
to holders of Regular Certificates, as well as holders of Residual
Certificates, where such Regular Certificates are issued in a manner that is
similar to pass-through certificates in a fixed investment trust. Unless
indicated otherwise in the applicable Prospectus Supplement, all such expenses
will be allocable to the Residual Certificates. In general, such allocable
portion will be determined based on the ratio that a REMIC Certificateholder's
income, determined on a daily basis, bears to the income of all holders of
Regular Certificates and Residual Certificates with respect to a REMIC Pool.
As a result, individuals, estates or trusts holding REMIC Certificates (either
directly or indirectly through a grantor trust, partnership, S corporation,
REMIC or certain other pass-through entities described in the foregoing
temporary Treasury regulations) may have taxable income in excess of the
interest income at the pass-through rate on Regular Certificates that are
issued in a single class or otherwise consistently with fixed investment trust
status or in excess of cash distributions for the related period on Residual
Certificates.
TAXATION OF CERTAIN FOREIGN INVESTORS
Regular Certificates
Interest, including original issue discount, distributable to Regular
Certificateholders who are non-resident aliens, foreign corporations, or other
Non-U.S. Persons (as defined below), will be considered "portfolio interest"
and, therefore, generally will not be subject to 30% United States withholding
tax, provided that such Non-U.S. Person (i) is not a "10-percent shareholder"
within the meaning of Code Section 871(h)(3)(B) or a controlled foreign
corporation described in Code Section 881(c)(3)(C) and (ii) provides the
Trustee, or the person who would otherwise be required to withhold tax from
such distributions under Code Section 1441 or 1442, with an appropriate
statement, signed under penalties of perjury, identifying the beneficial owner
and stating, among other things, that the beneficial owner of the Regular
Certificate is a Non-U.S. Person, and the Non-U.S. Person provides the
Trustee, or the person who would otherwise be required to withhold tax from
such distributions
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under Code Section 1441 or 1442, with the appropriate Internal Revenue Service
form establishing the applicability of either of these two exemptions. If such
statement, or any other required statement, is not provided, 30% withholding
will apply unless reduced or eliminated pursuant to an applicable tax treaty
or unless the interest on the Regular Certificate is effectively connected
with the conduct of a trade or business within the United States by such Non-
U.S. Person. In the latter case, such Non-U.S. Person will be subject to
United States federal income tax at regular rates. Investors who are Non-U.S.
Persons should consult their own tax advisors regarding the specific tax
consequences to them of owning a Regular Certificate. The term "NON-U.S.
PERSON" means any person who is not a U.S. Person.
The Internal Revenue Service recently issued final regulations (the "NEW
REGULATIONS") which would provide alternative methods of satisfying the
beneficial ownership certification requirement described above. The New
Regulations are effective January 1, 2000, although valid withholding
certificates that are held on December 31, 1999, remain valid until the
earlier of December 31, 2000 or the due date of expiration of the certificate
under the rules as currently in effect. The New Regulations would require, in
the case of Regular Certificates held by a foreign partnership, that (x) the
certification described above be provided by the partners rather than by the
foreign partnership and (y) the partnership provide certain information,
including a United States taxpayer identification number. A look-through rule
would apply in the case of tiered partnerships. Non-U.S. Persons should
consult their own tax advisors concerning the application of the certification
requirements in the New Regulations.
Residual Certificates
The Conference Committee Report to the 1986 Act indicates that amounts paid
to Residual Holders who are Non-U.S. Persons generally should be treated as
interest for purposes of the 30% (or lower treaty rate) United States
withholding tax. Treasury regulations provide that amounts distributed to
Residual Holders may qualify as "portfolio interest," subject to the
conditions described in "Regular Certificates" above, but only to the extent
that (i) the Mortgage Loans were issued after July 18, 1984 and (ii) the Trust
Estate or segregated pool of assets therein (as to which a separate REMIC
election will be made), to which the Residual Certificate relates, consists of
obligations issued in "registered form" within the meaning of Code Section
163(f)(1). Generally, Mortgage Loans will not be, but regular interests in
another REMIC Pool will be, considered obligations issued in registered form.
Furthermore, a Residual Holder will not be entitled to any exemption from the
30% withholding tax (or lower treaty rate) to the extent of that portion of
REMIC taxable income that constitutes an "excess inclusion." See "--Taxation
of Residual Certificates--Limitations on Offset or Exemption of REMIC Income."
If the amounts paid to Residual Holders who are Non-U.S. Persons are
effectively connected with the conduct of a trade or business within the
United States by such Non-U.S. Persons, 30% (or lower treaty rate) withholding
will not apply. Instead, the amounts paid to such Non-U.S. Persons will be
subject to United States federal income tax at regular rates. If 30% (or lower
treaty rate) withholding is applicable, such amounts generally will be taken
into account for purposes of withholding only when paid or otherwise
distributed (or when the Residual Certificate is disposed of) under rules
similar to withholding upon disposition of debt instruments that have original
issue discount. See "--Taxation of Residual Certificates--Tax-Related
Restrictions on Transfer of Residual Certificates--Foreign Investors" above
concerning the disregard of certain transfers having "tax avoidance
potential." Investors who are Non-U.S. Persons should consult their own tax
advisors regarding the specific tax consequences to them of owning Residual
Certificates.
BACKUP WITHHOLDING
Distributions made on the Regular Certificates, and proceeds from the sale
of the Regular Certificates to or through certain brokers, may be subject to a
"backup" withholding tax under Code Section 3406 of 31% on "reportable
payments" (including interest distributions, original issue discount, and,
under certain circumstances, principal distributions) unless the Regular
Certificateholder complies with certain reporting and/or certification
procedures, including the provision of its taxpayer identification number to
the Trustee, its agent or the broker who effected the sale of the Regular
Certificate, or such Certificateholder is otherwise an exempt recipient under
applicable provisions of the Code. Any amounts to be withheld from
distribution on the Regular
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Certificates would be refunded by the Internal Revenue Service or allowed as a
credit against the Regular Certificateholder's federal income tax liability.
The New Regulations change certain of the rules relating to certain
presumptions currently available relating to information reporting and backup
withholding. Non-U.S. Persons are urged to contact their own tax advisors
regarding the application to them of backup withholding and information
reporting.
REPORTING REQUIREMENTS
Reports of accrued interest, original issue discount and information
necessary to compute the accrual of market discount will be made annually to
the Internal Revenue Service and to individuals, estates, non-exempt and non-
charitable trusts, and partnerships who are either holders of record of
Regular Certificates or beneficial owners who own Regular Certificates through
a broker or middleman as nominee. All brokers, nominees and all other non-
exempt holders of record of Regular Certificates (including corporations, non-
calendar year taxpayers, securities or commodities dealers, real estate
investment trusts, investment companies, common trust funds, thrift
institutions and charitable trusts) may request such information for any
calendar quarter by telephone or in writing by contacting the person
designated in Internal Revenue Service Publication 938 with respect to a
particular Series of Regular Certificates. Holders through nominees must
request such information from the nominee.
The Internal Revenue Service's Form 1066 has an accompanying Schedule Q,
Quarterly Notice to Residual Interest Holders of REMIC Taxable Income or Net
Loss Allocation. Treasury regulations require that Schedule Q be furnished by
the REMIC Pool to each Residual Holder by the end of the month following the
close of each calendar quarter (41 days after the end of a quarter under
proposed Treasury regulations) in which the REMIC Pool is in existence.
Treasury regulations require that, in addition to the foregoing
requirements, information must be furnished quarterly to Residual Holders,
furnished annually, if applicable, to holders of Regular Certificates, and
filed annually with the Internal Revenue Service concerning Code Section 67
expenses (see "Limitations on Deduction of Certain Expenses" above) allocable
to such holders. Furthermore, under such regulations, information must be
furnished quarterly to Residual Holders, furnished annually to holders of
Regular Certificates and filed annually with the Internal Revenue Service
concerning the percentage of the REMIC Pool's assets meeting the qualified
asset tests described above under "Status of REMIC Certificates."
FEDERAL INCOME TAX CONSEQUENCES FOR CERTIFICATES AS TO WHICH NO REMIC ELECTION
IS MADE
GENERAL
In the event that no election is made to treat a Trust Estate (or a
segregated pool of assets therein) with respect to a Series of Certificates as
a REMIC, the Trust Estate will be classified as a grantor trust under subpart
E, Part 1 of subchapter J of the Code and not as an association taxable as a
corporation or a "taxable mortgage pool" within the meaning of Code Section
7701(i). Where there is no Fixed Retained Yield with respect to the Mortgage
Loans underlying the Certificates of a Series, and where such Certificates are
not designated as "Stripped Certificates," the holder of each such Certificate
in such Series will be treated as the owner of a pro rata undivided interest
in the ordinary income and corpus portions of the Trust Estate represented by
its Certificate and will be considered the beneficial owner of a pro rata
undivided interest in each of the Mortgage Loans, subject to the discussion
below under "--Recharacterization of Servicing Fees." Accordingly, the holder
of a Certificate of a particular Series will be required to report on its
federal income tax return its pro rata share of the entire income from the
Mortgage Loans represented by its Certificate, including interest at the
coupon rate on such Mortgage Loans, original issue discount (if any),
prepayment fees, assumption fees, and late payment charges received by the
Servicer, in accordance with such Certificateholder's method of accounting. A
Certificateholder generally will be able to deduct its share of the Servicing
Fee and all administrative and other expenses of the Trust Estate in
accordance with its method of accounting, provided that such amounts are
reasonable compensation for services rendered to that Trust Estate. However,
investors who are individuals,
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estates or trusts who own Certificates, either directly or indirectly through
certain pass-through entities, will be subject to limitation with respect to
certain itemized deductions described in Code Section 67, including deductions
under Code Section 212 for the Servicing Fee and all such administrative and
other expenses of the Trust Estate, to the extent that such deductions, in the
aggregate, do not exceed two percent of an investor's adjusted gross income.
In addition, Code Section 68 provides that itemized deductions otherwise
allowable for a taxable year of an individual taxpayer will be reduced by the
lesser of (i) 3% of the excess, if any, of adjusted gross income over $124,500
for 1998 ($62,250 in the case of a married individual filing a separate
return) (in each case, as adjusted for inflation in subsequent years), or (ii)
80% of the amount of itemized deductions otherwise allowable for such year. As
a result, such investors holding Certificates, directly or indirectly through
a pass-through entity, may have aggregate taxable income in excess of the
aggregate amount of cash received on such Certificates with respect to
interest at the pass-through rate or as discount income on such Certificates.
In addition, such expenses are not deductible at all for purposes of computing
the alternative minimum tax, and may cause such investors to be subject to
significant additional tax liability. Moreover, where there is Fixed Retained
Yield with respect to the Mortgage Loans underlying a Series of Certificates
or where the servicing fees are in excess of reasonable servicing
compensation, the transaction will be subject to the application of the
"stripped bond" and "stripped coupon" rules of the Code, as described below
under "--Stripped Certificates" and "--Recharacterization of Servicing Fees,"
respectively.
TAX STATUS
Cadwalader, Wickersham & Taft or Kennedy Covington Lobdell & Hickman, L.L.P.
has advised the Seller that, except as described below with respect to
Stripped Certificates:
(i) A Certificate owned by a "domestic building and loan association"
within the meaning of Code Section 7701(a)(19) will be considered to
represent "loans . . . secured by an interest in real property which is
. . . residential real property" within the meaning of Code Section
7701(a)(19)(C)(v), provided that the real property securing the Mortgage
Loans represented by that Certificate is of the type described in such
section of the Code.
(ii) A Certificate owned by a real estate investment trust will be
considered to represent "real estate assets" within the meaning of Code
Section 856(c)(5)(A) to the extent that the assets of the related Trust
Estate consist of qualified assets, and interest income on such assets will
be considered "interest on obligations secured by mortgages on real
property" to such extent within the meaning of Code Section 856(c)(3)(B).
(iii) A Certificate owned by a REMIC will be considered to represent an
"obligation (including any participation or certificate of beneficial
ownership therein) which is principally secured by an interest in real
property" within the meaning of Code Section 860G(a)(3)(A) to the extent
that the assets of the related Trust Estate consist of "qualified
mortgages" within the meaning of Code Section 860G(a)(3).
(iv) a Certificate owned by a financial asset securitization investment
trust will be considered to represent "permitted assets" within the
meanings of Section 860L(c) to the extent that the assets of the related
Trust Estate consist of "debt instruments" within the meaning of Code
Section 860L(c)(1)(B).
An issue arises as to whether Buy-Down Loans may be characterized in their
entirety under the Code provisions cited in clauses 1 and 2 of the immediately
preceding paragraph. There is indirect authority supporting treatment of an
investment in a Buy-Down Loan as entirely secured by real property if the fair
market value of the real property securing the loan exceeds the principal
amount of the loan at the time of issuance or acquisition, as the case may be.
There is no assurance that the treatment described above is proper.
Accordingly, Certificateholders are urged to consult their own tax advisors
concerning the effects of such arrangements on the characterization of such
Certificateholder's investment for federal income tax purposes.
PREMIUM AND DISCOUNT
Certificateholders are advised to consult with their tax advisors as to the
federal income tax treatment of premium and discount arising either upon
initial acquisition of Certificates or thereafter.
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Premium
The treatment of premium incurred upon the purchase of a Certificate will be
determined generally as described above under "--Federal Income Tax
Consequences for REMIC Certificates--Taxation of Residual Certificates--
Premium."
Original Issue Discount
The original issue discount rules of Code Sections 1271 through 1275 will be
applicable to a Certificateholder's interest in those Mortgage Loans as to
which the conditions for the application of those sections are met. Rules
regarding periodic inclusion of original issue discount income are applicable
to mortgages of corporations originated after May 27, 1969, mortgages of
noncorporate mortgagors (other than individuals) originated after July 1,
1982, and mortgages of individuals originated after March 2, 1984. Under the
OID Regulations, such original issue discount could arise by the charging of
points by the originator of the mortgages in an amount greater than the
statutory de minimis exception, including a payment of points that is
currently deductible by the borrower under applicable Code provisions or,
under certain circumstances, by the presence of "teaser" rates on the Mortgage
Loans. See "--Stripped Certificates" below regarding original issue discount
on Stripped Certificates.
Original issue discount generally must be reported as ordinary gross income
as it accrues under a constant interest method that takes into account the
compounding of interest, in advance of the cash attributable to such income.
Unless indicated otherwise in the applicable Prospectus Supplement, no
prepayment assumption will be assumed for purposes of such accrual. However,
Code Section 1272 provides for a reduction in the amount of original issue
discount includible in the income of a holder of an obligation that acquires
the obligation after its initial issuance at a price greater than the sum of
the original issue price and the previously accrued original issue discount,
less prior payments of principal. Accordingly, if such Mortgage Loans acquired
by a Certificateholder are purchased at a price equal to the then unpaid
principal amount of such Mortgage Loans, no original issue discount
attributable to the difference between the issue price and the original
principal amount of such Mortgage Loans (i.e., points) will be includible by
such holder.
Market Discount
Certificateholders also will be subject to the market discount rules to the
extent that the conditions for application of those sections are met. Market
discount on the Mortgage Loans will be determined and will be reported as
ordinary income generally in the manner described above under "--Federal
Income Tax Consequences for REMIC Certificates--Taxation of Regular
Certificates--Market Discount," except that the ratable accrual methods
described therein will not apply. Rather, the holder will accrue market
discount pro rata over the life of the Mortgage Loans, unless the constant
yield method is elected. Unless indicated otherwise in the applicable
Prospectus Supplement, no prepayment assumption will be assumed for purposes
of such accrual.
RECHARACTERIZATION OF SERVICING FEES
If the servicing fees paid to a Servicer were deemed to exceed reasonable
servicing compensation, the amount of such excess would represent neither
income nor a deduction to Certificateholders. In this regard, there are no
authoritative guidelines for federal income tax purposes as to either the
maximum amount of servicing compensation that may be considered reasonable in
the context of this or similar transactions or whether, in the case of the
Certificate, the reasonableness of servicing compensation should be determined
on a weighted average or loan-by-loan basis. If a loan-by-loan basis is
appropriate, the likelihood that such amount would exceed reasonable servicing
compensation as to some of the Mortgage Loans would be increased. Internal
Revenue Service guidance indicates that a servicing fee in excess of
reasonable compensation ("excess servicing") will cause the Mortgage Loans to
be treated under the "stripped bond" rules. Such guidance provides safe
harbors for servicing deemed to be reasonable and requires taxpayers to
demonstrate that the value of servicing fees in excess of such amounts is not
greater than the value of the services provided.
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Accordingly, if the Internal Revenue Service's approach is upheld, a
Servicer who receives a servicing fee in excess of such amounts would be
viewed as retaining an ownership interest in a portion of the interest
payments on the Mortgage Loans. Under the rules of Code Section 1286, the
separation of ownership of the right to receive some or all of the interest
payments on an obligation from the right to receive some or all of the
principal payments on the obligation would result in treatment of such
Mortgage Loans as "stripped coupons" and "stripped bonds." Subject to the de
minimis rule discussed below under "--Stripped Certificates," each stripped
bond or stripped coupon could be considered for this purpose as a non-interest
bearing obligation issued on the date of issue of the Certificates, and the
original issue discount rules of the Code would apply to the holder thereof.
While Certificateholders would still be treated as owners of beneficial
interests in a grantor trust for federal income tax purposes, the corpus of
such trust could be viewed as excluding the portion of the Mortgage Loans the
ownership of which is attributed to the Servicer, or as including such portion
as a second class of equitable interest. Applicable Treasury regulations treat
such an arrangement as a fixed investment trust, since the multiple classes of
trust interests should be treated as merely facilitating direct investments in
the trust assets and the existence of multiple classes of ownership interests
is incidental to that purpose. In general, such a recharacterization should
not have any significant effect upon the timing or amount of income reported
by a Certificateholder, except that the income reported by a cash method
holder may be slightly accelerated. See "--Stripped Certificates" below for a
further description of the federal income tax treatment of stripped bonds and
stripped coupons.
SALE OR EXCHANGE OF CERTIFICATES
Upon sale or exchange of a Certificate, a Certificateholder will recognize
gain or loss equal to the difference between the amount realized on the sale
and its aggregate adjusted basis in the Mortgage Loans and other assets
represented by the Certificate. In general, the aggregate adjusted basis will
equal the Certificateholder's cost for the Certificate, increased by the
amount of any income previously reported with respect to the Certificate and
decreased by the amount of any losses previously reported with respect to the
Certificate and the amount of any distributions received thereon. Except as
provided above with respect to market discount on any Mortgage Loans, and
except for certain financial institutions subject to the provisions of Code
Section 582(c), any such gain or loss generally would be capital gain or loss
if the Certificate was held as a capital asset. However, gain on the sale of a
Certificate will be treated as ordinary income (i) if a Certificate is held as
part of a "conversion transaction" as defined in Code Section 1258(c), up to
the amount of interest that would have accrued on the Certificateholder's net
investment in the conversion transaction at 120% of the appropriate applicable
Federal rate in effect at the time the taxpayer entered into the transaction
minus any amount previously treated as ordinary income with respect to any
prior disposition of property that was held as a part of such transaction or
(ii) in the case of a non-corporate taxpayer, to the extent such taxpayer has
made an election under Code Section 163(d)(4) to have net capital gains taxed
as investment income at ordinary income rates. Capital gains of certain
noncorporate taxpayers generally are subject to a lower maximum tax rate (28%)
than ordinary income of such taxpayers (39.6%) for property held more than one
year but not more than 18 months, and a still lower maximum tax rate (20%) for
property held for more than 18 months. The maximum tax rate for corporations
is the same with respect to both ordinary income and capital gains.
STRIPPED CERTIFICATES
General
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the principal payments on an obligation from ownership
of the right to receive some or all of the interest payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of this discussion,
Certificates that are subject to those rules will be referred to as "STRIPPED
CERTIFICATES." The Certificates will be subject to those rules if (i) the
Seller or any of its affiliates retains (for its own account or for purposes
of resale), in the form of Fixed Retained Yield or otherwise, an ownership
interest in a portion of the payments on the Mortgage Loans, (ii) the Seller
or any of its affiliates is treated as having an ownership interest in the
Mortgage Loans to the extent it is paid (or retains)
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servicing compensation in an amount greater than reasonable consideration for
servicing the Mortgage Loans (see "--Recharacterization of Servicing Fees"
above), and (iii) a Class of Certificates issued in two or more Classes or
Subclasses representing the right to non-pro-rata percentages of the interest
and principal payments on the Mortgage Loans.
In general, a holder of a Stripped Certificate will be considered to own
"stripped bonds" with respect to its pro rata share of all or a portion of the
principal payments on each Mortgage Loan and/or "stripped coupons" with
respect to its pro rata share of all or a portion of the interest payments on
each Mortgage Loan, including the Stripped Certificate's allocable share of
the servicing fees paid to a Servicer, to the extent that such fees represent
reasonable compensation for services rendered. See the discussion above under
"--Recharacterization of Servicing Fees." Although not free from doubt, for
purposes of reporting to Stripped Certificateholders, the servicing fees will
be allocated to the Stripped Certificates in proportion to the respective
entitlements to distributions of each Class of Stripped Certificates for the
related period or periods. The holder of a Stripped Certificate generally will
be entitled to a deduction each year in respect of the servicing fees, as
described above under "Federal Income Tax Consequences for Certificates as to
Which No REMIC Election Is Made--General," subject to the limitation described
therein.
Code Section 1286 treats a stripped bond or a stripped coupon generally as
an obligation issued at an original issue discount on the date that such
stripped interest is purchased. Although the treatment of Stripped
Certificates for federal income tax purposes is not clear in certain respects
at this time, particularly where such Stripped Certificates are issued with
respect to a Mortgage Pool containing variable-rate Mortgage Loans, the Seller
has been advised by counsel that (i) the Trust Estate will be treated as a
grantor trust under subpart E, Part I of subchapter J of the Code and not as
an association taxable as a corporation or a "taxable mortgage pool" within
the meaning of Code Section 7701(i), and (ii) each Stripped Certificate should
be treated as a single installment obligation for purposes of calculating
original issue discount and gain or loss on disposition. This treatment is
based on the interrelationship of Code Section 1286, Code Sections 1272
through 1275, and the OID Regulations. Although it is possible that
computations with respect to Stripped Certificates could be made in one of the
ways described below under "--Taxation of Stripped Certificates--Possible
Alternative Characterizations," the OID Regulations state, in general, that
two or more debt instruments issued by a single issuer to a single investor in
a single transaction should be treated as a single debt instrument.
Accordingly, for OID purposes, all payments on any Stripped Certificates
should be aggregated and treated as though they were made on a single debt
instrument. The Pooling and Servicing Agreement will require that the Trustee
make and report all computations described below using this aggregate
approach, unless substantial legal authority requires otherwise.
Furthermore, Treasury regulations issued December 28, 1992 provide for
treatment of a Stripped Certificate as a single debt instrument issued on the
date it is purchased for purposes of calculating any original issue discount.
In addition, under these regulations, a Stripped Certificate that represents a
right to payments of both interest and principal may be viewed either as
issued with original issue discount or market discount (as described below),
at a de minimis original issue discount, or, presumably, at a premium. This
treatment indicates that the interest component of such a Stripped Certificate
would be treated as qualified stated interest under the OID Regulations,
assuming it is not an interest-only or super-premium Stripped Certificate.
Further, these final regulations provide that the purchaser of such a Stripped
Certificate will be required to account for any discount as market discount
rather than original issue discount if either (i) the initial discount with
respect to the Stripped Certificate was treated as zero under the de minimis
rule, or (ii) no more than 100 basis points in excess of reasonable servicing
is stripped off the related Mortgage Loans. Any such market discount would be
reportable as described above under "Federal Income Tax Consequences for REMIC
Certificates--Taxation of Regular Certificates--Market Discount," without
regard to the de minimis rule therein, assuming that a prepayment assumption
is employed in such computation.
Status of Stripped Certificates
No specific legal authority exists as to whether the character of the
Stripped Certificates, for federal income tax purposes, will be the same as
that of the Mortgage Loans. Although the issue is not free from doubt, counsel
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has advised the Seller that Stripped Certificates owned by applicable holders
should be considered to represent "real estate assets" within the meaning of
Code Section 856(c)(4)(A), "obligation[s] . . . principally secured by an
interest in real property" within the meaning of Code Section 860G(a)(3)(A),
and "loans . . . secured by an interest in real property" within the meaning
of Code Section 7701(a)(19)(C)(v), and interest (including original issue
discount) income attributable to Stripped Certificates should be considered to
represent "interest on obligations secured by mortgages on real property"
within the meaning of Code Section 856(c)(3)(B), provided that in each case
the Mortgage Loans and interest on such Mortgage Loans qualify for such
treatment. The application of such Code provisions to Buy-Down Loans is
uncertain. See "--Tax Status" above.
Taxation of Stripped Certificates
Original Issue Discount. Except as described above under "--General," each
Stripped Certificate will be considered to have been issued at an original
issue discount for Federal income tax purposes. Original issue discount with
respect to a Stripped Certificate must be included in ordinary income as it
accrues, in accordance with a constant interest method that takes into account
the compounding of interest, which may be prior to the receipt of the cash
attributable to such income. Based in part on the OID Regulations and the
amendments to the original issue discount sections of the Code made by the
1986 Act, the amount of original issue discount required to be included in the
income of a holder of a Stripped Certificate (referred to in this discussion
as a "Stripped Certificateholder") in any taxable year likely will be computed
generally as described above under " Federal Income Tax Consequences for REMIC
Certificates--Taxation of Regular Certificates--Original Issue Discount" and
"--Variable Rate Regular Certificates." However, with the apparent exception
of a Stripped Certificate qualifying as a market discount obligation as
described above under "--General," the issue price of a Stripped Certificate
will be the purchase price paid by each holder thereof, and the stated
redemption price at maturity will include the aggregate amount of the payments
to be made on the Stripped Certificate to such Stripped Certificateholder,
presumably under the Prepayment Assumption, other than qualified stated
interest.
If the Mortgage Loans prepay at a rate either faster or slower than that
under the Prepayment Assumption, a Stripped Certificateholder's recognition of
original issue discount will be either accelerated or decelerated and the
amount of such original issue discount will be either increased or decreased
depending on the relative interests in principal and interest on each Mortgage
Loan represented by such Stripped Certificateholder's Stripped Certificate.
While the matter is not free from doubt, the holder of a Stripped Certificate
should be entitled in the year that it becomes certain (assuming no further
prepayments) that the holder will not recover a portion of its adjusted basis
in such Stripped Certificate to recognize a loss (which may be a capital loss)
equal to such portion of unrecoverable basis.
As an alternative to the method described above, the fact that some or all
of the interest payments with respect to the Stripped Certificates will not be
made if the Mortgage Loans are prepaid could lead to the interpretation that
such interest payments are "contingent" within the meaning of the OID
Regulations. The OID Regulations, as they relate to the treatment of
contingent interest, are by their terms not applicable to prepayable
securities such as the Stripped Certificates. However, if final regulations
dealing with contingent interest with respect to the Stripped Certificates
apply the same principles as the OID Regulations, such regulations may lead to
different timing of income inclusion than would be the case under the OID
Regulations for non-contingent debt instruments. Furthermore, application of
such principles could lead to the characterization of gain on the sale of
contingent interest Stripped Certificates as ordinary income. Investors should
consult their tax advisors regarding the appropriate tax treatment of Stripped
Certificates.
Sale or Exchange of Stripped Certificates. Sale or exchange of a Stripped
Certificate prior to its maturity will result in gain or loss equal to the
difference, if any, between the amount received and the Stripped
Certificateholder's adjusted basis in such Stripped Certificate, as described
above under "--Federal Income Tax Consequences for REMIC Certificates--
Taxation of Regular Certificates--Sale or Exchange of Regular Certificates."
To the extent that a subsequent purchaser's purchase price is exceeded by the
remaining payments on the Stripped Certificates, such subsequent purchaser
will be required for federal income tax purposes to accrue and report such
excess as if it were original issue discount in the manner described above. It
is not clear for this
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purpose whether the assumed prepayment rate that is to be used in the case of
a Stripped Certificateholder other than an original Stripped Certificateholder
should be the Prepayment Assumption or a new rate based on the circumstances
at the date of subsequent purchase.
Purchase of More Than One Class of Stripped Certificates. When an investor
purchases more than one Class of Stripped Certificates, it is currently
unclear whether for federal income tax purposes such Classes of Stripped
Certificates should be treated separately or aggregated for purposes of the
rules described above.
Possible Alternative Characterizations. The characterizations of the
Stripped Certificates discussed above are not the only possible
interpretations of the applicable Code provisions. For example, the Stripped
Certificateholder may be treated as the owner of (i) one installment
obligation consisting of such Stripped Certificate's pro rata share of the
payments attributable to principal on each Mortgage Loan and a second
installment obligation consisting of such Stripped Certificate's pro rata
share of the payments attributable to interest on each Mortgage Loan, (ii) as
many stripped bonds or stripped coupons as there are scheduled payments of
principal and/or interest on each Mortgage Loan, or (iii) a separate
installment obligation for each Mortgage Loan, representing the Stripped
Certificate's pro rata share of payments of principal and/or interest to be
made with respect thereto. Alternatively, the holder of one or more Classes of
Stripped Certificates may be treated as the owner of a pro rata fractional
undivided interest in each Mortgage Loan to the extent that such Stripped
Certificate, or Classes of Stripped Certificates in the aggregate, represent
the same pro rata portion of principal and interest on each such Mortgage
Loan, and a stripped bond or stripped coupon (as the case may be), treated as
an installment obligation or contingent payment obligation, as to the
remainder. Final regulations issued on December 28, 1992 regarding original
issue discount on stripped obligations make the foregoing interpretations less
likely to be applicable. The preamble to those regulations states that they
are premised on the assumption that an aggregation approach is appropriate for
determining whether original issue discount on a stripped bond or stripped
coupon is de minimis, and solicits comments on appropriate rules for
aggregating stripped bonds and stripped coupons under Code Section 1286.
Because of these possible varying characterizations of Stripped Certificates
and the resultant differing treatment of income recognition, Stripped
Certificateholders are urged to consult their own tax advisors regarding the
proper treatment of Stripped Certificates for federal income tax purposes.
REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
The Master Servicer will furnish, within a reasonable time after the end of
each calendar year, to each Certificateholder or Stripped Certificateholder at
any time during such year, such information (prepared on the basis described
above) as is necessary to enable such Certificateholders to prepare their
federal income tax returns. Such information will include the amount of
original issue discount accrued on Certificates held by persons other than
Certificateholders exempted from the reporting requirements. The amount
required to be reported by the Master Servicer may not be equal to the proper
amount of original issue discount required to be reported as taxable income by
a Certificateholder, other than an original Certificateholder that purchased
at the issue price. In particular, in the case of Stripped Certificates,
unless provided otherwise in the applicable Prospectus Supplement, such
reporting will be based upon a representative initial offering price of each
Class of Stripped Certificates. The Master Servicer will also file such
original issue discount information with the Internal Revenue Service. If a
Certificateholder fails to supply an accurate taxpayer identification number
or if the Secretary of the Treasury determines that a Certificateholder has
not reported all interest and dividend income required to be shown on his
federal income tax return, 31% backup withholding may be required in respect
of any reportable payments, as described above under "--Federal Income Tax
Consequences for REMIC Certificates--Backup Withholding."
TAXATION OF CERTAIN FOREIGN INVESTORS
To the extent that a Certificate evidences ownership in Mortgage Loans that
are issued on or before July 18, 1984, interest or original issue discount
paid by the person required to withhold tax under Code Section 1441 or
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1442 to nonresident aliens, foreign corporations, or other non-U.S. persons
("foreign persons") generally will be subject to 30% United States withholding
tax, or such lower rate as may be provided for interest by an applicable tax
treaty. Accrued original issue discount recognized by the Certificateholder on
the sale or exchange of such a Certificate also will be subject to federal
income tax at the same rate.
Treasury regulations provide that interest or original issue discount paid
by the Trustee or other withholding agent to a foreign person evidencing
ownership interest in Mortgage Loans issued after July 18, 1984 will be
"portfolio interest" and will be treated in the manner, and such persons will
be subject to the same certification requirements, described above under "--
Federal Income Tax Consequences for REMIC Certificates--Taxation of Certain
Foreign Investors--Regular Certificates."
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on those employee benefit plans to which it
applies ("PLANS") and on those persons who are fiduciaries with respect to
such Plans. The following is a general discussion of such requirements, and
certain applicable exceptions to and administrative exemptions from such
requirements. For purposes of this discussion, a person investing on behalf of
an individual retirement account established under Code Section 408 (an "IRA")
is regarded as a fiduciary and the IRA as a Plan if the IRA is endorsed by or
contributed to by the IRA participant's employer or employee organization.
Other IRAs are subject to ERISA-like requirements as well as the prohibited
transaction provisions of the Code, but are not covered by the administrative
exemptions discussed below.
Before purchasing any Certificates, a Plan fiduciary should consult with its
counsel and determine whether there exists any prohibition to such purchase
under the requirements of ERISA, whether prohibited transaction exemptions
such as PTE 83-1 or any individual administrative exemption (as described
below) applies, including whether the appropriate conditions set forth therein
would be met, or whether any statutory prohibited transaction exemption is
applicable, and further should consult the applicable Prospectus Supplement
relating to such Series of Certificates.
CERTAIN REQUIREMENTS UNDER ERISA
General
In accordance with ERISA's general fiduciary standards, before investing in
a Certificate, a Plan fiduciary should determine whether to do so is permitted
under the governing Plan instruments and is appropriate for the Plan in view
of its overall investment policy and the composition and diversification of
its portfolio. A Plan fiduciary should especially consider the ERISA
requirement of investment prudence and the sensitivity of the return on the
Certificates to the rate of principal repayments (including prepayments) on
the Mortgage Loans, as discussed in "Prepayment and Yield Considerations"
herein.
Parties in Interest/Disqualified Persons
Other provisions of ERISA (and corresponding provisions of the Code)
prohibit certain transactions involving the assets of a Plan and persons who
have certain specified relationships to the Plan (so-called "parties in
interest" within the meaning of ERISA or "disqualified persons" within the
meaning of the Code). The Seller, the Master Servicer or the Trustee or
certain affiliates thereof might be considered or might become "parties in
interest" or "disqualified persons" with respect to a Plan. If so, the
acquisition or holding of Certificates by or on behalf of such Plan could be
considered to give rise to a "prohibited transaction" within the meaning of
ERISA and the Code unless an administrative exemption described below or some
other exemption is available.
Special caution should be exercised before the assets of a Plan (including
assets that may be held in an insurance company's separate or general accounts
where assets in such accounts may be deemed Plan assets for
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purposes of ERISA) are used to purchase a Certificate if, with respect to such
assets, the Seller, the Master Servicer or the Trustee or an affiliate thereof
either: (a) has investment discretion with respect to the investment of such
assets of such Plan; or (b) has authority or responsibility to give, or
regularly gives, investment advice with respect to such assets for a fee and
pursuant to an agreement or understanding that such advice will serve as a
primary basis for investment decisions with respect to such assets and that
such advice will be based on the particular investment needs of the Plan.
Delegation of Fiduciary Duty
Further, if the assets included in a Trust Estate were deemed to constitute
Plan assets, it is possible that a Plan's investment in the Certificates might
be deemed to constitute a delegation, under ERISA, of the duty to manage Plan
assets by the fiduciary deciding to invest in the Certificates, and certain
transactions involved in the operation of the Trust Estate might be deemed to
constitute prohibited transactions under ERISA and the Code. Neither ERISA nor
the Code define the term "plan assets."
The U.S. Department of Labor (the "DEPARTMENT") has issued regulations (the
"REGULATIONS") concerning whether or not a Plan's assets would be deemed to
include an interest in the underlying assets of an entity (such as a Trust
Estate) for purposes of the reporting and disclosure and general fiduciary
responsibility provisions of ERISA, as well as for the prohibited transaction
provisions of ERISA and the Code, if the Plan acquires an "equity interest"
(such as a Certificate) in such an entity.
Certain exceptions are provided in the Regulations whereby an investing
Plan's assets would be deemed merely to include its interest in the
Certificates instead of being deemed to include an interest in the assets of a
Trust Estate. However, it cannot be predicted in advance nor can there be any
continuing assurance whether such exceptions may be met, because of the
factual nature of certain of the rules set forth in the Regulations. For
example, one of the exceptions in the Regulations states that the underlying
assets of an entity will not be considered "plan assets" if less than 25% of
the value of all classes of equity interests are held by "benefit plan
investors," which are defined as Plans, IRAs, and employee benefit plans not
subject to ERISA (for example, governmental plans) and any entity whose assets
include "plan assets" by reason of benefit plan investments in such entity,
but this exception is tested immediately after each acquisition of an equity
interest in the entity whether upon initial issuance or in the secondary
market.
ADMINISTRATIVE EXEMPTIONS
Individual Administrative Exemptions.
Several underwriters of mortgage-backed securities have applied for and
obtained ERISA prohibited transaction exemptions (each, an "UNDERWRITER'S
EXEMPTION") which are in some respects broader than Prohibited Transaction
Class Exemption 83-1 (described below). Such exemptions can only apply to
mortgage-backed securities which, among other conditions, are sold in an
offering with respect to which such underwriter serves as the sole or a
managing underwriter, or as a selling or placement agent. If such an
Underwriter's Exemption might be applicable to a Series of Certificates, the
applicable Prospectus Supplement will refer to such possibility.
Among the conditions that must be satisfied for an Underwriter's Exemption
to apply are the following:
(1) The acquisition of Certificates by a Plan is on terms (including the
price for the Certificates) that are at least as favorable to the Plan as
they would be in an arm's length transaction with an unrelated party.
(2) The rights and interests evidenced by Certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by other
Certificates of the Trust Estate.
(3) The Certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic rating
categories from either Standard & Poor's ("S&P"), Moody's Investors
Service, Inc. ("MOODY'S"), Duff & Phelps Credit Rating Co. ("DCR") or Fitch
IBCA, Inc. ("FITCH").
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(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 underwriter in
connection with the distribution of 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 Mortgage Loans to the Trust Estate represents not more than the fair
market value of such Mortgage 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 Pooling and
Servicing Agreement and reimbursement of such person's reasonable expenses
in connection therewith.
(6) The Plan investing in the Certificates is an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D of the Commission under the
Securities Act.
The Trust Estate must also meet the following requirements:
(i) the assets of the Trust Estate must consist solely of assets of the
type that have been included in other investment pools in the marketplace;
(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 the 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 the Certificates.
If the conditions to an Underwriter's Exemption are met, whether or not a
Plan's assets would be deemed to include an ownership interest in the Mortgage
Loans in a mortgage pool, the acquisition, holding and resale of the
Certificates by Plans would be exempt from the prohibited transaction
provisions of ERISA and the Code.
Moreover, an Underwriter's Exemption can provide relief from certain self-
dealing/conflict of interest prohibited transactions that may occur if a Plan
fiduciary causes a Plan to acquire and hold Certificates in a Trust Estate in
which the fiduciary (or its affiliate) is an obligor on the Mortgage Loans
held in the Trust Estate provided that, among other requirements: (i) in the
case of an acquisition in connection with the initial issuance of
Certificates, at least fifty percent of each class of Certificates in which
Plans have invested is acquired by persons independent of the Restricted Group
and at least fifty percent of the aggregate interest in the Trust Estate is
acquired by persons independent of the Restricted Group; (ii) such fiduciary
(or its affiliate) is an obligor with respect to five percent or less of the
fair market value of the Mortgage Loans contained in the Trust Estate; (iii)
the Plan's investment in Certificates of any Class does not exceed twenty-five
percent 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 of the assets of the Plan with respect to which such
person is a fiduciary are invested in Certificates representing an interest in
one or more trusts containing assets sold or served by the same entity.
An Underwriter's Exemption does not apply to Plans sponsored by the Seller,
the underwriter specified in the applicable Prospectus Supplement, the Master
Servicer, the Trustee, any Servicer, any obligor with respect to Mortgage
Loans included in the Trust Estate constituting more than five percent of the
aggregate unamortized principal balance of the assets in the Trust Estate, or
any affiliate of such parties (the "RESTRICTED GROUP").
PTE 83-1
Prohibited Transaction Class Exemption 83-1 for Certain Transactions
Involving Mortgage Pool Investment Trusts ("PTE 83-1") permits certain
transactions involving the creation, maintenance and termination of certain
residential mortgage pools and the acquisition and holding of certain
residential mortgage pool pass-through certificates by Plans, whether or not
the Plan's assets would be deemed to include an ownership interest in the
mortgages in such mortgage pools, and whether or not such transactions would
otherwise be prohibited under ERISA or the Code.
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<PAGE>
The term "mortgage pool pass-through certificate" is defined in PTE 83-1 as
"a certificate representing a beneficial undivided fractional interest in a
mortgage pool and entitling the holder of such a certificate to pass-through
payment of principal and interest from the pooled mortgage loans, less any
fees retained by the pool sponsor." It appears that, for purposes of PTE 83-1,
the term "mortgage pool pass-through certificate" would include Certificates
issued in a single Class or in multiple Classes that evidence the beneficial
ownership of both a specified percentage of future interest payments (after
permitted deductions) and a specified percentage of future principal payments
on a Trust Estate.
However, it appears that PTE 83-1 does or might not apply to the purchase
and holding of (a) Certificates that evidence the beneficial ownership only of
a specified percentage of future interest payments (after permitted
deductions) on a Trust Estate or only of a specified percentage of future
principal payments on a Trust Estate, (b) Residual Certificates, (c)
Certificates evidencing ownership interests in a Trust Estate which includes
Mortgage Loans secured by multifamily residential properties or shares issued
by cooperative housing corporations, or (d) Certificates which are
subordinated to other Classes of Certificates of such Series. Accordingly,
unless exemptive relief other than PTE 83-1 applies, Plans should not purchase
any such Certificates.
PTE 83-1 sets forth "general conditions" and "specific conditions" to its
applicability. Section II of PTE 83-1 sets forth the following general
conditions to the application of the exemption: (i) the maintenance of a
system of insurance or other protection for the pooled mortgage loans or the
property securing such loans, and for indemnifying certificateholders against
reductions in pass-through payments due to property damage or defaults in loan
payments; (ii) the existence of a pool trustee who is not an affiliate of the
pool sponsor; and (iii) a requirement that the sum of all payments made to and
retained by the pool sponsor, and all funds inuring to the benefit of the pool
sponsor as a result of the administration of the mortgage pool, must represent
not more than adequate consideration for selling the mortgage loans plus
reasonable compensation for services provided by the pool sponsor to the pool.
The system of insurance or protection referred to in clause (i) above must
provide such protection and indemnification up to an amount not less than the
greater of one percent of the aggregate unpaid principal balance of the pooled
mortgages or the unpaid principal balance of the largest mortgage in the pool.
It should be noted that in promulgating PTE 83-1 (and a predecessor
exemption), the Department did not have under its consideration interests in
pools of the exact nature as some of the Certificates described herein.
EXEMPT PLANS
Employee benefit plans which are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to the ERISA requirements described above and assets of
such plans may be invested in Certificates without regard to the ERISA
considerations described above, but such plans may be subject to the
provisions of other applicable federal, state and local law.
UNRELATED BUSINESS TAXABLE INCOME--RESIDUAL CERTIFICATES
The purchase of a Residual Certificate by any employee benefit plan
qualified under Code Section 401(a) and exempt from taxation under Code
Section 501(a), including most varieties of ERISA Plans, may give rise to
"unrelated business taxable income" as described in Code Sections 511-515 and
860E. Further, prior to the purchase of Residual Certificates, a prospective
transferee may be required to provide an affidavit to a transferor that it is
not, nor is it purchasing a Residual Certificate on behalf of, a "Disqualified
Organization," which term as defined above includes certain tax-exempt
entities not subject to Code Section 511 such as certain governmental plans,
as discussed above under the caption "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates--Taxation
of Residual Certificates--Tax-Related Restrictions on Transfer of Residual
Certificates--Disqualified Organizations."
DUE TO THE COMPLEXITY OF THESE RULES AND THE PENALTIES IMPOSED UPON PERSONS
INVOLVED IN PROHIBITED TRANSACTIONS, IT IS PARTICULARLY IMPORTANT THAT
POTENTIAL INVESTORS WHO ARE PLAN FIDUCIARIES CONSULT WITH THEIR COUNSEL
REGARDING THE CONSEQUENCES UNDER ERISA OF THEIR ACQUISITION AND OWNERSHIP OF
CERTIFICATES.
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THE SALE OF CERTIFICATES TO A PLAN IS IN NO RESPECT A REPRESENTATION BY THE
SELLER OR THE APPLICABLE UNDERWRITER THAT THIS INVESTMENT MEETS ALL RELEVANT
LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY PLANS GENERALLY OR ANY
PARTICULAR PLAN, OR THAT THIS INVESTMENT IS APPROPRIATE FOR PLANS GENERALLY OR
ANY PARTICULAR PLAN.
LEGAL INVESTMENT
As will be specified in the applicable Prospectus Supplement, certain
Classes of Certificates will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984, as amended
("SMMEA"), so long as (i) they are rated in one of the two highest rating
categories by at least one Rating Agency and (ii) are part of a Series
representing interests in a Trust Estate consisting of Mortgage Loans
originated by certain types of originators specified in SMMEA. As "mortgage
related securities," such Classes will constitute legal investments for
persons, trusts, corporations, partnerships, associations, business trusts and
business entities (including but not limited to state-chartered depository
institutions, 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 regulation, to the same extent that, under applicable law,
obligations issued by or guaranteed as to principal and interest by the United
States or any agency or instrumentality thereof constitute legal investments
for such entities. Pursuant to SMMEA, a number of states enacted legislation,
on or before the October 3, 1991 cut-off for such enactments, limiting to
varying extents the ability of certain entities (in particular, insurance
companies) to invest in "mortgage related securities," in most cases by
requiring the affected investors to rely solely upon existing state law, and
not SMMEA. Accordingly, the investors affected by such legislation will be
authorized to invest in the Certificates only to the extent provided in 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 mortgage
related securities without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase mortgage related securities for their own account
without regard to the limitations generally applicable to investment
securities set forth in 12 U.S.C. (S) 24 (Seventh), subject in each case to
such regulations as the applicable federal regulatory authority may prescribe.
In this connection, the Office of the Comptroller of the Currency (the "OCC")
has amended 12 C.F.R. Part 1 to authorize national banks to purchase and sell
for their own account, without limitation as to a percentage of the bank's
capital and surplus (but subject to compliance with certain general standards
concerning "safety and soundness" and retention of credit information in 12
C.F.R. (S) 1.5), certain "Type IV securities," defined in 12 C.F.R. (S) 1.2(1)
to include certain "residential mortgage-related securities." As so defined
"residential mortgage-related security" means, in relevant part, "mortgage
related security" within the meaning of SMMEA. The National Credit Union
Administration ("NCUA") has adopted rules, codified at 12 C.F.R. Part 703
which permit federal credit unions to invest in "mortgage related securities"
under certain limited circumstances, other than stripped mortgage related
securities, residual interests in mortgage related securities and commercial
mortgage related securities, unless the credit union has obtained written
approval from the NCUA to participate in the "investment pilot program"
described in 12 C.F.R. (S) 703.140.
All depository institutions considering an investment in the Certificates
should review the "Supervisory Policy Statement on Securities Activities"
dated January 28, 1992, as revised April 15, 1994 (the "1992 POLICY
STATEMENT") of the Federal Financial Institutions Examination Council
("FFIEC"). The 1992 Policy Statement, which has been adopted by the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the OCC and the Office of Thrift Supervision and by the NCUA
(with certain modifications), prohibits depository institutions from investing
in certain "high-risk mortgage securities" (including securities such as
certain Series and Classes of the Certificates), except under limited
circumstances, and sets forth certain investment practices deemed to be
unsuitable for regulated institutions. Effective May 26, 1998 (October 1, 1998
in the case of federal credit unions), the 1992 Policy Statement has been
superseded by the FFIEC's "Supervisory Policy Statement on Investment
Securities and End-User Derivatives Activities" (the "1998
88
<PAGE>
STATEMENT"). The 1998 Statement deletes the specific "high-risk mortgage
securities" tests, and substitute general guidelines which depository
institutions should follow in managing risks (including market, credit,
liquidity, operational (transaction), and legal risks) applicable to all
securities (including mortgage pass-through securities and mortgage-derivative
products) used for investment purposes.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any of the
Certificates, as certain Series or Classes (in particular, Certificates which
are entitled solely or disproportionately to distributions of principal or
interest) may be deemed unsuitable investments, or may otherwise be
restricted, under such rules, policies or guidelines (in certain instances
irrespective of SMMEA).
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,
provisions which may restrict or prohibit investment in securities which are
not "interest-bearing" or "income-paying," and, with regard to any
Certificates issued in book-entry form, provisions which may restrict or
prohibit investments in securities which are issued in book-entry form.
Except as to the status of certain Classes of Certificates as "mortgage
related securities," no representation is made as to the proper
characterization of the Certificates for legal investment purposes, financial
institution regulatory purposes, or other purposes, or as to the ability of
particular investors to purchase Certificates under applicable legal
investment restrictions. The uncertainties described above (and any
unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the Certificates) may adversely
affect the liquidity of the Certificates.
Accordingly, all investors whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their legal advisors in determining
whether and to what extent the Certificates of any Class constitute legal
investments or are subject to investment, capital or other restrictions and,
if applicable, whether SMMEA has been overridden in any jurisdiction relevant
to such investor.
PLAN OF DISTRIBUTION
The Certificates are being offered hereby in Series through one or more of
the methods described below. The applicable Prospectus Supplement for each
Series will describe the method of offering being utilized for that Series and
will state the public offering or purchase price of each Class of Certificates
of such Series, or the method by which such price is to be determined, and the
net proceeds to the Seller from such sale.
The Certificates will be offered through the following methods from time to
time and offerings may be made concurrently through more than one of these
methods or an offering of a particular Series of Certificates may be made
through a combination of two or more of these methods:
1. By negotiated firm commitment underwriting and public re-offering by
underwriters specified in the applicable Prospectus Supplement;
2. By placements by the Seller with investors through dealers; and
3. By direct placements by the Seller with investors.
If underwriters are used in a sale of any Certificates, such Certificates
will be acquired by the underwriters for their own account 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 to be
determined at the time of sale or at the time of commitment therefor. Firm
commitment underwriting and public reoffering by underwriters may be done
through underwriting syndicates or through one or more firms acting alone. The
specific managing underwriter
89
<PAGE>
or underwriters, if any, with respect to the offer and sale of a particular
Series of Certificates will be set forth on the cover of the Prospectus
Supplement applicable to such Series and the members of the underwriting
syndicate, if any, will be named in such Prospectus Supplement. The Prospectus
Supplement will describe any discounts and commissions to be allowed or paid
by the Seller to the underwriters, any other items constituting underwriting
compensation and any discounts and commissions to be allowed or paid to the
dealers. The obligations of the underwriters will be subject to certain
conditions precedent. The underwriters with respect to a sale of any Class of
Certificates will be obligated to purchase all such Certificates if any are
purchased. The Seller, and, if specified in the applicable Prospectus
Supplement, NationsBanc Mortgage, will indemnify the applicable underwriters
against certain civil liabilities, including liabilities under the Securities
Act.
NationsBanc Montgomery Securities LLC ("NATIONSBANC MONTGOMERY") is an
affiliate of the Seller and NationsBanc Mortgage. This Prospectus may be used
by NationsBanc Montgomery, to the extent required, in connection with market
making transactions in Certificates. NationsBanc Montgomery may act as a
principal or agent in such transactions.
The Prospectus Supplement with respect to any Series of Certificates offered
other than through underwriters will contain information regarding the nature
of such offering and any agreements to be entered into between the Seller and
dealers and/or the Seller and purchasers of Certificates of such Series.
Purchasers of Certificates, including dealers, may, depending on the facts
and circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them of
Certificates. Certificateholders should consult with their legal advisors in
this regard prior to any such reoffer or sale.
If specified in the Prospectus Supplement relating to a Series of
Certificates, the Seller or any affiliate thereof may purchase some or all of
one or more Classes of Certificates of such Series from the underwriter or
underwriters at a price specified or described in such Prospectus Supplement.
Such purchaser may thereafter from time to time offer and sell, pursuant to
this Prospectus, some or all of such Certificates so purchased directly,
through one or more underwriters to be designated at the time of the offering
of such Certificates or through dealers acting as agent and/or principal. Such
offering may be restricted in the matter specified in such Prospectus
Supplement. Such transactions may be effected at market prices prevailing at
the time of sale, at negotiated prices or at fixed prices. The underwriters
and dealers participating in such purchaser's offering of such Certificates
may receive compensation in the form of underwriting discounts or commissions
from such purchaser and such dealers may receive commissions from the
investors purchasing such Certificates for whom they may act as agent (which
discounts or commissions will not exceed those customary in those types of
transactions involved). Any dealer that participates in the distribution of
such Certificates may be deemed to be an "underwriter" within the meaning of
the Securities Act, and any commissions and discounts received by such dealer
and any profit on the resale of such Certificates by such dealer might be
deemed to be underwriting discounts and commissions under the Securities Act.
90
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USE OF PROCEEDS
The net proceeds from the sale of each Series of Certificates will be used
by the Seller for the purchase of the Mortgage Loans represented by the
Certificates of such Series from NationsBanc Mortgage or another affiliate of
the Seller. It is expected that NationsBanc Mortgage or such other affiliate
will use the proceeds from the sale of the Mortgage Loans to the Seller for
its general business purposes, including, without limitation, the origination
or acquisition of new mortgage loans and the repayment of borrowings incurred
to finance the origination or acquisition of mortgage loans, including the
Mortgage Loans underlying the Certificates of such Series.
LEGAL MATTERS
Certain legal matters, including the federal income tax consequences to
Certificateholders of an investment in the Certificates of a Series, will be
passed upon for the Seller by Cadwalader, Wickersham & Taft, New York, New
York or Kennedy Covington Lobdell & Hickman, L.L.P. Charlotte, North Carolina,
as specified in the related Prospectus Supplement.
RATING
It is a condition to the issuance of the Certificates of any Series offered
pursuant to this Prospectus and a Prospectus Supplement that they be rated in
one of the four highest categories by at least one Rating Agency.
A securities rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
Rating Agency. Each securities rating should be evaluated independently of any
other rating.
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INDEX OF SIGNIFICANT DEFINITIONS
PROSPECTUS
<TABLE>
<S> <C>
1
1986 Act.................................................................... 60
1992 Policy Statement....................................................... 88
1998 Statement.............................................................. 88
A
Accretion Directed Class.................................................... 28
Accrual Certificates........................................................ 25
Accrual Class............................................................... 29
Additional Collateral....................................................... 17
Advances.................................................................... 37
Asset Conservation Act...................................................... 55
B
Balloon Loans............................................................... 16
Balloon Period.............................................................. 16
Bankruptcy Code............................................................. 53
Bankruptcy Loss............................................................. 27
Bankruptcy Loss Amount...................................................... 27
Beneficial Owner............................................................ 22
Book-Entry Certificates..................................................... 9
Buy-Down Fund............................................................... 16
Buy-Down Loans.............................................................. 16
C
Cede........................................................................ 22
CERCLA...................................................................... 54
Certificate Account......................................................... 35
Certificateholders.......................................................... 21
Certificates................................................................ 1
Class....................................................................... 1
Cleanup Costs............................................................... 54
Code........................................................................ 10
Commission.................................................................. 2
Component Class............................................................. 28
Correspondents.............................................................. 18
Cut-off Date................................................................ 8
D
DCR......................................................................... 85
Deferred Interest........................................................... 15
Definitive Certificates..................................................... 9
Department.................................................................. 85
Depository.................................................................. 35
Disqualified Organization................................................... 71
Distribution Date........................................................... 8
DTC......................................................................... 9
</TABLE>
<TABLE>
<S> <C>
DTC Participants............................................................ 22
Due Date.................................................................... 14
Due-on-sale................................................................. 56
E
EDGAR....................................................................... 2
electing large partnership.................................................. 71
Eligible Custodial Account.................................................. 35
Eligible Investments........................................................ 36
ERISA....................................................................... 10
Escrow Account.............................................................. 38
Excess Bankruptcy Losses.................................................... 27
Excess Fraud Losses......................................................... 27
Excess Special Hazard Losses................................................ 27
F
FDIC........................................................................ 35
FFIEC....................................................................... 88
FHLBB....................................................................... 56
FHLMC....................................................................... 17
Fitch....................................................................... 85
Fixed Rate Class............................................................ 29
Fixed Retained Yield........................................................ 25
Floating Rate Class......................................................... 29
FNMA........................................................................ 17
Fraud Loss.................................................................. 27
Fraud Loss Amount........................................................... 27
G
Garn Act.................................................................... 56
Graduated Pay Mortgage Loans................................................ 15
Growing Equity Mortgage Loans............................................... 15
I
Indirect DTC Participants................................................... 23
Interest only Class......................................................... 29
Inverse Floating Rate Class................................................. 29
IRA......................................................................... 84
L
Liquidation Proceeds........................................................ 35
Loan-to-Value Ratio......................................................... 19
M
Mark to Market Regulations.................................................. 73
Master Servicer............................................................. 1
</TABLE>
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<TABLE>
<S> <C>
Master Servicer Custodial Account........................................... 35
Master Servicing Fee........................................................ 25
Moody's..................................................................... 85
Mortgage Interest Rate...................................................... 25
Mortgage Loans.............................................................. 1
Mortgage Notes.............................................................. 13
Mortgaged Properties........................................................ 13
Mortgages................................................................... 13
N
NationsBanc Montgomery...................................................... 90
NationsBanc Mortgage........................................................ 1
NCUA........................................................................ 88
Net Foreclosure Profits..................................................... 25
Net Mortgage Interest Rate.................................................. 25
New Regulations............................................................. 76
Non-Pro Rata Certificate.................................................... 61
Non-U.S. Person............................................................. 76
Notional Amount Class....................................................... 28
O
OCC......................................................................... 88
OID Regulations............................................................. 61
Original Issue Discount..................................................... 61
Other Advances.............................................................. 37
OTS......................................................................... 56
P
Partial Liquidation Proceeds................................................ 24
Pass-Through Entity......................................................... 71
Pass-Through Rate........................................................... 8
Paying Agent................................................................ 37
PCBs........................................................................ 54
Percentage Interest......................................................... 24
Periodic Advances........................................................... 9
Planned Amortization Class.................................................. 28
Plans....................................................................... 84
Pledged Asset Mortgage Loans................................................ 17
Pool Distribution Amount.................................................... 24
Pooling and Servicing Agreement............................................. 7
Prepayment Assumption....................................................... 62
Principal Only Class........................................................ 29
Program Loans............................................................... 34
PTE 83-1.................................................................... 86
R
Rating Agency............................................................... 10
RCRA........................................................................ 55
Record Date................................................................. 8
Regular Certificateholder................................................... 61
Regular Certificates........................................................ 21
</TABLE>
<TABLE>
<S> <C>
Regulations................................................................. 85
Relief Act.................................................................. 53
REMIC....................................................................... 1
REMIC Certificates.......................................................... 58
REMIC Pool.................................................................. 58
REMIC Regulations........................................................... 58
Remittance Date............................................................. 35
Removed Mortgage Loan....................................................... 45
Reserve Fund................................................................ 30
Residual Certificates....................................................... 21
Residual Holders............................................................ 67
Restricted Group............................................................ 86
Rules....................................................................... 23
S
S&P......................................................................... 85
Sale Agreement.............................................................. 44
SBJPA of 1996............................................................... 59
Scheduled Amortization Class................................................ 28
Scheduled Principal Balance................................................. 45
Securities Act.............................................................. 2
Seller...................................................................... 1
Senior Certificates......................................................... 1
Sequential Pay Class........................................................ 28
Series...................................................................... 1
Servicer.................................................................... 1
Servicer Custodial Account.................................................. 35
Servicing Fee............................................................... 25
SMMEA....................................................................... 88
Special Hazard Loss......................................................... 27
Special Hazard Loss Amount.................................................. 27
Standard Hazard Insurance Policy............................................ 40
Startup Day................................................................. 59
Strip Class................................................................. 28
Stripped Certificateholder.................................................. 82
Stripped Certificates....................................................... 77
Subordinated Certificates................................................... 1
Subsidy Account............................................................. 15
Subsidy Loans............................................................... 15
Subsidy Payments............................................................ 15
Superliens.................................................................. 54
Support Class............................................................... 29
T
Targeted Amortization Class................................................. 29
Tiered Payment Mortgage Loans............................................... 15
Title V..................................................................... 57
Treasury Regulations........................................................ 45
Trust Estate................................................................ 1
Trustee..................................................................... 49
Trustee Fee................................................................. 25
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
U
U.S. Person................................................................. 73
UCC......................................................................... 52
Underlying Servicing Agreement.............................................. 7
Underwriter's Exemption..................................................... 85
UST......................................................................... 55
</TABLE>
<TABLE>
<S> <C>
V
Variable Rate Class......................................................... 29
Voting Interests............................................................ 47
W
Window Period............................................................... 56
Window Period Loans......................................................... 56
Window Period States........................................................ 56
</TABLE>
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No dealer, salesman or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement or the Prospectus, and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Seller or the Underwriter. This Prospectus Supplement and the Prospectus do
not constitute an offer to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. The delivery
of this Prospectus Supplement and the Prospectus at any time does not imply
that information contained herein is correct as of any time subsequent to the
date hereof.
----------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
Table of Contents.......................................................... S-4
Summary Information........................................................ S-5
Risk Factors............................................................... S-15
Description of the Certificates............................................ S-17
Description of the Mortgage Loans.......................................... S-33
Delinquency and Foreclosure Experience..................................... S-40
Prepayment and Yield Considerations........................................ S-43
Pooling and Servicing Agreement............................................ S-50
Federal Income Tax Considerations.......................................... S-53
ERISA Considerations....................................................... S-55
Legal Investment........................................................... S-56
Secondary Market........................................................... S-56
Underwriting............................................................... S-57
Legal Matters.............................................................. S-57
Use of Proceeds............................................................ S-57
Ratings.................................................................... S-57
Index of Significant Prospectus Supplement Definitions..................... S-59
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Reports..................................................................... 2
Additional Information...................................................... 2
Incorporation of Certain Information By Reference........................... 2
Summary Of Prospectus....................................................... 7
Risk Factors................................................................ 11
The Trust Estates........................................................... 13
The Seller.................................................................. 17
NationsBanc Mortgage........................................................ 17
The Mortgage Loan Programs.................................................. 18
Description of the Certificates............................................. 21
Prepayment and Yield Considerations......................................... 31
Servicing of the Mortgage Loans............................................. 32
Certain Matters Regarding the Master Servicer............................... 43
The Pooling and Servicing Agreement......................................... 44
Certain Legal Aspects of the Mortgage Loans................................. 50
Certain Federal Income Tax Consequences..................................... 58
ERISA Considerations........................................................ 84
Legal Investment............................................................ 88
Plan of Distribution........................................................ 89
Use of Proceeds............................................................. 91
Legal Matters............................................................... 91
Rating...................................................................... 91
Index of Significant Definitions............................................ 92
</TABLE>
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- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$
(APPROXIMATE)
NATIONS MORTGAGE
SECURITIES CORPORATION
SELLER
MORTGAGE PASS-THROUGH
CERTIFICATES, SERIES 199 -
-----------------------
PROSPECTUS SUPPLEMENT
-----------------------
[UNDERWRITER]
[ , 199 ]
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses expected to be incurred in connection with the issuance and
distribution of the securities being registered, other than underwriting
compensation, are as set forth below. All such expenses except for the
registration fees are estimated.
<TABLE>
<S> <C>
SEC Registration Fee................................................ *
Legal Fees and Expenses............................................. *
Accounting Fees and Expenses........................................ *
Trustee's Fees and Expenses (including counsel fees)................ *
Printing and Engraving Fees......................................... *
Rating Agency Fees.................................................. *
Miscellaneous....................................................... *
-----
Total...........................................................
=====
</TABLE>
- --------
* To be provided by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides that a Delaware
corporation may indemnify any persons, including officers and directors, who
are made, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
such corporation), by reason of the fact that such person is or was an officer
or director of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation
or enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided such officer or director acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best
interests and, for criminal proceedings, had no reasonable cause to believe
that his conduct was illegal. A Delaware corporation may indemnify officers
and directors in an action by or in the right of the corporation under the
same conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such officer or director actually and
reasonably incurred.
The By-laws of Nations Mortgage Securities Corporation provide for
indemnification of officers and directors to the full extent permitted by the
Delaware General Corporation Law.
The Pooling and Servicing Agreement for each Series of Certificates will
provide either that the Registrant and the partners, directors, officers,
employees and agents of the Registrant, or that the Master Servicer and the
partners, directors, officers, employees and agents of the Master Servicer,
will be entitled to indemnification by the Trust Estate and will be held
harmless against any loss, liability or expense incurred in connection with
any legal action relating to the Pooling and Servicing Agreement or the
Certificates, other than any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or gross negligence in the performance of his
or its duties thereunder or by reason of reckless disregard of his or its
obligations and duties thereunder.
The directors and officers of the Registrant are covered by a directors' and
officers' liability insurance policy maintained by NationBank Corporation for
the benefit of all of its subsidiaries.
II-1
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
4.1 Form of Pooling and Servicing Agreement.
5.1 Opinion of Cadwalader, Wickersham & Taft with respect to certain
matters involving the Certificates.
5.2 Opinion of Kennedy Covington Lobdell & Hickman, L.L.P. with respect
to certain matters involving the Certificates.
8.1 Opinion of Cadwalader, Wickersham & Taft as to tax matters.
8.2 Opinion of Kennedy Covington Lobdell & Hickman, L.L.P. as to tax
matters.
23.1 Consent of Cadwalader, Wickersham & Taft (included as part of
Exhibits 5.1 and 8.1).
23.2 Consent of Kennedy Covington Lobdell & Hickman, L.L.P. (included as
part
of Exhibits 5.2 and 8.2).
24.1 Power of Attorney (contained on page II-5 of this Registration
Statement).
</TABLE>
ITEM 17. UNDERTAKINGS.
(a) Undertaking pursuant to Rule 415.
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the
II-2
<PAGE>
successful defense of any action, suit or proceeding) is asserted by such
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS FORM S-3
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHARLOTTE, STATE OF NORTH CAROLINA
ON MAY 20, 1998.
Nations Mortgage Securities
Corporation
/S/ ANDREW D. WOODWARD JR.
By: _________________________________
NAME: ANDREW D. WOODWARD JR.
TITLE: PRESIDENT
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Andrew D. Woodward Jr., Denise Sawyer, G.
Patrick Phillips, Daniel Hellams and Julianna Johnson and each of them, his
true and lawful attorneys-in-fact and agents for him and in his name, place
and stead, in any and all capacities, to sign any and all post-effective
amendments to this Registration Statement and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agents may lawfully do or cause
to be done by virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE CAPACITY DATE
/s/ Andrew D. Woodward Jr. President and Chief May 20, 1998
- ------------------------------------- Executive Officer
ANDREW D. WOODWARD JR.
/s/ Denise Sawyer Treasurer, Chief May 20, 1998
- ------------------------------------- Financial Officer
DENISE SAWYER and Chief
Accounting Officer
/s/ G. Patrick Phillips Director May 20, 1998
- -------------------------------------
G. PATRICK PHILLIPS
/s/ Daniel Hellams Director May 20, 1998
- -------------------------------------
DANIEL HELLAMS
/s/ Julianna Johnson Director May 21, 1998
- -------------------------------------
JULIANNA JOHNSON
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGE
------- ----------- ------------
<S> <C> <C>
1.1.................... Form of Underwriting Agreement.
4.1.................... Form of Pooling and Servicing Agreement.
5.1.................... Opinion of Cadwalader, Wickersham & Taft with
respect to certain matters involving the
Certificates.
5.2.................... Opinion of Kennedy Covington Lobdell & Hickman,
L.L.P. with respect to certain matters involving
the Certificates.
8.1.................... Opinion of Cadwalader, Wickersham & Taft as to
tax matters.
8.2.................... Opinion of Kennedy Covington Lobdell & Hickman,
L.L.P. as to tax matters.
23.1................... Consent of Cadwalader, Wickersham & Taft (included
as part of Exhibit 5.1 and 8.1).
23.2................... Consent of Kennedy Covington Lobdell & Hickman,
L.L.P. (included as part of Exhibits 5.2 and 8.2).
24.1................... Power of Attorney (contained on page II-5 of this
Registration Statement).
</TABLE>
<PAGE>
EXHIBIT. 1.1
NATIONS MORTGAGE SECURITIES CORPORATION
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 199__
CLASS ____ CERTIFICATES
UNDERWRITING AGREEMENT
___________ ___, 199_
[Underwriter]
[Address]
Re: Nations Mortgage Securities Corporation
Mortgage Pass-Through Certificates, Series 199 -
------------------------------------------------
Ladies and Gentlemen:
Pursuant to this Underwriting Agreement (this "Agreement"), Nations Mortgage
---------
Securities Corporation, a Delaware corporation (the "Company"), proposes to
-------
sell to the addressee hereof (the "Underwriter"), the principal amount of the
-----------
securities identified in Schedule I hereto (the "Securities"), to be issued
----------
under a pooling and servicing agreement (the "Pooling Agreement") to be dated as
-----------------
of _______ 1, 199__, among the Company, as depositor (the "Depositor"),
---------
_____________________________, as servicer (the "Servicer"), and
--------
________________________________, as trustee (the "Trustee"). Capitalized terms
-------
used and not otherwise defined herein have the respective meanings ascribed to
such terms in the Pooling Agreement.
1. Representations and Warranties. The Company represents and
------------------------------
warrants to, and agrees with, the Underwriter that:
(a) The Company meets the requirements for use of Form S-3 under
the Securities Act of 1933, as amended (the "Act"), and has filed with the
---
Securities and Exchange Commission (the "Commission") a registration
----------
statement on such Form (the file number of which is set forth in Schedule I
hereto), which has become effective, for the registration under the Act of
the Securities. Such registration statement, as amended to the date of
this Agreement, meets the requirements set forth in Rule 415(a)(1) under
the Act and complies in all other material respects with said Rule. The
Company proposes to file with the Commission pursuant to Rule 424 under the
Act a supplement to the form of prospectus included in such registration
statement relating to the Securities and the plan of distribution thereof
and has previously advised the Underwriter of all further information with
respect to the Company and the Securities to be set forth therein. Such
registration statement, including the exhibits thereto, as amended to the
date of this Agreement, is hereinafter called the "Registration Statement;"
----------------------
such prospectus in the form in which it appears in
<PAGE>
the Registration Statement is hereinafter called the "Basic Prospectus;"
----------------
and such supplemented form of prospectus, in the form in which it shall be
filed with the Commission pursuant to Rule 424 (including the Basic
Prospectus as so supplemented) is hereinafter called the "Final
-----
Prospectus." Any preliminary form of the Final Prospectus which has
----------
heretofore been filed pursuant to Rule 424 hereinafter is called the
"Preliminary Final Prospectus." Any reference herein to the Registration
----------------------------
Statement, the Basic Prospectus, any Preliminary Final Prospectus or the
Final Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 which
were filed under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") other than any information contained in any Current Report
------------
(as defined in Section 5(b) below) filed pursuant to Section 5(b) hereof or
pursuant to any other underwriting agreement entered into by the Company,
on or before the date of this Agreement, or the issue date of the Basic
Prospectus, any Preliminary Final Prospectus or the Final Prospectus, as
the case may be; and any reference herein to the terms "amend," "amendment"
or "supplement" with respect to the Registration Statement, the Basic
Prospectus, any Preliminary Final Prospectus or the Final Prospectus shall
be deemed to refer to and include the filing of any document under the
Exchange Act after the date of this Agreement, or the issue date of the
Basic Prospectus, any Preliminary Final Prospectus or the Final Prospectus,
as the case may be, and deemed to be incorporated therein by reference
other than any information contained in any Current Report filed pursuant
to Section 5(b) hereof or pursuant to any other underwriting agreement
entered into by the Company.
(b) As of the date hereof, when the Final Prospectus is first
filed pursuant to Rule 424 under the Act, when, prior to the Closing Date
(as hereinafter defined), any amendment to the Registration Statement
becomes effective (including the filing of any document incorporated by
reference in the Registration Statement), when any supplement to the Final
Prospectus is filed with the Commission and at the Closing Date (as
hereinafter defined), (i) the Registration Statement, as amended as of any
such time, and the Final Prospectus, as amended or supplemented as of any
such time, will comply in all material respects with the applicable
requirements of the Act and the Exchange Act and the respective rules
thereunder, (ii) the Registration Statement, as amended as of any such
time, will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein not misleading, and (iii) the Final
Prospectus, as amended or supplemented as of any such time, will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that the Company makes no
representations or warranties as to (A) the information contained in or
omitted from the Registration Statement or the Final Prospectus or any
amendment thereof or supplement thereto in reliance upon and in conformity
with information furnished in writing to the Company by or on behalf of the
Underwriter specifically for use in connection with the preparation of the
Registration Statement and the Final Prospectus or (B) any Current Report
filed pursuant to Section 5(b) hereof.
-2-
<PAGE>
(c) The Company has been duly incorporated and is validly
existing as a corporation under the laws of the State of Delaware and has
corporate and other power and authority to own its properties and conduct
its business, as now conducted by it, and to enter into and perform its
obligations under this Agreement and the Pooling Agreement.
(d) The Company is not aware of (i) any request by the
Commission for any further amendment of the Registration Statement or the
Basic Prospectus or for any additional information or (ii) the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement.
(e) This Agreement has been duly authorized, executed and
delivered by the Company, and the Pooling Agreement, when delivered by the
Company, will have been duly authorized, executed and delivered by the
Company, and will constitute a legal, valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms,
subject, as to the enforcement of remedies, to applicable bankruptcy,
insolvency, reorganization, moratorium, receivership and similar laws
affecting creditors' rights generally and to general principles of equity
(regardless of whether the enforcement of such remedies is considered in a
proceeding in equity or at law).
2. Purchase and Sale. Subject to the terms and conditions and in
-----------------
reliance upon the representations and warranties herein set forth, the Company
agrees to sell to the Underwriter, and the Underwriter agrees to purchase from
the Company, at the purchase price set forth on Schedule I hereto, the principal
amount of each class of the Securities set forth on Schedule I hereto.
3. Delivery and Payment. Delivery of and payment for the Securities
--------------------
shall be made at the office, on the date and at the time specified on Schedule I
hereto, which date and time may be postponed by agreement between the
Underwriter and the Company (such date and time of delivery and payment for the
Securities being herein referred to as the "Closing Date"). Delivery of the
------------
Securities shall be made to the Underwriter against payment by the Underwriter
of the purchase price thereof in the manner set forth on Schedule I hereto. If
Schedule I indicates that the Securities are to be issued in book-entry form,
delivery of the Securities shall be made through the facilities of the
depository or depositories set forth on Schedule I. Alternatively, physical
certificates for the Securities shall be registered in such names and in such
denominations as the Underwriter may request not less than three full business
days in advance of the Closing Date.
The Company agrees to have the Securities available for inspection,
checking and, in the case of physical certificates, packaging by the Underwriter
in New York, New York, not later than 1:00 p.m., New York City time, on the
business day prior to the Closing Date.
4. Representations, Warranties and Agreements of the Underwriter.
-------------------------------------------------------------
The Underwriter represents and warrants to, and agrees with, the Company that it
proposes to
-3-
<PAGE>
offer the Securities for sale to the public as set forth in the Final
Prospectus, and all offers and sales of the Securities made by it shall be so
made in compliance with all applicable laws and regulations.
5. Agreements of the Company. The Company agrees with the
-------------------------
Underwriter that:
(a) Prior to the termination of the offering of the Securities,
the Company will not file any amendment of the Registration Statement or
supplement (including the Final Prospectus) to the Basic Prospectus unless
the Company has furnished the Underwriter a copy for its review prior to
filing and will not file any such proposed amendment or supplement to which
the Underwriter reasonably objects. Subject to the foregoing sentence, the
Company will cause the Final Prospectus to be submitted to the Commission
for filing pursuant to Rule 424 and will cause the Final Prospectus to be
filed with the Commission pursuant to said Rule. The Company will advise
the Underwriter promptly (i) when the Final Prospectus shall have been
submitted to the Commission for filing pursuant to Rule 424, (ii) when any
amendment to the Registration Statement relating to the Securities shall
have become effective, (iii) of any request by the Commission for any
amendment of the Registration Statement or amendment of or supplement to
the Final Prospectus or for any additional information relating to the
Securities, (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (v) of
the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose. The Company will use its best efforts to prevent the issuance of
any such stop order described in clause (iv) of the preceding sentence and,
if issued, to obtain as soon as possible the withdrawal thereof.
(b) The Company will cause or, if appropriate, will have caused
any Computational Materials, Collateral Term Sheets and ABS Term Sheets
(each as defined in Section 10 below) with respect to the Securities which
are delivered by the Underwriter to the Company pursuant to or as
contemplated by Section 10 to be filed with the Commission on a Current
Report on Form 8-K (the "Current Report") pursuant to Rule 13a-11 under the
--------------
Exchange Act not later than, in each such case, the business day
immediately following the day on which such Computational Materials,
Collateral Term Sheets or ABS Term Sheets are delivered to counsel for the
Company by the Underwriter as provided in Section 10, and will promptly
advise the Underwriter when each such Current Report has been so filed.
Notwithstanding the preceding sentences, the Company shall have no
obligation to file materials provided by the Underwriter pursuant to or as
contemplated by Section 10 which, in the reasonable determination of the
Company after making reasonable efforts to consult with the Underwriter,
are not required to be filed pursuant to the No-Action Letters (as defined
in Section 10 below), or which contain erroneous information or contain any
-4-
<PAGE>
untrue statement of a material fact or, which, when read in conjunction
with the Final Prospectus, omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
it being understood, however, that the Company shall have no obligation to
review or pass upon the accuracy or adequacy of, or to correct, any
Computational Materials, Collateral Term Sheets or ABS Term Sheets provided
by the Underwriter to the Company pursuant to Section 10 hereof.
(c) If, at any time when a prospectus relating to the Securities
is required to be delivered under the Act, any event occurs as a result of
which the Final Prospectus as then amended or supplemented would include
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, or if it shall be necessary to
amend or supplement the Final Prospectus to comply with the Act or the
Exchange Act or the respective rules thereunder, the Company promptly will
prepare and file with the Commission, subject to the first sentence of
paragraph (a) of this Section 5, an amendment or supplement which will
correct such statement or omission or an amendment which will effect such
compliance and will use its best efforts to cause any required post-
effective amendment to the Registration Statement containing such amendment
to be made effective as soon as possible.
(d) The Company will furnish to the Underwriter and counsel for
the Underwriter, without charge, executed copies of the Registration
Statement (including exhibits thereto) and each amendment thereto which
shall become effective on or prior to the Closing Date and, so long as
delivery of a prospectus relating to the Securities by the Underwriter or
dealer may be required by the Act, as many copies of any Preliminary Final
Prospectus and the Final Prospectus and any amendments thereof and
supplements thereto as the Underwriter may reasonably request. The Company
will pay the expenses of printing all documents relating to the initial
offering of the Securities, provided that any additional expenses incurred
in connection with the requirement of delivery of a market-making
prospectus will be borne by the Underwriter.
(e) The Company will arrange for the qualification of the
Securities for sale under the laws of such jurisdictions as the Underwriter
may reasonably designate, will maintain such qualifications in effect so
long as required for the distribution of the Securities and will arrange
for the determination of the legality of the Securities for purchase by
institutional investors; provided, however, that the Company shall not be
-------- -------
required to qualify to do business in any jurisdiction where it is not now
so qualified or to take any action which would subject it to general or
unlimited service of process in any jurisdiction where it is not now so
subject.
6. Conditions to the Obligations of the Underwriter. The obligation
------------------------------------------------
of the Underwriter to purchase the Securities shall be subject to the accuracy
of the representations and warranties on the part of the Company contained
herein as of the date hereof, as of the date of the effectiveness of any
amendment to the Registration Statement filed prior to the
-5-
<PAGE>
Closing Date (including the filing of any document incorporated by reference
therein) and as of the Closing Date, to the accuracy of the statements of the
Company made in any certificates delivered pursuant to the provisions hereof, to
the performance by the Company of its obligations hereunder and to the following
additional conditions:
(a) No stop order suspending the effectiveness of the
Registration Statement, as amended from time to time, shall have been
issued and no proceedings for that purpose shall have been instituted or
threatened; and the Final Prospectus shall have been filed or mailed for
filing with the Commission within the time period prescribed by the
Commission.
(b) The Company shall have furnished to the Underwriter the
opinion of [Cadwalader, Wickersham & Taft] [Kennedy Covington Lobdell &
Hickman, L.L.P.], counsel for the Company, dated the Closing Date, to the
effect of paragraphs (iv), (vii), (viii), (x) and (xiv) below, and the
opinion of [ ] special counsel to the Company, dated the Closing Date, to
the effect of paragraphs (i), (ii), (iii), (v), (vi), (ix), (xi), (xii) and
(xiii) below:
(i) the Company is a duly incorporated and validly
existing corporation in good standing under the laws of the State of
Delaware, has the corporate power and authority to own its
properties and conduct its business currently conducted;
(ii) the Company has no subsidiaries;
(iii) the Company is not required to be qualified or
licensed to do business as a foreign corporation in any jurisdiction;
(iv) assuming that the Securities are rating at the time
of transfer to the Underwriter in one of the two highest rating
categories by a nationally recognized statistical rating organization,
each such Security at such time will be a "mortgage related security"
as such term is defined in Section 3(a)(41) of the Exchange Act;
(v) the Pooling Agreement has been duly authorized,
executed and delivered by the Company;
(vi) the Securities have been duly authorized by the
Company;
(vii) upon due authorization, execution and delivery by the
parties thereto, the Pooling Agreement will constitute a valid and
legally binding agreement of the Company, enforceable against the
Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium, receivership or other laws relating to creditors' rights
generally, and to general principles of equity including principles of
commercial reasonableness, good faith and fair dealing
-6-
<PAGE>
(regardless of whether enforcement is sought in a proceeding at law or
in equity), and except that the enforcement of rights with respect to
indemnification and contribution obligations may be limited by
applicable law;
(viii) the Securities, when duly executed, authenticated
and delivered in the manner contemplated in the Pooling Agreement and
paid for by the Underwriter pursuant to this Agreement, will be
validly issued and outstanding and entitled to the benefits of the
Pooling Agreement;
(ix) to the knowledge of such counsel, there is no legal
or governmental action, investigation or proceeding pending or
threatened against the Company (a) asserting the invalidity of this
Agreement, the Pooling Agreement or the Certificates, (b) seeking to
prevent the issuance of the Certificates or the consummation of any of
the transactions contemplated hereby or (c) which would materially and
adversely affect the performance by the Company of its obligations
under, or the validity or enforceability of, this Agreement, the
Pooling Agreement or the Certificates;
(x) the Registration Statement has become effective under
the Act; to the knowledge of such counsel (a) no stop order suspending
the effectiveness of the Registration Statement with respect to the
Securities has been issued and no proceedings for that purpose have
been instituted or are pending or are threatened under the Act; and
(b) the Registration Statement, as of its effective date, and the
Final Prospectus, as of the date thereof, and each revision or
amendment thereof or supplement thereto relating to the Securities, as
of its effective date, appeared on their respective faces to be
appropriately responsive in all material respects to the requirements
of the Act and the rules and regulations of the Commission thereunder
applicable to such documents as of such respective dates; and, as of
the date of the Final Prospectus, the statements set forth in the
Final Prospectus under the headings "ERISA Considerations" and
"Federal Income Tax Consequences" were, to the extent that they
summarize matters of federal law or legal conclusions, correct in all
material respects;
(xi) this Agreement has been duly authorized, executed and
delivered by the Company;
(xii) no consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation
of the transactions contemplated herein, except such as have been
obtained under the Act and such as may be required under the blue sky
laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriter and such other
approvals (specified in such opinion) as have been obtained;
-7-
<PAGE>
(xiii) neither the issue and sale of the Securities, nor
the consummation of any other of the transactions herein contemplated
nor the fulfillment of the terms hereof will conflict with, result in
a breach of, or constitute a default under the certificate of
incorporation or by-laws of the Company or, to the best knowledge of
such counsel, the terms of any indenture or other agreement or
instrument known to such counsel and to which the Company is a party
or by which it is bound, or any order or regulation known to such
counsel to be applicable to the Company of any court, regulatory body,
administrative agency, governmental body or arbitrator having
jurisdiction over the Company; and
(xiv) the Pooling Agreement is not required to be qualified
under the Trust Indenture Act of 1939, as amended and the Trust Fund
is not required to be registered under the Investment Company Act of
1940, as amended.
Such opinion may express its reliance as to factual matters on
the representations and warranties made by, and on certificates or other
documents furnished by officers of, the parties to this Agreement and the
Pooling Agreement. Such opinion may be qualified as an opinion only on the
laws of the State of New York, the laws of each state in which the writer
of the opinion is admitted to practice law and the Federal law of the
United States. To the extent that such counsel relies upon the opinion of
other counsel in rendering any portion of its opinion, the opinion of such
other counsel shall be attached to and delivered with the opinion of such
firm that is delivered to the Underwriter.
(c) The Company shall have furnished to the Underwriter a
letter, dated the Closing Date, of [Cadwalader, Wickersham & Taft] [Kennedy
Covington Lobdell & Hickman, L.L.P.], counsel to the Company, to the effect
that in the course of such counsel's review of the Registration Statement
and the Final Prospectus and discussion of the same with certain officers
of the Company and its auditors, no facts came to the attention of such
counsel that caused such counsel to believe that the Registration
Statement, as of its effective date, or the Final Prospectus, as of the
date, or any revision or amendment thereof or supplement thereto, as of its
effective date, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or that the Final Prospectus, or any
revision or amendment thereof or supplement thereto filed prior to the date
of such opinion, as of the date of such opinion, contained any untrue
statement of a material fact or omitted to state a material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; it being understood that such counsel
need express no opinion as to any financial statements or other financial,
numerical or statistical data contained in the Registration Statement or
the Final Prospectus or any material incorporated by reference in the
Registration Statement or the Prospectus.
-8-
<PAGE>
(d) The Underwriter shall have received copies, addressed to it
or on which it is entitled to rely, of opinions of counsel furnished to the
rating agencies rating the Securities as set forth on Schedule I hereto
(the "Rating Agencies").
---------------
(e) The Company shall have furnished to the Underwriter a
certificate of the Company, signed by an authorized officer thereof, and
dated the Closing Date, to the effect that the signer(s) of such
certificate has carefully examined the Registration Statement, the Final
Prospectus and this Agreement and that to the best of his or her knowledge:
(i) the representations and warranties of the Company in
this Agreement are true and correct in all material respects on and as
of the Closing Date with the same effect as if made on the Closing
Date and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied
at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement, as amended, has been issued and no proceedings
for that purpose have been instituted or threatened; and
(iii) since the respective dates as of which information is
given in the Final Prospectus, there has been no material adverse
change in the condition (financial or other), earnings, business or
properties of the Company, whether or not arising from transactions in
the ordinary course of business, except as set forth in or
contemplated in the Final Prospectus.
(f) On the date hereof, Price Waterhouse, LLP and/or any other
firm of certified independent public accountants acceptable to the
Underwriter shall have furnished to the Underwriter a letter, dated the
date hereof, in form and substance satisfactory to the Underwriter,
confirming that they are independent accountants within the meaning of the
Act and the Exchange Act and the respective applicable published rules and
regulations thereunder, and stating in effect that using the assumptions
and methodology used by the Company, all of which shall be described in
such letter, they have recalculated such numbers and percentages set forth
in the Final Prospectus as the Underwriter may reasonably request and as
are agreed to by such accountants, compared the results of their
calculations to the corresponding items in the Final Prospectus, and found
each such number and percentage set forth in the Final Prospectus to be in
agreement with the results of such calculations. To the extent historical
financial information with respect to the Company and/or historical
financial, delinquency or related information with respect to one or more
servicers is included in the Final Prospectus, such letter or letters shall
also relate to such information.
(g) The Securities shall have received the rating or ratings
from the Rating Agencies as set forth on Schedule I hereto.
-9-
<PAGE>
(h) Prior to the Closing Date, the Company shall have furnished
to the Underwriter such further information, certificates, opinions and
documents as the Underwriter may reasonably request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Underwriter and its counsel, this Agreement and all
obligations of the Underwriter hereunder may be canceled at, or at any time
prior to, the Closing Date by the Underwriter. Notice of such cancellation
shall be given to the Company in writing, or by telephone or telegraph and
confirmed in writing.
7. Reimbursement of Underwriter's Expenses. If the sale of the
---------------------------------------
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriter set forth in Section 3 hereof is not satisfied or
because of any refusal, inability or failure on the part of the Company to
perform any agreement herein or comply with any provision hereof other than by
reason of a default by the Underwriter, the Company will reimburse the
Underwriter upon demand for all out-of-pocket expenses (including reasonable
fees and disbursements of counsel) that shall have been incurred by it in
connection with the proposed purchase and sale of the Securities.
8. Indemnification and Contribution.
--------------------------------
(a) The Company agrees to indemnify and hold harmless the
Underwriter and each person who controls the Underwriter within the meaning
of either the Act or the Exchange Act against any and all losses, claims,
damages, liabilities and actions, joint or several, to which they or any of
them may become subject under the Act, the Exchange Act or other Federal or
state statutory law or regulation, at common law, in equity or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or cost
of investigation in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement as originally filed or in any amendment
thereof, or in the Basic Prospectus, any Preliminary Final Prospectus or
the Final Prospectus, or in any amendment thereof or supplement thereto, or
arise out of or are based upon any omission or any alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and agrees to reimburse each
such indemnified party for any legal and other fees, costs and expenses
reasonably incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that
-------- -------
(i) the Company will not be liable in any such case to the extent that any
such loss, claim, damage, liability or action arises out of or is based
upon any such untrue statement or alleged untrue statement or omission or
alleged omission made therein (A) in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the
Underwriter specifically for use in connection with the preparation thereof
or (B) in any Current Report or any amendment or supplement thereof, except
to the extent that
-10-
<PAGE>
that any untrue statement or alleged untrue statement therein results (or
is alleged to have resulted) directly from an error (a "Collateral Error")
----------------
in the information concerning the Mortgage Loans furnished by the Company
to the Underwriter in writing or by electronic transmission that was used
in the preparation of any Computational Materials, Collateral Term Sheets
or ABS Term Sheets included in such Current Report (or amendment or
supplement thereof), (ii) such indemnity with respect to the Basic
Prospectus or any Preliminary Final Prospectus shall not inure to the
benefit of the Underwriter (or any person controlling the Underwriter) if
the person asserting any such loss, claim, damage or liability purchased
the Securities from the Underwriter did not receive a copy of the Final
Prospectus (or the Final Prospectus as amended or supplemented) excluding
documents incorporated therein by reference, at or prior to the
confirmation of the sale of such Securities to such person in any case
where such delivery is required by the Act and the untrue statement or
omission of a material fact contained in the Basic Prospectus or any
Preliminary Final Prospectus was corrected in the Final Prospectus (or the
Final Prospectus as amended or supplemented and is found by a court of law
or equity to have caused the loss), and (iii) such indemnity with respect
to any Collateral Error shall not inure to the benefit of the Underwriter
(or any person controlling the Underwriter) if the person asserting any
loss, claim, damage or liability received any Computational Materials,
Collateral Term Sheets or ABS Term Sheets from the Underwriter that were
prepared on the basis of such Collateral Error, and, prior to the time of
confirmation of the sale of the Securities to the person, the Company
notified the Underwriter in writing of the Collateral Error or provided in
written or electronic form information superseding or correcting such
Collateral Error (in any such case, a "Corrected Collateral Error"), and
--------------------------
the Underwriter failed to notify such person thereof or to deliver such
person corrected Computational Materials, Collateral Term Sheets and/or ABS
Term Sheets, as applicable. This indemnity agreement will be in addition to
any liability which the Company may otherwise have.
(b) The Underwriter agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the
Registration Statement, and each person who controls the Company within the
meaning of either the Act or the Exchange Act, to the same extent as the
foregoing indemnity from the Company to the Underwriter, but only with
reference to (A) written information relating to the Underwriter furnished
to the Company by or on behalf of the Underwriter specifically for use in
the preparation of the documents referred to in the foregoing indemnity, or
(B) any Computational Materials, Collateral Term Sheets or ABS Term Sheets
furnished to the Company by the Underwriter pursuant to or as contemplated
by Section 10 (except that no such indemnity shall be available for any
losses, claims, damages or liabilities, or actions in respect thereof
resulting from any Collateral Error, other than a Corrected Collateral
Error). This indemnity agreement will be in addition to any liability
which the Underwriter may otherwise have. The Company acknowledges that
the statements set forth in the last paragraph of the cover page and under
the heading "Underwriting" or "Plan of Distribution" in any Preliminary
Final Prospectus or the Final Prospectus constitute the only information
furnished in writing by or on behalf of the Underwriter for inclusion in
the documents
-11-
<PAGE>
referred to in the foregoing indemnity (other than the Computational
Materials, Collateral Term Sheets and/or ABS Term Sheets furnished to the
Company by the Underwriter).
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action or investigation,
such indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under this Section 8, notify the
indemnifying party in writing of the commencement thereof; provided, that
--------
the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than
under this Section 8. In case any investigation is commenced by or against
an indemnified party or any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof,
the indemnifying party will be entitled to participate therein, and, to the
extent that it may elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified
party, to participate in the investigation and/or to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided,
--------
however, that if the defendants in any such investigation and/or action
-------
include or are likely to include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably
concluded at some point during the investigation and/or action that there
may be legal defenses available to it and/or other indemnified parties
which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right
to select separate counsel to assert such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified
party or parties. Upon receipt of notice from the indemnifying party to
such indemnified party of its election so to participate in the
investigation and/or to assume the defense of such action and approval by
the indemnified party of counsel, the indemnifying party will not be liable
to such indemnified party under this Section 8 for any legal or other
expenses subsequently incurred by such indemnified party in connection with
the defense thereof unless (i) the indemnified party shall have employed
separate counsel in connection with the assertion of legal defenses in
accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for
the expenses of more than one separate counsel, approved by the Underwriter
in the case of subparagraph (a) and the Company in the case of subparagraph
(b), representing the indemnified parties under subparagraph (a) or (b), as
the case may be, who are parties to such action), (ii) the indemnifying
party shall not have employed counsel satisfactory to the indemnified party
to represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized
the employment of counsel for the indemnified party at the expense of the
indemnifying party; and except that if clause (i) or (iii) is applicable,
such liability shall be only in respect of the counsel referred to in such
clause (i) or (iii).
(d) To provide for just and equitable contribution in
circumstances in which the indemnification provided for in paragraph (a) or
(b) of this Section 8 is due
-12-
<PAGE>
in accordance with its terms but is for any reason held by a court to be
unavailable from the Company or the Underwriter on the grounds of policy or
otherwise, the Company and the Underwriter shall contribute to the
aggregate losses, claims, damages, liabilities and actions (including legal
and other fees, costs and expenses reasonably incurred in connection with
investigating or defending same) to which the Company and the Underwriter
may be subject, as follows:
(i) in the case of any losses, claims, damages and liabilities
(or actions in respect thereof) which do not arise out of or are not based
upon any untrue statement or omission of a material fact in any
Computational Materials, Collateral Term Sheets or ABS Term Sheets, in such
proportion so that the Underwriter is responsible for that portion
represented by the percentage that the underwriting discount bears to the
sum of such discount and the purchase price of the Securities specified in
Schedule I hereto and the Company is responsible for the balance; provided,
--------
however, that in no case shall the Underwriter be responsible under this
-------
subparagraph (i) for any amount in excess of the underwriting discount
applicable to the Securities purchased by the Underwriter hereunder; and
(ii) in the case of any losses, claims, damages and liabilities
(or actions in respect thereof) which arise out of or are based upon any
untrue statement or omission of a material fact in any Computational
Materials, Collateral Term Sheets or ABS Term Sheets, in such proportion as
is appropriate to reflect the relative fault of the Company on the one hand
and the Underwriter on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof) as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
in such Computational Materials, Collateral Term Sheets or ABS Term Sheets
results from information prepared by the Company on the one hand or the
Underwriter on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission.
Notwithstanding anything to the contrary in this paragraph (d), no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person who
controls the Underwriter within the meaning of either the Act or the Exchange
Act shall have the same rights to contribution as the Underwriter, and each
person who controls the Company within the meaning of either the Act or the
Exchange Act, each officer of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to the preceding sentence of
this paragraph (d). Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect of which a claim for contribution may be made against another
party or parties under this paragraph (d), notify such party or parties from
whom contribution may be sought, but the omission to so notify such party or
parties shall not
-13-
<PAGE>
relieve the party or parties from whom contribution may be sought from any other
obligation it or they may have hereunder or otherwise than under this paragraph
(d).
9. Representations and Indemnities to Survive. The respective
------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Underwriter set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of the Underwriter or the Company or any of
the officers, directors or controlling persons referred to in Section 8 hereof,
and will survive delivery of and payment for the Securities. The provisions of
Sections 7 and 8 hereof and this Section 9 shall survive the termination or
cancellation of this Agreement.
10. Computational Materials and ABS Term Sheets.
-------------------------------------------
(a) Not later than 10:30 a.m., New York City time, on a date no
later than four business days before delivery of the Final Prospectus to
the Underwriter, the Underwriter shall deliver to the Company five complete
copies of all materials provided by the Underwriter to prospective
investors in the Securities which constitute either (i) "Computational
-------------
Materials" within the meaning of the no-action letter dated May 20, 1994
---------
issued by the Division of Corporation Finance of the Commission to Kidder,
Peabody Acceptance Corporation I, Kidder, Peabody & Co. Incorporated, and
Kidder Structured Asset Corporation and the no-action letter dated May 27,
1994 issued by the Division of Corporation Finance of the Commission to the
Public Securities Association (together, the "Kidder Letters") or (ii) "ABS
-------------- ---
Term Sheets" within the meaning of the no-action letter dated February 17,
-----------
1995 issued by the Division of Corporation Finance of the Commission to the
Public Securities Association (the "PSA Letter" and together with the
----------
Kidder Letters, the "No-Action Letters"), if the filing of such materials
-----------------
with the Commission is a condition of the relief granted in such letters.
In the case of any such materials that constitute "Collateral Term Sheets"
----------------------
within the meaning of the PSA Letter, if such Collateral Term Sheets have
not previously been delivered to the Company as contemplated by Section
10(b)(i) below, five complete copies of such Collateral Term Sheets shall
be delivered by the Underwriter to the Company no later than 10:30 a.m.,
New York City time, on the first business day following the date on which
such Collateral Term Sheets were initially provided to a potential
investor. Each delivery of Computational Materials, Collateral Term Sheets
and/or ABS Term Sheets to the Company pursuant to this paragraph (a) shall
be effected by delivering four copies of such materials to counsel for the
Company on behalf of the Company at the address specified in Section 15
hereof and one copy of such materials to the Company.
(b) The Underwriter represents and warrants to and agrees with
the Company, as of the date hereof and as of the Closing Date, that:
(i) if the Underwriter has provided any Collateral Term
Sheets to potential investors in the Securities prior to the date
hereof and if the
-14-
<PAGE>
filing of such materials with the Commission is a condition of the
relief granted in the PSA Letter, then in each such case the
Underwriter delivered four copies of such materials to counsel for the
Company on behalf of the Company at the address specified in Section
15 hereof and one copy of such materials to the Company no later than
10:30 a.m., New York City time, on the first business day following
the date on which such materials were initially provided to a
potential investor;
(ii) the Computational Materials (either in original,
aggregated or consolidated form), Collateral Term Sheets and ABS Term
Sheets furnished to the Company pursuant to Section 10(a) or as
contemplated in Section 10(b)(i) constitute all of the materials
relating to the Securities furnished by the Underwriter (whether in
written, electronic or other format) to prospective investors in the
Securities which are required to be filed with the Commission in
accordance with the No-Action Letters, and all Computational
Materials, Collateral Term Sheets and ABS Term Sheets provided to
potential investors in the Securities comply with the requirements of
the No-Action Letters;
(iii) on the respective dates any such Computational
Materials and/or ABS Term Sheets with respect to the Securities
referred to in Section 10(b)(ii) were last furnished to each
prospective investor, on the date of delivery thereof to the Company
pursuant to or as contemplated by this Section 10 and on the Closing
Date, such Computational Materials, Collateral Term Sheets and/or ABS
Term Sheets did not and will not include any untrue statement of a
material fact, or, when read in conjunction with the Final Prospectus,
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
(iv) at the time any Computational Materials, Collateral
Term Sheets or ABS Term Sheets with respect to the Securities were
furnished to a prospective investor and on the date hereof, the
Underwriter possessed, and on the date of delivery of such materials
to the Company pursuant to or as contemplated by this Section 10 and
on the Closing Date, the Underwriter will possess, the capability,
knowledge, expertise, resources and systems of internal control
necessary to ensure that such Computational Materials, Collateral Term
Sheets and/or ABS Term Sheets conform to the representations and
warranties of the Underwriter contained in subparagraphs (ii) and
(iii) above of this paragraph (b);
(v) all Computational Materials, Collateral Term Sheets
and ABS Term Sheets with respect to the Securities furnished to
potential investors contained and will contain a legend, prominently
displayed on the first page thereof, to the effect that the Company
has not prepared, reviewed or participated in the preparation of such
Computational Materials, Collateral
-15-
<PAGE>
Term Sheets or ABS Term Sheets, is not responsible for the accuracy
thereof and has not authorized the dissemination thereof;
(vi) all Collateral Term Sheets with respect to the
Securities furnished to potential investors contained and will contain
a legend, prominently displayed on the first page thereof, indicating
that the information contained therein will be superseded by the
description of the Mortgage Loans contained in the Final Prospectus
and, except in the case of the initial Collateral Term Sheet, that
such information supersedes the information in all prior Collateral
Term Sheets; and
(vii) on and after the date hereof, the Underwriter shall
not deliver or authorize the delivery of any Computational Materials,
Collateral Term Sheets, ABS Term Sheets or other materials relating to
the Securities (whether in written, electronic or other format) to any
potential investor unless such potential investor has received a Final
Prospectus prior to or at the same time as the delivery of such
Computational Materials, Collateral Term Sheets, ABS Term Sheets or
other materials.
Notwithstanding the foregoing, the Underwriter makes no representation or
warranty as to whether any Computational Materials, Collateral Term Sheets or
ABS Term Sheets with respect to the Securities included or will include any
untrue statement resulting directly from any Collateral Error (except any
Corrected Collateral Error, with respect to materials prepared after the receipt
by the Underwriter from the Company of notice of such Corrected Collateral Error
or materials superseding or correcting such Corrected Collateral Error).
(c) The Underwriter acknowledges and agrees that the Company has
not authorized and will not authorize the distribution of any Computational
Materials, Collateral Term Sheets or ABS Term Sheets with respect to the
Securities to any prospective investor, and agrees that any such
Computational Materials, Collateral Term Sheets and/or ABS Term Sheets
furnished to prospective investors shall include a disclaimer in the form
set forth in paragraph (b)(v) above. The Underwriter agrees that it will
not represent to potential investors that any Computational Materials,
Collateral Term Sheets and/or ABS Term Sheets with respect to the
Securities were prepared or disseminated on behalf of the Company.
(d) If, at any time when a prospectus relating to the Securities
is required to be delivered under the Act, it shall be necessary to amend
or supplement the Final Prospectus as a result of an untrue statement of a
material fact contained in any Computational Materials, Collateral Term
Sheets or ABS Term Sheets provided by the Underwriter pursuant to or as
contemplated by this Section 10 or the omission to state therein a material
fact required, when considered in conjunction with the Final Prospectus, to
be stated therein or necessary to make the statements therein, when read in
conjunction with the Final Prospectus, not misleading, or if it shall be
necessary to amend or supplement any Current Report to comply with the Act
or the rules
-16-
<PAGE>
thereunder, the Underwriter, at its expense, promptly will prepare and
furnish to the Company for filing with the Commission an amendment or
supplement which will correct such statement or omission or an amendment
which will effect such compliance. The Underwriter represents and warrants
to the Company, as of the date of delivery of such amendment or supplement
to the Company, that such amendment or supplement will not include any
untrue statement of a material fact or, when read in conjunction with the
Final Prospectus, omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Company shall have no obligation to file such amendment or supplement if
the Company determines that (i) such amendment or supplement contains any
untrue statement of a material fact or, when read in conjunction with the
Final Prospectus, omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading (it
being understood, however, that the Company shall have no obligation to
review or pass upon the accuracy or adequacy of, or to correct, any such
amendment or supplement provided by the Underwriter to the Company pursuant
to this paragraph (d)) or (ii) such filing is not required under the Act.
(e) The Underwriter (at its own expense) further agree to provide
to the Company any accountants' letters obtained relating to the
Computational Materials, Collateral Term Sheets and/or ABS Term Sheets,
which accountants' letters shall be addressed to the Company or shall state
that the Company may rely thereon; provided, however, that the Underwriter
-------- -------
shall have no obligation to procure such letter.
11. Termination. This Agreement shall be subject to termination in
-----------
the absolute discretion of the Underwriter, by notice given to the Company prior
to delivery of and payment for the Securities, if prior to such time (i) trading
in securities generally on the New York Stock Exchange shall have been suspended
or limited or minimum prices shall have been established on such Exchange, (ii)
a banking moratorium shall have been declared either by Federal or North
Carolina authorities or (iii) there shall have occurred any outbreak or material
escalation of hostilities or other calamity or crisis the effect of which on the
financial markets of the United States is such as to make it, in the judgment of
the Underwriter, impracticable to market the Securities.
12. Successors. This Agreement will inure to the benefit of and be
----------
binding upon the parties hereto, each person or entity, if any, who controls the
Company or the Underwriter (within the meaning of either Section 15 of the Act,
of Section 20 of the Exchange Act) and their respective successors, and assigns,
and no other person will have any right or obligation hereunder.
13. APPLICABLE LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED
--------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
-17-
<PAGE>
14. Miscellaneous.
-------------
(a) This Agreement supersedes all prior or contemporaneous agreements
and understandings relating to the subject matter hereof.
(b) Neither this Agreement nor any term hereof may be changed,
waived, discharged or terminated except by a writing signed by the party against
whom enforcement of such change, waiver, discharge or termination is sought.
(c) This Agreement may be signed in any number of counterparts each
of which shall be deemed an original, which taken together shall constitute one
and the same instrument.
(d) The headings of the Sections of this Agreement have been inserted
for convenience of reference only and shall not be deemed a part of this
Agreement.
15. Notices. All communications hereunder will be in writing and
-------
effective only upon receipt and, if sent to the Underwriter, will be delivered
to [ ], Attention: [ ], or
if sent to the Company, will be delivered to the Company at 201 North Tryon
Street, Charlotte, North Carolina 28202, in either case, with a copy to [
].
-18-
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement between the
Company and the Underwriter.
Very truly yours,
NATIONS MORTGAGE SECURITIES
CORPORATION
By: _________________________________
Name:
Title:
The foregoing Agreement is
hereby confirmed and accepted
as of the date specified on
Schedule I hereto.
[UNDERWRITER]
By: _______________________________
Name:
Title:
-19-
<PAGE>
SCHEDULE I
Underwriting Agreement dated ______, 199__
Registration Statement No:
- -------------------------
Underwriter:
- -----------
Title, Purchase Price and Description of Securities:
- ---------------------------------------------------
Title: Nations Mortgage Securities Corporation
-----
Mortgage Pass-Through Certificates, Series 199__-__
<TABLE>
<CAPTION>
===========================================================
Principal Ratings by Method of
Class Amount and Delivery
----- ------ ---------- ---------
<S> <C> <C> <C>
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
===========================================================
</TABLE>
Rating Agencies:
- ---------------
______________________________("_____"); ______________________. (" ")
Closing Time, Date and Location:
- -------------------------------
10:00 A.M. on _______, 199__ at the offices of [ ].
Depository:
- ----------
Purchase Price: The Purchase Price for each Class of Securities will be ____%
- --------------
of the principal amount thereof.
Payment Method: Immediately available funds.
- --------------
-20-
<PAGE>
EXHIBIT 4.1
________________________________________________________________________________
NATIONS MORTGAGE SECURITIES CORPORATION
(Seller)
and
NATIONSBANC MORTGAGE CORPORATION
(Servicer)
and
_____________________________________
(Trustee)
POOLING AND SERVICING AGREEMENT
Dated as of _____________, 199__
$_______________________
Mortgage Pass-Through Certificates
Series 199__-__
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS
Section 1.01. Definitions................................................ I-1
Accepted Servicing Practices..................................... I-1
Accretion Termination Date....................................... I-1
Adjusted Pool Amount............................................. I-1
Adjusted Pool Amount (PO Portion)................................ I-1
Adjusted Principal Balance....................................... I-2
Adjustment Amount................................................ I-2
Aggregate Class A Distribution Amount............................ I-2
Aggregate Class A Interest Accrual Amount........................ I-2
Aggregate Class A Principal Balance.............................. I-2
Aggregate Class A Unpaid Interest Shortfall...................... I-2
Aggregate Class B Interest Accrual Amount........................ I-2
Aggregate Class B Principal Balance.............................. I-2
Aggregate Current Bankruptcy Losses.............................. I-3
Aggregate Current Fraud Losses................................... I-3
Aggregate Current Special Hazard Losses.......................... I-3
Aggregate Foreclosure Profits.................................... I-3
Agreement........................................................ I-3
Amount Held for Future Distribution.............................. I-3
Authenticating Agent............................................. I-3
Bankruptcy Code.................................................. I-3
Bankruptcy Loss.................................................. I-3
Bankruptcy Loss Amount........................................... I-3
Beneficial Owner................................................. I-4
Book-Entry Certificate........................................... I-4
Business Day..................................................... I-4
Certificate...................................................... I-4
Certificate Account.............................................. I-4
Certificate Account.............................................. I-4
Certificate Register and Certificate Registrar................... I-4
Certificateholder or Holder...................................... I-4
Class............................................................ I-4
Class A Certificate.............................................. I-5
Class A Certificateholder........................................ I-5
Class A Distribution Amount...................................... I-5
Class A Fixed Pass-Through Rate.................................. I-5
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Class A Interest Accrual Amount.................................. I-5
Class A Interest Percentage...................................... I-5
Class A Interest Shortfall Amount................................ I-5
Class A Loss Denominator......................................... I-5
Class A Loss Percentage.......................................... I-6
Class A Non-PO Optimal Amount.................................... I-6
Class A Non-PO Optimal Principal Amount.......................... I-6
Class A Non-PO Principal Amount.................................. I-6
Class A Non-PO Principal Balance................................. I-6
Class A Non-PO Principal Distribution Amount..................... I-7
Class A Pass-Through Rate........................................ I-7
Class A Percentage............................................... I-7
Class A Prepayment Percentage.................................... I-7
Class A Principal Balance........................................ I-8
Class A Shortfall Percentage..................................... I-9
Class A Unpaid Interest Shortfall................................ I-9
Class A-1 Certificate............................................ I-9
Class A-1 Certificateholder...................................... I-9
Class A-2 Accrual Distribution Amount............................ I-9
Class A-2 Certificate............................................ I-9
Class A-2 Certificateholder...................................... I-9
Class A-2 Principal Accretion Amount............................. I-9
Class A-3 Certificate............................................ I-9
Class A-3 Certificateholder...................................... I-9
Class A-PO Certificate........................................... I-10
Class A-PO Certificateholder..................................... I-10
Class A-PO Deferred Amount....................................... I-10
Class A-PO Optimal Principal Amount.............................. I-10
Class A-R Certificate............................................ I-11
Class A-R Certificateholder...................................... I-11
Class B Certificate.............................................. I-11
Class B Certificateholder........................................ I-11
Class B Distribution Amount...................................... I-11
Class B Interest Accrual Amount.................................. I-11
Class B Interest Percentage...................................... I-11
Class B Interest Shortfall Amount................................ I-11
Class B Loss Percentage.......................................... I-11
Class B Pass-Through Rate........................................ I-11
Class B Percentage............................................... I-12
Class B Prepayment Percentage.................................... I-12
Class B Principal Balance........................................ I-12
Class B Unpaid Interest Shortfall................................ I-12
Class B-1 Certificate............................................ I-12
Class B-1 Certificateholder...................................... I-12
Class B-1 Distribution Amount.................................... I-12
</TABLE>
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<TABLE>
<S> <C>
Class B-1 Interest Shortfall Amount.............................. I-12
Class B-1 Optimal Principal Amount............................... I-12
Class B-1 Percentage............................................. I-13
Class B-1 Prepayment Percentage.................................. I-13
Class B-1 Principal Balance...................................... I-13
Class B-1 Unpaid Interest Shortfall.............................. I-13
Class B-2 Certificate............................................ I-14
Class B-2 Certificateholder...................................... I-14
Class B-2 Distribution Amount.................................... I-14
Class B-2 Interest Shortfall Amount.............................. I-14
Class B-2 Optimal Principal Amount............................... I-14
Class B-2 Percentage............................................. I-15
Class B-2 Prepayment Percentage.................................. I-15
Class B-2 Principal Balance...................................... I-15
Class B-2 Unpaid Interest Shortfall.............................. I-15
Class B-3 Certificate............................................ I-15
Class B-3 Certificateholder...................................... I-15
Class B-3 Distribution Amount.................................... I-15
Class B-3 Interest Shortfall Amount.............................. I-16
Class B-3 Optimal Principal Amount............................... I-16
Class B-3 Percentage............................................. I-16
Class B-3 Prepayment Percentage.................................. I-17
Class B-3 Principal Balance...................................... I-17
Class B-3 Unpaid Interest Shortfall.............................. I-17
Class B-4 Certificate............................................ I-17
Class B-4 Certificateholder...................................... I-17
Class B-4 Distribution Amount.................................... I-17
Class B-4 Interest Shortfall Amount.............................. I-17
Class B-4 Optimal Principal Amount............................... I-17
Class B-4 Percentage............................................. I-18
Class B-4 Prepayment Percentage.................................. I-18
Class B-4 Principal Balance...................................... I-19
Class B-4 Unpaid Interest Shortfall.............................. I-19
Class B-5 Certificate............................................ I-19
Class B-5 Certificateholder...................................... I-19
Class B-5 Distribution Amount.................................... I-19
Class B-5 Interest Shortfall Amount.............................. I-19
Class B-5 Optimal Principal Amount............................... I-19
Class B-5 Percentage............................................. I-20
Class B-5 Prepayment Percentage.................................. I-20
Class B-5 Principal Balance...................................... I-20
Class B-5 Unpaid Interest Shortfall.............................. I-21
Class B-6 Certificate............................................ I-21
Class B-6 Certificateholder...................................... I-21
Class B-6 Distribution Amount.................................... I-21
</TABLE>
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<TABLE>
<S> <C>
Class B-6 Interest Shortfall Amount.............................. I-21
Class B-6 Optimal Principal Amount............................... I-21
Class B-6 Percentage............................................. I-22
Class B-6 Prepayment Percentage.................................. I-22
Class B-6 Principal Balance...................................... I-22
Class B-6 Unpaid Interest Shortfall.............................. I-22
Clearing Agency.................................................. I-23
Clearing Agency Participant...................................... I-23
Closing Date..................................................... I-23
Code............................................................. I-23
Co-op Shares..................................................... I-23
Corporate Trust Office........................................... I-23
Cross-Over Date.................................................. I-23
Cross-Over Date Interest Shortfall............................... I-23
Current Class A Interest Distribution Amount..................... I-23
Current Class B Interest Distribution Amount..................... I-23
Current Class B-1 Fractional Interest............................ I-23
Current Class B-2 Fractional Interest............................ I-24
Current Class B-3 Fractional Interest............................ I-24
Current Class B-4 Fractional Interest............................ I-24
Current Class B-5 Fractional Interest............................ I-24
Curtailment...................................................... I-24
Custodial Agreement.............................................. I-24
Custodian........................................................ I-24
Cut-Off Date..................................................... I-24
Cut-Off Date Aggregate Principal Balance......................... I-24
Cut-Off Date Principal Balance................................... I-24
[DCR]............................................................ I-25
Debt Service Reduction........................................... I-25
Deficient Valuation.............................................. I-25
Definitive Certificates.......................................... I-25
Denomination..................................................... I-25
Depository....................................................... I-25
Discount Mortgage Loan........................................... I-25
Distribution Date................................................ I-25
Due Date......................................................... I-25
Eligible Account................................................. I-25
Eligible Investments............................................. I-26
ERISA............................................................ I-27
ERISA Prohibited Holder.......................................... I-27
Event of Default................................................. I-27
Excess Bankruptcy Loss........................................... I-27
Excess Fraud Loss................................................ I-28
Excess Special Hazard Loss....................................... I-28
FDIC............................................................. I-28
</TABLE>
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<TABLE>
<S> <C>
FHLMC............................................................ I-28
Final Distribution Date.......................................... I-28
[Fitch].......................................................... I-28
Fixed Retained Yield............................................. I-28
Fixed Retained Yield Rate........................................ I-29
FNMA............................................................. I-29
Foreclosure Profits.............................................. I-29
Fraud Loss Amount................................................ I-29
Fraud Losses..................................................... I-29
Full Unscheduled Principal Receipt............................... I-29
Holder........................................................... I-29
Independent...................................................... I-29
Insurance Policy................................................. I-30
Insurance Proceeds............................................... I-30
Insured Expenses................................................. I-30
Liquidated Loan.................................................. I-30
Liquidated Loan Loss............................................. I-30
Liquidation Expenses............................................. I-30
Liquidation Proceeds............................................. I-30
Loan-to-Value Ratio.............................................. I-30
Lost Note Affidavit.............................................. I-31
Monthly Payment.................................................. I-31
[Moody's]........................................................ I-31
Mortgage......................................................... I-31
Mortgage File.................................................... I-31
Mortgage Interest Rate........................................... I-31
Mortgage Loan Purchase Agreement................................. I-31
Mortgage Loan Rider.............................................. I-31
Mortgage Loan Schedule........................................... I-31
Mortgage Loans................................................... I-32
Mortgage Note.................................................... I-32
Mortgaged Property............................................... I-32
Mortgagor........................................................ I-32
Net Foreclosure Profits.......................................... I-32
Net Liquidation Proceeds......................................... I-32
Net Mortgage Interest Rate....................................... I-33
Net REO Proceeds................................................. I-33
Non-permitted Foreign Holder..................................... I-33
Non-PO Fraction.................................................. I-33
Nonrecoverable Advance........................................... I-33
Non-Supported Interest Shortfall................................. I-33
Non-U.S. Person.................................................. I-33
Officers' Certificate............................................ I-33
Opinion of Counsel............................................... I-34
Optimal Adjustment Event......................................... I-34
</TABLE>
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<TABLE>
<S> <C>
Original Aggregate Class B Principal Balance..................... I-34
Original Class A Percentage...................................... I-34
Original Class A Non-PO Principal Balance........................ I-34
Original Class A Principal Balance............................... I-34
Original Class B-1 Fractional Interest........................... I-34
Original Class B-2 Fractional Interest........................... I-34
Original Class B-3 Fractional Interest........................... 1-35
Original Class B-4 Fractional Interest........................... I-35
Original Class B-5 Fractional Interest........................... I-35
Original Class B-1 Percentage.................................... I-35
Original Class B-2 Percentage.................................... I-35
Original Class B-3 Percentage.................................... I-35
Original Class B-4 Percentage.................................... I-35
Original Class B-5 Percentage.................................... I-35
Original Class B-6 Percentage.................................... I-35
Original Class B-1 Principal Balance............................. I-35
Original Class B-2 Principal Balance............................. I-35
Original Class B-3 Principal Balance............................. I-35
Original Class B-4 Principal Balance............................. I-35
Original Class B-5 Principal Balance............................. I-36
Original Class B-6 Principal Balance............................. I-36
Original Subordinated Percentage................................. I-36
Outstanding Mortgage Loan........................................ I-36
Partial Liquidation Proceeds..................................... I-36
Partial Unscheduled Principal Receipt............................ I-36
Paying Agent..................................................... I-36
Payment Account.................................................. I-36
Percentage Interest.............................................. I-36
Periodic Advance................................................. I-36
Person........................................................... I-36
Plan............................................................. I-37
PO Fraction...................................................... I-37
Pool Balance (Non-PO Portion).................................... I-37
Pool Balance (PO Portion)........................................ I-37
Pool Distribution Amount......................................... I-37
Pool Scheduled Principal Balance................................. I-38
Premium Mortgage Loan............................................ I-38
Prepayment In Full............................................... I-38
Prepayment Interest Shortfall.................................... I-38
Principal Adjustment............................................. I-38
Principal Balance................................................ I-39
Principal Prepayment............................................. I-39
Prohibited Transaction Tax....................................... I-39
Qualified Mortgage Insurer....................................... I-39
Rating Agency.................................................... I-39
</TABLE>
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<TABLE>
<S> <C>
Realized Losses.................................................. I-39
Record Date...................................................... I-39
Relevant Anniversary............................................. I-39
REMIC............................................................ I-39
REMIC Provisions................................................. I-40
Remittance Date.................................................. I-40
REO Mortgage Loan................................................ I-40
REO Proceeds..................................................... I-40
Request for Release.............................................. I-40
Responsible Officer.............................................. I-40
Rule 144A........................................................ I-40
Scheduled Principal Balance...................................... I-40
Seller........................................................... I-41
Senior Optimal Amount............................................ I-41
Servicer......................................................... I-41
Servicer Custodial Account....................................... I-41
Servicer Failure................................................. I-41
Servicing Account................................................ I-41
Servicing Fee.................................................... I-41
Servicing Fee Rate............................................... I-41
Servicing Officer................................................ I-41
Similar Law...................................................... I-41
Single Certificate............................................... I-41
Special Hazard Loss.............................................. I-41
Special Hazard Loss Amount....................................... I-42
Special Hazard Percentage........................................ I-42
Startup Day...................................................... I-42
Subordinated Percentage.......................................... I-42
Subordinated Prepayment Percentage............................... I-42
Subsidy Account.................................................. I-42
Subsidy Funds.................................................... I-43
Subsidy Loan..................................................... I-43
Substitute Mortgage Loan......................................... I-43
Substitution Principal Amount.................................... I-43
[S&P]............................................................ I-43
Trust Estate..................................................... I-43
Trustee.......................................................... I-43
Unpaid Interest Shortfall........................................ I-43
Unpaid REO Amortization.......................................... I-43
Unscheduled Principal Receipt.................................... I-43
Unscheduled Principal Receipt Period............................. I-44
U.S. Person...................................................... I-44
Voting Interest.................................................. I-44
Weighted Average Net Mortgage Interest Rate...................... I-44
Section 1.02. Acts of Holders............................................ I-44
</TABLE>
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<TABLE>
<S> <C>
Section 1.03. Effect of Headings and Table of Contents................................................... I-45
Section 1.04. Benefits of Agreement...................................................................... I-45
CONVEYANCE OF MORTGAGE LOANS; ORIGINAL ISSUANCE OF THE
CERTIFICATES
Section 2.01. Conveyance of Mortgage Loans; Reservation of Any Fixed Retained Yield....................... II-1
Section 2.02. Acceptance by Trustee....................................................................... II-3
Section 2.03. Representations and Warranties of the Servicer and the Seller............................... II-5
Section 2.04. Execution and Delivery of Certificates...................................................... II-12
Section 2.05. Designation of Certificates; Designation of Startup Day and Latest
Possible Maturity Date................................................................ II-12
ARTICLE III
SERVICING OF MORTGAGE LOANS AND TRUST ADMINISTRATION
Section 3.01. The Servicer................................................................................ III-1
Section 3.02. Collection of Certain Mortgage Loan Payments; Servicer Custodial Account.................... III-1
Section 3.03. Permitted Withdrawals from the Servicer Custodial Account................................... III-4
Section 3.04. Certificate Account......................................................................... III-5
Section 3.05. Permitted Withdrawals from the Certificate Account.......................................... III-6
Section 3.06. Application of Net Liquidation Proceeds..................................................... III-8
Section 3.07. Subsidy Account; Application of Subsidy Funds............................................... III-8
Section 3.08. Maintenance of Hazard Insurance............................................................. III-9
Section 3.09. Collection of Taxes, Assessments and Other Items; Servicing Account......................... III-10
Section 3.10. Maintenance of the Primary Mortgage Insurance Policies; Collections Thereunder.............. III-10
Section 3.11. Enforcement of Due-on-Sale Clauses; Assumption Agreements................................... III-11
Section 3.12. Realization upon Defaulted Mortgage Loans................................................... III-12
Section 3.13. Trustee to Cooperate; Release of Mortgage Files............................................. III-15
Section 3.14. Servicing Fee; Servicing Compensation....................................................... III-15
Section 3.15. Reports to the Trustee; Servicer Custodial Account Statements............................... III-16
Section 3.16. Annual Statement as to Compliance........................................................... III-16
Section 3.17. Annual Independent Public Accountants' Servicing Report..................................... III-16
Section 3.18. Rights of the Seller in Respect of the Servicer and of the Servicer in Respect of the
Seller.......................................................................... III-17
Section 3.19. Adjustment of Servicing Compensation in Respect of Prepaid Mortgage Loans................... III-17
Section 3.20. Access to Certain Documentation and Information Regarding the Mortgage Loans................ III-18
Section 3.21. Maintenance of Certain Servicing Policies................................................... III-18
Section 3.22. Right to Refinance Mortgage Loans........................................................... III-18
Section 3.23. Determination of Special Hazard Adjustment Amount........................................... III-18
</TABLE>
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<TABLE>
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Section 3.24. REMIC Administration........................................................................ III-18
Section 3.25. Advances by Trustee......................................................................... III-20
Section 3.26. 1934 Act Reports............................................................................ III-20
ARTICLE IV
DISTRIBUTIONS IN RESPECT OF CERTIFICATES; PAYMENTS TO
CERTIFICATEHOLDERS; PERIODIC ADVANCES; STATEMENTS AND REPORTS
Section 4.01. Distributions............................................................................... IV-1
Section 4.02. Allocation of Realized Losses............................................................... IV-6
Section 4.03. Payment Account............................................................................. IV-8
Section 4.04. Statements to Certificateholders; Report to the Seller...................................... IV-9
Section 4.05. Periodic Advances........................................................................... IV-12
Section 4.06. Reports to Mortgagors and the Internal Revenue Service...................................... IV-12
ARTICLE V
THE CERTIFICATES
Section 5.01. The Certificates............................................................................ V-1
Section 5.02. Registration of Transfer and Exchange of Certificates....................................... V-2
Section 5.03. Mutilated, Destroyed, Lost or Stolen Certificates........................................... V-6
Section 5.04. Persons Deemed Owners....................................................................... V-6
Section 5.05. Access to List of Certificateholders' Names and Addresses................................... V-6
Section 5.06. Maintenance of Office or Agency............................................................. V-7
Section 5.07. Definitive Certificates..................................................................... V-7
Section 5.08. Notices to Clearing Agency.................................................................. V-8
ARTICLE VI
THE SERVICER
Section 6.01. Liability of the Servicer................................................................... VI-1
Section 6.02. Merger or Consolidation of the Servicer; Transfer of Servicing.............................. VI-1
Section 6.03. Limitation on Liability of the Servicer and Others.......................................... VI-1
Section 6.04. The Servicer Not to Resign.................................................................. VI-2
ARTICLE VII
DEFAULT
Section 7.01. Events of Default........................................................................... .VII-1
Section 7.02. Other Remedies of Trustee................................................................... .VII-2
Section 7.03. Directions by Certificateholders and Duties of Trustee During Event of Default.............. .VII-2
</TABLE>
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<TABLE>
<S> <C>
Section 7.04. Action upon Certain Failures of the Servicer and upon Event of Default...................... VII-3
Section 7.05. Trustee to Act; Appointment of Successor.................................................... VII-3
Section 7.06. Notification to Certificateholders.......................................................... VII-4
ARTICLE VIII
CONCERNING THE TRUSTEE
Section 8.01. Duties of Trustee........................................................................... VIII-1
Section 8.02. Certain Matters Affecting the Trustee....................................................... VIII-2
Section 8.03. Trustee Not Required to Make Investigation.................................................. VIII-2
Section 8.04. Trustee Not Liable for Certificates or Mortgage Loans....................................... VIII-3
Section 8.05. Trustee May Own Certificates................................................................ VIII-3
Section 8.06. The Servicer to Pay Trustee's Fees and Expenses............................................. VIII-3
Section 8.07. Eligibility Requirements for Trustee........................................................ VIII-3
Section 8.08. Resignation and Removal of Trustee.......................................................... VIII-3
Section 8.09. Successor Trustee........................................................................... VIII-4
Section 8.10. Merger or Consolidation of Trustee.......................................................... VIII-5
Section 8.11. Authenticating Agent........................................................................ VIII-5
Section 8.12. Separate Trustees and Co-Trustees........................................................... VIII-6
Section 8.13. Appointment of Custodians................................................................... VIII-7
Section 8.14. Monthly Advances............................................................................ VIII-8
ARTICLE IX
TERMINATION
Section 9.01. Termination upon Purchase by the Servicer or Liquidation of All Mortgage Loans.............. IX-1
Section 9.02. Additional Termination Requirements......................................................... IX-3
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.01. Amendment .................................................................................. X-1
Section 10.02. Recordation of Agreement..................................................................... X-2
Section 10.03. Limitation on Rights of Certificateholders................................................... X-2
Section 10.04. Governing Law; Jurisdiction.................................................................. X-3
Section 10.05. Notices ..................................................................................... X-3
Section 10.06. Severability of Provisions................................................................... X-4
Section 10.07. Special Notices to Rating Agencies........................................................... X-4
Section 10.08. Covenant of Seller........................................................................... X-5
</TABLE>
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ARTICLE XI
TERMS FOR CERTIFICATES
<TABLE>
<S> <C>
Section 11.01. Class A Fixed Pass-Through Rate.............................................................. XI-1
Section 11.02. Cut-Off Date................................................................................. XI-1
Section 11.03. Cut-Off Date Aggregate Principal Balance..................................................... XI-1
Section 11.04. Original Class A Percentage.................................................................. XI-1
Section 11.05. Original Class A Principal Balances.......................................................... XI-1
Section 11.06. Original Class A Non-PO Principal Balance.................................................... XI-1
Section 11.08. Original Class B-1 Percentage................................................................ XI-1
Section 11.09. Original Class B-2 Percentage................................................................ XI-1
Section 11.10. Original Class B-3 Percentage................................................................ XI-1
Section 11.11. Original Class B-4 Percentage................................................................ XI-1
Section 11.12. Original Class B-5 Percentage................................................................ XI-2
Section 11.13. Original Class B-6 Percentage................................................................ XI-2
Section 11.14. Original Aggregate Class B Principal Balance................................................. XI-2
Section 11.15. Original Class B Principal Balances.......................................................... XI-2
Section 11.16. Original Class B-1 Fractional Interest....................................................... XI-2
Section 11.17. Original Class B-2 Fractional Interest....................................................... XI-2
Section 11.18. Original Class B-3 Fractional Interest....................................................... XI-2
Section 11.19. Original Class B-4 Fractional Interest....................................................... XI-2
Section 11.19. Original Class B-4 Fractional Interest....................................................... XI-2
Section 11.20. Original Subordinated Percentage............................................................. XI-2
Section 11.21. Closing Date................................................................................. XI-2
Section 11.22. Right to Purchase............................................................................ XI-2
Section 11.23. Wire Transfer Eligibility.................................................................... XI-3
Section 11.24. Single Certificate........................................................................... XI-3
Section 11.25. Servicing Fee................................................................................ XI-3
Signatures................................................................................................... S-1
Acknowledgements............................................................................................. S-2
</TABLE>
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<PAGE>
EXHIBITS
EXHIBIT A-1 - FORM OF FACE OF CLASS A-1 CERTIFICATE
EXHIBIT A-2 - FORM OF FACE OF CLASS A-2 CERTIFICATE
EXHIBIT A-3 - FORM OF FACE OF CLASS A-3 CERTIFICATE
EXHIBIT A-R - FORM OF FACE OF CLASS A-R CERTIFICATE
EXHIBIT B-1 - FORM OF FACE OF CLASS B-1 CERTIFICATE
EXHIBIT B-2 - FORM OF FACE OF CLASS B-2 CERTIFICATE
EXHIBIT B-3 - FORM OF FACE OF CLASS B-3 CERTIFICATE
EXHIBIT B-4 - FORM OF FACE OF CLASS B-4 CERTIFICATE
EXHIBIT B-5 - FORM OF FACE OF CLASS B-5 CERTIFICATE
EXHIBIT B-6 - FORM OF FACE OF CLASS B-6 CERTIFICATE
EXHIBIT C - FORM OF FACE OF CLASS A-PO CERTIFICATE
EXHIBIT D - FORM OF REVERSE OF SERIES 199--- CERTIFICATES
EXHIBIT E - CUSTODIAL AGREEMENT
EXHIBIT F - MORTGAGE LOAN SCHEDULE
EXHIBIT G - REQUEST FOR RELEASE
EXHIBIT H - AFFIDAVIT PURSUANT TO SECTION 860E(E)(4) OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND FOR
NON-ERISA INVESTORS
EXHIBIT I - LETTER FROM TRANSFEROR OF CLASS A-R CERTIFICATE
EXHIBIT J - TRANSFEREE'S LETTER (CLASS [A-PO] [B-3] [B-4] [B-5]
CERTIFICATES
EXHIBIT K - TRANSFEREE'S LETTER (CLASS [B-1] [B-2] [B-3]
CERTIFICATES)
EXHIBIT L - RESERVED
EXHIBIT M - FORM OF SPECIAL SERVICING AND COLLATERAL FUND AGREEMENT
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<PAGE>
This Pooling and Servicing Agreement, effective as of ___________,
199__, executed by NATIONS MORTGAGE SECURITIES CORPORATION, as Seller,
NATIONSBANC MORTGAGE CORPORATION, as Servicer, and _____________________, as
Trustee.
WITNESSETH THAT:
In consideration of the mutual agreements herein contained, the
Seller, the Servicer and the Trustee agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. Whenever used herein, the following words
-----------
and phrases, unless the context otherwise requires, shall have the meanings
specified in this Article:
Accepted Servicing Practices: The Servicer's normal servicing
----------------------------
practices, which in general will conform to the mortgage servicing practices of
prudent mortgage lending institutions which service mortgage loans of the same
type as the Mortgage Loans in the jurisdictions in which the related Mortgaged
Properties are located.
Accretion Termination Date: The earlier of (i) the Distribution Date
--------------------------
following the Distribution Date on which the Class A Principal Balance of the
Class A-1 Certificates has been reduced to zero or (ii) the Cross-Over Date.
Adjusted Pool Amount: With respect to any Distribution Date, the Cut-
--------------------
Off Date Aggregate Principal Balance of the Mortgage Loans minus the sum of (i)
all amounts in respect of principal received in respect of the Mortgage Loans
(including, without limitation, amounts received as Monthly Payments, Periodic
Advances, Unscheduled Principal Receipts and Substitution Principal Amounts) and
distributed to Holders of the Certificates on such Distribution Date and all
prior Distribution Dates and (ii) the principal portion of all Realized Losses
(other than Debt Service Reductions) incurred on the Mortgage Loans from the
Cut-Off Date through the end of the month preceding such Distribution Date.
Adjusted Pool Amount (PO Portion): With respect to any Distribution
---------------------------------
Date, the sum of the amounts, calculated as follows, with respect to all
Outstanding Mortgage Loans: the product of (i) the PO Fraction for each such
Mortgage Loan and (ii) the remainder of (A) the Cut-Off Date Principal Balance
of such Mortgage Loan minus (B) the sum of (x) all amounts in respect of
principal received in respect of such Mortgage Loan (including, without
limitation, amounts received as Monthly Payments, Periodic Advances, Unscheduled
Principal Receipts and Substitution Principal Amounts) and distributed to
Holders of the Certificates on such Distribution Date and all prior Distribution
Dates and (y) the principal portion of any
I-1
<PAGE>
Realized Loss (other than a Debt Service Reduction) incurred on such Mortgage
Loan from the Cut-Off Date through the end of the month preceding such
Distribution Date.
Adjusted Principal Balance: As to any Distribution Date and any Class
--------------------------
of Class B Certificates, the greater of (A) zero and (B) (i) the principal
balance of such Class or with respect to such Distribution Date minus (ii) the
Adjustment Amount for such Distribution Date less, the Class B Principal
Balances for any Class of Class B Certificates with higher numerical
designations.
Adjustment Amount: For any Distribution Date, the difference between
-----------------
(A) the sum of the Class A Principal Balances, and Class B Principal Balances as
of the related Determination Date and (B) the sum of (i) the sum of the Class A
Principal Balances and Class B Principal Balances as of the Determination Date
succeeding such Distribution Date, (ii) the principal portion of Excess Special
Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses allocated to the
Certificates with respect to such Distribution Date and (iii) the aggregate
amount that would have been distributed to all Classes as principal in
accordance with Section 4.01(a) for such Distribution Date without regard to the
provisos in the definitions of Class B-1 Optimal Principal Amount, Class B-2
Optimal Principal Amount, Class B-3 Optimal Principal Amount, Class B-4 Optimal
Principal Amount, Class B-5 Optimal Principal Amount and Class B-6 Optimal
Principal Amount.
Aggregate Class A Distribution Amount: As to any Distribution Date,
-------------------------------------
the sum of the Class A Distribution Amounts for the Classes of Class A
Certificates.
Aggregate Class A Interest Accrual Amount: As to any Distribution
-----------------------------------------
Date, the sum of the Class A Interest Accrual Amounts with respect to such
Distribution Date.
Aggregate Class A Principal Balance: As of any date, an amount equal
-----------------------------------
to the sum of the Class A Principal Balances for the Class A-1 Certificates, the
Class A-2 Certificates, the Class A-3 Certificates, the Class A-PO Certificates
and the Class A-R Certificate.
Aggregate Class A Unpaid Interest Shortfall: As to any Distribution
-------------------------------------------
Date, an amount equal to the sum of the Class A Unpaid Interest Shortfalls for
the Class A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates and
Class A-R Certificate.
Aggregate Class B Interest Accrual Amount: As to any Distribution
-----------------------------------------
Date, the sum of the Class B Interest Accrual Amounts with respect to such
Distribution Date.
Aggregate Class B Principal Balance: As of any date, an amount equal
-----------------------------------
to the sum of the Class B-1 Principal Balance, Class B-2 Principal Balance,
Class B-3 Principal Balance, Class B-4 Principal Balance, Class B-5 Principal
Balance and Class B-6 principal Balance.
I-2
<PAGE>
Aggregate Current Bankruptcy Losses: With respect to any Distribution
-----------------------------------
Date, the sum of all Bankruptcy Losses incurred on any of the Mortgage Loans in
the month preceding the month of such Distribution Date.
Aggregate Current Fraud Losses: With respect to any Distribution Date,
------------------------------
the sum of all Fraud Losses incurred on the Mortgage Loans in the month
preceding the month of such Distribution Date.
Aggregate Current Special Hazard Losses: With respect to any
---------------------------------------
Distribution Date, the sum of all Special Hazard Losses incurred on any of the
Mortgage Loans in the month preceding the month of such Distribution Date.
Aggregate Foreclosure Profits: As to any Distribution Date, the
-----------------------------
aggregate amount of Foreclosure Profits with respect to all of the Mortgage
Loans.
Agreement: This Pooling and Servicing Agreement and all amendments and
---------
supplements hereto.
Amount Held for Future Distribution: As to any Distribution Date, the
-----------------------------------
total of the amounts received by the Servicer prior to the close of business on
the Business Day preceding the related Determination Date representing (i)
Unscheduled Principal Receipts and all related payments of interest on such
Unscheduled Principal Receipts received by the Servicer after the Unscheduled
Principal Receipt Period with respect to such Distribution Date and (ii)
payments which represent early receipt of scheduled payments of principal and
interest due on a date or dates subsequent to the related Due Date.
Authenticating Agent: Any authenticating agent appointed by the
--------------------
Trustee pursuant to Section 8.11. There shall initially be no Authenticating
Agent for the Certificates.
Bankruptcy Code: The Bankruptcy Code of 1978, as amended.
---------------
Bankruptcy Loss: With respect to any Mortgage Loan, a Deficient
---------------
Valuation or Debt Service Reduction; provided, however, that a Bankruptcy Loss
-------- -------
shall not be deemed a Bankruptcy Loss hereunder so long as the Servicer has
notified the Trustee in writing that the Servicer is diligently pursuing any
remedies that may exist in connection with the representations and warranties
made regarding the related Mortgage Loan and either (A) the related Mortgage
Loan is not in default with regard to payments due thereunder or (B) delinquent
payments of principal and interest under the related Mortgage Loan and any
premiums on any applicable primary hazard insurance policy and any related
escrow payments in respect of such Mortgage Loan are being advanced on a current
basis by the Servicer without giving effect to any Debt Service Reduction.
Bankruptcy Loss Amount: As of any Distribution Date prior to the first
----------------------
anniversary of the Cut-Off Date, the Bankruptcy Loss Amount will equal
$_______________ minus the aggregate amount of Bankruptcy Losses allocated
solely to the Class B Certificates, or following the reduction of the Aggregate
Class B Principal Balance to zero, in accordance
I-3
<PAGE>
with Section 4.02(a) since the Cut-Off Date. As of any Distribution Date on or
after the first anniversary of the Cut-Off Date, an amount equal to (1) the
lesser of (a) the Bankruptcy Loss Amount calculated as of the close of business
on the Business Day immediately preceding the most recent anniversary of the
Cut-Off Date coinciding with or preceding such Distribution Date (the "Relevant
Anniversary") and (b) such lesser amount which, as determined on the Relevant
Anniversary will not cause any rated Certificates to be placed on credit review
status (other than for possible upgrading) by either Rating Agency minus (2) the
aggregate amount of Bankruptcy Losses allocated solely to the Class B
Certificates in accordance with Section 4.02(a) since the Relevant Anniversary.
On and after the Cross-Over Date the Bankruptcy Loss Amount shall be zero.
Beneficial Owner: With respect to a Book-Entry Certificate, the Person
----------------
who is the beneficial owner of such Book-Entry Certificate, as reflected on the
books of the Clearing Agency, or on the books of a Person maintaining an account
with such Clearing Agency (directly or as an indirect participant, in accordance
with the rules of such Clearing Agency), as the case may be.
Book-Entry Certificate: Any of the Class A-1 Certificates, Class A-2
----------------------
Certificates and Class A-3 Certificates, beneficial ownership and transfers of
which shall be evidenced by, and made through, book entries by the Clearing
Agency as described in Section 5.01(b).
Business Day: Any day other than (i) a Saturday or a Sunday; (ii) a
------------
legal holiday in the City of New York, State of _______________ or State of
North Carolina or (iii) a day on which banking institutions in the City of New
York, State of ______________ or State of North Carolina are authorized or
obligated by law or executive order to be closed.
Certificate: Any one of the Class A Certificates or Class B
------------
Certificates.
Certificate Account: The trust account established and maintained
-------------------
pursuant to Section 3.04. The Certificate Account shall be an Eligible Account.
Certificate Register and Certificate Registrar: Respectively, the
----------------------------------------------
register maintained pursuant to and the registrar provided for in Section 5.02.
The initial Certificate Registrar is the Trustee.
Certificateholder or Holder: The Person in whose name a Certificate is
---------------------------
registered in the Certificate Register, except that, solely for the purposes of
the taking of any action under Articles VII or VIII, any Certificate registered
in the name of the Servicer or any affiliate thereof shall be deemed not to be
outstanding and the Voting Interest evidenced thereby shall not be taken into
account in determining whether the requisite percentage of Certificates
necessary to effect any such action has been obtained.
Class: All Certificates whose form is identical except for variation
-----
in the Percentage Interest evidenced thereby.
I-4
<PAGE>
Class A Certificate: Any one of the Class A-1 Certificates, Class A-2
-------------------
Certificates, Class A-3 Certificates, Class A-PO Certificates or the Class A-R
Certificate.
Class A Certificateholder: The registered holder of a Class A
-------------------------
Certificate.
Class A Distribution Amount: As to any Distribution Date and any Class
---------------------------
of Class A Certificates (other than the Class A-2 and Class A-PO Certificates),
the amount distributable to such Class pursuant to Paragraphs first, second and
third clause (A) of Section 4.01(a). As to the Class A-2 Certificates, (i) as to
any Distribution Date prior to the Accretion Termination Date, the amount
distributable to the Class A-2 Certificates pursuant to the provisos in
Paragraphs first and second of Section 4.01(a) and Paragraph third clause (A) of
Section 4.01(a) and (ii) as to any Distribution Date on or after the Accretion
Termination Date, the amount distributable to the Class A-2 Certificates
pursuant to Paragraphs first, second and third clause (A) of Section 4.01(a). As
to any Distribution Date and the Class A-PO Certificates, the amount
distributable to the Class A-PO Certificates pursuant to Paragraphs third clause
(B) and fourth of Section 4.01(a) on such Distribution Date.
Class A Fixed Pass-Through Rate: As to any Distribution Date, the rate
-------------------------------
per annum set forth in Section 11.01.
Class A Interest Accrual Amount: As to any Distribution Date and any
-------------------------------
Class A of Class A Certificates (other than the Class A-PO Certificates), (i)
the product of (a) 1/12th of the Class A Pass-Through Rate for such Class and
(b) the Class A Principal Balance of such Class as of the Determination Date
preceding such Distribution Date minus (ii) the Class A Interest Percentage of
such Class of (x) any Non-Supported Interest Shortfall allocated to the Class A
Certificates with respect to such Distribution Date, (y) the interest portion of
any Excess Special Hazard Losses, Excess Fraud Losses and Excess Bankruptcy
Losses allocated to the Class A Certificates with respect to such Distribution
Date pursuant to Section 4.02(e) and (z) the interest portion of any Realized
Losses (other than Excess Special Hazard Losses, Excess Fraud Losses and Excess
Bankruptcy Losses) allocated to the Class A Certificates on or after the Cross-
Over Date pursuant to Section 4.02(e). The Class A-PO Certificates have no Class
A Interest Accrual Amount.
Class A Interest Percentage: As to any Distribution Date and any Class
---------------------------
of Class A Certificates, the percentage calculated by dividing the Class A
Interest Accrual Amount of such Class (determined without regard to clause (ii)
of the definition thereof) by the Aggregate Class A Interest Accrual Amount
(determined without regard to clause (ii) of the definition of each Class A
Interest Accrual Amount).
Class A Interest Shortfall Amount: As to any Distribution Date and
---------------------------------
Class of Class A Certificates, any amount by which the Class A Interest Accrual
Amount of such Class with respect to such Distribution Date exceeds the amount
distributed in respect of such Class on such Distribution Date pursuant to
Class A Loss Denominator: As to any Determination Date, an amount
------------------------
equal to the sum of (i) the Class A Principal Balances of the Class A
Certificates (other than the Class
I-5
<PAGE>
A-2 Certificates) and (ii) the lesser of the Class A Principal Balance of the
Class A-2 Certificates and the Original Class A Principal Balance of the
Class A-2 Certificates.
Class A Loss Percentage: As to any Determination Date and any Class of
-----------------------
Class Certificates then outstanding, the percentage calculated by dividing the
Class A Principal Balance of such Class (or, in the case of the Class A-2
Certificates, the Original Class A Principal Balance of such Class, if lower) by
the Class A Loss Denominator (determined without regard to any Class A Principal
Balance of any Class not then outstanding), in each case determined as of the
preceding Determination Date.
Class A Non-PO Optimal Amount: As to any Distribution Date, the sum
-----------------------------
for such Distribution Date of (i) the Aggregate Class A Interest Accrual Amount,
(ii) the sum of the Class A Unpaid Interest Shortfall for each Class of Class A
Certificates and (iii) the Class A Non-PO Optimal Principal Amount.
Class A Non-PO Optimal Principal Amount: As to any Distribution Date,
---------------------------------------
an amount equal to the sum, as to each Outstanding Mortgage Loan, of the product
of (x) the Non-PO Fraction with respect to such Mortgage Loan, and (y) the sum
of:
(i) the Class A Percentage of (A) the principal portion of the
Monthly Payment due on the Due Date occurring in the month of such
Distribution Date on such Mortgage Loan, less (B) if the Bankruptcy Loss
Amount has been reduced to zero, the principal portion of any Debt Service
Reduction with respect to such Mortgage Loan;
(ii) the Class A Prepayment Percentage of all Unscheduled Principal
Receipts that were received by the Servicer with respect to such Mortgage
Loan during the Unscheduled Principal Receipt Period relating to such
Distribution Date;
(iii) the Class A Prepayment Percentage of the Scheduled Principal
Balance of such Mortgage Loan which, during the month preceding the month
of such Distribution Date, was repurchased by the Seller pursuant to
Section 2.02 or 2.03; and
(iv) the Class A Percentage of the excess of the unpaid principal
balance of such Mortgage Loan substituted for a defective Mortgage Loan
during the month preceding the month in which such Distribution Date occurs
over the unpaid principal balance of such defective Mortgage Loan, less the
amount allocable to the principal portion of any unreimbursed Periodic
Advances previously made by the Servicer or the Trustee in respect of such
defective Mortgage Loan.
Class A Non-PO Principal Amount: As to any Distribution Date, the
-------------------------------
aggregate amount distributed in respect of the Class A Certificates pursuant to
Paragraph third clause (A) of Section 4.01(a).
Class A Non-PO Principal Balance: As of any date, an amount equal to
--------------------------------
the sum of the Class A Principal Balances of the Classes of Class A Certificates
other than the Class A-PO Certificates.
I-6
<PAGE>
Class A Non-PO Principal Distribution Amount: As to any Distribution
--------------------------------------------
Date, the sum of (i) the Class A-2 Accrual Distribution Amount, if any, with
respect to such Distribution Date and (ii) the Class A Non-PO Principal Amount
with respect to such Distribution Date.
Class A Pass-Through Rate: As to each Class of Class A Certificates
-------------------------
(other than the Class A-PO Certificates), the Class A Fixed Pass-Through Rate.
The Class A-PO Certificates are not entitled to interest and have no Class A
Pass-Through Rate.
Class A Percentage: As to any Distribution Date occurring on or prior
------------------
to the Cross-Over Date, the lesser of (i) 100% and (ii) the percentage obtained
by dividing the Class A Non-PO Principal Balance (determined as of the
Determination Date preceding such Distribution Date) by the Pool Balance (Non-PO
Portion). As to any Distribution Date occurring subsequent to the Cross-Over
Date, 100% or such lesser percentage which will cause the Class A Non-PO
Principal Balance to decline to zero following the distribution made on such
Distribution Date.
Class A Prepayment Percentage: As to any Distribution Date to and
-----------------------------
including the Distribution Date in ______________, 100%. As to any Distribution
Date subsequent to ______________ to and including the Distribution Date in
______________, the Class A Percentage as of such Distribution Date plus 70% of
the Subordinated Percentage as of such Distribution Date. As to any Distribution
Date subsequent to ______________ to and including the Distribution Date in
______________, the Class A Percentage as of such Distribution Date plus 60% of
the Subordinated Percentage as of such Distribution Date. As to any Distribution
Date subsequent to ______________ to and including the Distribution Date in
______________, the Class A Percentage as of such Distribution Date plus 40% of
the Subordinated Percentage as of such Distribution Date. As to any Distribution
Date subsequent to ______________ to and including the Distribution Date in
______________, the Class A Percentage as of such Distribution Date plus 20% of
the Subordinated Percentage as of such Distribution Date. As to any Distribution
Date subsequent to ______________, the Class A Percentage as of such
Distribution Date. The foregoing is subject to the following: (i) if the
aggregate distribution to Holders of Class A Certificates on any Distribution
Date of the Class A Prepayment Percentage provided above of Unscheduled
Principal Receipts distributable on such Distribution Date, would reduce the
Class A Non-PO Principal Balance below zero, the Class A Prepayment Percentage
for such Distribution Date shall be the percentage necessary to bring the Class
A Non-PO Principal Balance to zero and thereafter the Class A Prepayment
Percentage shall be zero and (ii) if the Class A Percentage as of any
Distribution Date is greater than the Original Class A Percentage, the Class A
Prepayment Percentage for such Distribution Date shall be 100%. Notwithstanding
the foregoing, with respect to any Distribution Date on which the following
criteria are not met, the reduction of the Class A Prepayment Percentage
described in the second through sixth sentences of this definition of Class A
Prepayment Percentage shall not be applicable with respect to such Distribution
Date. In such event, the Class A Prepayment Percentage for such Distribution
Date will be determined in accordance with the applicable provision, as set
forth in the first through fifth sentences above, which was actually used to
determine the Class A Prepayment Percentage for
I-7
<PAGE>
the Distribution Date occurring in the ________________ preceding such
Distribution Date (it being understood that for the purposes of the
determination of the Class A Prepayment Percentage for the current Distribution
Date, the current Class A Percentage and Subordinated Percentage shall be
utilized). In order for the reduction referred to in the second through sixth
sentences to be applicable, with respect to any Distribution Date (a) the
average outstanding principal balance on such Distribution Date and for the
preceding five Distribution Dates on the Mortgage Loans that were delinquent 60
days or more (including for this purpose any payments due with respect to
Mortgage Loans in foreclosure and REO Mortgage Loans) must be less than 50% of
the current Class B Principal Balance and (b) cumulative Realized Losses shall
not exceed (1) 30% of the Original Aggregate Class B Principal Balance if such
Distribution Date occurs between and including ________________ and
________________, (2) 35% of the Original Aggregate Class B Principal Balance if
such Distribution Date occurs between and including ________________ and
________________, (3) 40% of the Original Aggregate Class B Principal Balance if
such Distribution Date occurs between and including ________________ and
________________, (4) 45% of the Original Aggregate Class B Principal Balance if
such Distribution Date occurs between and including ________________ and
________________, and (5) 50% of the Original Aggregate Class B Principal
Balance if such Distribution Date occurs during or after ________________. With
respect to any Distribution Date on which the Class A Prepayment Percentage is
reduced below the Class A Prepayment Percentage for the prior Distribution Date,
the Servicer shall certify to the Trustee that the criteria set forth in the
preceding sentence are met.
Class A Principal Balance: As of the first Determination Date and as
-------------------------
to any Class of Class A Certificate, the Original Class A Principal Balance of
such Class. As of any subsequent Determination Date prior to the Cross-Over Date
and as to any Class (other than the Class A-PO Certificates), the Original Class
A Principal Balance of such Class (increased in the case of the Class A-2
Certificates by the Class A-2 Principal Accretion Amounts with respect to prior
Distribution Dates) less the sum of (a) all amounts previously distributed in
respect of such Class on prior Distribution Dates (A) pursuant to Paragraph
third clause (A) of Section 4.01(a), (B) as a result of a Principal Adjustment
and (C) if applicable, from the Class A-2 Accrual Distribution Amounts for such
prior Distribution Dates and (b) all amounts previously allocated to such Class
with respect to prior Distribution Dates pursuant to Section 4.02(b). After the
Cross-Over Date, each such Class A Principal Balance will also be reduced on
each Determination Date by an amount equal to the product of the Class A Loss
Percentage of such Class and the excess, if any, of (i) the Class A Non-PO
Principal Balance for such Determination Date without regard to this sentence
over (ii) the difference between (A) the Adjusted Pool Amount for the preceding
Distribution Date and (B) the Adjusted Pool Amount (PO Portion) for the
preceding Distribution Date.
As of any subsequent Determination Date prior to the Cross-Over Date
and as to the Class A-PO Certificates, the Original A Principal Balance of such
Class less the sum of (a) all amounts previously distributed in respect of the
Class A-PO Certificates on prior Distribution Dates pursuant to Paragraphs third
clause (B) and fourth of Section 4.01(a) and (b) the Realized Losses allocated
through such Determination Date to the Class A-PO Certificates pursuant to
Section 4.02(b). After the Cross-Over Date, such Class A Principal
I-8
<PAGE>
Balance will also be reduced on each Determination Date by an amount equal to
the difference, if any, between such Class A Principal Balance as of such
Determination Date without regard to this sentence and the Adjusted Pool Amount
(PO Portion) for the preceding Distribution Date.
Class A Shortfall Percentage: As to any Distribution Date and Class of
----------------------------
Class A Certificates, the percentage calculated by dividing the Class A Unpaid
Interest Shortfall for such Class by the Aggregate Class A Unpaid Interest
Shortfall, in each case determined as of the day preceding the applicable
Distribution Date.
Class A Unpaid Interest Shortfall: As to any Distribution Date and
---------------------------------
Class of Class A Certificates, the amount, if any, by which the aggregate of the
Class A Interest Shortfall Amounts for such Class for prior Distribution Dates
is in excess of the amounts distributed in respect of such Class on prior
Distribution Dates pursuant to Paragraph second of Section 4.01(a).
Class A-1 Certificate: Any one of the Certificates executed by the
---------------------
Trustee and authenticated by the Trustee or the Authenticating Agent in
substantially the form set forth in Exhibit A-1 and Exhibit D hereto.
Class A-1 Certificateholder: The registered holder of a Class A-1
---------------------------
Certificate.
Class A-2 Accrual Distribution Amount: As to any Distribution Date
-------------------------------------
prior to the Accretion Termination Date, an amount equal to the sum of (i) the
Class A Interest Percentage of the Class A-2 Certificates of the Current Class A
Interest Distribution Amount and (ii) the Class A Interest Shortfall Percentage
of the Class A-2 Certificates of the amount distributed in respect of the
Classes of Class A Certificates pursuant to Paragraph second of Section 4.01(a)
on such Distribution Date. As to any Distribution Date on or after the Accretion
Termination Date, zero.
Class A-2 Certificate: Any one of the Certificates executed by the
---------------------
Trustee and authenticated by the Trustee or the Authenticating Agent in
substantially the form set forth in Exhibit A-2 and Exhibit D hereto.
Class A-2 Certificateholder: The registered holder of a Class A-2
---------------------------
Certificate.
Class A-2 Principal Accretion Amount: As to any Distribution Date
------------------------------------
prior to the Accretion Termination Date, an amount equal to the sum of the
amounts calculated pursuant to clauses (i) and (ii) of the definition of
Class A-2 Accrual Distribution Amount with respect to such Distribution Date.
Class A-3 Certificate: Any one of the Certificates executed by the
---------------------
Trustee and authenticated by the Trustee or the Authenticating Agent in
substantially the form set forth in Exhibit A-3 and Exhibit D hereto.
Class A-3 Certificateholder: The registered holder of a Class A-3
---------------------------
Certificate.
I-9
<PAGE>
Class A-PO Certificate: Any one of the Certificates executed by the
----------------------
Trustee and authenticated by the Trustee or the Authenticating Agent in
substantially the form set forth in Exhibit C-1 and Exhibit D hereto.
Class A-PO Certificateholder: The registered holder of a Class A-PO
----------------------------
Certificate.
Class A-PO Deferred Amount: For any Distribution Date prior to the
--------------------------
Cross-Over Date, the difference between (A) the sum of (i) the amount by which
the sum of the Class A-PO Optimal Principal Amounts for all prior Distribution
Dates exceeded the amounts distributed on the Class A-PO Certificates on such
prior Distribution Dates pursuant to Paragraph third clause (B) of Section
4.01(a) and (ii) the sum of the product for each Discount Mortgage Loan which
became a Liquidated Loan at any time on a prior to the last day of the
Unscheduled Principal Receipt Period for the current Distribution Date of (a)
the PO Fraction for such Discount Mortgage Loan and (b) an amount equal to the
principal portion of Realized Losses (other than Bankruptcy Losses due to Debt
Service Reductions) incurred with respect to such Mortgage Loan other than
Excess Special Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses
and (B) amounts distributed on the Class A-PO Certificates on prior Distribution
Dates pursuant to Paragraph fourth of Section 4.01(a). On or after the Cross-
Over Date, the Class A-PO Deferred Amount will be zero. No interest will accrue
on any Class A-PO Deferred Amount.
Class A-PO Optimal Principal Amount: As to any Distribution Date, an
-----------------------------------
amount equal to the sum as to each Outstanding Mortgage Loan, of the product of
(x) the PO Fraction with respect to such Mortgage Loan and (y) the sum of:
(i) (A) the principal portion of the Monthly Payment due on the Due
Date occurring in the month of such Distribution Date on such Mortgage
Loan, less (B) if the Bankruptcy Loss Amount has been reduced to zero, the
principal portion of any Debt Service Reduction with respect to such
Mortgage Loan;
(ii) all Unscheduled Principal Receipts that were received by the
Servicer with respect to such Mortgage Loan during the Applicable
Unscheduled Principal Receipt Period relating to such Distribution Date;
(iii) the Scheduled Principal Balance of each Mortgage Loan that was
repurchased by the Seller during such preceding month pursuant to Section
2.02 or 2.03;
(iv) the excess of the unpaid principal balance of such Mortgage Loan
substituted for a defective Mortgage Loan during the month preceding the
month in which such Distribution Date occurs over the unpaid principal
balance of such defective Mortgage Loan, less the amount allocable to the
principal portion of any unreimbursed Periodic Advances previously made by
the Servicer or the Trustee in respect of such defective Mortgage Loan.
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<PAGE>
Class A-R Certificate: The Certificate executed by the Trustee and
---------------------
authenticated by the Trustee or the Authenticating Agent in substantially the
form set forth in Exhibit A-R and Exhibit D hereto.
Class A-R Certificateholder: The registered holder of the Class A-R
---------------------------
Certificate.
Class B Certificate: Any one of the Class B-1 Certificates, Class B-2
-------------------
Certificates, Class B-3 Certificates, Class B-4 Certificates, Class B-5
Certificates or Class B-6 Certificates.
Class B Certificateholder: The registered holder of a Class B
-------------------------
Certificate.
Class B Distribution Amount: Any one of the Class B-1 Distribution
---------------------------
Amount, the Class B-2 Distribution Amount, the Class B-3 Distribution Amount,
the Class B-4 Distribution Amount, the Class B-5 Distribution Amount or the
Class B-6 Distribution Amount.
Class B Interest Accrual Amount: As to any Distribution Date and any
-------------------------------
Class of Class B Certificates, an amount equal to (i) the product of 1/12th of
the Class B Pass-Through Rate and the Class B Principal Balance of such Class as
of the Determination Date preceding such Distribution Date minus (ii) the Class
B Interest Percentage of such Class of (x) any Non-Supported Interest Shortfall
allocated to the Class B Certificates with respect to such Distribution Date and
(y) the interest portion of any Excess Special Hazard Losses, Excess Fraud
Losses and Excess Bankruptcy Losses allocated to the Class B Certificates with
respect to such Distribution Date pursuant to Section 4.02(e).
Class B Interest Percentage: As to any Distribution Date and any Class
---------------------------
of Class B Certificates, the percentage calculated by dividing the Class B
Interest Accrual Amount of such Class (determined without regard to clause (ii)
of the definition thereof) by the Aggregate Class B Interest Accrual Amount
(determined without regard to clause (ii) of the definition of each Class B
Interest Accrual Amount).
Class B Interest Shortfall Amount: Any one of the Class B-1 Interest
---------------------------------
Shortfall Amount, the Class B-2 Interest Shortfall Amount, the Class B-3
Interest Shortfall Amount, the Class B-4 Interest Shortfall Amount, the Class B-
5 Interest Shortfall Amount.
Class B Loss Percentage: As to any Determination Date and any Class of
-----------------------
Class B Certificates then-outstanding, the percentage calculated by dividing the
Class B Principal Balance of such Class by the Aggregate Class B Principal
Balance (determined without regard to any Class B Principal Balance of any Class
of Class B Certificate not then outstanding), in each case determined as of the
preceding Determination Date.
Class B Pass-Through Rate: As to any Distribution Date, ___% per
-------------------------
annum.
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<PAGE>
Class B Percentage: Any one of the Class B-1 Percentage, the Class B-2
------------------
Percentage, the Class B-3 Percentage, the Class B-4 Percentage, the Class B-5
Percentage or the Class B-6 Percentage.
Class B Prepayment Percentage: Any of the Class B-1 Prepayment
-----------------------------
Percentage, the Class B-2 Prepayment Percentage, the Class B-3 Prepayment
Percentage, the Class B-4 Prepayment Percentage, the Class B-5 Prepayment
Percentage or the Class B-6 Percentage.
Class B Principal Balance: Any one of the Class B-1 Principal Balance,
-------------------------
the Class B-2 Principal Balance, the Class B-3 Principal Balance, the Class B-4
Principal Balance, the Class B-5 Principal Balance or the Class B-6 Principal
Balance.
Class B Unpaid Interest Shortfall: Any one of the Class B-1 Unpaid
---------------------------------
Interest Shortfall, the Class B-2 Unpaid Interest Shortfall, the Class B-3
Unpaid Interest Shortfall, the Class B-4 Unpaid Interest Shortfall, the Class B-
5 Unpaid Interest Shortfall or the Class B-6 Unpaid Interest Shortfall.
Class B-1 Certificate: Any one of the Certificates executed by the
---------------------
Trustee and authenticated by the Trustee or the Authenticating Agent in
substantially the form set forth in Exhibit B-1 and Exhibit D hereto.
Class B-1 Certificateholder: The registered holder of a Class B-1
---------------------------
Certificate.
Class B-1 Distribution Amount: As to any Distribution Date, the
-----------------------------
aggregate amount distributable to the Class B-1 Certificates pursuant to
Paragraphs fifth, sixth, and seventh of Section 4.01(a) on such Distribution
Date.
Class B-1 Interest Shortfall Amount: As to any Distribution Date, any
-----------------------------------
amount by which the Class B Interest Accrual Amount of the Class B-1
Certificates with respect to such Distribution Date exceeds the amount
distributed in respect of the Class B-1 Certificates pursuant to Paragraph fifth
of Section 4.01(a).
Class B-1 Optimal Principal Amount: As to any Distribution Date, an
----------------------------------
amount equal to the sum, as to each Outstanding Mortgage Loan, of the product of
(x) the Non-PO Fraction with respect to such Mortgage Loan and (y) the sum of:
(i) the Class B-1 Percentage of (A) the principal portion of the
Monthly Payment due on the Due Date occurring in the month of such
Distribution Date on such Mortgage Loan, less (B) if the Bankruptcy Loss
Amount has been reduced to zero, the principal portion of any Debt Service
Reduction with respect to such Mortgage Loan;
(ii) the Class B-1 Prepayment Percentage of all Unscheduled Principal
Receipts that were received by a Servicer with respect to such Mortgage
Loan during the Applicable Unscheduled Principal Receipt Period relating to
such Distribution Date;
I-12
<PAGE>
(iii) the Class B-1 Prepayment Percentage of the Scheduled Principal
Balance of such Mortgage Loan which, during the month preceding the month
of such Distribution Date, was repurchased by the Seller pursuant to
Section 2.02 or 2.03; and
(iv) the Class B-1 Percentage of the excess of the unpaid principal
balance of such Mortgage Loan substituted for a defective Mortgage Loan
during the month preceding the month in which such Distribution Date occurs
over the unpaid principal balance of such defective Mortgage Loan, less the
amount allocable to the principal portion of any unreimbursed Periodic
Advances previously made by the Servicer or the Trustee in respect of such
defective Mortgage Loan;
provided, however, that if an Optimal Adjustment Event occurs with respect to
- -------- -------
such Class and such Distribution Date, the Class B-1 Optimal Principal Amount
will equal the lesser of (A) the Class B-1 Optimal Principal Amount calculated
as described in the preceding provisions and (B) the Adjusted Principal Balance
for the Class B-1 Certificates.
Class B-1 Percentage: As to any Distribution Date, the percentage
--------------------
calculated by multiplying (i) the Subordinated Percentage by, (ii) a fraction,
the numerator of which is the Class B-1 Principal Balance (determined as of the
Determination Date preceding such Distribution Date) and the denominator of
which is the sum of the Class B Principal Balances of the Classes of Class B
Certificates eligible to receive principal distributions for such Distribution
Date in accordance with the provisions of Section 4.01(d).
Class B-1 Prepayment Percentage: As to any Distribution Date, the
-------------------------------
percentage calculated by multiplying (i) the Subordinated Prepayment Percentage
by (ii) a fraction, the numerator of which is the Class B-1 Principal Balance
(determined as of the Determination Date preceding such Distribution Date) and
the denominator of which is the sum of the Class B Principal Balances of the
Classes of Class B Certificates eligible to receive principal distributions for
such Distribution Date in accordance with the provisions of Section 4.01(d).
Class B-1 Principal Balance: As to the first Determination Date, the
---------------------------
Original Class B-1 Principal Balance. As of any subsequent Determination Date,
the lesser of (i) the Original Class B-1 Principal Balance less the sum of (a)
all amounts previously distributed in respect of the Class B-1 Certificates on
prior Distribution Dates (A) pursuant to Paragraph seventh of Section 4.01(a)
and (B) as a result of a Principal Adjustment and (b) the Realized Losses
previously allocated to the Class B-1 Certificates pursuant to Section 4.02(b)
and (ii) the Adjusted Pool Amount as of the preceding Distribution Date less the
Aggregate Class A Principal Balance as of such Determination Date.
Class B-1 Unpaid Interest Shortfall: As to any Distribution Date, the
-----------------------------------
amount, if any, by which the aggregate of the Class B-1 Interest Shortfall
Amounts for prior Distribution Dates is in excess of the amounts distributed in
respect of the Class B-1 Certificates on prior Distribution Dates pursuant to
Paragraph sixth of Section 4.01(a).
I-13
<PAGE>
Class B-2 Certificate: Any one of the Certificates executed by the
---------------------
Trustee and authenticated by the Trustee or the Authenticating Agent in
substantially the form set forth in Exhibit B-2 and Exhibit D hereto.
Class B-2 Certificateholder: The registered holder of a Class B-2
---------------------------
Certificate.
Class B-2 Distribution Amount: As to any Distribution Date, any amount
-----------------------------
distributable to the Holders of the Class B-2 Certificates pursuant to
Paragraphs eighth, ninth and tenth of Section 4.01(a).
Class B-2 Interest Shortfall Amount: As to any Distribution Date, any
-----------------------------------
amount by which the Class B Interest Accrual Amount of the Class B-2
Certificates with respect to such Distribution Date exceeds the amount
distributed in respect of the Class B-2 Certificates on such Distribution Date
pursuant to Paragraph eighth of Section 4.01(a).
Class B-2 Optimal Principal Amount: As to any Distribution Date, an
----------------------------------
amount equal to the sum, as to each Outstanding Mortgage Loan, of the product of
(x) the Non-PO Fraction with respect to such Mortgage Loan and (y) the sum of:
(i) the Class B-2 Percentage of (A) the principal portion of the
Monthly Payment due on the Due Date occurring in the month of such
Distribution Date on such Mortgage Loan, less (B) if the Bankruptcy Loss
Amount has been reduced to zero, the principal portion of any Debt Service
Reduction with respect to such Mortgage Loan;
(ii) the Class B-2 Prepayment Percentage of all Unscheduled Principal
Receipts that were received by the Servicer with respect to such Mortgage
Loan during the Applicable Unscheduled Principal Receipt Period relating to
such Distribution Date;
(iii) the Class B-2 Prepayment Percentage of the Scheduled Principal
Balance of such Mortgage Loan which, during the month preceding the month
of such Distribution Date, was repurchased by the Seller pursuant to
Section 2.02 or 2.03; and
(iv) the Class B-2 Percentage of the excess of the unpaid principal
balance of such Mortgage Loan substituted for a defective Mortgage Loan
during the month preceding the month in which such Distribution Date occurs
over the unpaid principal balance of such defective Mortgage Loan, less the
amount allocable to the principal portion of any unreimbursed Periodic
Advances previously made by the Servicer or the Trustee in respect of such
defective Mortgage Loan;
provided, however, that if an Optimal Adjustment Event occurs with respect to
- -------- -------
such Class and such Distribution Date, the Class B-2 Optimal Principal Amount
will equal the lesser of (A) the Class B-2 Optimal Principal Amount calculated
as described in the preceding provisions and (B) the Adjusted Principal Balance
for the Class B-2 Certificates.
I-14
<PAGE>
Class B-2 Percentage: As to any Distribution Date, except as set forth
--------------------
in the next sentence, the percentage calculated by multiplying (i) the
Subordinated Percentage by (ii) a fraction, the numerator of which is the Class
B-2 Principal Balance (determined as of the Determination Date preceding such
Distribution Date) and the denominator of which is the sum of the Class B
Principal Balances of the Classes of Class B Certificates eligible to receive
principal distributions for such Distribution Date in accordance with the
provisions of Section 4.01(d). Except as set forth in Section 4.01(d)(ii), in
the event that the Class B-2 Certificates are not eligible to receive
distributions of principal in accordance with Section 4.01(d)(i), the Class B-2
Percentage for such Distribution Date will be zero.
Class B-2 Prepayment Percentage: As to any Distribution Date, except
-------------------------------
as set forth in the next sentence, the percentage calculated by multiplying (i)
the Subordinated Prepayment Percentage by (ii) a fraction, the numerator of
which is the Class B-2 Principal Balance (determined as of the Determination
Date preceding such Distribution Date) and the denominator of which is the sum
of the Class B Principal Balances of the Classes of Class B Certificates
eligible to receive principal distributions for such Distribution Date in
accordance with the provisions of Section 4.01(d). Except as set forth in
Section 4.01(d)(ii), in the event that the Class B-1 Certificates are not
eligible to receive distributions of principal in accordance with Section
4.01(d)(i), the Class B-1 Prepayment Percentage for such Distribution Date will
be zero.
Class B-2 Principal Balance: As to the first Determination Date, the
---------------------------
Original Class B-2 Principal Balance. As of any subsequent Determination Date,
the lesser of (i) the Original Class B-2 Principal Balance less the sum of (a)
all amounts previously distributed in respect of the Class B-2 Certificates on
prior Distribution Dates (A) pursuant to Paragraph tenth of Section 4.01(a) and
(B) as a result of a Principal Adjustment and (b) the Realized Losses previously
allocated to the Class B-1 Certificates pursuant to Section 4.02(b) and (ii) the
Adjusted Pool Amount as of the preceding Distribution Date less the sum of the
Aggregate Class A Principal Balance and the Class B-1 Principal Balance as of
such Determination Date.
Class B-2 Unpaid Interest Shortfall: As to any Distribution Date, the
-----------------------------------
amount, if any, by which the aggregate of the Class B-2 Interest Shortfall
Amounts for prior Distribution Dates is in excess of the amounts distributed in
respect of the Class B-2 Certificates on prior Distribution Dates pursuant to
Paragraph ninth of Section 4.01(a).
Class B-3 Certificate: Any one of the Certificates executed by the
---------------------
Trustee and authenticated by the Trustee or the Authenticating Agent in
substantially the form set forth in Exhibit B-3 and Exhibit D hereto.
Class B-3 Certificateholder: The registered holder of a Class B-3
---------------------------
Certificate.
Class B-3 Distribution Amount: As to any Distribution Date, any amount
-----------------------------
distributable to the Holders of the Class B-3 Certificates pursuant to
Paragraphs eleventh, twelfth and thirteenth of Section 4.01(a).
I-15
<PAGE>
Class B-3 Interest Shortfall Amount: As to any Distribution Date, any
-----------------------------------
amount by which the Class B Interest Accrual Amount of the Class B-3
Certificates with respect to such Distribution Date exceeds the amount
distributed in respect of the Class B-3 Certificates on such Distribution Date
pursuant to Paragraph eleventh of Section 4.01(a).
Class B-3 Optimal Principal Amount: As to any Distribution Date, an
----------------------------------
amount equal to the sum, as to each Outstanding Mortgage Loan, of the product of
(x) the Non-PO Fraction with respect to such Mortgage Loan and (y) the sum of:
(i) the Class B-3 Percentage of (A) the principal portion of the
Monthly Payment due on the Due Date occurring in the month of such
Distribution Date on such Mortgage Loan, less (B) if the Bankruptcy Loss
Amount has been reduced to zero, the principal portion of any Debt Service
Reduction with respect to such Mortgage Loan;
(ii) the Class B-3 Prepayment Percentage of all Unscheduled
Principal Receipts that were received by a Servicer with respect to such
Mortgage Loan during the Applicable Unscheduled Principal Receipt Period
relating to such Distribution Date;
(iii) the Class B-3 Prepayment Percentage of the Scheduled Principal
Balance of such Mortgage Loan which, during the month preceding the month
of such Distribution Date, was repurchased by the Seller pursuant to
Section 2.02 or 2.03; and
(iv) the Class B-3 Percentage of the excess of the unpaid principal
balance of such Mortgage Loan substituted for a defective Mortgage Loan
during the month preceding the month in which such Distribution Date occurs
over the unpaid principal balance of such defective Mortgage Loan, less the
amount allocable to the principal portion of any unreimbursed Periodic
Advances previously made by the Servicer or the Trustee in respect of such
defective Mortgage Loan;
provided, however, that if an Optimal Adjustment Event occurs with respect to
- -------- -------
such Class and such Distribution Date, the Class B-3 Optimal Principal Amount
will equal the lesser of (A) the Class B-3 Optimal Principal Amount calculated
as described in the preceding provisions and (B) the Adjusted Principal Balance
for the Class B-3 Certificates.
Class B-3 Percentage: As to any Distribution Date, except as set forth
--------------------
in the next sentence, the percentage calculated by multiplying (i) the
Subordinated Percentage by (ii) a fraction, the numerator of which is the Class
B-3 Principal Balance (determined as of the Determination Date preceding such
Distribution Date) and the denominator of which is the sum of the Class B
Principal Balances of the Classes of Class B Certificates eligible to receive
principal distributions for such Distribution Date in accordance with the
provisions of Section 4.01(d). Except as set forth in Section 4.01(d)(ii), in
the event that the Class B-3 Certificates are not eligible to receive
distributions of principal in accordance with Section 4.01(d)(i), the Class B-3
Percentage for such Distribution Date will be zero.
I-16
<PAGE>
Class B-3 Prepayment Percentage: As to any Distribution Date, except
-------------------------------
as set forth in the next sentence, the percentage calculated by multiplying (i)
the Subordinated Prepayment Percentage by (ii) a fraction, the numerator of
which is the Class B-3 Principal Balance (determined as of the Determination
Date preceding such Distribution Date) and the denominator of which is the sum
of the Class B Principal Balances of the Classes of Class B Certificates
eligible to receive principal distributions for such Distribution Date in
accordance with the provisions of Section 4.01(d). Except as set forth in
Section 4.01(d)(ii), in the event that the Class B-3 Certificates are not
eligible to receive distributions of principal in accordance with Section
4.01(d)(i), the Class B-3 Prepayment Percentage for such Distribution Date will
be zero.
Class B-3 Principal Balance: As to the first Determination Date, the
---------------------------
Original Class B-3 Principal Balance. As of any subsequent Determination Date,
the lesser of (i) the Original Class B-3 Principal Balance less the sum of (a)
all amounts previously distributed in respect of the Class B-3 Certificates on
prior Distribution Dates (A) pursuant to Paragraph thirteenth of Section 4.01(a)
and (B) as a result of a Principal Adjustment and (b) the Realized Losses
previously allocated to the Class B-3 Certificates pursuant to Section 4.02(b)
and (ii) the Adjusted Pool Amount as of the preceding Distribution Date less the
sum of the Aggregate Class A Principal Balance, the Class B-1 Principal Balance
and the Class B-2 Principal Balance as of such Determination Date.
Class B-3 Unpaid Interest Shortfall: As to any Distribution Date, the
-----------------------------------
amount, if any, by which the aggregate of the Class B-3 Interest Shortfall
Amounts for prior Distribution Dates is in excess of the amounts distributed in
respect of the Class B-3 Certificates on prior Distribution Dates pursuant to
Paragraph twelfth of Section 4.01(a).
Class B-4 Certificate: Any one of the Certificates executed by the
---------------------
Trustee and authenticated by the Trustee or the Authenticating Agent in
substantially the form set forth in Exhibit B-4 and Exhibit D hereto.
Class B-4 Certificateholder: The registered holder of a Class B-4
---------------------------
Certificate.
Class B-4 Distribution Amount: As to any Distribution Date, any amount
-----------------------------
distributable to the Holders of the Class B-4 Certificates pursuant to
Paragraphs fourteenth, fifteenth and sixteenth of Section 4.01(a).
Class B-4 Interest Shortfall Amount: As to any Distribution Date, any
-----------------------------------
amount by which the Class B Interest Accrual Amount of the Class B-4
Certificates with respect to such Distribution Date exceeds the amount
distributed in respect of the Class B-4 Certificates on such Distribution Date
pursuant to Paragraph fourteenth of Section 4.01(a).
Class B-4 Optimal Principal Amount: As to any Distribution Date, an
----------------------------------
amount equal to the sum, as to each Outstanding Mortgage Loan, of the product of
(x) the Non-PO Fraction with respect to such Mortgage Loan and (y) the sum of:
I-17
<PAGE>
(i) the Class B-4 Percentage of (A) the principal portion of the
Monthly Payment due on the Due Date occurring in the month of such
Distribution Date on such Mortgage Loan, less (B) if the Bankruptcy Loss
Amount has been reduced to zero, the principal portion of any Debt Service
Reduction with respect to such Mortgage Loan;
(ii) the Class B-4 Prepayment Percentage of all Unscheduled
Principal Receipts that were received by a Servicer with respect to such
Mortgage Loan during the Applicable Unscheduled Principal Receipt Period
relating to such Distribution Date;
(iii) the Class B-4 Prepayment Percentage of the Scheduled Principal
Balance of such Mortgage Loan which, during the month preceding the month
of such Distribution Date, was repurchased by the Seller pursuant to
Section 2.02 or 2.03; and
(iv) the Class B-4 Percentage of the excess of the unpaid principal
balance of such Mortgage Loan substituted for a defective Mortgage Loan
during the month preceding the month in which such Distribution Date occurs
over the unpaid principal balance of such defective Mortgage Loan, less the
amount allocable to the principal portion of any unreimbursed Periodic
Advances previously made by the Servicer or the Trustee in respect of such
defective Mortgage Loan;
provided, however, that if an Optimal Adjustment Event occurs with respect to
- -------- -------
such Class and such Distribution Date, the Class B-4 Optimal Principal Amount
will equal the lesser of (A) the Class B-4 Optimal Principal Amount calculated
as described in the preceding provisions and (B) the Adjusted Principal Balance
for the Class B-4 Certificates.
Class B-4 Percentage: As to any Distribution Date, except as set forth
--------------------
in the next sentence, the percentage calculated by multiplying (i) the
Subordinated Percentage by (ii) a fraction, the numerator of which is the Class
B-4 Principal Balance (determined as of the Determination Date preceding such
Distribution Date) and the denominator of which is the sum of the Class B
Principal Balances of the Classes of Class B Certificates eligible to receive
principal distributions for such Distribution Date in accordance with the
provisions of Section 4.01(d). Except as set forth in Section 4.01(d)(ii), in
the event that the Class B-4 Certificates are not eligible to receive
distributions of principal in accordance with Section 4.01(d)(i), the Class B-4
Percentage for such Distribution Date will be zero.
Class B-4 Prepayment Percentage: As to any Distribution Date, except
-------------------------------
as set forth in the next sentence, the percentage calculated by multiplying (i)
the Subordinated Prepayment Percentage by (ii) a fraction, the numerator of
which is the Class B-4 Principal Balance (determined as of the Determination
Date preceding such Distribution Date) and the denominator of which is the sum
of the Class B Principal Balances of the Classes of Class B Certificates
eligible to receive principal distributions for such Distribution Date in
accordance with the provisions of Section 4.01(d). Except as set forth in
Section 4.01(d)(ii), in the event that the Class B-3 Certificates are not
eligible to receive distributions of principal in accordance with Section
4.01(d)(i), the Class B-4 Prepayment Percentage for such Distribution Date will
be zero.
I-18
<PAGE>
Class B-4 Principal Balance: As to the first Determination Date, the
---------------------------
Original Class B-4 Principal Balance. As of any subsequent Determination Date,
the lesser of (i) the Original Class B-4 Principal Balance less the sum of (a)
all amounts previously distributed in respect of the Class B-4 Certificates on
prior Distribution Dates (A) pursuant to Paragraph sixteenth of Section 4.01(a)
and (B) as a result of a Principal Adjustment and (b) the Realized Losses
previously allocated to the Class B-4 Certificates pursuant to Section 4.02(b)
and (ii) the Adjusted Pool Amount as of the preceding Distribution Date less the
sum of the Aggregate Class A Principal Balance, the Class B-1 Principal Balance,
the Class B-2 Principal Balance and the Class B-3 Principal Balance as of such
Determination Date.
Class B-4 Unpaid Interest Shortfall: As to any Distribution Date, the
-----------------------------------
amount, if any, by which the aggregate of the Class B-4 Interest Shortfall
Amounts for prior Distribution Dates is in excess of the amounts distributed in
respect of the Class B-4 Certificates on prior Distribution Dates pursuant to
Paragraph fifteenth of Section 4.01(a).
Class B-5 Certificate: Any one of the Certificates executed by the
---------------------
Trustee and authenticated by the Trustee or the Authenticating Agent in
substantially the form set forth in Exhibit B-5 and Exhibit D hereto.
Class B-5 Certificateholder: The registered holder of a Class B-5
---------------------------
Certificate.
Class B-5 Distribution Amount: As to any Distribution Date, any amount
-----------------------------
distributable to the Holders of the Class B-5 Certificates pursuant to
Paragraphs seventeenth, eighteenth and nineteenth of Section 4.01(a).
Class B-5 Interest Shortfall Amount: As to any Distribution Date, any
-----------------------------------
amount by which the Class B Interest Accrual Amount of the Class B-5
Certificates with respect to such Distribution Date exceeds the amount
distributed in respect of the Class B-5 Certificates on such Distribution Date
pursuant to Paragraph seventeenth of Section 4.01(a).
Class B-5 Optimal Principal Amount: As to any Distribution Date, an
----------------------------------
amount equal to the sum, as to each Outstanding Mortgage Loan, of the product of
(x) the Non-PO Fraction with respect to such Mortgage Loan and (y) the sum of:
(i) the Class B-5 Percentage of (A) the principal portion of the
Monthly Payment due on the Due Date occurring in the month of such
Distribution Date on such Mortgage Loan, less (B) if the Bankruptcy Loss
Amount has been reduced to zero, the principal portion of any Debt Service
Reduction with respect to such Mortgage Loan;
(ii) the Class B-5 Prepayment Percentage of all Unscheduled
Principal Receipts that were received by a Servicer with respect to such
Mortgage Loan during the Applicable Unscheduled Principal Receipt Period
relating to such Distribution Date;
I-19
<PAGE>
(iii) the Class B-5 Prepayment Percentage of the Scheduled Principal
Balance of such Mortgage Loan which, during the month preceding the month
of such Distribution Date, was repurchased by the Seller pursuant to
Section 2.02 or 2.03; and
(iv) the Class B-5 Percentage of the excess of the unpaid principal
balance of such Mortgage Loan substituted for a defective Mortgage Loan
during the month preceding the month in which such Distribution Date occurs
over the unpaid principal balance of such defective Mortgage Loan, less the
amount allocable to the principal portion of any unreimbursed Periodic
Advances previously made by the Servicer or the Trustee in respect of such
defective Mortgage Loan;
provided, however, that if an Optimal Adjustment Event occurs with respect to
- -------- -------
such Class and such Distribution Date, the Class B-5 Optimal Principal Amount
will equal the lesser of (A) the Class B-5 Optimal Principal Amount calculated
as described in the preceding provisions and (B) the Adjusted Principal Balance
for the Class B-5 Certificates.
Class B-5 Percentage: As to any Distribution Date, except as set forth
--------------------
in the next sentence, the percentage calculated by multiplying (i) the
Subordinated Percentage by (ii) a fraction, the numerator of which is the Class
B-5 Principal Balance (determined as of the Determination Date preceding such
Distribution Date) and the denominator of which is the sum of the Class B-1
Principal Balance and the Class B Principal Balances of the Classes of Class B
Certificates eligible to receive principal distributions for such Distribution
Date in accordance with the provisions of Section 4.01(d). Except as set forth
in Section 4.01(d)(ii), in the event that the Class B-5 Certificates are not
eligible to receive distributions of principal in accordance with Section
4.01(d)(i), the Class B-5 Percentage for such Distribution Date will be zero.
Class B-5 Prepayment Percentage: As to any Distribution Date, except
-------------------------------
as set forth in the next sentence, the percentage calculated by multiplying (i)
the Subordinated Prepayment Percentage by (ii) a fraction, the numerator of
which is the Class B-5 Principal Balance (determined as of the Determination
Date preceding such Distribution Date) and the denominator of which is the sum
of the Class B Principal Balances of the Classes of Class B Certificates
eligible to receive principal distributions for such Distribution Date in
accordance with the provisions of Section 4.01(d). Except as set forth in
Section 4.01(d)(ii), in the event that the Class B-5 Certificates are not
eligible to receive distributions of principal in accordance with Section
4.01(d)(i), the Class B-5 Prepayment Percentage for such Distribution Date will
be zero.
Class B-5 Principal Balance: As to the first Determination Date, the
---------------------------
Original Class B-5 Principal Balance. As of any subsequent Determination Date,
the lesser of (i) the Original Class B-5 Principal Balance less the sum of (a)
all amounts previously distributed in respect of the Class B-5 Certificates on
prior Distribution Dates (A) pursuant to Paragraph nineteenth of Section 4.01(a)
and (B) as a result of a Principal Adjustment and (b) the Realized Losses
previously allocated to the Class B-5 Certificates pursuant to Section 4.02(b)
and (ii) the Adjusted Pool Amount as of the preceding Distribution Date less the
sum of the Aggregate
I-20
<PAGE>
Class A Principal Balance, Class B-1 Principal Balance, the Class B-2 Principal
Balance, the Class B-3 Principal Balance and the Class B-4 Principal Balance as
of such Determination Date .
Class B-5 Unpaid Interest Shortfall: As to any Distribution Date, the
-----------------------------------
amount, if any, by which the aggregate of the Class B-5 Interest Shortfall
Amounts for prior Distribution Dates is in excess of the amounts distributed in
respect of the Class B-5 Certificates on prior Distribution Dates pursuant to
Paragraph eighteenth of Section 4.01(a).
Class B-6 Certificate: Any one of the Certificates executed by the
---------------------
Trustee and authenticated by the Trustee or the Authenticating Agent in
substantially the form set forth in Exhibit B-6 and Exhibit D hereto.
Class B-6 Certificateholder: The registered holder of a Class B-6
---------------------------
Certificate.
Class B-6 Distribution Amount: As to any Distribution Date, any amount
-----------------------------
distributable to the Holders of the Class B-6 Certificates pursuant to
Paragraphs twentieth, twenty-first and twenty-second of Section 4.01(a).
Class B-6 Interest Shortfall Amount: As to any Distribution Date, any
-----------------------------------
amount by which the Class B Interest Accrual Amount of the Class B-6
Certificates with respect to such Distribution Date exceeds the amount
distributed in respect of the Class B-6 Certificates on such Distribution Date
pursuant to Paragraph twentieth of Section 4.01(a).
Class B-6 Optimal Principal Amount: As to any Distribution Date, an
----------------------------------
amount equal to the sum, as to each Outstanding Mortgage Loan, of the product of
(x) the Non-PO Fraction with respect to such Mortgage Loan and (y) the sum of:
(i) the Class B-6 Percentage of (A) the principal portion of the
Monthly Payment due on the Due Date occurring in the month of such
Distribution Date on such Mortgage Loan, less (B) if the Bankruptcy Loss
Amount has been reduced to zero, the principal portion of any Debt Service
Reduction with respect to such Mortgage Loan;
(ii) the Class B-6 Prepayment Percentage of all Unscheduled
Principal Receipts that were received by a Servicer with respect to such
Mortgage Loan during the Applicable Unscheduled Principal Receipt Period
relating to such Distribution Date;
(iii) the Class B-6 Prepayment Percentage of the Scheduled Principal
Balance of such Mortgage Loan which, during the month preceding the month
of such Distribution Date, was repurchased by the Seller pursuant to
Section 2.02 or 2.03; and
(iv) the Class B-6 Percentage of the excess of the unpaid principal
balance of such Mortgage Loan substituted for a defective Mortgage Loan
during the month preceding the month in which such Distribution Date occurs
over the unpaid principal balance of such defective Mortgage Loan, less the
amount allocable to the principal
I-21
<PAGE>
portion of any unreimbursed Periodic Advances previously made by the
Servicer or the Trustee in respect of such defective Mortgage Loan;
provided, however, that if an Optimal Adjustment Event occurs with respect to
- -------- -------
such Class and such Distribution Date, the Class B-6 Optimal Principal Amount
will equal the lesser of (A) the Class B-6 Optimal Principal Amount calculated
as described in the preceding provisions and (B) the Adjusted Principal Balance
for the Class B-6 Certificates.
Class B-6 Percentage: As to any Distribution Date, except as set forth
--------------------
in the next sentence, the percentage calculated by multiplying (i) the
Subordinated Percentage by (ii) a fraction, the numerator of which is the Class
B-6 Principal Balance (determined as of the Determination Date preceding such
Distribution Date) and the denominator of which is the sum of the Class B
Principal Balances of the Classes of Class B Certificates eligible to receive
principal distributions for such Distribution Date in accordance with the
provisions of Section 4.01(d). Except as set forth in Section 4.01(d)(ii), in
the event that the Class B-6 Certificates are not eligible to receive
distributions of principal in accordance with Section 4.01(d)(i), the Class B-6
Percentage for such Distribution Date will be zero.
Class B-6 Prepayment Percentage: As to any Distribution Date, except
-------------------------------
as set forth in the next sentence, the percentage calculated by multiplying (i)
the Subordinated Prepayment Percentage by (ii) a fraction, the numerator of
which is the Class B-6 Principal Balance (determined as of the Determination
Date preceding such Distribution Date) and the denominator of which is the sum
of the Class B Principal Balances of the Classes of Class B Certificates
eligible to receive principal distributions for such Distribution Date in
accordance with the provisions of Section 4.01(d). Except as set forth in
Section 4.01(d)(ii), in the event that the Class B-6 Certificates are not
eligible to receive distributions of principal in accordance with Section
4.01(d)(i), the Class B-6 Prepayment Percentage for such Distribution Date will
be zero.
Class B-6 Principal Balance: As to the first Determination Date, the
---------------------------
Original Class B-6 Principal Balance. As of any subsequent Determination Date,
the lesser of (i) the Original Class B-6 Principal Balance less the sum of (a)
all amounts previously distributed in respect of the Class B-6 Certificates on
prior Distribution Dates pursuant to Paragraph twenty-second of Section 4.01(a)
and (b) the Realized Losses previously allocated to the Class B-6 Certificates
pursuant to Section 4.02(b) and (ii) the Adjusted Pool Amount as of the
preceding Distribution Date less the sum of the Aggregate Class A Principal
Balance, Class B-1 Principal Balance, the Class B-2 Principal Balance, the Class
B-3 Principal Balance, the Class B-4 Principal Balance and the Class B-5
Principal Balance as of such Determination Date.
Class B-6 Unpaid Interest Shortfall: As to any Distribution Date, the
-----------------------------------
amount, if any, by which the aggregate of the Class B-6 Interest Shortfall
Amounts for prior Distribution Dates is in excess of the amounts distributed in
respect of the Class B-6 Certificates on prior Distribution Dates pursuant to
Paragraph twenty-first of Section 4.01(a).
I-22
<PAGE>
Clearing Agency: An organization registered as a "clearing agency"
---------------
pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. The
initial Clearing Agency shall be The Depository Trust Company.
Clearing Agency Participant: A broker, dealer, bank, financial
---------------------------
institution or other Person for whom a Clearing Agency effects book-entry
transfers of securities deposited with the Clearing Agency.
Closing Date: The date of initial issuance of the Certificates, as set
------------
forth in Section 11.21.
Code: The Internal Revenue Code of 1986, as it may be amended from
----
time to time, any successor statutes thereto, and applicable U.S. Department of
the Treasury temporary or final regulations promulgated thereunder.
Co-op Shares: Shares issued by private non-profit housing
------------
corporations.
Corporate Trust Office: The principal office of the Trustee at which
----------------------
at any particular time its corporate trust business shall be administered, which
office at the date of the execution of this instrument is located at
_______________________________.
Cross-Over Date: The Distribution Date preceding the first
---------------
Distribution Date on which the Class A Percentage (determined pursuant to clause
(ii) of the definition thereof) equals or exceeds 100%.
Cross-Over Date Interest Shortfall: With respect to any Distribution
----------------------------------
Date that occurs on or after the Cross-Over Date with respect to any Unscheduled
Principal Receipt (other than a Principal Prepayment) received by the Servicer
during the month preceding the month of such Distribution Date, the amount of
interest that would have accrued at the Net Mortgage Interest Rate on the amount
of such Unscheduled Principal Receipt from the day of its receipt or, if
earlier, its application by the Servicer through the last day of the month in
which such Unscheduled Principal Receipt is received.
Current Class A Interest Distribution Amount: As to any Distribution
--------------------------------------------
Date, the amount distributed in respect of the Class A Certificates pursuant to
Paragraph first of Section 4.01(a) on such Distribution Date.
Current Class B Interest Distribution Amount: As to any Distribution
--------------------------------------------
Date, the amount distributed in respect of the Class B Certificates pursuant to
Paragraphs fifth, eighth, eleventh, fourteenth, seventeenth and twentieth of
Section 4.01(a) on such Distribution Date.
Current Class B-1 Fractional Interest: As to any Distribution Date
-------------------------------------
subsequent to the first Distribution Date, the percentage obtained by dividing
the sum of the Class B Principal Balances of the Class B-2, Class B-3, Class B-
4, Class B-5 and Class B-6 Certificates by the sum of the Class A Non-PO
Principal Balance, and the Aggregate Class B Principal Balance. As to the first
Distribution Date, the Original Class B-1 Fractional Interest.
I-23
<PAGE>
Current Class B-2 Fractional Interest: As to any Distribution Date
-------------------------------------
subsequent to the first Distribution Date, the percentage obtained by dividing
the sum of the Class B Principal Balances of the Class B-3, Class B-4, Class B-5
and Class B-6 Certificates by the sum of the Class A Non-PO Principal Balance,
and the Aggregate Class B Principal Balance. As to the first Distribution Date,
the Original Class B-2 Fractional Interest.
Current Class B-3 Fractional Interest: As to any Distribution Date
-------------------------------------
subsequent to the first Distribution Date, the percentage obtained by dividing
the sum of the Class B Principal Balances of the Class B-4, Class B-5 and Class
B-6 Certificates by the sum of the Class A Non-PO Principal Balance and the
Aggregate Class B Principal Balance. As to the first Distribution Date, the
Original Class B-3 Fractional Interest.
Current Class B-4 Fractional Interest: As to any Distribution Date
-------------------------------------
subsequent to the first Distribution Date, the percentage obtained by dividing
the Class B Principal Balances of the Class B-5 and Class B-6 Certificates by
the sum of the Class A Non-PO Principal Balance, and the Aggregate Class B
Principal Balance. As to the first Distribution Date, the Original Class B-4
Fractional Interest.
Current Class B-5 Fractional Interest: As to any Distribution Date
-------------------------------------
subsequent to the first Distribution Date, the percentage obtained by dividing
the Class B Principal Balance of the Class B-6 Certificates by the sum of the
Class A Non-PO Principal Balance, and the Aggregate Class B Principal Balance.
As to the first Distribution Date, the Original Class B-5 Fractional Interest.
Curtailment: Any Principal Prepayment made by a Mortgagor which is
-----------
not a Prepayment in Full.
Custodial Agreement: The Custodial Agreement, if any, from time to
-------------------
time in effect between the Custodian named therein, the Servicer (if the
Servicer is not the Custodian) and the Trustee, substantially in the form of
Exhibit E hereto, as the same may be amended or modified from time to time in
accordance with the terms thereof.
Custodian: The Custodian, if any, hereafter appointed by the Trustee
---------
pursuant to Section 8.13, or its successor in interest under the Custodial
Agreement. The Custodian may (but need not) be the Trustee or any Person
directly or indirectly controlling or controlled by or under common control with
it.
Cut-Off Date: The first day of the month of initial issuance of the
------------
Certificates as set forth in Section 11.02.
Cut-Off Date Aggregate Principal Balance: The aggregate of the Cut-Off
----------------------------------------
Date Principal Balances of the Mortgage Loans as set forth in Section 11.03.
Cut-Off Date Principal Balance: As to each Mortgage Loan, its unpaid
------------------------------
principal balance as of the close of business on the Cut-Off Date (but without
giving effect to any Unscheduled Principal Receipts received or applied on the
Cut-Off Date), reduced by all
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<PAGE>
payments of principal due on or before the Cut-Off Date and not paid, and
increased by scheduled monthly payments of principal due after the Cut-Off Date
but received by the Seller on or before the Cut-Off Date.
[DCR: Duff & Phelps Credit Rating Co., or its successor in interest.]
----
Debt Service Reduction: With respect to any Mortgage Loan, a reduction
----------------------
in the scheduled Monthly Payment for such Mortgage Loan by a court of competent
jurisdiction in a proceeding under the Bankruptcy Code, except such a reduction
constituting a Deficient Valuation.
Deficient Valuation: With respect to any Mortgage Loan, a valuation by
-------------------
a court of competent jurisdiction of the Mortgaged Property in an amount less
than the then-outstanding indebtedness under the Mortgage Loan, or any reduction
in the amount of principal to be paid in connection with any scheduled Monthly
Payment that results in a permanent forgiveness of principal, which valuation or
reduction results from a proceeding under the Bankruptcy Code.
Definitive Certificates: As defined in Section 5.01(b).
-----------------------
Denomination: The amount, if any, specified on the face of each
------------
Certificate, representing the principal portion of the Cut-Off Date Aggregate
Principal Balance evidenced by such Certificate.
Depository: As defined in Section 3.02.
----------
Determination Date: The 17th day of the month in which the related
------------------
Distribution Date occurs, or if such 17th day is not a Business Day, the
Business Day preceding such 17th day.
Discount Mortgage Loan: A Mortgage Loan with a Net Mortgage Interest
----------------------
Rate of less than ___%.
Distribution Date: The 25th day of any month, beginning in the month
-----------------
following the month of initial issuance of the Certificates, or if such 25th day
is not a Business Day, the Business Day following such 25th day.
Due Date: With respect to any Mortgage Loan, the day of the month in
--------
which the Monthly Payment on such Mortgage Loan is scheduled to be paid.
Eligible Account: One or more accounts (i) that are maintained with a
----------------
depository institution whose long-term debt obligations (or, in the case of a
depository institution which is part of a holding company structure, the long-
term debt obligations of such holding company) at the time of deposit therein
are rated in at least "AA" parent (or the equivalent) by each of the Rating
Agencies, (ii) the deposits in which are fully insured by the FDIC through
either the Bank Insurance Fund or the Savings Association Insurance Fund, (iii)
I-25
<PAGE>
the deposits in which are insured by the FDIC through either the Bank Insurance
Fund or the Savings Association Insurance Fund (to the limit established by the
FDIC) and the uninsured deposits in which accounts are otherwise secured such
that, as evidenced by an Opinion of Counsel delivered to the Trustee, the
Trustee, on behalf of the Certificateholders has a claim with respect to the
funds in such accounts or a perfected first security interest against any
collateral securing such funds that is superior to claims of any other
depositors or creditors of the depository institution with which such accounts
are maintained, (iv) that are trust accounts maintained with the trust
department of a federal or state chartered depository institution or trust
company acting in its fiduciary capacity or (v) that are acceptable to each of
the Rating Agencies and would not cause the Trust Estate to fail to qualify as a
REMIC.
Eligible Investments: At any time, any one or more of the following
--------------------
obligations and securities which shall mature not later than the Business Day
preceding the Distribution Date next succeeding the date of such investment,
provided that such investments qualify as "cash flow investments" as defined in
Code Section 860G(a)(6):
(i) obligations of the United States of America or any agency
thereof, provided such obligations are backed by the full faith and credit
of the United States of America;
(ii) general obligations of or obligations guaranteed by any state
of the United States of America or the District of Columbia receiving the
highest short-term or highest long-term rating of each Rating Agency, or
such lower rating as would not result in the downgrading or withdrawal of
the rating then assigned to any of the Certificates by either Rating Agency
or result in any of such rated Certificates being placed on credit review
status (other than for possible upgrading) by either Rating Agency;
(iii) commercial or finance company paper which is then rated in the
highest long-term commercial or finance company paper rating category of
each Rating Agency, or the highest short-term rating category of each
Rating Agency or such lower rating category as would not result in the
downgrading or withdrawal of the rating then assigned to any of the
Certificates by either Rating Agency or result in any of such rated
Certificates being placed on credit review status (other than for possible
upgrading) by either Rating Agency;
(iv) certificates of deposit, demand or time deposits, federal funds
or banker's acceptances issued by any depository institution or trust
company incorporated under the laws of the United States or of any state
thereof and subject to supervision and examination by federal and/or state
banking authorities, provided that the commercial paper and/or debt
obligations of such depository institution or trust company (or in the case
of the principal depository institution in a holding company system, the
commercial paper or debt obligations of such holding company) are then
rated in the highest short-term or the highest long-term rating category
for such securities of each of the Rating Agencies, or such lower rating
category as would not
I-26
<PAGE>
result in the downgrading or withdrawal of the rating then assigned to any
of the Certificates by either Rating Agency or result in any of such rated
Certificates being placed on credit review status (other than for possible
upgrading) by either Rating Agency;
(v) guaranteed reinvestment agreements issued by any bank,
insurance company or other corporation acceptable to each Rating Agency at
the time of the issuance of such agreements;
(vi) repurchase agreements on obligations with respect to any
security described in clauses (i) or (ii) above or any other security
issued or guaranteed by an agency or instrumentality of the United States
of America, in either case entered into with a depository institution or
trust company (acting as principal) described in (iv) above;
(vii) securities (other than stripped bonds or stripped coupon
securities) bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States of America or
any state thereof which, at the time of such investment or contractual
commitment providing for such investment, which are then rated in the
highest short-term or the highest long-term rating by each Rating Agency,
or such lower rating category as would not result in the downgrading or
withdrawal of the rating then assigned to any of the Certificates by either
Rating Agency or result in any of such rated Certificates being placed on
credit review status (other than for possible upgrading) by either Rating
Agency; and
(viii) such other investments acceptable to each Rating Agency as
would not result in the downgrading of the rating then assigned to the
Certificates by either Rating Agency or result in any of such rated
Certificates being placed on credit review status (other than for possible
upgrading) by either Rating Agency.
In no event shall an instrument be an Eligible Investment if such
instrument evidences either (i) a right to receive only interest payments with
respect to the obligations underlying such instrument, or (ii) both principal
and interest payments derived from obligations underlying such instrument and
the interest and principal payments with respect to such instrument provide a
yield to maturity at the date of investment of greater than 120% of the yield to
maturity at par of such underlying obligations.
ERISA: The Employee Retirement Income Security Act of 1974, as
-----
amended.
ERISA Prohibited Holder: As defined in Section 5.02(d).
-----------------------
Event of Default: Any of the events specified in Section 7.01.
----------------
Excess Bankruptcy Loss: With respect to any Distribution Date and any
----------------------
Mortgage Loan as to which a Bankruptcy Loss is realized in the month preceding
the month of such Distribution Date, (i) if the Aggregate Current Bankruptcy
Losses with respect to such
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<PAGE>
Distribution Date exceed the then-applicable Bankruptcy Loss Amount, then the
portion of such Bankruptcy Loss represented by the ratio of (a) the excess of
the Aggregate Current Bankruptcy Losses over the then-applicable Bankruptcy Loss
Amount, divided by (b) the Aggregate Current Bankruptcy Losses or (ii) if the
Aggregate Current Bankruptcy Losses with respect to such Distribution Date are
less than or equal to the then-applicable Bankruptcy Loss Amount, then zero. In
addition, any Bankruptcy Loss occurring with respect to a Mortgage Loan on or
after the Cross-Over Date will be an Excess Bankruptcy Loss.
Excess Fraud Loss: With respect to any Distribution Date and any
-----------------
Mortgage Loan as to which a Fraud Loss is realized in the month preceding the
month of such Distribution Date, (i) if the Aggregate Current Fraud Losses with
respect to such Distribution Date exceed the then-applicable Fraud Loss Amount,
then the portion of such Fraud Loss represented by the ratio of (a) the excess
of the Aggregate Current Fraud Losses over the then-applicable Fraud Loss
Amount, divided by (b) the Aggregate Current Fraud Losses, or (ii) if the
Aggregate Current Fraud Losses with respect to such Distribution Date are less
than or equal to the then-applicable Fraud Loss Amount, then zero. In addition,
any Fraud Loss occurring with respect to a Mortgage Loan on or after the Cross-
Over Date will be an Excess Fraud Loss.
Excess Special Hazard Loss: With respect to any Distribution Date and
--------------------------
any Mortgage Loan as to which a Special Hazard Loss is realized in the month
preceding the month of such Distribution Date, (i) if the Aggregate Current
Special Hazard Losses with respect to such Distribution Date exceed the then-
applicable Special Hazard Loss Amount, then the portion of such Special Hazard
Loss represented by the ratio of (a) the excess of the Aggregate Current Special
Hazard Losses over the then-applicable Special Hazard Loss Amount, divided by
(b) the Aggregate Current Special Hazard Losses, or (ii) if the Aggregate
Current Special Hazard Losses with respect to such Distribution Date are less
than or equal to the then-applicable Special Hazard Loss Amount, then zero. In
addition, any Special Hazard Loss occurring with respect to a Mortgage Loan on
or after the Cross-Over Date will be an Excess Special Hazard Loss.
FDIC: The Federal Deposit Insurance Corporation or any successor
----
thereto.
FHLMC: The Federal Home Loan Mortgage Corporation or any successor
-----
thereto.
Final Distribution Date: The Distribution Date on which the final
-----------------------
distribution in respect of the Certificates is made pursuant to Section 9.01.
[Fitch: Fitch IBCA, Inc., or its successor in interest.]
------
Fixed Retained Yield: The fixed percentage of interest on each
--------------------
Mortgage Loan with a Mortgage Interest Rate greater than the sum of (a) ___% and
(b) the Servicing Fee Rate, which will be determined on a loan by loan basis and
will equal the Mortgage Interest Rate on each Mortgage Loan minus the sum of (a)
and (b) which is not assigned to and not part of the Trust Estate.
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<PAGE>
Fixed Retained Yield Rate: With respect to each Mortgage Loan, a per
-------------------------
annum rate equal to the greater of (a) zero and (b) the Mortgage Interest Rate
on such Mortgage Loan minus the sum of (i) ___% (ii) the Servicing Fee Rate.
FNMA: Fannie Mae or any successor thereto.
----
Foreclosure Profits: As to any Distribution Date, the excess, if any,
-------------------
of (i) Net Liquidation Proceeds in respect of each Mortgage Loan that became a
Liquidated Loan during the Unscheduled Principal Receipt Period for such
Distribution Date over (ii) the sum of the unpaid principal balance of each such
Liquidated Loan plus accrued and unpaid interest at the applicable Mortgage
Interest Rate on the unpaid principal balance thereof from the Due Date to which
interest was last paid by the Mortgagor (or, in the case of a Liquidated Loan
that had been an REO Mortgage Loan, from the Due Date to which interest was last
deemed to have been paid pursuant to Section 3.12) to the first day of the month
in which such Distribution Date occurred.
Fraud Loss Amount: As of any Distribution Date after the Cut-Off Date
-----------------
an amount equal to: (X) prior to the first anniversary of the Cut-Off Date an
amount equal to $____________ minus the aggregate amount of Fraud Losses
allocated solely to the Class B Certificates in accordance with Section 4.02(a)
since the Cut-Off Date, and (Y) from the first through fifth anniversary of the
Cut-Off Date, an amount equal to (1) the lesser of (a) the Fraud Loss Amount as
of the most recent anniversary of the Cut-Off Date and (b) 1.00% of the
aggregate outstanding principal balance of all of the Mortgage Loans as of the
most recent anniversary of the Cut-Off Date minus (2) the Fraud Losses allocated
solely to the Class B Certificates in accordance with Section 4.02(a) since the
most recent anniversary of the Cut-Off Date. On and after the Cross-Over Date or
after the fifth anniversary of the Cut-Off Date the Fraud Loss Amount shall be
zero.
Fraud Losses: A Liquidated Loan Loss as to which there was fraud in
------------
the origination of such Mortgage Loan.
Full Unscheduled Principal Receipt: Any Unscheduled Principal Receipt
----------------------------------
with respect to a Mortgage Loan (i) in the amount of the outstanding principal
balance of such Mortgage Loan and resulting in the full satisfaction of such
Mortgage Loan or (ii) representing Liquidation Proceeds other than Partial
Liquidation Proceeds.
Holder: See "Certificateholder."
------
Independent: When used with respect to any specified Person, such
-----------
Person who (i) is in fact independent of the Seller and the Servicer, (ii) does
not have any direct financial interest or any material indirect financial
interest in the Seller or the Servicer or in an affiliate of either, and (iii)
is not connected with the Seller or the Servicer as an officer, employee,
promoter, underwriter, trustee, partner, director or person performing similar
functions.
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<PAGE>
Insurance Policy: Any insurance or performance bond relating to a
----------------
Mortgage Loan or the Mortgage Loans, including any hazard insurance, special
hazard insurance, flood insurance, primary mortgage insurance, mortgagor
bankruptcy bond or title insurance.
Insurance Proceeds: Proceeds paid by any insurer pursuant to any
------------------
Insurance policy covering a Mortgage Loan.
Insured Expenses: Expenses covered by any Insurance Policy covering a
----------------
Mortgage Loan.
Liquidated Loan: A Mortgage Loan with respect to which the related
---------------
Mortgaged Property has been acquired, liquidated or foreclosed and with respect
to which the Servicer determines that all Liquidation Proceeds which it expects
to recover have been recovered.
Liquidated Loan Loss: With respect to any Distribution Date, the
--------------------
aggregate of the amount of losses with respect to each Mortgage Loan which
became a Liquidated Loan during the Unscheduled Principal Receipt Period for
such Distribution Date, equal to the excess of (i) the unpaid principal balance
of each such Liquidated Loan, plus accrued interest thereon in accordance with
the amortization schedule at the time applicable thereto at the applicable Net
Mortgage Interest Rate from the Due Date as to which interest was last paid with
respect thereto through the last day of the month in which such Mortgage Loan
became a Liquidated Loan, over (ii) Net Liquidation Proceeds with respect to
such Liquidated Loan.
Liquidation Expenses: Expenses incurred by the Servicer in connection
--------------------
with the liquidation of any defaulted Mortgage Loan or property acquired in
respect thereof (including, without limitation, legal fees and expenses,
committee or referee fees, and, if applicable, brokerage commissions and
conveyance taxes), any unreimbursed amount expended by the Servicer pursuant to
Section 3.08, 3.09 and 3.12 respecting the related Mortgage Loan and any
unreimbursed expenditures for real property taxes or for property restoration or
preservation of the related Mortgaged Property. Liquidation Expenses shall not
include any previously incurred expenses in respect of an REO Mortgage Loan
which have been netted against related REO Proceeds.
Liquidation Proceeds: Amounts received by the Servicer (including
--------------------
Insurance Proceeds) in connection with the liquidation of defaulted Mortgage
Loans or property acquired in respect thereof, whether through foreclosure, sale
or otherwise, including payments in connection with such Mortgage Loans received
from the Mortgagor, other than amounts required to be paid to the Mortgagor
pursuant to the terms of the applicable Mortgage or to be applied otherwise
pursuant to law.
Loan-to-Value Ratio: The ratio, expressed as a percentage, the
-------------------
numerator of which is the principal balance of a particular Mortgage Loan at
origination (or, for purposes of Section 3.09, at the date of determination) and
the denominator of which is the lesser of (x) the appraised value of the related
Mortgaged Property determined in the appraisal used by the originator at the
time of origination of such Mortgage Loan, and (y) if the Mortgage is
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<PAGE>
originated in connection with a sale of the Mortgaged Property, the sale price
for such Mortgaged Property.
Lost Note Affidavit: An affidavit executed by an Officer of the
-------------------
Servicer identifying the applicable Mortgage Note, stating that such Mortgage
Note has not been located after a thorough and diligent search and agreeing to
indemnify the purchaser of the Mortgage Loan against any loss from the
unavailability of the original Mortgage Note. Attached to such affidavit shall
be a true and correct copy of the original Mortgage Note.
Monthly Payment: As to any Mortgage Loan (including any REO Mortgage
---------------
Loan) and any Due Date, the payment of principal and interest due thereon in
accordance with the amortization schedule at the time applicable thereto (after
adjustment for any Curtailments, Partial Liquidation Proceeds and Deficient
Valuations occurring prior to such Due Date but before any adjustment to such
amortization schedule by reason of any bankruptcy, other than Deficient
Valuations or similar proceeding or any moratorium or similar waiver or grace
period).
[Moody's: Moody's Investors Service, Inc., or its successor in
--------
interest.]
Mortgage: The mortgage, deed of trust or other instrument creating a
--------
first lien on Mortgaged Property securing a Mortgage Note together with any
Mortgage Loan Rider, if applicable.
Mortgage File: The mortgage documents listed in Section 2.01
-------------
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to this Agreement.
Mortgage Interest Rate: As to any Mortgage Loan, the per annum rate at
----------------------
which interest accrues on the unpaid principal balance thereof as set forth in
the related Mortgage Note, which rate is as indicated on the Mortgage Loan
Schedule.
Mortgage Loan Purchase Agreement: The mortgage loan purchase agreement
--------------------------------
dated ________ __, 19__, pursuant to which the Seller purchased the Mortgage
Loans from NationsBanc Mortgage Corporation.
Mortgage Loan Rider: Any of the standard FNMA/FHLMC riders to the
-------------------
Mortgage Note and/or Mortgage riders required when the Mortgaged Property is a
condominium unit or a unit in a planned unit development.
Mortgage Loan Schedule: The list of the Mortgage Loans transferred to
----------------------
the Trustee on the Closing Date as part of the Trust Estate and attached hereto
as Exhibit F, which list may be amended following the Closing Date upon
conveyance of a substitute Mortgage Loan pursuant to Section 2.02 or 2.03 and
which list shall set forth at a minimum the following information as to each
Mortgage Loan:
(i) the Mortgage Loan identifying number;
I-31
<PAGE>
(ii) the city, state and zip code of the Mortgaged Property;
(iii) the type of property;
(iv) the Mortgage Interest Rate;
(v) the Net Mortgage Interest Rate;
(vi) the Monthly Payment;
(vii) the original number of months to maturity;
(viii) the scheduled maturity date;
(ix) the Cut-Off Date Principal Balance;
(x) the Loan-to-Value Ratio at origination;
(xi) whether such Mortgage Loan is a Subsidy Loan;
(xii) whether such Mortgage Loan is covered by primary mortgage
insurance; and
(xiii) the Fixed Retained Yield Rate.
Such schedule may consist of multiple reports that collectively set forth all of
the information required.
Mortgage Loans: Each of the mortgage loans transferred and assigned to
--------------
the Trustee on the Closing Date pursuant to Section 2.01 and any mortgage loans
substituted therefor pursuant to Section 2.02 or 2.03, in each case as from time
to time are included in the Trust Estate as identified in the Mortgage Loan
Schedule.
Mortgage Note: The note or other evidence of indebtedness evidencing
-------------
the indebtedness of a Mortgagor under a Mortgage Loan together with any related
Mortgage Loan Riders, if applicable.
Mortgaged Property: The property subject to a Mortgage, which may
------------------
include Co-op Shares.
Mortgagor: The obligor on a Mortgage Note.
---------
Net Foreclosure Profits: As to any Distribution Date, the amount, if
-----------------------
any, by which (i) Aggregate Foreclosure Profits with respect to such
Distribution Date exceed (ii) Liquidated Loan Losses with respect to such
Distribution Date.
Net Liquidation Proceeds: As to any defaulted Mortgage Loan,
------------------------
Liquidation Proceeds net of Liquidation Expenses.
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<PAGE>
Net Mortgage Interest Rate: With respect to each Mortgage Loan, a rate
--------------------------
equal to (i) the Mortgage Interest Rate on such Mortgage Loan minus (ii) the sum
of (a) the Servicing Fee Rate, as set forth in Section 11.25 with respect to
such Mortgage Loan and (b) the Fixed Retained Yield Rate, for such Mortgage
Loan. Any regular monthly computation of interest at such rate shall be based
upon annual interest at such rate on the applicable amount divided by twelve.
Net REO Proceeds: As to any REO Mortgage Loan, REO Proceeds net of any
----------------
related expenses of the Servicer.
Non-permitted Foreign Holder: As defined in Section 5.02(d).
----------------------------
Non-PO Fraction: With respect to any Mortgage Loan, the lesser of (i)
---------------
1.00 and (ii) the quotient obtained by dividing the Net Mortgage Interest Rate
for such Mortgage Loan by ___%.
Nonrecoverable Advance: Any portion of a Periodic Advance previously
----------------------
made or proposed to be made in respect of a Mortgage Loan which has not been
previously reimbursed to the Servicer or the Trustee and which, in the good
faith judgment of the Servicer or the Trustee will not, or in the case of a
proposed Periodic Advance would not, be ultimately recoverable from Liquidation
Proceeds or other recoveries in respect of the related Mortgage Loan. The
determination by the Servicer or the Trustee (i) that it has made a
Nonrecoverable Advance or (ii) that any proposed advance, if made, would
constitute a Nonrecoverable Advance, shall be evidenced by a certificate of a
Servicing Officer of the Servicer delivered to the Trustee and detailing the
reasons for such determination, but any delay or failure by the Servicer to send
such certificate shall not impair the Servicer's or the Trustee's right to
withhold or recover such advance.
Non-Supported Interest Shortfall: With respect to any Distribution
--------------------------------
Date, the excess, if any, of the aggregate Prepayment Interest Shortfall over
the aggregate Servicing Fee (before offset pursuant to Section 3.19) with
respect to payments and other recoveries on the Mortgage Loans distributable on
such Distribution Date. With respect to each Distribution Date occurring on or
after the Cross-Over Date, the Non-Supported Interest Shortfall as determined
pursuant to the preceding sentence shall be increased by any Cross-Over Date
Interest Shortfall, for such Distribution Date. Any Non-Supported Interest
Shortfall will be allocated to (a) the Class A Certificates according to the
percentage obtained by dividing the Class A Non-PO Principal Balance by the sum
of the Class A Non-PO Principal Balance, and the Aggregate Class B Principal
Balance, and (b) the Class B Certificates according to the percentage obtained
by dividing the Aggregate Class B Principal Balance by the sum of the Class A
Non-PO Principal Balance and the Class B Principal Balance.
Non-U.S. Person: As defined in Section 4.01(f).
---------------
Officers' Certificate: With respect to any Person, a certificate
---------------------
signed by the Chairman of the Board, the President or a Vice President, and by
the Treasurer, the Secretary or one of the Assistant Treasurers or Assistant
Secretaries of such Person (or, in the case of a
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<PAGE>
Person which is not a corporation, signed by the person or persons having like
responsibilities), and delivered to the Trustee.
Opinion of Counsel: A written opinion of counsel, who may be outside
------------------
or salaried counsel for the Seller or the Servicer, or any affiliate of the
Seller or the Servicer, acceptable to the Trustee; provided, however, that with
respect to REMIC matters, matters relating to the determination of Eligible
Accounts or matters relating to transfers of Certificates, such counsel shall be
Independent.
Optimal Adjustment Event: With respect to any Class of Class B
------------------------
Certificates and any Distribution Date, an Optimal Adjustment Event will occur
with respect to such Class if: (i) the principal balance of such Class on the
Determination Date succeeding such Distribution Date would have been reduced to
zero (regardless of whether such principal balance was reduced to zero as a
result of principal distribution or the allocation of Realized Losses) and
(ii)(a) any Class A Principal Balance would be subject to further reduction as a
result of the third sentence of the definition of Class A Principal Balance or
with respect to any Class of Class B Certificates, the Class B Principal Balance
of a Class of Class B Certificates with a lower numerical designation would be
reduced with respect to such Distribution Date as a result of the application of
clause (ii) of the definition of Class B-1 Principal Balance, Class B-2
Principal Balance, Class B-3 Principal Balance, Class B-4 Principal Balance,
Class B-5 Principal Balance or Class B-6 Principal Balance.
Original Aggregate Class B Principal Balance: The sum of the Original
--------------------------------------------
Class B-1 Principal Balance, Original Class B-2 Principal Balance, Original
Class B-3 Principal Balance, Original Class B-4 Principal Balance, Original
Class B-5 Principal Balance and original Class B-6 principal Balance, as set
forth in Section 11.13.
Original Class A Percentage: The Class A Percentage as of the Cut-Off
---------------------------
Date, as set forth in Section 11.04.
Original Class A Non-PO Principal Balance: The sum of the Original
-----------------------------------------
Class A Principal Balances of the Class A-1, Class A-2, Class A-3 and Class A-R
Certificates, as set forth in Section 11.06.
Original Class A Principal Balance: Any of the Original Class A
----------------------------------
Principal Balances as set forth in Section 11.05.
Original Class B-1 Fractional Interest: The percentage obtained by
--------------------------------------
dividing the sum of the Original Class B-2 Principal Balance, the Original Class
B-3 Principal Balance, the Original Class B-4 Principal Balance, the Original
Class B-5 Principal Balance and the Original Class B-6 Principal Balance by the
sum of the Original Class A Non-PO Principal Balance and the Original Aggregate
Class B Principal Balance, as specified in Section 11.15.
Original Class B-2 Fractional Interest: The percentage obtained by
--------------------------------------
dividing the sum of the Original Class B-3 Principal Balance, the Original Class
B-4 Principal Balance, the Original Class B-5 Principal Balance and the Original
Class B-6 Principal Balance by the sum
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<PAGE>
of the Original Class A Non-PO Principal Balance and the Original Aggregate
Class B Principal Balance, as specified in Section 11.16.
Original Class B-3 Fractional Interest: The percentage obtained by
--------------------------------------
dividing the sum of the Original Class B-4 Principal Balance, the Original Class
B-5 Principal Balance and the Original Class B-6 Principal Balance by the sum of
the Original Class A Non-PO Principal Balance and the Original Aggregate Class B
Principal Balance, as specified in Section 11.17.
Original Class B-4 Fractional Interest: The percentage obtained by
--------------------------------------
dividing the sum of the Original Class B-5 Principal Balance and the Original
Class B-6 Principal Balance by the sum of the Original Class A Non-PO Principal
Balance and the Original Aggregate Class B Principal Balance, as specified in
Section 11.18.
Original Class B-5 Fractional Interest: The percentage obtained by
--------------------------------------
dividing the Original Class B-6 Principal Balance by the sum of the Original
Class A Non-PO Principal Balance and the Original Aggregate Class B Principal
Balance, as specified in Section 11.19.
Original Class B-1 Percentage: The Class B-1 Percentage as of the Cut-
-----------------------------
Off Date, as set forth in Section 11.07.
Original Class B-2 Percentage: The Class B-2 Percentage as of the Cut-
-----------------------------
Off Date, as set forth in Section 11.08.
Original Class B-3 Percentage: The Class B-3 Percentage as of the Cut-
-----------------------------
Off Date, as set forth in Section 11.09.
Original Class B-4 Percentage: The Class B-4 Percentage as of the Cut-
-----------------------------
Off Date, as set forth in Section 11.10.
Original Class B-5 Percentage: The Class B-5 Percentage as of the Cut-
-----------------------------
Off Date, as set forth in Section 11.11.
Original Class B-6 Percentage: The Class B-6 Percentage as of the Cut-
-----------------------------
Off Date, as set forth in Section 11.12.
Original Class B-1 Principal Balance: The Class B-1 Principal Balance
------------------------------------
as of the Cut-Off Date, as set forth in Section 11.14.
Original Class B-2 Principal Balance: The Class B-2 Principal Balance
------------------------------------
as of the Cut-Off Date, as set forth in Section 11.14.
Original Class B-3 Principal Balance: The Class B-3 Principal Balance
------------------------------------
as of the Cut-Off Date, as set forth in Section 11.14.
Original Class B-4 Principal Balance: The Class B-4 Principal Balance
------------------------------------
as of the Cut-Off Date, as set forth in Section 11.14.
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<PAGE>
Original Class B-5 Principal Balance: The Class B-5 Principal Balance
------------------------------------
as of the Cut-Off Date, as set forth in Section 11.14.
Original Class B-6 Principal Balance: The Class B-6 Principal Balance
------------------------------------
as of the Cut-Off Date, as set forth in Section 11.14.
Original Subordinated Percentage: The Subordinated Percentage as of
--------------------------------
the Cut-Off Date, as set forth in Section 11.20.
Outstanding Mortgage Loan: As to any Due Date, a Mortgage Loan
-------------------------
(including an REO Mortgage Loan) which was not the subject of a Full Unscheduled
Principal Receipt prior to such Due Date and which was not repurchased by the
Seller prior to such Due Date pursuant to Section 2.02, 2.03 or 3.12.
Partial Liquidation Proceeds: Liquidation Proceeds received by the
----------------------------
Servicer on a Mortgage Loan prior to such Mortgage Loan becoming a Liquidated
Loan.
Partial Unscheduled Principal Receipt: An Unscheduled Principal
-------------------------------------
Receipt which is not a Full Unscheduled Principal Receipt.
Paying Agent: The Person authorized on behalf of the Trustee, as agent
------------
for the Trustee, to make distributions to Certificateholders with respect to the
Certificates, to forward to Certificateholders the periodic and annual
statements required by Section 4.04. The Paying Agent may be any Person directly
or indirectly controlling or controlled by or under common control with the
Servicer and may be the Trustee. The initial Paying Agent is the Trustee.
Payment Account: The account maintained pursuant to Section 4.03.
---------------
Percentage Interest: With respect to a Class A Certificate, the
-------------------
undivided percentage interest obtained by dividing the original principal
balance of such Certificate by the aggregate original principal balance of all
Certificates of such Class of Class A Certificates. With respect to a Class B
Certificate, the undivided percentage interest obtained by dividing the original
principal balance of such Certificate by the aggregate original principal
balance of all Certificates of such Class of Class B Certificates.
Periodic Advance: The aggregate of the advances required to be made by
----------------
the Servicer or the Trustee on any Distribution Date hereunder, the amount of
any such advances being equal to the total of all Monthly Payments (adjusted, in
each case in respect of interest, to the applicable Net Mortgage Interest Rate)
on the Mortgage Loans, that (x) were delinquent as of the close of business on
the Business Day preceding the related Determination Date, (y) were not the
subject of a previous Periodic Advance by the Servicer or the Trustee and (z)
have not been determined by the Servicer or the Trustee to be Nonrecoverable
Advances.
Person: Any individual, corporation, partnership, joint venture,
------
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
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<PAGE>
Plan: As defined in Section 5.02(c).
----
PO Fraction: With respect to any Discount Mortgage Loan, the
-----------
difference between 1.0 and the Non-PO Fraction for such Mortgage Loan; with
respect to any other Mortgage Loan, zero.
Pool Balance (Non-PO Portion): As of any Distribution Date, the sum of
-----------------------------
the amounts for each Mortgage Loan that is an Outstanding Mortgage Loan of the
product of (i) the Non-PO Fraction for such Mortgage Loan and (ii) the Scheduled
Principal Balance of such Mortgage Loan.
Pool Balance (PO Portion): As of any Distribution Date, the sum of the
-------------------------
amounts for each Mortgage Loan that is an Outstanding Mortgage Loan of the
product of (i) the PO Fraction for such Mortgage Loan and (ii) the Scheduled
Principal Balance of such Mortgage Loan.
Pool Distribution Amount: As of any Distribution Date, the funds
------------------------
eligible for distribution to the Holders of the Certificates on such
Distribution Date, which shall be the sum of (i) all previously undistributed
payments or other receipts on account of principal and interest on the Mortgage
Loans (including, without limitation, the proceeds of any repurchase of a
Mortgage Loan, with respect to the applicable Remittance Date in the month of
such Distribution Date and any Unscheduled Principal Receipts received) on or
prior to the Business Day preceding such Distribution Date (ii) all Periodic
Advances made by the Servicer or the Trustee hereunder, and (iii) all other
amounts placed in the Certificate Account by the Servicer on or before the
applicable Remittance Date or by the Trustee on or prior to the Distribution
Date, but excluding the following:
(a) amounts received as late payments of principal or interest
and respecting which the Servicer or the Trustee has previously made an
unreimbursed Periodic Advance;
(b) the portion of Liquidation Proceeds used to reimburse any
unreimbursed Periodic Advances by the Servicer or the Trustee;
(c) those portions of each payment of interest on a particular
Mortgage Loan which represent (i) the Fixed Retained Yield, if any, and
(ii) the Servicing Fee, as adjusted in respect of Principal Prepayments
pursuant to Section 3.19 hereof;
(d) any Amount held for Future Distribution;
(e) all repurchase proceeds with respect to Mortgage Loans
repurchased by the Seller pursuant to Section 2.02 or 2.03 on or following
the Due Date in the month in which such Distribution Date occurs and the
difference between the unpaid principal balance of such Mortgage Loan
substituted for a defective
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Mortgage Loan during the month preceding the month in which such
Distribution Date occurs and the unpaid principal balance of such defective
Mortgage Loan;
(f) that portion of Liquidation Proceeds and REO Proceeds which
represents any unpaid Servicing Fee;
(g) all income from Eligible Investments that is held in the
Certificate Account or the Payment Account for the account of the Servicer;
(h) all other amounts permitted to be withdrawn from the
Certificate Account in respect of the Mortgage Loans, to the extent not
covered by clauses (a) through (g) above, or not required to be deposited
in the Certificate Account under this Agreement;
(i) Net Foreclosure Profits; and
(j) the amount of any recovery in respect of a Realized Loss
allocated to the Certificates pursuant to 4.02(d).
Pool Scheduled Principal Balance: As to any Distribution Date, the
--------------------------------
aggregate Scheduled Principal Balances of all Mortgage Loans that were
Outstanding Mortgage Loans on the Due Date in the month preceding the month of
such Distribution Date.
Premium Mortgage Loan: A Mortgage Loan with a Net Mortgage Interest
---------------------
Rate of __% or greater.
Prepayment In Full: With respect to any Mortgage Loan, a payment
------------------
consisting of a Principal Prepayment in the amount of the outstanding principal
balance of such loan and resulting in the full satisfaction of such obligation.
Prepayment Interest Shortfall: On any Distribution Date, the amount of
-----------------------------
interest, if any, that would have accrued on any Curtailment with respect to a
Mortgage Loan or on any Mortgage Loan which was the subject of a Prepayment in
Full at the Net Mortgage Interest Rate for such Mortgage Loan from the date of
the application of such Curtailment or its Prepayment in Full, as the case may
be, through the last day of the month prior to the month of such Distribution
Date.
Principal Adjustment: In the event that the Class B-1 Optimal
Principal Amount, Class B-2 Optimal Principal Amount, Class B-3 Optimal
Principal Amount, Class B-4 Optimal Principal Amount, Class B-5 Optimal
Principal Amount or Class B-6 Optimal Principal Amount is calculated in
accordance with the proviso in such definition with respect to any Distribution
Date, the Principal Adjustment for such Class of Class B Certificates shall
equal the difference between (i) the amount that would have been distributed to
such Class as principal in accordance with Section 4.01(a) for such Distribution
Date, calculated without regard to such proviso and assuming there are no
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<PAGE>
Principal Adjustments for such Distribution Date and (ii) the Adjusted Principal
Balance for such Class.
Principal Balance: Any of the Class A Principal Balances, or Class B
-----------------
Principal Balances.
Principal Prepayment: Any Mortgagor payment on a Mortgage Loan which
--------------------
is received in advance of its Due Date and is not accompanied by an amount
representing scheduled interest for any period subsequent to the date of
prepayment .
Prohibited Transaction Tax: Any tax imposed under Section 860F of the
--------------------------
Code.
Qualified Mortgage Insurer: A mortgage guaranty insurance company
--------------------------
qualified under the laws of the State of New York to transact a mortgage
guaranty insurance business therein and to write the insurance provided by
primary mortgage insurance policies and approved as an insurer by FNMA or FHLMC
and whose obligations have a rating by each Rating Agency not lower than the
rating of the Certificates.
Rating Agency: Any nationally recognized statistical credit rating
-------------
agency, or its successor, that rated one or more Classes of the Certificates at
the request of the Seller at the time of the initial issuance of the
Certificates. The Rating Agencies for the Class A Certificates and Class B-1
Certificates are [Fitch] [Moody's] [DCR] and [S&P]. The Rating Agency for the
Class B-2, Class B-3, Class B-4 and Class B-5 Certificates is [Fitch] [Moody's]
[DCR] [S&P]. If either such agency or a successor is no longer in existence,
"Rating Agency" shall be such statistical credit rating agency, or other
comparable Person, designated by the Seller, notice of which designation shall
be given to the Trustee and Servicer. References herein to the highest short-
term rating category of a Rating Agency shall mean in the case of ___ and ___ in
the case of ____ and in the case of any other Rating Agency shall mean its
equivalent of such ratings without any plus or minus. References herein to the
highest long-term rating categories of a Rating Agency shall mean ____ in the
case of ____ and ____ and in the case of any other Rating Agency shall mean its
equivalent of such ratings without any plus or minus.
Realized Losses: With respect to any Distribution Date, Liquidated
---------------
Loan Losses (including Special Hazard Losses and Fraud Losses) and Bankruptcy
Losses incurred in the month preceding the month of such Distribution Date.
Record Date: The last Business Day of the month preceding the month of
-----------
the related Distribution Date.
Relevant Anniversary: See "Bankruptcy Loss Amount."
--------------------
REMIC: A "real estate mortgage investment conduit" as defined in Code
-----
Section 860D. "The REMIC" means the REMIC constituted by the Trust Estate.
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<PAGE>
REMIC Provisions: Provisions of the federal income tax law relating to
----------------
REMICs, which appear at Sections 860A through 860G of Part IV of Subchapter M of
Chapter 1 of Subtitle A of the Code, and related provisions, and U.S. Department
of the Treasury temporary, proposed or final regulations promulgated thereunder,
as the foregoing are in effect (with respect to proposed regulations, are
proposed to be in effect) from time to time.
Remittance Date: The _____ day of each month (or the preceding
---------------
Business Day if the ______ day is not a Business Day). Each month, the Servicer
must transfer all required funds from the Servicer Custodial Account to the
Certificate Account on or before the Remittance Date.
REO Mortgage Loan: Any Mortgage Loan which is not a Liquidated Loan
-----------------
and as to which the indebtedness evidenced by the related Mortgage Note is
discharged and the related Mortgaged Property is held as part of the Trust
Estate.
REO Proceeds: Proceeds received in respect of any REO Mortgage Loan
------------
(including, without limitation, proceeds from the rental of the related
Mortgaged Property).
Request for Release: A request for release in substantially the form
-------------------
attached as Exhibit G hereto.
Responsible Officer: When used with respect to the Trustee, the
-------------------
Chairman or Vice-Chairman of the Board of Directors or Trustees, the Chairman or
Vice-Chairman of the Executive or Standing Committee of the Board of Directors
or Trustees, the President, the Chairman of the Committee on Trust Matters, any
Vice President, the Secretary, any Assistant Secretary, the Treasurer, any
Assistant Treasurer, the Cashier, any Assistant Cashier, any Trust Officer or
Assistant Trust Officer, the Controller and any Assistant Controller or any
other officer of the Trustee customarily performing functions similar to those
performed by any of the above-designated officers and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject.
Rule 144A: Rule 144A promulgated under the Securities Act of 1933, as
---------
amended.
Scheduled Principal Balance: As to any Mortgage Loan and Distribution
---------------------------
Date, the principal balance of such Mortgage Loan as of the Due Date in the
month preceding the month of such Distribution Date as specified in the
amortization schedule at the time relating thereto (before any adjustment to
such amortization schedule by reason of any bankruptcy (other than Deficient
Valuations) or similar proceeding or any moratorium or similar waiver or grace
period) after giving effect to (A) Unscheduled Principal Receipts received by
the Servicer prior to such Due Date, (B) Deficient Valuations incurred prior to
such Due Date and (C) the payment of principal due on such Due Date and
irrespective of any delinquency in payment by the related Mortgagor.
Accordingly, the Scheduled Principal Balance of a
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Mortgage Loan which becomes a Liquidated Loan at any time through the last day
of such related Unscheduled Principal Receipt Period shall be zero.
Seller: Nations Mortgage Securities Corporation, a Delaware
------
corporation, or its successor in interest.
Senior Optimal Amount: As to any Distribution Date, the sum for such
---------------------
Distribution Date of (a) the Class A Non-PO Optimal Amount and (b) the Class A-
PO Optimal Principal Amount.
Servicer: NationsBanc Mortgage Corporation, a Texas corporation, or
--------
its successor in interest or permitted assigns.
Servicer Custodial Account: The account established and maintained
--------------------------
pursuant to Section 3.02. The Servicer Custodial Account shall be an Eligible
Account.
Servicer Failure: As to any Distribution Date, the failure of the
----------------
Servicer to deposit a Periodic Advance in the Payment Account as required under
Section 4.03(c)(i).
Servicing Account: The account created and maintained pursuant to
-----------------
Section 3.09.
Servicing Fee: With respect to any Mortgage Loan and any Distribution
-------------
Date, the fee payable monthly to the Servicer pursuant to Section 3.14 for the
servicing of such Mortgage Loan, such fee, subject to offset pursuant to Section
3.19, being equal to the product of the Servicing Fee Rate and Scheduled
Principal Balance of such Mortgage Loan.
Servicing Fee Rate: As set forth in Section 11.25.
------------------
Servicing Officer: Any officer of the Servicer involved in, or
-----------------
responsible for, the administration and servicing of the Mortgage Loans.
Similar Law: As defined in Section 5.02(c).
-----------
Single Certificate: A Certificate of any Class that evidences the
------------------
smallest permissible Denomination for such Class, as set forth in Section 11.24.
Special Hazard Loss: (i) A Liquidated Loan Loss suffered by a
-------------------
Mortgaged Property on account of direct physical loss, exclusive of (a) any loss
covered by a hazard policy or a flood insurance policy maintained in respect of
such Mortgaged Property pursuant to Section 3.07 and (b) any loss caused by or
resulting from:
(1) normal wear and tear;
(2) infidelity, conversion or other dishonest act on the part of the
Trustee, the Servicer or any of their agents or employees; or
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<PAGE>
(3) errors in design, faulty workmanship or faulty materials, unless
the collapse of the property or a part thereof ensues;
or (ii) any Liquidated Loan Loss suffered by the Trust Estate arising from or
related to the presence or suspected presence of hazardous wastes or hazardous
substances on a Mortgaged Property unless such loss to a Mortgaged Property is
covered by a hazard policy or a flood insurance policy maintained in respect of
such Mortgaged Property pursuant to Section 3.07. The determination of the
Servicer that a Liquidated Loan Loss is a Special Hazard Loss shall be
conclusive and binding.
Special Hazard Loss Amount: As of any Distribution Date, an amount
--------------------------
equal to $_______ minus the sum of (i) the aggregate amount of Special Hazard
Losses allocated solely to the Class B Certificates in accordance with Section
4.04 and (ii) the Special Hazard Adjustment Amount (as defined below) as most
recently calculated. For each anniversary of the Cut-Off Date, the Special
Hazard Adjustment Amount shall be calculated and shall be equal to the amount,
if any, by which the amount calculated in accordance with the preceding sentence
(without giving effect to the deduction of the Special Hazard Adjustment Amount
for such anniversary) exceeds the greater of (A) the product of the Special
Hazard Percentage for such anniversary multiplied by the outstanding principal
balance of all the Mortgage Loans on the Distribution Date immediately preceding
such anniversary, (B) twice the outstanding principal balance of the Mortgage
Loan in the Trust Estate which has the largest outstanding principal balance on
the Distribution Date immediately preceding such anniversary and (C) that which
is necessary to maintain the original ratings on the Class A and Class B-1
Certificates, as evidenced by letters to that effect delivered by ____ and ____
to the Servicer and the Trustee. On and after the Cross-Over Date the Special
Hazard Loss Amount shall be zero.
Special Hazard Percentage: As of each anniversary of the Cut-Off Date,
-------------------------
the greater of (i) 1.00% and (ii) the largest percentage obtained by dividing
the aggregate outstanding principal balance (as of the immediately preceding
Distribution Date) of the Mortgage Loans secured by Mortgaged Properties located
in a single, five-digit zip code area in the State of California by the
outstanding principal balance of all the Mortgage Loans as of the immediately
preceding Distribution Date.
Startup Day: As defined in Section 2.05.
-----------
Subordinated Percentage: As to any Distribution Date, the percentage
-----------------------
which is the difference between 100% and the Class A Percentage for such date.
Subordinated Prepayment Percentage: As to any Distribution Date, the
----------------------------------
percentage which is the difference between 100% and the Class A Prepayment
Percentage for such date.
Subsidy Account: If the Trust Estate contains any Subsidy Loans, the
---------------
deposit account or accounts created and maintained by the Servicer for deposit
of Subsidy Funds and
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<PAGE>
amounts payable under interest subsidy agreements relating to mortgage loans
other than the Mortgage Loans. The Subsidy Account shall be an Eligible Account.
Subsidy Funds: If the Trust Estate contains any Subsidy Loans, funds
-------------
contributed by the employer of a Mortgagor in order to reduce the payments
required from the Mortgagor for a specified period in specified amounts.
Subsidy Loan: Any Mortgage Loan subject to a temporary interest
------------
subsidy agreement pursuant to which the monthly interest payments made by the
related Mortgagor will be less than the scheduled monthly interest payments on
such Mortgage Loan, with the resulting difference in interest payments being
provided by the employer of the Mortgagor. Each Subsidy Loan will be identified
as such in the Mortgage Loan Schedule.
Substitute Mortgage Loan: As defined in Section 2.02
------------------------
Substitution Principal Amount: With respect to any Mortgage Loan
-----------------------------
substituted pursuant to Section 2.02 or 2.03, the excess of (x) the unpaid
principal balance of the Mortgage Loan which is substituted for over (y) the
unpaid principal balance of the substitute Mortgage Loan, each balance being
determined as of the date of substitution.
[S&P: Standard & Poor's, or its successor in interest.]
---
Trust Estate: The corpus of the trust created by this Agreement,
------------
consisting of the Mortgage Loans other than the Fixed Retained Yield, such
amounts as shall from time to time be held in the Certificate Account and the
Payment Account, the insurance policies, if any, relating to a Mortgage Loan,
property which secured a Mortgage Loan and which has been acquired by
foreclosure or deed in lieu of foreclosure, right to receive amounts, if any,
payable on behalf of any Mortgagor from the Subsidy Account relating to any
Subsidy Loan. The Subsidy Account shall not be part of the REMIC comprised by
the Trust Estate.
Trustee: ________________________________________, or any successor
-------
trustee appointed as herein provided.
Unpaid Interest Shortfall: Any of the Class A Unpaid Interest
-------------------------
Shortfalls, or Class B Unpaid Interest Shortfalls.
Unpaid REO Amortization: As to any REO Mortgage Loan and any month,
-----------------------
the aggregate of the installments of principal and accrued interest (adjusted to
the related Net Mortgage Interest Rate) deemed to be due in such month and in
any prior months that remain unpaid, calculated in accordance with Section 3.11.
Unscheduled Principal Receipt: Any Principal Prepayment or other
-----------------------------
recovery of principal on a Mortgage Loan, including, without limitation,
Liquidation Proceeds, Net REO Proceeds and proceeds received from any
condemnation award or proceeds in lieu of condemnation other than that portion
of such proceeds released to the Mortgagor in accordance with the terms of the
Mortgage or Accepted Servicing Practices, but excluding any Net
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<PAGE>
Foreclosure Profits and proceeds of a repurchase of a Mortgage Loan by the
Seller and any Substitution Principal Amounts. Except as set forth in the last
sentence of Section 4.02(d), a Recovery shall not be treated as an Unscheduled
Principal Receipt.
Unscheduled Principal Receipt Period: With respect to any Distribution
------------------------------------
Date, the month preceding the month in which such Distribution Date occurs.
U.S. Person: As defined in Section 4.01(f).
-----------
Voting Interest: With respect to any Class of Certificates, the
---------------
percentage obtained by dividing the Principal Balance of such Class by the sum
of the Aggregate Class A Principal Balance and the Aggregate Class B Principal
Balance. With respect to a Certificate of any Class, the percentage obtained by
multiplying the Percentage Interest represented by such Certificate and the
Voting Interest for such Class.
Weighted Average Net Mortgage Interest Rate: As to any Distribution
-------------------------------------------
Date, a rate per annum equal to the average, expressed as a percentage, of the
Net Mortgage Interest Rates of all Mortgage Loans that were Outstanding Mortgage
Loans as of the Due Date in the month preceding the month of such Distribution
Date, weighted on the basis of the respective Scheduled Principal Balances of
such Mortgage Loans.
Section 1.02. Acts of Holders.
---------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing. Except as herein otherwise expressly provided, such action
shall become effective when such instrument or instruments are delivered to the
Trustee. Proof of execution of any such instrument or of a writing appointing
any such agent shall be sufficient for any purpose of this Agreement and
conclusive in favor of the Trustee, if made in the manner provided in this
Section 1.02. The Trustee shall promptly notify the Servicer in writing of the
receipt of any such instrument or writing.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. When such
execution is by a signer acting in a capacity other than his or her individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his or her authority. The fact and date of the execution of any such
instrument or writing, or the authority of the individual executing the same,
may also be proved in any other manner which the Trustee deems sufficient.
(c) The ownership of Certificates (whether or not such Certificates
shall be overdue and notwithstanding any notation of ownership or other writing
thereon made by
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<PAGE>
anyone other than the Trustee and the Authenticating Agent)
shall be proved by the Certificate Register, and neither the Trustee, the Seller
nor the Servicer shall be affected by any notice to the contrary.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action of the Holder of any Certificate shall bind every future
Holder of the same Certificate and the Holder of every Certificate issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee, the
Seller or the Servicer in reliance thereon, whether or not notation of such
action is made upon such Certificate.
Section 1.03. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings in this Agreement and the Table of
Contents are for convenience of reference only and shall not affect the
interpretation or construction of this Agreement.
Section 1.04. Benefits of Agreement.
---------------------
Nothing in this Agreement or in the Certificates, express or implied,
shall give to any Person, other than the parties to this Agreement and their
successors hereunder and the Holders of the Certificates, any benefit or any
legal or equitable right, power, remedy or claim under this Agreement.
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<PAGE>
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF THE CERTIFICATES
Section 2.01. Conveyance of Mortgage Loans; Reservation of Any Fixed
------------ ------------------------------------------------------
Retained Yield. The Seller, concurrently with the execution and delivery hereof,
- --------------
does hereby assign to the Trustee without recourse all the right, title and
interest of the Seller in and to the Trust Estate, including all interest (other
than the portion, if any, representing Fixed Retained Yield) and principal
received by the Seller on or with respect to the Mortgage Loans after the Cut-
Off Date (and including scheduled payments of principal and interest due after
the Cut-Off Date but received by the Seller on or before the Cut-Off Date and
Principal Prepayments received or applied on the Cut-Off Date, but not including
payments of principal and interest due on the Mortgage Loans on or before the
Cut-Off Date), together with all right, title and interest in and to the
proceeds of any related insurance policies and the Seller's right to receive
amounts, if any, payable on behalf of any Mortgagor from the Subsidy Account
relating to any Subsidy Loan; provided, however, that the Seller does not
assign, but instead expressly retains, all of its right, title and interest in
and to the Fixed Retained Yield, if any, with respect to each Mortgage Loan.
In connection with such assignment, the Seller does hereby deliver to,
and deposit with (or, with respect to the documents set forth in clause (vi)
below, shall, in accordance with the provisions of this Section 2.01, deliver
to, or cause the Servicer to deliver to, and deposit with), the Trustee, or to
and with one or more Custodians, the originals of the following documents or
instruments with respect to each Mortgage Loan so assigned:
(i) The original Mortgage Note bearing all intervening endorsements,
endorsed without recourse to the Trustee or in blank or, in lieu of such
Mortgage Note, a Lost Note Affidavit;
(ii) Any assumption, modification, consolidation or extension
agreements;
(iii) An assignment to the Trustee of the Mortgage in recordable form
(other than recording information not yet received from the applicable
recording office);
(iv) The original Mortgage with evidence of recording indicated
thereon (or, if such original recorded Mortgage has not yet been returned
to the Seller by the applicable recording office, a copy thereof certified
by the Seller, as set forth in the following proviso, to be a true and
complete copy of such Mortgage sent for recording);
(v) All intervening assignments of the Mortgage in the possession of
the Seller, if any (or, if any such original intervening assignment has
been transmitted for recording and has not yet been returned to the Seller
by the applicable recording office,
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<PAGE>
a copy thereof, certified by the Seller, as set forth in the following
proviso, to be a true and complete copy of such assignment sent for
recording);
(vi) (A) an original policy of title insurance pertaining to such
Mortgage Loan or, with respect to loans secured by properties in
jurisdictions where title policies are not available, the original
attorney's opinion of title and in the event that the policy has not been
issued or is not otherwise available, (X) a written binding ALTA commitment
for such a policy (or a photocopy thereof) issued by the respective title
insurance company, or (Y) a Preliminary Title Report (or a photocopy
thereof) if the Mortgaged Property is in a state designated by the Servicer
as a Preliminary Title Report state and (B) the certificate of primary
mortgage insurance, if any, issued in relation to such Mortgage Loan (or a
copy thereof certified by the Seller to be a true and complete copy if the
Seller has not received the original certificate from the insurer), or if,
as of the Cut-Off Date, a certificate of primary mortgage insurance was
required with respect to such Mortgage Loan, but subsequently such
requirement was waived pursuant to the terms of this Agreement, then the
Servicer shall deliver an Officer's Certificate to the Trustee to that
effect;
(vii) for each Mortgage Loan which is secured by a residential long-
term lease, a copy of the lease with evidence of recording indicated
thereon, or, if the lease is in the process of being recorded, a photocopy
of the lease, certified by an Officer of the respective prior owner of such
Mortgage Loan or by the applicable title insurance company,
closing/settlement/escrow agent or company or closing attorney to be a true
and correct copy of the lease transmitted for recordation; and
in the case of a Mortgage Loan secured by Co-op Shares, the originals of the
following documents or instruments:
(a) The stock certificate;
(b) The stock power executed in blank;
(c) The executed proprietary lease;
(d) The executed recognition agreement;
(e) The executed assignment of recognition agreement;
(f) The executed UCC-1 financing statement with evidence of
recording thereon or, if such original recorded financing
statement has not yet been returned to the Seller by the
applicable recording office, a copy thereof certified by the
Seller, as set forth in the following proviso, to be a true and
complete copy of such financing statement sent for recording;
and
(g) Executed UCC-3 financing statements or other appropriate UCC
financing statements required by state law, evidencing a
complete and
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<PAGE>
unbroken line from the mortgagee to the Trustee with
evidence of recording thereon (or in a form suitable
for recordation) or, if any such original recorded
financing statement has not yet been returned to the
Seller by the applicable recording office, a copy
thereof certified by the Seller, as set forth in the
following proviso, to be a true and complete copy of
such financing statement sent for recording;
provided, however, that in the case of any Mortgage Loans which have been
- -------- -------
prepaid in full on or after the Cut-Off Date and prior to the date of the
execution of this Agreement, the Seller, in lieu of delivering the above
documents, hereby delivers to the Trustee a certification of an officer of the
Seller of the nature set forth in Section 3.13; and provided further, however,
that as to certain Mortgages or assignments thereof or financing statements
which have been delivered or are being delivered to recording offices for
recording and have not been returned to the Seller in time to permit their
delivery hereunder at the time of such transfer, in lieu of delivering such
original documents, the Seller is delivering to the Trustee a true copy thereof
with a certification by the Seller on the face of such copy substantially as
follows: "certified true and correct copy of original which has been transmitted
for recordation". The Seller will deliver such documents to the Trustee promptly
after they are received, but in any event no later than 90 days after the date
of execution of this Agreement, unless the Seller is delayed in so doing by
reason of the fact that any such documents shall not have been returned by the
appropriate recording office. The Seller agrees, at its own expense, to record
(or to provide the Trustee with evidence of recordation thereof) each assignment
referred to in clause (iii) above promptly after the Closing Date in the
appropriate public office for real property records, provided that such
assignments are redelivered by the Trustee to the Seller, unless the Seller
furnishes to the Trustee an unqualified Opinion of Counsel reasonably acceptable
to the Trustee to the effect that recordation of such assignment is not
necessary under applicable state law to preserve the Trustee's interest in the
related Mortgage Loan against the claim of any subsequent transferee of such
Mortgage Loan or any successor to, or creditor of, the Seller or the originator
of such Mortgage Loan. The Seller agrees, at its own expense, to record any UCC-
3 financing statements not previously recorded (and to provide the Trustee with
evidence of such recordation) promptly after the Closing Date in the appropriate
public offices.
The Seller and the Trustee intend the transfer of the Mortgage Loans
to be a sale of assets and not a pledge of assets to secure debt and therefore
agree to treat the transfer as such for financial accounting and reporting
purposes.
Section 2.02. Acceptance by Trustee. The Trustee acknowledges receipt
---------------------
of the Mortgage Notes, the Mortgages, the assignments and other documents
referred to in Section 2.01 above and declares that it holds and will hold such
documents and the other documents constituting a part of the Mortgage Files
delivered to it in trust, upon the trusts herein set forth, for the use and
benefit of all present and future Certificateholders. The Trustee agrees, for
the benefit of Certificateholders, to review each Mortgage File within 45 days
after execution of this Agreement in order to ascertain that all required
documents set forth in Section 2.01 have been executed and received and appear
regular on their face, and that such documents relate to the Mortgage Loans
identified in the Mortgage Loan Schedule, and in so
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doing the Trustee may rely on the purported due execution and genuineness of any
such document and on the purported genuineness of any signature thereon. If
within such 45 day period the Trustee finds any document constituting a part of
a Mortgage File not to have been executed or received or to be unrelated to the
Mortgage Loans identified in the Mortgage Loan Schedule or not to appear regular
on its face, the Trustee shall promptly (and in no event more than 30 days after
the discovery of such defect) notify the Seller, which shall have a period of 60
days after such notice within which to correct or cure any such defect. The
Seller hereby covenants and agrees that, if any material defect is not so
corrected or cured, the Seller will, not later than 60 days after the Trustee's
notice to it referred to above respecting such defect, either (i) repurchase the
related Mortgage Loan or any property acquired in respect thereof from the
Trustee at a price equal to (a) 100% of the unpaid principal balance of such
Mortgage Loan plus (b) accrued interest at the Net Mortgage Interest Rate of
such Mortgage Loan through the last day of the month in which such repurchase
takes place or (ii) if within two years of the Startup Day, or such other period
permitted by the REMIC Provisions, substitute for any Mortgage Loan to which
such material defect relates, a new mortgage loan (a "Substitute Mortgage Loan")
having such characteristics so that the representations and warranties of the
Seller set forth in Section 2.03(b) hereof (other than Section 2.03(b)(i)) would
not have been incorrect had such Substitute Mortgage Loan originally been a
Mortgage Loan. In no event shall any Substitute Mortgage Loan have an unpaid
principal balance, as of the date of substitution, greater than the Scheduled
Principal Balance (reduced by the scheduled payment of principal due on the Due
Date in the month of substitution) of the Mortgage Loan for which it is
substituted. In addition, such substitute Mortgage Loan shall have a Loan-to-
Value Ratio less than or equal to and a Mortgage Interest Rate equal to that of
the Mortgage Loan for which it is substituted.
In the case of a repurchased Mortgage Loan or property, the purchase
price shall be deposited by the Seller in the Servicer Custodial Account
maintained by the Servicer pursuant to Section 3.02. In the case of a Substitute
Mortgage Loan, the Mortgage File relating thereto shall be delivered to the
Trustee and the Substitution Principal Amount, together with (i) interest on
such Substitution Principal Amount at the applicable Net Mortgage Interest Rate
to the following Due Date of such Mortgage Loan which is being substituted for
and (ii) an amount equal to the aggregate amount of unreimbursed Periodic
Advances in respect of interest previously made by the Servicer with respect to
such Mortgage Loan, shall be deposited in the Servicer Custodial Account. The
Monthly Payment on the substitute Mortgage Loan for the Due Date in the month of
substitution shall not be part of the Trust Estate. Upon receipt by the Trustee
of written notification of any such deposit signed by an officer of the Seller,
or the new Mortgage File, as the case may be, the Trustee shall release to the
Seller the related Mortgage File and shall execute and deliver such instrument
of transfer or assignment, in each case without recourse, as shall be necessary
to vest in the Seller legal and beneficial ownership of such substituted or
repurchased Mortgage Loan or property. It is understood and agreed that the
obligation of the Seller to substitute a new Mortgage Loan for or repurchase any
Mortgage Loan or property as to which such a material defect in a constituent
document exists shall constitute the sole remedy respecting such defect
available to the Certificateholders or the Trustee on behalf of the
Certificateholders. The failure of the Trustee to give any notice contemplated
herein within forty-five (45) days after the execution
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of this Agreement shall not affect or relieve the Seller's obligation to
repurchase any Mortgage Loan pursuant to this Section 2.02.
The Trustee may, concurrently with the execution and delivery hereof
or at any time thereafter, enter into a Custodial Agreement substantially in the
form of Exhibit E hereto pursuant to which the Trustee appoints a Custodian to
hold the Mortgage Notes, the Mortgages, the assignments and other documents
related to the Mortgage Loans received by the Trustee, as agent for the Trustee,
in trust for the benefit of all present and future Certificateholders, which may
provide, among other things, that the Custodian shall conduct the review of such
documents required under the first paragraph of this Section 2.02.
Section 2.03. Representations and Warranties of the Servicer and the
------------------------------------------------------
Seller. (a) The Servicer hereby represents, warrants and covenants to the
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Trustee for the benefit of Certificateholders that, as of the date of execution
of this Agreement:
(i) The Servicer is a corporation duly formed and validly existing
under the laws of the State of Texas;
(ii) The execution and delivery of this Agreement by the Servicer
and its performance and compliance with the terms of this Agreement will
not violate the Servicer's corporate charter or by-laws or constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or result in the breach of, any material
contract, agreement or other instrument to which the Servicer is a party or
which may be applicable to the Servicer or any of its assets;
(iii) This Agreement, assuming due authorization, execution and
delivery by the Trustee and the Seller, constitutes a valid, legal and
binding obligation of the Servicer, enforceable against it in accordance
with the terms hereof subject to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the enforcement of
creditors' rights generally and to general principles of equity, regardless
of whether such enforcement is considered in a proceeding in equity or at
law;
(iv) The Servicer is not in default with respect to any order or
decree of any court or any order, regulation or demand of any Federal,
state, municipal or governmental agency, which default might have
consequences that would materially and adversely affect the condition
(financial or other) or operations of the Servicer or its properties or
might have consequences that would affect its performance hereunder; and
(v) No litigation is pending or, to the best of the Servicer's
knowledge, threatened against the Servicer which would prohibit its
entering into this Agreement or performing its obligations under this
Agreement.
It is understood and agreed that the representations and warranties set forth in
this Section 2.03(a) shall survive delivery of the respective Mortgage Files to
the Trustee or the Custodian.
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(b) The Seller hereby represents and warrants to the Trustee for
the benefit of Certificateholders that, as of the date of execution of this
Agreement, with respect to the Mortgage Loans, or each Mortgage Loan, as the
case may be:
(i) The information set forth in the Mortgage Loan Schedule was
true and correct in all material respects at the date or dates respecting
which such information is furnished as specified in the Mortgage Loan
Schedule;
(ii) Immediately prior to the transfer and assignment contemplated
herein, the Seller was the sole owner and holder of the Mortgage Loan free
and clear of any and all liens, pledges, charges or security interests of
any nature and has full right and authority to sell and assign the same;
(iii) The Mortgage is a valid, subsisting and enforceable first lien
on the property therein described, and the Mortgaged Property is free and
clear of all encumbrances and liens having priority over the first lien of
the Mortgage except for (A) liens for current real estate taxes and
assessments not yet due and payable and liens or interests arising under or
as a result of any federal, state or local law, regulation or ordinance
relating to hazardous wastes or hazardous substances, (B) covenants,
conditions and restrictions, rights of way, easements and other maters of
the public record as of the date of recording being acceptable to mortgage
lending institutions generally and specifically referred to in the lender's
title insurance policy delivered to the originator of the Mortgage Loan and
which do not adversely affect the appraised value of the Mortgaged
Property, (C) other matters to which like properties are commonly subject
which do not materially interfered with the benefits of the security
intended to be provided by the Mortgage or the use, enjoyment, value or
marketability of the related Mortgaged Property and (D) if the related
Mortgaged Property is a condominium unit, any lien for common charges
permitted by statute or homeowners association fees; and if the Mortgaged
Property consists of shares of a cooperative housing corporation, any lien
for amounts due to the cooperative housing corporation for unpaid
assessments or charges or any lien of any assignment of rents or
maintenance expenses secured by the real property owned by the cooperative
housing corporation; and any security agreement, chattel mortgage or
equivalent document related to, and delivered to the Trustee or to the
Custodian with, any Mortgage establishes in the Seller a valid and
subsisting first lien on the property described therein and the Seller has
full right to sell and assign the same to the Trustee;
(iv) Neither the Seller nor any prior holder of the Mortgage or the
related Mortgage Note has modified the Mortgage or the related Mortgage
Note in any material respect, satisfied, canceled or subordinated the
Mortgage in whole or in part, released the Mortgaged Property in whole or
in part from the lien of the Mortgage, or executed any instrument of
release, cancellation, modification or satisfaction, except in each case as
is reflected in an agreement delivered to the Trustee or the Custodian
pursuant to Section 2.01;
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(v) Any future advances made prior to the Cut-Off Date have been
consolidated with the outstanding principal amount secured by the Mortgage,
and the secured principal amount, as consolidated, bears a single interest
rate and single repayment term. The lien of the Mortgage securing the
consolidated principal amount is expressly insured as having first lien
priority by a title insurance policy, an endorsement to the policy insuring
the mortgagee's consolidated interest or by other title evidence acceptable
to FNMA and FHLMC. The consolidated principal amount does not exceed the
original principal amount of the Mortgage Loan.
(vi) All taxes, governmental assessments, insurance premiums, and
water, sewer and municipal charges, which previously became due and owing
have been paid, or an escrow of funds has been established, to the extent
permitted by law, in an amount sufficient to pay for every such item which
remains unpaid; and the Seller has not advanced funds, or received any
advance of funds by a party other than the Mortgagor, directly or
indirectly (except pursuant to any Subsidy Loan arrangement) for the
payment of any amount required by the Mortgage, except for interest
accruing from the date of the Mortgage Note or date of disbursement of the
Mortgage Loan proceeds, whichever is later, to the day which precedes by
thirty days the first Due Date under the related Mortgage Note;
(vii) The Mortgaged Property is undamaged by water, fire, earthquake,
earth movement other than earthquake, windstorm, flood, tornado or similar
casualty (excluding casualty from the presence of hazardous wastes or
hazardous substances, as to which the Seller makes no representations), so
as to affect adversely the value of the Mortgaged Property as security for
the Mortgage Loan or the use for which the premises were intended and to
the best of the Seller's knowledge, there is no proceeding pending or
threatened for the total or partial condemnation of the Mortgaged Property;
(viii) The Mortgaged Property is free and clear of all mechanics' and
materialmen's liens or liens in the nature thereof; provided, however, that
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this warranty shall be deemed not to have been made at the time of the
initial issuance of the Certificates if a title policy affording, in
substance, the same protection afforded by this warranty is furnished to
the Trustee by the Seller;
(ix) Except for Mortgage Loans secured by Co-op Shares, the
Mortgaged Property consists of a fee simple estate in real property; all of
the improvements which are included for the purpose of determining the
appraised value of the Mortgaged Property lie wholly within the boundaries
and building restriction lines of such property and no improvements on
adjoining properties encroach upon the Mortgaged Property (unless insured
against under the related title insurance policy); and to the best of the
Seller's knowledge, the Mortgaged Property and all improvements thereon
comply with all requirements of any applicable zoning and subdivision laws
and ordinances;
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(x) The Mortgage Loan meets, or is exempt from, applicable state or
federal laws, regulations and other requirements, pertaining to usury, and
the Mortgage Loan is not usurious;
(xi) To the best of the Seller's knowledge, all inspections,
licenses and certificates required to be made or issued with respect to all
occupied portions of the Mortgaged Property and, with respect to the use
and occupancy of the same, including, but not limited to, certificates of
occupancy and fire underwriting certificates, have been made or obtained
from the appropriate authorities;
(xii) All payments required to be made up to the Due Date immediately
preceding the Cut-Off Date for such Mortgage Loan under the terms of the
related Mortgage Note have been made and no Mortgage Loan had more than one
delinquency in the twelve months preceding the Cut-Off Date;
(xiii) The Mortgage Note, the related Mortgage and other agreements
executed in connection therewith are genuine, and each is the legal, valid
and binding obligation of the maker thereof, enforceable in accordance with
its terms, except as such enforcement may be limited by bankruptcy,
insolvency, liquidation, receivership, moratorium, reorganization or other
similar laws affecting the enforcement of creditors' rights generally and
by general equity principles (regardless of whether such enforcement is
considered in a proceeding in equity or at law); and, to the best of the
Seller's knowledge, all parties to the Mortgage Note and the Mortgage had
legal capacity to execute the Mortgage Note and the Mortgage and each
Mortgage Note and Mortgage has been duly and properly executed by the
Mortgagor;
(xiv) Any and all requirements of any federal, state or local law
with respect to the origination of the Mortgage Loans including, without
limitation, truth-in-lending, real estate settlement procedures, consumer
credit protection, equal credit opportunity or disclosure laws applicable
to the Mortgage Loans have been complied with;
(xv) The proceeds of the Mortgage Loans have been fully disbursed to
or for the account of the mortgagor, there is no requirement for future
advances thereunder and any and all requirements as to completion of any
on-site or off-site improvements and as to disbursements of any escrow
funds therefor have been complied with; and all costs, fees and expenses
incurred in making, closing or recording the Mortgage Loan have been paid,
except recording fees with respect to Mortgages not recorded as of the
Closing Date, and the mortgagor is not entitled to any refund of any
amounts paid or due to the mortgagee pursuant to the Mortgage Note or
Mortgage;
(xvi) The Mortgage Loan (except any Mortgage Loan secured by
Mortgaged Property located in a jurisdiction in which an opinion of counsel
of the type customarily rendered in lieu of title insurance is instead
received) is covered by an American Land Title Association mortgagee title
insurance policy or other generally acceptable form of policy or insurance
acceptable to FNMA or FHLMC, issued by a title insurer acceptable to FNMA
or FHLMC insuring the originator, its successors and
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assigns, as to the first priority lien of the Mortgage in the original
principal amount of the Mortgage Loan and subject only to (A) the lien of
current real property taxes and assessments not yet due and payable, (B)
covenants, conditions and restrictions, rights of way, easements and other
matters of public record as of the date of recording of such Mortgage
acceptable to mortgage lending institutions in the area in which the
Mortgaged Property is located or specifically referred to in the appraisal
performed in connection with the origination of the related Mortgage Loan,
(C) liens created pursuant to any federal, state or local law, regulation
or ordinance affording liens for the costs of clean-up of hazardous
substances or hazardous wastes or for other environmental protection
purposes and (D) such other matters to which like properties are commonly
subject which do not individually, or in the aggregate, materially
interfere with the benefits of the security intended to be provided by the
Mortgage; the Seller is the sole insured of such mortgagee title insurance
policy, the assignment to the Trustee of the Seller's interest in such
mortgagee title insurance policy does not require any consent of or
notification to the insurer which has not been obtained or made, such
mortgagee title insurance policy is in full force and effect and will be in
full force and effect and inure to the benefit of the Trustee, no claims
have been made under such mortgagee title insurance policy, and no prior
holder of the related Mortgage, including the Seller, has done, by act or
omission, anything which would impair the coverage of such mortgagee title
insurance policy;
(xvii) The Mortgaged Property securing each Mortgage Loan is insured
by an insurer acceptable to FNMA or FHLMC against loss by fire and such
hazards as are covered under a standard extended coverage endorsement, in
an amount which is not less than the lesser of 100% of the insurable value
of the Mortgaged Property and the outstanding principal balance of the
Mortgage Loan, but in no event less than the minimum amount necessary to
fully compensate for any damage or loss on a replacement cost basis; if the
Mortgaged Property is a condominium unit, it is included under the coverage
afforded by a blanket policy for the project; all such insurance policies
contain a standard mortgagee clause naming the originator of the Mortgage
Loan, its successors and assigns as mortgagee and all premiums thereon have
been paid; if upon origination of the Mortgage Loan, the improvements on
the Mortgaged Property were in an area identified in the Federal Register
by the Federal Emergency Management Agency as having special flood hazards
(and such flood insurance has been made available), a flood insurance
policy meeting the requirements of the current guidelines of the Federal
Insurance Administration is in effect with a generally acceptable insurance
carrier, in an amount representing coverage not less than the least of (A)
the outstanding principal balance of the Mortgage Loan, (B) the full
insurable value and (C) the maximum amount of insurance which was available
under the National Flood Insurance Act of 1968, as amended; and each
mortgage obligates the mortgagor thereunder to maintain all such insurance
at the mortgagor's cost and expense and on the mortgagor's failure to do
so, authorizes the holder of the Mortgage to maintain such insurance at the
mortgagor's cost and expense and to seek reimbursement therefor from the
mortgagor;
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(xviii) To the best of the Seller's knowledge, there is no default,
breach, violation or event of acceleration existing under the Mortgage or
the related Mortgage Note and no event which, with the passage of time or
with notice and the expiration of any grace or cure period, would
constitute a default, breach, violation or event of acceleration; the
Seller has not waived any default, breach, violation or event of
acceleration; and no foreclosure action is currently threatened or has been
commenced with respect to the Mortgage Loan;
(xix) To the best of the Seller's knowledge, no Mortgage Note or
Mortgage is subject to any right of rescission, set-off, counterclaim or
defense, including the defense of usury, nor will the operation of any of
the terms of the Mortgage Note or Mortgage, or the exercise of any right
thereunder, render the Mortgage Note or Mortgage unenforceable, in whole or
in part, or subject it to any right of rescission, set-off, counterclaim or
defense, including the defense of usury, and no such right of rescission,
set-off, counterclaim or defense has been asserted with respect thereto;
(xx) Each Mortgage Note is payable in monthly payments, resulting
in complete amortization of the Mortgage Loan over a term of not more than
___ months;
(xxi) Each Mortgage contains customary and enforceable provisions
such as to render the rights and remedies of the holder thereof adequate
for the realization against the Mortgaged Property of the benefits of the
security, including realization by judicial foreclosure or, in the case of
the Mortgage designated as a deed of trust; by trustee's sale (subject, in
either case, to any limitation arising from any bankruptcy, insolvency or
other law for the relief of debtors), and there is no homestead or other
exemption available to the Mortgagor which would interfere with such right
of foreclosure;
(xxii) In the event the Mortgage constitutes a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in the Mortgage,
and no fees or expenses are or will become payable from the Trust Estate to
the trustee under the deed of trust, except in connection with a trustee's
sale and after default by the mortgagor.
(xxiii) To the best of the Seller's knowledge, no Mortgagor is a
debtor in any state or federal bankruptcy or insolvency proceeding;
(xxiv) The Mortgage Loan was originated by a savings and loan
association, savings bank, commercial bank, credit union, insurance company
or similar institution which is supervised and examined by a federal or
state authority, or a mortgagee approved by the Secretary of Housing and
Urban Development.
(xxv) The Mortgage Loan is a "qualified mortgage" within the meaning
of Section 860G of the Code;
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(xxvi) With respect to each Mortgage where a lost note affidavit has
been delivered to the Trustee in place of the related Mortgage Note, the
related Mortgage Note is no longer in existence;
(xxvii) The documents relating to the Mortgage Loan that were
delivered to the Trustee include an appraisal of the related Mortgaged
Property, in a form acceptable to FNMA or FHLMC, and such appraisal
complies with the requirements of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989, as amended and in effect from time
to time, and was made and signed, prior to the approval of the Mortgage
Loan application, by a qualified appraiser, duly appointed by the
originator of the Mortgage Loan, who had no interest, direct or indirect in
the Mortgaged Property or in any loan made on the security thereof, whose
compensation is not affected by the approval or disapproval of the Mortgage
Loan and who met the minimum qualifications of FNMA or FHLMC.
(xxviii) In the event that the Mortgagor is an inter vivos "living"
trust, (i) such trust is in compliance with FNMA or FHLMC standards for
inter vivos trusts and (ii) holding title to the Mortgaged Property in such
trust will not diminish any rights as a creditor including the right to
full title to the Mortgaged Property in the event foreclosure proceedings
are initiated; and
(xxix) If the Mortgage Loan is secured by a long-term residential
lease, (1) the lessor under the lease holds a fee simple interest in the
land; (2) the terms of such lease expressly permit the mortgaging of the
leasehold estate, the assignment of the lease without the lessor's consent
and the acquisition by the holder of the Mortgage of the rights of the
lessee upon foreclosure or assignment in lieu of foreclosure or provide the
holder of the Mortgage with substantially similar protections; (3) the
terms of such lease do not (a) allow the termination thereof upon the
lessee's default without the holder of the Mortgage being entitled to
receive written notice of, and opportunity to cure, such default, (b) allow
the termination of the lease in the event of damage or destruction as long
as the Mortgage is in existence, (c) prohibit the holder of the Mortgage
from being insured (or receiving proceeds of insurance) under the hazard
insurance policy or policies relating to the Mortgaged Property or (d)
permit any increase in rent other than pre-established increases set forth
in the lease; (4) the original term of such lease is not less than 15
years; (5) the term of such lease does not terminate earlier than five
years after the maturity date of the Mortgage Note; and (6) the Mortgaged
Property is located in a jurisdiction in which the use of leasehold estates
in transferring ownership in residential properties is a widely accepted
practice.
Notwithstanding the foregoing, no representations or warranties are
made by the Seller as to the environmental condition of any Mortgaged Property;
the absence, presence or effect of hazardous wastes or hazardous substances on
any Mortgaged Property; any casualty resulting from the presence or effect of
hazardous wastes or hazardous substances on, near or emanating from any
Mortgaged Property; the impact on Certificateholders of any environmental
condition or presence of any hazardous substance on or near any Mortgaged
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Property; or the compliance of any Mortgaged Property with any environmental
laws, nor is any agent, person or entity otherwise affiliated with the Seller
authorized or able to make any such representation, warranty or assumption of
liability relative to any Mortgaged Property. In addition, no representations or
warranties are made by the Seller with respect to the absence or effect of fraud
in the origination of any Mortgage Loan.
It is understood and agreed that the representations and warranties
set forth in this Section 2.03(b) shall survive delivery of the respective
Mortgage Files to the Trustee or the Custodian and shall inure to the benefit of
the Trustee, notwithstanding any restrictive or qualified endorsement or
assignment.
(c) Upon discovery by either the Seller, the Servicer, the Trustee or
the Custodian that any of the representations and warranties made in subsection
(b) above is not accurate (referred to herein as a "breach") and that such
breach materially and adversely affects the interests of the Certificateholders
in the related Mortgage Loan, the party discovering such breach shall give
prompt written notice to the other parties (any Custodian being so obligated
under a Custodial Agreement). Within 60 days of its discovery or its receipt of
notice of any such breach, the Seller shall cure such breach in all material
respects or shall either (i) repurchase the Mortgage Loan or any property
acquired in respect thereof from the Trustee at a price equal to (A) 100% of the
unpaid principal balance of such Mortgage Loan plus (B) accrued interest at the
Net Mortgage Interest Rate for such Mortgage Loan through the last day of the
month in which such repurchase took place or (ii) if within two years of the
Startup Day, or such other period permitted by the REMIC Provisions, substitute
for such Mortgage Loan in the manner described in Section 2.02 The purchase
price of any repurchase described in this paragraph and the Substitution
Principal Amount, if any, plus accrued interest thereon and the other amounts
referred to in Section 2.02, shall be deposited in the Certificate Account. It
is understood and agreed that the obligation of the Seller to repurchase or
substitute for any Mortgage Loan or property as to which such a breach has
occurred and is continuing shall constitute the sole remedy respecting such
breach available to Certificateholders, or to the Trustee on behalf of
Certificateholders, and such obligation shall survive until termination of the
Trust Estate hereunder.
Section 2.04. Execution and Delivery of Certificates. The Trustee
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acknowledges the assignment to it of the Mortgage Loans and the delivery of the
Mortgage Files to it, and, concurrently with such delivery, has executed and
delivered to or upon the order of the Seller, in exchange for the Mortgage Loans
together with all other assets included in the definition of "Trust Estate,"
receipt of which is hereby acknowledged, Certificates in authorized
denominations which evidence ownership of the entire Trust Estate.
Section 2.05. Designation of Certificates; Designation of Startup Day
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and Latest Possible Maturity Date. The Seller hereby designates the Class A-1
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Certificates, the Class A-2 Certificates, the Class A-3 Certificates, the Class
A-PO Certificates, the Class B-1 Certificates, the Class B-2 Certificates, the
Class B-3 Certificates, the Class B-4 Certificates, the Class B-5 and the Class
B-6 Certificates as classes of "regular interests" and the Class A-R Certificate
as the single class of "residual interest" in the REMIC for the purposes of Code
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Sections 860G(a)(1) and 860G(a)(2), respectively. The Closing Date is hereby
designated as the "Startup Day" of the REMIC within the meaning of Code Section
860G(a)(9). The "latest possible maturity date" of the regular interests in the
REMIC is _______ 25, 20__ for purposes of Code Section 860G(a)(1).
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ARTICLE III
SERVICING OF MORTGAGE LOANS AND TRUST ADMINISTRATION
Section 3.01. The Servicer. The Servicer shall service and
------------
administer the Mortgage Loans on behalf of the Trustee and shall have full power
and authority, acting alone or through one or more subservicers, to do any and
all things in connection with such servicing and administration which it may
deem necessary or desirable. Without limiting the generality of the foregoing,
the Servicer, in its own name or the name of a subservicer, may, and is hereby
authorized and empowered by the Trustee to, execute and deliver, on behalf of
itself, the Certificateholders and the Trustee or any of them, any and all
instruments of satisfaction or cancellation, or of partial or full release or
discharge and all other comparable instruments, with respect to the Mortgage
Loans, the insurance policies and accounts related thereto and the properties
subject to the Mortgages. Upon the execution and delivery of this Agreement, and
from time to time as may be required thereafter, the Trustee shall furnish the
Servicer or its subservicers with any powers of attorney and such other
documents as may be necessary or appropriate to enable the Servicer to carry out
its servicing duties hereunder.
In servicing and administering the Mortgage Loans, the Servicer shall
employ procedures consistent with Accepted Servicing Practices and in a manner
consistent with recovery under any insurance policy required to be maintained by
the Servicer pursuant to this Agreement.
Costs incurred by the Servicer in effectuating the timely payment of
taxes and assessments on the property securing a Mortgage Note and foreclosure
costs may be added by the Servicer to the amount owing under such Mortgage Note
where the terms of such Mortgage Note so permit; provided, however, that the
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addition of any such cost shall not be taken into account for purposes of
calculating the principal amount of the Mortgage Note and Mortgage Loan, the
Monthly Payments on the Mortgage Note and Mortgage Loan or distributions to be
made to Certificateholders. Such costs shall be recoverable by the Servicer
pursuant to Section 3.04.
Section 3.02. Collection of Certain Mortgage Loan Payments; Servicer
------------------------------------------------------
Custodial Account. The Servicer shall make reasonable efforts to collect all
- -----------------
payments called for under the terms and provisions of the Mortgage Loans, and
shall, to the extent such procedures shall be consistent with this Agreement and
any applicable primary mortgage insurance policy, follow such collection
procedures as shall constitute Accepted Servicing Practices. Consistent with the
foregoing, the Servicer may in its discretion (i) waive any prepayment charge,
assumption fee, late payment charge or other charge in connection with a
Mortgage Loan, and (ii) arrange a schedule, running for no more than 180 days
after the Due Date for payment of any installment on any Mortgage Note, for the
liquidation of delinquent items. The Servicer may modify the terms of a Mortgage
Loan which is in default or a Mortgage Loan as to which default is reasonably
foreseeable; provided, however, that (i) such modification may not reduce the
--------
amount of principal owed under the related Mortgage Note or
III-1
<PAGE>
permanently reduce the Mortgage Interest Rate for such Mortgage Loan and (ii)
the Servicer has determined that such modification is likely to increase the
proceeds of such Mortgage Loan over the amount expected to be collected pursuant
to foreclosure. Notwithstanding anything to the contrary in this Agreement, the
Servicer shall not permit any modification of any material term of a Mortgage
Loan (including the Mortgage Interest Rate, the principal balance, the
amortization schedule, or any other term affecting the amount or timing of
payments on the Mortgage Loan) where such modification is not the result of a
default or as to which default is reasonably foreseeable under the Mortgage Loan
unless Servicer has received an Opinion of Counsel or a ruling from the Internal
Revenue Service (at the expense of the Servicer or the party making the request
of the Servicer to modify the Mortgage Loan) to the effect that such
modification would not be treated as giving rise to a new debt instrument for
federal income tax purposes or a disposition of the modified Mortgage Loan and
that such modification is permitted under the REMIC Provisions.
The Servicer shall establish and maintain the Servicer Custodial
Account, with a depository institution (the "Depository") acceptable to each
Rating Agency for the benefit of the Trustee, its successors and assigns for the
deposit of funds collected in connection with the Mortgage Loans. The Servicer
Custodial Account may be the servicer custodial account for one or more other
series of mortgage pass-through certificates issued Nations Mortgage Securities
Corporation; provided, however, that the trustee for such other series under the
--------
related pooling and servicing agreement(s) is the Trustee.
The Servicer Custodial Account shall be established as an Eligible
Account. The name of the Servicer Custodial Account shall include a reference to
the name of the Trustee and the designation of this series of Mortgage Pass-
Through Certificates or, where such accounts are accounts maintained for
multiple series of mortgage pass-through certificates, a reference to
"[Trustee], as trustee for Nations Mortgage Securities Corporation, Mortgage
Pass-Through Certificates;"
The Servicer shall deposit in the Servicer Custodial Account any
amounts representing Monthly Payments on the Mortgage Loans due after the Cut-
Off Date but received by the Servicer on or before the Cut-Off Date (exclusive
of the portion of each Monthly Payment representing the Fixed Retained Yield, if
any, with respect to the related Mortgage Loan), and thereafter, within one
Business Day after the Servicer's receipt of such amounts, or, in the case of
clause (iii) hereof as required by Section 3.07, or, in the case of clause (v)
hereof, on the Remittance Date, the following payments and collections received
or made by it (other than in respect of principal of and interest on the
Mortgage Loans due on or before the Cut-Off Date):
(i) All payments on account of principal, including Principal
Prepayments, and interest (other than the portion of interest on each
Mortgage Loan representing the Fixed Retained Yield, if any, with respect
thereto) and all Net REO Proceeds;
(ii) All Liquidation Proceeds and Insurance Proceeds, other than any
portion of Insurance Proceeds to be applied to the restoration or repair of
the related
III-2
<PAGE>
Mortgaged Property or released to the Mortgagor in accordance with the
requirements of law or Accepted Servicing Practices and other than any
portion of Liquidation Proceeds or Insurance Proceeds constituting interest
on the related Mortgage Loan which is allocable to the Fixed Retained Yield
in respect thereof;
(iii) any Subsidy Funds required to be deposited pursuant to Section
3.07;
(iv) All proceeds of any Mortgage Loans or property acquired in
respect thereof purchased pursuant to Section 9.01;
(v) Any Periodic Advances required to be made by Servicer pursuant
to Section 4.05; and
(vi) All other amounts required to be deposited in the Certificate
Account pursuant to this Agreement;
provided, however, that the Servicer shall be entitled, at its election, either
- -------- -------
(a) to withhold and to pay to itself the applicable Servicing Fee from any
payment on account of interest or other recovery (including Net REO Proceeds) as
received and prior to deposit of such payments in the Servicer Custodial Account
or (b) to withdraw the applicable Servicing Fee from the Servicer Custodial
Account after the entire payment or recovery has been deposited therein;
provided, further, that with respect to any payment of interest received by the
Servicer in respect of a Mortgage Loan (whether paid by the Mortgagor or
received as Liquidation Proceeds, Insurance Proceeds or otherwise) which is less
than the full amount of interest then due with respect to such Mortgage Loan,
only that portion of such payment of interest that bears the same relationship
to the total amount of such payment of interest as the Fixed Retained Yield Rate
in respect of such Mortgage Loan bears to the Mortgage Interest Rate borne by
such Mortgage Loan shall be allocated to the Fixed Retained Yield with respect
thereto and only that portion of such payment that bears the same relationship
to the total amount of such payment of interest as the per annum rate used to
calculate the Servicing Fee, as set forth in Section 11.25 bears to the Mortgage
Interest Rate borne by such Mortgage Loan shall be allocated to the Servicing
Fee with respect to such Mortgage Loan. Subsidy Funds, if any, shall be
deposited in the Certificate Account as required by Section 3.07. All other
amounts shall be deposited in the Certificate Account not later than the
Business Day following the day of receipt and posting by the Servicer.
The Servicer may invest the funds in the Servicer Custodial Account
only in Eligible Investments. No Eligible Investment shall be sold or disposed
of at a gain prior to maturity unless the Servicer has obtained an Opinion of
Counsel that such sale or disposition will not cause the REMIC to be subject to
the tax on income from prohibited transactions imposed by Code Section
860F(a)(1), otherwise subject the REMIC to tax or cause the Trust Estate to fail
to qualify as a REMIC. All income (other than any gain from a sale or
disposition of the type referred to in the preceding sentence) realized from any
such Eligible Investment shall be for the benefit of the Servicer as additional
servicing compensation. The amount of any losses incurred in respect of any such
investments shall be deposited in the Certificate Servicer Custodial by the
Servicer out of its own funds immediately as realized.
III-3
<PAGE>
The foregoing requirements for deposit in the Servicer Custodial
Account shall be exclusive, it being understood and agreed that, without
limiting the generality of the foregoing, payments in the nature of those
described in the last paragraph of this Section 3.02 and payments in the nature
of prepayment charges, late payment charges or assumption fees need not be
deposited by the Servicer in the Servicer Custodial Account. If the Servicer
deposits in the Servicer Custodial Account any amount not required to be
deposited therein, it may at any time withdraw such amount from the Servicer
Custodial Account, any provision herein to the contrary notwithstanding.
Certain of the Mortgage Loans may provide for payment by the Mortgagor
to the Servicer of amounts to be used for payment of taxes, assessments, primary
mortgage and hazard insurance premiums or comparable items for the account of
the Mortgagor. The Servicer is not required to deposit these amounts in the
Servicer Custodial Account and may deal with these amounts in accordance with
Accepted Servicing Practices.
On each Remittance Date, the Servicer shall transfer to the
Certificate Account, to the extent not previously transferred all funds in (or
required hereunder to be in) the Servicer Custodial Account other than any
Amount Held for Future Distribution in respect of such Remittance Date and any
amounts permitted to be retained by the Servicer or withdrawn from such account
by the Servicer pursuant to the terms of this Agreement.
Section 3.03. Permitted Withdrawals from the Servicer Custodial
-------------------------------------------------
Account. The Servicer may, from time to time, make withdrawals from the Servicer
- -------
Custodial Account for the following purposes:
(i) to reimburse the itself for Periodic Advances made by it
pursuant to Section 4.05 with respect to previous Distribution Dates, such
right to reimbursement pursuant to this subclause (i) being limited to
amounts received on or in respect of particular Mortgage Loans (including,
for this purpose, Liquidation Proceeds, Insurance Proceeds, REO Proceeds
and proceeds from the purchase, repurchase or substitution of Mortgage
Loans pursuant to Sections 2.02, 2.03, 3.12 or 9.01) respecting which any
such Periodic Advance was made;
(ii) to reimburse itself for any Periodic Advances determined in
good faith have become Nonrecoverable Advances;
(iii) (A) to reimburse itself from Liquidation Proceeds for
Liquidation Expenses and for amounts expended by it pursuant to Section
3.12 in good faith in connection with the restoration of damaged property,
and (B) to pay to itself out of Liquidation Proceeds allocable to interest
the amount of any unpaid Servicing Fee with respect to prior Distribution
Dates, as adjusted pursuant to Section 3.19, and any unpaid assumption
fees, late payment charges or other Mortgagor charges on the related
Mortgage Loan;
III-4
<PAGE>
(iv) except to the extent specified in clause (iii) above,
to pay to itself the Servicing Fee, as adjusted pursuant to Section
3.19, from any such Mortgagor payment as to interest or such other
recovery;
(v) to withdraw from the Servicer Custodial Account any
Amount Held for Future Distribution;
(vi) to reimburse itself for expenses incurred by it or
advances made by it (including taxes paid on behalf of the Trust
Estate) and recoverable by or reimbursable to it pursuant to Section
3.01, 3.07, 3.08, 3.09, 3.11 or 6.03, provided such expenses are
"unanticipated" within the meaning of the REMIC Provisions;
(vii) to pay to itself with respect to each Mortgage Loan or
property acquired in respect thereof that has been purchased by it
pursuant to Section 9.01 all amounts received thereon and not required
to be distributed as of the date on which the related repurchase or
purchase price or Scheduled Principal Balance was determined;
(viii) to the extent such amounts have been deposited into the
Servicer Custodial Account, any amounts representing additional
servicing compensation as described in Section 3.13;
(ix) to pay to itself any interest earned on or investment
income earned with respect to funds in the Servicer Custodial Account;
and
(x) to make deposits to the Certificate Account in the
amounts and in the manner provided for herein.
The Servicer shall keep and maintain separate
accounting for each Mortgage Loan for the purpose of accounting for withdrawals
from the Servicer Custodial Account pursuant to this Section 3.03.
Section 3.04. Certificate Account.
-------------------
(a) The Trustee shall establish and maintain a Certificate
Account for the deposit of funds received by the Trustee with respect to the
Mortgage Loans serviced by the Servicer hereunder. Such account shall be
maintained as an Eligible Account.
(b) The Trustee shall deposit into the Certificate Account
on the day of receipt thereof all amounts received by it from the Servicer and
shall, in addition, deposit into the Certificate Account the following amounts,
in the case of amounts specified in clause (i), not later than the Distribution
Date on which such amounts are required to be distributed to Certificateholders
and, in the case of the amounts specified in clause (ii), not later than the
Business Day next following the day of receipt and posting by the Trustee:
(i) Periodic Advances pursuant to Section 3.25(a) made by
the Trustee, if any; and
III-5
<PAGE>
(ii) in the case of any Mortgage Loan that is repurchased by
the Seller pursuant to Section 2.02 or 2.03, the purchase price
therefor or, where applicable, any Substitution Principal Amount and
any amounts received in respect of the interest portion of unreimbursed
Periodic Advances.
(c) The Trustee may invest the funds in the Certificate
Account only in Eligible Investments. No such Eligible Investments will be sold
or disposed of at a gain prior to maturity unless the Trustee has received an
Opinion of Counsel or other evidence satisfactory to it that such sale or
disposition will not cause the Trust Estate to be subject to Prohibited
Transactions Tax, otherwise subject the Trust Estate to tax, or cause the REMIC
to fail to qualify as a REMIC while any Certificates are outstanding. Any
amounts deposited in the Certificate Account prior to the Distribution Date may
be invested for the account of the Trustee and any investment income thereon
shall be additional compensation to the Trustee for services rendered under this
Agreement. The amount of any losses incurred in respect of any such investments
shall be deposited in the Certificate Account by the Trustee out of its own
funds immediately as realized.
Section 3.05. Permitted Withdrawals from the Certificate
------------------------------------------
Account. The Trustee may, from time to time, make withdrawals from the
- -------
Certificate Account for the following purposes:
(i) to reimburse the Servicer or itself for Periodic
Advances made by the Trustee Pursuant to Section 3.25(a) or the
Servicer pursuant to Section 4.05 with respect to previous Distribution
Dates, such right to reimbursement pursuant to this subclause (i) being
limited to amounts received on or in respect of particular Mortgage
Loans (including, for this purpose, Liquidation Proceeds, Insurance
Proceeds, REO Proceeds and proceeds from the purchase, repurchase or
substitution of Mortgage Loans pursuant to Sections 2.02, 2.03, 3.12 or
9.01) respecting which any such Periodic Advance was made;
(ii) to reimburse the Servicer or itself for any Periodic
Advances determined in good faith have become Nonrecoverable Advances;
(iii) (A) to reimburse the Servicer from Liquidation Proceeds
for Liquidation Expenses and for amounts expended by it pursuant to
Section 3.12 in good faith in connection with the restoration of
damaged property, and (B) to pay to the Servicer out of Liquidation
Proceeds allocable to interest the amount of any unpaid Servicing Fee
with respect to prior Distribution Dates, as adjusted pursuant to
Section 3.19, and any unpaid assumption fees, late payment charges or
other Mortgagor charges on the related Mortgage Loan;
(iv) except to the extent specified in clause (iii) above, in
the event the Servicer has elected not to withhold the Servicing Fee
out of any Mortgagor payment on account of interest or other recovery
(including Net REO Proceeds) with respect to a particular Mortgage Loan
prior to the deposit of such Mortgagor payment or recovery in the
Certificate Account, to pay to the Servicer the Servicing Fee, as
III-6
<PAGE>
adjusted pursuant to Section 3.19, from any such Mortgagor payment as
to interest or such other recovery;
(v) to reimburse the Servicer or itself (or, in certain
cases, the Seller) for expenses incurred by it or advances made by it
(including taxes paid on behalf of the Trust Estate) and recoverable by
or reimbursable to it pursuant to Sections 3.01, 3.07, 3.08, 3.09, 3.11
or 6.03 provided such expenses are "unanticipated" within the meaning
of the REMIC Provisions;
(vi) to pay to the Seller with respect to each Mortgage Loan
or property acquired in respect thereof that has been repurchased or
replaced pursuant to Section 2.02, 2.03 or 3.12 or to pay to the
Servicer with respect to each Mortgage Loan or property acquired in
respect thereof that has been purchased pursuant to Section 9.01 by the
Servicer all amounts received thereon and not required to be
distributed as of the date on which the related repurchase or purchase
price or Scheduled Principal Balance was determined;
(vii) to make deposits to the Payment Account in the amounts
and in the manner provided for herein;
(viii) to pay to itself any interest earned on or investment
income earned with respect to funds in the Certificate Account;
(ix) to reimburse the Servicer on the Business Day preceding
any Distribution Date, to the extent that reimbursement pursuant to
clause (iii)(B) above is not sufficient therefor, for an amount equal
to the lesser of (A) any unpaid Servicing Fees and (B) Net Foreclosure
Profits with respect to the related Distribution Date;
(x) to withdraw from the Certificate Account any amount
deposited in the Certificate Account that was not required to be
deposited therein;
(xi) to clear and terminate the Certificate Account pursuant
to Section 9.01;
(xii) to the extent such amounts have been deposited into the
Certificate Account, any amounts representing additional servicing
compensation as described in Section 3.12; and
(xiii) to effect the distributions described in Section 4.01.
The Trustee shall keep and maintain a separate accounting for
each Mortgage Loan for the purpose of accounting for withdrawals from the
Certificate Account pursuant to such subclauses (i), (iii), (iv), (vi) and (ix).
The Trustee shall act as initial Paying Agent to make
distributions to Certificateholders and to forward to Certificateholders the
periodic statements and the annual statements required by Section 4.04. If the
Paying Agent is not the Trustee, such Paying
III-7
<PAGE>
Agent shall maintain the Payment Account pursuant to Section 4.03, into which
the Trustee shall deposit the amounts specified herein.
The Trustee may, at any time, appoint a Paying Agent or remove
or replace the Paying Agent.
The Trustee shall cause any Paying Agent which is not the
Trustee to execute and deliver to the Trustee an instrument in which such Paying
Agent agrees with the Trustee that such Paying Agent shall:
(1) hold all amounts deposited with it for distribution to
Certificateholders in trust for the benefit of Certificateholders until such
amounts are distributed to Certificateholders or otherwise disposed of as herein
provided;
(2) give the Trustee notice of any default in the making of
such deposit; and
(3) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee all
amounts held in trust by such Paying Agent.
Section 3.06. Application of Net Liquidation Proceeds. For all
---------------------------------------
purposes of this Agreement, Net Liquidation Proceeds received by the Servicer
shall be allocated first to accrued and unpaid interest on the related Mortgage
Loan and then to the unpaid principal balance thereof.
Section 3.07. Subsidy Account; Application of Subsidy Funds.
---------------------------------------------
In addition to the Servicer Custodial Account, if any of the Mortgage Loans are
Subsidy Loans, the Servicer shall establish and maintain with the Depository a
Subsidy Account, which shall be an Eligible Account but which is not part of the
Trust Estate or the REMIC, and shall deposit therein all Subsidy Funds not later
than the Business Day following the day of receipt and posting by the Servicer.
The Servicer shall keep and maintain a separate accounting for each Mortgage
Loan for the purpose of accounting for deposits to and withdrawals from the
Subsidy Account. The Servicer shall invest the funds in the Subsidy Account in
investments which are Eligible Investments. All income and gain realized from
any such investment, to the extent not required by the applicable subsidy
agreements to be applied to pay interest on the related Subsidy Loans, shall be
for the benefit of the Servicer. The amount of any losses incurred in respect of
such investments shall be deposited in the Subsidy Account by the Servicer out
of its own funds immediately as realized.
With respect to each Subsidy Loan, on the Business Day next
following receipt of the Mortgagor's required monthly payment under the related
subsidy agreement, the Servicer shall withdraw from the Subsidy Account and
deposit in immediately available funds in the Servicer Custodial Account an
amount which, when added to such Mortgagor's payment, will equal the full
monthly payment due under the related Mortgagor Note.
III-8
<PAGE>
Upon termination of a subsidy agreement, no further Subsidy
Funds relating thereto shall be deposited into the Servicer Custodial Account,
and the Servicer may withdraw the related Subsidy Funds which remain in the
Subsidy Account and distribute such funds as provided by such subsidy agreement.
Section 3.08. Maintenance of Hazard Insurance. The Servicer
-------------------------------
shall cause to be maintained for each Mortgage Loan a fire insurance policy with
extended coverage issued by a generally acceptable insurer in an amount which is
not less than the full insurable value of the Mortgaged Property securing such
Mortgage Loan or the unpaid principal balance of such Mortgage Loan, whichever
is less; provided, however, that such insurance may not be less than the minimum
amount required to fully compensate for any loss or damage on a replacement cost
basis. If, upon origination of the Mortgage Loan, the improvements on the
Mortgaged Property were in an area identified in the Federal Register by the
Federal Emergency Management Agency as having special flood hazards (and such
flood insurance has been made available) the Servicer will cause to be
maintained a flood insurance policy meeting the requirements of the current
guidelines of the Federal Insurance Administration with a generally acceptable
insurance carrier, in an amount representing coverage not less than the least of
(i) the unpaid principal balance of the Mortgage Loan, (ii) the full insurable
value and (iii) the maximum amount of insurance which was available under the
National Flood Insurance Act of 1968, as amended. The Servicer shall also
maintain similar fire insurance coverage and, if applicable, flood insurance on
property acquired upon foreclosure, or by deed in lieu of foreclosure, of any
Mortgage Loan in an amount which is at least equal to the lesser of (i) the full
insurable value of the improvements which are a part of such property and (ii)
the principal balance owing on such Mortgage Loan at the time of such
foreclosure or grant of deed in lieu of foreclosure plus accrued interest and
related Liquidation Expenses; provided, however, that such insurance may not be
less than the minimum amount required to fully compensate for any loss or damage
on a replacement cost basis. It is understood and agreed that such insurance
shall be with insurers approved by the Servicer and that no earthquake or other
additional insurance is to be required of any Mortgagor, other than pursuant to
such applicable laws and regulations as shall at any time be in force and as
shall require such additional insurance. Pursuant to Section 3.02, any amounts
collected by the Servicer under any insurance policies maintained pursuant to
this Section 3.08 (other than amounts to be applied to the restoration or repair
of the related Mortgaged Property or released to the Mortgagor in accordance
with Accepted Servicing Practices) shall be deposited into the Servicer
Custodial Account. Any cost incurred by the Servicer in maintaining any such
insurance shall be added to the amount owing under the Mortgage Loan where the
terms of the Mortgage Loan so permit; provided, however, that the addition of
any such cost shall not be taken into account for purposes of calculating the
principal amount of the Mortgage Note or Mortgage Loan, the Monthly Payments on
the Mortgage Note or the distributions to be made to Certificateholders. Such
costs shall be recoverable by the Servicer pursuant to Section 3.05. In the
event that the Servicer shall obtain and maintain a blanket policy issued by an
insurer that is acceptable to FNMA or FHLMC, insuring against hazard losses on
all of the Mortgage Loans, it shall conclusively be deemed to have satisfied its
obligation as set forth in the first sentence of this Section 3.08, it being
understood and agreed that such policy may contain a deductible clause, in which
case the Servicer shall, in the event that there shall not
III-9
<PAGE>
have been maintained on the related mortgaged or acquired property an insurance
policy complying with the first sentence of this Section 3.08 and there shall
have been a loss which would have been covered by such a policy had it been
maintained, be required to deposit from its own funds into the Servicer
Custodial Account the amount not otherwise payable under the blanket policy
because of such deductible clause.
Section 3.09. Collection of Taxes, Assessments and Other
------------------------------------------
Items; Servicing Account. In addition to the Servicer Custodial Account, the
- ------------------------
Servicer shall establish and maintain with a Depository a Servicing Account,
which shall be an Eligible Account, and shall deposit therein all payments by
Mortgagors for taxes, assessments, primary mortgage or hazard insurance premiums
or comparable items. Withdrawals from the Servicing Account may be made to
effect payment of taxes, assessments, primary mortgage or hazard insurance
premiums or comparable items, to reimburse the Servicer out of related
collections for any advances made in the nature of any of the foregoing, to
refund to any Mortgagors any sums determined to be overages, or to pay any
interest owed to Mortgagors on such account to the extent required by law or to
clear and terminate the Servicing Account at the termination of this Agreement
upon the termination of the Trust Estate pursuant to Section 9.01. The Servicer
shall advance the payments referred to in the first sentence of this Section
3.09 that are not timely paid by the Mortgagors on the date when the tax,
premium or other cost for which such payment is intended is due, but the
Servicer shall be required to so advance only to the extent that such advances,
in the good faith judgment of the Servicer, will be recoverable by the Servicer
pursuant to Section 3.05 out of Liquidation Proceeds, Insurance Proceeds or
otherwise. In lieu of establishing a Servicing Account, the Servicer may procure
a performance bond or other form of insurance coverage, in an amount acceptable
to each Rating Agency rating the Certificates, covering loss occasioned by the
failure to escrow such amounts.
Section 3.10. Maintenance of the Primary Mortgage Insurance
---------------------------------------------
Policies; Collections Thereunder. The Servicer shall not take any action which
- --------------------------------
would result in non-coverage under any applicable primary mortgage insurance
policy of any loss which, but for the actions of the Servicer, would have been
covered thereunder. The Servicer shall use its best reasonable efforts to keep
in force and effect each such primary mortgage insurance policy applicable to a
Mortgage Loan for so long as the related Mortgagor is obligated to maintain such
primary mortgage insurance policy under the terms of the related Mortgage or
until the Loan-to-Value Ratio of the related Mortgage Loan has been reduced to
less than 75%, whichever is earlier. The Servicer shall not cancel or refuse to
renew any such primary mortgage insurance policy applicable to a Mortgage Loan
that is in effect at the Closing Date and is required to be kept in force
hereunder unless the replacement primary mortgage insurance policy for such
canceled or non-renewed policy is maintained with a Qualified Mortgage Insurer.
In connection with any assumption or modification agreement entered into or to
be entered into pursuant to Section 3.11, the Servicer shall promptly notify the
insurer under the related primary mortgage insurance policy, if any, of such
assumption or modification in accordance with the terms of such policy and shall
take all actions which may be required by such insurer as a condition to the
continuation of coverage under the primary mortgage insurance policy. Any
amounts advanced by the Servicer to maintain primary
III-10
<PAGE>
mortgage insurance shall be recoverable by the Servicer pursuant to Section 3.04
out of Liquidation Proceeds, Insurance Proceeds or otherwise.
The Servicer shall present, on behalf of the Trustee and
Certificateholders, claims to the insurer under any primary mortgage insurance
policies and, in this regard, take such reasonable action as shall be necessary
to permit recovery under any primary mortgage insurance policies respecting
defaulted Mortgage Loans. Pursuant to Section 3.02, any amounts collected by the
Servicer under any primary mortgage insurance policies shall be deposited in the
Servicer Custodial Account.
Section 3.11. Enforcement of Due-on-Sale Clauses; Assumption
----------------------------------------------
Agreements. In any case in which a Mortgaged Property is about to be conveyed by
- ----------
the Mortgagor (whether by absolute conveyance or by contract of sale, and
whether or not the Mortgagor remains liable thereon) and the Servicer has
knowledge of such prospective conveyance, the Servicer shall enforce any due-on-
sale provision contained in the related Mortgage Note or Mortgage, to the extent
permitted under the terms of the related Mortgage Note, applicable law and
governmental regulations, unless such provision is not exercisable under
applicable law or such exercise would result in loss of insurance coverage under
any related insurance policy or, in the Servicer's judgment, such exercise is
reasonably likely to result in legal action by the Mortgagor, or such conveyance
is in connection with a permitted assumption of the related Mortgage Loan
pursuant to Section 3.12. Subject to the foregoing, the Servicer is authorized
to take or enter into an assumption agreement from or with the Person to whom
such property is about to be conveyed, pursuant to which such person becomes
liable under the related Mortgage Note and, unless prohibited by applicable
state law, the Mortgagor remains liable thereon, provided that the Mortgage Loan
will continue to be covered by any related primary mortgage insurance policy and
the Mortgage Interest Rate with respect to such Mortgage Loan shall remain
unchanged. The Servicer is also authorized, with the prior approval of the
primary mortgage insurer, if any, to release the original Mortgagor from
liability upon the Mortgage Loan and substitute the new Mortgagor as obligor
thereon. In connection with such assumption or substitution, the Servicer shall
apply such underwriting standards and follow such practices and procedures as
shall be normal and usual and as it applies to mortgage loans owned solely by
it. The Servicer shall notify the Trustee that any such assumption or
substitution agreement has been completed by forwarding to the Trustee the
original copy of such assumption or substitution agreement, which copy shall be
added by the Trustee to the related Mortgage File and shall, for all purposes,
be considered a part of such Mortgage File to the same extent as all other
documents and instruments constituting a part thereof. In connection with any
such assumption or substitution agreement, the Mortgage Interest Rate of the
related Mortgage Note and the payment terms shall not be changed. Any fee
collected by the Servicer for entering into an assumption or substitution of
liability agreement will be retained by the Servicer as servicing compensation.
Notwithstanding the foregoing paragraph or any other provision
of this Agreement, the Servicer shall not be deemed to be in default, breach or
any other violation of its obligations hereunder by reason of any conveyance by
the Mortgagor of the property subject to the Mortgage or any assumption of a
Mortgage Loan by operation of law which the
III-11
<PAGE>
Servicer in good faith determines it may be restricted by law from preventing,
for any reason whatsoever, or if the exercise of such right would impair or
threaten to impair any recovery under any applicable insurance policy or, in the
Servicer's judgment, be reasonably likely to result in legal action by the
Mortgagor.
Section 3.12. Realization upon Defaulted Mortgage Loans.
-----------------------------------------
Except as provided in Section 3.02 and in the last three paragraphs of this
Section 3.12, the Servicer shall foreclose upon or otherwise comparably convert
the ownership of properties, including Co-op Shares, securing such of the
Mortgage Loans as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments
pursuant to Section 3.02. In connection with such foreclosure or other
conversion, the Servicer shall follow such procedures as it follows with respect
to conventional mortgage loans or loans secured by shares issued by private non-
profit corporations, as the case may be, held in its own portfolio; provided,
--------
however, the Servicer may enter into a special servicing agreement with an
- -------
unaffiliated holder of 100% Percentage Interest of a Class of Class B
Certificates or a holder of a class of securities representing interests in the
Class B Certificates and/or other subordinated mortgage pass-through
certificates, such agreement to be substantially in the form of Exhibit M hereto
or subject to each Rating Agency's acknowledgment that the ratings of the
Certificates in effect immediately prior to the entering into of such agreement
would not be qualified, downgraded or withdrawn and the Certificates would not
be placed on credit review status (except for possible upgrading) as a result of
such agreement. Any such agreement may contain provisions whereby such holder
may instruct the Servicer to commence or delay foreclosure proceedings with
respect to delinquent Mortgage Loans and will contain provisions for the deposit
of cash by the holder that would be available for distribution to
Certificateholders if Liquidation Proceeds are less than they otherwise may have
been had the Servicer acted in accordance with its normal procedures.
Notwithstanding the foregoing, the Servicer shall not be required to expend its
own funds in connection with any foreclosure or to restore any damaged property
unless it shall determine that (i) such foreclosure and/or restoration will
increase the proceeds of liquidation of the Mortgage Loan to Certificateholders
after reimbursement to itself for such expenses and (ii) such expenses will be
recoverable to it through Liquidation Proceeds (respecting which it shall have
priority for purposes of withdrawal from the Certificate Account pursuant to
Section 3.05) or otherwise. The Servicer shall be entitled to reimbursement of
the Servicing Fee and other amounts due it, if any, to the extent, but only to
the extent, that withdrawals from the Certificate Account with respect thereto
are permitted under Section 3.05.
The Servicer may foreclose against the Mortgaged Property
securing a defaulted Mortgage Loan either by foreclosure, by sale or by strict
foreclosure, and in the event a deficiency judgment is available against the
Mortgagor or any other person, may proceed for the deficiency. Foreclosure on
the Co-op Shares shall be by sale in accordance with the provisions of Article 9
of the Uniform Commercial Code in effect in the applicable jurisdiction.
In the event that title to any Mortgaged Property is acquired
in foreclosure or by deed in lieu of foreclosure, the deed or certificate of
sale shall be issued to the Trustee, or to
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<PAGE>
its nominee on behalf of Certificateholders. Notwithstanding any such
acquisition of title and cancellation of the related Mortgage Loan, such
Mortgage Loan shall (except for purposes of Section 9.01) be considered to be a
Mortgage Loan held in the Trust Estate until such time as the related Mortgaged
Property shall be sold and such Mortgage Loan becomes a Liquidated Loan.
Consistent with the foregoing, for purposes of all calculations hereunder, so
long as such Mortgage Loan shall be considered to be an Outstanding Mortgage
Loan:
(i) It shall be assumed that, notwithstanding that the
indebtedness evidenced by the related Mortgage Note shall have been discharged,
such Mortgage Note and the related amortization schedule in effect at the time
of any such acquisition of title (after giving effect to any previous
Curtailments and Partial Liquidation Proceeds as applied to principal and before
any adjustment thereto by reason of any bankruptcy or similar proceeding or any
moratorium or similar waiver or grace period) remain in effect, except that such
schedule shall be adjusted to reflect the application of Net REO Proceeds
(exclusive of the portion thereof, if any, allocated to the Fixed Retained Yield
pursuant to clause (iii) below) received in any month pursuant to the succeeding
clause.
(ii) Net REO Proceeds received in any month shall be deemed
to have been received first in payment of the accrued interest that remained
unpaid on the date that such Mortgage Loan became an REO Mortgage Loan, with the
excess thereof, if any, being deemed to have been received in respect of the
delinquent principal installments that remained unpaid on such date. Thereafter,
Net REO Proceeds received in any month (exclusive of the portion thereof, if
any, allocated to the Fixed Retained Yield pursuant to clause (iii) below) shall
be applied to the payment of installments of principal and accrued interest on
such Mortgage Loan deemed to be due and payable in accordance with the terms of
such Mortgage Note and such amortization schedule. If such Net REO Proceeds
exceed the then Unpaid REO Amortization, the excess shall be treated as a
Curtailment received in respect of such Mortgage Loan.
(iii) Only that portion of Net REO Proceeds allocable to
interest that bears the same relationship to the total amount of Net REO
Proceeds allocable to interest as the Fixed Retained Yield Rate, if any, with
respect to such Mortgage Loan bears to the Mortgage Interest Rate borne by such
Mortgage Loan shall be allocated to the Fixed Retained Yield with respect
thereto, and only that portion of Net REO Proceeds allocable to interest as the
rate used to calculate the Servicing Fee, as specified in Section 11.25, bears
to the Mortgage Interest Rate borne by such Mortgage Loan shall be allocated to
the Servicing Fee with respect thereto.
In the event that the Trust Estate acquires any Mortgaged
Property as aforesaid or otherwise in connection with a Mortgage loan that is in
default or as to which default is reasonably foreseeable, such Mortgaged
Property shall be disposed of by or on behalf of the Trust Estate prior to the
close of the third calendar year following the year of its acquisition by the
Trust Estate (the "REO Disposition Period") unless (a) the Trustee shall have
received an Opinion of Counsel to the effect that the holding by the Trust
Estate of such Mortgaged Property subsequent to the REO Disposition Period (and
specifying the period beyond for
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<PAGE>
which the Mortgaged Property may be held) will not cause the REMIC to be subject
to the tax on prohibited transactions imposed by Code Section 860F(a)(1),
otherwise subject the REMIC to tax or cause the Trust Estate to fail to qualify
as a REMIC at any time that any Certificates are outstanding, or (b) the Trustee
(at the Servicer's expense) or the Servicer shall have applied for, prior to the
expiration of the REO Disposition Period, an extension of the REO Disposition
Period in the manner contemplated by Code Section 856(e)(3), in which case the
REO Disposition Period shall be extended by the applicable period. The Servicer
shall further ensure that the Mortgaged Property is administered so that it
constitutes "foreclosure property" within the meaning of Code Section 860G(a)(8)
at all times, that the sale of such property does not result in the receipt by
the REMIC of any income from non-permitted assets as described in Code Section
860F(a)(2)(B), and that the REMIC does not derive any "net income from
foreclosure property" within the meaning of Code Section 860G(c)(2) with respect
to such property.
The Servicer shall promptly notify the Seller of any Mortgage
Loan which comes into default. The Seller shall be entitled, at its option, to
repurchase (i) any such defaulted Mortgage Loan from the Trust Estate if, in the
Seller's judgment, the default is not likely to be cured by the Mortgagor;
provided, however, that the Cut-Off Date Principal Balances of the Mortgage
Loans repurchased pursuant to this provision shall not exceed 2.5% of the Cut-
Off Date Aggregate Principal Balance and (ii) any Mortgage Loan in the Trust
Estate at the request of NationsBanc Mortgage Corporation pursuant to Section __
of the Mortgage Loan Purchase Agreement. The purchase price for any such
Mortgage Loan shall be 100% of the unpaid principal balance of such Mortgage
Loan plus accrued interest thereon at the Net Mortgage Interest Rate for such
Mortgage Loan through the last day of the month in which such repurchase occurs.
Upon the receipt of such purchase price, the Servicer shall provide to the
Trustee the certification required by Section 3.13 and the Trustee and the
Custodian shall promptly release to the Seller the Mortgage File relating to the
Mortgage Loan being repurchased.
In lieu of foreclosing upon any defaulted Mortgage Loan, the
Servicer may, in its discretion, permit the assumption of such Mortgage Loan if,
in the Servicer's judgment, such default is unlikely to be cured and if the
assuming borrower satisfies the Servicer's underwriting guidelines with respect
to such Mortgage Loan. In connection with any such assumption, the Mortgage
Interest Rate of the related Mortgage Note and the payment terms shall not be
changed. Any fee collected by the Servicer for entering into an assumption
agreement will be retained by the Servicer as servicing compensation.
Alternatively, the Servicer may encourage the refinancing of any defaulted
Mortgage Loan by the Mortgagor.
Notwithstanding anything to the contrary contained in this
Section 3.12, the Servicer shall be under no obligation to foreclose upon or
otherwise convert the ownership of any Mortgaged Property which it believes may
be contaminated with or affected by hazardous wastes or hazardous substances.
The Servicer shall not liable to the Certificateholders if, based on its belief
that no such contamination or effect exists, the Servicer forecloses on a
Mortgaged Property and takes title to such Mortgaged Property, and thereafter
such Mortgaged Property is determined to be so contaminated or affected.
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<PAGE>
Section 3.13. Trustee to Cooperate; Release of Mortgage Files.
-----------------------------------------------
Upon the payment in full of any Mortgage Loan, or the receipt by the Servicer of
a notification that payment in full will be escrowed in a manner customary for
such purposes, the Servicer shall immediately notify the Trustee by a
certificate (which certificate shall include a statement to the effect that all
amounts received in connection with such payment which are required to be
deposited in the Servicer Custodial Account pursuant to Section 3.02 have been
or shall be so deposited) of a Servicing Officer and shall request delivery to
it of the Mortgage File. Upon receipt of such certificate and request, the
Trustee, or the Custodian on its behalf, shall promptly release the related
Mortgage File to the Servicer. Upon any such payment in full, the Servicer is
authorized to give, as agent for the Trustee and the mortgagee under the
Mortgage which secured the Mortgage Loan, an instrument of satisfaction (or
assignment of mortgage without recourse) regarding the property subject to such
Mortgage, which instrument of satisfaction or assignment, as the case may be,
shall be delivered to the Person or Persons entitled thereto against receipt
therefor of such payment, it being understood and agreed that no expenses
incurred in connection with such instrument of satisfaction or assignment, as
the case may be, shall be chargeable to the Certificate Account. From time to
time and as appropriate for the servicing or foreclosure of any Mortgage Loan
and in accordance with Accepted Servicing Practices, the Trustee shall, upon
request of the Servicer and delivery to the Trustee of a Request for Release
signed by a Servicing Officer, release, or cause the Custodian to release, the
related Mortgage File to the Servicer and shall execute such documents as shall
be necessary to the prosecution of any such proceedings. Such Request for
Release shall obligate the Servicer to return the Mortgage File to the Trustee
when the need therefor by the Servicer no longer exists unless the Mortgage Loan
shall be liquidated, in which case, upon receipt of a certificate of a Servicing
Officer similar to that hereinabove specified, the Mortgage File shall be
delivered by the Trustee to the Servicer.
Section 3.14. Servicing Fee; Servicing Compensation. The
-------------------------------------
Servicer shall be entitled, at its election, either (a) to pay itself the
Servicing Fee out of any Mortgagor payment on account of interest or Net REO
Proceeds prior to the deposit of such payment in the Servicer Custodial Account
or (b) to withdraw from the Servicer Custodial Account such Servicing Fee. The
Servicer shall also be entitled, at its election, either (a) to pay itself the
Servicing Fee in respect of each delinquent Mortgage Loan out of Liquidation
Proceeds (after deducting therefrom, to the extent permitted by Section 3.02,
the Fixed Retained Yield, if any) in respect of such Mortgage Loan or other
recoveries with respect thereto to the extent permitted in Section 3.02 or (b)
to withdraw from the Servicer Custodial Account the Servicing Fee in respect of
each such Mortgage Loan to the extent of such Liquidation Proceeds or other
recoveries. Servicing compensation in the form of assumption fees, late payment
charges, tax service fees, fees for statement of account or payoff of the
Mortgage Loan (to the extent permitted by applicable law) or otherwise shall be
retained by the Servicer and are not required to be deposited in the Servicer
Custodial Account and shall not constitute part of the Trust Estate. The
Servicer shall be entitled to retain as additional servicing compensation
payments of interest related to Principal Prepayments received on or after the
first day of the month in which a Distribution Date occurs and prior to the
Determination Date occurring in such month. The aggregate Servicing Fee is
reserved for the administration of the Trust Estate and, in the event of
replacement of the Servicer as servicer of the Mortgage
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<PAGE>
Loans pursuant to Section 7.05, for the payment of other expenses related to
such replacement. The aggregate Servicing Fee shall be offset as provided in
Section 3.19. The Servicer shall be required to pay all expenses incurred by it
in connection with its servicing activities hereunder (including maintenance of
the hazard insurance required by Section 3.07) and shall not be entitled to
reimbursement therefor except as specifically provided in Sections 3.01, 3.05,
3.08, 3.09, 3.10, 3.12 and 6.03.
Section 3.15. Reports to the Trustee; Servicer Custodial
------------------------------------------
Account Statements. Not later than 15 days after each Distribution Date, the
- ------------------
Servicer shall provide to the Trustee a statement, certified by a Servicing
Officer, setting forth the status of the Servicer Custodial Account as of the
close of business on the related Distribution Date, stating that all
distributions required by this Agreement to be made by the Servicer to the
Trustee have been made (or if any required distribution has not been made by the
Servicer, specifying the nature and status thereof) and showing, for the period
covered by such statement, the aggregate of deposits into and withdrawals from
the Servicer Custodial Account for each category of deposit specified in Section
3.02 and each category of withdrawal specified therein. Such statement shall
also state the aggregate unpaid principal balance of all the Mortgage Loans as
of the close of business on the last day of the month preceding the month in
which such Distribution Date occurs. Copies of such statement shall be provided
by the Servicer to any Certificateholder upon request (or by the Trustee at the
Servicer's expense if the Servicer shall fail to provide such copies).
Section 3.16. Annual Statement as to Compliance. The Servicer
---------------------------------
will deliver to the Trustee, on or before March 31 of each year beginning in the
year commencing after the Cut-Off Date, an Officers' Certificate stating as to
each signer thereof, that (i) a review of the activities of the Servicer during
the preceding calendar year and of its performance under this Agreement has been
made under such officer's supervision, and (ii) to the best of such officer's
knowledge, based on such review, the Servicer has fulfilled all its obligations
under this Agreement throughout such year, or if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officer and the nature and status thereof. Such Officers' Certificate shall be
accompanied by the statement described in Section 3.15 of this Agreement. Copies
of such statement shall, upon request, be provided to any Certificateholder by
the Servicer, or by the Trustee at the Servicer's expense if the Servicer shall
fail to provide such copies.
Section 3.17. Annual Independent Public Accountants' Servicing
------------------------------------------------
Report. On or before March 31 of each year beginning in the year commencing
- ------
after the Cut-Off Date, the Servicer, at its expense, shall cause a firm of
nationally recognized independent public accountants to furnish a statement to
the Trustee to the effect that, on the basis of an examination of certain
documents and records relating to the servicing of the mortgage loans being
serviced by the Servicer under pooling and servicing agreements similar to this
Agreement (which agreements shall be described in a schedule to such statement),
conducted substantially in compliance with the Uniform Single Audit Program for
Mortgage Bankers, such firm is of the opinion that such servicing has been
conducted in compliance with this Agreement and other similar agreements except
for (i) such exceptions as such firm shall
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<PAGE>
believe to be immaterial and (ii) such other exceptions as shall be set forth in
such statement. Copies of such statement shall, upon request, be provided to
Certificateholders by the Servicer, or by the Trustee at the Servicer's expense
if the Servicer shall fail to provide such copies. For purposes of such
statement, such firm may conclusively presume that any pooling and servicing
agreement which governs mortgage pass-through certificates offered by the Seller
(or any predecessor or successor thereto) in a registration statement under the
Securities Act of 1933, as amended, is similar to this Agreement, unless such
other pooling and servicing agreement expressly states otherwise.
Section 3.18. Rights of the Seller in Respect of the Servicer
-----------------------------------------------
and of the Servicer in Respect of the Seller. The Servicer shall afford the
- --------------------------------------------
Seller, upon reasonable notice, during normal business hours access to all
records maintained by the Servicer in respect of its rights and obligations
hereunder and access to officers of the Servicer responsible for such
obligations. The Seller may, but is not obligated to, enforce the obligations of
the Servicer hereunder and may, but is not obligated to, perform, or cause a
designee to perform, any defaulted obligation of the Servicer hereunder or
exercise the rights of the Servicer hereunder; provided that the Servicer shall
not be relieved of any of its obligations hereunder by virtue of such
performance by the Seller or its designee. The Seller shall not have any
responsibility or liability for any action or failure to act by the Servicer and
is not obligated to supervise the performance of the Servicer under this
Agreement or otherwise.
The Servicer may, but is not obligated to, enforce the
obligations of the Seller hereunder and may, but is not obligated to, perform,
or cause a designee to perform, any defaulted obligation of the Seller hereunder
or exercise the rights of the Seller hereunder; provided that the Seller shall
not be relieved of any of its obligations hereunder by virtue of such
performance by the Servicer or its designee. The Servicer shall not have any
responsibility or liability for any action or failure to act by the Seller and
is not obligated to supervise the performance of the Seller under this Agreement
or otherwise.
Section 3.19. Adjustment of Servicing Compensation in Respect
-----------------------------------------------
of Prepaid Mortgage Loans. The aggregate amount of the Servicing Fees that the
- -------------------------
Servicer shall be entitled to receive with respect to all of the Mortgage Loans
and each Distribution Date shall be offset on such Distribution Date by an
amount equal to the aggregate Prepayment Interest Shortfall with respect to all
Mortgage Loans which were subjects of Principal Prepayments during the
Unscheduled Principal Receipt Period with respect to such Distribution Date. The
Servicer shall deposit the amount by which the aggregate Servicing Fee is offset
pursuant to this Section 3.19 into the Servicer Custodial Account pursuant to
Section 3.02. The amount of any offset against the aggregate Servicing Fee with
respect to any Distribution Date under this Section 3.19 shall be limited to the
aggregate amount of the Servicing Fees otherwise payable to the Servicer
(without adjustment on account of Prepayment Interest Shortfalls) with respect
to (i) scheduled payments having the Due Date occurring in the month of such
Distribution Date received by the Servicer prior to the Determination Date, (ii)
Liquidation Proceeds (other than Partial Liquidation Proceeds) received in the
month preceding the month in which such Distribution Date occurs, (iii)
Principal Prepayments received by the Servicer during the Unscheduled Principal
Receipt Period with respect to such Distribution Date and (iv) Partial
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<PAGE>
Liquidation Proceeds received by the Servicer during the Unscheduled Principal
Receipt Period with respect to such Distribution Date, and the rights of the
Certificateholders to offset of the aggregate Prepayment Interest Shortfalls
shall not be cumulative.
Section 3.20. Access to Certain Documentation and Information
-----------------------------------------------
Regarding the Mortgage Loans. In the event that compliance with this Section
- ----------------------------
3.20 shall make the Certificates legal for investment by federally insured
savings and loan associations, the Servicer shall provide to the Trustee, the
Office of Thrift Supervision, the FDIC and the supervisory agents and examiners
of the Office of Thrift Supervision and the examiners of the FDIC, as
appropriate, access to the documentation regarding the Mortgage Loans required
by applicable regulations of the Office of Thrift Supervision or the FDIC, such
access being afforded without charge but only upon reasonable request and during
normal business hours at the offices of the Servicer designated by it. The
Servicer shall permit such representatives to photocopy any such documentation
and shall provide equipment for that purpose at a charge reasonably
approximating the cost of such photocopying to the Servicer.
Section 3.21. Maintenance of Certain Servicing Policies. The
-----------------------------------------
Servicer shall at all times while acting in its capacity as servicer hereunder,
maintain in force (i) a policy or policies of insurance covering errors and
omissions in the performance of its obligations as servicer hereunder and (ii) a
fidelity bond in respect of its officers, employees or agents. Each such policy
or policies and bond shall, together, comply with the requirements from time to
time of FNMA or FHLMC for persons performing servicing for mortgage loans
purchased by FNMA or FHLMC.
Section 3.22. Right to Refinance Mortgage Loans. The Servicer
---------------------------------
may at its option and in its individual capacity only (i.e., not as Servicer
hereunder), provide refinancing for any Mortgage Loan; but in no event shall the
Servicer, the Seller or any other Person be obligated hereunder to provide
refinancing for any Mortgage Loan.
Section 3.23. Determination of Special Hazard Adjustment
------------------------------------------
Amount. As soon as practicable after the Distribution Date immediately preceding
- ------
each anniversary of the Cut-Off Date, the Trustee will request ____ and ____ to
determine whether, and to what extent, the Special Hazard Loss Amount as of such
anniversary (calculated prior to giving effect to any Special Hazard Adjustment
Amount for such anniversary) is in excess of that which is necessary to maintain
their original ratings on the Class A and Class B Certificates, and to confirm
such determination in writing to the Trustee. The Servicer will make available
to ____ and ____ such information as is reasonably necessary to enable them to
make the foregoing determinations.
Section 3.24. REMIC Administration. The parties intend that
--------------------
the Trust Estate formed hereunder shall consist of, and that the affairs of the
Trust Estate shall be conducted so as to qualify it as a REMIC. In furtherance
of such intention, the Trustee covenants and agrees that it shall act as agent
(and the Trustee is hereby appointed to act as agent) on behalf of the Trust
Estate and that in such capacity it shall: (a) prepare and file, or cause to be
prepared and filed, such federal, state and local income tax and information
returns or reports
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<PAGE>
using the calendar year as the taxable year for the REMIC and the accrual method
of accounting when and as required by the REMIC Provisions and other applicable
federal, state and local income tax laws, which returns or reports shall be
signed by the Trustee or such other person as may be required thereby; (b) make
an election, on behalf of the Trust Estate, to be treated as a REMIC and make
the appropriate designations in accordance with Section 2.05 hereof on the
federal income tax return of the REMIC for its first taxable year, in accordance
with the REMIC Provisions; (c) prepare and forward, or cause to be prepared and
forwarded, to the Certificateholders all information reports, or furnish or
cause to be furnished by telephone, mail, publication or other appropriate
method such information, as and when required to be provided to them in
accordance with the Code; (d) maintain such records relating to the Trust
Estate, including but not limited to the income, expenses, individual Mortgage
Loans (including REO Mortgage Loans), other assets and liabilities of the Trust
Estate, and the adjusted basis of the Trust Estate property determined at such
intervals as may be required by the Code, as may be necessary to prepare the
foregoing returns, schedules, statements or information; (e) use its best
efforts to conduct the affairs of the Trust Estate at all times that any Class
of Certificates is outstanding so as to maintain the status thereof as a REMIC
under the REMIC Provisions; (f) not knowingly or intentionally take any action
or omit to take any action that would cause the termination of the REMIC status
of the Trust Estate or that would subject the REMIC to tax; (g) exercise
reasonable care not to allow the creation of any "interests" in the REMIC within
the meaning of Code Section 860D(a)(2) other than the interests represented by
the Class A-1, Class A-2, Class A-3, Class A-R, Class A-PO, Class B-1, Class B-
2, Class B-3, Class B-4, Class B-5 and Class B-6 Certificates; (h) exercise
reasonable care not to allow the occurrence of any "prohibited transactions"
within the meaning of Code Section 860F(a), unless the Trustee shall have
received an Opinion of Counsel that such occurrence would not (i) result in a
taxable gain, (ii) otherwise subject the REMIC to tax, or (iii) cause the Trust
Estate to fail to qualify as a REMIC; (i) exercise reasonable care not to allow
the Trust Estate to receive income from the performance of services or from
assets not permitted under the REMIC Provisions to be held by a REMIC; (j) pay
(on behalf of the REMIC) the amount of any federal income tax and applicable
state and local taxes, including, without limitation, prohibited transaction
taxes, taxes on net income from foreclosure property, and taxes on certain
contributions to a REMIC after the Startup Day, imposed on the REMIC when and as
the same shall be due and payable (but such obligation shall not prevent the
Trustee or any other appropriate Person from contesting any such tax in
appropriate proceedings and shall not prevent the Trustee from withholding or
depositing payment of such tax, if permitted by law, pending the outcome of such
proceedings); (k) if required or permitted by the Code and applicable law, act
as "tax matters person" for the REMIC within the meaning of Treasury regulations
Section 1.860F-4(d), and the Trustee is hereby designated as agent of the Class
A-R Certificateholder for such purpose (or if the Trustee is not so permitted,
the Holder of the Class A-R Certificate shall be the tax matters person in
accordance with the REMIC Provisions); and (l) within 30 days of the Startup
Day, file or cause to be filed with the Internal Revenue Service, on Form 8811
or as may otherwise be required by the Code, the name, title, address, and
telephone number of the person that Certificateholders may contact for tax
information relating to their Certificates (and the Trustee shall act as the
representative of the REMIC for this purpose), together with such additional
information as may be required by such Form, and shall update such information
at
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<PAGE>
the time and in the manner required by the Code. The Trustee shall be entitled
to be reimbursed pursuant to Section 3.05 for any taxes paid by it pursuant to
clause (j) of the preceding sentence, except to the extent that such taxes are
imposed as the result of the bad faith, willful misfeasance or gross negligence
of the Trustee in the performance of its obligations hereunder. The Servicer
shall at all times act in such a manner in the performance of its duties
hereunder as shall be necessary to prevent the Trust Estate from failing to
qualify as a REMIC and to prevent the imposition of a tax on the REMIC.
Section 3.25. Advances by Trustee.
-------------------
(a) In the event the Servicer fails to make any required
Periodic Advances of principal and interest on a Mortgage Loan as required by
this Agreement prior to the Distribution Date occurring in the month during
which such Periodic Advance is due, the Trustee shall, to the extent required by
Section 8.14, make such Periodic Advance to the extent provided hereby.
Notwithstanding the foregoing, the Trustee will not be obligated to make a
Periodic Advance that it reasonably believes to be a Nonrecoverable Advance.
(b) To the extent the Servicer fails to make an advance on
account of the taxes or insurance premiums with respect to a Mortgage Loan
required by this Agreement, the Trustee shall advance such funds and take such
steps as are necessary to pay such taxes or insurance premiums.
(c) The Trustee shall be entitled to be reimbursed from the
Certificate Account for any Periodic Advance made by it under Section 3.25(a) to
the extent described in Section 3.05(i) and (ii). The Trustee shall be entitled
to be reimbursed pursuant to Section 3.05(v) for any advance by it pursuant to
Section 3.25(b).
(d) Except as provided in Section 3.25(a) and (b), the Trustee
shall not be required to pay or advance any amount which Servicer was required,
but failed, to deposit in the Certificate Account.
Section 3.26. 1934 Act Reports.
----------------
The Trustee shall, on behalf of the Seller, make all filings
required to be made by the Seller with respect to the Class A Certificates
(other than the Class A-PO Certificates), the Class B-1 Certificates, the Class
B-2 Certificates and the Class B-3 Certificates pursuant to the Securities
Exchange Act of 1934, as amended.
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<PAGE>
ARTICLE IV
DISTRIBUTIONS IN RESPECT OF CERTIFICATES;
PAYMENTS TO CERTIFICATEHOLDERS; PERIODIC ADVANCES;
STATEMENTS AND REPORTS
Section 4.01. Distributions. (a) No later than 12:00 noon New
-------------
York time on the [_] day of each month, or if such day is not a Business Day,
the succeeding Business Day, the Servicer shall deliver to the Trustee a report
in computer-readable form (including electronic transmission, provided that a
portion of such report relating to certain delinquency information may be
delivered in hard copy form rather than computer-readable form) containing
information with respect to each Mortgage Loan as of such date and such other
information as the Trustee shall reasonably require in calculating the amount of
distributions to Certificateholders and prepaying reports as required hereunder.
On each Distribution Date, the Pool Distribution Amount will
be applied in the following amounts, to the extent the Pool Distribution Amount
is sufficient therefor, in the manner and in the order of priority as follows:
first, to the Classes of Class A Certificates, pro rata, based
upon their respective Class A Interest Accrual Amounts, in an aggregate amount
up to the Aggregate Class A Interest Accrual Amount with respect to such
Distribution Date; provided that prior to the Accretion Termination Date, an
amount equal to the amount that would otherwise be distributable in respect of
interest to the Class A-2 Certificates pursuant to this provision will instead
be distributed in reduction of the Class A Principal Balances of the Class A-1
and Class A-2 Certificates, in each case in accordance with Section 4.01(b);
second, to the Classes of Class A Certificates, pro rata,
based upon their respective Class A Unpaid Interest Shortfalls in an aggregate
amount up to the Aggregate Class A Unpaid Interest Shortfall provided that prior
to the Accretion Termination Date, an amount equal to the amount that would
otherwise be distributable in respect of interest shortfalls to the Class A-2
Certificates pursuant to this provision will instead be distributed in reduction
of the Class A Principal Balances of the Class A-1 and Class A-2 Certificates,
in each case in accordance with Section 4.01(b);
third, concurrently, to the Class A Certificates (other than
the Class A-PO Certificates) and Class A-PO Certificates, pro rata based on
their respective Class A Non-PO Optimal Principal Amount and Class A-PO Optimal
Principal Amount, (A) to the Classes of Class A Certificates (other than the
Class A-PO Certificates), in an aggregate amount up to the Class A Non-PO
Optimal Principal Amount, such distribution to be allocated among such Classes
in accordance with Section 4.01(b) or Section 4.01(c), as applicable and (B) to
the Class A-PO Certificates up to the Class A-PO Optimal Principal Amount;
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<PAGE>
fourth, to the Class A-PO Certificates in an amount up to the
Class A-PO Deferred Amount first from amounts otherwise distributable (without
regard to this Paragraph fourth) first to the Class B-6 Certificates pursuant to
Paragraph twenty-second, below, second to the Class B-5 Certificates pursuant to
Paragraph nineteenth, below, third to the Class B-4 Certificates pursuant to
Paragraph sixteenth, below, fourth to the Class B-3 Certificates pursuant to
Paragraph thirteenth, below, fifth to the Class B-2 Certificates pursuant to
Paragraph tenth below and sixth to the Class B-1 Certificates pursuant to
Paragraph seventh, below;
fifth, to the Class B-1 Certificates in an amount up to the
Class B Interest Accrual Amount for the Class-B-1 Certificates;
sixth, to the Class B-1 Certificates in an amount up to the
Class B-1 Unpaid Interest Shortfall;
seventh, to the Class B-1 Certificates in an amount up to the
Class B-1 Optimal Principal Amount; provided, however, that the amount
distributable to the Class B-1 Certificates pursuant to this Paragraph seventh
will be reduced by the amount, if any, that would have been distributable to the
Class B-1 Certificates hereunder used to pay the Class A-PO Deferred Amount as
provided in Paragraph fourth above;
eighth, to the Class B-2 Certificates in an amount up to the
Class B Interest Accrual Amount for the Class B-2 Certificates with respect to
such Distribution Date;
ninth, to the Class B-2 Certificates in an amount up to the
Class B-2 Unpaid Interest Shortfall;
tenth, to the Class B-2 Certificates in an amount up to the
Class B-2 Optimal Principal Amount; provided, however, that the amount
distributable to the Class B-2 Certificates pursuant to this Paragraph tenth
will be reduced by the amount, if any, that would have been distributable to the
Class B-2 Certificates hereunder used to pay the Class A-PO Deferred Amount as
provided in Paragraph fourth above;
eleventh, to the Class B-3 Certificates in an amount up to the
Class B Interest Accrual Amount for the Class B-3 Certificates with respect to
such Distribution Date;
twelfth, to the Class B-3 Certificates in an amount up to the
Class B-3 Unpaid Interest Shortfall;
thirteenth, to the Class B-3 Certificates in an amount up to
the Class B-3 Optimal Principal Amount; provided, however, that the amount
distributable to the Class B-3 Certificates pursuant to this Paragraph
thirteenth will be reduced by the amount, if any, that would have been
distributable to the Class B-3 Certificates hereunder used to pay the Class A-PO
Deferred Amount as provided in Paragraph fourth above;
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<PAGE>
fourteenth, to the Class B-4 Certificates in an amount up to
the Class B Interest Accrual Amount for the Class B-4 Certificates with respect
to such Distribution Date;
fifteenth, to the Class B-4 Certificates in an amount up to
the Class B-4 Unpaid Interest Shortfall;
sixteenth, to the Class B-4 Certificates in an amount up to
the Class B-4 Optimal Principal Amount; provided, however, that the amount
distributable to the Class B-4 Certificates pursuant to this Paragraph sixteenth
will be reduced by the amount, if any, that would have been distributable to the
Class B-4 Certificates hereunder used to pay the Class A-PO Deferred Amount as
provided in Paragraph fourth above;
seventeenth, to the Class B-5 Certificates in an amount up to
the Class B Interest Accrual Amount for the Class B-5 Certificates with respect
to such Distribution Date;
eighteenth, to the Class B-5 Certificates in an amount up to
the Class B-5 Unpaid Interest Shortfall;
nineteenth, to the Class B-5 Certificates in an amount up to
the Class B-5 Optimal Principal Amount; provided, however, that the amount
distributable to the Class B-5 Certificates pursuant to this Paragraph
nineteenth will be reduced by the amount, if any, that would have been
distributable to the Class B-5 Certificates hereunder used to pay the Class A-PO
Deferred Amount as provided in Paragraph fourth above;
twentieth, to the Class B-6 Certificates in an amount up to
the Class B Interest Accrual Amount for the Class B-6 Certificates with respect
to such Distribution Date;
twenty-first, to the Class B-6 Certificates in an amount up to
the Class B-6 Unpaid Interest Shortfall;
twenty-second, to the Class B-6 Certificates in an amount up
to the Class B-6 Optimal Principal Amount; provided, however, that the amount
distributable to the Class B-6 Certificates pursuant to this Paragraph twenty-
second will be reduced by the amount, if any, that would have been distributable
to the Class B-6 Certificates hereunder used to pay the Class A-PO Deferred
Amount as provided in Paragraph fourth above; and
twenty-third, to the Holder of the Class A-R Certificate.
Notwithstanding the foregoing, after the principal balance of
any Class (other than the Class A-R Certificate) has been reduced to zero, such
Class will be entitled to no further distributions in respect of managerial or
interest (including unpaid interest shortfalls).
In addition, Net Foreclosure Profits, if any, with respect to
such Distribution Date minus any portion thereof payable to the Servicer
pursuant to Section 3.05(ix) hereof shall be distributed to the Holder of the
Class A-R Certificate.
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With respect to any Distribution Date, the amount of the
Principal Adjustment, if any, attributable to any Class of Class B Certificates
will be allocated pro rata based on principal balance between the Class A
Certificates (other than the Class A-PO Certificates) and any Class of Class B
Certificates with a lower numerical designation.
(b) [Describe Payment Priorities]
(c) On each Distribution Date occurring on or subsequent to
the Cross-Over Date, the Class A Non-PO Principal Distribution Amount shall be
distributed among the Classes of Class A Certificates (other than the Class-A-PO
Certificates) pro rata in accordance with their outstanding Class A Principal
Balances.
(d) (i) For purposes of determining whether the Classes of
Class B Certificates are eligible to receive distributions of principal with
respect to any Distribution Date, the following tests shall apply:
(A) if the Current Class B-1 Fractional Interest is less than
the Original Class B-1 Fractional Interest and the Class B-1 Principal
Balance is greater than zero, the Class B-2, Class B-3, Class B-4,
Class B-5 and Class B-6 Certificates shall not be eligible to receive
distributions of principal; or
(B) if the Current Class B-2 Fractional Interest is less than
the Original Class B-2 Fractional Interest and the Class B-2 Principal
Balance is greater than zero, the Class B-3, Class B-4, Class B-5 and
Class B-6 Certificates shall not be eligible to receive distributions
of principal; or
(C) if the Current Class B-3 Fractional Interest is less than
the Original Class B-3 Fractional Interest and the Class B-3 Principal
Balance is greater than zero, Class B-4, Class B-5 and Class B-6
Certificates shall not be eligible to receive distributions of
principal; or
(D) if the Current Class B-4 Fractional Interest is less than
the Original Class B-4 Fractional Interest and the Class B-4 Principal
Balance is greater than zero, the Class B-5 and Class B-6 Certificates
shall not be eligible to receive distributions of principal; or
(E) if the Current Class B-5 Fractional Interest is less than
the Original Class B-5 Fractional Interest and the Class B-5 Principal
Balance is greater than zero, the Class B-6 Certificates shall not be
eligible to receive distributions of principal.
(ii) Notwithstanding the foregoing, if on any Distribution
Date the aggregate distributions to Holders of the Classes of Class B
Certificates entitled to receive distributions of principal would reduce the
Class B Principal Balance of any Classes of Class B Certificates entitled to
receive distributions of principal below zero, first the Class B Prepayment
Percentage of any affected Class of Class B Certificate for such Distribution
Date beginning with the affected Class with the lowest numerical Class
designation and then, if necessary, the
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<PAGE>
Class B Percentage of such Class of Class B Certificates for such Distribution
Date shall be reduced to the respective percentages necessary to bring the Class
B Principal Balance of such Class of Class B Certificates to zero. The Class B
Prepayment Percentages and the Class B Percentages of the remaining Classes of
Class B Certificates will be recomputed substituting for the Subordinated
Prepayment Percentage and Subordinated Percentage in such computations the
difference between (A) the Subordinated Prepayment Percentage or Subordinated
Percentage, as the case may be, and (B) the percentages determined in accordance
with the preceding sentence necessary to bring the Class B Principal Balance of
the affected Classes of Class B Certificates to zero; provided, however, that if
the Class B Principal Balances of all the Classes of Class B Certificates
eligible to receive distributions of principal shall be reduced to zero on such
Distribution Date the Class B Prepayment Percentage and the Class B Percentage
of the Class of Class B Certificates with the lowest numerical Class designation
which would otherwise be ineligible to receive distributions of principal in
accordance with this Section shall equal the remainder of Subordinated
Prepayment Percentage for such Distribution Date minus the sum of the Class B
Prepayment Percentages of the Classes of Class B Certificates having lower
numerical Class designations, if any, and the remainder of the Subordinated
Percentage for such Distribution Date minus the sum of the Class B Percentages
of the Classes of Class B Certificates having lower numerical Class
designations, if any, respectively. Any entitlement of any Class of Class B
Certificates to principal payments solely pursuant to this clause (ii) shall not
cause such Class to be regarded as being eligible to receive principal
distributions for the purpose of applying the definition of its Class B
Percentage or Class B Prepayment Percentage.
(e) On each Distribution Date other than the Final
Distribution Date (if such Final Distribution Date is in connection with a
purchase of the assets of the Trust Estate by the Servicer), the Paying Agent
shall, on behalf of the Trustee, from funds available on deposit in the
Certificate Account, distribute to each Certificateholder of record on the
preceding Record Date (other than as provided in Section 9.01 respecting the
final distribution to Certificateholders or in the last paragraph of this
Section 4.01(e) respecting the final distribution in respect of a Certificate of
any Class) either in immediately available funds by wire transfer to the account
of such Certificateholder at a bank or other entity having appropriate
facilities therefor, if such Certificateholder holds Class A Certificates of a
Class (other than the Class A-R Certificate) or Class B Certificates of any
Class having a Denomination at least equal to that specified in Section 11.23
and has so notified the Trustee or, if applicable, the Paying Agent at least
seven Business Days prior to the Distribution Date, or, if such Holder holds the
Class A-R Certificate or less than the requisite minimum Denomination of a Class
of Class A Certificates (other than the Class A-R Certificate) or Class B
Certificates or has not so notified the Trustee or Paying Agent, by check mailed
to such Holder at the address of such Holder appearing in the Certificate
Register, such Holder's share (based on the aggregate of the Percentage
Interests represented by Certificates of the applicable Class of Class A or
Class B Certificates held by such Holder) of the Class A Distribution Amount
with respect to each Class of Class A Certificates and the Class B Distribution
Amount with respect to each Class of Class B Certificates.
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<PAGE>
In the event that, on any Distribution Date prior to the Final
Distribution Date, the Class A Principal Balance of any Class of Class A
Certificates (other than the Class A-R Certificate), or the Class B Principal
Balance of any Class of Class B Certificates would be reduced to zero, the
Trustee will then send a notice to each Certificateholder of such Class, with a
copy to the Certificate Registrar, specifying that the final distribution with
respect to such Class will be made on such Distribution Date only upon the
presentation and surrender of such Certificateholder's Certificates at the
office or agency of the Trustee therein specified; provided, however, that the
failure to give such notice will not entitle a Certificateholder to any interest
beyond the interest payable with respect to such Distribution Date in accordance
with Section 4.01(a).
(f) The Paying Agent (or if no Paying Agent is appointed by
the Trustee, the Trustee) shall withhold or cause to be withheld such amounts as
may be required by the Code (giving full effect to any exemptions from
withholding and related certifications required to be furnished by
Certificateholders and any reductions to withholding by virtue of any bilateral
tax treaties and any applicable certification required to be furnished by
Certificateholders with respect thereto) from distributions to be made persons
other than U.S. Persons ("Non-U.S. Persons"). Amounts withheld pursuant to this
Section 4.01(f) shall be treated as having been distributed to the related
Certificateholder for all purposes of this Agreement. For the purposes of this
paragraph, a "U.S. Person" is a citizen or resident of the United States, a
corporation, partnership (except to the extent provided in applicable Treasury
regulations) or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, an estate that is subject to
United States federal income tax regardless of the source of its income or a
trust if (i) for taxable years beginning after December 31, 1996 (or for taxable
years ending after August 20, 1996, if the trustee has made an applicable
election), a court within the United States is able to exercise primary
supervision over the administration of such trust, and one or more such U.S.
Persons have the authority to control all substantial decisions of such trust or
(ii) for all other taxable years, such trust is subject to United States federal
income tax regardless of the source of its income (or, to the extent provided in
applicable Treasury regulations, certain trusts in existence on August 20, 1996
which are eligible to elect to be treated as U.S. Persons).
Section 4.02. Allocation of Realized Losses.
-----------------------------
(a) With respect to any Distribution Date, the principal
portion of Realized Losses (other than Debt Service Reductions, Excess Special
Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses) will be
allocated as follows:
first, to the Class B-6 Certificates until the Class B-6
Principal Balance has been reduced to zero;
second, to the Class B-5 Certificates until the Class B-5
Principal Balance has been reduced to zero;
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<PAGE>
third, to the Class B-4 Certificates until the Class B-4
Principal Balance has been reduced to zero;
fourth, to the Class B-3 Certificates until the Class B-3
Principal Balance has been reduced to zero;
fifth, to the Class B-2 Certificates until the Class B-2
Principal Balance has been reduced to zero;
sixth, to the Class B-1 Certificates until the Class B-1
Principal Balance has been reduced to zero; and
seventh, concurrently, to the Class A Certificates (other than
the Class A-PO Certificates) and Class A-PO Certificates based on the Non-PO
Fraction and the PO Fraction, respectively.
This allocation of Realized Losses will be effected through
the reduction of the applicable Class principal balance as the case may be.
(b) With respect to any Distribution Date, the principal
portion of Excess Special Hazard Losses, Excess Fraud Losses and Excess
Bankruptcy Losses occurring with respect to any Mortgage Loan allocable to the
Class A-PO Certificates will equal the product of the amount of any such
principal loss and the PO Fraction for such Mortgage Loan. The principal portion
of any Excess Special Hazard Losses, Excess Fraud Losses and Excess Bankruptcy
Losses remaining after allocation to the Class A-PO Certificates in accordance
with the preceding sentence shall be allocated pro rata among the Class A
Certificates (other than the Class A-PO Certificates), and the Class B
Certificates based on the Class A Non-PO Principal Balance and the Aggregate
Class B Principal Balance. Any such loss allocated to the Class A Certificates
(other than the Class A-PO Certificates) shall be allocated on the subsequent
Determination Date among the outstanding Classes of Class A Certificates (other
than the Class A-PO Certificates) in accordance with the Class A Loss
Percentages as of such Determination Date. Any such loss allocated to the Class
B Certificates shall be allocated pro rata among the outstanding Classes of
Class B Certificates based on their Class B Principal Balances.
(c) Any Realized Losses allocated to a Class of Certificates
pursuant to Section 4.02(a) or Section 4.02(b) shall be allocated among the
Certificates of such Class based on their Percentage Interests.
(d) In the event that there is a recovery of an amount in
respect of principal of a Mortgage Loan which had previously been allocated as a
Realized Loss to any Class or Classes of Certificates, each outstanding Class to
which such Realized Loss had previously been allocated shall be entitled to its
share (with respect to the Class A-PO Certificates based on the PO Fraction of
such Mortgage Loan and with respect to the Class A Certificates (other than the
Class A-PO Certificates), and the Class B Certificates based on their pro rata
share of the Non-PO Fraction of such Mortgage Loan) of such recovery up to the
amount of such
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<PAGE>
Realized Loss previously allocated to such Class on the Distribution Date in the
month following the month in which such recovery is received. A Class of
Certificates that is no longer outstanding shall not be entitled to any share of
such recovery. In the event that the amount of such recovery exceeds the amount
of such recovery allocated to each outstanding Class in accordance with the
preceding provisions, each outstanding Class shall be entitled to its pro rata
share (determined as described above) of such excess up to the amount of any
unrecovered Realized Loss previously allocated to such Class.
(e) The interest portion of Excess Special Hazard Losses,
Excess Fraud Losses and Excess Bankruptcy Losses shall be allocated among the
Class A Certificates, and the Class B Certificates, pro rata based on the
Aggregate Class A Interest Accrual Amount, and the Aggregate Class B Interest
Accrual Amount for the related Distribution Date. Any such loss allocated to the
Class A Certificates shall be allocated among the outstanding Classes of Class A
Certificates based on their Class A Interest Percentages. Any such loss
allocated to the Class B Certificates will be allocated among the outstanding
Classes of Class B Certificates based on their Class B Interest Percentages. In
addition, after the Aggregate Class B Principal Balance has been reduced to
zero, the interest portion of Realized Losses (other than Excess Special Hazard
Losses, Excess Fraud Losses and Excess Bankruptcy Losses) will be allocated
among the outstanding Classes of Class A Certificates based on their Class A
Interest Percentages.
(f) Realized Losses allocated in accordance with this Section
4.02 will be allocated on the Determination Date in the second month following
the month in which such loss was incurred with respect to the preceding
Distribution Date.
Section 4.03. Payment Account.
---------------
In the event the Paying Agent is not the Trustee, the Paying
Agent shall establish and maintain a Payment Account, which shall be a separate
trust account and an Eligible Account, in which the Trustee shall cause to be
deposited from funds in the Certificate Account at or before 5:00 p.m., New York
time, on the Business Day preceding each Distribution Date, by wire transfer of
immediately available funds, (a) an amount equal to the Pool Distribution Amount
calculated without regard to clauses (ii) and (iii) of the definition thereof,
(b) Net Foreclosure Profits, if any, with respect to such Distribution Date
minus any portion thereof payable to the Servicer pursuant to Section 3.05(ix)
and (c) the amount of any recovery in respect of Realized Loss. The Servicer may
cause the Paying Agent to invest the funds in the Payment Account. Any such
investment shall be in Eligible Investments, which shall mature not later than
the Business Day preceding the related Distribution Date (unless the Eligible
Investments are obligations of the Trustee, in which case such Eligible
Investments shall mature not later than the Distribution Date), and shall not be
sold or disposed of prior to maturity. All income and gain realized from any
such investment shall be for the benefit of the Servicer and shall be subject to
its withdrawal or order from time to time. The amount of any losses incurred in
respect of any such investments shall be deposited in the Payment Account by the
Servicer out of its own funds immediately as realized. The Paying Agent may
withdraw from the Payment Account any amount deposited in the Payment Account
that was
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<PAGE>
not required to be deposited therein and may clear and terminate the Payment
Account pursuant to Section 9.01.
Section 4.04. Statements to Certificateholders; Report to the
-----------------------------------------------
Seller. Concurrently with each distribution pursuant to Section 4.01(f), the
- ------
Trustee, or the Paying Agent appointed by the Trustee, shall forward or cause to
be forwarded by mail to each Holder of a Certificate and the Seller a statement
setting forth:
(i) the amount of such distribution to Holders of each Class
of Class A Certificates allocable to principal, separately identifying
the aggregate amount of any Principal Prepayments included therein;
(ii) (a) the amount of such distribution to Holders of each
Class of Class A Certificates allocable to interest, (b) the amount of
the Current Class A Interest Distribution Amount allocated to each of
Class A Certificates, (c) any Class A Interest Shortfall Amounts
arising with respect to such Distribution Date and any remaining Class
A Unpaid Interest Shortfall with respect to each Class after giving
effect to such distribution, (d) the amount of any Non-Supported
Interest Shortfall allocated to each Class of Class A Certificates for
such Distribution Date and (e) the interest portion of Excess Special
Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses
allocated to each Class for such Distribution Date;
(iii) the amount of such distribution to Holders of each Class
of Class B Certificates allocable to principal, separately identifying
the aggregate amount of any Principal Prepayments including therein;
(iv) (a) the amount of such distribution to Holders of each
Class of Class B Certificates allocable to interest, (b) the amount of
the Current Class B Interest Distribution Amount allocated to each
Class of Class B Certificates, (c) any Class B Interest Shortfall
Amounts arising with respect to such Distribution Date and any
remaining Class B Unpaid Interest Shortfall after giving effect to such
distribution, (d) the amount of any Non-Supported Interest Shortfall
allocated to each Class of Class B Certificates for such Distribution
Date and (e) the interest portion of Excess Special Hazard Losses,
Excess Fraud Losses and Excess Bankruptcy Losses allocated to each
Class of Class B Certificates for such Distribution Date;
(v) the amount of any Periodic Advance by the Servicer
pursuant to Section 4.05;
(vi) the number of Mortgage Loans outstanding as of the
Business Day preceding the related Determination Date;
(vii) the Aggregate Class A Principal Balance, the Class A
Principal Balance of each Class of Class A Certificates, the Class B
Principal Balance and the Class B Principal Balance of each Class of
Class B Certificates as of the following Determination Date after
giving effect to the
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<PAGE>
distributions of principal made, and the principal portion of Realized
Losses, if any, allocated with respect to such Distribution Date;
(viii) the Adjusted Pool Amount, the Adjusted Pool Amount PO,
the Pool Scheduled Principal Balance of the Mortgage Loans for such
Distribution Date and the aggregate Scheduled Principal Balance of the
Premium Mortgage Loans and the Discount Mortgage Loans for such
Distribution Date;
(ix) the Class A Percentage for the following Distribution
Date (without giving effect to Unscheduled Principal Receipts received
after the Unscheduled Principal Receipt Period for the current
Distribution Date which are applied by the Servicer during such
Unscheduled Principal Receipt Period);
(x) the Class A Prepayment Percentage for the following
Distribution Date (without giving effect to Unscheduled Principal
Receipts received after the Unscheduled Principal Receipt Period for
the current Distribution Day which are applied by the Servicer during
such Unscheduled Principal Receipt Period and without taking into
account the restrictions on the reduction of the Class A Prepayment
Percentage set forth in the ninth sentence of the definition of Class A
Prepayment Percentage);
(xi) the Class B-1, Class B-2, Class B-3, Class B-4, Class
B-5 and Class B-6 Percentages for the following Distribution Date
(without giving effect to Unscheduled Principal Receipts received after
the Unscheduled Principal Receipt Period for the current Distribution
Date which are applied by the Servicer during such Unscheduled
Principal Receipt Period);
(xii) the Class B-1, Class B-2, Class B-3, Class B-4, Class
B-5 and Class B-6 Prepayment Percentages for the following Distribution
Date (without giving effect to Unscheduled Principal Receipts received
after the Unscheduled Principal Receipt Period for the current
Distribution Date which are applied by the Servicer during such
Unscheduled Principal Receipt Period and without taking into account
the restrictions on the reduction of the Class A Prepayment Percentage
set forth in the ninth sentence of the definition of Class A Prepayment
Percentage);
(xiii) the number and aggregate principal balances of Mortgage
Loans delinquent (a) one month, (b) two months and (c) three months or
more;
(xiv) the number and aggregate principal balances of the
Mortgage Loans in foreclosure as of the Business Day preceding the
related Determination Date;
(xv) the book value of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure;
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<PAGE>
(xvi) the amount of the remaining Special Hazard Loss
Amount, Fraud Loss Amount and Bankruptcy Loss Amount as of the close of
business on such Distribution Date;
(xvii) the principal and interest portions of Realized Losses
allocated as of such Distribution Date and the amount of such Realized
Losses constituting Excess Special Hazard Losses, Excess Fraud Losses
or Excess Bankruptcy Losses;
(xviii) the aggregate amount of Bankruptcy Losses allocated to
each Class of Class B Certificates in accordance with Section 4.02(a)
since the Relevant Anniversary;
(xix) the amount by which each Class B Principal Balance has
been reduced as a result of Realized Losses allocated as of such
Distribution Date;
(xx) the unpaid principal balance of any Mortgage Loan as
to which the Servicer has determined not to foreclose because it
believes the related Mortgaged Property may be contaminated with or
affected by hazardous wastes or hazardous substances;
(xxi) the amount of the aggregate Servicing Fees (as
adjusted pursuant to Section 3.14 by amounts paid or retained by the
Servicer pursuant to Section 3.19) paid (and not previously reported)
with respect to the related Distribution Date and the amount by which
the aggregate Servicing Fee has been reduced by the Prepayment Interest
Shortfall for the related Distribution Date;
(xxii) such other customary information as the Servicer deems
necessary or desirable to enable Certificateholders to prepare their
tax returns; and
(xxiii) the Class A-PO Deferred Amount, if any.
In the case of information furnished with respect to a Class
of Class A Certificates pursuant to clauses (i) and (ii) above and with respect
to a Class of Class B Certificates pursuant to clauses (iii) and (iv) above, the
amounts shall be expressed as a dollar amount per Class A or Class B Certificate
with a $1,000 Denomination.
Within a reasonable period of time after the end of each
calendar year, the Trustee shall furnish or cause to be furnished to each Person
who at any time during the calendar year was the Holder of a Certificate a
statement containing the information set forth in clauses (i) and (ii)(a) above
in the case of a Class A Certificateholder and the information set forth in
clauses (iii) and (iv)(a) above in the case of a Class B Certificateholder,
aggregated for such calendar year or applicable portion thereof during which
such Person was a Certificateholder. Such obligation of the Trustee shall be
deemed to have been satisfied to the extent that substantially comparable
information shall be provided by the Servicer pursuant to any requirements of
the Code.
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<PAGE>
Prior to the close of business on the third Business Day
preceding each Distribution Date, the Trustee shall furnish a statement to any
Paying Agent and the Seller (the information in such statement to be made
available to Certificateholders by the Trustee on written request) setting forth
the Class A Distribution Amount with respect to each Class of Class A
Certificates, and the Class B Distribution Amount with respect to each Class of
Class B Certificates. The determination by the Trustee of such amounts shall, in
the absence of obvious error, be presumptively deemed to be correct for all
purposes hereunder.
In addition to the reports required pursuant to this Section
4.04, the Trustee shall make available upon request to each Holder and each
proposed transferee of a Class B-4, Class B-5 or Class B-6 Certificate such
additional information, if any, as may be required to permit the proposed
transfer to be effected pursuant to Rule 144A.
Section 4.05. Periodic Advances. If, on any Determination
-----------------
Date, the Servicer determines that any Monthly Payments due on the Due Date
immediately preceding such Determination Date have not been received as of the
close of business on the Business Day preceding such Determination Date, the
Servicer shall determine the amount of any Periodic Advance required to be made
with respect to the related Distribution Date. The Servicer shall, on or prior
to such Distribution Date, furnish a statement to the Trustee (the information
in such statement to be made available to Certificateholders upon request)
setting forth the amount of such Monthly Payments which were not received as of
the close of business on the Business Day preceding the related Determination
Date, and shall on or prior to the day specified in Section 3.02 deposit in the
Servicer Custodial Account an amount equal to the Periodic Advance, if any,
which deposit may be made in whole or in part from funds in the Servicer
Custodial Account being held for future distribution or withdrawal on or in
connection with Distribution Dates in subsequent months. Any funds being held
for future distribution to Certificateholders and so used shall be replaced by
the Servicer from its own funds by deposit in the Servicer Custodial Account on
or before the Business Day on which such funds are required to be transferred to
the Certificate Account.
The Servicer shall designate on its records the specific
Mortgage Loans and related installments (or portions thereof) as to which such
Periodic Advance shall be deemed to have been made, and shall notify the Trustee
in way of such determination which shall be conclusive for purposes of
withdrawals from the Certificate Account pursuant to clauses (i) and (ii) of
Section 3.05.
Section 4.06. Reports to Mortgagors and the Internal Revenue
----------------------------------------------
Service. The Trustee shall, in each year beginning after the Cut-Off Date,
- -------
provide to the Internal Revenue Service and Mortgagors: (i) the information
regarding foreclosures and abandonments of any Mortgaged Property required by
Code Section 6050J; (ii) the information regarding payment of interest required
by Code Section 6050H; and (iii) the information regarding cancellation of
indebtedness required by Code Section 6050P.
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ARTICLE V
THE CERTIFICATES
Section 5.01. The Certificates. (a) The Class A and Class B
----------------
Certificates shall be issued only in minimum denominations of a Single
Certificate and, integral multiples of $1,000 (or $1 in the case of the, Class
A-PO and Class B Certificates) in excess thereof (except, if necessary, for one
Certificate of each Class (other than the Class A-R Certificate) that evidences
one Single Certificate plus such additional principal portion as is required in
order for all Certificates of such Class to equal the Original Class A Principal
Balance of such Class or the Original Class B Principal Balance of such Class,
as the case may be), and shall be substantially in the respective forms set
forth as Exhibits A-1, A-2, A-3, A-R, B-1, B-2, B-3, B-4, B-5, B-6, C and D
(reverse side of Certificates) hereto. On original issue the Certificates shall
be executed and delivered by the Trustee to or upon the order of the Seller upon
receipt by the Trustee or the Custodian of the documents specified in Section
2.01. The aggregate principal portion evidenced by the Class A and Class B
Certificates shall be the sum of the amounts specifically set forth in the
respective Certificates. The Certificates shall be executed by manual or
facsimile signature on behalf of the Trustee by any Responsible Officer thereof.
Certificates bearing the manual or facsimile signatures of individuals who were
at any time the proper officers of the Trustee shall bind the Trustee
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Certificates or did not
hold such offices at the date of such Certificates. No Certificate shall be
entitled to any benefit under this Agreement, or be valid for any purpose,
unless manually countersigned by a Responsible Officer of the Trustee, or unless
there appears on such Certificate a certificate of authentication executed by
the Authenticating Agent by manual signature, and such countersignature or
certificate upon a Certificate shall be conclusive evidence, and the only
evidence, that such Certificate has been duly authenticated and delivered
hereunder. All Certificates shall be dated the date of their authentication.
Until such time as Definitive Certificates are issued pursuant to
Section 5.07, each Book-Entry Certificate shall bear the following legend:
"Unless this certificate is presented by an authorized representative
of [the Clearing Agency] to the Trustee or its agent for registration of
transfer, exchange or payment, and any certificate issued is registered in the
name of [the Clearing Agency] or such other name as requested by an authorized
representative of [the Clearing Agency] and any payment is made to [the Clearing
Agency], any transfer, pledge or other use hereof for value or otherwise by or
to any person is wrongful since the registered owner hereof, [the Clearing
Agency], has an interest herein."
(b) Upon original issuance, the Book-Entry Certificates shall be
issued in the form of one or more typewritten certificates, to be delivered to
The Depository Trust Company, the initial Clearing Agency, by, or on behalf of,
the Seller. Such Certificates shall
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initially be registered on the Certificate Register in the name of the nominee
of the initial Clearing Agency, and no Beneficial Owner will receive a
definitive certificate representing such Beneficial Owner's interest in the
Book-Entry Certificates, except as provided in Section 5.07. Unless and until
definitive, fully registered certificates ("Definitive Certificates") have been
issued to Beneficial Owners pursuant to Section 5.07:
(i) the provisions of this Section 5.01(b) shall be in full force
and effect;
(ii) the Seller, the Servicer, the Certificate Registrar and the
Trustee may deal with the Clearing Agency for all purposes (including the
making of distributions on the Book-Entry Certificates and the taking of
actions by the Holders of Book-Entry Certificates) as the authorized
representative of the Beneficial Owners;
(iii) to the extent that the provisions of this Section 5.01(b)
conflict with any other provisions of this Agreement, the provisions of
this Section 5.01(b) shall control;
(iv) the rights of Beneficial Owners shall be exercised only through
the Clearing Agency and shall be limited to those established by law, the
rules, regulations and procedures of the Clearing Agency and agreements
between such Beneficial Owners and the Clearing Agency and/or the Clearing
Agency Participants, and all references in this Agreement to actions by
Certificateholders shall, with respect to the Book-Entry Certificates,
refer to actions taken by the Clearing Agency upon instructions from the
Clearing Agency Participants, and all references in this Agreement to
distributions, notices, reports and statements to Certificateholders shall,
with respect to the Book-Entry Certificates, refer to distributions,
notices, reports and statements to the Clearing Agency or its nominee, as
registered holder of the Book-Entry Certificates, as the case may be, for
distribution to Beneficial Owners in accordance with the procedures of the
Clearing Agency; and
(v) the initial Clearing Agency will make book-entry transfers
among the Clearing Agency Participants and receive and transmit
distributions of principal and interest on the Certificates to the Clearing
Agency Participants, for distribution by such Clearing Agency Participants
to the Beneficial Owners or their nominees.
For purposes of any provision of this Agreement requiring or
permitting actions with the consent of, or at the direction of, Holders of Book-
Entry Certificates evidencing specified Voting Interests, such direction or
consent shall be given by Beneficial Owners having the requisite Voting
Interests, acting through the Clearing Agency.
Unless and until Definitive Certificates have been issued to
Beneficial Owners pursuant to Section 5.07, copies of the reports or statements
referred to in Section 4.04 shall be available to Beneficial Owners upon written
request to the Trustee at the Corporate Trust Office.
Section 5.02. Registration of Transfer and Exchange of Certificates.
-----------------------------------------------------
(a) The Trustee shall cause to be kept at one of the offices or agencies to be
maintained in accordance
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with the provisions of Section 5.06 a Certificate Register in which, subject to
such reasonable regulations as it may prescribe, the Trustee shall provide for
the registration of Certificates and of transfers and exchanges of Certificates
as herein provided. The Trustee shall act as, or shall appoint, a Certificate
Registrar for the purpose of registering Certificates and transfers and
exchanges of Certificates as herein provided.
Upon surrender for registration of transfer of any Certificate at any
office or agency maintained for such purpose pursuant to Section 5.06 (and
subject to the provisions of this Section 5.02) the Trustee shall execute, and
shall date, authenticate (or cause the Authenticating Agent to authenticate) and
deliver, in the name of the designated transferee or transferees, one or more
new Certificates of a like aggregate principal portion or Percentage Interest
and of the same Class.
At the option of the Certificateholders, Certificates may be exchanged
for other Certificates of authorized Denominations of a like aggregate principal
portion or Percentage Interest and of the same Class upon surrender of the
Certificates to be exchanged at any such office or agency. Whenever any
Certificates are so surrendered for exchange, the Trustee shall execute, and
shall date, authenticate (or cause the Authenticating Agent to authenticate) and
deliver, the Certificates which the Certificateholder making the exchange is
entitled to receive. Every Certificate presented or surrendered for transfer or
exchange shall (if so required by the Certificate Registrar or the Trustee) be
duly endorsed by, or be accompanied by a written instrument of transfer in form
satisfactory to the Certificate Registrar duly executed by, the Holder thereof
or his attorney duly authorized in writing.
No service charge shall be made for any transfer or exchange of
Certificates, but the Trustee or the Certificate Registrar may require payment
of a sum sufficient to cover any tax or governmental charge that may be imposed
in connection with any transfer or exchange of Certificates.
All Certificates surrendered for transfer and exchange shall be
canceled by the Certificate Registrar, the Trustee or the Authenticating Agent
in accordance with their standard procedures.
(b) No transfer of a Class A-PO, Class B-3, Class B-5 or Class B-6
Certificate shall be made unless the registration requirements of the Securities
Act of 1933, as amended, and any applicable State securities laws are complied
with, or such transfer is exempt from the registration requirements under said
Act and laws. In the event that a transfer is to be made in reliance upon an
exemption from said Act or laws, (i) unless such transfer is made in reliance on
Rule 144A, the Trustee or the Seller may, if such transfer is to be made within
three years from the date of the initial sale of Certificates, require a Class
A-PO, Class B-4, Class B-5 or Class B-6 Certificateholder to deliver a written
Opinion of Counsel acceptable to and in form and substance satisfactory to the
Trustee and the Seller, to the effect that such transfer may be made pursuant to
an exemption, describing the applicable exemption and the basis therefor, from
said Act and laws or is being made pursuant to said Act and laws, which Opinion
of Counsel shall not be an expense of the Trustee, the Seller or
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the Servicer, and (ii) the Trustee shall require the transferee to execute an
investment letter in the form of Exhibit J hereto certifying to the Seller and
the Trustee the facts surrounding such transfer, which investment letter shall
not be an expense of the Trustee, the Seller or the Servicer. The Holder of a
Class A-PO, Class B-4, Class B-5 or Class B-6 Certificate desiring to effect
such transfer shall, and does hereby agree to, indemnify the Trustee, the
Seller, the Servicer and any Paying Agent acting on behalf of the Trustee
against any liability that may result if the transfer is not so exempt or is not
made in accordance with such federal and state laws. Neither the Seller nor the
Trustee is under an obligation to register the Class B-4, Class B-5 or Class B-6
Certificates under said Act or any other securities law.
(c) No transfer of a Class A-PO or Class B Certificate shall be made
unless the Trustee and the Seller shall have received either (i) a
representation letter from the transferee of such Class A-PO or Class B
Certificate in the form of Exhibit J or K, as applicable, hereto, to the effect
that (a) such transferee is not an employee benefit plan or other retirement
arrangement subject to Title I of ERISA or Code Section 4975, or a governmental
plan as defined in Section 3(32) of ERISA subject to any federal, state or local
law ("Similar Law") which is to a material extent, similar to the foregoing
provisions of ERISA or the Code (collectively, a "Plan") and is not a person
acting on behalf of or using the assets of any such Plan, which representation
letter shall not be an expense of the Trustee, the Seller or the Servicer or (b)
if such transferee is an insurance company, the source of funds used to purchase
the Class A-PO or Class B Certificate is an "insurance company general account"
(as such term is defined in Section V(e) of Prohibited Transaction Class
Exemption 95-60 ("PTE 95-60"), 60 Fed. Reg. 35925 (July 12, 1995) and there is
no Plan with respect to which the amount of such general account's reserves and
liabilities for the contract(s) held by or on behalf of such Plan and all other
Plans maintained by the same employer (or affiliate thereof as defined in
Section V(a)(1) of PTE 95-60) or by the same employee organization, exceed 10%
of the total of all reserves and liabilities of such general account (as such
amounts are determined under Section I(a) of PTE 95-60) at the date of
acquisition, or (ii) in the case of any such Class A-PO or Class B Certificate
presented for registration in the name of a Plan, or a trustee of any such Plan,
(A) an Opinion of Counsel satisfactory to the Trustee and the Seller to the
effect that the purchase or holding of such Class A-PO or Class B Certificate
will not result in the assets of the Trust Estate being deemed to be "plan
assets" and subject to the prohibited transaction provisions of ERISA and the
Code or Similar Law and will not subject the Trustee, the Seller or the Servicer
to any obligation in addition to those undertaken in this Agreement, which
Opinion of Counsel shall not be an expense of the Trustee, the Seller or the
Servicer and (B) such other opinions of counsel, officer's certificates and
agreements as the Seller or the Trustee may require in connection with such
transfer, which opinions of counsel, officers' certificates and agreements shall
not be an expense of the Trustee, the Seller or the Servicer. The Class A-PO and
Class B Certificates shall bear a legend referring to the foregoing restrictions
contained in this paragraph and the preceding paragraph.
(d) No legal or beneficial interest in all or any portion of the Class
A-R Certificate may be transferred directly or indirectly to a "disqualified
organization" within the meaning of Code Section 860E(e)(5) or an agent of a
disqualified organization (including a broker, nominee, or middleman), to a Plan
or a Person acting on behalf of or investing the
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assets of a Plan (such Plan or Person, an "ERISA Prohibited Holder") or to an
individual, corporation, partnership or other person unless such transferee (i)
is not a Non-U.S. Person or (ii) is a Non-U.S. Person that holds the Class A-R
Certificate in connection with the conduct of a trade or business within the
United States and has furnished the transferor and the Trustee with an effective
Internal Revenue Service Form 4224 or (iii) is a Non-U.S. Person that has
delivered to both the transferor and the Trustee an opinion of a nationally
recognized tax counsel to the effect that the transfer of the Class A-R
Certificate to it is in accordance with the requirements of the Code and the
regulations promulgated thereunder and that such transfer of the Class A-R
Certificate will not be disregarded for federal income tax purposes (any such
person who is not covered by clauses (i), (ii) or (iii) above being referred to
herein as a "Non-permitted Foreign Holder"), and any such purported transfer
shall be void and have no effect. The Trustee shall not execute, and shall not
authenticate (or cause the Authenticating Agent to authenticate) and deliver, a
new Class A-R Certificate in connection with any such transfer to a disqualified
organization or agent thereof (including a broker, nominee or middleman), an
ERISA Prohibited Holder or a Non-permitted Foreign Holder, and neither the
Certificate Registrar nor the Trustee shall accept a surrender for transfer or
registration of transfer, or register the transfer of, the Class A-R
Certificate, unless the transferor shall have provided to the Trustee an
affidavit, substantially in the form attached as Exhibit H hereto, signed by the
transferee, to the effect that the transferee is not such a disqualified
organization, an agent (including a broker, nominee, or middleman) for any
entity as to which the transferee has not received a substantially similar
affidavit, an ERISA Prohibited Holder or a Non-permitted Foreign Holder, which
affidavit shall contain the consent of the transferee to any such amendments of
this Agreement as may be required to further effectuate the foregoing
restrictions on transfer of the Class A-R Certificate to disqualified
organizations, ERISA Prohibited Holders or Non-permitted Foreign Holders. Such
affidavit shall also contain the statement of the transferee that (i) the
transferee has historically paid its debts as they have come due and intends to
do so in the future, (ii) the transferee understands that it may incur
liabilities in excess of cash flows generated by the residual interest, (iii)
the transferee intends to pay taxes associated with holding the residual
interest as they become due and (iv) the transferee will not transfer the Class
A-R Certificate to any Person who does not provide an affidavit substantially in
the form attached as Exhibit H hereto.
The affidavit described in the preceding paragraph, if not executed in
connection with the initial issuance of the Class A-R Certificate, shall be
accompanied by a written statement in the form attached as Exhibit I hereto,
signed by the transferor, to the effect that as of the time of the transfer, the
transferor has no actual knowledge that the transferee is a disqualified
organization, ERISA Prohibited Holder or Non-permitted Foreign Holder, and has
no knowledge or reason to know that the statements made by the transferee with
respect to clauses (i) and (iii) of the last sentence of the preceding paragraph
are not true. The Class A-R Certificate shall bear a legend referring to the
foregoing restrictions contained in this paragraph and the preceding paragraph.
Upon notice to the Trustee that any legal or beneficial interest in
any portion of the Class A-R Certificate has been transferred, directly or
indirectly, to a disqualified organization or agent thereof (including a broker,
nominee, or middleman) in contravention of
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the foregoing restrictions, (i) such transferee shall be deemed to hold the
Class A-R Certificate in constructive trust for the last transferor who was not
a disqualified organization or agent thereof, and such transferor shall be
restored as the owner of the Class A-R Certificate as completely as if such
transfer had never occurred, provided that the Trustee may, but is not required
to, recover any distributions made to such transferee with respect to the Class
A-R Certificate, and (ii) the Trustee agrees to furnish to the Internal Revenue
Service and to any transferor of the Class A-R Certificate or such agent (within
60 days of the request therefor by the transferor or agent) such information
necessary to the application of Code Section 860E(e) as may be required by the
Code, including but not limited to the present value of the total anticipated
excess inclusions with respect to the Class A-R Certificate (or portion thereof)
for periods after such transfer. At the election of the Trustee, the cost to the
Trustee of computing and furnishing such information may be charged to the
transferor or such agent referred to above; however, the Trustee shall in no
event be excused from furnishing such information.
Section 5.03. Mutilated, Destroyed, Lost or Stolen Certificates. If
-------------------------------------------------
(i) any mutilated Certificate is surrendered to the Trustee or the
Authenticating Agent, or the Trustee or the Authenticating Agent receives
evidence to its satisfaction of the destruction, loss or theft of any
Certificate, and (ii) there is delivered to the Trustee or the Authenticating
Agent such security or indemnity as may be required by them to hold each of them
harmless, then, in the absence of notice to the Trustee or the Authenticating
Agent that such Certificate has been acquired by a bona fide purchaser, the
Trustee shall execute and authenticate (or cause the Authenticating Agent to
authenticate) and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Certificate, a new Certificate of like tenor and
principal portion or Percentage Interest and of the same Class. Upon the
issuance of any new Certificate under this Section, the Trustee or the
Certificate Registrar may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto and any
other expense (including the fees and expenses of the Trustee or the
Authenticating Agent) in connection therewith. Any duplicate Certificate issued
pursuant to this Section shall constitute complete and indefeasible evidence of
ownership in the Trust Estate, as if originally issued, whether or not the lost,
stolen, or destroyed Certificate shall be found at any time.
Section 5.04. Persons Deemed Owners. Prior to the due presentation of
---------------------
a Certificate for registration of transfer, the Seller, the Servicer, the
Trustee, the Certificate Registrar and any agent of the Seller, the Servicer,
the Trustee or the Certificate Registrar may treat the Person in whose name any
Certificate is registered as the owner of such Certificate for the purpose of
receiving distributions pursuant to Section 4.01, and for all other purposes
whatsoever, and neither the Seller, the Servicer, the Trustee, the Certificate
Registrar nor any agent of the Seller, the Servicer, the Trustee or the
Certificate Registrar shall be affected by notice to the contrary.
Section 5.05. Access to List of Certificateholders' Names and
-----------------------------------------------
Addresses.
- ---------
(a) If the Trustee is not acting as Certificate Registrar, the
Certificate Registrar shall furnish or cause to be furnished to the Trustee,
within 15 days after receipt by
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the Certificate Registrar of a request by the Trustee in writing, a list, in
such form as the Trustee may reasonably require, of the names and addresses of
the Certificateholders of each Class as of the most recent Record Date.
(b) If five or more Certificateholders (hereinafter referred to as
"applicants") apply in writing to the Trustee, and such application states that
the applicants desire to communicate with other Certificateholders with respect
to their rights under this Agreement or under the Certificates and is
accompanied by a copy of the communication which such applicants propose to
transmit, then the Trustee shall, within five Business Days following the
receipt of such application, afford such applicants access during normal
business hours to the most recent list of Certificateholders held by the
Trustee. If such a list is as of the date more than 90 days prior to the date of
receipt of such applicants' request and the Trustee is not the Certificate
Registrar, the Trustee shall promptly request from the Certificate Registrar a
current list as provided in paragraph (a) hereof, and shall afford such
applicants access to such list promptly upon receipt.
(c) Every Certificateholder, by receiving and holding a Certificate,
agrees with the Seller, the Servicer, the Certificate Registrar and the Trustee
that neither the Seller, the Servicer, the Certificate Registrar nor the Trustee
shall be held accountable by reason of the disclosure of any such information as
to the names, addresses and Percentage Interests of the Certificateholders
hereunder, regardless of the source from which such information was delivered.
Section 5.06. Maintenance of Office or Agency. The Trustee will
-------------------------------
maintain, at its expense, an office or agency where Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Certificate Registrar in respect of the Certificates and
this Agreement may be served. The Trustee initially designates the Corporate
Trust Office and the principal corporate trust office of the Authenticating
Agent, if any, as its offices and agencies for said purposes.
Section 5.07. Definitive Certificates. If (i)(A) the Servicer advises
-----------------------
the Trustee in writing that the Clearing Agency is no longer willing or able
properly to discharge its responsibilities as depository with respect to the
Book-Entry Certificates, and (B) the Servicer is unable to locate a qualified
successor, (ii) the Servicer, at its option, advises the Trustee in writing that
it elects to terminate the book-entry system through the Clearing Agency or
(iii) after the occurrence of dismissal or resignation of the Servicer,
Beneficial Owners representing aggregate Voting Interests of not less than 51%
of the aggregate Voting Interests of each outstanding Class of Book-Entry
Certificates advise the Trustee through the Clearing Agency and Clearing Agency
Participants in writing that the continuation of a book-entry system through the
Clearing Agency is no longer in the best interests of the Beneficial Owners, the
Trustee shall notify the Beneficial Owners, through the Clearing Agency, of the
occurrence of any such event and of the availability of Definitive Certificates
to Beneficial Owners requesting the same. Upon surrender to the Trustee by the
Clearing Agency of the Certificates held of record by its nominee, accompanied
by re-registration instructions and directions to execute and authenticate new
Certificates from the Servicer, the Trustee shall execute and
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authenticate Definitive Certificates for delivery at its Corporate Trust Office.
The Servicer shall arrange for, and will bear all costs of, the printing and
issuance of such Definitive Certificates. Neither the Seller, the Servicer nor
the Trustee shall be liable for any delay in delivery of such instructions by
the Clearing Agency and may conclusively rely on, and shall be protected in
relying on, such instructions.
Section 5.08. Notices to Clearing Agency. Whenever notice or other
--------------------------
communication to the Holders of Book-Entry Certificates is required under this
Agreement, unless and until Definitive Certificates shall have been issued to
Beneficial Owners pursuant to Section 5.07, the Trustee shall give all such
notices and communications specified herein to be given to Holders of Book-Entry
Certificates to the Clearing Agency.
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ARTICLE VI
THE SERVICER
Section 6.01. Liability of the Servicer. The Servicer, and any
-------------------------
subservicer appointed by the Servicer, shall be liable in accordance herewith
only to the extent of the obligations specifically imposed upon and undertaken
by the Servicer herein. If the Servicer delegates any of its duties hereunder to
one or more subservicers, the Servicer shall not be relieved thereby of its
liability with respect thereto.
Section 6.02. Merger or Consolidation of the Servicer; Transfer of
----------------------------------------------------
Servicing. Any Person into which the Servicer may be merged or consolidated, or
- ---------
any Person resulting from any merger, conversion or consolidation to which the
Servicer shall be a party, or any Person succeeding to the business of the
Servicer, shall be the successor of the Servicer hereunder, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding; provided,
however, that any such successor or resulting Person shall be qualified to
service mortgage loans for FNMA or FHLMC and shall have a net worth of not less
than $15,000,000.
Notwithstanding anything to the contrary contained in this Section
6.02 or in Section 6.04, the Servicer may assign its rights and delegate its
duties and obligations under this Agreement; provided that (i) the purchaser or
transferee accepting such assignment or delegation shall be a Person which shall
be qualified to service mortgage loans for FNMA or FHLMC, shall be satisfactory
to the Trustee, in the reasonable exercise of its judgment, and shall execute
and deliver to the Trustee an agreement, in form and substance reasonably
satisfactory to the Trustee, which contains an assumption by such Person of the
due and punctual performance and observance of each covenant and condition to be
performed or observed by the Servicer under this Agreement from and after the
date of such agreement; and (ii) each Rating Agency's rating of the Certificates
in effect immediately prior to such assignment, sale or transfer would not be
qualified, downgraded or withdrawn and the Certificates would not be placed on
credit review status (except for possible upgrading) as a result of such
assignment, sale or transfer.
In the case of any assignment and delegation of rights, duties and
obligations under this Agreement pursuant to this Section 6.02, the Servicer
shall be released from its duties and obligations under this Agreement, except
that the Servicer shall remain liable for all liabilities and obligations
incurred by it as Servicer hereunder prior to the satisfaction of the conditions
to such assignment and delegation set forth in clauses (i) and (ii) of the
preceding sentence.
Section 6.03. Limitation on Liability of the Servicer and Others.
--------------------------------------------------
Neither the Servicer or any subservicer appointed by it, nor any of their
respective partners, directors, officers, employees or agents, shall be under
any liability to the Trust Estate or the Certificateholders for any action taken
or for refraining from the taking of any action in good
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faith pursuant to this Agreement, or for errors in judgment; provided, however,
-------- -------
that this provision shall not protect the Servicer, any subservicer or any such
person against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence in the performance of his or
its duties or by reason of reckless disregard of his or its obligations and
duties hereunder. The Servicer, any subservicer, and any of their respective
partners, directors, officers, employees or agents, may rely in good faith on
any document of any kind prima facie properly executed and submitted by any
Person respecting any matters arising hereunder. The Servicer, each subservicer,
and each of their respective partners, directors, officers, employees or agents,
shall be indemnified by the Trust Estate and held harmless against any loss,
liability or expense incurred in connection with any legal action relating to
this Agreement or the Certificates, other than any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or gross negligence in the
performance of his or its duties hereunder or by reason of reckless disregard of
his or its obligations and duties hereunder. Neither the Servicer nor any
subservicer shall be under any obligation to appear in, prosecute or defend any
legal action which is not incidental to its duties under this Agreement and that
in its opinion may involve it in any expense or liability; provided, however,
-------- -------
that the Servicer or any subservicer may in its discretion undertake any such
action which it may deem necessary or desirable in respect of this Agreement and
the rights and duties of the parties hereto and the interest of the
Certificateholders hereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom shall be expenses, costs and
liabilities of the Trust Estate, and the Servicer or such subservicer shall be
entitled to be reimbursed therefor out of the Servicer Custodial Account
pursuant to Section 3.03 or out of the Certificate Account as provided by
Section 3.05, and such amounts shall, on the following Distribution Date or
Distribution Dates, be allocated in reduction of distributions on the Classes of
Class A Certificates and the Classes of Class B Certificates in the same manner
as Realized Losses are allocated pursuant to Section 4.02(a).
Section 6.04. The Servicer Not to Resign. Except as specifically
--------------------------
authorized pursuant to Section 6.02 above, the Servicer shall not resign from
the obligations and duties hereby imposed on it, except upon determination that
its duties hereunder are no longer permissible under applicable law or are in
material conflict by reason of applicable law with any other activities carried
on by it. Any such determination permitting the resignation of the Servicer
shall be evidenced by an Opinion of Counsel to such effect delivered to the
Trustee. No such resignation shall become effective until the Trustee or a
successor servicer shall have assumed the Servicer's responsibilities and
obligations in accordance with Section 7.05 hereof.
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ARTICLE VII
DEFAULT
Section 7.01. Events of Default. In case one or more of the following
-----------------
Events of Default by the Servicer shall occur and be continuing, that is to say:
(i) any failure by the Servicer to make any deposit to the
Certificate Account required by Section 3.02 which continues unremedied for
a period of three Business Days after the date upon which written notice of
such failure, requiring the same to be remedied, shall have been given to
the Servicer by the Trustee or to the Servicer and the Trustee by the
holders of Certificates evidencing in the aggregate not less than 25% of
the aggregate Voting Interest represented by all Certificates; or
(ii) any failure on the part of the Servicer duly to observe or
perform in any material respect any other of the covenants or agreements on
the part of the Servicer in the Certificates or in this Agreement which
continues unremedied for a period of 60 days after the date on which
written notice of such failure, requiring the same to be remedied, shall
have been given to the Servicer by the Trustee, or to the Servicer and the
Trustee by the holders of Certificates evidencing in the aggregate not less
than 25% of the aggregate Voting Interest represented by all Certificates;
or
(iii) a decree or order of a court or agency or supervisory authority
having jurisdiction in the premises for the appointment of a trustee,
conservator, receiver or liquidator in any bankruptcy, insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs, shall
have been entered against the Servicer and such decree or order shall have
remained in force undischarged and unstayed for a period of 60 days; or
(iv) the Servicer shall consent to the appointment of a trustee,
conservator, receiver or liquidator or liquidating committee in any
bankruptcy, insolvency, readjustment of debt, marshalling of assets and
liabilities, voluntary liquidation or similar proceedings of or relating to
the Servicer, or of or relating to all or substantially all of its
property; or
(v) the Servicer shall admit in writing its inability to pay its
debts generally as they become due, file a petition to take advantage of
any applicable insolvency, bankruptcy or reorganization statute, make an
assignment for the benefit of its creditors or voluntarily suspend payment
of its obligations; or
(vi) the Servicer shall be dissolved, or shall dispose of all or
substantially all of its assets; or consolidate with or merge into another
entity or shall permit another entity to consolidate or merge into it, such
that the resulting entity does not meet the criteria for a successor
servicer, as specified in Section 6.02 hereof; or
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(vii) the Servicer and the subservicer, if any, appointed by the
Servicer both become ineligible to service for both FNMA and FHLMC, and
both remain ineligible or fail diligently to proceed to become eligible to
service for both FNMA and FHLMC, for a period of 90 days following written
notice to the Servicer by the Trustee;
then, and in each and every such case, subject to applicable law, so long as an
Event of Default shall not have been remedied, either the Trustee or the holders
of Certificates evidencing in the aggregate not less than 25% of the aggregate
Voting Interest represented by all Certificates, by notice in writing to the
Servicer (and to the Trustee if given by the Certificateholders) may terminate
all of the rights and obligations of the Servicer under this Agreement, but
without prejudice to any rights which the Servicer may have to the aggregate
Servicing Fees (subject to Section 3.17) due prior to the date of transfer of
the Servicer's responsibilities hereunder, reimbursement of expenses to the
extent permitted by this Agreement, Periodic Advances and other advances of its
own funds. Upon receipt by the Servicer of such written notice, all authority
and power of the Servicer under this Agreement, whether with respect to the
Certificates or the Mortgage Loans or otherwise, shall pass to and be vested in
the Trustee pursuant to and under this Section, subject to the provisions of
Section 7.05; and, without limitation, the Trustee is hereby authorized and
empowered to execute and deliver, on behalf of the Servicer, as attorney-in-fact
or otherwise, any and all documents and other instruments, and to do or
accomplish all other acts or things necessary or appropriate to effect the
purposes of such notice of termination, whether to complete the transfer and
endorsement or assignment of the Mortgage Loans and related documents or
otherwise. The Servicer agrees to cooperate with the Trustee in effecting the
termination of the Servicer's responsibilities and rights hereunder and shall
promptly provide the Trustee all documents and records reasonably requested by
it to enable it to assume the Servicer's functions hereunder and shall promptly
also transfer to the Trustee all amounts which then have been or should have
been deposited in the Certificate Account by the Servicer or which are
thereafter received by the Servicer with respect to the Mortgage Loans.
Section 7.02. Other Remedies of Trustee. During the continuance of
-------------------------
any Event of Default, so long as such Event of Default shall not have been
remedied, the Trustee, in addition to the rights specified in Section 7.01,
shall have the right, in its own name as trustee of an express trust, to take
all actions now or hereafter existing at law, in equity or by statute to enforce
its rights and remedies and to protect the interests, and enforce the rights and
remedies, of the Certificateholders (including the institution and prosecution
of all judicial, administrative and other proceedings and the filing of proofs
of claim and debt in connection therewith). Except as otherwise expressly
provided in this Agreement, no remedy provided for by this Agreement shall be
exclusive of any other remedy, and each and every remedy shall be cumulative and
in addition to any other remedy and no delay or omission to exercise any right
or remedy shall impair any such right or remedy or shall be deemed to be a
waiver of any Event of Default.
Section 7.03. Directions by Certificateholders and Duties of Trustee
------------------------------------------------------
During Event of Default. During the continuance of any Event of Default, Holders
- -----------------------
of Certificates evidencing in the aggregate not less than 25% of the aggregate
Voting Interest represented by
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<PAGE>
all Certificates may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee, under this Agreement, provided, however, that
the Trustee shall be under no obligation to pursue any such remedy, or to
exercise any of the trusts or powers vested in it by this agreement (including,
without limitation, (i) the conducting or defending of any administrative action
or litigation hereunder or in relation hereto and (ii) the terminating of the
Servicer from its rights and duties as servicer hereunder) at the request, order
or direction of any of the Certificateholders, unless such Certificateholders
shall have offered to the Trustee reasonable security or indemnity against the
cost, expenses and liabilities which may be incurred therein or thereby and,
provided further, that, subject to the provisions of Section 8.01, the Trustee
shall have the right to decline to follow any such direction if the Trustee, in
accordance with an Opinion of Counsel, determines that the action or proceeding
so directed may not lawfully be taken or if the Trustee in good faith determines
that the action or proceeding so directed would involve it in personal liability
or be unjustly prejudicial to the non-assenting Certificateholders.
Section 7.04. Action upon Certain Failures of the Servicer and upon
-----------------------------------------------------
Event of Default. In the event that the Trustee shall have knowledge of any
- ----------------
failure of the Servicer specified in Section 7.01(i) or (ii) which would become
an Event of Default upon the Servicer's failure to remedy the same after notice,
the Trustee may, but need not if the Trustee deems it not in the
Certificateholders' best interest, give notice thereof to the Servicer. For all
purposes of this Agreement, in the absence of actual knowledge by a corporate
trust officer of the Trustee, the Trustee shall not be deemed to have knowledge
of any failure of the Servicer as specified in Section 7.01(i) and (ii) or any
Event of Default unless notified thereof in writing by the Servicer or by a
Certificateholder.
Section 7.05. Trustee to Act; Appointment of Successor. When the
----------------------------------------
Servicer receives notice of termination pursuant to Section 7.01 or the Trustee
receives the resignation of the Servicer evidenced by an Opinion of Counsel
pursuant to Section 6.04, the Trustee shall be the successor in all respects to
the Servicer in its capacity as servicer under this Agreement and the
transactions set forth or provided for herein and shall have the rights and
powers and be subject to all the responsibilities, duties and liabilities
relating thereto placed on the Servicer by the terms and provisions hereof and
in its capacity as such successor shall have the same limitation of liability
herein granted to the Servicer. In the event that the Trustee is succeeding to
the Servicer as the Servicer, as compensation therefor, the Trustee shall be
entitled to receive monthly such portion of the Servicing Fee, together with the
other servicing compensation in the form of assumption fees, late payment
charges or otherwise as provided in Section 3.14 (subject to adjustment in
accordance with Section 3.19), as is agreed to at such time by the Trustee and
the Servicer, but in no event more than 25% thereof until the date of final
cessation of the Servicer's servicing activities hereunder. Notwithstanding the
above, the Trustee may, if it shall be unwilling to so act, or shall, if it is
unable to so act or to obtain a qualifying bid as described below, appoint, or
petition a court of competent jurisdiction to appoint, any housing and home
finance institution, bank or mortgage servicing institution having a net worth
of not less than $10,000,000 and meeting such other standards for a successor
servicer as are set forth herein, as the successor to the Servicer hereunder in
the
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<PAGE>
assumption of all or any part of the responsibilities, duties or liabilities of
the Servicer hereunder; provided, however, that until such a successor servicer
is appointed and has assumed the responsibilities, duties and liabilities of the
Servicer hereunder, the Trustee shall continue as the successor to the Servicer
as provided above. The compensation of any successor servicer so appointed shall
not exceed the compensation specified in Section 3.13 hereof (subject to
adjustment in accordance with Section 3.18). In the event the Trustee is
required to solicit bids as provided above, the Trustee shall solicit, by public
announcement, bids from housing and home finance institutions, banks and
mortgage servicing institutions meeting the qualifications set forth in the
preceding sentence for the purchase of the servicing functions. Such public
announcement shall specify that the successor servicer shall be entitled to the
full amount of the Servicing Fee as servicing compensation together with the
other servicing compensation in the form of assumption fees, late payment
charges or otherwise as provided in Section 3.12 (subject to adjustment in
accordance with Section 3.18). Within 30 days after any such public
announcement, the Trustee shall negotiate and effect the sale, transfer and
assignment of the servicing rights and responsibilities hereunder to the
qualified party submitting the highest qualifying bid. The Trustee shall deduct
all cost and expenses of any public announcement and of any sale, transfer and
assignment of the servicing rights and responsibilities hereunder from any sum
received by the Trustee from the successor to the Servicer in respect of such
sale, transfer and assignment. After such deductions, the remainder of such sum
shall be paid by the Trustee to the Servicer at the time of such sale, transfer
and assignment to the Servicer's successor. The Trustee and such successor shall
take such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession. The Servicer agrees to cooperate with the
Trustee and any successor servicer in effecting the termination of the
Servicer's servicing responsibilities and rights hereunder and shall promptly
provide the Trustee or such successor servicer, as applicable, all documents and
records reasonably requested by it to enable it to assume the Servicer's
function hereunder and shall promptly also transfer to the Trustee or such
successor servicer, as applicable, all amounts which then have been or should
have been deposited in the Servicer Custodial Account or the Certificate Account
by the Servicer or which are thereafter received by the Servicer with respect to
the Mortgage Loans. Neither the Trustee nor any other successor servicer shall
be deemed to be in default hereunder by reason of any failure to make, or any
delay in making, any distribution hereunder or any portion thereof caused by (i)
the failure of the Servicer to deliver, or any delay in delivering, cash,
documents or records to it, or (ii) restrictions imposed by any regulatory
authority having jurisdiction over the Servicer. Notwithstanding anything to the
contrary contained in Section 7.01 above or this Section 7.05, the Servicer
shall retain all of its rights and responsibilities hereunder, and no successor
(including the Trustee) shall succeed thereto, if the assumption thereof by such
successor would cause the rating assigned to any Certificates to be revoked,
downgraded or placed on credit review status (other than for possible upgrading)
by either Rating Agency and the retention thereof by the Servicer would avert
such revocation, downgrading or review. Any successor to the Servicer shall
assume in writing all of the Servicer's obligations.
Section 7.06. Notification to Certificateholders. Upon any
----------------------------------
termination of the Servicer or appointment of a successor servicer, in each case
as provided herein, the Trustee shall give prompt written notice thereof to
Certificateholders at their respective addresses
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<PAGE>
appearing in the Certificate Register. The Trustee shall also, within 45 days
after the occurrence of any Event of Default known to the Trustee, give written
notice thereof to Certificateholders at their respective addresses appearing in
the Certificate Register, unless such Event of Default shall have been cured or
waived within said 45 day period.
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<PAGE>
ARTICLE VIII
CONCERNING THE TRUSTEE
Section 8.01. Duties of Trustee. The Trustee, prior to the
------------------
occurrence of an Event of Default and after the curing of all Events of Default
which may have occurred, undertakes to perform such duties and only such duties
as are specifically set forth in this Agreement. In case an Event of Default has
occurred (which has not been cured), the Trustee, subject to the provisions of
Sections 7.01, 7.03 and 7.05, shall exercise such of the rights and powers
vested in it by this Agreement, and use the same degree of care and skill in
their exercise as a prudent investor would exercise or use under the
circumstances in the conduct of such investor's own affairs.
The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they are in
the form required by this Agreement; provided, however, that the Trustee shall
-------- -------
not be responsible for the accuracy or content of any certificate, statement,
instrument, report, notice or other document furnished by the Servicer pursuant
to Articles II, III, IV and IX.
No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct; provided, however, that:
-------- -------
(i) Prior to the occurrence of an Event of Default and after the
curing of all such Events of Default which may have occurred, the duties
and obligations of the Trustee shall be determined solely by the express
provisions of this Agreement, the Trustee shall not be liable except for
the performance of such duties and obligations as are specifically set
forth in this Agreement, no implied covenants or obligations shall be read
into this Agreement against the Trustee and, in the absence of bad faith on
the part of the Trustee, the Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed therein,
upon any certificates or opinions furnished to the Trustee and conforming
to the requirements of this Agreement;
(ii) The Trustee shall not be personally liable with respect to any
action taken, suffered or omitted to be taken by it in good faith in
accordance with the direc tion of holders of Certificates which evidence in
the aggregate not less than 25% of the Voting Interest represented by all
Certificates relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred upon the Trustee, under this Agreement; and
VIII-1
<PAGE>
(iii) The Trustee shall not be liable for any error of judgment made
in good faith by any Responsible Officer, unless it shall be proved that
the Trustee or such Responsible Officer was negligent in ascertaining the
pertinent facts.
None of the provisions contained in this Agreement shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties as Trustee hereunder or in the
exercise of any of its rights or powers if there is reasonable ground for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it.
Section 8.02. Certain Matters Affecting the Trustee. Except as
-------------------------------------
otherwise provided in Section 8.01:
(i) The Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate,
certificate of auditors or any other certificate, statement, instrument,
opinion, report, notice, request, consent, order, appraisal, bond or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(ii) The Trustee may consult with counsel, and any Opinion of
Counsel shall be full and complete authorization and protection in respect
of any action taken or suffered or omitted by it hereunder in good faith
and in accordance with such Opinion of Counsel;
(iii) The Trustee shall not be personally liable for any action
taken, suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon it
by this Agreement; and
(iv) The Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys.
Section 8.03. Trustee Not Required to Make Investigation. Prior to the
------------------------------------------
occurrence of an Event of Default hereunder and after the curing of all Events
of Default which may have occurred, the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order,
appraisal, bond, Mortgage, Mortgage Note or other paper or document (provided
the same appears regular on its face), unless requested in writing to do so by
holders of Certificates evidencing in the aggregate not less than 51% of the
Voting Interest represented by all Certificates; provided, however, that if the
-------- -------
payment within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such investigation is,
in the opinion of the Trustee, not reasonably assured to the Trustee by the
security afforded to it by the terms of this Agreement, the Trustee may require
reasonable indemnity against such expense or liability as a condition to so
proceeding. The reasonable expense of every such investigation shall be paid by
the Servicer or, if paid by the Trustee, shall be repaid by the Servicer upon
demand.
VIII-2
<PAGE>
Section 8.04. Trustee Not Liable for Certificates or Mortgage Loans.
-----------------------------------------------------
The recitals contained herein and in the Certificates (other than the
certificate of authentication on the Certificates) shall be taken as the
statements of the Seller, and the Trustee assumes no responsibility as to the
correctness of the same. The Trustee makes no representations for the
correctness of the same. The Trustee makes no representations as to the validity
or sufficiency of this Agreement or of the Certificates or of any Mortgage Loan
or related document. Subject to Section 2.04, the Trustee shall not be
accountable for the use or application by the Seller of any of the Certificates
or of the proceeds of such Certificates.
Section 8.05. Trustee May Own Certificates. The Trustee and any agent
----------------------------
of the Trustee in its individual or any other capacity may become the owner or
pledgee of Certificates with the same rights it would have if it were not
Trustee or such agent.
Section 8.06. The Servicer to Pay Trustee's Fees and Expenses. The
-----------------------------------------------
Servicer covenants and agrees to pay to the Trustee from time to time, and the
Trustee shall be entitled to receive, reasonable compensation (which shall not
be limited by any provision of law in regard to the compensation of a trustee of
an express trust) for all services rendered by it in the execution of the trusts
hereby created and in the exercise and performance of any of the powers and
duties hereunder of the Trustee, and the Servicer will pay or reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any of the provisions of this
Agreement (including the reasonable compensation and the expenses and
disbursements of its counsel and of all persons not regularly in its employ)
except any such expense, disbursement, or advance as may arise from its
negligence or bad faith.
Section 8.07. Eligibility Requirements for Trustee. The Trustee
------------------------------------
hereunder shall at all times be a corporation having its principal office in a
state and city acceptable to the Seller, organized and doing business under the
laws of such state or the United States of America, authorized under such laws
to exercise corporate trust powers, having a combined capital and surplus of at
least $50,000,000, or shall be a member of a bank holding system, the aggregate
combined capital and surplus of which is at least $50,000,000, provided that the
Trustee's separate capital and surplus shall at all times be at least the amount
specified in Section 310(a)(2) of the Trust Indenture Act of 1939, and shall be
subject to supervision or examination by federal or state authority. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of the aforesaid supervising or examining authority, then
for the purposes of this Section the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. In case at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section, the Trustee shall resign immediately in the manner and with the effect
specified in Section 8.08.
Section 8.08. Resignation and Removal of Trustee. The Trustee may at
----------------------------------
any time resign and be discharged from the trusts hereby created by giving
written notice of resignation to the Servicer, such resignation to be effective
upon the appointment of a successor trustee. Upon receiving such notice of
resignation, the Servicer shall promptly
VIII-3
<PAGE>
appoint a successor trustee by written instrument, in duplicate, one copy of
which instrument shall be delivered to the resigning Trustee and one copy to the
successor trustee. If no successor trustee shall have been appointed and have
accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 8.07 and shall fail to resign after written
request for the Trustee's resignation by the Servicer, or if at any time the
Trustee shall become incapable of acting, or an order for relief shall have been
entered in any bankruptcy or insolvency proceeding with respect to the Trustee,
or a receiver of the Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conversion or liquidation, or in
order to change the situs of the Trust Estate for state tax reasons, then the
Servicer shall remove the Trustee and appoint a successor trustee by written
instrument, in duplicate, one copy of which instrument shall be delivered to the
Trustee so removed and one copy to the successor trustee.
The Holders of Certificates evidencing in the aggregate not less than
51% of the Voting Interests represented by all Certificates may at any time
remove the Trustee and appoint a successor trustee by written instrument or
instruments, in triplicate, signed by such holders or their attorneys-in-fact
duly authorized, one complete set of which instruments shall be delivered to the
Servicer, one complete set of which shall be delivered to the Trustee so removed
and one complete set of which shall be delivered to the successor so appointed.
Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section shall become
effective upon acceptance of appointment by the successor trustee as provided in
Section 8.09.
Section 8.09. Successor Trustee. Any successor trustee appointed
-----------------
as provided in Section 8.08 shall execute, acknowledge and deliver to the
Servicer and to its predecessor trustee an instrument accepting such appointment
hereunder, and thereupon the resignation or removal of the predecessor trustee
shall become effective, and such successor trustee, without any further act,
deed or reconveyance, shall become fully vested with all the rights, powers,
duties and obligations of its predecessor hereunder, with like effect as if
originally named as trustee herein. The predecessor trustee shall deliver to the
successor trustee all Mortgage Files and related documents and statements held
by it hereunder (other than any Mortgage Files at the time held by a Custodian,
which Custodian shall become the agent of any successor trustee hereunder), and
the Seller, the Servicer and the predecessor trustee shall execute and deliver
such instruments and do such other things as may reasonably be required for more
fully and certainly vesting and confirming in the successor trustee all such
rights, powers, duties and obligations.
No successor trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor trustee shall be
eligible under the provisions of Section 8.07.
VIII-4
<PAGE>
Upon acceptance of appointment by a successor trustee as provided in
this Section, the Servicer shall mail notice of the succession of such trustee
hereunder to all Holders of Certificates at their addresses as shown in the
Certificate Register. If the Servicer fails to mail such notice within ten days
after acceptance of the successor trustee, the successor trustee shall cause
such notice to be mailed at the expense of the Servicer.
Section 8.10. Merger or Consolidation of Trustee. Any Person into
----------------------------------
which the Trustee may be merged or converted or with which it may be
consolidated, to which it may sell or transfer its corporate trust business and
assets as a whole or substantially as a whole or any Person resulting from any
merger, sale, transfer, conversion or consolidation to which the Trustee shall
be a party, or any Person succeeding to the business of the Trustee, shall be
the successor of the Trustee hereunder, provided that (i) such Person shall be
eligible under the provisions of Section 8.07, without the execution or filing
of any paper or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding, and (ii) the Trustee shall
deliver an Opinion of Counsel to the Seller and the Servicer to the effect that
such merger, consolidation, sale or transfer will not subject the REMIC to
federal, state or local tax or cause the Trust Estate to fail to qualify as a
REMIC, which Opinion of Counsel shall be at the sole expense of the Trustee.
Section 8.11. Authenticating Agent. The Trustee may appoint an
--------------------
Authenticating Agent, which shall be authorized to act on behalf of the Trustee
in authenticating Certificates. Wherever reference is made in this Agreement to
the authentication of Certificates by the Trustee or the Trustee's
countersignature, such reference shall be deemed to include authentication on
behalf of the Trustee by the Authenticating Agent and a certificate of
authentication executed on behalf of the Trustee by the Authenticating Agent.
The Authenticating Agent must be acceptable to the Seller and the Servicer and
must be a corporation organized and doing business under the laws of the United
States of America or of any state, having a principal office and place of
business in a state and city acceptable to the Seller and the Servicer, having a
combined capital and surplus of at least $15,000,000, authorized under such laws
to do a trust business and subject to supervision or examination by Federal or
state authorities.
Any corporation into which the Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency business
of the Authenticating Agent, shall be the Authenticating Agent without the
execution or filing of any paper or any further act on the part of the Trustee
or the Authenticating Agent.
The Authenticating Agent may at any time resign by giving at least 30
days' advance written notice of resignation to the Trustee, the Seller and the
Servicer. The Trustee may at any time terminate the agency of the Authenticating
Agent by giving written notice of termination to the Authenticating Agent, the
Seller and the Servicer. Upon receiving a notice of resignation or upon such a
termination, or in case at any time the Authenticating Agent shall cease to be
eligible in accordance with the provisions of this Section 8.11, the Trustee
VIII-5
<PAGE>
promptly shall appoint a successor Authenticating Agent, which shall be
acceptable to the Servicer, and shall give written notice of such appointment to
the Seller, and shall mail notice of such appointment to all Certificateholders.
Any successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers, duties and responsibilities of
its predecessor hereunder, with like effect as if originally named as
Authenticating Agent herein. No successor Authenticating Agent shall be
appointed unless eligible under the provisions of this Section 8.11.
The Authenticating Agent shall have no responsibility or liability for
any action taken by it as such at the direction of the Trustee. Any reasonable
compensation paid to the Authenticating Agent shall be a reimbursable expense
under Section 8.06.
Section 8.12. Separate Trustees and Co-Trustees. The Trustee shall
---------------------------------
have the power from time to time to appoint one or more persons or corporations
to act either as co-trustees jointly with the Trustee or as separate trustees,
for the purpose of holding title to, foreclosing or otherwise taking action with
respect to any Mortgage Loan outside the state where the Trustee has its
principal place of business, where such separate trustee or co-trustee is
necessary or advisable (or the Trustee is advised by the Servicer that such
separate trustee or co-trustee is necessary or advisable) under the laws of any
state in which a Mortgaged Property is located or for the purpose of otherwise
conforming to any legal requirement, restriction or condition in any state in
which a Mortgaged Property is located or in any state in which any portion of
the Trust Estate is located. The Servicer shall advise the Trustee when, in its
good faith opinion, a separate trustee or co-trustee is necessary or advisable
as aforesaid. The separate trustees or co-trustees so appointed shall be
trustees for the benefit of all of the Certificateholders and shall have such
powers, rights and remedies as shall be specified in the instrument of
appointment; provided, however, that no such appointment shall, or shall be
deemed to, constitute the appointee an agent of the Trustee. The Seller and the
Servicer shall join in any such appointment, but such joining shall not be
necessary for the effectiveness of such appointment.
Every separate trustee and co-trustee shall, to the extent permitted
by law, be appointed and act subject to the following provisions and
conditions:
(i) all powers, duties, obligations and rights conferred upon the
Trustee in respect of the receipt, custody and payment of moneys shall be
exercised solely by the Trustee;
(ii) all other rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and exercised
or performed by the Trustee and such separate trustee or co-trustee
jointly, except to the extent that under any law of any jurisdiction in
which any particular act or acts are to be performed (whether as Trustee
hereunder or as successor to the Servicer hereunder) the Trustee shall be
incompetent or unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations (including the holding of title to
the Trust Estate
VIII-6
<PAGE>
or any portion thereof in any such jurisdiction) shall be exercised and
performed by such separate trustee or co-trustee;
(iii) no separate trustee or co-trustee hereunder shall be personally
liable by reason of any act or omission of any other separate trustee or
co-trustee hereunder; and
(iv) the Trustee may at any time accept the resignation of or remove
any separate trustee or co-trustee so appointed by it, if such resignation
or removal does not violate the other terms of this Agreement.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee, co-trustee, or custodian shall refer to this Agreement and the
conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Trustee or
separately, as may be provided therein, subject to all the provisions of this
Agreement, specifically including every provision of this Agreement relating to
the conduct of, affecting the liability of, or affording protection to, the
Trustee. Every such instrument shall be furnished to the Trustee.
Any separate trustee, co-trustee, or custodian may, at any time,
constitute the Trustee, its agent or attorney-in-fact, with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
No separate trustee or co-trustee hereunder shall be required to meet
the terms of eligibility as a successor trustee under Section 8.07 hereunder and
no notice to Certificateholders of the appointment thereof shall be required
under Section 8.09 hereof.
The Trustee agrees to instruct the co-trustees, if any, to the extent
necessary to fulfill the Trustee's obligations hereunder.
The Servicer shall pay the reasonable compensation of the co-trustees
to the extent, and in accordance with the standards, specified in Section 8.06
hereof.
Section 8.13. Appointment of Custodians. The Trustee may at any time
-------------------------
on or after the Closing Date, with the consent of the Servicer and the Seller,
appoint one or more Custodians to hold all or a portion of the Mortgage Files as
agent for the Trustee, by entering into a Custodial Agreement. Subject to this
Article VIII, the Trustee agrees to comply with the terms of each Custodial
Agreement and to enforce the terms and provisions thereof against the Custodian
for the benefit of the Certificateholders. Each Custodian shall be a depository
institution subject to supervision by federal or state authority, shall have a
combined capital and surplus of at least $10,000,000 and shall be qualified to
do business in the jurisdiction in
VIII-7
<PAGE>
which it holds any Mortgage File. Each Custodial Agreement may be amended only
as provided in Section 10.01.
Section 8.14. Monthly Advances. In the event that the Servicer fails
----------------
to make a Periodic Advance required to be made pursuant to this Agreement on or
before the Distribution Date, the Trustee shall make a Periodic Advance as
required by Section 3.22 hereof; provided however, the Trustee shall not be
-------- -------
required to make such Periodic Advances if prohibited by law or if it determines
that such Periodic Advance would be a Nonrecoverable Advance. With respect to
those Periodic Advances which should have been made by the Servicer, the Trustee
shall be entitled, pursuant to Section 3.05(i), (ii) or (v) hereof, to be
reimbursed from the Certificate Account for Periodic Advances and Nonrecoverable
Advances made by it.
VIII-8
<PAGE>
ARTICLE IX
TERMINATION
Section 9.01. Termination upon Purchase by the Servicer or
--------------------------------------------
Liquidation of All Mortgage Loans. Subject to Section 9.02, the respective
- ---------------------------------
obligations and responsibilities of the Seller, the Servicer and the Trustee
created hereby (other than the obligation of the Trustee to make certain
payments after the Final Distribution Date to Certificateholders and the
obligation of the Servicer to send certain notices as hereinafter set forth)
shall terminate upon the last action required to be taken by the Trustee on the
Final Distribution Date pursuant to this Article IX following the earlier of (i)
the purchase by the Servicer of all Mortgage Loans and all property acquired in
respect of any Mortgage Loan remaining in the Trust Estate at a price equal to
the sum of (x) 100% of the unpaid principal balance of each Mortgage Loan (other
than any Mortgage Loan as to which title to the underlying Mortgaged Property
has been acquired and whose fair market value is included pursuant to clause (y)
below) as of the Final Distribution Date, and (y) the fair market value of such
acquired property (as determined by the Servicer as of the close of business on
the third Business Day next preceding the date upon which notice of any such
termination is furnished to Certificateholders pursuant to the third paragraph
of this Section 9.01), plus any accrued and unpaid interest through the last day
of the month preceding the month of purchase at the applicable Net Mortgage
Interest Rate and (ii) the final payment or other liquidation (or any advance
with respect thereto) of the last Mortgage Loan remaining in the Trust Estate
(including for this purpose the discharge of any Mortgagor under a defaulted
Mortgage Loan on which the Servicer is not obligated to foreclose pursuant to
the last paragraph of Section 3.11) or the disposition of all property acquired
upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan; provided,
however, that in no event shall the trust created hereby continue beyond the
expiration of 21 years from the death of the last survivor of the descendants of
Joseph P. Kennedy, the late ambassador of the United States to the Court of St.
James's, living on the date hereof.
The right of the Servicer to purchase all the assets of the Trust
Estate pursuant to clause (i) of the preceding paragraph is conditioned upon the
Pool Scheduled Principal Balance as of the Final Distribution Date being less
than the amount set forth in Section 11.22. In the case of any purchase by the
Servicer pursuant to said clause (i), the Servicer shall provide to the Trustee
the certification required by Section 3.12 and the Trustee and the Custodian
shall, promptly following payment of the purchase price, release to the Servicer
the Mortgage Files pertaining to the Mortgage Loans being purchased.
Notice of any termination, specifying the Final Distribution Date
(which shall be a date that would otherwise be a Distribution Date) upon which
the Certificateholders may surrender their Certificates to the Trustee for
payment of the final distribution and cancellation, shall be given promptly by
the Servicer (if it is exercising its right to purchase the assets of the Trust
Estate) or by the Trustee (in any other case) by letter to Certificateholders
mailed not earlier than the 15th day of the month preceding the month of such
final distribution and not later than the twentieth day of the month of such
final
IX-1
<PAGE>
distribution specifying (A) the Final Distribution Date upon which final payment
of the Certificates will be made upon presentation and surrender of Certificates
at the office or agency of the Trustee therein designated, (B) the amount of any
such final payment and (C) that the Record Date otherwise applicable to such
Distribution Date is not applicable, payments being made (except in the case of
any Class A Certificate surrendered on a prior Distribution Date pursuant to
Section 4.01) only upon presentation and surrender of the Certificates at the
office or agency of the Trustee therein specified. If the Servicer is obligated
to give notice to Certificateholders as aforesaid, it shall give such notice to
the Trustee and the Certificate Registrar at the time such notice is given to
Certificateholders. In the event such notice is given by the Servicer, the
Servicer shall deposit in the Certificate Account on or before the Final
Distribution Date in immediately available funds an amount equal to the purchase
price for the assets of the Trust Estate computed as above provided.
Upon presentation and surrender of the Certificates, the Trustee shall
cause to be distributed to Certificateholders on such Final Distribution Date in
proportion to their respective Percentage Interests an amount equal to (i) as to
the Classes of Class A Certificates, the respective Class A Principal Balance
together with any related Class A Unpaid Interest Shortfall and one month's
interest in an amount equal to the respective Class A Interest Accrual Amount,
(ii) as to the Classes of Class B Certificates, the respective Class B Principal
Balance together with any related Class B Unpaid Interest Shortfall and one
month's interest in an amount equal to the respective Class B Interest Accrual
Amount together with any related Class B Unpaid Interest Shortfall and (iii) as
to the Class A-R Certificate, the amount, if any, which remains on deposit in
the Certificate Account or the Payment Account (other than amounts retained to
meet claims) after application pursuant to clauses (i), (ii) and (iii) above and
payment to the Servicer of any amounts it is entitled as reimbursement
hereunder; provided, however, that if the fair market value of any acquired
property referred to in, or covered by, clause (a) or (b) of the first paragraph
of this Section 9.01 is less than the unpaid principal balance of the related
Mortgage Loan, or, the price paid pursuant to clause (i) of the first paragraph
of this Section 9.01 is insufficient to pay in full the amounts set forth in
clauses (i), (ii) and (iii) of this paragraph, then any shortfall in the amount
available for distribution to Certificateholders after reimbursement to the
Servicer of any Periodic Advances shall be allocated in reduction of the amounts
otherwise distributable on the Final Distribution Date in the same manner as
Realized Losses are allocated pursuant to Section 4.02(b) hereof. Such
distribution on the Final Distribution Date shall be in lieu of the distribution
otherwise required to be made on such Distribution Date in respect of each Class
of Certificates.
In the event that all of the Certificateholders shall not surrender
their Certificates for final payment and cancellation within three months
following the Final Distribution Date, the Trustee shall on such date cause all
funds, if any, in the Certificate Account and the Payment Account not
distributed in final distribution to Certificateholders to be withdrawn
therefrom and credited to the remaining Certificateholders by depositing such
funds in a separate escrow account for the benefit of such Certificateholders,
and the Servicer (if it exercised its right to purchase the assets of the Trust
Estate) or the Trustee (in any other case) shall give a second written notice to
the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
IX-2
<PAGE>
three months after the second notice all the Certificates shall not have been
surrendered for cancellation, the Trustee may take appropriate steps, or may
appoint an agent to take appropriate steps, to contact the remaining
Certificateholders concerning surrender of their Certificates, and the cost
thereof shall be paid out of the funds on deposit in such escrow account.
Section 9.02. Additional Termination Requirements. In the event the
-----------------------------------
Servicer exercises its purchase option as provided in Section 9.01, the Trust
Estate shall be terminated in accordance with the following additional
requirements, provided that the Trustee has received an Opinion of Counsel or
other evidence to the effect that the termination of the Trust Estate (i) will
constitute a "qualified liquidation" of the REMIC within the meaning of Code
Section 860F(a)(4)(A) and (ii) will not subject the REMIC to tax or cause the
Trust Estate to fail to qualify as a REMIC at any time that any Certificates are
outstanding:
(i) the notice given by the Servicer under Section 9.01 shall
provide that such notice constitutes the adoption of a plan of complete
liquidation of the REMIC as of the date of such notice (or, if earlier, the
date on which the first such notice is mailed to Certificateholders). The
Servicer shall also specify such date in a statement attached to the final
tax return of the REMIC; and
(ii) At or after the time of adoption of such a plan of complete
liquidation and at or prior to the Final Distribution Date, the Trustee
shall sell all of the assets of the Trust Estate to the Servicer for cash
at the purchase price specified in Section 9.01 and shall distribute such
cash in the manner specified in Section 9.01.
IX-3
<PAGE>
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.01. Amendment. This Agreement or any Custodial Agreement
---------
may be amended from time to time by the Seller, the Servicer and the Trustee
without the consent of any of the Certificateholders, (i) to cure any ambiguity
or mistake, (ii) to correct or supplement any provisions herein or therein which
may be inconsistent with any other provisions herein or therein, (iii) to
modify, eliminate or add to any of its provisions to such extent as shall be
necessary to maintain the qualification of the Trust Estate as a REMIC at all
times that any Certificates are outstanding or to avoid or minimize the risk of
the imposition of any tax on the REMIC pursuant to the Code that would be a
claim against the Trust Estate, provided that (a) the Trustee has received an
Opinion of Counsel to the effect that such action is necessary or desirable to
maintain such qualification or to avoid or minimize the risk of the imposition
of any such tax and (b) such action shall not, as evidenced by such Opinion of
Counsel, adversely affect in any material respect the interests of any
Certificateholder, (iv) to change the timing and/or nature of deposits into the
Certificate Account and the Payment Account provided that (a) such change shall
not, as evidenced by an Opinion of Counsel, adversely affect in any material
respect the interests of any Certificateholder and (b) such change shall not
adversely affect the then-current rating of the Class A Certificates, the Class
B-1 Certificates, the Class B-2 Certificates, the Class B-3 Certificates, the
Class B-4 Certificates or the Class B-5 Certificates as evidenced by a letter
from each Rating Agency rating such Certificates to such effect, (v) to modify,
eliminate or add to the provisions of Section 5.02 or any other provisions
hereof restricting transfer of the Certificates, provided that the Servicer for
purposes of Section 5.02 has determined in its sole discretion that any such
modifications to this Agreement will neither affect the rating on the
Certificates nor give rise to a risk that the REMIC or any of the
Certificateholders will be subject to a tax caused by a transfer to a non-
permitted transferee, (vi) prior to the initial transfer of the Class A-PO
Certificates by the Seller or an affiliate of the Seller to a Person other than
the Seller or an affiliate of the Seller following the Closing Date, to modify
Section 11.24 to lower the Denomination which constitutes a Single Certificate,
and to modify Section 11.23 to lower the minimum Denomination of Class A-PO
Certificates eligible for wire transfer on each Distribution Date and (vii) to
make any other provisions with respect to matters or questions arising under
this Agreement or such Custodial Agreement which shall not be materially
inconsistent with the provisions of this Agreement, provided that such action
shall not, as evidenced by an Opinion of Counsel, adversely affect in any
material respect the interests of any Certificateholder.
This Agreement or any Custodial Agreement may also be amended from
time to time by the Seller, the Servicer and the Trustee with the consent of the
Holders of Certificates evidencing in the aggregate not less than 66-2/3% of the
aggregate Voting Interests of each Class of Certificates affected thereby for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Agreement or such Custodial Agreement or of
modifying in any manner the rights of the Holders of Certificates of such
X-1
<PAGE>
Class; provided, however, that no such amendment shall (i) reduce in any manner
the amount of, or delay the timing of, payments received on Mortgage Loans which
are required to be distributed on any Certificate without the consent of the
Holder of such Certificate, (ii) adversely affect in any material respect the
interest of the Holders of Certificates of any Class or in a manner other than
as described in clause (i) hereof without the consent of Holders of Certificates
of such Class evidencing, as to such Class, Voting Interests aggregating not
less than 66-2/3% or (iii) reduce the aforesaid percentage of Certificates of
any Class the Holders of which are required to consent to any such amendment,
without the consent of the Holders of all Certificates of such Class then
outstanding.
Notwithstanding any contrary provision of this Agreement, the Trustee
shall not consent to any amendment to this Agreement unless it shall have first
received an Opinion of Counsel to the effect that such amendment will not
subject the REMIC to tax or cause the Trust Estate to fail to qualify as a REMIC
at any time that any Certificates are outstanding.
Promptly after the execution of any amendment requiring the consent of
Certificateholders, the Trustee shall furnish written notification of the
substance of such amendment to each Certificateholder.
It shall not be necessary for the consent of Certificateholders under
this Section 10.01 to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
regulations as the Trustee may prescribe.
Section 10.02. Recordation of Agreement. This Agreement (or an
------------------------
abstract hereof, if acceptable to the applicable recording office) is subject to
recordation in all appropriate public offices for real property records in all
the towns or other comparable jurisdictions in which any or all of the Mortgaged
Properties are situated, and in any other appropriate public office or
elsewhere, such recordation to be effected by the Servicer and at its expense on
direction by the Trustee, but only upon direction accompanied by an Opinion of
Counsel to the effect that such recordation materially and beneficially affects
the interests of the Certificateholders.
For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one and
the same instrument.
Section 10.03. Limitation on Rights of Certificateholders. The
------------------------------------------
death or incapacity of any Certificateholder shall not operate to terminate this
Agreement or the Trust Estate, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or take any action or proceeding
in any court for a partition or winding up of the Trust Estate, nor otherwise
affect the rights, obligations and liabilities of the parties hereto or any of
them.
X-2
<PAGE>
Except as otherwise expressly provided herein, no Certificateholder,
solely by virtue of its status as a Certificateholder, shall have any right to
vote or in any manner otherwise control the operation and management of the
Trust Estate, or the obligations of the parties hereto, nor shall anything
herein set forth, or contained in the terms of the Certificates, be construed so
as to constitute the Certificateholders from time to time as partners or members
of an association, nor shall any Certificateholder be under any liability to any
third person by reason of any action taken by the parties to this Agreement
pursuant to any provision hereof.
No Certificateholder, solely by virtue of its status as
Certificateholder, shall have any right by virtue or by availing of any
provision of this Agreement to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Agreement, unless such
Holder previously shall have given to the Trustee a written notice of default
and of the continuance thereof, as hereinbefore provided, and unless also the
Holders of Certificates evidencing not less than 25% of the Voting Interest
represented by all Certificates shall have made written request upon the Trustee
to institute such action, suit or proceeding in its own name as Trustee
hereunder and shall have offered to the Trustee such reasonable indemnity as it
may require against the cost, expenses and liabilities to be incurred therein or
thereby, and the Trustee, for 60 days after its receipt of such notice, request
and offer of indemnity, shall have neglected or refused to institute any such
action, suit or proceeding; it being understood and intended, and being
expressly covenanted by each Certificateholder with every other
Certificateholder and the Trustee, that no one or more Holders of Certificates
shall have any right in any manner whatever by virtue or by availing of any
provision of this Agreement to affect, disturb or prejudice the rights of the
Holders of any other of such Certificates, or to obtain or seek to obtain
priority over or preference to any other such Holder, or to enforce any right
under this Agreement, except in the manner herein provided and for the benefit
of all Certificateholders. For the protection and enforcement of the provisions
of this Section, each and every Certificateholder and the Trustee shall be
entitled to such relief as can be given either at law or in equity.
SECTION 10.04. GOVERNING LAW; JURISDICTION. THIS AGREEMENT SHALL
---------------------------
BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES), AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS.
Section 10.05. Notices. All demands, notices and communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by certified or registered mail, return
receipt requested (i) in the case of the Seller, to Nations Mortgage Securities
Corporation, Attention: ____________, or such other address as may hereafter be
furnished to the Servicer and the Trustee in writing by the Seller, (ii) in the
case of the Servicer, to NationsBanc Mortgage Corporation,
___________________________, Attention: ____________________ or such other
address as may hereafter be furnished to the Seller and the Trustee in writing
by the Servicer, and (iii) in the case of the Trustee, to the Corporate Trust
Office, or such other address as may hereafter be furnished to the Seller and
the Servicer in writing by the Trustee, in each case Attention: Corporate Trust
Department.
X-3
<PAGE>
Any notice required or permitted to be mailed to a Certificateholder shall be
given by first class mail, postage prepaid, at the address of such Holder as
shown in the Certificate Register. Any notice mailed or transmitted within the
time prescribed in this Agreement shall be conclusively presumed to have been
duly given, whether or not the addressee receives such notice, provided,
--------
however, that any demand, notice or communication to or upon the Seller, the
- -------
Servicer or the Trustee shall not be effective until received.
Section 10.06. Severability of Provisions. If any one or more of
--------------------------
the covenants, agreements, provisions or terms of this Agreement shall be for
any reason whatsoever held invalid, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the Holders thereof.
Section 10.07. Special Notices to Rating Agencies.
----------------------------------
(a) The Trustee shall give prompt notice to each Rating Agency of
the occurrence of any of the following events of which it has notice:
(i) any amendment to this Agreement pursuant to Section 10.01;
(ii) any sale or transfer of the Class B Certificates pursuant to
Section 5.02 to an affiliate of the Seller;
(iii) any assignment by the Servicer of its rights and delegation of
its duties pursuant to Section 6.02;
(iv) any resignation of the Servicer pursuant to Section 6.04;
(v) the occurrence of any of the Events of Default described in
Section 7.01;
(vi) any notice of termination given to the Servicer pursuant to
Section 7.01;
(vii) the appointment of any successor to the Servicer pursuant to
Section 7.05; or
(viii) the making of a final payment pursuant to Section 9.01.
(b) The Servicer shall give prompt notice to each Rating Agency of
the occurrence of any of the following events:
(i) the appointment of a Custodian pursuant to Section 2.02;
(ii) the resignation or removal of the Trustee pursuant to Section
8.08; or
(iii) the appointment of a successor trustee pursuant to Section
8.09.
X-4
<PAGE>
(c) The Servicer shall deliver to each Rating Agency:
(i) reports prepared pursuant to Sections 3.15 and 3.16; and
(ii) statements prepared pursuant to Sections 4.03 and 4.04.
Section 10.08. Covenant of Seller. The Seller shall not amend
------------------
Article Third of its Restated Certificate of Incorporation without the prior
written consent of each Rating Agency rating the Certificates.
X-5
<PAGE>
ARTICLE XI
TERMS FOR CERTIFICATES
Section 11.01. Class A Fixed Pass-Through Rate. The Class A Fixed
-------------------------------
Pass-Through Rate is ___% per annum.
Section 11.02. Cut-Off Date. The Cut-Off Date for the Certificates
------------
is _________, 19__.
Section 11.03. Cut-Off Date Aggregate Principal Balance. The Cut-Off
----------------------------------------
Date Aggregate Principal Balance is $_________.
Section 11.04. Original Class A Percentage. The Original Class A
---------------------------
Percentage is _________%.
Section 11.05. Original Class A Principal Balances. As to the
-----------------------------------
following Classes of Class A Certificates, the Class A Principal Balance of such
Class as of the Cut-Off Date, as follows:
<TABLE>
<CAPTION>
Original Class A
Class Principal Balance
----- -----------------
<S> <C>
Class A-1
Class A-2
Class A-3
Class A-PO
Class A-R
</TABLE>
Section 11.06. Original Class A Non-PO Principal Balance. The
-----------------------------------------
Original Class A Non-PO Principal Balance is $______________.
Section 11.07. Original Class B-1 Percentage. The Original Class
-----------------------------
B-1 Percentage is _______________%.
Section 11.08. Original Class B-2 Percentage. The Original Class
-----------------------------
B-2 Percentage is ____________%.
Section 11.09. Original Class B-3 Percentage. The Original Class
-----------------------------
B-3 Percentage is ____________%.
Section 11.10. Original Class B-4 Percentage. The Original Class
-----------------------------
B-4 Percentage is ____________%.
XI-1
<PAGE>
Section 11.11. Original Class B-5 Percentage. The Original Class
-----------------------------
B-5 Percentage is ____________%.
Section 11.12. Original Class B-6 Percentage. The Original Class
-----------------------------
B-6 Percentage is _____________%.
Section 11.13. Original Aggregate Class B Principal Balance. The
--------------------------------------------
Original Class B Principal Balance is $_______________.
Section 11.14. Original Class B Principal Balances. As to any Class
-----------------------------------
B Certificate, the Class B Principal Balance of such Class as of the Cut-Off
Date is as follows:
<TABLE>
<CAPTION>
Original Class B
Class Principal Balance
----- -----------------
<S> <C>
Class B-1
Class B-2
Class B-3
Class B-4
Class B-5
Class B-6
</TABLE>
Section 11.15. Original Class B-1 Fractional Interest. The Original
--------------------------------------
Class B-1 Fractional Interest is ____________%.
Section 11.16. Original Class B-2 Fractional Interest. The Original
--------------------------------------
Class B-2 Fractional Interest is ____________%.
Section 11.17. Original Class B-3 Fractional Interest. The Original
--------------------------------------
Class B-3 Fractional Interest is ____________%.
Section 11.18. Original Class B-4 Fractional Interest. The Original
--------------------------------------
Class B-4 Fractional Interest is ____________%.
Section 11.19. Original Class B-4 Fractional Interest. The Original
--------------------------------------
Class B-4 Fractional Interest is ____________%.
Section 11.20. Original Subordinated Percentage. The Original
--------------------------------
Subordinated Percentage is ____________%.
Section 11.21. Closing Date. The Closing Date is __________ ___,
------------
199__.
Section 11.22. Right to Purchase. The right of the Servicer to
-----------------
purchase all of the Mortgage Loans pursuant to Section 9.01 hereof shall be
conditioned upon the Pool Scheduled Principal Balance of such Mortgage Loans
aggregating less than $_____________ (10% of the Cut-Off Date Aggregate
Principal Balance) at the time of any such purchase.
XI-2
<PAGE>
Section 11.23. Wire Transfer Eligibility. With respect to the
-------------------------
Certificates (other than the Class ________ Certificates), the minimum
Denomination eligible for wire transfer on each Distribution Date is
$____________. The minimum Denomination eligible for wire transfer on each
Distribution Date for the Class __________ Certificates is $______________. The
Class A-R Certificate is not eligible for wire transfer.
Section 11.24. Single Certificate. A Single Certificate for each
------------------
Class of Class A Certificates (other than the Class A - __ Certificates) and
each Class of Class B Certificates represents a $___________ Denomination. A
Single Certificate for the Class A- __ Certificates represents a $________
Denomination.
Section 11.25. Servicing Fee. The rate used to calculate the
-------------
Servicing Fee for each Mortgage Loan is ______% per annum.
XI-3
<PAGE>
IN WITNESS WHEREOF, the Seller, the Servicer and the Trustee have
caused their names to be signed hereto by their respective officers thereunto
duly authorized, all as of the day and year first above written.
NATIONS MORTGAGE
SECURITIES CORPORATION
as Seller
By:__________________________________
NATIONSBANC MORTGAGE CORPORATION
as Servicer
By:__________________________________
[ ]
as Trustee
By:__________________________________
Name:
Title:
Attest:
By:____________________
Name:__________________
Title:_________________
S-1
<PAGE>
STATE OF NEW YORK)
ss.:
COUNTY OF NEW YORK)
On this ___ the day of ____________, 199__, before me, a notary public
in and for the State of New York, personally appeared ___________________, known
to me who, being by me duly sworn, did depose and say that she resides at
_________________; that she is a _________________ of Nations Mortgage
Securities Corporation, a __________________ corporation, one of the parties
that executed the foregoing instrument; and that she signed her name thereto by
order of the Board of Directors of said corporation.
[NOTARIAL SEAL] _________________________
Notary Public
S-2
<PAGE>
STATE OF NEW YORK)
ss.:
COUNTY OF NEW YORK)
On this ___ the day of _____________, 199___, before me, a notary
public in and for the State of New York, personally appeared ______________,
known to me who, being by me duly sworn, did depose and say that she resides at
___________________; that she is a _______________ of NationsBanc Mortgage
Corporation a ___________ corporation, one of the parties that executed the
foregoing instrument; and that she signed her name thereto by order of the Board
of Directors of said corporation.
[NOTARIAL SEAL] _________________________
Notary Public
S-3
<PAGE>
STATE OF _____________)
ss.:
COUNTY OF ____________)
On this _____ day of _____, 199__ before me, a notary public in and
for the State of __________, personally appeared __________________, known to me
who, being by me duly sworn, did depose and say that she resides at
___________________; that she is the ______________ of _________________ one of
the parties that executed the foregoing instrument; and that she signed her name
thereto by order of the Board of Directors of said association.
[NOTARIAL SEAL] _________________________
Notary Public
S-4
<PAGE>
STATE OF _____________)
ss.:
COUNTY OF ____________)
On this ____ day of _____, 199__ before me, a notary public in and for
the State of ___________, personally appeared ________________, known to me who,
being by me duly sworn, did depose and say that she resides at ______________;
that she is the ______________ of ___________________________, a
_________________________, one of the parties that executed the foregoing
instrument; and that she signed her name thereto by order of the Board of
Directors of said association.
[NOTARIAL SEAL] _________________________
Notary Public
S-5
<PAGE>
EXHIBIT A-1
[FORM OF FACE OF CLASS A-1 CERTIFICATE]
[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO THE TRUSTEE OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS MADE TO CEDE &
CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.]
MORTGAGE PASS-THROUGH CERTIFICATE
SERIES 199__-__, CLASS A-1
evidencing an interest in a pool of fixed
interest rate, conventional, monthly pay,
fully amortizing, first lien, one- to
four-family residential mortgage loans, which may
include loans secured by shares issued by
cooperative housing corporations, sold by
NATIONS MORTGAGE SECURITIES CORPORATION
(Not an interest in or obligation of the Seller)
THIS CERTIFICATE DOES NOT EVIDENCE AN OBLIGATION OF, OR AN INTEREST
IN, THE SELLER, ANY AFFILIATE OF THE SELLER OR THE TRUSTEE, AND IS NOT INSURED
OR GUARANTEED BY THE SELLER, ANY AFFILIATE OF THE SELLER, THE TRUSTEE, ANY
GOVERNMENT AGENCY OR PRIVATE INSURER.
DISTRIBUTIONS IN REDUCTION OF THE PRINCIPAL BALANCE OF THIS
CERTIFICATE WILL BE MADE IN THE MANNER DESCRIBED IN THE POOLING AND SERVICING
AGREEMENT. ACCORDINGLY THE OUTSTANDING PRINCIPAL BALANCE OF THIS CERTIFICATE AT
ANY TIME MAY BE LESS THAN THE INITIAL PRINCIPAL BALANCE REPRESENTED HEREBY.
Certificate No.
Percentage Interest evidenced
by this Certificate: %
Denomination: $
Cut-Off Date: __________ 1, 199__
First Distribution Date: __________ 25, 199__
CUSIP No.:
<PAGE>
THIS CERTIFIES THAT ____________________________ is the registered
owner of the Percentage Interest evidenced by this Certificate in monthly
distributions to the Holders of Class A-1 Certificates with respect to a Trust
Estate consisting of a pool of fixed interest rate, conventional, monthly pay,
fully amortizing, first lien, one- to four-family residential mortgage loans,
other than the Fixed Retained Yield, if any, with respect thereto, and which may
include loans secured by shares issued by cooperative housing corporations (the
"Mortgage Loans"), formed by Nations Mortgage Securities Corporation
(hereinafter called the "Seller", which term includes any successor entity under
the Agreement referred to below). The Trust Estate was created pursuant to a
Pooling and Servicing Agreement dated as of __________ ___, 199__ (the
"Agreement") among the Seller, NationsBanc Mortgage Corporation, as servicer
(the "Servicer"), and ___________________________, as trustee (the "Trustee"), a
summary of certain of the pertinent provisions of which is set forth
hereinafter. To the extent not defined herein, the capitalized terms used herein
have the meanings ascribed to such terms in the Agreement. This Certificate is
issued under and is subject to the terms, provisions and conditions of the
Agreement, to which Agreement the Holder of this Certificate by virtue of the
acceptance hereof assents and by which such Holder is bound.
Pursuant to the terms of the Agreement, a distribution will be made on
the 25th day of each month or, if such 25th day is not a Business Day, the
Business Day immediately following (the "Distribution Date"), commencing on the
first Distribution Date specified above, to the Person in whose name this
Certificate is registered at the close of business on the last Business Day of
the month preceding the month of such distribution, in an amount equal to the
product of the Percentage Interest evidenced by this Certificate and the Class A
Distribution Amount for the Class A-1 Certificates required to be distributed to
Holders of Class A-1 Certificates on such Distribution Date, subject to
adjustment in certain events as specified in the Agreement. Distributions in
reduction of the principal balance of certain Classes of Class A Certificates
may not commence on the first Distribution Date specified above. Distributions
of principal will be allocated among the Classes of Class A Certificates in
accordance with the provisions of the Agreement. The pass-through rate on the
Class A-1 Certificates applicable to each Distribution Date will be _____% per
annum. The amount of interest which accrues on this Certificate in any month
will be subject to reduction with respect to any Non-Supported Interest
Shortfall and the interest portion of certain Realized Losses allocated to the
Class A-1 Certificates, as described in the Agreement.
Distributions on this Certificate will be made by the Trustee or on
behalf of the Trustee by a Paying Agent appointed by the Trustee by check mailed
to the address of the Person entitled thereto, as such name and address shall
appear on the Certificate Register, unless such Person is entitled to receive
payments by wire transfer in immediately available funds in accordance with the
Pooling and Servicing Agreement and such Person has notified the Trustee
pursuant to the Pooling and Servicing Agreement that such payments are to be
made by wire transfer of immediately available funds. Notwithstanding the
above, the final distribution in reduction of the principal balance of this
Certificate will be made after due notice of the pendency of such distribution
and only upon presentation and surrender of this
A-1-2
<PAGE>
Certificate at the office or agency specified by the Trustee for that purpose in
the notice of final distribution.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
This Certificate constitutes a "regular interest" in a "real estate
mortgage investment conduit" as those terms are defined in Section 860G(a)(1)
and Section 860D, respectively, of the Internal Revenue Code of 1986, as
amended.
Unless this Certificate has been countersigned by an authorized
officer of the Trustee, by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid for any purpose.
A-1-3
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed as of the date set forth below.
Dated:
[ ],
Trustee
By: ____________________________
Authorized Officer
Countersigned:
[ ],
Trustee
By: ________________________
Authorized Officer
A-1-4
<PAGE>
EXHIBIT A-2
[FORM OF FACE OF CLASS A-2 CERTIFICATE]
[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO THE TRUSTEE OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS MADE TO CEDE &
CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.]
MORTGAGE PASS-THROUGH CERTIFICATE
SERIES 199__-__, CLASS A-2
evidencing an interest in a pool of fixed
interest rate, conventional, monthly pay,
fully amortizing, first lien, one- to
four-family residential mortgage loans, which may
include loans secured by shares issued by
cooperative housing corporations, sold by
NATIONS MORTGAGE SECURITIES CORPORATION
(Not an interest in or obligation of the Seller)
THIS CERTIFICATE DOES NOT EVIDENCE AN OBLIGATION OF, OR AN INTEREST
IN, THE SELLER, ANY AFFILIATE OF THE SELLER OR THE TRUSTEE, AND IS NOT INSURED
OR GUARANTEED BY THE SELLER, ANY AFFILIATE OF THE SELLER, THE TRUSTEE, ANY
GOVERNMENT AGENCY OR PRIVATE INSURER.
DISTRIBUTIONS IN REDUCTION OF THE PRINCIPAL BALANCE OF THIS
CERTIFICATE WILL BE MADE IN THE MANNER DESCRIBED IN THE POOLING AND SERVICING
AGREEMENT. ACCORDINGLY THE OUTSTANDING PRINCIPAL BALANCE OF THIS CERTIFICATE AT
ANY TIME MAY BE LESS THAN THE INITIAL PRINCIPAL BALANCE REPRESENTED HEREBY.
Certificate No.
Percentage Interest evidenced
by this Certificate: %
Denomination: $
Cut-Off Date: __________ 1, 199__
First Distribution Date: __________ 25, 199__
CUSIP No.:
<PAGE>
THIS CERTIFIES THAT ____________________________ is the registered
owner of the Percentage Interest evidenced by this Certificate in monthly
distributions to the Holders of Class A-2 Certificates with respect to a Trust
Estate consisting of a pool of fixed interest rate, conventional, monthly pay,
fully amortizing, first lien, one- to four-family residential mortgage loans,
other than the Fixed Retained Yield, if any, with respect thereto, and which may
include loans secured by shares issued by cooperative housing corporations (the
"Mortgage Loans"), formed by Nations Mortgage Securities Corporation
(hereinafter called the "Seller", which term includes any successor entity under
the Agreement referred to below). The Trust Estate was created pursuant to a
Pooling and Servicing Agreement dated as of ______________, 199__ (the
"Agreement") among the Seller, NationsBanc Mortgage Corporation, as servicer
(the "Servicer"), and _________________________, as trustee (the "Trustee"), a
summary of certain of the pertinent provisions of which is set forth
hereinafter. To the extent not defined herein, the capitalized terms used herein
have the meanings ascribed to such terms in the Agreement. This Certificate is
issued under and is subject to the terms, provisions and conditions of the
Agreement, to which Agreement the Holder of this Certificate by virtue of the
acceptance hereof assents and by which such Holder is bound.
Pursuant to the terms of the Agreement, a distribution will be made on
the 25th day of each month or, if such 25th day is not a Business Day, the
Business Day immediately following (the "Distribution Date"), commencing on the
first Distribution Date specified above, to the Person in whose name this
Certificate is registered at the close of business on the last Business Day of
the month preceding the month of such distribution, in an amount equal to the
product of the Percentage Interest evidenced by this Certificate and the Class A
Distribution Amount for the Class A-2 Certificates required to be distributed to
Holders of Class A-2 Certificates on such Distribution Date, subject to
adjustment in certain events as specified in the Agreement. Distributions in
reduction of the principal balance of certain Classes of Class A Certificates
may not commence on the first Distribution Date specified above. Distributions
of principal will be allocated among the Classes of Class A Certificates in
accordance with the provisions of the Agreement. The pass-through rate on the
Class A-2 Certificates applicable to each Distribution Date will be _____% per
annum. The amount of interest which accrues on this Certificate in any month
will be subject to reduction with respect to any Non-Supported Interest
Shortfall and the interest portion of certain Realized Losses allocated to the
Class A-2 Certificates, as described in the Agreement.
Distributions on this Certificate will be made by the Trustee or on
behalf of the Trustee by a Paying Agent appointed by the Trustee by check mailed
to the address of the Person entitled thereto, as such name and address shall
appear on the Certificate Register, unless such Person is entitled to receive
payments by wire transfer in immediately available funds in accordance with the
Pooling and Servicing Agreement and such Person has notified the Trustee
pursuant to the Pooling and Servicing Agreement that such payments are to be
made by wire transfer of immediately available funds. Notwithstanding the
above, the final distribution in reduction of the principal balance of this
Certificate will be made after due notice of the pendency of such distribution
and only upon presentation and surrender of this
A-2-2
<PAGE>
Certificate at the office or agency specified by the Trustee for that purpose in
the notice of final distribution.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
This Certificate constitutes a "regular interest" in a "real estate
mortgage investment conduit" as those terms are defined in Section 860G(a)(1)
and Section 860D, respectively, of the Internal Revenue Code of 1986, as
amended.
Unless this Certificate has been countersigned by an authorized
officer of the Trustee, by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid for any purpose.
A-2-3
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed as of the date set forth below.
Dated:
[ ],
Trustee
By: __________________________
Authorized Officer
Countersigned:
[ ],
Trustee
By: ________________________
Authorized Officer
A-2-4
<PAGE>
EXHIBIT A-3
[FORM OF FACE OF CLASS A-3 CERTIFICATE]
[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO THE TRUSTEE OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS MADE TO CEDE &
CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.]
MORTGAGE PASS-THROUGH CERTIFICATE
SERIES 199__-__, CLASS A-3
evidencing an interest in a pool of fixed
interest rate, conventional, monthly pay,
fully amortizing, first lien, one- to
four-family residential mortgage loans, which may
include loans secured by shares issued by
cooperative housing corporations, sold by
NATIONS MORTGAGE SECURITIES CORPORATION
(Not an interest in or obligation of the Seller)
THIS CERTIFICATE DOES NOT EVIDENCE AN OBLIGATION OF, OR AN INTEREST
IN, THE SELLER, ANY AFFILIATE OF THE SELLER OR THE TRUSTEE, AND IS NOT INSURED
OR GUARANTEED BY THE SELLER, ANY AFFILIATE OF THE SELLER, THE TRUSTEE, ANY
GOVERNMENT AGENCY OR PRIVATE INSURER.
DISTRIBUTIONS IN REDUCTION OF THE PRINCIPAL BALANCE OF THIS
CERTIFICATE WILL BE MADE IN THE MANNER DESCRIBED IN THE POOLING AND SERVICING
AGREEMENT. ACCORDINGLY THE OUTSTANDING PRINCIPAL BALANCE OF THIS CERTIFICATE AT
ANY TIME MAY BE LESS THAN THE INITIAL PRINCIPAL BALANCE REPRESENTED HEREBY.
Certificate No.
Percentage Interest evidenced
by this Certificate: %
Denomination: $
Cut-Off Date: __________ 1, 199__
First Distribution Date: __________ 25, 199__
CUSIP No.:
<PAGE>
THIS CERTIFIES THAT ____________________________ is the registered
owner of the Percentage Interest evidenced by this Certificate in monthly
distributions to the Holders of Class A-3 Certificates with respect to a Trust
Estate consisting of a pool of fixed interest rate, conventional, monthly pay,
fully amortizing, first lien, one- to four-family residential mortgage loans,
other than the Fixed Retained Yield, if any, with respect thereto, and which may
include loans secured by shares issued by cooperative housing corporations (the
"Mortgage Loans"), formed by Nations Mortgage Securities Corporation
(hereinafter called the "Seller", which term includes any successor entity under
the Agreement referred to below). The Trust Estate was created pursuant to a
Pooling and Servicing Agreement dated as of ________________, 199__ (the
"Agreement") among the Seller, NationsBanc Mortgage Corporation, as servicer
(the "Servicer"), and ________________________, as trustee (the "Trustee"), a
summary of certain of the pertinent provisions of which is set forth
hereinafter. To the extent not defined herein, the capitalized terms used herein
have the meanings ascribed to such terms in the Agreement. This Certificate is
issued under and is subject to the terms, provisions and conditions of the
Agreement, to which Agreement the Holder of this Certificate by virtue of the
acceptance hereof assents and by which such Holder is bound.
Pursuant to the terms of the Agreement, a distribution will be made on
the 25th day of each month or, if such 25th day is not a Business Day, the
Business Day immediately following (the "Distribution Date"), commencing on the
first Distribution Date specified above, to the Person in whose name this
Certificate is registered at the close of business on the last Business Day of
the month preceding the month of such distribution, in an amount equal to the
product of the Percentage Interest evidenced by this Certificate and the Class A
Distribution Amount for the Class A-3 Certificates required to be distributed to
Holders of Class A-3 Certificates on such Distribution Date, subject to
adjustment in certain events as specified in the Agreement. Distributions in
reduction of the principal balance of certain Classes of Class A Certificates
may not commence on the first Distribution Date specified above. Distributions
of principal will be allocated among the Classes of Class A Certificates in
accordance with the provisions of the Agreement. The pass-through rate on the
Class A-3 Certificates applicable to each Distribution Date will be _____% per
annum. The amount of interest which accrues on this Certificate in any month
will be subject to reduction with respect to any Non-Supported Interest
Shortfall and the interest portion of certain Realized Losses allocated to the
Class A-3 Certificates, as described in the Agreement.
Distributions on this Certificate will be made by the Trustee or on
behalf of the Trustee by a Paying Agent appointed by the Trustee by check mailed
to the address of the Person entitled thereto, as such name and address shall
appear on the Certificate Register, unless such Person is entitled to receive
payments by wire transfer in immediately available funds in accordance with the
Pooling and Servicing Agreement and such Person has notified the Trustee
pursuant to the Pooling and Servicing Agreement that such payments are to be
made by wire transfer of immediately available funds. Notwithstanding the
above, the final distribution in reduction of the principal balance of this
Certificate will be made after due notice of the pendency of such distribution
and only upon presentation and surrender of this
A-3-2
<PAGE>
Certificate at the office or agency specified by the Trustee for that purpose in
the notice of final distribution.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
This Certificate constitutes a "regular interest" in a "real estate
mortgage investment conduit" as those terms are defined in Section 860G(a)(1)
and Section 860D, respectively, of the Internal Revenue Code of 1986, as
amended.
Unless this Certificate has been countersigned by an authorized
officer of the Trustee, by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid for any purpose.
A-3-3
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed as of the date set forth below.
Dated:
[ ],
Trustee
By: __________________________
Authorized Officer
Countersigned:
[ ],
Trustee
By: ________________________
Authorized Officer
A-3-4
<PAGE>
EXHIBIT A-R
[Form of Face of Class A-R Certificate]
FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "RESIDUAL INTEREST"
IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" AS THOSE TERMS ARE DEFINED,
RESPECTIVELY, IN SECTIONS 860G(a)(2) AND 860D OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE"). A TRANSFEREE OF THIS CERTIFICATE, BY ACCEPTANCE
HEREOF, IS DEEMED TO HAVE ACCEPTED THIS CERTIFICATE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFERABILITY, AS SET FORTH IN SECTION 5.02(d) OF THE POOLING
AND SERVICING AGREEMENT, AND SHALL BE REQUIRED TO FURNISH AN AFFIDAVIT TO THE
TRANSFEROR AND THE TRUSTEE TO THE EFFECT THAT, AMONG OTHER THINGS, IT IS NOT A
DISQUALIFIED ORGANIZATION, AS SUCH TERM IS DEFINED IN CODE SECTION 860E(e)(5),
AN AGENT (INCLUDING A BROKER, NOMINEE OR OTHER MIDDLEMAN) FOR SUCH DISQUALIFIED
ORGANIZATION OR A NON-PERMITTED FOREIGN HOLDER, AS DEFINED IN SECTION 5.02(d) OF
THE POOLING AND SERVICING AGREEMENT AND TO HAVE AGREED TO SUCH AMENDMENTS TO THE
POOLING AND SERVICING AGREEMENT AS MAY BE REQUIRED TO FURTHER EFFECTUATE THE
RESTRICTIONS ON TRANSFERS TO DISQUALIFIED ORGANIZATIONS, AGENTS THEREOF OR NON-
PERMITTED FOREIGN HOLDERS.
THE HOLDER OF THIS CLASS A-R CERTIFICATE, BY ACCEPTANCE HEREOF, IS DEEMED TO
HAVE AGREED TO THE DESIGNATION OF THE TRUSTEE AS ITS AGENT TO ACT AS "TAX
MATTERS PERSON" OF THE REMIC TO PERFORM THE FUNCTIONS OF A "TAX MATTERS PARTNER"
FOR PURPOSES OF SUBCHAPTER C OF CHAPTER 63 OF SUBTITLE F OF THE CODE, OR, IF SO
REQUESTED BY THE SERVICER, TO ACT AS TAX MATTERS PERSON OF THE REMIC.
THIS CERTIFICATE MAY NOT BE PURCHASED BY OR TRANSFERRED TO ANY PERSON WHICH IS
AN EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT SUBJECT TO TITLE I 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"), OR A
GOVERNMENTAL PLAN, AS DEFINED IN SECTION 3(32) OF ERISA SUBJECT TO ANY FEDERAL,
STATE OR LOCAL LAW WHICH IS, TO A MATERIAL EXTENT, SIMILAR TO THE FOREGOING
PROVISIONS OF ERISA OR THE CODE (COLLECTIVELY, A "PLAN"), OR ANY PERSON ACTING
ON BEHALF OF OR INVESTING THE ASSETS OF A PLAN.
<PAGE>
MORTGAGE PASS-THROUGH CERTIFICATE
SERIES 199__-__, CLASS A-R
evidencing an interest in a pool of fixed
interest rate, conventional, monthly pay,
fully amortizing, first lien, one- to
four-family residential mortgage loans, which may
include loans secured by shares issued by
cooperative housing corporations, sold by
NATIONS MORTGAGE SECURITIES CORPORATION
(Not an interest in or obligation of the Seller)
THIS CERTIFICATE DOES NOT EVIDENCE AN OBLIGATION OF, OR AN INTEREST
IN, THE SELLER, ANY AFFILIATE OF THE SELLER OR THE TRUSTEE, AND IS NOT INSURED
OR GUARANTEED BY THE SELLER, ANY AFFILIATE OF THE SELLER, THE TRUSTEE, ANY
GOVERNMENT AGENCY OR PRIVATE INSURER.
DISTRIBUTIONS IN REDUCTION OF THE PRINCIPAL BALANCE OF THIS
CERTIFICATE WILL BE MADE IN THE MANNER DESCRIBED IN THE POOLING AND SERVICING
AGREEMENT. ACCORDINGLY THE OUTSTANDING PRINCIPAL BALANCE OF THIS CERTIFICATE AT
ANY TIME MAY BE LESS THAN THE INITIAL PRINCIPAL BALANCE REPRESENTED HEREBY.
Certificate No.
Percentage Interest evidenced
by this Certificate: ____%
Denomination: $
Cut-Off Date: __________ 1, 199__
First Distribution Date: __________ 25, 199__
CUSIP No.:
A-R-2
<PAGE>
THIS CERTIFIES THAT ____________________________ is the registered
owner of the Percentage Interest evidenced by this Certificate in monthly
distributions to the Holder of the Class A-R Certificate with respect to a Trust
Estate consisting of a pool of fixed interest rate, conventional, monthly pay,
fully amortizing, first lien, one- to four-family residential mortgage loans,
other than the Fixed Retained Yield, if any, with respect thereto, and which may
include loans secured by shares issued by cooperative housing corporations (the
"Mortgage Loans"), formed by Nations Mortgage Securities Corporation
(hereinafter called the "Seller", which term includes any successor entity under
the Agreement referred to below). The Trust Estate was created pursuant to a
Pooling and Servicing Agreement dated as of _____________, 199_ (the
"Agreement") among the Seller, NationsBanc Mortgage Corporation, as servicer
(the "Servicer"), and _____________________, as trustee (the "Trustee"), a
summary of certain of the pertinent provisions of which is set forth
hereinafter. To the extent not defined herein, the capitalized terms used herein
have the meanings ascribed to such terms in the Agreement. This Certificate is
issued under and is subject to the terms, provisions and conditions of the
Agreement, to which Agreement the Holder of this Certificate by virtue of the
acceptance hereof assents and by which such Holder is bound.
Pursuant to the terms of the Agreement, a distribution will be made on
the 25th day of each month or, if such 25th day is not a Business Day, the
Business Day immediately following (the "Distribution Date"), commencing on the
first Distribution Date specified above, to the Person in whose name this
Certificate is registered at the close of business on the last Business Day of
the month preceding the month of such distribution, in an amount equal to the
product of the Percentage Interest evidenced by this Certificate and the Class A
Distribution Amount for the Class A-R Certificate required to be distributed to
the Holders of the Class A-R Certificate on such Distribution Date, subject to
adjustment in certain events as specified in the Agreement. Distributions in
reduction of the principal balance of certain Classes of Class A Certificates
will not commence on the first Distribution Date specified above. Distributions
of principal will be allocated among the Classes of Class A Certificates in
accordance with the provisions of the Agreement. The pass-through rate on the
Class A-R Certificate applicable to each Distribution Date will be _____% per
annum. The amount of interest which accrues on this Certificate in any month
will be subject to reduction with respect to any Non-Supported Interest
Shortfall and the interest portion of certain Realized Losses allocated to the
Class A-R Certificate, as described in the Agreement.
Distributions on this Certificate will be made by the Trustee or on
behalf of the Trustee or by a Paying Agent appointed by the Trustee by check
mailed to the address of the Person entitled thereto, as such name and address
shall appear on the Certificate Register. Notwithstanding the above, the final
distribution on this Certificate will be made after due notice of the pendency
of such distribution and only upon presentation and surrender of this
Certificate at the office or agency specified by the Trustee for that purpose in
the notice of final distribution.
A-R-3
<PAGE>
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless this Certificate has been countersigned by an authorized
officer of the Trustee, by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid for any purpose.
A-R-4
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed as of the date set forth below.
Dated:
[ ],
Trustee
By: __________________________
Authorized Officer
Countersigned:
[ ],
Trustee
By: ________________________
Authorized Officer
A-R-5
<PAGE>
EXHIBIT B-1
[FORM OF FACE OF CLASS B-1 CERTIFICATE]
THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A CERTIFICATES
AS DESCRIBED IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN.
EXCEPT AS PROVIDED IN SECTION 5.02(C) OF THE POOLING AND SERVICING AGREEMENT
REFERRED TO HEREIN, THIS CERTIFICATE MAY NOT BE PURCHASED BY OR TRANSFERRED TO
ANY PERSON THAT HAS NOT DELIVERED A REPRESENTATION LETTER STATING EITHER (A)
THAT THE TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT
ARRANGEMENT SUBJECT TO TITLE I OF 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") OR A GOVERNMENTAL PLAN, AS DEFINED IN SECTION 3(32) OF
ERISA, SUBJECT TO ANY FEDERAL, STATE OR LOCAL LAW WHICH IS, TO A MATERIAL
EXTENT, SIMILAR TO THE FOREGOING PROVISIONS OF ERISA OR THE CODE (COLLECTIVELY,
A "PLAN"), AND IS NOT ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A PLAN OR
(B) SUBJECT TO CERTAIN CONDITIONS SET FORTH IN THE POOLING AND SERVICING
AGREEMENT, THAT THE SOURCE OF FUNDS USED TO PURCHASE THIS CERTIFICATE IS AN
"INSURANCE COMPANY GENERAL ACCOUNT."
<PAGE>
MORTGAGE PASS-THROUGH CERTIFICATE
SERIES 199_-_, CLASS B-1
evidencing an interest in a pool of fixed interest rate,
conventional, monthly pay, fully amortizing, first lien, one- to
four-family residential mortgage loans, which may include loans
secured by shares issued by cooperative housing corporations,
sold by
NATIONS MORTGAGE SECURITIES CORPORATION
(Not an interest in or obligation of the Seller)
THIS CERTIFICATE DOES NOT EVIDENCE AN OBLIGATION OF, OR AN INTEREST
IN, AND IS NOT GUARANTEED BY, THE SELLER, ANY AFFILIATE OF THE SELLER OR THE
TRUSTEE, AND IS NOT INSURED OR GUARANTEED BY THE SELLER, ANY AFFILIATE OF THE
SELLER, THE TRUSTEE, ANY GOVERNMENT AGENCY OR PRIVATE INSURER.
DISTRIBUTIONS IN REDUCTION OF THE PRINCIPAL BALANCE OF THIS
CERTIFICATE WILL BE MADE IN THE MANNER DESCRIBED IN THE POOLING AND SERVICING
AGREEMENT. ACCORDINGLY THE OUTSTANDING PRINCIPAL BALANCE OF THIS CERTIFICATE AT
ANY TIME MAY BE LESS THAN THE INITIAL PRINCIPAL BALANCE REPRESENTED HEREBY.
Certificate No. __
Percentage Interest evidenced
by this Certificate: ___%
Denomination: $____________
Cut-Off Date: __________ 1, 199__
First Distribution Date: __________ 25, 199__
CUSIP No.:
B-1-2
<PAGE>
THIS CERTIFIES THAT ____________________________ is the registered
owner of the Percentage Interest evidenced by this Certificate in monthly
distributions to the Holders of the Class B-1 Certificates with respect to a
Trust Estate consisting of a pool of fixed interest rate, conventional, monthly
pay, fully amortizing, first lien, one- to four-family residential mortgage
loans, other than the Fixed Retained Yield, if any, with respect thereto, and
which may include loans secured by shares issued by cooperative housing
corporations (the "Mortgage Loans") formed by Nations Mortgage Securities
Corporation (hereinafter called the "Seller", which term includes any successor
entity under the Agreement referred to below). The Trust Estate was created
pursuant to a Pooling and Servicing Agreement dated as of _____________, 199_
(the "Agreement") among the Seller, NationsBanc Mortgage Corporation, as
servicer (the "Servicer"), and _____________________, as trustee (the
"Trustee"), a summary of certain of the pertinent provisions of which is set
forth hereinafter. To the extent not defined herein, the capitalized terms used
herein have the meanings ascribed to such terms in the Agreement. This
Certificate is issued under and is subject to the terms, provisions and
conditions of the Agreement, to which Agreement the Holder of this Certificate
by virtue of the acceptance hereof assents and by which such Holder is bound.
Pursuant to the terms of the Agreement, a distribution will be made on
the 25th day of each month or, if such 25th day is not a Business Day, the
Business Day immediately following (the "Distribution Date"), commencing on the
first Distribution Date specified above, to the Person in whose name this
Certificate is registered at the close of business on the last Business Day of
the month preceding the month of such distribution, in an amount equal to the
product of the Percentage Interest evidenced by this Certificate and, subject to
the prior rights of the Class A Certificates as specified in the Agreement, any
Class B-1 Distribution Amount required to be distributed to Holders of Class B-1
Certificates on such Distribution Date, subject to adjustment, in certain
events, as specified in the Agreement. The Pass-Through Rate on the Class B-1
Certificates applicable to each Distribution Date will be _____% per annum. The
amount of interest which accrues on this Certificate in any month will be
subject to reduction with respect to any Non-Supported Interest Shortfall and
the interest portion of certain Realized Losses allocated to the Class B-1
Certificates, as described in the Agreement.
Distributions on this Certificate will be made by the Trustee or on
behalf of the Trustee or by a Paying Agent appointed by the Trustee by check
mailed to the address of the Person entitled thereto, as such name and address
shall appear on the Certificate Register, unless such Person is entitled to
receive payments by wire transfer in immediately available funds in accordance
with the Pooling and Servicing Agreement and such Person has notified the
Trustee pursuant to the Pooling and Servicing Agreement that such payments are
to be made by wire transfer of immediately available funds. Notwithstanding the
above, the final distribution on this Certificate will be made after due notice
of the pendency of such distribution and only upon presentation and surrender of
this Certificate at the office or agency specified by the Trustee for that
purpose in the notice of final distribution.
B-1-3
<PAGE>
No transfer of a Class B-1 Certificate will be made unless the Holder
hereof desiring to make any such transfer shall deliver to the Trustee (i) a
representation letter, in the form as described in the Agreement, stating either
(a) that the transferee is not a Plan and is not acting on behalf of a Plan or
using the assets of a Plan to effect such purchase or (b) subject to certain
conditions described in the Agreement, that the source of funds used to purchase
this Certificate is an "insurance company general account," or (ii) if such
transferee is a Plan, or is acting on behalf of or using the assets of a Plan,
(a) an opinion of counsel acceptable to and in form and substance satisfactory
to the Trustee and the Seller with respect to certain matters and (b) such other
documentation as the Seller or the Trustee may require, as described in the
Agreement.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
This Certificate constitutes a "regular interest" in a "real estate
mortgage investment conduit" as those terms are defined in Section 860G(a)(1)
and Section 860D, respectively, of the Internal Revenue Code of 1986, as
amended.
Unless this Certificate has been countersigned by an authorized
officer of the Trustee, by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid for any purpose.
B-1-4
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed as of the date set forth below.
Dated:
[ ],
Trustee
By: __________________________
Authorized Officer
Countersigned:
[ ],
Trustee
By: ________________________
Authorized Officer
B-1-5
<PAGE>
EXHIBIT B-2
[FORM OF FACE OF CLASS B-2 CERTIFICATE]
THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A AND CLASS
B-1 CERTIFICATES AS DESCRIBED IN THE POOLING AND SERVICING AGREEMENT REFERRED TO
HEREIN.
EXCEPT AS PROVIDED IN SECTION 5.02(C) OF THE POOLING AND SERVICING AGREEMENT
REFERRED TO HEREIN, THIS CERTIFICATE MAY NOT BE PURCHASED BY OR TRANSFERRED TO
ANY PERSON THAT HAS NOT DELIVERED A REPRESENTATION LETTER STATING EITHER (A)
THAT THE TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT
ARRANGEMENT SUBJECT TO TITLE I OF 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") OR A GOVERNMENTAL PLAN, AS DEFINED IN SECTION 3(32) OF
ERISA, SUBJECT TO ANY FEDERAL, STATE OR LOCAL LAW WHICH IS, TO A MATERIAL
EXTENT, SIMILAR TO THE FOREGOING PROVISIONS OF ERISA OR THE CODE (COLLECTIVELY,
A "PLAN"), AND IS NOT ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A PLAN OR
(B) SUBJECT TO CERTAIN CONDITIONS SET FORTH IN THE POOLING AND SERVICING
AGREEMENT, THAT THE SOURCE OF FUNDS USED TO PURCHASE THIS CERTIFICATE IS AN
"INSURANCE COMPANY GENERAL ACCOUNT."
<PAGE>
MORTGAGE PASS-THROUGH CERTIFICATE
SERIES 199_-_, CLASS B-2
evidencing an interest in a pool of fixed interest rate,
conventional, monthly pay, fully amortizing, first lien, one- to
four-family residential mortgage loans, which may include loans
secured by shares issued by cooperative housing corporations,
sold by
NATIONS MORTGAGE SECURITIES CORPORATION
(Not an interest in or obligation of the Seller)
THIS CERTIFICATE DOES NOT EVIDENCE AN OBLIGATION OF, OR AN INTEREST
IN, AND IS NOT GUARANTEED BY, THE SELLER, ANY AFFILIATE OF THE SELLER OR THE
TRUSTEE, AND IS NOT INSURED OR GUARANTEED BY THE SELLER, ANY AFFILIATE OF THE
SELLER, THE TRUSTEE, ANY GOVERNMENT AGENCY OR PRIVATE INSURER.
DISTRIBUTIONS IN REDUCTION OF THE PRINCIPAL BALANCE OF THIS
CERTIFICATE WILL BE MADE IN THE MANNER DESCRIBED IN THE POOLING AND SERVICING
AGREEMENT. ACCORDINGLY THE OUTSTANDING PRINCIPAL BALANCE OF THIS CERTIFICATE AT
ANY TIME MAY BE LESS THAN THE INITIAL PRINCIPAL BALANCE REPRESENTED HEREBY.
Certificate No. __
Percentage Interest evidenced
by this Certificate: ___%
Denomination: $____________
Cut-Off Date: __________ 1, 199__
First Distribution Date: __________ 25, 199__
CUSIP No.:
B-2-2
<PAGE>
THIS CERTIFIES THAT ____________________________ is the registered
owner of the Percentage Interest evidenced by this Certificate in monthly
distributions to the Holders of the Class B-2 Certificates with respect to a
Trust Estate consisting of a pool of fixed interest rate, conventional, monthly
pay, fully amortizing, first lien, one- to four-family residential mortgage
loans, other than the Fixed Retained Yield, if any, with respect thereto, and
which may include loans secured by shares issued by cooperative housing
corporations (the "Mortgage Loans") formed by Nations Mortgage Securities
Corporation (hereinafter called the "Seller", which term includes any successor
entity under the Agreement referred to below). The Trust Estate was created
pursuant to a Pooling and Servicing Agreement dated as of _____________, 199_
(the "Agreement") among the Seller, NationsBanc Mortgage Corporation, as
servicer (the "Servicer"), and _____________________, as trustee (the
"Trustee"), a summary of certain of the pertinent provisions of which is set
forth hereinafter. To the extent not defined herein, the capitalized terms used
herein have the meanings ascribed to such terms in the Agreement. This
Certificate is issued under and is subject to the terms, provisions and
conditions of the Agreement, to which Agreement the Holder of this Certificate
by virtue of the acceptance hereof assents and by which such Holder is bound.
Pursuant to the terms of the Agreement, a distribution will be made on
the 25th day of each month or, if such 25th day is not a Business Day, the
Business Day immediately following (the "Distribution Date"), commencing on the
first Distribution Date specified above, to the Person in whose name this
Certificate is registered at the close of business on the last Business Day of
the month preceding the month of such distribution, in an amount equal to the
product of the Percentage Interest evidenced by this Certificate and, subject to
the prior rights of the Class A Certificates and each Class of Class B
Certificates bearing a lower numerical designation as specified in the
Agreement, any Class B-2 Distribution Amount required to be distributed to
Holders of Class B-2 Certificates on such Distribution Date, subject to
adjustment, in certain events, as specified in the Agreement. The Pass-Through
Rate on the Class B-2 Certificates applicable to each Distribution Date will be
_____% per annum. The amount of interest which accrues on this Certificate in
any month will be subject to reduction with respect to any Non-Supported
Interest Shortfall and the interest portion of certain Realized Losses allocated
to the Class B-2 Certificates, as described in the Agreement.
Distributions on this Certificate will be made by the Trustee or on
behalf of the Trustee or by a Paying Agent appointed by the Trustee by check
mailed to the address of the Person entitled thereto, as such name and address
shall appear on the Certificate Register, unless such Person is entitled to
receive payments by wire transfer in immediately available funds in accordance
with the Pooling and Servicing Agreement and such Person has notified the
Trustee pursuant to the Pooling and Servicing Agreement that such payments are
to be made by wire transfer of immediately available funds. Notwithstanding the
above, the final distribution on this Certificate will be made after due notice
of the pendency of such distribution and only upon presentation and surrender of
this Certificate at the office or agency specified by the Trustee for that
purpose in the notice of final distribution.
B-2-3
<PAGE>
No transfer of a Class B-2 Certificate will be made unless the Holder
hereof desiring to make any such transfer shall deliver to the Trustee (i) a
representation letter, in the form as described in the Agreement, stating either
(a) that the transferee is not a Plan and is not acting on behalf of a Plan or
using the assets of a Plan to effect such purchase or (b) subject to certain
conditions described in the Agreement, that the source of funds used to purchase
this Certificate is an "insurance company general account," or (ii) if such
transferee is a Plan, or is acting on behalf of or using the assets of a Plan,
(a) an opinion of counsel acceptable to and in form and substance satisfactory
to the Trustee and the Seller with respect to certain matters and (b) such other
documentation as the Seller or the Trustee may require, as described in the
Agreement.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
This Certificate constitutes a "regular interest" in a "real estate
mortgage investment conduit" as those terms are defined in Section 860G(a)(1)
and Section 860D, respectively, of the Internal Revenue Code of 1986, as
amended.
Unless this Certificate has been countersigned by an authorized
officer of the Trustee, by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid for any purpose.
B-2-4
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed as of the date set forth below.
Dated:
[ ],
Trustee
By: __________________________
Authorized Officer
Countersigned:
[ ],
Trustee
By: ________________________
Authorized Officer
B-2-5
<PAGE>
EXHIBIT B-3
[FORM OF FACE OF CLASS B-3 CERTIFICATE]
THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A CLASS B-1
AND CLASS B-2 CERTIFICATES AS DESCRIBED IN THE POOLING AND SERVICING AGREEMENT
REFERRED TO HEREIN.
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS OR
IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION UNDER
SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH
THE PROVISIONS OF SECTION 5.02 OF THE POOLING AND SERVICING AGREEMENT REFERRED
TO HEREIN.
EXCEPT AS PROVIDED IN SECTION 5.02(C) OF THE POOLING AND SERVICING AGREEMENT
REFERRED TO HEREIN, THIS CERTIFICATE MAY NOT BE PURCHASED BY OR TRANSFERRED TO
ANY PERSON THAT HAS NOT DELIVERED A REPRESENTATION LETTER STATING EITHER (A)
THAT THE TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT
ARRANGEMENT SUBJECT TO TITLE I OF 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") OR A GOVERNMENTAL PLAN, AS DEFINED IN SECTION 3(32) OF
ERISA, SUBJECT TO ANY FEDERAL, STATE OR LOCAL LAW WHICH IS, TO A MATERIAL
EXTENT, SIMILAR TO THE FOREGOING PROVISIONS OF ERISA OR THE CODE (COLLECTIVELY,
A "PLAN"), AND IS NOT ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A PLAN OR
(B) SUBJECT TO CERTAIN CONDITIONS SET FORTH IN THE POOLING AND SERVICING
AGREEMENT, THAT THE SOURCE OF FUNDS USED TO PURCHASE THIS CERTIFICATE IS AN
"INSURANCE COMPANY GENERAL ACCOUNT."
<PAGE>
MORTGAGE PASS-THROUGH CERTIFICATE
SERIES 199_-_, CLASS B-3
evidencing an interest in a pool of fixed interest rate,
conventional, monthly pay, fully amortizing, first lien, one- to
four-family residential mortgage loans, which may include loans
secured by shares issued by cooperative housing corporations,
sold by
NATIONS MORTGAGE SECURITIES CORPORATION
(Not an interest in or obligation of the Seller)
THIS CERTIFICATE DOES NOT EVIDENCE AN OBLIGATION OF, OR AN INTEREST
IN, AND IS NOT GUARANTEED BY, THE SELLER, ANY AFFILIATE OF THE SELLER OR THE
TRUSTEE, AND IS NOT INSURED OR GUARANTEED BY THE SELLER, ANY AFFILIATE OF THE
SELLER, THE TRUSTEE, ANY GOVERNMENT AGENCY OR PRIVATE INSURER.
DISTRIBUTIONS IN REDUCTION OF THE PRINCIPAL BALANCE OF THIS
CERTIFICATE WILL BE MADE IN THE MANNER DESCRIBED IN THE POOLING AND SERVICING
AGREEMENT. ACCORDINGLY THE OUTSTANDING PRINCIPAL BALANCE OF THIS CERTIFICATE AT
ANY TIME MAY BE LESS THAN THE INITIAL PRINCIPAL BALANCE REPRESENTED HEREBY.
Certificate No. __
Percentage Interest evidenced
by this Certificate: ___%
Denomination: $____________
Cut-Off Date: __________ 1, 199__
First Distribution Date: __________ 25, 199__
CUSIP No.:
B-3-2
<PAGE>
THIS CERTIFIES THAT ____________________________ is the registered
owner of the Percentage Interest evidenced by this Certificate in monthly
distributions to the Holders of the Class B-3 Certificates with respect to a
Trust Estate consisting of a pool of fixed interest rate, conventional, monthly
pay, fully amortizing, first lien, one- to four-family residential mortgage
loans, other than the Fixed Retained Yield, if any, with respect thereto, and
which may include loans secured by shares issued by cooperative housing
corporations (the "Mortgage Loans") formed by Nations Mortgage Securities
Corporation (hereinafter called the "Seller", which term includes any successor
entity under the Agreement referred to below). The Trust Estate was created
pursuant to a Pooling and Servicing Agreement dated as of _____________, 199_
(the "Agreement") among the Seller, NationsBanc Mortgage Corporation, as
servicer (the "Servicer"), and _____________________, as trustee (the
"Trustee"), a summary of certain of the pertinent provisions of which is set
forth hereinafter. To the extent not defined herein, the capitalized terms used
herein have the meanings ascribed to such terms in the Agreement. This
Certificate is issued under and is subject to the terms, provisions and
conditions of the Agreement, to which Agreement the Holder of this Certificate
by virtue of the acceptance hereof assents and by which such Holder is bound.
Pursuant to the terms of the Agreement, a distribution will be made on
the 25th day of each month or, if such 25th day is not a Business Day, the
Business Day immediately following (the "Distribution Date"), commencing on the
first Distribution Date specified above, to the Person in whose name this
Certificate is registered at the close of business on the last Business Day of
the month preceding the month of such distribution, in an amount equal to the
product of the Percentage Interest evidenced by this Certificate and, subject to
the prior rights of the Class A Certificates and each Class of Class B
Certificates bearing a lower numerical designation as specified in the
Agreement, any Class B-3 Distribution Amount required to be distributed to
Holders of Class B-3 Certificates on such Distribution Date, subject to
adjustment, in certain events, as specified in the Agreement. The Pass-Through
Rate on the Class B-3 Certificates applicable to each Distribution Date will be
_____% per annum. The amount of interest which accrues on this Certificate in
any month will be subject to reduction with respect to any Non-Supported
Interest Shortfall and the interest portion of certain Realized Losses allocated
to the Class B-3 Certificates, as described in the Agreement.
Distributions on this Certificate will be made by the Trustee or on
behalf of the Trustee or by a Paying Agent appointed by the Trustee by check
mailed to the address of the Person entitled thereto, as such name and address
shall appear on the Certificate Register, unless such Person is entitled to
receive payments by wire transfer in immediately available funds in accordance
with the Pooling and Servicing Agreement and such Person has notified the
Trustee pursuant to the Pooling and Servicing Agreement that such payments are
to be made by wire transfer of immediately available funds. Notwithstanding the
above, the final distribution on this Certificate will be made after due notice
of the pendency of such distribution and only upon presentation and surrender of
this Certificate at the office or agency specified by the Trustee for that
purpose in the notice of final distribution.
B-3-3
<PAGE>
No transfer of a Class B-3 Certificate will be made unless such
transfer is exempt from the registration requirements of the Securities Act of
1933, as amended, and any applicable state securities laws or is made in
accordance with said Act and laws. In the event that such a transfer is desired
to be made by the Holder hereof, (i) the transferee will be required to execute
an investment letter in the form described in the Agreement and (ii) if such
transfer is to be made within three years from the date of initial issuance of
the Certificates pursuant to the Agreement, and unless such transfer is made in
reliance on Rule 144A of the Securities Act of 1933, as amended, the Trustee or
the Seller may require the Holder to deliver an opinion of counsel acceptable to
and in form and substance satisfactory to the Trustee and the Seller that such
transfer is exempt (describing the applicable exemption and the basis therefor)
from or is being made pursuant to the registration requirements of the
Securities Act of 1933, as amended, and of any applicable statute of any state.
The Holder hereof desiring to effect such transfer shall, and does hereby agree
to, indemnify the Trustee, the Seller, the Servicer, and any Paying Agent acting
on behalf of the Trustee against any liability that may result if the transfer
is not so exempt or is not made in accordance with such Federal and state laws.
In connection with any such transfer, the Trustee will also require (i) a
representation letter, in the form as described in the Agreement, stating either
(a) that the transferee is not a Plan and is not acting on behalf of a Plan or
using the assets of a Plan to effect such purchase or (b) subject to certain
conditions described in the Agreement, that the source of funds used to purchase
this Certificate is an "insurance company general account," or (ii) if such
transferee is a Plan, or is acting on behalf of or using the assets of a Plan,
(a) an opinion of counsel acceptable to and in form and substance satisfactory
to the Trustee and the Seller with respect to certain matters and (b) such other
documentation as the Seller or the Trustee may require, as described in the
Agreement.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
This Certificate constitutes a "regular interest" in a "real estate
mortgage investment conduit" as those terms are defined in Section 860G(a)(1)
and Section 860D, respectively, of the Internal Revenue Code of 1986, as
amended.
Unless this Certificate has been countersigned by an authorized
officer of the Trustee, by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid for any purpose.
B-3-4
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed as of the date set forth below.
Dated:
[ ],
Trustee
By: __________________________
Authorized Officer
Countersigned:
[ ],
Trustee
By: ________________________
Authorized Officer
B-3-5
<PAGE>
EXHIBIT B-4
[FORM OF FACE OF CLASS B-4 CERTIFICATE]
THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A, CLASS B-1,
CLASS B-2 AND CLASS B-3 CERTIFICATES AS DESCRIBED IN THE POOLING AND SERVICING
AGREEMENT REFERRED TO HEREIN.
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS OR
IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION UNDER
SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH
THE PROVISIONS OF SECTION 5.02 OF THE POOLING AND SERVICING AGREEMENT REFERRED
TO HEREIN.
EXCEPT AS PROVIDED IN SECTION 5.02(C) OF THE POOLING AND SERVICING AGREEMENT
REFERRED TO HEREIN, THIS CERTIFICATE MAY NOT BE PURCHASED BY OR TRANSFERRED TO
ANY PERSON THAT HAS NOT DELIVERED A REPRESENTATION LETTER STATING EITHER (A)
THAT THE TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT
ARRANGEMENT SUBJECT TO TITLE I OF 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") OR A GOVERNMENTAL PLAN, AS DEFINED IN SECTION 3(32) OF
ERISA, SUBJECT TO ANY FEDERAL, STATE OR LOCAL LAW WHICH IS, TO A MATERIAL
EXTENT, SIMILAR TO THE FOREGOING PROVISIONS OF ERISA OR THE CODE (COLLECTIVELY,
A "PLAN"), AND IS NOT ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A PLAN OR
(B) SUBJECT TO CERTAIN CONDITIONS SET FORTH IN THE POOLING AND SERVICING
AGREEMENT, THAT THE SOURCE OF FUNDS USED TO PURCHASE THIS CERTIFICATE IS AN
"INSURANCE COMPANY GENERAL ACCOUNT."
<PAGE>
MORTGAGE PASS-THROUGH CERTIFICATE
SERIES 199_-_, CLASS B-4
evidencing an interest in a pool of fixed interest rate,
conventional, monthly pay, fully amortizing, first lien, one- to
four-family residential mortgage loans, which may include loans
secured by shares issued by cooperative housing corporations,
sold by
NATIONS MORTGAGE SECURITIES CORPORATION
(Not an interest in or obligation of the Seller)
THIS CERTIFICATE DOES NOT EVIDENCE AN OBLIGATION OF, OR AN INTEREST
IN, AND IS NOT GUARANTEED BY, THE SELLER, ANY AFFILIATE OF THE SELLER OR THE
TRUSTEE, AND IS NOT INSURED OR GUARANTEED BY THE SELLER, ANY AFFILIATE OF THE
SELLER, THE TRUSTEE, ANY GOVERNMENT AGENCY OR PRIVATE INSURER.
DISTRIBUTIONS IN REDUCTION OF THE PRINCIPAL BALANCE OF THIS
CERTIFICATE WILL BE MADE IN THE MANNER DESCRIBED IN THE POOLING AND SERVICING
AGREEMENT. ACCORDINGLY THE OUTSTANDING PRINCIPAL BALANCE OF THIS CERTIFICATE AT
ANY TIME MAY BE LESS THAN THE INITIAL PRINCIPAL BALANCE REPRESENTED HEREBY.
Certificate No. __
Percentage Interest evidenced
by this Certificate: ___%
Denomination: $____________
Cut-Off Date: __________ 1, 199__
First Distribution Date: __________ 25, 199__
CUSIP No.:
B-4-2
<PAGE>
THIS CERTIFIES THAT ____________________________ is the registered
owner of the Percentage Interest evidenced by this Certificate in monthly
distributions to the Holders of the Class B-4 Certificates with respect to a
Trust Estate consisting of a pool of fixed interest rate, conventional, monthly
pay, fully amortizing, first lien, one- to four-family residential mortgage
loans, other than the Fixed Retained Yield, if any, with respect thereto, and
which may include loans secured by shares issued by cooperative housing
corporations (the "Mortgage Loans") formed by Nations Mortgage Securities
Corporation (hereinafter called the "Seller", which term includes any successor
entity under the Agreement referred to below). The Trust Estate was created
pursuant to a Pooling and Servicing Agreement dated as of _____________, 199_
(the "Agreement") among the Seller, NationsBanc Mortgage Corporation, as
servicer (the "Servicer"), and _____________________, as trustee (the
"Trustee"), a summary of certain of the pertinent provisions of which is set
forth hereinafter. To the extent not defined herein, the capitalized terms used
herein have the meanings ascribed to such terms in the Agreement. This
Certificate is issued under and is subject to the terms, provisions and
conditions of the Agreement, to which Agreement the Holder of this Certificate
by virtue of the acceptance hereof assents and by which such Holder is bound.
Pursuant to the terms of the Agreement, a distribution will be made on
the 25th day of each month or, if such 25th day is not a Business Day, the
Business Day immediately following (the "Distribution Date"), commencing on the
first Distribution Date specified above, to the Person in whose name this
Certificate is registered at the close of business on the last Business Day of
the month preceding the month of such distribution, in an amount equal to the
product of the Percentage Interest evidenced by this Certificate and, subject to
the prior rights of the Class A Certificates and each Class of Class B
Certificates bearing a lower numerical designation as specified in the
Agreement, any Class B-4 Distribution Amount required to be distributed to
Holders of Class B-4 Certificates on such Distribution Date, subject to
adjustment, in certain events, as specified in the Agreement. The Pass-Through
Rate on the Class B-4 Certificates applicable to each Distribution Date will be
_____% per annum. The amount of interest which accrues on this Certificate in
any month will be subject to reduction with respect to any Non-Supported
Interest Shortfall and the interest portion of certain Realized Losses allocated
to the Class B-4 Certificates, as described in the Agreement.
Distributions on this Certificate will be made by the Trustee or on
behalf of the Trustee or by a Paying Agent appointed by the Trustee by check
mailed to the address of the Person entitled thereto, as such name and address
shall appear on the Certificate Register, unless such Person is entitled to
receive payments by wire transfer in immediately available funds in accordance
with the Pooling and Servicing Agreement and such Person has notified the
Trustee pursuant to the Pooling and Servicing Agreement that such payments are
to be made by wire transfer of immediately available funds. Notwithstanding the
above, the final distribution on this Certificate will be made after due notice
of the pendency of such distribution and only upon presentation and surrender of
this Certificate at the office or agency specified by the Trustee for that
purpose in the notice of final distribution.
B-4-3
<PAGE>
No transfer of a Class B-4 Certificate will be made unless such
transfer is exempt from the registration requirements of the Securities Act of
1933, as amended, and any applicable state securities laws or is made in
accordance with said Act and laws. In the event that such a transfer is desired
to be made by the Holder hereof, (i) the transferee will be required to execute
an investment letter in the form described in the Agreement and (ii) if such
transfer is to be made within three years from the date of initial issuance of
the Certificates pursuant to the Agreement, and unless such transfer is made in
reliance on Rule 144A of the Securities Act of 1933, as amended, the Trustee or
the Seller may require the Holder to deliver an opinion of counsel acceptable to
and in form and substance satisfactory to the Trustee and the Seller that such
transfer is exempt (describing the applicable exemption and the basis therefor)
from or is being made pursuant to the registration requirements of the
Securities Act of 1933, as amended, and of any applicable statute of any state.
The Holder hereof desiring to effect such transfer shall, and does hereby agree
to, indemnify the Trustee, the Seller, the Servicer, and any Paying Agent acting
on behalf of the Trustee against any liability that may result if the transfer
is not so exempt or is not made in accordance with such Federal and state laws.
In connection with any such transfer, the Trustee will also require (i) a
representation letter, in the form as described in the Agreement, stating either
(a) that the transferee is not a Plan and is not acting on behalf of a Plan or
using the assets of a Plan to effect such purchase or (b) subject to certain
conditions described in the Agreement, that the source of funds used to purchase
this Certificate is an "insurance company general account," or (ii) if such
transferee is a Plan, or is acting on behalf of or using the assets of the Plan
(a) an opinion of counsel acceptable to and in form and substance satisfactory
to the Trustee and the Seller with respect to certain matters and (b) such other
documentation as the Seller or the Trustee may require, as described in the
Agreement.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
This Certificate constitutes a "regular interest" in a "real estate
mortgage investment conduit" as those terms are defined in Section 860G(a)(1)
and Section 860D, respectively, of the Internal Revenue Code of 1986, as
amended.
Unless this Certificate has been countersigned by an authorized
officer of the Trustee, by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid for any purpose.
B-4-4
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed as of the date set forth below.
Dated:
[ ],
Trustee
By: __________________________
Authorized Officer
Countersigned:
[ ],
Trustee
By: ________________________
Authorized Officer
B-4-5
<PAGE>
EXHIBIT B-5
[FORM OF FACE OF CLASS B-5 CERTIFICATE]
THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A, CLASS B-1,
CLASS B-2, CLASS B-3 AND CLASS B-4 CERTIFICATES AS DESCRIBED IN THE POOLING AND
SERVICING AGREEMENT REFERRED TO HEREIN.
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS OR
IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION UNDER
SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH
THE PROVISIONS OF SECTION 5.02 OF THE POOLING AND SERVICING AGREEMENT REFERRED
TO HEREIN.
EXCEPT AS PROVIDED IN SECTION 5.02(C) OF THE POOLING AND SERVICING AGREEMENT
REFERRED TO HEREIN, THIS CERTIFICATE MAY NOT BE PURCHASED BY OR TRANSFERRED TO
ANY PERSON THAT HAS NOT DELIVERED A REPRESENTATION LETTER STATING EITHER (A)
THAT THE TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT
ARRANGEMENT SUBJECT TO TITLE I OF 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") OR A GOVERNMENTAL PLAN, AS DEFINED IN SECTION 3(32) OF
ERISA, SUBJECT TO ANY FEDERAL, STATE OR LOCAL LAW WHICH IS, TO A MATERIAL
EXTENT, SIMILAR TO THE FOREGOING PROVISIONS OF ERISA OR THE CODE (COLLECTIVELY,
A "PLAN"), AND IS NOT ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A PLAN OR
(B) SUBJECT TO CERTAIN CONDITIONS SET FORTH IN THE POOLING AND SERVICING
AGREEMENT, THAT THE SOURCE OF FUNDS USED TO PURCHASE THIS CERTIFICATE IS AN
"INSURANCE COMPANY GENERAL ACCOUNT."
<PAGE>
MORTGAGE PASS-THROUGH CERTIFICATE
SERIES 199_-_, CLASS B-5
evidencing an interest in a pool of fixed interest rate,
conventional, monthly pay, fully amortizing, first lien, one- to
four-family residential mortgage loans, which may include loans
secured by shares issued by cooperative housing corporations,
sold by
NATIONS MORTGAGE SECURITIES CORPORATION
(Not an interest in or obligation of the Seller)
THIS CERTIFICATE DOES NOT EVIDENCE AN OBLIGATION OF, OR AN INTEREST
IN, AND IS NOT GUARANTEED BY, THE SELLER, ANY AFFILIATE OF THE SELLER OR THE
TRUSTEE, AND IS NOT INSURED OR GUARANTEED BY THE SELLER, ANY AFFILIATE OF THE
SELLER, THE TRUSTEE, ANY GOVERNMENT AGENCY OR PRIVATE INSURER.
DISTRIBUTIONS IN REDUCTION OF THE PRINCIPAL BALANCE OF THIS
CERTIFICATE WILL BE MADE IN THE MANNER DESCRIBED IN THE POOLING AND SERVICING
AGREEMENT. ACCORDINGLY THE OUTSTANDING PRINCIPAL BALANCE OF THIS CERTIFICATE AT
ANY TIME MAY BE LESS THAN THE INITIAL PRINCIPAL BALANCE REPRESENTED HEREBY.
Certificate No. __
Percentage Interest evidenced
by this Certificate: ___%
Denomination: $____________
Cut-Off Date: __________ 1, 199__
First Distribution Date: __________ 25, 199__
CUSIP No.:
B-5-2
<PAGE>
THIS CERTIFIES THAT ____________________________ is the registered
owner of the Percentage Interest evidenced by this Certificate in monthly
distributions to the Holders of the Class B-5 Certificates with respect to a
Trust Estate consisting of a pool of fixed interest rate, conventional, monthly
pay, fully amortizing, first lien, one- to four-family residential mortgage
loans, other than the Fixed Retained Yield, if any, with respect thereto, and
which may include loans secured by shares issued by cooperative housing
corporations (the "Mortgage Loans") formed by Nations Mortgage Securities
Corporation (hereinafter called the "Seller", which term includes any successor
entity under the Agreement referred to below). The Trust Estate was created
pursuant to a Pooling and Servicing Agreement dated as of _____________, 199_
(the "Agreement") among the Seller, NationsBanc Mortgage Corporation, as
servicer (the "Servicer"), and _____________________, as trustee (the
"Trustee"), a summary of certain of the pertinent provisions of which is set
forth hereinafter. To the extent not defined herein, the capitalized terms used
herein have the meanings ascribed to such terms in the Agreement. This
Certificate is issued under and is subject to the terms, provisions and
conditions of the Agreement, to which Agreement the Holder of this Certificate
by virtue of the acceptance hereof assents and by which such Holder is bound.
Pursuant to the terms of the Agreement, a distribution will be made on
the 25th day of each month or, if such 25th day is not a Business Day, the
Business Day immediately following (the "Distribution Date"), commencing on the
first Distribution Date specified above, to the Person in whose name this
Certificate is registered at the close of business on the last Business Day of
the month preceding the month of such distribution, in an amount equal to the
product of the Percentage Interest evidenced by this Certificate and, subject to
the prior rights of the Class A Certificates and each Class of Class B
Certificates bearing a lower numerical designation as specified in the
Agreement, any Class B-5 Distribution Amount required to be distributed to
Holders of Class B-5 Certificates on such Distribution Date, subject to
adjustment, in certain events, as specified in the Agreement. The Pass-Through
Rate on the Class B-5 Certificates applicable to each Distribution Date will be
_____% per annum. The amount of interest which accrues on this Certificate in
any month will be subject to reduction with respect to any Non-Supported
Interest Shortfall and the interest portion of certain Realized Losses allocated
to the Class B-5 Certificates, as described in the Agreement.
Distributions on this Certificate will be made by the Trustee or on
behalf of the Trustee or by a Paying Agent appointed by the Trustee by check
mailed to the address of the Person entitled thereto, as such name and address
shall appear on the Certificate Register, unless such Person is entitled to
receive payments by wire transfer in immediately available funds in accordance
with the Pooling and Servicing Agreement and such Person has notified the
Trustee pursuant to the Pooling and Servicing Agreement that such payments are
to be made by wire transfer of immediately available funds. Notwithstanding the
above, the final distribution on this Certificate will be made after due notice
of the pendency of such distribution and only upon presentation and surrender of
this Certificate at the office or agency specified by the Trustee for that
purpose in the notice of final distribution.
B-5-3
<PAGE>
No transfer of a Class B-5 Certificate will be made unless such
transfer is exempt from the registration requirements of the Securities Act of
1933, as amended, and any applicable state securities laws or is made in
accordance with said Act and laws. In the event that such a transfer is desired
to be made by the Holder hereof, (i) the transferee will be required to execute
an investment letter in the form described in the Agreement and (ii) if such
transfer is to be made within three years from the date of initial issuance of
the Certificates pursuant to the Agreement, and unless such transfer is made in
reliance on Rule 144A of the Securities Act of 1933, as amended, the Trustee or
the Seller may require the Holder to deliver an opinion of counsel acceptable to
and in form and substance satisfactory to the Trustee and the Seller that such
transfer is exempt (describing the applicable exemption and the basis therefor)
from or is being made pursuant to the registration requirements of the
Securities Act of 1933, as amended, and of any applicable statute of any state.
The Holder hereof desiring to effect such transfer shall, and does hereby agree
to, indemnify the Trustee, the Seller, the Servicer, and any Paying Agent acting
on behalf of the Trustee against any liability that may result if the transfer
is not so exempt or is not made in accordance with such Federal and state laws.
In connection with any such transfer, the Trustee will also require (i) a
representation letter, in the form as described in the Agreement, stating either
(a) that the transferee is not a Plan and is not acting on behalf of a Plan or
using the assets of a Plan to effect such purchase or (b) subject to certain
conditions described in the Agreement, that the source of funds used to purchase
this Certificate is an "insurance company general account," or (ii) if such
transferee is a Plan, or is acting on behalf of or using the assets of the Plan
(a) an opinion of counsel acceptable to and in form and substance satisfactory
to the Trustee and the Seller with respect to certain matters and (b) such other
documentation as the Seller or the Trustee may require, as described in the
Agreement.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
This Certificate constitutes a "regular interest" in a "real estate
mortgage investment conduit" as those terms are defined in Section 860G(a)(1)
and Section 860D, respectively, of the Internal Revenue Code of 1986, as
amended.
Unless this Certificate has been countersigned by an authorized
officer of the Trustee, by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid for any purpose.
B-5-4
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed as of the date set forth below.
Dated:
[ ],
Trustee
By: __________________________
Authorized Officer
Countersigned:
[ ],
Trustee
By: ________________________
Authorized Officer
B-5-5
<PAGE>
EXHIBIT C-1
[FORM OF FACE OF CLASS A-PO CERTIFICATE]
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS OR
IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION UNDER
SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH
THE PROVISIONS OF SECTION 5.02 OF THE POOLING AND SERVICING AGREEMENT REFERRED
TO HEREIN.
EXCEPT AS PROVIDED IN SECTION 5.02(C) OF THE POOLING AND SERVICING AGREEMENT
REFERRED TO HEREIN, THIS CERTIFICATE MAY NOT BE PURCHASED BY OR TRANSFERRED TO
ANY PERSON THAT HAS NOT DELIVERED A REPRESENTATION LETTER STATING THAT THE
TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT
SUBJECT TO TITLE I OF 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") OR A GOVERNMENTAL PLAN, AS DEFINED IN SECTION 3(32) OF
ERISA, SUBJECT TO ANY FEDERAL, STATE OR LOCAL LAW WHICH IS, TO A MATERIAL
EXTENT, SIMILAR TO THE FOREGOING PROVISIONS OF ERISA OR THE CODE (COLLECTIVELY,
A "PLAN"), AND IS NOT ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A PLAN.
<PAGE>
MORTGAGE PASS-THROUGH CERTIFICATE
SERIES 199_-_, CLASS A-PO
evidencing an interest in a pool of fixed
interest rate, conventional, monthly pay,
fully amortizing, first lien, one- to
four-family residential mortgage loans, which may
include loans secured by shares issued by
cooperative housing corporations, sold by
NATIONS MORTGAGE SECURITIES CORPORATION
(Not an interest in or obligation of the Seller)
THIS CERTIFICATE DOES NOT EVIDENCE AN OBLIGATION OF, OR AN INTEREST
IN, THE SELLER, ANY AFFILIATE OF THE SELLER OR THE TRUSTEE, AND IS NOT INSURED
OR GUARANTEED BY THE SELLER, ANY AFFILIATE OF THE SELLER, THE TRUSTEE, ANY
GOVERNMENT AGENCY OR PRIVATE INSURER.
DISTRIBUTIONS IN REDUCTION OF THE PRINCIPAL BALANCE OF THIS
CERTIFICATE WILL BE MADE IN THE MANNER DESCRIBED IN THE POOLING AND SERVICING
AGREEMENT. ACCORDINGLY THE OUTSTANDING PRINCIPAL BALANCE OF THIS CERTIFICATE AT
ANY TIME MAY BE LESS THAN THE INITIAL PRINCIPAL BALANCE REPRESENTED HEREBY.
Certificate No. __
Percentage Interest evidenced
by this Certificate: ___%
Denomination: $____________
Cut-Off Date: __________ 1, 199__
First Distribution Date: __________ 25, 199__
CUSIP No.:
C-1-2
<PAGE>
THIS CERTIFIES THAT _____________________________ is the registered
owner of the Percentage Interest evidenced by this Certificate in monthly
distributions to the Holders of Class A-PO Certificates with respect to a Trust
Estate consisting of a pool of fixed interest rate, conventional, monthly pay,
fully amortizing, first lien, one- to four-family residential mortgage loans,
other than the Fixed Retained Yield, if any, with respect thereto, and which may
include loans secured by shares issued by cooperative housing corporations (the
"Mortgage Loans"), formed by Nations Mortgage Securities Corporation
(hereinafter called the "Seller", which term includes any successor entity under
the Agreement referred to below). The Trust Estate was created pursuant to a
Pooling and Servicing Agreement dated as of _____________, 199_ (the
"Agreement") among the Seller, NationsBanc Mortgage Corporation, as servicer
(the "Servicer"), and _____________________, as trustee (the "Trustee"), a
summary of certain of the pertinent provisions of which is set forth
hereinafter. To the extent not defined herein, the capitalized terms used herein
have the meanings ascribed to such terms in the Agreement. This Certificate is
issued under and is subject to the terms, provisions and conditions of the
Agreement, to which Agreement the Holder of this Certificate by virtue of the
acceptance hereof assents and by which such Holder is bound.
Pursuant to the terms of the Agreement, a distribution will be made on
the 25th day of each month or, if such 25th day is not a Business Day, the
Business Day immediately following (the "Distribution Date"), commencing on the
first Distribution Date specified above, to the Person in whose name this
Certificate is registered at the close of business on the last Business Day of
the month preceding the month of such distribution, in an amount equal to the
product of the Percentage Interest evidenced by this Certificate and the Class A
Distribution Amount required to be distributed to Holders of Class A-PO
Certificates on such Distribution Date, subject to adjustment in certain events
as specified in the Agreement. The Class A-PO Certificates will not be entitled
to distributions in respect of interest.
Distributions on this Certificate will be made by the Trustee or on
behalf of the Trustee or by a Paying Agent appointed by the Trustee by check
mailed to the address of the Person entitled thereto, as such name and address
shall appear on the Certificate Register, unless such Person is entitled to
receive payments by wire transfer in immediately available funds in accordance
with the Pooling and Servicing Agreement and such Person has notified the
Trustee pursuant to the Pooling and Servicing Agreement that such payments are
to be made by wire transfer of immediately available funds. Notwithstanding the
above, the final distribution in reduction of the principal balance of this
Certificate will be made after due notice of the pendency of such distribution
and only upon presentation and surrender of this Certificate at the office or
agency specified by the Trustee for that purpose in the notice of final
distribution.
No transfer of a Class A-PO Certificate will be made unless such
transfer is exempt from the registration requirements of the Securities Act of
1933, as amended, and any applicable state securities laws or is made in
accordance with said Act and laws. In the event that such a transfer is desired
to be made by the Holder hereof, (i) the transferee will be required to execute
an investment letter in the form described in the Agreement and (ii) if such
C-1-3
<PAGE>
transfer is to be made within three years from the date of initial issuance of
the Certificates pursuant to the Agreement, and unless such transfer is made in
reliance on Rule 144A of the Securities Act of 1933, as amended, the Trustee or
the Seller may require the Holder to deliver an opinion of counsel acceptable to
and in form and substance satisfactory to the Trustee and the Seller that such
transfer is exempt (describing the applicable exemption and the basis therefor)
from or is being made pursuant to the registration requirements of the
Securities Act of 1933, as amended, and of any applicable statute of any state.
The Holder hereof desiring to effect such transfer shall, and does hereby agree
to, indemnify the Trustee, the Seller, the Servicer, and any Paying Agent acting
on behalf of the Trustee against any liability that may result if the transfer
is not so exempt or is not made in accordance with such Federal and state laws.
In connection with any such transfer, the Trustee will also require (i) a
representation letter, in the form as described in the Agreement, stating the
transferee is not a Plan and is not acting on behalf of a Plan or using the
assets of a Plan to effect such purchase or (ii) if such transferee is a Plan,
or is acting on behalf of or using the assets of the Plan (a) an opinion of
counsel acceptable to and in form and substance satisfactory to the Trustee and
the Seller with respect to certain matters and (b) such other documentation as
the Seller or the Trustee may require, as described in the Agreement.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
This Certificate constitutes a "regular interest" in a "real estate
mortgage investment conduit" as those terms are defined in Section 860G(a)(1)
and Section 860D, respectively, of the Internal Revenue Code of 1986, as
amended.
Unless this Certificate has been countersigned by an authorized
officer of the Trustee, by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid for any purpose.
C-1-4
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed as of the date set forth below.
Dated:
[ ],
Trustee
By: __________________________
Authorized Officer
Countersigned:
[ ],
Trustee
By: ________________________
Authorized Officer
C-1-5
<PAGE>
EXHIBIT D
[Form of Reverse of Series 199__ Certificates]
NATIONS MORTGAGE SECURITIES CORPORATION
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 199__
This Certificate is one of a duly authorized issue of Certificates
issued in several Classes and Subclasses designated as Mortgage Pass-Through
Certificates of the Series specified hereon (herein collectively called the
"Certificates").
The Certificates are limited in right of payment to certain
collections and recoveries respecting the Mortgage Loans, all as more
specifically set forth herein and in the Agreement. In the event funds are
advanced with respect to any Mortgage Loan by the Servicer, such advances are
reimbursable to the Servicer to the extent provided in the Agreement, from
related recoveries on such Mortgage Loan or from other cash that would have been
distributable to Certificateholders.
As provided in the Agreement, withdrawals from the Custodial Servicing
Account of the Servicer and/or the Certificate Account created for the benefit
of Certificateholders may be made by the Servicer or the Trustee from time to
time for purposes other than distributions to Certificateholders, such purposes
including reimbursement to the Servicer or the Trustee, as applicable, of
advances made by the Servicer or the Trustee.
The Agreement permits, with certain exceptions therein provided, the
amendment of the Agreement and the modification of the rights and obligations of
the Seller, the Servicer and the Trustee and the rights of the
Certificateholders under the Agreement at any time by the Seller, the Servicer
and the Trustee with the consent of the Holders of Certificates evidencing in
the aggregate not less than 66 2/3% of the Voting Interests of each Class or
Subclass of Certificates affected thereby. Any such consent by the Holder of
this Certificate shall be conclusive and binding on such Holder and upon all
future holders of this Certificate and of any Certificate issued upon the
transfer hereof or in exchange hereof or in lieu hereof whether or not notation
of such consent is made upon the Certificate. The Agreement also permits the
amendment thereof in certain circumstances without the consent of the Holders of
any of the Certificates.
As provided in the Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registrable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the office or agency appointed by the Trustee, duly endorsed by, or
accompanied by an assignment in the form below or other written instrument of
transfer in form satisfactory to the Trustee and the Certificate Registrar, duly
executed by the Holder hereof or such Holder's attorney duly authorized in
writing, and thereupon one or more new Certificates of authorized Denominations
evidencing the same
<PAGE>
Class and aggregate Percentage Interest will be issued to the designated
transferee or transferees.
The Certificates are issuable only as registered Certificates without
coupons in Classes and Denominations specified in the Agreement. As provided in
the Agreement and subject to certain limitations therein set forth, Certificates
are exchangeable for new Certificates of authorized Denominations evidencing the
same Class and aggregate Percentage Interest, as requested by the Holder
surrendering the same.
No service charge will be made for any such registration of transfer
or exchange, but the Trustee or the Certificate Registrar may require payment of
a sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
The Seller, the Servicer, the Trustee and the Certificate Registrar,
and any agent of the Seller, the Servicer, the Trustee or the Certificate
Registrar, may treat the Person in whose name this Certificate is registered as
the owner hereof for all purposes, and neither the Seller, the Servicer, the
Trustee, the Certificate Registrar nor any such agent shall be affected by
notice to the contrary.
The obligations created by the Agreement in respect of the
Certificates and the Trust Estate created thereby shall terminate upon the last
action required to be taken by the Trustee on the Final Distribution Date
pursuant to the Agreement following the earlier of (i) the payment or other
liquidation (or advance with respect thereto) of the last Mortgage Loan subject
thereto or the disposition of all property acquired upon foreclosure or deed in
lieu of foreclosure of any Mortgage Loan, and (ii) the purchase by the Servicer
from the Trust Estate of all remaining Mortgage Loans and all property acquired
in respect of such Mortgage Loans; provided, however, that the Trust Estate will
in no event continue beyond the expiration of 21 years from the death of the
last survivor of the descendants of Joseph P. Kennedy, the late ambassador of
the United States to the Court of St. James's, living on the date of the
Agreement. The Agreement permits, but does not require, the Servicer to purchase
all remaining Mortgage Loans and all property acquired in respect of any
Mortgage Loan at a price determined as provided in the Agreement. The exercise
of such option will effect early retirement of the Certificates, the Servicer's
right to exercise such option being subject to the Pool Scheduled Principal
Balance of the Mortgage Loans as of the Distribution Date upon which the
proceeds of such repurchase are distributed being less than ten percent of the
Cut-Off Date Aggregate Principal Balance.
D-2
<PAGE>
ASSIGNMENT
----------
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s)
unto __________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Please print or typewrite name and address including postal zip code of
assignee)
the beneficial interest evidenced by the within Mortgage Pass-Through
Certificate and hereby authorizes the transfer of registration of such interest
to assignee on the Certificate Register of the Trust Estate.
I (We) further direct the Certificate Registrar to issue a new
Certificate of a like Denomination or Percentage Interest and Class or Subclass,
to the above named assignee and deliver such Certificate to the following
address:
________________________________________________________
Social Security or other Identifying Number of Assignee:
______________________
Dated:
____________________________________________
Signature by or on behalf of assignor
____________________________________________
Signature Guaranteed
D-3
<PAGE>
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for purposes of
distribution:
Distributions shall be made, if the assignee is eligible to receive
distributions in immediately available funds, by wire transfer or otherwise, in
immediately available funds to _________________________________________________
for the account of _______________________________account number ______________,
or, if mailed by check, to ____________________________________________________.
Applicable statements should be mailed to _____________________________________.
This information is provided by ______________________, the assignee
named above, or ___________________________________, as its agent.
D-4
<PAGE>
EXHIBIT E
CUSTODIAL AGREEMENT
-------------------
THIS CUSTODIAL AGREEMENT (as amended and supplemented from time to
time, the "Agreement"), dated as of _____________, by and among
_____________________, not individually, but solely as Trustee (including its
successors under the Pooling and Servicing Agreement defined below, the
"Trustee"), NATIONS MORTGAGE SECURITIES CORPORATION (together with any successor
in interest, the "Seller"), NATIONSBANC MORTGAGE CORPORATION, (together with any
successor in interest or successor under the Pooling and Servicing Agreement
referred to below, the "Servicer"), and ___________________________ (together
with any successor in interest or any successor appointed hereunder, the
"Custodian").
W I T N E S S E T H T H A T
- - - - - - - - - - - - - -
WHEREAS, the Seller, the Servicer and the Trustee have entered into a
Pooling and Servicing Agreement dated as of _____________, 199__ relating to the
issuance of Mortgage Pass-Through Certificates, Series 199__ (as in effect on
the date of this Agreement, the "Original Pooling and Servicing Agreement", and
as amended and supplemented from time to time, the "Pooling and Servicing
Agreement"); and
WHEREAS, the Custodian has agreed to act as agent for the Trustee for
the purposes of receiving and holding certain documents and other instruments
delivered by the Seller and the Servicer under the Pooling and Servicing
Agreement, all upon the terms and conditions and subject to the limitations
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the Trustee, the Seller, the
Servicer and the Custodian hereby agree as follows:
ARTICLE I
Definitions
Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned in the Original Pooling and Servicing Agreement,
unless otherwise required by the context herein.
ARTICLE II
Custody of Mortgage Documents
Section 2.1. Custodian to Act as Agent; Acceptance of Custodial
--------------------------------------------------
Files. The Custodian, as the duly appointed agent of the Trustee for these
- -----
purposes, acknowledges receipt of the Mortgage Notes, the Mortgages, the
assignments and other documents relating to the
<PAGE>
Mortgage Loans identified on the schedule attached hereto and declares that it
holds and will hold such Mortgage Notes, Mortgages, assignments and other
documents and any similar documents received by the Trustee subsequent to the
date hereof (the "Custodial Files") as agent for the Trustee, in trust, for the
use and benefit of all present and future Certificateholders.
Section 2.2. Recordation of Assignments. If any Custodial File
--------------------------
includes one or more assignments to the Trustee of Mortgage Notes and related
Mortgages that have not been recorded, each such assignment shall be delivered
by the Custodian to the Seller for the purpose of recording it in the
appropriate public office for real property records, and the Seller, at no
expense to the Custodian, shall promptly cause to be recorded in the appropriate
public office for real property records each such assignment and, upon receipt
thereof from such public office, shall return each such assignment to the
Custodian.
Section 2.3. Review of Custodial Files. The Custodian agrees, for
-------------------------
the benefit of Certificateholders, to review, in accordance with the provisions
of Section 2.01 of the Pooling and Servicing Agreement, each Custodial File. If
in performing the review required by this Section 2.3 the Custodian finds any
document or documents constituting a part of a Custodial File to be missing or
defective in any material respect, the Custodian shall promptly so notify the
Seller, the Servicer and the Trustee.
Section 2.4. Notification of Breaches of Representations and
-----------------------------------------------
Warranties. Upon discovery by the Custodian of a breach of any representation
- ----------
or warranty made by the Servicer or the Seller as set forth in the Pooling and
Servicing Agreement, the Custodian shall give prompt written notice to the
Seller, the Servicer and the Trustee.
Section 2.5. Custodian to Cooperate; Release of Custodial Files.
--------------------------------------------------
Upon the payment in full of any Mortgage Loan, or the receipt by the Servicer of
a notification that payment in full will be escrowed in an manner customary for
such purposes, the Servicer shall immediately notify the Custodian by a
certification (which certification shall include a statement to the effect that
all amounts received or to be received in connection with such payment which are
required to be deposited in the Certificate Account pursuant to Section 3.02 of
the Pooling and Servicing Agreement have been or will be so deposited) of a
Servicing Officer and shall request delivery to it of the Custodial File. The
Custodian agrees, upon receipt of such certification and request, promptly to
release the related Custodial File to the Servicer.
From time to time as is appropriate for the servicing or foreclosure
of any Mortgage Loan, the Servicer shall deliver to the Custodian a certificate
of a Servicing Officer requesting that possession of all, or any document
constituting part of, the Custodial File be released to the Servicer and
certifying as to the reason for such release and that such release will not
invalidate any insurance coverage provided in respect of the Mortgage Loan.
With such certificate, the Servicer shall deliver to the Custodian a receipt
signed by a Servicing Officer on behalf of the Servicer, and upon receipt of the
foregoing, the Custodian shall deliver the Custodial File or such document to
the Servicer. The Servicer shall cause each
E-2
<PAGE>
Custodial File or any document therein so released to be returned to the
Custodian when the need therefor by the Servicer no longer exists, unless (i)
the Mortgage Loan has been liquidated and the Liquidation Proceeds relating to
the Mortgage Loan have been deposited in the Certificate Account to the extent
required by the Pooling and Servicing Agreement or (ii) the Custodial File or
such document has been delivered to an attorney, or to a public trustee or other
public official as required by law, for purposes of initiating or pursuing legal
action or other proceedings for the foreclosure of the Mortgaged Property either
judicially or non-judicially, and the Servicer has delivered to the Custodian a
certificate of a Servicing Officer certifying as to the name and address of the
Person to which such Custodial File or such document were delivered and the
purpose or purposes of such delivery. In the event of the liquidation of a
Mortgage Loan, the Custodian shall deliver such receipt with respect thereto to
the Servicer upon deposit of the related Liquidation Proceeds in the Certificate
Account to the extent required by the Pooling and Servicing Agreement.
Section 2.6. Assumption Agreements. In the event that any assumption
---------------------
agreement or substitution of liability agreement is entered into with respect to
any Mortgage Loan subject to this Agreement in accordance with the terms and
provisions of the Pooling and Servicing Agreement, the Servicer shall notify the
Custodian that such assumption or substitution agreement has been completed by
forwarding to the Custodian the original of such assumption or substitution
agreement, which copy shall be added to the related Custodial File and, for all
purposes, shall be considered a part of such Custodial File to the same extent
as all other documents and instruments constituting parts thereof.
ARTICLE III
Concerning the Custodian
Section 3.1. Custodian a Bailee and Agent of the Trustee. With
-------------------------------------------
respect to each Mortgage Note, Mortgage and other documents constituting each
Custodian File which are delivered to the Custodian, the Custodian is
exclusively the bailee and agent of the Trustee, holds such documents for the
benefit of Certificateholders and undertakes to perform such duties and only
such duties as are specifically set forth in this Agreement. Except upon
compliance with the provisions of Section 2.5 of this Agreement, no Mortgage
Note, Mortgage or other document constituting a part of a Custodial File shall
be delivered by the Custodian to the Seller or the Servicer or otherwise
released from the possession of the Custodian.
Section 3.2. Indemnification. The Seller hereby agrees to indemnify
---------------
and hold the Custodian harmless from and against all claims, liabilities,
losses, actions, suits or proceedings at law or in equity, or any other
expenses, fees or charges of any character or nature, which the Custodian may
incur or with which the Custodian may be threatened by reasons of its acting as
custodian under this Agreement, including indemnification of the Custodian
against any and all expenses, including attorney's fees if counsel for the
Custodian has been approved by the Seller, and the cost of defending any action,
suit or proceedings or resisting any claim. Notwithstanding the foregoing, it
is specifically understood and agreed
E-2
<PAGE>
that in the event any such claim, liability, loss, action, suit or proceeding or
other expense, fees, or charge shall have been caused by reason of any negligent
act, negligent failure to act, or willful misconduct on the part of the
Custodian, or which shall constitute a willful breach of its duties hereunder,
the indemnification provisions of this Agreement shall not apply.
Section 3.3. Custodian May Own Certificates. The Custodian in its
------------------------------
individual or any other capacity may become the owner or pledgee of Certificates
with the same rights it would have if it were not Custodian.
Section 3.4. Servicer to Pay Custodian's Fees and Expenses. The
---------------------------------------------
Servicer covenants and agrees to pay to the Custodian from time to time, and the
Custodian shall be entitled to, reasonable compensation for all services
rendered by it in the exercise and performance of any of the powers and duties
hereunder of the Custodian, and the Servicer will pay or reimburse the Custodian
upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Custodian in accordance with any of the provisions of
this Agreement (including the reasonable compensation and the expenses and
disbursements of its counsel and of all persons not regularly in its employ),
except any such expense, disbursement or advance as may arise from its
negligence or bad faith.
Section 3.5. Custodian May Resign; Trustee May Remove Custodian. The
--------------------------------------------------
Custodian may resign from the obligations and duties hereby imposed upon it as
such obligations and duties relate to its acting as Custodian of the Mortgage
Loans. Upon receiving such notice of resignation, the Trustee shall either take
custody of the Custodial Files itself and give prompt notice thereof to the
Seller, the Servicer and the Custodian or promptly appoint a successor Custodian
by written instrument, in duplicate, one copy of which instrument shall be
delivered to the resigning Custodian and one copy to the successor Custodian.
If the Trustee shall not have taken custody of the Custodial Files and no
successor Custodian shall have been so appointed and have accepted resignation,
the resigning Custodian may petition any court of competent jurisdiction for the
appointment of a successor Custodian.
The Trustee may remove the Custodian at any time. In such event, the
Trustee shall appoint, or petition a court of competent jurisdiction to appoint,
a successor Custodian hereunder. Any successor Custodian shall be a depository
institution subject to supervision or examination by federal or state authority
and shall be able to satisfy the other requirements contained in Section 3.7.
Any resignation or removal of the Custodian and appointment of a
successor Custodian pursuant to any of the provisions of this Section 3.5 shall
become effective upon acceptance of appointment by the successor Custodian. The
Trustee shall give prompt notice to the Seller and the Servicer of the
appointment of any successor Custodian. No successor Custodian shall have been
appointed and accepted appointment by the Trustee without the prior approval of
the Seller and the Servicer.
Section 3.6. Merger or Consolidation of Custodian. Any Person into
------------------------------------
which the Custodian may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Custodian shall be a
E-4
<PAGE>
party, or any Person succeeding to the business of the Custodian, shall be the
successor of the Custodian hereunder, without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
Section 3.7. Representations of the Custodian. The Custodian hereby
--------------------------------
represents that it is a depository institution subject to supervision or
examination by a federal or state authority, has a combined capital and surplus
of at least $10,000,000 and is qualified to do business in the jurisdiction in
which it will hold any Custodian File.
ARTICLE IV
Miscellaneous Provisions
Section 4.1. Notices. All notices, requests, consents and demands
-------
and other communications required under this Agreement or pursuant to any other
instrument or document delivered hereunder shall be in writing and, unless
otherwise specifically provided, may be delivered personally, by telegram or
telex, or by registered or certified mail, postage prepaid, return receipt
requested, at the addresses specified on the signature page hereof (unless
changed by the particular party whose address is stated herein by similar notice
in writing), in which case the notice will be deemed delivered when received.
Section 4.2. Amendments. No modification or amendment of or
----------
supplement to this Agreement shall be valid or effective unless the same is in
writing and signed by all parties hereto, and neither the Seller, the Servicer
nor the Trustee shall enter into any amendment hereof except as permitted by the
Pooling and Servicing Agreement. The Trustee shall give prompt notice to the
Custodian of any amendment or supplement to the Pooling and Servicing Agreement
and furnish the Custodian with written copies thereof.
SECTION 4.3. GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED A
-------------
CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
Section 4.4. Recordation of Agreement. To the extent permitted by
------------------------
applicable law, this Agreement is subject to recordation in all appropriate
public offices for real property records in all the counties or other comparable
jurisdictions in which any or all of the properties subject to the Mortgages are
situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected by the Servicer and at its expense on direction
by the Trustee, but only upon direction accompanied by an Opinion of Counsel to
the effect that such recordation materially and beneficially affects the
interests of the Certificateholders.
For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one and
the same instrument.
E-5
<PAGE>
Section 4.5. Severability of Provisions. If any one or more of the
--------------------------
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the holders thereof.
E-6
<PAGE>
IN WITNESS WHEREOF, this Agreement is executed as of the date first
above written.
Address: [ ]
By:_____________________________________
Name:___________________________________
Title:__________________________________
Address: NATIONS MORTGAGE
SECURITIES CORPORATION
By:_____________________________________
Name:___________________________________
Title:__________________________________
Address: NATIONSBANC MORTGAGE
CORPORATION
By:_____________________________________
Name:___________________________________
Title:__________________________________
Address: [ ]
By:_____________________________________
Name:___________________________________
Title:__________________________________
E-7
<PAGE>
STATE OF )
: ss.:
COUNTY OF )
On this ____ day of _________, 19__, before me, a notary public in and
for the State of ____________, personally appeared _______________, known to me
who, being by me duly sworn, did depose and say that he resides at
__________________________; that he is the __________ of Nations Mortgage
Securities Corporation, a __________ corporation, one of the parties that
executed the foregoing instrument; and that he signed his name thereto by order
of the Board of Directors of said corporation.
___________________________________
Notary Public
[NOTARIAL SEAL]
E-8
<PAGE>
STATE OF )
: ss.:
COUNTY OF )
On this ___ day of ________, 19__, before me, a notary public in and
for the State of ____________, personally appeared __________ _________, known
to me who, being by me duly sworn, did depose and say that he resides at
__________________________; that he is the ____________________ of
_____________________, a ______________________, one of the parties that
executed the foregoing instrument; and that he signed his name thereto by order
of the Board of Directors of said association.
___________________________________
Notary Public
[NOTARIAL SEAL]
E-9
<PAGE>
STATE OF )
: ss.:
COUNTY OF )
On this ___ day of ________, 19__, before me, a notary public in and
for the State of ____________, personally appeared _______________,
_______________, known to me who, being by me duly sworn, did depose and say
that he resides at __________________________; that he is the __________ of
NationsBanc Mortgage Corporation, a __________ corporation, one of the parties
that executed the foregoing instrument; and that he signed his name thereto by
order of the Board of Directors of said corporation.
___________________________________
Notary Public
[NOTARIAL SEAL]
E-10
<PAGE>
STATE OF )
: ss.:
COUNTY OF )
On this ____ day of ________, 19__, before me, a notary public in and
for the State of __________, personally appeared __________, __________, known
to me who, being by me duly sworn, did depose and say that he resides at
__________________________; that he is the _______________________ of
______________________, a _________________________, one of the parties that
executed the foregoing instrument; and that he signed his name thereto by order
of the Board of Directors of said association.
___________________________________
Notary Public
[NOTARIAL SEAL]
E-11
<PAGE>
EXHIBIT F
[Mortgage Loan Schedule]
<PAGE>
EXHIBIT G
REQUEST FOR RELEASE
(for Trustee/Custodian)
Loan Information
- ----------------
Name of Mortgagor: _____________________________
Servicer
Loan No.: _____________________________
Custodian/Trustee
- -----------------
Name: _____________________________
Address: _____________________________
_____________________________
Custodian/Trustee
Mortgage File No.: _____________________________
Seller
- ------
Name: _____________________________
Address: _____________________________
_____________________________
Certificates: Mortgage Pass-Through Certificates,
Series 199_-_
The undersigned Servicer hereby acknowledges that it has received from
_____________________, as Trustee for the Holders of Mortgage Pass-Through
Certificates, Series 199_-_, the documents referred to below (the "Documents").
All capitalized terms not otherwise defined in this Request for Release shall
have the meanings given them in the Pooling and Servicing Agreement dated as of
_____________, 199_ (the "Pooling and Servicing Agreement") among the Trustee,
the Seller and the Servicer.
( ) Promissory Note dated ______________, 199__, in the original principal sum
of $___________, made by ____________________, payable to, or endorsed to
the order of, the Trustee.
( ) Mortgage recorded on _____________________ as instrument no.
______________ in the County Recorder's Office of the County of
____________________, State of
<PAGE>
_______________________ in book/reel/docket ____________________ of
official records at page/image ____________.
( ) Deed of Trust recorded on ____________________ as instrument no.
_________________ in the County Recorder's Office of the County of
___________________, State of _________________ in book/reel/docket
____________________ of official records at page/image ____________.
( ) Assignment of Mortgage or Deed of Trust to the Trustee, recorded on
______________________________ as instrument no. ______________ in the
County Recorder's Office of the County of ______________________, State of
_____________________ in book/reel/docket ____________________ of official
records at page/image ____________.
( ) Other documents, including any amendments, assignments or other
assumptions of the Mortgage Note or Mortgage.
( ) _____________________________________________
( ) _____________________________________________
( ) _____________________________________________
( ) _____________________________________________
The undersigned Servicer hereby acknowledges and agrees as follows:
(1) The Servicer shall hold and retain possession of the Documents in
trust for the benefit of the Trustee, solely for the purposes provided in
the Agreement.
(2) The Servicer shall not cause or permit the Documents to become
subject to, or encumbered by, any claim, liens, security interest, charges,
writs of attachment or other impositions nor shall the Servicer assert or
seek to assert any claims or rights of setoff to or against the Documents
or any proceeds thereof.
(3) The Servicer shall return the Documents to the Trustee when the
need therefor no longer exists, unless the Mortgage Loan relating to the
Documents has been liquidated and the proceeds thereof have been remitted
to the Certificate Account and except as expressly provided in the
Agreement.
(4) The Documents and any proceeds thereof, including any proceeds of
proceeds, coming into the possession or control of the Servicer shall at
all times be earmarked for the account of the Trustee, and the Servicer
shall keep the Documents and any proceeds separate and distinct from all
other property in the Servicer's possession, custody or control.
G-2
<PAGE>
NATIONSBANC MORTGAGE CORPORATION
By: __________________________
Title: _________________________
Date: ________________, 19__
G-3
<PAGE>
EXHIBIT H
AFFIDAVIT PURSUANT TO SECTION 860E(e)(4) OF
THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED, AND FOR NON-ERISA INVESTORS
STATE OF )
) ss:
COUNTY OF )
[NAME OF OFFICER], being first duly sworn, deposes and says:
1. That he is [Title of Officer] of [Name of Purchaser] (the
"Purchaser"), a [description of type of entity] duly organized and existing
under the laws of the [State of _______] [United States], on behalf of which he
makes this affidavit.
2. That the Purchaser's Taxpayer Identification Number is [ ].
3. That the Purchaser is not a "disqualified organization" within
the meaning of Section 860E(e)(5),of the Internal Revenue Code of 1986, as
amended (the "Code"), or an ERISA Prohibited Holder, and will not be a
"disqualified organization" or an ERISA Prohibited Holder, as of [date of
transfer], and that the Purchaser is not acquiring Nations Mortgage Securities
Corporation Mortgage Pass-Through Certificates, Series 199_-_, Class A-R
Certificate (the "Class A-R Certificate") for the account of, or as agent
(including a broker, nominee, or other middleman) for, any person or entity from
which it has not received an affidavit substantially in the form of this
affidavit. For these purposes, a "disqualified organization" means the United
States, any state or political subdivision thereof, any foreign government, any
international organization, any agency or instrumentality of any of the
foregoing (other than an instrumentality if all of its activities are subject to
tax and a majority of its board of directors is not selected by such
governmental entity), any cooperative organization furnishing electric energy or
providing telephone service to persons in rural areas as described in Code
Section 1381(a)(2)(C), or any organization (other than a farmers' cooperative
described in Code Section 521) that is exempt from taxation under the Code
unless such organization is subject to the tax on unrelated business income
imposed by Code Section 511. For these purposes, an "ERISA Prohibited Holder"
means an employee benefit plan subject to the fiduciary provisions of the
Employee Retirement Income Security Act of 1974, as amended, ("ERISA") and/or
Code Section 4975 or any governmental plan, as defined in Section 3(32) of
ERISA, subject to any federal, state or local law which is, to a material
extent, similar to the foregoing provisions of ERISA or the Code (collectively,
a "Plan") or a Person acting on behalf of or investing the assets of such a
Plan.
<PAGE>
4. That the Purchaser historically has paid its debts as they have
come due and intends to pay its debts as they come due in the future and the
Purchaser intends to pay taxes associated with holding the Class A-R Certificate
as they become due.
5. That the Purchaser understands that it may incur tax liabilities
with respect to the Class A-R Certificate in excess of cash flows generated by
the Class A-R Certificate.
6. That the Purchaser will not transfer the Class A-R Certificate to
any person or entity from which the Purchaser has not received an affidavit
substantially in the form of this affidavit and as to which the Purchaser has
actual knowledge that the requirements set forth in paragraph 3, 4 or 7 hereof
are not satisfied or that the Purchaser has reason to know does not satisfy the
requirements set forth in paragraph 4 hereof.
7. That the Purchaser (i) is a U.S. Person or (ii) is a person other
than a U.S. Person (a "Non-U.S. Person") that holds the Class A-R Certificate in
connection with the conduct of a trade or business within the United States and
has furnished the transferor and the Trustee with an effective Internal Revenue
Service Form 4224 or successor form at the time and in the manner required by
the Code or (iii) is a Non-U.S. Person that has delivered to both the transferor
and the Trustee an opinion of a nationally recognized tax counsel to the effect
that the transfer of the Class A-R Certificate to it is in accordance with the
requirements of the Code and the regulations promulgated thereunder and that
such transfer of the Class A-R Certificate will not be disregarded for federal
income tax purposes. "U.S. Person" means a citizen or resident of the United
States, a corporation, partnership (except to the extent provided in applicable
Treasury regulations) or other entity created or organized in or under the laws
of the United States or any political subdivision thereof, an estate that is
subject to U.S. federal income tax regardless of the source of its income or a
trust if (i) for taxable years beginning after December 31, 1996 (or ending
after August 20, 1996, if the trustee has made an applicable election), a court
within the United States is able to exercise primary supervision over the
administration of such trust, and one or more such U.S. Persons have the
authority to control all substantial decisions of such trust, or (ii) for all
taxable years, such trust is subject to U.S. federal income tax regardless of
the source of its income (or, to the extent provided in applicable Treasury
regulations, certain trusts in existence on August 20, 1996 which are eligible
to elect to be treated as U.S. Persons.
8. That the Purchaser agrees to such amendments of the Pooling and
Servicing Agreement as may be required to further effectuate the restrictions on
transfer of the Class A-R Certificate to such a "disqualified organization," an
agent thereof, an ERISA Prohibited Holder or a person that does not satisfy the
requirements of paragraph 4, paragraph 5 and paragraph 7 hereof.
9. That the Purchaser consents to the designation of the Servicer as
its agent to act as "tax matters person" of the REMIC pursuant to Section 3.01
of the Pooling and Servicing Agreement, and if such designation is not permitted
by the Code and applicable law, to act as tax matters person if requested to do
so.
H-2
<PAGE>
IN WITNESS WHEREOF, the Purchaser has caused this instrument to be
executed on its behalf, pursuant to authority of its Board of Directors, by its
[Title of Officer] this ___ day of __________, 19 __.
[NAME OF PURCHASER]
By:__________________________
[Name of Officer]
[Title of Officer]
Personally appeared before me the above-named [Name of Officer], known
or proved to me to be the same person who executed the foregoing instrument and
to be the [Title of Officer], of the Purchaser, and acknowledged to me that he
[she] executed the same as his [her] free act and deed and the free act and deed
of the Purchaser.
Subscribed and sworn before me this __ day of __________, 19 __.
_____________________________
NOTARY PUBLIC
COUNTY OF____________________
STATE OF_____________________
My commission expires the __ day of __________, 19__.
H-3
<PAGE>
EXHIBIT I
[Letter from Transferor of Class A-R Certificate]
[Date]
[Name and Address of Trustee]
Re: Nations Mortgage Securities Corporation
Mortgage Pass-Through Certificates,
Series 199 - , Class A-R
-----------------------------------------
Ladies and Gentlemen:
[Transferor] has reviewed the attached affidavit of [Transferee], and
has no actual knowledge that such affidavit is not true and has no reason to
know that the information contained in paragraph 4 thereof is not true.
Very truly yours,
[Transferor]
______________________
<PAGE>
EXHIBIT J
NATIONS MORTGAGE SECURITIES CORPORATION
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 199_-_
CLASS [A-PO] [B-3] [B-4] [B-5] CERTIFICATES
TRANSFEREE'S LETTER
-------------------
[Date]
[Name and Address of Trustee]
Nations Mortgage Securities Corporation
[Address]
The undersigned (the "Purchaser") proposes to purchase Nations
Mortgage Securities Corporation Mortgage Pass-Through Certificates, Series
199__, Class [A-PO] [B-3] [B-4] [B-5] Certificates (the "Class [A-PO] [B-3]
[B-4] [B-5] Certificates") in the principal amount of $___________. In doing so,
the Purchaser hereby acknowledges and agrees as follows:
Section 1. Definitions. Each capitalized term used herein and not
-----------
otherwise defined herein shall have the meaning ascribed to it in the Pooling
and Servicing Agreement, dated as of _____________, 199_ (the "Pooling and
Servicing Agreement") among Nations Mortgage Securities Corporation, as seller
("NMSC"), NationsBanc Mortgage Corporation, as servicer (the "Servicer") and
_____________________, as trustee (the "Trustee"), of Nations Mortgage
Securities Corporation Mortgage Pass-Through Certificates, Series 199__.
Section 2. Representations and Warranties of the Purchaser. In
-----------------------------------------------
connection with the proposed transfer, the Purchaser represents and warrants to
NMSC and the Trustee that:
<PAGE>
(a) The Purchaser is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which the Purchaser is
organized, is authorized to invest in the Class [A-PO] [B-3] [B-4] [B-5]
Certificates, and to enter into this Agreement, and duly executed and
delivered this Agreement.
(b) The Purchaser is acquiring the Class [A-PO] [B-3] [B-4] [B-5]
Certificates for its own account as principal and not with a view to the
distribution thereof, in whole or in part.
[(c) The Purchaser has knowledge of financial and business matters
and is capable of evaluating the merits and risks of an investment in the
Class [A-PO] [B-3] [B-4] [B-5] Certificates; the Purchaser has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision; and the Purchaser is able to bear the
economic risk of an investment in the Class [A-PO] [B-3] [B-4] [B-5]
Certificates and can afford a complete loss of such investment.]
[(c) The Purchaser is a "Qualified Institutional Buyer" within the
meaning of Rule 144A of the Act.]
(d) The Purchaser confirms that (a) it has received and reviewed a
copy of the Private Placement Memorandum dated _____________, 199_,
relating to the Class [A-PO] [B-3] [B-4] [B-5] Certificates and reviewed,
to the extent it deemed appropriate, the documents attached thereto or
incorporated by reference therein, (b) it has had the opportunity to ask
questions of, and receive answers from NMSC concerning the Class [A-PO]
[B-3] [B-4] [B-5] Certificates and all matters relating thereto, and obtain
any additional information (including documents) relevant to its decision
to purchase the Class [A-PO] [B-3] [B-4] [B-5] Certificates that NMSC
possesses or can possess without unreasonable effort or expense and (c) it
has undertaken its own independent analysis of the investment in the Class
[A-PO] [B-3] [B-4] [B-5] Certificates. The Purchaser will not use or
disclose any information it receives in connection with its purchase of the
Class [A-PO] [B-3] [B-4] [B-5] Certificates other than in connection with a
subsequent sale of Class [A-PO] [B-3] [B-4] [B-5] Certificates.
(e) Either (i) the Purchaser is not an employee benefit plan or
other retirement arrangement subject to Title I of 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") or any governmental
plan, as defined in Section 3(32) of ERISA subject to any federal, state or
local law ("Similar Law") which is, to a material extent, similar to the
foregoing provisions of ERISA or the Code (collectively, a "Plan"), an
agent acting on behalf of a Plan, or a person utilizing the assets of a
Plan or (ii) [for Class B-3, B-4 or B-5 Certificates only] if the Purchaser
is an insurance company, the source of funds used to purchase the Class B
Certificate is an "insurance company general account" (as such term is
defined in Section V(e) of Prohibited Transaction Class Exemption 95-60
("PTE 95-60"), 60 Fed. Reg. 35925 (July 12,
J-3
<PAGE>
1995) and there is no Plan with respect to which the amount of such general
account's reserves and liabilities for the contract(s) held by or on behalf
of such Plan and all other Plans maintained by the same employer (or
affiliate thereof as defined in Section V(a)(1) of PTE 95-60) or by the
same employee organization, exceed 10% of the total of all reserves and
liabilities of such general account (as such amounts are determined under
Section I(a) of PTE 95-60) at the date of acquisition or (iii) the
Purchaser has provided (a) a "Benefit Plan Opinion" satisfactory to NMSC
and the Trustee of the Trust Estate and (b) such other opinions of counsel,
officers' certificates or agreements as NMSC or the Trustee may have
requested. A Benefit Plan Opinion is an opinion of counsel to the effect
that the proposed transfer will not (a) cause the assets of the Trust
Estate to be regarded as "plan assets" and subject to the fiduciary
responsibility provisions of ERISA or the prohibited transaction provisions
of the Code or Similar Law, (b) give rise to a fiduciary duty under ERISA,
Section 4975 of the Code or Similar Law on the part of NMSC, the Servicer
or the Trustee with respect to any Plan or (c) constitute a prohibited
transaction under ERISA or Section 4975 of the Code or Similar Law.
(f) If the Purchaser is a depository institution subject to the
jurisdiction of the Office of the Comptroller of the Currency ("OCC"), the
Board of Governors of the Federal Reserve System ("FRB"), the Federal
Deposit Insurance Corporation ("FDIC"), the Office of Thrift Supervision
("OTS") or the National Credit Union Administration ("NCUA"), the Purchaser
has reviewed the "Supervisory Policy Statement on Securities Activities"
dated January 28, 1992 of the Federal Financial Institutions Examination
Council and the April 15, 1994 Interim Revision thereto as adopted by the
OCC, FRB, FDIC, OTS and NCUA (with modifications as applicable), as
appropriate, other applicable investment authority, rules, supervisory
policies and guidelines of these agencies and, to the extent appropriate,
state banking authorities and has concluded that its purchase of the Class
[A-PO] [B-3] [B-4] [B-5] Certificates is in compliance therewith.
Section 3. Transfer of Class [A-PO] [B-3] [B-4] [B-5] Certificates.
-------------------------------------------------------
(a) The Purchaser understands that the Class [A-PO] [B-3] [B-4] [B-5]
Certificates have not been registered under the Securities Act of 1933 (the
"Act") or any state securities laws and that no transfer may be made unless
the Class [A-PO] [B-3] [B-4] [B-5] Certificates are registered under the
Act and applicable state law or unless an exemption from registration is
available. The Purchaser further understands that neither NMSC nor the
Trustee is under any obligation to register the Class [A-PO] [B-3] [B-4]
[B-5] Certificates or make an exemption available. In the event that such
a transfer is to be made in reliance upon an exemption from the Act or
applicable state securities laws, (i) the Trustee shall require, in order
to assure compliance with such laws, that the Certificateholder's
prospective transferee certify to NMSC and the Trustee as to the factual
basis for the registration or qualification exemption relied upon, and (ii)
unless the transferee is a "Qualified Institutional Buyer" within the
meaning of Rule 144A of the Act, the Trustee or NMSC may, if such transfer
is made
J-3
<PAGE>
within three years from the Closing Date, require an Opinion of Counsel
that such transfer may be made pursuant to an exemption from the Act and
state securities laws, which Opinion of Counsel shall not be an expense of
the Trustee or NMSC. Any such Certificateholder desiring to effect such
transfer shall, and does hereby agree to, indemnify the Trustee and NMSC
against any liability that may result if the transfer is not so exempt or
is not made in accordance with such federal and state laws.
(b) No transfer of a Class [A-PO] [B-3] [B-4] [B-5] Certificate shall
be made unless the transferee provides NMSC and the Trustee with a
Transferee's Letter, substantially in the form of this Agreement.
(c) The Purchaser acknowledges that its Class [A-PO] [B-3] [B-4] [B-5]
Certificates bear a legend setting forth the applicable restrictions on
transfer.
J-4
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Agreement to the
validly executed by its duly authorized representative as of the day and the
year first above written.
[PURCHASER]
By: _____________________________
Its: _____________________________
J-5
<PAGE>
EXHIBIT K
NATIONS MORTGAGE SECURITIES CORPORATION
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 199_
CLASS [B-1] [B-2] CERTIFICATES
TRANSFEREE'S LETTER
-------------------
__________ __, _____
[Name and Address of Trustee]
Nations Mortgage Securities Corporation
[Address]
The undersigned (the "Purchaser") proposes to purchase Nations
Mortgage Securities Corporation Mortgage Pass-Through Certificates, Series 199-
, Class [B-1] [B-2] Certificates (the "Class [B-1] [B-2] Certificates")
in the principal amount of $___________. In doing so, the Purchaser hereby
acknowledges and agrees as follows:
Section 1. Definitions. Each capitalized term used herein and not
-----------
otherwise defined herein shall have the meaning ascribed to it in the Pooling
and Servicing Agreement, dated as of _____________, 199_ (the "Pooling and
Servicing Agreement") among Nations Mortgage Securities Corporation, as seller
("NMSC"), NationsBanc Mortgage Corporation, as servicer (the "Servicer") and
_____________________, as trustee (the "Trustee"), of Nations Mortgage
Securities Corporation Mortgage Pass-Through Certificates, Series 199-.
Section 2. Representations and Warranties of the Purchaser. In
-----------------------------------------------
connection with the proposed transfer, the Purchaser represents and warrants to
NMSC and the Trustee that:
<PAGE>
Either (i) the Purchaser is not an employee benefit plan or other
retirement arrangement subject to Title I of 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") or a governmental plan, as
defined in Section 3(32) of ERISA subject to any federal, state or local
law ("Similar Law") which is, to a material extent, similar to the
foregoing provisions of ERISA or the Code (collectively, a "Plan"), an
agent acting on behalf of a Plan, or a person utilizing the assets of a
Plan or (ii) if the Purchaser is an insurance company, the source of funds
used to purchase the Class [B-1] [B-2] Certificate is an "insurance company
general account" (as such term is defined in Section V(e) of Prohibited
Transaction Class Exemption 95-60 ("PTE 95-60"), 60 Fed. Reg. 35925 (July
12, 1995) and there is no Plan with respect to which the amount of such
general account's reserves and liabilities for the contract(s) held by or
on behalf of such Plan and all other Plans maintained by the same employer
(or affiliate thereof as defined in Section V(a)(1) of PTE 95-60) or by the
same employee organization, exceed 10% of the total of all reserves and
liabilities of such general account (as such amounts are determined under
Section I(a) of PTE 95-60) at the date of acquisition or (iii) the
Purchaser has provided (a) a "Benefit Plan Opinion" satisfactory to NMSC
and the Trustee of the Trust Estate and (b) such other opinions of counsel,
officers' certificates or agreements as NMSC or the Trustee may have
requested. A Benefit Plan Opinion is an opinion of counsel to the effect
that the proposed transfer will not cause the assets of the Trust Estate to
be regarded as "plan assets" and subject to the prohibited transaction
provisions of ERISA, the prohibited transaction provisions of the Code or
Similar Law, and will not subject the Trustee, NMSC or the Servicer to any
obligation in addition to those undertaken in the Pooling and Servicing
Agreement (including any liability for civil penalties or excise taxes
imposed pursuant to ERISA, Section 4975 of the Code or Similar Law).
K-2
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Agreement to the
validly executed by its duly authorized representative as of the day and the
year first above written.
[PURCHASER]
By: _____________________________
Its: _____________________________
[Reserved]
K-3
<PAGE>
EXHIBIT L
[RESERVED]
<PAGE>
EXHIBIT M
[FORM OF SPECIAL SERVICING AND COLLATERAL FUND AGREEMENT]
---------------------------------------------------------
This SPECIAL SERVICING AND COLLATERAL FUND AGREEMENT (the "Agreement")
is made and entered into as of ______________________, between NationsBanc
Mortgage Corporation (the "Company") and ______________________(the
"Purchaser").
PRELIMINARY STATEMENT
---------------------
The ____________________ is the holder of (or intends to purchase) the
entire interest in Mortgage Pass-Through Certificates, Series _____, Class _____
(the "Class B Certificates"). The Class B Certificates were issued pursuant to
a Pooling and Servicing Agreement (the "Pooling and Servicing Agreement") dated
as of _______________ among Nations Mortgage Securities Corporation, as Seller,
NationsBanc Mortgage Corporation, as Servicer, and _____________________, as
Trustee.
_____________________ intends to resell all of the Class B
Certificates directly to the Purchaser on or promptly after the date hereof.
In connection with such sale, the parties hereto have agreed that the
Servicer will engage in certain special servicing procedures relating to
foreclosures for the benefit of the Purchaser, and that the Purchaser will
deposit funds in a collateral fund to cover any losses attributable to such
procedures as well as all advances and costs in connection therewith, as set
forth herein.
In consideration of the mutual agreements herein contained, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Purchaser agree that the following provisions shall become effective and shall
be binding on and enforceable by the Company and the Purchaser:
<PAGE>
ARTICLE I
---------
DEFINITIONS
-----------
Section 1.01 Defined Terms
-------------
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a
------------
day on which banking institutions in the State of New York are required or
authorized by law or executive order to be closed.
Collateral Fund: The fund established and maintained pursuant to
---------------
Section 3.01 hereof.
Collateral Fund Permitted Investments: Either (i) obligations of, or
-------------------------------------
obligations fully guaranteed as to principal and interest by, the United States,
or any agency or instrumentality thereof, provided such obligations are backed
by the full faith and credit of the United States, (ii) a money market fund
rated in the highest rating category by a nationally recognized rating agency
selected by the Company, (iii) cash, (iv) mortgage pass-through certificates
issued or guaranteed by Government National Mortgage Association, FNMA or FHLMC,
(v) commercial paper (including both non-interest-bearing discount obligations
and interest-bearing obligations payable on demand or on a specified date), the
issuer of which may be an affiliate of the Company, having at the time of such
investment a rating of at least A-1 by Standard and Poor's Ratings Group ("S&P")
or at least P-1 by Moody's Investors Service, Inc. ("Moody's") or (vi) demand
and time deposits in, certificates of deposit of, any depository institution or
trust company (which may be an affiliate of the Company) incorporated under the
laws of the United States of America or any state thereof and subject to
supervision and examination by federal and/or state banking authorities, so long
as at the time of such investment either (x) the long-term debt obligations of
such depository institution or trust company have a rating of at least Aa2 by
Moody's or AA by S&P or (y) the certificate of deposit or other unsecured short-
term debt obligations of such depository institution or trust company have a
rating of at least P-1 by Moody's or A-1 by S&P and, for each of the preceding
clauses (i), (iv), (v) and (vi), the maturity thereof shall be not later than
the earlier to occur of (A) 30 days from the date of the related investment and
(B) the next succeeding Distribution Date as defined in the related Pooling and
Servicing Agreements.
Commencement of Foreclosure: The first official action required under
---------------------------
local law in order to commence foreclosure proceedings or to schedule a
trustee's sale under a deed of trust, including (i) in the case of a mortgage,
any filing or service of process necessary to commence an action to foreclose,
or (ii) in the case of a deed of trust, posting, the publishing, filing or
delivery of a notice of sale, but not including in either case (x) any notice of
default, notice of intent to foreclose or sell or any other action prerequisite
to the actions specified in
M-2
<PAGE>
(i) or (ii) above, (y) the acceptance of a deed-in-lieu of foreclosure (whether
in connection with a sale of the related property or otherwise) or (z)
initiation and completion of a short pay-off.
Current Appraisal: With respect to any Mortgage Loan as to which the
-----------------
Purchaser has made an Election to Delay Foreclosure, an appraisal of the related
Mortgaged Property obtained by the Purchaser at its own expense from an
independent appraiser (which shall not be an affiliate of the Purchaser)
acceptable to the Company as nearly contemporaneously as practicable to the time
of the Purchaser's election, prepared based on the Company's customary
requirements for such appraisals.
Election to Delay Foreclosure: Any election by the Purchaser to delay
-----------------------------
the Commencement of Foreclosure, made in accordance with Section 2.02(b).
Election to Foreclose: Any election by the Purchaser to proceed with
---------------------
the Commencement of Foreclosure, made in accordance with Section 2.03(a).
Monthly Advances: Principal and interest advances and servicing
----------------
advances including costs and expenses of foreclosure.
Required Collateral Fund Balance: As of any date of determination, an
--------------------------------
amount equal to the aggregate of all amounts previously required to be deposited
in the Collateral Fund pursuant to Section 2.02(d) (after adjustment for all
withdrawals and deposits pursuant to Section 2.02 (e)) and Section 2.03(b)
(after adjustment for all withdrawals and deposits pursuant to Section 2.03(e))
and Section 3.02 to be reduced by all withdrawals therefrom pursuant to Section
2.02(g) and Section 2.03(d).
Section 1.02 Definitions Incorporated by Reference
-------------------------------------
All capitalized terms not otherwise defined in this Agreement shall
have the meanings assigned in the Pooling and Servicing Agreement.
M-3
<PAGE>
ARTICLE II
SPECIAL SERVICING PROCEDURES
Section 2.01 Reports and Notices
-------------------
(a) In connection with the performance of its duties under the Pooling
and Servicing Agreement relating to the realization upon defaulted Mortgage
Loans, the Company as Servicer shall provide to the Purchaser the following
notices and reports:
(i) Within five Business Days after each Distribution Date (or
included in or with the monthly statements to Certificateholders pursuant
to the Pooling and Servicing Agreement), the Servicer, shall provide to the
Purchaser a report, using the same methodology and calculations in its
standard servicing reports, indicating for the Trust Estate the number of
Mortgage Loans that are (A) thirty days, (B) sixty days, (C) ninety days or
more delinquent or (D) in foreclosure, and indicating for each such
Mortgage Loan the loan number and outstanding principal balance.
(ii) Prior to the Commencement of Foreclosure in connection with any
Mortgage Loan, the Servicer shall provide the Purchaser with a notice (sent
by telecopier) of such proposed and imminent foreclosure, stating the loan
number and the aggregate amount owing under the Mortgage Loan. Such notice
may be provided to the Purchaser in the form of a copy of a referral letter
from the Servicer to an attorney requesting the institution of foreclosure.
(b) If requested by the Purchaser, the Servicer shall make its
servicing personnel available (during their normal business hours) to respond to
reasonable inquiries, by phone or in writing by facsimile, electronic, or
overnight mail transmission, by the Purchaser in connection with any Mortgage
Loan identified in a report under subsection (a) (i) (B), (a) (i) (C), (a) (i)
(D), or (a) (ii) which has been given to the Purchaser; provided, that (1) the
Company shall only be required to provide information that is readily accessible
to its servicing personnel and is non-confidential and (2) the Company shall
respond within five Business Days orally or in writing by facsimile
transmission.
(c) In addition to the foregoing, the Company shall provide to the
Purchaser such information as the Purchaser may reasonably request provided,
however, that such information is consistent with normal reporting practices,
concerning each Mortgage Loan that is at least ninety days delinquent and each
Mortgage Loan which has become real estate owned, through the final liquidation
thereof; provided, that the Company shall only be required to provide
information that is readily accessible to its servicing personnel and is non-
confidential provided, however, that the Purchaser will reimburse the Company
for any out of pocket expenses.
M-4
<PAGE>
Section 2.02 Purchaser's Election to Delay Foreclosure Proceedings
-----------------------------------------------------
(a) The Purchaser shall be deemed to direct the Company that in the
event that the Company does not receive written notice of the Purchaser's
election pursuant to subsection (b) below within 24 hours (exclusive of any
intervening non-Business Days) of transmission of the notice provided by the
Company under Section 2.01 (a) (ii) subject to extension as set forth in Section
2.02(b), the Company may proceed with the Commencement of Foreclosure in respect
of such Mortgage Loan in accordance with its normal foreclosure policies without
further notice to the Purchaser. Any foreclosure that has been initiated may
be discontinued (i) without notice to the Purchaser if the Mortgage Loan has
been brought current or if a refinancing or prepayment occurs with respect to
the Mortgage Loan (including by means of a short payoff approved by the Company)
or (ii) if the Company has reached the terms of a forbearance agreement with the
borrower. In such latter case, the Company may complete such forbearance
agreement unless instructed otherwise by the Purchaser within two Business Days
notification.
(b) In connection with any Mortgage Loan with respect to which a
notice under Section 2.01(a)(ii) has been given to the Purchaser, the Purchaser
may elect to instruct the Company to delay the Commencement of Foreclosure until
such time as the Purchaser determines that the Company may proceed with the
Commencement of Foreclosure. Such election must be evidenced by written notice
received within 24 hours (exclusive of any intervening non-Business Days) of
transmission of the notice provided by the Company under Section 2.01(a)(ii).
Such 24 hour period shall be extended for no longer than an additional four
Business Days after the receipt of the information if the Purchaser requests
additional information related to such foreclosure; provided, however that the
Purchaser will have at least one Business Day to respond to any requested
additional information. Any such additional information shall (i) be provided
only to the extent it is not confidential in nature and (ii) is obtainable by
the Company from existing reports, certificates or statements or otherwise be
readily accessible to its servicing personnel. The Purchaser agrees that it has
no right to deal with the mortgagor during such period. However, if such
servicing activities include acceptance of a deed-in-lieu of foreclosure or
short payoff, the Purchaser will be notified and given two Business Days to
respond.
(c) With respect to any Mortgage Loan as to which the Purchaser has
made an Election to Delay Foreclosure, the Purchaser shall obtain a Current
Appraisal as soon as practicable, but in no event more than 15 business days
thereafter, and shall provide the Company with a copy of such Current Appraisal.
(d) Within two Business Days of making any Election to Delay
Foreclosure, the Purchaser shall remit by wire transfer to the Company, for
deposit in the Collateral Fund, an amount, as calculated by the Company, equal
to the sum of (i) 125% of the greater of the unpaid principal balance of the
Mortgage Loan and the value shown in the Current Appraisal referred to in
subsection (c) above (or, if such Current Appraisal has not yet been obtained,
the Company's estimate thereof, in which case the required deposit under this
subsection shall be adjusted upon obtaining such Current Appraisal), and (ii)
three months' interest on the
M-5
<PAGE>
Mortgage Loan at the applicable Mortgage Interest Rate. If any Election to Delay
Foreclosure extends for a period in excess of three months (such excess period
being referred to herein as the "Excess Period"), within two Business Days the
Purchaser shall remit by wire transfer in advance to the Company for deposit in
the Collateral Fund the amount of each additional month's interest, as
calculated by the Company, equal to interest on the Mortgage Loan at the
applicable Mortgage Interest Rate for the Excess Period. The terms of this
Agreement will no longer apply to the servicing of any Mortgage Loan upon the
failure of the Purchaser to deposit any of the above amounts relating to the
Mortgage Loan within two Business Days of the Election to Delay Foreclosure or
within two Business Days of the commencement of the Excess Period subject to
Section 3.01.
(e) With respect to any Mortgage Loan as to which the Purchaser has
made an Election to Delay Foreclosure, the Company may withdraw from the
Collateral Fund from time to time amounts necessary to reimburse the Company for
all related Monthly Advances and Liquidation Expenses thereafter made by the
Company as Servicer in accordance with the Pooling and Servicing Agreement. To
the extent that the amount of any such Liquidation Expenses is determined by the
Company based on estimated costs, and the actual costs are subsequently
determined to be higher, the Company may withdraw the additional amount from the
Collateral Fund. In the event that the Mortgage Loan is brought current by the
mortgagor and the foreclosure action is discontinued, the amounts so withdrawn
from the Collateral Fund shall be redeposited therein and to the extent that
reimbursement therefor from amounts paid by the mortgagor is not prohibited
pursuant to the Pooling and Servicing Agreement as of the date hereof,
applicable law or the related mortgage note. Except as provided in the
preceding sentence, amounts withdrawn from the Collateral Fund to cover Monthly
Advances and Liquidation Expenses shall not be redeposited therein or otherwise
reimbursed to the Purchaser. If and when any such Mortgage Loan is brought
current by the mortgagor, all amounts remaining in the Collateral Fund in
respect of such Mortgage Loan (after adjustment for all permitted withdrawals
and deposits pursuant to this subsection) shall be released to the Purchaser.
(f) With respect to any Mortgage Loan as to which the Purchaser has
made an Election to Delay Foreclosure, the Servicer shall continue to service
the Mortgage Loan in accordance with its customary procedures (other than the
delay in Commencement of Foreclosure as provided herein). If and when the
Purchaser shall notify the Servicer that it believes that it is appropriate to
do so, the Servicer may proceed with the Commencement of Foreclosure. In any
event, if the Mortgage Loan is not brought current by the mortgagor by the time
the loan becomes 6 months delinquent, the Purchaser's election shall no longer
be effective and at the Purchaser's option, either (i) the Purchaser shall
purchase the Mortgage Loan from the related Trust Estate at a purchase price
equal to the fair market value as shown on the Current Appraisal, to be paid by
(x) applying any balance in the Collateral Fund to such purchase price, and (y)
to the extent of any deficiency, by wire transfer of immediately available funds
from the Purchaser to the Company for deposit in the related Certificate Account
or Lower-Tier Certificate Account as applicable; or (ii) the Servicer may
proceed with the Commencement of Foreclosure.
M-6
<PAGE>
(g) Upon the occurrence of a liquidation with respect to any Mortgage
Loan as to which the Purchaser made an Election to Delay Foreclosure and as to
which the Servicer proceeded with the Commencement of Foreclosure in accordance
with subsection (f) above, the Company shall calculate the amount, if any, by
which the value shown on the Current Appraisal obtained under subsection (c)
exceeds the actual sales price obtained for the related Mortgaged Property (net
of Liquidation Expenses and accrued interest related to the extended foreclosure
period), and the Company shall withdraw the amount of such excess from the
Collateral Fund, shall remit the same to the Trust Estate and in its capacity as
Servicer shall apply such amount as additional Liquidation Proceeds pursuant to
the Pooling and Servicing Agreement. After making such withdrawal, all amounts
remaining in the Collateral Fund in respect of such Mortgage Loan (after
adjustment for all permitted withdrawals and deposits pursuant to this
Agreement) shall be released to the Purchaser
Section 2.03 Purchaser's Election to Commence Foreclosure Proceedings
--------------------------------------------------------
(a) In connection with any Mortgage Loan identified in a report under
Section 2.01(a)(i)(B), the Purchaser may elect to instruct the Company to
proceed with the Commencement of Foreclosure as soon as practicable. Such
election must be evidenced by written notice received by the Company by 5:00
p.m., New York City time, on the third Business Day following the delivery of
such report under Section 2.01(a)(i).
(b) Within two Business Days of making any Election to Foreclose, the
Purchaser shall remit to the Company, for deposit in the Collateral Fund, an
amount, as calculated by the Company, equal to 125% of the current unpaid
principal balance of the Mortgage Loan and three months interest on the Mortgage
Loan at the applicable Mortgage Interest Rate. If and when any such Mortgage
Loan is brought current by the mortgagor, all amounts in the Collateral Fund in
respect of such Mortgage Loan (after adjustment for all permitted withdrawals
and deposits pursuant to this Agreement) shall be released to the Purchaser and
to the extent that reimbursement therefor from amounts paid by the mortgagor is
not prohibited pursuant to the Pooling and Servicing Agreement as of the date
hereof, applicable law or the related mortgage note. The terms of this
Agreement will no longer apply to the servicing of any Mortgage Loan upon the
failure of the Purchaser to deposit the above amounts relating to the Mortgage
Loan within two Business Days of the Election to Foreclose subject to Section
3.01.
(c) With respect to any Mortgage Loan as to which the Purchaser has
made an Election to Foreclose, the Servicer shall continue to service the
Mortgage Loan in accordance with its customary procedures (other than
Commencement of Foreclosure as provided herein). In connection therewith, the
Company shall have the same rights to make withdrawals for Monthly Advances and
Liquidations Expenses from the Collateral Fund as are provided under Section
2.02(e), and the Company shall make reimbursements thereto to the limited extent
provided under such subsection in accordance with its customary procedures. The
Company shall not be required to proceed with the Commencement of Foreclosure if
(i) the same is stayed as a result of the mortgagor's bankruptcy or is otherwise
barred by applicable law, or to the extent that all legal conditions precedent
thereto have not yet been
M-7
<PAGE>
complied with, or (ii) the Company believes there is a breach of representations
or warranties by the Company or Seller, which may result in a repurchase or
substitution of such Mortgage Loan, or (iii) the Company reasonably believes the
Mortgaged Property may be contaminated with or affected by hazardous wastes or
hazardous substances (and, without limiting the Company's right not to proceed
with the Commencement of Foreclosure, the Company supplies the Purchaser with
information supporting such belief). Any foreclosure that has been initiated may
be discontinued (x) without notice to the Purchaser if the Mortgage Loan has
been brought current or if a refinancing or prepayment occurs with respect to
the Mortgage Loan (including by means of a short payoff approved by the
Purchaser) or (y) with notice to the Purchaser if the Company has reached the
terms of a forbearance agreement unless instructed otherwise by the Purchaser
within two Business Days of such notification. Any such instruction shall be
based upon a decision that such forbearance agreement is not in conformity with
reasonable servicing practices.
(d) Upon the occurrence of a liquidation with respect to any Mortgage
Loan as to which the Purchaser made an Election to Foreclose and as to which the
Company proceeded with the Commencement of Foreclosure in accordance with
subsection (c) above, the Company shall calculate the amount, if any, by which
the unpaid principal balance of the Mortgage Loan at the time of liquidation
(plus all unreimbursed interest and servicing advances and Liquidation Expenses
in connection therewith other than those paid from the Collateral Fund) exceeds
the actual sales price obtained for the related Mortgaged Property, and the
Company shall withdraw the amount of such excess from the Collateral Fund, shall
remit the same to the Trust Estate and in its capacity as Servicer shall apply
such amount as additional Liquidation Proceeds pursuant to the Pooling and
Servicing Agreement. After making such withdrawal, all amounts remaining in the
Collateral Fund (after adjustment for all withdrawals and deposits pursuant to
subsection (c)) in respect of such Mortgage Loan shall be released to the
Purchaser.
Section 2.04 Termination
-----------
(a) With respect to all Mortgage Loans included in the Trust Estate,
the Purchaser's right to make any Election to Delay Foreclosure or any Election
to Foreclose and the Company's obligations under Section 2.01 shall terminate
(i) at such time as the Principal Balance of the Class B Certificates has been
reduced to zero, (ii) if the greater of (x) _____% (or such lower or higher
percentage that represents the Company's actual historical loss experience with
respect to the Mortgage Loans in the related pool as determined by the Company)
of the aggregate principal balance of all Mortgage Loans that are in foreclosure
or are more than 90 days delinquent on a contractual basis and REO properties or
(y) the aggregate amount that the Company estimates through its normal servicing
practices will be required to be withdrawn from the Collateral Fund with respect
to Mortgage Loans as to which the Purchaser has made an Election to Delay
Foreclosure or an Election to Foreclosure, exceeds (z) the then-current
principal balance of the Class B Certificates, (iii) upon any transfer by the
Purchaser of any interest (other than the minority interest therein, but only if
the transferee provides written acknowledgment to the Company of the Purchaser's
right hereunder and that such transferee will have no rights hereunder) in the
Class B Certificates
M-8
<PAGE>
(whether or not such transfer is registered under the Trust Agreement),
including any such transfer in connection with a termination of the Trust Estate
or (iv) any breach of the terms of this Agreement by the Purchaser.
(b) Except as set forth in 2.04(a), this Agreement and the respective
rights, obligations and responsibilities of the Purchaser and the Company
hereunder shall terminate upon the later to occur of (i) the final liquidation
of the last Mortgage Loan as to which the Purchaser made any Election to Delay
Foreclosure or any Election to Foreclose and the withdrawal of all remaining
amounts in the Collateral Fund as provided herein and (ii) ten Business Days'
notice. The Purchaser's right to make an election pursuant to Section 2.02 or
Section 2.03 hereof with respect to a particular Mortgage Loan shall terminate
if the Purchaser fails to make any deposit required pursuant to Section 2.02(d)
or 2.03(b) or if the Purchaser fails to make any other deposit to the Collateral
Fund pursuant to this Agreement.
M-9
<PAGE>
ARTICLE III
COLLATERAL FUND; SECURITY INTEREST
Section 3.01. Collateral Fund
---------------
Upon receipt from the Purchaser of the initial amount required to be
deposited in the Collateral Fund pursuant to Article II, the Company shall
establish and maintain with _____________________ as a segregated account on its
books and records an account (the "Collateral Fund"), entitled
_____________________, as Servicer, for the benefit of registered holders of
Mortgage Pass-Through Certificates, Series ________. Amounts held in the
Collateral Fund shall continue to be the property of the Purchaser, subject to
the first priority security interest granted hereunder for the benefit of the
Certificateholders, until withdrawn from the Collateral Fund pursuant to Section
2.02 or 2.03 hereof.
Upon the termination of this Agreement and the liquidation of all
Mortgage Loans as to which the Purchaser has made any Election to Delay
Foreclosure or any Election to Foreclose pursuant to Section 2.04 hereof, the
Company shall distribute to the Purchaser all amounts remaining in the
Collateral Fund (after adjustment for all deposits and permitted withdrawals
pursuant to this Agreement) together with any investment earnings thereon. In
the event the Purchaser has made any Election to Delay Foreclosure or any
Election to Foreclose, prior to any distribution to the Purchaser of all amounts
remaining in the Collateral Fund, funds in the Collateral Fund shall be applied
consistent with the terms of this Agreement.
Section 3.02. Collateral Fund Permitted Investments.
--------------------------------------
The Company shall, at the written direction of the Purchaser, invest
the funds in the Collateral Fund in Collateral Fund Permitted Investments. Such
direction shall not be changed more frequently than quarterly. In the absence
of any direction, the Company shall select such investments in accordance with
the definition of Collateral Fund Permitted Investments in its discretion.
All income and gain realized from any investment as well as any
interest earned on deposits in the Collateral Fund (net of any losses on such
investments) and any payments of principal made in respect of any Collateral
Fund Permitted Investment shall be deposited in the Collateral Fund upon
receipt. All costs and realized losses associated with the purchase and sale of
Collateral Fund Permitted Investments shall be borne by the Purchaser and the
amount of net realized losses shall be deposited by the Purchaser in the
Collateral Fund promptly upon realization. The Company shall periodically (but
not more frequently than monthly) distribute to the Purchaser upon request an
amount of cash, to the extent cash is available therefore in the Collateral
Fund, equal to the amount by which the balance of the Collateral Fund, after
giving effect to all other distributions to be made from the Collateral Fund on
such date, exceeds the Required Collateral Fund Balance. Any amounts so
distributed shall be released from the lien and security interest of this
Agreement.
M-10
<PAGE>
Section 3.03. Grant of Security Interest
--------------------------
The Purchaser hereby grants to the Company for the benefit of the
Certificateholders under the Pooling and Servicing Agreement a security interest
in and lien on all of the Purchaser's right, title and interest, whether now
owned or hereafter acquired, in and to: (1) the Collateral Fund, (2) all amounts
deposited in the Collateral Fund and Collateral Fund Permitted Investments in
which such amounts are invested (and the distributions and proceeds of such
investments) and (3) all cash and non-cash proceeds of any of the foregoing,
including proceeds of the voluntary conversion thereof (all of the foregoing
collectively, the "Collateral").
The Purchaser acknowledges the lien on the security interest in the
Collateral for the benefit of the Certificateholders. The Purchaser shall take
all actions requested by the Company as may be reasonably necessary to perfect
the security interest created under this Agreement in the Collateral and cause
it to be prior to all other security interests and liens, including the
execution and delivery to the Company for filing of appropriate financing
statements in accordance with applicable law. The Company shall file
appropriate continuation statements, or appoint an agent on its behalf to file
such statements, in accordance with applicable law.
Section 3.04. Collateral Shortfalls.
----------------------
In the event that amounts on deposit in the Collateral Fund at any
time are insufficient to cover any withdrawals therefrom that the Company is
then entitled to make hereunder, the Purchaser shall be obligated to pay such
amounts to the Company immediately upon demand. Such obligation shall
constitute a general corporate obligation of the Purchaser. The failure to pay
such amounts within two Business Days of such demand (except for amounts to
cover interest on a Mortgage Loan pursuant to Sections 2.02(d) and 2.03 (b))
shall cause an immediate termination of the Purchaser's right to make any
Election to Delay Foreclosure or Election to Foreclose and the Company's
obligations under this Agreement with respect to all Mortgage Loans to which
such insufficiencies relate, without the necessity of any further notice or
demand on the part of the Company.
M-11
<PAGE>
ARTICLE IV
MISCELLANEOUS PROVISIONS
Section 4.01. Amendment.
----------
This Agreement may be amended from time to time by the Company and the
Purchaser by written agreement signed by the Company and the Purchaser.
Section 4.02. Counterparts.
-------------
This Agreement may be executed simultaneously in any number of
counterparts, each of which counterparts shall be deemed to be an original, and
such counterparts shall constitute but one and the same instrument.
Section 4.03. Governing Law.
--------------
This Agreement shall be construed in accordance with the laws of the
State of New York and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with such laws.
Section 4.04. Notices.
--------
All demands, notices and direction hereunder shall be in writing or by
telecopy and shall be deemed effective upon receipt to:
(a) in the case of the Company,
NationsBanc Mortgage Corporation
Attention:
Phone:
Fax
(b) in the case of the Purchaser,
Attention: Counsel
M-12
<PAGE>
Section 4.05. Severability of Provisions.
--------------------------
If any one or more of the covenants, agreements, provision or terms of
this Agreement shall be for any reason whatsoever, including regulatory, held
invalid, then such covenants, agreements, provisions or terms of this Agreement
and shall in no way affect the validity or enforceability of the other
provisions of this Agreement.
Section 4.06. Successors and Assigns.
----------------------
The provisions of this Agreement shall be binding upon and inure to
the benefit of the respective successors and assigns of the parties hereto, and
all such provisions shall inure to the benefit of the Certificateholders;
provided, however, that the rights under this Agreement cannot be assigned by
the Purchaser without the consent of the Company.
Section 4.07. Article and Section Headings.
----------------------------
The article and section headings herein are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
Section 4.08. Confidentiality.
---------------
The Purchaser agrees that all information supplied by or on behalf of
the Company pursuant to Sections 2.01 or 2.02, including individual account
information, is the property of the Company and the Purchaser agrees to hold
such information confidential and not to disclose such information.
Each party hereto agrees that neither it, nor any officer, director,
employee, affiliate or independent contractor acting at such party's direction
will disclose the terms of Section 4.09 of this Agreement to any person or
entity other than such party's legal counsel except pursuant to a final, non-
appealable order of court, the pendency of such order the other party will have
received notice of at least five business days prior to the date thereof, or
pursuant to the other party's prior express written consent.
Section 4.09. Indemnification
---------------
The Purchaser agrees to indemnify and hold harmless the Company and
the servicer and each person who controls the Company or the Servicer and each
of their respective officers, directors, affiliates and agents acting at the
Company's or the servicer's direction (the "indemnified parties") against any
and all losses, claims, damages or liabilities to which they may be subject,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of, or are based upon, actions taken by, or actions not taken
by, the Company, the Servicer, or on their behalf, in accordance with the
provisions of this Agreement and (i) which actions conflict with the Company's
or the Servicer's obligations under the Pooling and Servicing Agreement, or (ii)
give rise to securities law liability under federal or state securities laws
with respect to the Certificates. The Purchaser hereby agrees to reimburse the
Indemnified Parties for the reasonable legal or other expenses incurred by them
M-13
<PAGE>
in connection with investigating or defending any such loss, claim, damage,
liability or action. The indemnification obligations of the Purchaser hereunder
shall survive the termination or expiration of this Agreement.
M-14
<PAGE>
IN WITNESS WHEREOF, the Company and the Purchaser have caused their
names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
NationsBanc Mortgage Services Corporation
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
By:_________________________________
Name:_______________________________
Title:______________________________
M-15
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF CADWALADER, WICKERSHAM & TAFT]
May 21, 1998
Nations Mortgage Securities Corporation
201 North Tryon Street
Charlotte, North Carolina 28202
Re: Mortgage Pass-Through Certificates
----------------------------------
Ladies and Gentlemen:
We have acted as your counsel in connection with the registration
statement filed with the Securities and Exchange Commission (the "Commission")
on May 21, 1998, pursuant to the Securities Act of 1933, as amended (the "Act"),
the "Registration Statement"). The Registration Statement covers Mortgage Pass-
Through Certificates ("Certificates") to be sold by Nations Mortgage Securities
Corporation (the "Company") in one or more series (each, a "Series") of
Certificates. Each Series of Certificates will be issued under a separate
pooling and servicing agreement (each, a "Pooling and Servicing Agreement")
among the Company, a trustee to be identified in the Prospectus Supplement for
such Series of Certificates (a "Trustee"), and a servicer (the "Servicer") or a
master servicer (the "Master Servicer") to be identified in the Prospectus
Supplement for such Series of Certificates. A form of Pooling and Servicing
Agreement is included as an Exhibit to the Registration Statement. Capitalized
terms used and not otherwise defined herein have the respective meanings
ascribed to such terms in the Registration Statement.
We have examined originals or copies certified or otherwise identified
to our satisfaction of such documents and records of the Company, and such
public documents and records as we have deemed necessary as a basis for the
opinions hereinafter expressed.
<PAGE>
Nations Mortgage Securities Corporation -2- May 21, 1998
Based on the foregoing, we are of the opinion that:
1. When a Pooling and Servicing Agreement for a Series of
Certificates has been duly and validly authorized, executed and
delivered by the Company, a Trustee and the Servicer or Master
Servicer, such Pooling and Servicing Agreement will constitute a
valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms, subject to
applicable bankruptcy, reorganization, insolvency, moratorium and
other laws affecting the enforcement of rights of creditors
generally and to general principles of equity and the discretion
of the court (regardless of whether enforceability is considered
in a proceeding in equity or at law); and
2. When a Pooling and Servicing Agreement for a Series of
Certificates has been duly and validly authorized, executed and
delivered by the Company, a Trustee and the Servicer or Master
Servicer, and the Certificates of such Series have been duly
executed, authenticated, delivered and sold as contemplated in
the Registration Statement, such Certificates will be legally and
validly issued, fully paid and nonassessable, and the holders of
such Certificates will be entitled to the benefits of such
Pooling and Servicing Agreement.
We hereby consent to the filing of this letter as an Exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
This consent is not to be construed as an admission that we are a person whose
consent is required to be filed with the Registration Statement under the
provisions of the Act.
Very truly yours,
/s/ CADWALADER, WICKERSHAM & TAFT
<PAGE>
EXHIBIT 5.2
[LETTERHEAD OF KENNEDY COVINGTON LOBDELL & HICKMAN, L.L.P. APPEARS HERE]
May 21, 1998
Nations Mortgage Securities Corporation
201 North Tryon Street
Charlotte, North Carolina 28255
Ladies and Gentlemen:
We have acted as special counsel to Nations Mortgage Securities
Corporation, a Delaware corporation (the "Company"), in connection with the
registration statement on Form S-3 (the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") on May 21, 1998, pursuant
to the Securities Act of 1933, as amended (the "Act"). The Registration
Statement covers Mortgage Pass-Through Certificates ("Certificates") to be sold
by the Company in one or more series (each, a "Series") of Certificates. Each
Series of Certificates will be issued under a separate pooling and servicing
agreement (each, a "Pooling and Servicing Agreement") among the Company, a
trustee to be identified in the Prospectus Supplement for such Series of
Certificates (a "Trustee"), and a servicer (a "Servicer") or a master servicer
(a "Master Servicer") to be identified in the Prospectus Supplement for such
Series of Certificates. A form of Pooling and Servicing Agreement is included as
an exhibit to the Registration Statement.
In rendering the opinion set forth below, we have examined and relied upon
the following: (i) the Registration Statement, the Prospectus and the form of
Prospectus Supplement constituting a part thereof, each in the form filed with
the Commission, (ii) the form of the Pooling and Servicing Agreement in the form
filed with the Commission and (iii) such other documents, records and
instruments as we have deemed necessary for the purposes of this opinion.
Based on the foregoing, we are of the opinion that:
1. When a Pooling and Servicing Agreement for a Series of Certificates has
been duly and validly authorized, executed and delivered by the Company, a
Trustee and a Servicer or Master Servicer, such Pooling and Servicing
Agreement will constitute a valid and legally binding agreement of the
Company, enforceable against the company in accordance with its terms,
subject to applicable bankruptcy, reorganization, insolvency, moratorium
and other laws affecting the
<PAGE>
Nations Mortgage Securities Corporation
May 21, 1998
Page 2
enforcement of rights of creditors generally and to general principles of
equity and the discretion of the court (regardless of whether
enforceability is considered in a proceeding in equity or at law); and
2. When a Pooling and Servicing Agreement for a Series of Certificates has
been duly and validly authorized, executed and delivered by the Company, a
Trustee and a Servicer or Master Servicer, and the Certificates of such
Series have been duly executed, authenticated, delivered and sold as
contemplated in the Registration Statement, such Certificates will be
legally and validly issued, fully-paid and nonassessable, and the holders
of such Certificates will be entitled to the benefits of such Pooling and
Servicing Agreement.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
This consent is not to be construed as an admission that we are in the category
of persons whose consent is required to be filed with the Registration Statement
under the provisions of the Act.
Very truly yours,
/s/ Kennedy Covington Lobdell & Hickman, L.L.P.
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF CADWALADER, WICKERSHAM & TAFT]
May 21, 1998
Nations Mortgage Securities Corporation
201 North Tryon Street
Charlotte, North Carolina 28202
Ladies and Gentlemen:
We have acted as your special tax counsel in connection with the
registration statement filed with the Securities and Exchange Commission (the
"Commission") on May 21, 1998, pursuant to the Securities Act of 1933, as
amended (the "Act"), (the "Registration Statement"). The Registration Statement
covers Mortgage Pass-Through Certificates ("Certificates") to be sold by Nations
Mortgage Securities Corporation (the "Company") in one or more series (each, a
"Series") of Certificates. Each Series of Certificates will be issued under a
separate pooling and servicing agreement (each, a "Pooling and Servicing
Agreement") among the Company, a trustee to be identified in the Prospectus
Supplement for such Series of Certificates and a servicer or a master servicer
to be identified in the Prospectus Supplement for such Series of Certificates.
A form of Pooling and Servicing Agreement is included as an Exhibit to the
Registration Statement. Capitalized terms used and not otherwise defined herein
have the respective meanings ascribed to such terms in the Registration
Statement.
In rendering the opinion set forth below, we have examined and relied
upon the following: (i) the Registration Statement, the Prospectus and the form
of Prospectus Supplement constituting a part thereof, each substantially in the
form filed with the Commission, (ii) the form of the Pooling and Servicing
Agreement substantially in the form filed with the Commission and (iii) such
other documents, records and instruments as we have deemed necessary for the
purposes of this opinion.
As counsel to the Company, we have advised the Company with respect to
certain federal income tax aspects of the proposed issuance of the Certificates.
Such advice has formed the basis for the description of material federal income
tax consequences for
<PAGE>
Nations Mortgage Securities Corporation -2- May 21, 1998
holders of the Certificates that appears under the headings "Summary of
Prospectus--Tax Status" and "Certain Federal Income Tax Consequences" in the
Prospectus and under the headings "Summary--Federal Income Tax Status" and
"Federal Income Tax Considerations" in the form of Prospectus Supplement. Such
descriptions do not purport to discuss all possible federal income tax
ramifications of the proposed issuance of the Certificates, but, with respect to
those federal income tax consequences that are discussed, in our opinion, the
descriptions is accurate in all material respects.
This opinion is based on the facts and circumstances set forth in the
Prospectus and Prospectus Supplement and in the other documents reviewed by us.
Our opinion as to the matters set forth herein could change with respect to a
particular Series of Certificates as a result of changes in facts or
circumstances, changes in the terms of the documents reviewed by us, or changes
in the law subsequent to the date hereof. Because the Registration Statement
contemplates Series of Certificates with numerous different characteristics, the
particular characteristics of each Series of Certificates must be considered in
determining the applicability of this opinion to a particular Series of
Certificates. The opinion contained in each Prospectus Supplement and
Prospectus prepared pursuant to the Registration Statement is, accordingly,
deemed to be incorporated herein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the references to this firm under
the caption "Certain Federal Income Tax Consequences" in the Prospectus forming
a part of the Registration Statement. In giving this consent, we do not admit
that we are in the category of persons whose consent is required to be filed
with the Registration Statement under the provisions of the Act.
No opinion has been sought and none has been given concerning the tax
treatment of the issuance and sale of the Certificates under the laws of any
state.
Very truly yours,
/s/ CADWALADER, WICKERSHAM & TAFT
<PAGE>
EXHIBIT 8.2
[LETTERHEAD OF KENNEDY COVINGTON LOBDELL & HICKMAN, L.L.P APPEARS HERE]
May 21, 1998
Nations Mortgage Securities Corporation
201 North Tryon Street
Charlotte, North Carolina 28255
Ladies and Gentlemen:
We have acted as special tax counsel to Nations Mortgage Securities
Corporation, a Delaware corporation (the "Company"), in connection with the
registration statement on Form S-3 (the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") on May 21, 1998, pursuant
to the Securities Act of 1933, as amended (the "Act"). The Registration
Statement covers Mortgage Pass-Through Certificates ("Certificates") to be
sold by the Company in one or more series (each, a "Series") of Certificates.
Each Series of Certificates will be issued under a separate pooling and
servicing agreement (each, a "Pooling and Servicing Agreement") among the
Company, a trustee to be identified in the Prospectus Supplement for such Series
of Certificates and a servicer or a master servicer to be identified in the
Prospectus Supplement for such Series of Certificates. A form of Pooling and
Servicing Agreement is included as an exhibit to the Registration Statement.
In rendering the opinion set forth below, we have examined and relied upon
the following: (i) the Registration Statement, the Prospectus and the form of
Prospectus Supplement constituting a part thereof, each in the form filed with
the Commission, (ii) the form of the Pooling and Servicing Agreement in the form
filed with the Commission and (iii) such other documents, records and
instruments as we have deemed necessary for the purposes of this opinion.
As counsel to the Company, we have advised the Company with respect to
certain federal income tax aspects of the proposed issuance of the Certificates.
Such advice has formed the basis for the description of material federal income
tax consequences for holders of the Certificates that appears under the headings
"Summary of Prospectus -- Tax Status" and "Certain Federal Income Tax
Consequences" in the Prospectus and under the headings "Summary -- Federal
Income Tax Status" and "Federal Income Tax Considerations" in the form of
Prospectus Supplement. Such descriptions do not purport to discuss all possible
federal income tax ramifications of the proposed issuance of the
<PAGE>
Nations Mortgage Securities Corporation
May 21, 1998
Page 2
Certificates, but, with respect to those federal income tax consequences that
are discussed, in our opinion, the descriptions is accurate in all material
respects.
This opinion is based on the facts and circumstances set forth in the
Prospectus and Prospectus Supplement and in the other documents we have
reviewed. Our opinion as to the matters set forth herein could change with
respect to a particular Series of Certificates as a result of changes in facts
or circumstances, changes in the terms of the documents reviewed by us, or
changes in the law subsequent to the date hereof. Because the Registration
Statement contemplates Series of Certificates with numerous different
characteristics, the particular characteristics of each Series of Certificates
must be considered in determining the applicability of this opinion to a
particular Series of Certificates. Accordingly, the opinion of this contained
in each Prospectus Supplement and Prospectus prepared pursuant to the
Registration Statement is deemed to be incorporated herein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the references to this firm under the
caption "Certain Federal Income Tax Consequences" in the Prospectus forming a
part of the Registration Statement. This consent is not to be construed as an
admission that we are in the category of persons whose consent is required to be
filed with the Registration Statement under the provisions of the Act.
No opinion has been sought and we do not express any opinion concerning
the tax treatment of the issuance and sale of the Certificates under the laws of
any state or foreign or local jurisdiction.
Very truly yours,
/s/ Kennedy Covington Lobdell & Hickman, L.L.P.
