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PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED FEBRUARY 22, 1999)
$261,130,000
CENTEX HOME EQUITY LOAN TRUST 1999-1
CENTEX HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 1999-1
CENTEX CREDIT CORPORATION
D/B/A
CENTEX HOME EQUITY CORPORATION
SELLER AND SERVICER
CHEC ASSET RECEIVABLE CORPORATION
DEPOSITOR
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CONSIDER CAREFULLY
THE RISK FACTORS
BEGINNING ON PAGE
S-14 IN THIS
PROSPECTUS
SUPPLEMENT AND ON
PAGE 17 IN THE
PROSPECTUS.
The Class A
Certificates will
represent
interests in the
trust only and
will not be
guaranteed by or
represent
interests in or
obligations of
Centex Home Equity
Corporation or any
of its affiliates.
This prospectus
supplement may be
used to offer and
sell the
certificates only
if accompanied by
the prospectus.
THE TRUST WILL ISSUE PURSUANT TO THIS PROSPECTUS
SUPPLEMENT
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FINAL
SCHEDULED
CLASS A PRINCIPAL DISTRIBUTION
CERTIFICATES BALANCE CERTIFICATE RATE DATE
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Class A-1 $65,000,000 6.070% March 25, 2018
Class A-2 $20,000,000 6.045% September 25, 2021
Class A-3 $33,000,000 6.240% August 25, 2025
Class A-4 $27,000,000 6.390% October 25, 2027
Class A-5 $19,267,000 6.835% March 25, 2030
Class A-6 $18,000,000 6.450% March 25, 2030
Class A-7 $58,863,000 One-Month LIBOR plus 0.32% annually (or 0.64% for
each distribution date on which the servicer has
failed to exercise its right to purchase all of
the outstanding home equity loans), subject to an
interest rate cap and an available funds cap February 25, 2029
Class A-8 $20,000,000 6.000%, subject to an interest rate cap March 25, 2030
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THE CERTIFICATES
Interest and principal on the certificates are scheduled to
be paid monthly on the 25th day of the month. The first
scheduled distribution date is March 25, 1999.
Distributions on the Class A-1, Class A-2, Class A-3, Class
A-4, Class A-5 and Class A-6 Certificates will be primarily
based on a group of non-conforming closed-end fixed rate
home equity loans. Distributions on the Class A-7 and Class
A-8 Certificates will be primarily based on a group of
non-conforming closed-end adjustable rate home equity loans.
The Class A Certificates currently have no trading market.
The Class A Certificates will have the benefit of two
irrevocable and unconditional financial guaranty insurance
policies issued by MBIA Insurance Corporation, as
certificate insurer, guaranteeing timely payment of interest
and ultimate payment of principal to the holders of the
Class A Certificates.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prudential Securities Incorporated and Lehman Brothers Inc. will offer the
Class A Certificates from time to time in negotiated transactions or otherwise
at varying prices to be determined at the time of sale. Proceeds to the
depositor with respect to the Class A Certificates are expected to be
approximately $261,227,168, before deducting issuance expenses payable by the
depositor, estimated to be $100,000.
We expect that delivery of the Class A Certificates will be made in book-entry
form through the facilities of The Depository Trust Company, Cedelbank, societe
anonyme, and the Euroclear System on or about February 25, 1999.
PRUDENTIAL SECURITIES LEHMAN BROTHERS
February 22, 1999
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IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the certificates in two separate
documents that provide progressively more detail:
the accompanying prospectus, which provides general information, some of
which may not apply to your certificates; and
this prospectus supplement, which describes the specific terms of your
certificates.
YOU SHOULD RELY PRIMARILY ON THE DESCRIPTION OF YOUR CERTIFICATES IN THIS
PROSPECTUS SUPPLEMENT.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
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Summary........................................ S-3
Risk Factors................................... S-14
Description of the Home Equity Loans........... S-18
Prepayment and Yield Considerations............ S-38
Formation of The Trust and Trust Property...... S-46
Description of the Certificates................ S-46
The Policies and The Certificate Insurer....... S-60
Use of Proceeds................................ S-64
Certain Federal Income Tax Considerations...... S-64
Certain State Tax Considerations............... S-65
ERISA Considerations........................... S-65
Legal Investment Considerations................ S-66
Underwriting................................... S-67
Experts........................................ S-67
Legal Matters.................................. S-67
Ratings........................................ S-68
Index of Defined Terms......................... S-69
Annex I........................................ A-1
PROSPECTUS
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Prospectus Supplement.......................... 3
Reports to Holders............................. 3
Available Information.......................... 3
Incorporation of Certain Documents
by Reference................................. 4
Summary of Terms............................... 5
Risk Factors................................... 17
The Depositor.................................. 21
The Seller and the Servicer.................... 21
Description of the Securities.................. 28
The Trust Funds................................ 35
Enhancement.................................... 39
The Agreements................................. 41
Certain Legal Aspects of the Home
Equity Loans................................. 53
Use of Proceeds................................ 60
Federal Income Tax Consequences................ 61
State Tax Consequences......................... 81
ERISA Considerations........................... 81
Legal Investment............................... 85
Plan of Distribution........................... 86
Legal Matters.................................. 86
Index of Defined Terms......................... 87
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SUMMARY
This summary highlights selected information from this prospectus
supplement and does not contain all of the information that you need to consider
in making your investment decision. To understand all of the terms of the
offering of the Class A Certificates, you should read carefully this entire
prospectus supplement and accompanying prospectus.
This summary provides an overview of certain information to aid your
understanding and is qualified by the full description of this other information
in this prospectus supplement and the accompanying prospectus.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement are defined under the caption 'Index of Defined Terms'
beginning on page S-69 in this prospectus supplement.
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Issuer.............................. Centex Home Equity Loan Trust 1999-1.
Depositor........................... CHEC Asset Receivable Corporation, a Delaware corporation and wholly owned
subsidiary of Centex Credit Corporation d/b/a Centex Home Equity
Corporation.
We refer you to 'THE DEPOSITOR' in the prospectus for more detail.
Seller and Servicer................. Centex Credit Corporation d/b/a Centex Home Equity Corporation.
We refer you to 'THE SELLER AND THE SERVICER' in the prospectus for more
detail.
Certificate Insurer................. MBIA Insurance Corporation, a New York stock insurance company.
We refer you to 'THE POLICIES AND THE CERTIFICATE INSURER' in this
prospectus supplement for more detail.
Trustee............................. Norwest Bank Minnesota, National Association.
Closing Date........................ February 25, 1999.
Cut-Off Date........................ February 1, 1999.
Distribution Date................... The 25th day of each month, or if such day is not a business day, then the
next succeeding business day. The first distribution date will be March 25,
1999.
Record Date......................... With respect to any distribution date, the last business day of the month
immediately preceding the calendar month in which such distribution date
occurs.
The Certificates
General........................... On the closing date, the trust will issue the Class A Certificates, the
Class X-IO Certificates and the Class R Certificates. The Class A
Certificates are senior certificates and the Class X-IO and the Class R
Certificates are subordinate certificates.
Class A Certificates.............. The Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6, Class
A-7 and Class A-8 Certificates.
Class R Certificates.............. The Class R-1 and Class R-2 Certificates.
Offered Certificates.............. The Class A Certificates.
Non-Offered Certificates.......... The Class X-IO Certificates and Class R Certificates are not being offered
to the public. Any information with respect to the Class X-IO and Class R
Certificates is included in this prospectus supplement solely to provide a
better understanding of the Class A Certificates.
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Group I Certificates.............. The Group I Certificates will be the Class A-1, Class A-2, Class A-3, Class
A-4, Class A-5 and Class A-6 Certificates. Distributions on the Group I
Certificates will be primarily derived from payments on the home equity
loans in Group I.
Group II Certificates............. The Group II Certificates will be the Class A-7 and Class A-8 Certif-
icates. Distributions on the Group II Certificates will be primarily de-
rived from payments on the home equity loans in Group II.
Fixed Rate Certificates........... The Group I Certificates and the Class A-8 Certificates.
Variable Rate Certificates........ The Class A-7 Certificates.
Denominations..................... The Class A Certificates will be offered for purchase in denominations of
$1,000 and multiples of $1 above $1,000.
Book-Entry Registration........... We will issue the Class A Certificates in book-entry form. You will hold
your interests either through a depository in the United States or through
one of two depositories in Europe. While the Class A Certificates are
book-entry they will be registered in the name of the nominee of depository
in the United States.
Transfers within any depository system will be in accordance with the usual
rules and operating procedures of that system. Cross-market transfers
between two different depository systems may be effected through a
third-party bank and/or the related depositories. The limited circumstances
under which definitive certificates will replace the book-entry
certificates are described in the prospectus.
We refer you to 'DESCRIPTION OF THE CERTIFICATES -- Book-Entry
Certificates,' and 'ANNEX I' in this prospectus supplement and 'RISK
FACTORS -- Book-Entry Registration and 'DESCRIPTION OF THE
SECURITIES -- Book-Entry Securities' in the prospectus for more detail.
Final Scheduled Distribution Dates
and Final Maturity Dates....... The final scheduled distribution date for each class of Class A Certifi-
cates is as set forth on the cover page of this prospectus supplement. Each
final scheduled distribution date was determined as described in
'DESCRIPTION OF THE CERTIFICATES -- Final Scheduled Distribition Dates' in
this prospectus supplement.
The policies do not guarantee the full payment of the principal balance of
all classes of Class A Certificates on their related final scheduled
distribution dates. The policies guarantee full payment of the principal
balance of each class of Class A Certificates on the related final maturity
date. The final maturity date with respect to the Fixed Rate Certificates
is the distribution date in March 2030 and the final maturity date with
respect to the Variable Rate Certificates is the distribution date in
February 2029.
We refer you to 'DESCRIPTION OF THE CERTIFICATES -- Final Scheduled
Distribution Dates' in this prospectus supplement.
Distributions to Class A
Certificateholders
General........................... You will be entitled to receive payments of interest on each distribution
date. The amount of interest that you are entitled to receive on any
distribution date is subject to reduction as a result of the applica-
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tion of the Soldiers' and Sailors' Civil Relief Act of 1940. The amount of
principal you will be entitled to receive will vary depending on a number
of factors, including the payments received on the home equity loans. If
you hold a Class A Certificate on the applicable record date, you will be
entitled to receive payments on the related distribution date.
Fixed Rate Certificate Interest... The interest rate on any distribution date for a Fixed Rate Certificate
will be the interest rate set forth on the cover page of this prospectus
supplement.
The 'Interest Period' with respect to each distribution date and a Fixed
Rate Certificate is the calendar month preceding the month of such
distribution date. For example if the distribution date occurs on March 25,
1999, the Interest Period would be the month of February 1999. Each
calendar month will be deemed to have 30 days and each year will be deemed
to have 360 days. Therefore, if you are a holder of a Fixed Rate
Certificate you would use the following formula to calculate your interest
payment on any distribution date:
30 x IR x PB = your interest payment
360
IR = the applicable per annum fixed interest rate, subject to an interest
rate cap in the case of the Class A-8 Certificates
PB = the principal balance of your Fixed Rate Certificate immediately prior
to any distributions on such distribution date.
If you are a holder of a Fixed Rate Certificate, the interest payment owed
to you for a distribution date will be increased by any unpaid amounts owed
to you from prior distribution dates.
If you are a holder of a Class A-8 Certificate, you will not receive
additional funds on future distribution dates to compensate you for any
reduction in the amount of interest paid to you on a prior distribution
date because of the interest rate cap.
We refer you to 'DESCRIPTION OF THE CERTIFICATES -- Certificate Rate' and
' -- Distributions' in this prospectus supplement for more detail.
Variable Rate Certificate
Interest....................... The interest rate on any distribution date with respect to the Variable
Rate Certificates will equal one-month LIBOR plus the applicable margin for
such distribution date (which margin will increase if the servicer does not
exercise its option to terminate the trust by purchasing all of the home
equity loans), subject to an interest rate cap and an available funds cap.
We refer you to 'DESCRIPTION OF THE CERTIFICATES -- Certificate Rate' in
this prospectus supplement for a description of the available funds cap.
The 'Interest Period' with respect to each distribution date and the
Variable Rate Certificates is the period from and including the previous
distribution date (or the closing date in the case of the first dis-
tribution date) to and including the day preceding the related distribution
date. Interest on the Variable Rate Certificates will accrue during the
related Interest Period on the basis of the actual number of
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days elapsed in the related Interest Period and a year consisting of 360
days. Therefore if you are a holder of a Variable Rate Certificate, you
would use the following formula to calculate your interest payment on any
distribution date:
N x IR x PB = your interest payment
360
N = number of days in the Interest Period
IR = the per annum floating interest rate for such Interest Period, subject
to an interest rate cap and an available funds cap.
PB = the principal balance of your Variable Rate Certificate immediately
prior to any distributions on such distribution date.
If you are a holder of a Variable Rate Certificate, the interest payment
owed to you for a distribution date will be increased by any unpaid amounts
owed to you from prior distribution dates.
Additionally, the amount by which the interest payment to you as a holder
of a Variable Rate Certificate is reduced because of the available funds
cap will be paid to you on future distribution dates, on a subordinated
basis, to the extent that money is available to make such payments.
We refer you to 'DESCRIPTION OF THE CERTIFICATES -- Certificate Rate,'
' -- Calculation of One-Month LIBOR' and ' -- Distributions' in this
prospectus supplement for more detail.
Principal
General........................... On each distribution date, the amount available for distributions of
principal for each home equity loan group will include:
payments of principal on the home equity loans in the related home equity
loan group received during the prior calendar month, and all other
amounts relating to principal received on such home equity loans during
the prior calendar month;
plus, the outstanding principal balance of each home equity loan in the
related home equity loan group repurchased by the seller or purchased by
the servicer prior to the monthly remittance date;
plus the excess, if any, of the outstanding principal balance of a home
equity loan in the related home equity loan group being replaced over the
outstanding principal balance of a replacement home equity loan plus
accrued and unpaid interest and advances;
plus, the amount of any excess collections required to be distributed to
satisfy the required level of overcollateralization. This will reduce the
principal balance of the Class A Certificates of the related group faster
as compared with the principal balance of the home equity loans of such
group, thereby increasing the level of overcollateralization of such home
equity loan group;
plus, the principal portion of the proceeds received by the trustee with
respect to the related home equity loan group upon termination of the
trust; and
minus, any decrease in the required level of overcollateralization of the
related equity loan group. This will increase the principal balance of
the Class A Certificates of the related group as compared
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with the principal balance of the home equity loans of such group,
thereby decreasing the level of overcollateralization of home equity loan
group.
Group I Certificates.............. On each distribution date principal will be distributed to the Group I
Certificates in the following order of priority:
first, to the Class A-6 Certificates, for each distribution date on or
after the distribution date in March 2002, in an amount up to a specified
amount;
second, to the Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5
Certificates, in that order, until the principal balance of each such
class has been reduced to zero;
third, to the Class A-6 Certificates until the principal balance of the
Class A-6 Certificates has been reduced to zero.
The Class A-6 Certificate is a 'lock-out' certificate. If you are a holder
of a Class A-6 Certificate generally you will not be entitled to receive
payments of principal until the distribution date in March 2002 and
thereafter you will be entitled to receive a disproportionately smaller or
larger amount of principal relative to the other Group I Certificates.
Group II Certificates............. On each distribution date principal will be distributed to the Group II
Certificates in the following order of priority:
first, to the Class A-8 Certificates, for each distribution date on or
after the distribution date in June 2000, in an amount up to a specified
amount;
second, to the Class A-7 Certificates until the principal balance of the
Class A-7 Certificates has been reduced to zero;
third, to the Class A-8 Certificates until the principal balance of the
Class A-8 Certificates has been reduced to zero.
The Class A-8 Certificate is a 'lock-out' certificate. If you are a holder
of a Class A-8 Certificate generally you will not be entitled to receive
payments of principal until the distribution date in June 2000 and
thereafter you will be entitled to receive a disproportionately larger
amount of principal relative to the other class of Group II Certificates.
We refer you to 'DESCRIPTION OF THE CERTIFICATES -- Distributions' in this
prospectus supplement for more detail.
Trust Property...................... The trust property is held by the trustee for the benefit of the certifi-
cateholders and the certificate insurer. The trust property includes:
a pool of non-conforming closed-end fixed rate and adjustable rate home
equity loans, secured by first and second deeds of trust or mortgages on
one- to four-family residential properties;
payments on the home equity loans received on and after the cut-off date;
property that secured a Home Equity Loan which has been acquired by
foreclosure or deed in lieu of foreclosure;
amounts on deposit in the accounts specified herein;
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rights under any hazard insurance policies, if any covering the mortgaged
properties; and
proceeds of the foregoing.
The trust will also have the benefit of two financial guaranty insurance
policies issued by MBIA Insurance Corporation.
The Home Equity Loans
General........................... The statistical information presented in this prospectus supplement is with
respect to 3,678 home equity loans, of which 2,887 are fixed-rate home
equity loans and 791 are adjustable-rate home equity loans as of the
cut-off date. Prior to the closing date, certain of these home equity loans
may be removed from the pool and other home equity loans may be substituted
in their place, subject to the consent of the certificate insurer. It is
expected that less than 1% of the home equity loans will be removed from
the pool presented in this prospectus supplement.
The home equity loans will be divided into two groups. Each of the home
equity loan groups will constitute a separate sub-trust. The Group I home
equity loan group will contain home equity loans that bear interest at
fixed rates. The Group II home equity loan group will contain home equity
loans that bear interest at rates that adjust semi-annually based on
six-month LIBOR and the applicable gross margin (subject to the limitations
described herein). The initial rate adjustment date for those home equity
loans that bear interest at an adjustable rate is either (a) six months
after the date of origination of the related home equity loan or (b) two
years after the date of origination of the related home equity loan.
The home equity loans are secured by first and second lien mortgages or
deeds of trust primarily on one- to four-family residential properties,
located in 47 states and the District of Columbia. None of the home equity
loans are insured by primary mortgage insurance policies.
All of the home equity loans in the trust have been originated by the
seller or an affiliate of the seller.
The home equity loans are not guaranteed by the depositor, the seller, the
servicer, the certificate insurer, the trustee or any of their affiliates.
We refer you to 'DESCRIPTION OF THE HOME EQUITY LOANS -- General' in this
prospectus supplement for more detail.
Group I Home Equity Loans......... The home equity loans in Group I will have the following characteristics as
of the cut-off date:
number of home equity loans: 2,887
aggregate principal balance: $182,267,624.54
average principal balance: $63,134
maximum principal balance: $749,586
minimum principal balance: $2,438
last maturity date: February 19, 2029
interest rates range: 7.190% to 17.300%
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weighted average interest rate: 11.136% (approximate)
weighted average remaining term to stated maturity, based on principal
balance: 320 months (approximate)
remaining term to stated maturity range: 57 months to 360 months
weighted average combined loan-to-value ratio: 79.68% (approximate)
No original combined loan-to-value ratio exceeded 120.00%
balloon loans: 0.14% (approximate)
secured by first lien on the mortgaged property: 94.42%
secured by second lien on mortgaged property: 5.58%
We refer you to 'DESCRIPTION OF THE HOME EQUITY LOANS -- Group I Home
Equity Loans' in this prospectus supplement for more detail.
Group II Home Equity Loans........ The home equity loans in Group II will have the following characteristics
as of the cut-off date:
all home equity loans in Group II:
number of home equity loans: 791
aggregate principal balance: $78,863,918.70
average principal balance: $99,702
maximum principal balance: $477,630
minimum principal balance: $17,496
last maturity date: February 1, 2029
weighted average interest rate: 10.963% (approximate)
interest rates range: 7.200% to 15.550%
weighted average remaining term to stated maturity, based on principal
balance: 358 months (approximate)
remaining term to stated maturity range: 119 months to 360 months
weighted average loan-to-value ratio: 83.12% (approximate)
No original loan-to-value ratio exceeded 98.69%
weighted average gross margin: 7.237%
gross margins range: 4.050% to 11.400%
weighted average maximum interest rate: 17.962%
maximum interest rate range: 14.200% to 22.550%
weighted average minimum interest rate: 9.434%
minimum interest rate range: 4.400% to 15.550%
Six-Month Adjustable Rate Loans:
number of home equity loans: 223
weighted average remaining period until interest rate adjustment:
approximately 5 months
initial payment adjustment: effective with the seventh monthly payment
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initial interest rate adjustment cap: 1.000%
semi-annual interest rate adjustment cap: 1.000%
lifetime interest rate adjustment cap: 7.000%
2/28 Adjustable Rate Loans:
number of home equity loans: 568
weighted average remaining period until next interest rate adjustment:
approximately 22 months
initial payment adjustment: effective with the 25th monthly payment
initial interest rate adjustment cap: 2.000%
semi-annual interest rate adjustment cap: 1.000%
lifetime interest rate adjustment cap: 7.000%
We refer you to 'DESCRIPTION OF THE HOME EQUITY LOANS -- Group II Home
Equity Loans' in this prospectus supplement for more detail.
Delinquency Advances and
Compensating Interest............. Each month the servicer will determine the amount of any unpaid interest
due on the home equity loans. If the servicer believes that unpaid interest
can be recovered, then the servicer will either:
advance the unpaid interest to the trust out of its own funds; or
advance the unpaid interest to the trust out of collections on the home
equity loans that are not required to be distributed on the related
distribution date. The servicer is required to reimburse the trust for
such amounts prior to the date on which such amounts are required to be a
part of any amounts distributable to you.
The servicer will provide to the trust the amount of any shortfall in the
anticipated collection of interest on a home equity loan that is caused by
a full prepayment of a home equity loan or a prepayment of at least six
times a mortgagor's monthly payment up to the amount of the aggregate
servicing fee for the related period.
The servicer is entitled to be reimbursed by the trust for any delinquency
advances from the related home equity loan. The servicer is also entitled
to be reimbursed by the trust for any such delinquency advances, as well as
unreimbursed payments of compensating interest, from all the home equity
loans to the extent funds are available after making certain other
distributions on the related distribution date.
We refer you to 'THE AGREEMENTS -- Advances; Compensating Interest' in the
prospectus for more detail.
Servicing Advances.................. Unless the servicer determines that any proposed advance is not re-
coverable from the related home equity loan, the servicer will be required
to pay all 'out of pocket' costs and expenses incurred in the performance
of its servicing obligations, including, but not limited to:
(i) expenditures in connection with a foreclosed home equity loan prior
to the liquidation thereof;
(ii) the cost of any enforcement or judicial proceedings, including
foreclosures; and
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(iii) the cost of the management and liquidation of property acquired in
satisfaction of the related home equity loan.
The servicer shall be entitled to be reimbursed by the trust for any such
servicing advances from the related home equity loan and also from all the
home equity loans to the extent funds are available after making certain
other distributions on the related distribution date.
We refer you to 'THE AGREEMENTS -- Advances; Compensating Interest' in the
prospectus for more detail.
Credit Enhancement
Certificate Insurance Policies.... MBIA Insurance Corporation will issue two certificate guaranty insurance
policies for the benefit of the Class A Certificates.
The policies will unconditionally and irrevocably guarantee the timely
payment of interest on and the ultimate payment of the principal amount of
each class of Class A Certificates.
On each distribution date, the trustee will calculate to what extent the
funds available to make the payments of principal and interest are in-
sufficient to (1) pay current interest on the Class A Certificates or (2)
reduce the principal balance of the Class A Certificates to an amount equal
to the principal balance of the home equity loans in the related home
equity loan group. If an insufficiency exists, then the trustee will make a
draw on the related policy. In addition, each policy will guarantee the
full payment of the principal balance of the related classes of Class A
Certificates on the final maturity date for each Class of Class A
Certificates.
The policies do not cover any shortfalls related to the Soldiers' and
Sailors' Civil Relief Act of 1940, as amended, or as a result of the
application of any interest rate cap or available funds cap.
If for any reason the certificate insurer does not make the payments
required in the related policy, you will have to rely solely on the home
equity loans for payments of interest and principal and you may suffer a
loss.
We refer you to 'THE POLICIES AND THE CERTIFICATE INSURER' in this
prospectus supplement for more detail.
Overcollateralization............. Overcollateralization is calculated as the amount by which the aggregate
principal balance of the home equity loans in the related home equity loan
group exceeds the principal balance of the Class A Certificates related to
such home equity loan group. The Group I Certificates and the Group II
Certificates will not have the benefit of any overcollateralization on the
date the Class A Certificates are issued. Following the date the Class A
Certificates are issued, certain excess interest collections, if any, will
be applied as accelerated payments of principal to the class or classes of
certificates then entitled to receive distributions of principal until the
overcollateralization level for a home equity loan group equals the target
overcollateralization amount for such home equity loan group. However, if
there are not sufficient excess interest collections, the related
overcollateralization amount will not be increased or maintained at the
target. In addition, realized losses on the home equity loans will reduce
the amount of overcollateralization. If realized losses on the home equity
loans result in the
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overcollateralization amount for a home equity loan group becoming
negative, to the extent that excess amounts are not available from the
other loan group, a draw will be made on the related policy. The target
overcollateralization amount for each home equity loan group may be reduced
or eliminated by the certificate insurer without your consent.
Crosscollateralization............ Each home equity loan group provides for limited crosscollateralization of
the Class A Certificates related to the other home equity loan group.
Excess amounts generated by one home equity loan group will be available to
fund shortfalls in:
the payment of interest on the Class A Certificates related to the other
home equity loan group;
the reimbursement of the certificate insurer and the trustee for amounts
owed in respect of the other home equity loan group; and
the required overcollateralization level of the other home equity loan
group.
We refer you to 'PREPAYMENT AND YIELD CONSIDERATIONS,' 'DESCRIPTION OF THE
CERTIFICATES -- Credit Enhancement -- Overcollateralization Resulting from
Cash Flow Structure' and ' -- Crosscollateralization Provisions' in this
prospectus supplement and 'ENHANCEMENT' in the prospectus for more detail.
Optional Termination by the
Servicer.......................... The servicer may, at its option, terminate the trust on any date on which
the aggregate principal balance of the home equity loans in the home equity
pool is less than 10% of their principal balance on the cut-off date.
We refer you to 'THE AGREEMENTS -- Optional Termination' in the prospectus
for more detail.
Optional Purchase of Defaulted Home
Equity Loans...................... The servicer has the option, but is not obligated, to purchase from the
trust any home equity loan that becomes 90 days or more delinquent.
We refer you to 'THE AGREEMENTS -- Optional Purchase of Defaulted Home
Equity Loans' in the prospectus for more detail.
Certain Federal Tax
Considerations.................... In the opinion of Stroock & Stroock & Lavan LLP, counsel to the seller and
the trust, for federal income tax purposes, the trust will include two real
estate mortgage investment conduits or 'REMICs' for federal income tax
purposes. The Class A Certificates will constitute 'regular interests' in a
REMIC and will be treated as debt instruments of such REMIC for federal
income tax purposes with payment terms equivalent to the terms of such
certificates.
For further information regarding the federal income tax consequences of
investing in the Class A Certificates, we refer you to 'CERTAIN FEDERAL
INCOME TAX CONSIDERATIONS' in this prospectus supplement and 'FEDERAL
INCOME TAX CONSEQUENCES' in the prospectus for more detail.
ERISA Considerations................ The acquisition of a Class A Certificate by a pension or other employee
benefit plan subject to the Employee Retirement Income Secur-
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ity Act of 1974, as amended, or ERISA could, in some instances, result in a
'prohibited transaction' or other violation of the fiduciary responsibility
provisions of ERISA and Internal Revenue Code Section 4975. Certain
exemptions from the prohibited transaction rules could be applicable to the
acquisition of such Class A Certificates.
Any plan fiduciary considering whether to purchase any Class A Certificate
on behalf of a plan should consult with its counsel regarding the
applicability of the provisions of ERISA and the Internal Revenue Code.
Subject to the considerations and conditions described under 'ERISA
CONSIDERATIONS' in this prospectus supplement, it is expected that the
Class A Certificates may be purchased by a plan.
Legal Investment Considerations..... The Class A Certificates will not constitute 'mortgage related securities'
for purposes of the Secondary Mortgage Market Enhancement Act of 1984.
Accordingly, many institutions with legal authority to invest in comparably
rated securities may not be legally authorized to invest in the Class A
Certificates.
We refer you to 'LEGAL INVESTMENT CONSIDERATIONS' in this prospectus
supplement and 'LEGAL INVESTMENT' in the prospectus for more detail.
Certificate Rating.................. It is a condition to the issuance of the Class A Certificates that they
receive ratings of 'AAA' by Standard & Poor's, a division of The
McGraw-Hill Companies, Inc. and 'Aaa' by Moody's Investors Service, Inc.
We refer you to 'RATINGS' and 'RISK FACTORS -- Reduction in Certificate
Rating Could Have an Adverse Effect on the Value of Your Certificates' in
this prospectus supplement and 'RISK FACTORS -- Ratings Are Not
Recommendations' in the prospectus for more detail.
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RISK FACTORS
An investment in the Class A Certificates involves significant risks.
Before you decide to invest in the Class A Certificates, you should carefully
consider, among other things, the following risk factors and the risk factors
discussed under the heading 'Risk Factors' beginning on page 17 of the
prospectus.
PERFORMANCE MAY BE AFFECTED BY START-UP NATURE OF BUSINESS
Although the seller began originating home equity loans in 1994, prior to
October 1997 the seller sold substantially all of its home equity loans in whole
loan transactions on a servicing released basis. Consequently, the servicer has
only eleven months of historical loss data relating to its home equity loan
portfolio that you may refer to for purposes of examining the loss experience of
home equity loans similar to the home equity loans being sold to the trust.
Moreover, the servicing of home equity loans of the type originated by the
seller (as compared to the servicing of conforming or prime home equity loans)
requires special skill and diligence. The servicing of these types of home
equity loans generally requires more attention to each account, earlier and more
frequent contact with borrowers in default and commencing the foreclosure
process at an earlier stage of default. The servicer has limited experience
servicing home equity loans similar to the home equity loans being sold to the
trust. The servicer will directly service all of the home equity loans in the
trust. The servicer's lack of experience in servicing home equity loans may
result in greater losses on the home equity loans and result in accelerated
prepayments on your certificates. You will bear any reinvestment risk resulting
from such accelerated prepayments.
For a description of the servicing process, we refer you to 'THE SELLER AND
THE SERVICER' in the prospectus for more detail.
THE BORROWERS HAVE LESS THAN PERFECT CREDIT
The seller's underwriting standards generally are less stringent than those
of Fannie Mae or Freddie Mac with respect to a borrower's credit history,
collateral and in certain other respects. The home equity loans originated by
the seller or its affiliates have been made to borrowers that typically have
limited access to traditional mortgage financing for a variety of reasons, such
as impaired past credit experience, limited credit history, insufficient home
equity value, or a high level of debt-to-income ratios. As a result of this
approach to underwriting, the home equity loans may experience higher rates of
delinquencies, defaults and foreclosures than home equity loans underwritten in
accordance with Fannie Mae or Freddie Mac's guidelines.
BALLOON LOANS MAY HAVE HIGHER RATES OF DEFAULT
Collections on approximately 0.14% of the Group I home equity loans may
vary because, among other things, the related borrowers are not required to make
monthly payments of principal that will be sufficient to amortize such home
equity loans by their maturity. In the case of such home equity loans, commonly
referred to as 'balloon loans,' a borrower generally will be required to pay the
entire remaining principal amount of the home equity loan at its maturity. The
ability of a borrower to make such a payment may depend on the ability of the
borrower to obtain refinancing of the balance due on a balloon loan. Because the
Group I home equity loans contain balloon loans, the credit risk may be greater
than to holders of instruments representing interests only in level payment
fully amortizing first mortgage loans. An increase in interest rates over the
coupon rate applicable at the time a balloon loan was originated may have an
adverse effect on the borrower's ability to obtain refinancing or to pay the
required monthly payment, which could lead to a default on such balloon loan.
NEWLY ORIGINATED HOME EQUITY LOANS MAY DEFAULT
Approximately 99.94% of the Group I home equity loans and approximately
99.66% of the Group II home equity loans were originated within twelve months
prior to the cut-off date. The weighted average remaining term to stated
maturity of the Group I and Group II home equity loans as of the cut-off date is
approximately 320 months and 358 months, respectively. Although little data is
available, defaults on
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home equity loans, including home equity loans similar to the home equity loans
in the trust, are generally expected to occur with greater frequency in the
early years of the terms of home equity loans.
THE RATE OF RETURN OF PRINCIPAL IS UNCERTAIN DUE TO PREPAYMENTS
GENERAL. Generally, if prevailing interest rates fall significantly below
the interest rates on the home equity loans, the home equity loans are likely to
be subject to higher prepayment rates than if prevailing rates remain at or
above the interest rates on the home equity loans. Conversely, if prevailing
interest rates rise significantly above the interest rates on the home equity
loans, the rate of prepayments is likely to decrease. The average life of your
certificates and, if purchased at other than par, the yields realized by you
will be sensitive to levels of payment (including prepayments relating to the
home equity loans) on the home equity loans. In general, the yield on a Class A
Certificate that is purchased at a premium from the outstanding principal amount
thereof may be adversely affected by a higher than anticipated level of
prepayments of the home equity loans. Conversely, the yield on a Class A
Certificate that is purchased at a discount from the outstanding principal
amount thereof may be adversely affected by a lower than anticipated level of
prepayments.
NO PREPAYMENT PENALTIES. Approximately 31.49% of the Group I home equity
loans and approximately 36.78% of the Group II home equity loans, in each case
as of the cut-off date, may be prepaid in whole or in part at any time without
penalty. Home equity loans may not be viewed by borrowers as permanent
financing. Accordingly, the home equity loans in the trust may experience a
higher rate of prepayment than traditional mortgage loans. The trust's
prepayment experience may be affected by a wide variety of factors, including
general economic conditions, interest rates, the availability of alternative
financing and homeowner mobility.
DUE-ON-SALE CLAUSES. All of the home equity loans contain due-on-sale
provisions and the servicer will be required by the pooling and servicing
agreement to enforce such provisions unless such enforcement is not permitted by
applicable law or the servicer, in a manner consistent with reasonable
commercial practice, permits the purchaser of the related mortgaged property to
assume such home equity loan. To the extent permitted by applicable law, any
such assumption will not release the original borrower from its obligation under
any such home equity loan.
We refer you to 'CERTAIN LEGAL ASPECTS OF LOANS -- Due-on-Sale Clauses in
Home Equity Loans' in the prospectus for more detail.
2/28 ADJUSTABLE RATE LOANS. Approximately 68.99% of the Group II home
equity loans, as of the cut-off date, have a two year fixed rate term followed
by a 28 year adjustable rate term. As with all home equity loans, the rate of
prepayments on '2/28 Adjustable Rate Loans' (as we call these loans in this
prospectus supplement) which are in the initial fixed rate period is sensitive
to prevailing interest rates. The prepayment behavior of the 2/28 Adjustable
Rate Loans may differ from that of the other home equity loans. As a 2/28
Adjustable Rate Loan approaches its initial adjustment date, the borrower may
become more likely to refinance such loan to avoid an increase in the coupon
rate, even if fixed rate loans are only available at rates that are slightly
lower or higher than the coupon rate before adjustment. The existence of the
applicable periodic rate cap, lifetime cap and lifetime floor also may affect
the likelihood of prepayments resulting from refinancings.
We refer you to 'PREPAYMENT AND YIELD CONSIDERATIONS' in this prospectus
supplement for more detail.
EFFECT OF HOME EQUITY LOAN YIELD ON CERTIFICATE RATE OF CLASS A-7 CERTIFICATES;
BASIS RISK
Approximately 31.01% of the Group II home equity loans, as of the cut-off
date, adjust semi-annually based upon the London interbank offered rate for
six-month United States dollar deposits. We refer to these loans in this
prospectus supplement as the 'Six-Month Adjustable Rate Loans.' Approximately
68.99% of the Group II home equity loans, as of the cut-off date, are 2/28
Adjustable Rate Loans. Such home equity loans provide for a fixed interest rate
for a period of approximately two years following origination and thereafter
provide for interest rate and payment adjustments in a manner similar to the
Six-Month Adjustable Rate Loans. The interest rate for the Class A-7
Certificates is determined in accordance with and adjusts monthly based upon
one-month LIBOR, and is subject to the
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Class A-7 Available Funds Cap (as defined in 'DESCRIPTION OF THE
CERTIFICATES -- Certificate Rate'). One-month LIBOR and six-month LIBOR may
respond to different economic and market factors, and there is not necessarily a
correlation between them. Thus, it is possible, for example, that one-month
LIBOR may rise during periods in which six-month LIBOR is stable or is falling
or that, even if both one-month LIBOR and six-month LIBOR rise during the same
period, one-month LIBOR may rise more rapidly than six-month LIBOR. Furthermore,
even if one-month LIBOR and six-month LIBOR were at the same level, various
factors may cause the Class A-7 Available Funds Cap to limit the amount of
interest that would otherwise be distributable on the Class A-7 Certificates.
The operation of the Class A-7 Available Funds Cap may cause the certificate
rate of the Class A-7 Certificates to be reduced for extended periods in a
rising interest rate environment. Although it is intended that the amount by
which a Class A-7 certificateholder's interest payment has been reduced by
operation of the Class A-7 Available Funds Cap will be paid to such
certificateholder on future distribution dates, we cannot assure you that excess
funds will be available to make any such payments.
We refer you to 'DESCRIPTION OF THE CERTIFICATES -- Calculation of
One-Month LIBOR' in this prospectus supplement for more detail.
In addition, Group II home equity loans are subject to periodic adjustment
caps and maximum rate caps, and the weighted average margin is subject to change
based upon prepayment experience, which also may result in the Class A-7
Available Funds Cap limiting increases in the certificate rate for such class.
Finally, the Group II home equity loans accrue interest on the basis of a
360-day year assumed to consist of twelve 30-day months, while calculations of
interest on the Class A-7 Certificates will be made on the basis of the actual
number of days elapsed in the related interest period and a year of 360 days.
This may result in the Class A-7 Available Funds Cap limiting the certificate
rate for the Class A-7 Certificates in interest periods that have more than 30
days related to such loan group. Consequently, the interest that becomes due on
the Group II home equity loans (net of the sum of the fees payable to each of
the servicer, the trustee and the certificate insurer) may not equal the amount
of interest that would accrue at one-month LIBOR plus the applicable margin on
the Class A-7 Certificates and the accrued interest on the Class A-8
Certificates with respect to any distribution date.
If you are a holder of a Class A-7 Certificate and the certificate rate is
capped in any period by the Class A-7 Available Funds Cap you may suffer a
temporary or permanent decline in the market value of your certificates.
YIELD CONSIDERATIONS RELATING TO EXCESS CASH
If the Class A Certificates related to a home equity loan group are
overcollateralized by such home equity loan group below the required amount,
certain excess interest, if any, will be distributable on such Class A
Certificates as a payment of principal. If purchased at a premium or a discount,
the yield to maturity on your certificate will be affected by the rate at which
such excess interest is distributed as a payment of principal. If the actual
rate of such excess interest distribution is slower than the rate anticipated by
an investor who purchases a related Class A Certificate at a discount, the
actual yield to such investor will be lower than such investor's anticipated
yield. If the actual rate of such excess interest distribution is faster than
the rate anticipated by an investor who purchases a related Class A Certificate
at a premium, the actual yield to such investor will be lower than such
investor's anticipated yield. The amount of such excess interest available for
such distribution with respect to a home equity loan group on any distribution
date will be affected by:
the actual amount of interest received, collected or recovered in respect
of the home equity loans during the calendar month prior to the related
distribution date;
changes in the weighted average of the coupon rates of such home equity
loans resulting from prepayments and liquidations of home equity loans;
and
in the case of Group II home equity loans, adjustments in the related
interest rates.
The amount of such excess interest distributed as principal on the Class A
Certificates related to a home equity loan group will be based on the required
amount of overcollateralization, which may increase or decrease during the
period that such classes of Class A Certificates remain outstanding. Any
increase in the overcollateralization for the Class A Certificates related to a
home equity loan group may result in an
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accelerated rate of amortization of the related Class A Certificates until the
overcollateralization for such Class A Certificates equals such required amount
of overcollateralization. Any decrease in such required amount of
overcollateralization will result in a decelerated rate of amortization of the
related Class A Certificates until the overcollateralization for such Class A
Certificates is reduced to the required amount of overcollateralization for such
Class A Certificates.
LIQUIDATION OF HOME EQUITY LOANS COULD CAUSE PAYMENT DELAYS AND/OR LOSSES
GENERAL. Even assuming that the mortgaged properties provide adequate
security for the related home equity loans, substantial delays in receiving
proceeds could be encountered by the trust in connection with the liquidation of
defaulted home equity loans. As a result, shortfalls in distributions on Class A
Certificates could occur if the certificate insurer were unable to perform its
obligations under the policies. Further, liquidation expenses (such as legal
fees, real estate taxes, and maintenance and preservation expenses) will reduce
the proceeds payable on the Class A Certificates and thereby reduce the security
for the home equity loans. In the event any of the mortgaged properties fail to
provide adequate security for the related home equity loans, holders of Class A
Certificates could experience a loss if the certificate insurer were unable to
perform its obligations under the policies.
SECOND LIENS. As of the cut-off date, approximately 94.42% of the aggregate
principal balance of the Group I home equity loans are secured by first liens on
the related properties, and approximately 5.58% of the aggregate principal
balance of the Group I home equity loans are secured by second liens on the
related properties. With respect to home equity loans that are junior in
priority to liens having a first priority with respect to the related mortgaged
property, the servicer has the power under certain circumstances to consent to a
new mortgage lien on such mortgaged property having priority over such home
equity loan in connection with the refinancing of such first lien. Home equity
loans secured by second mortgages are entitled to proceeds that remain from the
sale of the related mortgaged property after any related senior home equity loan
and prior statutory liens have been satisfied. In the event that such proceeds
are insufficient to satisfy such loans and prior liens in the aggregate and the
certificate insurer is unable to perform its obligations under the policies, the
trust and, accordingly, the holders of the Class A Certificates, bear (i) the
risk of delay in distributions while a deficiency judgment, if any, against the
borrower is sought and (ii) the risk of loss if the deficiency judgment cannot
be obtained or is not realized upon.
We refer you to 'CERTAIN LEGAL ASPECTS OF LOANS' in the prospectus for more
detail.
THERE COULD BE DELAYS IN DISTRIBUTIONS ON YOUR CERTIFICATES IF THE TRANSFER OF
HOME EQUITY LOANS TO THE TRUST IS NOT CONSIDERED A SALE IN THE EVENT OF
BANKRUPTCY
The sale of the home equity loans from the seller to the depositor and the
depositor to the trust will be treated by the seller, the depositor and the
trust as a sale of the home equity loans. In the event of an insolvency of the
seller, it is possible that a receiver or conservator for, or a creditor of, the
seller or depositor, may argue that the transaction between the seller, the
depositor and the trust, with respect to the home equity loans was a pledge of
such home equity loans in connection with a borrowing rather than a true sale.
Such an attempt, even if unsuccessful, could result in delays in distributions
on the Class A Certificates.
PREPAYMENT INTEREST SHORTFALLS MAY RESULT IN LOSS OF INTEREST
When a full principal prepayment is made on a home equity loan or a
prepayment of at least six times a mortgagor's monthly payment, the mortgagor is
charged interest only up to the date of such prepayment, instead of for a full
month which may result in a prepayment interest shortfall. The servicer is
obligated to pay those shortfalls in interest collections payable on the Class A
Certificates that are attributable to prepayment interest shortfalls, but only
to the extent of the aggregate servicing fee for the related due period. The
servicing fee will not be available to cover any shortfalls in interest
collections on the home equity loans that are attributable to the Soldiers' and
Sailors' Civil Relief Act of 1940. Such interest shortfalls will not be covered
by payments under the policies. Prepayment interest shortfalls, after
application of the servicing fee as described above, will be covered by the
related policy.
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GEOGRAPHIC CONCENTRATION MAY AFFECT PERFORMANCE
Approximately 12.22%, 8.17%, 5.83% and 5.53% of the Group I home equity
loans are located in Texas, Florida, New York and Missouri, respectively, and
approximately 10.36%, 9.14%, 7.01%, 5.87% and 4.93% of the Group II home equity
loans are located in California, New York, Illinois, Ohio and Washington,
respectively. To the extent that the related regions have experienced or may
experience in the future weaker economic conditions or greater rates of decline
in real estate values than the United States generally, such a concentration of
the home equity loans may be expected to exacerbate the foregoing risks. The
seller and the depositor can neither quantify the impact of any recent property
value declines on the home equity loans nor predict whether, to what extent or
for how long such declines may continue.
REDUCTION IN CERTIFICATE RATING COULD HAVE AN ADVERSE EFFECT ON THE VALUE OF
YOUR CERTIFICATES
The rating of the Class A Certificates will depend primarily on an
assessment of the claims-paying ability of the certificate insurer and on an
assessment by the rating agencies of the home equity loans. Any reduction in a
rating assigned to the claims-paying ability of the certificate insurer below
the rating initially given to the Class A Certificates may result in a reduction
in the rating of the Class A Certificates. The rating by the rating agencies of
the Class A Certificates is not a recommendation for you to purchase, hold or
sell the Class A Certificates, inasmuch as such rating does not comment as to
the market price or suitability for a particular investor. There is no assurance
that the ratings will remain in place for any given period of time or that the
ratings will not be lowered or withdrawn by the rating agencies. In general, the
ratings address credit risk and do not address the likelihood of prepayments on
home equity loans, the likelihood of the payment of any interest payable to
Class A Certificateholders on a subordinated basis due to the application of any
available funds cap described under the section 'DESCRIPTION OF THE
CERTIFICATES -- Certificate Rate' or the possibility that Class A
Certificateholders might realize a lower than anticipated yield. The ratings of
the Class A Certificates also do not address the possibility of the imposition
of United States withholding tax with respect to non-U.S. persons. Any downgrade
in the rating of the certificate insurer will likely result in the downgrade of
the rating of the Class A Certificates. None of the seller, the servicer or
depositor is required to maintain the rating of the Class A Certificates. Any
downgrade in the ratings assigned to your certificates will result in a decline
in the market value of your certificates.
COMPUTER PROBLEMS IN THE YEAR 2000 MAY RESULT IN LOSSES
As is the case with most companies using computers in their operations, the
servicer is faced with the task of completing its compliance goals in connection
with the year 2000 issue during the next year. The year 2000 issue is the result
of prior computer programs being written using two digits, rather than four
digits, to define the applicable year. Any of the servicer's computer programs
that have time-sensitive software may recognize a date using '00' as the year
1900 rather than the year 2000. Any such occurrence could result in a major
computer system failure or miscalculations. The servicer is presently engaged in
various procedures to ensure that their computer systems and software will be
year 2000 compliant.
However, in the event that the servicer, or any of its suppliers,
customers, brokers or agents do not successfully and timely achieve year 2000
compliance, the performance of obligations of the servicer under the pooling and
servicing agreement could be materially adversely affected.
DESCRIPTION OF THE HOME EQUITY LOANS
GENERAL
The statistical information presented in this Prospectus Supplement
concerning the pool of home equity loans (the 'Home Equity Loans') transferred
to Centex Home Equity Loan Trust 1999-1 (the 'Trust') is based on the pool of
Home Equity Loans as of February 1, 1999 (the 'Cut-Off Date').
This subsection describes generally certain characteristics of the Home
Equity Loans. Unless otherwise noted, all statistical percentages in this
Prospectus Supplement are measured by the aggregate
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principal balance of the related Home Equity Loans as of the Cut-Off Date (the
'Cut-Off Date Loan Balance'). Prior to the date of issuance of the Class A
Certificates (the 'Closing Date'), certain of these Home Equity Loans may be
removed from the pool and other Home Equity Loans may be substituted in their
place, subject to the consent of the Certificate Insurer. It is expected that
less than 1% of the Home Equity Loans will be removed from the pool of Home
Equity Loans presented in this Prospectus Supplement.
Each Home Equity Loan in the Trust will be assigned to one of two home
equity loan groups (each, a 'Home Equity Loan Group'). Each Home Equity Loan
Group will constitute a separate sub-trust. The Home Equity Loans in Group I
(the 'Group I Home Equity Loans') will bear interest at fixed interest rates.
The Home Equity Loans in Group II (the 'Group II Home Equity Loans') bear
interest at adjustable rates. Distributions on the Group I Certificates will be
based primarily on amounts available for distribution in respect of the Group I
Home Equity Loans. Distributions on the Group II Certificates will be based
primarily on amounts available for distribution in respect of the Group II Home
Equity Loans.
The Home Equity Loans to be transferred by Centex Credit Corporation d/b/a
Centex Home Equity Corporation (the 'Seller') to CHEC Asset Receivable
Corporation (the 'Depositor') and from the Depositor to the Trust on the Closing
Date will consist of 3,678 home equity loans, of which 2,887 are fixed rate home
equity loans and 791 are adjustable rate home equity loans, evidenced by
promissory notes (the 'Notes') secured by first and second lien deeds of trust,
security deeds or mortgages on properties which are located in 47 states and the
District of Columbia (the 'Mortgaged Properties'). The aggregate outstanding
Cut-Off Date Loan Balance of the Group I Home Equity Loans is $182,267,624.54 or
approximately 69.80% of the Cut-Off Date Loan Balance of the Home Equity Loans.
The aggregate outstanding Cut-Off Date Loan Balance of the Group II Home Equity
Loans is $78,863,918.70 or approximately 30.20% of the Cut-Off Date Loan Balance
of the Home Equity Loans. The Mortgaged Properties securing the Home Equity
Loans consist primarily of one- to four-family residential properties and
manufactured housing treated as real property under applicable state law. The
Mortgaged Properties may be owner-occupied and non-owner occupied investment
properties (which include second and vacation homes). All of the Home Equity
Loans were originated no earlier than July 25, 1997. Home Equity Loans
representing approximately 94.42% of the Cut-Off Date Loan Balance of the Group
I Home Equity Loans were secured by first liens on related properties and the
remaining 5.58% of the Cut-Off Date Loan Balance of the Group I Home Equity
Loans are secured by second liens on related properties. No Original Combined
Loan-to-Value Ratio (as defined below) relating to any Group I Home Equity Loan
exceeded 120.00% as of the Cut-Off Date. As of the Cut-Off Date, all of the
Group II Home Equity Loans are secured by first liens on the related properties.
No Original Loan-to-Value Ratio relating to any Group II Home Equity Loan
exceeded 98.69% as of the Cut-Off Date. None of the Home Equity Loans are
insured by pool mortgage insurance policies or primary mortgage insurance
policies.
All of the Home Equity Loans in the Trust have been or will be originated
by the Seller or an affiliate of the Seller.
The Original Loan-to-Value Ratios and Original Combined Loan-to-Value
Ratios shown below were calculated based upon the lesser of the appraised values
of the Mortgaged Properties at the time of origination or the sales price of
such Mortgaged Property if such Mortgaged Property was sold within the 12 month
period preceding the time of loan origination (the 'Appraised Values'). In a
limited number of circumstances, and within the Seller's underwriting
guidelines, the Seller may discount the Appraised Value of Mortgaged Properties
(when calculating maximum Loan-to-Value Ratios) where the Mortgaged Properties
are unique, have a high value or where the comparables are not within Fannie Mae
guidelines. The purpose for making these reductions is to value the Mortgaged
Properties more conservatively than would otherwise be the case if the appraisal
were accepted as written. The 'Original Combined Loan-to-Value Ratio' of a Home
Equity Loan is the ratio, expressed as a percentage, equal to the sum of any
outstanding senior lien mortgage balance plus the original balance of the Home
Equity Loan divided by the lesser of the appraised values of the Mortgaged
Properties at the time of origination or the sales price of such Mortgaged
Property if such Mortgaged Property was sold within the 12 month period
preceding the time of loan origination. In the instance where more than one
appraisal was performed on the subject property, the lesser of the two values
was used to determine the Original Loan-to-Value Ratio and the Original Combined
Loan-to-Value Ratio.
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We refer you to 'RISK FACTORS -- The Borrowers Have Less Than Perfect
Credit' in this Prospectus Supplement for more detail.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Home Equity Loans. If the residential real estate market has experienced
or should experience an overall decline in property values such that the
outstanding balances of the Home Equity Loans, together with the outstanding
balances of any first mortgage, 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.
GROUP I HOME EQUITY LOANS
As of the Cut-Off Date, the average of the outstanding principal balances
(the 'Loan Balances') of the Group I Home Equity Loans was $63,134. The minimum
and maximum principal balances of the Group I Home Equity Loans as of the
Cut-Off Date were $2,438 and $749,586, respectively. As of the Cut-Off Date, the
weighted average per annum interest rate (the 'Coupon Rate') of the Group I Home
Equity Loans was approximately 11.136%; the Coupon Rates of the Group I Home
Equity Loans ranged from 7.190% to 17.300%; the weighted average Original
Combined Loan-to-Value Ratio of the Group I Home Equity Loans was approximately
79.68%; the weighted average remaining term to maturity of the Group I Home
Equity Loans was approximately 320 months; the original terms to maturity of the
Group I Home Equity Loans ranged from 60 months to 360 months; and the remaining
terms to maturity of the Group I Home Equity Loans ranged from 57 months to 360
months. As of the Cut-Off Date, approximately 94.42% of the Cut-Off Date Loan
Balance of the Group I Home Equity Loans was secured by first liens on the
related properties and approximately 5.58% of the Cut-Off Date Loan Balance of
the Group I Home Equity Loans was secured by second liens on the related
properties. With respect to each Group I Home Equity Loan secured by a first
lien on the related property, the original principal balance was no more than
$750,000. No Group I Home Equity Loan secured by a second lien on the related
property had an original principal balance of more than $135,000. With respect
to each Group I Home Equity Loan secured by a second lien, the sum of the
principal balance of such second lien loan, at the time of origination, and the
related senior lien loan is not more than $443,813. Group I Home Equity Loans
containing 'balloon' payments represented approximately 0.14% of the Cut-Off
Date Loan Balance of the Group I Home Equity Loans. No Group I Home Equity Loan
will mature later than February 19, 2029. As of the Cut-Off Date, 0.07% of the
Group I Home Equity Loans were 30-59 days past due. However, investors in the
Class A Certificates should be aware that approximately 86.81% of the Group I
Home Equity Loans by Cut-Off Date Loan Balance had a first monthly payment due
on or after January 1, 1999 and it was not possible for such Group I Home Equity
Loans to be more than 30 days past due as of the Cut-Off Date. As of the Cut-Off
Date, no Group I Home Equity Loan was 60 or more days past due.
Set forth below is certain approximate statistical information as of the
Cut-Off Date regarding the Group I Home Equity Loans. Prior to the Closing Date,
Home Equity Loans may be removed from Group I and other fixed rate Home Equity
Loans may be substituted in their place, subject to the consent of the
Certificate Insurer. The Seller believes that the information set forth herein
with respect to Group I as presently constituted is representative of the
characteristics of Group I as it will be constituted at the Closing Date,
although certain characteristics of the Group I Home Equity Loans may vary but
the Seller does not believe that any such variance will be material. The sum of
the percentage columns in the following tables may not equal 100% due to
rounding.
S-20
<PAGE>
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED
PROPERTIES OF GROUP I HOME EQUITY LOANS(1)
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
STATE HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ----------------------------------------------------------- ----------------- --------------- ------------
<S> <C> <C> <C>
Arizona.................................................... 92 $ 5,704,097.58 3.13%
Arkansas................................................... 17 884,879.96 0.49
California................................................. 23 2,664,047.14 1.46
Colorado................................................... 78 6,411,231.99 3.52
Connecticut................................................ 31 2,751,706.94 1.51
Delaware................................................... 3 80,931.76 0.04
Dist of Col................................................ 5 413,173.45 0.23
Florida.................................................... 232 14,885,366.20 8.17
Georgia.................................................... 129 8,663,489.58 4.75
Idaho...................................................... 9 517,802.25 0.28
Illinois................................................... 112 6,833,713.32 3.75
Indiana.................................................... 71 4,024,778.63 2.21
Iowa....................................................... 58 2,507,178.07 1.38
Kansas..................................................... 72 4,109,749.26 2.25
Kentucky................................................... 14 883,574.82 0.48
Louisiana.................................................. 13 844,582.54 0.46
Maine...................................................... 4 163,546.09 0.09
Maryland................................................... 9 464,332.13 0.25
Massachusetts.............................................. 12 1,149,334.61 0.63
Michigan................................................... 39 2,859,911.03 1.57
Minnesota.................................................. 41 2,313,098.91 1.27
Mississippi................................................ 101 3,942,779.65 2.16
Missouri................................................... 198 10,087,296.66 5.53
Montana.................................................... 1 19,910.73 0.01
Nebraska................................................... 63 3,427,732.75 1.88
Nevada..................................................... 18 2,083,449.11 1.14
New Hampshire.............................................. 5 392,340.30 0.22
New Jersey................................................. 31 2,780,336.07 1.53
New Mexico................................................. 35 2,182,565.68 1.20
New York................................................... 141 10,620,277.37 5.83
North Carolina............................................. 92 6,527,699.43 3.58
Ohio....................................................... 118 7,801,756.54 4.28
Oklahoma................................................... 77 3,043,396.74 1.67
Oregon..................................................... 44 3,632,633.70 1.99
Pennsylvania............................................... 125 6,829,331.68 3.75
Rhode Island............................................... 3 232,580.00 0.13
South Carolina............................................. 69 4,283,214.08 2.35
South Dakota............................................... 5 293,752.82 0.16
Tennessee.................................................. 91 7,418,828.24 4.07
Texas...................................................... 388 22,281,942.08 12.22
Utah....................................................... 42 2,992,556.43 1.64
Virginia................................................... 66 4,281,904.08 2.35
Washington................................................. 73 5,866,614.93 3.22
West Virgina............................................... 7 341,501.36 0.19
Wisconsin.................................................. 25 1,498,820.73 0.82
Wyoming.................................................... 5 273,877.12 0.15
------ --------------- ------------
Total................................................. 2,887 $182,267,624.54 100.00%
------ --------------- ------------
------ --------------- ------------
</TABLE>
- ------------
(1) Determined by property address designated as such in the related Mortgage.
S-21
<PAGE>
<PAGE>
ORIGINAL COMBINED LOAN-TO-VALUE RATIO OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF ORIGINAL COMBINED LOAN-TO-VALUE RATIOS(%) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ----------------------------------------------------------- ----------------- --------------- ------------
<S> <C> <C> <C>
5.001 - 10.000........................................ 1 $ 15,946.62 0.01%
10.001 - 15.000........................................ 4 70,124.96 0.04
15.001 - 20.000........................................ 3 66,207.18 0.04
20.001 - 25.000........................................ 13 429,159.48 0.24
25.001 - 30.000........................................ 10 262,310.61 0.14
30.001 - 35.000........................................ 14 378,620.40 0.21
35.001 - 40.000........................................ 22 626,587.99 0.34
40.001 - 45.000........................................ 31 1,475,083.73 0.81
45.001 - 50.000........................................ 55 2,161,011.74 1.19
50.001 - 55.000........................................ 56 2,508,476.84 1.38
55.001 - 60.000........................................ 83 4,636,635.00 2.54
60.001 - 65.000........................................ 105 5,261,091.28 2.89
65.001 - 70.000........................................ 207 11,200,677.22 6.15
70.001 - 75.000........................................ 273 14,358,189.07 7.88
75.001 - 80.000........................................ 838 53,103,267.19 29.13
80.001 - 85.000........................................ 549 36,029,521.81 19.77
85.001 - 90.000........................................ 568 46,541,246.69 25.53
90.001 - 95.000........................................ 31 1,860,696.18 1.02
95.001 - 100.000........................................ 22 1,210,556.36 0.66
100.001 - 105.000........................................ 1 45,231.69 0.02
115.001 - 120.000........................................ 1 26,982.50 0.01
------ --------------- ------------
Total................................................. 2,887 $182,267,624.54 100.00%
------ --------------- ------------
------ --------------- ------------
</TABLE>
S-22
<PAGE>
<PAGE>
COUPON RATES OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF COUPON RATES (%) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ----------------------------------------------------------- ----------------- --------------- ------------
<S> <C> <C> <C>
7.01 - 7.50............................................ 4 $ 322,315.86 0.18%
7.51 - 7.75............................................ 2 190,784.65 0.10
7.76 - 8.00............................................ 15 1,240,341.02 0.68
8.01 - 8.25............................................ 12 957,980.97 0.53
8.26 - 8.50............................................ 19 1,922,844.52 1.05
8.51 - 8.75............................................ 34 2,714,896.53 1.49
8.76 - 9.00............................................ 67 7,363,626.43 4.04
9.01 - 9.25............................................ 25 2,394,275.94 1.31
9.26 - 9.50............................................ 81 6,895,470.64 3.78
9.51 - 9.75............................................ 61 4,707,343.57 2.58
9.76 - 10.00............................................ 209 15,481,068.09 8.49
10.01 - 10.25............................................ 81 5,337,008.25 2.93
10.26 - 10.50............................................ 176 13,800,466.41 7.57
10.51 - 10.75............................................ 144 10,698,216.93 5.87
10.76 - 11.00............................................ 300 20,773,289.68 11.40
11.01 - 11.25............................................ 113 7,146,770.28 3.92
11.26 - 11.50............................................ 207 13,682,584.07 7.51
11.51 - 11.75............................................ 157 9,500,396.98 5.21
11.76 - 12.00............................................ 262 16,303,869.71 8.95
12.01 - 12.25............................................ 108 5,840,187.14 3.20
12.26 - 12.50............................................ 172 7,539,090.61 4.14
12.51 - 12.75............................................ 93 4,752,296.36 2.61
12.76 - 13.00............................................ 158 7,521,771.94 4.13
13.01 - 13.25............................................ 58 2,195,300.18 1.20
13.26 - 13.50............................................ 60 2,762,599.10 1.52
13.51 - 13.75............................................ 46 2,136,348.85 1.17
13.76 - 14.00............................................ 75 2,776,313.33 1.52
14.01 - 14.25............................................ 33 1,156,862.15 0.63
14.26 - 14.50............................................ 29 1,003,912.53 0.55
14.51 - 14.75............................................ 27 1,186,015.01 0.65
14.76 - 15.00............................................ 21 801,532.82 0.44
15.01 - 15.25............................................ 8 309,191.22 0.17
15.26 - 15.50............................................ 5 166,085.28 0.09
15.51 - 15.75............................................ 5 157,492.90 0.09
15.76 - 16.00............................................ 6 146,842.69 0.08
16.01 - 16.25............................................ 2 51,580.57 0.03
16.26 - 16.50............................................ 4 108,960.55 0.06
16.51 - 16.75............................................ 1 48,873.76 0.03
16.76 - 17.00............................................ 6 142,719.55 0.08
17.26 - 17.50............................................ 1 30,097.47 0.02
------ --------------- ------------
Total................................................. 2,887 $182,267,624.54 100.00%
------ --------------- ------------
------ --------------- ------------
</TABLE>
S-23
<PAGE>
<PAGE>
CUT-OFF DATE LOAN BALANCES OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF CUT-OFF DATE LOAN BALANCE HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ----------------------------------------------------------- ----------------- --------------- ------------
<S> <C> <C> <C>
$ 0.01 - 5,000.00................................. 1 $ 2,437.64 0.00%
5,000.01 - 10,000.00................................. 13 121,339.14 0.07
10,000.01 - 15,000.00................................. 77 1,010,122.33 0.55
15,000.01 - 20,000.00................................. 127 2,280,111.83 1.25
20,000.01 - 25,000.00................................. 165 3,807,022.65 2.09
25,000.01 - 30,000.00................................. 210 5,859,484.81 3.21
30,000.01 - 35,000.00................................. 188 6,165,783.60 3.38
35,000.01 - 40,000.00................................. 185 7,009,196.32 3.85
40,000.01 - 45,000.00................................. 184 7,877,534.32 4.32
45,000.01 - 50,000.00................................. 185 8,855,592.60 4.86
50,000.01 - 55,000.00................................. 203 10,702,533.02 5.87
55,000.01 - 60,000.00................................. 187 10,802,218.73 5.93
60,000.01 - 65,000.00................................. 132 8,286,032.45 4.55
65,000.01 - 70,000.00................................. 127 8,592,106.78 4.71
70,000.01 - 75,000.00................................. 133 9,662,133.88 5.30
75,000.01 - 80,000.00................................. 100 7,765,012.40 4.26
80,000.01 - 85,000.00................................. 77 6,358,779.74 3.49
85,000.01 - 90,000.00................................. 79 6,919,781.36 3.80
90,000.01 - 95,000.00................................. 47 4,354,347.42 2.39
95,000.01 - 100,000.00................................. 60 5,880,300.99 3.23
100,000.01 - 105,000.00................................. 41 4,231,019.12 2.32
105,000.01 - 110,000.00................................. 38 4,091,796.25 2.24
110,000.01 - 115,000.00................................. 40 4,491,525.12 2.46
115,000.01 - 120,000.00................................. 43 5,061,632.26 2.78
120,000.01 - 125,000.00................................. 23 2,826,504.81 1.55
125,000.01 - 130,000.00................................. 24 3,061,728.05 1.68
130,000.01 - 135,000.00................................. 23 3,060,518.52 1.68
135,000.01 - 140,000.00................................. 20 2,756,717.19 1.51
140,000.01 - 145,000.00................................. 23 3,283,310.04 1.80
145,000.01 - 150,000.00................................. 19 2,819,717.49 1.55
150,000.01 - 200,000.00................................. 68 11,611,299.26 6.37
200,000.01 - 250,000.00................................. 28 6,389,805.45 3.51
250,000.01 - 300,000.00................................. 8 2,289,763.84 1.26
300,000.01 - 350,000.00................................. 3 936,327.58 0.51
350,000.01 - 400,000.00................................. 2 763,367.53 0.42
450,000.01 - 500,000.00................................. 1 488,678.98 0.27
500,000.01 - 550,000.00................................. 2 1,042,455.00 0.57
700,000.01 - 750,000.00................................. 1 749,586.04 0.41
------ --------------- ------------
Total................................................. 2,887 $182,267,624.54 100.00%
------ --------------- ------------
------ --------------- ------------
</TABLE>
S-24
<PAGE>
<PAGE>
TYPES OF MORTGAGED PROPERTIES OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
PROPERTY TYPE HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ----------------------------------------------------------- ----------------- --------------- ------------
<S> <C> <C> <C>
Single-family.............................................. 2,601 $160,535,770.16 88.08%
RowHouse................................................... 4 250,857.25 0.14
Manufactured Housing....................................... 43 2,270,716.47 1.25
PUD........................................................ 91 9,416,208.79 5.17
Townhouses................................................. 13 812,638.14 0.45
2-4 Family................................................. 115 7,897,377.46 4.33
Condominiums............................................... 19 1,024,070.31 0.56
Leasehold.................................................. 1 59,985.96 0.03
------ --------------- ------------
Total................................................. 2,887 $182,267,624.54 100.00%
------ --------------- ------------
------ --------------- ------------
</TABLE>
ORIGINAL TERM TO MATURITY OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
ORIGINAL TERM TO MATURITY (MONTHS) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ----------------------------------------------------------- ----------------- --------------- ------------
<S> <C> <C> <C>
49 - 60............................................... 24 $ 505,114.78 0.28%
73 - 84............................................... 6 148,343.12 0.08
85 - 96............................................... 3 63,255.77 0.03
109 - 120............................................... 168 5,112,019.21 2.80
121 - 132............................................... 2 68,523.03 0.04
133 - 144............................................... 1 34,443.17 0.02
169 - 180............................................... 537 22,697,884.59 12.45
229 - 240............................................... 276 13,359,256.45 7.33
289 - 300............................................... 17 851,692.20 0.47
325 - 336............................................... 1 78,447.85 0.04
349 - 360............................................... 1,852 139,348,644.37 76.45
------ --------------- ------------
Total................................................. 2,887 $182,267,624.54 100.00%
------ --------------- ------------
------ --------------- ------------
</TABLE>
REMAINING TERM TO MATURITY OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
REMAINING TERM TO MATURITY (MONTHS) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ----------------------------------------------------------- ----------------- --------------- ------------
<S> <C> <C> <C>
49 - 60............................................... 24 $ 505,114.78 0.28%
73 - 84............................................... 6 148,343.12 0.08
85 - 96............................................... 3 63,255.77 0.03
109 - 120............................................... 168 5,112,019.21 2.80
121 - 132............................................... 2 68,523.03 0.04
133 - 144............................................... 1 34,443.17 0.02
157 - 168............................................... 1 55,643.42 0.03
169 - 180............................................... 536 22,642,241.17 12.42
217 - 228............................................... 1 14,492.49 0.01
229 - 240............................................... 275 13,344,763.96 7.32
289 - 300............................................... 17 851,692.20 0.47
325 - 336............................................... 1 78,447.85 0.04
349 - 360............................................... 1,852 139,348,644.37 76.45
------ --------------- ------------
Total................................................. 2,887 $182,267,624.54 100.00%
------ --------------- ------------
------ --------------- ------------
</TABLE>
S-25
<PAGE>
<PAGE>
MONTHS SINCE ORIGINATION OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MONTHS SINCE ORIGINATION HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ----------------------------------------------------------- ----------------- --------------- ------------
<S> <C> <C> <C>
0.................................................... 1,513 $ 94,072,966.72 51.61%
1 - 12.................................................. 1,372 88,124,521.91 48.35
13 - 24.................................................. 2 70,135.91 0.04
------ --------------- ------------
Total................................................. 2,887 $182,267,624.54 100.00%
------ --------------- ------------
------ --------------- ------------
</TABLE>
OCCUPANCY STATUS OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
OCCUPANCY STATUS HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ----------------------------------------------------------- ----------------- --------------- ------------
<S> <C> <C> <C>
Owner Occupied (Primary)................................... 2705 $173,288,111.66 95.07%
Investment Property........................................ 159 7,486,429.83 4.11
Second Home................................................ 23 1,493,083.05 0.82
------ --------------- ------------
Total................................................. 2,887 $182,267,624.54 100.00%
------ --------------- ------------
------ --------------- ------------
</TABLE>
LIEN POSITION OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
LIEN POSITION HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ----------------------------------------------------------- ----------------- --------------- ------------
<S> <C> <C> <C>
First...................................................... 2,537 $172,102,921.51 94.42%
Second..................................................... 350 10,164,703.03 5.58
------ --------------- ------------
Total................................................. 2,887 $182,267,624.54 100.00%
------ --------------- ------------
------ --------------- ------------
</TABLE>
DOCUMENTATION TYPE OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
DOCUMENTATION TYPE(1) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ----------------------------------------------------------- ----------------- --------------- ------------
<S> <C> <C> <C>
Full Documentation......................................... 2,550 $157,625,089.19 86.48%
Stated Income.............................................. 219 15,498,179.41 8.50
Limited Documentation...................................... 118 9,144,355.94 5.02
------ --------------- ------------
Total................................................. 2,887 $182,267,624.54 100.00%
------ --------------- ------------
------ --------------- ------------
</TABLE>
- ------------
(1) We refer you to 'THE SELLER AND THE SERVICER -- Underwriting Guidelines
Applicable to the Home Equity Loans' in the Prospectus for a description of
the Seller's documentation programs.
S-26
<PAGE>
<PAGE>
CREDIT GRADE OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
CREDIT GRADE BALANCE(1) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ----------------------------------------------------------- ----------------- --------------- ------------
<S> <C> <C> <C>
A+......................................................... 216 $ 15,616,065.41 8.57%
A1......................................................... 844 60,487,970.36 33.19
A2......................................................... 967 62,387,932.08 34.23
B.......................................................... 367 19,673,675.91 10.79
C1......................................................... 303 15,039,214.50 8.25
C2......................................................... 113 5,471,613.75 3.00
D.......................................................... 77 3,591,152.53 1.97
------ --------------- ------------
Total................................................. 2,887 $182,267,624.54 100.00%
------ --------------- ------------
------ --------------- ------------
</TABLE>
- ------------
(1) We refer you to 'THE SELLER AND THE SERVICER -- Underwriting Criteria of the
Seller' in the Prospectus for a description of the Seller's credit grades
and underwriting criteria.
SECOND MORTGAGE RATIO OF GROUP I HOME EQUITY LOANS(1)
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF SECOND MORTGAGE RATIOS(%) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------------------------------------------------------ ----------------- -------------- ------------
<S> <C> <C> <C>
5.001 - 10.000.......................................... 15 $ 184,700.20 1.82%
10.001 - 15.000.......................................... 37 646,388.09 6.36
15.001 - 20.000.......................................... 52 1,086,655.64 10.69
20.001 - 25.000.......................................... 57 1,483,350.63 14.59
25.001 - 30.000.......................................... 41 1,024,627.33 10.08
30.001 - 35.000.......................................... 35 1,322,325.96 13.01
35.001 - 40.000.......................................... 33 1,144,666.56 11.26
40.001 - 45.000.......................................... 26 895,750.75 8.81
45.001 - 50.000.......................................... 16 726,625.53 7.15
50.001 - 55.000.......................................... 17 634,571.93 6.24
55.001 - 60.000.......................................... 4 165,522.41 1.63
60.001 - 65.000.......................................... 2 127,925.07 1.26
65.001 - 70.000.......................................... 6 296,257.33 2.91
70.001 - 75.000.......................................... 2 40,987.22 0.40
75.001 - 80.000.......................................... 3 121,143.00 1.19
80.001 - 85.000.......................................... 2 169,769.38 1.67
85.001 - 90.000.......................................... 1 51,226.00 0.50
95.001 - 100.000.......................................... 1 42,210.00 0.42
--- -------------- ------------
Total.................................................. 350 $10,164,703.03 100.00%
--- -------------- ------------
--- -------------- ------------
</TABLE>
- ------------
(1) Applies only to Home Equity Loans in the second lien position. The Second
Mortgage Ratios shown above are equal to, with respect to each Home Equity
Loan in the second lien position, the original principal balance of such
Home Equity Loan at the date of origination divided by the sum of (a) the
original principal balance of such Home Equity Loan at the date of
origination and (b) the remaining principal balance of the senior lien on
the related Mortgaged Property at the date of origination of such Home
Equity Loan.
S-27
<PAGE>
<PAGE>
GROUP II HOME EQUITY LOANS
As of the Cut-Off Date, the average Loan Balance of the Group II Home
Equity Loans was approximately $99,702. The minimum and maximum principal
balances of the Group II Home Equity Loans as of the Cut-Off Date were $17,496,
and $477,630, respectively. As of the Cut-Off Date, the weighted average
Original Loan-to-Value Ratio of the Group II Home Equity Loans was approximately
83.12%; the weighted average remaining term to maturity of the Group II Home
Equity Loans was approximately 358 months; the original terms to maturity of the
Group II Home Equity Loans ranged from 120 months to 360 months; and the
remaining terms to maturity of the Group II Home Equity Loans ranged from 119
months to 360 months. As of the Cut-Off Date, all of the Group II Home Equity
Loans are secured by first liens on the related properties. No Group II Home
Equity Loan will mature later than February 1, 2029. As of the Cut-Off Date,
0.95% of the Group II Home Equity Loan were 30-59 days past due. However,
investors in the Class A Certificates should be aware that approximately 86.14%
of the Group II Home Equity Loans by Cut-Off Date Loan Balance had a first
monthly payment due on or after January 1, 1999 and it was not possible for such
Group II Home Equity Loans to be more than 30 days past due as of the Cut-Off
Date. As of the Cut-Off Date, no Group II Home Equity Loan was 60 or more days
past due.
As of the Cut-Off Date, for approximately 31.01% of the Group II Home
Equity Loans the first adjustment date is six months after the date of
origination of the related Home Equity Loan ('Six-Month Adjustable Rate Loans')
and for approximately 68.99% of the Cut-Off Date Loan Balance of the Group II
Home Equity Loans the first adjustment date is two years after the date of
origination of the related Home Equity Loan ('2/28 Adjustable Rate Loans'). As
of the Cut-Off Date, the weighted average remaining period to the next interest
rate adjustment date for the Six-Month Adjustable Rate Loans was approximately 5
months; the weighted average remaining period to the next interest rate
adjustment date for the 2/28 Adjustable Rate Loans was approximately 22 months;
each Six-Month Adjustable Rate Loan will have an initial payment adjustment
effective with the seventh monthly payment on such loan, an initial interest
rate adjustment cap of 1.00%, a semi-annual interest rate adjustment cap of
1.00%, in each case, above the then current interest rate for such Six-Month
Adjustable Rate Loan and a lifetime interest rate adjustment cap of 7.00% above
the initial rate of such loan; each 2/28 Adjustable Rate Loan will have an
initial payment adjustment effective with the 25th monthly payment on such loan,
an initial interest rate adjustment cap of 2.00%, a semi-annual interest rate
adjustment cap of 1.00%, in each case, above the then current interest rate for
such 2/28 Adjustable Rate Loan and a lifetime interest rate adjustment cap of
7.00% above the initial rate of such loan. As of the Cut-Off Date, the weighted
average Coupon Rate of the Group II Home Equity Loans was approximately 10.963%
per annum. The Coupon Rates borne by the Group II Home Equity Loans as of the
Cut-Off Date ranged from 7.200% per annum to 15.550% per annum. The Group II
Home Equity Loans had a weighted average gross margin as of the Cut-Off Date of
approximately 7.237%. As of the Cut-Off Date, the gross margins for the Group II
Home Equity Loans ranged from 4.050% to 11.400%. As of the Cut-Off Date, the
maximum rates at which interest may accrue on the Group II Home Equity Loans
(the 'Maximum Rates') ranged from 14.200% per annum to 22.550% per annum. The
Group II Home Equity Loans had a weighted average Maximum Rate as of the Cut-Off
Date of approximately 17.962% per annum. As of the Cut-Off Date, the minimum
rates at which interest may accrue on the Group II Home Equity Loans (the
'Minimum Rates') ranged from 4.400% per annum to 15.550% per annum. As of the
Cut-Off Date, the weighted average Minimum Rate on the Group II Home Equity
Loans was approximately 9.434% per annum.
Set forth below is certain approximate statistical information as of the
Cut-Off Date regarding the Group II Home Equity Loans. Prior to the Closing
Date, Home Equity Loans may be removed from Group II and other fixed and
adjustable rate Home Equity Loans may be substituted therefor, subject to the
consent of the Certificate Insurer. The Seller believes that the information set
forth herein with respect to Group II as presently constituted is representative
of the characteristics of Group II as it will be constituted at the Closing
Date, although certain characteristics of the Home Equity Loans may vary but the
Seller does not believe that any such variance will be material. The sum of the
percentage columns in the following tables may not equal 100% due to rounding.
S-28
<PAGE>
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
OF GROUP II HOME EQUITY LOANS(1)
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
STATE HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------------------------------------------------------ ----------------- -------------- ------------
<S> <C> <C> <C>
Arizona..................................................... 24 $ 2,161,851.42 2.74%
California.................................................. 46 8,172,593.02 10.36
Colorado.................................................... 23 2,857,070.38 3.62
Connecticut................................................. 26 2,699,160.06 3.42
Florida..................................................... 11 1,027,007.38 1.30
Georgia..................................................... 13 1,035,300.50 1.31
Idaho....................................................... 11 888,088.30 1.13
Illinois.................................................... 54 5,524,986.16 7.01
Indiana..................................................... 12 922,563.48 1.17
Iowa........................................................ 18 1,017,715.08 1.29
Kansas...................................................... 19 1,963,839.22 2.49
Kentucky.................................................... 2 179,000.27 0.23
Maine....................................................... 9 767,246.84 0.97
Maryland.................................................... 6 584,340.48 0.74
Massachusetts............................................... 21 2,790,515.47 3.54
Michigan.................................................... 6 424,781.28 0.54
Minnesota................................................... 41 3,754,235.31 4.76
Mississippi................................................. 12 1,188,773.26 1.51
Missouri.................................................... 40 2,769,420.61 3.51
Nebraska.................................................... 13 1,004,506.36 1.27
Nevada...................................................... 11 2,010,145.83 2.55
New Hampshire............................................... 11 1,106,615.81 1.40
New Jersey.................................................. 17 1,824,326.49 2.31
New Mexico.................................................. 10 1,024,034.67 1.30
New York.................................................... 70 7,208,567.30 9.14
North Carolina.............................................. 32 2,503,850.30 3.17
North Dakota................................................ 1 30,000.00 0.04
Ohio........................................................ 55 4,632,710.55 5.87
Oklahoma.................................................... 16 1,158,152.41 1.47
Oregon...................................................... 13 2,031,227.31 2.58
Pennsylvania................................................ 40 2,218,742.63 2.81
South Carolina.............................................. 13 1,281,299.83 1.62
South Dakota................................................ 2 127,625.84 0.16
Tennessee................................................... 14 1,100,432.08 1.40
Texas....................................................... 16 1,563,571.80 1.98
Utah........................................................ 11 1,231,962.14 1.56
Vermont..................................................... 2 122,561.15 0.16
Virginia.................................................... 1 190,800.00 0.24
Washington.................................................. 28 3,886,671.87 4.93
West Virgina................................................ 2 240,226.03 0.30
Wisconsin................................................... 14 1,269,390.13 1.61
Wyoming..................................................... 5 368,009.65 0.47
--- -------------- ------------
Total.................................................. 791 $78,863,918.70 100.00%
--- -------------- ------------
--- -------------- ------------
</TABLE>
- ------------
(1) Determined by property address designated as such in the related Mortgage.
S-29
<PAGE>
<PAGE>
ORIGINAL LOAN-TO-VALUE RATIOS OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF ORIGINAL LOAN-TO-VALUE RATIOS(%) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------------------------------------------------------ ----------------- -------------- ------------
<S> <C> <C> <C>
15.001 - 20.000........................................... 1 $ 49,985.36 0.06%
25.001 - 30.000........................................... 2 59,973.05 0.08
30.001 - 35.000........................................... 1 34,988.81 0.04
35.001 - 40.000........................................... 4 210,858.27 0.27
40.001 - 45.000........................................... 3 201,960.26 0.26
45.001 - 50.000........................................... 4 279,000.85 0.35
50.001 - 55.000........................................... 5 410,546.46 0.52
55.001 - 60.000........................................... 11 585,435.36 0.74
60.001 - 65.000........................................... 17 1,668,974.57 2.12
65.001 - 70.000........................................... 34 2,985,593.46 3.79
70.001 - 75.000........................................... 71 6,035,262.78 7.65
75.001 - 80.000........................................... 179 16,630,711.34 21.09
80.001 - 85.000........................................... 179 18,033,599.06 22.87
85.001 - 90.000........................................... 263 30,075,308.76 38.14
90.001 - 95.000........................................... 10 991,028.57 1.26
95.001 - 100.000........................................... 7 610,691.74 0.77
--- -------------- ------------
Total.................................................. 791 $78,863,918.70 100.00%
--- -------------- ------------
--- -------------- ------------
</TABLE>
S-30
<PAGE>
<PAGE>
CUT-OFF DATE LOAN BALANCES OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF CUT-OFF DATE LOAN BALANCE HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------------------------------------------------------ ----------------- -------------- ------------
<S> <C> <C> <C>
$ 15,000.01 - 20,000.00.................................. 2 $ 35,646.46 0.05%
20,000.01 - 25,000.00.................................. 9 202,454.46 0.26
25,000.01 - 30,000.00.................................. 20 562,112.89 0.71
30,000.01 - 35,000.00.................................. 21 680,167.54 0.86
35,000.01 - 40,000.00.................................. 31 1,173,791.67 1.49
40,000.01 - 45,000.00.................................. 26 1,112,602.45 1.41
45,000.01 - 50,000.00.................................. 33 1,571,364.81 1.99
50,000.01 - 55,000.00.................................. 30 1,591,765.17 2.02
55,000.01 - 60,000.00.................................. 49 2,809,121.00 3.56
60,000.01 - 65,000.00.................................. 37 2,314,394.97 2.93
65,000.01 - 70,000.00.................................. 50 3,393,678.26 4.30
70,000.01 - 75,000.00.................................. 40 2,897,145.50 3.67
75,000.01 - 80,000.00.................................. 35 2,698,071.09 3.42
80,000.01 - 85,000.00.................................. 26 2,142,953.35 2.72
85,000.01 - 90,000.00.................................. 23 2,020,434.77 2.56
90,000.01 - 95,000.00.................................. 19 1,765,665.84 2.24
95,000.01 - 100,000.00.................................. 33 3,212,995.95 4.07
100,000.01 - 105,000.00.................................. 23 2,362,168.18 3.00
105,000.01 - 110,000.00.................................. 28 3,020,556.52 3.83
110,000.01 - 115,000.00.................................. 23 2,582,274.32 3.27
115,000.01 - 120,000.00.................................. 19 2,225,864.38 2.82
120,000.01 - 125,000.00.................................. 16 1,962,097.30 2.49
125,000.01 - 130,000.00.................................. 18 2,296,152.73 2.91
130,000.01 - 135,000.00.................................. 12 1,583,602.88 2.01
135,000.01 - 140,000.00.................................. 17 2,343,886.81 2.97
140,000.01 - 145,000.00.................................. 9 1,281,177.85 1.62
145,000.01 - 150,000.00.................................. 12 1,774,134.64 2.25
150,000.01 - 200,000.00.................................. 78 13,403,438.87 17.00
200,000.01 - 250,000.00.................................. 29 6,539,029.69 8.29
250,000.01 - 300,000.00.................................. 10 2,656,258.58 3.37
300,000.01 - 350,000.00.................................. 7 2,212,780.67 2.81
350,000.01 - 400,000.00.................................. 3 1,125,685.74 1.43
400,000.01 - 450,000.00.................................. 2 832,813.36 1.06
450,000.01 - 500,000.00.................................. 1 477,630.00 0.61
--- -------------- ------------
Total.................................................. 791 $78,863,918.70 100.00%
--- -------------- ------------
--- -------------- ------------
</TABLE>
S-31
<PAGE>
<PAGE>
TYPES OF MORTGAGED PROPERTIES OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
PROPERTY TYPE HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------------------------------------------------------ ----------------- -------------- ------------
<S> <C> <C> <C>
Single-family............................................... 673 $65,496,200.41 83.05%
RowHouse.................................................... 2 65,728.51 0.08
Manufactured Housing........................................ 16 1,159,467.04 1.47
PUD......................................................... 35 5,514,817.54 6.99
Townhouses.................................................. 6 705,709.54 0.89
2-4 Family.................................................. 50 5,282,478.45 6.70
Condominiums................................................ 9 639,517.21 0.81
--- -------------- ------------
Total.................................................. 791 $78,863,918.70 100.00%
--- -------------- ------------
--- -------------- ------------
</TABLE>
ORIGINAL TERM TO MATURITY OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
ORIGINAL TERM TO MATURITY (MONTHS) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------------------------------------------------------ ----------------- -------------- ------------
<S> <C> <C> <C>
109 - 120................................................ 1 $ 59,720.27 0.08%
169 - 180................................................ 6 360,061.77 0.46
229 - 240................................................ 4 211,265.70 0.27
289 - 300................................................ 2 109,048.19 0.14
349 - 360................................................ 778 78,123,822.77 99.06
--- -------------- ------------
Total.................................................. 791 $78,863,918.70 100.00%
--- -------------- ------------
--- -------------- ------------
</TABLE>
MONTHS SINCE ORIGINATION OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MONTHS SINCE ORIGINATION HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------------------------------------------------------ ----------------- -------------- ------------
<S> <C> <C> <C>
0........................................................... 414 $41,760,144.19 52.95%
1 - 12.................................................... 377 37,103,774.51 47.05
--- -------------- ------------
Total.................................................. 791 $78,863,918.70 100.00%
--- -------------- ------------
--- -------------- ------------
</TABLE>
REMAINING TERM TO MATURITY OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
REMAINING TERM TO MATURITY (MONTHS) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------------------------------------------------------ ----------------- -------------- ------------
<S> <C> <C> <C>
109 - 120................................................ 1 $ 59,720.27 0.08%
169 - 180................................................ 6 360,061.77 0.46
229 - 240................................................ 4 211,265.70 0.27
289 - 300................................................ 2 109,048.19 0.14
349 - 360................................................ 778 78,123,822.77 99.06
--- -------------- ------------
Total.................................................. 791 $78,863,918.70 100.00%
--- -------------- ------------
--- -------------- ------------
</TABLE>
S-32
<PAGE>
<PAGE>
OCCUPANCY STATUS OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
OCCUPANCY STATUS HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------------------------------------------------------ ----------------- -------------- ------------
<S> <C> <C> <C>
Owner Occupied (Primary).................................... 752 $76,249,705.04 96.69%
Investment Property......................................... 36 2,389,269.11 3.03
Second Home................................................. 3 224,944.55 0.29
--- -------------- ------------
Total.................................................. 791 $78,863,918.70 100.00%
--- -------------- ------------
--- -------------- ------------
</TABLE>
DOCUMENTATION TYPE OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
DOCUMENTATION TYPE(1) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------------------------------------------------------ ----------------- -------------- ------------
<S> <C> <C> <C>
Full Documentation.......................................... 685 $66,079,581.25 83.79%
Stated Income............................................... 71 7,761,993.81 9.84
Limited Documentation....................................... 35 5,022,343.64 6.37
--- -------------- ------------
Total.................................................. 791 $78,863,918.70 100.00%
--- -------------- ------------
--- -------------- ------------
</TABLE>
- ------------
(1) We refer you to 'THE SELLER AND THE SERVICER -- Underwriting Guidelines
Applicable to the Home Equity Loans' in the Prospectus for a description of
the Seller's documentation programs.
CREDIT GRADE OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
CREDIT GRADE(1) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------------------------------------------------------ ----------------- -------------- ------------
<S> <C> <C> <C>
A+.......................................................... 7 $ 945,595.88 1.20%
A1.......................................................... 121 15,569,610.62 19.74
A2.......................................................... 366 37,175,114.36 47.14
B........................................................... 156 14,232,592.74 18.05
C1.......................................................... 97 7,780,390.79 9.87
C2.......................................................... 44 3,160,614.31 4.01
--- -------------- ------------
Total.................................................. 791 $78,863,918.70 100.00%
--- -------------- ------------
--- -------------- ------------
</TABLE>
- ------------
(1) We refer you to 'THE SELLER AND THE SERVICER -- Underwriting Criteria of the
Seller' in the Prospectus for a description of the Seller's credit grades
and underwriting criteria.
S-33
<PAGE>
<PAGE>
CURRENT COUPON RATES OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF CURRENT COUPON RATES(%) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------------------------------------------------------ ----------------- -------------- ------------
<S> <C> <C> <C>
7.01 - 7.50............................................. 2 $ 142,485.30 0.18%
7.51 - 7.75............................................. 1 90,000.00 0.11
7.76 - 8.00............................................. 3 246,867.48 0.31
8.01 - 8.25............................................. 1 71,100.00 0.09
8.26 - 8.50............................................. 5 577,344.78 0.73
8.51 - 8.75............................................. 3 341,407.11 0.43
8.76 - 9.00............................................. 16 2,015,311.25 2.56
9.01 - 9.25............................................. 9 1,050,793.87 1.33
9.26 - 9.50............................................. 21 2,237,936.78 2.84
9.51 - 9.75............................................. 27 3,283,713.90 4.16
9.76 - 10.00............................................. 58 7,681,410.26 9.74
10.01 - 10.25............................................. 34 3,473,488.56 4.40
10.26 - 10.50............................................. 55 7,119,377.73 9.03
10.51 - 10.75............................................. 57 6,690,569.02 8.48
10.76 - 11.00............................................. 106 11,006,834.60 13.96
11.01 - 11.25............................................. 46 5,072,396.29 6.43
11.26 - 11.50............................................. 56 5,111,121.60 6.48
11.51 - 11.75............................................. 60 5,110,140.79 6.48
11.76 - 12.00............................................. 68 5,498,193.78 6.97
12.01 - 12.25............................................. 30 1,941,017.33 2.46
12.26 - 12.50............................................. 28 2,956,483.46 3.75
12.51 - 12.75............................................. 28 1,954,424.06 2.48
12.76 - 13.00............................................. 36 2,688,842.14 3.41
13.01 - 13.25............................................. 6 316,980.42 0.40
13.26 - 13.50............................................. 14 1,102,255.19 1.40
13.51 - 13.75............................................. 4 183,096.46 0.23
13.76 - 14.00............................................. 12 745,948.70 0.95
14.01 - 14.25............................................. 1 32,788.52 0.04
14.26 - 14.50............................................. 1 40,800.00 0.05
14.51 - 14.75............................................. 1 32,074.65 0.04
15.01 - 15.25............................................. 1 26,250.00 0.03
15.51 - 15.75............................................. 1 22,464.67 0.03
--- -------------- ------------
Total.................................................. 791 $78,863,918.70 100.00%
--- -------------- ------------
--- -------------- ------------
</TABLE>
GROSS MARGINS OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF GROSS MARGINS(%) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------------------------------------------------------ ----------------- -------------- ------------
<S> <C> <C> <C>
4.001 - 5.000........................................... 16 $ 1,504,744.61 1.91%
5.001 - 6.000........................................... 80 8,776,163.43 11.13
6.001 - 7.000........................................... 212 24,567,635.74 31.15
7.001 - 8.000........................................... 275 27,093,533.65 34.35
8.001 - 9.000........................................... 152 13,097,819.33 16.61
9.001 - 10.000........................................... 46 3,411,732.38 4.33
10.001 - 11.000........................................... 8 363,574.89 0.46
11.001 - 12.000........................................... 2 48,714.67 0.06
--- -------------- ------------
Total.................................................. 791 $78,863,918.70 100.00%
--- -------------- ------------
--- -------------- ------------
</TABLE>
S-34
<PAGE>
<PAGE>
MAXIMUM RATES OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF MAXIMUM RATES(%) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------------------------------------------------------ ----------------- -------------- ------------
<S> <C> <C> <C>
14.001 - 14.500........................................... 2 $ 142,485.30 0.18%
14.501 - 15.000........................................... 4 336,867.48 0.43
15.001 - 15.500........................................... 6 648,444.78 0.82
15.501 - 16.000........................................... 19 2,356,718.36 2.99
16.001 - 16.500........................................... 30 3,288,730.65 4.17
16.501 - 17.000........................................... 86 11,010,124.16 13.96
17.001 - 17.500........................................... 89 10,592,866.29 13.43
17.501 - 18.000........................................... 162 17,652,403.62 22.38
18.001 - 18.500........................................... 102 10,183,517.89 12.91
18.501 - 19.000........................................... 128 10,608,334.57 13.45
19.001 - 19.500........................................... 58 4,897,500.79 6.21
19.501 - 20.000........................................... 64 4,643,266.20 5.89
20.001 - 20.500........................................... 20 1,419,235.61 1.80
20.501 - 21.000........................................... 16 929,045.16 1.18
21.001 - 21.500........................................... 2 73,588.52 0.09
21.501 - 22.000........................................... 1 32,074.65 0.04
22.001 - 22.500........................................... 1 26,250.00 0.03
22.501 - 23.000........................................... 1 22,464.67 0.03
--- -------------- ------------
Total.................................................. 791 $78,863,918.70 100.00%
--- -------------- ------------
--- -------------- ------------
</TABLE>
MINIMUM RATES OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF MINIMUM RATES(%) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------------------------------------------------------ ----------------- -------------- ------------
<S> <C> <C> <C>
4.001 - 4.500........................................... 2 $ 200,612.58 0.25%
4.501 - 5.000........................................... 7 696,774.55 0.88
5.001 - 5.500........................................... 13 1,258,414.94 1.60
5.501 - 6.000........................................... 22 2,394,620.44 3.04
6.001 - 6.500........................................... 39 3,995,002.83 5.07
6.501 - 7.000........................................... 74 8,799,079.44 11.16
7.001 - 7.500........................................... 67 7,076,027.78 8.97
7.501 - 8.000........................................... 40 3,333,584.19 4.23
8.001 - 8.500........................................... 28 1,886,505.21 2.39
8.501 - 9.000........................................... 35 3,343,822.93 4.24
9.001 - 9.500........................................... 20 2,031,935.46 2.58
9.501 - 10.000........................................... 59 7,000,917.20 8.88
10.001 - 10.500........................................... 39 4,803,423.96 6.09
10.501 - 11.000........................................... 93 10,295,478.45 13.05
11.001 - 11.500........................................... 60 6,033,652.07 7.65
11.501 - 12.000........................................... 82 6,929,744.54 8.79
12.001 - 12.500........................................... 37 3,589,062.43 4.55
12.501 - 13.000........................................... 44 3,270,915.05 4.15
13.001 - 13.500........................................... 16 1,110,486.52 1.41
13.501 - 14.000........................................... 10 692,268.81 0.88
14.001 - 14.500........................................... 1 40,800.00 0.05
14.501 - 15.000........................................... 1 32,074.65 0.04
15.001 - 15.500........................................... 1 26,250.00 0.03
15.501 - 16.000........................................... 1 22,464.67 0.03
--- -------------- ------------
Total.................................................. 791 $78,863,918.70 100.00%
--- -------------- ------------
--- -------------- ------------
</TABLE>
S-35
<PAGE>
<PAGE>
NEXT INTEREST ADJUSTMENT DATE OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
CUT-OFF DATE
NUMBER OF CUT-OFF DATE LOAN
NEXT ROLL DATE HOME EQUITY LOANS LOAN BALANCE BALANCE
- -------------------------------------------------------- ----------------- -------------- -----------------
<S> <C> <C> <C>
February 1999........................................... 1 $ 318,105.43 00.40%
March 1999.............................................. 2 211,007.42 00.27
May 1999................................................ 15 1,633,145.24 02.07
June 1999............................................... 73 7,749,630.56 09.83
July 1999............................................... 86 9,444,758.88 11.98
August 1999............................................. 46 5,100,049.37 06.47
December 1999........................................... 1 107,966.60 00.14
February 2000........................................... 1 264,287.85 00.34
June 2000............................................... 4 335,025.88 00.42
July 2000............................................... 1 58,106.22 00.07
September 2000.......................................... 2 169,781.33 00.22
October 2000............................................ 2 254,687.81 00.32
November 2000........................................... 80 7,682,806.60 09.74
December 2000........................................... 195 18,319,223.57 23.23
January 2001............................................ 167 16,645,005.62 21.11
February 2001........................................... 115 10,570,330.32 13.40
--- -------------- -------
Total.............................................. 791 $78,863,918.70 100.00%
--- -------------- -------
--- -------------- -------
</TABLE>
S-36
<PAGE>
<PAGE>
DELINQUENCY EXPERIENCE
The following table sets forth the Seller's delinquency experience with
respect to home equity loans similar in type to the Home Equity Loans as of the
last day of each of the months indicated. No home equity loan is considered
delinquent for purposes of the table until a payment is one calendar month past
due on a contractual basis. It should be noted that the Seller commenced its
servicing activities of home equity loans similar to the Home Equity Loans in
October 1997. Accordingly, the Seller does not have significant historical
delinquency, bankruptcy, foreclosure or default experience that may be referred
to for examining the delinquency experience of home equity loans similar to the
Home Equity Loans. The information in the table below is for illustrative
purposes only and is not intended to indicate or predict the expected
delinquency experience on past, current or future pools of home equity loans for
which the Seller is the servicer.
Due to the lack of seasoning of the home equity loans in its servicing
portfolio, no loan losses, foreclosures or REO Properties have been reported as
of January 31, 1999. The Seller believes that as its loan portfolio matures,
delinquencies will increase and loan losses, foreclosures and REO Properties
will begin to occur.
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
JANUARY 31, 1999 DECEMBER 31, 1998 NOVEMBER 30, 1998 OCTOBER 31, 1998
---------------------- ---------------------- ---------------------- ----------------------
NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR
OF LOANS AMOUNT($) OF LOANS AMOUNT($) OF LOANS AMOUNT($) OF LOANS AMOUNT($)
-------- ----------- -------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio................... 14,883 978,271,688 14,163 928,215,205 13,041 852,554,527 11,562 751,363,789
Delinquency Percentage
30-59 days.................. 1.46% 1.24% 1.25% 0.95% 1.17% 1.06% 0.83% 0.66%
60-89 days.................. 0.41 0.35 0.40 0.38 0.30 0.25 0.28 0.25
90 days and over............ 0.85 0.83 0.74 0.66 0.75 0.69 0.73 0.70
-------- ----------- -------- ----------- -------- ----------- -------- -----------
Total delinquency........... 2.72% 2.42% 2.39% 2.00% 2.22% 2.00% 1.83% 1.61%
<CAPTION>
SEPTEMBER 30, 1998
-----------------------
NUMBER DOLLAR
OF LOANS AMOUNT($)
--------- -----------
<S> <C> <C>
Portfolio................... 10,531 686,940,200
Delinquency Percentage
30-59 days.................. 1.15% 0.99%
60-89 days.................. 0.28 0.29
90 days and over............ 0.84 0.77
--------- -----------
Total delinquency........... 2.26% 2.05%
</TABLE>
<TABLE>
<CAPTION>
APRIL
AUGUST 31, 1998 JULY 31, 1998 JUNE 30, 1998 MAY 31, 1998 30, 1998
---------------------- ---------------------- ---------------------- ---------------------- --------
NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR NUMBER
OF LOANS AMOUNT($) OF LOANS AMOUNT($) OF LOANS AMOUNT($) OF LOANS AMOUNT($) OF LOANS
-------- ----------- -------- ----------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio......... 9,381 609,510,272 8,493 548,554,854 7,330 476,206,388 6,363 410,449,173 5,257
Delinquency
Percentage
30-59 days........ 1.38% 1.25% 1.58% 1.29% 1.50% 1.34% 1.08% 1.07% 1.05%
60-89 days........ 0.47 0.33 0.40 0.46 0.37 0.37 0.08 0.13 0.19
90 days and
over............. 0.62 0.63 0.41 0.40 0.27 0.24 0.27 0.14 0.15
-------- ----------- -------- ----------- -------- ----------- -------- ----------- --------
Total
delinquency...... 2.46% 2.21% 2.39% 2.15% 2.14% 1.95% 1.43% 1.34% 1.39%
<CAPTION>
MARCH 31, 1998
----------------------
DOLLAR NUMBER DOLLAR
AMOUNT($) OF LOANS AMOUNT($)
----------- -------- -----------
<S> <C> <C> <C>
Portfolio......... 338,142,706 4,137 265,325,508
Delinquency
Percentage
30-59 days........ 0.99% 0.97% 0.77%
60-89 days........ 0.13 0.15 0.12
90 days and
over............. 0.08 0.07 0.03
----------- -------- -----------
Total
delinquency...... 1.20% 1.19% 0.92%
</TABLE>
S-37
<PAGE>
<PAGE>
PREPAYMENT AND YIELD CONSIDERATIONS
GENERAL
The rate of principal payments on each Class of Class A Certificates, the
aggregate amount of distributions on the Class A Certificates and the yield to
maturity of the Class A Certificates will be related to the rate and timing of
payments of principal on the Home Equity Loans. The rate of principal payments
on the Home Equity Loans will in turn be affected by the amortization schedules
of the Home Equity Loans and by the rate of principal prepayments (including for
this purpose prepayments resulting from refinancing, liquidations of the Home
Equity Loans due to defaults, casualties, condemnations and repurchases by the
Seller ('Prepayments')). Certain of the Home Equity Loans may be prepaid by the
mortgagors at any time without penalty. Certain of the Home Equity Loans are
subject to penalties for prepayments.
PREPAYMENTS
Prepayments, liquidations and purchases of the Home Equity Loans (including
any optional purchase by the Servicer of a delinquent Home Equity Loan and any
optional purchase of the remaining Home Equity Loans in connection with the
termination of the Trust) will result in distributions on the Class A
Certificates of principal amounts which would otherwise be distributed over the
remaining terms of such Home Equity Loans. Since the rate of payment of
principal of the Home Equity Loans will depend on future events and a variety of
factors, no assurance can be given as to such rate or the rate of principal
prepayments. The extent to which the yield to maturity of a Class A Certificate
may vary from the anticipated yield will depend upon the degree to which a
Certificate is purchased at a discount or premium, and the degree to which the
timing of payments thereon is sensitive to prepayments, liquidations and
purchases of such Home Equity Loans.
The rate of prepayment on the Home Equity Loans cannot be predicted.
Approximately 31.49% of the Group I Home Equity Loans and approximately 36.78%
of the Group II Home Equity Loans may be prepaid in whole or in part at any time
without penalty. Generally, home equity loans are not viewed by borrowers as
permanent financing. Accordingly, the Home Equity Loans may experience a higher
rate of prepayment than traditional first home equity loans. The prepayment
experience of the Trust with respect to the Home Equity Loans may be affected by
a wide variety of factors, including economic conditions, prevailing interest
rate levels, the availability of alternative financing and homeowner mobility
and changes affecting the deductibility for Federal income tax purposes of
interest payments on home equity loans. All of the Home Equity Loans contain
'due-on-sale' provisions, and the Servicer is required by the Agreement to
enforce such provisions, unless such enforcement is not permitted by applicable
law or the Servicer, in a manner consistent with reasonable commercial practice,
permits the purchaser of the related Mortgaged Property to assume such Home
Equity Loan. The enforcement of a 'due-on-sale' provision will have the same
effect as a prepayment of the related Home Equity Loan. The rate of prepayment
of the Home Equity Loans will also be affected by the extent to which the Home
Equity Loans provide for the payment of a penalty in connection with a
prepayment and the amount of such penalties. Information relating to the
percentage of the Home Equity Loans to which prepayment penalties apply and the
magnitude of such penalties is not readily available to the Seller.
We refer you to 'CERTAIN LEGAL ASPECTS OF HOME EQUITY LOANS -- Due-on-Sale
Clauses in Home Equity Loans' in the Prospectus for more detail.
As with fixed rate obligations generally, the rate of prepayment on a pool
of home equity loans with fixed rates such as the Group I Home Equity Loans is
affected by prevailing market rates for home equity loans of a comparable term
and risk level. When the market interest rate is below the mortgage coupon,
mortgagors may have an increased incentive to refinance their home equity loans.
Depending on prevailing market rates, the future outlook for market rates and
economic conditions generally, some mortgagors may sell or refinance mortgaged
properties in order to realize their equity in the mortgaged properties, to meet
cash flow needs or to make other investments. The prepayment behavior of the
2/28 Adjustable Rate Loans may differ from that of the other Home Equity Loans.
As a 2/28 Adjustable Rate Loan approaches its initial adjustment date, the
borrower may become more likely to refinance such loan to avoid an increase in
the Coupon Rate, even if fixed-rate loans are only available at rates that are
slightly lower or
S-38
<PAGE>
<PAGE>
higher than the Coupon Rate before adjustment. The existence of the applicable
periodic rate cap, lifetime cap and lifetime floor also may affect the
likelihood of prepayments resulting from refinancings. As is the case with
conventional fixed-rate home equity loans, adjustable-rate home equity loans may
be subject to a greater rate of principal prepayments in a declining interest
rate environment. For example, if prevailing interest rates fall significantly,
adjustable-rate home equity loans could be subject to higher prepayment rates
than if prevailing interest rates remain constant because the availability of
fixed-rate home equity loans at competitive rates may encourage mortgagors to
refinance their adjustable-rate home equity loans to 'lock in' a lower fixed
interest rate. However, no assurance can be given as to the level of prepayments
that the Home Equity Loans will experience.
Net Monthly Excess Cash Flow for the Home Equity Loans in the applicable
Home Equity Loan Group will be distributed in reduction of the Class Principal
Balance of the related classes of Class A Certificates then entitled to
distributions of principal on each Distribution Date to the extent that the then
required overcollateralization amount for the Home Equity Loans in such Home
Equity Loan Group exceeds the actual overcollateralization amount for such Home
Equity Loan Group. If purchased at a premium or a discount, the yield to
maturity on a Class A Certificate will be affected by the rate at which the Net
Monthly Excess Cash Flow for the Home Equity Loans in the related Home Equity
Loan Group is distributed in reduction of the applicable Class Principal
Balance. If the actual rate of such Net Monthly Excess Cash Flow distribution is
slower than the rate anticipated by an investor who purchases a Class A
Certificate at a discount, the actual yield to such investor will be lower than
such investor's anticipated yield. If the actual rate of such Net Monthly Excess
Cash Flow distribution is faster than the rate anticipated by an investor who
purchases a Class A Certificate at a premium, the actual yield to such investor
will be lower than such investor's anticipated yield. The amount of Net Monthly
Excess Cash Flow available for distribution on any Distribution Date will be
affected by the actual amount of interest received, collected or recovered in
respect of the Home Equity Loans during the related Due Period and such amount
will be influenced by changes in the weighted average of the Coupon Rates of
such Home Equity Loans resulting from prepayments and liquidations. The amount
of Net Monthly Excess Cash Flow distributions applied in reduction of the
principal balance of the applicable Class A Certificates on each Distribution
Date will be based on the then required overcollateralization amount for the
related Home Equity Loan Group, which may increase or decrease during the period
any class of Class A Certificates remains outstanding. Any increase in the
required overcollateralization amount for a Home Equity Loan Group may result in
an accelerated rate of amortization of the related Class A Certificates until
the overcollateralization amount for the related Home Equity Loan Group equals
the required overcollateralization amount for the related Home Equity Loan Group
and any decrease in such required overcollateralization amount for the related
Home Equity Loan Group will result in a decelerated rate of amortization of the
related Class A Certificates until the overcollateralization amount for the
related Home Equity Loan Group is reduced to the required overcollateralization
amount.
We refer you to 'DESCRIPTION OF THE CERTIFICATES -- Credit Enhancement' in
this prospectus supplement for more detail.
PAYMENT DELAY FEATURE OF THE FIXED RATE CERTIFICATES
The effective yield to the Group I Certificateholders and the Class A-8
Certificateholders will be lower than the yield otherwise produced by the
applicable Certificate Rate and the purchase price of such Certificates because
distributions will not be payable to such Certificateholders until the
Distribution Date following the month of accrual (without any additional
distribution of interest or earnings thereon in respect of such delay).
PRINCIPAL PAYMENT FEATURES OF THE CLASS A-6 CERTIFICATES AND CLASS A-8
CERTIFICATES
Investors in the Class A-6 Certificates should be aware that because the
Class A-6 Certificates do not receive any portion of principal payments prior to
the Distribution Date occurring in March 2002 and thereafter will receive a
disproportionately small or large portion of principal payments (unless the
Class Principal Balances of the Class A-1, Class A-2, Class A-3, Class A-4 and
Class A-5 Certificates have been reduced to zero), the weighted average life of
the Class A-6 Certificates will be longer or shorter than would otherwise be the
case, and the effect on the market value of the Class A-6 Certificates of
S-39
<PAGE>
<PAGE>
changes in market interest rates or market yields for similar securities may be
greater or lesser than for other classes of Certificates entitled to such
distributions.
Investors in the Class A-8 Certificates should be aware that because the
Class A-8 Certificates do not receive any portion of principal payments prior to
the Distribution Date occurring in June 2000 and thereafter will receive a
disproportionately large portion of principal payments (unless the Class
Principal Balance of the Class A-7 Certificates has been reduced to zero), the
weighted average life of the Class A-8 Certificates will be longer or shorter
than would otherwise be the case, and the effect on the market value of the
Class A-8 Certificates of changes in market interest rates or market yields for
similar securities may be greater or lesser than for other classes of Class A
Certificates entitled to such distributions.
WEIGHTED AVERAGE LIVES
Generally, greater than anticipated prepayments of principal will increase
the yield on Class A Certificates purchased at a price less than par and will
decrease the yield on Class A Certificates purchased at a price greater than
par. The effect on an investor's yield due to principal prepayments on the Home
Equity Loans in the related Home Equity Loan Group occurring at a rate that is
faster (or slower) than the rate anticipated by the investor in the period
immediately following the issuance of the Certificates will not be entirely
offset by a subsequent like reduction (or increase) in the rate of principal
payments. The weighted average life of the Class A Certificates will also be
affected by the amount and timing of delinquencies and defaults on the Home
Equity Loans in the related Home Equity Loan Group and the recoveries, if any,
on defaulted Home Equity Loans in the related Home Equity Loan Group and
foreclosed properties.
The 'weighted average life' of a Certificate refers to the average amount
of time that will elapse from the date of issuance to the date each dollar in
respect of principal of such Certificate is repaid. The weighted average life of
any class of the Class A Certificates will be influenced by, among other
factors, the rate at which principal payments are made on the Home Equity Loans,
including final payments made upon the maturity of Home Equity Loans for which
the related monthly payments are insufficient to fully amortize such Home Equity
Loans ('Balloon Loans').
Prepayments of home equity loans are commonly measured relative to a
prepayment standard or model. The model used with respect to the Group I
Certificates is the Home Equity Prepayment ('HEP') assumption. HEP assumes that
a pool of loans prepays in the first month of the life of such loan at a
constant prepayment rate that corresponds in CPR to one-tenth the given HEP
percentage and increases by an additional one-tenth each month thereafter until
the tenth month, where it remains at a CPR equal to the given HEP percentage.
For example a 24% HEP assumes a CPR of 2.4% for the Group I Home Equity Loans in
the first month of the life of such Home Equity Loans and an additional 2.4% CPR
each month thereafter until the tenth month. Beginning in the tenth month and in
each month thereafter during the life of such Home Equity Loans, 24% HEP assumes
a CPR of 24% each month. The model used with respect to the Group II
Certificates is CPR, which is a prepayment assumption that represents a constant
assumed rate of prepayment each month relative to the then outstanding principal
balance of the pool of home equity loans for the life of such home equity loans.
Neither model purports to be either a historical description of the prepayment
experience of any pool of home equity loans or a prediction of the anticipated
rate of prepayment of any home equity loans, including the Home Equity Loans to
be included in the Trust.
Since the following tables were prepared on the basis of the assumptions in
the following paragraph, there are discrepancies between characteristics of the
actual Home Equity Loans and the characteristics of the Home Equity Loans
assumed in preparing the tables. Any such discrepancy may have an effect upon
the percentages of the Class Principal Balances outstanding and weighted average
lives of the Class A Certificates set forth in the tables. In addition, since
the actual Home Equity Loans in the Trust have characteristics which differ from
those assumed in preparing the tables set forth below, the distributions of
principal on the Class A Certificates may be made earlier or later than as
indicated in the tables.
The information in the decrement tables has been prepared on the basis of
the following assumed characteristics of the Home Equity Loans and the following
additional assumptions (collectively, the 'Structuring Assumptions'): (i) the
Home Equity Loans consist of pools of loans with the level-pay and balloon
amortization characteristics set forth below, (ii) the Closing Date for the
Class A Certificates is
S-40
<PAGE>
<PAGE>
February 25, 1999, (iii) distributions on the Class A Certificates are made on
the 25th day of each month regardless of the day on which the Distribution Date
actually occurs, commencing in March 1999 and are made in accordance with the
priorities described herein, (iv) the scheduled monthly payments of principal
and interest on the Home Equity Loans will be timely delivered on the first day
of each month (with no defaults, delinquencies, modifications, waivers or
amendments), (v) the Home Equity Loans prepay at the specified percentages of
HEP in the case of the Group I Home Equity Loans, or at the indicated fixed CPR,
in the case of the Group II Home Equity Loans, (vi) all prepayments are
prepayments in full received on the last day of each month and include 30 days'
interest thereon, (vii) the optional termination is exercised (except as noted
in footnote 2 on the following tables), (viii) the Class A Certificates of each
Class have the respective Certificate Rates and initial Class Principal Balances
as set forth herein (with the Certificate Rate for the Class A-7 Certificates
being equal to the sum of One-Month LIBOR and 0.32% per annum), (ix) the
overcollateralization levels are set initially as specified in the Agreement,
and thereafter decrease in accordance with the provisions of the Agreement, (x)
the Coupon Rate for each Group II Home Equity Loan is adjusted on its next
adjustment date and on subsequent adjustment dates which occur on six month
intervals following the initial adjustment date to equal the sum of the
applicable gross margin and Six-Month LIBOR (such sum being subject to the
applicable periodic rate adjustment caps and floors and lifetime rate caps and
floors), and (xi) Six-Month LIBOR remains constant at 5.0303% per annum and
One-Month LIBOR remains constant at 4.93688% per annum.
GROUP I
<TABLE>
<CAPTION>
ORIGINAL
ORIGINAL REMAINING TERM
AMORTIZING AMORTIZING (BALLOON
POOL LOAN COUPON TERM TERM MATURITY)
NUMBER BALANCE RATE (MONTHS) (MONTHS) (MONTHS)
- -------------------------------------------- --------------- ------ --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
1........................................... $ 5,828,732.88 11.468% 114 113 N/A
2........................................... 22,552,279.93 11.107 180 179 N/A
3........................................... 13,359,256.45 11.121 240 239 N/A
4........................................... 140,278,784.42 11.129 360 359 N/A
5........................................... 248,570.86 11.067 360 356 180
</TABLE>
GROUP II
<TABLE>
<CAPTION>
NUMBER
OF MONTHS INITIAL PERIODIC
TO NEXT INTEREST INTEREST ORIGINAL REMAINING
COUPON RATE RATE NET NET TERM TO TERM TO
POOL LOAN COUPON CHANGE GROSS ADJUSTMENT ADJUSTMENT MAXIMUM MINIMUM MATURITY MATURITY
NUMBER BALANCE RATE DATE MARGIN CAP CAP RATE RATE (MONTHS) (MONTHS)
- ------------ -------------- ------ --------- ------ ---------- ---------- ------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1........... $ 2,162,258.09 10.061% 3 6.585 % 1.00% 1.00% 16.561% 6.085 % 360 357
2........... 7,749,630.56 10.488 5 7.413 1.00 1.00 16.988 7.554 354 353
3........... 9,444,758.88 10.407 6 7.291 1.00 1.00 16.907 9.907 355 355
4........... 5,100,049.37 10.733 7 7.561 1.00 1.00 17.233 10.233 358 358
5........... 8,872,662.29 10.769 21 6.623 2.00 1.00 17.269 6.123 359 356
6........... 18,319,223.57 11.096 23 7.169 2.00 1.00 17.596 7.466 360 359
7........... 16,645,005.62 11.376 24 7.386 2.00 1.00 17.874 10.874 360 360
8........... 10,570,330.32 11.385 25 7.440 2.00 1.00 17.885 10.885 360 360
<CAPTION>
POOL RESET
NUMBER INDEX FREQUENCY
- ------------ --------- ---------
<S> <C> <C>
1........... LIBOR-6M 6
2........... LIBOR-6M 6
3........... LIBOR-6M 6
4........... LIBOR-6M 6
5........... LIBOR-6M 6
6........... LIBOR-6M 6
7........... LIBOR-6M 6
8........... LIBOR-6M 6
</TABLE>
S-41
<PAGE>
<PAGE>
DECREMENT TABLES
The following tables indicate, based on the Structuring Assumptions, the
percentages of the initial Class Principal Balance of the Class A Certificates
that would be outstanding after each of the dates shown at various percentages
of HEP, in the case of each of the Group I Certificates and at various
percentages of CPR, in the case of the Group II Certificates, and the
corresponding weighted average lives of such Classes. It is not likely that each
of (i) all of the Home Equity Loans will have the characteristics assumed, (ii)
the Home Equity Loans will prepay at the specified percentages of HEP or CPR or
at any other constant percentage or (iii) the level of One-Month LIBOR will
remain constant at the level assumed or at any other level. Moreover, the
diverse remaining terms to maturity of the Home Equity Loans could produce
slower or faster principal distributions than indicated in the tables at the
specified percentages of HEP or CPR even if the weighted average remaining term
to maturity of the Home Equity Loans is consistent with the remaining terms to
maturity of the Home Equity Loans specified in the Structuring Assumptions.
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING (TO OPTIONAL
TERMINATION)*
<TABLE>
<CAPTION>
GROUP I HOME EQUITY
LOANS (% OF HEP)
- --------------------------- CLASS A-1 CLASS A-2
GROUP II HOME EQUITY ---------------------------------------------- ----------------------------------------------
LOANS (% OF CPR)
- --------------------------- 0% 10% 15% 20% 24% 30% 40% 50% 0% 10% 15% 20% 24% 30% 40% 50%
---- --- --- --- --- --- --- --- ---- --- --- --- --- --- --- ---
DISTRIBUTION DATE 0% 7% 14% 21% 28% 35% 49% 56% 0% 7% 14% 21% 28% 35% 49% 56%
- --------------------------- ---- --- --- --- --- --- --- --- ---- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Balance............ 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
February 25, 2000.......... 91 72 62 52 44 32 11 0 100 100 100 100 100 100 100 67
February 25, 2001.......... 88 43 22 2 0 0 0 0 100 100 100 100 57 0 0 0
February 25, 2002.......... 85 18 0 0 0 0 0 0 100 100 63 0 0 0 0 0
February 25, 2003.......... 81 0 0 0 0 0 0 0 100 88 0 0 0 0 0 0
February 25, 2004.......... 77 0 0 0 0 0 0 0 100 25 0 0 0 0 0 0
February 25, 2005.......... 72 0 0 0 0 0 0 0 100 0 0 0 0 0 0 0
February 25, 2006.......... 68 0 0 0 0 0 0 0 100 0 0 0 0 0 0 0
February 25, 2007.......... 63 0 0 0 0 0 0 0 100 0 0 0 0 0 0 0
February 25, 2008.......... 59 0 0 0 0 0 0 0 100 0 0 0 0 0 0 0
February 25, 2009.......... 54 0 0 0 0 0 0 0 100 0 0 0 0 0 0 0
February 25, 2010.......... 49 0 0 0 0 0 0 0 100 0 0 0 0 0 0 0
February 25, 2011.......... 43 0 0 0 0 0 0 0 100 0 0 0 0 0 0 0
February 25, 2012.......... 37 0 0 0 0 0 0 0 100 0 0 0 0 0 0 0
February 25, 2013.......... 29 0 0 0 0 0 0 0 100 0 0 0 0 0 0 0
February 25, 2014.......... 21 0 0 0 0 0 0 0 100 0 0 0 0 0 0 0
February 25, 2015.......... 16 0 0 0 0 0 0 0 100 0 0 0 0 0 0 0
February 25, 2016.......... 9 0 0 0 0 0 0 0 100 0 0 0 0 0 0 0
February 25, 2017.......... 2 0 0 0 0 0 0 0 100 0 0 0 0 0 0 0
February 25, 2018.......... 0 0 0 0 0 0 0 0 82 0 0 0 0 0 0 0
February 25, 2019.......... 0 0 0 0 0 0 0 0 53 0 0 0 0 0 0 0
February 25, 2020.......... 0 0 0 0 0 0 0 0 28 0 0 0 0 0 0 0
February 25, 2021.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2022.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2023.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2024.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2025.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2026.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2027.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2028.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2029.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2030.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life**(1)................ 10.0 1.9 1.4 1.1 1.0 0.8 0.7 0.6 20.2 4.6 3.2 2.5 2.1 1.7 1.3 1.1
Weighted Average
Life**(2)................ 10.0 1.9 1.4 1.1 1.0 0.8 0.7 0.6 20.2 4.6 3.2 2.5 2.1 1.7 1.3 1.1
</TABLE>
- ------------
* The optional termination of the Trust is dependent on the aggregate principal
balance of the Home Equity Loans in the Trust being reduced to less than 10%
of their principal balance on the Cut-Off Date.
** The weighted average life of a Class A Certificate is determined by (i)
multiplying the amount of each distribution in reduction of the related Class
Principal Balance by the number of years from the date of issuance of such
Class A Certificate to the related Distribution Date, (ii) adding the
results, and (iii) dividing the sum by the original Class Principal Balance
of such Class A Certificate.
(1) To optional termination.
(2) To maturity.
------------------------
These tables have been prepared based on the assumptions described above
(including the assumptions regarding the characteristics and performance of the
Home Equity Loans, which differ from the actual characteristics and performance
thereof) and should be read in conjunction therewith.
S-42
<PAGE>
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING (TO OPTIONAL
TERMINATION)*
<TABLE>
<CAPTION>
GROUP I HOME EQUITY
LOANS (% OF HEP)
- --------------------------- CLASS A-3 CLASS A-4
GROUP II HOME EQUITY ---------------------------------------------- ----------------------------------------------
LOANS (% OF CPR)
- --------------------------- 0% 10% 15% 20% 24% 30% 40% 50% 0% 10% 15% 20% 24% 30% 40% 50%
---- --- --- --- --- --- --- --- ---- --- --- --- --- --- --- ---
DISTRIBUTION DATE 0% 7% 14% 21% 28% 35% 49% 56% 0% 7% 14% 21% 28% 35% 49% 56%
- --------------------------- ---- --- --- --- --- --- --- --- ---- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Balance............ 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
February 25, 2000.......... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
February 25, 2001.......... 100 100 100 100 100 91 24 0 100 100 100 100 100 100 100 58
February 25, 2002.......... 100 100 100 87 50 2 0 0 100 100 100 100 100 100 22 0
February 25, 2003.......... 100 100 87 32 0 0 0 0 100 100 100 100 94 38 0 0
February 25, 2004.......... 100 100 45 0 0 0 0 0 100 100 100 88 45 0 0 0
February 25, 2005.......... 100 83 13 0 0 0 0 0 100 100 100 52 13 0 0 0
February 25, 2006.......... 100 56 0 0 0 0 0 0 100 100 84 25 0 0 0 0
February 25, 2007.......... 100 40 0 0 0 0 0 0 100 100 68 14 0 0 0 0
February 25, 2008.......... 100 23 0 0 0 0 0 0 100 100 50 0 0 0 0 0
February 25, 2009.......... 100 7 0 0 0 0 0 0 100 100 33 0 0 0 0 0
February 25, 2010.......... 100 0 0 0 0 0 0 0 100 88 16 0 0 0 0 0
February 25, 2011.......... 100 0 0 0 0 0 0 0 100 70 0 0 0 0 0 0
February 25, 2012.......... 100 0 0 0 0 0 0 0 100 52 0 0 0 0 0 0
February 25, 2013.......... 100 0 0 0 0 0 0 0 100 35 0 0 0 0 0 0
February 25, 2014.......... 100 0 0 0 0 0 0 0 100 20 0 0 0 0 0 0
February 25, 2015.......... 100 0 0 0 0 0 0 0 100 7 0 0 0 0 0 0
February 25, 2016.......... 100 0 0 0 0 0 0 0 100 0 0 0 0 0 0 0
February 25, 2017.......... 100 0 0 0 0 0 0 0 100 0 0 0 0 0 0 0
February 25, 2018.......... 100 0 0 0 0 0 0 0 100 0 0 0 0 0 0 0
February 25, 2019.......... 100 0 0 0 0 0 0 0 100 0 0 0 0 0 0 0
February 25, 2020.......... 100 0 0 0 0 0 0 0 100 0 0 0 0 0 0 0
February 25, 2021.......... 100 0 0 0 0 0 0 0 100 0 0 0 0 0 0 0
February 25, 2022.......... 81 0 0 0 0 0 0 0 100 0 0 0 0 0 0 0
February 25, 2023.......... 59 0 0 0 0 0 0 0 100 0 0 0 0 0 0 0
February 25, 2024.......... 35 0 0 0 0 0 0 0 100 0 0 0 0 0 0 0
February 25, 2025.......... 7 0 0 0 0 0 0 0 100 0 0 0 0 0 0 0
February 25, 2026.......... 0 0 0 0 0 0 0 0 70 0 0 0 0 0 0 0
February 25, 2027.......... 0 0 0 0 0 0 0 0 26 0 0 0 0 0 0 0
February 25, 2028.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2029.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2030.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life**(1)................ 24.3 7.7 5.0 3.7 3.1 2.5 1.9 1.5 27.5 13.3 9.1 6.4 5.0 3.9 2.8 2.1
Weighted Average
Life**(2)................ 24.3 7.7 5.0 3.7 3.1 2.5 1.9 1.5 27.5 13.3 9.1 6.4 5.0 3.9 2.8 2.1
</TABLE>
- ------------
* The optional termination of the Trust is dependent on the aggregate principal
balance of the Home Equity Loans in the Trust being reduced to less than 10%
of their principal balance on the Cut-Off Date.
** The weighted average life of a Class A Certificate is determined by (i)
multiplying the amount of each distribution in reduction of the related Class
Principal Balance by the number of years from the date of issuance of such
Class A Certificate to the related Distribution Date, (ii) adding the
results, and (iii) dividing the sum by the original Class Principal Balance
of such Class A Certificate.
(1) To optional termination.
(2) To maturity.
------------------------
These tables have been prepared based on the assumptions described above
(including the assumptions regarding the characteristics and performance of the
Home Equity Loans, which differ from the actual characteristics and performance
thereof) and should be read in conjunction therewith.
S-43
<PAGE>
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING (TO OPTIONAL
TERMINATION)*
<TABLE>
<CAPTION>
GROUP I HOME EQUITY
LOANS (% OF HEP)
- --------------------------- CLASS A-5 CLASS A-6
GROUP II HOME EQUITY ---------------------------------------------- ----------------------------------------------
LOANS (% OF CPR)
- --------------------------- 0% 10% 15% 20% 24% 30% 40% 50% 0% 10% 15% 20% 24% 30% 40% 50%
---- --- --- --- --- --- --- --- ---- --- --- --- --- --- --- ---
DISTRIBUTION DATE 0% 7% 14% 21% 28% 35% 49% 56% 0% 7% 14% 21% 28% 35% 49% 56%
- --------------------------- ---- --- --- --- --- --- --- --- ---- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Balance............ 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
February 25, 2000.......... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
February 25, 2001.......... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
February 25, 2002.......... 100 100 100 100 100 100 100 45 100 100 100 100 100 100 100 100
February 25, 2003.......... 100 100 100 100 100 100 58 0 99 95 92 90 88 85 79 0
February 25, 2004.......... 100 100 100 100 100 93 0 0 99 89 85 81 77 72 0 0
February 25, 2005.......... 100 100 100 100 100 59 0 0 97 81 73 67 61 52 0 0
February 25, 2006.......... 100 100 100 100 87 0 0 0 95 71 61 52 45 0 0 0
February 25, 2007.......... 100 100 100 100 0 0 0 0 88 48 35 24 0 0 0 0
February 25, 2008.......... 100 100 100 99 0 0 0 0 81 32 19 11 0 0 0 0
February 25, 2009.......... 100 100 100 0 0 0 0 0 74 21 11 0 0 0 0 0
February 25, 2010.......... 100 100 100 0 0 0 0 0 68 14 6 0 0 0 0 0
February 25, 2011.......... 100 100 100 0 0 0 0 0 61 9 3 0 0 0 0 0
February 25, 2012.......... 100 100 82 0 0 0 0 0 54 6 2 0 0 0 0 0
February 25, 2013.......... 100 100 0 0 0 0 0 0 47 4 0 0 0 0 0 0
February 25, 2014.......... 100 100 0 0 0 0 0 0 40 2 0 0 0 0 0 0
February 25, 2015.......... 100 100 0 0 0 0 0 0 36 1 0 0 0 0 0 0
February 25, 2016.......... 100 95 0 0 0 0 0 0 31 1 0 0 0 0 0 0
February 25, 2017.......... 100 81 0 0 0 0 0 0 27 1 0 0 0 0 0 0
February 25, 2018.......... 100 68 0 0 0 0 0 0 23 0 0 0 0 0 0 0
February 25, 2019.......... 100 0 0 0 0 0 0 0 19 0 0 0 0 0 0 0
February 25, 2020.......... 100 0 0 0 0 0 0 0 15 0 0 0 0 0 0 0
February 25, 2021.......... 100 0 0 0 0 0 0 0 12 0 0 0 0 0 0 0
February 25, 2022.......... 100 0 0 0 0 0 0 0 9 0 0 0 0 0 0 0
February 25, 2023.......... 100 0 0 0 0 0 0 0 7 0 0 0 0 0 0 0
February 25, 2024.......... 100 0 0 0 0 0 0 0 5 0 0 0 0 0 0 0
February 25, 2025.......... 100 0 0 0 0 0 0 0 3 0 0 0 0 0 0 0
February 25, 2026.......... 100 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0
February 25, 2027.......... 100 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2028.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2029.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2029.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life**(1)................ 28.8 19.1 13.1 9.7 7.8 5.9 4.1 3.0 14.5 8.3 7.4 6.8 6.3 5.5 4.2 3.4
Weighted Average
Life**(2)................ 29.2 21.2 16.0 12.4 10.2 7.4 4.5 3.1 14.5 8.3 7.4 6.8 6.5 6.1 5.6 4.6
</TABLE>
- ------------
* The optional termination of the Trust is dependent on the aggregate principal
balance of the Home Equity Loans in the Trust being reduced to less than 10%
of their principal balance on the Cut-Off Date.
** The weighted average life of a Class A Certificate is determined by (i)
multiplying the amount of each distribution in reduction of the related Class
Principal Balance by the number of years from the date of issuance of such
Class A Certificate to the related Distribution Date, (ii) adding the
results, and (iii) dividing the sum by the original Class Principal Balance
of such Class A Certificate.
(1) To optional termination.
(2) To maturity.
------------------------
These tables have been prepared based on the assumptions described above
(including the assumptions regarding the characteristics and performance of the
Home Equity Loans, which differ from the actual characteristics and performance
thereof) and should be read in conjunction therewith.
S-44
<PAGE>
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING (TO OPTIONAL
TERMINATION)*
<TABLE>
<CAPTION>
GROUP I HOME EQUITY
LOANS (% OF HEP)
- --------------------------- CLASS A-7 CLASS A-8
GROUP II HOME EQUITY ---------------------------------------------- ----------------------------------------------
LOANS (% OF CPR)
- --------------------------- 0% 10% 15% 20% 24% 30% 40% 50% 0% 10% 15% 20% 24% 30% 40% 50%
---- --- --- --- --- --- --- --- ---- --- --- --- --- --- --- ---
DISTRIBUTION DATE 0% 7% 14% 21% 28% 35% 49% 56% 0% 7% 14% 21% 28% 35% 49% 56%
- --------------------------- ---- --- --- --- --- --- --- --- ---- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Balance............ 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
February 25, 2000.......... 94 84 75 66 56 47 28 19 100 100 100 100 100 100 100 100
February 25, 2001.......... 93 82 71 59 49 38 18 8 99 80 64 52 43 36 33 35
February 25, 2002.......... 93 82 69 55 43 32 15 8 97 55 28 14 7 4 2 7
February 25, 2003.......... 93 82 66 47 32 21 8 0 95 32 0 0 0 0 0 0
February 25, 2004.......... 93 82 56 37 23 14 0 0 93 10 0 0 0 0 0 0
February 25, 2005.......... 93 78 48 29 17 9 0 0 90 0 0 0 0 0 0 0
February 25, 2006.......... 93 72 41 23 12 0 0 0 87 0 0 0 0 0 0 0
February 25, 2007.......... 93 66 35 18 0 0 0 0 84 0 0 0 0 0 0 0
February 25, 2008.......... 93 60 30 14 0 0 0 0 80 0 0 0 0 0 0 0
February 25, 2009.......... 93 55 25 0 0 0 0 0 76 0 0 0 0 0 0 0
February 25, 2010.......... 93 51 21 0 0 0 0 0 71 0 0 0 0 0 0 0
February 25, 2011.......... 93 47 18 0 0 0 0 0 66 0 0 0 0 0 0 0
February 25, 2012.......... 93 43 15 0 0 0 0 0 60 0 0 0 0 0 0 0
February 25, 2013.......... 93 39 0 0 0 0 0 0 54 0 0 0 0 0 0 0
February 25, 2014.......... 93 35 0 0 0 0 0 0 46 0 0 0 0 0 0 0
February 25, 2015.......... 93 32 0 0 0 0 0 0 37 0 0 0 0 0 0 0
February 25, 2016.......... 93 29 0 0 0 0 0 0 28 0 0 0 0 0 0 0
February 25, 2017.......... 93 26 0 0 0 0 0 0 17 0 0 0 0 0 0 0
February 25, 2018.......... 93 23 0 0 0 0 0 0 4 0 0 0 0 0 0 0
February 25, 2019.......... 90 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2020.......... 85 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2021.......... 79 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2022.......... 72 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2023.......... 64 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2024.......... 56 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2025.......... 47 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2026.......... 36 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2027.......... 25 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2028.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2029.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
February 25, 2030.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life**(1)................ 23.9 11.3 6.2 4.0 2.8 2.1 1.1 0.8 13.4 3.3 2.5 2.2 2.0 1.9 1.9 1.9
Weighted Average
Life**(2)................ 23.9 12.2 6.8 4.4 3.0 2.2 1.2 0.8 13.4 3.3 2.5 2.2 2.0 1.9 1.9 1.9
</TABLE>
- ------------
* The optional termination of the Trust is dependent on the aggregate principal
balance of the Home Equity Loans in the Trust being reduced to less than 10%
of their principal balance on the Cut-Off Date.
** The weighted average life of a Class A Certificate is determined by (i)
multiplying the amount of each distribution in reduction of the related Class
Principal Balance by the number of years from the date of issuance of such
Class A Certificate to the related Distribution Date, (ii) adding the
results, and (iii) dividing the sum by the original Class Principal Balance
of such Class A Certificate.
(1) To optional termination.
(2) To maturity.
------------------------
These tables have been prepared based on the assumptions described above
(including the assumptions regarding the characteristics and performance of the
Home Equity Loans, which differ from the actual characteristics and performance
thereof) and should be read in conjunction therewith.
S-45
<PAGE>
<PAGE>
FORMATION OF THE TRUST AND TRUST PROPERTY
The Trust will be created and established pursuant to the Pooling and
Servicing Agreement (the 'Agreement') dated as of February 1, 1999 among the
Depositor, the Seller, Centex Credit Corporation d/b/a Centex Home Equity
Corporation, as servicer (in such capacity, the 'Servicer') and Norwest Bank
Minnesota, National Association (the 'Trustee'). On the Closing Date, the Seller
will transfer without recourse the Home Equity Loans to the Depositor, the
Depositor will convey without recourse the Home Equity Loans to the Trust and
the Trust will issue the Class A Certificates, the Class X-IO Certificates and
the Class R Certificates at the direction of the Depositor.
The property of the Trust will include all (a) the Home Equity Loans
together with the related Home Equity Loan documents and the Seller's interest
in any Mortgaged Property which secures a Home Equity Loan and all payments
thereon and proceeds of the conversion, voluntary or involuntary, of the
foregoing (other than principal received and interest due before the Cut-Off
Date), (b) such amounts as may be held by the Trustee in the Certificate Account
and any other accounts held by the Trustee for the Trust together with
investment earnings on such amounts and such amounts as may be held by the
Servicer in the Principal and Interest Account, if any, inclusive of investment
earnings thereon whether in the form of cash, instruments, securities or other
properties and (c) proceeds of all the foregoing (including, but not by way of
limitation, all proceeds of any mortgage insurance, hazard insurance and title
insurance policy relating to the Home Equity Loans, cash proceeds, accounts,
accounts receivable, notes, drafts, acceptances, chattel paper, checks, deposit
accounts, rights to payment of any and every kind, and other forms of
obligations and receivables which at any time constitute all or part of or are
included in the proceeds of any of the foregoing) to pay the Certificates as
specified in the Agreement (collectively, the 'Trust Estate'). In addition to
the foregoing, the Depositor shall cause MBIA Insurance Corporation (the
'Certificate Insurer') to deliver two irrevocable and unconditional certificate
guaranty insurance policies, one with respect to the Group I Certificates and
one with respect to the Group II Certificates, (the 'Policies') to the Trustee
for the benefit of the Owners of the Class A Certificates.
The Class A Certificates will not represent an interest in or an obligation
of, nor will the Home Equity Loans be guaranteed by, the Depositor, the Seller,
the Servicer, the Trustee or any of their affiliates. Certain distributions due
to the Owners of the Class A Certificates are insured by the Certificate
Insurer.
Prior to its formation the Trust will have had no assets or obligations.
Upon formation, the Trust will not engage in any business activity other than
acquiring, holding and collecting payments on the Home Equity Loans, issuing the
Certificates and distributing payments thereon. The Trust will not acquire any
receivables or assets other than the Home Equity Loans and the proceeds thereof
and rights appurtenant thereto. To the extent that borrowers make scheduled
payments under the Home Equity Loans, the Trust will have sufficient liquidity
to make distributions on the Certificates. As the Trust does not have any
operating history and will not engage in any business activity other than
issuing the Certificates and making distributions thereon, there has not been
included any historical or pro forma ratio of earnings to fixed charges with
respect to the Trust.
DESCRIPTION OF THE CERTIFICATES
Pursuant to the Agreement the Trust will issue on the Closing Date the
Centex Home Equity Loan Asset-Backed Certificates, Series 1999-1, Class A-1
Certificates (the 'Class A-1 Certificates'), Class A-2 Certificates (the 'Class
A-2 Certificates'), Class A-3 Certificates (the 'Class A-3 Certificates'),
Class A-4 Certificates (the 'Class A-4 Certificates'), Class A-5 Certificates
(the 'Class A-5 Certificates'), Class A-6 Certificates (the 'Class A-6
Certificates'), Class A-7 Certificates (the 'Class A-7 Certificates'), Class A-8
Certificates (the 'Class A-8 Certificates', and collectively with the other
certificates with an 'A' in their Class designation, the 'Class A
Certificates'). The Trust will also issue on the Closing Date the Class X-IO
Certificates (the 'Class X-IO Certificates') and two residual classes of
certificates (together, the 'Class R Certificates,' and together with the Class
X-IO Certificates, the 'Non-Offered Certificates' and together with the Class A
Certificates, the 'Certificates'). Only the Class A Certificates are being
offered hereby. The form of the Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus Supplement and the Prospectus is
a part. The following summaries describe certain provisions of the Agreement.
The summaries do not purport to be complete and are subject to, and are
S-46
<PAGE>
<PAGE>
qualified in their entirety by reference to, all of the provisions of the
Agreement. Wherever particular sections or defined terms of the Agreement are
referred to, such sections or defined terms are incorporated herein by
reference.
GENERAL
The Class A Certificates will be issued in denominations of $1,000 and
multiples of $1 in excess thereof and will evidence specified undivided
interests in the Trust. The property of the Trust will consist of, to the extent
provided in the Agreement: (i) the Home Equity Loans; (ii) payments on the Home
Equity Loans received on and after the Cut-Off Date (exclusive of principal
received and interest due prior to the Cut-Off Date); (iii) Mortgaged Properties
relating to the Home Equity Loans that are acquired by foreclosure or deed in
lieu of foreclosure; (iv) the Principal and Interest Account and the Certificate
Account and funds on deposit therein; and (v) rights under certain hazard
insurance policies, if any, covering the Mortgaged Properties. In addition, the
Depositor will cause the Certificate Insurer to issue the Policies for the
benefit of the holders of the Class A Certificates, pursuant to which the
Certificate Insurer will guarantee certain payments to the Class A
Certificateholders as described herein and in the Policies. Definitive
Certificates (as defined below) will be transferable and exchangeable at the
corporate trust office of the Trustee, which will initially act as Certificate
Registrar.
We refer you to ' -- Book-Entry Certificates' below for more detail.
No service charge will be made for any registration of exchange or transfer
of Certificates, but the Trustee may require payment of a sum sufficient to
cover any tax or other governmental charge.
Each Home Equity Loan in the trust will be assigned to one of two home
equity loan groups ('Group I' and 'Group II,' respectively, and each a 'Home
Equity Loan Group'). The Group I Certificates will receive distributions
primarily based upon collections on the Home Equity Loans in Group I. The Group
II Certificates will receive distributions primarily based upon collections on
the Home Equity Loans in Group II.
The principal amount of a Class of Class A Certificates (each, a 'Class
Principal Balance') on any Distribution Date is equal to the applicable Class
Principal Balance on the Closing Date minus the aggregate of amounts actually
distributed as principal to the holders of such class of Class A Certificates;
provided, however, that for purposes of the Certificate Insurer's rights as
subrogee, the Class Principal Balance shall not be reduced by principal amounts
paid under the Policies. On any date, the 'Aggregate Class A Principal Balance'
is the aggregate of the Class Principal Balances of all Class A Certificates on
such date.
Each Class of Class A Certificates represents the right to receive payments
of interest at the Certificate Rate for such Class and payments of principal as
described below.
The Person in whose name a Certificate is registered as such in the
Certificate Register is referred to herein as a 'Certificateholder.'
BOOK-ENTRY CERTIFICATES
The Class A Certificates initially will be book-entry Certificates (the
'Book-Entry Certificates'). Persons acquiring beneficial ownership interests in
the Class A Certificates ('Certificateowners') will hold such Certificates
through the Depository Trust Company ('DTC'), in the United States, or
Cedelbank, societe anonyme, ('Cedel') or the Euroclear System ('Euroclear'), in
Europe, if such Certificateowners are participants of such systems, or
indirectly through organizations that are participants in such systems. The
Book-Entry Certificates will be issued in one or more certificates per class,
representing the aggregate principal balance of each such class of Class A
Certificates, and will initially be registered in the name of Cede & Co.
('Cede'), the nominee of DTC. Cedel and Euroclear will hold omnibus positions on
behalf of their participants through customers' securities accounts in Cedel's
and Euroclear's names on the books of their respective depositaries which in
turn will hold such positions in customers' securities accounts in the
depositaries names on the books of DTC. Citibank N.A. ('Citibank') will act as
depositary for Cedel and Morgan Guaranty Trust Company of New York ('Morgan')
will act as depositary for Euroclear (Citibank and Morgan, in such capacities,
individually the 'Relevant Depositary' and, collectively, the
S-47
<PAGE>
<PAGE>
'European Depositaries'). Investors may hold such beneficial interests in the
Book-Entry Certificates in minimum denominations representing Certificate
Principal Balances of $1,000 and in integral multiples of $1 in excess thereof.
Except as described below, no person acquiring a Book-Entry Certificate will be
entitled to receive a physical certificate representing such Certificate (a
'Definitive Certificate'). Unless and until Definitive Certificates are issued,
it is anticipated that the only 'Certificateholder' of the Class A Certificates
will be Cede, as nominee of DTC. Certificateowners will not be
Certificateholders as that term is used in the Agreement. Certificateowners are
permitted to exercise their rights only indirectly through DTC and its
Participants (including Cedel and Euroclear).
DTC has advised the Depositor that management of DTC is aware that some
computer applications, systems, and the like for processing data ('Systems')
that are dependent upon calendar dates, including dates before, on, and after
January 1, 2000, may encounter 'Year 2000 problems.' DTC has informed its
participants and other members of the financial community (the 'Industry') that
is has developed and is implementing a program so that its Systems, as the same
relate to the timely payment of distributions (including principal and income
payments) to security holders, book-entry deliveries, and settlement of trades
within DTC ('Depositary Services'), continue to function appropriately. This
program includes a technical assessment and a remediation plan, each of which is
complete. Additional, DTC's plan includes a testing phase, which is expected to
be completed within appropriate time frames.
However, DTC's ability to perform properly its service is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as DTC's direct and indirect participants and third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
on whom DTC relies for information or the provision of services, including
telecommunication and electrical utility service providers, among others. DTC
has informed the Industry that it is contacting (and will continue to contact)
third party vendors from whom DTC acquires services to: (i) impress upon them
the importance of such services being Year 2000 compliant; and (ii) determine
the extent of their efforts for Year 2000 remediation (and, as appropriate,
testing) of their services. In addition, DTC is in the process of developing
such contingency plans as it deems appropriate.
DISTRIBUTION DATES
On the 25th day of each month, or if such day is not a Business Day, then
the next succeeding Business Day (each, a 'Distribution Date'), the Class A
Certificateholders for each Home Equity Loan Group will be entitled to receive
the Class A Distribution Amount for such Home Equity Loan Group from amounts
then on deposit in the certificate account established and maintained by the
Trustee in accordance with the Agreement (the 'Certificate Account').
Distributions will be made in immediately available funds to Certificateholders
of Class A Certificates by wire transfer or otherwise, to the account of such
Certificateholder at a domestic bank or other entity having appropriate
facilities therefor, if such Certificateholder has so notified the Trustee at
least five Business Days prior to the Record Date, or by check mailed to the
address of the person entitled thereto as it appears on the register (the
'Certificate Register') maintained by the Trustee as registrar (the 'Certificate
Registrar'). Certificate Owners may experience some delay in the receipt of
their payments due to the operations of DTC.
'Business Day' means any day other than (i) a Saturday or Sunday or (ii) a
day on which banking institutions in New York, New York, Dallas, Texas, the
State of Maryland, or the city in which the corporate trust office of the
Trustee is located or the city in which the Certificate Insurer is located are
authorized or obligated by law or executive order to be closed.
'Record Date' means with respect to any Distribution Date, the last
Business Day of the month immediately preceding the calendar month in which such
Distribution Date occurs.
We refer you to ' -- Book-Entry Certificates' for more detail.
The Agreement will provide that a Certificateholder, upon receiving the
final distribution on a Certificate, will be required to send such Certificate
to the Trustee. The Agreement additionally will provide that, in any event, any
Certificate as to which the final distribution thereon has been made shall be
deemed cancelled for all purposes of the Agreement and the Policies.
Each Certificateholder of record of a Class of Class A Certificates will be
entitled to receive such Certificateholder's Percentage Interest in the amounts
due such Class on each Distribution Date. The 'Per-
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<PAGE>
<PAGE>
centage Interest' of a Class A Certificate as of any date of determination will
be equal to the percentage obtained by dividing the principal balance of such
Class A Certificate as of the Closing Date by the Class Principal Balance for
the related Class of Class A Certificates as of the Closing Date.
DISTRIBUTIONS
The Trustee will be required to deposit into the Certificate Account, (i)
any payments made by the Certificate Insurer under the Policies (each an
'Insured Payment'), (ii) the proceeds of any liquidation of the assets of the
Trust and (iii) all remittances made to the Trustee by or on behalf of the
Servicer.
The Agreement establishes a certificate rate on each class of Class A
Certificates (each, a 'Certificate Rate') as set forth herein under
' -- Certificate Rate.' The 'Expense Fee' for any Distribution Date will equal
the sum of the Trustee Fee and the amounts payable to the Certificate Insurer as
premium on the Policies (the 'Premium Amount') on such Distribution Date.
On each Distribution Date, the Trustee is required to make the following
disbursements and transfers from monies then on deposit in the Certificate
Account as specified below in the following order of priority of each such
transfer and disbursement:
(i) first, on each Distribution Date from (x) amounts then on deposit
in the Certificate Account and with respect to the Home Equity Loan Group,
(A) to the Trustee, the Trustee Fee for the related Home Equity Loan Group
and (B) provided that no Certificate Insurer Default as defined in clause
(x) of the definition thereof has occurred and is continuing, the Premium
Amount for the related classes of Class A Certificates for such
Distribution Date to the Certificate Insurer, and (y) amounts then on
deposit in the Certificate Account for the unrelated Home Equity Loan Group
necessary to pay unpaid amounts pursuant to clause (i)(A) and (B) above;
(ii) second, on each Distribution Date, the Trustee shall allocate an
amount equal to the sum of (x) the Total Monthly Excess Spread with respect
to the related Home Equity Loan Group with respect to such Distribution
Date plus (y) any Subordination Reduction Amount with respect to the
related Home Equity Loan Group with respect to such Distribution Date (such
sum being the 'Total Monthly Excess Cashflow' with respect to such Home
Equity Loan Group and Distribution Date) to the applicable classes of
Class A Certificates and the Certificate Insurer in the following order of
priority:
(A) first, such Total Monthly Excess Cashflow with respect to such
Home Equity Loan Group shall be allocated to the payment of the related
Class A Distribution Amount (excluding any related Subordination
Increase Amount) pursuant to clause (iii) below in an amount equal to
the amount, if any, by which (x) such Class A Distribution Amount
(excluding any related Subordination Increase Amount) exceeds (y) the
Available Funds with respect to such Home Equity Loan Group (net of the
related Expense Fees) (the amount of such difference with respect to a
Home Equity Loan Group being an 'Available Funds Shortfall' for such
Home Equity Loan Group);
(B) second, any portion of the Total Monthly Excess Cashflow with
respect to such Home Equity Loan Group remaining after the allocation
described in clause (ii)(A) above shall be allocated against any
Available Funds Shortfall with respect to the other Home Equity Loan
Group;
(C) third, provided that no Certificate Insurer Default as defined
in clause (x) of the definition thereof has occurred and is continuing,
any portion of the Total Monthly Excess Cashflow with respect to such
Home Equity Loan Group remaining after the allocation described in
clauses (ii)(A) and (B) above shall be paid to the Certificate Insurer
in respect of any Reimbursement Amount (as defined in the Agreement)
with respect to the related classes of Class A Certificates; provided
further that if a Certificate Insurer Default as defined in clause (x)
of the definition thereof has occurred and is continuing, then the
priority of this allocation shall follow immediately after clause
(ii)(E) below;
(D) fourth, provided that no Certificate Insurer Default as defined
in clause (x) of the definition thereof has occurred and is continuing,
any portion of the Total Monthly Excess Cashflow remaining after the
allocation described in clauses (ii)(A), (B) and (C) above shall be paid
to the
S-49
<PAGE>
<PAGE>
Certificate Insurer in respect of any Reimbursement Amount (as defined
in the Agreement) owed to the Certificate Insurer with respect to the
unrelated classes of Class A Certificates; provided further that if a
Certificate Insurer Default as defined in clause (x) of the definition
thereof has occurred and is continuing, then the priority of this
allocation shall follow immediately after clause (ii)(F) below;
(E) fifth, any portion of the Total Monthly Excess Cashflow with
respect to such Home Equity Loan Group remaining after the allocation
described in clauses (ii)(A), (B), (C) and (D) above shall be used to
reduce to zero, through the payment to the Certificateholders of the
related class or classes of Class A Certificates of a Subordination
Increase Amount included in the related Class A Principal Distribution
Amount which shall be paid pursuant to clause (iii)(B) or (C) below, an
amount, if any, equal to the excess of the Specified Subordinated Amount
with respect to such Home Equity Loan Group over the Subordinated Amount
with respect to such Home Equity Loan Group (assuming application of
100% of principal collections received during such Due Period but prior
to the application of any Subordination Increase Amount) (such excess,
the 'Subordination Deficiency Amount') as of such Distribution Date;
(F) sixth, any portion of the Total Monthly Excess Cashflow with
respect to such Home Equity Loan Group remaining after the allocation
described in clauses (ii)(A), (B), (C), (D) and (E) above shall be used
to reduce to zero, through the payment of a Subordination Increase
Amount to the Certificateholders of the unrelated classes of Class A
Certificates pursuant to clause (iii)(B) or (C) below, any Subordination
Deficiency Amount with respect to the unrelated Home Equity Loan Group
as of such Distribution Date following applications of all Total Monthly
Excess Cashflow with respect to such unrelated Home Equity Loan Group;
(G) seventh, any portion of Total Monthly Excess Cashflow with
respect to Group II remaining after the allocations described in clauses
(ii)(A), (B), (C), (D), (E) and (F) above shall be allocated to the
Certificateholders of the Class A-7 Certificates pursuant to clause
(iii)(E) below, to the extent of any unpaid Class A-7
Certificateholders' Interest Index Carryover; and
(H) eighth, any Total Monthly Excess Cashflow remaining after the
allocations described in clauses (ii)(A), (B), (C), (D), (E), (F) and
(G) above shall be allocated to the Servicer pursuant to clause (iii)(F)
below, to the extent of any unreimbursed Delinquency Advances (as
defined in the Prospectus), unreimbursed Servicing Advances (as defined
in the Prospectus) and unreimbursed Compensating Interest (as defined in
the Prospectus);
(iii) third, following the making by the Trustee of all allocations,
transfers and disbursements described above from amounts (including any
related Insured Payment which shall be paid only to the Certificateholders
of the related Class A Certificates) then on deposit in the Certificate
Account with respect to the related Home Equity Loan Group (after giving
effect to the allocations provided in clause (ii) above), the Trustee shall
distribute:
(A) to the Certificateholders of the Class A Certificates, the
related Current Interest for each Class (including the proceeds of any
Insured Payments made by the Certificate Insurer) on a pro rata basis
based on each such Class A Certificate's Current Interest without
priority among the Class A Certificates;
(B) the Class A Principal Distribution Amount applicable to the
Group I Certificates shall be distributed as follows: (i) to the
Certificateholders of the Class A-6 Certificates, an amount equal to the
Class A-6 Lockout Distribution Amount and (ii) the remainder as follows:
first, to the Class A-1 Certificateholders until the Class Principal
Balance of the Class A-1 Certificates is reduced to zero; second, to the
Class A-2 Certificateholders until the Class Principal Balance of the
Class A-2 Certificates is reduced to zero; third, to the Class A-3
Certificateholders until the Class Principal Balance of the Class A-3
Certificates is reduced to zero; fourth, to the Class A-4
Certificateholders until the Class Principal Balance of the Class A-4
Certificates is reduced to zero; fifth, to the Class A-5
Certificateholders until the Class Principal Balance of the Class A-5
Certificates is reduced to zero; and sixth, to the Class A-6
Certificateholders until the Class Principal Balance of the Class A-6
Certificates is reduced to zero; provided, however, during the
continuance of a Certificate Insurer Default, if there is a
Subordination Deficit with respect to
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the Group I Certificates, then the Class A Principal Distribution Amount
applicable to the Group I Certificates shall be distributed pro rata to
the Certificateholders of the Group I Certificates;
(C) the Class A Principal Distribution Amount applicable to the
Group II Certificates shall be distributed as follows: (i) to the
Certificateholders of the Class A-8 Certificates, an amount equal to the
Class A-8 Lockout Distribution Amount and (ii) the remainder as follows:
first, to the Class A-7 Certificateholders until the Class Principal
Balance of the Class A-7 Certificates is reduced to zero; and second, to
the Class A-8 Certificateholders until the Class Principal Balance of
the Class A-8 Certificates is reduced to zero; provided, however, during
the continuance of a Certificate Insurer Default, if there is a
Subordination Deficit with respect to the Group II Certificates, then
the Class A Principal Distribution Amount applicable to the Group II
Certificates shall be distributed pro rata to the Certificateholders of
the Group II Certificates;
(D) to the Certificate Insurer, the amounts described in clauses
(ii)(C) and (D) above;
(E) to the Class A-7 Certificateholders, the amounts described in
clause (ii) (G) above in respect of the aggregate unpaid Class A-7
Certificateholders' Interest Index Carryover;
(F) to the Servicer the amounts described in clause (ii)(H) above;
and
(G) to the Trustee, as reimbursement for all reimbursable expenses
incurred in connection with duties and obligations under the Agreement;
(iv) fourth, following the making by the Trustee of all allocations,
transfers and disbursements described above, from amounts then on deposit
in the Certificate Account, the Trustee shall distribute to the Non-Offered
Certificateholders, the remaining distributable amounts in accordance with
the priorities specified in the Agreement, for such Distribution Date.
The Premium Amount as of each Distribution Date and each Home Equity
Loan Group will be as set out in the Agreement.
'Certificate Insurer Default' is defined under the Agreement as the
occurrence and continuance of (x) the failure by the Certificate Insurer to make
a required payment under either Policy or (y) certain events of bankruptcy or
insolvency of the Certificate Insurer.
'Due Period' with respect to any Distribution Date is the calendar month
preceding the calendar month in which such Distribution Date occurs.
'Total Monthly Excess Spread' with respect to each Home Equity Loan Group
and Distribution Date, means the excess of (i) the aggregate of all interest
which is collected on the Home Equity Loans in such Home Equity Loan Group
during the related monthly Due Period (net of the Servicing Fee and Trustee Fee
and net of any reimbursement for nonrecoverable advances) plus the sum of any
Delinquency Advances and Compensating Interest paid by the Servicer with respect
to such Home Equity Loan Group over (ii) the sum of Current Interest for the
Class A Certificates related to such Home Equity Loan Group and the Premium
Amount with respect to the Class A Certificates related to such Home Equity Loan
Group.
'Net Monthly Excess Cashflow' with respect to each Home Equity Loan Group
and Distribution Date, means the excess, if any, of the Total Monthly Excess
Cashflow for such Home Equity Loan Group over the amounts allocated pursuant to
clauses (ii)(A) through (ii)(D) above for such Distribution Date.
'Current Interest' with respect to each class of Class A Certificates
means, with respect to any Distribution Date: (i) the aggregate amount of
interest accrued at the related Certificate Rate on the Class Principal Balance
of the related Class A Certificates plus (ii) the Carry-Forward Amount, if any,
with respect to such Class of Class A Certificates; provided, however, that with
respect to each Class of Class A Certificates, the amount described in clause
(i) above will be reduced by such Class' pro rata share of any shortfalls with
respect to the related Home Equity Loan Group resulting from the application of
the Soldiers' and Sailors' Civil Relief Act of 1940 ('Civil Relief Act Interest
Shortfalls') during the related Due Period.
The Class A-7 Certificate Rate is subject to the Class A-7 Available Funds
Cap and the Class A-8 Certificate Rate is subject to the Group II Net WAC Cap.
For a description of the calculation of the
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Class A-7 Certificate Rate, the Class A-8 Certificate Rate, the Class A-7
Available Funds Cap and the Group II Net WAC Cap, see ' -- Certificate Rate.'
The 'Class A Distribution Amount' for each Home Equity Loan Group and
Distribution Date shall be the sum of (x) Current Interest for the Class A
Certificates related to such Home Equity Loan Group and (y) the Class A
Principal Distribution Amount for such Home Equity Loan Group.
The 'Class A Principal Distribution Amount' with respect to the Class A
Certificates of the related Home Equity Loan Group and Distribution Date shall
be the lesser of: (a) the related Total Available Funds, minus the related
Expense Fee, plus any Insured Payment with respect to the related Class A
Certificates, minus the Current Interest for such Distribution Date with respect
to the related Class A Certificates; and (b) the excess, if any, of (i) the sum
of (without duplication): (A) the principal portion of all scheduled monthly
payments on the Home Equity Loans related to such Home Equity Loan Group
actually received by the Servicer during the related Due Period (exclusive of
principal received prior to the Cut-Off Date), and any Prepayments on such Home
Equity Loans made by the mortgagors of Home Equity Loans in the related Home
Equity Loan Group and actually received by the Servicer during the related Due
Period in each case to the extent such amounts are received by the Trustee on or
prior to the Monthly Remittance Date; (B) the outstanding principal balance of
each Home Equity Loan in the related Home Equity Loan Group that was repurchased
by the Seller or purchased by the Servicer on or prior to the related Monthly
Remittance Date in each case to the extent such amounts are received by the
Trustee on or prior to the Monthly Remittance Date; (C) any Substitution Amounts
(i.e., the excess, if any, of the outstanding principal balance of a Home Equity
Loan in the related Home Equity Loan Group being replaced over the outstanding
principal balance of a replacement Home Equity Loan plus accrued and unpaid
interest plus the amount of any Delinquency Advances and Servicing Advances)
delivered by the Seller on the related Monthly Remittance Date in connection
with a substitution of a Home Equity Loan in the related Home Equity Loan Group
(to the extent such Substitution Amounts relate to principal) in each case to
the extent such amounts are received by the Trustee on or prior to the Monthly
Remittance Date; (D) all Net Liquidation Proceeds (as defined in the Prospectus)
actually collected by or on behalf of the Servicer with respect to the Home
Equity Loans in the related Home Equity Loan Group during the related Due Period
(to the extent such Net Liquidation Proceeds relate to principal) in each case
to the extent such amounts are received by the Trustee on or prior to the
Monthly Remittance Date; (E) the amount of any Subordination Deficit with
respect to the related Home Equity Loan Group for such Distribution Date; (F)
the principal portion of the proceeds received by the Trustee with respect to
the related Home Equity Loan Group upon termination of the Trust (to the extent
such proceeds relate to principal); and (G) the amount of any Subordination
Increase Amount (as defined herein) with respect to the related Home Equity Loan
Group for such Distribution Date to the extent of any Net Monthly Excess
Cashflow available for such purpose over (ii) the amount of any Subordination
Reduction Amount (as defined herein) with respect to the related Home Equity
Loan Group for such Distribution Date; provided, however, on the Final Maturity
Date for a Class of Class A Certificates, the related Class A Principal
Distribution Amount payable to such class of Class A Certificates shall be no
less than the Class Principal Balance for such class of Class A Certificates.
The 'Carry-Forward Amount' with respect to any class of Class A
Certificates is the amount as of any Distribution Date, equal to the sum of (i)
the amount, if any, by which (x) the Current Interest for such Class for the
immediately preceding Distribution Date exceeded (y) the amount of the actual
distribution in respect to interest on such class of Class A Certificates made
to the Certificateholders of such class of Class A Certificates on such
immediately preceding Distribution Date and (ii) interest on such excess for the
related Interest Period at the related Certificate Rate for such class of Class
A Certificates.
The 'Class A-6 Lockout Distribution Amount' for any Distribution Date will
be the product of (i) the applicable Class A-6 Lockout Percentage for such
Distribution Date and (ii) the Class A-6 Lockout Pro Rata Distribution Amount
for such Distribution Date. In no event shall the Class A-6 Lockout Distribution
Amount exceed the outstanding Class Principal Balance of the Class A-6
Certificates or the Class A Principal Distribution Amount applicable to the
Group I Certificates for such Distribution Date.
The 'Class A-6 Lockout Percentage' for each Distribution Date will be as
follows:
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<TABLE>
<CAPTION>
DISTRIBUTION DATE LOCKOUT PERCENTAGE
- -------------------------------------------------------------------------- ------------------
<S> <C>
March 1999 - February 2002................................................ 0%
March 2002 - February 2004................................................ 45%
March 2004 - February 2005................................................ 80%
March 2005 - February 2006................................................ 100%
March 2006 and thereafter................................................. 300%
</TABLE>
The 'Class A-6 Lockout Pro Rata Distribution Amount' for any Distribution
Date will be an amount equal to the product of (x) a fraction, the numerator of
which is the Class Principal Balance of the Class A-6 Certificates immediately
prior to such Distribution Date and the denominator of which is the aggregate of
the Class Principal Balances of the Group I Certificates immediately prior to
such Distribution Date and (y) the Class A Principal Distribution Amount with
respect to the Group I Certificates for such Distribution Date.
The 'Class A-8 Lockout Distribution Amount' for any Distribution Date (I)
prior to the Distribution Date occurring in March 2002, will be the product of
(i) the applicable Class A-8 Lockout Percentage for such Distribution Date and
(ii) the Class A-8 Lockout Pro Rata Distribution Amount for such Distribution
Date and (II) on and after the Distribution Date occurring in March 2002, 100%
of the Class A Principal Distribution Amount applicable to the Group II
Certificates for such Distribution Date. In no event shall the Class A-8 Lockout
Distribution Amount exceed the outstanding Class Principal Balance of the Class
A-8 Certificates or the Class A Principal Distribution Amount applicable to the
Group II Certificates for such Distribution Date.
The 'Class A-8 Lockout Percentage' for each Distribution Date will be as
follows:
<TABLE>
<CAPTION>
DISTRIBUTION DATE LOCKOUT PERCENTAGE
- -------------------------------------------------------------------------- ------------------
<S> <C>
March 1999 - May 2000..................................................... 0%
June 2000 - February 2002................................................. 500%
</TABLE>
The 'Class A-8 Lockout Pro Rata Distribution Amount' for any Distribution
Date will be an amount equal to the product of (x) a fraction, the numerator of
which is the Class Principal Balance of the Class A-8 Certificates immediately
prior to such Distribution Date and the denominator of which is the aggregate of
the Class Principal Balances of the Group II Certificates immediately prior to
such Distribution Date and (y) the Class A Principal Distribution Amount with
respect to the Group II Certificates for such Distribution Date.
'Available Funds' as to each Home Equity Loan Group and Distribution Date
is the amount on deposit in the Certificate Account with respect to the related
Home Equity Loan Group on such Distribution Date net of Total Monthly Excess
Cashflow with respect to such Home Equity Loan Group and disregarding the
amounts of any Insured Payments to be made on such Distribution Date.
'Total Available Funds' as to each Distribution Date and a Home Equity Loan
Group is the sum of (x) the amount on deposit in the Certificate Account with
respect to such Home Equity Loan Group (net of Total Monthly Excess Cashflow
with respect to such Home Equity Loan Group) and (y) any amounts of Total
Monthly Excess Cashflow with respect to either Home Equity Loan Group to be
applied to the related classes of Class A Certificates on such Distribution Date
(disregarding the amount of any Insured Payment to be made on such Distribution
Date).
'Monthly Remittance Date' means the 18th day of each month, or if such day
is not a Business Day, the preceding Business Day. On each Monthly Remittance
Date, the Servicer will be required to transfer funds on deposit in the
Principal and Interest Account to the Certificate Account.
The Trustee or Paying Agent shall (i) receive as attorney-in-fact of each
Certificateholder of Class A Certificates any Insured Payment from the
Certificate Insurer and deposit such amounts into the Certificate Account and
(ii) disburse the same to each Certificateholder of Class A Certificates. The
Agreement will provide that to the extent the Certificate Insurer makes Insured
Payments, either directly or indirectly (as by paying through the Trustee or
Paying Agent), to the Certificateholders of such Class A Certificates the
Certificate Insurer will be subrogated to the rights of such Certificateholders
of Class A Certificates with respect to such Insured Payments, and shall receive
reimbursement for such Insured Payment as provided
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in the Agreement, but only from the sources and in the manner provided in the
Agreement; such subrogation and reimbursement to have no effect on the
Certificate Insurer's obligations under the Policies.
The Agreement provides that the term 'Available Funds' does not include
Insured Payments.
CERTIFICATE RATE
The 'Certificate Rate' on any Distribution Date with respect to the Class
A-1, Class A-2, Class A-3, Class A-4, Class A-5 Certificates and Class A-6
Certificates will be 6.070% per annum, 6.045% per annum, 6.240% per annum,
6.390% per annum, 6.835% per annum and 6.450% per annum, respectively. With
respect to any Distribution Date and the Class A-7 Certificates, the
'Certificate Rate' will equal the lesser of (A) the Class A-7 Formula Rate and
(B) the Class A-7 Available Funds Cap for such Distribution Date. With respect
to any Distribution Date and the Class A-8 Certificates, the 'Certificate Rate'
will equal the lesser of (A) 6.000% per annum and (B) the Group II Net WAC Cap
for such Distribution Date.
The 'Class A-7 Formula Rate' for any Distribution Date is the lesser of
(A) the sum of (1) One-Month LIBOR and (2) 0.32% (or 0.64% for each Distribution
Date occurring after the date on which the Servicer has failed to exercise its
right to terminate the Agreement by purchasing all outstanding Home Equity
Loans) and (B) 14.5% per annum.
The 'Class A-7 Available Funds Cap' with respect to any Interest Period and
the related Distribution Date will be a rate per annum equal to the fraction,
expressed as a percentage, the numerator of which is (i) the product of (a) the
weighted average of the Net Coupon Rates on the Group II Home Equity Loans as of
the beginning of the related Due Period and (b) the aggregate Loan Balance of
the Group II Home Equity Loans as of the beginning of the related Due Period,
minus (ii) the product of (a) the Certificate Rate with respect to the Class A-8
Certificates for such Distribution Date and (b) the outstanding Class Principal
Balance of the Class A-8 Certificates (before giving effect to payments of
principal on such Distribution Date), and the denominator of which is the
outstanding Class Principal Balance of the Class A-7 Certificates (before giving
effect to payments of principal on such Distribution Date) (adjusted to an
effective rate reflecting accrued interest calculated on the basis of a 360-day
year and the actual number of days elapsed).
The 'Net Coupon Rate' of any Group I Home Equity Loan or Group II Home
Equity Loan will be the rate per annum equal to the Coupon Rate of such Home
Equity Loan minus the sum of (i) the rate at which the Servicing Fee accrues,
(ii) the rate at which the Trustee Fee accrues, (iii) the applicable Premium
Amount (expressed as a per annum percentage of the aggregate principal balance
of the Group I Home Equity Loans or Group II Home Equity Loans, as applicable)
and (iv) the Minimum Spread. The 'Minimum Spread' shall be a percentage per
annum equal to 0% for Distribution Dates which occur prior to March 2000 and
0.50% for Distribution Dates which occur in March 2000 or thereafter.
If on any Distribution Date the Certificate Rate for the Class A-7
Certificates is based on the Class A-7 Available Funds Cap, the Class A-7
Certificateholders will be entitled to receive on subsequent Distribution Dates
the Class A-7 Certificateholders' Interest Index Carryover. The 'Class A-7
Certificateholders' Interest Index Carryover' is equal to the sum of (A) the
excess of (i) the amount of interest the Class A-7 Certificates would otherwise
be entitled to receive on such Distribution Date had such rate been calculated
at the Class A-7 Formula Rate for such Distribution Date over (ii) the amount of
interest payable on the Class A-7 Certificates at the Class A-7 Available Funds
Cap for such Distribution Date and (B) the Class A-7 Certificateholders'
Interest Index Carryover for all previous Distribution Dates not previously paid
to Class A-7 Certificateholders (including any interest accrued thereon at the
Class A-7 Formula Rate). The Policies will not cover any Class A-7
Certificateholders' Interest Index Carryover, and the ratings on the Class A-7
Certificates by Moody's Investors Service, Inc. ('Moody's') and Standard &
Poor's, a division of The McGraw-Hill Companies, Inc. ('S&P,' and together with
Moody's the 'Rating Agencies') will not address the likelihood of receipt by the
Class A-7 Certificateholders of any amounts in respect Class A-7
Certificateholders' Interest Index Carryovers. Payment of the Class A-7
Certificateholders' Interest Index Carryover will be subject to availability of
funds therefor in accordance with the priority of payments set forth under
' -- Distributions' above.
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The 'Group II Net WAC Cap' with respect to any Distribution Date will be a
rate per annum equal to the weighted average of the Net Coupon Rates on the
Group II Home Equity Loans as of the beginning of the related Due Period.
If any Distribution Date the Certificate Rate for the Class A-8
Certificates is based on the Group II Net WAC Cap, the Class A-8
Certificateholders will not be entitled to receive any interest carryover on
subsequent Distribution Dates.
The 'Interest Period' means, with respect to each Distribution Date and the
Fixed Rate Certificates, the period from the first day of the calendar month
preceding the month of such Distribution Date through the last day of such
calendar month. Interest on the Fixed Rate Certificates in respect of any
Distribution Date will accrue during the related Interest Period on the basis of
a 360-day year consisting of twelve 30-day months. The 'Interest Period' means,
with respect to each Distribution Date and the Variable Rate Certificates, is
the period from and including the preceding Distribution Date (or the Closing
Date in the case of the first Distribution Date) to and including the day
preceding the related Distribution Date. Interest will accrue on the Variable
Rate Certificates during the related Interest Period on the basis of the actual
number of days in the related Interest Period and a year of 360 days.
CALCULATION OF ONE-MONTH LIBOR
On each LIBOR Determination Date (as defined below), the Trustee will
determine One-Month LIBOR for the next Interest Period for the Class A-7
Certificates.
'One-Month LIBOR' means, as of any LIBOR Determination Date, the London
interbank offered rate for one-month United States dollar deposits which appears
in the Telerate Page 3750 as of 11:00 a.m., London time, on such date. If such
rate does not appear on Telerate Page 3750, the rate for that day will be
determined on the basis of the rates at which deposits in United States dollars
are offered by the Reference Banks at approximately 11:00 a.m. (London time), on
that day to prime banks in the London interbank market. The Trustee will request
the principal London office of each of the Reference Banks to provide a
quotation of its rate. If at least two such quotations are provided, the rate
for that day will be the arithmetic mean of the quotations (rounded upwards if
necessary to the nearest whole multiple of 1/16%). If fewer than two quotations
are provided as requested, the rate for that day will be the arithmetic mean of
the rates quoted by major banks in New York City, selected by the Servicer, at
approximately 11:00 a.m. (New York City time) on that day for loans in United
States dollars to leading European banks.
'LIBOR Determination Date' means, with respect to any Interest Period, the
second London business day preceding the commencement of such Interest Period
(or in the case of the first Distribution Date, February 23, 1999). For purposes
of determining One-Month LIBOR, a 'London business day' is any day on which
dealings in deposits of United States dollars are transacted in the London
interbank market.
'Telerate Page 3750' means the display page currently so designated on the
Bridge Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices) and 'Reference
Banks' means leading banks selected by the Seller and engaged in transactions in
Eurodollar deposits in the international Eurocurrency market.
CREDIT ENHANCEMENT
The Policies.
For an explanation of the Policies, we refer you to 'THE POLICIES AND THE
CERTIFICATE INSURER' in this Prospectus Supplement for more detail.
Overcollateralization Resulting from Cash Flow Structure. The Agreement
requires that, on each Distribution Date, Net Monthly Excess Cashflow with
respect to a Home Equity Loan Group be applied on such Distribution Date as an
accelerated payment of principal on the related Classes of Class A Certificates,
but only to the limited extent hereafter described.
The application of Net Monthly Excess Cashflow for the payment of principal
has the effect of accelerating the amortization of the related Class A
Certificates relative to the amortization of the Home Equity Loans in the
related Home Equity Loan Group. To the extent that any Net Monthly Excess
Cashflow is
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not so used, the Agreement provides that it will be used (i) with respect to the
Net Monthly Excess Cashflow for the Group II Home Equity Loans, to pay the
Certificateholders of the Class A-7 Certificates any Class A-7
Certificateholders' Interest Index Carryovers, (ii) with respect to the Net
Monthly Excess Cashflows for both Home Equity Loan Groups, to reimburse the
Servicer and the Trustee with respect to any amounts owing to them, and,
thereafter, (iii) with respect to the Net Monthly Excess Cashflow for both Home
Equity Loan Groups, to pay the Class X-IO and the Class R Certificateholders, as
specified in the Agreement.
Pursuant to the Agreement, each Home Equity Loan Group's Net Monthly Excess
Cashflow will be applied as an accelerated payment of principal on the Class A
Certificates until the related Subordinated Amount has increased to the level
required. 'Subordinated Amount' means, with respect to each Home Equity Loan
Group and Distribution Date, the excess, if any, of (x) the aggregate Loan
Balance of the Home Equity Loans in such Home Equity Loan Group as of the close
of business on the last day of the preceding Due Period over (y) the aggregate
outstanding Class Principal Balances of the related Class A Certificates as of
such Distribution Date (after taking into account the payment of the Class A
Principal Distribution Amount related to such Home Equity Loan Group (except for
any Subordination Reduction Amount or Subordination Increase Amount related to
such Home Equity Loan Group) on such Distribution Date). With respect to each
Home Equity Loan Group and Distribution Date, the lesser of (i) the related
Subordination Deficiency Amount as of such Distribution Date (after taking into
account the payment of the related Class A Distribution Amount on such
Distribution Date (except for any such Subordination Increase Amount for such
Home Equity Loan Group)) and (ii) the aggregate amount of Net Monthly Excess
Cashflow actually applied as an accelerated payment of principal is a
'Subordination Increase Amount.' The required level of the Subordinated Amount
for each Home Equity Loan Group with respect to a Distribution Date is the
'Specified Subordinated Amount.' The Agreement generally provides that the
related Specified Subordinated Amount may, over time, decrease or increase,
subject to certain floors, caps and triggers including triggers that allow the
related Specified Subordinated Amount to decrease or 'step down' based on the
performance on the Home Equity Loans in the related Home Equity Loan Group with
respect to certain tests specified in the Agreement based on delinquency rates
and cumulative losses. In addition, Net Monthly Excess Cashflow for each Home
Equity Loan Group will be applied to the payment in reduction of principal of
the Class A Certificates during the period that the Home Equity Loans in such
Home Equity Loan Group are unable to meet certain tests specified in the
Agreement based on delinquency rates and cumulative losses.
In the event that the Specified Subordinated Amount with respect to a Home
Equity Loan Group is permitted to decrease or 'step down' on a Distribution Date
in the future, the Agreement provides that a portion of the principal which
would otherwise be distributed to the Certificateholders of the related Class A
Certificates on such Distribution Date shall be distributed to the Class X-IO
Certificateholders (to the extent available therefor) over the period specified
in the Agreement. This has the effect of decelerating the amortization of Class
A Certificates relative to the amortization of the Home Equity Loans and of
reducing the related Subordinated Amount. With respect to any Home Equity Loan
Group and Distribution Date, the excess, if any, of (x) the related Subordinated
Amount on such Distribution Date after taking into account all distributions to
be made on such Distribution Date (except for any distributions of related
Subordination Reduction Amounts as described in this sentence) over (y) the
related Specified Subordinated Amount is the 'Excess Subordinated Amount' for
such Home Equity Loan Group and Distribution Date. If, on any Distribution Date,
the Excess Subordinated Amount is, or, after taking into account all other
distributions to be made on such Distribution Date, would be, greater than zero
(i.e., the Subordinated Amount is or would be greater than the related Specified
Subordinated Amount), then any amounts relating to principal which would
otherwise be distributed to the Certificateholders of the related classes of
Class A Certificates on such Distribution Date shall instead be distributed to
the Certificateholders of the Class X-IO Certificates (to the extent available
therefor) in an amount equal to the lesser of (x) the related Excess
Subordinated Amount for such Home Equity Loan Group and Distribution Date and
(y) the amount available for distribution on account of principal with respect
to such Class A Certificates on such Distribution Date; such amount being the
'Subordination Reduction Amount' with respect to the related Home Equity Loan
Group and Distribution Date.
The Agreement provides generally that, on any Distribution Date all amounts
collected on account of principal (other than any such amount applied to the
payment of a Subordination Reduction Amount) dur-
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ing the prior Due Period will be distributed to the Certificateholders of the
related Class A Certificates on such Distribution Date. If any Home Equity Loan
became a Liquidated Loan during such prior Due Period, the Net Liquidation
Proceeds related thereto and allocated to principal may be less than the
principal balance of the related Home Equity Loan; the amount of any such
insufficiency is a 'Realized Loss.' In addition, the Agreement provides that the
Loan Balance of any Home Equity Loan which becomes a Liquidated Loan shall
thenceforth equal zero. The Agreement does not contain any requirement that the
amount of any Realized Loss be distributed to the Certificateholders of the
related Class A Certificates on the Distribution Date which immediately follows
the event of loss, i.e., the Agreement does not require the current recovery of
losses. However, the occurrence of a Realized Loss will reduce the Subordinated
Amount with respect to a Home Equity Loan Group, which to the extent that such
reduction causes the Subordinated Amount to be less than the Specified
Subordinated Amount applicable to the related Distribution Date, will require
the payment of a Subordination Increase Amount on such Distribution Date (or, if
insufficient funds are available on such Distribution Date, on subsequent
Distribution Dates, until the Subordinated Amount equals the Specified
Subordinated Amount). The effect of the foregoing is to allocate losses to the
Certificateholders of the Class X-IO and Class R Certificates, as specified in
the Agreement, by reducing, or eliminating entirely, payments of Total Monthly
Excess Spread and Subordination Reduction Amounts which such Certificateholders
would otherwise receive.
A 'Liquidated Loan' is a Home Equity Loan with respect to which a
determination has been made by the Servicer that all recoveries have been
recovered or that the Servicer reasonably believes that the cost of obtaining
any additional recoveries therefrom would exceed the amount of such recoveries.
Overcollateralization and the Policies. The Agreement defines a
'Subordination Deficit' with respect to a Home Equity Loan Group and
Distribution Date to be the amount, if any, by which (x) the aggregate Class
Principal Balance of the related Class A Certificates with respect to such
Distribution Date, after taking into account all distributions to be made on
such Distribution Date (except for any Insured Payment or any Subordination
Deficit), exceeds (y) the aggregate Loan Balances of the Home Equity Loans in
such Home Equity Loan Group as of the close of business on the last day of the
related Due Period. The Agreement requires the Trustee to make a claim for an
Insured Payment under the related Policy not later than the third Business Day
prior to any Distribution Date as to which the Trustee has determined that a
Subordination Deficit will occur after giving effect to all other payments of
principal on such Distribution Date (except for any Insured Payment) for the
purpose of applying the proceeds of such Insured Payment as a payment of
principal to the Certificateholders of the related Class A Certificates on such
Distribution Date. Each Policy is thus similar to the subordination provisions
described above insofar as such Policy guarantees ultimate, rather than current,
payment of the amounts of any Realized Losses to the Certificateholders of the
Class A Certificates. Investors in the Class A Certificates should realize that,
under extreme loss or delinquency scenarios applicable to the related Home
Equity Loan Group, they may temporarily receive no distributions of principal
when they would otherwise be entitled thereto under the principal allocation
provisions described herein. Nevertheless, the exposure to risk of loss of
principal of the Certificateholders of the Class A Certificates depends in part
on the ability of the Certificate Insurer to satisfy its obligations under the
Policies. In that respect and to the extent that the Certificate Insurer
satisfies such obligations, the Certificateholders of the Class A Certificates
are insulated from principal losses on the Certificates.
Crosscollateralization Provisions. In addition to the use of Total Monthly
Excess Spread and Net Monthly Excess Cashflow with respect to a Home Equity Loan
Group to cover related Available Funds Shortfalls, Subordination Increase
Amounts, Reimbursement Amounts and Subordination Deficits, such Total Monthly
Excess Spread and Net Monthly Excess Cashflow will be available to cover such
requirements for the other Home Equity Loan Group as described under the caption
'DESCRIPTION OF THE CERTIFICATES -- Distributions' herein. Additionally, since
crosscollateralization of the Available Funds Shortfall for the Group I
Certificates and the Group II Certificates occurs prior to the payment of any
Subordination Increase Amounts, the amount and timing of payments on the Home
Equity Loans in one Home Equity Loan Group may affect the level of
overcollateralization provided by the other Home Equity Loan Group.
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FINAL SCHEDULED DISTRIBUTION DATES
The Final Scheduled Distribution Date (as defined in the Prospectus) for
each Class of Class A Certificates is as set forth on the cover page of this
Prospectus Supplement.
It is expected that the actual last Distribution Date for each Class of
Class A Certificates will occur significantly earlier than such Final Scheduled
Distribution Dates.
We refer you to 'PREPAYMENT AND YIELD CONSIDERATIONS' for more detail.
The Policies will not guarantee full payment of the principal balance of
each class of Class A Certificates on its related Final Scheduled Distribution
Date or any earlier date. Each Policy will guarantee full payment of the
principal balance of each of the related Class A Certificates on the applicable
Final Maturity Date. 'Final Maturity Date' shall mean (i) the Distribution Date
occurring in March 2030 with respect to each Fixed Rate Certificate and (ii) the
Distribution Date occurring in February 2029 with respect to the Variable Rate
Certificates.
The Final Scheduled Distribution Dates for the Class A-1, Class A-2, Class
A-3 and Class A-4 Certificates were determined on the basis of the Structuring
Assumptions with the exception that there are no prepayments on the related Home
Equity Loans. The Final Scheduled Distribution Dates for the Class A-5, Class
A-6 and Class A-8 Certificates have been calculated by adding thirteen months to
the maturity date of the latest maturing Home Equity Loan in the related Home
Equity Loan Group as of the Cut-Off Date. The Final Scheduled Distribution Date
for the Class A-7 Certificates is the 360th Distribution Date.
SERVICING FEE
As to each Home Equity Loan, the Servicer will retain a fee (the 'Servicing
Fee') equal to 0.50% per annum, payable monthly at one-twelfth of such annual
rate of the then outstanding principal balance of such Home Equity Loan serviced
as of the first day of each Due Period, provided, however, that if a successor
Servicer is appointed in accordance with the Agreement, the Servicing Fee shall
be such amount agreed upon by the Trustee, the Certificate Insurer, and the
successor Servicer but in no event in an amount greater than the amount paid to
the predecessor Servicer. The Servicer will also be able to retain late fees,
prepayment charges, assumption fees, release fees, bad check charges and any
other servicing related charges.
THE TRUSTEE
Norwest Bank Minnesota, National Association, a national banking
association, has been named Trustee pursuant to the Agreement.
The Trustee may have normal banking relationships with the Depositor, the
Seller and the Servicer.
As to each Home Equity Loan the Trustee will receive a fee (the 'Trustee
Fee') set forth in the Agreement.
The Trustee may resign at any time, in which event the Depositor will be
obligated to appoint a successor Trustee, as approved by the Certificate Insurer
and the Servicer. The Depositor and, in certain instances, the Servicer may also
remove the Trustee if the Trustee ceases to be eligible to continue as such
under the Agreement or if the Trustee becomes insolvent. Upon becoming aware of
such circumstances, the Depositor will be obligated to appoint a successor
Trustee, as approved by the Certificate Insurer and the Servicer (such Servicer
approval not to be unreasonably withheld). Any resignation or removal of the
Trustee and appointment of a successor Trustee will not become effective until
acceptance of the appointment by the successor Trustee.
No holder of a Certificate will have any right under the Agreement to
institute any proceeding with respect to the Agreement unless such holder
previously has received the Certificate Insurer's prior written consent (unless
a Certificate Insurer Default as defined in clause (x) of the definition thereof
has occurred and is continuing) and has given to the Trustee written notice of
default and unless Certificateholders holding Certificates evidencing at least
51% of the Percentage Interests in the Trust, have made written requests upon
the Trustee to institute such proceeding in its own name as Trustee thereunder
and have
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<PAGE>
offered to the Trustee reasonable indemnity and the Trustee for 60 days has
neglected or refused to institute any such proceeding. The Trustee will be under
no obligation to exercise any of the trusts or powers vested in it by the
Agreement or to make any investigation of matters arising thereunder or to
institute, conduct or defend any litigation thereunder or in relation thereto at
the request, order or direction of any of the Certificateholders, unless such
Certificateholders have offered to the Trustee reasonable security or indemnity
against the cost, expenses and liabilities which may be incurred therein or
thereby.
The Trustee (based on information provided to the Trustee by the Servicer)
may make available each month, to any interested party, the monthly statement to
Certificateholders through the Trustee's website, electronic bulletin board and
its fax-on-demand service. The Trustee's website will be located at
'www.ctslink.com'. The Trustee's electronic bulletin board may be accessed by
calling (301) 815-6620, and its fax-on-demand service may be accessed by calling
(301) 815-6610.
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<PAGE>
THE POLICIES AND THE CERTIFICATE INSURER
THE POLICIES
The following information has been supplied by MBIA Insurance Corporation
(the 'Certificate Insurer') for inclusion in this Prospectus Supplement.
The Certificate Insurer, in consideration of the payment of the premium and
subject to the terms of the Policies, thereby unconditionally and irrevocably
guarantees to any Owner that an amount equal to each full and complete Insured
Payment will be received from the Certificate Insurer by the Trustee, or its
successors, as trustee for the Owners, on behalf of the Owners for distribution
by the Trustee to each Owner of each Owner's proportionate share of the Insured
Payment. The Certificate Insurer's obligations under the Policies with respect
to a particular Insured Payment shall be discharged to the extent funds equal to
the applicable Insured Payment are received by the Trustee, whether or not such
funds are properly applied by the Trustee. Insured Payments shall be made only
at the time set forth in the Policies and no accelerated Insured Payments shall
be made regardless of any acceleration of the Class A Certificates, unless such
acceleration is at the sole option of the Certificate Insurer.
Notwithstanding the foregoing paragraph, the Policies do not cover
shortfalls, if any, attributable to the liability of the Trust, any REMIC or the
Trustee for withholding taxes, if any (including interest and penalties in
respect of any such liability). The Policies do not cover, and Insured Payments
shall not include, any Civil Relief Act Interest Shortfalls, any Class A-7
Certificateholders' Interest Index Carryover or any reduction in interest on the
Class A-8 Certificates due to the application of the Group II Net WAC Cap.
The Certificate Insurer will pay any Insured Payment that is a Preference
Amount on the Business Day following receipt on a Business Day by the Fiscal
Agent (as described below) of (a) a certified copy of the order requiring the
return of a preference payment, (b) an opinion of counsel satisfactory to the
Certificate Insurer that such order is final and not subject to appeal, (c) an
assignment in such form as is reasonably required by the Certificate Insurer,
irrevocably assigning to the Certificate Insurer all rights and claims of the
Owner relating to or arising under the Class A Certificates against the debtor
which made such preference payment or otherwise with respect to such preference
payment and (d) appropriate instruments to effect the appointment of the
Certificate Insurer as agent for such Owner in any legal proceeding related to
such preference payment, such instruments being in a form satisfactory to the
Certificate Insurer, provided that if such documents are received after 12:00
noon, New York City time, on such Business Day, they will be deemed to be
received on the following Business Day. Such payments shall be disbursed to the
receiver or trustee in bankruptcy named in the final order of the court
exercising jurisdiction on behalf of the Owner and not to any Owner directly
unless such Owner has returned principal or interest paid on the Class A
Certificates to such receiver or trustee in bankruptcy, in which case such
payment shall be disbursed to such Owner.
The Certificate Insurer will pay any other amount payable under a Policy no
later than 12:00 noon, New York City time, on the later of the Distribution Date
on which the related Deficiency Amount is due or the third Business Day
following receipt in New York, New York on a Business Day by State Street Bank
and Trust Company, N.A., as Fiscal Agent for the Certificate Insurer, or any
successor fiscal agent appointed by the Certificate Insurer (the 'Fiscal Agent')
of a Notice (as described below); provided that if such Notice is received after
12:00 noon, New York City time, on such Business Day, it will be deemed to be
received on the following Business Day. If any such Notice received by the
Fiscal Agent is not in proper form or is otherwise insufficient for the purpose
of making claim under a Policy, it shall be deemed not to have been received by
the Fiscal Agent for purposes of this paragraph, and the Certificate Insurer or
the Fiscal Agent, as the case may be, shall promptly so advise the Trustee and
the Trustee may submit an amended Notice.
Insured Payments due under a Policy unless otherwise stated therein will be
disbursed by the Fiscal Agent to the Trustee on behalf of the Owners by wire
transfer of immediately available funds in the amount of the Insured Payment
less, in respect of Insured Payments related to Preference Amounts, any amount
held by the Trustee for the payment of such Insured Payment and legally
available therefor.
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The Fiscal Agent is the agent of the Certificate Insurer only and the
Fiscal Agent shall in no event be liable to Owners for any acts of the Fiscal
Agent or any failure of the Certificate Insurer to deposit, or cause to be
deposited, sufficient funds to make payments due under the related Policy.
As used in the Policies, the following terms shall have the following
meanings:
'Agreement' means the Pooling and Servicing Agreement dated as of February
1, 1999 among CHEC Asset Receivable Corporation, as Depositor, Centex Credit
Corporation d/b/a Centex Home Equity Corporation, as Seller and as Servicer, and
the Trustee, as trustee, without regard to any amendment or supplement thereto
unless such amendment or supplement has been approved in writing by the
Certificate Insurer.
'Business Day' means any day other than (a) a Saturday or a Sunday or (b) a
day on which banking institutions in New York, New York, Dallas, Texas, the
State of Maryland or the city in which the corporate trust office of the Trustee
is located or the city in which the Certificate Insurer is located are
authorized or obligated by law or executive order to be closed.
'Class Principal Balance' means 'Certificate Principal Balance' as defined
in the Agreement.
'Deficiency Amount' means, as of any Distribution Date, the excess, if any,
of (a) the sum of (i) the related Current Interest for the related Class A
Certificates for such Distribution Date and (ii) the Group I Guaranteed
Principal Amount or the Group II Guaranteed Principal Amount, as applicable, for
such Distribution Date over (b) the related Total Available Funds for such
Distribution Date (net of the Premium Amount with respect to the related Class A
Certificates and the Trustee Fee with respect to the related Home Equity Loan
Group and after giving affect to the crosscollateralization provisions of the
Agreement).
'Group I Guaranteed Principal Amount' means (a) with respect to any
Distribution Date other than the Distribution Date in March 2030, the
Subordination Deficit with respect to Group I for such Distribution Date and
(b) with respect to the Distribution Date in March 2030, the Class Principal
Balances of the Group I Certificates after giving effect to distributions
thereon on such Distribution Date.
'Group II Guaranteed Principal Amount' means (a) with respect to any
Distribution Date other than the Distribution Dates in February 2029 and March
2030, the Subordination Deficit with respect to Group II for such Distribution
Date, (b) with respect to the Distribution Date in February 2029, the Class
Principal Balance of the Class A-7 Certificates after giving effect to
distributions thereon on such Distribution Date and (c) with respect to the
Distribution Date in March 2030, the Class Principal Balance of the Class A-8
Certificates after giving effect to distributions thereon on such Distribution
Date.
'Insured Payment' means (a) as of any Distribution Date, any Deficiency
Amount and (b) any Preference Amount.
'Notice' means the telephonic or telegraphic notice, promptly confirmed in
writing by facsimile substantially in the form of Exhibit A attached to the
related Policy, the original of which is subsequently delivered by registered or
certified mail, from the Trustee specifying the Insured Payment which shall be
due and owing on the applicable Distribution Date.
'Owner' means each Owner (as defined in the Agreement) of a Class A
Certificate who, on the applicable Distribution Date, is entitled under the
terms of the applicable Class A Certificates to payment thereunder.
'Preference Amount' means any amount previously distributed to an Owner on
the Class A Certificates that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy pursuant to the United States
Bankruptcy Code (11 U.S.C.), as amended from time to time in accordance with a
final nonappealable order of a court having competent jurisdiction.
Capitalized terms used in the Policies and not otherwise defined in the
Policies shall have the respective meanings set forth in the Agreement as of the
date of execution of the Policies, without giving effect to any subsequent
amendment to or modification of the Agreement unless such amendment or
modification has been approved in writing by the Certificate Insurer.
S-61
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Any notice under a Policy or service of process on the Fiscal Agent may be
made at the address listed below for the Fiscal Agent or such other address as
the Certificate Insurer shall specify in writing to the Trustee.
The notice address of the Fiscal Agent is 15th Floor, 61 Broadway, New
York, New York 10006 Attention: Municipal Registrar and Paying Agency or such
other address as the Fiscal Agent shall specify to the Trustee in writing.
EACH POLICY IS BEING ISSUED UNDER AND PURSUANT TO, AND SHALL BE CONSTRUED
UNDER, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT
OF LAWS PRINCIPLES THEREOF.
The insurance provided by each Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
The Policies are not cancelable for any reason. The premium on each Policy
is not refundable for any reason including payment, or provision being made for
payment, prior to maturity of the related Class A Certificates.
THE CERTIFICATE INSURER
The following information has been supplied by the Certificate Insurer for
inclusion in this Prospectus Supplement.
The Certificate Insurer is the principal operating subsidiary of MBIA Inc.,
a New York Stock Exchange listed company ('MBIA Inc.'). MBIA Inc. is not
obligated to pay the debts of or claims against the Certificate Insurer. The
Certificate Insurer is domiciled in the State of New York and licensed to do
business in and is subject to regulation under the laws of all 50 states, the
District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the
Northern Mariana Islands, the Virgin Islands of the United States and the
Territory of Guam. The Certificate Insurer has two European branches, one in the
Republic of France and the other in the Kingdom of Spain. New York has laws
prescribing minimum capital requirements, limiting classes and concentrations of
investments and requiring the approval of policy rates and forms. State laws
also regulate the amount of both the aggregate and individual risks that may be
insured, the payment of dividends by the Certificate Insurer, changes in control
and transactions among affiliates. Additionally, the Certificate Insurer is
required to maintain contingency reserves on its liabilities in certain amounts
and for certain periods of time.
Effective February 17, 1998, MBIA Inc. acquired all of the outstanding
stock of Capital Markets Assurance Corporation ('CMAC') through a merger with
its parent CapMAC Holdings Inc. Pursuant to a reinsurance agreement, CMAC has
ceded all of its net insured risks (including any amounts due but unpaid from
third party reinsurers), as well as its unearned premiums and contingency
reserves, to the Certificate Insurer. MBIA Inc. is not obligated to pay the
debts of or claims against CMAC.
The consolidated financial statements of the Certificate Insurer, a wholly
owned subsidiary of MBIA Inc., and its subsidiaries as of December 31, 1997 and
December 31, 1996 and for each of the three years in the period ended December
31, 1997, prepared in accordance with generally accepted accounting principles,
included in the Annual Report on Form 10-K of MBIA Inc. for the year ended
December 31, 1997 and the consolidated financial statements of the Certificate
Insurer and its subsidiaries as of September 30, 1998 and for the nine-month
periods ended September 30, 1998 and September 30, 1997 included in the
Quarterly Report on Form 10-Q of MBIA Inc. for the period ended September 30,
1998 are hereby incorporated by reference into this Prospectus Supplement and
shall be deemed to be a part hereof. Any statement contained in a document
incorporated by reference herein shall be modified or superseded for purposes of
this Prospectus Supplement to the extent that a statement contained herein or in
any other subsequently filed document which also is incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus Supplement.
All financial statements of the Certificate Insurer and its subsidiaries
included in documents filed by MBIA Inc. pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the date
of this Prospectus Supplement and prior to the termination of the offering of
the Class A Certificates shall be deemed to be incorporated by reference into
this Prospectus Supplement and to be a part hereof from the respective dates of
filing such documents.
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The tables below present selected financial information of the Certificate
Insurer determined in accordance with statutory accounting practices prescribed
or permitted by insurance regulatory authorities ('SAP') and generally accepted
accounting principles ('GAAP'):
<TABLE>
<CAPTION>
SAP
-----------------------------------------
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
(AUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Admitted Assets.............................................. $5,256 $6,318
Liabilities.................................................. 3,496 4,114
Capital and Surplus.......................................... 1,760 2,204
</TABLE>
<TABLE>
<CAPTION>
GAAP
-----------------------------------------
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
(AUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Assets....................................................... $5,988 $7,439
Liabilities.................................................. 2,624 3,268
Shareholder's Equity......................................... 3,364 4,171
</TABLE>
Copies of the financial statements of the Certificate Insurer incorporated
by reference herein and copies of the Certificate Insurer's 1997 year-end
audited financial statements prepared in accordance with statutory accounting
practices are available, without charge, from the Certificate Insurer. The
address of the Certificate Insurer is 113 King Street, Armonk, New York 10504.
The telephone number of the Certificate Insurer is (914) 273-4545.
The Certificate Insurer does not accept any responsibility for the accuracy
or completeness of this Prospectus Supplement or any information or disclosure
contained herein, or omitted herefrom, other than with respect to the accuracy
of the information regarding the Policies and Certificate Insurer set forth
under the heading 'The Policies and the Certificate Insurer'. Additionally, the
Certificate Insurer makes no representation regarding the Certificates or the
advisability of investing in the Certificates.
Moody's Investors Service, Inc. rates the financial strength of the
Certificate Insurer 'Aaa.'
Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. rates the financial strength of the Certificate Insurer 'AAA.'
Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.) rates
the financial strength of the Certificate Insurer 'AAA.'
Each rating of the Certificate Insurer should be evaluated independently.
The ratings reflect the respective rating agency's current assessment of the
creditworthiness of the Certificate Insurer and its ability to pay claims on its
policies of insurance. Any further explanation as to the significance of the
above ratings may be obtained only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the
Certificates, and such ratings may be subject to revision or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of any of the
above ratings may have an adverse effect on the market price of the
Certificates. The Certificate Insurer does not guaranty the market price of the
Certificates nor does it guaranty that the ratings on the Certificates will not
be revised or withdrawn.
YEAR 2000 READINESS DISCLOSURE
An area of potential risk to the Certificate Insurer's financial guarantee
business would be the inability of an issuer or its trustee or paying agent to
make payments on a Certificate Insurer insured transaction because of their
failure to be Year 2000 ready. To mitigate this risk, the Certificate Insurer
has been surveying all trustees, all paying agents and selected high volume
issuers to determine their state of readiness. While the survey is not complete,
the results to-date are that all respondents are either ready or planning to be
ready by late 1999. If the Certificate Insurer is asked to pay in those
situations where the issuer's system fails, it will do so and would expect to
recover any such payment in a fairly short time period. It is not possible at
this time to evaluate the extent of such payments. The Certificate Insurer
believes that it has adequate sources of liquidity to cover these payments.
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USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will be
applied by the Depositor towards the purchase of the Home Equity Loans from the
Seller.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following section in conjunction with the section in the Prospectus
captioned 'FEDERAL INCOME TAX CONSEQUENCES' discusses the material federal
income tax consequences of the purchase, ownership and disposition of the Class
A Certificates. This section must be considered only in connection with 'FEDERAL
INCOME TAX CONSEQUENCES' in the Prospectus. The discussion herein and in the
Prospectus is based upon laws, regulations, rulings and decisions now in effect,
all of which are subject to change. The discussion below and in the Prospectus
does not purport to deal with all federal tax consequences applicable to all
categories of investors, some of which may be subject to special rules.
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 the Class A Certificates. No portion of the 'CERTAIN FEDERAL
INCOME TAX CONSIDERATIONS' or 'FEDERAL INCOME TAX CONSEQUENCES' sections of the
Prospectus Supplement or Prospectus constitutes an opinion of counsel, other
than the opinion set forth in the second paragraph of ' -- REMIC Elections'
below and in clause (ii) of 'FEDERAL INCOME TAX CONSEQUENCES -- Opinions' in the
Prospectus.
REMIC ELECTIONS
Two separate elections will be made to treat certain assets of the Trust as
'real estate mortgage investment conduits' ('REMICs') for federal income tax
purposes, creating a two-tiered REMIC structure. The Class A and Class X-IO
Certificates will be designated as regular interests in a REMIC (the 'Regular
Certificates' or the 'REMIC Regular Certificates'), and the Class R-1 and Class
R-2 Certificates each will be designated as the residual interest in a REMIC
(the 'Residual Certificates' or the 'REMIC Residual Certificates').
Qualification as a REMIC requires ongoing compliance with certain
conditions. Stroock & Stroock & Lavan LLP, special tax counsel to the Seller and
the Depositor, is of the opinion that, for federal income tax purposes, assuming
(i) the appropriate REMIC elections are made, and (ii) compliance with all of
the provisions of the Agreement, the REMICs formed pursuant to the Agreement
will each constitute a REMIC, the Class A and Class X-IO Certificates will be
considered 'regular interests' in a REMIC, and the Residual Certificates will be
considered the sole class of 'residual interests' in each REMIC.
Because the REMIC Regular Certificates will be considered REMIC regular
interests, they generally will be taxable as debt obligations under the Internal
Revenue Code of 1986, as amended (the 'Code'), and interest paid or accrued on
the Regular Certificates, including original issue discount with respect to any
Regular Certificates issued with original issue discount, will be taxable to
Certificateholders in accordance with the accrual method of accounting. Some or
all of the Classes of Offered Certificates may be subject to the original issue
discount provisions.
We refer you to 'FEDERAL INCOME TAX CONSEQUENCES' in the Prospectus for
more detail.
In addition, certain Classes of Offered Certificates may be treated as
issued with a premium.
We refer you to 'FEDERAL INCOME TAX CONSEQUENCES' in the Prospectus for
more detail.
The prepayment assumption that will be used in determining the rate of
accrual of original issue discount is 24% HEP with respect to the Group I Home
Equity Loans and 28% CPR with respect to the Group II Home Equity Loans. See
'Prepayment and Yield Considerations' herein for a description of the prepayment
assumption model. However, no representation is made as to the rate at which
prepayments actually will occur.
The Class A Certificates will be treated as assets described in Section
7701(a)(19)(C) of the Code for domestic building and loan associations, and
'real estate assets' for real estate investment trusts (REITs), subject to the
limitations described in 'FEDERAL INCOME TAX CONSEQUENCES' in the Prospectus.
Similarly, interest on such Class A Certificates will be considered 'interest on
obligations secured by mortgages on real property' for REITs, subject to the
limitations described in 'Federal Income Tax Consequences' in the Prospectus.
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CERTAIN STATE TAX CONSIDERATIONS
Because the income tax laws of the states vary, it is impractical to
predict the income tax consequences to the Certificateholders in all of the
state taxing jurisdictions in which they are subject to tax. Certificateholders
are urged to consult their own tax advisors with respect to state and local
income and franchise taxes.
ERISA CONSIDERATIONS
A fiduciary of a pension, profit-sharing, retirement or other employee
benefit plan subject to Title I of the Employee Retirement Income Security Act
of 1974, as amended ('ERISA'), should consider the fiduciary standards under
ERISA in the context of the plan's particular circumstances before authorizing
an investment of a portion of such plan's assets in the Class A Certificates.
Accordingly, pursuant to Section 404 of ERISA, such fiduciary should consider
among other factors: (i) whether the investment is for the exclusive benefit of
plan participants and their beneficiaries; (ii) whether the investment satisfies
the applicable diversification requirements; (iii) whether the investment is in
accordance with the documents and instruments governing the plan; and (iv)
whether the investment is prudent, considering the nature of the investment.
Fiduciaries of plans also should consider ERISA's prohibition on improper
delegation of control over, or responsibility for, plan assets.
In addition, benefit plans subject to ERISA, as well as individual
retirement accounts or certain types of Keogh plans not subject to ERISA but
subject to Section 4975 of the Code and any entity whose source of funds for the
purchase of Class A Certificates includes plan assets by reason of a plan or
account investing in such entity (each, a 'Plan'), are prohibited from engaging
in a broad range of transactions involving Plan assets and persons having
certain specified relationships to a Plan ('parties in interest' and
'disqualified persons'). Such transactions are treated as 'prohibited
transactions' under Sections 406 and 407 of ERISA and excise taxes are imposed
upon such persons by Section 4975 of the Code.
An investment in Class A Certificates by a Plan might result in the assets
of the Trust being deemed to constitute Plan assets, which in turn might mean
that certain aspects of such investment, including the operation of the Trust,
might be prohibited transactions under ERISA and the Code. Neither ERISA nor the
Code defines the term 'plan assets.' Under Section 2510.3-101 of the United
States Department of Labor ('DOL') regulations (the 'Regulation'), a Plan's
assets may include an interest in the underlying assets of an entity (such as a
trust) for certain purposes, including the prohibited transaction provisions of
ERISA and the Code, if the Plan acquires an 'equity interest' in such entity,
unless certain exceptions apply. The Depositor believes that the Class A
Certificates will give Certificateholders an equity interest in the Trust for
purposes of the Regulation and can give no assurance that the Class A
Certificates will qualify for any of the exceptions under the Regulation. As a
result, the assets of the Trust may be considered the assets of any Plan which
acquires a Class A Certificate.
The DOL has granted to Prudential Securities Incorporated an administrative
exemption (Prohibited Transaction Exemption 90-32; 55 Fed. Reg. 23,147 (June 6,
1990)) (the 'Exemption') from certain of the prohibited transaction rules of
ERISA which may be applicable to the initial purchase, the holding and the
subsequent resale in the secondary market by Plans of pass-through certificates
representing a beneficial undivided ownership interest in the assets of a trust
that consist of certain receivables, loans and other obligations that meet the
conditions and requirements of the Exemption which may be applicable to the
Class A Certificates if Prudential Securities Incorporated or any of its
affiliates is either the sole underwriter or manager or co-manager of the
underwriting syndicate, or a selling or placement agent. The conditions which
must be satisfied for the Exemption to apply to the purchase, holding and
transfer of the Class A Certificates include the following:
(i) The acquisition of the Class A Certificates by a Plan is on terms
(included the price for the Class A Certificates) that are at least as
favorable to the Plan as they would be in an arm's length transaction with
an unrelated party.
(ii) The rights and interest evidenced by a class of Class A
Certificates acquired by the Plan are not subordinated to the rights and
interest evidenced by any other Certificates of the Trust.
(iii) The Class A Certificates acquired by the Plan have received a
rating at the time of such acquisition that is in one of the three highest
generic rating categories from any of Moody's, Duff &
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Phelps Credit Rating Co., S&P or Fitch IBCA, Inc. ('Authorized Rating
Agencies') and the investment pool consists only of assets of the type
enumerated in the Exemption, and which have been included in other
investment pools; certificates evidencing interests in such other
investment pools have been rated in one of the three highest generic rating
categories by an Authorized Rating Agency for at least one year prior to a
Plan's acquisition of certificates; and certificates evidencing interests
in such other investment pool have been purchased by investors other than
Plans for at least one year prior to a Plan's acquisition of the Class A
Certificates.
(iv) The sum of all payments made to the Underwriters in connection
with the distribution of the Class A Certificates represents not more than
reasonable compensation for distributing the Class A Certificates. The sum
of all payments made to and retained by the Depositor pursuant to the sale
of the Home Equity Loans to the Trust represents not more than the fair
market value for such Home Equity Loans. The sum of all payments made to
and retained by the Servicer or any other servicer represents not more than
reasonable compensation for such services under the Agreement and
reimbursement of the servicer's reasonable expenses in connection
therewith.
(v) The Trustee must not be an affiliate of any member of the
Restricted Group as defined blow.
In addition, it is a condition that the Plan investing in the Class A
Certificates be an 'accredited investor' as defined in Rule 501(a)(1) of
Regulation D under the Securities Act of 1933, as amended.
The Exemption does not apply to Plans sponsored by the Seller, the
Depositor, the Certificate Insurer, the Underwriters, the Trustee, the Servicer
or any Mortgagor with respect to Home Equity Loans included in the Trust
constituting more than 5% of the aggregate unamortized principal balance of the
assets in the Trust or any affiliate of such parties (the 'Restricted Group').
No exemption is provided from the restrictions of ERISA for the acquisition or
holding of Class A Certificates on behalf of an 'Excluded Plan' by any person
who is a fiduciary with respect to the assets of such Excluded Plan. For
purposes of the Class A Certificates, an Excluded Plan is a Plan sponsored by
any member of the Restricted Group. In addition, no Plan's investment in any
class of Class A Certificates may exceed 25% of all of the Certificates of such
Class outstanding at the time of the Plan's acquisition and after the Plan's
acquisition of such class of Class A Certificates, no more than 25% of the
assets over which the fiduciary has investment authority may be invested in
securities of a trust containing assets which are sold or serviced by the same
entity. Finally, in the case of initial issuance (but not secondary market
transactions), at least 50% of each class of Class A Certificates, and at least
50% of the aggregate interest in the Trust, must be acquired by persons
independent of the Restricted Group.
The Depositor believes that the Exemption will apply to the acquisition,
holding and resale of the Class A Certificates by a Plan and that all conditions
of the Exemption other than those within the control of the investors have been
or will be met.
We refer you to 'ERISA CONSIDERATIONS' in the Prospectus for more detail.
Before purchasing a Class A Certificate, a fiduciary of a Plan should
itself confirm (a) that the Class A Certificates constitute 'certificates' for
purposes of the Exemption and (b) that the specific conditions set forth in the
Exemption and the other requirements set forth in the Exemption will be
satisfied.
Any Plan fiduciary considering whether to purchase a Class A Certificate on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment.
LEGAL INVESTMENT CONSIDERATIONS
Although, as a condition to their issuance, the Class A Certificates will
be rated in the highest rating category of the Rating Agencies, the Class A
Certificates will not constitute 'mortgage related securities' for purposes of
the Secondary Mortgage Market Enhancement Act of 1984 ('SMMEA'). Accordingly,
many institutions with legal authority to invest in comparably rated securities
may not be legally authorized to invest in the Class A Certificates.
We refer you to 'LEGAL INVESTMENT' in the Prospectus for more detail.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, dated February 22, 1999 (the 'Underwriting Agreement'), among the
Depositor and the Underwriters named below (the 'Underwriters') the Depositor
has agreed to sell to the Underwriters and the Underwriters have agreed to
purchase from the Depositor the principal amount of the Class A Certificates set
forth opposite their respective names. The Class A Certificates will be offered
by the Underwriters when as and if issued and sold by the Depositor to the
Underwriters, subject to the Underwriters' right to reject any subscription, in
whole or in part.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT OF
UNDERWRITERS CLASS A-1 CERTIFICATES CLASS A-2 CERTIFICATES CLASS A-3 CERTIFICATES
- ---------------------------------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Prudential Securities Incorporated............ $ 45,500,000 $ 14,000,000 $ 23,100,000
Lehman Brothers Inc........................... $ 19,500,000 $ 6,000,000 $ 9,900,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT OF
UNDERWRITERS CLASS A-4 CERTIFICATES CLASS A-5 CERTIFICATES CLASS A-6 CERTIFICATES
- ---------------------------------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Prudential Securities Incorporated............ $ 18,900,000 $ 13,486,900 $ 12,600,000
Lehman Brothers Inc........................... $ 8,100,000 $ 5,780,100 $ 5,400,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT OF
UNDERWRITERS CLASS A-7 CERTIFICATES CLASS A-8 CERTIFICATES
- ---------------------------------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Prudential Securities Incorporated............ $ 41,204,100 $ 14,000,000
Lehman Brothers Inc........................... $ 17,658,900 $ 6,000,000
</TABLE>
The Underwriters have informed the Depositor that they propose to offer the
Class A Certificates for sale from time to time in one or more negotiated
transactions, or otherwise, at varying prices to be determined, in each case, at
the time of the related sale. The Underwriters may effect such transactions by
selling the Class A Certificates to or through dealers, and such dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriters. In connection with the sale of the Class A
Certificates, the Underwriters may be deemed to have received compensation from
the Depositor in the form of underwriting compensation. The Underwriters and any
dealers that participate with the Underwriters in the distribution of the Class
A Certificates may be deemed to be underwriters and any commissions received by
them and any profit on the resale of the Class A Certificates by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933, as amended (the 'Securities Act').
No Class A Certificate will have an established trading market when issued.
The Underwriters may, from time to time, act as a broker or purchase and sell
Class A Certificates in the secondary market, but the Underwriters are under no
obligation to do so and there can be no assurance that there will be a secondary
market for the Class A Certificates or liquidity in the secondary market if one
does develop.
From time to time the Underwriters or their affiliates may perform
investment banking and advisory services for, and may provide general financing
and banking services to, affiliates of the Depositor.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriters against certain civil liabilities, including liabilities under the
Act.
EXPERTS
The consolidated balance sheets of MBIA Insurance Corporation and
Subsidiaries as of December 31, 1997 and December 31, 1996 and the related
consolidated statements of income, changes in shareholder's equity, and cash
flows for each of the three years in the period ended December 31, 1997,
incorporated by reference in this Prospectus Supplement have been incorporated
herein in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
LEGAL MATTERS
Certain legal matters with respect to the Class A Certificates will be
passed upon for the Depositor by Stroock & Stroock & Lavan LLP, New York, New
York and for the Seller and Servicer by Stroock &
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Stroock & Lavan LLP, New York, New York. Certain legal matters will be passed
upon for the Underwriters by Thacher Proffitt & Wood, New York, New York.
RATINGS
It is a condition to the issuance of the Class A Certificates that they
receive ratings of 'AAA' by S&P and 'Aaa' by Moody's.
A securities rating addresses the likelihood of the receipt by Class A
Certificateholders of distributions on the Home Equity Loans. The rating takes
into consideration the characteristics of the Home Equity Loans and the
structural, legal and tax aspects associated with the Class A Certificates. The
ratings on the Class A Certificates do not, however, constitute statements
regarding the likelihood or frequency of prepayments on the Home Equity Loans,
the likelihood of payment of any Class A-7 Certificateholders' Interest Index
Carryovers or the possibility that Class A Certificateholders might realize a
lower than anticipated yield.
The ratings assigned to the Class A Certificates will depend primarily upon
the creditworthiness of the Certificate Insurer. Any reduction in a rating
assigned to the claims-paying ability of the Certificate Insurer below the
ratings initially assigned to the Class A Certificates may result in a reduction
of one or more of the ratings assigned to the Class A Certificates.
A securities rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each securities rating should be evaluated independently of
similar ratings on different securities.
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<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERMS PAGE
- ----------------------------------------------------------------------------------------------------------- ----
<S> <C>
2/28 Adjustable Rate Loans................................................................................. 28
accredited investor........................................................................................ 66
Aggregate Class A Principal Balance........................................................................ 47
Agreement.................................................................................................. 46
Appraised Values........................................................................................... 19
Authorized Rating Agencies................................................................................. 66
Available Funds............................................................................................ 53
Available Funds Shortfall.................................................................................. 49
Balloon Loans.............................................................................................. 40
Book-Entry Certificates.................................................................................... 47
Business Day............................................................................................... 61
Carry-Forward Amount....................................................................................... 52
Cede....................................................................................................... 47
Cedel...................................................................................................... 47
Certificate Account........................................................................................ 48
Certificate Insurer........................................................................................ 46
Certificate Insurer Default................................................................................ 51
Certificate Rate........................................................................................... 49
Certificate Register....................................................................................... 48
Certificate Registrar...................................................................................... 48
Certificateholder.......................................................................................... 47
Certificateowners.......................................................................................... 47
Certificates............................................................................................... 46
Citibank................................................................................................... 47
Civil Relief Act Interest Shortfalls....................................................................... 51
Class A Certificates....................................................................................... 46
Class A Distribution Amount................................................................................ 52
Class A Principal Distribution Amount...................................................................... 52
Class A-1 Certificates..................................................................................... 46
Class A-2 Certificates..................................................................................... 46
Class A-3 Certificates..................................................................................... 46
Class A-4 Certificates..................................................................................... 46
Class A-5 Certificates..................................................................................... 46
Class A-6 Certificates..................................................................................... 46
Class A-6 Lockout Distribution Amount...................................................................... 52
Class A-6 Lockout Percentage............................................................................... 52
Class A-6 Lockout Pro Rata Distribution Amount............................................................. 53
Class A-7 Available Funds Cap.............................................................................. 54
Class A-7 Certificates..................................................................................... 46
Class A-7 Certificateholders' Interest Index Carryover..................................................... 54
Class A-7 Formula Rate..................................................................................... 54
Class A-8 Certificates..................................................................................... 46
Class A-8 Lockout Distribution Amount...................................................................... 53
Class A-8 Lockout Percentage............................................................................... 53
Class A-8 Lockout Pro Rata Distribution Amount............................................................. 53
Class Principal Balance.................................................................................... 47
Class R Certificates....................................................................................... 46
Class X-IO Certificates.................................................................................... 46
Closing Date............................................................................................... 19
CMAC....................................................................................................... 62
Code....................................................................................................... 64
Compensating Interest...................................................................................... 57
Coupon Rate................................................................................................ 20
CPR........................................................................................................ 40
</TABLE>
S-69
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<PAGE>
<TABLE>
<CAPTION>
TERMS PAGE
- ----------------------------------------------------------------------------------------------------------- ----
<S> <C>
Current Interest........................................................................................... 51
Cut-Off Date............................................................................................... 18
Cut-Off Date Loan Balance.................................................................................. 19
Deficiency Amount.......................................................................................... 61
Definitive Certificate..................................................................................... 48
Delinquency Advances....................................................................................... 57
Depositary Services........................................................................................ 48
Depositor.................................................................................................. 19
disqualified persons....................................................................................... 65
Distribution Date.......................................................................................... 48
DOL........................................................................................................ 65
DTC........................................................................................................ 47
Due Period................................................................................................. 51
equity interest............................................................................................ 65
ERISA...................................................................................................... 65
Euroclear.................................................................................................. 47
European Depositaries...................................................................................... 47
Excess Subordinated Amount................................................................................. 56
Excluded Plan.............................................................................................. 66
Exemption.................................................................................................. 65
Expense Fee................................................................................................ 49
Final Maturity Date........................................................................................ 58
Fiscal Agent............................................................................................... 60
GAAP....................................................................................................... 63
Global Securities.......................................................................................... 1
Group I.................................................................................................... 47
Group I Home Equity Loans.................................................................................. 19
Group II................................................................................................... 47
Group II Home Equity Loans................................................................................. 19
Group II Net WAC Cap....................................................................................... 55
Guaranteed Principal Amount................................................................................ 61
HEP........................................................................................................ 40
Home Equity Loan Group..................................................................................... 19
Home Equity Loans.......................................................................................... 18
Industry................................................................................................... 48
Insured Payment............................................................................................ 49
Interest Period............................................................................................ 55
LIBOR Determination Date................................................................................... 55
Liquidated Loan............................................................................................ 57
Loan Balance............................................................................................... 20
London business day........................................................................................ 55
Maximum Rates.............................................................................................. 28
MBIA Inc. ................................................................................................. 62
Minimum Rates.............................................................................................. 28
Minimum Spread............................................................................................. 54
Moody's.................................................................................................... 54
Monthly Remittance Date.................................................................................... 53
Morgan..................................................................................................... 47
Mortgaged Properties....................................................................................... 19
Net Coupon Rate............................................................................................ 54
Net Liquidation Proceeds................................................................................... 59
Net Monthly Excess Cashflow................................................................................ 51
Non-Offered Certificates................................................................................... 46
Notes...................................................................................................... 19
Notice..................................................................................................... 61
One-Month LIBOR............................................................................................ 55
</TABLE>
S-70
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<PAGE>
<TABLE>
<CAPTION>
TERMS PAGE
- ----------------------------------------------------------------------------------------------------------- ----
<S> <C>
Owners..................................................................................................... 61
Original Combined Loan-to-Value Ratio...................................................................... 24
parties in interest........................................................................................ 65
Percentage Interest........................................................................................ 55
Plan....................................................................................................... 65
plan assets................................................................................................ 65
Policies................................................................................................... 46
Preference Amount.......................................................................................... 61
Premium Amount............................................................................................. 49
Prepayments................................................................................................ 38
prohibited transactions.................................................................................... 65
Rating Agencies............................................................................................ 54
Realized Loss.............................................................................................. 57
Reference Banks............................................................................................ 55
Regular Certificates....................................................................................... 64
Regulation................................................................................................. 65
Reimbursement Amount....................................................................................... 49
REITS...................................................................................................... 64
Relevant Depositary........................................................................................ 47
REMIC Regular Certificates................................................................................. 64
REMIC Residual Certificates................................................................................ 64
REMICs..................................................................................................... 64
Restricted Group........................................................................................... 66
Securities Act............................................................................................. 67
SAP........................................................................................................ 63
Seller..................................................................................................... 19
Servicer................................................................................................... 46
Servicing Advances......................................................................................... 12
Servicing Fee.............................................................................................. 56
Six-Month Adjustable Rate Loans............................................................................ 28
SMMEA...................................................................................................... 66
Specified Subordinated Amount.............................................................................. 56
Structuring Assumptions.................................................................................... 40
Subordinated Amount........................................................................................ 56
Subordination Deficiency Amount............................................................................ 50
Subordination Deficit...................................................................................... 57
Subordination Increase Amount.............................................................................. 56
Subordination Reduction Amount............................................................................. 57
Substitution Amounts....................................................................................... 55
Systems.................................................................................................... 48
Telerate Page 3750......................................................................................... 55
Total Available Funds...................................................................................... 53
Total Monthly Excess Cashflow.............................................................................. 49
Total Monthly Excess Spread................................................................................ 51
Trust...................................................................................................... 18
Trust Estate............................................................................................... 46
Trust Property............................................................................................. 8
Trustee.................................................................................................... 46
Trustee Fee................................................................................................ 58
Underwriters............................................................................................... 67
Underwriting Agreement..................................................................................... 67
weighted average life...................................................................................... 40
</TABLE>
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<PAGE>
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Centex Home
Equity Loan Asset-Backed Certificates, Series 1999-1 (the 'Global Securities')
will be available only in book-entry form. Investors in the Global Securities
may hold such Global Securities through any of DTC, Cedel or Euroclear. The
Global Securities will be tradeable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary trades
will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior Home Equity Loan Asset-Backed
Certificates issues.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to prior Home Equity Loan Asset-Backed
Certificates issues. Investor securities custody accounts will be credited with
their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no 'lock-up' or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior Home
Equity Loan Asset-Backed Certificates issues in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. Cedel or Euroclear
will instruct the respective Depositary, as the case may be, to receive the
Global Securities against payment. Payment will include interest accrued on the
Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of either the actual number of days
in such accrual period and a year assumed to consist of 360 days or a 360-day
year of 12 30-day months as applicable to the related class of Global
A-1
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<PAGE>
Securities. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
Payment will then be made by the respective Depositary of the DTC Participant's
account against delivery of the Global Securities. After settlement has been
completed, the Global Securities will be credited to the respective clearing
system and by the clearing system, in accordance with its usual procedures, to
the Cedel Participant's or Euroclear Participant's account. The securities
credit will appear the next day (European time) and the cash debt will be
back-valued to, and the interest on the Global Securities will accrue from, the
value date (which would be the preceding day when settlement occurred in New
York). If settlement is not completed on the intended value date (i.e., the
trade fails), the Cedel or Euroclear cash debt will be valued instead as of the
actual settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to preposition
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each Cedel Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective European Depositary for the benefit of Cedel Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear Seller and DTC Purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to Cedel or Euroclear through a Cedel Participant or Euroclear Participant at
least one business day prior to settlement. In these cases Cedel or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the Global
Securities to the DTC Participant's account against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment to and excluding the settlement date on the basis of either the
actual number of days in such accrual period and a year assumed to consist of
360 days or a 360-day year of 12 30-day months as applicable to the related
class of Global Securities. For transactions settling on the 31st of the month,
payment will include interest accrued to and excluding the first day of the
following month. The payment will then be reflected in the account of the Cedel
Participant or Euroclear Participant the following day, and receipt of the cash
proceeds in the Cedel Participant's or Euroclear Participant's account would be
back-valued to the value date (which would be the preceding day, when settlement
occurred in New York). Should the Cedel Participant or Euroclear Participant
have a line of credit with its respective clearing system and elect to be in
debt in anticipation of receipt of the sale proceeds in its account, the
back-valuation will extinguish any overdraft incurred over that one-day period.
If settlement is not completed on the intended value date (i.e., the trade
fails), receipt of the cash proceeds in the Cedel Participant's or Euroclear
Participant's account would instead be valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
A-2
<PAGE>
<PAGE>
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons (as defined below), unless (i) each clearing system, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business in the chain of intermediaries between such beneficial
owner and the U.S. entity required to withhold tax complies with applicable
certification requirements and (ii) such beneficial owner takes one of the
following steps to obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (as defined below) (Form W-8). Beneficial
owners of Global Securities that are non-U.S. Persons can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status). If the information shown on Form W-8 changes, a new Form W-8
must be filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are Certificate Owners residing in a country
that has a tax treaty with the United States can obtain an exemption or reduced
tax rate (depending on the treaty terms) by filing Form 1001 (Ownership,
Exemption or Reduced Rate Certificate). If the treaty provides only for a
reduced rate, withholding tax will be imposed at that rate unless the filer
alternatively files Form W-8. Form 1001 may be filed by the Certificate Owners
or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term 'U.S. Person' means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States, any state thereof or the District of Columbia (other than a
partnership that is not treated as a United States person under any applicable
Treasury regulations), (iii) an estate the income of which is includible in
gross income for United States tax purposes, regardless of its source, or (iv) a
trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have authority to control all substantial decisions of the trust.
Notwithstanding clause (iv), to the extent provided in the regulations, certain
trusts in existence on August 20, 1996, and treated as United States persons
prior to such date, that elect to continue to be treated as United States
persons shall also be a U.S. Person. Entities not considered U.S. Persons shall
be considered non-U.S. Persons.
This summary does not deal with all aspects of U.S. Federal income tax
withholding that may be relevant to foreign holders of the Global Securities or
with the application of Treasury regulations relating to tax documentation
requirements that are generally effective with respect to payments made after
December 31, 1999. Investors are advised to consult their own tax advisors for
specific tax advice concerning their holding and disposing of the Global
Securities.
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PROSPECTUS
ASSET-BACKED CERTIFICATES
ASSET-BACKED NOTES
(ISSUABLE IN SERIES)
------------------------
CHEC ASSET RECEIVABLE CORPORATION
(DEPOSITOR)
CENTEX CREDIT CORPORATION
D/B/A
CENTEX HOME EQUITY CORPORATION
(SELLER AND SERVICER)
------------------------
The Asset-Backed Certificates (the 'Certificates') and the Asset-Backed
Notes (the 'Notes' and, collectively with the Certificates, the 'Securities')
described herein may be sold from time to time in one or more series (each, a
'Series') in amounts, at prices and on terms to be determined at the time of
sale and to be set forth in a supplement to this Prospectus (a 'Prospectus
Supplement'). Each series (each a 'Series') of Securities will include either
one or more classes of Certificates or, if Notes are issued as part of a Series,
one or more Classes of Notes and one or more Classes of Certificates, as set
forth in the related Prospectus Supplement. Certain capitalized terms used
herein are defined in 'INDEX OF DEFINED TERMS' beginning on page 87.
FOR A DISCUSSION OF SIGNIFICANT MATTERS AFFECTING INVESTMENT IN THE
SECURITIES, SEE 'RISK FACTORS' BEGINNING ON PAGE 17 IN THE PROSPECTUS. The
Certificates of a Series will evidence undivided interests in certain assets
deposited into a trust (each, a 'Trust Fund') by CHEC Asset Receivable
Corporation (the 'Depositor') pursuant to a Pooling and Servicing Agreement or a
Trust Agreement, as described herein. The Notes of a Series will be issued and
secured pursuant to an Indenture and will represent indebtedness of the
(continued on following page)
SEE 'RISK FACTORS' BEGINNING ON PAGE 17 FOR MATERIAL RISKS TO BE CONSIDERED
IN PURCHASING THE SECURITIES.
------------------------
NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF, AND CERTIFICATES OF A
SERIES EVIDENCE BENEFICIAL INTERESTS IN, THE RELATED TRUST FUND ONLY
AND ARE NOT GUARANTEED BY ANY GOVERNMENTAL AGENCY OR BY
THE DEPOSITOR, THE TRUSTEE, THE SERVICER, THE SELLER OR BY
ANY OF THEIR RESPECTIVE AFFILIATES. THE ONLY OBLIGATIONS
OF THE SELLER OR THE DEPOSITOR WITH RESPECT TO ANY
SERIES OF SECURITIES WILL BE PURSUANT TO CERTAIN
REPRESENTATIONS AND WARRANTIES SET FORTH IN THE
RELATED AGREEMENT AS DESCRIBED HEREIN OR IN
THE RELATED PROSPECTUS SUPPLEMENT.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of securities offered hereby unless accompanied by a
Prospectus Supplement.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 22, 1999.
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(continued from previous page)
related Trust Fund. The Trust Fund for a Series of Securities will include (a)
Home Equity Loans, which may include one or more pools of closed-end home equity
loans (the 'Home Equity Loans'), secured by first or second mortgages on one- to
four-family residential or mixed use properties, (b) certain monies received or
due thereunder on or after the date specified in the related Prospectus
Supplement (the 'Cut-off Date') net of certain amounts payable to Centex Credit
Corporation d/b/a Centex Home Equity Corporation, as servicer (the 'Servicer' or
in its capacity as seller, the 'Seller') of the Home Equity Loans, (c) if
specified in the related Prospectus Supplement, funds on deposit in one or more
pre-funding accounts and/or capitalized interest accounts and (d) reserve funds,
letters of credit, surety bonds, insurance policies or other forms of credit
support as described herein and in the related Prospectus Supplement. Amounts on
deposit in a pre-funding account for any Series will be used to purchase
additional Home Equity Loans during the funding period specified in the related
Prospectus Supplement in the manner specified therein. The amount initially
deposited in a pre-funding account for a Series of Securities will not exceed
fifty percent of the aggregate principal amount of such Series of Securities.
Each Series of Securities will be issued in one or more classes (each, a
'Class'). Interest on and principal of the Securities of a Series will be
payable on the date or dates specified in the related Prospectus Supplement
(each, a 'Distribution Date'), at the times, at the rates, in the amounts and in
the order of priority set forth in the related Prospectus Supplement.
If a Series includes multiple Classes, such Classes may vary with respect
to the amount, percentage (which may be 0%) and timing of distributions of
principal, interest or both and one or more Classes may be subordinated to other
Classes with respect to distributions of principal, interest or both as
described herein and in the related Prospectus Supplement. The Home Equity Loans
and other assets comprising the Trust Fund may be divided into one or more Asset
Groups and each Class of the related Series will evidence beneficial ownership
of the corresponding Asset Group, as applicable.
The Seller, the Servicer, or such other entity that is specified in the
related Prospectus Supplement, may, at its option, cause an early termination of
one or more Classes of Securities by purchasing all or part of the Home Equity
Loans remaining in the Trust Fund on or after a specified date, or on or after
such time as the aggregate principal balance of the Securities of the Series or
the Home Equity Loans relating to such Series, as specified in the related
Prospectus Supplement, is less than the amount or percentage, not more than 25%,
specified in the related Prospectus Supplement.
We refer you to 'DESCRIPTION OF THE SECURITIES -- Optional Redemption,
Purchase or Termination' for more detail.
The rate of reduction of the aggregate principal balance of each Class of a
Series may depend principally upon the rate of payment (including prepayments)
with respect to the Home Equity Loans. A rate of prepayment lower or higher than
anticipated will affect the yield on the Securities of a Series in the manner
described herein and in the related Prospectus Supplement. Under certain limited
circumstances described herein and in the related Prospectus Supplement, a
Series of Securities may be subject to termination or redemption.
If specified in the related Prospectus Supplement, one or more elections
may be made to treat certain assets comprising the Trust Fund for a Series as a
'real estate mortgage investment conduit' (a 'REMIC') for federal income tax
purposes.
We refer you to 'FEDERAL INCOME TAX CONSEQUENCES' for more detail.
There currently is no secondary market for the Securities. There can be no
assurance that any such market will develop or, if it does develop, that it will
continue.
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PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be offered
hereunder will, among other things, set forth with respect to such Series of
Securities: (i) the aggregate principal amount, interest rate, and authorized
denominations of each Class of such Securities; (ii) certain information
concerning the Home Equity Loans; (iii) the terms of any Enhancement (as defined
herein) with respect to such Series; (iv) the terms of any insurance related to
the Home Equity Loans; (v) information concerning any other assets in the
related Trust Fund, including any Reserve Fund; (vi) the Final Scheduled
Distribution Date (as defined herein) of each Class of such Securities; (vii)
the method to be used to calculate the amount of interest and principal required
to be applied to the Securities of each Class of such Series on each
Distribution Date, the timing of the application of interest and principal and
the order of priority of the application of such interest and principal to the
respective Classes and the allocation of interest and principal to be so
applied; (viii) the Distribution Dates and any Assumed Reinvestment Rate (as
defined herein); (ix) the amount, if any, deposited in the Pre-Funding Account
(as defined herein) available to purchase additional Home Equity Loans, the
length of the Pre-Funding Period (as defined herein) and the criteria for
determining which additional Home Equity Loans may become part of the Trust
Fund; (x) additional information with respect to the plan of distribution of
such Securities; and (xi) whether one or more REMIC elections will be made with
respect to some or all of the Trust Fund for such Series and if so, the
designation of the Securities offered hereunder as regular interests or residual
interests in a REMIC.
REPORTS TO HOLDERS
Periodic and annual reports concerning the related Trust Fund for a Series
of Securities are required under the related Agreements to be forwarded to
Holders. Unless otherwise specified in the related Prospectus Supplement, such
reports will not be examined and reported on by an independent public
accountant. If so specified in the Prospectus Supplement for a Series of
Securities, such Series or one or more Classes of such Series will be issued in
book-entry form. In such event, (i) owners of beneficial interests in such
Securities will not be considered 'Holders' under the Agreements and will not
receive such reports directly from the related Trust Fund; rather, such reports
will be furnished to such owners through the participants and indirect
participants of the applicable book-entry system and (ii) references herein to
the rights of 'Holders' shall refer to the rights of such owners as they may be
exercised indirectly through such participants.
We refer you to 'THE AGREEMENTS -- Reports to Holders' for more detail.
AVAILABLE INFORMATION
The Seller has filed with the Securities and Exchange Commission (the
'Commission') a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Securities. This Prospectus, which forms a part of
the Registration Statement, and the Prospectus Supplement relating to each
Series of Securities contain summaries of the material terms of the documents
referred to herein and therein, but do not contain all of the information set
forth in the Registration Statement pursuant to the Rules and Regulations of the
Commission. For further information, reference is made to such Registration
Statement and the exhibits thereto. Such Registration Statement and exhibits can
be inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at its Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at its Regional Office located as follows,
Midwest Regional Office, 500 West Madison Street, Chicago, Illinois 60661; and
Northeast Regional Office, Seven World Trade Center, New York, New York 10048.
The Commission maintains an Internet Web site that contains reports, proxy and
information statements and other information regarding the registrants that file
electronically with the Commission, including the Seller. The address of such
Internet Web site is (http://www.sec.gov).
Each Trust Fund will be required to file certain reports with the
Commission pursuant to the requirements of the Securities Exchange Act of 1934,
as amended (the 'Exchange Act'). The Depositor and the Seller intend to cause
each Trust Fund to suspend filing such reports if and when such reports are no
longer required under the Exchange Act.
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No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by or on behalf of the Trust Fund referred
to in the accompanying Prospectus Supplement with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, after the date of this
Prospectus and prior to the termination of any offering of the Securities issued
by such Trust Fund shall be deemed to be incorporated by reference in this
Prospectus and to be a part of this Prospectus from the date of the filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for all purposes of this Prospectus to the extent that a statement contained
herein (or in the accompanying Prospectus Supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference modifies or replaces such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Seller on behalf of any Trust Fund will provide without charge to each
person to whom this Prospectus is delivered, on the written or oral request of
such person, a copy of any or all of the documents referred to above that have
been or may be incorporated by reference in this Prospectus (not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates).
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SUMMARY OF TERMS
The following summary 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 Securities contained in the
Prospectus Supplement to be prepared and delivered in connection with the
offering of Securities of such Series. Capitalized terms used and not otherwise
defined herein or in the related Prospectus Supplement shall have the meanings
set forth in the 'INDEX OF DEFINED TERMS' beginning on page 87.
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Securities Offered.................. Asset-Backed Certificates (the 'Certificates') and Asset-Backed Notes (the
'Notes'). Certificates are issuable from time to time in Series pursuant to
a Pooling and Servicing Agreement or Trust Agreement. Each Certificate of a
Series will evidence an interest in the Trust Fund for such Series, or in
an Asset Group specified in the related Prospectus Supplement. Notes are
issuable from time to time in a Series pursuant to an Indenture. Each
Series of Securities will consist of one or more Classes, one or more of
which may be Classes of Compound Interest Securities, Planned Amortization
Class ('PAC') Securities, Variable Interest Securities, Zero Coupon
Securities, Principal Only Securities, Interest Only Securities, Senior
Securities or Subordinate Securities (each of which is generally described
in the 'INDEX OF DEFINED TERMS'). Each Class may differ in, among other
things, the amounts allocated to and the priority of principal and interest
payments, Final Scheduled Distribution Dates, Distribution Dates and
interest rates. The Securities of each Class will be issued in fully
registered form in the denominations specified in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, the
Securities or certain Classes of such Securities offered thereby may be
available in book-entry form only. The related Prospectus Supplement will
set forth whether there will be an application to list any Class of
Securities on an exchange or to quote the securities in the automated
quotation system of a registered securities association.
Issuer.............................. The Trust Fund created pursuant to the applicable Pooling and Servicing
Agreement or Trust Agreement, as applicable.
Depositor........................... CHEC Asset Receivable Corporation, a Delaware corporation, with its
principal executive offices located at 2728 N. Harwood Street, Dallas,
Texas 75201 and a telephone number of (214) 981-5000.
We refer you to 'THE DEPOSITOR' for more detail.
Servicer and Seller................. Centex Credit Corporation d/b/a Centex Home Equity Corporation (in its
capacity as seller of the Home Equity Loans, the 'Seller' and in its
capacity as servicer of the Home Equity Loans, the 'Servicer,' a Nevada
corporation with its principal executive offices located at 2728 N. Harwood
Street, Dallas Texas 75201 and a telephone number of (214) 981-5000.
We refer you to 'SELLER AND SERVICER' for more detail.
Interest Payments................... Interest payments on the Securities of a Series entitled by their terms to
receive interest will be made on each Distribution Date, to the extent set
forth in, and at the applicable rate specified in (or determined in the
manner set forth in), the related Prospectus Supplement. The interest rate
on Securities of a Series may be variable or change with changes in the
rates of interest on the related Home Equity Loans and/or as prepayments
occur with
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respect to such Home Equity Loans. Interest Only Securities may be assigned
a 'Notional Amount' which is used solely for convenience in expressing the
calculation of interest and for certain other purposes and does not
represent the right to receive any distributions allocable to principal.
Principal Only Securities may not be entitled to receive any interest
payments or may be entitled to receive only nominal interest payments.
Interest payable on the Securities of a Series on a Distribution Date will
include all interest accrued during the period specified in the related
Prospectus Supplement.
We refer you to 'DESCRIPTION OF THE SECURITIES -- Payments of Interest' for
more detail.
Principal Payments.................. All payments of principal of a Series of Securities will be made in an
aggregate amount determined as set forth in the related Prospectus
Supplement and will be paid at the times and will be allocated among the
Classes of such Series in the order and amounts, and will be applied either
on a pro rata or a random lot basis among all Securities of any such Class,
all as specified in the related Prospectus Supplement.
Final Scheduled Distribution Date of
the Securities.................... The Final Scheduled Distribution Date with respect to each Class of Notes
is the date no later than the date on which principal thereof will be fully
paid and with respect to each Class of Certificates is the date after which
no Certificates of such Class are expected to remain outstanding, in each
case calculated on the basis of the assumptions applicable to such Series
described in the related Prospectus Supplement. The Final Scheduled
Distribution Date of a Class may equal the maturity date of the Home Equity
Loan in the related Trust Fund which has the latest stated maturity or will
be determined as described herein and in the related Prospectus Supplement.
The actual final Distribution Date of the Securities of a Series will
depend primarily upon the rate of payment (including prepayments,
liquidations due to default, the receipt of proceeds from casualty
insurance policies and repurchases) of the Home Equity Loans in the related
Trust Fund. In general, the actual final Distribution Date of any Security
is likely to occur earlier and may occur substantially earlier or, with
respect to a Class of Certificates, may occur later than its Final
Scheduled Distribution Date as a result of the application of prepayments
to the reduction of the principal balances of the Securities and as a
result of defaults on the Home Equity Loans. The rate of payments on the
Home Equity Loans, in the Trust Fund for a Series will depend on a variety
of factors, including certain characteristics of such Home Equity Loans and
the prevailing level of interest rates from time to time, economic,
demographic, tax and legal factors and servicing decisions. No assurance
can be given as to the actual prepayment experience with respect to a
Series.
We refer you to 'RISK FACTORS -- Yield May Vary' and 'DESCRIPTION OF THE
SECURITIES -- Weighted Average Life of the Securities' for more detail.
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Optional Termination................ At its option, the Servicer (or the Enhancer, if any, if the Servicer fails
to exercise such option) may on any Monthly Remittance Date when the
aggregate outstanding loan balance of the Home Equity Loans is 10% or less
of the sum of the loan balances of all the Home Equity Loans in the Trust
as of the date such Home Equity Loans were transferred to the Trust,
purchase from the Trust Fund all (but not fewer than all) remaining Home
Equity Loans, in whole only, and other property acquired by foreclosure,
deed in lieu of foreclosure, or otherwise then constituting the Trust Fund,
and pay to the Holders the portion of the purchase price allocable to each
such class of Securities, which will equal an amount up to the sum of (i)
100% of the then outstanding principal balance of the related Securities
thereof, plus (ii) one month's interest on the then outstanding principal
balance of the related Securities thereof at the then applicable
Pass-Through Rate for such class, plus any previously accrued but unpaid
interest thereon, such sum payable in accordance with the priorities
described under 'Description of the Certificates -- Distributions' in the
related Prospectus Supplement and thereby effect early retirement of the
Securities.
Securities Involve Risks............ An investment in the Securities of any Series involves material risks and
should only be considered by investors which, either alone or together with
their investment advisors, have the ability to understand such risks.
We refer you to 'RISK FACTORS' beginning on page 17 herein for more detail.
The Trust Fund...................... The Trust Fund for a Series of Securities will consist of one or more of
the assets described below, as described in the related Prospectus
Supplement.
A. Home Equity Loans................ The Home Equity Loans for a Series may consist of any combination of the
following assets, to the extent and as specified in the related Prospectus
Supplement.
Home Equity Loans................. Home Equity Loans for a Series will consist, in whole or in part, of
'closed-end' home equity loans secured by first or second mortgages (the
'Home Equity Loans'). The Home Equity Loans may, as specified in the
related Prospectus Supplement, have various payment characteristics,
including balloon or other irregular payment features, and may accrue
interest at a fixed rate or an adjustable rate. Some Home Equity Loans may
be delinquent or non-performing as specified in the related Prospectus
Supplement. The Home Equity Loans will be originated by the Seller in the
ordinary course of its business. The Home Equity Loans will be
nonconventional loans. Additional Home Equity Loans may be periodically
added to the Trust Fund, or may be removed from time to time if certain
asset tests are met, all as described herein under 'THE TRUST FUNDS' and in
the related Prospectus Supplement.
The Home Equity Loans will be secured by mortgages or deeds of trust or
other similar security instruments creating a lien on a Mortgaged Property,
which may be subordinated to one or more senior liens on such Mortgaged
Property, as described herein under 'THE TRUST FUNDS' and in the related
Prospectus Supplement.
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The related Prospectus Supplement will describe certain characteristics of
the Home Equity Loans for a Series, including, without limitation, and to
the extent relevant: (a) the aggregate unpaid principal balance of the Home
Equity Loans; (b) the range and weighted average Home Equity Loan Rate on
the Home Equity Loans and in the case of adjustable rate Home Equity Loans,
the range and weighted average of the Current Home Equity Loan Rates and
the Lifetime Rate Caps, if any; (c) the range and the average outstanding
principal balance of the Home Equity Loans; (d) the weighted average
original and remaining term-to-stated maturity of the Home Equity Loans and
the range of original and remaining terms-to-stated maturity, if
applicable; (e) the range of Combined Loan-to-Value Ratios of the Home
Equity Loans, computed in the manner described in the related Prospectus
Supplement; (f) the percentage (by principal balance as of the Cut-off
Date) of Home Equity Loans that accrue interest at adjustable or fixed
interest rates; (g) any enhancement relating to the Home Equity Loans; (h)
the geographic distribution of the Mortgaged Properties securing the Home
Equity Loans; (i) the use and type of each Mortgaged Property securing a
Home Equity Loan; (j) the lien priority of the Home Equity Loans; and (k)
the delinquency status and year of origination of the Home Equity Loans.
B. Collection, Certificate and
Distribution Accounts............. All payments on or with respect to the Home Equity Loans for a Series, net
of amounts permitted to be retained by the Servicer pursuant to the
Agreement, will be remitted by the Servicer directly to an account (the
'Collection Account' or the 'Certificate Account') to be established for
such Series. The Trustee will be required to apply a portion of the amount
in the Collection Account or the Certificate Account, to the payment of
certain amounts payable to the Servicer under the related Agreement and any
other person specified in the Prospectus Supplement, and to deposit a
portion of the amount in the Collection Account into one or more separate
accounts (each, a 'Distribution Account') to be established for such
Series, each in the manner and at the times established in the related
Prospectus Supplement. All amounts deposited in such Distribution Account
(or, if there is no Distribution Account, amounts remaining in the
Certificate Account) will be available for (i) application to the payment
of principal of and interest on such Series of Securities (or such Class or
Classes specified in the related Prospectus Supplement) on the next
Distribution Date, (ii) the making of adequate provision for future
payments on certain Classes of Securities and (iii) any other purpose
specified in the related Prospectus Supplement. After applying the funds in
the Collection Account or the Certificate Account as described above, any
funds remaining in such Accounts may be paid over to the Servicer, the
Seller, any provider of Enhancement with respect to such Series (an
'Enhancer') or any other person entitled thereto in the manner and at the
times established in the related Prospectus Supplement.
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C. Pre-Funding and Capitalized
Interest Accounts................. A Trust Fund may include one or more segregated trust accounts (each, a
'Pre-Funding Account') for the related Series. On the closing date for such
a Series, a portion of the proceeds of the sale of the Securities of such
Series (such amount, the 'Pre-Funded Amount') will be deposited in the
Pre-Funding Account and may be used to purchase additional Home Equity
Loans during the period of time, not to exceed six months, specified in the
Agreement and described in the related Prospectus Supplement (the
'Pre-Funding Period'). The Home Equity Loans to be so purchased will be
required to have certain characteristics specified in the related
Prospectus Supplement. If any Pre-Funded Amount remains on deposit in the
Pre-Funding Account at the end of the Pre-Funding Period, such amount will
be applied in the manner specified in the related Prospectus Supplement to
prepay the Classes of Notes and/or the Certificates of the applicable
Series specified in the related Prospectus Supplement. The amount initially
deposited in a Pre-Funding Account for a Series of Securities will not
exceed fifty percent of the aggregate principal amount of such Series of
Securities. If a Pre-Funding Account is established, one or more segregated
trust accounts (each, a 'Capitalized Interest Account') may be established
for the related Series. On the closing date for such Series, a portion of
the proceeds of the sale of the Securities of such Series may be deposited
in the Capitalized Interest Account and used to fund the excess, if any, of
(x) the sum of (i) the amount of interest accrued on the Classes of
Securities of such Series specified in the related Prospectus Supplement
and (ii) if specified in the related Prospectus Supplement, certain fees or
expenses during the Pre-Funding Period such as Trustee fees and credit
enhancement fees, over (y) the amount of interest available therefor from
the Home Equity Loans in the Trust Fund. If so specified in the related
Prospectus Supplement, amounts on deposit in the Capitalized Interest
Account may be released to the Seller prior to the end of the Pre-Funding
Period subject to the satisfaction of certain tests specified in the
related Prospectus Supplement. Any amounts on deposit in the Capitalized
Interest Account at the end of the Pre-Funding Period that are not
necessary for such purposes will be distributed to the person specified in
the related Prospectus Supplement.
Special Payment Features............ A portion of the aggregate principal balance of the Home Equity Loans at
any time may be 'balloon loans' that provide for the payment of the
unamortized principal balance of such Home Equity Loan in a single payment
at maturity ('Balloon Loans'). Such Balloon Loans provide for equal monthly
payments, consisting of principal and interest, generally based on a
30-year amortization schedule, and a single payment of the remaining
balance of the Balloon Loan generally 5, 7, 10, or 15 years after
origination.
We refer you to 'RISK FACTORS -- Risk of Higher Default Rates for Home
Equity Loans with Balloon Loans' for more detail.
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Revolving Period and Amortization
Period; Retained Interest......... If the related Prospectus Supplement so provides, there may be a period
commencing on the date of issuance of a Class or Classes of Notes and/or
Certificates of a Series and ending on the date set forth in the related
Prospectus Supplement (each, a 'Revolving Period') during which limited or
no principal payments will be made to one or more Classes of Notes and/or
Certificates of the related Series as are identified in such Prospectus
Supplement. Some or all collections of principal otherwise allocated to
such Classes of Notes or Certificates may be (i) utilized during the
Revolving Period to acquire additional Home Equity Loans which satisfy the
criteria described under 'THE TRUST FUNDS' and the criteria set forth in
the Agreement and described in the related Prospectus Supplement, (ii) held
in an account and invested in Eligible Investments for later distribution
to Securityholders, (iii) applied to those Notes or Certificates for such
Series, if any, specified in the related Prospectus Supplement as then are
in amortization, or (iv) otherwise applied to another Series if specified
in the related Prospectus Supplement.
An 'Amortization Period' is the period during which an amount of principal
is payable to Holders of Securities which, during the Revolving Period,
were not otherwise entitled to such payments. If so specified in the
related Prospectus Supplement, during an Amortization Period all or a
portion of principal collections on the Home Equity Loans may be applied as
specified above for a Revolving Period and, to the extent not so applied,
will be distributed to the Classes of Notes and/or Certificates for such
Series specified in the related Prospectus Supplement as then being
entitled to payments of principal. In addition, if so specified in the
related Prospectus Supplement, amounts deposited in certain accounts for
the benefit of one or more Classes of Notes or Certificates for such Series
may be released from time to time or on a specified date and applied as a
payment of principal on such Classes of Notes and/or Certificates. The
related Prospectus Supplement will set forth the circumstances which will
result in the commencement of an Amortization Period.
Each Series which has a Revolving Period may also issue to the Seller or
one of its affiliates a certificate evidencing an undivided beneficial
interest (a 'Retained Interest') in such Series not represented by the
other Securities issued by the related Trusts, the value of such Retained
Interest will fluctuate as the amount of Notes and Certificates of the
related Series of Securities outstanding is reduced.
Enhancement......................... If and to the extent specified in the related Prospectus Supplement,
enhancement with respect to a Series or any Class of Securities may include
any one or more of the following: a financial guaranty insurance policy,
overcollateralization, a letter of credit, a cash reserve fund, insurance
policies, one or more Classes of Subordinate Securities, derivative
products or other forms of credit enhancement, or any combination thereof
(collectively, 'Enhancement'). The Enhancement with respect to any Series
or
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any Class of Securities may be structured to provide protection against
delinquencies and/or losses on the Home Equity Loans, against changes in
interest rates, or other risks, to the extent and under the conditions
specified in the related Prospectus Supplement. Forms of Enhancement may
provide for one or more Classes of Securities to be paid in foreign
currencies. Any form of Enhancement will have certain limitations and
exclusions from coverage thereunder, which will be described in the related
Prospectus Supplement. Further information regarding any Enhancer,
including financial information when material, will be included in the
related Prospectus Supplement.
We refer you to 'ENHANCEMENT' for more detail
With respect to any Series of Securities including one or more Classes of
Notes, distributions in respect of the Certificates may be subordinated in
priority of payment to payments on the Notes, to the extent specified in
the related Prospectus Supplement.
Enhancement for a Series may include one or more of the following types of
Enhancement or such other type of Enhancement specified in the related
Prospectus Supplement.
A. Financial Guaranty Insurance
Policy............................ Issued by a monoline insurance company and which, subject to the terms of
such policy, will guarantee timely payment of interest on, and ultimate (as
opposed to timely) payment of principal, of the applicable Class or Classes
of Securities.
B. Overcollateralization............ Overcollateralization equals the excess of the aggregate principal balance
of the Home Equity Loans over the aggregate principal balance of the
Securities. Overcollateralization may take the form of the initial or
subsequent deposit of Home Equity Loans to create such excess or may build
over time from the application of certain excess cash amounts generated by
the Home Equity Loans to accelerate the amortization of the applicable
Class or Classes of Securities.
C. Letter of Credit................. Issued by a bank or other financial institution in a maximum amount which
may be permanently reduced as draws are made or may be replenished as
previous draws are repaid from certain excess cash amounts generated by the
Home Equity Loans. Draws may be made to cover shortfalls generally in
collections, with respect to particular types of shortfalls such as those
due to particular types of losses or with respect to specific situations
such as shortfalls in amounts necessary to pay current interest.
D. Cash Reserve Fund................ Partially or fully funded on the date of issuance or may be funded over
time from certain excess cash amounts generated by the Home Equity Loans.
Withdrawals may be made in circumstances similar to those for which draws
may be made on a letter of credit.
E. Insurance Policies............... Insure a portion of the Home Equity Loans against credit losses, bankruptcy
losses, fraud losses or special hazard losses not covered by typical
homeowners insurance policies
F. Subordinate Securities........... Securities may be subordinated in the right to receive distributions to one
or more other Classes of Securities of the same Series, some or all of
which may themselves be subordinated to other Classes of such Series.
Subordination may be with respect to distributions of
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interest, principal or both. In addition, all or portions of certain types
of losses on the Home Equity Loans may be allocated to one or more Classes
of the Subordinate Securities prior to the allocation thereof to other
Classes of Subordinate Certificates and/or the Senior Securities of the
applicable Series. As a result, holders of Subordinate Securities have a
greater risk of loss and consequently a diminution in yield.
G. Derivative Products.............. May include a swap to convert floating or fixed rate payments, as
applicable, on the Home Equity Loans into fixed or floating rate payments,
as applicable, on the Securities or a cap or floor agreement intended to
provide protection against changes in floating rates of interest payable on
the Home Equity Loans and/or the Securities.
Credit Quality of Home Equity
Loans............................. Throughout its operating history, the Seller has focused on lending to
individuals who have substantial equity in their homes but have impaired or
limited credit histories.
We refer you to 'RISK FACTORS -- Underwriting Standards May Affect
Performance' and 'THE SELLER AND MASTER SERVICER' herein for more detail.
The Sellers have in the past and will in the future change their
underwriting guidelines and procedures when, in their business judgment,
competition or other conditions in their market so warrant. As a result,
Home Equity Loans originated at different times may reflect different
underwriting guidelines and be of different credit quality. However, any
such differences will be reflected in the levels of Enhancement for the
related Series of Securities.
Servicing........................... The Servicer will be responsible for servicing, managing and making
collections on the Home Equity Loans for a Series. The Servicer may enter
into sub-servicing agreements with such entities that meet the requirements
set forth in the related Agreement. Such sub-servicing arrangements will
not relieve the Servicer of any liability it might otherwise have, had the
sub-servicing arrangement not been entered into. Advances with respect to
delinquent payments of principal and/or interest on a Home Equity Loan
('Delinquency Advances') will be made by the Servicer or a sub-servicer if
and only to the extent described in the related Prospectus Supplement. Such
advances will be intended to provide liquidity only and will be
reimbursable to the extent specified in the related Prospectus Supplement,
from scheduled payments of principal and/or interest, late collections, or
from the proceeds of liquidation of the related Home Equity Loans or from
other recoveries relating to such Home Equity Loans (including any
insurance proceeds or payments from other credit support) or, to the extent
specified in the related Prospectus Supplement, from payments or proceeds
from other Home Equity Loans. If and to the extent specified in the related
Prospectus Supplement, the Servicer or a sub-servicer will be entitled to
advance its own funds to pay for any related expenses of foreclosure and
disposition of any liquidated Home Equity Loan or related Mortgaged
Property (the 'Servicer Advances').
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We refer you to 'SERVICING OF HOME EQUITY LOANS -- Advances and Limitations
Thereon' for more detail.
The Servicer or such sub-servicer will be entitled to be reimbursed for any
such Servicer Advances as specified in the related Prospectus Supplement.
In performing these functions, the Servicer will exercise the same degree
of skill and care that it customarily exercises with respect to similar
Home Equity Loans owned or serviced by it. Under certain limited
circumstances, the Servicer may resign or be removed, in which event either
the Trustee or a third-party servicer will be appointed as successor
servicer. The Servicer will receive a periodic fee as servicing
compensation (the 'Servicing Fee') and may, as specified in the related
Prospectus Supplement, receive certain additional compensation. The
Servicer will pay any fees due the sub-servicers from the Servicing Fee.
We refer you to 'SERVICING OF HOME EQUITY LOANS -- Servicing Compensation
and Payment of Expenses' for more detail.
Federal Income Tax Consequences
A. Debt Securities and REMIC
Residual Securities............ The federal income tax consequences to Securityholders will vary depending
upon whether one or more elections are made to treat the Trust Fund or
specified portions thereof as a REMIC under the provisions of the Internal
Revenue Code of 1986, as amended (the 'Code'). The Prospectus Supplement
for each Series of Securities will specify whether such an election will be
made. If a REMIC election is made, Securities representing regular
interests in a REMIC (a 'Regular Interest') will generally be taxable to
holders in the same manner as evidences of indebtedness issued by the
REMIC. Stated interest on such regular interests will be taxable as
ordinary income and taken into account using the accrual method of
accounting, regardless of the holder's normal accounting method.
Securities that are Compound Interest Securities, Zero Coupon Securities or
Interest Only Securities will, and certain other Classes of Securities may,
be issued with original issue discount that is not de minimis. In such
cases, the Holder will be required to include original issue discount in
gross income as it accrues, which may be prior to the receipt of cash
attributable to such income. If a Security is issued at a premium, the
Holder may be entitled to make an election to amortize such premium on a
constant yield method.
If a Prospectus Supplement indicates that one or more REMIC elections will
be made with respect to the related Trust Fund or certain assets of the
related Trust Fund, assuming that such elections are timely made and all of
the provisions of the applicable Agreement are complied with, Stroock &
Stroock & Lavan LLP, special tax counsel to the Seller ('Federal Tax
Counsel') is of the opinion that (a) each segregated pool of assets
specified as a REMIC in such Agreement will constitute a REMIC for federal
income tax purposes, (b) the Class or Classes of Securities of the related
Series which are designated as 'regular interests' in such Prospectus
Supplement will be considered 'regular interests' in a
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REMIC for federal income tax purposes and (c) the Class of Securities of
the related Series which is designated as the 'residual interest' in such
Prospectus Supplement will be considered the sole class of 'residual
interests' in the applicable REMIC for federal income tax purposes. A REMIC
will not be subject to entity-level tax. Rather, the taxable income or net
loss of a REMIC will be taken into account by the holders of residual
interests (a 'Residual Interest'). In certain circumstances, the Holder of
a Residual Interest may have REMIC taxable income or tax liability
attributable to REMIC taxable income for a particular period in excess of
cash distributions for such period or have an after-tax return that is less
than the after-tax return on comparable debt instruments. In addition, a
portion (or, in some cases, all) of the income from a Residual Interest (i)
may not be subject to offset by losses from other activities or
investments, (ii) for a Holder that is subject to tax under the Code on
unrelated business taxable income, may be treated as unrelated business
taxable income and (iii) for a foreign holder, may not qualify for
exemption from or reduction of withholding. In addition, (i) Residual
Interests are subject to transfer restrictions and (ii) certain transfers
of Residual Interests will not be recognized for federal income tax
purposes. Further, individual holders are subject to limitations on the
deductibility of expenses of the REMIC.
We refer you to 'FEDERAL INCOME TAX CONSEQUENCES' for more detail.
To the extent the material federal income tax consequences differ from
those disclosed herein, Federal Tax Counsel will file a tax opinion and
related consent with the Commission.
B. Non-REMIC Pass-Through
Securities..................... If a Prospectus Supplement indicates that a Trust Fund will be treated as a
grantor trust for federal income tax purposes, assuming compliance with all
of the provisions of the applicable Agreement, Federal Tax Counsel is of
the opinion that (a) the Trust Fund will be considered to be a grantor
trust under Subpart E, Part I of Subchapter J of the Code and will not be
considered to be an association taxable as a corporation and (b) a Holder
of the related Certificates will be treated for federal income tax purposes
as the owner of an undivided interest in the Home Equity Loans included in
the Trust Fund. If so provided in the Prospectus Supplement, holders of
Securities of such Series ('Pass-Through Securities') will be treated as
owning directly rights to receive certain payments of interest or
principal, or both, on the Home Equity Loans held in the Trust Fund for
such Series. All income with respect to a Stripped Security (as defined
herein) will be accounted for as original issue discount and, unless
otherwise specified in the related Prospectus Supplement, will be reported
by the Trustee on an accrual basis, which may be prior to the receipt of
cash associated with such income.
C. Owner Trust Securities......... If a Prospectus Supplement indicates that one or more Classes of non-REMIC
Securities of the related Series are to be treated as indebtedness for
federal income tax purposes, assuming that all of the provisions of the
applicable Agreement are complied with,
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Federal Tax Counsel is of the opinion that the Securities so designated
will be considered indebtedness for federal income tax purposes, and that
for federal income tax purposes the Trust Fund will not be treated as an
association, taxable mortgage pool, or a publicly traded partnership
taxable as a corporation. Each Noteholder, by the acceptance of a Note of a
given Series, will agree to treat such Note as indebtedness, and each
Certificateholder, by the acceptance of a Certificate of a given Series,
will agree to treat the related Trust Fund for Federal tax purposes as a
partnership in which such Certificateholder is a partner if there is more
than one Certificateholder for federal income tax purposes, or to disregard
the Trust as an entity separate from the Certificateholder if there is only
one Certificateholder for federal income tax purposes. Alternative
characterizations of such Trust Fund and such Certificates are possible,
but would not result in materially adverse tax consequences to
Certificateholders.
We refer you to 'FEDERAL INCOME TAX CONSEQUENCES' for more detail.
Generally, gain or loss will be recognized on a sale of Securities in the
amount equal to the difference between the amount realized and the seller's
tax basis in the Securities sold. The material federal income tax
consequences for investors associated with the purchase, ownership and
disposition of the Securities are set forth herein under 'FEDERAL INCOME
TAX CONSEQUENCES.' The material federal income tax consequences for
investors associated with the purchase, ownership and disposition of
Securities of any particular Series will be set forth under the heading
'FEDERAL INCOME TAX CONSEQUENCES' in the related Prospectus Supplement.
We refer you to 'FEDERAL INCOME TAX CONSEQUENCES' for more detail.
ERISA Considerations................ Subject to the considerations discussed under 'ERISA CONSIDERATIONS' herein
and in the related Prospectus Supplement, the Notes may be eligible for
purchase by employee benefit plans subject to the Employee Retirement
Income Security Act of 1974, as amended ('ERISA').
We refer you to 'ERISA CONSIDERATIONS' herein and in the related Prospectus
Supplement for more detail.
Legal Investment.................... Securities of each Series offered by this Prospectus and the related
Prospectus Supplement will not constitute 'mortgage related securities'
under the Secondary Mortgage Market Enhancement Act of 1984 ('SMMEA').
We refer you to 'LEGAL INVESTMENT' for more detail.
Ratings............................. It will be a requirement for issuance of any Series that each Class of
Securities offered by this Prospectus and the related Prospectus Supplement
be rated by at least one Rating Agency in one of its four highest
applicable rating categories. The rating or ratings applicable to
Securities of each Series offered hereby and by the related Prospectus
Supplement will be as set forth in the related Prospectus Supplement. A
securities rating should be evaluated independently of similar ratings on
different types of securities. In
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general, a securities rating addresses the likelihood that Holders will
receive the distributions to which they are entitled. A securities rating
is not a recommendation to buy, hold or sell securities and does not
address the effect that the rate of prepayments on the Home Equity Loans
for a Series may have on the yield to investors in the Securities of such
Series. There is no assurance that the rating initially assigned to such
Securities will not be subsequently lowered or withdrawn by the Rating
Agency. In the event the rating initially assigned to any Securities is
subsequently lowered for any reason, no person or entity will be obligated
to provide any credit enhancement in addition to the Enhancement, if any,
specified in the related Prospectus Supplement.
We refer you to 'RISK FACTORS -- Ratings Are Not Recommendations' for more
detail.
Registration of Securities.......... Securities may be represented by global certificates and notes registered
in the name of Cede & Co. ('Cede'), as nominee of the Depository Trust
Company ('DTC') or another nominee. In such case, Securityholders will not
be entitled to receive definitive certificates and/or notes representing
such interests, except in certain circumstances described in the related
Prospectus Supplement.
We refer you to 'DESCRIPTION OF THE SECURITIES -- BOOK-ENTRY SECURITIES'
herein for more detail.
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RISK FACTORS
Investors should consider, among other things, the following risk factors
in connection with the purchase of the Securities.
Lack of Secondary Market Limits Liquidity. There will be no market for the
Securities of any Series prior to the issuance thereof, and there can be no
assurance that a secondary market will develop or, if it does develop, that it
will provide Holders with liquidity of investment or will continue for the life
of the Securities of such Series. Further, if the Securities of a Series are not
listed on an exchange or quoted in the automated quotation system of a
registered securities association, investors may have limited liquidity.
We refer you to 'PLAN OF DISTRIBUTION' for more detail.
Home Equity Loans Are Only Source of Repayment. The Securities of a Series
will be payable solely from the assets of the Trust Fund for such Securities and
any related Enhancement. There will be no recourse to the Depositor, the Seller,
the Servicer or any other person for any default on the Notes or any failure to
receive distributions on the Certificates. Further, certain Home Equity Loans
and/or any balance remaining in the Collection Account, Certificate Account or
Distribution Account immediately after making all payments due on the Securities
of such Series and other payments specified in the related Prospectus
Supplement, may be promptly released or remitted to the Depositor, the Seller,
the Servicer, the Enhancer or any other person entitled thereto and will no
longer be available for making payments to Holders. Consequently, Holders of
Securities of each Series must rely solely upon payments with respect to the
Home Equity Loans and the other assets constituting the Trust Fund for a Series
of Securities, including, if applicable, any amounts available pursuant to any
Enhancement for such Series, for the payment of principal of and interest on the
Securities of such Series.
Holders of Notes will be required under the Indenture to proceed only
against the Home Equity Loans and other assets constituting the related Trust
Fund in the case of a default with respect to such Notes and may not proceed
against any assets of the Depositor, the Seller, the Servicer. There is no
assurance that the market value of the Home Equity Loans or any other assets for
a Series will at any time be equal to or greater than the aggregate principal
amount of the Securities of such Series then outstanding, plus accrued interest
thereon. Moreover, upon an event of default under the Indenture for a Series of
Notes and a sale of the assets in the Trust Fund or upon a sale of the assets of
a Trust Fund for a Series of Certificates, the Trustee, the Servicer, the
Enhancer, if any, and any other service provider specified in the related
Prospectus Supplement generally will be entitled to receive the proceeds of any
such sale to the extent of unpaid fees and other amounts owing to such persons
under the related Agreement prior to distributions to Holders of Securities.
Upon any such sale, the proceeds thereof may be insufficient to pay in full the
principal of and interest on the Securities of such Series.
Limited Protection Against Losses. Although any Enhancement is intended to
reduce the risk of delinquent payments or losses to Holders entitled to the
benefit thereof, the amount of such Enhancement will be limited, as set forth in
the related Prospectus Supplement, and will decline and could be depleted under
certain circumstances prior to the payment in full of the related Series of
Securities. As a result Holders may suffer losses.
We refer you to 'ENHANCEMENT' for more detail.
Underwriting Standards May Affect Performance. As described herein under
'THE SELLER AND SERVICER -- Underwriting Guidelines Applicable to the Home
Equity Loans,' the Seller's underwriting standards generally are less stringent
than those of traditional Fannie Mae or Freddie Mac with respect to a borrower's
credit history and in certain other respects. A borrower's past credit history
may not preclude the Seller from making a loan; however, it generally will
reduce the size (and consequently the Combined Loan-to-Value Ratio) of the loan
that the Seller is willing to make. As a result of this approach to
underwriting, the Home Equity Loans may experience higher rates of
delinquencies, defaults and foreclosures than mortgage loans underwritten in a
more traditional manner.
Subordination. The rights of holders of the Subordinate Securities, if any,
of a Series to receive distributions with respect to collections on the Home
Equity Loans will be subordinate to the rights of the holders of certain more
senior Classes of Securities. Accordingly, the yields to maturity of the
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Subordinate Securities, if any, will be sensitive, in varying degrees, to
defaults on the Home Equity Loans (and the timing thereof). Investors should
fully consider the risks associated with an investment in the Subordinate
Securities, if any, including the possibility that such investors may not fully
recover their initial investment as a result of Realized Losses on the related
Home Equity Loans. The Subordinate Securities may not be entitled to any
principal distributions until the date specified in the related Prospectus
Supplement. As a result, the weighted average lives of the Subordinate
Securities will be longer than would be the case if distributions of principal
were to be allocated on a pro rata basis among the Senior and Subordinate
Securities. As a result of the longer weighted average lives of the Subordinate
Securities, the Subordinate Securities have a greater risk of suffering a loss
on their investments.
Junior Liens Create Additional Risk of Loss. If the Home Equity Loans in a
Trust Fund are secured primarily by junior liens subordinate to the rights of
the mortgagee under the related senior mortgage(s) or deed(s) of trust, the
proceeds from any liquidation, insurance or condemnation proceedings will be
available to satisfy the outstanding balance of such Home Equity Loans only to
the extent that the claims of such senior mortgagees or beneficiaries have been
satisfied in full, including any related foreclosure costs. In addition, a
junior mortgagee may not foreclose on the Mortgaged Property securing a junior
mortgage unless it forecloses subject to the senior mortgages, in which case it
must either pay the entire amount due on the senior mortgages to the senior
mortgagees at or prior to the foreclosure sale or undertake the obligation to
make payments on the senior mortgages in the event the mortgagor is in default
thereunder. The Trust Fund will not have any source of funds to satisfy the
senior mortgages or deeds of trust or make payments due to the senior mortgagees
or beneficiaries.
Property Values May Be Insufficient. There are several factors that could
adversely affect the value of the Mortgaged Properties such that the outstanding
balance of the related Home Equity Loan, together with any senior financing on
the Mortgaged Properties, would equal or exceed the value of the Mortgaged
Properties. Among the factors that could adversely affect the value of the
Mortgaged Properties are an overall decline in the residential real estate
market in the areas in which the Mortgaged Properties are located or a decline
in the general condition of the Mortgaged Properties as a result of failure of
borrowers to maintain adequately the Mortgaged Properties or of natural
disasters that are not necessarily covered by insurance, such as earthquakes and
floods. Any such decline could extinguish the value of a junior interest in a
Property before having any effect on the related senior interest therein. If
such a decline occurs, the actual rates of delinquencies, foreclosure and losses
on the junior Home Equity Loans could be higher than those currently experienced
in the mortgage and home improvement lending industry in general.
Yield May Vary. The yield to maturity experienced by a Holder of Securities
may be affected by the rate of payment of principal of the Home Equity Loans.
The timing of principal payments of the Securities of a Series will be affected
by a number of factors, including the following: (i) the extent of prepayments
of the Home Equity Loans; (ii) the manner of allocating principal payments among
the Classes of Securities of a Series as specified in the related Prospectus
Supplement; and (iii) the exercise by the party entitled thereto of any right of
optional termination.
We refer you to 'DESCRIPTION OF THE SECURITIES -- Weighted Average Life of
the Securities' for more detail.
The rate of prepayments may be affected by the characteristics of the Home
Equity Loans, such as the loans-to-value ratios, interest rates and purposes of
such loans, the prevailing level of interest rates, demographic, tax, and legal
factors and servicing decisions. Prepayments may also result from repurchases of
Home Equity Loans, due to material breaches of the Seller's representations and
warranties and amounts on deposit in the Pre-Funding Account at the end of the
Pre-Funding Period.
Interest payable on the Securities of a Series on a Distribution Date will
include all interest accrued during the period specified in the related
Prospectus Supplement. In the event interest accrues during the calendar month
prior to a Distribution Date, the effective yield to Holders will be reduced
from the yield that would otherwise be obtainable if interest payable on the
Security were to accrue through the day immediately preceding each Distribution
Date, and the effective yield (at par) to Holders will be less than the
indicated coupon rate.
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We refer you to 'DESCRIPTION OF THE SECURITIES -- Payments of Interest' for
more detail.
Prepayments From Pre-Funding Account May Adversely Affect Yield. The
ability of a Trust Fund to invest in additional Home Equity Loans during the
related Pre-Funding Period will be dependent on the ability of the Sellers to
originate Home Equity Loans that satisfy the requirements for transfer to the
Trust Fund specified in the related Prospectus Supplement. The ability of the
Seller to originate such Loans will be affected by a variety of factors,
including the prevailing level of market interest rates, unemployment levels and
consumer perceptions of general economic conditions. If the principal balance of
additional Home Equity Loans delivered to the Trust Fund during the Pre-Funding
Period is less than the Pre-Funded Amount, the Holders of the Securities of the
related Series will receive a prepayment of principal as and to the extent
described in the related Prospectus Supplement. Any such principal prepayment
will shorten the average life and may adversely affect the yield to maturity of
the applicable Securities. Since prevailing interest rates are subject to
fluctuation, there can be no assurance that investors will be able to reinvest
such a prepayment at yields equaling or exceeding the yields on the related
Securities. It is possible that the yield on any such reinvestment will be
lower, and may be significantly lower, than the yield on the related Securities.
Potential Liability for Environmental Conditions. Real property pledged as
security to a lender may be subject to certain environmental risks. Under the
laws of certain states, contamination of a property may give rise to a lien on
the property to assure the costs of clean-up. In several states, such a lien has
priority over the lien of an existing mortgage or owner's interest against such
property. In addition, under the laws of some states and under the federal
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
('CERCLA'), a lender may be liable, as an 'owner' or 'operator,' for costs of
addressing releases or threatened releases of hazardous substances that require
remedy at a property, if agents or employees of the lender have become
sufficiently involved in the operations of the borrower, regardless of whether
or not the environmental damage or threat was caused by a prior owner. A lender
also risks such liability on foreclosure of the Mortgaged Property.
Consumer Protection Laws May Affect Home Equity Loans. Applicable state
laws generally regulate interest rates and other charges and require certain
disclosures. In addition, other state laws, public policy and general principles
of equity relating to the protection of consumers, unfair and deceptive
practices and debt collection practices may apply to the origination, servicing
and collection of the Home Equity Loans. Depending on the provisions of the
applicable law and the specific facts and circumstances involved, violations of
these laws, policies and principles may limit the ability of the Servicer to
collect all or part of the principal of or interest on the Home Equity Loans,
may entitle the borrower to a refund of amounts previously paid and, in
addition, could subject the owner of the Home Equity Loan to damages and
administrative enforcement.
The Home Equity Loans are also subject to federal laws, including:
(i) the federal Truth in Lending Act and Regulation Z promulgated
thereunder, which require certain disclosures to the borrowers regarding
the terms of the Home Equity Loans;
(ii) the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age, race, color,
sex, religion, marital status, national origin, receipt of public
assistance or the exercise of any right under the Consumer Credit
Protection Act, in the extension of credit;
(iii) the Americans with Disabilities Act, which, among other things,
prohibits discrimination on the basis of disability in the full and equal
enjoyment of the goods, services, facilities, privileges, advantages or
accommodations of any place of public accommodation; and
(iv) the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit experience.
Violations of certain provisions of these federal laws may limit the
ability of the Servicer to collect all or part of the principal of or interest
on the Home Equity Loans and in addition could subject the Trust Fund to damages
and administrative enforcement. The Home Equity Loans may be subject to the Home
Ownership and Equity Protection Act of 1994 (the 'Act') which amended the Truth
in Lending Act as it applies to mortgages subject to the Act. The Act requires
certain additional disclosures, specifies the timing of such disclosures and
limits or prohibits inclusion of certain provisions in
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mortgages subject to the Act. The Act also provides that any purchaser or
assignee of a mortgage covered by the Act is subject to all of the claims and
defenses which the borrower could assert against the original lender. The
maximum damages that may be recovered under the Act from an assignee is the
remaining amount of indebtedness plus the total amount paid by the borrower in
connection with the Home Equity Loan. If the Trust Fund includes Home Equity
Loans subject to the Act, it will be subject to all of the claims and defenses
which the borrower could assert against the Seller. Any violation of the Act
which would result in such liability would be a breach of the Seller's
representations and warranties and the Seller would be obligated to cure,
repurchase or, if permitted by the Agreement, substitute for the Home Equity
Loan in question. In addition, numerous other federal and state statutory
provisions, including the federal bankruptcy laws, the Soldiers' and Sailors'
Civil Relief Act of 1940 and state debtor relief laws, may also adversely affect
the Servicer's ability to collect the principal of or interest on the Home
Equity Loans and also would affect the interests of the Securityholders in such
Home Equity Loans if such laws result in the Home Equity Loans being
uncollectible.
We refer you to 'CERTAIN LEGAL ASPECTS OF THE HOME EQUITY LOANS' for more
detail.
Risk of Higher Default Rates for Home Equity Loans with Balloon Loans. A
portion of the aggregate principal balance of the Home Equity Loans at any time
may be 'balloon loans' that provide for the payment of the unamortized principal
balance of such Home Equity Loan in a single payment at maturity ('Balloon
Loans'). Such Balloon Loans provide for equal monthly payments, consisting of
principal and interest, generally based on a 30-year amortization schedule, and
a single payment of the remaining balance of the Balloon Loan generally 5, 7,
10, or 15 years after origination. Amortization of a Balloon Loan based on a
scheduled period that is longer than the term of the loan results in a remaining
principal balance at maturity that is substantially larger than the regular
scheduled payments. The Seller does not have any information regarding the
default history or prepayment history of payments on Balloon Loans. Because
borrowers of Balloon Loans are required to make substantial single payments upon
maturity, it is possible that the default risk associated with the Balloon Loans
is greater than that associated with fully-amortizing Home Equity Loans.
Insolvency of Seller May Cause Losses. The Seller intends that its transfer
of the Home Equity Loans to the Depositor and the Depositor intends that its
subsequent transfer of the Home Equity Loans to a Trust Fund will each
constitute a sale, and the Depositor, the Seller and the Trust Fund will agree
to treat each such transfer as a sale. In the event of the insolvency of Seller,
the trustee in bankruptcy or the Seller (as applicable), as
debtor-in-possession, may attempt to recharacterize such a sale as a loan by the
Trust Fund to the Depositor or the Seller, as applicable, secured by the pledge
of the related Home Equity Loans. If such an attempt were to be successful,
Holders of Securities could receive a prepayment of all or part of their
Securities. Any such prepayment would adversely affect the yield on such
Securities and could result in a loss. Even if such an attempt were to be
unsuccessful, Holders of Securities could experience delays in distributions
which would adversely affect the yield on the related Securities.
Ratings Are Not Recommendations. It will be a condition to the issuance of
a Series of Securities that each Class be rated in one of the four highest
rating categories by the Rating Agency identified in the related Prospectus
Supplement. Any such rating would be based on, among other things, the adequacy
of the value of the Home Equity Loans and any Enhancement with respect to such
Series. In general, a securities rating addresses the likelihood that Holders
will receive the distributions to which they are entitled. Such rating should
not be deemed a recommendation to purchase, hold or sell Securities, inasmuch as
it does not address market price or suitability for a particular investor and
does not address the likelihood of prepayments or the possibility that investors
may receive a lower than anticipated yield. There is also no assurance that any
such rating will remain in effect for any given period of time or may not be
lowered or withdrawn entirely by the Rating Agency if in its judgment
circumstances in the future so warrant. In addition to being lowered or
withdrawn due to any erosion in the adequacy of the value of the Home Equity
Loans, such rating might also be lowered or withdrawn, among other reasons,
because of an adverse change in the financial or other condition of an Enhancer
or a change in the rating of such Enhancer's long term debt. Any such reduction
or withdrawal in the rating assigned to the Securities may adversely affect the
liquidity of and yield on such Securities.
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Book - Entry Registration. Because transfers and pledges of the Securities
may be effected only through book entries at a clearing agency through clearing
agency participants, the liquidity of the secondary market for Securities may be
reduced to the extent that some investors are unwilling to hold Securities in
book entry form in the name of clearing agency participants and the ability to
pledge Securities may be limited due to lack of a physical certificate. Holders,
in certain cases, experience delay in the receipt of payments of principal and
interest because such payments will be forwarded by the Trustee to the clearing
agency who will then forward payment to the clearing agency participants who
will thereafter forward payment to Holders. In the event of the insolvency of
the clearing agency or of a clearing agency participant in whose name Securities
are recorded, the ability of Holders 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 principal and interest on Securities may be impaired.
THE DEPOSITOR
CHEC Asset Receivable Corporation (the 'Depositor') was incorporated in the
State of Nevada on May 28, 1998, and is a wholly-owned subsidiary of the Seller.
The Depositor maintains its principal offices at 2728 N. Harwood Street, Dallas,
Texas 75201. Its telephone number is (214) 981-5000.
The Depositor does not have, nor is it expected in the future to have, any
significant assets.
THE SELLER AND THE SERVICER
GENERAL
The Seller and Servicer, Centex Credit Corporation d/b/a Centex Home Equity
Corporation, a Nevada corporation is a sub-prime mortgage lender formed in 1994
that engages in originating primarily non-conforming home equity loans, directly
through four major origination sources. The Seller was originally named Nova
Credit Corporation and was headquartered in Denver, Colorado. In the first
calendar quarter of 1997, the Seller's operations were moved to Dallas, Texas
and the Seller underwent a reorganization and the hiring of a new management
team. In April of 1997, the Seller's name was changed to Centex Credit
Corporation d/b/a Centex Home Equity Corporation. The Seller is a wholly-owned
subsidiary of Centex Financial Services, Inc., a financial services subsidiary
of Centex Corporation, headquartered in Dallas, Texas. Centex Corporation is a
publicly traded, diversified company with a market capitalization of
approximately $2 billion and is primarily engaged in the home building,
financial services, contracting and construction services industries. The Seller
is also affiliated with CTX Mortgage Company, a Nevada corporation ('CTX
Mortgage'), which originates home equity loans conforming to Fannie Mae and/or
Freddie Mac guidelines. Since inception, the Seller has focused on lending to
individuals who have substantial equity in their homes but have impaired or
limited credit histories. The Seller's home equity loans to these borrowers are
made for such purposes as debt consolidation, refinancing, home improvement or
educational expenses. Substantially all of the Seller's home equity loans are
secured by first or second mortgage liens on one-to four-family residences, and
have amortization schedules ranging from five years to 30 years.
The Seller is currently licensed to do business in 47 states plus the
District of Columbia and employs approximately 975 people located in 116 offices
in 35 states. The Seller originates home equity loans through its retail branch
network of 58 branch offices located in 20 states. In addition, the Seller
originates home equity loans through a broker referral network from six division
offices with a total of 24 regions. A third production source for the Seller is
referral of home equity loans from its affiliate
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conforming mortgage company, CTX Mortgage. The final source of origination of
home equity loans is the Seller's direct sales unit which sources loans through
telemarketing and direct mail efforts. All home equity loans are originated in
the name of Centex Home Equity Corporation or in the name of an affiliate of
Centex Home Equity Corporation. The Seller's strategy is to utilize these
origination channels to generate growth in the volume of the home equity loans
originated while diversifying sources of the home equity loans and maintaining
emphasis on its underwriting standards.
The Seller has centralized its underwriting, servicing and quality control
functions in its Dallas headquarters.
The Seller's headquarters are located at 2728 North Harwood Street, Dallas,
Texas, 75201 and its telephone number is (214) 981-5000.
UNDERWRITING GUIDELINES APPLICABLE TO THE HOME EQUITY LOANS
The Pre-Underwriting Process. The Seller's home equity loan application
process is conducted by the Seller's branch officers and approved mortgage
brokers who compile information necessary for the Seller's underwriting
department to evaluate the home equity loan. The approval process is generally
coordinated over the telephone with applications and credit reports obtained by
branch processors or brokers usually sent by facsimile transmission to the
processing department at one of the Seller's offices. Branch personnel
communicate with the Seller's centralized underwriting staff, located in Dallas,
Texas, which consists of approximately 21 underwriters. The Seller also employs
15 other underwriters in six divisional offices, which have loan approval
authority on a limited basis. Branch operation personnel review the applicant's
credit history, based on the information contained in the application as well as
reports available from credit reporting bureaus, to see if the credit history is
acceptable given the Seller's underwriting guidelines. A credit report from one
approved repository is required for pre-approval and at least two reports are
required prior to underwriting review. These credit reports are the primary
means utilized to verify each borrower's mortgage and other debt payment
histories. Based on this review, the proposed terms of the home equity loan are
then communicated to the branch officer or broker responsible for the
application who in turn discusses the proposal with the home equity loan
applicant. If the applicant accepts the proposed terms, a branch officer or
broker will gather additional information necessary for the underwriting,
closing, and funding of the loan.
The Standard Non-Conforming Program. The Home Equity Loans were originated
under the Seller's Standard Non-Conforming Program. The Standard Non-Conforming
Program is applicable to residential loans, which, for credit reasons do not
conform to 'traditional lenders' underwriting guidelines such as those employed
by savings and loans and commercial banks. The Seller began underwriting home
equity loans in accordance with such standards in May, 1997.
The Seller's underwriting standards under the Standard Non-Conforming
Program are primarily intended to assess creditworthiness of the mortgagor, the
value of the mortgaged property and to evaluate the adequacy of such property as
collateral for the home equity loan. While the Seller's primary consideration in
underwriting a home equity loan is the borrower's employment stability and
debt-to-income ratio, the condition and value of the mortgaged property relative
to the amount of the home equity loan is another critical factor. In addition,
it also considers, among other things, a mortgagor's credit history and
repayment ability, as well as the type and use of the mortgaged property.
The Seller currently employs approximately 36 underwriters and has its
underwriting functions primarily centralized in its Dallas, Texas headquarters.
The Seller does not delegate underwriting authority to any broker or
correspondent. The Seller's underwriting department functions independently of
its mortgage origination departments. Underwriters are compensated on a salary
basis, and are not compensated on commission.
The Seller's policy is that every home equity loan is reviewed and approved
by an underwriter with assigned approval authorities. Home equity loans
exceeding those authorities require a second approval, generally from a manager
of underwriting or an underwriting supervisor.
The Seller has established classifications with respect to the credit
profile of the applicant, and each loan is placed into one of seven ratings 'A+'
through 'D'. Terms of loans made by the Seller as well as maximum loan-to-value
ratios and debt-to-income ratios vary depending on the classification of the
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applicant. Home equity loan applicants with less favorable credit ratings are
generally offered home equity loans with higher interest rates and lower
loan-to-value ratios than applicants with more favorable credit ratings.
The home equity loans underwritten under the Seller's Standard
Non-Conforming Programs are adjustable and fixed rate loans. Except for Balloon
Loans, the fixed rate home equity loans originated by the Seller have
amortization schedules ranging from 5 years to 30 years, and generally require
equal monthly payments which are due as of a scheduled day of each month which
is fixed at the time of origination. The fixed rate Balloon Loans, originated by
the Seller, generally provide for scheduled amortization over 30 years, with a
maturity date and a balloon payment at the end of the fifteenth year. The Seller
originates adjustable rate loan products that bear interest at rates which
adjust based on Six-Month LIBOR, with the initial rate adjustment date being
either six months after the date of origination of such loan ('Six-Month ARMs')
or 24 months after the date of origination of such loan ('2/28 ARMs'). The
Six-Month ARMs and the 2/28 ARMs are collectively referred to herein as 'ARMs.'
The Six-Month ARMs amortize over 15 to 30 years, adjust every six months and
allow for a maximum periodic rate adjustment of 1.00%. The maximum adjustment
over the life of a Six-Month ARM is capped at 7.00% above the initial interest
rate of such loan and the minimum interest rate is generally equal to the gross
margin. The 2/28 ARMs amortize over 30 years, have an initial interest rate
adjustment date which is 24 months after the date of origination and allow for a
maximum rate adjustment on the initial interest rate adjustment date of 2.00%.
After the initial rate adjustment date, the 2/28 ARMs adjust every six months,
allow for a maximum periodic interest rate adjustment of 1.00%, have a lifetime
cap on interest rate adjustments of 7.00% above the initial interest rate of
such loan and allow for a minimum rate generally equal to the gross margin of
such loan. The Seller does not currently originate ARMs with a balloon feature.
The principal amounts of the home equity loans originated by the Seller
generally range from a minimum of $5,000 to a maximum of $500,000. The
collateral securing loans originated by the Seller are generally one- to
four-family residences, including condominiums, townhomes and manufactured
housing treated as real property under applicable state law, and such properties
may or may not be occupied by the owner. It is the Seller's policy not to accept
commercial properties, mixed-use properties or unimproved land as collateral.
Rural property requires a 5% reduction in loan-to-value ratio. Second mortgages
require a 5% reduction in loan-to-value ratio on owner occupied property. The
Seller generally does not originate second lien home equity loans where any
senior mortgage lien allows for open-end advances or negative amortization, is a
private party mortgage or has shared appreciation provisions.
The home equity loans underwritten under the Standard Non-Conforming
Program are underwritten pursuant to the 'Full Documentation' residential loan
program (the 'Full Documentation Program'), the 'Limited Documentation'
residential loan program (the 'Limited Documentation Program') or the 'Stated
Income' residential loan program (the 'Stated Income Program'). Under each of
these programs, the Seller reviews the home equity loan applicant's source of
income, calculates the amount of income from sources indicated on the loan
application or similar documentation, reviews the credit history of the
applicant, calculates the debt-to-income ratio to determine the applicant's
ability to repay the home equity loan, reviews the type and use of the property
being financed and reviews the property for compliance with the Seller's
standards. In determining an applicant's ability to repay a (i) Six-Month ARM,
the Seller uses a rate equal to Six-Month LIBOR plus a margin and (ii) 2/28 ARM,
the Seller uses a rate equal to the initial interest rate on the home equity
loans (Six-Month LIBOR plus a gross margin up to 2.50%) (each of the rates
referred to in clauses (i) and (ii) being a 'Qualifying Rate'). It is the policy
of the Seller for its underwriting process to consist of a thorough credit
review and a thorough appraisal review on each home equity loan by its
underwriting department and (i) a separate appraisal review by the Seller's
appraisal review department on home equity loans with a loan-to-value ratio of
85% or greater, and, (ii) a full compliance review, to ensure that all documents
have been properly prepared, all applicable disclosures given in a timely
fashion, and proper compliance with all federal and state regulations.
Appraisals are performed by third party, independent, fee-based, state-licensed
appraisers generally approved by the Seller's staff appraiser and generally
conforming to current FNMA/FHLMC secondary market requirements for residential
property appraisals. Each such appraisal includes, among other things, an
inspection of the interior and
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exterior of the subject property and data from sales within the same general
location as the subject property where available.
The Seller's underwriting criteria require it to determine the income of
each borrower and the source of funds (if applicable). Under the Full
Documentation Program, it is the policy of the Seller that home equity loans to
borrowers who are salaried employees be supported by current employment
information in addition to employment history. This information for salaried
borrowers is verified based on any of written confirmation from employers, one
or more pay-stubs, recent W-2 tax forms or recent tax returns. In addition, a
telephone confirmation of employment is made. Under the Limited Documentation
Program, self-employed borrowers are qualified based upon monthly income stated
on the home equity loan application. Current tax return or six months of current
bank statements and a signed profit and loss statement are obtained to verify
existence of business and acceptable cash flow. Under the Stated Income Program,
borrowers are qualified based upon monthly income as stated on the home equity
loan application and telephone confirmation of employment. Self-employed
borrowers under the Stated Income Program are required to submit a business
license, current bank statements, and verification with directory assistance to
ensure existence of the business.
Verification of the source of funds (if any) required by the applicant is
generally required under purchase money programs in the form of a standard
verification of deposit, current bank statement or other acceptable
documentation. Twelve months of mortgage payments or rental history must be
verified by lender or landlord. If appropriate compensating factors exist, the
Seller may waive certain documentation requirements for individual borrowers.
All documentation should be no more than 60 days old at underwriting and no more
than 90 days old at the time of the funding of the related loan. Upon completion
of a home equity loan's underwriting and processing, the closing of the loan is
scheduled with a closing attorney or agent approved by the Seller. The closing
attorney or agent is responsible for completing the loan closing transaction in
accordance with applicable law and the Seller's operating procedures. Title
insurance that insures the Seller's interest as mortgagee and evidence of
adequate homeowner's insurance naming the Seller and its assignees as an
additional insured party are required on all loans. The general criteria used by
the Seller's Underwriting staff in classifying loan applicants are set forth
below:
Credit Insurance. The Seller is currently underwriting some, but not all,
of its home equity loans with credit insurance that is underwritten by an
unrelated third party. One such type of credit insurance is credit life
insurance which provides for the payment of indebtedness upon the death of the
insured. Such insurance may be underwritten as either joint insurance (covering
both borrower and co-borrower) or single insurance (covering the primary
borrower only). The Seller offers 'Truncated Decreasing Insurance', through the
same unrelated third party, that is in effect for five years. The maximum
coverage amount of the credit life insurance is $100,000 and is based upon a net
payoff basis. A second type of credit insurance is involuntary unemployment
insurance. This type of insurance pays the scheduled monthly payment obligation
of an insured creditor in cases where the debtor has become unemployed
involuntary. The maximum monthly benefit is $750 with the term of the insurance
being limited to five years.
UNDERWRITING CRITERIA OF THE SELLER
'A+' Risk. Under the 'A+' risk category, the prospective borrower must have
repaid installment or revolving consumer debt according to its terms with no
30-day late payments within the last 12 months and within the prior 12 month
period no 30-day late payments are permitted on an existing home equity loan. No
collection accounts, unpaid charge-offs, judgments or a derogatory public record
is permitted within the past two years (medical collections under $500.00). No
bankruptcy or foreclosure may have occurred during the preceding seven years
commencing from the date of discharge or the date the foreclosure was filed. No
State or Federal Tax liens (paid or unpaid) and no delinquent property taxes are
permitted. A maximum loan-to-value ratio of 90% for home equity loans originated
under the Full Documentation Program (85% for Limited Documentation Program or
80% if the home equity loan is originated under the Stated Income Program) is
permitted for a home equity loan of less than $500,000 on an owner-occupied
property. A maximum loan-to-value ratio of 85% for a home equity loan originated
under the Full Documentation Program (75% for Limited Documentation Program or
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70% if the home equity loan is originated under the Stated Income Program) is
permitted for a home equity loan of less than $500,000 on non-owner occupied
property. The maximum debt service-to-income ratio is 45%.
'A-1' Risk. Under the 'A-1' risk category, the prospective borrower must
have generally repaid installment or revolving debt according to its terms with
no 60-day late payments within the last 12 months. A maximum of one 30-day late
payment is acceptable in the last 12 months on an existing home equity loan.
Consecutive 30-day delinquencies may be considered as a single late. This is
limited to 30-day lates only. Minor derogatory items are allowed as to
non-mortgage credit. No collection accounts, charge-offs or judgments over $500
within the last two years are allowed. No bankruptcy or notice of default
filings by the borrower may have occurred during the preceding five years. A
maximum loan-to-value ratio of up to 90% (85% for Limited Documentation Program
or 80% for home equity loans originated under the Stated Income Program) is
permitted for a home equity loan on a 1-4 family owner-occupied property. A
maximum loan-to-value ratio of up to 85% (75% for Limited Documentation Program
or 70% for home equity loan originating under the Stated Income Program) is
permitted for a home equity loan on a non-owner occupied property. The debt
service-to-income ratio generally is 50% or less based on the Qualifying Rate.
The maximum loan amount is $500,000 for a 1-4 family property under the Full
Documentation Program. The maximum loan amount is $350,000 for a home equity
loan on a 1-4 family property under the Limited Documentation Program or Stated
Income Program. Exceptions to the maximum loan amount for a single-family, owner
occupied property are considered by the Seller on a limited basis.
'A-2' Risk. Under the 'A-2' risk category, the prospective borrower must
have generally repaid installment or revolving debt according to its terms with
no 90-day late payments on such obligations within the last 12 months. A maximum
of two 30-day late payments and no 60-day late payments within the last 12
months is acceptable on an existing home equity loan. Minor derogatory items are
allowed as to non-mortgage credit. No unpaid collection accounts, charge-offs or
judgments over $1,000 within the last two years are allowed. No bankruptcy or
notice of default filings by the borrower may have occurred during the preceding
three years. A maximum loan-to-value ratio of up to 90% (80% for Limited
Documentation Program or 80% for home equity loans originated under the Stated
Income Program) is permitted for a home equity loan on a 1-4 family owner
occupied property. A maximum loan-to-value ratio of up to 80% (75% for Limited
Documentation Program or 65% for mortgage loans originated under the Stated
Income Program) is permitted for a home equity loan on a non-owner occupied
property. The debt service-to-income ratio generally is 50% or less based on the
Qualifying Rate. The maximum loan amount is $500,000 for a 1-4 family property
under the Full Documentation Program. The maximum loan amount is $350,000,000
for a mortgage loan on a 1-4 family property under the Limited Documentation
Program or Stated Income Program. Exceptions to the maximum loan amount for a
single-family, owner occupied property are considered by the Seller on a limited
basis.
'B' Risk. Under the 'B' risk category the prospective borrower must have
generally repaid consumer debt according to its terms with no 120-day late
payments on such obligations within the last 12 months. A maximum of three
30-day late payments within the last 12 months is acceptable on an existing home
equity loan on the subject property. As to non-mortgage credit, some prior
defaults may have occurred. Isolated and insignificant collections and/or
charge-offs and judgments within the last 24 months less than $2,500 are
permitted and are not required to be paid from the proceeds of the home equity
loan. No bankruptcy or foreclosure by the borrower may have occurred during the
preceding 24 months. A maximum loan-to-value ratio of 85% (80% for Limited
Documentation Program or 75% for Stated Income Program) is permitted for a home
equity loan on a 1-4 family owner occupied property. A maximum loan-to-value
ratio of 75% (70% for Limited Documentation Program or 65% for home equity loans
originated under the Stated Income Program) is permitted for a home equity loan
on a non-owner occupied property. The debt service-to-income ratio generally is
50% or less based on the Qualifying Rate. The maximum loan amount is $500,000
for a 1-4 family property under the Full Documentation Program. The maximum loan
amount is $250,000 for home equity loans originated under the Limited
Documentation Program or Stated Income Program.
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'C-1' Risk. Under the 'C-1' risk category, the prospective borrower may
have experienced significant credit problems in the past. Installment debt may
have been up to 120 days delinquent within the last twelve months. A maximum of
four 30-day late payments and one 60-day late payment within the last 12 months
is acceptable on an existing home equity loan. The existing home equity
obligation can be up to 60 days past due at the funding of the loan. As to
non-mortgage credit, significant prior defaults may have occurred. There may be
open collections or charge-offs not to exceed $2,500 and up to $5,000 in
isolated circumstances. However, collection accounts, unpaid charge-offs or
judgments are not required to be paid from the proceeds of the home equity loan.
No bankruptcy or notice of default filings by the borrower may have occurred
during the preceding 12 months. A maximum loan-to-value ratio of 80% (75% on
Limited Documentation Program or 70% for home equity loans originated under the
Stated Income Program) is permitted for a home equity loan on a 1-4 family
owner-occupied property. A maximum loan-to-value ratio of 70% (65% on Limited
Documentation Program) is permitted for a home equity loan on a
non-owner-occupied property. The debt service-to-income ratio is generally 50%
or less based on the Qualifying Rate. The maximum loan amount is $350,000 for a
home equity loan on a 1-4 family owner-occupied or non-owner occupied property.
The maximum loan amount is $250,000 on the Limited Documentation Program.
'C-2' Risk. Under the 'C-2' risk category, the prospective borrower may
have experienced significant credit problems in the past. Installment debt may
have been up to 120 days delinquent within the last twelve months. A maximum of
two 60-day late payments or one 90-day late payment within 12 months is
acceptable on an existing home equity loan on the subject property. The existing
home equity obligation can be up to 90 days past due at the funding of the loan.
As to non-mortgage credit, significant prior defaults may have occurred. There
may be open collections or charge-offs not to exceed $5,000 and collection
accounts, unpaid charge-offs or judgments are not required to be paid from the
proceeds of the home equity loan. No bankruptcy or notice of default filings by
the borrower may have occurred during the preceding 6 months. A maximum
loan-to-value ratio of 75% is permitted for a home equity loan on a 1-4 family
owner-occupied property. A maximum loan-to-value ratio of 65% is permitted for a
home equity loan on a non-owner-occupied property. The debt service-to-income
ratio is generally 50% or less based on the Qualifying Rate. The maximum loan
amount is $350,000.
'D' Risk. Under the 'D' risk category, the prospective borrower may have
experienced significant credit problems in the past. As to non-mortgage credit,
significant prior defaults may have occurred. The borrower is sporadic in some
or all areas with a disregard for timely payment or credit standing. With
respect to an existing home equity loan on the subject property, such home
equity loan may be no more than one time 120 days late and may be in foreclosure
proceedings. Such existing home equity loan is not required to be current at the
time the application is submitted. The borrower may have open collections,
charge-offs and judgments, which are generally paid through the loan proceeds if
amount exceeds $5,000. Bankruptcy or notice of default filings by the borrower
may be present at the time of the loan. A maximum loan-to-value ratio of 70% is
permitted for a home equity loan on a 1-4 family owner-occupied property. A
maximum loan to value ratio of 50% is permitted for a home equity loan on
non-owner occupied 1-4 family property. The maximum loan amount is $350,000. The
debt service-to-income ratio generally is 50% or less based on the Qualifying
Rate.
Exceptions. As described above, the Seller uses the foregoing categories
and characteristics as underwriting guidelines only. On a case-by-case basis, it
may determine that the prospective borrower warrants a risk category upgrade, a
debt service-to-income ratio exception, a pricing exception, a loan-to-value
exception or an exception from certain requirements of a particular risk
category (collectively called an 'upgrade' or an 'exception'). An upgrade or
exception may generally be allowed if the application reflects certain
compensating factors, among others: reduced loan-to-value ratio; good property
maintenance; mortgage history consistent with the risk category upgrade; stable
employment; disposable income and the length of residence in the subject
property. Accordingly, the Seller may classify certain home equity loan
applications in a more favorable risk category than other home equity loan
applications that, in the absence of such compensating factors, would satisfy
only the criteria of a less favorable risk category.
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SERVICING
The Servicer has been servicing loans since March 1997, when it assumed the
default management cycle of loans previously handled by CTX Mortgage, which is
primarily a conforming seller/servicer. The Servicer or one of its affiliates
originates all of the loans it services. Servicing encompasses, among other
activities, the following processes: billing and collection of payments when
due, movement and reporting of cash to the payment clearing bank accounts,
investor reporting, customer help, reconveyance, recovery of delinquent
installments, instituting foreclosure, and liquidation of the underlying
collateral. As of December 31, 1998, the Servicer was servicing a portfolio of
approximately $950 million.
The Servicer services all loans in its Dallas, Texas headquarters facility
using a mid-range AS-400 based servicing platform ('LSAMS') for which the
Servicer purchased a separate user license in August of 1997. The LSAMS system
is also employed by other large, nonconforming servicers in the subprime
industry. The company has purchased an additional servicing system from London
Bridge Corporation ('FORTRACS'), an event-tracking system with separate modules
for foreclosure, bankruptcy, and REO Property. FORTRACS has generally increased
the Servicer's ability to track and monitor loans in the default process.
The Servicer's operating and compliance policies and procedures are
published and updated to comply with state and federal, legal and regulatory
requirements.
The Servicer's default management policy has been designed to identify
collection problems so as to facilitate a prompt response to the delinquent
borrower's situation. Early identification of a significant collection problem
is especially critical in the subprime mortgage environment.
Borrowers are mailed a monthly billing statement approximately three weeks
prior to their due date. Collection activity on an account begins as soon as
five (5) days after the scheduled due date if a payment is not made. A 'First
Notice' is generated by LSAMS and mailed to the mortgagor generally on the 8th
day after the due date. Loans on which one of the initial three payments on a
new loan have not been received will generally be called on the first day of
default to ensure that all terms of the new loan are understood by the
borrower(s) and to determine if any serious problems exist which will affect
prompt repayment of the loan.
The collection strategy is to determine the facts surrounding the
delinquency, obtain customer agreement for the solution, and to attempt to
preclude future delinquency on the part of the borrower. Generally, when a
promise for payment is obtained from the borrower by the collector, LSAMS will
target the loan in the 'queue' for the date of the promised payment. If the
payment is made, the account is removed from the collection queue. If the
arrangement for payment was not kept, the loan is placed back in the call route
for the collector to contact and follow up on the previous arrangements for
payment. If the payment is received per the arrangements and no future promise
or target dates are noted on LSAMS, the loan will be removed from the collection
cycle unless the account becomes delinquent in the future.
Generally, when a loan appears in the LSAMS default management auto queue,
the collector will telephone the borrower(s) to discuss the past due payment
situation. Standard collection form letters, approved by the Servicer's legal
department, are generally utilized in conjunction with telephone calling, in
order to reach the delinquent borrower(s). Documentation of collection activity
is critically important in the default management process. Collectors have
access on LSAMS to borrower demographics, telephone numbers, loan payment
history, and all previous collection notes, to assist in the collection of a
past due account. The policy of the Servicer is that managers in the collection
department are required to monitor collectors' work on LSAMS and to offer
guidance and training to their employees.
It is the policy of the Servicer to send out a notice of demand at the
45th day of delinquencies. This may be done sooner if the circumstances of a
particular account indicate that legal action appears likely. This letter will
give the customer 30 days' notice of the Servicer's intent to initiate
foreclosure action on the loan. If an alternative to foreclosure is appropriate,
a recommended course of action will be prescribed by senior servicing
management. Servicing and collection practices regarding the liquidation of
properties (e.g., foreclosure) and the rights of the borrower vary from state to
state.
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Prior to any foreclosure action, and intermittently updated throughout the
process, the Servicer performs an in-depth market value analysis on all
defaulted loans. This analysis includes a current appraisal or broker price
opinion ('BPO') conducted by an independent vendor from the Servicer's approved
network of appraisers or real estate brokers. In addition, all property
evaluations are reviewed by an internal staff appraiser in order to ensure that
the most accurate value is known. It is this value which will determine its
strategy for bidding, repairs, and sale of the property.
If the Servicer acquires title to a property at a foreclosure sale or
through other means, the REO Property department immediately begins working on
the file by obtaining at least two local real estate brokers to inspect the
property and provide an estimate of repairs needed and a recommended list price.
Repairs are performed if it is determined that they will increase the net
liquidation proceeds and speed of disposal.
If the property is not vacated when it is acquired, a local attorney will
be hired to commence eviction proceedings. Once it has listed a foreclosed
property, the REO Property department will follow up closely with the listing
agent to ensure that the collateral is secure and that it is being aggressively
marketed.
The Servicer outsources the tracking and follow up on homeowner's insurance
and property taxes. Expiration lists on homeowner insurance are provided on a
biweekly basis to the Servicer by the service provider. When insurance policies
lapse, a letter is mailed to the borrower, advising that coverage has lapsed and
in the absence of a new policy, that the Servicer will obtain a force-placed
insurance policy at the borrower's expense. The Servicer has a master policy
with the force-placed provider which protects against errors and omissions with
a blanket policy covering the Servicer's balance on the loan.
Notwithstanding any of the foregoing, the Servicer will be required to
service the Home Equity Loans in accordance with the servicing standards and
other terms set forth in the Agreement.
DESCRIPTION OF THE SECURITIES
GENERAL
Each Series of Notes will be issued pursuant to an indenture (the
'Indenture') between the related Trust Fund and the entity named in the related
Prospectus Supplement as trustee (the 'Trustee') with respect to such Series. A
form of Indenture has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The Certificates will also be issued in
Series pursuant to separate agreements (each, a 'Pooling and Servicing
Agreement' or a 'Trust Agreement') among the Depositor, the Seller, the Servicer
and the Trustee. A form of Pooling and Servicing Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part. A
Series may consist of both Notes and Certificates.
The following summaries describe the material provisions in the Agreements
common to each Series of Securities. The summaries do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, the
provisions of the Agreements and the Prospectus Supplement relating to each
Series of Securities. Where particular provisions or terms used in the
Agreements are referred to, the actual provisions (including definitions of
terms) are incorporated herein by reference as part of such summaries.
Each Series of Securities will consist of one or more Classes of
Securities, one or more of which may be Compound Interest Securities, Variable
Interest Securities, PAC Securities, Zero Coupon Securities, Principal Only
Securities or Interest Only Securities (each of which is generally described in
the 'INDEX OF DEFINED TERMS'). A Series may also include one or more Classes of
Subordinate Securities. The Securities of each Series will be issued only in
fully registered form, without coupons, in the authorized denominations for each
Class specified in the related Prospectus Supplement. Upon satisfaction of the
conditions, if any, applicable to a Class of a Series, as described in the
related Prospectus Supplement, the transfer of the Securities may be registered
and the Securities may be exchanged at the office of the Trustee specified in
the Prospectus Supplement without the payment of any service charge other than
any tax or governmental charge payable in connection with such registration of
transfer or exchange. If specified in the related Prospectus Supplement, one or
more Classes of a Series may be available in book-entry form only.
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Payments of principal of and interest on a Series of Securities will be
made on the Distribution Dates specified in the related Prospectus Supplement
(which may be different for each Class or for the payment of principal and
interest) by check mailed to Holders of such Series, registered as such at the
close of business on the record date specified in the related Prospectus
Supplement applicable to such Distribution Dates at their addresses appearing on
the security register, except that (a) payments may be made by wire transfer
(which, unless otherwise specified in the related Prospectus Supplement, shall
be at the expense of the Holder requesting payment by wire transfer) in certain
circumstances described in the related Prospectus Supplement and (b) final
payments of principal in retirement of each Security will be made only upon
presentation and surrender of such Security at the office of the Trustee
specified in the Prospectus Supplement. Notice of the final payment on a
Security will be mailed to the Holder of such Security before the Distribution
Date on which the final principal payment on any Security is expected to be made
to the holder of such Security.
Payments of principal of and interest on the Securities will be made by the
Trustee, or a paying agent on behalf of the Trustee, as specified in the related
Prospectus Supplement. All payments with respect to the Home Equity Loans for a
Series, together with reinvestment income thereon, amounts withdrawn from any
Reserve Fund, and amounts available pursuant to any other Enhancement will be
deposited into the Collection Account or the Certificate Account as specified in
the related Agreement. If provided in the related Prospectus Supplement, such
amounts may be net of certain amounts payable to the Servicer and any other
person specified in the Prospectus Supplement. Such amounts thereafter may be
deposited into the Distribution Account and will be available to make payments
on the Securities of such Series on the next applicable Distribution Date. See
'THE TRUST FUNDS -- Collection, Certificate and Distribution Accounts.'
BOOK-ENTRY SECURITIES
If specified in the related Prospectus Supplement, one or more Classes of
Securities may be issued in book-entry form (the 'Book-Entry Securities').
Persons acquiring beneficial ownership interests in the Book-Entry Securities
('Owners') will hold their Securities through The Depository Trust Company
('DTC') in the United States, or Cedelbank, societe anonyme, ('Cedel') or the
Euroclear System ('Euroclear') (in Europe) if they are participants of such
systems, or indirectly through organizations which are participants in such
systems. The Book-Entry Securities will be issued in one or more certificates
which equal the aggregate principal balance of the applicable Class or Classes
of Securities and will initially be registered in the name of Cede & Co., the
nominee of DTC. Cedel and Euroclear will hold omnibus positions on behalf of
their participants through customers' securities accounts in Cedel's and
Euroclear's names on the books of their respective depositaries which in turn
will hold such positions in customers' securities accounts in the depositaries'
names on the books of DTC. Citibank N.A. ('Citibank') will act as depositary for
Cedel and The Chase Manhattan Bank ('Chase') will act as depository for
Euroclear (in such capacities, individually the 'Relevant Depositary' and
collectively the 'European Depositaries'). Except as described below, no person
acquiring a Book-Entry Security will be entitled to receive a physical
certificate representing such Security (a 'Definitive Security'). Unless and
until Definitive Securities are issued, it is anticipated that the only
'Certificateholder' or Noteholder, as applicable, will be Cede & Co., as nominee
of DTC. Owners are only permitted to exercise their rights indirectly through
Participants and DTC.
The Owner's ownership of a Book-Entry Security will be recorded on the
records of the brokerage firm, bank, thrift institution or other financial
intermediary (each, a 'Financial Intermediary') that maintains the beneficial
owner's account for such purpose. In turn, the Financial Intermediary's
ownership of such Book-Entry Security will be recorded on the records of DTC (or
of a participating firm that acts as agent for the Financial Intermediary, whose
interest will in turn he recorded on the records of DTC, if the beneficial
owner's Financial Intermediary is not a DTC participant and on the records of
Cedel or Euroclear, as appropriate).
Owners will receive all distributions of principal of, and interest on, the
Book-Entry Securities from the Trustee through DTC and DTC participants. While
the Book-Entry Securities are outstanding (except under the circumstances
described below), under the rules, regulations and procedures creating and
affecting DTC and its operations (the 'Rules'), DTC is required to make
book-entry transfers
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among Participants on whose behalf it acts with respect to the Securities and is
required to receive and transmit distributions of principal of, and interest on,
the Securities. Participants and indirect participants with whom Certificate
Owners have accounts with respect to Securities are similarly required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Owners. Accordingly, although Owners will not possess
certificates, the Rules provide a mechanism by which Owners will receive
distributions and will be able to transfer their interest.
Owners will not receive or be entitled to receive certificates representing
their respective interests in the Securities, except under the limited
circumstances described below. Unless and until Definitive Securities are
issued, Owners who are not Participants may transfer ownership of Securities
only through Participants and indirect participants by instructing such
Participants and indirect participants to transfer Securities, by book-entry
transfer, through DTC for the account of the purchasers of such Securities,
which account is maintained with their respective Participants. Under the Rules
and in accordance with DTC's normal procedures, transfers of ownership of
Securities will be executed through DTC and the accounts of the respective
Participants at DTC will be debited and credited. Similarly, the Participants
and indirect participants will make debits or credits, as the case may be, on
their records on behalf of the selling and purchasing Owners.
Because of time zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Euroclear or
Cedel Participants on such business day. Cash received in Cedel or Euroclear as
a result of sales of securities by or through a Cedel Participant (as defined
below) or Euroclear Participant (as defined below) to a DTC Participant will be
received with value on the DTC settlement date but will be available in the
relevant Cedel or Euroclear cash account only as of the business day following
settlement in DTC.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Cedel Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
DTC, which is a New York-chartered limited purpose trust company, performs
services for its participants, some of which (and/or their representatives) own
DTC. In accordance with its normal procedures, DTC is expected to record the
positions held by each DTC participant in the Book-Entry Certificates, whether
held for its own account or as a nominee for another person. In general,
beneficial ownership of Book-Entry Certificates will be subject to the rules,
regulations and procedures governing DTC and DTC participants as in effect from
time to time.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ('Cedel
Participants') and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 28
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel participants are recognized financial
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institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
('Euroclear Participants') and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the 'Euroclear Operator'), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
'Cooperative'). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the 'Terms and Conditions'). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions on the Book-Entry Securities will be made on each
Distribution Date by the Trustee to DTC. DTC will be responsible for crediting
the amount of such payments to the accounts of the applicable DTC participants
in accordance with DTC's normal procedures. Each DTC Participant will be
responsible for disbursing such payments to the Owners that it represents and to
each Financial Intermediary for which it acts as agent. Each such Financial
Intermediary will be responsible for disbursing funds to the Owners that it
represents.
Under a book-entry format, Owners may experience some delay in their
receipt of payments, since such payments will be forwarded by the Trustee to
Cede. Distributions with respect to Securities held through Cedel or Euroclear
will be credited to the cash accounts of Cedel Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by the Relevant Depositary. Such distributions will be
subject to tax reporting in accordance with relevant United States tax laws and
regulations. Because DTC can only act on behalf of Financial Intermediaries, the
ability of an Owner to pledge Book-Entry Securities to persons or entities that
do not participate in the Depository system, or otherwise take actions in
respect of such Book-Entry Securities, may be limited due to the lack of
physical certificates for such Book-Entry Securities. In addition, issuance of
the Book-Entry Securities in book-entry form may reduce the liquidity of such
Securities in the secondary market since certain potential investors may be
unwilling to purchase Securities for which they cannot obtain physical
certificates.
Monthly and annual reports on the applicable Trust Fund will be provided to
Cede, as nominee of DTC, and may be made available by Cede to Owners upon
request, in accordance with the rules,
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regulations and procedures creating and affecting the Depository, and to the
Financial Intermediaries to whose DTC accounts the Book-Entry Securities of such
Owners are credited.
DTC has advised the Trustee that, unless and until Definitive Securities
are issued, DTC will take any action permitted to be taken by the holders of the
Book-Entry Securities under the Agreement only at the direction of one or more
Financial Intermediaries to whose DTC accounts the Book-Entry Securities are
credited, to the extent that such actions are taken on behalf of Financial
Intermediaries whose holdings include such Book-Entry Securities. Cedel or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by a Holder under the Agreement on behalf of a Cedel Participant or
Euroclear Participant only in accordance with its relevant rules and procedures
and subject to the ability of the Relevant Depositary to effect such actions on
its behalf through DTC. DTC may take actions, at the direction of the related
Participants, with respect to some Securities which conflict with actions taken
with respect to other Securities.
Definitive Securities will be issued to Owners, or their nominees, rather
than to DTC, only if (a) DTC or the Seller advises the Trustee in writing that
DTC is no longer willing, qualified or able to discharge properly its
responsibilities as nominee and depository with respect to the Book-Entry
Securities and the Seller or the Trustee is unable to locate a qualified
successor, (b) the Seller, at its sole option, elects to terminate a book-entry
system through DTC or (c) after the occurrence of an Event of Default (as
defined herein), Owners owning a majority in principal amount of the applicable
Securities advise the Trustee and DTC through the Financial Intermediaries and
the DTC participants in writing that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in the best interests of
Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all applicable
Owners of the occurrence of such event and the availability through DTC of
Definitive Securities. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Securities and instructions for
re-registration, the Trustee will issue Definitive Securities, and thereafter
the Trustee will recognize the holders of such Definitive Securities as
Certificateholders or Noteholders, as applicable, under the Agreement.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Securities among participants of DTC, Cedel
and Euroclear, they are under no obligation to perform or continue to perform
such procedures and such procedures may be discontinued at any time.
Neither the Depositor, the Seller, the Servicer nor the Trustee will have
any responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Securities held by
Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
VALUATION OF THE HOME EQUITY LOANS
If specified in the related Prospectus Supplement for a Series of Notes,
each Home Equity Loan included in the related Trust Fund for a Series will be
assigned an initial 'Asset Value.' Generally, the related Agreement will specify
that at any time the Asset Value of the Home Equity Loans will be equal to the
product of the Asset Value Percentage as set forth in the Indenture and the
lesser of (a) the stream of remaining regularly scheduled payments on the Home
Equity Loans, net, of certain amounts payable as expenses, together with income
earned on each such scheduled payment received through the day preceding the
next Distribution Date at the Assumed Reinvestment Rate, if any, discounted to
present value at the highest interest rate on the Notes of such Series over
periods equal to the interval between payments on the Notes, and (b) the then
principal balance of the Home Equity Loans. Generally, the related Agreement
will specify that, the initial Asset Value of the Home Equity Loans will be at
least equal to the principal amount of the Notes of the related Series at the
date of issuance thereof.
The 'Assumed Reinvestment Rate,' if any, for a Series will be the highest
rate permitted by the Rating Agency or a rate insured by means of a surety bond,
guaranteed investment contract, or other arrangement satisfactory to the Rating
Agency. If the Assumed Reinvestment Rate is so insured, the related Prospectus
Supplement will set forth the terms of such arrangement.
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PAYMENTS OF INTEREST
The Securities of each Class by their terms entitled to receive interest
will bear interest (which is generally calculated, on the basis of a 360 day
year of twelve 30-day months) from the date and at the rate per annum specified,
or calculated in the method described, in the related Prospectus Supplement.
Interest on such Securities of a Series will be payable on the Distribution Date
specified in the related Prospectus Supplement. If so specified in the related
Prospectus Supplement, the Distribution Date for the payment of interest of a
Class may be different from, or occur more or less frequently than, the
Distribution Date for the payment of principal of such Class. The rate of
interest on Securities of a Series may be variable or may change with changes in
the annual percentage rates of the Home Equity Loans included in the related
Trust Fund and/or as prepayments occur with respect to such Home Equity Loans.
Principal Only Securities may not be entitled to receive any interest
distributions or may be entitled to receive only nominal interest distributions.
Any interest on Zero Coupon Securities that is not paid on the related
Distribution Date will accrue and be added to the principal thereof on such
Distribution Date.
Interest payable on the Securities on a Distribution Date will include all
interest accrued during the period specified in the related Prospectus
Supplement. In the event interest accrues during the calendar month preceding a
Distribution Date, the effective yield to Holders will be reduced from the yield
that would otherwise be obtainable if interest payable on the Securities were to
accrue through the day immediately preceding such Distribution Date.
PAYMENTS OF PRINCIPAL
On each Distribution Date for a Series, principal payments will be made to
the Holders of the Securities of such Series on which principal is then payable,
to the extent set forth in the related Prospectus Supplement. Such payments will
be made in an aggregate amount determined as specified in the related Prospectus
Supplement and will be allocated among the respective Classes of a Series in the
manner, at the times and in the priority set forth in the related Prospectus
Supplement. The Holders of one or more Classes of Securities may have the right
to request that principal distributions allocable to such Holder's Class of
Securities be distributed to such Holder. If the requests of Holders exceed the
amount of principal to be distributed, the requests generally will be filled in
the order in which they were received. If the amount of principal to be
distributed exceeds the amount of requests, the Trustee will select random lots
of $1,000 each to receive such principal distribution. Thus, some Holders of the
applicable Class of Securities may receive no principal distributions or a
disproportionate amount of such principal distributions. If so specified in the
related Prospectus Supplement, the Distribution Date for the payment of
principal of a Class may be different from, or occur more or less frequently
than, the Distribution Date for the payment of interest for such Class.
FINAL SCHEDULED DISTRIBUTION DATE
The Final Scheduled Distribution Date with respect to each Class of Notes
is the date no later than the date on which the principal thereof will be fully
paid and with respect to each Class of Certificates will be the date on which
the entire aggregate principal balance of such Class is expected to be reduced
to zero, in each case calculated on the basis of the assumptions applicable to
such Series described in the related Prospectus Supplement. The Final Scheduled
Distribution Date for each Class of a Series will be specified in the related
Prospectus Supplement. Since payments on the Home Equity Loans will be used to
make distributions in reduction of the outstanding principal amount of the
Securities, it is likely that the actual final Distribution Date of any such
Class will occur earlier, and may occur substantially earlier, than its Final
Scheduled Distribution Date. Furthermore, with respect to a Series of
Certificates, as a result of delinquencies, defaults and liquidations of the
Home Equity Loans in the Trust Fund, the actual final Distribution Date of any
Certificate may occur later than its Final Scheduled Distribution Date. No
assurance can be given as to the actual prepayment experience with respect to a
Series. See ' -- Weighted Average Life of the Securities' below.
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SPECIAL REDEMPTION
If so specified in the Prospectus Supplement relating to a Series of
Securities having other than monthly Distribution Dates, one or more Classes of
Securities of such Series may be subject to special redemption, in whole or in
part, on the day specified in the related Prospectus Supplement (a 'Special
Redemption Date') if, as a consequence of prepayments on the Home Equity Loans
relating to such Securities or low yields then available for reinvestment the
entity specified in the related Prospectus Supplement determines, based on
assumptions specified in the applicable Agreement, that the amount available for
the payment of interest that will have accrued on such Securities (the
'Available Interest Amount') through the designated interest accrual date
specified in the related Prospectus Supplement is less than the amount of
interest that will have accrued on such Securities to such date. In such event
and as further described in the related Prospectus Supplement, the Trustee will
redeem a principal amount of outstanding Securities of such Series as will cause
the Available Interest Amount to equal the amount of interest that will have
accrued through such designated interest accrual date for such Series of
Securities outstanding immediately after such redemption.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
Weighted average life refers to the average amount of time that will elapse
from the date of issue of a security until each dollar of principal of such
security will be repaid to the investor. Generally, the weighted average life of
a Class of the Securities will be influenced by the rate at which the amount
financed under the Home Equity Loans included in the Trust Fund for a Series is
paid, which may be in the form of scheduled amortization or prepayments.
Prepayments on loans and other receivables can be measured relative to a
prepayment standard or model. The Prospectus Supplement for a Series of
Securities will describe the prepayment standard or model, if any, used and may
contain tables setting forth the weighted average life of each Class of
Securities of such Series, and the percentage of the original principal amount
of each Class of Securities of such Series that would be outstanding on
specified Distribution Dates for such Series, in each case based on the
assumptions stated in such Prospectus Supplement, including assumptions that
prepayments on the Home Equity Loans included in the related Trust Fund are made
at rates corresponding to various percentages of the prepayment standard or
model specified in such Prospectus Supplement.
There is, however, no assurance that prepayment of the Home Equity Loans
included in the related Trust Fund will conform to any level of any prepayment
standard or model specified in the related Prospectus Supplement. The rate of
principal prepayments on pools of loans may be influenced by a variety of
factors, including job related factors such as transfers, layoffs or promotions
and personal factors such as divorce, disability or prolonged illness. Economic
conditions, either generally or within a particular geographic area or industry,
also may affect the rate of principal prepayments. Demographic and social
factors may influence the rate of principal prepayments in that some borrowers
have greater financial flexibility to move or refinance than do other borrowers.
The deductibility of mortgage interest payments, and servicing decisions also
affect the rate of principal prepayments. As a result, there can be no assurance
as to the rate or timing of principal prepayments of the Home Equity Loans
either from time to time or over the lives of such Home Equity Loans.
The rate of prepayments of conventional housing loans and other receivables
has fluctuated significantly in recent years. In general, however, if prevailing
interest rates fall significantly below the interest rates on the Home Equity
Loans for a Series, such loans are likely to prepay at rates higher than if
prevailing interest rates remain at or above the interest rates borne by such
loans. In this regard, it should be noted that the Home Equity Loans for a
Series may have different interest rates. In addition, the weighted average life
of the Securities may be affected by the varying maturities of the Home Equity
Loans. If any Home Equity Loans for a Series have actual terms-to-stated
maturity of less than those assumed in calculating the Final Scheduled
Distribution Date of the related Securities, one or more Classes of the Series
may be fully paid prior to their respective Final Scheduled Distribution Date,
even in the absence of prepayments and a reinvestment return higher than the
Assumed Reinvestment Rate.
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THE TRUST FUNDS
GENERAL
The Notes of each Series will be secured by the pledge of the assets of the
related Trust Fund, and the Certificates of each Series will represent interests
in the assets of the related Trust Fund. The Trust Fund of each Series will
include (i) the Home Equity Loans, (ii) amounts available from the reinvestment
of payments on such Home Equity Loans at the Assumed Reinvestment Rate, if any,
specified in the related Prospectus Supplement, (iii) any Enhancement or the
rights thereto, (iv) any Mortgaged Property that secured a Home Equity Loan but
which is acquired by foreclosure or deed in lieu of foreclosure or repossession
and (v) the amount, if any, initially deposited in the Pre-Funding Account,
Capitalized Interest Account, Collection Account, Certificate Account or
Distribution Account for a Series as specified in the related Prospectus
Supplement.
The Securities will be non-recourse obligations of the related Trust Fund.
The assets of the Trust Fund specified in the related Prospectus Supplement for
a Series of Securities, will serve as collateral only for that Series of
Securities unless the related Prospectus Supplement specifies that such assets
will serve as collateral for another Series. Holders of a Series of Notes may
only proceed against such collateral securing such Series of Notes in the case
of a default with respect to such Series of Notes and may not proceed against
any assets of the Depositor, Seller or the related Trust Fund not pledged to
secure such Notes.
The Home Equity Loans for a Series will be transferred by the Seller to the
Depositor and from the Depositor to the Trust Fund. Home Equity Loans relating
to a Series will be master serviced by the Servicer pursuant to a Pooling and
Servicing Agreement, with respect to a Series consisting of only Certificates or
a Sale and Servicing Agreement (each, a 'Sale and Servicing Agreement') between
the Depositor, the Seller, the Trust Fund, the and the Servicer, with respect to
a Series that includes Notes.
As used herein, 'Agreement' means, with respect to a Series of
Certificates, the Pooling and Servicing Agreement or Trust Agreement, and with
respect to a Series that includes Notes, the Indenture and the Sale and
Servicing Agreement, as the context requires.
If so specified in the related Prospectus Supplement, a Trust Fund relating
to a Series of Securities may be a business trust formed under the laws of the
state specified in the related Prospectus Supplement pursuant to a trust
agreement (each, a 'Trust Agreement') between the Seller and the Trustee of such
Trust Fund specified in the related Prospectus Supplement.
With respect to each Trust Fund, prior to the initial offering of the
related Series of Securities, the Trust Fund will have no assets or liabilities.
No Trust Fund is expected to engage in any activities other than acquiring,
managing and holding the related Home Equity Loans and other assets contemplated
herein and in the related Prospectus Supplement and the proceeds thereof,
issuing Securities and making payments and distributions thereon and certain
related activities. No Trust Fund is expected to have any source of capital
other than its assets and any related Enhancement.
An Agreement may provide that additional Home Equity Loans may be added to
the Trust Fund if such Home Equity Loans were originated by the Seller in the
ordinary course of its business, the inclusion of such Home Equity Loans will
maintain or increase the level of overcollateralization and the inclusion of
such Home Equity Loans will not result in the withdrawal or downgrading of the
ratings then assigned to the Securities of the related Series. In addition, an
Agreement may provide that Home Equity Loans may be removed from a Trust Fund
from time to time if the actual level of overcollateralization exceeds the
amount of overcollateralization required to be maintained and such removal will
not result in the withdrawal or downgrading of the ratings then assigned to the
Securities of the related Series.
THE HOME EQUITY LOANS
The Home Equity Loans for a Series may consist, in whole or in part, of
closed-end home equity loans (the 'Home Equity Loans') secured by first or
second mortgages primarily on Single Family Mortgaged Properties which may be
subordinated to other mortgages on the same Mortgaged Property.
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The Home Equity Loans may have fixed interest rates or adjustable interest rates
and may provide for other payment characteristics as described below.
The full principal amount of a Home Equity Loan is advanced at origination
of the loan and generally is repayable in equal (or substantially equal)
installments of an amount sufficient to fully amortize such loan at its stated
maturity. As more fully described in the related Prospectus Supplement, interest
on each Home Equity Loan is calculated on the basis of the outstanding principal
balance of such loan multiplied by the Home Equity Loan Rate thereon and, in the
case of simple interest loans, further multiplied by a fraction, the numerator
of which is the number of days in the period elapsed since the preceding payment
of interest was made and the denominator is the number of days in the annual
period for which interest accrues on such loan. Interest on Home Equity Loans
also may be calculated on the actuarial basis, in which case each monthly
payment consists of a decreasing amount of interest and an increasing amount of
principal, and the payment either earlier or later then the due date therefor
will not affect the relative applications of principal and interest. The Home
Equity Loans for a Series may include Home Equity Loans that do not amortize
their entire principal balance by their stated maturity in accordance with their
terms and require a balloon payment of the remaining principal balance at
maturity, as specified in the related Prospectus Supplement. The original terms
to stated maturity of Home Equity Loans will generally not exceed 360 months.
The Mortgaged Properties will include Single Family Property (i.e., one- to
four-family residential housing, including Condominium Units and Cooperative
Dwellings) and may include mixed-use property. Mixed-use properties will consist
of structures of no more than three stories, which include one to four
residential dwelling units and space used for retail, professional or other
commercial uses. Such uses, which will not involve more than 50% of the space in
the structure, may include doctor, dentist or law offices, real estate agencies,
boutiques, newsstands, convenience stores or other similar types of uses
intended to cater to individual customers as specified in the related Prospectus
Supplement. The properties may be located in suburban or metropolitan districts.
Any such non-residential use will be in compliance with local zoning laws and
regulations. The Mortgaged Properties may consist of detached individual
dwellings, individual condominiums, townhouses, duplexes, row houses, individual
units in planned unit developments and other attached dwelling units. The
Mortgaged Properties also may include module or manufactured homes which are
treated as real estate under local law. Except for Condominium Units and
Cooperative Dwellings, each Single Family Property will be located on land owned
in fee simple by the borrower or on land leased by the borrower for a term at
least as long as the term of the related Home Equity Loan. Attached dwellings
may include owner-occupied structures where each borrower owns the land upon
which the unit is built, with the remaining adjacent land owned in common or
dwelling units subject to a proprietary lease or occupancy agreement in a
cooperatively owned apartment building. Mortgages on Cooperative Dwellings
consist of a lien on the shares issued by such Cooperative Dwelling and the
proprietary lease or occupancy agreement relating to such Cooperative Dwelling.
The aggregate principal balance of Home Equity Loans secured by Mortgaged
Properties that are owner-occupied will be disclosed in the related Prospectus
Supplement. The sole basis for determining that a given percentage of the Home
Equity Loans are secured by Single Family Property that is owner-occupied will
be either (i) the making of an oral representation by the Mortgagor at
origination of the Home Equity Loan either that the underlying Mortgaged
Property will be used by the Mortgagor for a period of at least six months every
year or that the Mortgagor intends to use the Mortgaged Property as a primary
residence, or (ii) a finding that the address of the underlying Mortgaged
Property is the Mortgagor's mailing address as reflected in the Servicer's or
the applicable Sub-Servicer's records. The Mortgaged Properties also may include
non-owner occupied investment properties and vacation and second homes.
Additional Information. The related Prospectus Supplement for each Series
will provide information with respect to the Home Equity Loans that are Home
Equity Loans as of the Cut-off Date, including, among other things, and to the
extent relevant: (a) the aggregate unpaid principal balance of the Home Equity
Loans (b) the range and weighted average Home Equity Loan Rate on the Home
Equity Loans, and, in the case of adjustable rate Home Equity Loans, the range
and weighted average of the current Home Equity Loan Rates and the Lifetime Rate
Caps, if any; (c) the range and
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average outstanding principal balance of the Home Equity Loans; (d) the weighted
average original and remaining term-to-stated maturity of the Home Equity Loans
and the range of original and remaining terms-to-stated maturity, if applicable;
(e) the range and weighted average of Combined Loan-to-Value Ratios for the Home
Equity Loans; (f) the percentage (by outstanding principal balance as of the
Cut-off Date) of Home Equity Loans that accrue interest at adjustable or fixed
interest rates; (g) any special hazard insurance policy or bankruptcy bond or
other enhancement relating to the Home Equity Loans; (h) the geographic
distribution of the Mortgaged Properties securing the Home Equity Loans; (i) the
percentage of Home Equity Loans (by principal balance as of the Cut-off Date)
that are secured by Single Family Mortgaged Properties, shares relating to
Cooperative Dwellings, Condominium Units, investment property and vacation or
second homes; (j) the lien priority of the Home Equity Loans; and (k) the
delinquency status and year of origination of the Home Equity Loans. The related
Prospectus Supplement will also specify any other limitations on the types or
characteristics of Home Equity Loans for a Series. No more than 5% of the
aggregate Home Equity Loans as they will be constituted on the Closing Date will
deviate in any respect from the Home Equity Loan pool characteristics that are
described herein in the Prospectus Supplement.
If information of the nature described above respecting the Home Equity
Loans is not known to the Seller at the time the Securities are initially
offered, approximate or more general information of the nature described above
will be provided in the Prospectus Supplement and additional information will be
set forth in a Current Report on Form 8-K to be available to investors on the
date of issuance of the related Series and to be filed with the Commission
within 15 days after the initial issuance of such Securities.
COLLECTION, CERTIFICATE AND DISTRIBUTION ACCOUNTS
A separate Collection Account or Certificate Account will be established
for each Series of Securities for receipt of all amounts received on or with
respect to the Home Equity Loans. Certain amounts on deposit in such Collection
Account and certain amounts available pursuant to any Enhancement, as provided
in the related Prospectus Supplement, may be deposited in one or more
Distribution Accounts. Funds in the Collection, Certificate and Distribution
Accounts generally will be invested in Eligible Investments maturing, with
certain exceptions, not later, in the case of funds in the Collection Account,
than the day preceding the date such funds are due to be deposited in the
Distribution Account or otherwise distributed and, in the case of funds in the
Distribution Account and the Certificate Account, than the day preceding the
next Distribution Date for the related Series of Securities.
We refer you to ' -- Eligible Investments' below for more detail.
PRE-FUNDING AND CAPITALIZED INTEREST ACCOUNTS
If specified in the related Prospectus Supplement, a Trust Fund will
include one or more segregated trust accounts (each, a 'Pre-Funding Account')
established and maintained with the Trustee for the related Series. If so
specified, on the closing date for such Series, a portion of the proceeds of the
sale of the Securities of such Series not to exceed fifty percent of the
aggregate principal amount of such Series (such amount, the 'Pre-Funded Amount')
may be deposited in the Pre-Funding Account and may be used to purchase
additional Home Equity Loans during the period of time not to exceed six months
specified in the related Prospectus Supplement (the 'Pre-Funding Period').
Pending the purchase of such additional Home Equity Loans, funds deposited in
the Pre-Funding Account will be invested in Eligible Investments. If any
Pre-Funded Amount remains on deposit in the Pre-Funding Account at the end of
the Pre-Funding Period, such amount will be applied in the manner specified in
the related Prospectus Supplement to prepay the Notes and/or the Certificates of
the applicable Series.
Each additional Home Equity Loan must satisfy the eligibility criteria
specified in the related Prospectus Supplement and related Agreements. Such
eligibility criteria will be determined in consultation with each Rating Agency
(and/or any Enhancer) prior to the issuance of the related Series and are
designed to ensure that if such additional Home Equity Loans were included as
part of the initial Home Equity Loans, the credit quality of such assets would
be consistent with the initial rating of
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the Securities of such Series. The eligibility criteria will apply to the pool
of Home Equity Loans, including the subsequent Home Equity Loans, and will
include a minimum weighted average interest rate, a maximum weighted average
remaining term to maturity and a maximum weighted average Combined Loan-to-Value
Ratio. Depending on the composition of the original Home Equity Loans and the
type of Enhancement, additional eligibility criteria such as a minimum interest
rate, a maximum principal balance, a limitation on geographic concentration and
a limit on certain types of Home Equity Loans such as Balloon Loans or loans
secured by other than primary residences. The Seller will certify to the Trustee
that all conditions precedent to the transfer of the additional Home Equity
Loans, including the satisfaction of the eligibility criteria to the Trust Fund,
have been satisfied. It is a condition to the transfer of any additional Home
Equity Loans to the Trust Fund that each Rating Agency, after receiving prior
notice of the proposed transfer of the additional Home Equity Loans to the Trust
Fund, shall not have advised the Seller or the Trustee or any Enhancer that the
conveyance of such additional Home Equity Loans will result in a qualification,
modification or withdrawal of its then current rating of any Class of Notes or
Certificates of such Series. Following the transfer of additional Home Equity
Loans to the Trust Fund, the aggregate characteristics of the Home Equity Loans
then held in the Trust Fund may vary from those of the initial Home Equity Loans
of such Trust Fund. As a result, the additional Home Equity Loans may adversely
affect the performance of the related Securities.
If a Pre-Funding Account is established, one or more segregated trust
accounts (each, a 'Capitalized Interest Account') may be established and
maintained with the Trustee for the related Series. On the closing date for such
Series, a portion of the proceeds of the sale of the Securities of such Series
will be deposited in the Capitalized Interest Account and used to fund the
excess, if any, of the sum of (i) the amount of interest accrued on the
Securities of such Series and (ii) if specified in the related Prospectus
Supplement, certain fees or expenses during the Pre-Funding Period such as
Trustee fees and credit enhancement fees, over the amount of interest available
therefor from the Home Equity Loans in the Trust Fund. If so specified in the
related Prospectus Supplement, amounts on deposit in the Capitalized Interest
Account may be released to the Seller prior to the end of the Pre-Funding Period
subject to the satisfaction of certain tests specified in the related Prospectus
Supplement. Any amounts on deposit in the Capitalized Interest Account at the
end of the Pre-Funding Period that are not necessary for such purposes will be
distributed to the person specified in the related Prospectus Supplement.
ELIGIBLE INVESTMENTS
Each Agreement generally will define Eligible Investments to include the
following:
(i) direct obligations of, or obligations fully guaranteed as to
timely payment of principal and interest by, the United States or any
agency or instrumentality thereof, provided that such obligations are
backed by the full faith and credit of the United States;
(ii) repurchase agreements on obligations specified in clause (i)
maturing not more than three months from the date of acquisition thereof,
provided that the short-term unsecured debt obligations of the party
agreeing to repurchase such obligations are at the time rated by each
Rating Agency in its highest short-term rating category;
(iii) certificates of deposit, time deposits and bankers' acceptances
of any U.S. depository institution or trust company incorporated under the
laws of the United States or any state thereof and subject to supervision
and examination by federal and/or state banking authorities, provided that
the unsecured short-term debt obligations of such depository institution or
trust company at the date of acquisition thereof have been rated by each
Rating Agency in its highest unsecured short-term debt rating category;
(iv) commercial paper (having original maturities of not more than 90
days) of any corporation incorporated under the laws of the United States
or any state thereof which on the date of acquisition has been rated by
each Rating Agency in their highest short-term rating categories;
(v) short-term investment funds ('STIFS') sponsored by any trust
company or national banking association incorporated under the laws of the
United States or any state thereof which on
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the date of acquisition has been rated by each Rating Agency in their
respective highest rating category of long-term unsecured debt; and
(vi) interests in any money market fund which at the date of
acquisition of the interests in such fund and throughout the time as the
interest is held in such fund has a rating of 'Aaa' by Moody's Investors
Service, Inc., and either 'AAAm' or 'AAAm-G' by Standard & Poor's Ratings
Group, a division of The McGraw-Hill Companies, Inc.;
provided that no instrument described above may evidence either the right to
receive (a) only interest with respect to the obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that no instrument described above may be purchased at a price greater than par
if such instrument may be prepaid or called at a price less than its purchase
price prior to its stated maturity.
To the extent any such investment would require registration of the Trust
Fund as an investment company, such investment will not constitute an Eligible
Investment.
REVOLVING PERIOD AND AMORTIZATION PERIOD; RETAINED INTEREST
If the related Prospectus Supplement so provides, there may be a period
commencing on the date of issuance of a Class or Classes of Notes and/or
Certificates of a Series and ending on the date set forth in the related
Prospectus Supplement (each, a 'Revolving Period') during which limited or no
principal payments will be made to one or more Classes of Notes or Certificates
of the related Series as are identified in such Prospectus Supplement. Some or
all collections of principal otherwise allocated to such Classes of Notes or
Certificates may be (i) utilized during the Revolving Period to acquire
additional Home Equity Loans which satisfy the criteria specified above and the
criteria set forth in the related Prospectus Supplement, (ii) held in an account
and invested in Eligible Investments for later distribution to Securityholders,
(iii) applied to those Notes or Certificates for such Series, if any, specified
in the related Prospectus Supplement as then are in amortization, or (iv)
otherwise applied as specified in the related Prospectus Supplement.
An 'Amortization Period' is the period during which an amount of principal
is payable to Holders of a Series which, during the Revolving Period, were not
otherwise entitled to such payments. If so specified in the related Prospectus
Supplement, during an Amortization Period all or a portion of principal
collections on the Home Equity Loans may be applied as specified above for a
Revolving Period and, to the extent not so applied, will be distributed to the
Classes of Notes or Certificates for such Series specified in the related
Prospectus Supplement as then being entitled to payments of principal. In
addition, if so specified in the related Prospectus Supplement, amounts
deposited in certain accounts for the benefit of one or more Classes of Notes or
Certificates for such Series may be released from time to time or on a specified
date and applied as a payment of principal on such Classes of Notes or
Certificates. The related Prospectus Supplement will set forth the circumstances
which will result in the commencement of an Amortization Period.
Each Series which has a Revolving Period may also issue to the Depositor or
one of its affiliates a certificate evidencing an undivided beneficial interest
(a 'Retained Interest') in such Series not represented by the other Securities
issued by the Depositor. As further described in the related Prospectus
Supplement, the value of such Retained Interest will fluctuate as the amount of
Notes and Certificates of the related Series of Securities outstanding is
reduced.
ENHANCEMENT
The amounts and types of credit enhancement ('Enhancement') arrangements
and the provider thereof, if applicable, with respect to a Series or any Class
of Securities will be set forth in the related Prospectus Supplement. If
specified in the applicable Prospectus Supplement, Enhancement for any Series of
Securities may cover one or more Classes of Notes or Certificates, and
accordingly may be exhausted for the benefit of a particular Class of Notes or
Certificates and thereafter be unavailable to such other Classes of Notes or
Certificates. Further information regarding any provider of credit
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enhancement, including financial information when material, will be included in
the related Prospectus Supplement.
If and to the extent provided in the related Prospectus Supplement,
Enhancement may include one or more of the following or any combination thereof:
A Financial Guaranty Insurance Policy, which will be issued by a
monoline insurance company and which, subject to the terms of such policy,
will guarantee timely payment of interest on, and ultimate (as opposed to
timely) payment of principal of, the applicable Class or Classes of
Securities;
Overcollateralization, which will equal the excess of the aggregate
principal balance of the Home Equity Loans over the aggregate principal
balance of the Securities. Overcollateralization may take the form of the
initial or subsequent deposit of Home Equity Loans to create such excess or
may build over time from the application of certain excess cash amounts
generated by the Home Equity Loans to accelerate the amortization of the
applicable Class or Classes of Securities;
A Letter of Credit, which will be issued by a bank or other financial
institution in a maximum amount which may be permanently reduced as draws
are made or may be replenished as previous draws are repaid from certain
excess cash amounts generated by the Home Equity Loans. Draws may be made
to cover shortfalls generally in collections, with respect to particular
types of shortfalls such as those due to particular types of losses or with
respect to specific situations such as shortfalls in amounts necessary to
pay current interest;
Cash Reserve Fund which may be partially or fully funded on the date
of issuance or may be funded over time from certain excess cash amounts
generated by the Home Equity Loans. Withdrawals may be made in
circumstances similar to those for which draws may be made on a letter of
credit;
Insurance Policies, which may insure a portion of the Home Equity
Loans against credit losses, bankruptcy losses, fraud losses or special
hazard losses not covered by typical homeowners insurance policies;
Subordinate Securities, which will be subordinated in the right to
receive distributions to one or more other Classes of Securities of the
same Series, some or all of which may themselves be subordinated to other
Classes of such Series. Subordination may be with respect to distributions
of interest, principal or both. In addition, all or portions of certain
types of losses on the Home Equity Loans may be allocated to one or more
Classes of the Subordinate Securities prior to the allocation thereof to
other Classes of Subordinate Certificates and/or the Senior Securities of
the applicable Series; or
Derivative Products which may include a swap to convert floating or
fixed rate payments, as applicable, on the Home Equity Loans into fixed or
floating rate payments, as applicable, on the Securities or a cap or floor
agreement intended to provide protection against changes in floating rates
of interest payable on the Home Equity Loans and/or the Securities.
The presence of Enhancement is intended to increase the likelihood of
receipt by the Certificateholders and the Noteholders of the full amount of
principal and interest due thereon and to decrease the likelihood that the
Certificateholders and the Noteholders will experience losses, or may be
structured to provide protection against changes in interest rates or against
other risks, to the extent and under the conditions specified in the related
Prospectus Supplement. Forms of Enhancement may provide for one or more Classes
of Securities to be paid in foreign currencies. The Enhancement for a Class of
Securities generally will not provide protection against all risks of loss and
may not guarantee repayment of the entire principal and interest thereon. If
losses occur which exceed the amount covered by any Enhancement or which are not
covered by any Enhancement, Securityholders will bear their allocable share of
deficiencies. In addition, if a form of Enhancement covers more than one Class
of Securities of a Series, Securityholders of any such Class will be subject to
the risk that such Enhancement will be exhausted by the claims of
Securityholders of other Classes.
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THE AGREEMENTS
The following summaries describe the material provisions of the Agreements
common to each Series of Securities. The summaries do not purport to be complete
and are subject to, and qualified in their entirety by reference to, the
provisions of the Agreements. Where particular provisions or terms used in the
Agreements are referred to, such provisions or terms are as specified in the
related Agreements.
GENERAL
At the time of issuance of the Securities of a Series, the Seller will
transfer, convey and assign to the Depositor and the Depositor will transfer,
convey and assign to the Trust Fund all right, title and interest of the Seller
and the Depositor, respective in the Home Equity Loans and other property to be
transferred to the Depositor and Trust Fund, respectively, for a Series. Such
assignment will include all principal and interest due or received on or with
respect to the Home Equity Loans after the Cut-off Date to the extent specified
in the related Prospectus Supplement (except for any Retained Interests). The
Trustee will, concurrently with such assignment, execute and deliver the
Securities.
REPURCHASE AND SUBSTITUTION OF NON-CONFORMING HOME EQUITY LOANS
Pursuant to the related Pooling and Servicing Agreement or Sale and
Servicing Agreement, upon the discovery by the Depositor, the Seller, the
Enhancer, if any, the Servicer, any Sub-Servicer, any Holder, the Custodian (as
defined below) or the Trustee that the representations and warranties are untrue
in any material respect as of the Closing Date with the result that the
interests of the Holders or of the Enhancer are materially and adversely
affected, the party discovering such breach is required to give prompt written
notice to the other parties.
Upon the earliest to occur of the Seller's discovery or receipt of notice
of breach of a representation or warranty made by it with respect to a Home
Equity Loan from any of the other parties or such time as a situation resulting
from an existing statement which is untrue materially and adversely affects the
interests of the Holders or the Enhancer, if any, in such Home Equity Loan, the
Seller will be required promptly to cure such breach in all material respects or
the Seller shall on or prior to the second Monthly Remittance Date (as defined
below) next succeeding such discovery, such receipt of notice or such time (i)
substitute in lieu of each Home Equity Loan which has given rise to the
requirement for action by the Seller a 'Qualified Replacement Mortgage' (as such
is defined in the related Pooling and Servicing Agreement or Sale and Servicing
Agreement) and deliver an amount equal to the excess, if any, of the outstanding
principal balance of the Home Equity Loan being replaced over the outstanding
principal balance of the replacement Home Equity Loan plus accrued and unpaid
interest and plus the amount of any Delinquency Advance and Servicing Advance
(the 'Substitution Amount'), to the Trustee (to be deemed part of the
collections remitted by the Servicer on such Monthly Remittance Date) or (ii)
purchase such Home Equity Loan from the Trust at a purchase price equal to the
Loan Purchase Price (as defined below) thereof. Notwithstanding any provision of
the related Pooling and Servicing Agreement or Sale and Servicing Agreement to
the contrary, with respect to any Home Equity Loan which is not in default or as
to which no default is reasonably foreseeable, no such repurchase or
substitution will be made unless the Seller obtains for the Trustee and any
Enhancer, if any, an opinion of counsel experienced in federal income tax
matters and acceptable to the Trustee and the Enhancer, if any, to the effect
that such a repurchase or substitution would not constitute a Prohibited
Transaction for the REMIC or otherwise subject the REMIC to tax and would not
jeopardize the status of the REMIC as such (a 'REMIC Opinion'), addressed to the
Trustee and any Enhancer and acceptable to the Trustee and any Enhancer. The
Seller shall also deliver an Officer's Certificate to the Trustee and any
Enhancer concurrently with the delivery of a Qualified Replacement Mortgage
stating that such Home Equity Loan meets the requirements of a Qualified
Replacement Mortgage and that all other conditions to the substitution thereof
have been satisfied. Any Home Equity Loan as to which repurchase or substitution
was delayed pursuant to the related Pooling and Servicing Agreement or Sale and
Servicing Agreement shall be repurchased or substituted for (subject to
compliance with the provisions of the related Pooling and Servicing Agreement or
Sale and Servicing Agreement) upon the earlier of (a) the occurrence of a
default or reasonably foreseeable
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default with respect to such Home Equity Loan and (b) receipt by the Trustee and
the Enhancer, if any, of a REMIC Opinion. In connection with any breach of a
representation, warranty or covenant or defect in documentation giving rise to
such repurchase or substitution obligation, the Seller agrees that it shall, at
its expense, furnish the Trustee and the Enhancer, if any, either a REMIC
Opinion or an opinion of counsel rendered by independent counsel that the
effects described in a REMIC Opinion will not occur as a result of any such
repurchase or substitution. The obligation of the Seller to so substitute or
repurchase any Home Equity Loan as to which a representation of warranty is
untrue in any material respect and has not been remedied constitutes the sole
remedy available to the Holders and the Trustee.
'Loan Purchase Price' means an amount equal to the aggregate principal
balance of such Home Equity Loan as of the date of purchase (assuming that the
Monthly Remittance Amount remitted by the Servicer on such Monthly Remittance
Date has already been remitted), plus all accrued and unpaid interest on such
Home Equity Loan at the coupon rate to but not including the Monthly Remittance
Date in the Remittance Period of such purchase together with (without
duplication) the aggregate amount of (i) all unreimbursed Delinquency Advances
and Servicing Advances theretofore made with respect to such Home Equity Loan,
(ii) all Delinquency Advances which the Servicer has theretofore failed to remit
with respect to such Home Equity Loan and (iii) all reimbursed Delinquency
Advances and Servicing Advances to the extent that such reimbursement is not
made from the Mortgagor.
'Monthly Remittance Date' means the date specified in the related
Prospectus Supplement on which funds on deposit in the Principal and Interest
Account are remitted to the Certificate Account.
'Remittance Period' means with respect to any Monthly Remittance Date, the
calendar month preceding such Monthly Remittance Date.
ASSIGNMENT OF HOME EQUITY LOANS
Pursuant to the related Pooling and Servicing Agreement or related Sale and
Servicing Agreement, the Seller will transfer, assign, set over and otherwise
convey without recourse to the Depositor and the Depositor will transfer,
assign, set over and otherwise convey without recourse to the Trustee in trust
for the benefit of the Holders all right, title and interest of the Seller in
and to each such Home Equity Loan and all its right, title and interest in and
to principal received and interest due on each such Home Equity Loan on and
after the Cut-Off Date; provided, however, that the Seller will reserve and
retain all its right, title and interest in and to principal received (including
Prepayments) and interest due on each Home Equity Loan prior to the Cut-Off
Date. Purely as a protective measure and not to be construed as contrary to the
parties intent that the transfer of the Home Equity Loans, is a sale, the Seller
will also be deemed to have granted to the Depositor and the Depositor will also
be deemed to have granted to the Trustee a security interest in the Trust Fund
in the event that the transfer of the Home Equity Loans is deemed to be a loan
and not a sale.
In connection with the transfer and assignment of the Home Equity Loans,
the Seller will be required to:
(i) deliver without recourse to the Trustee or an affiliate or agent
of the Trustee (the 'Custodian') on behalf of the Trustee on the date such
Home Equity Loans are assigned to the Trust Fund, identified in the
Schedule of Home Equity Loans (A) the original Notes, endorsed in blank or
to the order of the Trustee, (B) (1) if the original title insurance policy
is not available, the original title insurance commitment or a copy thereof
certified as a true copy by the closing agent or the Seller, or if
available, the original title insurance policy or a copy certified by the
issuer of the title insurance policy or (2) if title insurance is not
available in the applicable state, the attorney's opinion of title, (C)
subject to clause (ii) below, originals or copies of all intervening
assignments, if any, certified as true copies by the closing agent or the
Seller, showing a complete chain of title from origination to the Trustee,
including warehousing assignments, if recorded, (D) originals of all
assumption and modification agreements, if any, (E) either: (1) the
original Mortgage, with evidence of recording thereon (if such original
Mortgage has been returned to Seller from the applicable recording office)
or a copy (if such original Mortgage has not been returned to Seller from
the applicable recording office) of the Mortgage certified as a true copy
by the closing attorney or officer of the Seller or (2) a copy of the
Mortgage certified by the public recording
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office in those instances where the original recorded Mortgage has been
lost or retained by the recording office, and (F) the original assignments
of Mortgages in recordable form;
(ii) cause, within 60 days following the date such Home Equity Loans
are assigned to the Trust Fund, assignments of the Mortgages to the Trustee
to be submitted for recording in the appropriate jurisdictions; provided,
however, that the Seller shall not be required to prepare any assignment of
Mortgage for a Mortgage with respect to which the original recording
information has not been received, until such time as such information has
been received from the recording office; provided, further, that (except as
provided in the related Pooling and Servicing Agreement or Sale and
Servicing Agreement) the Seller shall not be required to record an
assignment of a Mortgage if the Seller furnishes to the Trustee, any
Enhancer and the Rating Agencies, on or before the date such Home Equity
Loans are assigned to the Trust Fund, at the Seller's expense, an opinion
of counsel with respect to the relevant jurisdiction that such recording is
not required to perfect the Trustee's interests in the related Mortgages
Loans (in form satisfactory to the Trustee, any Enhancer and the Rating
Agencies); and
(iii) deliver the title insurance policy, the original Mortgages and
such recorded assignments, together with originals or duly certified copies
of any and all prior assignments (other than unrecorded warehouse
assignments), to the Custodian on behalf of the Trustee within 15 days of
receipt thereof by the Seller (but in any event, with respect to any
Mortgage as to which original recording information has been made available
to the Seller, within one year after the date such Home Equity Loans are
assigned to the Trust Fund).
The Trustee will agree, for the benefit of the Holders, to cause the
Custodian to review each File within 45 days after the date such Home Equity
Loans are assigned to the Trust Fund (or the date of receipt of any documents
delivered to the Trustee after the Closing Date), to ascertain that all required
documents (or certified copies of documents) have been executed and received.
If the Custodian on behalf of the Trustee during such 45-day period finds
any document constituting a part of a File which is not properly executed, has
not been received, is unrelated to the Home Equity Loans or that any Home Equity
Loan does not conform in a material respect to the description thereof as set
forth in the Schedule of Home Equity Loans, the Custodian shall promptly notify
the Trustee, and, concurrently with such notice shall on behalf of the Trustee
notify the Depositor, the Seller, the Holders and the Enhancer, if any. The
Seller will agree in the related Pooling and Servicing Agreement or Sale and
Servicing Agreement to use reasonable efforts to remedy a material defect in a
document constituting part of a File of which it is so notified by the Custodian
on behalf of the Trustee. If, however, within 90 days after such notice to it
respecting such defect the Seller shall not have remedied the defect and the
defect materially and adversely affects the interest in the related Home Equity
Loan of the Holders or any Enhancer, the Seller will be required on the next
succeeding Monthly Remittance Date to (or will cause an affiliate of the Seller
to) (i) substitute in lieu of such Home Equity Loan a Qualified Replacement
Mortgage and deliver the Substitution Amount to the Trustee (to be deemed part
of the collections remitted by the Servicer on such Monthly Remittance Date) or
(ii) purchase such Home Equity Loan at a purchase price equal to the Loan
Purchase Price thereof, which purchase price shall be delivered to the Trust
along with the Monthly Remittance remitted by the Servicer on such Monthly
Remittance Date. However, such substitution or purchase must occur within 90
days of the notice of defect if the defect would prevent the Home Equity Loan
from being a Qualified Mortgage (as such term is defined in the Pooling and
Servicing Agreement), and no substitution or purchase of a Home Equity Loan that
is not in default or as to which no default is reasonably foreseeable shall be
made unless the Seller obtains for the Trustee and any Enhancer a REMIC Opinion,
addressed to and acceptable to the Trustee and any Enhancer.
In addition to the foregoing, the Custodian on behalf of the Trustee has
agreed to make a review during the 12th month after the Closing Date indicating
the current status of the exceptions previously indicated on the Pool
Certification (the 'Final Certification'). After delivery of the Final
Certification, the Custodian, on behalf of the Trustee and the Servicer shall
provide to Enhancer, if any, no less frequently than monthly updated
certifications indicating the then current status of exceptions, until all such
exceptions have been eliminated.
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SERVICING AND SUB-SERVICING
Unless otherwise set forth in the related Prospectus Supplement, the Seller
will also serve as the Servicer of each Home Equity Loan. The Servicer will be
entitled to a periodic fee as compensation (the 'Servicing Fee') in an amount to
be determined as specified in the related Prospectus Supplement. The Servicer
may not assign its obligations under the related Pooling and Servicing Agreement
or Sale and Servicing Agreement, in whole or in part, unless it shall have first
obtained the written consent of the Trustee and any Enhancer, which consent is
required not to be unreasonably withheld; provided, however, that any assignee
must meet the eligibility requirements for a successor Servicer set forth in the
related Pooling and Servicing Agreement or Sale and Servicing Agreement.
The Securities will not represent an interest in or obligation of, nor are
the Home Equity Loans guaranteed by, the Depositor, the Trustee, the Seller, the
Servicer except as described herein, or any of their affiliates.
The Servicer (other than the Servicer as successor Servicer) will be
required to service the Home Equity Loans in accordance with the related Pooling
and Servicing Agreement or Sale and Servicing Agreement and the terms of the
respective Home Equity Loans.
The Servicer may retain from the interest portion of each monthly payment,
the related Servicing Fee. In addition, the Servicer will be entitled to retain
additional servicing compensation in the form of prepayment charges, release
fees, bad check charges, assumption fees, late payment charges, prepayment
penalties, or any other servicing-related fees, Net Liquidation Proceeds not
required to be deposited in the Principal and Interest Account pursuant to the
related Pooling and Servicing Agreement or Sale and Servicing Agreement, and
similar items.
When a borrower prepays all of a Home Equity Loan, the borrower pays
interest on the amount prepaid only to the date of prepayment and accordingly,
an interest shortfall (a 'Prepayment Interest Shortfall') may result. In order
to mitigate the effect of any such shortfall in interest distributions to
Holders on any Payment Date, the aggregate Servicing Fee otherwise payable to
the Servicer for such month shall, to the extent of the aggregate of such
shortfalls, be deposited by the Servicer in the Principal and Interest Account
for distribution to Holders on such Payment Date. Any such deposit by the
Servicer will be reflected in the distributions to the Holders made on the
related Payment Date.
The Servicer will be required to make reasonable efforts to collect all
payments called for under the terms and provisions of the Home Equity Loans,
and, to the extent such procedures are consistent with the related Pooling and
Servicing Agreement or Sale and Servicing Agreement and the terms and provisions
of any applicable insurance policy, to follow collection procedures for all Home
Equity Loans at least as rigorous as those described in FNMA's Servicing Guide
(the 'FNMA Guide'). Consistent with the foregoing, the Servicer may in its
discretion waive or permit to be waived (if such waiver or permission is
occasioned by the default or reasonable foreseeable default of a Home Equity
Loan or is consistent with the continued treatment of the Homes Equity Loan as a
Qualified Mortgage (as such term is defined in the related Pooling and Servicing
Agreement or Sale and Servicing Agreement)) any late payment charge, prepayment
charge, assumption fee or any penalty interest in connection with the prepayment
of a Home Equity Loan or any other fee or charge which the Servicer would be
entitled to retain as additional servicing compensation. In the event the
Servicer consents to the deferment of the due dates for payments due on a Note,
the Servicer will nonetheless be required to make payment of any required
Delinquency Advances with respect to the interest payments so extended to the
same extent as if the interest portion of such installment were due, owing and
delinquent and had not been deferred.
DEPOSITS TO PRINCIPAL AND INTEREST ACCOUNT AND CERTIFICATE ACCOUNT
Pursuant to the related Pooling and Servicing Agreement or Sale and
Servicing Agreement, the Servicer will be required to create, or cause to be
created, in the name of the Trustee, at one or more depository institutions,
which institutions may be affiliates of the Servicer, a principal and interest
account maintained as a trust account in the trust department of such
institution (the 'Principal and Interest Account'). All funds in the Principal
and Interest Account are required to be held (i) uninvested, or (ii) invested in
Eligible Investments (as defined in the related Pooling and Servicing
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Agreement or Sale and Servicing Agreement). Any investment of funds in the
Principal and Interest Account must mature or be withdrawable at par on or prior
to the immediately succeeding Monthly Remittance Date. Any investment earnings
on funds held in the Principal and Interest Account are for the account of, and
any losses therein are also for the account of, and must be promptly replenished
by, the Servicer.
The Servicer will be required to deposit, or cause to be deposited, to the
Principal and Interest Account, within one business day following receipt, all
principal received and interest due on the Home Equity Loans on and after the
related Cut-Off Date, including any Prepayments, the proceeds of any liquidation
of a Home Equity Loan net of expenses and unreimbursed Delinquency Advances
('Net Liquidation Proceeds') and, any income from REO Properties and Delinquency
Advances, but net of (i) Net Liquidation Proceeds to the extent that such Net
Liquidation Proceeds exceed the sum of (a) the Loan Balance of the related Home
Equity Loan immediately prior to liquidation, (b) accrued and unpaid interest on
such Home Equity Loan (net of the Servicing Fee) to the date of such
liquidation, (c) any Realized Losses during the related Remittance Period, and
(d) other reimbursements to the Servicer (i.e. unreimbursed servicing advances),
(ii) principal (including Prepayments) collected and interest due on the Home
Equity Loans prior to the Cut-Off Date, (iii) reimbursements for Delinquency
Advances and Servicing Advances to the extent provided below, and (iv)
reimbursement for amounts deposited in the Principal and Interest Account
representing payments of principal and/or interest on a Note by a Mortgagor
which are subsequently returned by a depository institution as unpaid (all such
net amounts being referred to herein as the 'Daily Collections').
The Servicer may make withdrawals for its own account from the Principal
and Interest Account for the following purposes:
(i) on each Monthly Remittance Date, to pay itself the Servicing Fee
to the extent not otherwise retained;
(ii) to withdraw investment earnings on amounts on deposit in the
Principal and Interest Account;
(iii) to withdraw amounts that have been deposited to the Principal
and Interest Account in error;
(iv) to reimburse itself for unrecovered Delinquency Advances and
Servicing Advances (in each case, solely from amounts recovered on the
related Home Equity Loan) and for any excess interest collected from a
Mortgagor; and
(v) to clear and terminate the Principal and Interest Account
following the termination of the Trust;
The Servicer will remit to the Trustee for deposit in the Certificate
Account the Daily Collections allocable to a Remittance Period, the Loan
Purchase Price and Substitution Amounts not later than the related Monthly
Remittance Date.
ADVANCES; COMPENSATING INTEREST
On each Monthly Remittance Date, the Servicer shall be required to remit to
the Trustee for deposit to the Certificate Account out of the Servicer's own
funds or from collections on any Home Equity Loans that are not required to be
distributed on the Payment Date occurring during the month in which such advance
is made (which shall be reimbursed by the Servicer on or before any subsequent
Monthly Remittance Dates on which such amounts are required to be part of the
monthly remittance amount) any delinquent payment of interest with respect to
each delinquent Home Equity Loan, which payment was not received on or prior to
the related Monthly Remittance Date and was not theretofore advanced by the
Servicer. Such amounts of the Servicer's own funds so deposited are 'Delinquency
Advances.' The Servicer may reimburse itself on any Business Day for any
Delinquency Advances paid from the Servicer's own funds, amounts recovered on
the related Home Equity Loan or from the Certificate Account as provided in the
related Pooling and Servicing Agreement or Sale and Servicing Agreement.
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Notwithstanding the foregoing, in the event that the Servicer determines in
its reasonable business judgment in accordance with the servicing standards of
the related Pooling and Servicing Agreement or the Sale and Servicing Agreement
that any proposed Delinquency Advance if made would not be recoverable, the
Servicer shall not be required to make such Delinquency Advances with respect to
such Home Equity Loan. To the extent that the Servicer previously has made
Delinquency Advances with respect to a Home Equity Loan that the Servicer
subsequently determines to be nonrecoverable, the Servicer shall be entitled to
reimbursement for such aggregate unreimbursed Delinquency Advances as provided
above or may withdraw such amounts from the Principal and Interest Account. The
Servicer shall give written notice of such determination as to why such amount
is or would be nonrecoverable to the Trustee and the Enhancer, if any, and may
withdraw such amounts from the Principal and Interest Account.
The Servicer will be required to pay all 'out of pocket' costs and expenses
incurred in the performance of its servicing obligations, including, but not
limited to, (i) expenditures in connection with a foreclosed Home Equity Loan
prior to the liquidation thereof, including, without limitation, expenditures
for real estate property taxes, hazard insurance premiums, property restoration
or preservation ('Preservation Expenses'), (ii) the cost of any enforcement or
judicial proceedings, including foreclosures and (iii) the cost of the
management and liquidation of Property (including broker's fees) acquired in
satisfaction of the related Mortgage, except to the extent that the Servicer in
its reasonable business judgment determines that any such proposed amount would
not be recoverable. Such costs and expenses will constitute 'Servicing
Advances.' The Servicer may recover a Servicing Advance to the extent permitted
by the Home Equity Loans or, if not theretofore recovered from the Mortgagor on
whose behalf such Servicing Advance was made, from Liquidation Proceeds realized
upon the liquidation of the related Home Equity Loan or from certain amounts on
deposit in the Certificate Account as provided in the related Pooling and
Servicing Agreement or the Sale and Servicing Agreement. Except as provided
above, in no case may the Servicer recover Servicing Advances from the principal
and interest payments on any other Home Equity Loan.
A full month's interest at the coupon rate will be due on the outstanding
Loan Balance of each Home Equity Loan as of the beginning of each Remittance
Period. If a prepayment in full of a Home Equity Loan or a partial prepayment of
at least six times a Mortgagor's Monthly Payment occurs during any calendar
month, any difference between the interest collected from the Mortgagor in
connection with such payoff and the full month's interest at the Coupon Rate
that would be due on the related due date for such Home Equity Loan (such
difference, the 'Compensating Interest') (but not in excess of the aggregate
Servicing Fee for the related Remittance Period), will be required to be
deposited to the Principal and Interest Account on the next succeeding Monthly
Remittance Date by the Servicer and shall be included in the monthly remittance
amount to be made available to the Trustee on the next succeeding Monthly
Remittance Date.
OPTIONAL PURCHASE OF DEFAULTED HOME EQUITY LOANS
Subject to certain limitations contained in the related Pooling and
Servicing Agreement or Sale and Servicing Agreement, the Servicer will have the
right and the option, but not the obligation, to purchase for its own account
any Home Equity Loan which becomes delinquent as to three consecutive monthly
installments or any Home Equity Loan as to which enforcement proceedings have
been brought by the Servicer; provided, however, that the Servicer may not
purchase any such Home Equity Loan unless the Servicer has delivered to any
Enhancer and the Trustee, at the Servicer's expense a REMIC Opinion. The
purchase price for any such Home Equity Loan is equal to the Loan Purchase Price
thereof, which purchase price shall be deposited in the Principal and Interest
Account.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
The Servicer is required to cause to be liquidated any Home Equity Loan
relating to a Property as to which ownership has been effected in the name of
the Servicer on behalf of the Trust and which has not been liquidated within 35
months of such effecting of ownership at such price as the Servicer deems
necessary to comply with this requirement, or within such period of time as may,
in the opinion of counsel nationally recognized in federal income tax matters,
be permitted under the Code.
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HAZARD INSURANCE
The Servicer will be required to cause hazard insurance to be maintained
with respect to the related Property and to advance sums on account of the
premiums therefor if not paid by the Mortgagor if permitted by the terms of such
Home Equity Loan.
GENERAL SERVICING STANDARD
The Servicer will have the right under the related Pooling and Servicing
Agreement or Sale and Servicing Agreement (upon receiving the prior written
consent of the Enhancer, if any) to accept applications of Mortgagors for
consent to (i) partial releases of Mortgages, (ii) alterations and (iii)
removal, demolition or division of Properties. No application for approval may
be considered by the Servicer unless: (i) the provisions of the related Note and
Mortgage have been complied with; (ii) the loan-to-value ratio and
debt-to-income ratio after any release does not exceed the loan-to-value ratio
and debt-to-income ratio of such Note on the Cut-Off Date and any increase in
the loan-to-value ratio shall not exceed 5% unless approved in writing by the
Enhancer, if any; and (iii) the lien priority of the related Mortgage is not
affected.
The Servicer shall not agree to any modification, waiver or amendment of
any provision of any Home Equity Loan unless, in the Servicer's good faith
judgment, such modification, waiver or amendment would minimize the loss that
might otherwise be experienced with respect to such Home Equity Loan and only in
the event of a payment default with respect to such Home Equity Loan or in the
event that a payment default with respect to such Home Equity Loan is reasonably
foreseeable by the Servicer; provided, however, that no such modification,
waiver or amendment shall extend the maturity date of such Home Equity Loan
beyond the last scheduled payment date of the Home Equity Loans in the related
Trust Fund. Notwithstanding anything set forth in the related Pooling and
Servicing Agreement or Sale and Servicing Agreement to the contrary, the
Servicer shall be permitted to modify, waive or amend any provision of a Home
Equity Loan if required by statute or a court of competent jurisdiction to do
so.
SUB-SERVICING ARRANGEMENTS
The Servicer, with the prior written consent of any Enhancer will be
permitted under the related Pooling and Servicing Agreement or Sale and
Servicing Agreement to enter into servicing agreements (the 'Sub-Servicing
Agreements') with other qualified servicers (the 'Sub-Servicers') for any
servicing and administration of Home Equity Loans with any institution that (x)
is in compliance with the laws of each state necessary to enable it to perform
its obligations under such Sub-Servicing Agreement, (y) has experience servicing
home equity loans that are similar to the Home Equity Loans and (z) has equity
of not less than $5,000,000 (as determined in accordance with generally accepted
accounting principles).
The Servicer will be required (i) to provide notice of the appointment of
any Sub-Servicer to the Trustee, Certificateholders, any Enhancer and the Rating
Agency and (ii) to obtain confirmation from the Rating Agency that such
appointment of a Sub-Servicer will not result in any withdrawal or downgrade of
the then-current ratings on the Class A Certificates without taking the Policy
into effect. Notwithstanding any Sub-Servicing Agreement, the Servicer will not
be relieved of its obligations under the related Pooling and Servicing Agreement
or Sale and Servicing Agreement and the Servicer will be obligated to the same
extent and under the same terms and conditions as if it alone were servicing and
administering the Home Equity Loans. The Servicer shall be entitled to enter
into any agreement with a Sub-Servicer for indemnification of the Servicer by
such Sub-Servicer and nothing contained in such Sub-Servicing Agreement shall be
deemed to limit or modify the related Pooling and Servicing Agreement or Sale
and Servicing Agreement.
CERTAIN MATTERS REGARDING THE SERVICER
The Servicer has agreed to indemnify and hold the Trustee and any Enhancer
harmless against any and all claims, losses, penalties, fines, forfeitures,
legal fees and related costs, judgments, and any other costs, fees and expenses
that the Trustee and any Enhancer may sustain in any way related to the failure
of the Servicer to perform its duties and service the Home Equity Loans in
compliance with the terms
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of the related Pooling and Servicing Agreement or the Sale and Servicing
Agreement except as may be limited in the related related Pooling and Servicing
Agreement or the Sale and Servicing Agreement. The Servicer shall immediately
notify the Trustee and any Enhancer if a claim is made by a third party with
respect to the related Pooling and Servicing Agreement or the Sale and Servicing
Agreement, and the Servicer shall assume the defense of any such claim and pay
all expenses in connection therewith, including reasonable counsel fees, and
promptly pay, discharge and satisfy any judgment or decree which may be entered
against the Servicer, the Trustee and/or the Enhancer, if any, in respect of
such claim. The Trustee shall reimburse the Servicer from amounts otherwise
distributable on the Residual Interest Securities for the related Series for all
amounts advanced by it pursuant to the preceding sentence, except when a final
nonappealable adjudication determines that the claim relates directly to the
failure of the Servicer to perform its duties in compliance with the related
Pooling and Servicing Agreement or the Sale and Servicing Agreement. The
indemnification provisions shall survive the termination of the related Pooling
and Servicing Agreement or the Sale and Servicing Agreement and the payment of
the outstanding Certificates.
The Servicer will be required to deliver to the Trustee, the Enhancer, if
any, and the Rating Agencies on or before July 31 of each year: (1) an officers'
certificate stating, as to each signer thereof, that (i) a review of the
activities of the Servicer during such preceding calendar year and of
performance under the related Pooling and Servicing Agreement or the Sale and
Servicing Agreement has been made under such officers' supervision, and (ii) to
the best of such officers' knowledge, based on such review, the Servicer has
fulfilled all its obligations under the related Pooling and Servicing Agreement
or the Sale and Servicing Agreement for such year, or, if there has been a
default in the fulfillment of all such obligation, specifying each such default
known to such officers and the nature and status thereof including the steps
being taken by the Servicer to remedy such default and (2) a letter or letters
of a firm of independent, nationally recognized certified public accountants
reasonably acceptable to the Enhancer, if any, stating that such firm has
examined the Servicer's overall servicing operations in accordance with the
requirements of the Uniform Single Attestation Program for Mortgage Bankers, and
stating such firm's conclusions relating thereto.
REMOVAL AND RESIGNATION OF SERVICER
The Enhancer, if any, (or, the Holders, with the consent of the Enhancer,
if any) will have the right, pursuant to the related Pooling and Servicing
Agreement or the Sale and Servicing Agreement, to remove the Servicer upon the
occurrence of certain events (collectively, the 'Servicer Termination Events')
including, without limitation: (a) certain acts of bankruptcy or insolvency on
the part of the Servicer; (b) certain failures on the part of the Servicer to
perform its obligations under the related Pooling and Servicing Agreement or the
Sale and Servicing Agreement (including certain performance tests related to the
delinquency rate and cumulative losses of the Home Equity Loans); or (c) the
failure to cure material breaches of the Servicer's representations in the
related Pooling and Servicing Agreement or the Sale and Servicing Agreement or
(d) certain other events specified in the related Pooling and Servicing
Agreement or the Sale and Servicing Agreement.
The Servicer is not permitted to resign from the obligations and duties
imposed on it under the related Pooling and Servicing Agreement or the Sale and
Servicing Agreement except upon 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 carried on by it, the other activities
of the Servicer so causing such conflict being of a type and nature carried on
by the Servicer on the date of the related Pooling and Servicing Agreement or
the Sale and Servicing Agreement. Any such determination permitting the
resignation of the Servicer is required to be evidenced by an opinion of counsel
to such effect which shall be delivered, and reasonably acceptable, to the
Trustee and any Enhancer.
Upon removal or resignation of the Servicer, the Trustee (A) may solicit
bids for a successor servicer as described in the related Pooling and Servicing
Agreement or the Sale and Servicing Agreement and (B) until such time as a
successor servicer is appointed pursuant to the terms of the related Pooling and
Servicing Agreement or the Sale and Servicing Agreement, shall serve in the
capacity of successor Servicer. The Enhancer, if any, may appoint a successor
Servicer other than the
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Trustee. If an Enhancer does not appoint a successor Servicer, the Trustee, if
it is unable to obtain a qualifying bid and is prevented by law from acting as
servicer, will be required to appoint, or petition a court of competent
jurisdiction to appoint, any housing and home finance institution, bank or
mortgage servicing institution designated as an approved seller-servicer by
FHLMC or FNMA, having net equity of not less than $5,000,000, and acceptable to
any Enhancer, as the successor to the Servicer in the assumption of all or any
part of the responsibilities, duties or liabilities of the Servicer.
No removal or resignation of the Servicer will become effective until the
Trustee or another successor Servicer shall have assumed the Servicer's
responsibilities and obligations in accordance with the related Pooling and
Servicing Agreement or the Sale and Servicing Agreement.
THE TRUSTEE
Unless otherwise specified in the related Prospectus Supplement, Norwest
Bank Minnesota, National Association having its principal corporate trust office
at Sixth Street and Marquette Avenue, Minneapolis, Minnesota 55479, will be
named as Trustee under the related Pooling and Servicing Agreement or the Sale
and Servicing Agreement.
REPORTING REQUIREMENTS
On each Payment Date the Trustee will be required to report in writing
(based on information provided to the Trustee by the Servicer) to each Holder,
the Rating Agencies and the Enhancer, if any:
(i) the amount of the principal and interest distribution with respect
to each Class of Securities (based on a Security in the original principal
amount of $1,000);
(ii) the amount of such distributions allocable to principal on the
Home Equity Loans, separately identifying the aggregate amount of any
prepayments in full or partial prepayments or other recoveries of principal
included therein (based on a Security in the original principal amount of
$1,000) and any Subordination Increase Amount (as defined in the related
Pooling and Servicing Agreement or the Sale and Servicing Agreement);
(iii) the amount of such distribution allocable to interest on the
Home Equity Loans (based on a Security in the original principal amount of
$1,000);
(iv) if the distribution (net of any payment by any Enhancer) to the
Holders of any Class of Securities on such Payment Date was less than the
amounts distributable to such Holders on such Payment Date, the related
Carry-Forward Amount resulting therefrom;
(v) the amount of any payment by any Enhancer included in the amounts
distributed to the Holders of Class of Securities on such Payment Date;
(vi) the Principal Balance of each Class of Securities (based on a
Certificate in the original principal amount of $1,000) which will be
outstanding after giving effect to any payment of principal on such Payment
Date;
(vii) the amount of any Subordinated Amount, Specified Subordinated
Amount and Subordination Deficit, if any, remaining after giving effect to
all distributions and transfers on such Payment Date;
(viii) the aggregate loan balance of all Home Equity Loans and the
aggregate loan balance of the Home Equity Loans in each Home Equity Loan
Pool, in each case after giving effect to any payment of principal on such
Payment Date;
(ix) the total of any Substitution Amounts or Loan Purchase Price
amounts included in such distribution;
(x) the weighted average Coupon Rate of the Home Equity Loans in each
Home Equity Loan Group and in the aggregate;
(xi) such other information as the Certificate Insurer or any Owner
may reasonably request with respect to delinquent Home Equity Loans;
(xii) the largest Home Equity Loan Balance in each Home Equity Loan
Group;
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(xiii) the Pass-Through Rate on any Securities subject to an available
funds or weighted average coupon limitation;
(xiv) during any Funding Period, the Loan Balance of the Subsequent
Home Equity Loans added to the Trust during the related Due Period; and
(xv) during the Funding Period, the remaining Pre-Funded Amount as of
the last day of the Due Period and
(xvi) and other information specified in the related Prospectus
Supplement and/or related Pooling and Servicing Agreement or Sale and
Servicing Agreement.
Certain obligations of the Trustee to provide information to the Holders
are conditioned upon such information being received from the Servicer.
In addition, on each Payment Date the Trustee will be required to
distribute to each Holder, the Enhancer, if any, and the Rating Agencies,
together with the information described above, the following information
prepared by the Servicer and furnished to the Trustee for such purpose:
(a) the number and aggregate principal balances of Home Equity Loans
(i) 30-59 days delinquent, (ii) 60-89 days delinquent, (iii) 90 or more
days delinquent, as of the close of business on the last day of the
Remittance Period immediately preceding the Payment Date, (iv) the number
and aggregate Loan Balances of all Home Equity Loans as of such Payment
Date, after giving effect to any payment of principal on such Payment Date,
as of the close of business on the last day of the Remittance Period
immediately preceding the Payment Date, and (v) the percentage that each of
the amounts represented by clauses (i), (ii) and (iii) represent as a
percentage of the respective amounts in clause (iv);
(b) the status and the number and dollar amounts of all Home Equity
Loans in foreclosure proceedings as of the close of business on the last
day of the Remittance Period immediately preceding such Payment Date;
(c) the number of mortgagors and the loan balances of (i) the related
Mortgages involved in bankruptcy proceedings as of the close of business on
the last day of the Remittance Period immediately preceding such Payment
Date and (ii) Home Equity Loans that are 'balloon' loans;
(d) the existence and status of any Mortgaged Properties as to which
title has been taken in the name of, or on behalf of the Trustee, as of the
close of business of the last day of the Remittance Period immediately
preceding the Payment Date;
(e) the book value of any real estate acquired through foreclosure or
grant of a deed in lieu of foreclosure as of the close of business on the
last day of the Remittance Period immediately preceding the Payment Date;
(f) the realized losses incurred on Home Equity Loans for related
Remittance Period and the cumulative realized losses incurred on the Home
Equity Loans from the Closing Date to and including the Remittance Period
immediately preceding the Payment Date; and
(g) the amount of net liquidation proceeds realized on the Home Equity
Loans during the Remittance Period immediately preceding the Payment Date.
REMOVAL OF TRUSTEE FOR CAUSE
The Trustee may be removed upon the occurrence of any one of the following
events (whatever the reason for such event and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body) on the part of the Trustee: (1) failure to
make distributions of available amounts; (2) breaches of covenants and
representations by the Trustee; (3) certain acts of bankruptcy or insolvency on
the part of the Trustee; or (4) failure to meet the standards of Trustee
eligibility as set forth in the related Pooling and Servicing Agreement or Sale
and Servicing Agreement.
If any such event occurs and is continuing, then and in every such case
(i) the Enhancer, if any, or (ii) with the prior written consent of any Enhancer
(which is required not to be unreasonably withheld),
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the Depositor and the Holders or, if there are no Securities then outstanding,
by the Residual Interest Securities may appoint a successor trustee.
GOVERNING LAW
The Agreements and each Security will be construed in accordance with and
governed by the laws of the State of New York applicable to agreements made and
to be performed therein.
AMENDMENTS
The Trustee, the Depositor, the Seller and the Servicer with the consent of
the Enhancer may, at any time and from time to time and without notice to or the
consent of the Holders, amend the Pooling and Servicing Agreement, and the
Trustee will be required to consent to such amendment, for the purposes of (i)
if accompanied by an approving REMIC Opinion of counsel experienced in federal
income tax matters, removing the restriction against the transfer of a Residual
Interest Security to a Disqualified Organization (as such term is defined in the
Code), (ii) complying with the requirements of the Code including any amendments
necessary to maintain REMIC status, (iii) curing any ambiguity, (iv) correcting
or supplementing any provisions therein which are inconsistent with any other
provisions therein, or (v) for any other purpose, provided that in the case of
clause (v), (A) the Seller delivers an opinion of counsel acceptable to the
Trustee that such amendment will not adversely affect in any material respect
the interest of the Holders and (B) such amendment will not result in a
withdrawal or reduction of the rating of the Securities of a Series without
regard to any Financial Guaranty Insurance Policy. Notwithstanding anything to
the contrary, no such amendment shall (a) change in any manner the amount of, or
delay the timing of, payments which are required to be distributed to any Holder
without the consent of the Holder, (b) change the percentages which are required
to consent to any such amendments, without the consent of the Holders of all
Securities of the Class or Classes affected then Outstanding or (c) which
affects in any manner the terms or provisions of any Financial Guaranty
Insurance Policy.
The Trustee will be required to furnish written notification of the
substance of any such amendment to each Holder in the manner set forth in the
related Pooling and Servicing Agreement or Sale and Servicing Agreement.
TERMINATION OF THE TRUST FUND
Unless otherwise specified in the related Prospectus supplement, the
related Pooling and Servicing Agreement or Sale and Servicing Agreement will
provide that the Trust will terminate upon the payment to the Holder from
amounts other than those available under any Financial Guaranty Insurance Policy
of all amounts required to be paid to such Holders upon the later to occur of
(a) the final payment or other liquidation (or any advance made with respect
thereto) of the last Home Equity Loan, (b) the disposition of all property
acquired in respect of any Home Equity Loan remaining in the Trust Estate and
(c) at any time if a purchase by the Servicer or any Enhancer is effected as
described below under ' -- Optional Termination.' To effect a termination
pursuant to clause (c) above, the Holders will be required to furnish to the
Trustee an opinion of counsel experienced in federal income tax matters
acceptable to the Enhancer, if any, and the Trustee to the effect that such
liquidation constitutes a Qualified Liquidation.
OPTIONAL TERMINATION
By Servicer or Enhancer. At its option, the Servicer (or the Enhancer, if
any, if the Servicer fails to exercise such option) may on any Monthly
Remittance Date when the aggregate outstanding loan balance of the Home Equity
Loans is 10% or less of the sum of the loan balances of all the Home Equity
Loans in the Trust as of the date such Home Equity Loans were transferred to the
Trust, purchase from the Trust Fund all (but not fewer than all) remaining Home
Equity Loans, in whole only, and other property acquired by foreclosure, deed in
lieu of foreclosure, or otherwise then constituting the Trust Fund, and pay to
the Holders the portion of the purchase price allocable to each such class of
Securities, which will equal an amount up to the sum of (i) 100% of the then
outstanding principal
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balance of the related Securities thereof, plus (ii) one month's interest on the
then outstanding principal balance of the related Securities thereof at the then
applicable Pass-Through Rate for such class, plus any previously accrued but
unpaid interest thereon, such sum payable in accordance with the priorities
described under 'Description of the Certificates -- Distributions' in the
related Prospectus Supplement and thereby effect early retirement of the
Securities.
Termination Upon Loss of REMIC Status. Following a final determination by
the Internal Revenue Service or by a court of competent jurisdiction, in either
case from which no appeal is taken within the permitted time for such appeal, or
if any appeal is taken, following a final determination of such appeal from
which no further appeal can be taken, to the effect that the REMIC does not and
will no longer qualify as a 'REMIC' pursuant to Section 860D of the Code (the
'Final Determination'), at any time on or after the date which is 30 calendar
days following such Final Determination the Enhancer, if any, or the Holders
with the consent of the Enhancer, if any, may direct the Trustee on behalf of
the Trust Fund to adopt a plan of complete liquidation, as contemplated by
Section 860F(a)(4) of the Code.
Events of Default; Termination Under Indenture. Events of Default under the
Indenture for each Series of Notes include: (i) a default for 30 days or more in
the payment of any principal of or interest on any Note of such Series; (ii)
failure to perform any other covenant of the Trust Fund in the Indenture which
continues for a period of 60 days after notice thereof is given in accordance
with the procedures described in the related Prospectus Supplement; (iii) any
representation or warranty made by the Seller or the Trust Fund in the Indenture
or in any certificate or other writing delivered pursuant thereto or in
connection therewith with respect to or affecting such Series having been
incorrect in a material respect as of the time made, and such breach is not
cured within 60 days after notice thereof is given in accordance with the
procedures described in the related Prospectus Supplement; (iv) certain events
of bankruptcy, insolvency, receivership or liquidation of the Seller or the
Trust Fund; or (v) any other Event of Default provided with respect to Notes of
that Series.
If an Event of Default with respect to the Notes of any Series at the time
outstanding occurs and is continuing, either the Trustee or the Holders of a
majority of the then aggregate outstanding amount of the Notes of such Series
with, if specified in the related Prospectus Supplement, the consent of the
Enhancer, may declare the principal amount (or, if the Notes of that Series are
Zero Coupon Securities, such portion of the principal amount as may be specified
in the terms of that Series, as provided in the related Prospectus Supplement)
of all the Notes of such Series to be due and payable immediately. Such
declaration may, under certain circumstances, be rescinded and annulled by the
Holders of a majority in aggregate outstanding amount of the Notes of such
Series.
If, following an Event of Default with respect to any Series of Notes, the
Notes of such Series have been declared to be due and payable, the Trustee may,
in its discretion, notwithstanding such acceleration, elect to maintain
possession of the collateral securing the Notes of such Series and to continue
to apply distributions on such collateral as if there had been no declaration of
acceleration if such collateral continues to provide sufficient funds for the
payment of principal of and interest on the Notes of such Series as they would
have become due if there had not been such a declaration. In addition, the
Trustee may not sell or otherwise liquidate the collateral securing the Notes of
a Series following an Event of Default other than a default in the payment of
any principal or interest on any Note of such Series for 30 days or more, unless
(a) the Holders of 100% of the then aggregate outstanding amount of the Notes of
such Series consent to such sale, (b) the proceeds of such sale or liquidation
are sufficient to pay in full the principal of and accrued interest due and
unpaid on the outstanding Notes of such Series at the date of such sale or (c)
the Trustee determines that such collateral would not be sufficient on an
ongoing basis to make all payments on such Notes as such payments would have
become due if such Notes had not been declared due and payable, and the Trustee
obtains the consent of the Holders of 66 2/3% of the then aggregate outstanding
amount of the Notes of such Series.
In the event that the Trustee liquidates the collateral in connection with
an Event of Default involving a default for 30 days or more in the payment of
principal of or interest on the Notes of a Series, the Indenture provides that
the Trustee will have a prior lien on the proceeds of any such liquidation for
unpaid fees and expenses. As a result, upon the occurrence of such an Event of
Default, the amount available for distribution to the Noteholders may be less
than would otherwise be the case.
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However, the Trustee may not institute a proceeding for the enforcement of its
lien except in connection with a proceeding for the enforcement of the lien of
the Indenture for the benefit of the Noteholders after the occurrence of such an
Event of Default.
In the event the principal of the Notes of a Series is declared due and
payable, as described above, the Holders of any such Notes issued at a discount
from par may be entitled to receive no more than an amount equal to the unpaid
principal amount thereof less the amount of such discount which is unamortized.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing with respect
to a Series of Notes, the Trustee will be under no obligation to exercise any of
the rights or powers under the Indenture at the request or direction of any of
the Holders of Notes of such Series, unless such Holders offered to the Trustee
security or indemnity satisfactory to it against the costs, expenses and
liabilities which might be incurred by it in complying with such request or
direction. Subject to such provisions for indemnification and certain
limitations contained in the Indenture, the Holders of a majority of the then
aggregate outstanding amount of the Notes of such Series shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee with respect to the Notes of such Series, and the Holders of a majority
of the then aggregate outstanding amount of the Notes of such Series may, in
certain cases, waive any default with respect thereto, except a default in the
payment of principal or interest or a default in respect of a covenant or
provision of the Indenture that cannot be modified without the waiver or consent
of all the Holders of the outstanding Notes of such Series affected thereby.
The Indenture will be discharged with respect to a Series of Notes (except
with respect to certain continuing rights specified in the Indenture) upon the
delivery to the Trustee for cancellation of all the Notes of such Series or,
with certain limitations, upon deposit with the Trustee of funds sufficient for
the payment in full of all of the Notes of such Series.
In addition to such discharge with certain limitations, the Indenture will
provide that, if so specified with respect to the Notes of any Series, the
related Trust Fund will be discharged from any and all obligations in respect of
the Notes of such Series (except for certain obligations relating to temporary
Notes and exchange of Notes, to register the transfer of or exchange Notes of
such Series, to replace stolen, lost or mutilated Notes of such Series, to
maintain paying agencies and to hold monies for payment in trust) upon the
deposit with the Trustee, in trust, of money and/or direct obligations of or
obligations guaranteed by the United States of America which, through the
payment of interest and principal in respect thereof in accordance with their
terms, will provide money in an amount sufficient to pay the principal of and
each installment of interest on the Notes of such Series on the Final Scheduled
Distribution Date for such Notes and any installment of interest on such Notes
in accordance with the terms of the Indenture and the Notes of such Series. In
the event of any such defeasance and discharge of Notes of such Series, holders
of Notes of such Series would be able to look only to such money and/or direct
obligations for payment of principal and interest, if any, on their Notes until
maturity.
REMIC ADMINISTRATOR
For any Series with respect to which a REMIC election is made, preparation
of certain reports and certain other administrative duties with respect to the
Trust Fund may be performed by a REMIC administrator, who may be the Seller or
an affiliate of the Seller.
CERTAIN LEGAL ASPECTS OF THE HOME EQUITY LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans which are general in nature. Because certain of such legal
aspects are governed by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete or to reflect the
laws of any particular state, or to encompass the laws of all states in which
the properties securing the Home Equity Loans are situated.
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MORTGAGES
The Home Equity Loans for a Series will be secured by either mortgages,
deeds of trust, deeds to secure debt or similar security instruments (such Home
Equity Loans are hereinafter referred to in this section as 'mortgage loans'),
depending upon the prevailing practice in the state in which the property
subject to a mortgage loan is located. The filing of a mortgage, deed of trust,
deed to secure debt or similar security instrument creates a lien or title
interest upon the real property covered by such instrument and represents the
security for the repayment of an obligation that is customarily evidenced by a
promissory note. The priority of the liens is important because, among other
things, the foreclosure of a senior lien will extinguish a junior lien, and
because the holder of a senior lien generally will have a right to receive
insurance, condemnation or other proceeds before the holder of a junior lien.
Priority between mortgages and deeds of trust (or other instruments of
record) generally depends in the first instance on the order of filing with the
appropriate government records office. Priority also may be affected by the
express terms of the mortgage or the deed of trust and any subordination
agreement among the lenders.
Although priority among liens on the same property generally depends in the
first instance on the order of filing, there are a number of ways in which a
lien that is a senior lien when it is filed can become subordinate to a lien
filed at a later date. A deed of trust or mortgage generally is not prior to any
liens for real estate taxes and assessments, certain federal liens (including
certain federal criminal liens, environmental liens and tax liens), certain
mechanics and materialmen's liens, and other liens given priority by applicable
law.
There are two parties to a mortgage, the mortgagor, who is the
borrower/property owner or the land trustee (as described below), and the
mortgagee, who is the lender. Under the mortgage instrument, the mortgagor
delivers to the mortgagee a note or bond and the mortgage. In the case of a land
trust, there are three parties because title to the property is held by a land
trustee under a land trust agreement of which the borrower/property owner is the
beneficiary; at origination of a mortgage loan, the borrower executes a separate
undertaking to make payments on the mortgage note. Under a deed of trust or
similar security instrument, the homeowner or borrower, called the 'grantor,'
grants the security property to a third-party grantee, called the 'trustee,' for
the benefit of the lender, called the 'beneficiary.' The deed of trust gives the
trustee the authority, if the borrower defaults and upon the instructions of the
beneficiary, to sell the security property in a 'foreclosure' or 'trustee's
sale' and to apply the sale proceeds to the secured debt. The mortgagee's
authority under a mortgage and the trustee's authority under a deed of trust are
governed by the law of the state in which the real property is located, the
express provisions of the mortgage or deed of trust, and, in some cases,
particularly in deed of trust transactions, the directions of the beneficiary.
FORECLOSURE
Foreclosure of a mortgage is generally accomplished by judicial action, and
foreclosure of a deed of trust may be 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 effecting
service on necessary parties defendant. When the mortgagee's right to
foreclosure is contested, the legal proceedings necessary to resolve the issue
can be time-consuming and expensive. 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 or 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 nonjudicial power of
sale.
If a borrower defaults under a loan secured by a deed of trust, the lender
generally may bring suit against the borrower. The lender generally also may
attempt to collect the loan by causing the deed of trust to be enforced against
the property it encumbers. Enforcement of a deed of trust is accomplished in
most cases by a trustee's sale in which the trustee, upon default of the
grantor, and subject to the expiration of applicable cure periods, sells the
security property at a public sale under the terms of the loan documents and
subject to the applicable procedural provisions of state law. In certain states,
the
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lender must exhaust the security through foreclosure (either judicially or
non-judicially) prior to other efforts to collect the balance of the promissory
note. Whether a lender may thereafter collect on the unpaid balance of the loan
is governed by the anti-deficiency statute in the applicable state governing the
collectibility of deficiency balances.
The trustee's sale generally must be conducted by public auction in the
county or city in which all or some part of the security property is located. At
the sale, the trustee generally requires a bidder to deposit with the trustee a
set amount or a percentage of the full amount of the bidder's final bid in cash
(or an equivalent thereto satisfactory to the trustee) prior to and as a
condition to recognizing such bid, and may conditionally accept and hold these
amounts for the duration of the sale. The beneficiary of the deed of trust
generally need not bid cash at the sale, but may instead make a 'credit bid' up
to the extent of the total amount due under the deed of trust, including costs
and expenses actually incurred in enforcing the deed of trust, as well as the
trustee's fees and expenses. The trustee will sell the security property to the
highest proper bidder at the sale.
A sale conducted in accordance with the terms of the power of sale
contained in the deed of trust generally is presumed to be conducted regularly
and fairly, and, on a conveyance of the property by trustee's deed, confers
absolute legal title to the property to the purchaser, free of all junior deeds
of trust and free of all other liens and claims subordinate to the deed of trust
under which the sale is made. The purchaser's title, however, is subject to all
senior liens and other senior claims. Thus, if the deed of trust being enforced
is a junior deed of trust, the trustee will convey title to the property to the
purchaser subject to the first deed of trust and any other prior liens and
claims. A trustee's sale or judicial foreclosure under a junior deed of trust
generally has no effect on the first deed of trust, with the possible exception
of the right of a senior beneficiary to accelerate its indebtedness under a
default clause or a 'due-on-sale' clause contained in the senior deed of trust.
We refer you to ' -- Due-on-Sale Clauses in Home Equity Loans' below for
more detail.
Because a potential buyer at the sale may find it difficult to determine
the exact status of title and other facts about the security property, and
because the physical condition of the security property may have deteriorated,
it generally is more common for the lender, rather than an unrelated third
party, to purchase the security property at a trustee's sale or judicial
foreclosure sale. The lender (or other purchaser at the judicial foreclosure or
trustee's sale) will be subject to the burdens of ownership, including the
obligations to service any senior mortgage or deed of trust, to obtain hazard
insurance and to make such repairs at its own expense as are necessary to render
the security property suitable for resale. The lender commonly will attempt to
resell the security property and obtain the services of a real estate broker and
agree to pay the broker a commission in connection with the resale. Depending
upon market conditions, the ultimate proceeds of the resale of the security
property may not be high enough to equal the lender's investment.
The proceeds received by the trustee from the sale generally are applied
first to the costs, fees and expenses of sale and then in satisfaction of the
indebtedness secured by the deed of trust under which the sale was conducted.
Any remaining proceeds generally are payable to the holders of junior deeds of
trust and other liens and claims in order of their priority. Any balance
remaining generally is payable to the grantor. Following the sale, if there are
insufficient proceeds to repay the secured debt, the beneficiary under the
foreclosed lien generally may obtain a deficiency judgment against the grantor.
See ' -- Deficiency Judgments' below.
Some courts have been faced with the issue of whether federal or state
constitutional due process requires that borrowers under deeds of trust receive
notices in addition to the statutorily prescribed minimum. For the most part,
the courts in these cases have upheld the notice provisions and procedures
described above.
An action to foreclose a mortgage is an action to recover the mortgage debt
by enforcing the mortgagee's rights under the mortgage. It is regulated by
statutes and rules and subject throughout to the court's equitable powers.
Generally, a mortgagor is bound by the terms of the related mortgage note and
the mortgage as made and cannot be relieved from his default if the mortgagee
has exercised his rights in a commercially reasonable manner. However, since a
foreclosure action is equitable in nature, the court may exercise equitable
powers to relieve a mortgagor of a default and deny the mortgagee
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foreclosure on proof that either the mortgagor's default was excusable or the
mortgagee's action established a waiver, fraud, bad faith, or oppressive or
unconscionable conduct such as to warrant a court of equity to refuse
affirmative relief to the mortgagee. Under certain circumstances a court of
equity may relieve the mortgagor from an entirely technical default where such
default was not willful.
A foreclosure action is subject to most of the delays and expenses of other
lawsuits if defenses or counterclaims are interposed, sometimes requiring up to
several years to complete. Moreover, a non-collusive, regularly conducted
foreclosure sale may be challenged as a fraudulent conveyance, regardless of the
parties' intent, if a court determines that the sale was for less than fair
consideration and such sale occurred while the mortgagor was insolvent and
within one year (or within the state statute of limitations if the trustee in
bankruptcy elects to proceed under state fraudulent conveyance law) of the
filing of bankruptcy. Similarly, a suit against the debtor on the related
mortgage note may take several years and, generally, is a remedy alternative to
foreclosure, the mortgagee being precluded from pursuing both at the same time.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer or by the trustee is a public
sale. However, because of the difficulty potential third party purchasers at the
sale 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 relatively uncommon for a third party to purchase the
property at a foreclosure sale. Rather, it is more common for the lender to
purchase the property from the trustee or referee for an amount which may be
equal to the unpaid principal amount of the mortgage note secured by the
mortgage or deed of trust plus accrued and unpaid interest and the expenses of
foreclosure, in which event the mortgagor's debt will be extinguished or the
lender may purchase for a lesser amount in order to preserve its right against a
borrower to seek a deficiency judgment in states where such a judgment can be
obtained. 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, paying taxes and
making such repairs at its own expense as are necessary to render the property
suitable for sale. The lender will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale of the
property. Depending upon market conditions, the ultimate proceeds of the sale of
the property may not equal the lender's investment in the property. Any loss may
be reduced by the receipt of any mortgage guaranty insurance proceeds.
RIGHTS OF REDEMPTION
In some states, after foreclosure of a mortgage, the mortgagor and
foreclosed junior lienors are given a statutory period in which to redeem the
property from the foreclosure sale. The right of redemption should be
distinguished from the equity of redemption, which is a statutory or
non-statutory right that must be exercised prior to the foreclosure sale. In
some states, redemption may occur only upon payment of the entire principal
balance of the loan, accrued interest, expenses of foreclosure and reasonable
expenses incurred in maintaining the property. In other states, redemption may
be authorized if the former borrower pays only a portion of the sums due. The
effect of a statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed property. The exercise of a right of redemption
will defeat the title of any purchaser at a foreclosure sale, or of any
purchaser from the lender subsequent to foreclosure. Consequently the practical
effect of a right of redemption is to force the lender to retain the property
and pay the expenses of ownership until the redemption period has run. In many
states, there is no right to redeem property after a trustee's sale under a deed
of trust, unless a deficiency judgment is sought by the lender.
When the lender under a junior mortgage or deed of trust cures the default
and reinstates or redeems the senior mortgage or deed of trust, the amount paid
by the lender for such cure generally becomes a part of the indebtedness secured
by the junior deed of trust.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGES
The mortgage loans comprising or underlying the Home Equity Loans included
in the Trust Fund for a Series will be secured by mortgages or deeds of trust
which may be junior to one or more other
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mortgages or deeds of trust held by other lenders or institutional investors.
The rights of the Trust Fund (and therefore the Holders), as mortgagee under a
junior mortgage, are subordinate to those of the mortgagee under the senior
mortgage, including the prior rights of the senior mortgagee to receive hazard
insurance and condemnation proceeds and to cause the property securing the
mortgage loan to be sold upon default of the mortgagor, thereby extinguishing
the junior mortgagee's lien unless the junior mortgagee asserts its subordinate
interest in the property in foreclosure litigation and, possibly, satisfies the
defaulted senior mortgage. A junior mortgagee may satisfy a defaulted senior
loan in full and, in some states, may cure such default and bring the senior
loan current, in either event adding the amounts expended to the balance due on
the junior loan. In some states, absent a provision in the mortgage or deed of
trust, no notice of default is required to be given to a junior mortgagee. In
addition, as described above, the rights of the Trust Fund may be or become
subject to liens for real estate taxes and other obligations. Although the
Seller generally does not cure defaults under a senior deed of trust or other
lien, it is the Seller's standard practice to protect its interest by monitoring
any such sale of which it is aware and bidding for property if it determines
that it is in the Seller's best interests to do so.
The standard form of the mortgage or deed of trust used by most
institutional lenders, like that used by the Seller, confers on the mortgagee or
beneficiary the right both to receive all proceeds collected under any hazard
insurance policy required to be maintained by the borrower and all awards made
in connection with condemnation proceedings. The lender generally has the right,
subject to the specific provisions of the mortgage or deed of trust securing its
loan, to apply such proceeds and awards to repair of any damage to the security
property or to payment of any indebtedness secured by the mortgage or deed of
trust, in such order as the mortgagee or beneficiary may determine. Thus, in the
event improvements on the property are damaged or destroyed by fire or other
casualty, or in the event the property is taken by condemnation, the mortgagee
or beneficiary under underlying senior mortgages will have the prior right to
collect any insurance proceeds payable under a hazard insurance policy and any
award of damages in connection with the condemnation and to apply the same to
the indebtedness secured by the senior mortgages or deeds of trust. If
available, proceeds in excess of the amount of senior mortgage indebtedness, in
most cases, will be applied to the junior indebtedness.
Another provision typically found in the form of the mortgage or deed of
trust used by institutional lenders obligates the grantor or mortgagor to pay
before delinquency all taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee or beneficiary under the
mortgage. Upon a failure of the grantor or mortgagor to perform any of these
obligations, the mortgagee or beneficiary is given the right to perform the
obligation itself, at its election, with the mortgagor or grantor agreeing to
reimburse the mortgagee or beneficiary for any sums expended by the mortgagee or
beneficiary on behalf of the mortgagor or grantor. The mortgage or deed of trust
typically provides that all sums so expended by the mortgagee or beneficiary
become part of the indebtedness secured by the mortgage or deed of trust.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory prohibitions which 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 net amount realized
upon the public sale of the real property and the amount due to the lender.
However, some states calculate the deficiency as the difference between the
outstanding indebtedness and the greater of the fair market value of the
property and the sales price of the property. Other states 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
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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. Finally, other statutory provisions limit
any deficiency judgment against the former borrower following a foreclosure sale
to the excess of the outstanding debt over the fair market value of the property
at the time of the public sale. The purpose of these statutes is generally to
prevent a beneficiary or a mortgagee from obtaining a large deficiency judgment
against the former borrower as a result of low or no bids at the foreclosure
sale.
In addition to laws limiting or prohibiting deficiency judgments, numerous
other statutory provisions, including the federal bankruptcy laws, the Federal
Soldiers' and Sailors' Civil Relief Act and state laws affording relief to
debtors, may interfere with or affect the ability of the secured lender to
realize upon collateral and/or enforce a deficiency judgment. For example, with
respect to federal bankruptcy law, the filing of a petition acts as a stay
against the enforcement of remedies for collection of a debt. Foreclosure is
permitted during the pendency of this proceeding only with court permission
Moreover, a court with federal bankruptcy jurisdiction may permit a debtor
through a Chapter 13 Bankruptcy Code rehabilitative plan to cure a monetary
default with respect to a loan on a debtor's residence by paying arrearages
within a reasonable time period and reinstating the original loan payment
schedule even though the lender accelerated the loan and the lender has taken
all steps to realize upon its security (provided no sale of the property has yet
occurred) prior to the filing of the debtor's Chapter 13 petition. Some courts
with federal bankruptcy jurisdiction have approved plans, based on the
particular facts of the reorganization case, that effected the curing of a loan
default by permitting the obligor to pay arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan may be modified if the borrower has filed a petition
under Chapter 13. These courts have suggested that 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 residence, thus leaving the lender a general
unsecured creditor for the difference between the value of the residence and the
outstanding balance of the loan. Federal bankruptcy law and limited case law
indicate that the foregoing modifications cannot be applied to the terms of a
loan secured by property that is the principal residence of the debtor. In all
cases, the secured creditor is entitled to the value of its security plus
post-petition interest, attorney's fees and costs to the extent the value of the
security exceeds the debt.
In a Chapter 11 case under the Bankruptcy Code, the lender is precluded
from foreclosing without authorization from the bankruptcy court. The lender's
lien may be transferred to other collateral and/or be limited in amount to the
value of the lender's interest in the collateral as of the date of the
bankruptcy. The loan term may be extended, the interest rate may be adjusted to
market rates and the priority of the loan may be subordinated to bankruptcy
court-approved financing. The bankruptcy court can, in effect, invalidate
due-on-sale clauses through confirmed Chapter 11 plans of reorganization.
The Bankruptcy Code provides priority to certain tax liens over the
lender's security. This may delay or interfere with the enforcement of rights in
respect of a defaulted Home Equity Loan. In addition, substantive requirements
are imposed upon lenders in connection with the origination and the servicing of
mortgage loans by numerous federal and some state consumer protection laws. The
laws include the federal Truth-in-Lending Act, Real Estate Settlement Procedures
Act, Equal Credit Opportunity Act, Fair Credit Reporting Act and related
statutes and regulations. These federal laws impose specific statutory
liabilities upon lenders who originate loans and who fail to comply with the
provisions of the law. In most cases, this liability will affect assignees of
the loans.
DUE-ON-SALE CLAUSES IN HOME EQUITY LOANS
Due-on-sale clauses permit the lender to accelerate the maturity of the
loan if the borrower sells or transfers, whether voluntarily or involuntarily,
all or part of the real property securing the loan without the lender's prior
written consent. The enforceability of these clauses has been the subject of
legislation or litigation in many states, and in some cases, typically involving
single family residential mortgage transactions, their enforceability has been
limited or denied. In any event, the Garn-St Germain
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Depository Institutions Act of 1982 (the 'Garn-St Germain Act') preempts state
constitutional, statutory and case law that prohibits the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms, subject to certain exceptions. As a result, due-on-sale
clauses have become generally enforceable except in those states whose
legislatures exercised their authority to regulate the enforceability of such
clauses with respect to mortgage loans that were (i) originated or assumed
during the 'window period' under the Garn-St Germain Act which ended in all
cases not later than October 15, 1982, and (ii) originated by lenders other than
national banks, federal savings institutions and federal credit unions. FHLMC
has taken the position in its published mortgage servicing standards that, out
of a total of eleven 'window period states,' five states (Arizona, Michigan,
Minnesota, New Mexico and Utah) have enacted statutes extending, on various
terms and for varying periods, the prohibition on enforcement of due-on-sale
clauses with respect to certain categories of window period loans. Also, the
Garn-St Germain Act does 'encourage' lenders to permit assumption of loans at
the original rate of interest or at some other rate less than the average of the
original rate and the market rate.
In addition, under federal bankruptcy law, due-on-sale clauses may not be
enforceable in bankruptcy proceedings and may, under certain circumstances, be
eliminated in any modified mortgage resulting from such bankruptcy proceeding.
ENFORCEABILITY OF PREPAYMENT AND LATE PAYMENT FEES
Forms of notes, mortgages and deeds of trust used by lenders may contain
provisions obligating the borrower to pay a late charge if payments are not
timely made, and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations, upon the late charges which a lender may
collect from a borrower for delinquent payments. Certain states also limit the
amounts that a lender may collect from a borrower as an additional charge if the
loan is prepaid. Late charges and prepayment fees are typically retained by
servicers as additional servicing compensation.
EQUITABLE LIMITATIONS ON REMEDIES
In connection with lenders' attempts to realize upon their security, courts
have invoked general equitable principles. The equitable principles are
generally designed to relieve the borrower from the legal effect of his defaults
under the loan documents. Examples of judicial remedies that have been fashioned
include judicial requirements that the lender undertake affirmative and
expensive actions to determine the causes of 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 that lenders reinstate loans or recast payment schedules in order to
accommodate borrowers who are suffering from temporary financial disability. In
other cases, courts have limited the right of a lender to realize upon its
security if the default under the security agreement is not monetary, such as
the borrower's failure to adequately maintain the property or the borrower's
execution of secondary financing affecting the property. Finally, some courts
have been faced with the issue of whether or not federal or state constitutional
provisions reflecting due process concerns for adequate notice require that
borrowers under security agreements receive notices in addition to the
statutorily-prescribed minimums. For the most part, these cases have upheld the
notice provisions as being reasonable or have found that, in cases involving the
sale by a trustee under a deed of trust or by a mortgagee under a mortgage
having a power of sale, there is insufficient state action to afford
constitutional protections to the borrower.
Most conventional single-family mortgage loans may be prepaid in full or in
part without penalty. A mortgagee to whom a prepayment in full has been tendered
may be compelled to give either a release of the mortgage or an instrument
assigning the existing mortgage. The absence of a restraint on prepayment,
particularly with respect to mortgage loans having higher mortgage rates, may
increase the likelihood of refinancing or other early retirements of such
mortgage loans.
APPLICABILITY OF USURY LAWS
Many states have usury laws which limit the interest and other amounts that
may be charged under certain loans. 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
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of residential first mortgage loans originated by certain lenders after March
31, 1980. Similar federal statutes were in effect with respect to mortgage loans
made during the first three months of 1980. Title V authorizes any state to
reimpose interest rate limits by adopting, before April 1, 1983, a state law, or
by certifying that the voters of such state have voted in favor of any
provision, constitutional or otherwise, which expressly rejects an application
of the federal law. Fifteen states adopted such a law prior to the April 1, 1983
deadline. In addition, even where Title V is not so rejected, any state is
authorized by the law to adopt a provision limiting discount points or other
charges on mortgage loans covered by Title V. State laws apply to residential
second mortgages; however, some state usury limitations do not apply to
residential second mortgages.
ENVIRONMENTAL LEGISLATION
A federal statute, the Comprehensive Environmental Response, Compensation,
and Liability Act, and a growing number of state laws impose a statutory lien
for associated costs on property that is the subject of a cleanup action on
account of hazardous wastes or hazardous substances released or disposed of on
the property. Such a lien generally will have priority over all subsequent liens
on the property and, in certain of these states, will have priority over prior
recorded liens, including the lien of a mortgage or deed of trust. The priority
of the environmental lien under federal law depends on the time of perfection of
the federal lien compared to the time of perfection of any competing liens under
applicable state law. In addition, under federal environmental legislation and
possibly under state law in a number of states, a secured party that takes a
deed in lieu of foreclosure or acquires a property at a foreclosure sale may be
liable for the costs of cleaning up a contaminated site. Although such costs
could be substantial, they would probably not be imposed on a secured lender
(such as the applicable Trust Fund) if it promptly marketed the foreclosed
property for resale. In the event that a Trust Fund acquired title to a property
securing a Mortgage Home Equity Loan and cleanup costs were incurred in respect
of the property, the holders of the Securities might incur a delay in the
payment if such costs were required to be paid by such Trust Fund.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the Soldiers' and Sailors' Civil Relief Act of 1940, members of all
branches of the military on active duty, including draftees and reservists in
military service, (i) are entitled to have interest rates reduced and capped at
6% per annum, on obligations (including Home Equity Loans) incurred prior to the
commencement of military service for the duration of military service, (ii) may
be entitled to a stay of proceedings on any kind of foreclosure or repossession
action in the case of defaults on such obligations entered into prior to
military service for the duration of military service and (iii) may have the
maturity of such obligations incurred prior to military service extended, the
payments lowered and the payment schedule readjusted for a period of time after
the completion of military service. However, the benefits of (i), (ii), or (iii)
above are subject to challenge by creditors and if, in the opinion of the court,
the ability of a person to comply with such obligations has not been materially
impaired by military service, the court may apply equitable principles
accordingly. If a borrower's obligation to repay amounts otherwise due on a Home
Equity Loan included in a Trust Fund for a Series is relieved pursuant to the
Soldiers' and Sailors' Civil Relief Act of 1940, none of the Trust Fund, the
Servicer, the Seller nor the Trustee will be required to advance such amounts,
and any loss in respect thereof may reduce the amounts available to be paid to
the Holders of the Securities of such Series. Any shortfalls in interest
collections on Home Equity Loans included in a Trust Fund for a Series resulting
from application of the Soldiers' and Sailors' Civil Relief Act of 1940 will be
allocated to each Class of Securities of such Series that is entitled to receive
interest in respect of such Home Equity Loans in proportion to the interest that
each such Class of Securities would have otherwise been entitled to receive in
respect of such Home Equity Loans had such interest shortfall not occurred
unless the related Prospectus Supplement allocates such shortfalls to particular
Classes.
USE OF PROCEEDS
The Depositor will apply all or substantially all of the net proceeds from
the sale of each Series of Securities for one or more of the following purposes:
(i) to establish any Reserve Fund, Pre-Funding Account or Capitalized Interest
Account, (ii) to pay costs of structuring and issuing such Securities, including
the costs of obtaining Enhancement, and (iii) to acquire the Home Equity Loans
from the Seller, who in turn will use such proceeds for general corporate
purposes.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
This section sets forth (i) certain federal income tax opinions of Stroock
& Stroock & Lavan LLP, special counsel to the Seller ('Federal Tax Counsel'),
and (ii) a summary, based on the advice of Federal Tax Counsel, of the material
federal income tax consequences of the purchase, ownership and disposition of
Securities. The summary focuses primarily upon investors who will hold
Securities as 'capital assets' (generally, property held for investment) within
the meaning of Section 1221 of the of the Internal Revenue Code of 1986, as
amended (the 'Code'), but much of the discussion is applicable to other
investors as well. Because tax consequences may vary based on the status or tax
attributes of the owner of a Security, prospective investors are advised to
consult their own tax advisers concerning the federal, state, local and any
other tax consequences to them of the purchase, ownership and disposition of the
Securities. For purposes of this tax discussion (except with respect to
information reporting, or where the context indicates otherwise), any reference
to the 'Holder' means the beneficial owner of a Security.
The summary is based upon the provisions of the Code, the regulations
promulgated thereunder, including, where applicable, proposed regulations, and
the judicial and administrative rulings and decisions now in effect, all of
which are subject to change or possible differing interpretations. The statutory
provisions, regulations, and interpretations on which this interpretation is
based are subject to change, and such a change could apply retroactively.
The federal income tax consequences to Holders will vary depending on
whether (i) the Securities of a Series are classified as indebtedness for
federal income tax purposes; (ii) an election is made to treat the Trust Fund
(or certain assets of the Trust Fund) relating to a particular Series of
Securities as a real estate mortgage investment conduit ('REMIC') under the
Code; (iii) the Securities represent an ownership interest for federal income
tax purposes in some or all of the assets included in the Trust Fund for a
Series; or (iv) for federal income tax purposes the Trust Fund relating to a
particular Series of Certificates is classified as a partnership or is
disregarded as an entity separate from its owner. The Prospectus Supplement for
each Series of Securities will specify how the Securities will be treated for
federal income tax purposes and will discuss whether a REMIC election, if any,
will be made with respect to such Series.
OPINIONS
Federal Tax Counsel is of the opinion that:
(i) If a Prospectus Supplement indicates that one or more Classes of
non-REMIC Securities of the related Series are to be treated as
indebtedness for federal income tax purposes, assuming that all of the
provisions of the applicable Agreement are complied with, the Securities so
designated will be considered indebtedness for federal income tax purposes
and, for federal income tax purposes, the related Trust Fund will not be an
association, publicly traded partnership, or taxable mortgage pool taxable
as a corporation;
(ii) If a Prospectus Supplement indicates that one or more REMIC
elections will be made with respect to the related Trust Fund, assuming
that such elections are timely made and all of the provisions of the
applicable Agreement are complied with (a) each segregated pool of assets
specified as a REMIC in such Agreement will constitute a REMIC for federal
income tax purposes, (b) the Class or Classes of Securities of the related
Series which are designated as 'regular interests' in such Prospectus
Supplement will be considered 'regular interests' in a REMIC for federal
income tax purposes and (c) the Class of Securities of the related Series
which is designated as the 'residual interest' in such Prospectus
Supplement will be considered the sole class of 'residual interests' in the
applicable REMIC for federal income tax purposes;
(iii) If a Prospectus Supplement indicates that a Trust Fund will be
treated as a grantor trust for federal income tax purposes, assuming
compliance with all of the provisions of the applicable Agreement, (a) the
Trust Fund will be a grantor trust under Subpart E, Part I of Subchapter J
of the Code and will not be an association taxable as a corporation and
(b) a Holder of the related
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Certificates will be treated for federal income tax purposes as the owner
of an undivided interest in the Home Equity Loans included in the Trust
Fund; and
Each such opinion is an expression of an opinion only, is not a guarantee
of results and is not binding on the Internal Revenue Service ('IRS') or any
third-party.
TAXATION OF DEBT SECURITIES (INCLUDING REGULAR INTEREST SECURITIES)
Interest and Acquisition Discount. Securities representing regular interest
in a REMIC ('Regular Interest Securities') are generally taxable to Holders in
the same manner as evidences of indebtedness issued by the REMIC. Stated
interest on the Regular Interest Securities will be taxable as ordinary income
and taken into account using the accrual method of accounting, regardless of the
Holder's normal accounting method. Interest (other than original issue discount
('OID')) on Securities (other than Regular Interest Securities) that are
characterized as indebtedness for federal income tax purposes will be includible
in income by Holders thereof in accordance with their usual methods of
accounting. Securities characterized as debt for federal income tax purposes and
Regular Interest Securities will be referred to hereinafter collectively as
'Debt Securities.'
Debt Securities that are Compound Interest Securities will, and certain of
the other Debt Securities may, be issued with OID. The following discussion is
based in part on the rules governing OID which are set forth in Sections
1271-1275 of the Code and the Treasury regulations issued thereunder (the 'OID
Regulations'). A Holder should be aware, however, that the OID Regulations do
not adequately address certain issues relevant to prepayable securities, such as
the Debt Securities.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Debt Security and its issue price. A Holder of
a Debt Security must include such OID in gross income as ordinary interest
income as it accrues under a prescribed method which takes into account an
economic accrual of the discount. In general, OID must be included in income in
advance of the receipt of the cash representing that income. The amount of OID
on a Debt Security will be considered to be zero if it is less than a de minimis
amount determined under the Code.
The issue price of a Debt Security is the first price at which a
substantial amount of Debt Securities of that class are sold to the public
(excluding bond houses, brokers, underwriters or wholesalers). If less than a
substantial amount of a particular class of Debt Securities is sold for cash on
or prior to the Closing Date, the issue price for such class will be treated as
the fair market value of such class on the Closing Date. The stated redemption
price at maturity of a Debt Security includes the original principal amount of
the Debt Security, but generally will not include distributions of interest if
such distributions constitute 'qualified stated interest.'
Under the OID Regulations, interest payments will not be qualified stated
interest unless the interest payments are 'unconditionally payable.' The OID
Regulations state that interest is unconditionally payable if reasonable legal
remedies exist to compel timely payment or the debt instrument otherwise
provides terms and conditions that make the likelihood of late payment of
interest (other than late payment that occurs within a reasonable grace period)
or nonpayment of interest a remote contingency. It is unclear whether the terms
and conditions of the debt instruments underlying the Debt Securities or of the
Debt Securities themselves are determinative of whether the likelihood of late
payment or non-payment is a remote contingency. Accordingly, Federal Tax Counsel
is unable to opine whether the interest with respect to a Debt Security is
qualified stated interest, and consequently whether a Debt Security has OID as a
result of the failure of such interest to be treated as qualified stated
interest.
Certain Debt Securities will provide for distributions of interest based on
a period that is the same length as the interval between Distribution Dates but
ends prior to each Distribution Date. Any interest that accrues prior to the
Closing Date may be treated under the OID Regulations either (i) as part of the
issue price and the stated redemption price at maturity of the Debt Securities
or (ii) as not included in the issue price or stated redemption price. The OID
Regulations provide a special application of the de minimis rule for debt
instruments with long first accrual periods where the interest payable for the
first period is at a rate which is effectively less than that which applies in
all other periods. In such cases, for the sole purpose of determining whether
OID is de minimis, the OID Regulations provide that the
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stated redemption price is equal to the instrument's issue price plus the
greater of the amount of foregone interest or the excess (if any) of the
instrument's stated principal amount over its issue price.
Under the de minimis rule, OID on a Debt Security will be considered to be
zero if such OID is less than 0.25% of the stated redemption price at maturity
of the Debt Security multiplied by the weighted average maturity of the Debt
Security. For this purpose, the weighted average maturity of the Debt Security
is computed as the sum of the amounts determined by multiplying the number of
full years (i.e., rounding down partial years) from the issue date until each
distribution in reduction of stated redemption price at maturity is scheduled to
be made by a fraction, the numerator of which is the amount of each distribution
included in the stated redemption price at maturity of the Debt Security and the
denominator of which is the stated redemption price at maturity of the Debt
Security. Holders generally must report de minimis OID pro rata as principal
payments are received, and such income will be capital gain if the Debt Security
is held as a capital asset. However, accrual method Holders may elect to accrue
all de minimis OID as well as market discount under a constant interest method.
See ' -- Election to Treat All Interest as Original Issue Discount.'
The Holder of a Debt Security issued with OID must include in gross income,
for all days during its taxable year on which it holds such Debt Security, the
sum of the 'daily portions' of such OID. The amount of OID includible in income
by a Holder will be computed by allocating to each day during a taxable year a
pro rata portion of the OID that accrued during the relevant accrual period. In
the case of a Debt Security that is not a Regular Interest Security and the
principal payments on which are not subject to acceleration resulting from
prepayments on the Home Equity Loans, the amount of OID includible in income of
a Holder for an accrual period (generally the period over which interest accrues
on the debt instrument) will equal the product of the yield to maturity of the
Debt Security and the adjusted issue price of the Debt Security, reduced by any
payments of qualified stated interest. The adjusted issue price is the sum of
its issue price plus prior accruals of OID, reduced by the total payments made
with respect to such Debt Security in all prior periods, other than qualified
stated interest payments.
The amount of OID to be included in income by a Holder of a debt
instrument, such as certain Classes of the Debt Securities, that is subject to
acceleration due to prepayments on other debt obligations securing such
instruments (a 'Pay-Through Security'), is computed by taking into account the
anticipated rate of prepayments assumed in pricing the debt instrument (the
'Prepayment Assumption'). The amount of OID that will accrue during an accrual
period on a Pay-Through Security is the excess (if any) of the sum of (a) the
present value of all payments remaining to be made on the Pay-Through Security
as of the close of the accrual period and (b) the payments during the accrual
period of amounts included in the stated redemption price of the Pay-Through
Security, over the adjusted issue price of the Pay-Through Security at the
beginning of the accrual period. The present value of the remaining payments is
to be determined on the basis of three factors: (i) the original yield to
maturity of the Pay-Through Security (determined on the basis of compounding at
the end of each accrual period and properly adjusted for the length of the
accrual period), (ii) events which have occurred before the end of the accrual
period and (iii) the assumption that the remaining payments will be made in
accordance with the original Prepayment Assumption. The effect of this method is
to increase the portions of OID required to be included in income by a Holder to
take into account prepayments with respect to the Home Equity Loans at a rate
that exceeds the Prepayment Assumption, and to decrease (but not below zero for
any period) the portions of OID required to be included in income by a Holder of
a Pay-Through Security to take into account prepayments with respect to the Home
Equity Loans at a rate that is slower than the Prepayment Assumption. Although
OID will be reported to Holders of Pay-Through Securities based on the
Prepayment Assumption, no representation is made to Holders that Home Equity
Loans will be prepaid at that rate or at any other rate.
The Seller may adjust the accrual of OID on a Class of Regular Interest
Securities (or other regular interests in a REMIC) in a manner that it believes
to be appropriate, to take account of realized losses on the Home Equity Loans,
although the OID Regulations do not provide for such adjustments. If the IRS
were to require that OID be accrued without such adjustments, the rate of
accrual of OID for a Class of Regular Interest Securities could increase.
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Certain classes of Regular Interest Securities may represent more than one
class of REMIC regular interests. Unless the applicable Prospectus Supplement
specifies otherwise, the Trustee intends, based on the OID Regulations, to
calculate OID on such Securities as if, solely for the purposes of computing
OID, the separate regular interests were a single debt instrument.
A subsequent Holder of a Debt Security will also be required to include OID
in gross income, but such a Holder who purchases such Debt Security for an
amount that exceeds its adjusted issue price will be entitled (as will an
initial Holder who pays more than a Debt Security's issue price) to offset such
OID by comparable economic accruals of portions of such excess.
Effects of Defaults and Delinquencies. Holders will be required to report
income with respect to the related Securities under an accrual method without
giving effect to delays and reductions in distributions attributable to a
default or delinquency on the Home Equity Loans, except possibly to the extent
that it can be established that such amounts are uncollectible. As a result, the
amount of income (including OID) reported by a Holder of such a Security in any
period could significantly exceed the amount of cash distributed to such Holder
in that period. The Holder will eventually be allowed a loss (or will be allowed
to report a lesser amount of income) to the extent that the aggregate amount of
distributions on the Securities is reduced as a result of a Home Equity Loan
default. However, the timing and character of such losses or reductions in
income are uncertain and, accordingly, Holders of Securities should consult
their own tax advisors on this point.
Interest Weighted Securities. It is not clear how income should be accrued
on Debt Securities the payments on which consist solely or primarily of a
specified portion of the interest payments on qualified mortgages held by the
REMIC or on Home Equity Loans underlying Pass-Through Securities ('Interest
Weighted Securities'). The Trust Fund intends to take the position that all of
the income derived from an Interest Weighted Security should be treated as OID
and that the amount and rate of accrual of such OID should be calculated by
treating the Interest Weighted Security as a Compound Interest Security.
However, in the case of Interest Weighted Securities that are entitled to some
payments of principal and that are Regular Interest Securities the IRS could
assert that income derived from an Interest Weighted Security should be
calculated as if the Security were purchased at a premium equal to the excess of
the price paid by such holder for such Security over its stated principal
amount, if any. Under this approach, a holder would be entitled to amortize such
premium amount, if any. Under this approach, a holder would be entitled to
amortize such premium only if it has in effect an election under Section 171 of
the Code with respect to all taxable debt instruments held by such holder, as
described below.
Variable Rate Debt Securities. Under the OID Regulations, Debt Securities
paying interest at a variable rate (a 'Variable Rate Debt Security') are subject
to special rules. A Variable Rate Debt Security will qualify as a 'variable rate
debt instrument' if (i) its issue price does not exceed the total noncontingent
principal payments due under the Variable Rate Debt Security by more than a
specified de minimis amount, (ii) it provides for stated interest, paid or
compounded at least annually, at (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, and (iii) it does not provide for any principal
payments that are contingent, as defined in the OID Regulations, except as
provided in clause (i) above.
A 'qualified floating rate' is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Rate Debt Security is denominated. A multiple of a qualified floating
rate will generally not itself constitute a qualified floating rate for purposes
of the OID Regulations. However, a variable rate equal to (i) the product of a
qualified floating rate and a fixed multiple that is greater than 0.65 but not
more than 1.35 or (ii) the product of a qualified floating rate and a fixed
multiple that is greater than 0.65 but not more than 1.35, increased or
decreased by a fixed rate will constitute a qualified floating rate for purposes
of the OID Regulations. In addition, under the OID Regulations, two or more
qualified floating rates that can reasonably be expected to have approximately
the same values throughout the term of the Variable Rate Debt Security will be
treated as a single qualified floating rate (a 'Presumed Single Qualified
Floating Rate'). Two or more qualified floating rates with values within 25
basis points of each other as determined on the Variable Rate Debt
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Security's issue date will be conclusively presumed to be a Presumed Single
Qualified Floating Rate. Notwithstanding the foregoing, a variable rate that
would otherwise constitute a qualified floating rate but which is subject to one
or more restrictions such as a cap or floor, will not be a qualified floating
rate for purposes of the OID Regulations unless the restriction is fixed
throughout the term of the Variable Rate Debt Security or the restriction will
not significantly affect the yield of the Variable Rate Debt Security. An
'objective rate' is a rate that is not itself a qualified floating rate but
which is determined using a single fixed formula and which is based upon
objective financial or economic information. The OID Regulations also provide
that other variable rates may be treated as objective rates if so designated by
the IRS in the future. Despite the foregoing, a variable rate of interest on a
Variable Rate Debt Security will not constitute an objective rate if it is
reasonably expected that the average value of such rate during the first half of
the Variable Rate Debt Security's term will be either significantly less than or
significantly greater than the average value of the rate during the final half
of the Variable Rate Debt Security's term. Further, an objective rate does not
include a rate that is based on information that is within the control of or
unique to the circumstances of the issuer or a party related to the issuer. An
objective rate will qualify as a 'qualified inverse floating rate' if such rate
is equal to a fixed rate minus a qualified floating rate and variations in the
rate can reasonably be expected to inversely reflect contemporaneous variations
in the qualified floating rate. The OID Regulations also provide that if a
Variable Rate Debt Security provides for stated interest at a fixed rate for an
initial period of less than one year followed by a variable rate that is either
a qualified floating rate or an objective rate and if the variable rate on the
Variable Rate Debt Security's issue date is intended to approximate the fixed
rate, then the fixed rate and the variable rate together will constitute either
a single qualified floating rate or objective rate, as the case may be (a
'Presumed Single Variable Rate'). If the value of the variable rate and the
initial fixed rate are within 25 basis points of each other as determined on the
Variable Rate Debt Security's issue date, the variable rate will be conclusively
presumed to approximate the fixed rate.
For Variable Rate Debt Securities that qualify as a 'variable rate debt
instrument' under the OID Regulations and provide for interest at either a
single qualified floating rate, a single objective rate, a Presumed Single
Qualified Floating Rate or a Presumed Single Variable Rate throughout the term
(a 'Single Variable Rate Debt Security'), OID is computed as described above
based on the following: (i) stated interest on the Single Variable Rate Debt
Security which is unconditionally payable in cash or property (other than debt
instruments of the issuer) at least annually will constitute qualified stated
interest; (ii) by assuming that the variable rate on the Single Variable Debt
Security is a fixed rate equal to: (a) in the case of a Single Variable Rate
Debt Security with a qualified floating rate or a qualified inverse floating
rate, the value, as of the issue date, of the qualified floating rate or the
qualified inverse floating rate or (b) in the case of a Single Variable Rate
Debt Security with an objective rate (other than a qualified inverse floating
rate), a fixed rate which reflects the reasonably expected yield for such Single
Variable Debt Security; and (iii) the qualified stated interest allocable to an
accrual period is increased (or decreased) if the interest actually paid during
an accrual period exceeds (or is less than) the interest assumed to be paid
under the assumed fixed rate described in clause (ii) above.
In general, any Variable Rate Debt Security other than a Single Variable
Rate Debt Security (a 'Multiple Variable Rate Debt Security') that qualifies as
a 'variable rate debt instrument' will be converted into an 'equivalent' fixed
rate debt instrument for purposes of determining the amount and accrual of OID
and qualified stated interest on the Multiple Variable Rate Debt Security. The
OID Regulations generally require that such a Multiple Variable Rate Debt
Security be converted into an 'equivalent' fixed rate debt instrument by
substituting any qualified floating rate or qualified inverse floating rate
provided for under the terms of the Multiple Variable Rate Debt Security with a
fixed rate equal to the value of the qualified floating rate or qualified
inverse floating rate, as the case may be, as of the Multiple Variable Rate Debt
Security's issue date. Any objective rate (other than a qualified inverse
floating rate) provided for under the terms of the Multiple Variable Rate Debt
Security is converted into a fixed rate that reflects the yield that is
reasonably expected for the Multiple Variable Rate Debt Security. In the case of
a Multiple Variable Rate Debt Security that qualifies as a 'variable rate debt
instrument' and provides for stated interest at a fixed rate in addition to
either one or more qualified floating rates or a qualified inverse floating
rate, the fixed rate is initially converted into a qualified floating rate (or a
qualified inverse floating rate, if the Multiple Variable Rate Debt Security
provides for a qualified inverse floating rate). Under such circumstances, the
qualified floating rate or
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qualified inverse floating rate that replaces the fixed rate must be such that
the fair market value of the Multiple Variable Rate Debt Security as of the
Multiple Variable Rate Debt Security's issue date is approximately the same as
the fair market value of an otherwise identical debt instrument that provides
for either the qualified floating rate or qualified inverse floating rate rather
than the fixed rate. Subsequent to converting the fixed rate into either a
qualified floating rate or a qualified inverse floating rate, the Multiple
Variable Rate Debt Security is then converted into an 'equivalent' fixed rate
debt instrument in the manner described above.
Once the Multiple Variable Rate Debt Security is converted into an
'equivalent' fixed rate debt instrument pursuant to the foregoing rules, the
amount of OID and qualified stated interest, if any, are determined for the
'equivalent' fixed rate debt instrument by applying the OID rules to the
'equivalent' fixed rate debt instrument in the manner described above. A Holder
of the Multiple Variable Rate Debt Security will account for such OID and
qualified stated interest as if the Holder held the 'equivalent' fixed rate debt
instrument. Each accrual period appropriate adjustments will be made to the
amount of qualified stated interest or OID assumed to have been accrued or paid
with respect to the 'equivalent' fixed rate debt instrument in the event that
such amounts differ from the accrual amount of interest accrued or paid on the
Multiple Variable Rate Debt Security during the accrual period.
If a Variable Rate Debt Security does not qualify as a 'variable rate debt
instrument' under the OID Regulations, then the Variable Rate Debt Security
would be treated as a contingent payment debt obligation. It is not clear under
current law how a Variable Rate Debt Security would be taxed if such Debt
Security were treated as a contingent payment debt obligation.
The IRS has issued final regulations (the 'Contingent Regulations')
governing the calculation of OID on instruments having contingent interest
payments. The Contingent Regulations specifically do not apply however to debt
instruments to which Code Section 1272(a)(6) is applicable, such as a Pay-
Through Security. Additionally, the OID Regulations do not contain provisions
specifically interpreting Code Section 1272(a)(6). Until the Treasury issues
guidelines to the contrary, the Trustee intends to base its computation of OID
on Pay-Through Securities as described in this Prospectus. However, because no
regulatory guidance exists under Code Section 1272(a)(6), there can be no
assurance that such methodology represents the correct manner of calculating
OID.
Market Discount. A purchaser of a Security may be subject to the market
discount rules of Sections 1276-1278 of the Code. A Holder that acquires a Debt
Security with more than a prescribed de minimis amount of 'market discount'
(generally, the excess of the principal amount of the Debt Security over the
purchaser's purchase price) will be required to include accrued market discount
in income as ordinary income in each month, but limited to an amount not
exceeding the principal payments on the Debt Security received in that month
and, if the Securities are sold, the gain realized. Such market discount would
accrue in a manner to be provided in Treasury regulations but, until such
regulations are issued, such market discount would in general accrue either (i)
on the basis of a constant yield (in the case of a Pay-Through Security, taking
into account a prepayment assumption) or (ii) in the ratio of (a) in the case of
Securities (or in the case of a Pass-Through Security, as set forth below, the
Home Equity Loans underlying such Security) not originally issued with OID,
stated interest payable in the relevant period to total stated interest
remaining to be paid at the beginning of the period or (b) in the case of
Securities (or, in the case of a Pass-Through Security, as described below, the
Home Equity Loans underlying such Security) originally issued at a discount, OID
in the relevant period to total OID remaining to be paid.
Section 1277 of the Code provides that, regardless of the origination date
of the Debt Security (or, in the case of a Pass-Through Security, the Home
Equity Loans), the excess of interest paid or accrued to purchase or carry a
Security (or, in the case of a Pass-Through Security, as described below, the
underlying Home Equity Loans) with market discount over interest received on
such Security is allowed as a current deduction only to the extent such excess
is greater than the market discount that accrued during the taxable year in
which such interest expense was incurred. In general, the deferred portion of
any interest expense will be deductible when such market discount is included in
income, including upon the sale, disposition, or repayment of the Security (or
in the case of a Pass-Through Security, an underlying Home Equity Loan). A
Holder may elect to include market discount in income currently as
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it accrues, on all market discount obligations acquired by such Holder during
the taxable year such election is made and thereafter, in which case the
interest deferral rule will not apply.
Premium. A Holder who purchases a Debt Security (other than an Interest
Weighted Security to the extent described above) at a cost greater than its
stated redemption price at maturity, generally will be considered to have
purchased the Security at a premium, which it may elect to amortize as an offset
to interest income on such Security (and not as a separate deduction item) on a
constant yield method. Although no regulations addressing the computation of
premium accrual on securities similar to the Securities have been issued, the
legislative history of the 1986 Act indicates that premium is to be accrued in
the same manner as market discount. Accordingly, it appears that the accrual of
premium on a Class of Pay-Through Securities will be calculated using the
prepayment assumption used in pricing such Class. If a Holder makes an election
to amortize premium on a Debt Security, such election will apply to all taxable
debt instruments (including all REMIC regular interests and all pass-through
certificates representing ownership interests in a trust holding debt
obligations) held by the Holder at the beginning of the taxable year in which
the election is made, and to all taxable debt instruments acquired thereafter by
such Holder, and will be irrevocable without the consent of the IRS. Purchasers
who pay a premium for the Securities should consult their tax advisers regarding
the election to amortize premium and the method to be employed.
Current treasury regulations (the 'Amortizable Bond Premium Regulations')
dealing with amortizable bond premium specifically do not apply to prepayable
debt instruments subject to Code Section 1272(a)(6) such as the Pay-Through
Securities. Absent further guidance from the IRS, the Trustee intends to account
for amortizable bond premium in the manner described above. Prospective
purchasers of the Securities should consult their tax advisors regarding the
possible application of the Amortizable Bond Premium Regulations.
Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit a Holder of a Debt Security to elect to accrue all interest,
discount (including de minimis market or OID) and premium in income as interest,
based on a constant yield method for Debt Securities acquired on or after April
4, 1994. If such an election were to be made with respect to a Debt Security
with market discount, the Holder of the Debt Security would be deemed to have
made an election to include in income currently market discount with respect to
all other debt instruments having market discount that such Holder of the Debt
Security acquires during the year of the election or thereafter. Similarly, a
Holder of a Debt Security that makes this election for a Debt Security that is
acquired at a premium will be deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that such Holder owns or acquires. The election to accrue interest, discount and
premium on a constant yield method with respect to a Debt Security is
irrevocable.
Sale or Exchange. A Holder's tax basis in its Debt Security is the price
such Holder pays for a Debt Security, plus amounts of OID or market discount
included in income and reduced by any payments received (other than qualified
stated interest payments) and any amortized premium. Gain or loss recognized on
a sale, exchange, or redemption of a Debt Security, measured by the difference
between the amount realized and the Debt Security's basis as so adjusted, will
generally be capital gain or loss, assuming that the Debt Security is held as a
capital asset. In the case of a Debt Security held by a bank, thrift, or similar
institution described in Section 582 of the Code, however, gain or loss realized
on the sale or exchange of a Debt Security will be taxable as ordinary income or
loss. In addition, gain from the disposition of a Regular Interest Security that
might otherwise be capital gain will be treated as ordinary income to the extent
of the excess, if any, of (i) the amount that would have been includible in the
Holder's income if the yield on such Regular Interest Security had equaled 110%
of the applicable federal rate as of the beginning of such Holder's holding
period, over the amount of ordinary income actually recognized by the Holder
with respect to such Regular Interest Security.
TAXATION OF THE REMIC AND ITS HOLDERS
Status of Regular Interest Securities. Regular Interest Securities and
Securities representing a residual interest in a REMIC (both types of securities
collectively referred to as 'REMIC Securities') will be 'real estate assets' for
purposes of Section 856(c)(4)(A) of the Code and assets described in Section
7701(a)(19)(C) of the Code (assets qualifying under one or more of those
sections, applying
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each section separately, 'qualifying assets') to the extent that the REMIC's
assets are qualifying assets. However, if at least 95 percent of the REMIC's
assets are qualifying assets, then 100 percent of the REMIC Securities will be
qualifying assets. Similarly, income on the REMIC Securities will be treated as
'interest on obligations secured by mortgages on real property' within the
meaning of Section 856(c)(3)(B) of the Code, subject to the limitations of the
preceding two sentences. In addition to Home Equity Loans, the REMIC's assets
will include payments on Home Equity Loans held pending distribution to Holders
of REMIC Securities, amounts in reserve accounts (if any), other credit
enhancements (if any) and possibly buydown funds ('Buydown Funds'). The Home
Equity Loans generally will be qualifying assets under all three of the
foregoing sections of the Code. However, Home Equity Loans that are not secured
by residential real property or real property used primarily for church purposes
may not constitute qualifying assets under Section 7701(a)(19)(C)(v) of the
Code. In addition, to the extent that the principal amount of a Home Equity Loan
exceeds the value of the property securing the Home Equity Loan, it is unclear
and Federal Tax Counsel is unable to opine whether the Home Equity Loans will be
qualifying assets. The regulations under Sections 860A through 860G of the Code
(the 'REMIC Regulations') treat credit enhancements as part of the mortgage or
pool of mortgages to which they relate, and therefore credit enhancements
generally should be qualifying assets. Regulations issued in conjunction with
the REMIC Regulations provide that amounts paid on loans and held pending
distribution to Holders of Regular Interest Securities ('cash flow investments')
will be treated as qualifying assets. It is unclear whether reserve funds or
Buydown Funds would also constitute qualifying assets under any of those
provisions.
REMIC EXPENSES; SINGLE CLASS REMICS
As a general rule, all of the expenses of a REMIC will be taken into
account by Holders of the Residual Interest Securities. In the case of a 'single
class REMIC,' however, the expenses will be allocated, under Treasury
regulations, among the Holders of the Regular Interest Securities and the
Holders of the Residual Interest Securities on a daily basis in proportion to
the relative amounts of income accruing to each Holder on that day. In the case
of a Holder of a Regular Interest Security who is an individual or a
'pass-through interest Holder' (including certain pass-through entities but not
including real estate investment trusts), such expenses will be deductible only
to the extent that such expenses, plus other 'miscellaneous itemized deductions'
of the Holder, exceed 2% of such Holder's adjusted gross income and such Holder
may not be able to deduct such fees and expenses to any extent in computing such
Holder's alternative minimum tax liability. In addition, the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount will be reduced by the
lesser of (i) 3% of the excess of adjusted gross income over the applicable
amount, or (ii) 80% of the amount of itemized deductions otherwise allowable for
such taxable year. For taxable years beginning after December 31, 1997, in the
case of a partnership that has 100 or more partners and elects to be treated as
an 'electing large partnership,' 70% of such partnership's miscellaneous
itemized deductions will be disallowed, although the remaining deductions will
generally be allowed at the partnership level and will not be subject to the 2%
floor that would otherwise be applicable to individual partners. The reduction
or disallowance of this deduction may have a significant impact on the yield of
the Regular Interest Security to such a Holder. In general terms, a single class
REMIC is one that either (i) would qualify, under existing Treasury regulations,
as a grantor trust if it were not a REMIC (treating all interests as ownership
interests, even if they would be classified as debt for federal income tax
purposes) or (ii) is similar to such a trust and which is structured with the
principal purpose of avoiding the single class REMIC rules. Unless otherwise
stated in the applicable Prospectus Supplement, the expenses of the REMIC will
be allocated to Holders of the related Residual Interest Securities.
TAXATION OF THE REMIC
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level tax. Rather, the
taxable income or net loss of a REMIC is taken into account by the Holders of
residual interests. As described above, the regular interests are generally
taxable as debt of the REMIC.
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Tiered REMIC Structures. For certain Series of Securities, two or more
separate elections may be made to treat designated portions of the related Trust
Fund as REMICs ('Tiered REMICs') for federal income tax purposes. Solely for
purposes of determining whether the REMIC Certificates will be 'real estate
assets' within the meaning of Section 856(c)(4)(A) of the Code, and 'loans
secured by an interest in real property' under Section 7701(a)(19)(C) of the
Code, and whether the income on such Certificates is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
Calculation of REMIC Income. The taxable income or net loss of a REMIC is
determined under an accrual method of accounting and in the same manner as in
the case of an individual, with certain adjustments. In general, the taxable
income or net loss will be the difference between (i) the gross income produced
by the REMIC's assets, including stated interest and any OID or market discount
on loans and other assets, and (ii) deductions, including stated interest and
OID accrued on Regular Interest Securities, amortization of any premium with
respect to Home Equity Loans, and servicing fees and other expenses of the
REMIC. A Holder of a Residual Interest Security that is an individual or a
'pass-through interest Holder' (including certain pass-through entities, but not
including real estate investment trusts) will be unable to deduct servicing fees
payable on the Home Equity Loans or other administrative expenses of the REMIC
for a given taxable year, to the extent that such expenses, when aggregated with
such Holder's other miscellaneous itemized deductions for that year, do not
exceed 2% of such Holder's adjusted gross income and such Holder may not be able
to deduct such fees and expenses to any extent in computing such holders
alternative minimum tax liability. For taxable years beginning after December
31, 1997, in the case of a partnership that has 100 or more partners and elects
to be treated as an 'electing large partnership,' 70% of such partnership's
miscellaneous itemized deductions will be disallowed, although the remaining
deductions will generally be allowed at the partnership level and will not be
subject to the 2% floor that would otherwise be applicable to individual
partners.
For purposes of computing its taxable income or net loss, the REMIC should
have an initial aggregate tax basis in its assets equal to the aggregate fair
market value of the regular interests and the residual interests on the Startup
Day (generally, the day that the interests are issued). Such aggregate basis
will be allocated among the assets of the REMIC in proportion to their
respective fair market values.
The OID provisions of the Code apply to loans of individuals originated on
or after March 2, 1984. Subject to possible application of the de minimis rules,
the method of accrual by the REMIC of OID income on such loans will be
equivalent to the method under which Holders of Pay-Through Securities accrue
original issue discount (i.e., under the constant yield method taking into
account the Prepayment Assumption). The REMIC will deduct OID on the Regular
Interest Securities in the same manner that the Holders of the Regular Interest
Securities include such discount in income, but without regard to the de minimis
rules.
We refer you to 'Taxation of Debt Securities (Including Regular Interest
Securities)' above for more detail.
A REMIC that acquires loans at a market discount must include such market
discount in income currently, as it accrues, on a constant interest basis.
To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the life
of the loans (presumably taking into account the Prepayment Assumption) on a
constant yield method. Although the law is somewhat unclear regarding recovery
of premium attributable to loans originated on or before such date, it is
possible that such premium may be recovered in proportion to payments of loan
principal.
Prohibited Transactions and Contributions Tax. The REMIC will be subject to
a 100% tax on any net income derived from a 'prohibited transaction.' For this
purpose, net income will be calculated without taking into account any losses
from prohibited transactions or any deductions attributable to any prohibited
transaction that resulted in a loss. In general, prohibited transactions
include: (i) subject to limited exceptions, the sale or other disposition of any
qualified mortgage transferred to the REMIC;
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(ii) subject to a limited exception, the sale or other disposition of a cash
flow investment; (iii) the receipt of any income from assets not permitted to be
held by the REMIC pursuant to the Code; or (iv) the receipt of any fees or other
compensation for services rendered by the REMIC. It is anticipated that a REMIC
will not engage in any prohibited transactions in which it would recognize a
material amount of net income. In addition, subject to a number of exceptions, a
tax is imposed at the rate of 100% on amounts contributed to a REMIC after the
Startup Day. The Holders of Residual Interest Securities will generally be
responsible for the payment of any such taxes imposed on the REMIC. To the
extent not paid by such Holders or otherwise, however, such taxes will be paid
out of the Trust Fund and will be allocated pro rata to all outstanding Classes
of Securities of such REMIC.
TAXATION OF HOLDERS OF RESIDUAL INTEREST SECURITIES
The Holder of a Security representing a residual interest (a 'Residual
Interest Security') will take into account the 'daily portion' of the taxable
income or net loss of the REMIC for each day during the taxable year on which
such Holder held the Residual Interest Security. The daily portion is determined
by allocating to each day in any calendar quarter its ratable portion of the
taxable income or net loss of the REMIC for such quarter, and by allocating that
amount among the Holders (on such day) of the Residual Interest Securities in
proportion to their respective holdings on such day.
The Holder of a Residual Interest Security must report its proportionate
share of the taxable income of the REMIC whether or not it receives cash
distributions from the REMIC attributable to such income or loss. The reporting
of taxable income without corresponding distributions could occur, for example,
in certain REMIC issues in which the Home Equity Loans held by the REMIC were
issued or acquired at a discount, since mortgage prepayments cause recognition
of discount income, while the corresponding portion of the prepayment could be
used in whole or in part to make principal payments on REMIC Regular Interests
issued without any discount or at an insubstantial discount. (If this occurs, it
is likely that cash distributions will exceed taxable income in later years.)
Taxable income may also be greater in earlier years of certain REMIC issues as a
result of the fact that interest expense deductions, as a percentage of
outstanding principal on REMIC Regular Interest Securities, will typically
increase over time as lower yielding Securities are paid, whereas interest
income with respect to loans will generally remain constant over time as a
percentage of loan principal.
In any event, because the Holder of a residual interest is taxed on the net
income of the REMIC, the taxable income derived from a Residual Interest
Security in a given taxable year will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pretax yield. Therefore, the after-tax
yield on the Residual Interest Security may be less than that of such a bond or
instrument.
Limitation on Losses. The amount of the REMIC's net loss that a Holder may
take into account currently is limited to the Holder's adjusted basis at the end
of the calendar quarter in which such loss arises. A Holder's basis in a
Residual Interest Security will initially equal such Holder's purchase price,
and will subsequently be increased by the amount of the REMIC's taxable income
allocated to the Holder, and decreased (but not below zero) by the amount of
distributions made and the amount of the REMIC's net loss allocated to the
Holder. Any disallowed loss may be carried forward indefinitely, but may be used
only to offset income of the REMIC generated by the same REMIC. The ability of
Holders of Residual Interest Securities to deduct net losses may be subject to
additional limitations under the Code, as to which such Holders should consult
their tax advisers.
Distributions. Distributions on a Residual Interest Security (whether at
their scheduled times or as a result of prepayments) will generally not result
in any additional taxable income or loss to a Holder of a Residual Interest
Security. If the amount of such payment exceeds a Holder's adjusted basis in the
Residual Interest Security, however, the Holder will recognize gain (treated as
gain from the sale of the Residual Interest Security) to the extent of such
excess.
Sale or Exchange. A Holder of a Residual Interest Security will recognize
gain or loss on the sale or exchange of a Residual Interest Security equal to
the difference, if any, between the amount realized and such Holder's adjusted
basis in the Residual Interest Security at the time of such sale or exchange.
Except to the extent provided in regulations, which have not yet been issued,
any loss upon disposition
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of a Residual Interest Security will be disallowed if the selling Holder
acquires any residual interest in a REMIC or similar mortgage pool within six
months before or after such disposition.
Excess Inclusions. The portion of the REMIC taxable income of a Holder of a
Residual Interest Security consisting of 'excess inclusion' income may not be
offset by other deductions or losses, including net operating losses, on such
Holder's federal income tax return. Further, if the Holder of a Residual
Interest Security is an organization subject to the tax on unrelated business
income imposed by Code Section 511, such Holder's excess inclusion income will
be treated as unrelated business taxable income of such Holder. In addition,
under Treasury regulations yet to be issued, if a real estate investment trust,
a regulated investment company, a common trust fund, or certain cooperatives
were to own a Residual Interest Security, a portion of dividends (or other
distributions) paid by the real estate investment trust (or other entity) would
be treated as excess inclusion income. If a Residual Security is owned by a
foreign person, excess inclusion income is subject to tax at a rate of 30% which
may not be reduced by treaty, is not eligible for treatment as 'portfolio
interest' and is subject to certain additional limitations.
We refer you to 'Tax Treatment of Foreign Investors' for more detail.
The Small Business Job Protection Act of 1996 eliminated the special rule
permitting Section 593 institutions ('thrift institutions') to use net operating
losses and other allowable deductions to offset their excess inclusion income
from REMIC residual certificates that have 'significant value' within the
meaning of the REMIC Regulations, effective for taxable years beginning after
December 31, 1995, except with respect to residual certificates held by thrift
institutions since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides three
rules for determining the effect on excess inclusions on the alternative minimum
taxable income of a residual holder. First, alternative minimum taxable income
for such residual holder is determined without regard to the special rule that
taxable income cannot be less than excess inclusions. Second, a residual
holder's alternative minimum income for a tax year cannot be less than excess
inclusions for the year. Third, the amount of any alternative minimum tax net
operating loss deductions must be computed without regard to any excess
inclusions. These rules are effective for tax years beginning after December 31,
1986, unless a residual holder elects to have such rules apply only to tax years
beginning after August 20, 1996.
The excess inclusion portion of a REMIC's income is generally equal to the
excess, if any, of REMIC taxable income for the quarterly period allocable to a
Residual Interest Security, over the daily accruals for such quarterly period of
(i) 120% of the long term applicable federal rate on the Startup Date multiplied
by (ii) the adjusted issue price of such Residual Interest Security at the
beginning of such quarterly period. The adjusted issue price of a Residual
Interest Security at the beginning of each calendar quarter will equal its issue
price (calculated in a manner analogous to the determination of the issue price
of a Regular Interest Security), increased by the aggregate of the daily
accruals for prior calendar quarters, and decreased (but not below zero) by the
amount of loss allocated to a Holder and the amount of distributions made on the
Residual Interest Security before the beginning of the quarter. The long-term
federal rate, which is announced monthly by the Treasury Department, is an
interest rate that is based on the average market yield of outstanding
marketable obligations of the United States government having remaining
maturities in excess of nine years.
Under the REMIC Regulations, in certain circumstances, transfers of
Residual Interest Securities may be disregarded.
We refer you to ' -- Restrictions on Ownership and Transfer of Residual
Interest Securities' and 'Tax Treatment of Foreign Investors' below for more
detail.
Restrictions on Ownership and Transfer of Residual Interest Securities. As
a condition to qualification as a REMIC, reasonable arrangements must be made to
prevent the ownership of a REMIC residual interest by any 'Disqualified
Organization.' Disqualified Organizations include the United States, any State
or political subdivision thereof, any foreign government, any international
organization, or any agency or instrumentality of any of the foregoing, a rural
electric or telephone cooperative described in Section 1381(a)(2)(C) of the
Code, or any entity exempt from the tax imposed by Sections 1-1399 of the Code,
if such entity is not subject to tax on its unrelated business income.
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Accordingly, the applicable Agreement will prohibit Disqualified Organizations
from owning a Residual Interest Security. In addition, no transfer of a Residual
Interest Security will be permitted unless the proposed transferee shall have
furnished to the Trustee an affidavit representing and warranting that it is
neither a Disqualified Organization nor an agent or nominee acting on behalf of
a Disqualified Organization.
If a Residual Interest Security is transferred to a Disqualified
Organization (in violation of the restrictions set forth above), a substantial
tax will be imposed on the transferor of such Residual Interest Security at the
time of the transfer. In addition, if a Disqualified Organization holds an
interest in a pass-through entity (including, among others, a partnership,
trust, real estate investment trust, regulated investment company, or any person
holding as nominee an interest in a pass-through entity), that owns a Residual
Interest Security, the pass-through entity will be required to pay an annual tax
on its allocable share of the excess inclusion income of the REMIC. For taxable
years beginning after December 31, 1997, all partners of certain electing
partnerships having 100 or more partners ('electing large partnerships') will be
treated as disqualified organizations for purposes of the tax imposed on
pass-through entities if such electing large partnerships hold residual
interests in a REMIC. However, the electing large partnership would be entitled
to exclude the excess inclusion income from gross income for purposes of
determining the taxable income of the partners.
The REMIC Regulations provide that a transfer of a 'noneconomic residual
interest' will be disregarded for all federal income tax purposes unless
impeding the assessment or collection of tax was not a significant purpose of
the transfer. A residual interest will be treated as a 'noneconomic residual
interest' unless, at the time of the transfer (1) the present value of the
expected future distributions on the residual interest at least equals the
product of (x) the present value of all anticipated excess inclusions with
respect to the residual interest and (y) the highest corporate tax rate,
currently 35 percent, and (2) the transferor reasonably expects that for each
anticipated excess inclusion, the transferee will receive distributions from the
REMIC, at or after the time at which taxes on such excess inclusion accrue,
sufficient to pay the taxes thereon. 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 (had 'improper knowledge') that the
transferee would be unwilling or unable to pay taxes due on its share of the
taxable income of the REMIC. A transferor will be presumed not to have improper
knowledge if (i) the transferor conducts, at the time of the transfer, a
reasonable investigation of the financial condition of the transferee and, as a
result of the investigation, the transferor finds that the transferee has
historically paid its debts as they came due and finds no significant evidence
to indicate that the transferee will not continue to pay its debts as they come
due in the future, and (ii) the transferee represents to the transferor that
(A) the transferee understands that it might incur tax liabilities in excess of
any cash received with respect to the residual interest and (B) the transferee
intends to pay the taxes associated with owning the residual interest as they
come due. A different formulation of this rule applies to transfers of Residual
Interest Security by or to foreign transferees.
We refer you to 'Tax Treatment of Foreign Investors' for more detail.
Mark to Market Rules. Treasury regulations provide that any REMIC Residual
Interest acquired after January 3, 1995 is not a security and cannot be marked
to market under Section 475.
ADMINISTRATIVE MATTERS
The REMIC's books must be maintained on a calendar year basis and the REMIC
must file an annual federal income tax return. The REMIC will also be subject to
the procedural and administrative rules of the Code applicable to partnerships,
including the determination of any adjustments to, among other things, items of
REMIC income, gain, loss, deduction, or credit, by the IRS in a unified
administrative proceeding.
TAX STATUS AS A GRANTOR TRUST
General. As further described below, each Holder of a Security issued by a
grantor trust (a 'Pass-Through Security') must report on its federal income tax
return the gross income from the portion of the Home Equity Loans that is
allocable to such Pass-Through Security and may deduct the portion of
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the expenses incurred or accrued by the Trust Fund that is allocable to such
Pass-Through Security, at the same time and to the same extent as such items
would be reported by such Holder if it had purchased and held directly such
interest in the Home Equity Loans and received or accrued directly its share of
the payments on the Home Equity Loans and incurred or accrued directly its share
of expenses incurred or accrued by the Trust Fund when those amounts are
received, incurred or accrued by the Trust Fund.
A Holder of a Pass-Through Security that is an individual, estate, or trust
will be allowed deductions for such expenses only to the extent that the sum of
those expenses and the Holder's other miscellaneous itemized deductions exceeds
2% of such Holder's adjusted gross income. Further, the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds a prescribed amount will be reduced by the lesser
of (i) 3% of the excess of adjusted gross income over the prescribed amount, or
(ii) 80% of the amount of itemized deductions otherwise allowable for such
taxable year. For taxable years beginning after December 31, 1997, in the case
of a partnership that has 100 or more partners and elects to be treated as an
'electing large partnership,' 70% of such partnership's miscellaneous itemized
deductions will be disallowed, although the remaining deductions will generally
be allowed at the partnership level and will not be subject to the 2% floor that
would otherwise be applicable to individual partners. Moreover, a Holder of a
Pass-Through Security that is not a corporation cannot deduct such expenses for
purposes of the alternative minimum tax (if applicable). Such deductions will
include servicing, guarantee and administrative fees paid to the servicer of the
Mortgage Home Equity Loans. As a result, the Trust Fund will report additional
taxable income to Holders of Pass-Through Securities in an amount equal to their
allocable share of such deductions, and certain holders of Pass-Through
Securities may have taxable income in excess of the cash received.
Status of the Pass-Through Securities. The Pass-Through Securities will be
'real estate assets' for purposes of Section 856(c)(4)(A) of the Code and 'loans
secured by an interest in real property' within the meaning of Section
7701(a)(19)(C)(v) of the Code (assets qualifying under one or both of those
sections, applying each section separately, 'qualifying assets') to the extent
that the Trust Fund's assets are qualifying assets. The Pass-Through Securities
may not be qualifying assets under any of the foregoing sections of the Code to
the extent that the Trust Fund's assets include Buydown Funds, reserve funds, or
payments on mortgages held pending distribution to Certificateholders. Further,
the Pass-Through Securities may not be 'real estate assets' to the extent loans
held by the trust are not secured by real property, and may not be 'loans
secured by an interest in real property' to the extent loans held by the trust
are not secured by residential real property or real property used primarily for
church purposes. In addition, to the extent that the principal amount of a loan
exceeds the value of the property securing the loan, it is unclear and Federal
Tax Counsel is unable to opine whether the loans will be qualifying assets.
Taxation of Pass-Through Securities Under Stripped Bond Rules. The federal
income tax treatment of the Pass-Through Securities will depend on whether they
are Securities ('Stripped Securities') subject to the 'stripped bond' rules of
section 1286 of the Code. The Pass-Through Securities will be Stripped
Securities if stripped interest-only Certificates are issued. In addition,
whether or not stripped interest-only Certificates are issued, the IRS may
contend that the stripped bond rules apply on the ground that the Servicer's
servicing fee, or other amounts, if any, paid to (or retained by) the Servicer
or its affiliates, as specified in the applicable Prospectus Supplement,
represent greater than an arm's length consideration for servicing the Home
Equity Loans and should be characterized for federal income tax purposes as an
ownership interest in the Home Equity Loans. The IRS has taken the position in
Revenue Ruling 91-46 that a retained interest in excess of reasonable
compensation for servicing is treated as a 'stripped coupon' under the rules of
Code Section 1286.
If interest retained for the Servicer's servicing fee or other interest is
treated as a 'stripped coupon,' the Pass-Through Securities will either be
subject to the OID rules or the market discount rules. A Holder of a
Pass-Through Security will account for any discount on the Pass-Through Security
as market discount rather than OID if either (i) the amount of OID with respect
to the Pass-Through Security was treated as zero under the OID de minimis rule
when the Pass-Through Security was stripped or (ii) no more than 100 basis
points (including any amount of servicing in excess of reasonable
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servicing) is stripped off from the Home Equity Loans. If neither of the above
exceptions applies, the OID rules will apply to the Pass-Through Securities.
If the OID rules apply, the Holder of a Pass-Through Security (whether a
cash or accrual method taxpayer) will be required to report interest income from
the Pass-Through Security in each taxable year equal to the income that accrues
on the Pass-Through Security in that year calculated under a constant yield
method based on the yield of the Pass-Through Security (or, possibly, the yield
of each Mortgage underlying such Pass-Through Security) to such Holder. Such
yield would be computed at the rate (assuming monthly compounding) that, if used
in discounting the Holder's share of the payments on the Mortgages, would cause
the present value of those payments to equal the price at which the Holder
purchased the Pass-Through Security. With respect to certain categories of debt
instruments including 'any pool of debt instruments the yield on which may be
affected by reason of prepayments (or to the extent provided in regulations, by
reason of other events),' Section 1272(a)(6) of the Code requires that OID be
accrued based on a prepayment assumption determined in a manner prescribed by
forthcoming regulations. If required to report interest income on the
Pass-Through Securities to the IRS under the stripped bond rules, it is
anticipated that the Trustee will calculate the yield of the Pass-Through
Securities based on a representative initial offering price of the Pass-Through
Securities and a reasonable assumed rate of prepayment of the Home Equity Loans
(although such yield may differ from the yield to any particular Holder that
would be used in calculating the interest income of such Holder). The Prospectus
Supplement for each series of Pass-Through Securities will describe the
prepayment assumption that will be used for this purpose, but no representation
is made that the Home Equity Loans will prepay at that rate or at any other
rate.
If a Home Equity Loan is prepaid in full, the Holder of a Pass-Through
Security acquired at a discount or premium generally will recognize ordinary
income or loss equal to the difference between the portion of the prepaid
principal amount of the Home Equity Loan that is allocable to the Pass-Through
Security and the portion of the adjusted basis of the Pass-Through Security (see
'Sales of Pass-Through Securities' below) that is allocable to the Home Equity
Loan. It is not clear whether any other adjustments would be required to reflect
differences between the prepayment rate that was assumed in calculating yield
and the actual rate of prepayments.
Taxation of Pass-Through Securities If Stripped Bond Rules Do Not Apply. If
the stripped bond rules do not apply to a Pass-Through Security, then the Holder
will be required to include in income its share of the interest payments on the
Home Equity Loans in accordance with its tax accounting method. In addition, if
the Holder purchased the Pass-Through Security at a discount or premium, the
Holder will be required to account for such discount or premium in the manner
described below. The treatment of any discount will depend on whether the
discount is OID as defined in the Code and, in the case of discount other than
OID, whether such other discount exceeds a de minimis amount. In the case of
OID, the Holder (whether a cash or accrual method taxpayer) will be required to
report as additional interest income in each month the portion of such discount
that accrues in that month, calculated based on a constant yield method. In
general it is not anticipated that the amount of OID to be accrued in each
month, if any, will be significant relative to the interest paid currently on
the Home Equity Loans. However, OID could arise with respect to a Home Equity
Loan ('ARM') that provides for interest at a rate equal to the sum of an index
of market interest rates and a fixed number. The OID for ARMs generally will be
determined under the principles discussed in 'Taxation of Debt Securities
(Including Regular Interest Securities) -- Variable Rate Debt Securities.'
The Taxpayer Relief Act of 1997 amended the OID provisions of the Code to
provide that for 'any pool of debt instruments, the yield on which may be
affected by reason of prepayments,' OID is to be accrued based on a prepayment
assumption determined in a manner prescribed by forthcoming regulations. The
Prospectus Supplement for each series of Pass-Through Securities will describe
the prepayment assumption that will be used for this purpose, but no
representation is made regarding the actual rate at which prepayments will
occur.
If discount other than OID exceeds a de minimis amount (described below),
the Holder will also generally be required to include in income in each month
the amount of such discount accrued through such month and not previously
included in income, but limited, with respect to the portion of such discount
allocable to any Home Equity Loan, to the amount of principal on such Home
Equity Loan
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received by the Trust Fund in that month. Because the Home Equity Loans will
provide for monthly principal payments, such discount may be required to be
included in income at a rate that is not significantly slower than the rate at
which such discount accrues (and therefore at a rate not significantly slower
than the rate at which such discount would be included in income if it were
OID). The Holder may elect to accrue such discount under a constant yield method
based on the yield of the Pass-Through Security to such Holder (or possibly
based on the yields of each Home Equity Loan). In the absence of such an
election, it may be necessary to accrue such discount under a more rapid
straight-line method. Under the de minimis rule, market discount with respect to
a Pass-Through Security will be considered to be zero if it is less than the
product of (i) 0.25% of the principal amount of the Home Equity Loans allocable
to the Pass-Through Security and (ii) the weighted average life (in complete
years) of the Home Equity Loans remaining at the time of purchase of the
Pass-Through Security.
If a Holder purchases a Pass-Through Security at a premium, such Holder may
elect under Section 171 of the Code to amortize the portion of such premium that
is allocable to a Home Equity Loan under a constant yield method based on the
yield of the Home Equity Loan to such Holder, provided that such Home Equity
Loan was originated after September 27, 1985. Premium allocable to a Home Equity
Loan originated on or before that date should be allocated among the principal
payments on the Home Equity Loan and allowed as an ordinary deduction as
principal payments are made or, perhaps, upon termination.
It is not clear whether the foregoing adjustments for market discount or
premium would be made based on the scheduled payments on the Home Equity Home
Equity Loans or taking account of a reasonable prepayment assumption, and
Federal Tax Counsel is unable to opine on this issue.
If a Home Equity Loan is prepaid in full, the Holder of a Pass-Through
Security acquired at a discount or premium will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal amount
of the Home Equity Loan that is allocable to the Pass-Through Security and the
portion of the adjusted basis of the Pass-Through Security (see 'Sales of
Pass-Through Securities' below) that is allocable to the Home Equity Loan.
Adjustments might be required to reflect differences between the prepayment rate
that was assumed in accounting for discount or premium and the actual rate of
prepayments.
MISCELLANEOUS TAX ASPECTS
Backup Withholding. A Holder, other than a Holder of a Residual Interest
Security, may, under certain circumstances, be subject to 'backup withholding'
at a rate of 31% with respect to distributions or the proceeds of a sale of
Securities to or through brokers that represent interest or OID on the
Securities. This withholding generally applies if the Holder of a Security (i)
fails to furnish the Trustee with its taxpayer identification number ('TIN');
(ii) furnishes the Trustee an incorrect TIN; (iii) fails to report properly
interest, dividends or other 'reportable payments' as defined in the Code; or
(iv) under certain circumstances, fails to provide the Trustee or such Holder's
securities broker with a certified statement, signed under penalty of perjury,
that the TIN provided is its correct number and that the Holder is not subject
to backup withholding. Backup withholding will not apply, however, with respect
to certain payments made to Holders, including payments to certain exempt
recipients (such as exempt organizations) and to certain Foreign Investors (as
defined below). Holders should consult their tax advisers as to their
qualification for exemption from backup withholding and the procedure for
obtaining the exemption.
Treasury regulations (the 'Final Withholding Regulations'), which are
generally effective with respect to payments made after December 31, 1999,
consolidate and modify the current certification requirements and means by which
a holder may claim exemption from United States federal income tax withholding
and provide certain presumptions regarding the status of holders when payments
to the holders cannot be reliably associated with appropriate documentation
provided to the payor. All holders should consult their tax advisers regarding
the application of the Final Withholding Regulations.
The Trustee will report to the Holders and to the Servicer for each
calendar year the amount of any 'reportable payments' during such year and the
amount of tax withheld, if any, with respect to payments on the Securities.
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TAX TREATMENT OF FOREIGN INVESTORS
Subject to the discussion below with respect to Trust Funds which are
treated as partnerships for federal income tax purposes unless interest
(including OID) paid on a Security (other than a Residual Interest Security) is
considered to be 'effectively connected' with a trade or business conducted in
the United States by a Foreign Investor, such interest will normally qualify as
portfolio interest (except where (i) the recipient is a Holder, directly or by
attribution, of 10% or more of the capital or profits interest in the issuer, or
(ii) the recipient is a controlled foreign corporation to which the issuer is a
related person) and will be exempt from federal income tax. For this purpose, a
Foreign Investor is any Holder that is not (i) a citizen or resident of the
United States; (ii) a corporation or partnership organized in or under the laws
of the United States (unless, in the case of a partnership, future Treasury
regulations provide otherwise); (iii) an estate the income of which is
includible in gross income regardless of its source; or (iv) a trust other than
a 'foreign trust,' as defined in Section 7701(a)(31) of the Code. See ' -- Tax
Consequences to Holders of the Certificates Issued by a Partnership -- Tax
Consequences to Foreign Certificateholders.' Upon receipt of appropriate
ownership statements, the issuer normally will be relieved of obligations to
withhold tax from such interest payments. These provisions supersede the
generally applicable provisions of United States law that would otherwise
require the issuer to withhold at a 30% rate (unless such rate were reduced or
eliminated by an applicable tax treaty) on, among other things, interest and
other fixed or determinable, annual or periodic income paid to Foreign
Investors. Holders of Pass-Through Securities however, may be subject to
withholding to the extent that the Home Equity Loans were originated on or
before July 18, 1984.
Interest and OID of a Foreign Investor are not subject to withholding if
they are effectively connected with a United States business conducted by the
Holder and the Holder timely provides an IRS Form 4224. They will, however,
generally be subject to the regular United States income tax.
The Final Withholding Regulations consolidate and modify the current
certification requirements and means by which a non-United States person may
claim exemption from United States federal income tax withholding. All Foreign
Investors should consult their tax advisors regarding the application of the
Final Withholding Regulations, which are generally effective with respect to
payments made after December 31, 1999.
Payments to Holders of Residual Interest Securities who are Foreign
Investors will generally be treated as interest for purposes of the 30% (or
lower treaty rate) United States withholding tax. Holders should assume that
such income does not qualify for exemption from United States withholding tax as
'portfolio interest.' It is clear that, to the extent that a payment represents
a portion of REMIC taxable income that constitutes excess inclusion income, a
Holder of a Residual Interest Security will not be entitled to an exemption from
or reduction of the 30% (or lower treaty rate) withholding tax rule. If the
payments are subject to United States withholding tax, they generally will be
taken into account for withholding tax purposes only when paid or distributed
(or when the Residual Interest Security is disposed of). The Treasury has
statutory authority, however, to promulgate regulations which would require such
amounts to be taken into account at an earlier time in order to prevent the
avoidance of tax. Such regulations could, for example, require withholding prior
to the distribution of cash in the case of Residual Interest Securities that do
not have significant value. Under the REMIC Regulations, if a Residual Interest
Security has tax avoidance potential, a transfer of a Residual Interest Security
to a Foreign Investor will be disregarded for all federal tax purposes. A
Residual Interest Security has tax avoidance potential unless, at the time of
the transfer the transferor reasonably expects that the REMIC will distribute to
the transferee residual interest Holder amounts that will equal at least 30% of
each excess inclusion, and that such amounts will be distributed at or after the
time at which the excess inclusions accrue and not later than the calendar year
following the calendar year of accrual. If a Foreign Investor transfers a
Residual Interest Security to a United States person (that is, a person that is
not a Foreign Investor), and if the transfer has the effect of allowing the
transferor to avoid tax on accrued excess inclusions, then the transfer is
disregarded and the transferor continues to be treated as the owner of the
Residual Interest Security for purposes of the withholding tax provisions of the
Code.
We refer you to 'Taxation of Holders of Residual Interest
Securities -- Excess Inclusions' for more detail.
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Subject to the discussion in the previous paragraph, any capital gain
realized on the sale, redemption, retirement or other taxable disposition of a
Security by a foreign person will be exempt from United States federal income
and withholding tax, provided that (i) such gain is not effectively connected
with the conduct of a trade or business in the United States by the foreign
person and (ii) in the case of an individual foreign person, the foreign person
is not present in the United States for 183 days or more in the taxable year.
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP OR DIVISION
If a Trust Fund is intended to be a partnership for federal income tax
purposes the applicable Agreements will provide that the nature of the income of
the Trust Fund will exempt it from the rule that certain publicly traded
partnerships are taxable as corporations or the issuance of the Certificates
will be structured as a private placement under an IRS safe harbor, so that the
Trust Fund will not be characterized as a publicly traded partnership taxable as
a corporation, and that no action will be taken that is inconsistent with the
treatment of the Trust Fund as a partnership (such as election to treat the
Trust Fund as a corporation for federal income tax purposes). If, however, the
Trust Fund has a single owner for federal income tax purposes, it will be
treated as a division of its owner and as such will be disregarded as an entity
separate from its owner for federal income tax purposes, assuming no election
will be made to treat the Trust Fund as a corporation for federal income tax
purposes.
Certain entities classified as 'taxable mortgage pools' are subject to
corporate level tax on their net income. A 'taxable mortgage pool' is generally
defined as an entity that meets the following requirements: (i) the entity is
not a REMIC (or, after September 1, 1997, a FASIT), (ii) substantially all of
the assets of the entity are debt obligations, and more than 50 percent of such
debt obligations consists of real estate mortgages (or interests therein),
(iii) the entity is the obligor under debt obligations with two or more
maturities, and (iv) payments on the debt obligations on which the entity is the
obligor bear a relationship to the payments on the debt obligations which the
entity holds as assets. With respect to requirement (iii), the Code authorizes
the IRS to provide by regulations that equity interests may be treated as debt
for purposes of determining whether there are two or more maturities. If the
Trust Fund were treated as a taxable mortgage pool, it would be ineligible to
file consolidated returns with any other corporation and could be liable for
corporate tax. Treasury regulations do not provide for the recharacterization of
equity as debt for purposes of determining whether an entity has issued debt
with two maturities, except in the case of transactions structured to avoid the
taxable mortgage pool rules. Federal Tax Counsel will deliver its opinion for a
Trust Fund which is intended to be a partnership for federal income tax
purposes, as specified in the related Prospectus Supplement, generally to the
effect that the Trust Fund will not be a taxable mortgage pool. This opinion
will be based on the assumption that the terms of the Agreements and related
documents will be complied with, and on Federal Tax Counsel's conclusion that
either the number of classes of debt obligations issued be the Trust Fund, or
the nature of the assets held by the Trust Fund will exempt the Trust Fund from
treatment as a taxable mortgage pool.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES ISSUED BY A PARTNERSHIP OR DIVISION
Treatment of the Notes as Indebtedness. The Trust Fund will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal income tax purposes. Except as otherwise provided in the related
Prospectus Supplement, Federal Tax Counsel will advise the Seller that the Notes
will be classified as debt for federal income tax purposes. Consequently,
Holders of Notes will be subject to taxation as described in 'Taxation of Debt
Securities (Including Regular Interest Securities)' above for Debt Securities
which are not Regular Interest Securities.
Possible Alternative Treatment of the Notes. If, contrary to the opinion of
Federal Tax Counsel, the IRS successfully asserted that one or more of the Notes
did not represent debt for federal income tax purposes, the Notes might be
treated as equity interests in the Trust Fund. If so treated, the Trust Fund
would likely be treated as a publicly traded partnership that would not be
taxable as a corporation because it would meet certain qualifying income tests.
Nonetheless, treatment of the Notes as equity interests in such a publicly
traded partnership could have adverse tax consequences to certain Holders. For
example, income to Foreign Investors generally would be subject to U.S. federal
income tax and
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U.S. federal income tax return filing and withholding requirements, income to
certain tax-exempt entities would be 'unrelated business taxable income,' and
individual Holders might be subject to certain limitations on their ability to
deduct their share of the Trust Fund's expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES ISSUED BY A PARTNERSHIP
Treatment of the Trust Fund as a Partnership. In the case of a Trust Fund
intended to qualify as a partnership for federal income tax purposes, the Trust
Fund and the Seller will agree, and the Certificateholders will agree by their
purchase of Certificates, to treat the Trust Fund as a partnership for purposes
of federal and state income tax, franchise tax and any other tax measured in
whole or in part by income, with the assets of the partnership being the assets
held by the Trust Fund, the partners of the partnership being the
Certificateholders, and the Notes, if any, being debt of the partnership, or if
there is a single Certificateholder for federal income tax purposes, to
disregard the Trust Fund as an entity separate from the Certificateholder.
However, the proper characterization of the arrangement involving the
Certificates, the Notes, the Trust Fund and the Servicer is not clear because
there is no authority on transactions closely comparable to that contemplated
herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Trust Fund. Generally, provided
such Certificates are issued at or close to face value, any such
characterization would not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership. The following discussion also assumes that all payments on the
Certificates are denominated in U.S. dollars, none of the Certificates have
interest rates which would qualify as contingent interest under the OID
regulations, and that a Series of Securities includes a single Class of
Certificates. If these conditions are not satisfied with respect to any given
Series of Certificates, additional tax considerations with respect to such
Certificates will be disclosed in the applicable Prospectus Supplement.
Partnership Taxation. As a partnership, the Trust Fund will not be subject
to federal income tax. Rather, each Certificateholder will be required to
separately take into account such Holder's allocated share of income, gains,
losses, deductions and credits of the Trust Fund. The Trust Fund's income will
consist primarily of interest and finance charges earned on the Home Equity
Loans (including appropriate adjustments for market discount, OID and bond
premium) and any gain upon collection or disposition of Home Equity Loans. The
Trust Fund's deductions will consist primarily of interest and OID accruing with
respect to the Notes, servicing and other fees, and losses or deductions upon
collection or disposition of Home Equity Loans.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the Certificateholders will be allocated taxable income of the
Trust Fund for each month equal to the sum of (i) the interest that accrues on
the Certificates in accordance with their terms for such month, including
interest accruing at the Pass-Through Rate for such month and interest on
amounts previously due on the Certificates but not yet distributed; (ii) any
Trust Fund income attributable to discount on the Home Equity Loans that
corresponds to any excess of the principal amount of the Certificates over their
initial issue price; (iii) prepayment premium payable to the Certificateholders
for such month; and (iv) any other amounts of income payable to the
Certificateholders for such month. Such allocation will be reduced by any
amortization by the Trust Fund of premium on Home Equity Loans that corresponds
to any excess of the issue price of Certificates over their principal amount.
All remaining taxable income of the Trust Fund will be allocated to the Seller.
Based on the economic arrangement of the parties, this approach for allocating
Trust Fund income should be permissible under applicable Treasury regulations,
although no assurance can be given that the IRS would not require a greater
amount of income to be allocated to Certificateholders. Moreover, even under the
foregoing method of allocation, Certificateholders may be allocated income equal
to the entire Pass-Through Rate plus the other items described above even though
the Trust Fund might not have sufficient cash to make current cash distributions
of such amount. Thus, cash basis Holders will in effect be required to report
income from the Certificates on the accrual
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basis and Certificateholders may become liable for taxes on Trust Fund income
even if they have not received cash from the Trust Fund to pay such taxes. In
addition, because tax allocations and tax reporting will be done on a uniform
basis for all Certificateholders but Certificateholders may be purchasing
Certificates at different times and at different prices, Certificateholders may
be required to report on their tax returns taxable income that is greater or
less than the amount reported to them by the Trust Fund.
If Notes are also issued, all of the taxable income allocated to a
Certificateholder that is a pension, profit sharing or employee benefit plan or
other tax-exempt entity (including an individual retirement account) will
constitute 'unrelated business taxable income' generally taxable to such a
Holder under the Code.
An individual taxpayer's share of expenses of the Trust Fund (including
fees to the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such Holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such Holder over the life of
the Trust Fund.
The Trust Fund intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Home Equity Loan, the
Trust Fund might be required to incur additional expense but it is believed that
there would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Home Equity Loans will not
have been issued with OID and, therefore, the Trust should not have OID income.
However, the purchase price paid by the Trust Fund for the Home Equity Loans may
be greater or less than the remaining principal balance of the Home Equity Loans
at the time of purchase. If so, the Home Equity Loan will have been acquired at
a premium or discount, as the case may be. (As indicated above, the Trust Fund
will make this calculation on an aggregate basis, but might be required to
recompute it on a Home Equity Loan by Home Equity Loan basis.)
If the Trust Fund acquires the Home Equity Loans at a market discount or
premium, the Trust Fund will elect to include any such discount in income
currently as it accrues over the life of the Home Equity Loans or to offset any
such premium against interest income on the Home Equity Loans. As indicated
above, a portion of such market discount income or premium deduction may be
allocated to Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust Fund will
be deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust Fund are sold or exchanged within a
12-month period. If such a termination occurs, the Trust Fund will be considered
to distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust Fund as a new partnership. The Trust
Fund will not comply with certain technical requirements that might apply when
such a constructive termination occurs. As a result, the Trust Fund may be
subject to certain tax penalties and may incur additional expenses if it is
required to comply with those requirements. Furthermore, the Trust Fund might
not be able to comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
Holder's cost increased by the Holder's share of Trust Fund income (includible
in income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the Holder's share of the
Notes and other liabilities of the Trust Fund. A Holder acquiring Certificates
at different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the Holder's share of
unrecognized accrued market discount on the Home Equity Loans would generally be
treated as ordinary income to the Holder and would give rise to special tax
reporting requirements. The Trust Fund does not expect to
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have any other assets that would give rise to such special reporting
requirements. Thus, to avoid those special reporting requirements, the Trust
Fund will elect to include market discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Sellers and Transferees. In general, the Trust Fund's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such month. As a result, a Holder purchasing Certificates may
be allocated tax items (which will affect its tax liability and tax basis)
attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust Fund might be reallocated among the Certificateholders. The Trust
Fund's method of allocation between transferors and transferees may be revised
to conform to a method permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust Fund's assets will not be adjusted to reflect that
higher (or lower) basis unless the Trust Fund were to file an election under
Section 754 of the Code. In order to avoid the administrative complexities that
would be involved in keeping accurate accounting records, as well as potentially
onerous information reporting requirements, the Trust Fund currently does not
intend to make such election. As a result, Certificateholders might be allocated
a greater or lesser amount of Trust Fund income than would be appropriate based
on their own purchase price for Certificates.
Administrative Matters. The Owner Trustee is required to keep or have kept
complete and accurate books of the Trust Fund. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust Fund will be the calendar year. The Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust Fund and will report each Certificateholder's allocable share of items of
Trust Fund income and expense to Holders and the IRS on Schedule K-1. The Trust
Fund will provide the Schedule K-1 information to nominees that fail to provide
the Trust Fund with the information statement described below and such nominees
will be required to forward such information to the beneficial owners of the
Certificates. Generally, Holders must file tax returns that are consistent with
the information return filed by the Trust Fund or be subject to penalties unless
the Holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust Fund
with a statement containing certain information on the nominee, the beneficial
owners and the Certificates so held. Such information includes (i) the name,
address and taxpayer identification number of the nominee and (ii) as to each
beneficial owner (x) the name, address and identification number of such person,
(y) whether such person is a United States person, a tax-exempt entity or a
foreign government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust Fund information
as to themselves and their ownership of Certificates. A clearing agency
registered under Section 17A of the Exchange Act is not required to furnish any
such information statement to the Trust Fund. The information referred to above
for any calendar year must be furnished to the Trust Fund on or before the
following January 31. Nominees, brokers and financial institutions that fail to
provide the Trust Fund with the information described above may be subject to
penalties.
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The Seller will be designated as the tax matters partner in the related
Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust Fund by the appropriate taxing authorities
could result in an adjustment of the returns of the Certificateholders, and,
under certain circumstances, a Certificateholder may be precluded from
separately litigating a proposed adjustment to the items of the Trust Fund. An
adjustment could also result in an audit of a Certificateholder's returns and
adjustments of items not related to the income and losses of the Trust Fund.
Tax Consequences to Foreign Certificateholders. It is not clear whether the
Trust Fund would be considered to be engaged in a trade or business in the
United States for purposes of federal withholding taxes with respect to Foreign
Investors because there is no clear authority dealing with that issue under
facts substantially similar to those described herein. Although it is not
expected that the Trust Fund would be engaged in a trade or business in the
United States for such purposes, the Trust Fund will withhold as if it were so
engaged in order to protect the Trust Fund from possible adverse consequences of
a failure to withhold. The Trust Fund expects to withhold pursuant to Section
1446 of the Code on the portion of its taxable income that is allocable to
Certificateholders that are Foreign Investors, as if such income were
effectively connected to a U.S. trade or business, at a rate of 35% for foreign
Holders that are taxable as corporations and 39.6% for all other foreign
Holders. Subsequent adoption of Treasury regulations or the issuance of other
administrative pronouncements may require the Trust Fund to change its
withholding procedures.
Each Certificateholder that is a Foreign Investor might be required to file
a U.S. individual or corporate income tax return (including, in the case of a
corporation, the branch profits tax) on its share of the Trust Fund's income. A
foreign Holder generally would be entitled to file with the IRS a claim for
refund with respect to taxes withheld by the Trust Fund taking the position that
no taxes were due because the Trust Fund was not engaged in a U.S. trade or
business. However, interest payments made (or accrued) to a Certificateholder
who is a Foreign Investor generally will be considered guaranteed payments to
the extent such payments are determined without regard to the income of the
Trust Fund. If these interest payments are properly characterized as guaranteed
payments, then the interest probably will not be considered 'portfolio
interest.' As a result, Certificateholders will be subject to United States
federal income tax and withholding tax at a rate of 30%, unless reduced or
eliminated pursuant to an applicable treaty. In such case, a Foreign Investor
would only be entitled to claim a refund for that portion of the taxes, if any,
in excess of the taxes that should be withheld with respect to the guaranteed
payments.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a 'backup' withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the Holder is an exempt recipient under
applicable provisions of the Code and, if necessary, adequately demonstrates
such status.
STATE TAX CONSEQUENCES
In addition to the federal income tax consequences described in 'FEDERAL
INCOME TAX CONSEQUENCES,' potential investors should consider the state and
local income tax consequences of the acquisition, ownership, and disposition of
the Securities. State and local income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state or locality. Therefore, potential
investors should consult their own tax advisors with respect to the various
state and local tax consequences of an investment in the Securities.
ERISA CONSIDERATIONS
A fiduciary of an employee benefit plan subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ('ERISA'), should consider
the fiduciary standards under ERISA in
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the context of the plan's particular circumstances before authorizing an
investment of a portion of such plan's assets in the Securities. Accordingly,
among other factors, such fiduciary should consider (i) whether the investment
is for the exclusive benefit of plan participants and their beneficiaries; (ii)
whether the investment satisfies the diversification requirements of Section 404
of ERISA; (iii) whether the investment is in accordance with the documents and
instruments governing the plan; and (iv) whether the investment is prudent,
considering the nature of the investment. Fiduciaries of such plans also should
consider ERISA's prohibition on improper delegation of control over, or
responsibility for, plan assets.
In addition, fiduciaries of employee benefit plans subject to Title I of
ERISA, as well as certain plans or other retirement arrangements not subject to
ERISA, but which are subject to Section 4975 of the Code (such as individual
retirement accounts and Keogh plans covering only a sole proprietor or
partners), or any entity (including an insurance company general account) whose
underlying assets include plan assets by reason of a plan or account investing
in such entity (collectively, 'Plans(s)') are prohibited from engaging in a
broad range of transactions involving Plan assets and persons having certain
specified relationships to a Plan ('parties in interest' and 'disqualified
persons'). Such transactions are treated as 'prohibited transactions' under
Sections 406 and 407 of ERISA and excise taxes are imposed upon such persons by
Section 4975 of the Code. The Seller, the related Trustee and any underwriter of
the offered Securities and certain of their affiliates might be considered
'parties in interest' or 'disqualified persons' with respect to a Plan. If so,
the acquisition, holding or transfer of Securities 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 a regulatory exception or administrative
exemption is available. In addition, the Department of Labor ('DOL') has issued
a regulation (29 C.F.R. Section 2510.3-101) (the 'Plan Assets Regulation')
concerning the definition of what constitutes the assets of a Plan, which
provides that, as a general rule, the underlying assets and properties of
corporations, partnerships, trusts and certain other entities in which a Plan
makes an 'equity' investment will be deemed for purposes of ERISA to be assets
of the investing Plan unless certain exceptions apply. If an investing Plan's
assets were deemed to include an interest in the Trust Fund and not merely an
interest in the Securities, transactions occurring in connection with the
servicing, management and operation of the Trust Fund between the Seller, the
related Trustee, the Servicer (or any other servicer), any insurer or any of
their respective affiliates might constitute prohibited transactions, and the
assets of the Trust Fund would become subject to the fiduciary investment
standards of ERISA, unless a regulatory exception or administrative exemption
applies.
With respect to offered Securities which are Certificates, the DOL has
issued to a number of underwriters of pass-through certificates, similar to the
Certificates, administrative exemptions (collectively, the 'Exemption'), which
generally exempt from the application of the prohibited transaction provisions
of Section 406(a), Section 406(b)(1) and Section 406(b)(2) of ERISA, and the
excise taxes imposed pursuant to Section 4975(a) and (b) of the Code, the
initial purchase, holding and subsequent resale of mortgage-backed or
asset-backed pass-through certificates representing a beneficial undivided
interest in certain fixed pools of assets held in a trust (as defined in
paragraph III. B of Section III of the Exemption), along with certain
transactions relating to the servicing and operation of such asset pools,
provided that certain conditions set forth in the Exemption are satisfied.
Paragraph III. B of Section III of the Exemption provides in part that a trust
means an investment pool the corpus of which is held in trust and consists
solely of: (1) secured consumer receivables, (2) secured credit instruments,
(3) obligations secured by residential or commercial real property, (4)
obligations secured by motor vehicles or equipment or qualified motor vehicle
leases, (5) guaranteed governmental mortgage pool certificates or (6) an
undivided fractional interest in any of the obligations listed in clauses
(1) - (5) above. If the general conditions of Section II of the Exemption are
satisfied, the Exemption may provide an exemption from the restrictions imposed
by Sections 406(a) and 407(a) of ERISA (as well as the excise taxes imposed by
Section 4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through
(D) of the Code) in connection with the direct or indirect sale, exchange or
transfer of Certificates by Plans in the initial issue of Certificates, the
holding of Certificates by Plans or the direct or indirect acquisition or
disposition in the secondary market of Certificates by Plans. However, no
exemption is provided from the restrictions of Sections 406(a)(1)(E), 406(a)(2)
and 407 of ERISA for the acquisition or holding of a Certificate on behalf of an
'Excluded Plan' by any
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person who has discretionary authority or renders investment advice with respect
to the assets of such Excluded Plan. For purposes of the Certificates, an
Excluded Plan is a Plan sponsored by (1) an underwriter which has been granted
an Exemption (or certain specified entities affiliated or associated with such
underwriter) ('Underwriter'), (2) the Seller, (3) the Servicer (or any other
servicer), (4) the related Trustee, (5) any obligor with respect to Home Equity
Loans constituting more than 5 percent of the aggregate unamortized principal
balance of the Home Equity Loans as of the date of initial issuance, (6) any
insurer and (7) any affiliate or successor of a person described in (1) to (6)
above (the 'Restricted Group').
If the specific conditions of paragraph I.B of Section I of the Exemption
are also satisfied, the Exemption may provide an exemption from the restrictions
imposed by Sections 406(b)(1) and (b)(2) of ERISA and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c)(I)(E) of the
Code in connection with (1) the direct or indirect sale, exchange or transfer of
Certificates in the initial issuance of Certificates between the Seller or
Underwriter and a Plan when the person who has discretionary authority or
renders investment advice with respect to the investment of Plan assets in
Certificates is (a) an obligor with respect to 5 percent or less of the fair
market value of the Home Equity Loans or (b) an affiliate of such a person, (2)
the direct or indirect acquisition or disposition in the secondary market of
Certificates by Plans and (3) the holding of Certificates by Plans.
If the specified conditions of paragraph I.C of Section I of the Exemption
are satisfied, the Exemption may provide an exemption from the restrictions
imposed by Sections 406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code
for transactions in connection with the servicing, management and operation of
the Trust Fund and the assets of the Trust Fund.
The Exemption may provide an exemption from the restrictions imposed by
Sections 406(a) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code
if such restrictions are deemed to otherwise apply merely because a person is
deemed to be a 'party in interest' or a 'disqualified person' with respect to an
investing Plan by virtue of providing services to the Plan (or by virtue of
having certain specified relationships to such a person) solely as a result of
such Plan's ownership of Certificates.
The Exemption sets forth the following seven general conditions which must
be satisfied for a transaction to be eligible for exemptive relief thereunder.
(1) The acquisition of the Certificates by a Plan is on terms
(including the price for the Certificates) that are at least as favorable
to the Plan as they would be in an arm's length transaction with an
unrelated party;
(2) The rights and interests evidenced by the Certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by
other Securities issued by the Trust Fund;
(3) The Certificates acquired by the Plan have received a rating at
the time of such acquisition that is one of the three highest generic
rating categories from either Standard & Poor's Ratings Group, a division
of the McGraw Hill Companies, Inc., Moody's Investors Service, Inc., Duff &
Phelps Credit Rating Co. or Fitch IBCA, Inc. ('National Credit Rating
Agencies');
(4) The Trustee is not an affiliate of any other member of the
Restricted Group (as defined above);
(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 and retained by the Seller pursuant to the assignment of the
loans to the Trust Fund represents not more than the fair market value of
such loans. The sum of all payments made to and retained by the Servicer or
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;
and
(6) The Plan investing in the certificates is an 'accredited investor'
as defined in Rule 501(a)(1) of Regulation D under the Securities Act of
1933. The Seller assumes that only Plans
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which are accredited investors under the federal securities laws will be
permitted to purchase the Certificates.
(7) The Trust Fund must also meet the following requirements:
(i) the corpus of the Trust Fund must consist solely of assets of
the type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been
rated in one of the three highest rating categories of one of the
National Credit Rating Agencies for at least one year prior to the
Plan's acquisition of Certificates; and
(iii) certificates evidencing interests in such other investment
pools must have been purchased by investors other than Plans for at
least one year prior to any Plan's acquisition of certificates.
On July 21, 1997, the DOL published in the Federal Register a final
amendment to the Exemption which extends exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. With respect to the
Certificates, the amendment generally allows a portion of the mortgages or
receivables ('Loans') supporting payments to Certificateholders and having a
principal amount equal to no more than 25% of the total principal amount of the
Certificates to be transferred to the Trust within a 90-day or three-month
period following the Closing Date ('Pre-Funding Period'), instead of requiring
that all such Loans be either identified or transferred on or before the Closing
Date. The relief is effective for transactions occurring on or after May 23,
1997, provided that the following conditions are met:
(1) The ratio of the amount allocated to the Pre-Funding Account to
the total principal amount of the Certificates being offered ('Pre-Funding
Limit') must not exceed twenty-five percent (25%).
(2) All Loans transferred after the Closing Date ('Additional Loans')
must meet the same terms and conditions for eligibility as the original
Loans used to create the Trust Fund, which terms and conditions have been
approved by each Rating Agency.
(3) The transfer of such Additional Loans to the Trust Fund during the
Pre-Funding Period must not result in the Certificates receiving a lower
credit rating from any Rating Agency upon termination of the Pre-Funding
Period than the ratings that were obtained at the time of the initial
issuance of the Certificates by the Trust Fund.
(4) Solely as a result of the use of pre-funding, the weighted average
annual percentage interest rate (the 'average interest rate') for all of
the Loans in the Trust Fund at the end of the Pre-Funding Period must not
be more than 100 basis points lower than the average interest rate for the
Loans which were transferred to the Trust Fund on the Closing Date.
(5) Either: (i) the characteristics of the Additional Loans must be
monitored by an insurer or other credit support provider which is
independent of the Seller; or (ii) an independent accountant retained by
the Seller must provide the Seller with a letter (with copies provided to
each Rating Agency, the Underwriter and the Trustee) stating whether or not
the characteristics of the Additional Loans conform to the characteristics
described in the Prospectus, Prospectus Supplement, Private Placement
Memorandum ('Offering Documents') and/or Pooling and Servicing Agreement
('Pooling Agreement'). In preparing such letter, the independent accountant
must use the same type of procedures as were applicable to the Loans which
were transferred as of the Closing Date.
(6) The Pre-Funding Period must end no later than three months or 90
days after the Closing Date or earlier, in certain circumstances, if the
amount on deposit in the Pre-Funding Account is reduced below the minimum
level specified in the Pooling Agreement or an event of default occurs
under the Pooling Agreement.
(7) Amounts transferred to any Pre-Funding Account and/or Capitalized
Interest Account used in connection with the pre-funding may be invested
only in investments which are permitted by each Rating Agency and (i) are
direct obligations of, or obligations fully guaranteed as to timely payment
of principal and interest by, the United States or any agency or
instrumentality thereof
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(provided that such obligations are backed by the full faith and credit of
the United States); or (ii) have been rated (or the obligor has been rated)
in one of the three highest generic rating categories by each Rating Agency
('Permitted Investments').
(8) The Offering Documents must describe: (i) any Pre-Funding Account
and/or Capitalized Interest Account used in connection with a Pre-Funding
Account; (ii) the duration of the Pre-Funding Period; (iii) the percentage
and/or dollar amount of the Pre-Funding Limit for the Trust Fund; and (iv)
that the amounts remaining in the Pre-Funding Account at the end of the
Pre-Funding Period will be remitted to Certificateholders as repayments of
principal.
(9) The Pooling and Servicing Agreement must describe the Permitted
Investments for the Pre-Funding Account and Capitalized Interest Account
and, if not disclosed in the Offering Documents, the terms and conditions
for eligibility of the Additional Loans.
The Exemption may apply to a Plan's purchase, holding and transfer of
Certificates and the operation, management and servicing of the Trust Fund and
the assets of the Trust Fund as specified in the related Prospectus Supplement.
In addition, in the event the Exemption is not available, certain exemptions
from the prohibited transaction rules may be applicable depending on the type
and circumstances of the plan fiduciary making the decision to acquire a
Certificate. Included among these exemptions are: Prohibited Transaction Class
Exemption ('PTCE') 90-1, regarding investments by insurance company pooled
separate accounts; PTCE 91-38 regarding investments by bank collective
investment funds PTCE 95-60, regarding investments by insurance company general
accounts; PTCE 96-23, regarding transactions affected by in-house asset
managers; and PTCE 84-14, regarding transactions effected by 'qualified
professional asset managers.'
Certain transactions involving the purchase of Securities which are Notes
might be deemed to constitute prohibited transactions under ERISA and the Code
if the assets of the Trust Fund were deemed to be assets of a Plan. Under the
Plan Assets Regulation, the assets of the Trust Fund would be treated as plan
assets of a Plan for the purposes of ERISA and the Code only if the Plan
acquires an 'Equity Interest' in the Trust Fund and none of the exceptions
contained in the Plan Assets Regulation is applicable. An equity interest is
defined under the Plan Assets Regulation as an interest other than an instrument
which is treated as indebtedness under applicable local law and which has no
substantial equity features. The Seller believes that the Notes should be
treated as indebtedness without substantial equity features for purposes of the
Plan Assets Regulation. In addition, even in the event that the Notes are deemed
to be an Equity Interest in the Trust Fund, the Exemption may be applicable to
both a Plan's purchase, holding and transfer of Notes (which in this situation
are considered Certificates for purposes of the Exemption) and the operation,
management and servicing of the Trust Fund and the assets of the Trust Fund, if
so specified in the related Prospectus Supplement.
Without regard to whether the Notes are characterized as Equity Interests,
the acquisition, transfer or holding of Notes by or on behalf of a Plan could be
considered to give rise to a prohibited transaction if the Trust Fund, the
related Trustee or any of their respective affiliates is or becomes a party in
interest or a disqualified person with respect to such Plan or in the event that
a Note is purchased in the secondary market and such purchase constitutes a sale
or exchange between a Plan and a party in interest or disqualified person with
respect to such Plan. In such case, PTCE 90-1, PTCE 91-38, PTCE 95-60, PTCE
96-23 and PTCE 84-14 may be applicable depending on the type and circumstances
of the plan fiduciary making the decision to acquire a Note.
Any Plan fiduciary considering the purchase of Securities should consult
with its counsel with respect to the potential applicability of the fiduciary
responsibility and prohibited transaction provisions of ERISA and the Code to
such investment.
LEGAL INVESTMENT
The Securities will not constitute 'mortgage-related securities' within the
meaning of SMMEA unless the related Prospectus Supplement specifies that the
Securities will constitute 'mortgage related Securities.' Accordingly, investors
whose investment authority is subject to legal restrictions should consult their
own legal advisors to determine whether and the extent to which the Securities
constitute legal investments for them.
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PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement (the
'Underwriting Agreement') with respect to each Trust Fund, the Depositor will
agree to sell to each of the underwriters named therein and in the related
Prospectus Supplement, and each of such underwriters will severally agree to
purchase from the Depositor, the principal amount of each Class of Securities of
the related Series set forth therein and in the related Prospectus Supplement.
In each Underwriting Agreement, the several underwriters will agree,
subject to the terms and conditions set forth therein, to purchase all of the
Securities described therein which are offered hereby and by the related
Prospectus Supplement if any of such Securities are purchased. In the event of a
default by any such underwriter, each Underwriting Agreement will provide that,
in certain circumstances, purchase commitments of the nondefaulting underwriters
may be increased, or the Underwriting Agreement may be terminated.
Each Prospectus Supplement will either (i) set forth the price at which
each Class of Securities being offered thereby will be offered to the public and
any concessions that may be offered to certain dealers participating in the
offering of such Securities or (ii) specify that the related Securities are to
be resold by the underwriters in negotiated transactions at varying prices to be
determined at the time of such sale. After the initial public offering of any
Securities, the public offering price and such concessions may be changed.
Each Underwriting Agreement will provide that the Depositor will indemnify
underwriters against certain liabilities, including liabilities under the
Securities Act.
Under each Underwriting Agreement, the closing of the sale of any Class of
Securities subject thereto will be conditioned on the closing of the sale of all
other such Classes.
The place and time of delivery for the Securities in respect of which this
Prospectus is delivered will be set forth in the related Prospectus Supplement.
LEGAL MATTERS
Unless otherwise specified in the related Prospectus Supplement, certain
legal matters in connection with the Securities will be passed upon for the
Seller by Stroock & Stroock & Lavan LLP, New York, New York.
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INDEX OF DEFINED TERMS
The following are abbreviated definitions of certain capitalized terms used
in this Prospectus. Unless otherwise provided in a 'Supplemental Glossary' or
'Index of Defined Terms' in the Prospectus Supplement for a Series, such
definitions will apply to capitalized terms used in such Prospectus Supplement.
The definitions may vary from those in the related Agreement for a Series and
the related Agreement for a Series generally provides a more complete definition
of certain of the terms; however the definitions included herein are materially
correct. Reference should be made to the related Agreement for a Series for a
more complete definition of such terms.
'Accrual Termination Date' means, with respect to a Class of Compound
Interest Securities, the Distribution Date on which accrued interest on such
Securities becomes payable currently.
'Agreement' means, with respect to a Series of Certificates, the Pooling
and Servicing Agreement or Trust Agreement, and, with respect to a Series of
Notes, the Indenture and the Sale and Servicing Agreement, as the context
requires and with respect to a Series of Notes and Certificates, the relevant
combination of Agreements for such Series.
'Appraised Value' means, with respect to property securing a Home Equity
Loan, the lesser of the appraised value determined in an appraisal obtained at
origination of the Home Equity Loan or sales price of such property at such
time.
'Asset Group' means, with respect to the Home Equity Loans and other assets
comprising the Trust Fund of a Series, a group of such Home Equity Loans and
other assets having the characteristics described in the related Prospectus
Supplement.
'Assumed Reinvestment Rate' means, with respect to a Series, the per annum
rate or rates specified in the related Prospectus Supplement for a particular
period or periods as the 'Assumed Reinvestment Rate' for funds held in any fund
or account for the Series.
'Available Distribution Amount' means the amount in the Distribution
Account (including amounts deposited therein from any reserve fund or other fund
or account) eligible for distribution to Holders on a Distribution Date.
'Bankruptcy Code' means the federal bankruptcy code, 11 United States Code
101 et seq., and related rules and regulations promulgated thereunder.
'Business Day' means a day that, in the City of New York or in the city or
cities in which the corporate trust office of the Trustee are located, is
neither a legal holiday nor a day on which banking institutions are authorized
or obligated by law, regulations or executive order to be closed.
'Certificates' means the Asset-Backed Certificates.
'Certificate Account' or 'Collection Account' means, with respect to a
Series, the account established for the deposit by the Servicer of payments
received from the Home Equity Loans.
'Class' means a Class of Securities of a Series.
'Closing Date' means, with respect to a Series, the date specified in the
related Prospectus Supplement as the date on which Securities of such Series are
first issued.
'Code' means the Internal Revenue Code of 1986, as amended, and regulations
(including proposed regulations) or other pronouncements of the Internal Revenue
Service promulgated thereunder.
'Combined Home Equity Loan-to-Value Ratio' or 'CLTV' means, with respect to
a Home Equity Loan, the percentage equivalent of a fraction, the numerator of
which is the sum of (i) the original principal amount of such Home Equity Loan
at the date of origination thereof and (ii) the outstanding principal amount of
any senior loan on the Mortgaged Property at the time of origination of such
Home Equity Loan, and the denominator of which is the Appraised Value of such
Mortgaged Property at such date of origination.
'Commission' means the Securities and Exchange Commission.
'Compound Interest Security' means any Security of a Series on which all or
a portion of the interest accrued thereon is added to the principal balance of
such Security on each Distribution Date,
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through the Accrual Termination Date, and with respect to which no interest
shall be payable until such Accrual Termination Date, after which interest
payments will be made on the Compound Value thereof.
'Compound Value' means, with respect to a Class of Compound Interest
Securities, the original principal balance of such Class, plus all accrued and
unpaid interest, if any, previously added to the principal balance thereof and
reduced by any payments of principal previously made on such Class of Compound
Interest Securities.
'Condominium' means a form of ownership of real property wherein each owner
is entitled to the exclusive ownership and possession of his or her individual
Condominium Unit and also owns a proportionate undivided interest in all parts
of the Condominium Building (other than the individual Condominium Units) and
all areas or facilities, if any, for the common use of the Condominium Units.
'Condominium Association' means the person(s) appointed or elected by the
Condominium Unit owners to govern the affairs of the Condominium.
'Condominium Building' means a multi-unit building or buildings, or a group
of buildings whether or not attached to each other, located on property subject
to Condominium ownership.
'Condominium Home Equity Loan' means a Home Equity Loan secured by a
Mortgage on a Condominium Unit (together with its appurtenant interest in the
common elements).
'Condominium Unit' means an individual housing unit in a Condominium
Building.
'Cooperative' means a corporation owned by tenant-stockholders who, through
the ownership of stock, shares or membership securities in the corporation,
receive proprietary leases or occupancy agreements which confer exclusive rights
to occupy specific units and which is described in Section 216 of the Code.
'Cooperative Dwelling' means an individual housing unit in a building owned
by a Cooperative.
'Cooperative Home Equity Loan' means a housing loan made with respect to a
Cooperative Dwelling and secured by an assignment by the borrower
(tenant-stockholder) or security interest in shares issued by the applicable
Cooperative.
'Cut-off Date' means the date designated as such in the related Prospectus
Supplement for a Series.
'Debt Securities' means Securities characterized as indebtedness for
federal income tax purposes, and Regular Interest Securities.
'Deferred Interest' means the excess of the interest accrued on the
outstanding principal balance of a Home Equity Loan during a specified period
over the amount of interest required to be paid by an obligor on such Home
Equity Loan on the related Due Date.
'Delinquency Advance' means cash advanced by the Servicer in respect of
delinquent payments of principal of and/or interest on a Home Equity Loan to the
extent specified in the related Prospectus Supplement.
'Depositor' means CHEC Asset Receivable Corporation.
'Disqualified Organization' means the United States, any State or political
subdivision thereof, any possession of the United States, any foreign
government, any international organization, or any agency or instrumentality of
any of the foregoing, a rural electric or telephone cooperative described in
section 1381(a)(2)(C) of the Code, or any entity exempt from the tax imposed by
sections 1-1399 of the Code, if such entity is not subject to tax on its
unrelated business income.
'Distribution Account' means, with respect to a Series, the account or
accounts established for the deposit of remittances from the Collection Account
for distribution to Securityholders.
'Distribution Date' means, with respect to a Series or Class of Securities,
each date specified as a distribution date for such Series or Class in the
related Prospectus Supplement.
'Due Date' means each date, as specified in the related Prospectus
Supplement for a Series, on which any payment of principal or interest is due
and payable by the obligor on any Home Equity Loan pursuant to the terms
thereof.
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'Eligible Investments' means any one or more of the obligations or
securities described herein under 'THE TRUST FUNDS -- Eligible Investments.'
'Enhancement' means a mechanism or instrument which is intended to provide
limited protection to Holders of the applicable Class or Classes of Securities
against losses on the related Home Equity Loans or other shortfalls in funds
necessary to make required distributions on such Class or Classes of Securities.
'Enhancer' means the provider of the Enhancement for a Series specified in
the related Prospectus Supplement.
'ERISA' means the Employee Retirement Income Security Act of 1974, as
amended.
'Escrow Account' means an account, established and maintained by the
Servicer for a Home Equity Loan, into which payments by borrowers to pay taxes,
assessments, mortgage and hazard insurance premiums and other comparable items
required to be paid to the mortgagee are deposited.
'Event of Default' means any one or more of the events described as Events
of Default under 'The Agreements -- Servicer Termination Events; Events of
Default.'
'FDIC' means the Federal Deposit Insurance Corporation.
'FHLMC' or 'Freddie Mac' means the Federal Home Equity Loan Mortgage
Corporation.
'Final Scheduled Distribution Date' means, with respect to a Class of Notes
of a Series, the date no later than which principal thereof will be fully paid
and with respect to a Class of Certificates of a Series, the date after which no
Certificates of such Class will remain outstanding, in each case based on the
assumptions set forth in the related Prospectus Supplement.
'FNMA' or 'Fannie Mae' means the Federal National Mortgage Association.
'Holder' or 'Securityholder' means the person or entity in whose name a
Security is registered.
'Home Equity Loan' means a closed-end home equity loan secured by a
Mortgaged Property.
'Home Equity Loan Rate' means, the interest rate borne by a Home Equity
Loan.
'HUD' means the United States Department of Housing and Urban Development.
'Indenture' means the indenture relating to a Series of Notes between the
Trust Fund and the Trustee.
'Insurance Policies' means certain mortgage insurance, hazard insurance and
other insurance policies required to be maintained with respect to Home Equity
Loans.
'Insurance Proceeds' means amount paid by the insurer under any of the
Insurance Policies covering any Home Equity Loan or Mortgaged Property.
'Interest Only Securities' means a Class of Securities entitled solely or
primarily to distributions of interest and which is identified as such in the
related Prospectus Supplement.
'IRS' means the Internal Revenue Service.
'Lifetime Rate Cap' means the lifetime limit if any, on the Home Equity
Loan Rate during the life of each adjustable rate Home Equity Loan.
'Liquidation Proceeds' means amounts received by the Servicer in connection
with the liquidation of a Home Equity Loan, net of liquidation expenses.
'Minimum Rate' means the lifetime minimum Home Equity Loan Rate during the
life of each adjustable rate Home Equity Loan.
'Mixed-Use Properties' means structures of no more than three stories,
which include one to four residential dwelling units and 50% or less of the
space in which is used for retail, professional or other commercial uses
including doctor, dentist or law offices, real estate agencies, boutiques,
newsstands, convenience stores or other uses intended to cater to individual
customers.
'Mortgage' means the mortgage, deed of trust or other similar security
instrument securing a Mortgage Note.
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'Mortgaged Property' means the real property and improvements thereon
securing a Home Equity Loan.
'Mortgage Note' means the note or other evidence of indebtedness of a
Mortgagor under the Home Equity Loan.
'Mortgagor' means the obligor on a Mortgage Note.
'1986 Act' means the Tax Reform Act of 1986.
'Notes' means the Asset-Backed Notes.
'Notional Amount' means the amount set forth in the related Prospectus
Supplement for a Class of Interest Only Securities.
'OTS' means the Office of Thrift Supervision.
'PAC' ('Planned Amortization Class Securities') means a Class of Securities
of a Series on which payments of principal are made in accordance with a
schedule specified in the related Prospectus Supplement, based on certain
assumptions stated therein.
'Pay Through Security' means Regular Interest Securities and certain Debt
Securities that are subject to acceleration due to prepayment on the underlying
Home Equity Loans.
'Person' means any individual, corporation, partnership, joint venture,
association, joint stock company, trust (including any beneficiary thereof),
unincorporated organization, or government or any agency or political
subdivision thereof.
'Pooling and Servicing Agreement' means the pooling and servicing agreement
relating to a Series of Certificates among the Depositor, the Seller, the
Servicer and the Trustee.
'Principal Balance' means, with respect to a Home Equity Loan and as of a
Due Date, the original principal amount of the Home Equity Loan, plus the amount
of any Deferred Interest added to such principal amount, reduced by all
payments, both scheduled or otherwise, received on such Home Equity Loan prior
to such Due Date and applied to principal in accordance with the terms of the
Home Equity Loan.
'Principal Only Securities' means a Class of Securities entitled solely or
primarily to distributions of principal and identified as such in the Prospectus
Supplement.
'Qualified Insurer' means a mortgage guarantee or insurance company duly
qualified as such under the laws of the states in which the Mortgaged Properties
are located duly authorized and licensed in such states to transact the
applicable insurance business and to write the insurance provided.
'Rating Agency' means the nationally recognized statistical rating
organization (or organizations) which was (or were) requested by the Seller to
rate the Securities upon the original issuance thereof.
'Regular Interest' means a regular interest in a REMIC.
'REMIC' means a real estate mortgage investment conduit.
'REMIC Administrator' means the Person, if any, specified in the related
Prospectus Supplement for a Series for which a REMIC election is made, to serve
as administrator of the Series.
'REMIC Provisions' means the provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at sections
860A through 860G of Subchapter M of Chapter 1 of the Code, and related
provisions, and regulations, including proposed regulations and rulings, and
administrative pronouncements promulgated thereunder, as the foregoing may be in
effect from time to time.
'REO Property' means real property which secured a defaulted Home Equity
Loan, beneficial ownership of which has been acquired upon foreclosure, deed in
lieu of foreclosure, repossession or otherwise.
'Reserve Fund' means, with respect to a Series, a segregated trust account
into which funds may be deposited on the Closing Date and/or over time in order
to provide a source of funds to provide limited protection to the Holders of one
or more Classes of Securities against losses on the related Home Equity Loans or
other shortfalls in amounts necessary to make required distributions to such
Holders.
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'Residual Interest' means a residual interest in a REMIC.
'Retained Interest' means, with respect to a Home Equity Loan, the amount
or percentage specified in the related Prospectus Supplement which is not
included in the Trust Fund for the related Series.
'Scheduled Payments' means the scheduled payments of principal and interest
to be made by the borrower on a Home Equity Loan.
'Securities' means the Notes or the Certificates.
'Seller' means Centex Credit Corporation d/b/a Centex Home Equity
Corporation.
'Senior Securityholder' means a holder of a Senior Security.
'Senior Securities' means a Class of Securities as to which the holders'
rights to receive distributions of principal and interest are senior to the
rights of holders of Subordinate Securities, to the extent specified in the
related Prospectus Supplement.
'Series' means a separate series of Securities sold pursuant to this
Prospectus and the related Prospectus Supplement.
'Servicer' means Centex Credit Corporation d/b/a Centex Home Equity
Corporation.
'Servicer Termination Event' means any one or more of the events described
as Servicer Termination Events under 'The Agreements -- Servicer Termination
Events; Events of Default.'
'Servicing Fee' means the fee payable to the Servicer on a periodic basis
for servicing and administering the Home Equity Loans in a Trust Fund and
calculated at the rate and on the basis set forth in the related Prospectus
Supplement.
'Single Family Property' means property securing a Home Equity Loan
consisting of one- to four-family attached or detached residential housing,
including Cooperative Dwellings.
'Stripped Securities' means Pass-Through Securities representing interests
in Home Equity Loans with respect to which all or a portion of the principal
payments have been separated from all or a portion of the interest payments.
'Subordinated Securities' means a Class of Securities as to which the
rights of holders to receive distributions of principal, interest or both is
subordinated to the rights of holders of Senior Securities or other Classes of
securities which are themselves subordinate to other Classes, and may be
allocated losses and shortfalls prior to the allocation thereof to other Classes
of Securities, to the extent and under the circumstances specified in the
related Prospectus Supplement.
'Trustee' means the trustee under the applicable Agreement and its
successors.
'Trust Fund' means, with respect to any Series of Securities, the trust
holding all money, instruments, securities and other property, including all
proceeds thereof, which are, with respect to a Series of Certificates, held for
the benefit of the Holders by the Trustee under the Pooling and Servicing
Agreement or Trust Agreement or, with respect to a Series of Notes, pledged to
the Trustee under the Indenture as a security for such Notes, including, without
limitation, the Home Equity Loans (except any Retained Interests), rights to all
amounts in the Distribution Account Collection Account, Certificate Account,
Pre-Funding Account, Capitalized Interest Account or Reserve Funds, if any,
distributions on the Home Equity Loans (net of servicing fees), and reinvestment
earnings on such net distributions and rights to any Enhancement and all other
property and interest held by or pledged to the Trustee pursuant to the related
Agreement for such Series.
'UCC' means the Uniform Commercial Code.
'Variable Interest Security' means a Security on which interest accrues at
a rate that is adjusted, based upon a predetermined index, at fixed periodic
intervals, all as set forth in the related Prospectus Supplement.
'Variable Interest Securities' means a Class of Securities on which
interest will accrue at a per annum rate that will vary from Distribution Date
to Distribution Date based on changes in the weighted average of the interest
rates borne by the related Home Equity Loans or changes in the level of an index
used to calculate such per annum rate of interest.
'Zero Coupon Security' means a Security entitled to receive payments of
principal only.
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$261,130,000
CENTEX HOME EQUITY LOAN TRUST 1999-1
[LOGO]
CENTEX HOME EQUITY LOAN
ASSET-BACKED CERTIFICATES, SERIES 1999-1
CENTEX CREDIT CORPORATION
D/B/A
CENTEX HOME EQUITY CORPORATION,
AS SELLER AND SERVICER
CHEC ASSET RECEIVABLE CORPORATION,
AS DEPOSITOR
------------------------------
PROSPECTUS SUPPLEMENT
------------------------------
PRUDENTIAL SECURITIES
LEHMAN BROTHERS
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone to provide you with different information.
We are not offering the Class A Certificates in any state where the offer
is not permitted.
Dealers will deliver a prospectus supplement and prospectus when acting as
underwriters of the Class A Certificates and with respect to their unsold
allotments or subscriptions. In addition, all dealers selling the
Class A Certificates will be required to deliver a prospectus supplement and
prospectus until May 23, 1999.
FEBRUARY 22, 1999
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