<PAGE>
As filed with the Securities and Exchange Commission on September 30, 1998
Registration Number ______
------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
------------------------
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CRSM SECURITIES, INC.
(Exact name of registrant as specified in the governing documents)
CALIFORNIA 95-4706150
(State or other jurisdiction of organization) (I.R.S. Identification No.)
CRSM Securities, Inc.
9665 Wilshire Boulevard, Suite 410
Beverly Hills, California 90212
310-285-7400
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Robert S. Manns, President
CRSM Securities, Inc.
9665 Wilshire Boulevard, Suite 410
Beverly Hills, California 90212
310-285-7400
(Name and address, including zip code, and telephone
number, including area code, of agent for service)
------------------------
COPIES TO:
Jeffrey P. Berg, Esq.
Matthias & Berg LLP
1990 South Bundy Drive, Suite 790
Los Angeles, California 90025
------------------------
Approximate date of commencement of proposed sale of securities to the
public: From time to time after the effective date of this Registration.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Title of Each Class of Amount to be Proposed Amount of
Securities to be Registered Registered(1) Maximum Registration Fee
Aggregate (.000295)
Offering
Price(1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Collateralized Mortgage
Obligation Bonds $1,000,000 $ 1,000,000 $ 295.00
- ------------------------------------------------------------------------------------------------------------------------------
Total $1,000,000 $ 1,000,000 $ 295.00
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
<PAGE>
CRSM SECURITIES, INC.
CROSS REFERENCE SHEET
Pursuant to Item 501 of Regulation S-K.
Showing Location in the Prospectus of Information
Required by Items 1 through 13, Part I, of Form S-3
<TABLE>
<CAPTION>
Registration Statement Item Number and Caption Location in Prospectus
- ---------------------------------------------- ----------------------
<S> <C>
1. Forepart of the Registration Statements and Outside Front Cover
Outside Front Cover Page of Prospectus . . . . . . . . Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus . . . . . . . . . . . . . . . . . . Inside Front and
Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges . . . . . . . . . . Prospectus Summary,
Risk Factors
4. Use of Proceeds . . . . . . . . . . . . . . . . . . . Plan of Distribution
5. Determination of Offering Price . . . . . . . . . . . * *
6. Dilution. . . . . . . . . . . . . . . . . . . . . . . *
7. Selling Security Holders. . . . . . . . . . . . . . . Plan of Distribution
8. Plan of Distribution. . . . . . . . . . . . . . . . . Plan of Distribution
9. Description of Securities to be Registered. . . . . . Description of the
Bonds; Security for
the Bonds
10. Interests of Named Expert and Counsel. . . . . . . . Experts; Legality of
Bonds
11. Material changes. . . . . . . . . . . . . . . . . . . *
12. Incorporation of Certain Information by Reference . . *
13. Disclosure of Commission Position on Indemnification
for Securities Acts Liabilities . . . . . . . . The Issuer
</TABLE>
- ---------------
* OMITTED SINCE NOT APPLICABLE
** TO BE INCLUDED OR SUPPLEMENTED FROM TIME TO TIME BY PROSPECTIVE
SUPPLEMENT
<PAGE>
PROSPECTUS
MORTGAGE-COLLATERALIZED BONDS, ISSUABLE IN SERIES
This Prospectus relates to Mortgage-Collateralized Bonds ("Bonds") which
may be issued from time to time in one or more series ("Series"). The issuer
with respect to a Series of Bonds will be CRSM Securities, Inc. a California
corporation, (the "Issuer"), or a separate trust established by the Issuer. The
prospectus supplement ("Prospectus Supplement") relating to a Series of Bonds
will specify with respect to such Series: (i) the aggregate principal amount;
(ii) the interest rate and authorized denominations of each class ("Class") of
Bonds; (iii) certain information concerning the Collateral (defined below)
securing such Bonds; (iv) the Stated Maturity (defined below) of each Class of
Bonds; (v) the order of the application of principal payments to the Classes of
such Bonds and the allocation of principal thereof; (vi) the identity of each
Class of Bonds upon which interest will accrue but will not be payable until
each Class of Bonds of such Series with an earlier Stated Maturity (defined
below) has been paid in full or until such other time as may be specified in the
Prospectus Supplement for such Series of Bonds ("Compound Interest Bonds"), if
any, included in such Series of Bonds; (vii) the Payment Dates (defined below)
and the Assumed Reinvestment Rates (defined below), if applicable, for such
Bonds; (viii) information with respect to the Issuer of such Bonds; and (ix)
additional information with respect to the plan of distribution of such Bonds.
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE
USED TO CONSUMMATE SALES OF BONDS OF ANY SERIES UNLESS ACCOMPANIED BY A
PROSPECTUS SUPPLEMENT FOR SUCH SERIES.
Each Series of Bonds will consist of one or more Classes of Bonds, which
may include one or more Classes of Compound Interest Bonds. Interest on each
Class of Bonds that bears interest, other than a Class of Compound Interest
Bonds, will be payable on each Payment Date (defined below) specified in the
related Prospectus Supplement. Payments of interest on a Class of Compound
Interest Bonds will begin no later than the Payment Date (defined below)
specified in the related Prospectus Supplement. Prior to such time, interest on
such Class of Compound Interest Bonds will accrue and the amount of interest so
accrued will be added to the principal thereof on each Payment Date (defined
below). The amount of principal payable on the Bonds of a Series on each
Payment Date (defined below) will be applied to the Classes of Bonds of such
Series in the order and as otherwise specified in the related Prospectus
Supplement. Principal payments on each Class of Bonds of a Series will be made
on a pro rata, random lot or other selection basis among Bonds of such Class as
specified in the related Prospectus Supplement.
Each Series of Bonds offered hereby will be secured by collateral
consisting of one or more of the following: (i) a pool of promissory notes or
other evidences of indebtedness secured by liens on fee simple or leasehold
interests in single family or multifamily properties, cooperative apartment
buildings or installment sale contracts with respect to any such properties,
manufactured housing contracts, installment agreements, or participation
interests in any of the foregoing ("Pledged Loans"), (ii) certain Mortgage
Certificates and Other Mortgage Certificates (both defined below), and (iii)
Security Funds (defined below).
Each Series of Bonds will be subject to redemption only under the
circumstances described herein and specified in the related Prospectus
Supplement. With respect to certain Series of Bonds, the Issuer may elect to
treat as a Real Estate Mortgage Investment Conduit ("REMIC") the arrangement
pursuant to which the Collateral (defined below) will secure that Series, in
which case the Bonds would be considered to be "regular interests" or "residual
interests" (both defined below) in the REMIC. The Prospectus Supplement for a
particular Series will specify whether the Bonds related thereto will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). See "Prospectus Summary and Introduction -
Redemption of the Bonds."
There can be no assurance that a secondary market will develop for the
Bonds of any Series or, if it does develop, that it will provide the holders of
Bonds of such series with liquidity of investment or that such secondary market
will be maintained for the term of such Series of Bonds. See "Certain
Considerations."
AN INVESTMENT IN THE BONDS SHOULD BE MADE ONLY AFTER REVIEWING THE MATERIAL
APPEARING UNDER THE CAPTION "CERTAIN CONSIDERATIONS" IN THIS PROSPECTUS. SEE
"CERTAIN CONSIDERATIONS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is ________
This Prospectus may be deemed to contain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995
(the "Reform Act"). Forward-looking statements in this Prospectus or
hereafter included in other publicly available documents filed with the
Securities and Exchange Commission (the "Commission"), reports to the
Company's stockholders and other publicly available statements issued or
released by the Company involve known and unknown risks, uncertainties and
other factors which could cause the Company's actual results, performance
(financial or operating) or achievements to differ from the future results,
performance (financial or operating) or achievements expressed or implied by
such forward-looking statements. Such future results are based upon
management's best estimates based upon current conditions and the most recent
results of operations. These risks include, but are not limited to, the risks
set forth herein, each of which could adversely affect the Company's business
and the accuracy of the forward-looking statements contained herein.
THIS PRELIMINARY PROSPECTUS AND THE INFORMATION CONTAINED HEREIN ARE
SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. UNDER NO CIRCUMSTANCES SHALL THIS PRELIMINARY PROSPECTUS
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, NOR SHALL
THERE BE ANY SALE OF THESE SECURITIES, IN ANY JURISDICTION IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH JURISDICTION.
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and any
Prospectus Supplement with respect hereto and, if given or made, such
information or representation 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 Bonds
offered hereby as supplemented thereby nor an offer of the Bonds 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; however,
if any material change occurs while this Prospectus is required by law to be
delivered, this Prospectus will be amended or supplemented accordingly.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY AND INTRODUCTION . . . . . . . . . . . . . . . . . . . . 2
CERTAIN CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 12
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
DESCRIPTION OF THE BONDS . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECURITY FOR THE BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SERVICING OF THE PLEDGED LOANS . . . . . . . . . . . . . . . . . . . . . . 41
FINANCE COMPANIES AND FUNDING AGREEMENTS . . . . . . . . . . . . . . . . . 47
MANAGEMENT AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
THE INDENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
THE ISSUER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
THE DEPOSIT TRUST AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . 53
CERTAIN LEGAL ASPECTS OF PLEDGED LOANS . . . . . . . . . . . . . . . . . . 54
CERTAIN FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . 59
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
LEGAL INVESTMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
LEGALITY OF BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 70
INDEX OF DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . 71
FINANCIAL STATEMENTS AND INFORMATION . . . . . . . . . . . . . . . . . . .F 1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY AND INTRODUCTION
The following summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the related Prospectus
Supplement.
ISSUER The Issuer is CRSM Securities, Inc. a California
corporation. The Issuer was established solely for the
purpose of issuing one or more Series of Bonds directly
or through one or more trusts ("Trusts") established by
the Issuer. Each such Trust will be created by an
agreement ("Deposit Trust Agreement") between the
Issuer, acting as depositor, and a bank, trust company
or other fiduciary, acting as owner-trustee
("Owner-Trustee"). Each such Trust will be established
solely for the purpose of issuing one Series of Bonds.
The address of the Issuer is 9665 Wilshire Blvd.,
Suite 410, Beverly Hills, California 90212 and its
telephone number is (310) 385-7400. The Bonds of each
Series will be limited obligations of the Issuer of
the Bonds of such Series in that they will be payable
solely from the Collateral (defined below) pledged to
secure such Series of Bonds. With respect to any Series
of Bonds issued by a Trust established by the Issuer,
neither the Issuer nor the Finance Companies (defined
below) will guarantee, nor will otherwise be obligated
to pay, the Bonds of any such Series. See "The
Issuer," "Security for the Bonds" and "Finance
Companies and Funding Arrangements."
TITLE OF SECURITY Mortgage-Collateralized Bonds, issuable from time to
time in Series. Each Series of Bonds will be issued
pursuant to an indenture ("Indenture") between the
Issuer of such Series of Bonds and the Bond Trustee
(defined below) for such Series of Bonds as specified
in the related Prospectus Supplement.
SERVICER The Pledged Loans which constitute part of the Mortgage
Collateral (defined below) for a Series of Bonds will
be serviced by a person ("Servicer") specified in the
related Prospectus Supplement.
DESCRIPTION OF BONDS Each Series of Bonds will consist of one or more
Classes of Bonds, one or more of which may be Classes
of Compound Interest Bonds. The Bonds of each Class
may differ in, among other things, the amounts and
priority of principal payments allocated to such Class,
the maturity date and interest rate. The Bonds of each
Series will be issued in fully registered, certificated
or book-entry form in the minimum denominations
specified in the related Prospectus Supplement.
INTEREST PAYMENTS Unless otherwise specified in the related Prospectus
Supplement, each Class of Bonds of a Series will bear
interest on its outstanding principal amount at a fixed
or variable rate as specified in the related Prospectus
Supplement. Unless otherwise specified in the related
Prospectus Supplement, interest on all Bonds of a
Series other than Compound Interest Bonds will be paid
periodically on the dates specified in such Prospectus
Supplement ("Payment Dates"). Payments of interest on
a Class of Compound Interest Bonds included in such
Series will not begin until each Class of Bonds of such
Series with an earlier Stated Maturity (defined below)
has been paid in full or until such other time as may
be specified in the Prospectus Supplement for such
Series of Bonds. A later Class of Compound Interest
Bonds would, unless otherwise specified in the related
Prospectus Supplement, be effectively subordinated to
Bonds with an earlier Stated Maturity (defined below).
Prior to that time, interest on such Class of Compound
Interest Bonds will accrue and will be added to the
principal amount of such Bonds. Thereafter, unless
otherwise specified in the related Prospectus
Supplement, interest payments will be made on such
Class of Compound Interest Bonds on the unpaid accreted
value ("Accreted Value") of such Class of
2
<PAGE>
Compound Interest Bonds. Unless otherwise
specified in the related Prospectus Supplement, the
Accreted Value of a Class of Compound Interest
Bonds will equal the original principal amount of
such Class of Compound Interest Bonds plus accrued
and accumulated interest compounded thereon through
the immediately preceding Payment Date for such
Series, less any principal payments made on such
Class of Compound Interest Bonds. See "Description
of the Bonds - Payments of Principal and Interest."
PRINCIPAL PAYMENTS Unless otherwise specified in the Prospectus Supplement
for a Series of Bonds, principal payments will be made
on the Bonds of such Series on the Payment Dates
specified in such Prospectus Supplement in an aggregate
amount equal to the sum of (i) the Required Principal
Payment (defined below) and (ii) the percentage, if
any, of the Excess Cash (defined below) specified in
such Prospectus Supplement. With respect to Required
Principal Payments (defined below):
(i) Unless otherwise specified in the Prospectus
Supplement for a Series of Bonds, the required
principal payment ("Required Principal Payment") for
each Payment Date for such Series of Bonds will be
an amount equal to the difference between (a) the
sum of (1) the principal amount of the Bonds of such
Series outstanding as of the close of business on
the immediately preceding Payment Date and (2) the
amount of interest, if any, accrued on any Compound
Interest Bonds included in such Series but not paid
or compounded since the date of issuance of the
Bonds ("Issue Date") and (b) the aggregate
Outstanding Bond Values (defined below) of the
Mortgage Collateral (defined below) securing such
Series of Bonds as of the current Payment Date.
(ii) In the case of the first Payment Date, the
Required Principal Payment will be an amount equal
to the difference between (a) the sum of (1) the
principal amount of the Bonds of such Series
outstanding as of the Issue Date and (2) the amount
of interest, if any, accrued on any Compound
Interest Bonds included in such Series but not paid
or compounded since the Issue Date and (b) the
aggregate Outstanding Bond Values (defined below)
of the Mortgage Collateral (defined below) securing
such Series of Bonds as of the current Payment Date.
(iii) In the event a redemption or Special
Redemption (defined below) has occurred since the
immediately preceding Payment Date, the Required
Principal Payment will be the difference between
(a) the sum of (1) the principal amount of the
Bonds of such Series outstanding as of the latest
redemption date or special redemption date (defined
below) and (2) the amount of interest, if any,
accrued on any Compound Interest Bonds included in
such Series but not paid or compounded since the
immediately preceding Payment Date which is not
then payable and (b) the aggregate Outstanding Bond
Values (defined below) of the Mortgage Collateral
(defined below) securing such Series of Bonds as of
the current Payment Date.
All payments of principal on the Bonds of a Series
will be allocated among the Classes of Bonds of
such Series in the order and amounts specified in
the related Prospectus Supplement. All payments of
principal on Bonds of a particular Class will be
applied on a PRO RATA, random lot or other
selection basis among all Bonds of such Class, as
specified in the related Prospectus Supplement.
See "Description of the Bonds-Payments of
Principal."
The bond value ("Bond Value") for an item of
Mortgage Collateral (defined below) securing a
Series of Bonds will represent the principal amount
of Bonds of such Series which can be supported by
the distributions on such item of Mortgage
Collateral (defined below), together with the
reinvestment income thereon at the Assumed
Reinvestment Rate (defined below) and, if
applicable, the cash available to be
3
<PAGE>
withdrawn from any Security Fund (defined below)
securing such Series of Bonds. This will be the
case irrespective of prepayment on certain items of
Mortgage Collateral (defined below) and the method
used to determine its Bond Value. See "Security
for the Bonds."
The Excess Cash ("Excess Cash") for a Series of
Bonds as of any Payment Date will be the excess, if
any, of the sum of (i) all distributions received on
the Mortgage Collateral (defined below) securing
such Series of Bonds in the period preceding such
Payment Date, (ii) the reinvestment income thereon,
and (iii) if applicable, the amount of cash
withdrawn from any Security Fund (defined below)
securing such Series of Bonds since the immediately
preceding Payment Date, over the sum of (a) all
interest accrued and paid or payable on the Bonds of
such Series since the immediately preceding Payment
Date, (b) the Required Principal Payment for such
Series of Bonds for such Payment Date, (c) the
principal amount of Bonds of such Series redeemed
pursuant to any redemption since the immediately
preceding Payment Date, (d) the amount of any
required deposits to any applicable Security Fund
(defined below) and (e) certain expenses, including
the Owner-Trustee Fees and expenses, the Bond
Trustee (defined below) fees and expenses (as
disclosed in the Indenture for a Series of Bonds),
the fees of the Master Servicer (defined below) and
expenses (as disclosed in the Master Servicing
Agreement [defined below] for a Series of Bonds) all
as defined below. Reference is made to a form of
Indenture filed as an Exhibit to the Registration
Statement of which this Prospectus constitutes a
part.
The Stated Maturity ("Stated Maturity") for each
Class of Bonds comprising a Series of Bonds will be
the date no later than that on which all Bonds of
such Class will be fully paid. The Stated Maturity
for a Class of Bonds will be determined based upon
the quantity and quality of the Collateral (defined
below) securing a Class of Bonds. Material facts
regarding such Collateral (defined below) will be
specified in the related Prospectus Supplement for
a Series of Bonds and will be the basis of
determining the Stated Maturity for a Class of
Bonds. All or a portion of the payments, including
prepayments on the Mortgage Collateral (defined
below) securing a Series of Bonds, will be used to
amortize Bonds of such Series, as specified in the
related Prospectus Supplement. The rate of
prepayments on the Mortgage Collateral (defined
below) securing a Series of Bonds will depend on
the characteristics of any mortgage loans included
in or underlying such Mortgage Collateral (defined
below), as well as on the prevailing level of
interest rates from time to time and other economic
factors. No assurance can be given as to the actual
prepayment experience of such Mortgage Collateral
(defined below). See "Description of the Bonds -
Maturity and Prepayment Considerations."
REDEMPTION OF THE BONDS To the extent specified in the Prospectus Supplement
for a Series of Bonds, Bonds of such Series having
other than monthly Payment Dates may be subject to
special redemption ("Special Redemption"), in whole
or in part, at a redemption price equal to 100% of
the unpaid principal amount of the Bonds (or portion
thereof) to be redeemed (or 100% of the unpaid
Accreted Value of a Class of Compound Interest Bonds
or portion thereof to be redeemed), plus accrued
interest, if any, to the date specified in the
related Prospectus Supplement, if, as a result of
principal prepayments on the Mortgage Collateral
(defined below) securing such Series of Bonds and
the reinvestment yields then available, the Issuer,
or the Bond Trustee determines, on the basis of
assumptions specified in the Indenture for such
Series of Bonds, that the debt service requirements
on any portion
4
<PAGE>
of the Bonds of such Series cannot be met. Any
such redemption would be limited to the principal
amount of the Bonds of such Series that would
otherwise be required to be paid on the next
Payment Date out of such principal prepayments due
to the fact that the Bonds of a Series having other
than a monthly Payment Date are payable on
maturity, with no periodic payments, or have only
one periodic payment remaining. In such an event
100% of the unpaid principal balance plus interest
would be paid and the Bonds redeemed. If more
principal were collected than could be distributed,
the Excess Cash would be applied to the Collection
Account (defined below) and then, if all stated
conditions were met, the Excess Cash, or portion
thereof, would be distributed to the Issuer or its
designee. As a result, no Special Redemption of
Bonds of a Series can shorten the maturity of the
Bonds so redeemed by more than the period of time
between the date on which the redemption occurs and
the next succeeding Payment Date. Principal
payments in the case of a Special Redemption will
be applied to Bonds of a Series on a PRO RATA,
random lot or other selection basis in the priority
and manner specified in the related Prospectus
Supplement. See "Description of the
Bonds-Redemption."
Any Class of Bonds of a Series also may be redeemed
prior to its Stated Maturity, in whole or in part,
at the Issuer's option, or at the option of such
other persons or entities described in the
Prospectus Supplement, under the circumstances
specified in the related Prospectus Supplement, at
the percentage of the unpaid principal amount of
such Bonds (or portion thereof specified in such
Prospectus Supplement), plus accrued interest, if
any, to the date specified in the related
Prospectus Supplement. The Issuer may redeem Bonds
of a Series on such terms as are disclosed in a
Prospectus Supplement, which terms may be different
than those set forth herein. See "Description of
the Bonds - Redemption."
Any Class of Bonds of a Series also may be subject
to optional redemption by the holders of such Bonds
or to mandatory redemption by the Issuer through
the operation of a redemption fund ("Redemption
Fund") on the terms and conditions specified in the
related Prospectus Supplement.
SECURITY FOR THE BONDS Unless otherwise specified in the related Prospectus
Supplement, each Series of Bonds will be secured by
collateral ("Collateral") which will consist of the
Mortgage Collateral (defined below) and the Security
Funds (defined below); and the Mortgage Collateral
("Mortgage Collateral") will consist of the Pledged
Loans (defined below), the Mortgage Certificates
(defined below) and the Other Mortgage Certificates
(defined below).
MORTGAGE COLLATERAL
A. PLEDGED LOANS Unless otherwise specified in the related Prospectus
Supplement the Pledged Loans for a Series of Bonds
may consist of mortgage loans insured by the
Federal Housing Administration ("FHA Loans");
mortgage loans partially guaranteed by the Veterans
Administration ("VA Loans"); conventional mortgage
loans; manufactured housing installment sale
contracts ("Manufactured Housing Contracts") and
installment loan agreements and either (i) security
interests in the manufactured homes ("Manufactured
Homes" or "Manufactured Housing") purchased with
the proceeds of such Manufactured Housing Contracts
or (ii) with respect to certain of such
Manufactured Housing Contracts, liens on the real
estate to which the related manufactured homes are
deemed permanently affixed; and loans to acquire
interests in cooperative apartment buildings. The
properties securing such Pledged Loans may consist
of (i) detached homes, (ii) attached homes
(single-family units having a common wall), (iii)
units located in condominiums, (iv) units in
multifamily residential buildings, (v)
5
<PAGE>
interests in cooperative buildings; (vi)
Manufactured Housing and (vii) such other types of
homes or units specified in the related Prospectus
Supplement. Each such detached or attached home
will be constructed on land owned in fee simple by
the mortgagor or on land leased by the mortgagor
for a term at least two years greater than the term
of the applicable Pledged Loan. The fee interest
in any leased land will be subject to the lien
securing the applicable Pledged Loan. Attached
homes may consist of duplexes, triplexes and
fourplexes (multi-family structures where the
entire lot on which each structure is built is
owned by the owners of the units) or townhouses
(multi-family structures in which each mortgagor
owns the land upon which the unit is built with the
remaining adjacent land owned in common).
The Pledged Loans securing a Series of Bonds may be
secured by residential properties which (a) are
owner-occupied, (b) are owned by investors, or (c)
serve as second residences, provided that, based
upon information available at the origination of
such Pledged Loans, the aggregate unpaid principal
amount of all such Pledged Loans secured by second
residences and investor owned residences may not
exceed the percentage set forth in the related
Prospectus Supplement of the aggregate unpaid
principal amount of all Pledged Loans securing such
Series of Bonds. The Pledged Loans secured by loans
made in connection with a purchase or refinancing
of cooperative apartments ("Cooperative Loans") are
not secured by liens on real estate.
B. MORTGAGE
CERTIFICATES The Bonds of a Series may, but will not necessarily,
be secured by certificates ("Mortgage
Certificates"); GNMA certificates ("GNMA
Certificates") guaranteed by the Government
National Mortgage Association ("GNMA"); Mortgage
Participation Certificates ("FHLMC Certificates")
issued by the Federal Home Loan Mortgage
Corporation ("FHLMC"); and Guaranteed Mortgage
Pass-Through Certificates ("FNMA Certificates")
issued by the Federal National Mortgage Association
("FNMA").
C. OTHER MORTGAGE
CERTIFICATES The Bonds of a Series may, but will not necessarily, be
secured by such other types of mortgage collateral,
including mortgage pass-through certificates and
mortgage-collateralized obligations ("Other Mortgage
Certificates") as may be specified in the related
Prospectus Supplement; and any other loans secured by
direct or indirect interests in real estate which may
be deemed acceptable as such by the rating agency or
agencies ("Rating Agency") rating the Bonds of such
Series.
Each item of Mortgage Collateral securing a Series
of Bonds will be assigned a Bond Value at the Issue
Date for the Bonds of such Series ("Initial Bond
Value"), such that the Aggregate Initial Bond
Values (defined below) of the Mortgage Collateral
securing such Series of Bonds will at least be
equal to the original principal amount of the Bonds
of such Series. Scheduled payments of principal and
interest on such Mortgage Collateral, together with
cash available from the Security Funds (defined
below) to the extent specified in the related
Prospectus Supplement, net of applicable servicing,
administration and guarantee fees and insurance
premiums, together with reinvestment income thereon
at the applicable Assumed Reinvestment Rates
(defined below), all as specified in the related
Prospectus Supplement, will be sufficient to make
the required payments of interest on the Bonds of
such Series and to pay the principal of each Class
of Bonds of such Series not later than its Stated
Maturity. The Mortgage Collateral securing a
Series of Bonds will be registered or recorded in
the name of the Bond Trustee (defined below) for
such Series of Bonds and held by such Bond Trustee
(defined below) as collateral security for the
Bonds of that Series only. See "Security for the
Bonds - GNMA Certificates," "Security for the
Bonds-FHLMC Certificates,"
6
<PAGE>
"Security for the Bonds - FNMA Certificates" and
"Security for the Bonds-The Pledged Loans."
SECURITY FUNDS For a Series of Bonds, the Security Funds ("Security
Funds") will consist of one or more of the following
accounts:
A. COLLECTION ACCOUNT All distributions on the Mortgage Collateral
securing a Series of Bonds (net of any applicable
servicing fees with respect to any Pledged Loans
included in such Mortgage Collateral) will be
remitted to an account ("Collection Account") to be
maintained by the trustee for the Bonds ("Bond
Trustee") for such Series of Bonds. The portion
required, together with reinvestment income thereon
at the applicable Assumed Reinvestment Rate (defined
below) specified in the related Prospectus
Supplement, will be available for application to the
payment of the principal of and interest on the
Bonds of such Series. The funds in the Collection
Account will be used first for the payment of the
fees and expenses of the Owner-Trustee, the Bond
Trustee, and the Master Servicer. After payment of
such fees and expenses the funds in the Collection
Account will then be used to pay principal and
interest on the Bonds. After the payment of such
amounts excess funds may be used to fund the
Over-Collateralization fund. See "Security for the
Bonds - Collection Account."
B. SUPPLEMENTAL DEBT
SERVICE FUND With respect to each Series of Bonds secured by any
GNMA Certificates backed by FHA insured or VA
guaranteed graduated payment mortgage loans ("GPM GNMA
Certificates") or by any Pledged Loans which provide
for mortgage payments during a portion of their term
which are less than the actual amount of principal and
interest which would be payable thereon on a level debt
service basis ("GPM Pledged Loans") (GPM GNMA
Certificates and GPM Pledged Loans are collectively
referred to herein as the "GPM Collateral"), the Issuer
will deposit cash, certificates of deposit or
irrevocable letters of credit in the supplemental debt
service fund maintained by the Bond Trustee for such
Series of Bonds ("Supplemental Debt Service Fund"), but
only with respect to GPM Collateral which is assigned
an Initial Bond Value as if such GPM Collateral
provided for payment on a level debt service basis over
its full term. The amount of any deposit in the
Supplemental Debt Service Fund for a Series of Bonds
(together with reinvestment income thereon at the
applicable Assumed Reinvestment Rate (defined below)
specified in the related Prospectus Supplement) will be
sufficient to cover the amount by which payments of
principal and interest on such GPM Collateral assumed
in calculating payments due on the Bonds of such Series
exceed scheduled payments on such GPM Collateral. The
Bond Trustee will, on any payment date on which the
balance of the Supplemental Debt Service Fund exceeds
the amount required to be maintained in such fund, pay
such excess to the Issuer or its designee. However, a
withdrawal of funds from the Supplemental Debt Service
Fund cannot be effectuated if it results in an
underfunded Supplemental Debt Service Fund, even if it
would not affect the credit rating of a Series of
Bonds. See "Security for the Bonds - Supplemental
Debt Service Fund."
C. BUY-DOWN FUND With respect to each Series of Bonds secured by any
Pledged Loans which consist of level payment mortgage
loans for which funds are provided by any person to
reduce the borrowers' monthly payments during the early
years of such Pledged Loans ("Buy-Down Pledged Loans"),
the Issuer will deposit cash, certificates of deposit
or irrevocable letters of credit in the buy-down fund
maintained by the Bond Trustee for such Series of Bonds
("Buy-Down Fund"), but only with respect to Buy-Down
Pledged Loans which are assigned an Initial Bond Value
as if such Buy-Down Pledged
7
<PAGE>
Loans provided for payment on a level debt service
basis over their full term. The amount of any
deposit in the Buy-Down Fund for a Series of Bonds
(together with reinvestment income thereon at the
applicable Assumed Reinvestment Rate (defined
below)specified in the related Prospectus
Supplement) will provide funds which, when added to
the required payments by the mortgagors on such
Buy-Down Pledged Loans, will be sufficient to cover
payments of principal and interest on such Buy-Down
Pledged Loans securing such Series of Bonds on a
level debt service basis. The Issuer will have the
right on any Payment Date to cause the Bond Trustee
to withdraw funds from the Buy-Down Fund for a
Series of Bonds to the extent the balance thereof
exceeds the amount required to be maintained in
such fund. See "Security for the Bonds -Buy-Down
Fund."
D. RESERVE FUND The Prospectus Supplement for a Series of Bonds may
specify that the Issuer will deposit cash,
certificates of deposit, irrevocable letters of
credit or other financial guarantees in one or more
reserve funds maintained by the Bond Trustee for
such Series of Bonds (collectively the "Reserve
Fund"), which may be used by the Bond Trustee to
make any required payments of principal or interest
on the Bonds of such Series to the extent funds are
not otherwise available. The amount of any deposit
in the Reserve Fund for a Series of Bonds will be
specified in the Prospectus Supplement for such
Series. In the alternative, the Reserve Fund for a
Series of Bonds may be funded, in whole or in part,
through application of all or a portion of the
Excess Cash, to the extent described in the related
Prospectus Supplement. The Issuer will have the
right on any Payment Date to cause the Bond Trustee
to withdraw funds from the Reserve Fund for a
Series of Bonds and pay such funds to or upon the
order of the Issuer to the extent that any such
withdrawal does not result in a downgrading of the
applicable rating of the Bonds of such Series by
the Rating Agency. However, a withdrawal of funds
from the Reserve Fund may not be effected if it
would result in an under funded Reserve Fund, even
if it would not adversely affect the credit rating
of a Series of Bonds. See "Security for the
Bonds-Collection Account" and "Security for the
Bonds-Reserve Fund."
E. OVERCOLLATERALIZATION To the extent specified in the Prospectus Supplement
FUND for a Series of Bonds, the Initial Bond Value of the
Mortgage Collateral securing such Series of Bonds
may exceed the original principal amount of the
Bonds of such Series by an aggregate amount
("Aggregate Initial Overcollateralization Amount").
In such event, the Issuer will establish an
overcollateralization fund to be maintained by the
Bond Trustee for such Series of Bonds
("Overcollateralization Fund"). The amount of any
deposits in the Overcollateralization Fund for a
Series of Bonds (together with reinvestment income
thereon at the applicable Assumed Reinvestment Rate
(defined below) specified in the related Prospectus
Supplement) may be used by the Bond Trustee to make
any required payments of principal and interest on
the Bonds of such Series in the event of uninsured
losses on the Pledged Loans securing such Series of
Bonds. See "Description of the Bonds-Valuation of
the Mortgage Collateral."
F. SUPPLEMENTAL CUSTODIAL
FUND If specified in the related Prospectus Supplement,
the Bond Trustee shall deposit monies, if any,
received by it for the establishment of a
supplemental custodial reserve fund ("Supplemental
Custodial Reserve Fund") and monies from the
Collection Account upon notification that either the
Master Servicer or Servicer are making servicing
advances under a specific mortgage loan due to
delinquency or failure by the mortgagor to make
regularly scheduled mortgage payments, which shall
be in the amount of such advances, liquidation
proceeds deposited directly by the Bond Trustee in
the event the Bond Trustee forecloses on or
otherwise liquidates a mortgaged property
("Mortgaged Property").
8
<PAGE>
G. INSURANCE POLICIES If specified in the Prospectus Supplement for a
Series of Bonds secured by any Pledged Loans, the
Issuer will assign to the Bond Trustee for such
Series of Bonds payments due under certain
mortgage insurance, hazard insurance and other
policies (collectively, "Insurance Policies"),
which may include (i) Mortgage Insurance Policies
(defined below) which may consist of (a) primary
mortgage insurance policies ("Primary Mortgage
Insurance Policies") which, either alone or in
combination with excess coverage mortgage
insurance policies ("Excess Coverage Mortgage
Insurance Policies"), will insure (subject to
their provisions and certain limitations)
conventional Pledged Loans not covered solely by
the Pool Insurance Policy (defined below) against
all or a portion of any loss sustained by reason
of nonpayments by the mortgagors, (b) one or more
mortgage pool insurance policies (collectively,
"Pool Insurance Policy") providing coverage in an
amount specified in the related Prospectus
Supplement, or (c) any combination thereof as
specified in the related Prospectus Supplement,
(ii) FHA insurance and VA guarantees covering all
Pledged Loans which are FHA and VA Loans,
respectively, in the amounts and subject to the
terms described herein, (iii) standard hazard
insurance policies ("Standard Hazard Insurance
Policies") insuring Pledged Loans against certain
losses due to various causes, including fire,
lightning and windstorm, (iv) a special hazard
insurance policy ("Special Hazard Insurance
Policy") insuring Pledged Loans, unless otherwise
specified in the related Prospectus Supplement,
against certain losses which are not covered by
the Standard Hazard Insurance Policies with
respect to such Pledged Loans (including
vandalism, earthquakes, landslides and mud flows)
in an amount specified in the related Prospectus
Supplement, (v) a mortgagor bankruptcy bond
("Mortgagor Bankruptcy Bond") in an initial amount
specified in the related Prospectus Supplement
which will provide for payments in an amount
specified in such Prospectus Supplement in the
event of the bankruptcy of the mortgagor of a
Pledged Loan and (vi) such other Insurance
Policies as may be specified in the related
Prospectus Supplement. In the alternative,
partially or entirely in lieu of any Insurance
Policy, to the extent specified in the Prospectus
Supplement for a Series of Bonds, the Issuer may
make deposits to a reserve fund for such Series of
Bonds in amounts acceptable to the Rating Agency.
To the extent specified in the applicable
Prospectus Supplement and to the extent it will
not result in the downgrading of the then rating
of any Series of Bonds by the Rating Agency,
certain Insurance Policies (or deposits in lieu
thereof) may be pledged to secure more than one
Series of Bonds. With respect to any Series of
Bonds, the Issuer also will have the right to
substitute comparable coverage from another
insurer or provide equivalent protection for any
of the Insurance Policies (or deposits in lieu
thereof) securing such Series of Bonds so long as
such substitution will not result in the
downgrading of the then rating of the Bonds of
such Series by the Rating Agency. See "Security
for the Bonds -Insurance Policies - Mortgage
Insurance on the Pledged Loans," "Security for the
Bonds - Insurance Policies - Hazard Insurance on
the Pledged Loans," "Security for the Bonds -
Mortgagor Bankruptcy Insurance on the Pledged
Loans" and "Security for the Bonds - Other
Coverage on the Pledged Loans."
H. MASTER SERVICER AND
AGREEMENTS Various Servicers will perform certain servicing
functions with respect to any Pledged Loans
securing a Series of Bonds. If specified in
the Prospectus Supplement for a Series of
Bonds, the Issuer may enter into a master
servicing agreement with respect to such Series
of Bonds ("Master Servicing Agreement") with a
company identified in such Prospectus
Supplement ("Master Servicer") pursuant to
which the Master Servicer will administer and
supervise the performance by the Servicers of
their duties and responsibilities under the
Servicing Agreements with respect to such
Series of Bonds. Each such Servicer will be
obligated under a servicing agreement
(collectively, "Servicing Agreements") to
perform customary servicing
9
<PAGE>
functions and to advance funds to cover certain
payments not made by the mortgagors to the
extent described herein. Pursuant to the Master
Servicing Agreement with respect to a Series of
Bonds, the Master Servicer will be obligated to
advance funds to cover any required advances
not made by the Servicers to the extent such
advances are recoverable under the Insurance
Policies or from the proceeds of liquidation of
the Pledged Loans securing such Series of Bonds
or as provided in the related Prospectus
Supplement. If the Issuer of a Series of Bonds
is a Trust, the Issuer will assign to such
Trust its rights under the Master Servicing
Agreement with respect to such Series of Bonds.
The Issuer will assign to the Bond Trustee its
rights under the Master Servicing Agreement and
the Servicing Agreements with respect to a
Series of Bonds as security for the Bonds of
such Series. If the Issuer does not enter into
a Master Servicing Agreement with respect to a
Series of Bonds, another entity acceptable to
the Rating Agency will assume the obligations
of the Master Servicer described herein. See
"Servicing of the Pledged Loans."
I. THE FUNDING AGREEMENTS The Issuer and various currently undesignated
limited purpose Finance Companies which may be
affiliated with home builders, thrifts, commercial
banks, mortgage bankers or other entities engaged
in mortgage finance may enter into Funding
Agreements ("Funding Agreements") pursuant to
which (i) each such Finance Company will borrow a
portion of the proceeds of the sale of such Series
of Bonds; (ii) each such Finance Company will
agree to repay the loan made to it by causing
payments to be made to the Bond Trustee in such
amounts as are necessary to pay the principal of
and interest on the loan made to it as the same
becomes due; and (iii) each Finance Company will
pledge to the Issuer security for its loan. The
right, title and interest in the Collateral and
all proceeds thereof pledged by the Finance
Companies under the Funding Agreements (except for
the rights to receive certain fees and
reimbursement for certain expenses and the right
to indemnification) will be assigned to the Bond
Trustee as security for a Series of Bonds. See
"Funding Agreements" and "The Issuer - Directors
and Executive Officers."
J. OTHER FUNDS AND
ACCOUNTS If specified in the Prospectus Supplement for a
Series of Bonds, the Issuer will maintain with the
Bond Trustee for such Series of Bonds such other
funds or accounts ("Other Funds") described in
such Prospectus Supplement.
10
<PAGE>
TAX STATUS OF THE BONDS The Bonds of each Series will be taxable
obligations as provided in the Internal Revenue
Code of 1986, as amended ("Code"), and interest
paid or accrued, including original issue discount
("OID") with respect to any Compound Interest
Bonds or any other Class of Bonds issued with OID
will constitute taxable interest income. If
specified in the related Prospectus Supplement, an
election may be made with respect to the
Collateral securing a Series of Bonds to treat
such Collateral as a REMIC for federal income tax
purposes. In the absence of a REMIC election,
Bonds owned by domestic building and loan
associations and other thrift institutions will
not be considered "loans secured by an interest in
real property" or "qualifying real property
loans." Bonds owned by a real estate investment
trust will not be treated as "real estate assets."
Interest on the Bonds will not be considered
"interest on obligations secured by mortgages on
real property." See "Certain Federal Income Tax
Consequences."
ERISA A fiduciary of any employee benefit plan subject
to the Employment Retirement Income Security Act
of 1974 ("ERISA") should consult his own legal
advisors as to whether the acquisition or
retention of bonds could constitute a "prohibited
transaction" under the ERISA provisions. See
"Certain Federal Income Tax Consequences - ERISA
Consequences."
LEGAL INVESTMENT The Prospectus Supplement for each Series of Bonds
will specify whether the Bonds of such Series will
constitute "mortgage related securities" under
SMMEA and, as such, will be "legal investments"
for certain types of institutional investors to
the extent provided in SMMEA. See "Legal
Investment."
CERTAIN CONSIDERATIONS
THE BONDS OF A SERIES OFFERED THROUGH THIS PROSPECTUS AND A RELATED
PROSPECTUS SUPPLEMENT ARE SUBJECT TO CERTAIN RISKS. PRIOR TO MAKING AN
INVESTMENT DECISION, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
FOLLOWING SPECIAL CONSIDERATIONS, ALONG WITH OTHER INFORMATION IN THIS
PROSPECTUS AND A RELATED PROSPECTUS SUPPLEMENT. THE NUMBER AND NATURE OF ALL
POSSIBLE RISKS CANNOT BE ASCERTAINED; OFFEREES MUST RECOGNIZE THAT ALMOST ANY
KIND OF ADVERSITY MAY PRECLUDE THE ACHIEVEMENT OF STATED OBJECTIVES OF THE
ISSUER, PRECLUDE POSITIVE OPERATING RESULTS AND/OR RESULT IN A LOSS OF
INVESTMENT. OFFEREES UNABLE OR UNWILLING TO ASSUME SUCH RISKS MUST NOT CONSIDER
THE PURCHASE OF THE BONDS OF A PARTICULAR SERIES.
LIMITED LIABILITY. The Bonds of each Series will be limited obligations of
the Issuer, payable solely from the Collateral pledged to secure such Series of
Bonds. The Bonds of a Series will represent obligations solely of the Issuer
and will not be insured or guaranteed by the United States Government or any
other governmental agency. A default with respect to the Bonds of a Series
could occur even in the absence of a default of a portion of the Pledged Loans
securing the Bonds of such Series. The Finance Companies will not guaranty, nor
otherwise be obligated to pay, the Bonds of any Series. The Issuer will not
guaranty, nor otherwise will be obligated to pay, any Series of Bonds issued by
a Trust established by the Issuer. Although, with respect to any Series of
Bonds, the GNMA Certificates, FHLMC Certificates and FNMA Certificates securing
such Series of Bonds will be covered by GNMA, FHLMC and FNMA guarantees,
respectively, and the Pledged Loans securing a Series of Bonds will be covered
by certain Insurance Policies, no Series of Bonds will be insured or guaranteed
by GNMA, FHLMC, FNMA, any insurer, the Master Servicer, any Servicer or by any
other person or entity. Any Insurance Policies on the Pledged Loans securing a
Series of Bonds will not cover all contingencies and will cover other
contingencies only to a limited extent. The Overcollateralization Amount
(defined below) securing a Series of Bonds will cover losses on such Pledged
Loans only to the extent of such Overcollateralization Amount.
See "Security for the Bonds - Overcollateralization Fund."
11
<PAGE>
LIMITED LIQUIDITY. There can be no assurance that a secondary market will
develop for the Bonds of any Series or, if it does develop, that it will provide
the holders of Bonds ("Bondholders") of such Series with liquidity in their
investment or that such liquidity will remain for the term of such Series of
Bonds. Holders of the Bonds may have difficulty selling the Bonds during
periods in which a secondary market fails to develop. Even if such markets
develop, market and yield fluctuations may preclude immediate realization of
amounts originally paid for such Bonds in the event the Bonds are sold in such
markets. See "Description of the Bonds - Book Entry Registration."
CERTAIN INVESTMENT CONSIDERATIONS. An investment in Bonds may be adversely
affected by, among other things, a decline in real estate values or a decline in
mortgage market interest rates. Secondly, notwithstanding the state of the real
estate market generally, the actual rates of delinquencies or foreclosures
experienced with respect to the Pledged Loans could be higher than those now
generally experienced in the mortgage lending industry. To the extent that such
losses are not covered by an applicable credit enhancements, Bondholders of
Bonds of a Series will bear the risk of loss resulting from defaults by
mortgagors and certain other hazards and will have to look primarily to the
value of the Mortgaged Properties (or related mortgaged properties) for recovery
of the outstanding principal and unpaid interest of the defaulted Pledged Loans.
The rate at which prepayments are made on the Pledged Loans will affect the life
of the related series of Bonds. If mortgage interest rates fall below the rates
on the Mortgage Collateral underlying a Series of Bonds, the rate of prepayment
on such Mortgage Collateral can be expected to increase. Prepayments may also
be influenced by a number of other factors, such as homeowner mobility, economic
conditions, enforceability of "due-on-sale" clauses, prevailing general and
local economic conditions and the availability of mortgage funds. Such
prepayments would reduce the value of the Mortgage Collateral for a Series of
Bonds. See "Description of the Bonds - Valuation of the Mortgage Collateral."
SALE OF MORTGAGE COLLATERAL ON DEFAULT. If an Event of Default (defined
below) occurs with respect to any Series of Bonds, there can be no assurance
that the Mortgage Collateral securing such Series of Bonds will be sufficient to
pay the principal and interest due on such Bonds. The value of the Mortgage
Collateral securing a Series of Bonds generally will fluctuate with changes in
prevailing rates of interest. Consequently, the Mortgage Collateral securing a
Series of Bonds or the Eligible Investments (defined below) in which the
Collection Account and the Security Funds for a Series of Bonds may be invested
may be liquidated at a discount from par value or from their purchase price, in
which case the proceeds of liquidation might be less than the outstanding
principal amount of and accrued interest on the Bonds of that Series. In such
event the Issuer may be unable to pay in full the principal of and interest on
the Bonds of such Series. The Bond Trustee will be prohibited from selling the
Collateral securing a Series of Bonds unless (a) the proceeds of such sale will
be sufficient to pay in full the principal of and accrued interest on the
outstanding Bonds of such Series at the date of such sale, or (b) if the
proceeds of such sale will not be sufficient to pay in full the principal of and
accrued interest on the outstanding Bonds of such Series at the date of such
sale, the Bond Trustee (i) obtains the consent of holders of two-thirds of the
entire principal amount of the outstanding Bonds of such Series and determines
that the Collateral securing the Bonds would not continue to provide sufficient
funds for the payment of principal of and interest on the Bonds as they would
have become due if the Bonds had not been declared due and payable or (ii)
obtains the consent of the holders of the entire principal amount of the
outstanding Bonds. (Indenture, Section 6.04.)
If, following an Event of Default (defined below), the Bonds of a Series
have not been declared to be due and payable or if such declaration and its
consequences are annulled and rescinded, the Bond Trustee may, if it determines
it to be in the best interests of the Bondholders, or at the request of the
holders of the majority in principal amount of the outstanding Bonds of such
Series shall, refrain from liquidating the Mortgage Collateral for the Bonds of
such Series. (Indenture, Section 6.05.) See "Certain Legal Aspects of Pledged
Loans - Foreclosure."
FHLMC GUARANTY. Payment of principal and interest on any FHLMC
Certificates securing a Series of Bonds will be guaranteed by FHLMC. This
guaranty will be backed by the credit of FHLMC, a federally chartered, privately
owned corporation. The full faith and credit of the United States will not,
however, guarantee any payments on any such FHLMC Certificates. Neither the
United States nor any agency thereof is obligated to finance FHLMC's operations
or to assist FHLMC in any other manner. See "Additional Information" for the
availability of the FHLMC Information Statement and other information respecting
FHLMC and FHLMC Certificates. See "Security for the Bonds - FHLMC
Certificates."
12
<PAGE>
FNMA GUARANTY. Full and timely payment of interest and principal on any
FNMA Certificates securing a Series of Bonds will be guaranteed by FNMA. This
guaranty will be backed by the credit of FNMA, a federally chartered, privately
owned corporation. The full faith and credit of the United States will not,
however, guarantee any payments on any such FNMA Certificates. Neither the
United States nor any agency thereof is obligated to Finance FNMA's operations
or to assist FNMA in any other manner. See "Additional Information" for the
availability of the FNMA Prospectus and other information respecting FNMA and
FNMA Certificates. See "Security for the Bonds - FNMA Certificates."
BOOK-ENTRY REGISTRATION. Issuance of Bonds in book-entry form may reduce
the liquidity of such Bonds in the secondary trading market since investors may
be unwilling to purchase Bonds for which they cannot obtain physical
certificates. Since transactions in Bonds will, in most cases, be able to be
effected only through Cede & Co. and certain banks, the ability of a Bondholder
to pledge a Bond to persons or entities that do not participate in the Cede
system, or otherwise to take actions in respect of such Bonds, may be limited
due to lack of a physical certificate representing the Bonds. See "Description
of the Bonds - Book Entry Registration."
CREDIT ENHANCEMENTS. If credit enhancements are provided with respect to a
Series of Bonds, such credit enhancements will not cover all contingencies and
will cover certain contingencies only to a limited extent, in each case as
specified in the related Prospectus Supplement. See "Security for the Bonds -
Other Coverage on the Pledged Loans."
STATE AND FEDERAL REGULATIONS. Applicable state laws generally regulate
interest rates and other charges, require certain disclosures and require
licensing of the entities originating or acquiring the Pledged Loans
("Originators") and the Master Servicer. In addition, most states have other
laws, public policy and general principles of equity relating to the protection
of consumers and which regulate unfair and deceptive practices and practices
which may apply to the origination, servicing and collection of the Pledged
Loans. Depending on the provisions of the applicable law and the specific facts
and circumstances involved, violations of these laws, policies and principles
may limit the ability of the Master Servicer to collect all or part of the
principal of or interest on the Pledged Loans, may entitle the borrower to a
refund of amounts previously paid and, in addition, could subject the Master
Servicer to damages and administrative sanctions. The Pledged Loans may be
subject to certain 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 Pledged Loans; (ii) the Equal Credit
Opportunity Act and Regulation B promulgated thereunder, which require certain
disclosures to the borrowers regarding the terms of the Pledged 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 Real Estate Settlement Procedures Act, which establishes certain
requirements for disclosure regarding mortgage transactions and originators of
mortgage loans; and (iv) the Fair Credit Reporting Act, which regulates the use
and reporting of information related to the borrower's credit experience. See
"Certain Legal Aspects of the Pledged Loans."
SECURITY INTERESTS AND OTHER ASPECTS OF MANUFACTURED HOUSING CONTRACTS.
Each Manufactured Housing Contract is secured by a security interest in a
Manufactured Home. Perfection of security interests in Manufactured Homes and
enforcement of rights to realize upon the value of Manufactured Homes as
collateral for Manufactured Housing Contracts are subject to a number of Federal
and state laws, including the Uniform Commercial Code ("UCC") as adopted in each
state and each state's certificate of title statutes. The steps necessary to
perfect the security interest in a Manufactured Home will vary from state to
state. In addition, numerous Federal and state consumer protection laws impose
requirements on lending under conditional sales contracts and installment loan
agreements such as the Manufactured Housing Contracts, and the failure by the
lender or seller of goods to comply with such requirements could give rise to
liabilities of assignees for amounts due under such agreements and claims by
such assignees may be subject to set-off as a result of such lender's or
seller's noncompliance. These laws would apply to the Bond Trustee as assignee
of the Manufactured Housing Contracts. The seller of Manufactured Housing
Contracts to the Issuer will warrant that each Manufactured Housing Contract
complies with all requirements of law and will make certain warranties relating
to the validity, subsistence, perfection and priority of the security interest
in each manufactured home securing a Manufactured Housing Contract. A breach of
any such warranty that materially and adversely affects any Manufactured Housing
Contract would create an obligation of the seller to repurchase such
Manufactured Housing Contract unless such breach is cured. If the recovery of
amounts due on Manufactured Housing Contracts is dependent on repossession and
resale of Manufactured Homes securing Manufactured Housing Contracts that are in
default, certain other factors may limit the ability of the Bondholders to
realize upon the Manufactured Homes or may
13
<PAGE>
limit the amount realized to less than the amount due. See "Certain Legal
Aspects of Pledged Loans - Enforcement of Rights under Installment Contracts."
RISKS ASSOCIATED WITH NON-OWNER OCCUPIED PROPERTIES. Certain of the
Mortgaged Properties relating to Pledged Loans may not be owner occupied. It is
possible that the rate of delinquencies, foreclosures and losses on Pledged
Loans secured by non-owner occupied properties could be higher than for Pledged
Loans secured by the primary residence of the borrower. See "Certain Legal
Aspects of Pledged Loans."
CHARACTERISTICS OF SECOND MORTGAGES. Certain of the Mortgage Collateral
may consist of Pledged Loans which will be home equity loans secured by junior
liens subordinate to senior liens ("Second Mortgage Loans"). As a result, the
proceeds from any liquidation, insurance or condemnation proceeds will be
available to satisfy the principal balance of a Second Mortgage Loan only to the
extent that the claims, if any, of each such senior mortgagee are satisfied in
full, including any related foreclosure costs. In addition, a second mortgagee
may not foreclose on the Mortgaged Property securing the Second Mortgage Loan
unless it forecloses subject to the related senior mortgage, in which case it
must either pay the entire amount of each senior mortgage to the applicable
mortgagee at or prior to the foreclosure sale or undertake the obligation to
make payments on each senior mortgage in the event of a default thereunder.
Generally, a Servicer will satisfy each such senior mortgage at or prior to the
foreclosure sale only to the extent that it determines that any amounts so paid
will be recoverable from future payments and collections on the Second Mortgage
Loans or otherwise. See "Certain Legal Aspects of Pledged Loans."
COOPERATIVE LOANS. If specified in the related Prospectus Supplement for a
Series of Bonds, the Mortgage Collateral may contain Pledged Loans which are
Cooperative Loans. Such Cooperative Loans are not secured by liens on real
estate. The "owner" of a cooperative apartment does not own the real estate
constituting the apartment, but owns shares of stock in a corporation which
holds title to the building in which the apartment is located, and by virtue of
owning such stock is entitled to a proprietary lease to occupy the specific
apartment. Thus, a Cooperative Loan is a personal loan secured by a lien on the
shares and an assignment of the lease. If the borrower defaults on a
Cooperative Loan, the lender's remedies are similar to the remedies which apply
to a foreclosure of a mortgage or deed of trust, in that the lender can
foreclose the loan and assume "ownership" of the apartment. There are certain
risks which arise as a result of the cooperative form of ownership which
differentiate Cooperative Loans from other types of Pledged Loans. For example,
the power of the board of directors of most cooperative corporations to reject a
proposed purchaser of a unit owner's shares (and prevent the sale of an
apartment) for any reason (other than reasons based upon unlawful
discrimination), or for no reason, significantly reduces the number of potential
purchasers in the event of a foreclosure. See "Certain Legal Aspects of Pledged
Loans - Anti-Deficiency Legislation and Other Limitations on Lenders."
BALLOON LOANS. Certain of the Mortgage Collateral may consist of Pledged
Loans which were originated with a Stated Maturity of less than the period of
time of the corresponding amortization schedule ("Balloon Loans"). As a result,
upon the maturity of a Balloon Loan, the mortgagor will be required to make a
"balloon payment" which will be significantly larger than such mortgagor's
previous monthly payments. The ability of such a mortgagor to repay a Balloon
Loan at maturity frequently will depend on such mortgagor's ability to refinance
such Balloon Loan. The ability of a mortgagor to refinance such Balloon Loan
will be affected by a number of factors, including the interest rates on real
estate loans at the time, the value of the related Mortgaged Property, the
mortgagor's equity in the related Mortgaged Property, the financial condition of
the mortgagor, the tax laws and general economic conditions at the time. See
"Certain Aspects of Pledged Loans - General."
DEFAULTS ON MORTGAGE COLLATERAL. Unless otherwise specified in the
Prospectus Supplement, the Collateral securing a series of Bonds will not be
insured or guaranteed in whole or in part by the United States, any other
governmental agency or any private mortgage insurer. The Mortgage Collateral
may include non-recourse loans with respect to the mortgagor meaning the only
source of payment will be amounts realized from the property secured by such
Mortgage Collateral. In addition, if a mortgagor files for bankruptcy
protection, bankruptcy laws may preclude immediate process to realize any
proceeds from the underlying property securing such Mortgage Collateral and may
prevent any deficiency judgment against a mortgagor from being obtained, thus
reducing the total amount of collateral securing a series of Bonds. See "Certain
Legal Aspects of Pledged Loans - Foreclosure."
14
<PAGE>
RISKS ASSOCIATED WITH LIQUIDATION OF PROPERTY SECURED BY DEFAULTED PLEDGED
LOANS. General economic conditions and other factors (which may not affect real
property values) may have an impact on the ability of borrowers to repay
Pledged Loans. Loss of earnings, illness, divorce and other factors may lead to
an increase in delinquencies and bankruptcy filings by borrowers. In the event
of personal bankruptcy of a mortgagor, it is possible that the Bondholders could
experience a loss with respect to such mortgagor's loan. In conjunction with a
mortgagor's bankruptcy, a bankruptcy court may suspend or reduce the payments of
principal and interest to be paid with respect to such mortgage loan or
permanently reduce the principal balance of such mortgage loan, thus either
delaying or permanently limiting the amount received by the Bond Trustee with
respect to such mortgage loan. Moreover, in the event a bankruptcy court
prevents the transfer of the related Mortgaged Property to the Bond Trustee, any
remaining balance on such mortgage loan may not be recoverable. See "Security
for the Bonds - Mortgagor Bankruptcy Insurance on the Pledged Loans."
Even assuming that the Mortgaged Properties provide adequate security for
the Pledged Loans, substantial delays could be encountered in connection with
the liquidation of defaulted Pledged Loans, with corresponding delays in the
receipt of related proceeds by the Bond Trustee. An action to foreclose on a
Mortgaged Property securing a Pledged Loan is regulated by state statutes and
rules and is subject to many of the delays and expenses of other lawsuits if
defenses or counterclaims are interposed, sometimes requiring several years to
complete. In some states an action to obtain a deficiency judgment would not be
permitted following a nonjudicial sale of a Mortgaged Property. In the event of
a default by a mortgagor, these restrictions, among other things, may impede the
ability of the Master Servicer to foreclose on or sell the Mortgaged Property.
The Master Servicer will be entitled to deduct from liquidation proceeds thereof
all expenses reasonably incurred in attempting to recover amounts due on the
related loan payments to prior lienholders, legal fees and costs of legal
action, real estate taxes and maintenance and preservation expenses. In the
event that any Mortgaged Properties fail to provide adequate security for the
related Pledged Loans, if insufficient funds are available from any Reserve
Account and the Issuer does not receive sufficient funds from the insurance
company covering the loss, the Bondholders may experience a loss.
Liquidation expenses with respect to defaulted Pledged Loans do not vary
directly with the outstanding principal balance of the Pledged Loans at the time
of default. Therefore, assuming that a Master Servicer would take the same
steps in realizing upon a defaulted Pledged Loan having a small remaining
principal balance as it would in the case of a defaulted Pledged Loan having a
larger principal balance, the amount realized after expenses of liquidation
would be smaller as a percentage of the outstanding principal balance of the
smaller Pledged Loan than would be the case with a larger mortgage loan.
Because the average outstanding principal balances of the Pledged Loans which
are Second Mortgage Loans are small relative to the size of the Pledged Loans in
a typical pool composed entirely of first mortgages, realizations net of
liquidation expenses on defaulted Pledged Loans which are Second Mortgage Loans
may also be smaller as a percentage of the principal amount of such Pledged
Loans than would be the case with typical pool of first mortgage loans. See
"Certain Legal Aspects of Pledged Loans - Foreclosure."
LIMITATIONS ON INTEREST PAYMENTS AND FORECLOSURES. Generally, under the
terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended
("Relief Act"), or similar state legislation, a mortgagor who enters military
service after the origination of a mortgage loan (including a mortgagor who is a
member of the National Guard or is in reserve status at the time of the
origination of the Pledged Loan and is later called to active duty) may not be
charged interest (including fees and charges) above an annual rate of 6% during
the period of such mortgagor's active duty status, unless a court orders
otherwise upon application of the lender. It is possible that such action could
affect, for an indeterminate period of time, the ability of the Master Servicer
to collect full amounts of interest on certain of the Pledged Loans. In
addition, the Relief Act imposes limitations which would impair the ability of
the Master Servicer to foreclose on an affected Pledged Loan during the
mortgagor's period of active duty status. Thus, in the event that such a
mortgage loan goes into default, there may be delays and losses caused by the
inability to realize upon the Mortgaged Property in a timely fashion. See
"Certain Legal Aspects of Pledged Loans - Anti-Deficiency Legislation and Other
Limitations on Lenders."
ENVIRONMENTAL CONSIDERATIONS. Under the federal Comprehensive Environmental
Response Compensation and Liability Act, as amended, ("CERCLA") and under
certain state laws, a secured party which takes a deed in lieu of foreclosure,
purchases a Mortgaged Property at a foreclosure sale or operates a Mortgaged
Property may become liable in certain circumstances for the costs of remedial
action ("Remedial Action Costs") if hazardous wastes or hazardous substances
have been released or disposed of on the property. Such Remedial Action Costs
may be substantial. It is possible that such Remedial Action Costs could
subject the Collateral to a lien and reduce the amounts otherwise available to
pay to the holders
15
<PAGE>
of the Bonds if a Mortgaged Property securing a Pledged Loan was acquired by
the Bond Trustee through foreclosure or deed-in-lieu of foreclosure and if
such Remedial Action Costs were incurred. Moreover, certain state laws
impose a lien for any Remedial Action Costs incurred by such states on the
property that is the subject of such Remedial Action Costs. Foreclosure on
any Mortgaged Property known to be contaminated with or affected by hazardous
wastes or hazardous substances will be prohibited. The amounts otherwise
available to distribute to Bondholders may be reduced if a Mortgaged Property
securing a defaulted Pledged Loan is prohibited to be foreclosed. If a
Mortgaged Property is foreclosed upon and thereafter such Mortgaged Property
is determined to be contaminated, the Collateral may be reduced by the
amounts of any Remedial Action Costs imposed on the Bond Trustee. See "Legal
Aspects of Pledged Loans - Environmental Considerations."
16
<PAGE>
USE OF PROCEEDS
The Issuer will use all of the net proceeds from the sale of the Bonds of a
Series (i) to purchase or repay indebtedness with respect to the Mortgage
Collateral securing such Series of Bonds or (ii) to fund loans to each Finance
Company participating in such Series of Bonds pursuant to the Funding Agreements
with each such Finance Company. The net proceeds of the offering of Bonds of a
Series will be held in trust by the Issuer for the benefit of holders of Bonds
of such Series pending release (expected to be simultaneous) from such trust
upon receipt by the Bond Trustee of the Collateral for such Series of Bonds.
DESCRIPTION OF THE BONDS
The Bonds of each Series will be issued pursuant to the Indenture for such
Series and will be secured by the Mortgage Collateral and the Security Funds for
such Series of Bonds. The following summaries describe certain provisions of the
Bonds. The summaries do not purport to be complete and are subject to the
provisions of the Indenture relating to each Series of Bonds. When particular
provisions or terms used in the Indenture are referred to, the actual provisions
(including definitions of terms) are incorporated by reference.
The Indenture does not limit the amount of Bonds that can be issued
thereunder and provides that any Bonds of a Series may be issued thereunder up
to the aggregate principal amount that may be authorized from time to time by
the Issuer. (Indenture, Section 3.01.) Each Series of Bonds will consist of one
or more Classes of Bonds and may include (i) one or more Classes of Compound
Interest Bonds upon which interest will accrue but will not be payable until
each Class of Bonds of such Series with an earlier Stated Maturity has been paid
in full or until such other time as may be specified in the Prospectus
Supplement for such Series of Bonds, (ii) one or more Classes of Bonds
("Floating Rate Bonds" or "Variable Rate Bonds") on which the interest rate may
be adjusted periodically, (iii) one or more Classes of Bonds ("Principal Only
Bonds" or "Zero Coupon Bonds") which do not bear interest and (iv) one or more
Classes of Bonds ("Planned Amortization Class Bonds," "Super Planned
Amortization Class Bonds," "Targeted Planned Amortization Class Bonds,"
"Scheduled Amortization Yield Bonds," "Stabilized Mortgage Reduction Term Bonds"
or "Sinker Bonds") on which principal payments are made pursuant to a specified
repayment schedule to the extent to which funds are available therefor,
regardless of which other Classes of such Bonds remain outstanding as described
in the Prospectus Supplement for such Series. As specified in the Prospectus
Supplement for a Series of Bonds, the Bonds of a Series may be (i) Bonds with
respect to which no election is intended to be made with respect to the
Collateral securing such Series of Bonds to treat such Collateral as a REMIC for
federal income tax purposes ("Non-REMIC Bonds") or (ii) Bonds as to which such
an election is intended to be made ("REMIC Bonds"). The Classes of Bonds in a
Series consisting of REMIC Bonds may constitute "regular interests" (defined
below) in a REMIC or "residual interests" (defined below) in a REMIC. See
"Federal Income Tax Consequences to Bondholders."
The Bonds of each Series will be issued in fully registered, certificated
or book-entry form in the minimum denominations for each Class specified in the
related Prospectus Supplement. (Indenture, Section 3.02.) The Bonds of each
Series in certificated form may be transferred or exchanged at the corporate
trust office of the Bond Trustee without the payment of any service charge,
other than any tax or other governmental charge payable in connection therewith.
(Indenture, Section 3.05.). See "Description of the Bonds Book Entry
Registration."
Unless otherwise specified in the Prospectus Supplement for a Series of
Bonds, the Bond Trustee will make payments of principal and interest on the
Bonds of a Series by checks mailed to registered holders of such Bonds as of the
record date specified in such Prospectus Supplement for such Series of Bonds at
their addresses appearing on the books and records of the Issuer, except that
the final payments in retirement of each Class of Bonds of a Series in
certificated form will be made only upon presentation and surrender of such
Bonds at the office or agency of the Issuer maintained for that purpose.
(Indenture, Section 3.07.)
17
<PAGE>
PAYMENTS OF INTEREST
Unless otherwise specified in the related Prospectus Supplement, each Class
of Bonds of a Series will bear interest on its outstanding principal amount at a
fixed or variable rate as specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, interest on all
Bonds of a Series other than Compound Interest Bonds will be paid periodically
on the dates specified in such Prospectus Supplement. Payments of interest on a
Class of Compound Interest Bonds included in such Series will not begin until
each Class of Bonds of such Series with an earlier Stated Maturity has been paid
in full or until such other time as may be specified in the Prospectus
Supplement for such Series of Bonds. A later Class of Compound Interest Bonds
would, unless otherwise specified in the related Prospectus Supplement, be
effectively subordinated to bonds with an earlier Stated Maturity. Prior to
that time, interest on such Class of Compound Interest Bonds will accrue and
will be added to the principal amount of such Bonds. Thereafter, unless
otherwise specified in the related Prospectus Supplement, interest payments will
be made on such Class of Compound Interest Bonds on the unpaid Accreted Value of
such Class of Compound Interest Bonds. Unless otherwise specified in the
related Prospectus Supplement, the Accreted Value of a Class of Compound
Interest Bonds will equal the original principal amount of such Class of
Compound Interest Bonds plus accrued and accumulated interest compounded thereon
through the immediately preceding Payment Date for such Series, less any
principal payments made on such Class of Compound Interest Bonds.
PAYMENTS OF PRINCIPAL
Unless otherwise specified in the Prospectus Supplement for a Series of
Bonds, principal payments will be made on the Bonds of such Series on the
Payment Dates specified in such Prospectus Supplement in an aggregate amount
equal to the sum of (i) the Required Principal Payment (defined below) and (ii)
the percentage, if any, of the Excess Cash (defined below) specified in such
Prospectus Supplement. With respect to Required Principal Payments:
(i) Unless otherwise specified in the Prospectus for a Series of Bonds, the
Required Principal Payment for each Payment Date for such Series of Bonds will
be an amount equal to the difference between (a) the sum of (1) the principal
amount of the Bonds of such Series outstanding as of the close of business on
the immediately preceding Payment Date, and (2) the amount of interest, if any,
accrued on any Compound Interest Bonds included in such Series but not paid or
compounded since the Issue Date and (b) the aggregate Outstanding Bond Values
(defined below) of the Mortgage Collateral securing such Series of Bonds as of
the current Payment Date.
(ii) In the case of the first Payment Date, the Required Principal
Payment will be an amount equal to the difference between (a) the sum of (1)
the principal amount of the Bonds of such Series outstanding as of the Issue
Date and (2) the amount of interest, if any, accrued on any Compound Interest
Bonds included in such Series but not paid or compounded since the Issue
Date, and (b) the aggregate Outstanding Bond Values of the Mortgage
Collateral securing such Series of Bonds as of the current Payment Date.
(iii) In the event a redemption or Special Redemption has occurred since
the immediately preceding Payment Date, the Required Principal Payment will
be the difference between (a) the sum of (1) the principal amount of the
Bonds of such Series outstanding as of the latest redemption date or special
redemption date (defined below), and (2) the amount of interest, if any,
accrued on any Compound Interest Bonds included in such Series but not paid
or compounded since the immediately preceding Payment Date which is not then
payable and (b) the aggregate Outstanding Bond Values of the Mortgage
Collateral securing such Series of Bonds as of the current Payment Date.
All payments of principal on the Bonds of a Series will be allocated among
the Classes of Bonds of such Series in the order and amounts specified in the
related Prospectus Supplement. All payments of principal on Bonds of a
particular Class will be applied on a PRO RATA, random lot or other selection
basis among all Bonds of such Class, as specified in the related Prospectus
Supplement. See "Description of the Bonds-Payments of Principal and Interest."
The Excess Cash for a Series of Bonds as of any Payment Date will be the
excess, if any, of the sum of (i) all distributions received on the Mortgage
Collateral securing such Series of Bonds in the period preceding such Payment
Date, (ii) the reinvestment income thereon, and (iii) if applicable, the amount
of cash withdrawn from any Security Fund securing such Series of Bonds since the
immediately preceding Payment Date, over the sum of (a) all interest accrued and
paid or
18
<PAGE>
payable on the Bonds of such Series since the immediately preceding Payment
Date, (b) the Required Principal Payment for such Series of Bonds for such
Payment Date, (c) the principal amount of Bonds of such Series redeemed
pursuant to any redemption since the immediately preceding Payment Date, (d)
the amount of any required deposits to any applicable Security Fund and (e)
certain expenses, including the Owner-Trustee fees and expenses, the Bond
Trustee fees and expenses (disclosed in the Indenture for a Series of Bonds),
the Master Servicer fees and expenses (as disclosed in the Master Servicing
Agreement for a Series of Bonds) and the Manager (defined below) fees and
expenses (as disclosed in the Management Agreement for a Series of Bonds).
Reference is made to a form of Indenture, Master Servicing Agreement and
Management Agreement filed as Exhibits to the Registration Statement of which
this Prospectus constitutes a part.
The Stated Maturity for a Class of Bonds will be determined based upon the
quantity and quality of the Collateral securing a Class of Bonds. Material
facts regarding such Collateral will be specified in the related Prospectus
Supplement for a Series of Bonds and will be the basis of determining the Stated
Maturity for a Class of Bonds. All or a portion of the payments, including
prepayments on the Mortgage Collateral securing a Series of Bonds, will be used
to amortize Bonds of such Series, as described in the related Prospectus
Supplement. The rate of prepayments on the Mortgage Collateral securing a
Series of Bonds will depend on the characteristics of any mortgage loans
included in or underlying such Mortgage Collateral, as well as on the prevailing
level of interest rates from time to time and other economic factors. No
assurance can be given as to the actual prepayment experience of such Mortgage
Collateral. See "Description of the Bonds - Maturity and Prepayment
Considerations."
The proceeds of any mortgage loans underlying the Mortgage Certificates
securing a Series of Bonds liquidated as the result of defaults by mortgagors
together with the proceeds paid by GNMA, FHLMC and FNMA pursuant to their
guarantees will be treated as prepayments under such Mortgage Certificates.
The proceeds of any Pledged Loans securing a Series of Bonds liquidated as a
result of defaults by mortgagors, together with proceeds of Insurance
Policies, guarantees or the Overcollateralization Fund with respect to such
Pledged Loans will be treated as prepayments on such Pledged Loans, to the
extent not reimbursable to a Servicer or the Master Servicer. The
liquidation proceeds of the mortgage loans underlying such Mortgage
Certificates and of such Pledged Loans plus proceeds of Insurance Policies,
guarantees or the Overcollateralization Fund expected to be realized in
connection therewith will be sufficient to cover the Outstanding Bond Values
attributable to such liquidated Mortgage Certificates and Pledged Loans.
VALUATION OF THE MORTGAGE COLLATERAL
Unless otherwise specified in the related Prospectus Supplement, the Bond
Value for each item of Mortgage Collateral securing a Series of Bonds will
represent the principal amount of Bonds of such Series that, based on certain
assumptions and irrespective of the prepayments on such item of Mortgage
Collateral, can be supported by the distributions on such item of Mortgage
Collateral, together with (depending on the type of such Mortgage Collateral and
the method used to determine its Bond Value) the Reinvestment Income (defined
below) thereon at the Assumed Reinvestment Rate (defined below) and, if
applicable, the cash available to be withdrawn from any Security Fund with
respect to such Series of Bonds. The method and related assumptions for
calculating the Bond Values of the Mortgage Collateral securing a Series of
Bonds will be specified in the Indenture for such Series of Bonds. In any
event, the aggregate of the Bond Values of all Mortgage Collateral securing a
Series of Bonds at the Issue Date of the Bonds of such Series ("Aggregate
Initial Bond Value") will be at least equal to the original principal amount of
the Bonds of such Series.
The method of calculation of the outstanding Bond Value with respect to any
item of Mortgage Collateral securing a Series of Bonds may be modified at any
time so long as such modification does not result in a downgrading of the then
applicable rating by the Rating Agency. The Issuer may withdraw Mortgage
Collateral or cash securing a Series of Bonds to the extent of the excess, if
any, of the outstanding Bond Value of the Mortgage Collateral securing such
Series of Bonds over the unpaid principal amount of the Bonds of such Series
then outstanding. However, such withdrawal may occur only if the Bond Trustee
shall have received a certificate of a firm of independent certified public
accountants acceptable to the Bond Trustee to the effect that the disbursement
of such funds will not impair the security of the Bonds in contravention of the
provisions of the Indenture for a Series of Bonds. (Indenture, Section 13.05)
Reinvestment Income ("Reinvestment Income") for a Series of Bonds will be
based on the applicable contractually specified interest rates pursuant to
guaranteed reinvestment agreements with an institution acceptable to the Rating
Agency or other specified interest rates acceptable to the Rating Agency
("Assumed Reinvestment Rates"). The Assumed
19
<PAGE>
Reinvestment Rates for a Series of Bonds will be specified in the related
Prospectus Supplement when Reinvestment Income is used to calculate Bond
Value.
Unless otherwise specified in the Prospectus Supplement for a Series of
Bonds, each Buy-Down Pledged Loan securing such Series of Bonds will be valued
by taking into account the deposit to the Buy-Down Fund for such loan. If any
item of GPM Collateral securing a Series were to be valued on a level debt
service basis in calculating its Bond Value at the Issue Date of the Bonds of
such Series then such item of GPM Collateral would be valued as though such item
of GPM Collateral were amortized on a level debt service basis by taking into
account the deposit to the Supplemental Debt Service Fund for such item of GPM
Collateral. See "Security for the Bonds-Supplemental Debt Service Fund" and
"Security for the Bonds - Buy-Down Fund."
OVERCOLLATERALIZATION
To the extent specified in the Prospectus Supplement for a Series of Bonds,
the Mortgage Collateral securing such Series of Bonds may include a certain
level of overcollateralization ("Overcollateralization Amount") to fund losses
resulting from delinquencies, defaults and other losses not recoverable from
insurance policies ("Aggregate Loan Losses") on Pledged Loans securing such
Series of Bonds. The Aggregate Initial Overcollateralization Amount with
respect to a Series of Bonds will be based on an assumed level of Aggregate Loan
Losses with respect to the Pledged Loans securing such Series of Bonds and will
be specified in the Prospectus Supplement for such Series.
If the Mortgage Collateral securing a Series of Bonds includes an
Overcollateralization Amount, the Issuer will be required to maintain with the
Bond Trustee an Overcollateralization Fund for such Series of Bonds in an amount
equal to the Aggregate Initial Overcollateralization Amount reduced by (i) the
Aggregate Loan Losses on the related Pledged Loans securing such Series of Bonds
and (ii) the difference between (a) the Aggregate Outstanding Collateral Value
(defined below) of the Mortgage Collateral at the date of determination and (b)
the principal amount of the Bonds outstanding at the date of determination. The
Aggregate Outstanding Collateral Value represents the aggregate outstanding Bond
Values of the Mortgage Collateral before taking into account any
Overcollateralization Amounts. The amount required to be maintained in the
Overcollateralization Fund may be reduced from time to time to the extent that
such reductions will not result in a downgrading of the then applicable rating
by the Rating Agency. However, such withdrawal may only occur if the Bond
Trustee shall have received a certificate of a firm of independent certified
public accountants acceptable to the Bond Trustee to the effect that the
disbursement of such funds will not impair the security of the Bonds in
contravention of the provisions of the Indenture for a Series of Bonds.
(Indenture, Section 13.05)
Amounts in the Overcollateralization Fund for a Series of Bonds will be
available to fund the Aggregate Loan Losses on the related Mortgage
Collateral securing such Series of Bonds. See "Security for the
Bonds-Overcollateralization Fund."
REDEMPTION
To the extent specified in the Prospectus Supplement for a Series of
Bonds having other than monthly Payment Dates, the Bonds of such Series may
be subject to Special Redemption, in whole or in part, on a PRO RATA, random
lot or other selection basis as may be specified in such Prospectus
Supplement, on the day of any month specified in such Prospectus Supplement
upon the Issuer's or the Bond Trustee's determination in accordance with
certain assumptions specified in the Indenture for such Series of Bonds that,
because of principal prepayments on the Pledged Loans and the yields then
available for reinvestment, the funds in the Collection Account for such
Series of Bonds on the next succeeding Payment Date would be insufficient to
meet the debt service requirements on the Bonds of such Series on such
Payment Date. The amount of any Special Redemption with respect to a Series
of Bonds will be limited to the amount of principal payments on the Mortgage
Collateral securing such Series of Bonds received since the immediately
preceding Payment Date or intervening special redemption date or redemption
date that would otherwise be required to be applied to the payment of
principal on the Bonds of such Series on the next succeeding Payment Date.
As a result, no Special Redemption of Bonds of a Series can shorten the
maturity of the Bonds so redeemed by more than the period of time between
the date on which the Special Redemption occurs and the next succeeding
Payment Date for such Series.
20
<PAGE>
With respect to a Series of Bonds subject to Special Redemption, a portion
of the Excess Cash specified in the related Prospectus Supplement may be held by
the Bond Trustee for application, if necessary, to the payment of interest on
the Bonds of such Series in the event of prepayments on the Mortgage Collateral
securing such Series of Bonds and will, when the amounts so held reach the
required level, preclude the need for a Special Redemption. To the extent
specified in the related Prospectus Supplement such Excess Cash may be applied
to pay principal on the Bonds of such Series.
All payments of principal pursuant to any Special Redemption will be made
in the priority and manner specified in the related Prospectus Supplement. The
special redemption dates ("Special Redemption Dates") for a Series of Bonds will
be the day of the month specified in the related Prospectus Supplement. Notice
of any Special Redemption must be mailed by the Issuer or the Bond Trustee as
specified in the related Prospectus Supplement. The redemption price for any
Bonds of a Series to be redeemed pursuant to a Special Redemption will be equal
to the unpaid principal amount of the Bonds of such Series (or portion thereof
to be redeemed) or 100% of the unpaid Accreted Value of any Compound Interest
Bonds or portion thereof to be redeemed) together with accrued interest thereon,
if any, as specified in the related Prospectus Supplement. (Indenture, Section
11.02.)
The Issuer also may redeem, at its option, or at the option of such
other persons or entities specified in the Prospectus Supplement, in whole or
in part, on a PRO RATA, random lot or other selection basis, the Bonds of any
Class of a Series as specified in the related Prospectus Supplement prior to
their Stated Maturity under the circumstances specified in the related
Prospectus Supplement. Notice of such redemption must be mailed by the Issuer
or the Bond Trustee as specified in the related Prospectus Supplement. The
redemption price for any Bond (or portion thereof) to be redeemed will be the
percentage of the unpaid principal amount of such Bonds specified in the
related Prospectus Supplement, together with accrued interest thereon, if
any, as specified in the related Prospectus Supplement. (Indenture, Section
11.01.)
To the extent specified in a Prospectus Supplement for a Series of Bonds,
one or more Classes of Bonds of such Series may be subject to optional
redemption by the holders of such Bonds or to mandatory redemption by the Issuer
through the operation of a Redemption Fund specified in such Prospectus
Supplement. Any such optional or mandatory redemption with respect to a Series
of Bonds and the operation of such Redemption Fund for such Series of Bonds will
be described in the related Prospectus Supplement and will be on such terms and
conditions as described therein and specified in the Indenture for such Series
of Bonds.
The Issuer also may, at its option, obtain for any Series of Bonds one or
more guarantees from a company or companies acceptable to the Rating Agency.
Such guarantees may provide for one or more of the following for any Series of
Bonds: (i) call protection for any Class of Bonds of such Series, (ii) a
guaranty of a certain prepayment rate of some or all of the Pledged Loans
included in or underlying the Mortgage Collateral for such Series, (iii) a
guarantee of a certain prepayment experience (described below) for the Bonds of
such Series, or (iv) certain other guarantees, all as specified in the related
Prospectus Supplement.
MATURITY AND PREPAYMENT CONSIDERATIONS FOR CERTAIN FIRST MORTGAGES ON SINGLE-
FAMILY RESIDENCES
For any Series of Bonds, a portion of the mortgage loans underlying the
Mortgage Certificates and the Pledged Loans securing a Series of Bonds may
consist of first lien residential mortgages or deeds of trust. The mortgage
loans underlying the GNMA Certificates securing a Series of Bonds may consist of
FHA or VA Loans and other qualifying conventional mortgage loans; the mortgage
loans underlying the FNMA Certificates securing a Series of Bonds may consist of
conventional loans, FHA or VA Loans; the mortgage loans underlying the FHLMC
Certificates securing a Series of Bonds may consist of conventional loans; and
the Pledged Loans securing a Series of Bonds may consist of conventional loans,
FHA or VA Loans. See "Security for the Bonds."
The prepayment experience on the mortgage loans underlying the Mortgage
Certificates and on the Pledged Loans will affect the average life of each Class
of Bonds of a Series secured thereby and the extent to which each such Class is
paid prior to its Stated Maturity. The Stated Maturity for each Class of Bonds
of a Series will be the date on which the principal thereof will be fully paid,
assuming a rate of principal prepayments with respect to the Mortgage Collateral
securing such Bonds as specified in the related Prospectus Supplement and that
the scheduled payments of principal and interest on such Mortgage Collateral
will be invested at the applicable Assumed Reinvestment Rates for such Series.
Because certain of the mortgage loans underlying the Mortgage Certificates may
have terms to maturity that are shorter than those indicated by the
21
<PAGE>
maturity of the related Mortgage Certificates, the Bonds of the related
Series may be fully paid prior to their Stated Maturity even in the absence
of prepayments and a rate of return on the distributions on such Mortgage
Certificates in excess of the Assumed Reinvestment Rates for such Series.
22
<PAGE>
The experience of the FHA relating to insured single-family mortgage
loans at various interest rates with original maturities of 15 years or 26 to
30 years, all of which permit assumption by the new buyer if the home is sold
(as will the FHA and the VA Loans and certain of the mortgage loans
underlying the FHLMC Certificates and FNMA Certificates and certain of the
Pledged Loans pledged to secure a Series of Bonds), indicates that, while
some of such mortgage loans will remain outstanding until their scheduled
maturity, a substantial number will be prepaid prior to their scheduled
maturity. Prepayments on the mortgage loans underlying the Mortgage
Certificates and on the Pledged Loans securing a Series of Bonds will be
passed through to the holder of the Mortgage Certificate or Pledged Loan as a
prepayment on such Mortgage Certificate or Pledged Loan and a portion of such
prepayment proceeds will be paid to holders of Bonds of such Series as
additional principal payments on the Bonds of such Series. Accordingly, if
the prepayment experience on the mortgage loans underlying the Mortgage
Certificates and on the Pledged Loans securing a Series of Bonds conforms to
the general experience described above, a substantial portion of the mortgage
loans underlying the Mortgage Certificates and the Pledged Loans, and
consequently the Bonds of such Series, will be prepaid prior to their
maturity.
Prepayments on mortgages are commonly measured relative to a prepayment
standard or model, such as the FHA Prepayment Experience, the Single Monthly
Mortality prepayment model ("SMM"), the Conditional Prepayment Rate
prepayment model ("CPR"), each as described below, or such other prepayment
model assumption ("PMA") as may be specified in the Prospectus Supplement
relating to a Series of Bonds.
The Actuarial Division of the U.S. Department of Housing and Urban
Development ("HUD") has prepared tables which, assuming full mortgage
prepayments at the rates experienced by FHA, set forth the percentage ("FHA
Prepayment Experience") of the original number of FHA Loans in a pool
consisting of 15-year, 20-year, 25-year or 30-year level payment mortgage
loans which will remain outstanding on each anniversary of the origination
date of such mortgage loans (assuming such mortgage loans all have the same
origination date).
SMM represents a constant assumed rate of prepayment each month relative
to the then outstanding principal balance of a pool of mortgages for the life
of the mortgages.
CPR represents an annual constant assumed rate of prepayment each month
relative to the then outstanding principal balance of a pool of mortgages for
the life of the mortgages.
The Prospectus Supplement for each Series of Bonds will contain tables
setting forth the projected weighted average life of each Class of Bonds of
such Series and percentages of the original principal amount of each Class of
Bonds of such Series that would be outstanding on specified Payment Dates for
such Series based on the terms of the Bonds of such Series and on the
following assumptions. In preparing the table for each Series of Bonds, it
will be assumed that the mortgage loans underlying the Mortgage Certificates
and the Pledged Loans securing such Series of Bonds will prepay in full at
rates exactly equal to the percentages identified therein of FHA Prepayment
Experience, SMM, CPR or PMA as specified in the related Prospectus
Supplement. Unless and until any such loan prepays in full, it will be
assumed that the loan will pay principal and interest in accordance with its
original payment schedule. The information provided in the table for each
Series of Bonds will be based on the Mortgage Collateral expected to be
pledged as security for such Series of Bonds as specified under "Security for
the Bonds - The Mortgage Collateral Securing the Bonds" specified in the
related Prospectus Supplement. To the extent that the Mortgage Collateral
ultimately pledged as security for a Series of Bonds differs from the
description contained in the related Prospectus Supplement, non-material
variances in such information may result.
There is no assurance that prepayment of the mortgage loans underlying
the Mortgage Certificates and the Pledged Loans securing a Series of Bonds
will conform to any of the percentages of FHA Prepayment Experience, SMM, CPR
or PMA specified in the table in the related Prospectus Supplement. In
preparing the table, unless otherwise specified in the Prospectus Supplement
for a Series of Bonds, the FHA Prepayment Experience, SMM, CPR or PMA, as
applicable, will be applied to the remaining principal payments of the
mortgage loans within each pool underlying the Mortgage Certificates and to
the remaining principal payments on the Pledged Loans securing such Series of
Bonds as if each were originated on approximately the date of the issuance of
the Bonds of such Series, although the Mortgage Collateral securing a Series
of Bonds may have origination dates which vary substantially from the date of
issuance of the Bonds of such Series as specified in the related Prospectus
Supplement. It will be assumed that reductions in the number of mortgage
loans in a pool will effect proportionate reductions in the aggregate balance
of loans within that pool. It also will be assumed that the mortgage loans
23
<PAGE>
within each pool underlying the Mortgage Certificates securing a Series of
Bonds will prepay at the indicated rates of FHA Prepayment Experience, SMM,
CPR or PMA, as applicable, notwithstanding the fact that each pool of
mortgage loans underlying the Mortgage Certificates may vary substantially,
both as to interest rate and payment terms, from all other such pools. It
should also be noted that certain Mortgage Certificates securing a Series of
Bonds may be backed by mortgage loans with different interest rates.
Accordingly, the prepayment experience of such Mortgage Certificates will to
some extent be a function of the mix of interest rates of the underlying
mortgage loans. The stated certificate rate on certain Mortgage Certificates
may be up to 3% less than the underlying mortgage loans. Variations in actual
prepayment experience and the balance of the mortgage loans which prepay,
both within and among pools underlying the Mortgage Certificates securing a
Series of Bonds, may increase or decrease the percentages of original
principal amount (and weighted average lives) shown in the table which will
be set forth in the related Prospectus Supplement. Such variations may occur
even if the average prepayment experience of all such pools exactly equals
the indicated levels of FHA Prepayment Experience, SMM, CPR or PMA specified
in the related Prospectus Supplement.
In addition to the foregoing, there are likely to be substantial
differences between the composition of the mortgage portfolio on which the
prepayment statistics of the FHA were based and the composition of the
mortgage loans underlying the Mortgage Certificates and the Pledged Loans
securing a Series of Bonds. The FHA statistics were based on mortgage loans
which bore interest rates which generally can be expected to differ from the
rates on the mortgage loans underlying the Mortgage Certificates and the
Pledged Loans which will be pledged to secure a Series of Bonds and to have
payment terms different than the mortgage loans underlying the Mortgage
Certificates and the Pledged Loans which will be pledged to secure a Series
of Bonds. Certain of such Pledged Loans may be Buy-Down Pledged Loans or GPM
Pledged Loans and certain of the GNMA Certificates may be Buy-Down GNMA
Certificates or GPM GNMA Certificates. No statistics comparable to the FHA
Prepayment Experience with respect to 30-year single-family mortgage loans
are available regarding buy-down or graduated payment mortgage loans. The
FHA statistics were based on FHA Loans. Although certain of the mortgage
loans underlying the GNMA Certificates, the FNMA Certificates and certain of
the Pledged Loans securing a Series of Bonds may be FHA Loans, most of the
mortgage loans underlying the Other Mortgage Certificates and most of the
Pledged Loans may be conventional loans. Moreover, the FHA statistics were
compiled from mortgage loans secured by single-family residences located in
all geographic regions of the United States while the mortgage loans
underlying the Mortgage Certificates and the Pledged Loans securing a Series
of Bonds may be secured by residences located in only certain geographic
locations. Certain of the conventional Pledged Loans securing a Series of
Bonds may contain "due-on-sale" clauses. In the case of transfers of the
underlying Mortgaged Property securing FHLMC Certificates and FNMA
Certificates, FHLMC and FNMA servicers are required to exercise "due-on-sale"
clauses to the extent permitted under law. Under current law, such exercise
is permitted for substantially all of the mortgage loans which contain such
clauses. Acceleration is not permitted however, for certain types of
transfers including transfer on the death of a joint tenant or tenant by the
entirety and the granting of a leasehold interest of three years or less not
containing an option to purchase. In addition, there is no assurance that
the economic and other factors existing during the period when the FHA
statistics were compiled are applicable today or will be applicable in the
future. Similarly, there are likely to be substantial differences between
the composition of the mortgage portfolio on which the prepayment statistics
of SMM, CPR or PMA were based and the composition of the mortgage loans
underlying the Mortgage Certificates and the Pledged Loans securing a Series
of Bonds. As a result, there is no assurance that the prepayment experience
of the mortgage loans underlying the Mortgage Certificates and of the Pledged
Loans securing the Bonds of a Series will approximate such FHA Prepayment
Experience, SMM, CPR or PMA, as applicable. See "Certain Legal Aspects of
Pledged Loans - "Due-on-Sale" Clauses."
With respect to a Series of Bonds secured by Other Mortgage Certificates
which have rates of repayment that may be affected by prepayments, the
prepayment experience of such Other Mortgage Certificates will affect the
average life of each Class of Bonds of a Series secured thereby and the
extent to which each Class is paid prior to its Stated Maturity. The
Prospectus Supplement for a Series of Bonds secured by any such Other
Mortgage Certificates will set forth information regarding the prepayment
experience of such Other Mortgage Certificates.
Year 2000 Readiness. The inability of computers, software and other
equipment utilizing microprocessors to recognize and properly process date
fields containing a two-digit year is commonly referred to as the "Year 2000
Issue". As the year 2000 approaches, such systems may recognize a date using
"00" as the year 1900 rather than the year 2000 and be unable to accurately
process certain date-based information.
The Issuer has reviewed mission-critical computer systems in order to
evaluate necessary modifications for Year 2000 readiness. The Issuer does not
anticipate any material difficulties in achieving Year 2000 readiness with
respect to mission-critical computer systems. Furthermore, the Issuer does
not anticipate that they will incur material expenditures in connection with
any modifications necessary to achieve Year 2000 readiness. In addition, the
Issuer is in the process of communicating with other companies with whom they
do significant business to determine their Year 2000 readiness status and the
extent to which the Issuer could be affected by any third party Year 2000
readiness issues. Although the Issuer has not received responses from all
third parties with whom it does business, the Issuer does not anticipate that
it will be materially affected by any third party Year 2000 readiness issues.
However there can be no assurance that the systems of the Issuer or those of
the other companies on which the systems rely will be timely converted, or
that a failure to convert by another company, or a conversion that is
incompatible with the Issuer's systems, would not have a material adverse
effect on the Issuer and its ability to perform its obligations under any
Agreement.
The anticipated costs and timeliness of completion of Year 2000
modifications are based on management's best estimates, which were derived
using numerous assumptions relating to future events, including, without
limitation, the continued availability of certain resources and third party
modification plans. However, there can be no assurance that the estimates
and assumptions will prove to be accurate.
RATINGS FOR THE BONDS
Unless specified otherwise in the related Prospectus Supplement, the
Bonds of a Series may be rated by one or more of the following rating
agencies; (i) Moody's Investors Service ("Moody's"); (ii) Standard & Poor's
Ratings Group ("Standard & Poor's"); (iii) Duff & Phelps Credit Rating
Company ("Duff & Phelps"); or (iv) another nationally recognized rating
agency. A rating from such agency is merely at opinion of the Rating
24
<PAGE>
Agency, and is not a recommendation to buy, sell or hold securities and does
not constitute a guarantee by such agency or the Issuer.
The Issuer, at its cost, may from time to time request a re-rating of a
Series or Class of Bonds with respect to any of the funds which together
constitute the Security Funds as specified in a related Prospectus Supplement
for a Series of Bonds. The Issuer may reduce and release from one or more of
such funds under certain conditions, as would not result in a downgrading of
the rating of a Series or Class of Bonds or an underfunding of such fund.
However, a withdrawal or reduction of funds from any such fund cannot be
effectuated if it would result in an underfunded fund, even if it would not
impact the credit rating of a Series of Bonds. (Indenture, Section 13.05)
See "Security for the Bonds."
ASSIGNMENT OF MORTGAGE COLLATERAL
At the time of issuance of the Bonds of a Series, unless specified
otherwise in the related Prospectus Supplement, the Issuer will cause the
Pledged Loans to be sold and assigned to the Bond Trustee, together with all
principal and interest received by or on behalf of the Issuer on or with
respect to such Pledged Loans after a date certain ("Cut-off Date"), other
than principal and interest due on or before the Cut-off Date. Each Pledged
Loan will be identified in a schedule which includes information as to the
outstanding principal balance of each Pledged Loan after application of
payments due on the Cut-off Date, as well as information regarding the
interest rate, the current scheduled monthly payment of principal and
interest, the maturity of the loan, the loan-to-value ratio at origination
and certain other information.
BOOK-ENTRY REGISTRATION
Unless otherwise specified in the related Prospectus Supplement, the
Bonds will be registered in the name of Cede & Co., the nominee of the
Depository Trust Company ("DTC"). DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the UCC and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold
securities for its participating organizations ("Participants") and to
facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entry changes in their accounts, thereby
eliminating the need for physical movement of Bonds. Participants include
securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. Indirect access to
the DTC system also is available to others such as brokers, dealers, banks
and trust companies that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly ("Indirect Participant").
Under a book-entry format, Bondholders that are not Participants or
Indirect Participants but desire to purchase, sell or otherwise transfer
ownership of Bonds registered in the name of Cede, as nominee of DTC, may do
so only through Participants and Indirect Participants. In addition, such
Bondholders will receive all distributions of principal of and interest on
the Bonds from the Bond Trustee through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations ("Rules"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Bonds and is
required to receive and transmit payments of principal of and interest on the
Bonds. Participants and Indirect Participants with which Bondholders have
accounts with respect to the Bonds similarly are required to make book-entry
transfers and receive and transmit such payments on behalf of their
respective Bondholders. Accordingly, although Bondholders will not possess
Bonds, the Rules provide a mechanism by which Bondholders will receive
distributions and will be able to transfer their interests.
Bondholders who are not Participants may transfer ownership of Bonds
only through Participants by instructing such Participants to transfer Bonds,
by book-entry transfer, through DTC for the account of the purchasers of such
Bonds, which account is maintained with their respective Participants. Under
the Rules transfers of ownership of Bonds will be executed through DTC and
the accounts of the respective Participants at DTC will be debited and
credited. Similarly, the respective Participants will make debits or credits,
as the case may be, on their records on behalf of the selling and purchasing
Bondholders.
25
<PAGE>
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Bondholder to pledge Bonds to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such Bonds may be
limited due to the lack of a physical Bond for such Bonds.
Any Bonds initially registered in the name of Cede ("Cede Bond"), as
nominee of DTC, will be issued in fully registered, bond form to Bondholders
or their nominees ("Definitive Bonds"), rather than to DTC or its nominee
only under the circumstances specified in the related Prospectus Supplement.
Such events may include the following: (i) the Depositor advises the Bond
Trustee in writing that DTC is no longer willing or able to properly
discharge its responsibilities as Depository with respect to the Bonds, and
the Bond Trustee or the Depositor is unable to locate a qualified successor,
(ii) the Depositor, at its option, elects to terminate the book-entry system
through DTC, or (iii) after the occurrence of an Event of Default,
Bondholders representing not less than 50% of the aggregate of outstanding
Bonds advise the Bond Trustee and DTC through Participants in writing that
the continuation of a book-entry system through DTC (or a successor thereto)
is no longer in the best interest of the Bondholders. Upon the occurrence of
any of the events specified in the related Prospectus Supplement, DTC will be
required to notify all Participants of the availability through DTC of
Definitive Bonds. Upon surrender by DTC of the Cede Bonds and instruction
for re-registration, the Bond Trustee will issue the Bonds in the form of
Definitive Bonds, and thereafter the Bond Trustee will recognize the holders
of such Definitive Bonds as Bondholders. Thereafter, payments of principal of
and interest on the Bonds will be made by the Bond Trustee directly to
Bondholders in accordance with the procedures specified in the Prospectus
Supplement. The final distribution of any Bond (whether Definitive Bonds or
Cede Bonds however, will be made only upon presentation and surrender of such
Bonds on the final Payment Date at such office or agency as is specified in
the notice of final payment to Bondholders.
SECURITY FOR THE BONDS
GENERAL
Each Series of Bonds will be secured by the pledge to the Bond Trustee
of the Collateral, net of applicable servicing, administration and guarantee
fees and insurance premiums, together with Reinvestment Income thereon at the
applicable Assumed Reinvestment Rates for such Series, will be sufficient to
make the required payments of interest on the Bonds of such Series and to pay
the entire principal amount of each Class of Bonds of such Series not later
than the Stated Maturity of such Class. Unless otherwise stated in the
Prospectus Supplement for a Series of Bonds, the principal of and interest on
the Bonds of such Series will be payable solely from the Collateral securing
such Series.
Any Series of Bonds also may be secured by certain other funds,
accounts, letters of credit, surety bonds and other credit enhancement
devices described in the Prospectus Supplement for such Series of Bonds. To
the extent described in the applicable Prospectus Supplement and to the
extent that it will not result in the downgrading of the then rating of a
Series of Bonds by the Rating Agency, certain Collateral may be pledged to
secure more than one Series of Bonds.
With respect to any Series of Bonds, the Issuer also will have the right
to substitute comparable coverage with another insurer or provide equivalent
protection for any of the Insurance Policies (or deposits in lieu thereof
securing such Series of Bonds so long as such substitution will not result in
the downgrading of the then rating of the Bonds of such Series by the Rating
Agency).
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
GNMA is a wholly-owned corporate instrumentality of HUD. Section 306(g)
of Title III of the Housing Act of 1949 ("Housing Act") authorizes GNMA to
guarantee the timely payment of the principal of and interest on certificates
which represent an interest in a pool of mortgages insured by FHA or HUD
under the Housing Act, or Title V of the Housing Act or partially guaranteed
by the United States Veterans Administration ("VA") under the Servicemen's
Readjustment Act of 1944, as amended, or Chapter 37 of Title 38, United
States Code and other loans eligible for inclusion in mortgage pools
underlying GNMA certificates.
26
<PAGE>
Section 306(g) of the Housing Act provides that "the full faith and
credit of the United States is pledged to the payment of all amounts which
may be required to be paid under any guaranty under this subsection." An
opinion, dated December 12, 1969, of an Assistant Attorney General of the
United States, states that such guarantees under Section 306(g) of
mortgage-backed certificates of the type to be pledged to the Bond Trustee as
security for the Bonds are authorized to be made by GNMA and "would
constitute general obligations of the United States backed by its full faith
and credit."
In order to meet its obligation under any such guaranty, GNMA may, under
Section 306(d) of the Housing Act, issue its general obligations to the
United States Treasury in an amount which is at any time sufficient to enable
GNMA, with no limitations as to amount, to perform its obligations under its
guaranty. GNMA represents that, in the event it is called upon at any time to
make good its guaranty, it has the full power and authority to borrow from
the Treasury of the United States, if necessary, amounts sufficient to make
payments of principal and interest on GNMA certificates and that the
Secretary of the Treasury has agreed to lend such amounts.
GNMA CERTIFICATES
Each GNMA Certificate securing a Series of Bonds (which may be a GNMA I
Certificate or a GNMA II Certificate as referred to by GNMA) will be a
"fully-modified pass-through" mortgage-backed certificate issued and serviced
by a mortgage banking company or other financial concern ("GNMA Issuer")
approved by GNMA and by FNMA as a seller-servicer of FHA and VA Loans.
GNMA will approve the issuance of each such GNMA Certificate in
accordance with a guaranty agreement ("Guaranty Agreement") between GNMA and
the GNMA Issuer. Reference is made to a Form of the Guaranty Agreement,
which has been filed as an Exhibit to the Registration Statement of which
this Prospectus forms a part. Pursuant to the Guaranty Agreement, the GNMA
Issuer will be required to advance its own funds in order to make timely
payments of all amounts due on each such GNMA Certificate, even if the
payments received by the GNMA Issuer on the mortgage loans underlying each
such GNMA Certificate are less than the amounts due on each such GNMA
Certificate.
GNMA will guarantee the full and timely payment of principal of and
interest on each GNMA Certificate securing a Series of Bonds, which
obligation will be backed by the full faith and credit of the United States.
Each such GNMA Certificate will have an original maturity of not more than 30
years (but may have original maturities of substantially less than 30 years).
Each such GNMA Certificate will be based on and backed by a pool of mortgage
loans and will provide for the payment by or on behalf of the GNMA Issuer to
the registered holder of such GNMA Certificate of fixed monthly payments of
principal and interest equal to the aggregate amount of the scheduled monthly
principal and interest payments on the mortgage loans underlying such GNMA
Certificate, less servicing and guarantee fees. In addition, each payment
will include any prepayments of principal on the mortgage loans underlying
such GNMA Certificate and liquidation proceeds in the event of a foreclosure
or other disposition of any such mortgage loans.
The GNMA Certificates do not constitute a liability of, or evidence any
recourse against, the issuers of the GNMA Certificates, the Issuer, the
Servicer, or any of their respective affiliates, and the only recourse of a
holder thereof, such as the Bond Trustee, is to enforce a GNMA guaranty of
timely payment of principal and interest.
FEDERAL HOME LOAN MORTGAGE CORPORATION
FHLMC is a corporate instrumentality of the United States created
pursuant to an Act of Congress (Title III of the Emergency Home Finance Act
of 1970, as amended, 12 U.S.C. Sub-Sections 451-1459) ("FHLMC Act") on July
24, 1970. FHLMC was established primarily for the purpose of increasing the
availability of mortgage credit for the financing of urgently needed housing.
It seeks to provide an enhanced degree of liquidity for residential mortgage
investments primarily by assisting in the development of secondary markets
for conventional mortgages. The principal activity of FHLMC currently
consists of the purchase of first lien conventional mortgage loans or
participation interests in such mortgage loans and the resale of the mortgage
loans so purchased in the form of mortgage securities, primarily FHLMC
Certificates. All mortgage loans purchased by FHLMC must meet certain
standards set forth in the FHLMC Act. FHLMC is confined to purchasing, so
far as practicable, mortgage loans which it deems to be of such quality, type
and class as to meet generally the purchase standards imposed by private
institutional mortgage investors. All of the mortgage loans evidenced by a
27
<PAGE>
FHLMC certificate are conventional mortgages and therefore do not have the
benefit of any guarantee or insurance by, and are not obligations of, the
United States or any agency or instrumentality of the United States.
FHLMC CERTIFICATES
Each FHLMC Certificate securing a Series of Bonds will represent an
undivided interest in a group of mortgages ("FHLMC Certificate group")
purchased by FHLMC. Each such FHLMC Certificate group will contain fixed
rate level installment conventional mortgage loans with original terms to
maturity of between 10 and 30 years secured by first liens on one-family or
two-to-four family residential properties. A FHLMC Certificate group may
include whole loans, participation interests in whole loans and individual
interests in whole loans and/or participations comprising another FHLMC
Certificate group. Each such FHLMC Certificate will be issued under the
terms of a Mortgage Participation Certificate Agreement which, if applicable
will be filed as an exhibit to an amended Registration Statement. A FHLMC
Certificate may be issued under programs created by FHLMC, including its
Cash Program or Guarantor Program.
FHLMC will guarantee to the Bond Trustee as the registered holder of
each FHLMC Certificate securing a Series of Bonds the timely payment of
interest by each mortgagor to the extent of the applicable certificate rate
on the registered holder's PRO RATA share of the unpaid principal balance
outstanding on the mortgage loans underlying such FHLMC Certificate. FHLMC
also will guarantee to the Bond Trustee as the registered holder of each
FHLMC Certificate collection by such holder of all principal on the
underlying mortgage loans, without any offset or deduction, to the extent of
such holder's PRO RATA share thereof, but will not guarantee the timely
payment of scheduled principal, except under certain programs. Pursuant to
its guaranty, FHLMC will indemnify the Bond Trustee as the holder of such
FHLMC Certificates against any diminution in principal by reason of
charges for property repairs, maintenance and foreclosure. FHLMC may
remit the amount due on account of its guaranty of collection of principal
at any time after default on an underlying mortgage loan, but not later
than (i) 30 days following a foreclosure sale, (ii) 30 days following payment
of the claim by any Mortgage Insurer (defined below), or (iii) 30 days
following the expiration of any right of redemption, whichever occurs later,
but in any event no later than one year after demand has been made upon the
mortgagor for accelerated payment of principal. In taking actions regarding
the collection of principal after default on the mortgage loans underlying
FHLMC Certificates, including the timing of demand for acceleration, FHLMC
reserves the right to exercise its judgment in the same manner for mortgage
loans which it has purchased but not sold. The FHLMC Certificates securing a
Series of Bonds will not be guaranteed by the United States or by any Federal
Home Loan Bank and will not constitute debts or obligations of the United
States or any Federal Home Loan Bank. If FHLMC were unable to satisfy such
obligations, distributions on FHLMC Certificates securing a Series of Bonds
would consist solely of payments and other recoveries on the underlying
mortgage loans and, accordingly, delinquencies and defaults would impact
monthly distributions on such FHLMC Certificates and could adversely impact
upon the payments on the Bonds of such Series.
Holders of FHLMC Certificates are entitled to receive their PRO RATA
share of all principal payments on the underlying mortgage loans received by
FHLMC, including any scheduled principal payments, full and partial
prepayments of principal and principal received by FHLMC by virtue of
condemnation, insurance, liquidation or foreclosure, including prepayments of
principal resulting from acquisition by FHLMC of the real property securing
the mortgage. FHLMC is required to remit each registered FHLMC Certificate
holder's PRO RATA share of principal payments on the underlying mortgage
loans, interest at the FHLMC Certificate rate and any other sums such as
prepayment fees, within 60 days of the date on which such payments are
received by FHLMC.
28
<PAGE>
FEDERAL NATIONAL MORTGAGE ASSOCIATION
FNMA is a federally chartered and privately owned corporation organized
and existing under the Federal National Mortgage Association Charter Act (12
U.S.C. SubSection 1716 et seq). It is the nation's largest supplier of
residential mortgage funds. FNMA was originally established in 1938 as a
United States government agency to provide supplemental liquidity to the
mortgage market and was transformed into a stockholder-owned and privately
managed corporation by legislation enacted in 1968.
FNMA provides funds to the mortgage market primarily by purchasing home
mortgage loans from local lenders, thereby replenishing their funds for
additional lending. FNMA acquires funds to purchase home mortgage loans from
many capital market investors that may not ordinarily invest in mortgages,
thereby expanding the total amount of funds available for housing. Operating
nationwide, FNMA helps to redistribute mortgage funds from capital-surplus to
capital-short areas.
FNMA CERTIFICATES
FNMA Certificates are Guaranteed Mortgage Pass-Through Certificates
("FNMA MBS"). Each FNMA Certificate securing a Series of Bonds will represent
a fractional undivided interest in a pool of mortgage loans formed by FNMA.
Each such pool will consist of mortgage loans of one of the following types:
(i) fixed rate level installment conventional mortgage loans, or (ii) fixed
rate level installment mortgage loans that are insured by FHA or partially
guaranteed by the VA. Each mortgage loan must meet the applicable standards
set forth under the FNMA purchase program. Each such mortgage loan will be
secured by a first lien on a one-family or two-to-four family residential
property.
The Mortgage Collateral for a Series of Bonds may include FNMA
Certificates having terms and characteristics and terms different from those
described above, also long as such FNMA Certificates and underlying mortgage
loans meet the criteria of the Rating Agency. Such FNMA Certificates and
underlying mortgage loans will be described in the related Prospectus
Supplement.
THE PLEDGED LOANS
The Pledged Loans securing a Series of Bonds may consist of conventional
mortgage loans, FHA and VA Loans, all of which will be secured by mortgages
or deeds of trust on residential properties. Regular monthly installment
payments of principal and interest on each Pledged Loan securing such Series
of Bonds will be due on the first day of each month and will be payable to
the Bond Trustee by the Servicer as specified in the Servicing Agreement.
Any principal prepayments on any such Pledged Loans or any other early
recovery of principal will be passed through to the Bond Trustee by the
Servicer no later than a specified date of the month following the month in
which received, and a portion of such prepayments will be paid to holders of
Bonds of such Series as additional principal payments on the Bonds of such
Series.
The properties securing such Pledged Loans may consist of (i) detached
homes, (ii) attached homes (single-family units having a common wall), (iii)
units located in condominiums, (iv) units in multifamily residential
buildings, (v) interests in cooperative buildings (vi) Manufactured Housing
and (vii) such other types of homes or units specified in the related
Prospectus Supplement. Each such detached or attached home will be
constructed on land owned in fee simple by the mortgagor or on land leased by
the mortgagor for a term at least two years greater than the term of the
applicable Pledged Loan. The fee interest in any leased land will be subject
to the lien securing the applicable Pledged Loan. Attached homes may consist
of duplexes, triplexes and fourplexes (multi-family structures where the
entire lot on which each structure is built is owned by the owners of the
units) or townhouses (multi-family structures in which each mortgagor owns
the land upon which the unit is built with the remaining adjacent land owned
in common).
29
<PAGE>
The Pledged Loans securing a Series of Bonds may be secured by
residential properties which (a) are owner-occupied, (b) are owned by
investors, or (c) serve as second residences, provided that, based upon
information available at the origination of such Pledged Loans, the aggregate
unpaid principal amount of all such Pledged Loans secured by second
residences and investor owned residences may not exceed the percentage set
forth in the related Prospectus Supplement of the aggregate unpaid principal
amount of all Pledged Loans securing such Series of Bonds.
Each Pledged Loan securing a Series of Bonds generally will provide for
the payment of interest and full repayment of principal in level monthly
installments over an original term to maturity of up to 30 years, with a
fixed rate of interest computed on the declining principal balance of the
Pledged Loan. Some Pledged Loans, however, may consist of Buy-Down Pledged
Loans. Payments due on such Buy-Down Pledged Loans will be the same as
payments due on level payment Pledged loans, except that the former will
include amounts to be collected from the mortgagors and withdrawn from the
applicable Buy-Down Fund. Unless otherwise specified in the Prospectus
Supplement for a Series of Bonds, such a Buy-Down Pledged Loan generally
either will (i) provide for a reduction in monthly interest payments by the
mortgagor for a period of up to the first four years of the term of such
Pledged Loan or (ii) provide for a reduction or elimination of monthly
principal and interest payments by the mortgagor for up to the first six
months of the term of such Pledged Loan.
The Collateral securing a Series of Bonds also may include GPM Pledged
Loans. The interest not paid in the early years of such a GPM Pledged Loan
will be added to the principal balance of such GPM Pledged Loan and will be
paid, together with interest thereon, in the later years. Unless otherwise
specified in the Prospectus Supplement for a Series of Bonds, graduated
payments during such period of each GPM Pledged Loan generally may not
increase annually more than 7.5% and negative amortization generally may not
exceed 15% of the original principal amount of such GPM Pledged Loan.
The Collateral securing a Series of Bonds also may include fixed-rate
Pledged Loans providing for annual increases in the amount of the monthly
payments ("Growing Equity Pledged Loans"). Monthly payments for the first
year are based on a 25 to 30 year amortization schedule, but are increased in
each subsequent year at a predetermined rate of generally not more than 7.5%
of the monthly payment during the preceding year, resulting in full repayment
in approximately 11 to 18 years. The related Prospectus Supplement will
indicate the annual increases in the amount of the monthly payments.
OTHER MORTGAGE CERTIFICATES
A Series of Bonds also may be secured by Other Mortgage Certificates
which may include conventional mortgage pass-through certificates or
collateralized mortgage obligations as described in the Prospectus Supplement
for such Series of Bonds. Such Other Mortgage Certificates must be in form
and substance satisfactory to the Rating Agency.
SUBSTITUTION OF MORTGAGE COLLATERAL
Subject to the limitations set forth in the Indenture for a Series of
Bonds, the Issuer at any time may deliver to the Bond Trustee other items of
Mortgage Collateral in substitution for any one or more items of Mortgage
Collateral pledged as security for such Series of Bonds. Any such substitute
Mortgage Collateral will have an outstanding Bond Value (determined in a manner
consistent with the Mortgage Collateral for which it is substituted) that is at
least equal to the outstanding Bond Value of the Mortgage Collateral for which
it is substituted after taking into account any cash deposit, have an interest
rate within one percentage point of the item of Mortgage Collateral pledged as
of the issuance of the Bonds of the Series for which it is substituted after
taking into account any cash deposit, and have a maturity date not later than
the item of Mortgage Collateral for which it is substituted. Each Mortgage
Certificate may only be substituted for a like type of Mortgage Certificate
while any type of Mortgage Collateral may be substituted for Pledged Loans.
COLLECTION ACCOUNT
All distributions on the Mortgage Collateral securing a Series of Bonds
will be remitted to the Collection Account for such Series. A portion of the
amounts in such Collection Account, together with Reinvestment Income thereon
at the applicable Assumed Reinvestment Rate specified in the related
Prospectus Supplement, will be available for application to the payment of
the principal of and interest on the Bonds of such Series.
30
<PAGE>
SUPPLEMENTAL DEBT SERVICE FUND
The GNMA Certificates securing a Series of Bonds may include GPM GNMA
Certificates, and the Pledged Loans securing a Series of Bonds may include
GPM Pledged Loans. GPM Collateral provides for graduated payments during the
early years which are less than the actual amount of interest and principal
which would be payable thereon on a level debt service basis. The interest
not paid in the early years of such GPM Collateral is added to the principal
balance of such GPM Collateral and is paid, together with interest thereon,
in the later years.
The Issuer will deliver to the Bond Trustee cash, certificates of
deposit or irrevocable letters of credit to fund the Supplemental Debt
Service Fund for a Series of Bonds secured by any GPM Collateral valued on a
level debt service basis in determining its Initial Bond Value. The
Supplemental Debt Service Fund for a Series of Bonds (together with
Reinvestment Income thereon at the applicable Assumed Reinvestment Rate
specified in the related Prospectus Supplement) will be sufficient to cover
the amount by which payments of principal and interest on such GPM Collateral
assumed in calculating payments due on the Bonds of such Series exceed
scheduled payments on such GPM Collateral. The Bond Trustee will withdraw
amounts from the Supplemental Debt Service Fund for a Series of Bonds as
necessary and apply such amounts to the payment of principal of and interest
on the Bonds of such Series. The scheduled withdrawals from the applicable
Supplemental Debt Service Fund will be taken into account in determining the
Initial Bond Value of such GPM Collateral.
In the event the balance of the Supplemental Debt Service Fund for a
Series of Bonds exceeds the amount required to be maintained in such fund,
the Bond Trustee will pay the amount of such excess funds to the Issuer or
the Issuer's designee on the next Payment Date as specified in the Prospectus
Supplement for such Series of Bonds.
BUY-DOWN FUND
The Pledged Loans securing a Series of Bonds may include Buy-Down
Pledged Loans. A Buy-Down Pledged Loan provides for level monthly payments
of principal and interest with portions of such payments during the early
period of such Pledged Loan being provided by a third party to reduce the
borrower's monthly payment.
For a Series of Bonds, unless otherwise specified in the related
Prospectus Supplement, the Issuer will deliver to the Bond Trustee cash,
certificates of deposit or irrevocable letters of credit to fund the Buy-Down
Fund for a Series of Bonds secured by one or more Buy-Down Pledged Loans. The
Buy-Down Fund for a Series of Bonds (together with Reinvestment Income thereon
at the applicable Assumed Reinvestment Rate specified in the related Prospectus
Supplement) will provide funds which, when added to the payments by the
mortgagors on the Buy-Down Pledged Loans securing such Series of Bonds, will be
sufficient to cover payments of principal and interest on such Buy-Down Pledged
Loans on a level debt service basis. The Bond Trustee will withdraw amounts from
the Buy-Down Fund for a Series of Bonds as necessary and apply such amounts to
the payment of principal of and interest on the Bonds of such Series. The
scheduled withdrawals from the applicable Buy-Down Fund will be taken into
account in determining the Initial Bond Value of a Buy-Down Pledged Loan.
Upon the prepayment in full of any Buy-Down Pledged Loan, the Issuer
will have the right to cause the Bond Trustee to withdraw the portion of the
funds in the Buy-Down Fund allocable to such Pledged Loan and to pay such
portion to the Issuer. The Issuer also will have the right on any Payment
Date to cause the Bond Trustee to withdraw funds from the Buy-Down Fund with
respect to any such Buy-Down Pledged Loan to the extent the amount in the
Buy-Down Fund with respect thereto exceeds the amount necessary to service
such Buy-Down Pledged Loan on a level debt service basis and to pay such
funds to the Issuer.
RESERVE FUND
If specified in the Prospectus Supplement for a Series of Bonds, the
Issuer will deposit in the Reserve Fund maintained by the Bond Trustee for
such Series of Bonds cash, certificates of deposit, irrevocable letters of
credit or other financial guarantees as additional security for such Series
of Bonds. In the alternative, the Reserve Fund for a Series may be funded
over time through application of all or a portion of the Excess Cash, to the
extent described in the related Prospectus Supplement. The amount of any
funds in the Reserve Fund for a Series of Bonds may be applied by the Bond
31
<PAGE>
Trustee to make payments on the Bonds of such Series in the manner and to the
extent specified in the related Prospectus Supplement to the extent funds are
not otherwise available.
The Issuer will have the right on any Payment Date to cause the Bond
Trustee to withdraw funds from the Reserve Fund for a Series of Bonds to the
extent that any such withdrawal will not result in a downgrading of the then
rating of the Bonds of such Series by the Rating Agency or in an underfunding
of the Reserve Fund, and to pay such funds to or upon the order of the Issuer.
OVERCOLLATERALIZATION FUND
If specified in the Prospectus Supplement for a Series of Bonds, the
Mortgage Collateral for such Series of Bonds will include an
Overcollateralization Amount with respect to Pledged Loans securing such
Series of Bonds. In such event, the Issuer will maintain in an
Overcollateralization Fund maintained with the Bond Trustee an amount equal
to the Aggregate Initial Overcollateralization Amount reduced by (1) the
Aggregate Loan Losses on the applicable Pledged Loans securing such Series of
Bonds and (2) the difference between (a) the Aggregate Outstanding Collateral
Value of the Mortgage Collateral at the date of determination and (b) the
principal amount of the Bonds outstanding on the date of determination. A
portion of the amounts in the Overcollateralization Fund, together with
Reinvestment Income thereon at the Assumed Reinvestment Rate specified in the
Prospectus Supplement, will be available for application to the payment of
the principal of and interest on the Bonds of such Series to fund the
Aggregate Loan Losses on the Pledged Loans securing such Series of Bonds.
The Issuer will have the right on any Payment Date to cause the Bond
Trustee to withdraw funds from the Overcollateralization Fund to the extent
that any such withdrawal will not result in a downgrading of the then rating
of the Bonds of such Series by the Rating Agency and to pay such funds to the
Issuer. However, such withdrawal may only occur if the Bond Trustee shall
have received a certificate of a firm of independent certified public
accountants acceptable to the Bond Trustee to the effect that the
disbursement of such funds will not impair the security of the Bonds in
contravention of the provisions of the Indenture for a Series of Bonds.
(Indenture, Section 13.05)
SUPPLEMENTAL CUSTODIAL RESERVE FUND.
If specified in the related Prospectus Supplement, the Bond Trustee
shall deposit monies, if any, received by it for the establishment of a
Supplemental Custodial Reserve Fund as specified in the related Prospectus
Supplement, monies from the Collection Account upon notification that either
the Master Servicer or Servicer are making servicing advances under a
specific mortgage loan due to delinquency or failure by the mortgagor to make
regularly scheduled mortgage payments, which shall be in the amount of such
advances, liquidation proceeds deposited directly by the Bond Trustee (in the
event the Bond Trustee forecloses on or otherwise liquidates a Mortgaged
Property).
OTHER FUNDS
If specified in the Prospectus Supplement for a Series of Bonds, the
Issuer will establish with the Bond Trustee such other funds or accounts in
the amounts and for such purposes described in such Prospectus Supplement.
INSURANCE POLICIES
The Insurance Policies will not cover all contingencies and will cover
certain contingencies only to a limited extent. To the extent that Bond
payments are dependent upon Pledged Loan payments which become unavailable to
the Bond Trustee due to an uninsurable loss, funds may not be available from
other Collateral or from the Issuer to make up for any such shortfall.
However, application of the Initial Overcollateralization Amount, if any,
with respect to a Series of Bonds is designed to cover the level of
uninsurable losses assumed in calculating Initial Bond Value. See
"Description of the Bonds - Valuation of the Mortgage Collateral."
32
<PAGE>
MORTGAGE INSURANCE ON THE PLEDGED LOANS.
The conventional Pledged Loans securing a Series of Bonds may be covered
by Primary Mortgage Insurance Policies, Excess Coverage Mortgage Insurance
Policies and one or more mortgage pool insurance policies or any combination
thereof (together, "Mortgage Insurance Policies"), and the FHA and VA Loans
securing a Series of Bonds will be covered by FHA insurance or VA guarantees,
respectively, and by the Pool Insurance Policy for such Series of Bonds.
Certain conventional Pledged Loans securing a Series of Bonds may be covered
by Primary Mortgage Insurance Policies and, in certain cases, by Excess
Coverage Mortgage Insurance Policies (collectively, "100% Mortgage Insurance
Policies") which, subject to their provisions and certain conditions and
exclusions described below, will insure such Pledged Loans 100% against any
loss sustained by reason of nonpayments by the mortgagors; other conventional
Pledged Loans securing a Series of Bonds with initial loan-to-value ratios of
greater than 80% which are not covered by 100% Mortgage Insurance Policies
may be covered by Primary Mortgage Insurance Policies providing coverage on
at least the amount of each such Pledged Loan in excess of 75% of the
original fair market value of the Mortgaged Property and remaining in force
until the principal balance of such Pledged Loan is reduced to 80% of such
original fair market value; and other conventional Pledged Loans securing a
Series of Bonds with initial loan-to-value ratios of 80% or less may be
covered solely by the Pool Insurance Policy for such Series of Bonds. The
initial loan-to-value ratio of any Pledged Loan represents the ratio of the
principal amount of the Pledged Loan outstanding at the origination of such
loan divided by the fair market value of the Mortgaged Property. The fair
market value of the Mortgaged Property securing any Pledged Loan is the
lesser of the sale price or the appraised value of such Mortgaged Property.
If specified in the Prospectus Supplement for a Series of Bonds, the Pool
Insurance Policy for a Series of Bonds will be designed to provide coverage
for all conventional Pledged Loans which are not covered by 100% Mortgage
Insurance Policies and for all FHA and VA Loans securing such Series of
Bonds. However, such Mortgage Insurance Policies will not insure against
certain losses sustained in the event of a personal bankruptcy of the
mortgagor under a Pledged Loan. Such losses will be covered to the extent
provided by the Mortgagor Bankruptcy Bond as described below for such Series
of Bonds. See "Certain Legal Aspects of Mortgage Loans - Anti-Deficiency
Legislation and Other Limitations on Lenders."
Since the Mortgage Insurance Policies for a Series of Bonds will require
that the Mortgaged Property securing a defaulted Pledged Loan be restored to
its original condition (normal wear and tear excepted) prior to claiming
against any Mortgage Insurance Policies, such policies will not provide
coverage when a Mortgaged Property has been subject to hazard losses which
have not been repaired or restored. The Standard Hazard Insurance Policies
covering the Pledged Loans securing a Series of Bonds typically will exclude
from coverage physical damage resulting from a number of causes and, even
when the damage is covered, may afford recoveries which are significantly
less than full replacement cost of such losses. Further, the Special Hazard
Insurance Policy for a Series of Bonds will not cover all risks, and the
coverage of such policy will be limited in amount. Certain hazard risks
will, as a result, be uninsured against and will therefore be borne by the
Issuer, and thus may impact on payments to holders of Bonds of such Series.
See "Security for the Bonds - Hazard Insurance on the Pledged Loans."
To the extent that the Primary Mortgage Insurance Policies, the FHA
insurance or the partial VA guaranty do not cover all losses on a defaulted
or foreclosed Pledged Loan securing a Series of Bonds, and to the extent such
losses are not covered by the Pool Insurance Policy for such Series, such
losses would adversely affect on payments to holders of Bonds of such Series.
The Primary Mortgage Insurance Policies and the Excess Coverage Mortgage
Insurance Policies with respect to a Series of Bonds will be issued by the
insurance company or companies specified in the related Prospectus Supplement
("Mortgage Insurer") and the Pool Insurance Policies with respect to a Series
of Bonds will be issued by the insurance company or companies specified in
the related Prospectus Supplement ("Pool Insurance Insurer"). The following
descriptions of such policies and the coverage thereunder does not purport to
be complete. Reference is made to the forms of Primary Mortgage Insurance
Policies, such Excess Coverage Mortgage Insurance Policy and such Pool
Insurance Policies, to be filed as exhibits to an amended Registration
Statement.
PRIMARY AND EXCESS COVERAGE MORTGAGE INSURANCE.
33
<PAGE>
Each Primary Mortgage Insurance Policy and, if applicable, an Excess
Coverage Mortgage Insurance Policy covering Pledged Loans securing a Series
of Bonds will be issued by the Mortgage Insurer pursuant to the Mortgage
Insurer's applicable master policy. The Issuer and the Bond Trustee as
assignee of the lender under such Pledged Loans will be the insured or
assignees of record ("Insured"), as their interests may appear, under each
such Primary Mortgage Insurance Policy, and the Issuer and the Bond Trustee
will be named Insureds under each such Excess Coverage Mortgage Insurance
Policy. Each Servicing Agreement with respect to such Series of Bonds will
require the Servicer to cause a Primary Mortgage Insurance Policy and, if
applicable, an Excess Coverage Mortgage Insurance Policy to be maintained in
full force and effect with respect to each Pledged Loan covered by the
Servicing Agreement requiring such insurance and to act on behalf of the
Insureds with respect to all actions required to be taken by the Insureds
under each such Mortgage Insurance Policy.
For a Series of Bonds, unless otherwise specified in the related
Prospectus Supplement, the amount of a claim for benefits under a Primary or
Excess Coverage Mortgage Insurance Policy covering a Pledged Loan securing a
Series of Bonds will consist of the insureds portion of the unpaid principal
amount of the covered Pledged Loan and accrued and unpaid interest thereon
and reimbursement of certain expenses, less (i) all rents or other payments
collected or received by the Insureds (other than the proceeds of hazard
insurance) which are derived from or in any way related to such Mortgaged
Property, (ii) hazard insurance proceeds in excess of the amount required to
restore such Mortgaged Property and which have not been applied to the
payment of such Pledged Loan, (iii) amounts expended by the Insureds in
connection with the Mortgaged Property which are either due to the fault of
the Insureds or not approved by the Mortgage Insurer, (iv) claim payments
previously made by the Mortgage Insurer, and (v) unpaid premiums.
Unless otherwise specified in the related Prospectus Supplement for a
Series of Bonds, as conditions precedent to the filing of or payment of a
claim under a Primary or Excess Coverage Mortgage Insurance Policy covering a
Pledged Loan securing a Series of Bonds, the Insureds generally will be
required to, in the event of default by the mortgagor: (i) advance or
discharge (a) all hazard insurance premiums and (b) as necessary and approved
in advance by the Mortgage Insurer to, (1) real estate property taxes, (2)
all expenses required to preserve, repair and prevent waste to the Mortgaged
Property so as to maintain such Mortgaged Property in at least as good a
condition as existed at the effective date of such Primary or Excess Coverage
Mortgage Insurance Policy, ordinary wear and tear excepted, (3) property
sales expenses, (4) any outstanding liens (as defined in such Primary or
Excess Coverage Mortgage Insurance Policy) on the Mortgaged Property and (5)
foreclosure costs, including court costs and reasonable attorneys' fees;
(ii) in the event of any physical loss or damage to the Mortgaged Property,
have restored and repaired the Mortgaged Property to at least as good a
condition as existed at the effective date of such Primary or Excess Coverage
Mortgage Insurance Policy, ordinary wear and tear excepted; and (iii) tender
to the Mortgage Insurer good and merchantable title to and possession of the
Mortgaged Property. It is expected that restoration of the Mortgaged
Property with the proceeds described under "Security for the Bonds -
Insurance Policies - Hazard Insurance on the Pledged Loans" and "Security for
the Bonds - Insurance Policies - Special Hazard Insurance Policies" will
satisfy the conditions under the applicable Mortgage Insurance Policy that
the Mortgaged Property be restored before a claim may be validly presented in
respect of the defaulted Pledged Loan secured by such property.
Unless otherwise specified in the related Prospectus Supplement, other
provisions and conditions of each Primary or Excess Coverage Mortgage
Insurance Policy covering a Pledged Loan securing a Series of Bonds generally
will provide that: (a) no change may be made in the terms of, and no
mortgagor may be released from liability under, such Pledged Loan without the
consent of the Mortgage Insurer except as permitted by such Pledged Loan; (b)
written notice must be given to the Mortgage Insurer within the period
specified in the policy (generally 10 days) after the Insured becomes aware
that a mortgagor is delinquent in the payment of a sum equal to the aggregate
number (specified in the policy) of monthly payments due under such Pledged
Loan or that any proceedings affecting the mortgagor's interest in the
Mortgaged Property securing such Pledged Loan have been commenced, and
thereafter the Insured must report monthly to the Mortgage Insurer the status
of such Pledged Loan until such Pledged Loan is brought current, such
proceedings are terminated or a claim is filed; (c) the Insured must commence
proceedings at certain times specified in the policy and diligently proceed
to obtain good and merchantable title to and possession of the Mortgaged
Property after the mortgagor has been delinquent in the payment of the
specified number of payments; (d) the Insured must notify the Mortgage
Insurer of the institution of such proceedings, provide it with copies of
documents relating thereto, notify the Mortgage Insurer of the purchase price
or such other amount as specified in the policy within the time period
provided in the policy (generally at least 15 days prior to the sale of the
Mortgaged Property by foreclosure), and bid such amount unless the Mortgage
Insurer specifies a lower or higher amount; (e) the Insured may accept a
conveyance of the Mortgaged Property in lieu of foreclosure with written
approval of the Mortgage Insurer or provided the ability of the Insured to
assign specified rights to the Mortgage Insurer is not thereby
34
<PAGE>
impaired or the specified rights of the Mortgage Insurer are not thereby
adversely affected; (f) the Insured and the Mortgage Insurer may modify or
amend the policy in any respect whatsoever or rescind or terminate the policy
without the consent of or notice to any third party; (g) the Insured agrees
that the Mortgage Insurer has issued the policy in reliance upon the
correctness and completeness of the statements contained in the application
for the policy and in the appraisal, plans and specifications and other
exhibits and documentation submitted therewith or at any time thereafter; (h)
under certain policies, the Mortgage Insurer will not pay claims involving or
arising out of dishonest, fraudulent, criminal or knowingly wrongful acts
(including error or omission) by certain persons, or claims involving or
arising out of the negligence of certain persons if such negligence is
material either to the acceptance of the risk or to the hazard assumed by the
Mortgage Insurer; (i) the Insured and/or the mortgagor may not carry
additional or duplicate mortgage guaranty insurance on the Mortgaged Property
with another insurer without the prior written approval of the Mortgage
Insurer; and (j) the Insured must comply with other notice provisions in the
policy. Under certain policies, the Mortgage Insurer will have the right to
purchase such Pledged Loan, at any time subsequent to the notice described in
(b) above and prior to the commencement of foreclosure proceedings, at a
price equal to the unpaid principal amount of such Pledged Loan plus accrued
and unpaid interest thereon at the contractual rate and reimbursable amounts
expended by the Insured for real estate taxes and fire and extended coverage
insurance on the Mortgaged Property for a period not exceeding 12 months and
less the sum of any claim previously paid under the policy and any due and
unpaid premium with respect to such policy.
Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Insurer will be required to pay to the Insured either: (1) the
insured percentage of the loss; or (2) at its option under certain of the
Primary and Excess Coverage Mortgage Insurance Policies, the sum of the
delinquent monthly payments plus any advances made by the Insured, both to
the date of the claim payment, and thereafter, monthly payments in the amount
which would have become due under the Pledged Loan if it had not been
discharged plus any advances made by the Insured until the earlier of (A) the
date the Pledged Loan would have been discharged in full if the default had
not occurred, or (B) an Approved Sale (defined below). Any rents or other
payments collected or received by the Insured which are derived from or are
in any way related to the Mortgaged Property will be deducted from any claim
payment.
POOL INSURANCE.
Unless otherwise specified in the related Prospectus Supplement, if any
Pledged Loan securing a Series of Bonds is not covered by a 100% Mortgage
Insurance Policy, the Issuer will obtain a Pool Insurance Policy to cover any
loss (subject to the limitations described below) by reason of nonpayment by
the mortgagor of any Pledged Loan securing such Series of Bonds to the extent
such loss is not covered by any Primary Mortgage Insurance Policy, FHA
insurance or VA guaranty. The amount and terms of the Pool Insurance Policy
for a Series of Bonds will be specified in the related Prospectus Supplement.
The Pool Insurance Policy for a Series of Bonds, however, will not be a
blanket policy against loss, since claims thereunder may only be made
respecting particular defaulted Pledged Loans and only upon satisfaction of
certain conditions precedent described below. If the Pool Insurance Policy
for a Series of Bonds does not provide for coverage in the case of a loss due
to fraud or negligence, this fact will be prominently disclosed on the cover
page of the related Prospectus Supplement and thoroughly described in the
text thereof.
The Master Servicer for each such Series of Bonds will be required to
maintain the Pool Insurance Policy for such Series of Bonds and to present or
cause the Servicers to present claims thereunder to the Pool Insurance
Insurer on behalf of the Issuer, the Bond Trustee and the holders of Bonds of
such Series. The responsibilities of the Servicers, the amount of a claim
for benefits, the conditions precedent to the filing or payment of a claim,
the policy provisions and the payment of claims under a Pool Insurance Policy
generally will be similar to those described above for Primary Mortgage
Insurance Policies, subject to the aggregate limit on the amount of coverage
afforded thereby.
Unless otherwise specified in the related Prospectus Supplement, the
Pool Insurance Policy for a Series of Bonds will provide that as a condition
precedent to the payment of any claim, the Insured generally will be required
(i) to advance hazard insurance premiums on the Mortgaged Property securing
the defaulted Pledged Loan; (ii) to advance, as necessary and approved in
advance by the Pool Insurance Insurer, (a) real estate property taxes, (b)
all expenses required to preserve and repair the Mortgaged Property and to
protect the Mortgaged Property from waste, so that the Mortgaged Property is
in at least as good a condition as existed on the date upon which coverage
under the Pool Insurance Policy with respect to such Mortgaged Property first
became effective, ordinary wear and tear excepted, (c) property sales
expenses, (d) amounts sufficient to discharge any outstanding liens on the
Mortgaged Property, and (e) foreclosure costs including court costs and
35
<PAGE>
reasonable attorneys' fees; and (iii) if there has been physical loss or
damage to the Mortgaged Property, to restore the Mortgaged Property to its
condition (reasonable wear and tear excepted) as of the issue date of the
Pool Insurance Policy. It also will be a condition precedent to the payment
of any claim under the Pool Insurance Policy that the Insured maintain a
Primary Mortgage Insurance Policy which is acceptable to the Pool Insurance
Insurer on all Pledged Loans that have loan-to-value ratios at the time of
origination in excess of 80%. FHA insurance and VA guarantees will be deemed
to be an acceptable Primary Mortgage Insurance Policy under the Pool
Insurance Policy. Assuming satisfaction of these conditions, the Pool
Insurance Insurer will pay to the Insured the amount of the loss which will
be: (a) the amount of the unpaid principal balance of the Pledged -Loan
immediately prior to an Approved Sale (defined below) of the Mortgaged
Property, (b) the amount of the accumulated unpaid interest on such Pledged
Loan to the date of claim settlement at the contractual rate of interest, and
(c) advances made by the Insured as described above less certain payments.
An Approved Sale is (1) a sale of the Mortgaged Property acquired by the
Insured because of a default by the borrower to which the Pool Insurance
Insurer has given prior approval, (2) a foreclosure or trustee's sale of the
Mortgaged Property at a price exceeding the maximum amount specified by the
Pool Insurance Insurer to be bid by the Insured, (3) the acquisition of the
Mortgaged Property under the Primary Mortgage Insurance Policy by the
Mortgage Insurer or (4) the acquisition of the Mortgaged Property by the Pool
Insurance Insurer. In addition, pursuant to the claims payment option
provision of a Pool Insurance Policy for a Series of Bonds, if any, the
Insured must, as a condition precedent to the payment of any loss, provide
the Pool Insurance Insurer with good and merchantable title to the Mortgaged
Property, unless it has been conveyed to the Pool Insurance Insurer pursuant
to the Primary Mortgage Insurance Policy. If any property securing a
defaulted Pledged Loan is damaged and the proceeds, if any, from the related
Standard Hazard Insurance Policy or the applicable Special Hazard Insurance
Policy are insufficient to restore the damaged property to a condition
sufficient to permit recovery under the Pool Insurance Policy, the Servicer
of the related Pledged Loan will not be required to expend its own funds to
restore the damaged Mortgaged Property unless it determines and the Master
Servicer agrees (A) that such restoration will increase the proceeds to the
Issuer on liquidation of the Pledged Loan after reimbursement of the Servicer
for its expenses and (B) that such expenses will be recoverable by it through
liquidation proceeds or insurance proceeds.
The original amount of coverage under the Pool Insurance Policy securing
a Series of Bonds will be reduced over the life of the Bonds of such Series
by the aggregate dollar amount of claims paid less the aggregate of the net
amounts realized by the Pool Insurance Insurer upon disposition of all
foreclosed mortgaged properties covered thereby. The amount of claims paid
includes certain expenses incurred by the Servicer of the defaulted Pledged
Loan as well as accrued interest on delinquent Pledged Loans to the date of
payment of the claim. Accordingly, if aggregate net claims paid under a Pool
Insurance Policy reach the original policy limit, coverage under the Pool
Insurance Policy will lapse and any further losses will be borne by the
Issuer, and thus may impact on payments to holders of Bonds of such Series.
In addition, unless the Servicer could determine that an advance in respect
of a delinquent Pledged Loan would be recoverable to it from the proceeds of
the liquidation of such Pledged Loan or otherwise, neither the Servicer nor
the Master Servicer would be obligated to make an advance respecting any such
delinquency since the advance would not be ultimately recoverable by it from
either the Pool Insurance Policy or any other related source. See "Certain
Legal Aspects of Mortgage Loans - Foreclosure" and "Servicing of the Pledged
Loans - Advances."
FHA INSURANCE AND VA GUARANTEES.
The FHA is responsible for administering various federal programs,
including mortgage insurance, authorized under the Housing Act and the United
States Housing Act of 1937, as amended. The insurance premiums for FHA Loans
are collected by HUD approved lenders or by the Servicers and are paid to the
FHA. The regulations governing FHA single-family mortgage insurance programs
provide that insurance benefits are payable either upon foreclosure (or other
acquisition of possession) and conveyance of the mortgaged premises to HUD or
upon assignment of the defaulted FHA Loan to HUD. With respect to a defaulted
FHA Loan, the Servicer is limited in its ability to initiate foreclosure
proceedings. When it is determined, either by the Servicer or HUD, that the
default was caused by circumstances beyond the mortgagor's control, the
Servicer is expected to make an effort to avoid foreclosure by entering, if
feasible, into one of a number of available forms of forbearance plans with
the mortgagor. Such plans may involve the reduction or suspension of regular
mortgage payments for a specified period, with such payments to be made up on
or before the maturity date of the mortgage, or the recasting of payments due
under the mortgage up to or beyond the maturity date. In addition, when a
default caused by such circumstances is accompanied by certain other
criteria, HUD may provide relief by making payments to the Servicer in
partial or full satisfaction of amounts due under the loan (which payments
are to be repaid by the mortgagor to HUD) or by accepting assignment of the
FHA Loan from the Servicer. With certain exceptions, at least three full
monthly installments
36
<PAGE>
must be due and unpaid under the FHA Mortgage Loan and HUD must have rejected
any request for relief from the mortgagor before the Servicer may initiate
foreclosure proceedings.
HUD has the option, in most cases, to pay insurance claims in cash or in
debentures issued by HUD. HUD debentures issued in satisfaction of FHA
insurance claims bear interest at the applicable FHA debenture interest rate.
The Servicer of each FHA Loan securing a Series of Bonds will be obligated to
purchase any such debenture issued in satisfaction of a defaulted FHA Loan
serviced by it for an amount equal to the principal amount of any such
debenture.
The amount of insurance benefits generally paid by the FHA is equal to
the entire unpaid principal amount of the defaulted FHA Loan adjusted to
reimburse the Servicer for certain costs and expenses and to deduct certain
amounts received or retained by the Servicer after default. When entitlement
to insurance benefits results from foreclosure (or other acquisition of
possession) and conveyance to HUD, the Servicer is compensated for no more than
two-thirds of its foreclosure costs, and is compensated for interest accrued and
unpaid prior to such date but in general only to the extent it was allowed
pursuant to a forbearance plan approved by HUD. When entitlement to insurance
benefits results from assignment of the FHA Loan to HUD, the insurance payment
includes full compensation for interest accrued and unpaid to the assignment
date. The insurance payment itself bears interest (i) upon foreclosure of a FHA
Loan, from a date 30 days after the mortgagor's first uncorrected failure to
perform any obligation or make any payment due under the mortgage and (ii) upon
assignment of a FHA Loan, from the date of assignment to the date of payment of
the claim, in each case at the same interest rate as the applicable HUD
debenture interest rate as described above.
With respect to a defaulted VA Loan, the Servicer is, absent exceptional
circumstances, authorized to announce its intention to foreclose only when
the default has continued for three months. Generally, a claim for the
guaranty is submitted after liquidation of the Mortgaged Property.
The amount payable under the guaranty will be the percentage of the VA
Loan originally guaranteed applied to the indebtedness outstanding as of the
applicable date of computation specified in the VA regulations. Payments
under the guaranty will be equal to the unpaid principal amount of the VA
Loan, interest accrued on the unpaid balance thereof to the appropriate date
of computation and limited expenses of the mortgagee, but in each case only
to the extent that such amounts have not been recovered through liquidation
of the Mortgaged Property. The amount payable under the guaranty may in no
event exceed the amount of the original guaranty.
HAZARD INSURANCE ON THE PLEDGED LOANS
A form of a Standard Hazard Insurance Policy and forms of Special Hazard
Insurance Policies have been filed as exhibits to the Registration Statement
of which this Prospectus forms a part. The following descriptions do not
purport to be complete. Reference is made to such forms of policies which
have been filed as Exhibits to the Registration Statement of which this
Prospectus forms a part.
STANDARD HAZARD INSURANCE POLICIES.
The terms of each Servicing Agreement relating to a Series of Bonds will
require each Servicer to cause to be maintained a Standard Hazard Insurance
Policy covering the Mortgaged Property underlying each Pledged Loan covered
by such Servicing Agreement. The coverage of each Standard Hazard Insurance
Policy will be required to be in an amount not less than the maximum
insurable value of the Mortgaged Property and other improvements securing
such Pledged Loan or the principal amount owing on such Pledged Loan,
whichever is less. All amounts collected by the Servicer under any Standard
Hazard Insurance Policy (less amounts to be applied to the restoration or
repair of the Mortgaged Property and other amounts necessary to reimburse the
Servicer for previously incurred advances or approved expenses, which may be
retained by the Servicer) will be deposited to the applicable Custodial
Account (defined below) maintained with respect to such Pledged Loan.
The Standard Hazard Insurance Policies will provide for coverage at least
equal to the applicable state standard form of fire insurance policy with
extended coverage. In general, the standard form of fire and extended coverage
policy will cover physical damage to, or destruction of, the improvements on the
Mortgaged Property caused by fire, lightning, explosion, smoke, windstorm, hail,
riot, strike and civil commotion, subject to the conditions and exclusions
particularized
37
<PAGE>
in each such policy. Because the Standard Hazard Insurance Policies relating
to the Pledged Loans securing a Series of Bonds will be underwritten by
different insurers and will cover mortgaged properties located in various
states, such policies will not contain identical terms and conditions. The
basic terms thereof, however, generally will be determined by state law and
generally will be similar. Most such policies typically will not cover any
physical damage to the mortgaged properties resulting from any of the
following: war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mud flows), nuclear reaction, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases, vandalism. The foregoing list
is merely indicative of certain kinds of uninsured risks and is not intended
to be all-inclusive. When a Mortgaged Property is located in a flood area
identified by HUD pursuant to the National Flood Insurance Act of 1968, as
amended, the applicable Servicing Agreement will require that the Servicer
cause to be maintained flood insurance with respect to such Mortgaged
Property.
The Standard Hazard Insurance Policies covering mortgaged properties
securing Pledged Loans typically will contain a "coinsurance" clause which,
in effect, will require the insured at all times to carry insurance of a
specified percentage (generally 80% to 90%) of the full replacement value of
the dwellings, structures and other improvements on the Mortgaged Property in
order to recover the full amount of any partial loss. If the insured's
coverage falls below this specified percentage, such clause will provide that
the insurer's liability in the event of partial loss will not exceed the
greater of (i) the actual cash value (the replacement cost less physical
depreciation) of the dwellings, structures and other improvements damaged or
destroyed or (ii) such proportion of the loss, without deduction for
depreciation, as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such dwellings, structures and
other improvements. Any losses incurred with respect to Pledged Loans
securing a Series of Bonds due to uninsured risks (including earthquakes, mud
flows and floods) or insufficient hazard insurance proceeds may reduce the
Collateral securing such Series of Bonds to the extent such losses are not
covered by the Special Hazard Insurance Policy for such Series and would
adversely impact on payments to holders of Bonds of such Series.
SPECIAL HAZARD INSURANCE POLICIES.
To the extent specified in the Prospectus Supplement for a Series of
Bonds secured by any Pledged Loans, a Special Hazard Insurance Policy will be
obtained from the insurer or insurers specified in the related Prospectus
Supplement ("Special Hazard Insurer") which, subject to the limitations
described below, will protect the holders of Bonds of such Series from (i)
loss by reason of damage to mortgaged properties underlying defaulted Pledged
Loans securing such Series of Bonds caused by certain hazards (including
vandalism, earthquakes, mud flows and, except where the mortgagor is required
to obtain flood insurance, floods) not insured against under the Standard
Hazard Insurance Policies covering such Pledged Loans and (ii) loss from
partial damage to the mortgaged properties securing such defaulted Pledged
Loans caused by reason of the application of the coinsurance clause contained
in the applicable Standard Hazard Insurance Policies. The Special Hazard
Insurance Policy for a Series of Bonds, however, generally will not cover
losses occasioned by infidelity, conversion or other dishonest act on the
part of any insured or an insured's agent or employee, war, warlike action in
time of peace or war, insurrection, rebellion, nuclear reaction, certain
governmental actions or certain other risks. Coverage under the Special
Hazard Insurance Policy with respect to a Series of Bonds will be at least
equal to the amount specified in the related Prospectus Supplement.
Subject to the foregoing limitations, the Special Hazard Insurance
Policy with respect to a Series of Bonds will provide that, when there has
been damage to Mortgaged Property securing a defaulted Pledged Loan and such
damage is not covered by the Standard Hazard Insurance Policy maintained by
the mortgagor or the Servicer with respect to such Pledged Loan, the Special
Hazard Insurer will pay the lesser of (a) the cost to repair or replace such
property or (b) upon transfer of such property to it, the unpaid principal
amount of such Pledged Loan at the time of the acquisition of such property
by the Insured, plus accrued interest (excluding applicable late charges and
penalty interest) to the date of claim settlement and certain expenses
incurred in respect of such property. No claim may be validly presented
under the Special Hazard Insurance Policy unless (1) hazard insurance on the
Mortgaged Property securing the defaulted Pledged Loan has been kept in force
and other reimbursable protection, preservation and foreclosure expenses
approved in advance by the Special Hazard Insurer have been paid and (2) the
insured has acquired title to the Mortgaged Property as a result of default
by the mortgagor. If the sum of the unpaid principal amount plus accrued
interest and certain expenses is paid by the Special Hazard Insurer, the
amount of further coverage under the Special Hazard Insurance Policy will be
reduced by such amount less any net proceeds from the sale of the Mortgaged
Property. Any amount paid as the cost to repair or replace the Mortgaged
Property will reduce coverage by such amount.
38
<PAGE>
The terms of the Master Servicing Agreement with respect to a Series of
Bonds may require the Master Servicer to maintain the Special Hazard
Insurance Policy for such Series of Bonds in full force and effect throughout
the term of such Master Servicing Agreement subject to certain conditions
contained therein. The Master Servicer also must present claims, on behalf of
the Issuer and the Bond Trustee, for all losses not otherwise covered by the
applicable Standard Hazard Insurance Policies and take all reasonable steps
necessary to permit recoveries on such claims. See "Servicing of the Pledged
Loans-Maintenance of Insurance Policies; Claims Thereunder and Other
Realization Upon Defaulted Pledged Loans."
MORTGAGOR BANKRUPTCY INSURANCE ON THE PLEDGED LOANS
In the event of a personal bankruptcy of a mortgagor, the bankruptcy
court may establish the value of the Mortgaged Property of such mortgagor at
an amount less than the then outstanding principal balance of the Pledged
Loan secured by such Mortgaged Property. The amount of the secured debt
could be reduced to such value, and the holder of such Pledged Loan thus
would become an unsecured creditor to the extent the outstanding principal
balance of such Pledged Loan exceeds the value so assigned to the Mortgaged
Property by the bankruptcy court. In addition, certain other modifications of
the terms of a Pledged Loan can result from a bankruptcy proceeding. If
specified in the Prospectus Supplement for a Series of Bonds secured by any
Pledged Loans, losses resulting from a bankruptcy proceeding affecting
Pledged Loans securing a Series of Bonds will be covered under a Mortgagor
bankruptcy bond for such Series of Bonds (or any other instrument that will
not result in a downgrading of the rating of the Bonds of such Series by the
Rating Agency). The amount of any Mortgagor Bankruptcy Bond for a Series of
Bonds will provide for payments in an amount specified in the related
Prospectus Supplement which must be acceptable to the Rating Agency. Subject
to the terms of the Mortgagor Bankruptcy Bond, the Issuer thereof may have
the right to purchase any Pledged Loan with respect to which a payment or
drawing has been made or may be made for an amount equal to the outstanding
principal amount of such Pledged Loan plus accrued and unpaid interest
thereon. In the alternative, to the extent specified in the related
Prospectus Supplement, the Issuer may deposit cash, a certificate of deposit,
an irrevocable letter of credit or any other instrument acceptable to the
Rating Agency in the Reserve Fund in an initial amount acceptable to the
Rating Agency. The amount of the Mortgagor Bankruptcy Bond for a Series of
Bonds or of the deposit to the Reserve Fund for such Series in lieu thereof
may be reduced as long as any such reduction will not result in a downgrading
of the then rating of the Bonds of such Series by the Rating Agency.
However, such withdrawal may only occur if the Bond Trustee shall have
received a certificate of a firm of independent certified public accountants
acceptable to the Bond Trustee to the effect that the disbursement of such
funds will not impair the security of the Bonds in contravention of the
provisions of the Indenture for a Series of Bonds. (Indenture, Section 13.05)
See "Certain Legal Aspects of Mortgage Loans - Anti-Deficiency Legislation
and Other Limitations on Lenders" and "Description of the Bonds-Ratings of
the Bonds."
OTHER COVERAGE ON THE PLEDGED LOANS
To the extent specified in the Prospectus Supplement for a Series of Bonds,
the Issuer may make deposits to a reserve fund for such Series of Bonds in
amounts acceptable to the Rating Agency.
Certain of the Mortgage Insurance Policies securing a Series of Bonds will
contain an exclusion from coverage for certain circumstances involving
fraudulent conduct or negligence by certain persons in connection with the
Pledged Loans covered thereby. The Servicers with respect to such Series of
Bonds will agree in the Servicing Agreements with respect to such Series of
Bonds to repurchase any such Pledged Loan in the event that coverage relating to
such Pledged Loan which otherwise would have been available under such a
Mortgage Insurance Policy is not ultimately available by reason of materially
incomplete or inaccurate information being submitted to the applicable Mortgage
Insurer which information is material either to the acceptance of the risk or to
the hazard assumed by such Mortgage Insurer. The Master Servicer with respect to
such Series of Bonds will agree in the Master Servicing Agreement with respect
to such Series of Bonds to repurchase any such Pledged Loan which any such
Servicer fails to repurchase.
A mortgage repurchase bond ("Mortgage Repurchase Bond") may be obtained for
a Series of Bonds secured by any Pledged Loans for the purpose of insuring the
repurchase obligation of the Master Servicer for such Series of Bonds described
above. The amount and duration of the coverage of such Mortgage Repurchase Bond
will be determined by the Rating Agency and will be specified in the related
Prospectus Supplement. The amount of the Mortgage Repurchase Bond for a Series
of Bonds may be reduced so long as any such reduction will not result in a
downgrading of the then rating of the
39
<PAGE>
Bonds of such Series by the Rating Agency. However, such withdrawal may only
occur if the Bond Trustee shall have received a certificate of a firm of
independent certified public accountants acceptable to the Bond Trustee to
the effect that the disbursement of such funds will not impair the security
of the Bonds in contravention of the provisions of the Indenture for a Series
of Bonds. (Indenture, Section 13.05).
All Mortgage Insurance Policies provide that the applicable Mortgage
Insurer has issued its Mortgage Insurance Policy in reliance upon the
correctness and completion of the information submitted to such Mortgage
Insurer. Any such Mortgage Insurer may deny coverage pursuant to such a
provision. It is unclear whether any such denial would be upheld by a court.
Neither the repurchase obligation of a Servicer or the Master Servicer nor a
Mortgage Repurchase Bond would apply to any such denial of coverage unless, as
described above, such denial is based upon materially incomplete or inaccurate
information being submitted to the applicable Mortgage Insurer which information
is material either to the acceptance of the risk or to the hazard assumed by
such Mortgage Insurer.
As required by the Rating Agency, the Issuer may, from time to time, obtain
further insurance policies or bonds (or make deposits in lieu thereof to enhance
the credit rating of the Bonds of such Series). To the extent any such
insurance policies or bonds are obtained by the Issuer for a Series of Bonds, or
deposits are made in lieu thereof, a description thereof will be set forth in
the related Prospectus Supplement.
INVESTMENT OF FUNDS
The Security Funds for a Series of Bonds are to be invested by the Bond
Trustee, as directed by the Issuer, in certain eligible investments
("Eligible Investments"), which may include (i) obligations of the United
States or any agency thereof provided such obligations are backed by the full
faith and credit of the United States, (ii) general obligations of or
obligations guaranteed by any state of the United States receiving the
highest rating of the Rating Agency at the time of the investment, (iii)
commercial or finance company paper which is then rated in the highest
commercial or finance company paper rating category of the Rating Agency or
such lower category that will not result in a downgrading of the then rating
of the Bonds of such Series by the Rating Agency, (iv) certificates of
deposit, demand and time deposits, federal funds or bankers' acceptances
issued by any depository institution or trust company incorporated under the
laws of the United States or of any state thereof and subject to supervision
and examination by federal and/or state banking authorities provided that the
commercial paper and/or debt obligations of such depository institution or
trust company (or in the case of the principal depository institution in a
holding company system, the commercial paper or debt obligations of such
holding company) are then rated in the highest bond rating category of the
Rating Agency or such lower category that will not result in a downgrading of
the rating on the Bonds of such Series, (v) demand or time deposits or
certificates of deposit issued by any bank or trust company or savings and
loan association and fully insured by the Federal Deposit Insurance
Corporation ("FDIC"), (vi) guaranteed reinvestment agreements ("Reinvestment
Agreements") issued by any bank, insurance company or other corporation
acceptable to the Rating Agency at the time of issuance of such Bonds, (vii)
repurchase obligations with respect to any security described in (i) and (ii)
above or any other security issued or guaranteed by an agency or
instrumentality of the United States, in either case entered into with a
depository institution or trust company (acting as principal) described in
(iv) above, and (viii) securities bearing interest or sold at a discount
issued by any corporation incorporated under the laws of the United States or
any state thereof which, at the time of such investment or contractual
commitment providing for such investment, are then rated in the highest
rating category of the Rating Agency or in such lower rating category that
will not result in the downgrading of the then rating of the Bonds of such
Series by the Rating Agency; PROVIDED, HOWEVER, securities issued by any
particular corporation will not be Eligible Investments to the extent that
investments therein will cause the then outstanding principal amount of
securities issued by such corporation and held as part of the Collateral for
the Bonds to exceed 10% of the aggregate outstanding principal balances and
amounts of all the Mortgage Collateral and Eligible Investments held as part
of the Collateral for the Bonds. The Bond Trustee must however, at all times
invest at least 55% of the initial value of the Bonds in the form of assets
secured exclusively by real property; and at no time shall more than 20% of
the total initial value of the Bonds consist of assets not secured either
exclusively or substantially by real estate. See "Description of the
Bonds-Ratings of the Bonds."
Eligible Investments with respect to a Series of Bonds will include only
obligations or securities that mature on or before the date on which the
Collection Account or the applicable Security Fund for such Series of Bonds is
required or may be anticipated to be required to be applied for the benefit of
the holders of Bonds of such Series. (Indenture, Section 1.01.) Any income or
other gain from such investments for a Series of Bonds will be credited to the
Collection Account or the
40
<PAGE>
applicable Security Fund for such Series of Bonds and any loss resulting from
such investments will be charged to the Collection Account or the applicable
Security Fund for such Series.
The Indenture requires the Bond Trustee to invest funds deposited in the
Collection Account and the Security Funds for a Series of Bonds pursuant to the
terms of the applicable Reinvestment Agreement, if any, for such Collection
Account or Security Funds for such Series of Bonds.
The investment provisions described above are subject to the restriction
that, if an election for federal income tax purposes to have the Collateral
securing a Series of Bonds treated as a REMIC has been or will be made,
investments with respect to such Series will be restricted in such a manner as
to constitute "permitted investments" as defined in Section 860G(a)(5) of the
and dispositions thereof will not be made if the result would be to cause any
part of the proceeds to be subject to the tax on "prohibited transactions"
imposed by Section 860F(a)(1) or would cause a loss of REMIC status for such
Series under Section 860D of the Code.
SERVICING OF THE PLEDGED LOANS
GENERAL
With respect to each Series of Bonds secured by any Pledged Loans, except
as otherwise specified in the Prospectus Supplement, various Servicers will
provide certain customary servicing functions with respect to the Pledged Loans
securing such Series of Bonds pursuant to Servicing Agreements. If specified in
the related Prospectus Supplement for a Series of Bonds secured by any Pledged
Loans, the Issuer will enter into a Master Servicing Agreement for such Series
of Bonds with a company specified in the related Prospectus Supplement pursuant
to which the Master Servicer will administer and supervise the performance by
the Servicers of their duties and responsibilities under the Servicing
Agreements with respect to such Series of Bonds. Each such Servicer must be
approved by the Master Servicer, the Issuer and, to the extent relevant for a
Series of Bonds, either FNMA or FHLMC as a seller-servicer of mortgage loans and
in the case of FHA Loans, by HUD as an FHA approved mortgage servicer. The
Master Servicer may have the right to recommend to the Bond Trustee the removal
of any Servicer for cause. Upon termination of a Servicer by the Bond Trustee,
a back up servicer (which may be the Master Servicer) will assume the servicing
obligations of the terminated Servicer, or the Master Servicer, at its option,
may appoint a substitute Servicer acceptable to the Bond Trustee to assume the
servicing obligations of the terminated Servicer.
The duties to be performed by the Servicers with respect to the Pledged
Loans securing a Series of Bonds will include collection and remittance of
principal and interest payments, administration of mortgage escrow accounts,
collection of insurance claims, foreclosure procedures, and, if necessary, the
advance of funds to the extent certain payments are not made by the mortgagors
and are recoverable under the applicable Insurance Policies with respect to such
Series of Bonds or from proceeds of liquidation of such Pledged Loans. Each
Servicer also will provide such accounting and reporting services as are
required by the Issuer and the Bond Trustee with respect to the Pledged Loans
securing such Series of Bonds. Each Servicer will be required to service any FHA
and VA Loans securing such Series of Bonds in accordance with HUD and VA
servicing requirements, respectively.
The Master Servicer, if any, will be entitled to amounts from payments with
respect to the Pledged Loans securing such Series of Bonds remitted to the Bond
Trustee to cover its fees as Master Servicer. The Servicers will be entitled to
withhold their servicing fees and certain other fees and charges from payments
on such Pledged Loans serviced by them.
The Master Servicer will monitor the performance of each Servicer, if any,
and will have the right to remove a Servicer at any time if it considers such
removal to be in the best interest of the related Bondholders. The duties to be
performed by the Master Servicer, directly or through a Servicer, will include
collection and remittance of principal and interest payments, insurance claims,
and, if necessary, foreclosure. If a Servicer is terminated by the Master
Servicer, the servicing function of the Servicer shall either be transferred to
a substitute Servicer or performed by the Master Servicer. The Master Servicer
shall be entitled to retain the portion of the servicing fee paid to the
Servicer under the terminated Servicing Agreement if the Master Servicer elects
to perform such servicing functions itself.
41
<PAGE>
If the Issuer does not enter into a Master Servicing Agreement with respect
to a Series of Bonds, an entity or entities acceptable to the Rating Agency will
assume the obligations of the Master Servicer described herein.
If the Issuer with respect to a Series of Bonds is a Trust, the Issuer will
assign to such Trust its rights under the Master Servicing Agreement with
respect to such Series of Bonds. The Master Servicing Agreement, if any, and
each Servicing Agreement with respect to a Series of Bonds will be assigned to
the Bond Trustee as security for such Series of Bonds.
The following descriptions do not purport to be complete. A form of
Master Servicing Agreement and a form of Servicing Agreement will be filed as
Exhibits to an amended Registration Statement.
PAYMENTS ON PLEDGED LOANS
Pursuant to the Servicing Agreements with respect to a Series of Bonds,
each Servicer will be required to establish and maintain one or more separate,
insured (to the available limits) custodial accounts (collectively, the
"Custodial Account") into which the Servicer will be required to deposit on a
daily basis payments of principal and interest received with respect to Pledged
Loans serviced by such Servicer and securing such Series of Bonds. Such amounts
will include principal prepayments, insurance proceeds and proceeds received in
connection with the liquidation of defaulted Pledged Loans, any advances of such
Servicer's funds made, and proceeds of any Pledged Loans withdrawn from the
Collateral securing such Series of Bonds as provided in the Indenture for
defects in documentation, breach of representations or warranties or otherwise.
Deposits in each Custodial Account will be required to be insured by the
FDIC. If at any time the sums in any Custodial Account exceed the limits of
insurance on such account, the Servicer will be required within one business day
to withdraw such excess funds from such account and remit such amounts to the
Bond Trustee for deposit in the Collection Account for such Series of Bonds.
For a Series of Bonds, not later than the date specified in the Servicing
Agreements (or the next preceding business day, if such day is not a business
day) ("Remittance Date"), such Servicing Agreements, with respect to a Series of
Bonds, will require each Servicer to remit to the Bond Trustee (to the extent
not previously remitted) amounts representing scheduled installments of
principal and interest on the Pledged Loans received or advanced by the Servicer
which were due on the first day of such month, principal prepayments, insurance
or guaranty proceeds, and the proceeds of liquidations of mortgaged properties
including funds paid by the Servicer for any such Pledged Loans withdrawn from
the Mortgage Collateral securing such Series of Bonds received in the prior
month, with interest for the entire month of prepayment or liquidation, less
applicable servicing fees, insurance premiums and amounts representing
reimbursement of advances made by the Servicer. Such amounts will be deposited
into the Collection Account for such Series of Bonds maintained with the Bond
Trustee. In addition to the foregoing withdrawals from the Custodial Accounts,
there will be deposited in the Collection Account for such Series of Bonds any
advances of principal and interest made by the Master Servicer pursuant to the
terms of the Master Servicing Agreement, if any, for such Series of Bonds and
any insurance, guaranty or liquidation proceeds (including amounts paid upon the
withdrawal of defective Pledged Loans from the Mortgage Collateral for such
Series of Bonds) to the extent such amounts are not deposited in the related
Custodial Account or received and applied by such Servicer. To the extent that
the amount on deposit in the Collection Account for a Series of Bonds is not
insured by the FDIC, such account will be invested in or collateralized by
Eligible Investments.
With respect to any Series of Bonds, amounts received by the Bond Trustee
as proceeds of any Insurance Policies or in connection with the liquidation of
defaulted Pledged Loans securing such Series of Bonds by foreclosure or
otherwise, net of reimbursable expenses and amounts reimbursable to the Servicer
or Master Servicer, will be deemed to be payments received on the Pledged Loans
securing such Bonds.
The Servicer of each FHA Loan securing a Series of Bonds will be obligated
to purchase any HUD debenture issued in satisfaction of a defaulted FHA Loan
serviced by it for an amount equal to the principal amount of such debenture.
42
<PAGE>
Not less than five days prior to each Payment Date for a Series of Bonds
(or the next preceding business day if such day is not a business day), the
Master Servicer will furnish to the Bond Trustee and to the Issuer a statement
setting forth certain information with respect to the Pledged Loans securing
such Series of Bonds.
ADVANCES
The Servicing Agreements with respect to a Series of Bonds may require each
Servicer to advance funds to cover, to the extent that such amounts are
recoverable under any Insurance Policies or from proceeds of liquidation of
Pledged Loans securing such Series of Bonds, (i) delinquent payments of
principal and interest on such Pledged Loans, (ii) delinquent payments of taxes,
insurance premiums and other escrowed items, and (iii) foreclosure costs,
including reasonable attorneys' fees. Any such advances by the Servicer must be
deposited into the applicable Custodial Account. Amounts so advanced by the
Servicers will be reimbursable out of the related Insurance Policies or proceeds
of liquidation of the Pledged Loans for which such amounts were advanced. If an
advance made by a Servicer later proves to be unrecoverable, such Servicer will
be entitled to reimbursement from funds in the Collection Account for such
Series of Bonds or the applicable Custodial Account.
If specified in the Prospectus Supplement for a Series of Bonds, the Master
Servicing Agreement with respect to such Series of Bonds will require the Master
Servicer to advance delinquent payments of principal, interest, taxes, insurance
premiums and foreclosure costs including reasonable attorneys' fees, to the
extent that such funds are not advanced by the applicable Servicer and to the
extent that such advances are recoverable under the applicable Insurance
Policies or from the proceeds of liquidation of Pledged Loans securing such
Series of Bonds. Any such advance will be due in immediately available funds at
the principal office of the Bond Trustee not later than the last day of the
month in which such delinquent payment was due. Any advances made by the Master
Servicer will be deposited in the Collection Account for such Series of Bonds
and will be recoverable out of the related Insurance Policies or proceeds of
liquidation of the Pledged Loans for which such amounts were advanced. If an
advance made by the Master Servicer later proves to be unrecoverable, the
Master Servicer will be entitled to reimbursement from funds in such Collection
Account.
Any advances made by the Servicers or the Master Servicer with respect to
Pledged Loans securing any Series of Bonds will be intended to enable the Issuer
to make timely payment of the scheduled principal and interest payments on the
Bonds of such Series. However, neither the Master Servicer nor any Servicer
will insure or guarantee any Series of Bonds or the Pledged Loans securing any
Series of Bonds and their obligations will be limited to the advance of certain
delinquent payments to the extent that such advances, in the judgment of the
Servicer or the Master Servicer, will be recoverable under the related Insurance
Policies or from proceeds of liquidation of the Pledged Loans for which such
amounts were advanced.
COLLECTION AND OTHER SERVICING PROCEDURES.
The Servicing Agreements with respect to a Series of Bonds will require
each Servicer to make reasonable efforts to collect all payments called for
under the Pledged Loans securing the Bonds of such Series and, consistent with
the Servicing Agreement and the applicable Insurance Policies with respect to
each such Pledged Loan, to follow such collection procedures as it normally
would follow with respect to mortgage loans serviced for FNMA except when, in
the case of FHA or VA Loans, the applicable regulations require otherwise.
The note, mortgage or deed of trust used in originating a conventional
Pledged Loan may, contain a "due-on-sale" clause. FHA and VA Loans may not
contain "due-on-sale" clauses. Unless otherwise specified in the Prospectus
Supplement for a Series of Bonds, the Servicing Agreements will require the
Servicers to use reasonable efforts to enforce "due-on-sale" clauses with
respect to any note, mortgage or deed of trust containing such a clause
provided that the coverage of any applicable Insurance Policy will not be
adversely affected thereby and provided that the Servicers obtain the written
approval of the Master Servicer, the Mortgage Insurer and the Pool Insurance
Insurer before instituting any enforcement proceedings. In any case in which
a Mortgaged Property has been or is about to be conveyed by the mortgagor and
the "due-on-sale" clause has not been enforced, the Servicer with respect to
such Mortgaged Property will be authorized to take or enter into an
assumption agreement from or with the person to whom such property has been
or is about to be conveyed only if such person meets the criteria necessary
to maintain the coverage provided by the applicable Mortgage Insurance
Policies or if otherwise required by law. In the event that the Servicer
enters into an assumption agreement in connection with the conveyance of any
such Mortgaged Property, the Servicer will release the original mortgagor
from liability upon the Pledged
43
<PAGE>
Loan and substitute the new mortgagor as obligor thereon. In the case of a
FHA Loan, such an assumption may occur only with HUD approval of the
substitute mortgagor. In no event can the assumption agreement permit a
decrease in the mortgage interest rate or an increase in the term of the
loan. Fees collected for entering into an assumption agreement will be
retained by the Servicer of the Pledged Loan. See "Certain Legal Aspects of
Mortgage Loans - "Due-on-Sale" Clauses."
Under the Servicing Agreements with respect to a Series of Bonds, each
Servicer, to the extent permitted by law, will establish and maintain a
custodial account for reserves ("Custodial Account for Reserves") into which
mortgagors will be required to deposit amounts sufficient to pay taxes,
assessments, mortgage and hazard insurance premiums and other comparable items
except that certain Servicers may provide insurance coverage acceptable to the
Master Servicer for such Series of Bonds against loss occasioned by the failure
to escrow insurance premiums rather than causing such escrows to be made.
Withdrawals from the Custodial Account for Reserves maintained for mortgagors
may be made to effect timely payment of taxes, assessments, mortgage and hazard
insurance premiums or comparable items, to reimburse the Servicer for
maintaining mortgage and hazard insurance, to refund to mortgagors amounts
determined to be overages, to pay interest to mortgagors on balances in the
Custodial Account for Reserves, if required, to repair or otherwise protect the
Mortgaged Property and to clear and terminate such account. The Servicer will
be responsible for the administration of the Custodial Account for Reserves and
will be obligated to make advances to such account when a deficiency exists
therein.
With respect to Manufactured Housing, Manufactured Housing Contracts in
general prohibit the sale or transfer of the related unit of Manufactured
Housing without the consent of the Master Servicer and permit the acceleration
of the maturity of the Manufactured Housing Contracts by the Master Servicer
upon any such sale or transfer that is not consented to. Unless otherwise
specified in the related Prospectus Supplement, the Issuer or the Master
Servicer expects that it will permit most transfers of units of Manufactured
Housing and not accelerate the maturity of the related Manufactured Housing
Contracts. In certain cases, the transfer may be made by a delinquent obligor
in order to avoid a repossession proceeding with respect to a Manufactured Home.
In the case of a transfer of a unit of Manufactured Housing after which the
Master Servicer desires to accelerate the maturity of the related Manufactured
Housing Contract, the Master Servicer's ability to do so will depend on the
enforceability under state law of the "due-on-sale" clause. The Garn-St.
Germain Depositary Institutions Act of 1982 preempts, subject to certain
exceptions and conditions, state laws prohibiting enforcement of "due-on-sale"
clauses applicable to Manufactured Homes. Consequently, in some states the
Master Servicer may be prohibited from enforcing a "due-on-sale" clause in
respect of certain Manufactured Homes.
MAINTENANCE OF INSURANCE POLICIES; CLAIMS THEREUNDER AND OTHER REALIZATION UPON
DEFAULTED PLEDGED LOANS
With respect to each Pledged Loan securing a Series of Bonds, the Servicer
will be required to maintain each Primary Mortgage Insurance Policy and any FHA
insurance or VA guaranty in full force and effect as long as such coverage is
required under the Servicing Agreement and to pay the premium therefor on a
timely basis. Each Servicing Agreement with respect to a Series of Bonds also
will require the Servicer to maintain a Standard Hazard Insurance Policy for
each Pledged Loan covered thereby.
The Master Servicer with respect to a Series of Bonds will be required to
maintain any Excess Coverage Mortgage Insurance Policy, any Special Hazard
Insurance Policy, any Mortgagor Bankruptcy Bond and any Pool Insurance Policy
for such Series of Bonds in full force and effect throughout the term of the
Master Servicing Agreement, subject to payment of the applicable premiums by the
Bond Trustee. The Master Servicer will be required to notify the Bond Trustee
to pay the premiums for any such Excess Coverage Mortgage Insurance Policy, any
such Special Hazard Insurance Policy, any such Mortgagor Bankruptcy Bond and any
such Pool Insurance Policy for such Series of Bonds on a timely basis. In the
event that such Special Hazard Insurance Policy, such Mortgagor Bankruptcy Bond
or such Pool Insurance Policy for such Series of Bonds is canceled or terminated
for any reason (other than the exhaustion of total policy coverage), the Master
Servicer will be obligated to obtain from another insurer a comparable
replacement policy with a total coverage which is equal to the then existing
coverage of such Special Hazard Insurance Policy, such Mortgagor Bankruptcy Bond
or such Pool Insurance Policy. However, if the cost of any such replacement
policy or bond is greater than the cost of the policy or bond which has been
terminated, then the amount of the coverage will be reduced to a level such that
the applicable premium will not exceed the cost of the premium for the policy or
bond which was terminated.
44
<PAGE>
Each Servicing Agreement with respect to a Series of Bonds will require the
Servicer (on behalf of itself, the Master Servicer, and the Bond Trustee as
their respective interests may appear) to present claims to the Mortgage Insurer
under any Mortgage Insurance Policy for such Series of Bonds and to HUD or VA
under any FHA insurance or VA guaranty and to take such reasonable steps as are
necessary to permit recovery thereunder with respect to defaulted Pledged Loans
securing such Series of Bonds.
The Master Servicing Agreement with respect to a Series of Bonds will
require the Master Servicer (on behalf of itself, the Bond Trustee and the
holders of Bonds of such Series) to present, or cause to be presented, claims to
the issuer of any Mortgagor Bankruptcy Bond for such Series of Bonds and to take
such reasonable steps as are necessary to permit recovery respecting defaulted
Pledged Loans covered thereunder. The Master Servicer also will be required to
present claims to the Special Hazard Insurer under the Special Hazard Insurance
Policy for such Series of Bonds and to take such reasonable steps as are
necessary to permit recovery under such policy respecting losses on the
mortgaged properties securing the Pledged Loans.
If any Mortgaged Property securing a defaulted Pledged Loan securing a
Series of Bonds is damaged and the proceeds, if any, from the related Standard
Hazard Insurance Policy or the Special Hazard Insurance Policy are insufficient
to restore the damaged property to the condition required to permit recovery
under the related Mortgage Insurance Policy, the Servicer will not be required
to expend its own funds to restore the damaged property unless it determines and
the Master Servicer agrees that such expenses will be recoverable to it through
liquidation proceeds or through insurance proceeds.
If recovery under the applicable Insurance Policy is not available, the
Servicer or the Master Servicer nevertheless will be obligated to follow
standard practices and procedures to realize upon any defaulted Pledged Loan.
In this regard, the Servicer may sell the Mortgaged Property pursuant to
foreclosure, trustee's sale or, in the event a deficiency judgment is available
against the mortgagor or other person, proceed to seek recovery of the
deficiency against the appropriate person. To the extent that the proceeds of
any such liquidation proceedings are less than the outstanding Bond Value of the
defaulted Pledged Loan, there will be a reduction in the value of the Collateral
for the Series of Bonds secured by such Pledged Loan such that the holders of
Bonds of such Series may not receive full interest and principal on the Bonds of
such Series. See "Certain Legal Aspects of Mortgage Loans - Anti-Deficiency
Legislation and Other Limitations on Lenders."
RESIGNATION OF THE MASTER SERVICER
If a Master Servicing Agreement has been entered into with respect to a
Series of Bonds, the Master Servicer for such Series of Bonds may not resign
from its obligations and duties under the Master Servicing Agreement with
respect to such Series of Bonds, except upon a determination that its duties
thereunder are no longer permissible under applicable law. No such resignation
will become effective until a successor Master Servicer has assumed the Master
Servicer's obligations and duties under the Master Servicing Agreement. To the
extent specified in the Prospectus Supplement for a Series of Bonds, the Issuer
will have the right to terminate the Master Servicing Agreement for such Series
of Bonds with the Master Servicer at any time so long as such termination will
not result in a downgrading of the then rating of such Bonds by any rating
agency rating such Bonds.
EVIDENCE AS TO COMPLIANCE
After the Bonds of a Series have been outstanding for more than six months,
the Master Servicer for such Series of Bonds will be required to cause a firm of
independent certified public accountants to furnish to the Bond Trustee within
120 days of the end of each fiscal year of the Master Servicer a statement to
the effect that such firm has examined certain documents and records relating to
the servicing of the Pledged Loans securing such Series of Bonds during the
preceding year and that on the basis of such examination such firm is of the
opinion that the Master Servicer has performed its obligations in compliance
with the Master Servicing Agreement and other relevant documents except for (i)
such exceptions as such firm believes to be immaterial and (ii) such other
exceptions as are set forth in such statement. Such statement will be in a form
and provide for such procedures as may be defined by the Issuer and the Bond
Trustee.
The Master Servicer for a Series of Bonds will be required to deliver to
the Bond Trustee an annual statement signed by two of its officers to the effect
that the Master Servicer has fulfilled its obligations in all material respects
under the Master Servicing Agreement with respect to such Series of Bonds
throughout the preceding year. Copies of such
45
<PAGE>
statements may be obtained by the holders of Bonds of such Series upon
written request addressed to the Issuer at its principal executive offices.
EVENTS OF DEFAULT
Events of default under any Master Servicing Agreement for a Series of
Bonds will consist of (i) any failure to make or cause the deposit with the Bond
Trustee of any required payment as provided by the Master Servicing Agreement
for such Series; (ii) any material failure by the Master Servicer for such
Series to duly observe or perform any other of its covenants or agreements in
the Master Servicing Agreement for such Series which continues unremedied for 15
days after the giving of written notice of such failure by the Bond Trustee;
(iii) certain events of insolvency, readjustment of debt, marshaling of assets
and liabilities or similar proceedings and certain actions by the Master
Servicer for such Series indicating its insolvency, reorganization or inability
to pay its obligations; and (iv) the Rating Agency lowering or threatening to
lower the then rating of the Bonds of such Series due to the unacceptability of
terms in the Master Servicing Agreement for such Series or due to the financial
condition of the Master Servicer for such Series.
RIGHTS UPON EVENT OF DEFAULT
So long as an event of default under a Master Servicing Agreement remains
unremedied, the Bond Trustee may waive any such default under such Master
Servicing Agreement, or terminate all of the rights and obligations of the
Master Servicer under such Agreement, whereupon the Bond Trustee will succeed to
all of the responsibilities, duties and liabilities of the Master Servicer under
such agreement and will be entitled to similar compensation arrangements. The
Bond Trustee, with the approval of the Issuer, may appoint a FNMA, FHLMC or HUD
approved servicer to act as successor to the Master Servicer under such Master
Servicing Agreement. The Bond Trustee and such successor will agree upon the
servicing compensation to be paid, which in no event may be greater than the
compensation to the Master Servicer under such Master Servicing Agreement.
AMENDMENTS
The Master Servicing Agreement, if any, with respect to any Series of Bonds
may be amended with respect to such Series of Bonds by the Master Servicer and
the Bond Trustee, or by the Master Servicer and the Issuer with the consent of
the Bond Trustee, for the purpose of adding any provisions to, or changing in
any manner, or eliminating any of the provisions of such Master Servicing
Agreement.
FINANCE COMPANIES AND FUNDING AGREEMENTS
The Issuer may choose to obtain Mortgage Collateral securing the Bonds in
part through finance companies ("Finance Companies"). The Finance Companies
will be responsible for identifying, contracting for and purchasing the Mortgage
Collateral for a Series of Bonds. One or more of the Finance Companies
participating in a Series of Bonds may be affiliated with the Issuer. If
Pledged Loans are originated through Finance Companies, such Finance Companies
will not insure or guaranty payment of principal of or interest on the Bonds of
any Series. Such Finance Companies will then assign, sell or lend the
Collateral to the Issuer under a Funding Agreement. The Finance Companies will
be responsible for their own costs and expenses related to this purpose. The
Issuer may elect to work with one or more Finance Companies.
Unless specified otherwise in the related Prospectus Supplement for a
Series of Bonds, the Issuer and each Finance Company participating in the offer
of a Series of Bonds will enter into a separate Funding Agreement pursuant to
which the Finance Company will (i) borrow a portion of the proceeds of the sale
of such Series of Bonds in an amount not to exceed the Aggregate Initial Bond
Value of the Mortgage Collateral pledged under such Funding Agreement; (ii)
repay such loan by causing payments to be made to the Bond Trustee in such
amounts as are necessary (after taking into account any cash available to be
withdrawn from any applicable Security Fund for such Series of Bonds) to pay
accrued interest on such loan and to amortize the entire principal amount of
such loan; and (iii) pledge to the Issuer as security for the loan a portion of
the Pledged Loans having an Aggregate Initial Bond Value equal to at least the
amount of the loan under the Funding Agreement. Each Finance Company also will
provide its required portion of the cash, certificates of deposit, irrevocable
letters of credit or other financial guarantees to fund the applicable Security
Funds under the Indenture. Unless otherwise specified in the Prospectus
Supplement for a Series of Bonds, the security pledged by each Finance Company
under its Funding Agreement will secure only its loan and not the loans made to
the other participating Finance Companies.
46
<PAGE>
If the Issuer with respect to a Series of Bonds is a Trust, the Issuer will
assign to such Trust its entire right, title and interest in the Collateral and
all proceeds thereof pledged under the Funding Agreements with respect to such
Series of Bonds. The Issuer with respect to a Series of Bonds will assign to
the Bond Trustee, all of its right, title and interest in the Collateral and all
proceeds thereof pledged under the Funding Agreements with respect to such
Series of Bonds except for its rights to receive certain fees and reimbursement
for certain expenses and its right to indemnification.
Unless otherwise specified in the Prospectus Supplement for a Series of
Bonds, the Funding Agreements for a Series of Bonds will not provide for any
prepayments of amounts due by the Finance Companies otherwise than by virtue of
amounts received under the Mortgage Collateral securing such Series of Bonds or,
in certain cases, in connection with or following a redemption pursuant to the
Indenture. However, in the event of certain prepayments in connection with an
event of default under a Funding Agreement, a prepayment penalty will be payable
in an amount equal to the amount by which the market value of the collateral
securing such obligation exceeds the outstanding principal amount of such
obligation, plus accrued interest to the date of such prepayment. The proceeds
of any such prepayment relating to principal and interest will be applied by the
Bond Trustee to interest and as a principal prepayment on the Bonds of such
Series, and any such proceeds constituting a premium will be distributed on a
PRO RATA, random lot or other selection basis specified in the Prospectus
Supplement for such Series of Bonds to holders of Bonds of such Series.
THE INDENTURE
The following summaries describe certain provisions of the forms of
Indenture. The summaries do not purport to be complete. Reference is made to
the provisions of the form of Indenture which has been filed as an Exhibit to
the Registration Statement of which this Prospectus forms a part. When
particular provisions or terms used in the forms of Indenture are referred to,
the actual provisions (including definitions of terms) are incorporated by
reference as part of such summaries.
MODIFICATION OF INDENTURE
With the consent of the holders of not less than a majority in principal
amount of the outstanding Bonds of each Series to be affected, the Bond
Trustee and the Issuer may execute a supplemental indenture to add provisions
to, or change in any manner or eliminate any provisions of, the Indenture
relating to such Series or modify in any manner the rights of the holders of
the Bonds of such Series. (Indenture, Section 10.02.)
Without the consent of the holder of each outstanding Bond affected, no
Supplemental Indenture may (i) change the maturity of the principal of or
interest on any Bond, or reduce the principal amount thereof or the rate of
interest thereon or the redemption price or Special Redemption price with
respect thereto or change the provisions of this Indenture relating to the
application of Collateral securing the Bond's collections to the payment of
principal of Bonds or change in the place of payment where, or the coin or
currency in which, any Bond or interest thereon is payable, or impair the right
to institute suit for the enforcement of any such payment on or after the Stated
Maturity thereof, (ii) reduce the percentage of Bonds of
47
<PAGE>
the affected Series whose consent is required for the authorization of any
Supplemental Indenture or for any waiver of compliance with certain
provisions of the Indenture or certain defaults thereunder or their
consequences, (iii) impair or otherwise adversely affect the Collateral
securing a Series of Bonds, (iv) reduce the percentage of holders of Bonds of
any Series whose consent is required to direct the Bond Trustee to liquidate
the Collateral for such Series of Bonds if the proceeds of such liquidation
would be insufficient to pay the principal amount of and accrued interest on
the outstanding Bonds of that Series, (v) permit the creation of any lien
ranking prior to or on a parity with the lien of the Indenture with respect
to any part of the Collateral securing the Bonds or terminate the lien of the
Indenture on any property at any time subject thereto or deprive the
Bondholder of the security afforded by the lien of the Indenture, or (vi)
modify any of the provisions of the Indenture with respect to Supplemental
Indentures and waivers of past defaults except to increase the percentage of
outstanding Bonds whose consent is required for any such action or to provide
that other provisions of the Indenture cannot be modified or waived without
the consent of the holders of each outstanding Bond affected thereby.
(Indenture, Section 10.02.)
The Issuer and the Bond Trustee also may enter into Supplemental
Indentures, without obtaining the consent of Bondholders, to cure ambiguities,
to correct or supplement any defective or inconsistent provision or to make any
other provisions with respect to matters or questions arising under the
Indenture or, as required by applicable law, to maintain the REMIC status of a
Series of Bonds with respect to which a REMIC election has been made so long as
the interests of the Bondholders would not be adversely affected thereby.
(Indenture, Section 10.01.)
EVENTS OF DEFAULT
An event of default ("Event of Default") with respect to any Series of
Bonds is defined in the Indenture as being (i) a default for five days or more
in the payment of principal of or interest on any Bond of such Series, (ii) a
default in the performance of any other covenant in the Indenture and the
continuation of such default for a period of 60 days after notice to the Issuer
by the Bond Trustee or to the Issuer and the Bond Trustee by the holders of at
least 25% in principal amount of the Bonds of such Series then outstanding, or
(iii) certain events of bankruptcy, insolvency, receivership or reorganization
of the Issuer. In case an Event of Default with respect to a Series of Bonds
should occur and be continuing and no election to preserve the Collateral
securing such Series of Bonds (pursuant to Section 6.05 of the Indenture, as
discussed below) has been made or, if made, such election has been rescinded,
the Bond Trustee or the holders of at least 25% in principal amount of the Bonds
of such Series then outstanding may declare the principal of the Bonds of such
Series then outstanding to be due and payable. Such declaration may under
certain circumstances be rescinded by the holders of a majority in principal
amount of the Bonds of such Series then outstanding. (Indenture, Sections 6.01
and 6.02.) However, in the event that an Event of Default has occurred as the
result of an order or judgment which prevents the application by the Bond
Trustee, as provided in the Indenture, of the proceeds of any Mortgage
Collateral securing a Series of Bonds, the Indenture allows the Bond Trustee to
declare to be due and payable by lot a portion of the Bonds of such Series then
outstanding in a principal amount equal to the outstanding Bond Values of such
Mortgage Collateral. Such declaration by the Bond Trustee will be the sole
remedy for the holders of Bonds of such Series upon the happening of such
occurrence. (Indenture, Section 6.02.)
An Event of Default with respect to one Series of Bonds will not
necessarily constitute an Event of Default with respect to any other Series of
Bonds.
If, following an Event of Default with respect to a Series of Bonds, the
Bonds of such Series have not been declared to be due and payable or if such
declaration and its consequences are annulled and rescinded, the Bond Trustee
may, if it determines it to be in the best interests of the holders of such
Bonds, or at the request of the holders of a majority in principal amount of the
outstanding Bonds of such Series shall, refrain from liquidating the Collateral
for such Series. (Indenture, Section 6.05.) The Bond Trustee is prohibited from
selling such Collateral unless (a) the proceeds of such sale are sufficient to
pay in full the principal and accrued interest on the outstanding Bonds of such
Series at the date of such sale, or (b) if the proceeds of such sale will not be
sufficient, the Bond Trustee obtains the consent of the holders of the entire
principal amount of the outstanding Bonds. (Indenture, Section 6.04.)
In the event the principal of the Bonds of a Series is declared due and
payable as described above, and the Mortgage Collateral securing such Series of
Bonds is sold, the holders of any such Bonds issued at OID may be entitled to
receive no more than an amount equal to the unpaid principal amount thereof less
unamortized OID. Under the terms of the Indenture, the Issuer agrees to pay the
Bond Trustee from time to time reasonable compensation for all services rendered
48
<PAGE>
by it, to reimburse the Bond Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made in accordance with any
provision of the Indenture, and to indemnify the Bond Trustee for, and to hold
it harmless against any loss, liability or expense incurred without negligence
or bad faith on its part, arising out of or in connection with the acceptance
and administration of the Trust, including costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its power or duties. The Bond Trustee shall receive
amounts payable to it as compensation, indemnification and reimbursement
pursuant to the Indenture only to the extent that the payment thereof will not
result in an Event of Default and, furthermore, the failure to pay such amounts
to the Bond Trustee will not constitute an Event of Default. (Indenture, Section
7.07.)
Subject to the provisions of the Indenture relating to the duties of the
Bond Trustee in case an Event of Default occurs and continues, the Bond Trustee
will be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any holders of Bonds of a Series,
unless such holders shall have offered to the Bond Trustee reasonable security
or indemnity. (Indenture, Section 7.03.) Subject to such provisions for
indemnification and certain limitations contained in the Indenture, the holders
of a majority in principal amount of the outstanding Bonds of a Series will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Bond Trustee or exercising any trust or power
conferred on the Bond Trustee with respect to the Bonds of such Series; and the
holders of a majority in principal amount of the outstanding Bonds of a Series
may, in certain cases, waive any default with respect to such Series except a
default in payment of principal of or interest on the Bonds of such Series and
in respect of certain covenants and provisions requiring the consent of each
Bondholder affected. (Indenture, Sections 6.14 and 6.15.)
No holder of any Bonds of a Series will have the right to institute any
proceeding with respect to the Indenture, unless (1) such holder previously has
given to the Bond Trustee written notice of a continuing Event of Default, (2)
the holders of not less than 25% in principal amount of the outstanding Bonds of
the same Series have made written request upon the Bond Trustee to institute
such proceedings in its own name as Bond Trustee and have offered the Bond
Trustee reasonable indemnity, (3) the Bond Trustee has for 60 days neglected or
refused to institute any such proceeding, and (4) no direction inconsistent with
such written request has been given to the Bond Trustee during such 60-day
period by the holders of a majority in principal amount of the outstanding Bonds
of such Series. (Indenture, Section 6.09.)
LIST OF BONDHOLDERS
Three or more holders of the Bonds of a Series who have held such Bonds for
a period of at least six months may, by written request to the Bond Trustee,
obtain access to the list of all holders of Bonds of such Series maintained by
the Bond Trustee for the purpose of communicating with other Bondholders with
respect to their rights under the Indenture. The Bond Trustee may elect not to
afford the requesting Bondholders access to the list of Bondholders if it agrees
to mail the desired communication or proxy, on behalf of the requesting
Bondholders, to all such Bondholders. (Indenture, Section 8.02.)
ANNUAL COMPLIANCE STATEMENT
The Issuer will be required to file annually with the Bond Trustee a
written statement as to fulfillment of its obligations under the Indenture.
(Indenture, Section 9.10.)
REPORTS TO BONDHOLDERS
The Issuer will send to each Bondholder within 120 days after the end of
each fiscal year an annual report containing an audited balance sheet of the
Issuer. For each Series, the Issuer will include with such balance sheet a
statement setting forth the remaining balance of the Bonds held by each
Bondholder on the last day of the preceding fiscal year. (Indenture, Section
8.04.) The fiscal year end of the Issuer is March 31.
BOND TRUSTEE'S ANNUAL REPORT
The Bond Trustee will be required to mail each year to all holders of Bonds
of a Series a brief report relating to its eligibility and qualifications to
continue as the Bond Trustee under the Indenture, any amounts advanced by it
under the Indenture, the amount, interest rate and maturity date of certain
indebtedness owing by the Issuer to it in the Bond Trustee's individual
capacity, the property and funds relating to such Series physically held by the
Bond Trustee as such, any additional
49
<PAGE>
issue of Bonds of such Series not previously reported, the release or release
and substitution of any property relating to such Series subject to the lien
of the Indenture, and any action taken by it which materially affects the
Bonds or the Collateral for such Series and which has not been previously
reported. (Indenture, Section 8.03.)
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture will be discharged as to a Series of Bonds upon the
cancellation of all of the Bonds of such Series or, with certain limitations,
upon deposit with the Bond Trustee of funds sufficient for the payment or
redemption thereof. (Indenture, Section 5.01.)
BOND TRUSTEE
The Bond Trustee for a Series of Bonds will be as specified in the
Prospectus Supplement for such Series of Bonds.
50
<PAGE>
THE ISSUER
The Issuer was incorporated in the State of California on July 22, 1998
("Inception"), as a limited purpose financing corporation. The Issuer
maintains its principal executive offices at 9665 Wilshire Blvd., Suite 410,
Beverly Hills, California 90212 and its telephone number is (310) 285-7400.
The Issuer will not engage in any activity other than issuing, directly or
through one or more trusts established by it, one or more Series of Bonds and
similar series of bonds collateralized by Mortgage Collateral and Security
Funds and, in connection therewith, acquiring, owning, holding and pledging
Mortgage Collateral. Except as specified in this Prospectus, in the
Prospectus Supplement for a Series of Bonds, or in a report filed with the
Securities and Exchange Commission ("Commission"), the Issuer does not intend
to engage in any transactions with its directors, officers or principal
shareholders (although its Articles of Incorporation and Bylaws would permit
such transactions), to make loans to other persons, to invest in or
underwrite the securities of other issuers, to offer securities in exchange
for property, to engage in the purchase or sale of any investments, to issue
senior securities, or to repurchase or otherwise reacquire its securities.
DIRECTORS AND EXECUTIVE OFFICERS
The Directors of the Issuer are elected for a term of one year or until
the next annual meeting. There are no family relationships between any of
the Issuer's directors. The Officers serve at the discretion of the Board of
Directors. The Officers and Directors of the Issuer are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Robert S. Manns 57 President and Sole Director
</TABLE>
The Issuer has not paid any remuneration to any of its directors or
officers. The Issuer will not pay any compensation for services as officers
or directors in the future. The stockholders and officers have been
reimbursed for, or are owed, various out-of-pocket expenses incurred on
behalf of the Issuer. The Issuer may in the future pay to one or more of its
directors or officers, or to entities controlled by such directors or
officers, consulting fees or other remuneration. Except as described in this
Prospectus, in the Prospectus Supplement for a Series of Bonds, or in a
report filed with the Commission, the directors and officers do not intend to
have any direct or indirect pecuniary interest in any investment to be
acquired or disposed of by the Issuer or in any transaction to which the
Issuer is a party or has an interest, or to engage for their own account in
business activities of the type conducted or to be conducted by the Issuer.
However, the Articles of Incorporation and Bylaws of the Issuer would permit
the directors and officers to have such interests or to engage in such
business activities.
The Articles of Incorporation and Bylaws of the Issuer provide for the
indemnification of the directors and officers of the Issuer to the fullest
extent permitted by California law. California law generally permits
indemnification of directors and officers against certain costs, liabilities
and expenses which such persons may incur by reason of serving in such
positions as long as such persons acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation. Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended ("Securities Act"), may be permitted to
directors, officers or persons controlling the Issuer pursuant to the
foregoing provisions, the Issuer has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information regarding the beneficial
ownership of Shareholders owning five percent (5%) or more of the Issuer's
voting securities:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT AND NATURE OF OWNERSHIP
- ------------------------------------ ------------------------------
<S> <C>
Robert S. Manns 100% of Issued and Outstanding Common Stock
</TABLE>
51
<PAGE>
LEGAL PROCEEDINGS
None.
THE DEPOSIT TRUST AGREEMENT
Unless specified otherwise in the Prospectus Supplement for a Series of
Bonds, the Issuer thereof will be a trust created by a Deposit Trust
Agreement between the Issuer, acting as depositor, and a bank, trust company
or other fiduciary, which will act not in its individual capacity but solely
as Owner-Trustee under the Deposit Trust Agreement. Unless otherwise
specified in the related Prospectus Supplement for a Series of Bonds, the
Owner-Trustee for such Series is intended to be Wilmington Trust Company
("WTC"), a bank and trust company organized under the laws of the State of
Delaware. Pursuant to the Deposit Trust Agreement, the Issuer anticipates,
for each Series of Bonds, appointing WTC to receive and hold the Collateral
for such Series in trust for the use and benefit of the Issuer pursuant to
the Deposit Trust Agreement. It is the intention of the Issuer and WTC to
create thereby a "business trust" under the Delaware Business Trust Statute
and that the Deposit Trust Agreement constitute the governing instrument of
such business trust. Unless specified otherwise in the Prospectus Supplement
for a Series of Bonds, the Deposit Trust Agreement will provide that the
Issuer thereof will convey or pledge to the Trust the Collateral to secure a
Series of Bonds in return for certificates of beneficial ownership
("Certificates of Beneficial Ownership") of the Trust created under such
agreement and the net proceeds of the sale of the Bonds. The Issuer may sell
or assign such Certificates of Beneficial Ownership to another entity or
entities. A copy of a form Deposit Trust Agreement will be filed as an
exhibit to an amended Registration Statement.
The Trust issuing a Series of Bonds will pledge the Collateral to the
Bond Trustee under the Indenture for such Series of Bonds to secure such
Series of Bonds. Each Indenture will prohibit further debt obligations by
such Trust. The Bond Trustee will hold the Collateral as security for the
Bonds of such Series and holders of the Bonds of such Series will be entitled
to the equal and proportionate benefits of such security as if the same had
been granted by a corporate issuer.
Each Deposit Trust Agreement will provide that the Trust created under
such agreement may not conduct any activities other than those related to the
issuance and sale of Bonds of the particular Series and to such other limited
activities as may be required in connection with reports and distributions to
holders of the Certificates of Beneficial Ownership of such Trust. No such
agreement will be subject to amendment without the prior written consent of
the Owner-Trustee, holders representing 50% of the Certificates of Beneficial
Ownership of the Trust and the Bond Trustee (which consent may not be
unreasonably withheld if such amendment would not adversely affect the
interests of the Bondholders) except that holders of not less than 66 2/3% of
the aggregate principal amount of the Bonds of the related Series outstanding
must consent to any amendment of the provision limiting the Trust's
activities and the provision regarding amendments to the Deposit Trust
Agreement. The holders of Certificates of Beneficial Ownership of a Trust
will not be liable for payment of principal or interest on the Bonds of the
particular Series issued by such Trust and each of the holders of the Bonds
of such Series will be deemed to have released such holders of Certificates
of Beneficial Ownership from any such claim, liability or obligation on or
with respect to such Bonds.
Unless otherwise specified in a particular Deposit Trust Agreement, each
Deposit Trust Agreement will provide that the holders of Certificates of
Beneficial Ownership of the Trust created under such agreement shall
indemnify the Owner-Trustee against all losses and liability suffered by it
in acting upon the holders' instructions, except in the case of willful
misconduct, bad faith or gross negligence on the part of the Owner-Trustee.
The Owner-Trustee will have no liability for action taken by it in good faith
in reliance upon direction to it for the disposition of moneys or the
Collateral pursuant to a Deposit Trust Agreement.
52
<PAGE>
CERTAIN LEGAL ASPECTS OF PLEDGED LOANS
The following discussion contains summaries of certain legal aspects of
Pledged Loans which are general in nature. Since such legal aspects are
governed by applicable state law (which laws may differ substantially), the
summaries do not purport to be complete nor to reflect the laws of any
particular state, nor to encompass the laws of all states in which the
security for the Pledged Loans securing a Series of Bonds is situated.
Reference is made to the applicable federal and state laws governing such
Pledged Loans. In this regard, the following discussion does not reflect
federal regulations with respect to FHA and VA Loans. See "Security for the
Bonds-Insurance Policies-Mortgage Insurance on the Pledged Loans," "Security
for the Bonds - Insurance Policies - FHA Insurance and VA Guarantees."
GENERAL
With respect to the Pledged Loans that may be secured by mortgages or
deeds of trust on residential real property, a mortgage creates a lien upon
the real property encumbered by the mortgage. There are two parties to a
mortgage: the mortgagor, who generally is the borrower; and the mortgagee,
who is the lender. Under the mortgage instrument, the mortgagor delivers to
the mortgagee a note or bond and the mortgage. Although a deed of trust is
similar to a mortgage, a deed of trust has three parties: the borrower called
the trustor (similar to a mortgagor), a lender called the beneficiary
(similar to a mortgagee), and a third-party grantee called the trustee.
Under a deed of trust, the trustor grants the property, irrevocably until the
debt is paid, in trust for the benefit of the beneficiary, generally with a
power of sale granted to the trustee, the effect of which is to create a lien
to secure payment of the obligation. The trustee's authority under a deed of
trust and the mortgagee's authority under a mortgage are governed by law and
may also be governed by the express provisions of the deed of trust or
mortgage, and, in some cases, with respect to the deed of trust by the
directions of the beneficiary.
FORECLOSURE
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in
completion of the foreclosure occasionally may result from difficulties in
locating necessary party defendants. When the mortgagee's right to
foreclosure is contested, the legal proceedings necessary to resolve the
issue can be time-consuming. The court may issue a judgment of foreclosure
and appoint a receiver or other officer to conduct the sale of the property.
In some states, mortgages may also be foreclosed by advertisement, pursuant
to a power of sale provided in the mortgage documents. Foreclosure of a
mortgage by advertisement is essentially similar to foreclosure of a deed of
trust by nonjudicial sale.
Enforcement of a deed of trust is generally accomplished by a
non-judicial trustee's sale under a specific provision in the deed of trust
which authorizes the trustee to sell the property to a third party upon any
default by the trustor under the note or deed of trust. In certain states,
sale of the property upon any default by the trustor under the note or deed
of trust also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, the trustee must record a
notice of default and send a copy to the trustor and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee must provide notice in some states to any other
individual having an interest of record in the real property, including any
junior lien holders.
The borrower, or any other person having a junior encumbrance on the
real estate may, during a reinstatement period, cure the default by paying
the entire amount in arrears plus the costs and expenses incurred in
enforcing the obligation. Generally, state law controls the amount of
foreclosure expenses and costs, including attorneys' fees, which may be
recovered by a lender. If the deed of trust is not reinstated, a notice of
sale must be posted in a public place and, in most states, published for a
specific period of time in one or more newspapers. In addition, some state
laws require that a copy of the notice of sale be posted on the property and
sent to all parties having an interest in the real property. In addition,
some state laws require that a copy of the notice of sale be posted on the
property and sent to all parties having an interest of record in the property.
In case of foreclosure under a mortgage or a deed of trust or in case of
a power of sale foreclosure under a deed of trust, the sale by the receiver
or other designated officer, or by the trustee, is a public sale. However,
because of the difficulty a potential buyer at the sale would have in
determining the exact status of title and because the physical condition of
the property may have deteriorated during the foreclosure proceedings, it is
uncommon for a third party to purchase the
53
<PAGE>
property at the foreclosure sale. Rather, it is common for the lender to
purchase the property from the trustee or receiver for an amount equal to the
perceived value of the property. Thereafter, subject to the right of the
borrower in some states to remain in possession during the redemption period,
the lender will assume the burdens of ownership, including obtaining hazard
insurance and making such repairs at its own expense as are necessary to
render the property suitable for sale. The lender commonly will obtain the
services of a real estate broker and pay the broker a commission in
connection with the sale of the property. Depending upon market conditions,
the ultimate proceeds of the sale of the property may not equal the lender's
investment in the property. Any loss may be reduced by the receipt of
mortgage insurance proceeds. See "Security for the Bonds - Mortgage
Insurance on the Pledged Loans" and "Security for the Bonds - Insurance
Policies - Hazard Insurance on the Pledged Loans."
ENFORCEMENT OF RIGHTS UNDER MANUFACTURED HOUSING CONTRACTS
The method of enforcing the rights of the lender under a Manufactured
Housing Contract varies from state to state depending upon the extent to
which state courts are willing, or able pursuant to state statute, to enforce
the Manufactured Housing Contract strictly according to the terms. The terms
of a Manufactured Housing Contract generally provide that upon a default by
the borrower, the borrower loses his or her right to occupy the property, the
entire indebtedness is accelerated, and the buyer's equitable interest in the
property is forfeited. The lender in such a situation does not have to
foreclose in order to obtain title to the property, although in some cases a
quiet title action is in order if the borrower has filed the Manufactured
Housing Contract in local land records and an ejectment action may be
necessary to recover possession. In a few states, particularly in cases of
borrower default during the early years of a Manufactured Housing Contract,
the courts will permit ejectment of the buyer and a forfeiture of his or her
interest in the property. However, most state legislatures have enacted
provisions by analogy to mortgage law protecting borrowers under Manufactured
Housing Contracts from the harsh consequences of forfeiture. Under such
statutes, a judicial or nonjudicial foreclosure may be required, the lender
may be required to give notice of default and the borrower may be granted
some grace period during which the Manufactured Housing Contract may be
reinstated upon full payment of the default amount and the borrower may have
a post-foreclosure statutory redemption right. In other states, courts in
equity may permit a borrower with significant investment in the property
under a contract for the sale of real estate to share in the proceeds of sale
of the property after the indebtedness is repaid or may otherwise refuse to
enforce the forfeiture clause. Nevertheless, generally speaking, the
lender's procedures for obtaining possession and clear title under a
Manufactured Housing Contract for the sale of real estate in a given state
are simpler and less time-consuming and costly than are the procedures for
foreclosing and obtaining clear title to a Mortgaged Property.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a non-judicial power of sale
under a deed of trust or judicial foreclosure of a mortgage or deed of trust,
the borrower and certain foreclosed junior lienors are given a statutory
period in which to redeem the property from the sale. In certain other
states, this right of statutory redemption applies only to sale following
judicial foreclosure, and not to sale pursuant to a non-judicial power of
sale. In most states where the right of redemption is available, statutory
redemption may occur upon payment of the purchase price at the sale, accrued
interest and taxes. In some states, the right to redeem is an equitable
right. The effect of a right of redemption is to diminish the ability of the
lender to resell the property. The rights of redemption would defeat the
title of any purchaser at sale, or of any purchaser from the lender
subsequent to judicial foreclosure of a mortgage or deed of trust or sale
pursuant to a non-judicial power of sale under a deed of trust. Consequently,
the practical effect of the redemption right is to force the lender to
maintain the property and pay the expenses of ownership until the redemption
period has run.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory prohibitions which limit the
remedies of a beneficiary under a deed of trust or a mortgagee under a
mortgage.
With respect to liens on real property, some state statutes may require
the beneficiary or mortgagee to exhaust the security afforded under a deed of
trust or mortgage by foreclosure or sale under a deed of trust in an attempt
to satisfy the full debt before bringing a personal action against the
borrower. In certain other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting
such security; however, in some of these states, the lender, following
judgment on such personal action, may be deemed to have elected a remedy and
may be precluded from
54
<PAGE>
exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement, when applicable, is that
lenders will usually proceed against the security rather than bringing a
personal action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a judicial sale or sale pursuant to the trustee's
power of 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 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 judicial sale or sale pursuant to the trustee's power of sale.
Some of the loans secured by multifamily residential buildings may be
nonrecourse loans as to which, in the event of default by a borrower,
recourse may be had only against the specific property pledged to secure the
related loan and not against the borrower's other assets. Even when the
terms of a mortgage loan permit recourse against the borrower's assets in
addition to the Mortgaged Property, certain states have imposed statutory
limitations on such recourse. Some state 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 borrower equal in most cases to the
difference between the amount due to the lender and the net amount realized
upon the public sale of the real property.
In some states, exceptions to the anti-deficiency statutes are provided
for in certain instances where the value of the lender's security has been
impaired by acts or omissions of the borrower, for example, in the event of
waste of the property.
With respect to cooperative apartments, in the case of foreclosure on a
building which was converted from a rental building to a building owned by a
cooperative under a type of non-eviction plan, some states require that a
purchaser at a foreclosure sale take the property subject to rent control and
rent stabilization laws which apply to certain tenants who elected to remain
in the building but did not purchase shares in the cooperative when the
building was so converted.
Under the terms of the Relief Act, an obligor who enters military
service after the origination of such obligor's mortgage loan or Manufactured
Housing Contract (including an obligor who is a member of the National Guard
or is in reserve status at the time of the origination of the mortgage loan
and is later called to active duty) may not be charged interest above an
annual rate of 6% during the period of such obligor's active duty status,
unless a court orders otherwise upon application of the lender. It is
possible that such action could have an effect, for an indeterminate period
of time, on the ability of the Master Servicer to collect full amounts of
interest on certain of the mortgage loans. Any shortfall in interest
collections resulting from the application of the Relief Act, to the extent
not covered by the subordination of a Class of Bonds, could result in losses
to the holders of a Series of Bonds. In addition, the Relief Act imposes
limitations which would impair the ability of the Master Servicer to
foreclose on an affected mortgage loan during the obligor's period of active
duty status. Thus, in the event that such a mortgage loan goes into default,
there may be delays and losses occasioned by the inability to realize upon
the Mortgaged Property or Manufactured Home, respectively, in a timely
fashion.
The laws of some states provide priority to certain tax liens over the
lien of the mortgage or deed of trust. Numerous federal and some state
consumer protection laws impose substantive requirements upon mortgage
lenders in connection with the origination, servicing and the enforcement of
mortgage loans. These laws include the federal Truth-in-Lending Act, Real
Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair Credit
Reporting Act, Federal Trade Commission Rule - Credit Practices, and related
statutes and regulations. These federal laws and state laws impose specific
statutory liabilities upon lenders who originate or service mortgage loans
and who fail to comply with the provisions of the law. In some cases this
liability may affect assignees of the mortgage loans.
"DUE-ON-SALE" CLAUSES
The forms of note, mortgage and deed of trust relating to conventional
Pledged Loans securing a Series of Bonds may contain a "due-on-sale" clause
permitting acceleration of the maturity of a loan if the borrower transfers
its interest in the property. In recent years, court decisions and
legislative actions placed substantial restrictions on the right of lenders
to enforce such clauses in many states. However, effective October 15, 1982,
Congress enacted the Garn-St. Germain Depository Institutions Act of 1982
("Depository Act") which purports to preempt state laws which prohibit the
enforcement
55
<PAGE>
of "due-on-sale" clauses by providing among other matters that "due-on-sale"
clauses in certain loans (which loans include the conventional Pledged Loans)
made after the effective date of the Depository Act are enforceable, within
certain limitations as set forth in the Depository Act and the regulations
promulgated thereunder.
By virtue of the Depository Act, the Servicer may generally be permitted
to accelerate any conventional Pledged Loan which contains a "due-on-sale"
clause upon transfer of an interest in the property subject to the mortgage
or deed of trust. With respect to any Pledged Loan secured by a residence
occupied or to be occupied by the borrower, this ability to accelerate will
not apply to certain types of transfers, including (i) the granting of a
leasehold interest which has a term of three years or less and which does not
contain an option to purchase, (ii) a transfer, in which the transferee is a
person who occupies or will occupy the real property, which is a transfer to
a relative resulting from the death of a borrower, or a transfer where the
spouse or children becomes an owner of the property, (iii) a transfer
resulting from a decree of dissolution of marriage, legal separation
agreement or from an incidental property settlement agreement by which the
spouse becomes an owner of the property, (iv) the creation of a lien or other
encumbrance subordinate to the lender's security interest which does not
relate to a transfer of rights of occupancy in the property (provided that
such lien or encumbrance is not created pursuant to a contract for deed), (v)
a transfer by devise, descent or operation of law on the death of a joint
tenant or tenant by the entirety, and (vi) others as set forth in the
Depository Act and the regulations thereunder. As a result, a lesser number
of the Pledged Loans which contain "due-on-sale" clauses may extend to full
maturity than recent experience would indicate with respect to single-family
mortgage loans. The extent of the impact of the Depository Act on the
average lives and delinquency rates of the Pledged Loans, however, cannot be
predicted. See "Description of the Bonds - Maturity and Prepayment
Considerations for Certain First Mortgages on Single-Family Residences."
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, as amended ("Title V"), provides that, subject to the following
conditions, state usury limitations shall not apply to any loan which is
secured by a first lien on certain kinds of Manufactured Housing. The
Manufactured Housing Contracts would be covered if they were to satisfy
certain conditions, among other things, governing the terms of any
prepayments, late charges and deferral fees and requiring a 30-day notice
period prior to instituting any action leading to repossession of the related
unit.
Title V authorized any state to reimpose limitations on interest rates
and finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen
states adopted such a law prior to the April 1, 1983 deadline. In addition,
even where Title V was not so rejected, any state is authorized by the law to
adopt a provision limiting discount points or other charges on loans covered
by Title V. The Master Servicer will represent that all of the Manufactured
Housing Contracts comply with applicable usury law.
FORMALDEHYDE LITIGATION WITH RESPECT TO MANUFACTURED HOUSING CONTRACTS
A number of lawsuits have been brought in the United States alleging
personal injury from exposure to the chemical formaldehyde, which is present
in many building materials, including some components used in Manufactured
Housing such as plywood flooring and wall paneling. Some of these lawsuits
were brought against manufacturers of Manufactured Housing, suppliers of
component parts and related persons in the distribution process. The Issuer
is aware of a limited number of cases in which plaintiffs have won judgments
in these lawsuits.
The holder of any Manufactured Housing Contract with respect to which a
formaldehyde claim has been successfully asserted may be liable to the
obligor for the amount paid by the obligor on the related Manufactured
Housing Contract and may be unable to collect amounts still due under the
Manufactured Housing Contract. The successful assertion of such claim
constitutes a breach of a representation or warranty of the person specified
in the related Prospectus Supplement, and the Bondholders would suffer a loss
only to the extent that (i) such person breached its obligation to repurchase
the Manufactured Housing Contract in the event an obligor is successful in
asserting such a claim, and (ii) such person, the Servicer or the Bond
Trustee were unsuccessful in asserting any claim of contribution or
subrogation on behalf of the Bondholders against the manufacturer or other
persons who were directly liable to the plaintiff for the damages. Typical
products liability insurance policies held by manufacturers and component
suppliers of Manufactured Homes may not cover liabilities arising from
formaldehyde in Manufactured Housing, with the result that recoveries from
such manufacturers, suppliers or other persons may be limited to their
corporate assets without the benefit of insurance.
56
<PAGE>
ENVIRONMENTAL CONSIDERATIONS
Under CERCLA, and under certain state laws, a secured party that takes a
deed-in-lieu of foreclosure, purchases a Mortgaged Property at a foreclosure
sale or operates a Mortgaged Property may become liable in certain
circumstances for Remedial Action Costs if hazardous wastes or hazardous
substances have been released or disposed of on the property. Such Remedial
Action Costs could subject the Mortgage Collateral to a lien and reduce the
amounts otherwise available to pay to the holders of the Bonds if a Mortgaged
Property was acquired by the Bond Trustee through foreclosure or deed-in-lieu
of foreclosure and if such Remedial Action Costs were incurred. Moreover,
certain state laws impose a lien for any Remedial Action Costs incurred by
such states on the property that is the subject of such Remedial Action Costs.
While representations or warranties from the Originator or any other
party related to the Originator as to the absence or effect of hazardous
wastes or hazardous substances on any of the mortgaged properties may be
obtained, there can be no assurance that such representations or warranties
will actually be obtained with respect to the Mortgage Collateral or, if
obtained, that the Originator can honor such warranties. None of the Issuer,
the Bond Trustee nor the Owner-Trustee will make any representations or
warranties or assume any liability with respect to the absence or effect of
hazardous wastes or hazardous substances on any Mortgaged Property or any
casualty resulting from the presence or effect of hazardous wastes or
hazardous substances. None of the Issuer, the Bond Trustee nor the
Owner-Trustee will make any independent investigation of Mortgaged Property
to ascertain whether hazardous wastes or substances have been stored or
released on Mortgaged Property prior to transferring the Collateral to the
Bond Trustee. Any loss or liability resulting from the presence or effect of
such hazardous wastes or hazardous substances may reduce the value of the
Collateral securing the Bonds.
The Servicer or other agent on behalf of the Bond Trustee will not be
permitted to foreclose on any Mortgaged Property which it knows or has reason
to know is contaminated with or affected by hazardous wastes or hazardous
substances. If a Mortgaged Property securing a defaulted mortgage loan is
not foreclosed, the amount of Mortgage Collateral otherwise available may be
reduced. The Servicer or other agent will not be liable to the Bond Trustee
or the Bondholders if it fails to foreclose on a Mortgaged Property that it
reasonably believes may be so contaminated or affected. Conversely, the
Servicer or other agent will not be liable to the Bond Trustee or the holders
of the Bonds if based on its reasonable belief that no such contamination or
effect exists, a Mortgaged Property is foreclosed and the Bond Trustee takes
title to such Mortgaged Property, and thereafter such Mortgaged Property is
determined to be so contaminated or affected.
UNINSURED HAZARD LOSSES
Standard Hazard Insurance Policies typically will not cover any physical
damage to the mortgaged properties resulting from war, revolution,
governmental actions, floods and other water-related causes, earth movement,
nuclear reaction, wet or dry rot, vermin, rodents, insects or domestic
animals, theft or, in certain cases, vandalism. Although the Special Hazard
Insurance for a Series of Bonds will, unless other specified in the related
Prospectus Supplement, insure against certain hazards not insured against
under the Standard Hazard Insurance Policies covering Pledged Loans securing
such Series, the Special Hazard Insurance Policy generally will not cover
losses occasioned by infidelity, conversion or other dishonest act on the
part of any insured or an insured's agent or employee, war, warlike action in
time of peace or war, insurrection, rebellion, nuclear reaction, certain
governmental actions or certain other risks. Any losses incurred with
respect to Pledged Loans securing a Series of Bonds due to uninsured risks or
insufficient hazard insurance proceeds will reduce the value of the Mortgage
Collateral, and thus may adversely affect payments to holders of Bonds of
such Series. See "Security for the Bonds - Insurance Policies - Hazard
Insurance on the Pledged Loans."
ENFORCEABILITY OF CERTAIN PROVISIONS
The standard forms of note, mortgage and deed of trust used by the
Servicers generally contain provisions obligating the borrower to pay a late
charge if payments are not timely made and in some circumstances may provide
for prepayment fees or penalties if the obligation is paid prior to maturity.
In certain states, there are or may be specific limitations upon late
charges which a lender may collect from a borrower in the event payments are
not made on time. Certain states also limit the amounts which a lender may
collect from a borrower as an additional charge if the loan is prepaid.
Under the Servicing Agreements, late charges and prepayment fees (to the
extent permitted by law and not waived by the Servicers) will be retained by
the Servicers as additional servicing compensation.
57
<PAGE>
Courts have imposed general equitable principles upon foreclosure.
These equitable principles are generally designed to relieve the borrower
from the legal effect of defaults under the loan documents. Examples of
judicial remedies that may be fashioned include judicial requirements that
the lender undertake affirmative and expensive actions to determine the
causes for the borrower's default and the likelihood that the borrower will
be able to reinstate the loan. In some cases, courts have substituted their
judgment for the lender's judgment and have required lenders to reinstate
loans or recast payment schedules to accommodate borrowers who are suffering
from temporary financial disability. In some cases, courts have limited the
right of lenders to foreclose if the default under the mortgage instrument is
not monetary, such as the borrower failing to adequately maintain the
property or the borrower executing a second mortgage or deed of trust
affecting the property. In other cases, some courts have been faced with the
issue of whether or not federal or state constitutional provisions reflecting
due process concerns for adequate notice require that borrowers under the
deeds of trust receive notices in addition to the statutorily-prescribed
minimum requirements. For the most part, these cases have upheld the notice
provisions as being reasonable or have found that the sale by a trustee under
a deed of trust or under a mortgage having a power of sale does not involve
sufficient state action to afford constitutional protections to the borrower.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of the anticipated material U.S.
federal income tax consequences of the purchase, ownership and disposition of
the Bonds offered hereunder. This discussion is directed solely to
Bondholders that hold the Bonds as capital assets within the meaning of Code
Section 1221 and does not consider all federal income tax consequences that
may be applicable to other categories of investors, some of which (such as
banks, insurance companies and investors who are non-U.S. persons ("Foreign
Bondholders") may be subject to special rules. The authorities on which this
discussion, and the opinion referred to below, are based are subject to
change or differing interpretations, which could apply retroactively.
Taxpayers and preparers of tax returns (including those filed by any REMIC or
other issuer) should be aware that under applicable Treasury regulations a
provider of advice on specific issues of law is not considered an income tax
return preparer unless the advice is (i) given with regard to events that
have occurred at the time the advice is rendered and is not given with
respect to the consequences of contemplated actions, and (ii) is directly
relevant to the determination of an entry on a tax return. This discussion is
no substitute for the consideration by a Bondholder's own tax advisors and
tax return preparers regarding any tax planning and the preparation of any
item on a tax return, even where the anticipated tax treatment has been
discussed herein. In particular, Bondholders are advised to consult their own
tax advisors concerning the federal state, local or other tax consequences to
them of the purchase, ownership and disposition of the Bonds offered
hereunder.
ELECTION OF REMIC STATUS
If, with respect to a Series of Bonds, the Issuer elects to treat as a
REMIC the trust or other arrangement by which the Collateral secures that
Series, such Bonds would be considered to be "regular interests" (as defined
in Treasury Regulation Section 1.860G-1(a) and referred to herein as "Regular
Bonds") or "residual interests" (as defined in Treasury Regulation Section
1.860G-1(c) and referred to herein as "Residual Bonds") in such REMIC. With
respect to each Series of Bonds for which the Issuer intends to make a REMIC
election, Matthias & Berg LLP, legal counsel to the Issuer, will deliver its
opinion generally to the effect that, assuming (i) the proper filing of an
election to be treated as a REMIC pursuant to the Code and (ii) continuing
compliance with the Indenture and the other governing agreements and (iii)
compliance with the requirements of Code Section 860D and Treasury Regulation
Section 1.860D-1(c), the arrangement by which the Collateral will secure that
Series of Bonds will qualify as a REMIC under current law. The following
discussion assumes that all requirements for REMIC qualification will be
satisfied by the REMIC while there are any Bonds outstanding. The Prospectus
Supplement for each Series of Bonds will specify whether the Issuer intends
to make a REMIC election for that Series of Bonds.
For any Series of Bonds for which the Issuer elects REMIC status,
Regular Bonds generally will be treated as debt instruments. Except as
stated below, a Residual Bond will not be treated as a debt instrument for
federal income tax purposes; rather the holder thereof will recognize taxable
income equal to its PRO RATA share of the net income of the REMIC, as
described below. The Regular Bonds of a Series will constitute one or more
classes of Regular Bonds, and either the
58
<PAGE>
Residual Bonds or the privately placed class of residual certificates
relating to that Series, if any, will constitute a single class of Residual
Bonds which distributions are made PRO RATA.
If the Issuer makes a REMIC election with respect to a Series of Bonds,
then (i) Bonds of that Series held by a thrift institution taxed as a "mutual
savings bank" or "domestic building and loan association" will constitute
"qualifying real property loans" within the meaning of Code Section 593(d) in
the same proportion that the Collateral securing the Bonds of that Series
would be so treated; (ii) Bonds of that Series held by a thrift institution
taxed as a domestic building and loan association will constitute a "regular
. . . interest in a REMIC" or a "residual interest in a REMIC," as the case
may be, within the meaning of Code Section 7701(a)(19)(C)(xi), in the
proportion that the Collateral securing the Bonds of that Series would be
treated as loans described in Code Section 7701(a)(19)(C)(i)-(x); (iii) Bonds
of that Series held by a real estate investment trust will constitute "real
estate assets" within the meaning of Code Section 856(c)(5)(A) and income on
the Bonds will be considered "interest on obligations secured by mortgages on
real property" within the meaning of Code Section 856(c)(3)(B) in the same
proportion that the Collateral securing the Bonds would be treated as
"interests in real property" as defined in Code Section 856(c)(6)(C); (iv)
Bonds of that Series held by certain financial institutions will constitute
"evidences of indebtedness" within the meaning of Code Section 582(c)(1).
Generally, if at all times during the calendar year 95% or more of the
Collateral securing Bonds qualifies for the status described in (i), (ii) or
(iii), the Bonds of that Series will so qualify in their entirety for that
calendar year.
If a REMIC election is made but the entity fails to comply with one or
more of the ongoing requirements of the Code for REMIC status during any
taxable year, the Code provides that the entity will cease to be a REMIC as
of the beginning of the tax year in which the failure to comply occurred. In
general, such entity would be treated as a separate association taxable as a
corporation, in which case the net income realized from the Mortgage
Collateral would be taxable at regular corporate rates. Payments made on the
Residual Bonds would not be deductible.
NO REMIC ELECTION
If the Issuer does not make a REMIC election with respect to Mortgage
Collateral securing a Series of Bonds, then such Bonds may not be treated as
"real estate assets" or "Government securities" within the meaning of Code
Section 856(c)(5)(A), and interest on those Non-REMIC Bonds will not be
considered "interest on obligations secured by mortgages on real property"
within the meaning of Code Section 856(c)(3)(B). Non-REMIC Bonds of a Series
owned by domestic building and loan associations and other thrift
institutions will not be considered as "loans secured by an interest in real
property" within the meaning of Code Section 7701(a)(19)(C)(v) or as
"qualifying real property loans" within the meaning of Code Section 593(d).
In addition, Non-REMIC Bonds of a Series held by a regulated investment
company will not constitute "Government securities" within the meaning of
Code Section 851(b)(4)(A)(i).
TAXATION OF REGULAR BONDS
GENERAL
Except as other stated in this discussion, interest paid or accrued,
OID, and market discount on a Regular Bond will be treated as interest income
to the Bondholder. Principal payments on a Regular Bond will be treated as a
return of capital to the extent of the Bondholder's basis in the Regular Bond
allocable to such payments. Bondholders must use the accrual method of
accounting with regard to Regular Bonds, regardless of their usual method of
accounting.
ORIGINAL ISSUE DISCOUNT
Certain Regular Bonds may be issued with OID within the meaning of Code
Section 1273(a). Any holders of Regular Bonds issued with OID generally will
be required to include OID in income as it accrues, in accordance with the
method described below, in advance of the receipt of the cash attributable to
such income. In addition, Code Section 1272(a)(6) provides special rules
applicable to Regular Bonds and certain other debt instruments issued with
OID.
The Code requires that a Prepayment Assumption ("Prepayment Assumption")
be used with respect to mortgage loans used by a REMIC to secure bonds in
computing the accrual of OID such bonds, and that adjustments be made in the
amount and rate of accrual of such OID to reflect differences between the
actual prepayment rate and the Prepayment
59
<PAGE>
Assumption. The Prepayment Assumption will be determined on the basis of (i)
the assumed rate of prepayments on qualified mortgages held by the REMIC and
(ii) the assumed rate of earnings on the temporary investment of payments on
such mortgages to the extent that such notes of earnings would have an effect
on the timing of payments on Regular Bonds. Prospective Bondholders should
note that since the Treasury has not yet issued complete regulations on
determination of present value in this context, no assurance can be given
that the discussion contained herein describes the correct method of
calculating OID.
The OID, if any, on a Regular Bond will be the excess of its redemption
price over its issue price. The issue price of a particular Series of
Regular Bonds offered hereunder will be the initial offering price at which a
substantial amount of Regular Bonds of that Series are first sold to the
public (excluding bond houses and brokers). In the case of Regular Bonds
bearing adjustable or variable interest rates, the determination of the total
amount of OID and the timing of the inclusion thereof is not entirely clear.
If the OID rules apply to such Bonds, the related Prospectus Supplement will
describe the manner in which such rules will be applied with respect to those
Bonds by the Bond Trustee in preparing information returns to the Bondholders
and the Internal Revenue Service ("Service").
Certain of the Regular Bonds will provide for the first interest payment
with respect to such Bond to be made more than one month after the closing
date ("Closing Date"), a period that is longer than the subsequent monthly
intervals between interest payments. As a consequence of this long first
accrual period, the Service might take the position that all or a portion of
each interest payment must be included in the stated redemption price of the
Regular Bonds and accounted for as OID. Because interest on Regular Bonds
must in any event be accounted for under an accrual method, applying this
analysis would result in only a slight difference in the timing of the
inclusion in income of the yield on the Regular Bonds.
In addition, if the accrued interest to be paid on the first Payment
Date is to be computed with respect to a period that begins prior to the
Closing Date, a portion of the purchase price paid for a Regular Bond will
reflect such accrued interest. If applicable, information returns to the
Bondholders and the Service will be based on the position that the portion of
the purchase price paid for the interest accrued with respect to periods
prior to the Closing Date is treated as part of the overall cost of such
Regular Bond (and not as a separate asset the cost of which is recovered
entirely out of interest received on the next Payment Date) and the portion
of the interest paid on the first Payment Date in excess of interest accrued
for a number of days corresponding to the number of days from the Closing
Date to the first Payment Date should be included in the stated redemption
price of such Regular Bond.
Notwithstanding the general definition of OID, OID on a Regular Bond
will be considered to be DE MINIMIS if such OID is less than 0.25% of the
stated redemption price of the Regular Bond multiplied by its weighted
average life. For this purpose, the weighted average life of a Regular Bond
is computed as the sum, for all payments of amounts included in the stated
redemption price of such Regular Bond, of the amounts determined by
multiplying (i) the number of complete years from the Closing Date (rounding
down for partial years) until each payment is expected to be made (presumably
taking into account the Prepayment Assumption) by (ii) a fraction, the
numerator of which is the amount of such payment and the denominator of which
is the stated redemption price of such Regular Bond. OID of only a DE
MINIMIS amount will be included in income in the same manner as market
discount of only a DE MINIMIS amount. See "Taxation of Regular Bonds --
Market Discount."
If OID on a Regular Bond is in excess of a DE MINIMIS amount, the holder
of such Bond must include in gross income the sum of the "daily portions" of
OID for each day during its taxable year on which it hold such Regular Bond,
including the purchase date but excluding the disposition date. In the case
of an original holder of a Regular Bond, the daily portions of OID will be
determined as follows.
As to each "accrual period," that is, each period that ends on a date
that corresponds to a Payment Date and begins on the first day following the
immediately preceding accrual period (or in the case of the first such
period, that begins on the Closing Date), a calculation will be made of the
portion of the OID that accrued during such accrual period. The portion of
OID that accrues in any accrual period will equal the excess, if any, of (i)
the sum of (A) the present value, as of the end of the accrual period, of all
of the distributions remaining to be made on the Regular Bond, if any, in
future periods and (B) the distributions made on such Regular Bond during the
accrual period of amounts included in the stated redemption price, over (ii)
the adjusted issue price of such Regular Bond at the beginning of the accrual
period. The present value of the
60
<PAGE>
remaining distributions referred to in the preceding sentence will be
calculated (i) assuming that distributions on the Regular Bond will be
received in future periods based on the Pledged Loans being prepaid at a rate
equal to the Prepayment Assumption and (ii) using a discount rate equal to
the original yield to maturity of the Bond. For these purposes, the original
yield to maturity of the Bond will be calculated based on its issue price and
on the assumption that distributions on the Bond will be made in all periods
based on the Pledged Loans being prepaid at a rate equal to the Prepayment
Assumption. The adjusted issue price of a Regular Bond at the beginning of
any accrual period will equal the issue price of such Bond, increased by the
aggregate amount of OID with respect to such Regular Bond that accrued in
prior accrual periods, and reduced by the amount of any distributions made on
such Regular Bond in prior accrual periods of amounts included in its stated
redemption price. The OID accruing during any accrual period, computed as
described above, will be allocated ratably to each day during the period to
determine the daily portion of OID for such day.
61
<PAGE>
A subsequent purchaser of a Regular Bond that purchases such Regular
Bond at a cost less than its remaining stated redemption price will also be
required to include in gross income the daily portions of any with respect to
such Regular Bond. However, each such daily portion will be reduced, if the
cost of such Regular Bond to such subsequent purchaser is in excess of its
"revised issue price," in proportion to the ratio such excess bears to the
aggregate OID remaining to be accrued on such Regular Bond. The "revised
issue price" of a Regular Bond on any given day equals the sum of (i) the
adjusted issue price of the Regular Bond at the beginning of the accrual
period which includes such day and (ii) the daily portions of OID for all
days during such accrual period prior to such day.
SPECIAL RULES AND CONSIDERATIONS.
The OID Regulations provide that a Bondholder generally may make an
election (a "Constant Yield Election") to include in gross income all current
income on the Regular Bond, including market discount (as described below
under "Market Discount") (as reduced by any premium, as described below)
under the constant yield method used to account for OID. To make the Constant
Yield Election, the Bondholder of the Regular Bond must attach a statement to
its timely filed federal income tax return for the taxable year in which the
Bondholder acquired the Regular Bond. The statement must identify the
instruments to which the election applies. A Constant Yield Election is
irrevocable unless the Bondholder obtains the consent of the Service. In
general, the Constant Yield Election may be made on an obligation-by-obligation
basis. If, however a Constant Yield Election is made for a debt instrument with
market discount, the Bondholder is deemed to have made an election to include in
income currently the market discount on all of the Bondholder's other debt
instruments with market discount, as described in "Market Discount" below.
In view of the complexities and current uncertainties as to the manner
of inclusion in income of OID on Regular Bonds, each investor should consult
his own tax advisor to determine the appropriate amount and method of
inclusion in income of OID on such Bonds for federal income tax purposes.
SALE OR REDEMPTION
If a Bondholder sells or exchanges a Regular Bond, or receives a
principal payment with respect to a Regular Bond (or any payment with respect
to a Compound Interest Bond), the Bondholder will recognize gain or loss
equal to the difference, if any, between the amount received and the
Bondholder's adjusted basis in the Regular Bond. Such adjusted basis
generally will equal the cost of the Regular Bond to the seller, increased by
any OID or market discount (that the seller has previously elected to accrue)
included in the seller's gross income with respect to the Regular Bond, and
reduced by the portion of the adjusted basis in the Regular Bond allocable to
principal payments on the Regular Bond (or any payment on a Compound Interest
Bond) previously received by the seller and by any amortized premium. Except
as described under "Taxation of Regular Bonds - Market Discount" below, with
respect to partial payments of principal, a portion of the Bondholder's basis
in the Regular Bond will be allocated to those payments on a fair market
value basis, taking into account prior accrual of OID. A holder of a Regular
Bond, however, should be aware that gain from the disposition of a Regular
Bond that might otherwise be gain from the disposition of a capital asset
will be treated as ordinary income to the extent that the gain does not
exceed the excess, if any, of (i) the amount that would have been included in
the Bondholder's income had income accrued at a rate equal to 110% of a
specified United States Treasury borrowing rate as of the date of purchase
over (ii) the amount actually included in that Bondholder's income.
MARKET DISCOUNT
A Bondholder that purchases a Regular Bond at a market discount, that is,
in the case of a Regular Bond issued without OID, at a purchase price less than
its remaining stated redemption price, or in the case of a Regular Bond issued
with OID, at a purchase price less than its revised issue price (defined as the
sum of (i) the adjusted issue price of the Regular Bond at the beginning of the
accrual period which includes such day and (ii) the daily portions of OID for
all days during such accrual period prior to such day), will recognize gain upon
receipt of the portion of each distribution representing stated redemption
price. In particular, under Code Section 1276, such Bondholder will generally
be required to allocate the portion of each such distribution representing
stated redemption price first to accrued market discount not previously included
in income, and to recognize ordinary income to that extent. A Bondholder may
elect to include market discount in income currently as it accrues rather than
including it on a deferred basis in accordance with the foregoing. If made,
such election
62
<PAGE>
will apply to all market discount bonds acquired by such Bondholder on or
after the first day of the first taxable year to which such election applies.
To the extent that Regular Bonds provide for monthly or other periodic
distributions throughout their term, the effect of these rules may be to
require market discount to be includable in income at a rate that is not
significantly slower than the rate at which such discount would accrue if it
were OID. Moreover, a purchaser generally will be required to treat a portion
of any gain on sale or exchange of a Regular Bond as ordinary income to the
extent of the market discount accrued to the date of disposition under one of
the foregoing methods, less any accrued market discount previously reported
as ordinary income.
Under Code Section 1277, a purchaser may be required to defer a portion
of its interest deductions for the taxable year attributable to any
indebtedness incurred or continued to purchase or carry a Regular Bond
purchased with market discount. For these purposes, the DE MINIMIS rule
referred to above applies. Any such deferred interest expense would not
exceed the market discount that accrues during such taxable year and is, in
general, allowed as a deduction not later than the year in which such market
discount is includable in income. If such holder elects to include market
discount in income currently as it accrues on all market discount instruments
acquired by such holder in that taxable year or thereafter, the interest
deferral rule described above will not apply.
PREMIUM
A Regular Bond purchased at a cost greater than its remaining, stated
redemption price will be considered to be purchased at a premium. The holder
of such a Regular Bond may elect under Code Section 171 to amortize such
premium under the constant yield method over the life of the Bond.
Amortizable premium will be treated as an offset to interest income on the
related Regular Bond, rather than as a separate interest deduction.
TAXATION OF RESIDUAL BONDS
GENERAL
An original holder of a Residual Bond ("Residual Bondholder") generally
will be required to report its daily portion of the taxable income or,
subject to the limitations noted in this discussion, the net loss of the
REMIC for each day during a calendar quarter that the Residual Bondholder
holds such Residual Bond. For this purpose, that taxable income or net loss
of the REMIC will be allocated to each day in the calendar quarter ratably
based on a 90 days per quarter counting convention. The amount so allocated
will then be allocated among the Residual Bondholders in proportion to their
respective ownership interests on such day. Any amount included in the gross
income or allowed as a loss of any Residual Bondholder by virtue of this
paragraph will be treated as ordinary income or loss. The taxable income of
the REMIC will be determined under the rules described below in "TAXABLE
INCOME OF THE REMIC" and will be taxable to the Residual Bondholders without
regard to the timing or amount of cash distributions by the REMIC. Ordinary
income derived from Residual Bonds will be "portfolio income" for purposes of
the taxation of taxpayers subject to limitations under Code Section 469 on
the deductibility of "passive losses."
A subsequent owner of a Residual Bond ("Transferee") also will be
required to report on its federal income tax return amounts representing its
daily portion of the taxable income of the REMIC for each day that it holds
such Residual Bond. Those daily portions generally would equal the amounts
that would have been reported for the same days by an original Residual
Bondholder, as described above.
The amount of income Residual Bondholders and Transferees will be
required to report (or the tax liability associated with such income) may
exceed the amount of cash distributions received from the REMIC for the
corresponding period. Consequently, Residual Bondholders should have other
sources of funds sufficient to pay any federal income taxes due as a result
of their ownership of Residual Bonds or unrelated deductions against which
income may be offset, subject to the rules relating to "excess inclusions,"
residual interest without "significant value" and "noneconomic" residual
interests discussed below. The fact that the tax liability associated with
the income allocated to Residual Bondholders may exceed the cash
distributions received by such Residual Bondholders for the corresponding
period may significantly adversely affect such Residual Bondholders'
after-tax rate of return.
63
<PAGE>
TAXATION OF REMIC INCOME
The taxable income of the REMIC will equal the income from the Mortgage
Collateral and other assets of the REMIC less the deductions allowed to the
REMIC for interest (including OID) on any Regular Bonds, amortization of any
premium on the Mortgage Collateral and, except as described below, for
servicing, administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to their fair market value
immediately after their transfer to the REMIC. For this purpose, the Master
Servicer intends to treat the fair market value of the mortgage loans as being
equal to the aggregate issue prices of the Regular and Residual Bonds. Such
aggregate basis will be allocated among the individual Pledged Loans and other
assets of the REMIC in proportion to their respective fair market values. The
issue price of any in a class that is not publicly offered will equal the price
paid by the first purchaser of such Bond or, in the case of received in exchange
for an interest in the Mortgage Collateral or other property, the fair market
value of such interests in the Mortgage Collateral or other property.
Accordingly, if one or more class of Bonds are retained initially rather than
sold, the Master Servicer may be required to estimate the fair market value of
such interests in order to determine the basis of the REMIC in the Pledged Loans
and other property held by the REMIC.
A Pledged Loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis therein, determined as described
in the preceding paragraph, is less than (or greater than) its stated redemption
price. Any such discount will be includable in the income of the REMIC as its
accrues, in advance of receipt of the cash attributable to such income, under a
method similar to the method described above for accruing OID on the Regular
Bonds. The REMIC expects to elect under Code Section 171 to amortize any premium
on the Pledged Loans. Premium on any Pledged Loan to which such election
applies may be amortized under a constant yield method presumably taking into
account a Prepayment Assumption.
The REMIC will be allowed deductions for interest (including OID) on the
Regular Bonds equal to the deductions that would be allowed if the Regular Bonds
were indebtedness of the REMIC.
If a class of Regular Bonds is issued at a price in excess of the stated
redemption price of such class the net amount of interest deductions that are
allowed the REMIC in each taxable year with respect to the Regular Bonds of such
class will be reduced by an amount equal to the portion of such issue premium
that is considered to be amortized or repaid in that year.
As a general rule, the taxable income of the REMIC will be determined in
the same manner as if the REMIC were an individual reporting on a calendar year
basis and using the accrual method of accounting. However, no item of income,
gain, loss or deduction allocable to a prohibited transaction will be taken into
account. The limitation on miscellaneous itemized deductions imposed on
individuals by Code Section 67 (which allows such deductions only to the extent
they exceed in the aggregate two percent (2%) of the individual taxpayer's
adjusted gross income) will not be applied at the REMIC level so that the REMIC
will be allowed deductions for servicing, administrative and other non-interest
expenses in determining its taxable income. All such expenses will be allocated
as a separate item to the Bondholders subject to the limitation of Code Section
67. If the deductions allowed to the REMIC exceed its gross income for a
calendar quarter, such excess will be the net loss for the REMIC for that
calendar quarter.
BASIC RULES, NET LOSSES AND DISTRIBUTIONS
The adjusted basis of a Residual Bond will be equal to the amount paid for
such Residual Bond, increased by amounts included in the income of the Residual
Bondholder and decreased (but not below zero) by distributions made, and by net
losses allocated, to such Residual Bondholder.
A Residual Bondholder is not allowed to take into account any net loss for
any calendar quarter to the extent such net loss exceeds such Residual
Bondholder's adjusted basis in its Residual Bond as of the close of such
calendar quarter (determined without regard to such net loss). Any loss that is
not currently deductible by reason of this limitation may be carried forward
indefinitely to future calendar quarters and, subject to the same limitation,
may be used only to offset income
64
<PAGE>
from the Residual Bonds. The ability of Residual Bondholders to deduct net
losses may be subject to additional limitations under the Code, as to which
Residual Bondholders should consult their tax advisors.
EXCESS INCLUSIONS
Any "excess inclusions" with respect to a Residual Bond will, with an
exception discussed below for certain Residual Bonds held by thrift
institutions, be subject to federal income tax in all events. In general, the
"excess inclusion" with respect to a Residual Bond for any calendar quarter will
be the excess, if any, of (i) the sum of the daily portions of REMIC taxable
income allocable to such Residual Bond over (ii) the sum of the "daily accruals"
(defined below) for each day during such quarter that such Residual Bond was
held by such Residual Bondholder. The daily accruals of a Residual Bondholder
will be determined by allocating to each day during a calendar quarter its
ratable portion of the product of the "adjusted issue price" of the Residual
Bond at the beginning of the calendar quarter and 120% of the "Federal long-term
rate" in effect on the Closing Date. For this purpose, the adjusted issue price
of a Residual Bond as of the beginning of any calendar quarter will be equal to
the issue price of the Residual Bond, increased by the sum of the daily accruals
for all prior quarters and decreased (but not below zero) by any distributions
made with respect to such Residual Bond before the beginning of such quarter.
The issue price of Residual Bonds is the initial offering price to the public
(excluding bond houses and brokers) at which a substantial amount of the
Residual Bonds were sold. The Federal long-term rate is an average of current
yields on Treasury securities with a remaining term of greater than nine years,
computed and published monthly by the Service.
In general, for Residual Bondholders, an excess inclusion (i) will not be
permitted to be offset by losses or loss carryovers from the activities, except
generally in the case of taxpayers that are thrift institutions described in
Code Section 593, (ii) will be treated as "unrelated business taxable income"
("UBTI") to an otherwise tax-exempt organization and (iii) will not be eligible
for any rate reduction or exemption under any applicable tax treaty with respect
to the 30% United States withholding tax imposed on distributions to Residual
Bondholders that are foreign investors. The above-described exception for
thrift institutions applies only to those Residual Bonds held directly by such
institutions (and not by other members of any affiliated group of corporations
filing a consolidated income tax return) or certain wholly owned direct
subsidiaries of such institutions formed and operated exclusively in connection
with the organization and operation of one or more REMICs.
In the case of any Residual Bond held by a real estate investment trust,
the aggregate excess inclusions with respect to such Residual Bonds, reduced
(but not below zero) by the real estate investment trust taxable income (within
the meaning of Code Section 857(b)(2), excluding any net capital gain), will be
allocated among the shareholders of such trust in proportion to the dividends
received by such shareholders from such trust, and any amount so allocated will
be treated as an excess inclusion with respect to a Residual Bond as if held
directly by such shareholder.
The amount of any taxable loss of the REMIC that may be taken into account
by the Residual Bondholder is limited to the adjusted basis of the Residual Bond
as of the close of the quarter (or time of disposition of the interest, if
earlier), determined without taking into account the net loss for the quarter.
The initial adjusted basis of a purchaser of a Residual Bond is the amount paid
for such Residual Bond. Such adjusted basis will be increased by the amount of
net income of the REMIC reportable by the Residual Bondholder and decreased by
the amount of taxable loss of the REMIC reportable by the Residual Bondholder.
A cash distribution from the REMIC also will reduce that adjusted basis (but not
below zero). Any loss that is disallowed on account of this limitation may be
carried over indefinitely by the Residual Bondholder for which such loss was
disallowed but may be used by that Residual Bondholder only to offset any income
generated by the same REMIC.
DISTRIBUTIONS
A distribution by a REMIC to a Residual Bondholder will not be taxable to
the Residual Bondholder if the amount of the distribution does not exceed the
adjusted basis of the Residual Bondholder in its Residual Bonds on that
distribution date. A Residual Bondholder, however, will have taxable income to
the extent that any cash distribution it receives from the REMIC exceeds that
Residual Bondholder's adjusted basis in its Residual Bonds on that distribution
date. Such income will be treated as gain from the sale or exchange of Residual
Bonds.
65
<PAGE>
PROHIBITED TRANSACTIONS
Income and losses from certain "prohibited transactions" (as defined in
Code Section 860F (a)(2)) by a REMIC will not be part of the calculation of
income or loss includible in the federal income tax returns of Residual
Bondholders. Income from prohibited transactions will be taxed directly to
the REMIC at a 100% rate. Losses from prohibited transactions may not be
used to offset income from other prohibited transactions. Prohibited
transactions generally include (i) the disposition of mortgage collateral
other than for (a) substitution of a qualified mortgage for a defective
mortgage within two years of the Closing Date or for any mortgage loan within
three months of the Closing Date, (b) foreclosure, default or imminent
default of a mortgage loan, (c) bankruptcy or insolvency of the REMIC, or (d)
a qualified (complete) liquidation, (ii) the receipt of income from assets
that are not the type of investments that the REMIC is permitted to hold,
(iii) the receipt of compensation for services or (iv) the receipt of gain
from disposition of cash-flow investments other than pursuant to a qualified
liquidation. The disposition of an item of Mortgage Collateral will not be a
prohibited transaction if the disposition is required to prevent default on a
Regular Bond that might otherwise result from a default on one or more items
of Mortgage Collateral.
SALE OR EXCHANGE OF A RESIDUAL BOND
Upon the sale or exchange of a Residual Bond, a Residual Bondholder will
recognize gain or loss equal to the excess, if any, of the amount realized over
the adjusted basis (as described above under "Taxation of Residual Bonds -
Taxation of REMIC Income") of that Residual Bondholder in that Residual Bond at
the time of the sale or exchange. Unlike provisions in the Code dealing with
partnerships, there is no specific method of adjusting the basis of the items of
Mortgage Collateral of the REMIC if a Residual Bondholder sells its Residual
Bonds for a gain or loss.
If the Residual Bondholder holds its Residual Bond as a capital asset, the
gain or loss on the sale or exchange should be characterized as capital gain or
loss. In the case of a Residual Bondholder that is a bank, mutual savings bank,
cooperative bank, domestic building and loan association, savings and loan
association or similar institution, the gain or loss on the sale or exchange
should be characterized as ordinary income or loss. Termination of the REMIC
may be treated as a sale or exchange of a Residual Bondholder's Residual Bond,
in which case, if the Residual Bondholder has an adjusted basis in its Residual
Bond remaining when that Residual Bondholder's interest in the REMIC terminates,
and if that Residual Bondholder holds that Residual Bond as a capital asset,
that Residual Bondholder will recognize a capital loss at that time in the
amount of his remaining adjusted basis.
The wash sale rules of Code Section 1091 will apply to dispositions of
Residual Bonds if the seller of the Residual Bond, during the period beginning
six months before the sale or disposition and ending six months after that sale
or disposition, acquires (or enters into any other transaction that results in
the application of Code Section 1091) any Residual Bond or any interest in a
"taxable mortgage pool" (such as a non-REMIC owner trust) that is economically
comparable to a Residual Bond. If the wash sale rules of Code Section 1091 are
applicable to a Residual Bondholder that has sold Residual Bonds, any losses
incurred on that sale will be disallowed.
GENERAL REMIC MATTERS
LIQUIDATION OF THE REMIC
If a REMIC adopts a plan of complete liquidation and sells all of its
noncash assets within 90 days of the adoption of that plan of liquidation, the
REMIC will recognize no prohibited transaction income on the sale of its assets,
provided that the REMIC credits or distributes in liquidation all of the sale
proceeds plus its cash (other than amounts retained to meet claims) to holders
of all Bonds within that 90-day period. A Residual Bondholder should recognize
either gain or loss on the liquidation of the REMIC. An early termination of
the REMIC effected by the redemption of the Regular Bonds when the outstanding
principal amounts thereof have declined to the percentage specified for a
particular Series, and the distribution to Residual Bondholders of the excess,
if any, of the fair market value of the Collateral at the time of that
redemption over the sum of unpaid principal balance of the Regular Bonds and the
total of other liabilities of the REMIC, should constitute a complete
liquidation as described in the preceding sentence.
66
<PAGE>
ADMINISTRATIVE MATTERS
The books for a REMIC must be maintained on a calendar year basis, and the
federal information returns for a REMIC must be filed as if the REMIC were a
partnership for federal income tax purposes. The REMIC also will be subject to
the procedural and administrative rules of the Code applicable to partnerships,
including the determination at the REMIC entity level in a unified
administrative proceeding of any adjustments to items of REMIC income, gain,
loss or deduction.
Unless otherwise required by the Code or Treasury Regulations promulgated
thereunder, the Issuer will sign the REMIC's federal income tax returns. The
Residual Bondholder who owns the largest residual interest (or, if no one
Residual Bondholder owns the largest residual interest, a Residual Bondholder
designated by the Issuer) will act as "tax matters partner," as defined in Code
Section 6231(a)(7), for the REMIC. Generally, the Residual Bondholder who acts
as tax matters partner for the REMIC will sign the REMIC's federal income tax
returns if the Issuer is not permitted to do so.
TAXATION OF CERTAIN FOREIGN INVESTORS
REGULAR BONDS
In general, interest (including OID) from United States sources paid to
non-U.S. persons is not taxed by the United States unless such person holds an
interest of at least ten percent (10%) of the equity of the debtor, or the
holder is engaged during the tax year in a trade or business and the interest
income is effectively connected with that trade or business. Foreign Bondholders
may be required to provide certain information concerning their qualification
for this exclusion and should consult their own tax advisors regarding the
specific tax consequences of owning a Regular Bond.
RESIDUAL BONDS
In general, amounts paid on Residual Bonds to nonresident aliens or foreign
corporations will be taxed by the United States as "fixed or determinable,
annual or periodical" income. The current rate is 30% of gross income. If the
holder is engaged in a trade or business in the United States during the tax
year and if the payments are effectively connected with that trade or business,
then the Residual Bondholder will be taxable at regular (corporate or
individual) rates on net income. The Issuer will be required in certain
circumstances to withhold 30% of each payment and remit it to the Service,
either in satisfaction of the Foreign Bondholder's tax liability or as an
estimated payment pending determination of such tax liability.
BACKUP WITHHOLDING
Payments of interest, OID, or other reportable payments made on Regular
Bonds, and proceeds from the sale of Regular Bonds to or through certain
brokers, may be subject to a "backup" withholding tax of 31% of "reportable
payments" (including interest payments, OID, and, under certain circumstances,
principal payments) unless the Bondholder complies with certain reporting and/or
certification procedures. Any amounts so withheld should be refunded or allowed
as a credit against the holder's federal income tax.
REMIC RESTRICTIONS ON PURCHASE AND TRANSFER OF RESIDUAL BONDS
Residual Bonds will not be offered for sale to, and may not be owned by, a
"Disqualified Organization." A "Disqualified Organization" is defined in Code
Section 860E(e)(5) as (i) 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, (ii) any organization (other than a
cooperative described in Code Section 521) which is exempt from the tax imposed
by Chapter 1 of the Code unless that organization is subject to the tax on
unrelated business taxable income, and (iii) certain rural electrical or
telephone cooperatives. Certain instrumentalities of the United States or a
state or political subdivision thereof that are subject to tax under Chapter 1
of the Code are excluded from the definition of Disqualified Organization. Any
Transferee will be required to furnish the Issuer with an affidavit certifying
that the transferee is not a Disqualified Organization. Any purported transfer
of a Residual Bond in violation of the foregoing restrictions will be null and
void.
67
<PAGE>
ERISA CONSIDERATIONS
ERISA imposes certain requirements on those employee benefit plans to which
it applies ("Plans") and on those persons who are fiduciaries with respect to
such Plans. In accordance with ERISA's general fiduciary standards, before
investing in the Bonds of a Series, a Plan fiduciary should determine whether
such investment is permitted under the governing Plan instruments and is
appropriate for the Plan in view of its overall investment policy and the
composition and diversification of its portfolio. Other provisions of ERISA
prohibit certain transactions involving the assets of a Plan and persons who
have certain specified relationships to the Plan (so-called "parties in
interest" within the meaning of ERISA or "disqualified persons" within the
meaning of the Code). Thus, a Plan fiduciary considering an investment in the
Bonds of a Series also should consider whether such an investment might
constitute or give rise to a prohibited transaction under ERISA or the Code.
On November 13, 1986, the United States Department of Labor ("DOL")
published final regulations ("DOL Regulations") defining the circumstances
under which the assets of a Plan covered under ERISA will be deemed to
include the underlying assets of an entity for purposes of the fiduciary
responsibility and certain other provisions of ERISA when a Plan acquires an
equity interest in such entity. The Residual Bonds could be deemed under the
DOL Regulations to be equity interests. Although the Regular Bonds of each
Series should be treated as debt, not equity, for ERISA purposes and,
consequently, the Collateral securing each Series of Bonds should not be
deemed to be assets of Plans holding Regular Bonds of such Series, the DOL
could take the position that the Regular Bonds of a Series should be treated
as equity interests for ERISA purposes. If the Regular or Residual Bonds of
a Series are treated as equity interests for ERISA purposes, the DOL
Regulations would apply to investments in Bonds of that particular type by
Plans. The DOL Regulations set forth the general rule that if a Plan invests
in another entity, its assets include the investment, but do not, solely by
reason of such investment, include any of the underlying assets of the
entity. However, a special rule set forth therein provides that if a Plan
acquires an equity interest in an entity that is neither a "publicly-offered
security" nor a security issued by certain registered investment companies,
the Plan's assets include both the equity interest and an undivided interest
in each of the underlying assets of the entity unless (i) the entity is an
operating company or (ii) Plans and certain other "benefit plan investors"
hold less than 25% of the value of all classes of equity in the entity. No
Series of Bonds will be issued by a prescribed investment company and, as it
is not anticipated that the Bonds of any Series will be registered under the
Securities Exchange Act of 1934, they should not constitute "publicly-offered
securities." Furthermore, the Issuer should not be deemed to be an operating
company. Thus, if the Regular Bonds or Residual Bonds of a Series are deemed
to be equity instruments for ERISA purposes and if Plans and certain other
"benefit plan investors," including individual retirement accounts, hold 25%
or more of any Class of the Bonds of such Series that are deemed to
constitute equity interests, the underlying Collateral securing the Bonds
will constitute plan assets of Plans holding any Bonds deemed to be equity
interests in the REMIC.
If assets of a Plan are deemed to include Collateral securing a Series
of Bonds, the acquisition by such Plan of a Bond of such Series secured
thereby or the operation of the Collateral securing such Series of Bonds
could result in prohibited transactions or other violations of Title I of
ERISA and Code Section 4975. However, depending in part upon the type and
circumstances of the Plan making the decision to acquire a Bond of such
Series, certain exemptions from the prohibited transaction rules could be
applicable, even if the Plan's assets are deemed to include the Collateral
securing such Series of Bonds. Included among these exemptions are DOL
Prohibited Transaction Exemptions 88-59 (Class Exemption to Include Certain
Mortgage Loan Transactions Involving Multifamily Housing and to Permit
Additional Single Family Residential Mortgage Loans), 86-128 (Class Exemption
for Certain Securities Transactions by Plan Fiduciaries), 84-14 (Class
Exemption for Plan Asset Transactions Determined by Independent Qualified
Professional Asset Managers), 80-51 (Class Exemption for Certain Transactions
Involving Bank Collective Investment Funds) and 78-19 (Class Exemption for
Certain Transactions Involving Insurance Company Pooled Separate Accounts).
Furthermore, DOL Prohibited Transaction Exemption 83-1 (Class Exemption for
Certain Transactions Involving Mortgage Pool Investment Trusts), which
exempts from the prohibited transaction rules certain transactions relating
to the origination, maintenance and termination of mortgage pool investment
trusts, and the acquisition and holding of certain mortgage-backed
pass-through certificates of mortgage pools by Plans, may be applicable to
the Collateral securing a Series of Bonds.
Due to the complexity of these rules and the penalties imposed upon persons
involved in prohibited transactions, it is particularly important that potential
investors consult with their counsel regarding the consequences under ERISA of
their acquisition and ownership of Bonds.
68
<PAGE>
PLAN OF DISTRIBUTION
The Issuer may sell the Bonds offered hereby either directly or to
underwriters for public offering by them. The Prospectus Supplement for each
Series of Bonds will set forth the terms of the offering of such Series of
Bonds, including the name or names of the underwriters, the purchase price of
the Bonds of such Series, the proceeds to the Issuer from such sale, and, in the
case of an underwritten fixed price offering, the initial public offering price,
the discounts and commissions to the underwriters and any discounts or
concessions allowed or reallowed to certain dealers.
The Bonds of a Series may be acquired by underwriters for their own account
and may be resold from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale. The obligations of any underwriters will be
subject to certain conditions precedent, including, among other conditions, the
accuracy of representations and warranties made by the Issuer, the performance
by the Issuer of all actions required to be taken by it under the Securities
Act, and of its obligations under the underwriting agreement, and the delivery
to the underwriters of certificates, letters and opinions from the Issuer, the
Issuer's legal counsel and accountants, and other persons. Such underwriters
will be severally obligated to purchase all the Bonds of a Series described in
the related Prospectus Supplement, if any are purchased. If Bonds of a Series
are offered other than through underwriters, the related Prospectus Supplement
will contain information regarding the nature of such offering and any
agreements to be entered into between the Issuer and purchasers of Bonds of such
Series.
A portion of the Bonds of a Series may be acquired by the companies (or
their affiliates) from which the Issuer purchased a portion of the Pledged
Loans.
The place and time of delivery for the Bonds of a Series in respect of
which this Prospectus is delivered will be set forth in the Prospectus
Supplement.
LEGAL INVESTMENT
If Bonds of a Series are considered "mortgage related securities" under
SMMEA, then they will be legal investments for persons, trusts, corporations,
partnerships, associations, business trusts and business entities (including
depository institutions, life insurance companies and pension funds) created
pursuant to or existing under the laws of the United States or of any state
whose authorized investments are subject to state regulation to the same extent
as, under applicable law, obligations issued by or guaranteed as to principal
and interest by the United States or any such entities. However, only Bonds
secured by certain types of mortgage collateral so qualify under SMMEA, and the
Issuer may issue Bonds secured by types of Mortgage Collateral that would not
permit bonds secured thereby so to qualify. Thus, the Prospectus Supplement for
each Series of Bonds will specify whether the Bonds of such Series will
constitute "mortgage related securities" for purposes of SMMEA. Moreover, no
assurance can be given that any Series of Bonds will constitute "mortgage
related securities" under SMMEA.
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Bonds or to purchase Bonds
representing more than a specified percentage of the investor's assets.
Investors should consult their own legal advisors in determining whether and to
what extent the Bonds constitute legal investments for such investors.
LEGALITY OF BONDS
The legality of the Bonds and certain tax matters related to the ownership of
the Bonds will be passed upon for the Issuer by Matthias & Berg LLP, Attorneys
at Law, 1990 South Bundy Drive, Suite 790, Los Angeles, California 90025.
69
<PAGE>
EXPERTS
[TO BE COMPLETED IN AN AMENDED REGISTRATION STATEMENT]
ADDITIONAL INFORMATION
Copies of the Registration Statement of which this Prospectus forms a part
and the exhibits thereto are on file at the offices of the Commission in
Washington, D.C., and may be obtained at rates prescribed by the Commission upon
request to the Commission and inspected, without charge, at the offices of the
Commission. The Issuer is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith will
file reports and other information with the Commission. Such reports and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at Room 1204, 219 South
Dearborn Street, Chicago, Illinois 60604; and Room 1100, 26 Federal Plaza, New
York, New York 10007. Copies of such material can also be obtained from the
Commission at prescribed rates through its Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. 20549.
Copies of FHLMC's most recent Offering Circular for FHLMC Certificates,
FHLMC's most recent Information Statement, any supplement to such Information
Statement and any quarterly report made available by FHLMC can be obtained by
writing or calling the office of the Treasurer of FHLMC at P.O. Box 37248, 1776
G Street, N.W., Washington, D.C. 20013 (202-789-4787).
Copies of FNMA's most recent Prospectus for FNMA Certificates and FNMA's
annual report and quarterly financial statements as well as other financial
information relating to FNMA are available from the Director of Investor
Relations, 3900 Wisconsin Avenue, N.W., Washington, D.C. 20016 (202-537-7115).
70
<PAGE>
<TABLE>
INDEX OF DEFINED TERMS
<S> <C>
"100% Mortgage Insurance Policies" . . . . . . . . . . . . . . . . . . . . .33
"Aggregate Initial Bond Value" . . . . . . . . . . . . . . . . . . . . . . .19
"Aggregate Initial Overcollateralization Amount" . . . . . . . . . . . . . . 8
"Aggregate Loan Losses". . . . . . . . . . . . . . . . . . . . . . . . . . .20
"Assumed Reinvestment Rates" . . . . . . . . . . . . . . . . . . . . . . . .19
"Balloon Loans". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
"Bond Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Bond Value" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Bonds". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Buy-Down Fund". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Buy-Down Pledged Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Cede Bond". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
"CERCLA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
"Certificates of Beneficial Ownership" . . . . . . . . . . . . . . . . . . .52
"Class". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Closing Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
"Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
"Collateral" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Collection Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Commission" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
"Compound Interest Bonds". . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Cooperative Loans". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"CPR". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
"Custodial Account for Reserves" . . . . . . . . . . . . . . . . . . . . . .44
"Custodial Account". . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
"Cut-off Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
"Definitive Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
"Deposit Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Depository Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
"DOL Regulations". . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
"DOL". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
"DTC". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
"Duff & Phelps". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
"Eligible Investments" . . . . . . . . . . . . . . . . . . . . . . . . . . .40
"ERISA". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
"Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
"Excess Cash". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Excess Coverage Mortgage Insurance Policies". . . . . . . . . . . . . . . . 9
"FDIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
"FHA Loans". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"FHA Prepayment Experience". . . . . . . . . . . . . . . . . . . . . . . . .22
"FHLMC Act". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
"FHLMC Certificate group". . . . . . . . . . . . . . . . . . . . . . . . . .27
"FHLMC Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"FHLMC". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Finance Companies". . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
"Floating Rate Bonds". . . . . . . . . . . . . . . . . . . . . . . . . . . .17
"FNMA Certificates". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"FNMA MBS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
71
<PAGE>
"FNMA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Foreign Bondholders". . . . . . . . . . . . . . . . . . . . . . . . . . . .58
"Funding Agreements" . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
"GNMA Certificates". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"GNMA Issuer". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
"GNMA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"GPM Collateral" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"GPM GNMA Certificates". . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"GPM Pledged Loans". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Growing Equity Pledged Loans" . . . . . . . . . . . . . . . . . . . . . . .30
"Guaranty Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
"Housing Act". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
"HUD". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
"Inception". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
"Indenture". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Indirect Participant" . . . . . . . . . . . . . . . . . . . . . . . . . . .25
"Initial Bond Value" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Insurance Policies" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Insured". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
"Issue Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Issuer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Manufactured Homes" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Manufactured Housing Contracts" . . . . . . . . . . . . . . . . . . . . . . 5
"Manufactured Housing" . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Master Servicer". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Master Servicing Agreement" . . . . . . . . . . . . . . . . . . . . . . . . 9
"Moody's". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
"Mortgage Certificates". . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Mortgage Collateral". . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Mortgage Insurance Policies". . . . . . . . . . . . . . . . . . . . . . . .33
"Mortgage Insurer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
"Mortgage Repurchase Bond" . . . . . . . . . . . . . . . . . . . . . . . . .39
"Mortgaged Property" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Mortgagor Bankruptcy Bond". . . . . . . . . . . . . . . . . . . . . . . . . 9
"Non-REMIC Bonds". . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
"OID". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
"Originators". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
"Other Funds". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
"Other Mortgage Certificates". . . . . . . . . . . . . . . . . . . . . . . . 6
"Overcollateralization Amount" . . . . . . . . . . . . . . . . . . . . . . .20
"Overcollateralization Fund" . . . . . . . . . . . . . . . . . . . . . . . . 8
"Owner-Trustee". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Participants" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
"Payment Dates". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Planned Amortization Class Bonds,". . . . . . . . . . . . . . . . . . . . .17
"Plans". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
"Pledged Loans". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"PMA". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
"Pool Insurance Insurer" . . . . . . . . . . . . . . . . . . . . . . . . . .33
"Pool Insurance Policy". . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Prepayment Assumption". . . . . . . . . . . . . . . . . . . . . . . . . . .61
"Primary Mortgage Insurance Policies". . . . . . . . . . . . . . . . . . . . 9
72
<PAGE>
"Principal Only Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . .17
"Prospectus Supplement". . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Rating Agency". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Redemption Fund". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Regular Bonds". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
"Reinvestment Agreements". . . . . . . . . . . . . . . . . . . . . . . . . .40
"Reinvestment Income". . . . . . . . . . . . . . . . . . . . . . . . . . . .19
"Relief Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
"Remedial Action Costs". . . . . . . . . . . . . . . . . . . . . . . . . . .16
"REMIC Bonds". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
"REMIC". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Remittance Date". . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
"Required Principal Payment" . . . . . . . . . . . . . . . . . . . . . . . . 3
"Reserve Fund" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Residual Bondholder". . . . . . . . . . . . . . . . . . . . . . . . . . . .63
"Residual Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
"Rules". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
"Scheduled Amortization Yield Bonds,". . . . . . . . . . . . . . . . . . . .17
"Second Mortgage Loans". . . . . . . . . . . . . . . . . . . . . . . . . . .14
"Securities Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
"Security Funds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Series" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Service". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
"Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Servicing Agreements" . . . . . . . . . . . . . . . . . . . . . . . . . . .10
"Sinker Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
"SMM". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
"SMMEA". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Special Hazard Insurance Policy". . . . . . . . . . . . . . . . . . . . . . 9
"Special Hazard Insurer" . . . . . . . . . . . . . . . . . . . . . . . . . .38
"Special Redemption Dates" . . . . . . . . . . . . . . . . . . . . . . . . .21
"Special Redemption" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Stabilized Mortgage Reduction Term Bonds". . . . . . . . . . . . . . . . .17
"Standard & Poor's". . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
"Standard Hazard Insurance Policies" . . . . . . . . . . . . . . . . . . . . 9
"Stated Maturity". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Super Planned Amortization Class Bonds,". . . . . . . . . . . . . . . . . .17
"Supplemental Custodial Reserve Fund". . . . . . . . . . . . . . . . . . . . 8
"Supplemental Debt Service Fund" . . . . . . . . . . . . . . . . . . . . . . 7
"Supplemental Indenture" . . . . . . . . . . . . . . . . . . . . . . . . . .48
"Targeted Planned Amortization Class Bonds," . . . . . . . . . . . . . . . .17
"Title V". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
"Transferee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
"Trusts" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"UBTI" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
"UCC". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
"VA Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"VA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
"Variable Rate Bonds". . . . . . . . . . . . . . . . . . . . . . . . . . . .17
"WTC". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
"Zero Coupon Bonds". . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
</TABLE>
73
<PAGE>
FINANCIAL STATEMENTS AND INFORMATION
[TO BE ADDED IN THE PROSPECTUS SUPPLEMENT]
F 1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Not Applicable
SALES TO SPECIAL PARTIES.
Not Applicable
RECENT SALES OF UNREGISTERED SECURITIES.
Not Applicable
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Six of the Articles of Incorporation of Registrant provides for the
indemnification of the Officers and Directors of Registrant to the fullest
extent permitted by California Law.
FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS.
To be provided in the Prospectus Supplement
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the Prospectus.
(b) EXHIBITS
3(a) Articles of Incorporation of CRSM Securities, Inc.
3(b) Bylaws of CRSM Securities, Inc.
4(a) Form of Prospectus Supplement to this Prospectus
4(b) Form of Standard Provisions Indenture
4(c) Form of Terms Indenture between Owner-Trustee and Bond Trustee.**
5 Opinion of Matthias & Berg LLP, Attorneys at Law*
10(a) Form of Deposit Trust Agreement*
10(b) Form of Funding Agreement*
10(c) Form of Master Servicing Agreement*
10(d) Form of Servicing Agreement*
27 Financial Data Schedule*
* To be filed by amendment.
** To be filed with Each Prospectus Supplement.
ITEM 36. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
post-effective amendments to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information in the Registration
Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the
information required to be included in the post-effective
II-1
<PAGE>
amendment is contained in periodic reports filed by the Issuer pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bonafide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the"Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in Item 15 above,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted against the Registrant by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Beverly Hills, State of California, on September 30,
1998.
CRSM Securities, Inc.
a California Corporation
By /s/ Robert S. Manns
--------------------------------
Robert S. Manns, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Robert S. Manns
- ---------------------------
Robert S. Manns President and Director September 30, 1998
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CRSM SECURITIES, INC.,
A CALIFORNIA CORPORATION
The undersigned certifies that:
I. He is the president and secretary of CRSM SECURITIES, INC., A CALIFORNIA
CORPORATION.
II. The Articles of Incorporation of this corporation are amended and restated
to read as follows:
ARTICLE ONE. The name of the corporation is:
CRSM SECURITIES, INC.
ARTICLE TWO. The purpose from which this Corporation is organized is
to engage solely in the following activities:
(A) The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust
company business, or the practice of a profession permitted to be
incorporated under the California Corporations Code;
(B) To issue bonds, notes or other securities secured by mortgage collateral
("Mortgage Collateral"), which includes but is not limited to mortgage loans
insured by the Federal Housing Administration; mortgage loans partially
guaranteed by the Veterans Administration, conventional mortgage loans on all
types of residential real estate; loans secured by commercial real estate of
any kind, manufactured housing installment sales agreements and installment
loan agreements and either security interests in manufactured homes purchased
with the proceeds of such agreements or liens on the real estate to which the
related manufactured homes are deemed permanently affixed; loans to acquire
interest in cooperative apartment buildings; GAMA certificates guaranteed by
the Government National Mortgage Association; Mortgage Participation
Certificates issued by the Federal Home Loan Mortgage Corporation; Guaranteed
Mortgage Pass-Through Certificates issued by the Federal National Mortgage
Association and other types of mortgage collateral, including mortgage
pass-through certificates and mortgage-collateralization obligations, which
are deemed acceptable by the rating agency rating a particular issue of bonds
and which are specified in the Prospectus Supplemental for such issue;
<PAGE>
(C) To establish one or more trusts to issue bonds secured by Mortgage
Collateral;
(D) To lend proceeds of the sale of bonds secured by Mortgage Collateral for
use in connection with the funding or acquisition of Mortgage Collateral; and
(E) To transact any or all lawful business for which corporations may be
incorporated under the law of the State of California, which are incident to
the foregoing and are necessary or convenient to accomplish the foregoing
subject to the limitations set forth in ARTICLE THREE.
ARTICLE THREE
Notwithstanding any other provision of these Articles of Incorporation
and any other provision of the law which otherwise so empowers this
Corporation, this Corporation shall not, without the prior written consent of
each trustee from time to time ("Trustee") under any indenture ("Indenture")
between this Corporation and a Trustee as any such Indenture may from time to
time be amended or supplemented, perform any act in contravention of any of
the following:
(A) This Corporation shall not engage in any business or activity other
than in connection with or relating to the issuance of bonds secured
primarily by Mortgage Collateral pursuant to an Indenture or any supplement
thereto, which bonds may be issued directly by this Corporation or through
one or more trusts established by it.
(B) This Corporation shall not incur, assume or guarantee any
indebtedness or any entity other than in connection with the issuance, by his
Corporation or by any trust established by it, of bonds secured primarily by
Mortgage Collateral pursuant to an Indenture or any supplement thereto under
such indebtedness is completely subordinated to the indebtedness evidenced by
such bonds of this Corporation or of any trust established by it.
(C) This Corporation shall not consolidate or merge with or into any
other entity or convey or transfer its properties and assets substantially as
an entirety to any entity except a trust established by this corporation,
unless
(1) the entity (if other than this Corporation ) formed or
surviving such consolidation or merger or which acquires by convenience or
transfer the properties and assets of this Corporation substantially as an
entirety shall be organized and existing under the laws of the United States
of America or any State or the District of Columbia, and shall expressly
assume, by a supplemental indenture, executed and delivered to each Trustee,
in form satisfactory to each trustee, the due and punctual payment of the
principal of and interest on all bonds then outstanding under each Indenture
and the performance of every covenant of each Indenture on the part of this
Corporation to be performed or observed;
<PAGE>
(2) immediately after giving effect to such transaction, no
Default or Event of Default (as such terms are defined in each Indenture)
under any Indenture shall have occurred and be continuing; and
(3) this Corporation shall have delivered to each Trustee an
Officers' Certificate and an option on Counsel (as such terms or defined in
each Indenture) each stating that such consolidation, merger, conveyance or
transfer and such supplemental indenture comply with each such Indenture and
that all conditions precedent provided for relating to such transactions have
been complied with.
(D) Upon any consolidation or merger, or any conveyance or transfer of
the properties and assets of this corporation, substantially as an entirety
in accordance with Paragraph C above, the entity formed by or surviving such
consolidation or merger (if other than this Corporation) or the entity to
which such conveyance or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, this Corporation,
under each Indenture with the same effect as if such entity had been named as
the Issuer therein. In the event of any such conveyance or transfer, the
entity named as the "Issuer" in which shall theretofore have become such in
the manner prescribed in each such Indenture may be dissolved, wound up and
liquidated at any time thereafter, and such entity thereafter shall be
released from its liabilities as obligor and maker on all the Bonds and from
its obligations under each such Indenture.
ARTICLE FOUR.
This Corporation is authorized to issue only one class of shares of
stock and the total number of shares which this Corporation is authorized to
issue is 100,000 common shares of stock at no par value.
ARTICLE FIVE.
The number of directors of the Corporation shall be specified in the
Bylaws of the Corporation.
ARTICLE SIX.
The liability of the directors of this Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
ARTICLE SEVEN.
This Corporation shall indemnify to the fullest extent permitted by
California law.
III. The foregoing amendment and restatement of Articles of Incorporation has
been duly approved by the Board of Directors.
IV. The foregoing amendment and restatement of Articles of Incorporation has
been
<PAGE>
duly approved by the required vote of shareholders in accordance with Section
902, California Corporations Code. The total number of outstanding shares of
the corporation is 100,000. The number of shares voting in favor of the
amendment equaled or exceed the vote required. The percentage vote required
was more than fifty percent (50%).
I FURTHER DECLARE UNDER PENALTY OF PERJURY UNDER THE LAWS OF THE STATE OF
CALIFORNIA THAT THE MATTERS SET FORTH IN THIS CERTIFICATE ARE TRUE AND
CORRECT TO MY OWN KNOWLEDGE.
Dated: ____________________________
ROBERT S. MANNS, PRESIDENT
_____________________________
ROBERT S. MANNS, SECRETARY
<PAGE>
Bylaws of
CRSM SECURITIES, INC.
a California corporation
1
<PAGE>
BYLAWS
Bylaws for the regulation, except
as otherwise provided by statute or
its Articles of Incorporation, of
CRSM Securities, Inc.,
A California corporation
ARTICLE I: OFFICES
Section 1.1. PRINCIPAL OFFICES. The Board of Directors shall fix the
location of the principal executive office of the corporation at any place
within or outside the State of California. If the principal executive office is
located outside the State, and the corporation has one or more business offices
in this State, the Board of Directors shall fix and designate a principal
business office in the State of California.
Section 1.2. OTHER OFFICES. The Board of Directors may at any time
establish branch or subordinate offices at any place or places.
ARTICLE II: MEETINGS OF SHAREHOLDERS
Section 2.1. PLACE OF MEETINGS. Meetings of shareholders shall be held
either at the principal executive office of the corporation or at any other
place within or without the State of California which may be designated either
by the Board of Directors or by the written consent of all persons entitled to
vote thereat given either before or after the meeting and filed with the
Secretary.
Section 2.2. ANNUAL MEETINGS. The annual meeting of shareholders shall
be held each year on a date and at a time designated by the Board of Directors.
The date so designated shall be within five (5) months after the end of the
fiscal year of the corporation and within fifteen (15) months after the last
annual meeting. At each annual meeting, directors shall be elected and any
other proper business may be transacted.
Section 2.3. SPECIAL MEETINGS. Special meetings of the shareholders may
be called at any time by the Board of Directors, or by the Chairman of the
Board, or by the President, or by one or more shareholders holding shares in the
aggregate entitled to cast not less than ten percent (10%) of the votes at that
meeting.
If a special meeting is called by any person or persons other than the
Board of Directors, the request shall be in writing, specifying the time of
such meeting and the general nature of the business proposed to be
transacted, and shall be delivered personally or sent by registered mail or
by facsimile transmission to the Chairman of the Board, the President, any
Vice President or the Secretary of the corporation. The officer receiving
the request shall cause notice to be promptly given to the shareholders
entitled to vote, in accordance with the provisions of Sections 4 and 5 of
this Article II, that a meeting will be held at the time requested by the
person or persons calling the meeting, not less
<PAGE>
than thirty-five (35) nor not more than sixty (60) days after the receipt of
the request. If the notice is not given within twenty (20) days after receipt
of the request, the person or persons requesting the meeting may give the
notice. Nothing contained in this paragraph of this Section 3 shall be
construed as limiting, fixing or affecting the time when a meeting of
shareholders called by action of the Board of Directors may be held.
Section 2.4. NOTICE OF SHAREHOLDERS' MEETINGS. Written notice of each
annual or special meeting of shareholders shall be sent or otherwise given in
accordance with Section 2.5 of this Article II not less than ten (10) nor more
than sixty (60) days before the date of the meeting to each shareholder entitled
to vote thereat. The notice shall specify the place, date and hour of the
meeting and (i) in the case of a special meeting, the general nature of the
business to be transacted, and no other business may be transacted, or (ii) in
the case of the annual meeting, those matters which the Board of Directors, at
the time of giving the notice, intends to present for action by the
shareholders, but, subject to the provisions of applicable law, any proper
matter may be presented at the meeting for action. The notice of any meeting at
which directors are to be elected shall include the name of any nominee or
nominees whom, at the time of the notice, management intends to present for
election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct of indirect
financial interest, pursuant to Section 310 of the California General
Corporation Law, (ii) an amendment of the Articles of Incorporation, pursuant
to Section 902 of that Law, (iii) a reorganization of the corporation,
pursuant to Section 1202 of that Law, (iv) a voluntary dissolution of the
corporation, pursuant to Section 1900 of that Law, or (v) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares, pursuant to Section 2007 of that Law, the notice shall also state the
general nature of that proposal.
Section 2.5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of
any meeting of shareholders shall be given either personally or by mail, or
other written communication, charges prepaid, addressed to the shareholder at
the address of that shareholder appearing on the books of the corporation or
given by the shareholder to the corporation for the purpose of notice. If no
such address appears on the corporation's books or is given, notice shall be
deemed to have been given if sent to that shareholder by mail or facsimile or
other written communication to the corporation's principal executive office,
or if published at least once in a newspaper of general circulation in the
county where that office is located. Notice shall be deemed to have been
given at the time it is personally delivered to the recipient or is deposited
in the mail or is delivered to a common carrier for transmission, or actually
transmitted by the person giving the notice by electronic means, to the
recipient.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at that address, all
future notices or reports shall be deemed to have been duly given without
further mailing if these shall be available to the shareholder on written demand
of the shareholder at the principal executive office of the corporation for a
period of one (1) year from the date of the giving of the notice.
2
<PAGE>
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting shall be executed by the Secretary, Assistant
Secretary, or any transfer agent of the corporation giving the notice, and
shall be filed and maintained in the Minute Book of the corporation.
Section 2.6. QUORUM. A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at any meeting
of shareholders. The shareholders present at a duly called or held meeting
at which a quorum is present may continue to do business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, if any action taken (other than adjournment) is approved by at least
a majority of the shares required to constitute a quorum.
Section 2.7. ADJOURNMENT MEETING; NOTICE. Any shareholders' meeting,
whether or not a quorum is present, may be adjourned from time to time by the
vote of the majority of the shares represented at that meeting, either in person
or by proxy, but in the absence of a quorum, no other business may be transacted
at that meeting, except as provided in Section 2.6 of this Article II.
It shall not be necessary to give any notice of the time and place of the
adjourned meeting or of the business to be transacted thereat, other than by
announcement at the meeting at which such adjournment is taken; provided,
however, when any shareholders' meeting is adjourned for more than forty-five
(45) days or, if after adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given as in the case of any
original meeting.
Section 2.8. VOTING. The shareholders entitled to notice of any meeting
and to vote at any such meeting shall be determined in accordance with the
provisions of Section 2.11 of this Article II, subject to the provisions of
Sections 702 to 704, inclusive, of the California General Corporation Law
(relating to voting shares held by a fiduciary, in the name of a corporation, or
in joint ownership). The shareholders' vote may be by voice vote or by ballot;
provided, however, that all elections for directors must be by ballot upon
demand by a shareholder at the meeting and before the voting begins. On any
matter other than elections of directors, any shareholder may vote part of the
shares in favor of the proposal and refrain from voting the remaining shares or
vote them against the proposal, but, if the shareholder fails to specify the
number of shares which the shareholder is voting affirmatively, it will be
conclusively presumed that the shareholder's approving vote is with respect to
all shares that the shareholder is entitled to vote. If a quorum is present,
the affirmative vote of the majority of the shares represented at the meeting
and entitled to vote on any matter (other than the election of directors) shall
be the act of the shareholders, unless the vote of a greater number or voting by
classes is required by the California General Corporation Law or by the Articles
of Incorporation.
At a shareholders' meeting at which directors are to be elected, no
shareholder shall be entitled to cumulate votes (i.e., cast for any one or more
candidates a number of votes greater than the number of the shareholder's
shares) unless the candidates' names have been placed in nomination prior to
commencement of the voting and a shareholder has given notice prior to
commencement of the voting of the voting of the shareholder's intention to
cumulate votes. If any shareholder has given such a notice, then every
shareholder entitled to vote may cumulate votes for candidates in nomination and
give one candidate a number of votes equal to the number of directors to be
elected multiplied by the
3
<PAGE>
number of votes to which that shareholder's shares are entitled, or
distribute the shareholder's votes on the same principle among any or all of
the candidates, as the shareholder thinks fit. The candidates receiving the
highest number of votes, up to the number of directors to be elected, shall
be elected.
Section 2.9. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The
transactions of any meeting of shareholders, however called and noticed, and
wherever held, shall be as valid as those at a meeting duly held after
regular call and notice, if a quorum be present either in person or by proxy,
and if, either before or after the meeting, each person entitled to vote who
was present in person or by proxy signs a written waiver of notice or consent
to holding of the meeting, or an approval of the minutes thereof. The waiver
of notice or consent need not specify either the business to be transacted or
the purpose of any annual or special meeting of shareholders, except that if
action is taken or proposed to be taken for approval of any of those matters
specified in the second paragraph of Section 2.4 of this Article II, the
waiver of notice or consent shall state the general nature of the proposal.
All such waivers, consents or approvals shall be filed with the corporate
records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened, and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters required by the
California General Corporation Law to be included in the notice of the
meeting but which were not so included, if such objection is expressly made
at the meeting.
Section 2.10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice if a
consent in writing setting forth the action so taken shall be signed by the
holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take that action at a meeting
at which all shares entitled to vote on that action were present and voted.
In the case of election of directors, such a consent shall be effective only
if signed by the holders of all outstanding shares entitled to vote for the
election of directors; provided, however, that a director may be elected at
any time be the written consent of the holders of a majority of the
outstanding shares entitled to vote for the election of directors to fill a
vacancy on the Board of Directors that has not been filled by the directors.
All such consents shall be filed with the Secretary of the corporation and
shall be maintained in the corporate records. Any shareholder giving written
consent, or the shareholder's proxyholders, or a transferee of the shares of
a personal representative of the shareholder or their respective
proxyholders, may revoke the consent by a writing received by the Secretary
of the corporation before written consents of the number of shares required
to authorize the proposed action have been filed with the Secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of the corporate action approved by the shareholders without a meeting.
This notice shall be given in the manner specified in Section 2.5 of this
Article II. In the case of approval of (i) contracts of transactions in which a
director has a direct or indirect financial interest, pursuant to
4
<PAGE>
Section 310 of the California General Corporation Law, (ii) indemnification
of agents of the corporation, pursuant to Section 317 of that Law, (iii) a
reorganization of the corporation, pursuant to Section 1201 of that Law, and
(iv) a distribution in dissolution other than in accordance with the rights
of outstanding preferred shares, pursuant to Section 2007 of that Law, the
notice shall be given at least ten (10) days before the consummation of any
action authorized by that approval.
Section 2.11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND GIVING
CONSENTS. For purposes of determining the shareholders entitled to notice of
any meeting or to vote or entitled to give consent to corporate action
without a meeting, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days
before the date of any such action without a meeting, and in this event only
shareholders of record on the date so fixed are entitled to notice and to
vote or to give consents, as the case may be, notwithstanding any transfer of
any shares on the books of the corporation after the record date, except as
otherwise provided in the California General Corporation Law.
If the Board of Directors does not so fix a record date:
(a) The record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of business on
the business day next preceding the day on which notice is given or, if
notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.
(b) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the Board has been taken, shall be the day on which the first
written consent is given, or (ii) when prior action of the Board has been
taken, shall be at the close of business on the day on which the Board adopts
the resolution relating to that action, or the sixtieth (60th) day before the
date of such other action, whichever is later.
Section 2.12. PROXIES. Every person entitled to vote shares has the
right to do so either in person or by one or more agents authorized by a
written proxy signed by the person and filed with the Secretary of the
corporation. A proxy shall be deemed signed if the shareholder's name is
placed on the proxy (whether by manual signature, typewriting, or otherwise)
by the shareholder or the shareholder's attorney in fact. A validly executed
proxy which does not state that it is irrevocable shall continue in full
force and effect unless (i) revoked by the person executing it, before the
vote pursuant to that proxy, by a writing delivered to the corporation
stating that the proxy is revoked, or by a subsequent proxy executed by, or
attendance at the meeting and voting in person by, the person executing the
proxy; or (ii) written notice of the death or incapacity of the maker of that
proxy is received by the corporation before the vote pursuant to that proxy
is counted; provided, however, that no proxy shall be valid after the
expiration of eleven (11) months from the date of the proxy, unless otherwise
provided in the proxy. The revocability of a proxy that states on its face
that it is irrevocable shall be governed by the provisions of Sections 705(e)
and 705(f) of the California General Corporation Law.
Section 2.13. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the Board of Directors may appoint any persons other than
nominees for office to act as inspectors of
5
<PAGE>
election at the meeting or any adjournment thereof. If no inspectors of
election are so appointed, the Chairman of the meeting may, and on the
request of any shareholder or a shareholder's proxy shall, appoint inspectors
of election at the meeting. The number of inspectors shall be either one (1)
or three (3). If inspectors are appointed at a meeting on the request of one
or more shareholders or proxies, the holders of a majority of shares or their
proxies present at the meeting shall determine whether one (1) or three (3)
inspectors are to be appointed. If any person appointed as inspector fails
or refuses to act, the Chairman of the meeting may, and upon request of any
shareholder or a shareholder's proxy shall, appoint a person to fill that
vacancy.
The duties of the inspectors shall be as prescribed by Section 707(b) of
the California General Corporation Law and shall include: determining the
number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the authenticity,
validity, and effect of proxies; receiving votes, ballots, or consents;
hearing and determining all challenges and questions in any way arising in
connection with the right to vote; counting and tabulating all votes or
consents; determining when the polls shall close; determining the result; and
doing any other acts that may be proper to conduct the election or vote with
fairness to all shareholders. If there are three (3) inspectors of election,
the decision, act, or certificate of a majority is effective in all respects
as the decision, act, or certificate of all.
ARTICLE III: DIRECTORS
Section 3.1. POWERS. Subject to the provisions of the California General
Corporation Law and any limitations in the Articles of Incorporation and these
Bylaws relating to action required to be approved by the shareholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
Board of Directors.
Section 3.2. NUMBER AND QUALIFICATION OF DIRECTORS. The number of
directors shall be one (1), until changed by a duly adopted amendment to this
bylaw adopted by the vote or written consent of a majority of the outstanding
shares entitled to vote.
Section 3.3. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors
shall be elected at each annual meeting of shareholders to hold office until
the next annual meeting. Each director, including a director elected to fill
a vacancy, shall hold office until the expiration of the term for which
elected and until a successor has been elected and qualified.
Section 3.4. VACANCIES. Vacancies in the Board of Directors may be
filled by a majority of the remaining directors, though less than a quorum,
or by a sole remaining director, except that a vacancy created by the removal
of a director by the vote or written consent of the shareholders or by court
order may be filled only by the vote of a majority of the shares entitled to
vote represented at a duly held meeting at which a quorum is present, or by
the written consent of holders of a majority of the outstanding shares
entitled to vote.
6
<PAGE>
A vacancy or vacancies in the Board of Directors shall be deemed to
exist in the event of the death, resignation, or removal of any directors, or
if the Board of Directors by resolution declares vacant the office of a
director who has been declared of unsound mind by an order of court or
convicted of a felony, or if the authorized number of directors is increased
or if the shareholders fail, at any meeting of shareholders at which any
director or directors are elected, to elect the number of directors to be
voted for at the meeting.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors, but any such election by
written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
Any director may resign effective on giving written notice to the Chairman
of the Board, the President, the Secretary, or the Board of Directors, unless
the notice specifies a later time for that resignation to become effective. If
the resignation of a director is effective at a future time, the Board of
Directors may elect a successor to take office when the resignation becomes
effective.
No reduction of the authorized number of directors shall have the effect of
removing any director before the director's term of office expires.
Section 3.5. PLACE OF MEETINGS. Regular or special meetings of the Board
of Directors shall be held at any place within or without the State of
California which has been designated from time to time by resolution of the
Board. In the absence of such a designation, regular or special meetings shall
be held at the principal executive office of the corporation.
Section 3.6. MEETINGS BY TELEPHONE. Members of the Board of Directors
may participate in any meeting, regular or special, by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another, and all such directors shall be deemed to present
in person at the meeting.
Section 3.7. REGULAR MEETINGS. Immediately following each annual meeting
of shareholders, the Board of Directors shall hold a regular meeting for the
purpose of organization, any desired election of officers, and the transaction
of other business. Other regular meetings of the Board of Directors may be held
at such time as shall from time to time be fixed by the Board of Directors.
Call and notice of all regular meetings shall not be required.
Section 3.8. SPECIAL MEETINGS. Special meetings of the Board of
Directors for any purpose or purposes may be called at any time by the Chairman
of the Board or the President or any Vice President or the Secretary or any two
directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone, telex, or other similar means of communication to
each director or sent by mail, addressed to each director at that director's
address as it is shown on the records of the corporation. In case the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the holding of the meeting. In case the notice is delivered
personally, or by telephone, telex, or other
7
<PAGE>
similar means of communication, it shall be given at least forty-eight (48)
hours before the time of the holding of the meeting. Notice by mail shall be
deemed to have been given at the time written notice is deposited in the
United States mail, postage prepaid. Any other written notice shall be deemed
given at the time it is personally delivered to the recipient or is delivered
to a common carrier for transmission, or actually transmitted by the person
giving notice by electronic means, to the recipient. Any oral notice given
personally or by telephone may be communicated either to the director or to a
person at the office of the director who the person giving the notice has
reason to believe will promptly communicate it to the director. The notice
need not specify the purpose of the meeting nor the place if the meeting is
to be held at the principal executive office of the corporation.
Section 3.9. QUORUM. A majority of the authorized number of directors
shall constitute a quorum for the transaction of business, except to adjourn a
meeting of the Board of Directors as provided in Section 3.11 of this Article
III. Every act or decision done or made by a majority of the directors present
at a meeting duly held at which a quorum is present shall be recorded as the act
of the Board of Directors, subject to the provisions of Section 310 of the
California General Corporation Law (as to approval of contracts or transactions
in which a director has a direct or indirect financial interest), Section 311 of
that Law (as to appointment of committees), and Section 317 (e) of that Law (as
to indemnification of directors). A meeting at which a quorum is initially
present may continue to transact business, notwithstanding the withdrawal of
directors, if any action taken is approved by at least a majority of the
required quorum for that meeting.
Section 3.10. WAIVER OF NOTICE. The transactions of any meeting of the
Board of Directors, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice if a
quorum is present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding the
meeting or an approval of the minutes thereof. The waiver of notice or consent
need not specify the purpose of the meeting. All such waivers, consents, and
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Notice of a meeting shall also be deemed given to any
director who attends the meeting without protesting before or at its
commencement, the lack of notice to that director.
Section 3.11. ADJOURNMENT. A majority of the directors present, whether
or not constituting a quorum, may adjourn any meeting of the Board of Directors
to another time and place. Notice of the time and place of holding an adjourned
meeting need not be given to absent directors if the time and place be fixed at
the meeting adjourned. If the meeting is adjourned for more than twenty-four
(24) hours, notice of any adjournment to another time or place shall be given
prior to the time of the adjourned meeting, in the manner specified in Section
3.8 of this Article III, to the directors who were not present at the time of
the adjournment.
Section 3.12. ACTION WITHOUT MEETING. Any action required or permitted to
be taken by the Board of Directors may be taken without a meeting, if all
members of the Board shall individually or collectively consent in writing to
that action. Such action by written consent shall have the same force and
effect as a unanimous vote of the Board of Directors. Such written consent or
consents shall be filed with the minutes of the proceedings of the Board.
8
<PAGE>
Section 3.13. FEES AND COMPENSATION OF DIRECTORS. Directors and
members of committees may receive such compensation, if any, for their
services, and such reimbursement for expenses, as may be fixed or determined
by the Board of Directors. This Section 3.13 shall not be construed to
preclude any director from serving the corporation in any other capacity as
an officer, agent, employee, or otherwise, and receiving compensation for
those services.
ARTICLE IV: COMMITTEES
Section 4.1. COMMITTEES OF DIRECTORS. The Board of Directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of one or more directors, to
serve at the pleasure of the Board. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. Any committee, to the extent provided
in the resolution of the Board, shall have all the authority of the Board,
except with respect to:
(a) the approval of any action which, under the California General
Corporation Law, also requires shareholders' approval or approval of the
outstanding shares;
(b) the filling of vacancies on the Board of Directors or on any
committee;
(c) the fixing of compensation of the directors for serving on the Board
or on any committee;
(d) the amendment or repeal of Bylaws or the adoption of new Bylaws;
(e) the amendment or repeal of any resolution of the Board of Directors by
which its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at a
rate or in a periodic amount or within a price range determined by the Board of
Directors; or
(g) the appointment of any other committee of the Board of Directors or
the members of these committees.
Section 4.2. MEETINGS AND ACTIONS OF COMMITTEES. Meetings and actions of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these Bylaws, Sections 4.5 (place of meetings), 4.6
(meetings by telephone), 4.7 (regular meetings), 4.8 (special meetings and
notice), 4.9 (quorum), 4.10 (waiver of notice), 4.11 (adjournment), and 4.12
(action without meeting), with such changes in the context of those Bylaws as
are necessary to substitute the committee and its members for the Board of
Directors and its members, except that the time of regular meetings of
committees may be determined either by resolution of the Board of Directors or
by resolution of the committee; special meetings of committees may also be
called by resolution of the Board of Directors; and notice of special meetings
of committees shall also be given
9
<PAGE>
to all alternate members, who shall have the right to attend all meetings of
the committees. The Board of Directors may adopt rules for the government of
any committee not inconsistent with the provisions of these Bylaws.
10
<PAGE>
ARTICLE V: OFFICERS
Section 5.1. OFFICERS. The officers of the corporation shall be a
President, a Secretary and a Treasurer. The corporation may also have, at
the discretion of the Board of Directors, a Chief Executive Officer, a Chief
Financial Officer, a Chairman of the Board, one or more Vice Presidents, one
or more Assistant Secretaries, one or more Assistant Treasurers, and such
other officers as may be appointed in accordance with the provisions of
Section 5.3 of this Article V. Any number of offices may be held by the same
person.
Section 5.2. ELECTION OF OFFICERS. The officers of the corporation,
except such officers as may be appointed in accordance with the provisions of
Section 5.3 or Section 5.5 of this Article V, shall be chosen by the Board of
Directors, and each shall serve at the pleasure of the Board, subject to the
rights, if any, of an officer under contract of employment.
Section 5.3. SUBORDINATE OFFICERS. The Board of Directors may appoint,
and may empower the President to appoint, such other officers as the business of
the corporation may require, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in the Bylaws or as
the Board of Directors may from time to time determine.
Section 5.4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the
rights, if any, of an officer under any contract of employment, any officer
may be removed, either with or without cause, by the Board of Directors, at
any regular or special meeting of the Board, or except in the case of any
officer chosen by the Board of Directors, by any officer upon whom such power
of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall
not be necessary to make it effective. Any resignation is without prejudice
to the rights, if any, of the corporation under any contract to which the
officer is a party.
Section 5.5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be
filled in the manner prescribed in these Bylaws for regular appointment to
that office.
Section 5.6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
such an officer be elected, shall, if present, preside at meetings of the
Board of Directors and exercise and perform such other powers and duties as
may from time to time be assigned to him by the Board of Directors or
prescribed by the Bylaws. If there is no President, the Chairman of the
Board shall in addition be the Chief Executive Officer of the corporation and
shall have the powers and duties prescribed in Section 5.7 of this Article V.
Section 5.7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be
11
<PAGE>
the Chief Executive Officer of the corporation and shall, subject to the
control of the Board of Directors, have general supervision, direction and
control of the business and the officers of the corporation. He shall
preside at all meetings of the shareholders and, in the absence of the
Chairman of the Board, of if there be none, at all meetings of the Board of
Directors. He shall have the general powers and duties of management usually
vested in the office of the President of a corporation, and shall have such
other powers and duties as may be prescribed by the Board of Directors or the
Bylaws.
Section 5.8. VICE PRESIDENTS. In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as fixed by
the Board of Directors or, if not ranked, a Vice President designated by the
Board of Directors, shall perform all the duties of the President, and when
so acting shall have all the powers of, and be subject to all the
restrictions upon, the President. The Vice Presidents shall have such other
powers and perform such other duties as from time to time may be prescribed
for them, respectively, by the Board of Directors, the Bylaws, the President
or the Chairman of the Board.
Section 5.9. SECRETARY AND ASSISTANT SECRETARY. The Secretary shall keep
or cause to be kept, at the principal executive office or such other place as
the Board of Directors may direct, a book of minutes of all meetings and actions
of directors, committees of directors, and shareholders, with the time and place
of the holding, whether regular or special, and, if special, how authorized, the
notice given, the names of those present at directors' meetings or committee
meetings, the number of shares present or represented at shareholders' meetings,
and the proceedings.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the Board of Directors, a share
register, or duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the
number and date of certificates issued for the same, and the number and date
of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the Board of Directors required by the Bylaws or by law
to be given, and he shall keep the seal of the corporation if one be adopted, in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors.
The Secretary may delegate any or all of his responsibilities and tasks
to the Assistant Secretary.
Section 5.10. TREASURER AND ASSISTANT TREASURER. Unless otherwise
designated by the Board of Directors, the Treasurer shall be the Chief
Financial Officer of the corporation and shall keep and maintain, or cause to
be kept or maintained, adequate and correct books and records of accounts of
the properties and business transactions of the corporation, including
accounts of its assets, liabilities, receipts, disbursement, gains, losses,
capital, retained earnings and shares. The books of account shall at all
reasonable times be open to inspection by any director.
12
<PAGE>
The Treasurer shall deposit all moneys and other valuables in the name
and to the credit of the corporation with such depositaries as may be
designated by the Board of Directors. He shall disburse the funds of the
corporation as may be ordered by the Board of Directors, shall render to the
President and directors, whenever they request it, an account of all of his
transactions as Treasurer and of the financial condition of the corporation,
and shall have other duties as may be prescribed by the Board of Directors or
the Bylaws.
ARTICLE VI: INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
The corporation shall have the power, to the maximum extent permitted by
the California General Corporation Law, to indemnify each of its agents
against expenses, judgments, fines, settlements and other amounts actually
and reasonably incurred in connection with any proceeding arising by reason
of the fact any such person is or was an agent of the corporation. Such
power to provide indemnification of agents shall include indemnification for
breach of duty to the corporation and its stockholders, in excess of the
indemnification otherwise permitted by section 317 of the Corporations Code,
subject to the limits on such excess indemnification set forth in Section 204
of the Corporations Code.
For purposes of this Article VI, an "agent" of the corporation includes
any person who is or was a director, officer, employee, or other agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, or was a director, officer,
employee, or agent of a corporation which was a predecessor corporation of
the corporation or of another enterprise at the request of such predecessor
corporation.
ARTICLE VII: RECORDS AND REPORTS
Section 7.1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The
corporation shall keep at its principal executive office, or at the office of
its transfer agent or registrar, if either be appointed and as determined by
resolution of the Board of Directors, a record of its shareholders, giving the
names and addresses of all shareholders and the number and class of shares held
by each shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation may (i) inspect and copy the records of shareholders' names and
addresses and shareholdings during usual business hours on five (5) days
prior written demand on the corporation, and (ii) obtain from the transfer
agent of the corporation, on written demand and on the tender of such
transfer agent's usual charges for such list, a list of the shareholders'
names and addresses who are entitled to vote for the election of directors,
and their shareholdings, as of the most recent record date for which that
list has been compiled or as of a date specified by the shareholder after the
date of demand. The list shall be made available to any such shareholder by
the transfer agent on or before the later of five (5) days after the demand
is received or the date specified in the demand as the date as of which the
list is to be compiled. The record of shareholders shall also be open to
inspection on the written demand of any shareholder or holder of a
13
<PAGE>
voting trust certificate, at any time during usual business hours, for a
purpose reasonably related to the holder's interests as a shareholder or as
the holder of a voting trust certificate. Any inspection and copying under
this Section 7.1 may be made in person or by an agent or attorney of the
shareholder or holder of a voting trust certificate making the demand.
Section 7.2. MAINTENANCE AND INSPECTION OF BYLAWS. The corporation
shall keep at its principal executive office, or if its principal executive
office is not in the State of California, at its principal office in this
State, the original or a copy of the Bylaws as amended to date, which shall
be open to inspection by the shareholders at all reasonable times during
office hours. If the principal executive office of the corporation has no
principal business office in this State, the Secretary shall, upon the
written request of any shareholder, furnish to that shareholder a copy of the
Bylaws as amended to date.
Section 7.3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS.
The accounting books and records and minutes of proceedings of the
shareholders and the Board of Directors and any committee or committees of
the Board of Directors shall be kept at such place or places designated by
the Board of Directors, or, in the absence of such designation, at the
principal executive office of the corporation. The minutes shall be kept in
written form and the accounting books and records shall be kept either in
written form or in any other form capable of being converted into written
form. The minutes and accounting books and records shall be open to
inspection upon the written demand of any shareholder or holder of a voting
trust certificate, at any reasonable time during usual business hours, for a
purpose reasonably related to the holder's interests as a shareholder or as
the holder of a voting trust certificate. The inspection may be made in
person or by an agent or attorney, and shall include the right to copy and
make extracts. These rights of inspection shall extend to the records of
each subsidiary corporation of the corporation.
Section 7.4. INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect all books, records, and
documents of every kind and the physical properties of the corporation and
each of its subsidiary corporations. This inspection by a director may be
made in person or by an agent or attorney and the right of inspection
includes the right to copy and make extracts of documents.
Section 7.5. ANNUAL REPORT TO SHAREHOLDERS. The annual report to
shareholders referred to in Section 1501 of the California General Corporation
Law is expressly dispensed with, but nothing herein shall be interpreted as
prohibiting the Board of Directors from issuing annual or other periodic reports
to the shareholders of the corporation as they consider appropriate.
Section 7.6. FINANCIAL STATEMENTS. A copy of any annual financial
statement and any income statement of the corporation for each quarterly period
of each fiscal year, and any accompanying balance sheet of the corporation as of
the end of each such period, that has been prepared by the corporation shall be
kept on file in the principal executive office of the corporation for twelve
(12) months and each such statement shall be exhibited at all reasonable times
to any
14
<PAGE>
shareholder demanding an examination of any such statement or a copy shall be
mailed to any such shareholder.
If a shareholder or shareholders holding at least five percent (5%) of
the outstanding shares of any class of stock of the corporation makes a
written request to the corporation for an income statement of the corporation
for the three-month, six-month or nine-month period of the then current
fiscal year ended more than thirty (30) days before the date of the request,
and a balance sheet of the corporation as of the end of that period, the
Chief Financial Officer shall cause that statement to be prepared, if not
already prepared, and shall deliver personally or mail that statement or
statements to the person making the request within thirty (30) days after the
receipt of the request. If the corporation has not sent to the shareholders
its annual report for the last fiscal year, this report shall likewise be
delivered or mailed to the shareholder or shareholders within (30) days after
the request.
The corporation shall also, on the written request of any shareholder,
mail to the shareholder a copy of the last annual, semi-annual, or quarterly
income statement which it has prepared, and a balance sheet as of the end of
that period.
The quarterly income statements and balance sheets referred to in this
Section 7.6 shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or the certificate of any authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
Section 7.7. ANNUAL STATEMENT OF GENERAL INFORMATION. Each year,
during the calendar month in which the original articles of incorporation
were filed or during the preceding five (5) calendar months, the corporation
shall file with the Secretary of the State of California, on the prescribed
form, a statement setting forth the authorized number of directors, the names
and complete business addresses or residence addresses of all incumbent
directors, the names and complete business or residence addresses of the
Chief Executive Officer, Secretary, and Chief Financial Officer, the street
address of its principal executive office or principal business office in
this State, and the general type of business constituting the principal
business activity of the corporation, together with a designation of the
agent of the corporation for the purpose of service of process, all in
compliance with Section 1502 of the California General Corporation Law.
ARTICLE VIII: GENERAL CORPORATE MATTERS
Section 8.1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.
For purposes of determining the shareholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action (other than action
by shareholders by written consent without a meeting), the Board of Directors
may fix, in advance, a record date, which shall not be more than sixty (60)
days before any such action, and in that case only shareholders of record on
the date so fixed are entitled to receive the dividend, distribution, or
allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation
after the record date so fixed, except as otherwise provided in the
California General Corporation Law.
15
<PAGE>
If the Board of Directors does not so fix a record date, the record date
for determining shareholders for any such purpose shall be at the close of
business on the day on which the Board adopts the applicable resolution or
the sixtieth (60th) day before the date of that action, whichever is later.
Section 8.2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks,
drafts, or other orders for payment of money, notes, or other evidences of
indebtedness, issued in the name or payable to the corporation, shall be
signed or endorsed by such person or persons and in such manner as, from time
to time, shall be determined by resolution of the Board of Directors.
Section 8.3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The
Board of Directors, except as otherwise provided in these Bylaws, may authorize
any officer or officers, agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation, and this
authority may be general or confined to specific instances; and, unless so
authorized or ratified by the Board of Directors or within the agency power of
an officer, no officer, agent, or employee shall have any power or authority to
bind the corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or for any amount.
Section 8.4. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of the capital stock of the corporation shall be issued to each
shareholder when any of these shares are fully paid, and the Board of Directors
may authorize the issuance of certificates or shares as partly paid provided
that these certificates shall state the amount of the consideration to be paid
for them and the amount paid. All certificates shall be signed in the name of
the corporation by the Chairman of the Board or Vice Chairman of the Board or
the President or a Vice President, and by the Chief Financial Officer, or an
Assistant Treasurer or the Secretary or any Assistant Secretary, certifying the
number of shares and the class or series of shares owned by the shareholder.
Any or all of the signatures on the certificate may be facsimile. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed on a certificate shall have ceased to be that officer,
transfer agent, or registrar before that certificate is issued, it may be issued
by the corporation with the same effect as if that person were an officer,
transfer agent, or registrar at the date of issue.
Section 8.5. LOST CERTIFICATES. Except as provided in this Section
8.5, no new certificates for shares shall be issued to replace an old
certificate unless the latter is surrendered to the corporation and canceled
at the same time. The Board of Directors may, in case any share certificate
or certificate for any other security is lost, stolen, or destroyed,
authorize the issuance of a replacement certificate on such terms and
conditions as the Board may require, including provision for indemnification
of the corporation secured by a bond or other adequate security sufficient to
protect the corporation against any claim that may be made against it,
including any expense or liability, on account of the alleged loss, theft, or
destruction of the certificate or the issuance of the replacement certificate.
Section 8.6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
Chairman of the Board, the President, or any Vice President, or any other
person authorized by
16
<PAGE>
resolution of the Board of Directors or by any of the foregoing designated
officers, is authorized to vote on behalf of the corporation any and all
shares of any other corporation or corporations, foreign or domestic,
standing in the name of the corporation. The authority granted to these
officers to vote or represent on behalf of the corporation any and all shares
held by the corporation in any other corporation or corporations may be
exercised by any of these officers in person or by any person authorized to
do so by a proxy duly executed by these officers.
Section 8.7. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction and definitions of the
California General Corporation Law shall govern the construction of these
Bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, the masculine
gender includes the feminine and neuter, and the term "person" includes both a
corporation and a natural person.
ARTICLE IX: AMENDMENTS
Section 9.1. AMENDMENT BY SHAREHOLDERS. New Bylaws may be adopted or
these Bylaws may be amended or repealed by the vote or written consent of
holders of a majority of the outstanding shares entitled to vote; provided,
however, that if the Articles of Incorporation of the corporation set forth
the number of authorized directors of the corporation, the authorized number
of directors may be changed only by an amendment of the Articles of
Incorporation.
Section 9.2. AMENDMENT BY DIRECTORS. Subject to the rights of the
shareholders as provided in Section 9.1 of this Article IX, Bylaws, other
than a Bylaw or an amendment of a Bylaw changing the authorized number of
directors, may be adopted, amended or repealed by the Board of Directors.
_______________________________
Robert S. Manns, Director
17
<PAGE>
PRELIMINARY PROSPECTUS SUPPLEMENT (To Preliminary Prospectus dated ,1998)
$____________________
CRSM MORTGAGE SECURITIES TRUST NO.
COLLATERALIZED MORTGAGE OBLIGATION BONDS
SERIES NO.
CRSM Mortgage Securities Trust No. __ (the "Issuer"), of which CRSM
Securities, Inc., a California Corporation, ("CRSM") is the beneficial owner
and depositor (the "Depositor"), is offering hereby $________________ in
aggregate principal amount of its Collateralized Mortgage Obligation Bonds,
Series (the "Bonds") consisting of the Class A Bonds (the "Class A Bonds" or
the "Book Entry Bonds") and the Class R Bonds (the "Residual Interest Bonds"
or the "Class R Bonds").
The Bonds will bear interest at the rates set forth below for each such
Class. The Class R Bonds may receive certain additional amounts as described
herein. Principal and interest on the Class A Bonds will be payable on the first
business day of each month commencing _______________ 1, 199_ (each such first
business day, a "Payment Date"): Each interest payment with respect to the Class
A Bonds will consist of interest accrued for the second month (on a 30 day
basis) preceding the month in which the Payment Date occurs. Payments of
principal and interest on the Class R Bonds will be made on each Payment Date
only if both the Class A Bonds are not subject to an Event of Default (as
defined herein) and the Mortgage Delinquency Ratio (as defined herein) on the
particular Payment Date is not greater than __ % of the Mortgage Delinquency
Ratio as of the Cut-off Date (as defined herein). Principal payments will be
made on the Bonds on each Payment Date out of the proceeds of the Collateral (as
defined herein) consisting primarily of the Mortgage Collateral (as defined
herein) and other collateral securing the Bonds. Such principal payments will
be subject to certain priorities with respect to the amounts and order of
principal payments as described herein. Principal payments on the Class A Bonds
will begin no later than _________ _, 199_ and will be made on a PRO RATA basis
among the Class A Bonds.
The rate of repayment of the Bonds will vary to the extent that there are
prepayments on the Mortgage Collateral. The Bonds will be subject to redemption
under the circumstances described herein.
There is currently no secondary market for the Bonds and there can be no
assurance that such a market will develop.
THE YIELD ON THE CLASS R BONDS WILL BE HIGHLY SENSITIVE TO THE RATE OF
PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) ON THE MORTGAGE COLLATERAL, WHICH
PRINCIPAL PAYMENTS MAY FLUCTUATE SIGNIFICANTLY FROM TIME TO TIME. NO
REPRESENTATION IS MADE AS TO THE ANTICIPATED RATE OF PRINCIPAL PAYMENTS ON SUCH
MORTGAGE COLLATERAL OR AS TO THE ANTICIPATED YIELD TO MATURITY OF THE RESIDUAL
INTEREST BONDS. PURCHASERS OF THE RESIDUAL INTEREST BONDS SHOULD FULLY CONSIDER
THE RISKS ASSOCIATED WITH THE VARYING PRINCIPAL PREPAYMENTS INCLUDING THE RISK
THAT A RAPID RATE OF PRINCIPAL PAYMENTS ON THE RESIDUAL INTEREST BONDS MAY
RESULT IN THE FAILURE OF INVESTORS IN THE RESIDUAL INTEREST BONDS TO RECOVER
FULLY THEIR INITIAL INVESTMENT. SEE "YIELD CONSIDERATIONS" IN THIS PROSPECTUS
SUPPLEMENT. THE RESIDUAL INTEREST BONDS WILL BE SUBJECT TO CERTAIN RESTRICTIONS
ON TRANSFER. SEE "REMIC RESTRICTIONS ON PURCHASE AND TRANSFER OF REMIC RESIDUAL
BONDS" IN THE PROSPECTUS.
The Issuer may cause an election to be made to treat as a "real estate
mortgage investment conduit" ("REMIC") for federal income tax purposes the
arrangement by which the Mortgage Collateral (as defined herein) will be held.
The Class A Bonds will be "regular interests" in the REMIC, and the Residual
Interest Bonds will be the "residual interest" in the REMIC. See "Certain
Federal Income Tax Consequences" in this Prospectus Supplement and "Federal
Income Tax Consequences to Bondholders" in the Prospectus.
THE BONDS WILL NOT BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL ENTITY, THE
ISSUER OR ANY OTHER PERSON OR ENTITY. IT IS INTENDED THAT THE BONDS BE PAYABLE
SOLELY FROM THE COLLATERAL PLEDGED TO SECURE THE BONDS. THERE WILL BE NO
RECOURSE TO THE ISSUER OR ANY OTHER PERSON FOR ANY DEFAULT ON THE BONDS. SEE
"SPECIAL CONSIDERATIONS" IN THE PROSPECTUS. THESE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE>
ORIGINAL INTEREST STATED PRICE TO
PRINCIPAL AMOUNT RATE MATURITY(1) PUBLIC(2)
--------- ----------- --------- ------------ ---------
[TO BE COMPLETED]
(1) Based upon the assumptions stated herein. See "Maturity and Prepayment
Considerations" in this Prospectus Supplement.
(2) The underwriting discount aggregates $ or % of the aggregate
principal amount of the Class A Bonds. The aggregate proceeds to the
Issuer from the sale of the Class A Bonds offered hereby will be $
before the deduction of expenses payable by the Issuer estimated to be
$ .
(3) The Class R Bonds will be entitled to the receipt of interest at the rate
of % per annum, together with certain additional amounts, if any,
described under "Description of the Bonds - The Residual Interest Bonds" in
this Prospectus Supplement.
(4) The Class R Bonds may be offered by the Issuer from time to time to the
public directly or through an underwriter or agent in negotiated
transactions or otherwise at varying prices to be determined, in each case,
at the time of sale.
The Bonds are offered, subject to prior sale, by the Underwriter (as
defined herein) when, as and if issued by the Issuer, delivered to and accepted
by the Underwriter and subject to its right to withdraw, cancel or modify such
offer and to reject orders in whole or in part. It is expected that delivery of
the Class A Bonds, in book-entry form, will be made through the Same Day Funds
Settlement System of the Depository Trust Company ("DTC") on or about
___________ _, 199_, and delivery of the Class R Bonds, in definitive,
fully-registered and certificated form, will be made at the offices of Matthias
& Berg LLP, counsel to Depositor, on or about ________ _, 199_.
THE UNDERWRITERS FOR THIS OFFERING ARE:
The date of this Prospectus Supplement is , 1998.
2
<PAGE>
The Bonds will be secured by mortgage collateral (the "Mortgage
Collateral") consisting primarily of mortgage loans secured by mortgages and
deeds of trust on certain properties (the "Mortgage Properties") and payments
thereon. The Mortgage Properties consist of one-to four family attached or
detached homes and condominiums. Some of the Mortgage Collateral (the "VA
Loans") are partially guaranteed by the Veterans Administration ("VA"). Some of
the Mortgage Collateral (the "FHA Loans") are insured by the Federal Housing
Administration ("FHA"). The remainder of the Mortgage Collateral consists of
conventional mortgage loans. The Mortgage Collateral securing the Bonds will
not include any type of mortgage collateral other than that described above. The
VA partially guarantees only the VA loans and the FHA wholly insures the payment
of principal and interest on only the FHA loans. See "Security for the Bonds -
The Pledged Loans" in the Prospectus. The Bonds will not be insured or
guaranteed by VA, FHA or any other governmental instrumentality or any other
person or entity.
The VA Loans, FHA Loans and conventional mortgage loans (collectively the
"Pledged Loans") shall be pledged by the Issuer to secure repayment of the
Bonds. The collateral (the "Collateral") securing the Bonds shall also include
the Servicing Agreement, the Insurance Policies, the Overcollateralization Fund,
the Residual Distribution Holding Account and the Collection Account.
The Residual Interest Bonds will be subject to certain restrictions on
transfer. See "REMIC Restrictions on Purchase and Transfer of REMIC Residual
Bonds" in the Prospectus.
This Prospectus Supplement does not contain complete information about the
offering of the Bonds. Additional information is contained in the Prospectus
dated ____________, 1998, of which this Prospectus Supplement is a part and
which accompanies this Prospectus Supplement and purchasers are urged to read
both the Prospectus and this Prospectus Supplement in full. Sales of the Bonds
may not be consummated unless the purchaser has received both the Prospectus and
this Prospectus Supplement.
As a precondition to the issuance of the Bonds, the Bonds must be rated
"___" by _________________ _____________ ("_________________") and "___" by
_____________________________ ("_____"). A security rating is merely the
opinion of the rating agency, is not a recommendation to buy, sell or hold
securities and does not constitute a guarantee by such agency or the Issuer.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE BONDS (OTHER
THAN THE RESIDUAL REST BONDS) OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET; SUCH STABILIZATION, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
Until ____________ _, 199_, all dealers effecting transactions in the
Bonds, whether or not participating in this distribution, may be required to
deliver a Prospectus Supplement and Prospectus. This is in addition to the
obligation of dealers to deliver a Prospectus Supplement and Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing where in this Prospectus Supplement and in the
Prospectus. Capitalized terms utilized herein signed to such term in the
Prospectus. Where not defined herein shall have the respective meaning as
terms or provisions differ between the Prospectus and this Prospectus
Supplement, the terms of this Prospectus Supplement shall govern and control.
SECURITIES OFFERED CRSM Mortgage Securities Trust No. __
Collateralized Mortgage Obligation Bonds
(the "Bonds") will be issued in two
classes consisting of $______________, __%
Class __-A Bonds (the "Class A Bonds"
or the "Book-Entry Bonds") and $_______,
__ % Class __-R Bonds (the "Class R Bonds"
or the "Residual Interest Bonds") and are
being offered in the aggregate principal
amounts set forth herein. The Bonds will
be issued pursuant to a terms indenture to
be dated 199_ (the "Indenture") between
CRSM Mortgage Securities Trust No. __(the
"Issuer") and _______________ (the
"Trustee").
BOOK-ENTRY REGISTRATION The Class A Bonds will be issued in fully
registered book-entry form in minimum
denominations of $25,000 and integral
multiples of $1,000 thereafter and will be
represented by a single certificate
registered in the name of Cede & Co. ("Cede")
as the nominee of the depository, The
Depository Trust Company ("DTC" and, together
with any successor depository selected by the
Issuer, the "Depository"). No person
acquiring an interest in the Class A Bonds
("a beneficial owner") will be entitled to
receive a certificate representing such
interest in the Class A Bonds except in the
event that Definitive Bonds (as defined
herein) are issued under the limited
circumstances described herein. The Class R
Bonds will be issued in fully-registered
certificated form ("Definitive Bonds") and
book-entry form will not be available to the
holders of the Bonds of such Class. See
"Description of the Bonds - Book Entry
Registration" in this Prospectus Supplement.
ISSUER CRSM Mortgage Securities Trust No. __ (the
"Issuer") is a limited purpose business trust
established under the laws of the State of
Delaware pursuant to an agreement (the
"Deposit Trust Agreement") between Wilmington
Trust Company, acting as the owner-trustee
(the "Owner Trustee"), and CRSM Securities,
Inc., acting as the beneficial owner and
Depositor. The Bonds will be limited
obligations of the Issuer payable solely from
the Collateral pledged to secure the Bonds.
Neither CRSM Securities, Inc., nor any other
party will guarantee, or otherwise be
obligated to repay the Bonds. The Issuer will
not have any significant assets other than
those pledged to secure, the Bonds. See "The
Issuer" in the Prospectus.
RECORD DATE The record date for each Payment Date (the
"Record Date") will be the close of business
on the 20th day of the month immediately
preceding the month in which the applicable
Payment Date occurs (or if such 20th day is
not a business day, the business day
immediately preceding such 20th day).
4
<PAGE>
INTEREST PAYMENTS The Class A Bonds and the Residual Interest
Bonds will bear interest at the rates set
forth on the cover page hereof. The Residual
Interest Bonds may also receive certain
additional amounts as described under
"Description of the Bonds - The Residual
Interest Bonds" in this Prospectus
Supplement.
Interest on the unpaid principal amount of
the Bonds will be payable monthly on the
first business day of each month (the
"Payment Date") commencing ____________,
199_. With respect to each Payment Date,
interest will accrue from the first day
through the last day of the second month
preceding the month in which a Payment Date
occurs (an "Accrual Period") and will be
payable at one twelfth of the annual rate
specified above for the Bonds, subject to
certain limitations on the payment of
interest on the Class R Bonds as set forth
below, (The interest accrued during Accrual
Period will be calculated based upon a 30 day
Accrual Period and a 360 day year. Interest
accrued on the Class A Bonds during an
accrual period will be calculated on the
assumption that any principal payment made on
the Class A Bonds on the Payment Date
corresponding to such Accrual Period was
instead made on the final date of such
Accrual. Payment of interest on the Class A
Bonds one month after the date to which
interest accrues thereon and the calculation
of accrued interest on the Class A Bonds
based on the assumption that payments are
made one month prior to the Payment Date when
actually made, will reduce the effective
yield to the holders of the Class A Bonds
from that which would otherwise be the case
if interest payable on the Class A Bonds on a
Payment Date were to accrue to such Payment
Date and were to be calculated based on the
actual timing of the principal payments on
the Class A. Bonds. See "Description of the
Bonds-Payments of Principal and Interest" in
the Prospectus.
PRINCIPAL PAYMENTS
A. CLASS A BONDS Principal payments will be made on the Class
A Bonds as described herein on each Payment
Date, commencing ________ _, 199_, out of the
proceeds of scheduled principal and interest
payments on the Mortgage Collateral securing
the Bonds (net of applicable
Overcollateralization Cash Flow, principal
prepayments and applicable administrative
fees), plus any necessary contributions from
the Overcollateralization Fund or the
Residual Distribution Holding Account held by
the Trust as provided herein. Holders of the
Class R Bonds may receive a principal payment
on a Payment Date even if holders of the
Class A Bonds do not receive a principal
payment if (a) the balance in the
Overcollateralization Fund (as defined
herein) is zero and the future payments on
the Mortgage Collateral, including the Future
Overcollateralization Cash Flow (as defined
herein), are determined to be sufficient to
meet all required payments on the Class A
Bonds and (b) the Mortgage Delinquency Ratio
is below certain levels. On any Payment
Date, payment on the Class A Bonds shall come
first from funds available in the Collection
Account and, if necessary, from the following
funds and accounts in the following order
5
<PAGE>
of priority: The Overcollateralization
Fund, the future payments on the Mortgage
Collateral, including the Future
Overcollateralization Cash Flow and (under
certain circumstances) the Residual
Distribution Holding Account (as defined
herein). Generally, with respect to
principal and interest payments due on the
Pledged Loans, the Servicer (as defined
herein) will have the obligation to
advance funds that will be use to pay the
Class A Bonds. See "Security for the
Bonds" in this Prospectus Supplement.
B. THE RESIDUAL INTEREST BONDS On each Payment Date, after (i) depositing
the required amounts to the
Overcollateralization Fund, (ii) paying of
principal (except in certain limited
circumstances) on the Class A Bonds on such
Payment Date and interest due on the Bonds on
such Payment Date and (iii) providing for
administrative expenses, any amounts
remaining in the Collection Account plus
Reinvestment Income (as defined in the
Prospectus) on all amounts remitted to the
Collection Account will be paid PRO RATA to
the holders of the Residual Interest Bonds,
except as discussed below. In addition,
holders of the Residual Interest Bonds will
be entitled to receive, on a PRO RATA basis
among all such holders, the remaining assets
in the REMIC, if any, after redemption or
payment in full of the Class A Bonds. These
amounts will be payable to the holders of the
Residual Interest Bonds even after the
principal balance of the Residual Interest
Bonds has been reduced to zero.
Payments of principal and interest on the
Class R Bonds will be made on each Payment
Date only if, on each such Payment Date,
there exists no Event of Default (as defined
herein) as to the Class A Bonds and the
Mortgage Delinquency Ratio (as defined
herein), on such Payment Date is not greater
than _ % of the Mortgage Delinquency Ratio as
of _________, 199_ (the "Cut-off Date"). The
Mortgage Delinquency Ratio is a fraction
expressed as a percentage the numerator of
which is the principal balance of the
delinquent Pledged Loans and the denominator
of which is the outstanding principal balance
of the Mortgage Collateral. For purposes of
the calculation of the Mortgage Delinquency
Ratio, a Pledged Loan is considered
delinquent in the amount of its outstanding
principal balance when the payment of
principal and interest due in the any month
preceding the month the related Payment Date
occurs is not paid by the mortgagor by the
subsequent scheduled due date. If an Event
of Default exists as to the Class A Bonds or
the Mortgage, Delinquency Ratio exceeds % of
the Mortgage Delinquency Ratio as of the Cut-
off Date, any funds due to the Class R Bonds
will be held in the Residual Distribution
Holding Account (as defined herein). See
"Security for the Bonds - Residual
Distribution Holding Account" in this
Prospectus Supplement.
Transfers of the Residual Interest Bonds are
subject to certain restrictions. See
"Description of the Bonds - The Residual
Interest Bonds" in this Prospectus Supplement
and "REMIC Restrictions on Purchase and
Transfer of REMIC Residual Bonds" in the
Prospectus.
6
<PAGE>
STATED MATURITY The stated maturity ("Stated Maturity") of
the Bonds is ________ 1, ____.
SECURITY FOR THE BONDS Each class of Bonds will be equally and
ratably secured by collateral (the
"Collateral") as between the Bonds of such
Class. The Collateral owned by the Issuer
consists of the following:
A. MORTGAGE COLLATERAL The Bonds will be secured by Mortgage
Collateral consisting of the Pledged Loans
and the Mortgage Properties securing such
Pledged Loans as described herein and in the
Prospectus. The Mortgage Collateral is being
purchased under the terms of the Mortgage
Collateral Purchase Agreement (as defined
herein). See "Security for the Bonds" in the
Prospectus and this Prospectus Supplement.
B. SERVICING AGREEMENT The Issuer will assign to the Trustee its
rights under the Servicing Agreement with
respect to the Bonds. See "Servicing of the
Pledged Loans" in the Prospectus and
"Security for the Bonds - Servicing
Agreement" in this Prospectus Supplement.
C. COLLECTION ACCOUNT All distributions remitted to the Trustee on
the Mortgage Collateral pledged as security
for the Bonds and any amounts required to be
withdrawn from the Overcollateralization Fund
or the Residual Distribution Holding Account
will be deposited by the Trustee into the
Collection Account for the Bonds and a
portion thereof, together with Reinvestment
Income thereon at the applicable Assumed
Reinvestment Rate, will be applied to the
payment of principal of and interest on the
appropriate Bonds or otherwise applied as
discussed herein. The Assumed Reinvestment
Rate for the Collection Account is ____% for
the first year, _% for the second year and _%
thereafter. See "Security for the Bonds -
Collection Account" in the Prospectus and
this Prospectus Supplement.
D. OVERCOLLATERALIZATION FUND The Mortgage Collateral securing the Bonds
had an unamortized principal balance as of
the Cutoff Date of $_______ and had an
aggregate Collateral Value (as defined
herein) which exceeded the original principal
amount of the Bonds by __ %. The Collateral
Value as such term is utilized herein is the
lesser of (i) the net present value of all
scheduled payments to be received under the
Pledged Loans discounted at a rate equal to
the interest rate payable on the Class A
Bonds plus the percentage of such payments
due Trust service providers, or (ii) the
outstanding principal balance of the Pledged
Loans. The aggregate initial Collateral Value
of the conventional mortgage loan portion of
the Pledged Loans will exceed the portion of
the original principal amount of the Bonds
secured thereby by _%. The aggregate initial
Collateral Value of the FHA and VA Loan
portions of the Pledged Loans will exceed the
portion of the original principal amount of
the Bonds secured thereby by ___%. The
Overcollateralization Cash Flow on any
Payment Date will be equal to the applicable
Overcollateralization percentage set forth
above for each type of Pledged Loan
multiplied by the change in Collateral Value
7
<PAGE>
between the prior Accrual Period and the
Accrual Period relating to such Payment Date
for such type of Pledged Loan. The
Overcollateralization Fund shall be
maintained by the Trustee, and amounts
therein shall be used by the Trustee as
provided in the paragraph below. See
"Security for the Bonds -
Overcollateralization Fund" in this
Prospectus Supplement.
On each Payment Date the Trustee shall
deposit to the Overcollateralization Fund the
Overcollateralization Cash Flow. Such amount
will be held by the Trustee and applied to
the payment of the Bond principal and
interest requirements to prevent an Event of
Default on the Bonds. The Trustee to the
extent Overcollateralization Cash Flow is
available, shall promptly reimburse such
Overcollateralization Fund for all amounts so
applied for Bond payments. Funds held in the
Overcollateralization Fund will be invested
in Eligible Investments as fully as possible
and the earnings on such amounts will be
deposit as received to the Collection
Account.
E. RESIDUAL DISTRIBUTION
HOLDING ACCOUNT On any Payment Date, if an Event of
Default exists as to the Class A Bonds or
the Mortgage Delinquency Ratio exceeds _%
of the Mortgage Delinquency Ratio as of
the Cut-off Date, any amounts that would
otherwise be paid to the Class R
Bondholders will be retained by the
Trustee until the earlier of any Payment
Date on which (i) such amounts are needed
by the Trustee, after application of the
Overcollateralization Fund and the
determination that the future payments on
the Mortgage. Collateral including the
future payments attributable to the
Overcollateralization Cash Flow ("Future
Overcollateralization Cash Flow") will be
insufficient to satisfy the obligations to
the Class A Bonds, in which event the
funds in the Residual Distribution Holding
Account shall be distributed to satisfy
the obligations to the holders of the
Class A Bonds; (ii) the amounts are
needed, after application of the
Overcollateralization Fund and the
determination that the future payments on
the Mortgage Collateral, including the
Future Overcollateralization Cash Flow
will be insufficient to reimburse the
Servicer, Trustee or other service
providers with respect to advances and
fees incurred on behalf of the Trust, in
which event the funds in the Residual
Distribution Holding Account shall be
distributed to satisfy the obligations to
such service providers; or (iii) the
Mortgage Delinquency Ratio falls below __%
of the Mortgage Delinquency Ratio as of
the Cut-off Date and no Event of Default
exists as to the Class A Bonds, in which
event the full amount held in the Residual
Distribution Holding Account, plus any
earnings thereon will be distributed to
the holders of the Class R Bonds. All
amounts held in this account will be
invested in Eligible Investments as fully
as possible.
F. INSURANCE POLICIES The Issuer will assign to the Bond Trustee
payments due under the Insurance Policies
including the Primary Mortgage Insurance
Policies and the Standard Hazard Insurance
Policies. The Insurance Policies will not
cover all types of risks, and will not
cover losses described in the Prospectus
resulting from Special Hazards, fraud, or
certain bankruptcy losses. In the event
that payments on the Bonds are
8
<PAGE>
dependent on Pledged Loan payments which
become unavailable to the Bond Trustee due
to an uninsured loss, funds may not be
available from other Mortgage Collateral
to make up any such shortfall. However,
the Overcollateralization Amount,
Overcollateralization Cash Flow and the
Overcollateralization Fund are designed to
cover the levels of uninsured loan losses
assumed in calculating the Initial Bond
Values of the Pledged Loans securing the
Bonds and establishing the initial ratings
of the Bonds by _____ and ____________.
See "Security for the Bonds - Insurance
Policies" in the Prospectus Supplement.
USE OF PROCEEDS The net proceeds from the sale of the
Bonds will be used by the Issuer to
purchase the Mortgage Collateral which
will secure the Bonds and to pay expenses
in connection with the issuance of the
Bonds. The Mortgage Collateral is being
purchased from ____________ pursuant to an
agreement dated _________, 199_ (the
"Mortgage Collateral Purchase Agreement").
See "Security for the Bonds - Mortgage
Collateral" and "Use of Proceeds" in this
Prospectus Supplement and the Prospectus.
TAX STATUS OF THE BONDS The Class A Bonds will be debt obligations
under the Internal Revenue Code of 1986,
as amended (the "Code"), and interest paid
or accrued, including any original issue
discount, will be taxable to non-exempt
Bondholders. Although the Issuer expects
that none of the Bonds will be issued with
original issue discount, the law in this
area is not clear and the Internal Revenue
Service may take the position that the
Bonds were issued with original issue
discount. The Issuer will cause an
election to be made to treat as a "real
estate mortgage investment conduit"
("REMIC") for federal income tax purposes
the arrangement by which the Collateral
securing the Bonds will be held. The Class
A Bonds will be "regular interests" in
such REMIC, and the Residual Interest
Bonds will be the "residual interest" in
such REMIC, assuming compliance with
certain requirements described herein.
Class A Bonds owned by a mutual savings
bank or a domestic building and loan
association generally will represent
interests in "qualifying real property
loans" within the meaning of section
593(d) of the Code, and Class A Bonds
owned by a domestic building and loan
association generally will constitute
"regular ... interest[s] in a REMIC"
within the meaning of section
7701(a)(19)(C)(xi) of the Code. Class A
Bonds owned by a real estate investment
trust generally will constitute "real
estate assets" within the meaning of
section 856(c)(5)(A) of the Code and
interest on the Class A Bonds will be
considered "interest on obligations
secured by mortgages on real property or
on interests in real property" within the
meaning of section 856(c)(3)(B) of the
Code. Class A Bonds held by a regulated
investment company will not constitute
"Government securities" within the meaning
of section 851(b)(4)(A)(i) of the Code.
Bonds held by certain financial
institutions will constitute "evidence of
indebtedness" within the meaning of
section 582(c)(1) of the Code. See
"Certain Federal Income Tax Consequences"
in this Prospectus Supplement and
"Federal Income Tax Consequences to
Bondholders" in the Prospectus.
9
<PAGE>
The Residual Interest Bonds will be
designated as the sole class of "residual
interest" in the REMIC. The Residual Interest
Bonds will be treated in the same manner as
the Class A Bonds for the various
qualification purposes referred to above, but
generally will not be treated as debt
instruments for federal income tax purposes.
Instead, the Residual Interest Bonds will be
considered as representing rights to the net
income or loss of the REMIC, and holders of
the Residual Interest Bonds generally will be
taxed on their PRO RATA share of such income
or loss. The taxable income of Residual
Interest Bondholders attributable to the
Residual Interest Bonds in a taxable year may
exceed the principal, interest and any
additional payments received by such
Bondholders during that taxable year,
possibly resulting in a negligible (or even
negative) after-tax return in certain
circumstances. The REMIC may generate income
a portion of which (the "excess inclusion")
will be taxable to tax-exempt Residual
Interest Bondholders as unrelated business
taxable income. Moreover, Residual Interest
Bondholders other than mutual savings banks
and domestic building and loan associations
will be unable to use any net operating
losses to shelter the excess inclusion
portion, if any, of the income derived from
the REMIC. Individuals who hold, directly or
indirectly, Residual Interest Bonds may be
subject to limitations on the deductibility
of servicing fees on the Collateral and of
other administrative expenses of the REMIC.
Such a limitation would result in an increase
in the taxable income of those individuals.
See "Certain Federal Income Tax Consequences"
in this Prospectus Supplement and "Federal
Income Tax Consequences to Bondholders" in
the Prospectus.
REMIC RESTRICTIONS ON PURCHASE
AND TRANSFER OF RESIDUAL
INTEREST BONDS The Residual Interest Bonds may not be
transferred to, or held by, a Disqualified
Organization, and may only be held
or transferred to institutional investors
or non-institutional investors who are
"accredited investors" as defined in Rule
501(a) of the Securities Act of 1933 and
who meet certain other criteria. See
"REMIC Restrictions on Purchase and
Transfer of REMIC Residual Bonds" in the
Prospectus.
ERISA Certain investors in the Bonds may be subject
to the requirements of the Employee
Retirement Income Security Act of 1974. See
"ERISA" in this Prospectus Supplement and
"ERISA Considerations" in the Prospectus.
LEGAL INVESTMENT The Class A Bonds will constitute "mortgage
related securities" under the Secondary
Mortgage Act of 1984 ("SMMEA") for so long as
they are rated in one of the two highest
rating categories by one or more nationally
recognized statistical rating agencies, and,
as such, will be "legal investments" for
certain types of institutional investors to
the extent provided in such Act, subject to
state laws overriding SMMEA. The Class R
Bonds will not constitute mortgage related
securities for the purposes of SMMEA. See
"Legal Investment" in the Prospectus.
10
<PAGE>
REDEMPTION OF THE BONDS The Issuer may redeem the Class A Bonds, in
whole but not in part, on a PRO RATA basis on
the earlier of (i) any Payment Date on or
after ______ 1, ____; (ii) any Payment Date
after the aggregate unpaid principal amount
of the then outstanding Class A Bonds is less
than 15% of the original aggregate principal
amount of the Bonds; or (iii) any Payment
Date on which the balance of the
Overcollateralization Fund exceeds the
principal balance of the then outstanding
Class A Bonds,, in all such cases at a
redemption price equal to 100% of the unpaid
principal balance of the Bonds so redeemed
plus accrued and unpaid interest thereon
through the close of business on the day
prior to the date of such redemption. See
"Description of the Bonds - Redemption" in
this Prospectus Supplement and the
Prospectus.
RATING It is a condition of issuance of the Bonds
that the Class A Bonds be rated " " by
_____ and "___" by________. The Issuer, at
its cost, may request a re-rating of the
Bonds with respect to the
Overcollateralization Amount required. The
Issuer may reduce and release such amounts
from Overcollateralization Amount as would
not result in a downgrading of the Bonds.
TRUSTEE The Collateral for the Bonds will be held by
the Trustee, The _______ Bank, which will be
responsible for certain functions to be
performed in conjunction with the payment of
principal and interest, the protection of
Bondholders and preservation of the Trust
Estate.
RIGHT OF SUBSTITUTION Within 90 days of the issuance, the Issuer
may request that the Trustee release up to
10% of the Mortgage Collateral by providing
the Trustee with one of the following:
A. Delivery to the Trustee of the pledge of a
substitute mortgage loan ("Substitute
Mortgage Collateral") with a scheduled cash
flow equal to the scheduled cash flow of the
Mortgage Collateral being released at the
time of such release but in no event may such
Substitute Mortgage Collateral have a cash
flow less than the anticipated allocated
portion of the initial cash flow required for
the entire Mortgage Collateral at the Closing
Date. Some of the Substitute Mortgage
Collateral may include new mortgages for
either a greater or smaller amount than
provided for in the original Series, provided
the maximum amount is determined in the same
manner as is done for the original Mortgage
Collateral and any shortfall is provided in
immediately available monies to the Trustee;
B. Delivery to the Trustee of Eligible
Investments, which may include U.S. Treasury
or agency securities, that have a maturity
equal to that of the Bonds and a scheduled
cash flow sufficient to meet the allocated
portion of cash flow on the Bonds applicable
to the property being released; or
C. Any combination of A or B above provided that
such combination does not result in the
downgrading of the rating of the Bonds.
11
<PAGE>
INTRODUCTION
CRSM Mortgage Securities Trust No. __ (the "Issuer") is a trust
established under the laws of the State of Delaware pursuant to an amended
and restated agreement dated as of 1, 199_ (the "Deposit Trust Agreement")
between CRSM Securities, Inc., a California Corporation, acting as beneficial
owner and Depositor, and Wilmington Trust Company, acting as owner-trustee
(the "Owner-Trustee"). The Issuer is offering hereby its Collateralized
Mortgage Obligation Bonds, Series No. __ consisting of Class A Bonds with a
face amount of $___________ and bearing an interest rate of __% and Class R
Bonds with a face amount of $ and bearing an interest rate of _____ %.
The Bonds will be limited obligations of the Issuer payable solely from the
Collateral as described herein pledged to secure the Bonds. The Issuer will not
have any significant assets other than those pledged to secure the Bonds. See
"The Issuer" in the Prospectus.
The Bonds will be issued pursuant to a Terms Indenture (the "Terms
Indenture") dated as of ________, 199_, which incorporates by reference the
standard indenture provisions dated as of 1, 199_ (the "Indenture"), between
the Issuer and The Bank, as trustee (the "Trustee"). The Terms Indenture and
the Indenture are together referred to herein as the "Indenture."
DESCRIPTION OF THE BONDS
The Bonds will be secured by the Mortgage Collateral, the Servicing
Agreement, the Overcollateralization Fund, the Residual Distribution Holding
Account, the Insurance Policies and the Collection Account. See "Security For
the Bonds" in this Prospectus Supplement. The following summaries describe
certain provisions of the Bonds. 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 Indenture, the Terms Indenture, and the Prospectus. Reference
is made to the form of Indenture filed as an exhibit to the Registration
Statement of which the Prospectus forms a part for a more detailed statement of
the particular provisions and terms used in the form of Indenture and referred
to herein. In certain instances, the provision of this Prospectus Supplement
may differ from corresponding provisions in the Prospectus, in which event the
provisions of the Prospectus Supplement shall take precedence and shall govern
and control.
There is at present no secondary market for the Bonds and, although the
Underwriters have indicated their intention to make a secondary market for the
Class A Bonds, there can be no assurance that one will develop.
BOOK-ENTRY REGISTRATION
The Class A Bonds initially will be issued in [book-entry form], [fully
registered form], in minimum denominations of $___________ and integral
multiples of $__________ in excess thereof, and will be [represented by a single
certificate] registered in the name of the nominee of the depository, the
Depository Trust Company ("DTC" and, together with any successor depository
selected by the Issuer, the "Depository"). The Issuer has been informed by DTC
that its nominee will be _____________. Accordingly, ____________ is expected
to be the holder of record of the Class A Bonds.
The Class R Bonds will be issued in fully registered certificated form
("Definitive Bonds") in minimum denominations of $100 and integral multiples
thereof. Holders of the Class R Bonds will be recognized by the Trustee as
Holders under the Indenture.
12
<PAGE>
No person acquiring a Class A Bond (a "beneficial owner") will be entitled
to receive a certificate representing such Book-Entry Bond, except in the
limited circumstances described in the next paragraph. A beneficial owner's
ownership of a Book-Entry Bond will be recorded on the records of the brokerage
firm that maintains such owner's account for such purpose. In turn, the
brokerage firm's record ownership of such a Book-Entry Bond will be recorded on
the records of the Depository (or of a DTC participating firm that acts as agent
for the brokerage firm if a beneficial owner's brokerage firm is not a DTC
participant). Therefore, a beneficial owner of a Book-Entry Bond must rely upon
the foregoing procedures to evidence such owner's beneficial ownership of such
Book-Entry Bond. Beneficial ownership of a Book Entry Bond may only be
transferred by compliance with the procedures of such brokerage firms and DTC
participants.
The Book-Entry Bonds will be issued in fully registered, certificated form
("Definitive Bonds") to beneficial owners, rather than to________, only if (i)
_________ or the Issuer advises the Trustee that it is no longer willing or able
to properly discharge its responsibilities, and the Issuer and the Trustee are
unable to locate a qualified successor, (ii) the Issuer, with the consent of the
Trustee, elects to terminate the book-entry system by notice to DTC, or (iii)
after the occurrence of an Event of Default (as defined in the Prospectus),
holders of a majority of the aggregate outstanding principal amount of the Book-
Entry Bonds advise the Trustee in writing, through DTC participants and DTC,
that the continuation of a book-entry system is no longer in the best interests
of the holders of the Book-Entry Bonds.
Unless and until Definitive Class A Bonds are issued, it is anticipated
that the only "Bondholder" of the Book-Entry Bonds, as that term is used in the
Indenture, will be Cede, as nominee of DTC. Beneficial owners will not be
Bondholders and beneficial owners will be permitted to exercise the rights of
Bondholders only indirectly through DTC and DTC participants. DTC has advised
the Issuer that it will take any action permitted to be taken with respect to
Book-Entry Bonds by a Bondholder under the Indenture only at the direction of
one or more DTC participants to whose account the DTC Book-Entry Bonds are
credited. Additionally, DTC has advised the Issuer that it will take such
actions with respect to a principal amount of Book-Entry Bonds only at the
direction of and on behalf of DTC participants whose holdings include that
principal amount of Book-Entry Bonds. DTC may take conflicting actions with
respect to other principal amounts of Book-Entry Bonds, to the extent that such
actions are taken on behalf of DTC participants whose holdings include those
principal amounts of Book-Entry Bonds.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations ("DTC participants") and facilitate the
clearance and settlement of securities transactions through electronic book-
entry changes in accounts of DTC participants, thereby eliminating the need for
physical movement of certificates. DTC participants include securities brokers
and dealers (including the Underwriter), banks, trust companies and clearing
corporations and may include certain other organizations. Indirect access to
the DTC system also is available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
DTC participant, either directly or indirectly. In accordance with its normal
procedures, DTC is expected to record separately the positions held by each DTC
participant in the Book-Entry Bonds, whether held for its own account or as a
nominee for another person.
Each payment of interest on the principal of the Book-Entry Bonds will be
paid to the Depository, whose nominee will be the registered holder of the Book-
Entry Bonds. The Depository will be responsible for crediting the amount of such
payments to the accounts of the applicable DTC participants in accordance with
the Depository's normal procedures, which currently provide for payments in
next-day funds settled through the New York Clearing House. Each DTC
participant will be responsible for disbursing such payments to the beneficial
owners of the Book-Entry Bonds that it represents. Consequently, beneficial
owners of Book-Entry Bonds may experience some delay in their receipt of
payments.
PAYMENTS OF INTEREST
Each Class of Bonds will bear interest at the applicable rate set forth
herein for each such Class of Bonds (the "Bond Interest Rate") on the unpaid
principal amount of each such Class of Bonds as of the close of business on the
__ day of the
13
<PAGE>
__ month immediately preceding the month in which the applicable Payment Date
occurs. Interest on the Class A Bonds will be payable on the first
business day of each month commencing_____________ 1, 199_ (each, a "Payment
Date"). Provided the Class A Bonds are not in default and certain other
circumstances are met, the Residual Interest Bonds win be paid interest and may
receive certain additional amounts as described under "Description of the Bonds
The Residual Interest Bonds" in this Prospectus Supplement. The first payment
of interest win represent 30 days of interest with respect to the Bonds.
Interest will be computed on the basis of a 360 day year consisting of 12 months
of 30 days each. (Indenture, Section 3.07.) Interest payments on the Class A
Bonds and the Residual Interest Bonds on any Payment Date will consist of
interest accrued at the Bond Interest Rate for each such Class of Bonds through
the last day of the second month immediately preceding the month in which the
applicable Payment Date occurs.
Interest accrued on the Class A Bonds during an Accrual Period win be
calculated on the assumption that any principal payment made on the Class A
Bonds on the Payment Date corresponding to such Accrual Period was instead made
on the final date of such Accrual Period. The payment of interest on the Class
A Bonds one month after the date to which interest accrues thereon, and the
calculation of accrued interest on the Class A Bonds based on the assumption
that principal payments are made one month prior to the Payment Date when
actually made, will reduce the effective yield to the holders of the Class A
Bonds from that which would otherwise be the case if interest payable on the
Class A Bonds on a Payment Date were to accrue to such Payment Date and were to
be calculated based on the actual timing of the principal payments on the Class
A Bonds. See "Description of the Bonds - Payments of Principal and Interest"
in the Prospectus.
PAYMENTS OF PRINCIPAL
On each Payment Date, commencing ____________ 1, 199_ , there will be paid
to the holders of the Bonds principal in an amount equal to the Required
Principal Payment as described in the Prospectus. Unless otherwise specified
herein, no portion of the Excess Cash (as defined in the Prospectus) nor any
Reinvestment Income (as defined in the Prospectus) will be used to pay principal
on the Bonds. On any Payment Date, the principal due on the Class A Bonds will
be an amount equal to the lesser of the Required Principal Payment or the Class
A Bonds Principal Payment (as defined herein).
The principal payment for Class A Bonds on any Payment Date (the "Class A
Bonds Principal Payment") will be an amount equal to the lesser of (A) the
amount of funds available in the Collection Account (including any amounts
available in the Overcollateralization Fund and under certain circumstances, the
Residual Distribution Holding Account) for payment on the Class A Bonds less
applicable administrative expenses and interest payments due on the Bonds for
such Payment Date, or (B) the outstanding principal balance of the Class A Bonds
on such Payment Date prior to the application of any principal payments on such
Payment Date. The failure to pay any Required Principal Payment on any Payment
Date is not an Event of Default on the Class A Bonds unless aggregate Collateral
Value is less than the unpaid principal balance of the Class A Bonds.
Payment on the Class A Bonds shall come first from funds available in the
Collection Account, then from the Overcollateralization Fund, then from the
Future Overcollateralization Cash Flow, and then (under certain circumstances)
from the Residual Distribution Holding Account. Generally, with respect to
payments of principal and interest due on the Pledged Loans, the Servicer will
have the obligation to advance funds that will be used to pay the Class A
Bonds. See "Security for the Bonds" in this Prospectus Supplement. Holders of
the Class R Bonds may receive current principal payment on a Payment Date when
holders of the Class A Bonds may not receive current principal payments if (a)
the balance in the Overcollateralization Fund is zero and the future payments on
the Mortgage Collateral, including the Future Overcollateralization Cash Flow,
are determined to be sufficient to meet all required payments on the Class A
Bonds and (b) the Mortgage Delinquency Ratio on such Payment Date is not greater
than __% of the Mortgage Delinquency Ratio as of the Cut-off Date. Future
payments on the Mortgage Collateral will be sufficient to meet all. required
payments on the Class A Bonds so long as the aggregate Collateral Value equals
or exceeds. the unpaid principal balance of the Class A Bonds. Payment on the
Class A Bonds shall come first from funds available in the Collection Account
and, if funds and accounts in the following order of priority: The
Overcollateralization Fund, the Future Overcollateralization Cash Flow and
(under certain circumstances) the Residual Distribution Holding Account.
14
<PAGE>
Payments allocated to the payment of a Class of Bonds will be paid to the
holders of the Bonds of such Class PRO RATA in the proportion that the
outstanding principal balance of each Bond of such Class bears to the aggregate
outstanding principal balance of all Bonds of such Class.
THE RESIDUAL INTEREST BONDS
On each Payment Date, after (i) the payment of interest due on the Bonds on
such Payment Date, the payment of the Class A Bonds Principal Payment (as
described above), (ii) required deposits to the Overcollateralization Fund and
(iii) the provision for administrative expenses; any amounts remaining in the
Collection Account plus Reinvestment Income on all amounts remitted to the
Collection Account will be paid PRO RATA to the holders of the Residual Interest
Bonds, except in instances where the Residual Distribution Holding Account is in
effect. See "Security for the Bonds - Residual Distribution Holding Account."
The failure to currently pay principal payments due to the Class R Bonds is not
an Event of Default. In addition, holders of the Residual Interest Bonds will
be entitled to receive, on a PRO RATA basis among all such holders, the
remaining assets in the REMIC, if any, after redemption or payment in full of
the Class A Bonds. These amounts will be payable to the holders of the Residual
Interest Bonds even after the principal balance of the Residual Interest Bonds
has been reduced to zero.
Payments of principal and interest on the Class R Bonds will be made on
each Payment Date only if, on each such Payment Date, there exists no Event of
Default to the Class A Bonds and the Mortgage Delinquency Ratio, on such Payment
Date is not greater than __% of the Mortgage Delinquency Ratio as of the Cut-off
Date. The Mortgage Delinquency Ratio is a fraction, expressed as a percentage,
the numerator of which is the principal balance of the delinquent Pledged Loans
and the denominator of which is the outstanding principal balance of the
Mortgage Collateral. For purposes of the calculation of the Mortgage
Delinquency Ratio, a Pledged Loan is considered delinquent in the amount of its
outstanding principal balance when the payment of principal and interest due in
the any month preceding the month the related payment date occurs is not paid by
the mortgagor by the current scheduled due date. If an Event of Default exists
as to the Class A Bonds or the Mortgage Delinquency Ratio exceeds __% of the
Mortgage Delinquency Ratio as of the Cut-off Date, any funds due to the Class R
Bonds will be held in the Residual Distribution Holding Account (as defined
herein). See "Security for the Bonds - Residual Distribution Holding Account"
in this Prospectus Supplement.
As a condition to becoming the registered owner of a Residual Interest
Bond, each proposed transferee will be required to deliver an affidavit to the
Issuer to the effect that it (i) is not a "Disqualified Organization" as
described under "REMIC Restrictions on Purchase and Transfer of REMIC Residual
Bonds" in the Prospectus and (ii) is an "accredited investor" as defined in Rule
501(a) of the Securities Act of 1933 and also meets certain other criteria.
15
<PAGE>
OTHER RESTRICTIONS
The Indenture will provide that the Class R Bonds may only be purchased by
or transferred to (i) institutional investors or (ii) non-institutional
investors which are "accredited investors" as defined in Rule 501(a) of the
Securities Act of 1933, as amended, have a net worth at the time of purchase in
excess of $1,000,000 (exclusive of their primary residence), and have direct
personal and significant experience in making investments in mortgage related
securities. All investors in Class R Bonds must have such knowledge and
experience in financial and business matters, specifically in the field of
mortgage related securities, as to be able to evaluate the risks of purchasing
Class R Bonds and understand the volatility of interest rate fluctuations as
they affect the value of mortgages, mortgage related securities and residual
interests therein (including the Class R Bonds). Investment companies
registered under the Investment Company Act of 1940 (the "1940 Act") which
propose to purchase Class R Bonds must be satisfied that such purchase complies
with Section 12(d)(1) of the 1940 Act. The Indenture will provide that, unless
otherwise consented to in. writing, no purchase or transfer of a Class R Bond
may be made unless the purchaser or transfer represents to the Trustee (which
representation will be included in the affidavit described above) that it meets.
the requirements set forth in this paragraph.
RECORD DATE
The record date for the payment of principal and interest will be the
close of business on the ______day of the month immediately preceding the
month in which the applicable Payment Date occurs (or if such _______ day is
not a business day, the business day immediately preceding such _________
day).
REDEMPTION
The Issuer may redeem the Class A Bonds (but solely upon the request of the
holders of a majority of the outstanding principal balance of the Residual
Interest Bonds), in whole, but not in part, on the earlier of: (i) Any Payment
Date on or after _________ 1, _____ ; (ii) Any Payment Date after the aggregate
principal amount of the then outstanding Class A Bonds is less than 15% of the
original aggregate principal amount of the Class A Bonds; (iii) Any Payment Date
on which the balance in the Overcollateralization Fund exceeds the outstanding
principal balance of the Class A Bonds. Such redemption in all such cases shall
be at a redemption price equal to 100% of the unpaid principal amount of the
Class A Bonds plus accrued and unpaid interest thereon through the close of
business on the day prior to the date of such redemption. See "Description of
the Bonds - Redemption" in the Prospectus. Notice of any redemption must be
mailed by the Issuer or by the Trustee at least five days prior to the date set
for such redemption.
SECURITY FOR THE BONDS
The Collateral expected to be pledged to the Bond Trustee to secure the
Bonds will consist of (i) Mortgage Collateral and the security interests in the
Mortgage Properties securing same; (ii) the Servicing Agreement; (iii) the
Overcollateralization Fund; (iv) the Residual Distribution Holding Account; (v)
the Insurance Policies and (vi) the Collection Account. Each of these matters
will be discussed below in more detail.
THE MORTGAGE COLLATERAL
Pursuant to the Mortgage Collateral Purchase Agreement, the Seller of the
Mortgage Collateral will take such steps as are necessary to assign the
Mortgage Collateral to the Trustee. Except as discussed below, the Seller will,
as to each Pledged Loan, deliver or cause to be delivered to the Trustee the
related mortgage note endorsed to the order of the Trustee, assignments (the
"Assignments") of the mortgages or deeds of trust securing the Pledged Loans in
recordable form naming the Trustee as assignee and assigning certain other
original documents evidencing or relating to the Pledged Loans. With respect to
Pledged Loans evidenced by mortgage notes which are lost, the Seller is
tendering the Trustee an Affidavit of Lost or Destroyed Note transferring the
Sellers' interest to the Trustee plus the Assignments. The Seller will promptly
cause the Assignments to be recorded in the appropriate public offices for real
property records wherever necessary to protect Trustee's interest in the
Mortgage Collateral. Original documentation of the Mortgage Collateral shall be
held by the Trustee
16
<PAGE>
or a custodian acting on its behalf, except to the extent released to the
Servicer from time to time in connection with servicing the Pledged Loans.
The Mortgage Collateral is being acquired from the Seller by ________
pursuant to the Mortgage Collateral Purchase Agreement and will be deposited
into the Trust pursuant to the Deposit Trust Agreement. Pursuant to the terms
of the Mortgage Collateral Purchase Agreement, the Seller has made certain
representations and warranties with respect to the validity and enforceability
of the mortgage notes and the security interests in the Mortgaged Properties.
The Mortgage Collateral Purchase Agreement provides that ________ and the
Trustee shall have the right to have certain Mortgage Collateral or Pledged
Loans repurchased or replaced by the Seller in the event there is a breach of
the representations and warranties concerning any Pledged Loan or the related
Mortgage Property. In addition, certain of the mortgage notes evidencing the
Pledged Loans may have been lost or the files containing the documentation of
such Pledged Loans may otherwise be incomplete. The Mortgage Collateral
Purchase Agreement provides certain rights with respect to those Pledged Loans
for which there are missing documents. In each instance where the mortgage note
evidencing a Pledged Loan has been lost, the Seller has provided a copy of such
mortgage note or has provided other information regarding the principal balance
and interest rate and payments due thereon. In each instance, the Pledged Loans
evidenced by mortgage notes which have been lost are current in their payments
by the related mortgagor and the related mortgage note is evidenced and secured
by security instruments. There can be no assurance that the Seller, will be in
a position to replace or repurchase any of the lost mortgage notes or any of the
Mortgage Collateral with respect to which the representations and warranties
prove to be untrue. Approximately of the original mortgage notes evidencing
those approximately Pledged Loans are unavailable or lost and the aggregate
principal amount of these lost mortgage notes as of the Cut-off Date is
approximately $____________ of which all but $ _____________are FHA and VA
Loans.
The Issuer does not have available to it certain of the information with
respect to the payment terms and other characteristics of the Pledged Loans that
would customarily be available to an originator of such Pledged Loans. However,
the Seller has represented with respect to each Pledged Loan, among other
things, (i) the original and current outstanding balance, (ii) the interest
rate, (iii) the current principal and interest payment, (iv) the final payment
date, (v) the city in which the related Mortgaged Property is located, and (vi)
the original appraisal of the Mortgaged Property, if available. The data with
respect to the Pledged Loans set forth herein are based on the representations
described above and on a review of the Pledged Loan files performed by agents
of ________. Because the information from the Seller is being relied upon by
________ and the Issuer and there may be some changes in the Mortgage Collateral
ultimately delivered, there may be variations from the characteristics set forth
below.
The Mortgage Collateral consists of _______ loans secured by first
priority liens which Mortgage Collateral has an aggregate total outstanding
principal balance of $_______ as of the Cut-off Date. Conventional mortgage
loans make up $_______ of the outstanding balance of the Pledged Loans with
the remaining $_______ representing Pledged Loans guaranteed in part by the
VA or insured by the FHA as set forth on the schedule below. The outstanding
principal balances of all the Pledged Loans range from a low of $_______ to a
high of $_______. The average principal balance of the Pledged Loans is
$_______ The average principal balances by types of Pledged Loans are: (i)
FHA Loans $_______, (ii) VA Loans - $_______ and (iii) conventional mortgage
loans - $_______.
17
<PAGE>
<TABLE>
Outstanding % of Initial
Number Principal Initial Bond Bond
Type of Loan of Loans Balance Value Value
- ------------ -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Conventional
FHA
VA
</TABLE>
The Pledged Loans fall into two categories based on performance. These
categories include conventional mortgage loans and FHA and VA Loans which are
current and performing and those which are delinquent. The table below sets
out those Pledged Loans by type which are current and those which are
delinquent. There are currently ___ conventional mortgage loans which are
delinquent and are in the process of foreclosure. There are ___ delinquent
FHA and VA Loans, for which foreclosure proceedings are pending. Of the
$_______ principal amount of defaulted FHA and VA Loans as set forth below,
FHA and VA Loans totaling $_______ are current and continue to make their
payments despite either (i) the bankruptcy of the mortgagor or (ii) the
servicer of such Pledged Loan having been notified of some other related
problem with the Pledged Loan other than a failure to timely pay principal
and interest as due.
<TABLE>
Loan Status Active Bankruptcy Foreclosure Total %
- ----------- ------ ---------- ----------- ----- -
<S> <C> <C> <C> <C> <C>
FHA
VA
Conventional
</TABLE>
The Pledged Loans consist of ______ types of loans: (1) [conventional
adjustable rate mortgages based upon various indices], (2) [conventional balloon
mortgages with balloon payments due between the 80th month and the 180th month],
(3) [conventional callable mortgages], [callable by the owner/lender between the
60th month and the 144th month], (4) [conventional fixed rate mortgages
generally with initial terms of 360 months], (5) [FHA adjustable rate mortgages
based upon various indices] and (6) [FHA and VA fixed rate mortgages]. These
loans are set forth in the tables below.
<TABLE>
FHA VA Conventional Total %
--- -- ------------ ----- -
<S> <C> <C> <C> <C>
ARM-Conv
ARM-FHA
Balloon-Conv
Call-Conv
Fixed-Conv
Fixed-FHA/VA
</TABLE>
<TABLE>
FHA VA Conventional Total %
--- -- ------------ ----- -
<S> <C> <C> <C> <C>
ARM-Conv$
ARM-FHA
Balloon-Conv
Call-Conv
Fixed-Conv
Fixed-FHA/VA
</TABLE>
18
<PAGE>
For purposes of calculating Initial Bond Values, cash flows and average
lives of the adjustable rate mortgages ("ARMs"), the Issuer has assumed a base
rate of 5% plus the applicable index to produce a yield below which the ARMs'
actual rates are not anticipated to fall during the remaining term of such
Pledged Loan. However, there is no assurance that such ARM Pledged Loans will
not fall below the base rate of 5% plus the applicable index which was used
herein.
With respect to Pledged Loans with balloon payments, the Issuer will
attempt to collect such mortgage note as and when the balloon portion of any
Pledged Loan becomes due. However, since the Pledged Loans with balloon
payments had original amortization terms of 360 months in each case, the Issuer
may allow specific mortgage notes to be modified with respect to the due date
and continue the same monthly mortgage payments on the Pledged Loan over the
remaining unamortized term of 360 months. The Bonds have been scheduled as if
such modification has taken place in each case, although there can be no
assurance that such modification will occur. Any payment in full on the
balloon due date would be treated as a prepayment of the particular Pledged
Loan.
With respect to callable Pledged Loans, the Issuer will attempt to collect
such mortgage notes on the call due dates. However, since the callable Pledged
Loans had original amortization terms of 360 months, the Issuer may allow
specific callable Pledged Loans to be modified with respect to the call date and
continue to the same monthly mortgage payments on such Pledged Loans over the
remaining unamortized term of the 360 months. The Bonds have been scheduled to
take into account such modification of the callable Pledged Loan in each case up
to an unamortized term of 360 months, although there can be no assurance that
such modification will occur. Any. payment in full on the call due date would
be treated as a prepayment of that Pledged Loan.
The Pledged Loans have various seasonings as is seen from the table set
forth below. Of all of the Pledged Loans which are collateral for the Bonds,
___% of the principal amount were originated after 19__, ___% were originated
between 19__ and 19__ and ___% were originated prior to 19__. With respect to
the conventional mortgage loan portion of the Pledged Loans, however, the
percentages are ___%, ___% and ___%, respectively. The Pledged Loans
securing the Bonds have a weighted average scheduled term to maturity of
approximately ___ years based on the fixed rate maturities. A number of the
Pledged Loans have been modified since their origination and such modifications
often include a modification of the mortgage interest rate and monthly payment.
The rates and percentages set forth in this paragraph and in the tables herein
are reflective of any modified terms of the Pledged Loans.
SEASONING
[TO BE COMPLETED]
<TABLE>
<S> <C>
Age of Loan
Prior to 19
19 through 19
After 19
Total
</TABLE>
No Pledged Loan had an initial loan-to-value ratio of more than ___%. No
such Pledged Loan with an original principal amount in excess of $ had
an initial loan-to-value ratio greater than ___%. The initial loan-to-value
ratio of any Pledged Loan represents the ratio of the principal amount of the
Pledged Loan outstanding at the origination of such loan divided by the lesser
of the original selling price of the Mortgaged Property or its appraised value.
The loan-to-value ratios for the FHA and VA Loans are high due to the nature of
the FHA and VA programs under which those Pledged Loans were originated. At
this time, certain Pledged Loans may have a loan-to-value ratio of over 100% due
to modifications of such Pledged Loans. The conventional mortgage loan portion
of the Pledged Loans loan-to-value ratios had a weighted average of ___% at
origination. Loan-to-value ratios were determined from information in various
files or extrapolated from loan summaries. Neither the Issuer nor ________ has
prepared any appraisal of any of the Mortgage Properties nor reviewed any of the
Mortgage Properties to determine whether the values represented are reasonable
or accurate. No current information is available with respect to the current
loan-to-value amounts of the Pledged Loans and all figures set forth are
estimates as of the date of the origination of the Pledged Loans. There can be
no assurance that the collateral supporting and securing the Mortgage Collateral
will have the values ascribed to them herein.
19
<PAGE>
CURRENT LOAN-TO-VALUE RATIOS
<TABLE>
PERCENTAGE OF AGGREGATE
AGGREGATE PRINCIPAL PRINCIPAL BALANCES
BALANCES OUTSTANDING OUTSTANDING OF ALL
-------------------- PLEDGED LOANS
------------------------
CURRENT LOAN
TO VALUE RATIO NUMBER OF LOANS FHA/VA CONVENTIONAL TOTAL
<S> <C> <C>
Up to 75%.....
Over 75% to
80%.......
Over 80% to
90%...........
Over 90%......
Total.........
</TABLE>
The Pledged Loans are secured by mortgages or first deeds of trust on one-
to-four-family detached or attached residential housing or condominium units.
Substantially, all of the Pledged Loans are on _______ properties as indicated
by the schedules below. Except as indicated below, at the time of each Pledged
Loan's origination, no loan was for an investor-owned property or for a second
residence. Subsequent to the origination, the mortgagor may have changed the
property's use to investment purposes or to use as a second residence. Only
loan(s) is/are indicated to be an investor loan in the amount of $______.
TYPES OF MORTGAGED PROPERTIES
<TABLE>
Percentage of Aggregate
Principal Balances
Aggregate Principal Outstanding of all
Type of Mortgaged Property Number of Loans Balances Outstanding Pledged Loans
- ------------------------------------------- -------------------- -------------
<S> <C> <C>
Single-family detached...........
Two-family detached and low-rise
condominium units................
Three-to-four family attached and
high-rise condominium units......
Total............................
</TABLE>
The mortgaged properties securing the Pledged Loans are located in
states with the highest concentrations based on the number of loans being
______%, ______ - ______%, ______ - ______%, ______ - ______% and - ______%,
with all other states having less than ___%. The information set forth on the
schedule below gives a detailed summary of the geographic distribution of the
balances of the Pledged Loans. The highest concentration in any one zip code
for the FHA and VA Loans is $______ in ______, ______ which represents
______% of the total principal balance of the Pledged Loans. Highest zip
code concentration of conventional Pledged Loans is $______ in _____, ______
which represents _____% of the total principal balance of the Pledged Loans.
20
<PAGE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
PERCENTAGE OF AGGREGATE
PRINCIPAL BALANCES
AGGREGATE PRINCIPAL OUTSTANDING OF ALL
BALANCES OUTSTANDING PLEDGED LOANS
-------------------------- -----------------------
STATE NUMBER OF LOANS FHA/VA CONVENTIONAL TOTAL
- ----- --------------- ------ ------------ -----
<S> <C> <C> <C> <C>
</TABLE>
Interest rates on the Pledged Loans securing the Bonds are set forth in the
schedules below. These schedules show a concentration of fixed rate Pledged
Loans with interest rates between % and % ( % of the fixed rate
Pledged Loans). The weighted average interest rate for the pool of Pledged
Loans is % based on current rates of Pledged Loans including the rates
currently established for the ARMS. A number of these Pledged Loans reflect
modifications in rates since the origination of the Pledged Loans.
<TABLE>
UP TO $50,001 TO 100,001 TO $150,001 TO OVER
MORTGAGE RATE$50,000 $100,000 $150,000 $200,000 $200,000 TOTAL
FHA & VA
<S> <C> <C> <C> <C> <C>
ARMS (1)..........
9.50% to
9.99%..............
10.00% to
10.49%.............
10.50% to
10.99%.............
11.00% to
11.49%.............
11.50% to
11.99%...........
12.00% to
12.49%.............
12.50% to
12.99%.............
13.00% to
16.50%.............
Total FHA &
VA..........$
21
<PAGE>
CONVENTIONAL LOANS
ARMS
9.50% to
9.99%.......
10.00% to
10.49%......
10.50% to
10.99%......
11.00% to
11.49%......
12.00% to
12.49%......
13.50% to
15.50%......
Total
Conventional
Total...$
</TABLE>
(1) the adjustable rate loans have an average margin of ____%.
The contractual obligations of the mortgagor under a certain percentage of
the Pledged Loans may have been assumed from the original mortgagor. The
assumption of such Pledged Loans may have occurred despite the presence of due-
on-sale clauses in the notes or deeds of trust relating to the loans. See
"Certain Legal Aspects of Mortgage Loans - 'Due-on-Sale' Clauses" in the
Prospectus. Many of the assumed Pledged Loans were not underwritten at the time
of the assumption and the assuming mortgagors may not have met customary
underwriting standards at the time of assumption. In addition, the contractual
obligations of the assuming mortgagors may have been modified in connection with
the assumptions of the related Pledged Loans. Such assumptions of the loans
tend to reduce prepayments, and therefore extend the weighted average life of
the Pledged Loans. See "Maturity and Prepayment Considerations" in the
Prospectus.
SERVICING AGREEMENT
The Issuer has entered into a servicing agreement (the "Servicing
Agreement") with ______ (the "Servicer") pursuant to which the Servicer will
service the Mortgage Collateral. The terms of the Servicing Agreement will
allow the Servicer to make certain modifications or permit certain
assumptions of the Mortgage Collateral for the benefit of the Trust.
The Servicing Agreement requires the Servicer to remit principal and
interest collections plus any advances required by the Servicer to the
Trustee on the ____ of each month, or if such ____ of the month is not a
business day, the next business day following such _____ of the month.
Under the terms of the Servicing Agreement, the Servicer will be required
to advance funds, to the extent that such amounts are recoverable from insurance
proceeds (including FHA, VA, private mortgage insurance, if any, or hazard
insurance), liquidation of the Mortgage Properties, the Overcollateralization
Reserve Fund or the Residual Distribution Holding Account held by the Trustee or
from future payments on the Mortgage Collateral. In addition, the Servicer is
required to make advances as are necessary to make timely payment of real estate
taxes and hazard insurance premiums.
22
<PAGE>
Under the terms of the Servicing Agreement the Servicer may refrain from
liquidating a Mortgaged Property acquired through foreclosure, or otherwise,
when the Issuer determines that greater value will be realized on the property
from an interim rental than from an immediate sale.
The Trustee has agreed to act as the Servicer in the event
(the Servicer) shall default or otherwise be unable to perform as the Servicer.
The Trustee will undertake such action in exchange for compensation at market
rates to be agreed upon by the Trustee and the Issuer.
OVERCOLLATERALIZATION FUND
The Mortgage Collateral securing the Bonds will include a certain level
of Overcollateralization to protect against loan losses on the Pledged Loans
securing the Bonds. The Mortgage Collateral securing the Bonds had an
unamortized principal balance as of the Cut-off Date of $______ and had an
aggregate Collateral Value (as defined herein) which exceeded the original
principal amount of the Bonds by ___%. The aggregate initial
Overcollateralization Amount for the Bonds is $________. This
Overcollateralization provides additional cash flow beyond that necessary to
make the required payments of principal and interest on the Bonds as such
payments come due. The Overcollateralization Amount may be reduced from time
to time to the extent that such reductions will not result in a downgrading
of the rating of the Bonds. See "Description of the
Bonds-Overcollateralization" in the Prospectus. The Overcollateralization
Fund described in this Prospectus Supplement is similar to, but not identical
to, the Overcollateralization Fund described in the Prospectus.
The following table sets forth certain information with respect to
the initial Overcollateralization Amounts with respect to the Mortgage
Collateral:
<TABLE>
AGGREGATE INITIAL NUMBER OF
INITIAL OVERCOLLATERALIZATION AMOUNT BOND VALUE PLEDGED LOANS
- ------------------------------------ ----------------- -------------
<S> <C> <C>
</TABLE>
The aggregate initial Collateral Value of the conventional mortgage loan
portion of the Pledged Loans will exceed the portion of the original
principal amount of the Bonds secured thereby by ___%. The aggregate
initial Collateral Value of the FHA and VA Loan portions of the Pledged
Loans will exceed the portion of the original principal amount of the Bonds
secured thereby by The Overcollateralization Cash Flow on any Payment Date
will be equal to the applicable Overcollateralization percentage set forth
above for each type of Pledged Loan multiplied by the change in Collateral
Value between the prior Accrual Period and the Accrual Period relating to
such Payment Date for such type of Pledged Loan.
On each Payment Date, the Trustee shall deposit to the
Overcollateralization Fund the Overcollateralization Cash Flow amount. Such
amounts, if any, will be held by the Trustee and applied to the payment of the
Bond interest payments then due to prevent the occurrence of an Event of Default
on the Bonds and to the principal payment then due on the Class A Bonds to
prevent a default on only the Class A Bonds. The Trustee, to the extent
subsequently collected, shall promptly reimburse the Overcollateralization Fund
for all sums so utilized from any Future Overcollateralization Cash Flow. The
Overcollateralization Fund shall be invested in Eligible Investments as fully as
possible. Reinvestment income on the Overcollateralization Fund will be
deposited to the Collection Account.
In the event that payments on the Bonds are dependent on Pledged Loan
payments which become unavailable to the Trustee due to an uninsured loss, funds
may not be available from other Mortgage Collateral to make up any such
shortfall. However, the Overcollateralization Amounts are designed to cover the
levels of uninsurable loans assumed in calculating the Initial Bond Values of
the Pledged Loans securing the Bonds. See "Security for the Bonds -
Overcollateralization Fund" in the Prospectus.
23
<PAGE>
INSURANCE POLICIES
The Issuer will assign to the Bond Trustee payments due under the
Insurance Policies including the Primary Mortgage Insurance Policies and the
Standard Hazard Insurance Policies. Mortgage insurance policies from mortgage
insurers for conventional Pledged Loans with an aggregate outstanding principal
balance of $______ will also be assigned to the Bond Trustee. The Insurance
Policies will not cover all types of risks, and will not cover losses described
in the Prospectus resulting from Special Hazards, fraud or certain bankruptcy
losses. In the event payments on the Bonds are dependent upon Pledged Loan
payments which become unavailable to the Bond Trustee due to an uninsured loss,
funds may not be available from other Mortgage Collateral to make up such
shortfall. However, the Overcollateralization Amount, Overcollateralization Cash
Flow and the Overcollateralization Fund are designed to cover the levels of
uninsured loan losses assumed in calculating the Initial Bond Values of the
Pledged Loans securing the Bonds and establishing the initial ratings of the
Bonds by Fitch and Standard & Poors. See "Security for the Bonds - Insurance
Policies" in the Prospectus.
RESIDUAL DISTRIBUTION HOLDING ACCOUNT
On any Payment Date, if an Event of Default exists as to the Class A
Bonds or the Mortgage Delinquency Ratio exceeds __% of the Mortgage
Delinquency Ratio as of the Cut-off Date, any amounts that would otherwise be
paid to the Class R Bondholders will be retained by the Trustee until the
earlier of any Payment Date on which (i) such amounts are needed by the
Trustee, after application of the Overcollateralization Fund and the
determination that the future payments on the Mortgage Collateral including
the future payments attributable to the Overcollateralization Cash Flow
("Future Overcollateralization Cash Flow") will be insufficient to satisfy
the obligations to the Class A Bonds, in which event the funds in the
Residual Distribution Holding Account shall be distributed to satisfy the
obligations to the holders of the Class A Bonds; (ii) the amounts are needed,
after application of the Overcollateralization Fund and the determination
that the future payments on the Mortgage Collateral, including the Future
Overcollateralization Cash Flow will be insufficient to reimburse the
Servicer, Trustee or other service providers with respect to advances and
fees incurred on behalf of the Trust, in which event the funds in the
Residual Distribution Holding Account shall be distributed to satisfy the
obligations to such service providers; or (iii) the Mortgage Delinquency
Ratio falls below % of the Mortgage Delinquency Ratio as of the Cut-off Date
and no Event of Default exists as to the Class A Bonds, in which event the
full amount held in the Residual Distribution Holding Account, plus any
earnings thereon will be distributed to the holders of the Class R Bonds.
All amounts held in this account will be invested in Eligible
Investments as fully as possible. The Residual Distribution. Holding
Account is to be used last in the sequence of sources available for the
servicing of the Class A Bonds and specifically after the
Overcollateralization Fund has been exhausted. Future payments, on the
Mortgage Collateral shall be deemed sufficient to meet the required payments
on the Class A Bonds as long as the aggregate Collateral Value exceeds the
outstanding principal balance of the Class A Bonds.
COLLECTION ACCOUNT
All payments on the Pledged Loans securing the Bonds will be remitted to
the Collection Account for the Bonds and will be available for application to
the payment of principal of and interest on the Bonds. Any amounts remaining
in the Collection Account on any Payment Date after interest payments are
made on the Bonds, the principal has been paid on the Class A Bonds, the
amount required has been deposited in the Overcollateralization Fund and all
administrative fees and expenses are provided for, plus Reinvestment Income
on all amounts remitted to the Collection Account, subject to the
requirements of funding the Residual Distribution Holding Account discussed
above, will be paid PRO RATA to the holders of the Residual Interest Bonds.
See "Description of the Bonds - The Residual Interest Bonds" in this
Prospectus Supplement.
RIGHT OF SUBSTITUTION
On or before days following the date of the issuance of the Bonds,
the Trustee, at the request of the Issuer, may release up to % of the
Mortgage Collateral should such Mortgage Collateral being released be found
to be unsuitable or unacceptable to the Issuer for any reason by providing
the Trustee with one of the following.
24
<PAGE>
(i) Delivery to the Trustee of the pledge of a substitute mortgage
loan ("Substitute Mortgage Collateral") with a cash flow equal to the cash
flow of the Mortgage Collateral being released at the time of such release
but in no event may such Substitute Mortgage Collateral have a cash flow less
than the anticipated allocated portion of the initial cash flow required for
the entire Mortgage Collateral at the Closing Date. Some of the Substitute
Mortgage Collateral may include new mortgages for either a greater or smaller
amount than provided for originally, provided the maximum amount is
determined in the same manner as is done for the original Mortgage Collateral
and any shortfall is provided in immediately available monies to the Trustee;
(ii) Delivery to the Trustee of Eligible Investments, which may include
U.S. Treasury or agency securities, that have a maturity equal to that of the
Bonds and a cash flow sufficient to meet the allocated portion of cash flow
on the Bonds applicable to the property being released; or
(iii) Any combination of A or B above provided that such combination
does not result in the downgrading of the rating of the Bonds.
USE OF PROCEEDS
The net proceeds from the sale of the Bonds will be used by the Issuer
to purchase the Mortgage Collateral which will secure the Bonds pursuant to
the Mortgage Collateral Purchase Agreement and to pay expenses in connection
with the issuance of the Bonds.
MATURITY AND PREPAYMENT CONSIDERATIONS
The following table indicates the projected weighted average life of the
Class A Bonds and sets forth the percentage of the initial principal amount
of the Class A Bonds that would be outstanding after each of the dates shown
at various percentages of the prepayment assumption model described below
("Prepayment Model"). The Prepayment Model specifies an assumed standard
prepayment percentage for each month relative to the then outstanding
principal balance of a pool of mortgages and annualizes that percentage. 100%
Prepayment Model assumes prepayment rates of 0.__% per annum of the then
outstanding principal balance of such mortgages in the first month of the
life of the mortgage and an additional 0.__% per annum in each month
thereafter until the ____ month. In the thirtieth month and in each month
thereafter during the life of the mortgage 100% Prepayment Model assumes a
constant prepayment rate of __.0% per annum. See "Description of the Bonds -
Maturity and Prepayment Considerations" in the Prospectus.
25
<PAGE>
PERCENT OF ORIGINAL AMOUNT OUTSTANDING (1)
CLASS A BONDS
AT THE FOLLOWING
PERCENTAGES OF
PMA
<TABLE>
<CAPTION>
PAYMENT DATE
, 19 0% 100% 175% 250%
<S> <C> <C> <C> <C>
1992................................
1993................................
1994................................
1995................................
1996................................
1997................................
1998................................
1999................................
2000................................
2001................................
2002................................
2003................................
2004................................
2005................................
2006................................
2007................................
2008................................
2009................................
2010................................
2011................................
2012................................
2013................................
2014................................
2015................................
2016................................
2017................................
2018................................
2019................................
2020................................
2021................................
Weighted Average
Life (Years)(2).........................
</TABLE>
___________________________
(1) The percentages identified represent a mathematical relationship to PMA.
For example: 0% PMA assumes no prepayments; ___% PMA equals the percentages
calculated pursuant to PMA; ___% PMA assumes mortgage prepayments at % of the
percentages calculated pursuant to PMA; ___% PMA assumes mortgage prepayments
of ___% of the percentages calculated pursuant to PMA.
(2) The Weighted Average Life of a Bond is determined by (a) multiplying the
amount of each principal payment by the number of years from the date of
issuance to the related principal payment date, (b) summing the results and
(c) dividing the sum by the total principal paid on the Bond.
26
<PAGE>
The foregoing table has been prepared on the basis of the
characteristics of the Pledged Loans to be pledged to the Trust, however,
there can be no assurance that the actual experience of the Mortgage
Collateral will approximate that set forth above. To the extent of any such
differences or differences that may result from substitutions permitted
herein, material variances in the information shown in the table may result.
See "Description of the Bonds - Maturity and Prepayment Considerations" in the
Prospectus for a discussion of other considerations pertinent to evaluating
the information shown in the table.
YIELD CONSIDERATIONS
GENERAL
The yield to maturity of any Bond will be affected by the rate of
payment (including prepayments) of principal of the Pledged Loans securing
the Bonds. If the purchaser of a Bond offered at a discount from its Parity
Price (as defined below) calculates the anticipated yield to maturity of such
Bond based on an assumed rate of payment of principal that is faster than
that actually received on such Pledged Loans, the actual yield to maturity
will be lower than that so calculated. If the purchaser of a Bond offered at
a premium over its Parity Price calculates the anticipated yield to maturity
of such Bond based on an assumed rate of payment of principal that is slower
than that actually received on such Pledged Loans the actual yield to
maturity will be lower than that so calculated. "Parity Price" is the price
at which a Bond will yield its coupon after giving effect to its payment
delay, if any. In addition, the timing of the rate of prepayments on the
Pledged Loans securing the Bonds may significantly affect a Bond purchaser's
actual yield to maturity, even if the average rate of principal payments is
consistent with such purchaser's expectation. In general, the earlier a
prepayment of principal of the Pledged Loans securing the Bonds, the greater
the effect on such purchaser's yield to maturity. The effect on such
purchaser's yield of principal payments occurring at a rate higher (or lower)
than the rate anticipated by the purchaser during the period immediately
following the issuance of the Bonds may not be offset by a subsequent
corresponding decrease (or increase) in the rate of the principal payments.
RESIDUAL INTEREST BONDS
The yield to purchasers of the Residual Interest Bonds will be highly
sensitive to the rate of actual loan losses and/or of principal payments on
the Pledged Loans securing the Bonds. A rapid rate of actual loan losses
and/or of principal payments on the Pledged Loans securing the Bonds will
have a material negative effect on the yield to purchasers of the Residual
Interest Bonds which are offered at a substantial premium to their original
principal amounts. Purchasers of the Residual Interest Bonds should consider
fully the associated risks, including the risks (i) that actual loan losses
could exceed those anticipated by the Residual Purchaser and/or (ii) that a
rapid rate of principal payments on the Pledged Loans securing the Bonds
could result in the failure of purchasers of the Residual Interest Bonds to
recover fully their investment.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Issuer will cause an election to be made to treat as a "real estate
mortgage investment conduit" ("REMIC") for federal income tax purposes the
arrangement by which the Collateral will be held. In the opinion of Matthias
and Berg LLP, legal counsel to the Issuer, under current law the Class A
Bonds will constitute "regular interests" in a REMIC and the Residual
Interest Bonds will constitute the "residual interest" in a REMIC assuming
(i) the proper filing of an election to be treated as a REMIC pursuant to
the Code and (ii) ongoing compliance with all provisions of the Indenture.
See "Federal Income Tax Consequences to Bondholders" in the Prospectus.
For purposes of pricing the Class A Bonds and of determining the initial
amount and rate of accrual of original issue discount, the Issuer intends to
assume that the Mortgage Loans securing the Bonds will prepay at a rate equal
to % of 100% Prepayment Model. There can be no assurance as to the actual
prepayment experience of such mortgage loans. See "Maturity and Prepayment
Considerations" in this Prospectus Supplement. Although the Issuer does not
expect that any of the Bonds will be issued with original issue discount, the
law in this area is not clear and the Internal Revenue Service may take the
position that the Class A Bonds may be issued with original issue discount.
27
<PAGE>
Residual Interest Bondholders will be treated as owners of the "residual
interest" in the REMIC for federal income tax purposes. Accordingly,
Residual Interest Bondholders generally will not be treated as holders of
debt instruments for such purposes, and their taxable income will not be
computed with reference to the stated interest or premium on the Residual
Interest Bonds, but rather will be computed' as described in "Federal Income
Tax Consequences to Bondholders Taxation of REMIC Residual
Bonds" in the Prospectus. Residual Interest Bonds held by certain
financial institutions will constitute "evidences of indebtedness" within
the meaning of section 582(c)(1) of the Code. Taxable income to Residual
Interest Bondholders for a taxable year may exceed principal, interest and
any additional payments received by such Bondholders for that taxable year,
possibly resulting in a negligible (or even negative) after-tax return in
certain circumstances. See "Federal Income Tax Consequences to Bondholders -
Taxation of REMIC Residual Bonds - Taxation of REMIC Income" in the
Prospectus. Consequently, such Bondholders should have other sources of
funds sufficient to pay any federal income taxes due as a result of ownership
of Residual Interest Bonds.
It is anticipated that a portion of the income reportable by Residual
Interest Bondholders with respect to the Residual Interest Bonds may be
characterized by the Code as "excess inclusion" income. Moreover, if the
aggregate market value of the Residual Interest Bonds is less than 2% of the
aggregate value of the Bonds on the date the Bonds are issued, all of the
income derived from the REMIC by the Residual Interest Bondholders will be
excess inclusion income. The Underwriters have represented to the Issuer
that it has determined that the aggregate market value of the Residual
Interest Bonds will exceed 2% of the aggregate market value of the Bonds as
of the date the Bonds are issued. See "Federal Income Tax Consequences to
Bondholders - Taxation of REMIC Residual Bonds - Limitations on Offset or
Exemption of REMIC Income" in the Prospectus. Residual Interest Bondholders
other than mutual savings banks and domestic building and loan associations
will be unable to use net operating losses to offset excess inclusion income.
Further, excess inclusion income derived from the REMIC by a tax-exempt
Residual Interest Bondholder will be taxable as unrelated business taxable
income. Consequently, such Residual Interest Bondholders may experience an
after-tax return that is significantly lower than would be anticipated based
upon an application of their marginal tax rate to the projected before-tax
return on their Residual Interest Bonds.
Potential investors in the Class A Bonds should be aware that Residual
Interest Bondholders will be required to (i) take any action required by the
Code or by existing or forthcoming Treasury regulations thereunder in order
to create or maintain the REMIC status of the Collateral securing the Bonds
and (ii) refrain from taking any action that could endanger such status
unless such Bondholders provide the Issuer with an opinion of counsel
satisfactory to the Issuer that the action contemplated win not result in the
loss of such status.
ERISA
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes requirements on employee benefit plans subject to ERISA
("Plans") and on persons who are fiduciaries with respect to such Plans.
Investments by Plans are subject to ERISA's general fiduciary requirements,
including the requirement of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the
documents governing the Plan.
28
<PAGE>
ERISA also prohibits a broad range of transactions involving assets of a
Plan and persons ("parties in interest") who have certain specified
relationships to the Plan. Under certain plan asset regulations promulgated
by the Department of Labor, if the equity investment by certain "benefit plan
investors" reaches a specified percentage and none of the exceptions set
forth therein apply, the underlying assets of the entity in which a Plan has
invested will be deemed to be plan assets, as opposed to merely treating the
Plan's evidence of ownership in the entity as a plan asset. The degree of
"benefit plan investor" participation in the Bonds will not be known until
this offering is completed. If the "benefit plan investor" participation
level exceeds the specified percentage, there can be no assurances that any
of the exceptions in the plan asset regulations will apply so as to prevent
the Collateral from being treated as plan assets of Plans holding Bonds which
are treated as equity interests. Such treatment could cause the purchase of
the Bonds or certain dealings with respect to the Collateral to be treated as
prohibited transactions under ERISA.
Any Plan proposing to invest in the Bonds should consult with its
counsel to confirm that such investment will not result in a prohibited
transaction and will satisfy the other requirements of ERISA. See "ERISA
Considerations" in the Prospectus.
Potential investors should be aware that ERISA requires the valuation of
the assets of the Plans at their fair market value as of the close of the
Plans year. Neither the Issuer nor the Underwriter currently plans to
provide valuations to any Bondholders.
BOND RATING
It is a condition of issuance that the Bonds be rated " " by
and " " by .
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization.
The Issuer has not requested a rating on the Bonds by any agency other
than and However, there can be no assurance as to
whether any other rating agency will rate the Bonds, or, if it does, what
rating would be assigned by any such other rating agency. A rating on the
Bonds by another rating agency, if assigned at all, may be lower than the
ratings assigned to the Bonds by and .
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Issuer has agreed to sell to the Underwriters ("Underwriters"), and the
Underwriters have agreed, subject to the terms and conditions set forth
therein, to purchase all of the Class A Bonds offered hereby, if any are
purchased, in the approximate principal amount set forth opposite their
names. The Class R Bonds may be offered by the Issuer from time to time to
the public directly or through an underwriter or agent in negotiated
transactions or otherwise at varying prices to be determined, in each case,
at the time of sale.
The Issuer has been advised by the Underwriters that they propose to
offer the Class A Bonds to the public initially at the price to public for
such Class A Bonds set forth on the cover page of this Prospectus Supplement
and to certain dealers at such prices less concessions not in excess of those
set forth below, that the Underwriters may allow, and such dealers may
reallow, concessions not in excess of those set forth below on sales to other
dealers and that the price to public, concessions and reallowances to the
dealers may be changed by the Underwriters after the initial offering.
[TABLE TO BE INSERTED WHEN FINAL)
The Underwriting Agreement provides that the Issuer will
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended, or contribute to
payments the Underwriters may be required to make in respect thereof. A
purchaser of the Residual Interest Bonds will also indemnify the Underwriters
to protect the Underwriters against a failure by the Issuer to perform its
obligations to the Underwriters.
29
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Issuer as of
______, ____ and as adjusted to give effect to the issuance of the Bonds
and the use of the proceeds from the sale of the Bonds on a pro-forma basis:
[TABLE TO BE CREATED WHEN FINAL)
LEGALITY OF BONDS
The legality of the Bonds will be passed upon for the Issuer by
Matthias and Berg LLP, 1990 South Bundy Drive, Suite 790, Los Angeles,
California 90025, and for the Underwriters by .
30
<PAGE>
STANDARD PROVISIONS INDENTURE
by and between
CRSM MORTGAGE SECURITIES TRUST NO. ___
and
BANK
Dated as of _________ , 1998
CRSM Mortgage Securities Collateralized Bonds Series No. 1
____% CLASS 1-A and CLASS 1-R
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE ONE: DEFINITIONS 1
Section 1.01. DEFINITIONS. 1
ARTICLE TWO: BOND FORM 26
Section 2.01. FORMS GENERALLY. 26
Section 2.02. FORM OF BOND. 27
ARTICLE THREE: THE BONDS 27
Section 3.01. AMOUNT UNLIMITED; BONDS ISSUABLE IN SERIES AND
CLASSES; CERTAIN RELATED PROVISIONS. 27
Section 3.02. DENOMINATIONS. 31
Section 3.03. EXECUTION, AUTHENTICATION, DELIVERY AND DATING. 31
Section 3.04. TEMPORARY BONDS. 31
Section 3.05. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE. 32
Section 3.06. MUTILATED, DESTROYED, LOST OR STOLEN BONDS. 35
Section 3.07. PAYMENT OF PRINCIPAL AND INTEREST; PRINCIPAL AND
INTEREST RIGHTS PRESERVED. 36
Section 3.08. PERSONS DEEMED OWNERS. 38
Section 3.09. CANCELLATION. 39
Section 3.10. LIMITED RIGHT TO SUBSTITUTE COLLATERAL 39
ARTICLE FOUR: AUTHENTICATION AND DELIVERY OF BONDS 42
Section 4.01. GENERAL PROVISIONS. 42
Section 4.02. SECURITY FOR BONDS. 48
ARTICLE FIVE: SATISFACTION AND DISCHARGE 54
Section 5.01. SATISFACTION AND DISCHARGE OF INDENTURE. 54
Section 5.02. APPLICATION OF TRUST MONEY. 55
ARTICLE SIX: 55
Section 6.01. EVENTS OF DEFAULT. 55
Section 6.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. 57
Section 6.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT
BY TRUSTEE. 58
Section 6.04. REMEDIES. 60
Section 6.06. TRUSTEE MAY FILE PROOFS OF CLAIM. 61
Section 6.07. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
BONDS. 62
Section 6.08. APPLICATION OF MONEY COLLECTED. 63
Section 6.09. LIMITATION ON SUITS. 64
Section 6.10. UNCONDITIONAL RIGHTS OF BONDHOLDERS TO RECEIVE
PRINCIPAL AND INTEREST. 65
Section 6.11. RESTORATION OF RIGHTS AND REMEDIES. 65
Section 6.12. RIGHTS AND REMEDIES CUMULATIVE. 65
Section 6.13. DELAY OR OMISSION NOT WAIVER. 65
Section 6.14. CONTROL BY BONDHOLDERS. 66
Section 6.15. WAIVER OF PAST DEFAULTS. 66
Section 6.16. UNDERTAKING FOR COSTS. 67
Section 6.17. WAIVER OF STAY OR EXTENSION LAWS. 67
Section 6.18. SALE OF TRUST ESTATE. 67
Section 6.19. ACTION ON BONDS. 68
ARTICLE SEVEN: THE TRUSTEE 68
Section 7.01. CERTAIN DUTIES AND RESPONSIBILITIES. 69
Section 7.02. NOTICE OF DEFAULT. 70
<PAGE>
<S> <C>
Section 7.03. CERTAIN RIGHTS OF TRUSTEE. 71
Section 7.05. MAY HOLD BONDS. 73
Section 7.06. MONEY HELD IN TRUST. 74
Section 7.07. COMPENSATION AND REIMBURSEMENT. 74
Section 7.08. DISQUALIFICATION; CONFLICTING INTERESTS. 75
Section 7.09. Corporate Trustee Required; Eligibility. 81
Section 7.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. 81
Section 7.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. 83
Section 7.12 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS OF TRUSTEE. 84
Section 7.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER. 84
Section 7.14. CO-TRUSTEES AND SEPARATE TRUSTEES. 84
ARTICLE EIGHT: BONDHOLDERS' LISTS AND REPORTS
BY TRUSTEE AND ISSUER 86
Section 8.01. ISSUER TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
BONDHOLDERS. 86
Section 8.02. PRESERVATION OF INFORMATION; COMMUNICATION TO
BONDHOLDERS. 86
Section 8.03. REPORTS BY TRUSTEE. 88
Section 8.04. REPORTS BY ISSUER. 89
ARTICLE NINE: COVENANTS OF ISSUER 90
Section 9.01. PAYMENT OF PRINCIPAL AND INTEREST. 90
Section 9.02. MAINTENANCE OF OFFICE OR AGENCY. 91
Section 9.03. MONEY FOR BOND PAYMENTS TO BE HELD IN TRUST. 91
Section 9.04. CORPORATE EXISTENCE. 93
Section 9.05. TRUST EXISTENCE 93
Section 9.06. PROTECTION OF TRUST ESTATE. 94
Section 9.07. OPINIONS AS TO TRUST ESTATE. 94
Section 9.08. PERFORMANCE OF OBLIGATIONS;
BACK-UP SERVICING AGREEMENT. 95
Section 9.09. NEGATIVE COVENANTS. 96
Section 9.10. ISSUER MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS. 97
Section 9.11. SUCCESSOR SUBSTITUTED. 98
Section 9.12. STATEMENT AS TO COMPLIANCE. 98
Section 9.13. NOTIFICATION OF RATING AGENCIES. 99
ARTICLE TEN: SUPPLEMENTAL INDENTURES 99
Section 10.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
BONDHOLDERS. 99
Section 10.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF
BONDHOLDERS. 101
Section 10.03. EXECUTION OF SUPPLEMENTAL INDENTURES 103
Section 10.04. EFFECT OF SUPPLEMENTAL INDENTURE. 103
Section 10.05. CONFORMITY WITH TRUST INDENTURE ACT. 103
Section 10.06. REFERENCE IN BONDS TO SUPPLEMENTAL INDENTURES. 103
ARTICLE ELEVEN: REDEMPTION OF BONDS 103
Section 11.01. REDEMPTION AT THE OPTION OF THE ISSUER; ELECTION TO
REDEEM. 104
Section 11.02. SPECIAL REDEMPTION. 104
Section 11.03. REDEMPTION AT THE OPTION OF BONDHOLDERS. 105
Section 11.04. NOTICE TO TRUSTEE 105
Section 11.05. NOTICE OF REDEMPTION OR SPECIAL REDEMPTION BY THE
ISSUER. 105
Section 11.06. DEPOSIT OF REDEMPTION PRICE OR SPECIAL REDEMPTION
PRICE. 106
Section 11.07. BONDS PAYABLE ON REDEMPTION DATE OR SPECIAL
REDEMPTION DATE. 106
ARTICLE TWELVE: ACCOUNTS, ACCOUNTING AND RELEASES 107
Section 12.01. COLLECTION OF MONEY. 107
Section 12.02. SUPPLEMENTAL DEBT SERVICE FUND. 108
<PAGE>
Section 12.03. BUY-DOWN FUND. 110
Section 12.04. OVERCOLLATERALIZATION FUND. 112
Section 12.05. OTHER FUNDS. 114
Section 12.06. RESERVE FUND. 116
Section 12.07. COLLECTION ACCOUNT. 117
Section 12.08. SUPPLEMENTAL CUSTODIAL RESERVE FUND. 118
Section 12.09. PREPAYMENT RESERVE ACCOUNT. 119
Section 12.10. REPORTS BY TRUSTEE. 120
Section 12.11. ACCOUNTING. 120
Section 12.12. TRUST ESTATE. 125
Section 12.13. RELEASES OF PLEDGED LOANS WITHDRAWN BY SERVICER. 127
Section 12.14. DELIVERY OF THE LOAN DOCUMENTS PURSUANT TO BACK-UP
SERVICING AGREEMENT. 127
Section 12.15. RECORDS.
128
Section 12.16. COLLECTIONS ON THE PLEDGED LOANS. 128
Section 12.17. AMENDMENTS TO BACK-UP SERVICING AGREEMENT. 129
Section 12.18. TERMINATION OF SERVICING AGREEMENTS.
129
Section 12.19. OPINION OF COUNSEL. 129
Section 12.20. INVESTMENTS. 130
ARTICLE THIRTEEN: APPLICATION OF MONEYS 130
Section 13.01. DISBURSEMENTS OF MONEYS FROM COLLECTION ACCOUNT. 130
Section 13.02. DISBURSEMENT OF MONEYS FROM PREPAYMENT ACCOUNT 131
Section 13.03. DISBURSEMENT OF MONEYS FROM SUPPLEMENTAL CUSTODIAL
RESERVE FUND. 131
Section 13.04. TRUST ACCOUNT. 131
Section 13.05. DISBURSEMENTS OF EXCESS FUNDS; RELEASE OF
COLLATERAL. 132
ARTICLE FOURTEEN: BONDHOLDER'S MEETINGS 132
Section 14.01. PURPOSES FOR WHICH MEETINGS MAY BE CALLED. 132
Section 14.02. MANNER OF CALLING MEETINGS. 133
Section 14.03. CALL OF MEETING BY ISSUER OR BONDHOLDERS. 133
Section 14.04. WHO MAY ATTEND AND VOTE AT MEETINGS. 133
Section 14.05. REGULATIONS MAY BE MADE BY TRUSTEE. 134
Section 14.06. MANNER OF VOTING AT MEETINGS AND RECORD TO BE KEPT. 135
Section 14.07. EXERCISE OF RIGHTS OF TRUSTEE AND BONDHOLDERS NOT
TO BE HINDERED OR DELAYED. 135
ARTICLE FIFTEEN: MISCELLANEOUS 135
Section 15.01. COMPLIANCE CERTIFICATES AND OPINIONS. 135
Section 15.02. FORM OF DOCUMENTS DELIVERED TO TRUSTEE. 136
Section 15.03. ACTS OF BONDHOLDERS. 137
Section 15.04. NOTICES,ETC., TO TRUSTEE AND ISSUER. 138
Section 15.05. NOTICE TO BONDHOLDERS; WAIVER. 138
Section 15.06. CONFLICT WITH TRUST INDENTURE ACT. 139
Section 15.07. EFFECT OF HEADINGS AND TABLE OF CONTENTS. 139
Section 15.08. SUCCESSORS AND ASSIGNS. 139
Section 15.09. SEPARABILITY. 139
Section 15.10. BENEFITS OF STANDARD PROVISIONS INDENTURE. 139
Section 15.11. LEGAL HOLIDAYS. 139
Section 15.12. GOVERNING LAW. 140
Section 15.13. COUNTERPARTS. 140
</TABLE>
<PAGE>
Cross-reference sheets showing the location in the Indenture of the provisions
inserted pursuant to Section 310 through 318(a) inclusive of the Trust Indenture
Act of 1939, as amended.
<TABLE>
<CAPTION>
TIA Indenture Section
<S> <C>
Section 310 (a)(1)................... 7.9
(a)(2)....................... 7.9
(a)(3)....................... Not Applicable
(a)(4)....................... Not Applicable
(b).......................... 7.8, 7.10
Section 311 (a)...................... 7.13
(b).......................... 7.13
(c).......................... Not Applicable
Section 312 (a)...................... 8.1
8.2(a)
(b).......................... 8.2(b)
(c).......................... 8.2(c)
Section 313 (a)...................... 8.3(a)
(b).......................... 8.3(b)
(c).......................... 8.3(a)
8.3(b)
(d).......................... 8.3(c)
Section 314 (a)...................... 8.4
(b).......................... 9.6
(c)(1)....................... 15.1
(c)(2)....................... 15.1
(c)(3)....................... Not Applicable
(d).......................... 4.1, 12.12
(e).......................... 15.1
Section 315 (a)...................... 7.1(a)
7.1(c)
(b).......................... 7.2
(c).......................... 7.1(b)
(d)(1)....................... 7.1(c)(1)
(d)(2)....................... 7.1(c)(2)
(d)(3)....................... 7.1(c)(3)
(e).......................... 6.16
Section 316 (a)...................... 1.1
a)(1)(A)..................... 6.2
6.14
(a)(1)(B).................... 6.15
(a)(2)....................... Not Applicable
(b).......................... 6.10
Section 317 (a)(1)................... 6.3
(a)(2)....................... 6.6
<PAGE>
<S> <C>
(b).......................... 9.3
Section 318 (a)...................... 15.6
</TABLE>
Note: This cross-reference sheet shall not, for any purpose, be deemed to
constitute a part of the Indenture.
<PAGE>
STANDARD PROVISIONS INDENTURE, dated as of _________ , 1998, between CRSM
Mortgage Securities Trust No. ___, a Delaware business trust (the
"Issuer") created under a deposit trust agreement dated as of _________ ,
1998, between CRSM Securities, Inc., a California corporation (the
"Depositor") and Wilmington Trust Company (the "Owner-Trustee") (the
"Deposit Trust Agreement"), and BANK N.A, as trustee (the "Trustee").
PRELIMINARY STATEMENT
The Depositor may establish a trust (the "Trust") for the purpose of
causing such Trust to issue a series of Bonds. Such series of Bonds will
be issued under an Indenture consisting of a Terms Indenture which
incorporates by reference the Standard Provisions Indenture
(collectively, the Standard Provisions Indenture and the Terms Indenture
for such Series of Bonds are referred to as the "Indenture"), and such
series of Bonds will be limited to the amount therein prescribed. The
Terms Indenture will be duly executed and delivered by the Trust
executing the same, acting through an Owner-Trustee, and by the Trustee
under the Indenture.
ARTICLE ONE: DEFINITIONS
Section 1.01. DEFINITIONS.
Except as otherwise specified herein or in a Terms Indenture or as the
context may otherwise require, the following terms have the respective
meanings set forth below for all purposes of this Standard Provisions
Indenture, and the definitions of such terms are equally applicable both
to the singular and plural forms of such terms and to the masculine,
feminine and neuter genders of such terms. All other terms used herein
which are defined in the Trust Indenture Act, as hereinafter defined,
either directly or by reference therein, have the meanings assigned to
them herein.
"ACCOUNTING REPORT": The report setting forth certain information
required by Section 12.11(b).
"ACCRETED VALUE": With respect to any Series, the original principal
amount of any Class of Compound Interest Bonds plus all accrued and
accumulated interest thereon compounded at the Bond Interest Rate for
such Class of such Series on each Payment Date for such Series and with
respect to any calculation on a date other than a Payment Date, the
Accreted Value as of the immediately preceding Payment Date or (if prior
to the first Payment Date) the original principal amount of such Class of
Compound Interest Bonds. The principal amount of any Compound Interest
Bonds at any time will be equal to their Accreted Value. Accreted Value
will be reduced by any payments of principal on such Class of Compound
Interest Bonds.
"ACCRUAL DATE": With respect to any Series, the date upon which interest
begins accruing on the Bonds of such Series, as specified in such Bonds
and the related Terms Indenture.
"ACCRUAL DISTRIBUTION AMOUNT": With respect to any Payment Date for a
Series, the aggregate amount of interest which has accrued on the
Compound Interest Bonds of such Series since the immediately preceding
Payment Date for such Series which is not then required to be paid,
payment of which having been deferred as provided herein.
"ACT" and "ACTS OF BONDHOLDERS": The meanings specified in Section 15.03.
"AFFILIATE" OF ANY SPECIFIED PERSON: Any other Person controlling or
controlled by or under common control with such specified Person. For
the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise; and the terms "controlling"
and "controlled" have meanings correlative to the foregoing.
<PAGE>
"AGGREGATE INITIAL BOND VALUE": With respect to any Series, the sum of
the Initial Bond Values of all Mortgage Collateral securing such Series.
"AGGREGATE INITIAL COLLATERAL VALUE": With respect to any Series, the sum
of the Initial Collateral Values of all Mortgage Collateral securing such
Series.
"AGGREGATE INITIAL OVERCOLLATERALIZATION AMOUNT": With respect to any
Series, the excess of the Aggregate Initial Collateral Value over the
Aggregate Initial Bond Value.
"AGGREGATE INITIAL OVERCOLLATERALIZATION FACTOR": With respect to any
Series, a fraction (expressed as a percentage) the numerator of which is
the Aggregate Initial Overcollateralization Amount and the denominator of
which is the principal amount of the Bonds outstanding on the Issue Date.
"AGGREGATE LOAN LOSSES": With respect to the Pledged Loans securing a
Series, as of any Determination Date the sum of the Loan Losses from the
Cut-Off Date to such Determination Date.
"AGGREGATE OUTSTANDING BOND VALUE": With respect to any Series, the sum
of the Outstanding Bond Values of all Mortgage Collateral securing such
Series on the date of determination.
"APPRAISED VALUE": The value of a Mortgaged Property as set forth in an
appraisal made by or for the Originator in connection with the
origination of the Pledged Loan secured by such Mortgaged Property.
"ASSUMED REINVESTMENT RATE": With respect to any account or fund
securing the Bonds, either (i) the contractually specified interest rate
pursuant to a Reinvestment Agreement specified in the Terms Indenture or,
(ii) if no Reinvestment Agreement is entered into with respect to the
Bonds, the rate or rates of interest or other earnings as specified in
the Terms Indenture.
"AUTHORIZED OFFICER": Any officer of the Owner-Trustee who is authorized
to act for the Owner-Trustee in respect of the Issuer and whose name
appears on a list of such authorized officers furnished by the
Owner-Trustee to the Trustee as such list may be amended or supplemented
from time to time.
"AUTHORIZED OFFICER'S CERTIFICATE": A certificate signed by an Authorized
Officer on behalf of the Issuer and delivered to the Trustee. Unless
otherwise specified, any reference in this Standard Provisions Indenture
to an Authorized Officer's Certificate shall be to an Authorized
Officer's Certificate of the Owner-Trustee.
"BACK-UP SERVICER": The Person specified in the Terms Indenture, if any,
acting as back-up to the Services of the Pledged Loans securing the
Bonds, or its successors or assigns. Such Person shall be acceptable to
each Rating Agency rating the Bonds.
"BACK-UP SERVICING AGREEMENT": The agreement between the Issuer and the
Back-up Servicer relating to the Pledged Loans, if any, as such agreement
may be amended or supplemented.
"BOARD OF DIRECTORS": The Board of Directors of any corporation or any
committee of that Board duly authorized under applicable law to act on
behalf of the Board.
"BOARD RESOLUTION": A copy of a resolution certified by the Secretary or
an Assistant Secretary of any corporation to have been duly adopted by
the Board of Directors.
"BONDHOLDER" or "Holder": The Person in whose name a Bond is registered
in the Bond Register for a Series.
"BOND INTEREST RATE": With respect to any Series or Class, the annual
rate at which interest accrues on the Bonds
<PAGE>
of such Series or Class, as specified in the related Terms Indenture.
"BOND REGISTER" and "BOND REGISTRAR": The respective meanings specified
in Section 3.05.
"BONDS": Any Bonds authorized by, and authenticated and delivered under,
this Standard Provisions Indenture or any indenture supplemental hereto.
"BOND VALUATION REPORT": The report setting forth certain information
required by Section 12.11(c).
"BOND VALUE": Unless otherwise specified in the Terms Indenture for a
Series, with respect to each item of Mortgage Collateral securing such
Series, the difference between the Collateral Value for the Mortgage
Collateral and the Overcollateralization Amount pertaining to the
Mortgage Collateral.
"BUSINESS DAY": Any day that is not a Saturday, Sunday, holiday or other
day on which commercial banking institutions in California or the city
and state in which the Trustee's Corporate Trust Office is located are
authorized or obligated by law or executive order to be closed.
"BUY-DOWN FUND": The meaning specified in Section 12.03.
"BUY-DOWN PLEDGED LOAN": A level payment Pledged Loan for which funds
have been provided by a third Person to reduce the Mortgagor's monthly
payments during the early period of such Pledged Loan.
"CERTIFICATE OF DEPOSIT": A certificate of deposit satisfying the
definition of an Eligible Investment.
"CLASS": With respect to any Series, all the Bonds of such Series having
the same Stated Maturity of principal.
"COLLATERAL": For a Series unless otherwise provided in the Terms
Indenture for such Series, the Issuer's right, title and interest in: the
Mortgage Collateral (and all substitutions therefor as provided in
Section 3.11 of this Standard Provisions Indenture), together with the
related Loan Documents for the Pledged Loans and the Issuer's interest in
any Mortgaged Property which secured a Pledged Loan but which has been
acquired by foreclosure or deed in lieu of foreclosure, and all proceeds
thereof, the Collection Account and all proceeds thereof, the Debt
Service Funds and all proceeds thereof, the Reserve Fund and all proceeds
thereof, the Overcollateralization Fund and all proceeds thereof, the
Other Funds and all proceeds thereof, the Prepayment Reserve Account and
all proceeds thereof, the Supplemental Custodial Reserve Fund and all
proceeds thereof, the Prepayment Account and all proceeds thereof, the
Insurance Policies and all proceeds thereof, the Servicing Agreements and
the Back-up Servicing Agreement (together with any guarantees thereof)
and all proceeds thereof, the Reinvestment Agreements and any
replacements thereof and all proceeds thereof, proceeds of all the
foregoing (including, but not by way of limitation, all cash proceeds,
accounts, accounts receivable, notes, drafts, acceptances, chattel paper,
checks, deposit accounts, insurance proceeds, condemnation awards, rights
to payment of any and every kinds, and other forms of obligations and
receivables which at the time constitute all or part or included in the
proceeds of any of the foregoing) for such Series.
"COLLATERAL PROCEEDS": With respect to any Mortgage Collateral securing a
Series, the amount paid to the holder of such Mortgage Collateral in
accordance with the terms of such Mortgage Collateral.
"COLLATERAL VALUE": Unless otherwise specified in the Terms Indenture for
a Series, with respect to each Mortgage Certificate and Pledged Loan
securing such Series, the lesser of (i) the present value of the
regularly scheduled monthly payments of principal and interest on such
Mortgage Certificate or Pledged Loan (together with the allocable portion
of the Debt Service Funds or the Other Funds, if applicable, for such
Series) net of servicing, insurance and related fees, together with
Reinvestment Income thereon at the applicable Assumed Reinvestment Rate
for such Series, discounted at the highest Bond Interest Rate for such
Series with the same frequency as the Payment Dates for such Series, or
(ii) the Maximum Collateral Value.
"COLLECTION ACCOUNT": The meaning specified in Section 12.07.
<PAGE>
"COMMISSION": The Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, as
amended, or if at any time such Commission is not existing and performing
the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time under the Trust Indenture Act or
similar legislation replacing the Trust Indenture Act.
"COMPOUND INTEREST BOND": A Bond of a Series on which interest accrues
and is compounded and added to the principal of such Bond periodically,
but with respect to which neither interest nor principal is payable until
the entire principal amount of each Outstanding Bond of the same Series
having an earlier Stated Maturity of principal has been paid in full.
"CORPORATE TRUST OFFICE": The principal corporate trust office of the
Trustee currently located at ______________ or at such other address as
the Trustee may designate from time to time by notice to the Bondholders
and the Issuer, or the principal corporate trust office of any successor
Trustee.
CUSTODIAL P & I ACCOUNT. The custodial demand deposit account or
accounts established by each Servicer under its Servicing Agreement with
a bank or savings and loan association, fully insured by the FDIC, into
which the Servicer is to deposit or cause to be deposited all payments of
principal and interest on the Mortgage Loans (including any advances made
by any Servicer under the Servicing Agreement), Liquidation Proceeds,
Insurance Proceeds (except for those reserved for the repair or
restoration of the Mortgaged Property) and other sums which are required
to be deposited in such accounts by the Servicing Agreement.
CUSTODIAL T & I RESERVE ACCOUNT. The custodial demand deposit account
established by each Servicer under its Servicing Agreement, into which
the Servicer is to deposit or cause to be deposited all sums remitted to
the Servicer in respect of a Mortgage Loan, as reserves for real estate
taxes, governmental improvement assessments and premiums for a Primary
Mortgage Insurance Policy or FHA Certificate of Mortgage Insurance and
the Standard Hazard Insurance Policy; any advances for the foregoing
items made by the Servicer pursuant to the Servicing Agreement; and any
other sums which are required to be deposited into such account by the
Servicing Agreement.
CUSTODIAL AGREEMENT. That agreement among CRSM Mortgage Securities Trust
No. ___, _________, _____ Mortgage Servicing Center, Inc., BANK (the
"Trustee") and _____ (the "Custodian").
"CUT-OFF DATE": With respect to any Series, the date specified in the
related Terms Indenture.
"DATE OF EXECUTION": The actual date of execution of the Standard
Provisions Indenture or any Terms Indenture by the Issuer and the Trustee
as indicated by their respective acknowledgements hereto or thereto
annexed, and if the Issuer and the Trustee shall have executed this
Standard Provisions Indenture or a Terms Indenture at different dates,
the later date.
"DEBT SERVICE FUNDS": Unless otherwise specified in the Terms Indenture
for a Series, the total of the Supplemental Debt Service Fund and the
Buy-Down Fund for such Series.
"DEFAULT": Any occurrence which is, or with notice or the lapse of time
or both would become, an Event of Default.
"DEFICIENCY": With respect to each GPM GNMA Certificate or GPM Pledged
Loan securing a Series valued on a level debt service basis in
calculating Initial Bond Value, the amount by which payments of
principal and interest on such item of GPM Collateral assumed in
calculating payments due on the Bonds of such Series exceed scheduled
payments on such item of GPM Collateral according to the graduated
payment mortgage plan for the period during which such excess occurs.
The amount of the deposit to the Supplemental Debt Service Fund securing
a Series will be specified in the related Terms Indenture.
"DELIVERY DATE": The date that Bonds of a Series are delivered to the
original purchasers of such Bonds.
<PAGE>
"DEPOSITOR": CRSM Securities, Inc..
"DEPOSIT TRUST AGREEMENT": The deposit trust agreement between CRSM
Securities, Inc., a California corporation, and the Owner-Trustee
creating the Issuer.
"DETERMINATION DATE": The date specified in the related Terms Indenture.
"DUE DATE": Each date on which a payment whether of principal or interest
or both is due on a Mortgage Certificate or Pledged Loan securing a
Series.
"DUE PERIOD": With respect to each Payment Date for a Series, the related
Due Period shall be the period beginning immediately following the
preceding Due Period (or, in the case of the Due Period which is
applicable to the first Payment Date, beginning on the Issue Date for
such Series) and ending at the close of business on the last Business Day
preceding such Payment Date.
"ELIGIBLE INVESTMENTS": Except to the extent expanded or restricted by
the Terms Indenture for the Series of which such obligations or
securities form part of the Trust Estate, any one or more of the
following obligations or securities:
(i) direct obligations of, and obligations fully guaranteed by, the
United States of America or any agency or instrumentality of the United
States of America the obligations of which are backed by the full faith
and credit of the United States of America;
(ii) general obligations of or obligations guaranteed by any State of the
United States or the District of Columbia which have the highest rating
from each Rating Agency rating the Bonds of such Series at the time of
such investment;
(iii)(a) demand and time deposits in, certificates of deposit of,
banker's acceptances issued by, or federal funds sold by any depository
institution or trust company incorporated under the laws of the United
States of America (including the Trustee) or any State thereof and
subject to supervision and examination by federal and/or State banking
authorities so long as the commercial paper and/or debt obligations of
such depository institution or trust company (or, in the case of the
principal depository institution in a holding company system, the
commercial paper or debt obligations of such holding company) at the time
of such investment or contractual commitment providing for such
investment are then rated in the highest rating category of each Rating
Agency rating the Bonds of such Series or such lower category that will
not result in the lowering of the then rating of the Bonds of such Series
by any such Rating Agency and (b) any other demand or time deposit or
certificate of deposit which is fully insured by the Federal Deposit
Insurance Corporation;
(iv) repurchase obligations with respect to (a) any security described in
clauses (i) and (ii) above or (b) any other security issued or guaranteed
by an agency or instrumentality of the United States of America, in
either case entered into with a depository institution or trust company
(acting as principal) described in clause (iii)(a) above;
(v) Securities bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States of America
or any State thereof which at the time of such investment or contractual
commitment providing for such investment are then rated in the highest
rating category of each Rating Agency rating the Bonds of such Series or
in such lower rating category that will not result in the lowering of
the then rating of the Bonds of such Series by any such Rating Agency;
provided, however, that securities issued by any particular corporation
will not be Eligible Investments to the extent that the investment
therein will cause the then outstanding principal amount of securities
issued by such corporation and held as part of the Trust Estate for a
Series to exceed 10% of the aggregate outstanding principal balances and
amounts of all the Mortgage Collateral and Eligible Investments held as
part of the Trust Estate for such Series;
(vi) commercial or finance company paper which has the highest commercial
or finance company rating of each
<PAGE>
Rating Agency rating the Bonds of such Series at the time of such
investment or such lower rating category that will not result in the
lowering of the then rating of the Bonds of such Series by any such
Rating Agency; and
(vii) a guaranteed investment contract issued by any insurance company or
other corporation or entity acceptable to each Rating Agency rating the
Bonds of such Series and which will not result in a lowering of the then
rating of the Bonds of such Series;
provided that, unless otherwise set forth in a related Terms Indenture,
Eligible Investments for a Series shall include only such obligations or
securities that mature on the earlier of 90 days after deposit, the next
Payment Date for such Series or on or before the date on which the
Supplemental Debt Service Fund, the Buy-Down Fund, the Reserve Fund, the
Overcollateralization Fund or the Other Funds for such Series are
required or may be anticipated to be required to be holders of Bonds of
such Series in accordance with this Standard Provisions Indenture or the
relevant Terms Indenture and that Eligible Investments purchased from
funds in the Collection Account for such Series shall include only such
obligations or securities that mature on the earlier of 90 days after
deposit, the next Payment Date for such Series or on or before the date
on which the Collection Account for such Series is required to be
invested pursuant to a Reinvestment Agreement for such Series.
"EVENT OF DEFAULT": The meaning specified in Section 6.01.
"EXCESS CASH": As of any Payment Date for a Series, the excess, if any,
of the sum of (i) the distributions received on the Mortgage Collateral
securing such Series in the Due Period prior to such Payment Date, (ii)
the Reinvestment Income thereon and (iii) if applicable, the amount of
cash withdrawn from the related Debt Service Funds, the Reserve Fund, the
Overcollateralization Fund and the Other Funds for such Series of Bonds
in the Due Period preceding such Payment Date, over the sum of (a) all
interest accrued and paid or payable on the Bonds of such Series since
the preceding Payment Date; (b) the Required Principal Payment required
to be made on such Series of Bond on such Payment Date, (c) the interest,
if any, accrued but unpaid on any Compound Interest Bonds of such Series
since the immediately preceding Payment Date, (d) the amount of any
required deposits to the related Debt Service Funds, the Reserve Fund,
the Overcollateralization Fund and the Other Funds, and (e) necessary
expenses allocable to the administration of records of deposits and
disbursements.
"EXCESS COVERAGE MORTGAGE INSURANCE POLICY": With respect to a Series,
any policy of mortgage insurance (including all endorsements thereto) in
addition to the Primary Mortgage Insurance Policy issued by the Mortgage
Insurer with respect to a Pledged Loan securing such Series, or any
replacement policy.
"EXECUTIVE OFFICER": With respect to any corporation, the Chairman of the
Board of Directors, the President, any Vice President, the Secretary or
the Treasurer of such corporation; with respect to any partnership, any
general partner thereof; with respect to any bank or trust company acting
as trustee of an express trust or as custodian, any trust officer or
authorized officer thereof.
"FEDERAL BANKRUPTCY CODE": Title 11 of the United States Code, as
amended, or any successor statute.
"FHA": The Federal Housing Administration or any successor thereof.
"FHA LOANS": Mortgage loans insured by the FHA under the National Housing
Act of 1934, as amended.
"FHLMC" or "Freddie Mac": The Federal Home Loan Mortgage Corporation or
any successor thereof.
"FINANCE COMPANY": Each of the limited purpose financing companies
organized for the purpose of borrowing proceeds of one or more Series of
Bonds issued pursuant to this Standard Provisions Indenture or other
Series of Bonds issued pursuant to another indenture from time to time.
"FIRST MANDATORY PRINCIPAL PAYMENT DATE": With respect to any Series or
Class, the Payment Date specified in the related Terms Indenture as the
Payment Date on which the Issuer must begin paying installments of
<PAGE>
principal of the Bonds of such Series or Class if it has not already
begun making such payments.
"FNMA": The Federal National Mortgage Association or any successor
thereof.
"FNMA MBS": A guaranteed mortgage pass-through certificate consisting of
an undivided interest in a pool of mortgage loans secured by a lien on
residential property formed by FNMA, which is pledged to the Trustee
under this Standard Provisions Indenture and the related Terms Indenture
as security for a Series, and all renewals, extensions, substitutions and
replacements thereof. Each pool consists of mortgage loans of one of the
following types: (i) fixed rate level installment conventional mortgage
loans, (ii) fixed rate level installment mortgage loans that are insured
by the FHA or guaranteed by the VA or (iii) fixed rate conventional
growing equity mortgage loans that provide for scheduled annual increased
payments, with the full amount of the increase applied to principal. The
FNMA MBSs securing a Series may consist of types (i) and (ii). The term
"Outstanding FNMA MBSs" with respect to a Series as of any date means the
FNMA MBSs securing such Series with a remaining principal balance. Each
FNMA MBS pledged to the Trustee as security for a Series will be listed
in a schedule to the related Terms Indenture.
"FREDDIE MAC PC": A mortgage participation certificate representing an
undivided interest in specified fixed rate, conventional residential
mortgages purchased by the Freddie Mac, which is pledged to the Trustee
under this Standard Provisions Indenture and the related Terms Indenture
as security for a Series, and all renewals, extensions, substitutions and
replacements thereof. The term "Outstanding Freddie Mac PCs" with
respect to a Series as of any date means the Freddie Mac Pcs securing
such Series with a remaining principal balance. Each Freddie Mac PC
pledged to the Trustee as security for a Series will be listed in a
Schedule to the related Terms Indenture.
"GNMA": The Government National Mortgage Association or any successor
thereof.
"GNMA CERTIFICATE": A fully-modified pass-through mortgage-backed
certificate issued by a Servicer and guaranteed by GNMA, which is pledged
to the Trustee under this Standard Provisions Indenture and the related
Terms Indenture as security for a Series, and all renewals, extensions,
substitutions and replacements thereof. Each such GNMA Certificate will
be a GNMA I Certificate or a GNMA II Certificate as referred to by GNMA.
The terms "Outstanding GNMA Certificates" with respect to a Series as of
any date means the GNMA Certificates with a remaining principal balance.
Each GNMA Certificate pledge to the Trustee as security for a Series will
be listed in a Schedule to the related Terms Indenture.
"GRADUATED PAYMENT MORTGAGE COLLATERAL": Unless otherwise specified in
the Terms Indenture for a Series, together, the GPM GNMA Certificates and
the GPM Pledged Loans securing such Series.
"GPM": Graduated Payment Mortgages.
"GPM GNMA CERTIFICATES": GNMA Certificates evidencing mortgage loans
insured by the FHA pursuant to Section 245 of the National Housing Act or
partially guaranteed by the VA pursuant to the Servicemen's Readjustment
Act of 1944, as amended, and which provided for monthly installments to
increase annually for no more than the first five years of such mortgage
loans.
"GPM PLEDGED LOANS": Pledged Loans which provide for monthly installments
during a portion of their terms which are less than the actual amount of
principal and interest which would be payable on a debt service basis.
"GRANT": To grant, bargain, sell, warrant, alienate, remise, demise,
release, convey, assign, transfer, mortgage, pledge, create and grant a
security interest in and right of set-off against, deposit, set over and
confirm. A Grant of the Mortgage Collateral or of any other instrument
shall include all rights, powers and options (but none of the
obligations) of the Granting party thereunder, including without
limitation the immediate and continuing right to claim for, collect,
receive and receipt for principal and interest payments in respect of the
Mortgage Collateral and all other moneys payable thereunder, to give and
receive notices and other communications, to make waivers or other
agreements, to exercise all rights and options, to bring Proceedings in
the name of the
<PAGE>
Granting party or otherwise, and generally to do and receive anything
which the Granting party is or may be entitled to do or receive
thereunder or with respect thereto.
"HOLDER": An owner of any Class 1-A or Class 1-R Bonds.
"INDENTURE": With respect to a Series, the collective provisions of the
Standard Provisions Indenture and the Terms Indenture for such Series of
Bonds.
"INDEPENDENT": When used with respect to any specified Person means such
a Person, who (1) is in fact independent of the Issuer and any other
obligor upon the Bonds or an Affiliate of the Issuer or such other
obligor, (2) does not have any direct financial interest or any material
indirect financial interest in the Issuer or in any such other obligor or
in an Affiliate of the Issuer or such other obligor, and (3) is not
connected with the Issuer or any such other obligor as an officer,
employee, promoter, underwriter, trustee, partner, director or person
performing similar functions. Whenever it is provided herein that any
Independent Person's opinion or certificate shall be furnished to the
Trustee, such Person shall be appointed by Issuer Order and approved by
the Trustee in the exercise of reasonable care and such opinion or
certificate shall state that the signer has read this definition and that
the signer is independent within the meaning thereof.
"INITIAL BOND VALUE": With respect to each Mortgage Certificate or
Pledged Loan securing a Series, the Bond Value of each such Mortgage
Certificate or Pledged Loan at the date of issuance of the Bonds of such
Series.
"INITIAL COLLATERAL VALUE:" With respect to each Mortgage Certificate or
Pledged Loan securing a Series, the Collateral Value of each such
Mortgage Certificate or Pledged Loan at the date of issuance of the Bonds
of such Series.
"INITIAL OUTSTANDING GNMA CERTIFICATE AMOUNT": With respect to a GNMA
Certificate securing a Series, the Outstanding GNMA Certificate Amount as
of the Cut-off Date for such Series less the amount of the principal
payment due on such GNMA Certificate in the month in which such Cut-off
Date occurs.
"INITIAL OUTSTANDING FNMA MBS AMOUNT": With respect to a FNMA MBS
securing a Series, the Outstanding FNMA MBS Amount as of the Cut-off Date
for such Series less the amount of the principal payment due on such FNMA
MBS in the month in which such Cut-off Date occurs.
"INITIAL OUTSTANDING FREDDIE MAC PC AMOUNT": With respect to a Freddie
Mac PC securing a Series, the Outstanding Freddie Mac PC Amount as of the
first day of the month immediately preceding the month of the Cut-off
Date for such Series less the amount of the principal payment paid in the
month immediately preceding the month in which such Cut-off Date occurs
and the amount of such payment due in such month.
"INITIAL OUTSTANDING MORTGAGE CERTIFICATE AMOUNT": Together, the Initial
Outstanding GNMA Certificate Amount, the Initial Outstanding Freddie Mac
PC Amount, the Initial Outstanding FNMA MBS Amount and the Initial
Outstanding Other Mortgage Certificate Amount for a Series.
"INITIAL OUTSTANDING MORTGAGE COLLATERAL AMOUNT": Together, the Initial
Outstanding Mortgage Certificate Amount and the Initial Outstanding
Pledged Loan Amount for a Series.
"INITIAL OUTSTANDING OTHER MORTGAGE CERTIFICATE AMOUNT": With respect to
an Other Mortgage Certificate securing a Series, the Outstanding Other
Mortgage Certificate Amount as of the Cut-off Date for such Series or
such other date as may be specified in the related Terms Indenture.
"INITIAL OUTSTANDING PLEDGED LOAN AMOUNT": With respect to a Pledged Loan
securing a Series, the Outstanding Pledged Loan Amount as of the Cut-off
Date for such Series.
"INITIAL OVERCOLLATERALIZATION AMOUNT": With respect to each Series, the
amount specified in the related Terms Indenture.
<PAGE>
"INITIAL OVERCOLLATERALIZATION FACTOR": With respect to each Series, the
amount equal to the Initial Overcollateralization Amount divided by the
Initial Bond Value of the Mortgage Collateral.
"INSURANCE POLICIES": With respect to a Series, any Primary Mortgage
Insurance Policies, any Excess Coverage Mortgage Insurance Policies, any
Pool Insurance Policy, and Special Hazard Insurance Policy, any Mortgagor
Bankruptcy Bond, any Repurchase Bond, any Prepayment Interest Bond, any
FHA insurance, any VA guarantees, and any other insurance policy covering
and Pledged Loan or Mortgaged Property securing such Series, including,
without limitation, any Standard Hazard Insurance Policy and any Title
Insurance Policy as specified in the related Terms Indenture.
"INSURANCE PROCEEDS": With respect to a Series, amounts paid or payable
under any Insurance Policy with respect to such Series, to the extent not
applied to the restoration or repair of the Mortgaged Property covered
thereby.
"INSURER": With respect to a Series, the Mortgage Insurer, the Pool
Insurance Insurer and the Special Hazard Insurer, when no distinction is
required by the content in which used. Each such Insurer must be rated
in the highest rating category of each Rating Agency rating any Series of
Bonds issued pursuant to this Standard Provisions Indenture unless a
lower Insurer rating will not result in the lowering of the then rating
of any Series of Bonds by any Rating Agency rating any Series of Bonds
issued pursuant to this Standard Provisions Indenture.
"ISSUE DATE": With respect to a Series, the date specified in the related
Terms Indenture.
"ISSUER": With respect to the Series No. 1 Bonds, CRSM Mortgage
Securities Trust No. ___, a Delaware business trust, unless a successor
Person shall have become the Issuer pursuant to the applicable provisions
of this Standard Provisions Indenture.
"ISSUER ORDER" and "ISSUER REQUEST": A written order or request signed in
the name of the owner-trustee of any Trust issuing Bonds by its Chairman,
President, or a Vice President, and by its Treasurer, an Assistant
Treasurer, Controller, an Assistant Controller, Secretary, or an
Assistant Secretary, and delivered to the Trustee.
"LETTER OF CREDIT": An irrevocable letter of credit issued to the Trustee
by any banking corporation incorporated under the laws of the United
States or of any state thereof provided that the unsecured senior debt
obligations of such banking corporation have been rated in the highest
category by each Rating Agency rating a Series of Bonds or issued by any
other entity acceptable to each Rating Agency rating the Bonds. Unless
otherwise specified in the Terms Indenture, any such Letter of Credit
shall provide that it is subject to termination upon not less than 60
days' prior written notice to the Trustee, in which case, unless such
Letter of Credit is renewed or a substitute Letter of Credit in the
requisite amount is provided, upon receipt of any such written notice,
the Trustee shall immediately, and in no case more than 15 days after
such notice, draw on the Letter of Credit for the entire unutilized
balance thereof and deposit such amount in the fund for which the Letter
of Credit is obtained. Unless otherwise specified in the Terms Indenture,
any such Letter of Credit also shall provide for written notice to the
Trustee of any change in the rating of the unsecured senior debt
obligations of the banking corporation or any change in the rating of any
other entity issuing the Letter of Credit, in which case upon receipt of
any such written notice the Trustee shall immediately, and in no case
more than 15 days after such notice, draw on the Letter of Credit for the
entire unutilized balance thereof and deposit such amount in the fund for
which the Letter of Credit is obtained unless such change in such rating
will not result in the lowering of the then rating of the Bonds by any
Rating Agency rating the Bonds.
"LIQUIDATION PROCEEDS": Amounts (other than Insurance Proceeds) received
and retained in connection with the liquidation of defaulted Pledged
Loans securing a Series, whether through foreclosure or otherwise.
"LOAN DOCUMENTS": The mortgage documents pertaining to a particular
Pledged Loan comprising the mortgage file reviewed and held by the
Trustee as provided in the Master Servicing Agreement covering such
Pledged
<PAGE>
Loan.
"LOAN LOSSES": With respect to the Pledged Loans securing a Series, as of
the Determination Date, the aggregate amount of losses on such Pledged
Loans in connection with defaults, delinquencies, foreclosures and other
losses not recovered under any applicable Insurance Policies occurring
during the Due Period.
"LOAN-TO-VALUE RATIO": The outstanding principal amount of a Mortgage
Note at the time of the origination of such Mortgage Note divided by the
lesser of (i) the Appraised Value of the related Mortgaged Property or
(ii) the selling price for such Mortgaged Property.
"MATURITY": With respect to any Bond of a Series, the date on which the
unpaid principal of such Bond becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
"MATURITY DATE": With respect to any item of Mortgage Collateral securing
a Series, the date on which the last payment of principal of such item of
Mortgage Collateral shall be due and payable. In determining the
Maturity Date of such item of Mortgage Collateral, all prepayments
received prior to the date of determination shall be taken into account.
"MAXIMUM COLLATERAL VALUE": Unless otherwise specified in the Terms
Indenture for a Series, with respect to each Mortgage Certificate and
Pledged Loan securing such Series, the Outstanding Mortgage Certificate
Amount or the Outstanding Pledged Loan Amount for such Mortgage
Certificate or Pledge Loan multiplied by the Maximum Collateral Value
Factor.
"MAXIMUM COLLATERAL VALUE FACTOR": With respect to any Series, the
factor calculated in accordance with a Schedule to the related Terms
Indenture.
"MINIMUM COLLATERAL VALUE": Unless otherwise specified in the Terms
Indenture for a Series, with respect to each Mortgage Certificate and
Pledged Loan securing such Series, the Outstanding Mortgage Certificate
Amount or the Outstanding Pledged Loan Amount for such Mortgage
Certificate or Pledged Loan multiplied by the Minimum Collateral Value
Factor.
"MINIMUM COLLATERAL VALUE FACTOR": With respect to any Series, the factor
calculated in accordance with a Schedule to the related Terms Indenture.
"MONTHLY REMITTANCE ADVICE": The report provided by the Servicer to the
registered holder of a GNMA Certificate summarizing the current month's
account transactions with respect to such GNMA Certificate.
"MORTGAGE": The mortgage, deed of trust or other instrument securing a
Mortgage Note.
"MORTGAGE CERTIFICATES": With respect to a Series, the GNMA Certificates,
the Freddie Mac Pcs, the FNMA MBSs and the Other Mortgage Certificate
securing such Series.
<PAGE>
"MORTGAGE COLLATERAL": With respect to a Series, together, the Mortgages
and the Mortgage Notes and the Pledged Loans securing such Series.
"MORTGAGE COLLATERAL REPORT": The report provided by the Issuer
pursuant to Section 12.11.(a)
"MORTGAGE INSURER": With respect to a Series, the insurance company or
companies specified in the related Terms Indenture or its subsidiaries,
successors or any Affiliate.
"MORTGAGE NOTE": The note or other evidence of indebtedness of a
Mortgagor with respect to a Pledged Loan.
"MORTGAGED PROPERTY": The real property, together with improvements
thereto, securing the indebtedness of the Mortgagor under the related
Pledged Loan.
"MORTGAGE RATE": With respect to a Pledged Loan, the annual interest rate
required to be paid by the Mortgagor under the terms of the related
Mortgage Note.
"MORTGAGE REPURCHASE BOND" With respect to a Series of Bonds, a bond
obtained and secured by one or more Pledged Loans for the purpose of
insuring the repurchase obligation of the Servicer or the Back-up
Servicer for such Series of Bonds. The amount and duration of the
coverage of such Mortgage Repurchase Bond will be determined by the
rating agency rating the Bonds of such Series and will be set forth in
the related Prospectus Supplement and in the related Terms Indenture.
"MORTGAGOR": The Person indebted under a Pledged Loan.
"MORTGAGOR BANKRUPTCY BOND": With respect to a Series, a policy of
insurance or a Letter of Credit (or any other instrument providing
comparable or greater coverage that will not result in a downgrading of
the then rating on the Bonds of such Series by any Rating Agency rating
the Bonds of such Series) to be issued by the Mortgagor Bankruptcy Bond
Issuer.
"MORTGAGOR BANKRUPTCY BOND ISSUER": With respect to a Series, the company
or companies specified in the related Terms Indenture providing coverage
with respect to each Pledged Loan securing such Series requiring such
coverage in the event of the bankruptcy of the Mortgagor.
"OPINION OF COUNSEL": A written opinion of an attorney at law admitted
to practice before the highest court of any state of the United States or
the District of Columbia or a law firm that may, except as otherwise
expressly provided in this Indenture, be counsel for the Issuer and who
shall be satisfactory to the Trustee. Such counsel will be entitled to
rely upon certificates, opinions or representations as to matters of fact
to the extent permitted by Section 15.2 and, as to matters involving the
laws of any state other than the state in which such counsel is admitted
to practice, upon the opinion of counsel satisfactory to the Trustee.
"ORIGINAL MORTGAGE COLLATERAL": An item of Mortgage Collateral which is
pledged to the Trustee under this Standard Provisions Indenture as
security for a Series of Bonds on the Delivery Date of such Bonds.
"ORIGINATOR": For a Pledged Loan, the Person that originated such Pledged
Loan.
"OTHER FUNDS": The meaning specified in Section 12.05.
"OTHER MORTGAGE CERTIFICATE": An item of Mortgage Collateral, other than
a GNMA Certificate, Freddie Mac PC, FNMA MBS or Pledged Loan, which is
pledged to the Trustee under this Standard Provisions Indenture and the
related Terms Indenture and all renewals, extensions, substitutions and
replacements thereof. An Other Mortgage Certificate may include a
mortgage pass-through certificate or a mortgage-collateralized
obligation. The term "Outstanding Other Mortgage Certificate" with
respect to a Series of any date means an Other Mortgage Certificate with
a remaining principal balance. Each Other Mortgage Certificate pledged
to the
<PAGE>
Trustee as security for a Series will be described and listed in a
Schedule to the related Terms Indenture.
"OUTSTANDING": With respect to a Series, as of the date of determination,
all Bonds of such Series theretofore authenticated and delivered under
this Standard Provisions Indenture except:
(i) Bonds theretofore canceled by the Bond Registrar or delivered to the
Bond Registrar for cancellation;
(ii) Bonds or portions thereof for whose payment or redemption money in
the necessary amount has been theretofore deposited with the Trustee or
any Paying Agent (other than the Issuer) in trust or set aside and
segregated in trust by the Issuer for the holders of such Bonds; provided
that, if such Bonds or portions thereof are to be redeemed, notice of
such redemption has been duly given pursuant to this Standard Provisions
Indenture or provision therefor satisfactory to the Trustee has been
made;
(iii) Bonds in exchange for or in lieu of which other Bonds have been
authenticated and delivered pursuant to this Standard Provisions
Indenture unless proof satisfactory to the Trustee is presented that any
such Bonds are held by a holder in due course; and
(iv) Bonds alleged to have been destroyed, lost or stolen for which
replacement Bonds have been issued as provided in Section 3.06;
provided that, in determining whether the Holders of the requisite
principal amount of the Outstanding Bonds of any Series have given any
request, demand, authorization, direction, notice, consent or waiver
hereunder, Bonds owned by the Issuer, any owner of a beneficial interest
in the Issuer or any other obligor upon the Bonds or any Affiliate of the
Issuer, any owner of a beneficial interest in the Issuer or of such other
obligor shall be disregarded and deemed not to be outstanding, except
that, in determining whether the Trustee shall be protected in relying,
upon any such request, demand, authorization, direction, notice, consent
or waiver, only Bonds which the Trustee knows to be so owned shall be so
disregarded. Bonds so owned which have been pledged in good faith may be
regarded as outstanding if the pledgee establishes to the satisfaction of
the Trustee the pledgee's right so to act with respect to such Bonds and
that the pledgee is not the Issuer, any owner of a beneficial interest in
the Issuer of any other obligor upon the Bonds or any Affiliate of the
Issuer, any owner of a beneficial interest in the Issuer or such other
obligor.
"OUTSTANDING BOND VALUE": Unless otherwise specified in the Terms
Indenture for a Series, with respect to each Mortgage Certificate or
Pledged Loan securing such Series at any time after the issuance of the
Bonds of such Series, the Bond Value of such Mortgage Certificate or
Pledged Loan.
"OUTSTANDING FNMA MBS AMOUNT": With respect to a FNMA MBS securing a
Series, the outstanding principal amount of such FNMA MBS as provided by
the FNMA to the Trustee.
"OUTSTANDING FREDDIE MAC PC AMOUNT": With respect to a Freddie Mac PC
securing a Series, the outstanding principal amount of such Freddie Mac
PC as provided by Freddie Mac to the Trustee.
"OUTSTANDING GNMA CERTIFICATE AMOUNT": With respect to a GNMA Certificate
securing a Series, the outstanding principal amount of such GNMA
Certificate securing such Series as provided by the Servicer to the
registered holder in the Monthly Remittance Advice.
"OUTSTANDING MORTGAGE CERTIFICATE AMOUNT": Together, the Outstanding GNMA
Certificate Amount, the Outstanding Freddie Mac PC Amount, the
Outstanding FNMA MBS Amount and the Outstanding Other Mortgage
Certificate Amount.
"OUTSTANDING MORTGAGE COLLATERAL AMOUNT": Together, the Outstanding
Mortgage Certificate Amount and the Outstanding Pledged Loan Amount.
"OUTSTANDING OTHER MORTGAGE CERTIFICATE AMOUNT": With respect to an Other
Mortgage Certificate securing a
<PAGE>
Series, the outstanding principal amount of such Other Mortgage
Certificate as provided by the Servicer thereof to the Trustee.
"OUTSTANDING PLEDGED LOAN AMOUNT": With respect to a Pledged Loan
securing a Series, the outstanding principal amount less any principal
advances on such Pledged Loan as reported by the Manager to the Trustee
in the Accounting Report.
"OVERCOLLATERALIZATION AMOUNT": With respect to any Series, the
difference between the Aggregate Initial Overcollateralization Amount for
such Series and the Aggregate Loan Losses for such Series.
"OVERCOLLATERALIZATION FUND": The meaning specified in Section 12.04.
"OWNER-TRUSTEE": The owner trustee of any Trust issuing Bonds under this
Standard Provisions Indenture and a Terms Indenture.
"PAYING AGENT": Any Person authorized by the Issuer to pay the principal
of or interest on any series of Bonds on behalf of the Issuer as
specified in the related Terms Indenture.
"PAYMENT DATE": With respect to any Series or Class, each date specified
as a "Payment Date" for the Bonds of such Series or Class in the related
Terms Indenture.
"PERMITTED ENCUMBRANCE": With respect to any Mortgage Collateral securing
a Series, (i) the lien created by this Standard Provisions Indenture,
(ii) liens for taxes, assessments, levies, fees and other governmental
and similar charges either not yet due or being contested in an
appropriate Proceeding which shall suspend the collection thereof, shall
not expose any part of the Trust Estate securing such Series to loss,
sale or forfeiture and shall not affect the payments to the Trustee of
any amounts payable under this Standard Provisions Indenture to the
Trustee and (iii) the exceptions to title set forth in any Title
Insurance Policy or title report which exceptions are acceptable to the
Issuer.
"PERSON": 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.
"PLEDGED LOANS": The mortgage loans, including any FHA and VA Loans,
pledged to the Trustee as security for a Series, and all renewals,
extensions, substitutions and replacements thereof. The term
"Outstanding Pledged Loans" as of any date means the Pledged Loans
securing a Series with a remaining principal balance. Each Pledged Loan
pledged to the Trustee as security for a Series shall be listed in a
Schedule to the related Terms Indenture.
"PREPAYMENT ACCOUNT": The account established with the Trustee in which
shall be deposited the proceeds of an prepayments received by the Trustee
pursuant to Section 3.10.
"PREPAYMENT INTEREST BOND": With respect to a Series, a Letter of Credit
(or any other instrument providing comparable or greater coverage that
will not result in a downgrading of the then rating on the Bonds of such
Series by any Rating Agency rating the Bonds of such Series) respecting
Pledged Loans that do not require the underlying borrower to pay
interest to the end of the month on principal prepayments of such Pledged
Loans.
"PREPAYMENT INTEREST BOND ISSUER": With respect to a Series, the company
or companies specified in the related Terms Indenture proving the
Prepayment Interest Bond.
"PREPAYMENT RESERVE ACCOUNT": The account established with the Trustee
with respect to a Series in which shall be deposited the portion
specified in the related Terms Indenture of the Excess Cash pursuant to
Section 12.09.
"PRIMARY MORTGAGE INSURANCE POLICY": The policy of primary mortgage
insurance (including all endorsements
<PAGE>
thereto) issued by the Mortgage Insurer with respect to a Pledged Loan,
or any replacement policy.
"PRINCIPAL PREPAYMENT": With respect to any Pledged Loan or Mortgage
Certificate securing a Series, a payment of principal on such Pledged
Loan or the mortgage loans underlying such Mortgage Certificate in excess
of the scheduled principal payments, such excess resulting from
prepayment, partial prepayment, Liquidation Proceeds and Insurance
Proceeds and guarantees with respect to such Pledged Loan, such Mortgage
Certificate or the mortgage loans underlying such Mortgage Certificate.
"PRINCIPAL PRIORITY SCHEDULE": The order of principal payments on the
Classes of Bonds of a Series as set forth in the related Terms Indenture.
"PROCEEDING": Any suit in equity, action at law or other judicial or
administrative proceeding.
"PROSPECTUS"" The Prospectus filed on _________, with the Securities
wand Exchange Commission under Rule 424(b).
"PROSPECTUS SUPPLEMENT": the Prospectus Supplement filed on ___________
under Rule 424(b).
"RATING AGENCY": ____________. or any other nationally recognized rating
agency rating a Series at the time of the issuance of such Series.
"RECORDS": All of the books, ledgers, documents, communications,
writings, schedules, reconciliations, controls, computer data, printouts,
programs, tapes and other electronic data processing storage devices, and
all other data relating to or maintained in connection with the Pledged
Loans, excluding, however, the Loan Documents.
"REDEMPTION DATE": With respect to any Series, the date specified for a
redemption for Bonds of such Series pursuant to Section 11.01.
"REDEMPTION PRICE": With respect to any Bond of a particular Series and
Class to be redeemed pursuant to Article Eleven hereof, the Redemption
Price specified in the related Terms Indenture.
"REDEMPTION RECORD DATE": With respect to any redemption for Bonds of a
Series, a date fixed pursuant to Section 11.01.
"REGISTERED HOLDER": The Person whose name appears on the Bond Register
on the applicable Regular Record Date or Special Record Date, as the case
may be.
"REGULAR RECORD DATE": With respect to any Payment Date for a Series of
Bonds, the close of business on the day specified as the Regular Record
Date for such Series in the related Terms Indenture, or if such day is
not a Business Day, the Business Day immediately preceding such day.
"REINVESTMENT AGREEMENTS": With respect to a Series, one or more
reinvestment agreements listed in a Schedule to the related Terms
Indenture or one or more replacement reinvestment agreements on
substantially the same terms, from a bank, insurance company or other
corporation meeting the requirements (or whose parent company meets the
requirements) set forth in the definition of Eligible Investments or
otherwise acceptable to each Rating Agency rating the Bonds.
"REINVESTMENT INCOME": Any interest or other earnings on all or part of
the Trust Estate for a Series.
"REMITTANCE DATE": Each date on which payments of principal and interest
on an item of Mortgage Collateral are required to be deposited by the
Trustee into the Collection Account.
"REPURCHASE BOND": With respect to a Series, a repurchase bond (or any
other instrument providing comparable or greater coverage that will not
result in a downgrading of the then rating on the Bonds of such Series by
any
<PAGE>
Rating Agency rating the Bonds of such Series) issued by a surety
company (or any other entity acceptable to any Rating Agency rating the
Bonds of such Series) respecting defenses to or claims under any Primary
Mortgage Insurance Policy or Pool Insurance Policy.
"REPURCHASE BOND ISSUER": With respect to a Series, the company or
companies specified in the related Terms Indenture providing the
Repurchase Bond.
"REQUIRED PRINCIPAL PAYMENT": Unless otherwise provided in the related
Terms Indenture, for any Payment Date for a Series of Bonds, an amount
equal to the difference between (i) the sum of (A) the principal amount
of Bonds Outstanding as of the close of business on the preceding Payment
Date (or the latest Redemption Date or Special Redemption Date in the
event a redemption or special redemption has been effected since such
Payment Date) or, with respect to the first Payment Date, the principal
amount of Bonds Outstanding at the Issue Date plus the amount deposited
in the Collection Account pursuant to Section 4.02(17) for such Series
and (B) the Accrual Distribution Amount included in such Series on the
Payment Date and (ii) the Aggregate Outstanding Bond Value of the
Mortgage Collateral as of the Payment Date.
"RESERVE FUND": The meaning specified in Section 12.06.
"RESPONSIBLE OFFICER": With respect to the Trustee, any officer within
the Corporate Trust and agency Group (or any successor group of the
Trustee) including any vice president, assistant vice president,
assistant secretary or any other officer or assistant officer of the
Trustee customarily performing functions similar to those performed by
the Persons who at the time shall be such officer, respectively, or to
whom any corporate trust matter is referred at the Trustee's Corporate
Trust office because of his knowledge of and familiarity with the
particular subject.
"SALE": The meaning specified in Section 6.18.
"SCHEDULE OF MORTGAGE COLLATERAL": The Mortgage Collateral securing a
Series listed in a Schedule or Schedules to the related Terms Indenture.
"SERIES": A separate Series of Bonds issued pursuant to this Standard
Provisions Indenture which Series may, as provided in the related Terms
Indenture, be divided into one or more Classes which may include one or
more Classes of Compound Interest Bonds.
"SERVICER": For each GNMA Certificate, the issuer of such GNMA
Certificate, for each Freddie Mac PC, Freddie Mac or a seller of
mortgages supervised by Freddie Mac; for each FNMA MBS, FNMA or an
eligible servicing institution supervised by FNMA; for each Other
Mortgage Certificate, the Person specified as such with respect thereto;
and for each Pledged Loan, a Person approved by the Issuer, by _____
Mortgage Servicing Center, Inc. and by FNMA or Freddie Mac, and in the
case of FHA Loans by the United States Department of Housing and Urban
Development, as an eligible originator-servicer of mortgage loans.
"SERVICING AGREEMENTS": With respect to a Series, each Servicing
Agreement and all attachments thereto pursuant to which the Servicer of
such Pledged Loan has agreed to perform all the duties incident to the
servicing of such Pledged Loan, as such agreement may be amended or
modified, provided, however, that any such amendment or modification
shall not materially adversely affect the interests and rights of
Bondholders.
"SHORTFALL": With respect to a Buy-Down Pledged Loan securing a Series,
the monthly differences by which required payments on such Buy-Down
Pledged Loan exceed the scheduled monthly payment to be received from the
Mortgagor pursuant to an agreement between the Mortgagor and the lender
of the Mortgaged Property securing such Buy-Down Pledged Loan or another
Person.
"SPECIAL RECORD DATE": With respect to the payment of any defaulted
interest and principal for Bonds of a Series, a date fixed by the
Trustee.
<PAGE>
"SPECIAL REDEMPTION BOND VALUE": With respect to a Series, the Special
Redemption Bond Value calculated in accordance with a Schedule to the
related Terms Indenture.
"SPECIAL REDEMPTION DATE": With respect to a Series, the date each month
(other than any month in which a Payment Date Occurs) specified in the
related Terms Indenture on which Bonds of such Series may be redeemed
pursuant to Section 11.02.
"SPECIAL REDEMPTION DETERMINATION REPORT": The report prepared by the
Issuer pursuant to Section 12.11(d).
"SPECIAL REDEMPTION PRICE": For any Bond of a Series to be redeemed
pursuant to a special redemption, a redemption price equal to 100% of the
outstanding principal amount of such Bonds or portion thereof (or the
unpaid Accreted Value in the case of a Compound Interest Bond) to be
redeemed together with accrued and unpaid interest thereon at the
applicable Bond Interest Rate from the immediately preceding Payment Date
specified in the Terms Indenture for a Series.
"SPECIAL REDEMPTION RECORD DATE": With respect to any special redemption
for Bonds of a Series, a date set forth in the Terms Indenture.
"STANDARD HAZARD INSURANCE POLICY": With respect to a Pledged Loan, the
hazard insurance policy issued by a company authorized to issue such
policies in the state in which the Mortgaged Property securing such
Pledged Loan is located.
"STANDARD PROVISIONS INDENTURE": This instrument as originally executed.
All references in this instrument designated "Articles," "Sections,"
"Subsections" and other subdivisions are to the designated Articles,
Sections, Subsections and other subdivisions of this instrument as
originally executed. The words "herein," "hereof," "hereunder" and other
words of similar import refer to this Indenture as a whole and not to any
particular Article, Section, Subsection or other subdivision.
"STATED MATURITY": With respect to any Bond of a Series, the date
specified in such Bond as the fixed date on which the final installment
of the principal of such Bond is due and payable.
"SUBSTITUTE MORTGAGE COLLATERAL": An item of Mortgage Collateral which is
pledged to the Trustee pursuant to Section 3.11 of this Standard
Provisions Indenture as security for a Series of Bonds.
"SUBSEQUENT DELIVERY DATE": A date fixed by the Issuer for the
substitution of an item of Substitute Mortgage Collateral for an item of
Original Mortgage Collateral or another item of Substitute Mortgage
Collateral.
"SUPPLEMENTAL CUSTODIAL RESERVE FUND": The meaning specified in Section
12.08.
"SUPPLEMENTAL DEBT SERVICE FUND": The meaning specified in Section 12.02.
"TERMS INDENTURE": An indenture supplemental to this Standard Provisions
Indenture that authorizes a particular Series.
"TITLE INSURANCE POLICY": With respect to a Pledged Loan, the policy of
mortgagee's title insurance issued in respect of the Mortgaged Property
securing such Pledged Loan.
"TRUST ESTATE": With respect to a Series, the meaning specified in the
Granting Clause of the related Terms Indenture.
"TRUST INDENTURE ACT" or "TIA": The Trust Indenture Act of 1939, as
amended, as in force at the Date of Execution, unless otherwise
specifically provided.
"TRUSTEE": BANK, unless a successor Person shall have become the Trustee
pursuant to the applicable
<PAGE>
provisions of this Standard Provisions Indenture, and thereafter
"Trustee" shall mean such successor Person.
"VA": The U.S. Veterans Administration or any successor thereof.
"VA LOANS": Mortgage loans partially guaranteed by the VA under the
Servicemen's Readjustment Act of 1944, as amended.
"VOTING STOCK": Capital stock of a corporation of any class or classes
(however designated) having ordinary voting power for the election of a
majority of the members of the board of directors (or other governing
body) of such corporation, other than capital stock having such power
only by reason of the happening of a contingency.
ARTICLE TWO: BOND FORM
Section 2.01. FORMS GENERALLY.
The Bonds of a Series and the Trustee's certificate of authentication
shall be in substantially the forms set forth in the related Terms
Indenture, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Standard Provisions
Indenture, or any Terms Indenture, and may have such letter, numbers or
other marks of identification and such legends or endorsements placed
thereon, as may be required to comply with the rules of any securities
exchange on which the Bonds may be listed, or as may, consistently
herewith, be determined by the officers of the Issuer executing such
Bonds, as evidenced by their execution of such Bonds. Any portion of the
text of any Bond may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Bond.
The definitive Bonds shall be printed, lithographed or engraved or
produced by any combination of these methods on steel engraved borders or
may be produced in any other manner permitted by any Terms Indenture or
the rules of any securities exchange on which the Bonds may be listed,
all as determined by the officers of the Issuer executing such Bonds, as
evidenced by their execution of such Bonds.
Section 2.02. FORM OF BOND.
The form of each Class of Bonds for a Series shall be that specified in
the Terms Indenture for such Series.
ARTICLE THREE: THE BONDS
Section 3.01. AMOUNT UNLIMITED; BONDS ISSUABLE IN SERIES AND CLASSES;
CERTAIN RELATED PROVISIONS.
The aggregate principal amount of Bonds which may be authenticated and
delivered under this Standard Provisions Indenture is unlimited.
The Bonds may, pursuant to the Standard Provisions Indenture and the
Terms Indenture, be issued in one or more Series, each of which Series
may be issued in one or more Classes which may include one or more
Classes of Compound Interest Bonds, and shall be designated generally as
the "Mortgage-Collateralized Bonds" of the Issuer, with such further
particular designations added or incorporated in such title for the Bonds
of any particular Series or Class as the Owner-Trustee may determine.
Each Bond shall bear upon the face thereof the designation so selected
for the Series to which it belongs. All Bonds of the same Series and
Class shall be identical in all respects except for the denominations
thereof. All Bonds of all Classes within one Series at any time
Outstanding (other than Compound Interest Bonds in such Series) shall be
identical except for differences among the Bonds of the different Classes
within such Series in Bond Interest Rates, priorities as to repayment of
principal, First Mandatory Principal Payment Dates and Stated Maturities.
All Bonds of a particular Series
<PAGE>
issued under this Standard Provisions Indenture shall be in all respects
equally and ratably entitled to the benefits hereof without preference,
priority or distinction on account of the actual time or times of
authentication and delivery all in accordance with the terms and
provisions of this Standard Provisions Indenture.
Each Series of Bonds shall be created by a Terms Indenture authorized by
the Owner-Trustee and establishing the terms and provisions of such
Series. The several Series may differ as between Series, in respect of
any of the following matters:
(1) designation of the Series;
(2) Accrual Date;
(3) the number of Classes and the maximum aggregate principal
amount of Bonds of each such Class which may be issued;
(4) the Bond Interest Rate for each Class;
(5) the First Mandatory Principal Payment Dates and the Stated
Maturities for each Class;
(6) the respective percentage of the Excess Cash (a) payable as
principal on the Bonds of such Series on each Payment Date and (b)
payable to the Issuer on each such Payment Date.
(7) Principal Priority Schedule and the basis for principal
payments on the Bonds of a Class;
(8) place or places for the payment of principal;
(9) denominations;
(10) Payment Dates;
(11) the Mortgage Collateral that will be included as part of
the Collateral;
(12) the amount, if any, to be deposited on the Delivery Date in
the Collection Account for such Series;
(13) the amount, if any, to be deposited on the Delivery Date in
the Supplemental Debt Service Fund for such Series;
(14) the amount, if any, to be deposited on the Delivery Date in
the Buy-Down Fund for such Series;
(15) the manner in which the Reserve Fund, if any, is to be
funded and the amount, if any, to be deposited on the Delivery
Date in the Reserve Fund for such Series;
(16) the amount, if any, to be deposited on the Delivery Date in
the Overcollateralization Fund for such Series;
(17) the manner in which the Other Funds, if any, are to be
funded and the amount, if any, to be deposited on the Delivery
Date in such Other Funds for such Series;
(18) the applicability of the special redemption provisions of
Article Eleven;
(19) the types of Insurance Policies required for the Pledged
Loans, if any, to be included as part of the Collateral for such
Series;
<PAGE>
(20) the provisions for optional redemption of the Bonds of such
Series by the Issuer;
(21) the provisions, if any, for optional redemption of the
Bonds of such Series by the Bondholders;
(22) provisions with respect to the following terms for which
the definitions set forth in Article One hereof require or permit
further specification in the related Terms Indenture:
(a) "Assumed Reinvestment Rate";
(b) "Bonds which are not Compound Interest Bonds";
(c) "Bond Value";
(d) "Buy-Down Pledged Loans";
(e) "Collateral";
(f) "Collateral Value";
(g) "Compound Interest Bonds";
(h) "Cut-off Date";
(i) "Debt Service Funds";
(j) "Eligible Investments";
(k) "First Mandatory Principal Payment Date";
(l) "GPM Collateral";
(m) "GPM GNMA Certificate";
(n) "GPM Pledged Loans";
(o) "Initial Bond Value";
(p) "Initial Collateral Value";
(q) "Initial Overcollateralization Amount";
(r) "Maximum Collateral Value Factor";
(s) "Minimum Collateral Value Factor";
(t) "Mortgage Insurer";
(u) "Mortgage Bankruptcy Bond";
(v) "Other Mortgage Certificate";
(w) "Outstanding Bond Value";
<PAGE>
(x) "Paying Agent";
(y) "Pool Insurance Insurer";
(z) "Prepayment Interest Bond";
(aa) "Principal Priority Schedule";
(bb) "Redemption Price";
(cc) "Regular Record Date";
(dd) "Reinvestment Income";
(ee) "Repurchase Bond";
(ff) "Schedule of Mortgage Collateral";
(gg) "Special Hazard Insurer";
(hh) "Special Redemption Bond Value";
(ii) "Special Redemption Date";
(jj) "Special Redemption Record Date"; and
(kk) "Trust Estate";
(23) any other provisions expressing or referring to the terms
and conditions upon which the Bonds of that Series are to be
issued under this Standard Provisions Indenture which are not in
conflict with the provisions of this Standard Provisions
Indenture.
In authorizing the issuance of any Series, the Issuer shall determine and
specify all matters in respect of the Bonds of such Series set forth in
clauses (1) through (23) inclusive, and shall also determine and specify
the forms of Bonds of such Series.
Section 3.02. DENOMINATIONS.
The Bonds of each Series shall be issuable as registered Bonds in the
denominations set forth in the related Terms Indenture and one Bond of
each Class of such Series in such denomination as may be necessary to
represent the remainder of the initial aggregate principal amount of the
Bonds of such Class of such Series.
Section 3.03. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Bonds shall be executed on behalf of the Issuer by the Owner-Trustee
not in its individual capacity but solely as owner-trustee under the
Deposit Trust Agreement.
Bonds bearing the manual or facsimile signatures of persons who were
Authorized Officers at any time the Authorized Officers of the
Owner-Trustee shall bind the Owner-Trustee, notwithstanding that such
individuals or any of them have ceased to be Authorized Officers prior to
the authentication and delivery of such Bonds or were not Authorized
Officers at the date of such Bonds.
At any time and from time to time after the execution and delivery of
this Standard Provisions Indenture and the
<PAGE>
applicable Terms Indenture, the Issuer may deliver Bonds executed by the
Issuer to the Trustee for authentication; and the Trustee shall
authenticate and deliver such Bonds as provided in and subject to the
conditions set forth in this Standard Provisions Indenture and the
related Terms Indenture and not otherwise.
Unless otherwise provided in the applicable Terms Indenture, each Bond
shall be dated as of the date of its authentication, except that those
Bonds delivered on the Delivery Date shall be dated as of the Issue Date.
No Bond shall be entitled to any benefit under this Standard Provisions
Indenture or be valid or obligatory for any purpose, unless there appears
on such Bond a certificate of authentication substantially in the form
provided for herein executed by the Trustee by the manual signature of
one of its authorized officers, and such certificate upon any Bond shall
be conclusive evidence, and the only evidence, that such Bond has been
duly authenticated and delivered hereunder.
Section 3.04. TEMPORARY BONDS.
Pending the preparation of definitive Bonds, the Issuer may execute, and
upon Issuer Order, the Trustee shall authenticate and deliver temporary
Bonds which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any denomination, substantially of the tenor of
the definitive Bonds in lieu of which they are issued and with such
variations as the Authorized Officers executing such Bonds may determine,
as evidenced by their execution of such Bonds.
If temporary Bonds are issued, the Issuer will cause definitive Bonds to
be prepared without unreasonable delay. After the preparation of
definitive Bonds, the temporary Bonds shall be exchangeable for
definitive Bonds upon surrender of the temporary Bonds at the office or
agency of the Issuer to be maintained as provided in Section 9.02,
without charge to the Holder. Upon surrender for cancellation of any one
or more temporary Bonds, the Issuer shall execute and the Trustee, at the
cost of the Issuer, shall authenticate and deliver in exchange therefor a
like principal amount of definitive Bonds of the same Series and Class of
authorized denominations. Until so exchanged the temporary Bonds shall
in all respects be entitled to the same benefits under this Standard
Provisions Indenture as definitive Bonds of the same Series and Class.
Section 3.05. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
The Issuer shall cause to be kept a Bond Register in which, subject to
such reasonable regulations as it may prescribe, the Issuer shall provide
for the registration of Bonds and the registration of transfers of
Bonds. The Trustee is hereby appointed "Bond Registrar" for the purpose
of registering Bonds and transfers of Bonds as herein provided.
If a Person other than the Trustee is appointed by the Issuer as Bond
Registrar, the Issuer will give the Trustee prompt written notice of the
appointment of a Bond Registrar and of the location, and any change in
the location, of the Bond Register, and the Trustee shall have the right
to inspect the Bond Register at all reasonable times and to obtain copies
thereof and the Trustee shall have the right to rely upon a certificate
executed on behalf of the Bond Registrar by an Authorized Officer thereof
as to the names and addresses of the Holders of the Bonds and the
principal amounts and numbers of such Bonds.
Upon surrender for registration of transfer of any Bond at the office or
agency of the Issuer to be maintained as provided in Section 9.02, the
Issuer shall execute, and the Trustee shall authenticate and deliver, in
the name of the designated transferee or transferee, one or more new
bonds of any authorized denominations of the same Series and Class and of
a like aggregate principal amount.
No transfer, sale, pledged or other disposition of a Bond shall be made
to any employee benefit plan that is subject to the Employee Retirement
Income Securities Act of 1974, as amended ("ERISA"), or described in
Section 4975(e)(1) of the Code, or an entity whose underlying assets
include the assets of any such plan, unless the Holder and the Trustee
are provided with a certification and Opinion of Counsel which establish
to the
<PAGE>
satisfaction of the Holder and the Trustee that such disposition will
not constitute a prohibited transaction under ERISA or Section 4975 of
the Code. The Seller or the Trustee may require that the prospective
transferee of a Holder of a Bond desiring to transfer any such Bond
certify to the Seller and the Trustee in writing the facts establishing
that such transferee is not a plan subject to ERISA or described in
Section 4975(e)(1) of the Code.
No transfer or sale of any Bond shall be made unless such transfer is
exempt from the registration requirements of the Securities Act of 1933,
as amended, and any applicable state securities laws or is made in
accordance with said Act and laws. In the event that such a transfer is
to be made, the Seller may, and the Trustee shall, require an Opinion of
Counsel, which counsel may, if otherwise acceptable, be an employee of
the transferee or transferor, in form and substance satisfactory to the
Holder and the Trustee that such transfer may be made pursuant to an
exemption from said Act and laws or is being made pursuant to said Act
and laws; PROVIDED, HOWEVER, that no such Opinion of Counsel shall be
required in relation to transferee taking directly from the Issuer in
connection with the initial sale by the Bonds purchased by it from the
Holder. The costs of any of the foregoing certifications or Opinions of
Counsel shall not be charged to any of the Holder, the Trustee or the
Issuer.
(c) Each Person who has or who acquires an beneficial or other
interest in a Bond shall be deemed by the acceptance or acquisition of
such interest to have agreed to be bound by the following provisions and
to have irrevocably appointed the Trustee or its designee as its
attorney-in-fact to execute all instruments of transfer and to do all
other things necessary, and the rights of each Person acquiring such
interest in a Class 1-R Bond are expressly subject to the following
provisions:
(i) Each Person holding or acquiring such interest in a Class
1-R. bond shall be a Permitted Transferee and shall promptly notify the
Trustee of any change or impending change in its status as a Permitted
Transferee.
(ii) No such interest in a Class 1-R Bond may be transferred
without the express written consent of the Trustee. The Trustee shall
consent to a proposed transfer of such interest in a Class 1-R Bond only
if the Trustee has been provided, in form and substance satisfactory to
it, the following:
(A) a statement under penalty of perjury proposed
transferee that such transferee is a Permitted Transferee and that
no purpose of the transfer is to impede the assessment or
collection of tax; and
(B) an express covenant by the proposed Transferee to be
bound by and to abide by the provisions of this Standard
Provisions Indenture and the related restrictions set forth on the
face of the Class 1-R Bond as the case may be.
In addition to requiring the above, the Trustee shall require an Opinion of
Counsel stating that the transfer will not result in the transfer of the Class
1-R bond to someone other than a Permitted Transferee.
(iii) Any attempted or purported transfer of such interest in a Class
Bond in violation of the provisions of this Section shall be absolutely null and
void and shall vest no rights in the purported transferee. The Trustee shall be
entitled to recover from any purported transferee of a Class 1-R Bond that was
in fact not a Permitted Transferee at the time such Class 1-R Bond was
registered in its name on the Certificate Register all payments made on such
Class 1-R Bond. Any such payments so recovered by the Trustee shall be paid and
delivered by the Trustee to the prior Holder of Class 1-R Bond.
The Trustee is hereby authorized and directed to provide to the Internal Revenue
Service and to any Holder or transferor of a Class R Bond or any such other
person specified in Section 860E(e)(3) or (e)(6), a computation showing the
present value of the total anticipated excess inclusions with respect to the
Class 1-R Bond for periods after the transfer, to make available any other
information necessary for compliance with Section 860E(e) of the Code, and to
maintain records and information sufficient to make any calculations that maybe
be required pursuant to such section.
At the option of the Holder, Bonds may be exchanged for other Bonds of any
authorized denominations of the same Series
<PAGE>
and Class and of the like aggregate principal amount, upon surrender of the
Bonds to be exchanged at such office or agency. Whenever any Bonds are so
surrendered for exchange, the Issuer shall execute, and the Trustee shall
authenticate and deliver, the Bonds which the Bondholder making the exchange is
entitled to receive.
All Bonds issued upon any registration of transfer or exchange of Bonds shall be
the valid obligations of the Issuer, evidencing the same debt and entitled to
the same benefits under this Standard Provisions Indenture as the Bonds
surrendered upon such registration of transfer or exchange.
Every Bond presented or surrendered for registration of transfer or exchange
shall (if so required by the Issuer or the Trustee) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Issuer and the Trustee duly executed by the Holder thereof or his attorney duly
authorized in writing with such signature guaranteed by a commercial bank or
trust company or by a member firm of a national securities exchange, and such
other documents as the Trustee may require.
No service charge shall be made to a Holder for any registration of transfer or
exchange of Bonds, but the Issuer may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Bonds, other than exchanges
pursuant to Sections 3.04 and 10.06 not involving any transfer.
Section 3.06. MUTILATED, DESTROYED, LOST OR STOLEN BONDS.
If (i) any mutilated Bond is surrendered to the Trustee, or the Issuer
and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Bond, and (ii) there is delivered to
the Issuer and the Trustee such security or indemnity as may be required
by them to save each of them harmless, then, in the absence of notice to
the Issuer or the Bond Registrar that such Bond has been acquired by a
bona fide purchaser, the Issuer shall execute and upon its request the
Trustee shall authenticate and deliver, in exchange for or in lieu of any
such mutilated, destroyed, lost or stolen Bond, a new Bond of the same
Series, Class, tenor and principal amount, bearing a number not
contemporaneously outstanding; provided, however, that if any such
mutilated, destroyed, lost or stolen Bond shall have become or shall be
about to become due and payable, or shall have been selected or called
for redemption, instead of issuing a new Bond, the Issuer may pay such
Bond without surrender thereof, except that any mutilated Bond shall be
surrendered.
Upon the issuance of any new Bond under this Section, the Issuer may
require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
reasonable expenses (including the fees and expenses of the Trustee)
connected therewith.
Every new Bond issued pursuant to this Section in lieu of any mutilated,
destroyed, lost or stolen Bond shall constitute an original additional
contractual obligation of the Issuer, whether or not the mutilated,
destroyed, lost or stolen Bond shall be at any time enforceable by
anyone, and shall be entitled to all of the benefits of this Standard
Provisions Indenture equally and proportionately with any and all other
Bonds of the same Series and Class duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Bonds.
Section 3.07. PAYMENT OF PRINCIPAL AND INTEREST; PRINCIPAL AND INTEREST
RIGHTS PRESERVED.
(a) Except for any Compound Interest Bonds included in a Series, the
Bonds of each Class of such Series shall bear interest at the Bond
Interest Rate for the Bonds of such Class of such Series, which interest
shall be due and payable on each Payment Date on the unpaid principal
amount of the Bonds of such Class of such Series determined as of the
close of business on the date specified in the related Terms Indenture,
commencing on the date specified in the related Terms Indenture and
continuing on each Payment Date thereafter until the entire unpaid
principal amount of the Bonds of such Class of such Series is paid,
whether by acceleration or otherwise, and (to the extent lawful and
enforceable) shall bear interest on overdue interest at the Bond Interest
Rate for the
<PAGE>
Bonds of such Class of such Series.
(b) Until there is paid the entire unpaid principal amount of each Class
of Bonds of a Series which is not a Compound Interest Bond having an
earlier Stated Maturity than a particular Class of Compound Interest
Bonds, interest on such Compound Interest Bonds of such Series shall be
compounded at the Bond Interest Rate of such Compound Interest Bonds on
each Payment Date on the unpaid Accreted Value of such Compound Interest
Bonds determined as of the close of business on the date specified in the
related Terms Indenture, commencing on the date specified in the related
Terms Indenture, and continuing on each Payment Date thereafter. On the
Payment Date on which the entire unpaid principal amount of each Class of
Bonds of such Series having an earlier Stated Maturity than a particular
Class of Compound Interest Bonds is paid in full, any remaining portion
of the amount then payable on such Payment Date shall be paid as
interest on such Compound Interest Bonds of such Series and, to the
extent such amount is less than the amount of the interest accrued on
such Compound Interest Bonds since the immediately preceding Payment
Date, the difference shall be added to the Accreted Value of the Bonds of
such Class of such Series. Thereafter, such Compound Interest Bonds
shall bear interest at the Bond Interest Rate for such Compound Interest
Bonds which interest shall be due and payable on each Payment Date as
specified in the related Terms Indenture on the unpaid Accreted Value of
such Compound Interest Bonds determined as of the close of Business on
the date specified in the related Terms Indenture, until the entire
unpaid Accreted Value of such Compound Interest Bonds is paid, whether by
acceleration or otherwise, and (to the extent lawful and enforceable)
shall bear interest on overdue interest as the Bond Interest Rate for the
Bonds of such Class of such Series. Notwithstanding the foregoing, in
the event that each Class of Bonds of such Series having an earlier
Stated Maturity than a particular Class of Compound Interest Bonds are
paid in full and that the payment of principal and interest on the
Mortgage Collateral securing such Series is insufficient at that time to
pay the full amount of required interest on any Compound Interest Bond on
any Payment Date, the amount of interest which is not available shall be
added to the Accreted Value of such Compound Interest Bonds.
(c) Unless otherwise provided in the related Terms Indenture, the
principal of the Bonds of a Series shall be payable commencing on the
date specified in the related Terms Indenture, and continuing on each
Payment Date thereafter until the entire unpaid principal amount of the
Bonds of such Series is paid, in an amount equal to the sum of (i) the
Required Principal Payment and (ii) percentage, if any, of the Excess
Cash specified in the related Terms Indenture. All payments of principal
on the Bonds of a Series shall be applied to the Classes of such Bonds as
specified in the related Terms Indenture and shall be allocated on a
random lot, pro rata or other selection basis as specified in such Terms
Indenture. Monies in the Reserve Fund, the Overcollateralization Fund or
the Other Funds for such Series shall be withdrawn to the extent required
to make required payments of principal of and interest on the Bonds of
such Series and to pay in full any Class of Bonds of such Series by its
Stated Maturity.
(d) Interest and principal shall be payable by electronic transfer or by
check (subject to collection) mailed to the Person entitled thereto at
his address as it appears on the Bond Register, except for the final
payment due on Maturity of a Bond of a Series, which shall be made only
upon presentation and surrender of the Bond at the office or agency of
the Issuer maintained for that purpose as provided in Section 9.02. In
the case of any Bond upon which the final payment is due on the Maturity
of such Bond, the Issuer or, at the Issuer's request, the Trustee in the
name and at the expense of the Issuer, shall notify the Person entitled
thereto at his address as it appears on the Bond Register that such Bond
is to be paid in full. Such notice shall be mailed 10 days, and in any
event not later than five days, prior to the Payment Date on which the
final payment is to be made on such Bond and shall specify the place
where such Bond may be presented and surrendered for final payment.
(e) Interest and principal on the Bonds of a Series shall be payable
solely from the proceeds of the Trust Estate Granted in the related Terms
Indenture unless otherwise provided in such Terms Indenture Interest on
the Bonds of a Series will be computed on the basis of a 360-day year
consisting of 12 months of 30 days each.
(f) The Holders of the Bonds of a Class as of the Regular Record Date in
respect of a Payment Date shall be entitled to the interest accrued and
payable and principal payable on such Payment Date with respect to the
Bonds of such Class. Payments to such Holders shall be made in the
proportion which the unpaid principal
<PAGE>
balance of the Bonds of such Class registered in the name of each such
Holder on such Regular Record Date bears to the aggregate unpaid
principal balance of all Bonds of such Class on such Regular Record Date.
Any such payments that are mailed and returned to the Paying Agent shall
be held for payment as herein provided at the office or agency of the
Trustee.
(g) If any Bond of a Series or portion thereof is called for redemption
on a Redemption Date or Special Redemption Date after the Regular Record
Date in respect of a Payment Date and on or before such Payment Date, and
notice of redemption has been mailed and funds for such redemption have
been duly provided, interest accrued to the date specified in the related
Terms Indenture for such Bonds shall be paid only against surrender of
the Bonds for redemption in accordance with said notice.
(h) Subject to the foregoing provisions of this Section, each Bond of a
Series delivered under this Standard Provisions Indenture and its related
Terms Indenture upon registration of transfer of or in exchange for or in
lieu of any other Bond shall carry the rights to unpaid interest and
principal that were carried by such other Bond.
Section 3.08. PERSONS DEEMED OWNERS.
Prior to due presentment for registration of transfer of any Bond, the
Issuer, the Trustee and any agent of the Issuer or of the Trustee may
treat the Person in whose name any Bond is registered as the owner of
such Bond for the purpose of receiving payments of principal, premium, if
any, and interest on such Bond and for all other purposes whatsoever
(whether or not such Bond is overdue), and neither the Issuer, the
Trustee nor any agent of the Issuer or the Trustee shall be affected by
notice to the contrary.
Section 3.09. CANCELLATION.
All Bonds surrendered for payment, registration or transfer, exchange or
redemption shall, if surrendered to any Person other than the Trustee, be
delivered to the Trustee and shall be promptly canceled by it. The
Issuer may at any time deliver to the Trustee for cancellation any Bonds
previously authenticated and delivered hereunder which the Issuer may
have acquired in any manner whatsoever, and all Bonds so delivered shall
be promptly canceled by the Trustee. No Bonds shall be authenticated in
lieu of or in exchange for any Bonds canceled as provided in this
Section, except as expressly permitted by this Standard Provisions
Indenture. All canceled Bonds held by the Trustee shall be destroyed
unless the Issuer shall direct by an Issuer Order that they be returned
to it.
Section 3.10. LIMITED RIGHT TO SUBSTITUTE COLLATERAL
(a) On any Subsequent Delivery Date for any Series, the Issuer shall have
the right to pledge to the Trustee under this Standard Provisions
Indenture as security for the Bonds of such Series, in substitution for
any one or more items of Original Mortgage Collateral or Substitute
Mortgage Collateral securing such Series, one or more items of Substitute
Mortgage Collateral as long as each such item of Substitute Mortgage
Collateral has (i) an Outstanding Bond Value at least equal to the
Outstanding Bond Value of the item of Original Mortgage Collateral or
Substitute Mortgage Collateral for which such item of Substitute Mortgage
Collateral is substituted, in each case determined on the last preceding
Due Date with respect to such item of Mortgage Collateral before taking
into account payments received by the Trustee on such Due Date, and (ii)
an interest rate within one percentage point of, and a Maturity Date not
later than, the item of Original Mortgage Collateral securing such Series
as of the Delivery Date for such Series; provided, however, that only
GNMA Certificates may be substituted for GNMA Certificates; Freddie Mac
PCs, FNMA MBSs or GNMA Certificates may be substituted for Freddie Mac
PCs or FNMA MBSs; Mortgage Certificates and Pledged Loans may be
substituted for Pledged Loans; and Other Mortgage Certificates of equal
or better quality as the Other Mortgage Certificate for which it is
substituted may be substituted for Other Mortgage Certificates.
(b) The Issuer shall, to secure the Bonds of such Series, in exchange for
each such item of Original Mortgage Collateral or Substitute Mortgage
Collateral:
<PAGE>
(1) deliver to the Trustee the Substitute Mortgage Collateral
which pursuant to such delivery shall become subject to the lien
of this Standard Provisions Indenture following the Subsequent
Delivery Date; and
(2) deliver to the Trustee cash, to be deposited by the Trustee in
the Collection Account with respect to such Series, in an amount
determined according to the following:
(A) determine the difference between (i) the Bond Value of
such Original Mortgage Collateral or Substitute Mortgage
Collateral being released from the lien of this Standard
Provisions Indenture and (ii) the Bond Value of such
Substitute Mortgage Collateral as of the Subsequent
Delivery Date; provided, however, that if such difference
is negative, the amount determined pursuant to this clause
(A) shall be zero;
(B) calculate the interest on the amount determined
pursuant to clause (A) which would have been earned, at the
rate equal to (i) the highest Bond Interest Rate minus (ii)
the Assumed Reinvestment Rate, from the Subsequent Delivery
Date to the immediately succeeding Due Date; and
(C) determine the amount equal to the sum of the amounts
determined pursuant to clauses (A) and (B), which amount is
the amount to be delivered to the Trustee pursuant to this
Section 3.10.
(c) Upon substitution in accordance with Sections 3.10(a) and 3.10(b),
all of the Issuer's right, title and interest to the item of
Substitute Mortgage Collateral shall be assigned to the Trustee
pursuant to Section 4.02(3) of this Standard Provisions Indenture, and
the Issuer shall receive (1) the item of Original Mortgage Collateral
or Substitute Mortgage Collateral for which the item of Substitute
Mortgage Collateral was substituted, (2) all Collateral Proceeds
received by the Trustee on such item of Original Mortgage Collateral
or Substitute Mortgage Collateral on the Due Date immediately prior to
the Subsequent Delivery Date, (3) all amounts deposited in the
Collection Account with the Trustee with respect to such item of
Mortgage Collateral on the Delivery Date of such item of Original
Mortgage Collateral or Substitute Mortgage Collateral if the
Subsequent Delivery Date is prior to the first Payment Date and (4)
any investment earnings on such Collateral Proceeds and such amounts
deposited in the Collection Account. The Issuer also shall deposit
any required amounts relating to the item of Substitute Mortgage
Collateral into the Debt Service Funds, the Reserve Fund, the
Overcollateralization Fund or the Other Funds hereunder and shall be
entitled to receive any amounts on deposit in any such fund or account
relating to the item of Original Mortgage Collateral or Substitute
Mortgage Collateral for which the item of Substitute Mortgage
Collateral is being substituted.
(d) The Trustee shall also receive, not later than the time of delivery
of the item of Substitute Mortgage Collateral, a certificate of a firm of
Independent certified public accountants of national reputation
acceptable to the Trustee, pursuant to Section 4.01(6) of this Standard
Provisions Indenture, stating the fair value of the item of Substitute
Mortgage Collateral, verifying the calculation of the Outstanding Bond
Value of such item of Substitute Mortgage Collateral and the Outstanding
Mortgage Collateral Amount of Substitute Mortgage Collateral or Original
Mortgage Collateral for which it is substituted, and the amount of
Principal Prepayments, if any, with respect to such item of Substitute
Mortgage Collateral since the immediately prior Due Date and verifying
the amount, if any, required to be deposited in the Debt Service Funds,
the Reserve Fund, the Overcollateralization Fund or the Other Funds for
such Series as the result of such substitution and that such substitution
will not lengthen the Stated Maturity of any Class of Bonds of such
Series; an Authorized Officer's Certificate of the Issuer pursuant to
Section 4.02(9) of this Standard Provisions Indenture; an Opinion of
Counsel, dated the date of delivery of the item of Substitute Mortgage
Collateral, pursuant to Section 4.02(16) of this Standard Provisions
Indenture; and, to the extent that any item of Substitute Mortgage
Collateral substituted for an item of Original Mortgage Collateral is an
item of GPM Collateral, a certificate of a firm of Independent certified
public accountants of national reputation acceptable to the Trustee
stating that such firm has verified that the Issuer's calculations show
that, in the event of Principal Prepayments on all Mortgage Collateral
securing such Series which is not GPM Collateral, the principal and
interest payments on the remaining
<PAGE>
Mortgage Collateral securing such Series will be sufficient to pay the
principal and interest on the Bonds of such Series in accordance with
Section 3.07. The documents required pursuant to the above-referenced
Standard Provisions Indenture provisions are hereby deemed qualified
to the extent said provisions are inapplicable to the substitution of
the item of Substitute Mortgage Collateral.
(e) Notwithstanding any other provision of this Section to the contrary,
any item of Substitute Mortgage Collateral which is a Pledged Loan and
which is substituted for an item of Mortgage Collateral which is a
Pledged Loan shall meet the following additional conditions: (1) such
Pledged Loan must have a Loan-to-Value Ratio which is equal to or lower
than the Loan-to-Value Ratio of the Pledged Loan for which it is
substituted; (2) the Mortgaged Property securing such Pledged Loan must
be the primary residence of the Mortgagor unless the Mortgaged Property
securing the Pledged Loan for which it is substituted is either investor
owned or a second residence in which case such Pledged Loan may be
secured by a Mortgaged Property of comparable status; (3) such Pledged
Loan may not be a Buy-Down Pledged Loan if substituted for a Pledged Loan
which is a Pledged Loan on which principal and interest is paid on a
level debt service basis; (4) such Pledged Loan must be covered by a
Primary Mortgage Insurance Policy and an Excess Coverage Mortgage
Insurance Policy securing such Pledged Loan 100% against any loss
sustained by reason of nonpayment the Mortgagor if the Pledged Loan for
which is it substituted has similar coverage; (5) such Pledged Loan may
not be secured by a mortgage or deed of trust on a condominium if
substituted for a Pledged Loan secured by a mortgage or deed of trust on
a single family attached or single family detached home; (6) such Pledged
Loan may not be secured by a mortgage or deed of trust on a single-family
attached home if substituted for a Pledged Loan secured by a mortgage or
deed of trust on a single-family detached home; and (7) such Pledged Loan
must be covered by a Primary Mortgage Insurance Policy or a combination
of a Primary Mortgage Insurance Policy and an Excess Coverage Mortgage
Insurance Policy insuring such Pledged Loan 100% against any loss
sustained by reason of non-payment by the Mortgagor if the Pledged Loan
for which it is substituted has similar coverage. An Authorized Officer
shall certify to the Trustee that these additional conditions are
satisfied.
ARTICLE FOUR: AUTHENTICATION AND DELIVERY OF BONDS
Section 4.01. GENERAL PROVISIONS.
At any time after the execution and delivery of this Standard Provisions
Indenture, Series 1 Bonds may from time to time be executed by the Issuer
and delivered to the Trustee for authentication and thereupon the same
shall be authenticated and delivered by the Trustee upon Issuer Request
and upon compliance with the conditions of Section 4.02, and upon receipt
by the Trustee of the following:
(1) an Issuer Order authorizing the execution, authentication
and delivery of the Bonds and specifying the Classes of the Bonds
and their respective Stated Maturities of principal and the
principal amounts and Bond Interest Rates of each Class of the
Bonds to be authenticated and delivered;
(2) the Terms Indenture, accompanied by an Issuer order
authorizing the Terms Indenture, designating the Bonds to be
created and prescribing, consistent with the applicable provisions
of this Indenture, the terms and provisions relating to the Bonds;
(3) either (i) an officer's certificate of the Depositor
attesting to the due authorization, approval or consent of any
governmental body or bodies, at the time having jurisdiction in
the premises, together with an Opinion of Counsel that the Trustee
is entitled to rely thereon and that the authorization, approval
or consent of no other governmental body is required for the valid
issuance of the Bonds, or (ii) an opinion of Counsel that no such
authorization, approval or consent of any governmental body is
required except for such registrations as are required under the
Securities Act of 1933 and the "Blue Sky", securities and real
estate syndication laws of any State;
(4) an Opinion of Counsel addressed to the Trustee to the effect
that:
<PAGE>
(i) all instruments furnished to the Trustee in connection
with such Bonds conform in all material respects to the
requirements of this Standard Provisions Indenture and
constitute sufficient authority hereunder for the Trustee
to authenticate and deliver the Bonds then applied for;
(ii) all conditions precedent provided for in this
Standard Provisions Indenture relating to the
authentication and delivery of the Bonds then applied
for have been complied with by the Issuer in accordance
with the provisions of the related Terms Indenture;
(iii) all laws and requirements with respect to the form
and execution by the Issuer of the related Terms Indenture
and the execution and delivery by the Issuer of the Bonds
then applied for have been complied with;
(iv) the Owner-Trustee has the corporate power to execute
and deliver the Deposit Trust Agreement and has duly taken
all necessary corporate action for those purposes;
(v) the Deposit Trust Agreement is the valid, legal and
binding agreement of the Owner-Trustee (in its individual
capacity), enforceable in accordance with its terms,
subject to bankruptcy, reorganization, insolvency and other
laws affecting the enforcement of creditors rights
generally and general principles of equity (regardless of
whether such enforceability is considered in a Proceeding
in equity or at law); the Trust is a trust created under
the laws of the state specified in the Deposit Trust
Agreement; and the issuance of the Bonds is in conformity
with the terms of and duly authorized by the Deposit Trust
Agreement;
(vi) the Owner-Trustee has the power under the Deposit
Trust Agreement to execute and deliver the related Terms
Indenture (and, in the case of the first Series to be
authenticated and delivered hereunder, this Standard
Provisions Indenture), and to issue such Bonds and has
duly taken all necessary action for those purposes; and
(vii) this Standard Provisions Indenture is, and the
related Terms Indenture as executed and delivered and the
Bonds then applied for, when issued, delivered,
authenticated and paid for, will be the valid legal and
binding obligations of the Issuer enforceable in accordance
with their terms, subject to bankruptcy, reorganization,
insolvency and other laws affecting the enforcement of
creditors' rights generally and to general principles of
equity (regardless of whether such enforceability is
considered in a Proceeding in equity or at law);
(5) an Authorized Officer's Certificate stating that the Issuer is
not in default under this Standard Provisions Indenture and that
the issuance of the additional Bonds applied for will not result
in a breach of any of the terms, conditions or provisions of, or
constitute a default under, the Deposit Trust Agreement,
indenture, mortgage, deed of trust or other agreement or
instrument to which the Issuer is a party or by which it is bound,
or any order of any court or administrative agency entered in any
Proceeding to which the Issuer is a party or by which it may be
bound or to which it may be subject; and that all conditions
precedent provided in this Standard Provisions Indenture relating
to the authentication and delivery of the additional Bonds applied
for have been complied with;
(6) a certificate of a firm of Independent certified public
accountants of national reputation acceptable to the Trustee (i)
stating the fair value of the Mortgage Collateral securing such
Series and any securities contributed to the Supplemental Debt
Service Fund, the Buy-Down Fund, the Reserve Fund,
<PAGE>
the Overcollateralization Fund or the Other Funds for such
Series assigned to the Trustee as the basis for the
authentication and delivery of the Bonds, (ii) stating that
they have confirmed the accuracy of certain data set forth by
them in such certificate contained on the computer tape or
written copy furnished by the Issuer for the Pledged Loans and
the Mortgage Certificates (the "Mortgage Collateral Data") by
comparing such data to information contained in mortgage loan
files furnished by the Issuer and in such other sources as
shall be specified by them in such certificate (iii) confirming
the Initial Outstanding Mortgage Collateral Amount for each
item of the Mortgage Collateral securing such Series by
reference to such sources as shall be specified by them, and
(v) confirming that they have performed the following
procedures (which do not constitute an examination in
accordance with generally accepted auditing standards):
(A) they have verified that the data used in the calculations
described in (B) through (J) below was accurately taken from the
Mortgage Collateral Data file referred to in (ii) above;
(B) using the assumptions and methodology derived from the
definition of "Initial Bond Value" in this Standard Provisions
Indenture and set forth in detail in such certificate, they have
recomputed the Initial Bond Value for each item of Mortgage
Collateral securing such Series and found each recomputation to be
in agreement with the Issuer's calculation thereof;
(C) using the assumptions and methodology derived from this
Standard Provisions Indenture and described in detail in such
certificate, they have recomputed the required amount to be
deposited on the Delivery Date in the Supplemental Debt Service
Fund for such Series and found such recomputation to be in
agreement with the Issuer's calculation thereof;
(D) using the assumptions and methodology derived from this
Standard Provisions Indenture and described in detail in such
certificate, they have recomputed the required amount to be
deposited on the Delivery Date in the Buy-Down Fund for such
Series and found such recomputation to be in agreement with the
Issuer's calculation thereof;
(E) using the assumptions and methodology derived from this
Standard Provisions Indenture and described in detail in such
certificate, they have tested the clerical accuracy and
methodology of the Issuer's calculations used in calculating the
required amounts to be deposited, if any, on the Delivery Date in
the Overcollateralization Fund for such Series;
(F) using the assumptions and methodology derived from this
Standard Provisions Indenture and described in detail in such
certificate, they have tested the clerical accuracy and
methodology of the Issuer's calculations used in calculating the
required amounts to be deposited on the Delivery Date in the Other
Funds for such Series;
(G) using the assumptions and methodology derived from this
Standard Provisions Indenture and described in detail in such
certificate, they have tested the clerical accuracy and
methodology of the Issuer's calculations used in calculating the
amount to be deposited in the Collection Account for such Series
during each Due Period with respect to (i) the principal and
interest due and payable on the Mortgage Collateral securing such
Series, and (ii) transfers from the Supplemental Debt Service
Fund, the Buy-Down Fund, the Reserve Fund, the
Overcollateralization Fund and the Other Funds for such Series
(based on the assumptions set forth in such certificate) on or
prior to each Payment for such Series;
(H) using the assumptions and methodology derived from this
Standard Provisions Indenture and described in detail in such
certificate, they have recomputed the amount to be deposited, if
any, in the Collection Account for such Series on the Delivery
Date pursuant to Section 4.02(17) below and found such
recomputation to be in agreement with the Issuer's calculation
thereof;
<PAGE>
(I) using the assumptions and methodology derived from this
Standard Provisions Indenture and described in detail in such
certificate, they have recomputed the Reinvestment Income on each
portion of the Trust Estate for such Series which can be earned in
each Due Period through the investment of the amounts described in
paragraphs (G) and (H) above at the applicable Assumed
Reinvestment Rates and based upon such assumptions with respect to
the date of receipt and investment of payments on the Mortgage
Collateral securing such Series as shall be specified in such
certificate;
(J) using the assumptions and methodology derived from this
Standard Provisions Indenture and described in detail in such
certificate, they have recomputed the amount of principal of and
interest on the Bonds of such Series which would be payable on
each Payment Date in accordance with the terms hereof and of such
Bonds (assuming no Principal Prepayments on the Mortgage
Collateral securing such Series and receipt of payments and the
reinvestment thereof as shown in the Issuer's calculations
described in paragraphs (G), (H) and (I) above); and
(vi) based upon the above-specified procedures, such firm has
determined that:
(A) the Initial Bond Value for each category of the Mortgage
Collateral securing such Series specified in such certificate does
not exceed the maximum amount thereof permitted by the terms of
this Standard Provisions Indenture and the related Terms Indenture
and the aggregate Initial Bond Values for the Mortgage Collateral
securing such Series, together with the amount required to be
deposited to the Collection Account for such Series pursuant to
Section 4.02(17)(c) hereof, are at least equal to the principal
amount of the Bonds of such Series being issued on the Delivery
Date;
(B) for each Due Period, the aggregate of the amounts set forth in
the Issuer's calculations described in clauses (v)(G), (v)(H) and
(v)(I) above equals or exceeds, without giving effect to the
Excess Cash, the aggregate amount of principal of and interest on
the Bonds of such Series payable on the following Payment Date, as
set forth in the Issuer's calculations described in clause (v)(J)
above;
(C) the calculations set forth in clauses (v)(A) through (v)(J)
above, inclusive, show the Bonds of such Series will be retired by
their Stated Maturity assuming no Principal Prepayment and without
giving effect to the Excess Cash;
(D) to the extent GPM Collateral is not valued on a level debt
service basis, the calculations set forth in clauses (iv)(A)
through (iv)(J) above show that, in the event of Principal
Prepayments on all Mortgage Collateral securing such Series which
is not GPM Collateral so valued, the principal and interest
payments on the remaining Mortgage Collateral securing such Series
will be sufficient to pay the principal and interest on the Bonds
of such Series in accordance with the terms of this Standard
Provisions Indenture and the related Terms Indenture; and
(7) such other documents as the Trustee may reasonably require.
Section 4.02. SECURITY FOR BONDS.
Series No. 1 Bonds may be executed by the Issuer and delivered to the
Trustee for authentication and thereupon the same shall be authenticated
and delivered to the Issuer by the Trustee upon Issuer Order and upon
delivery by the Issuer to the Trustee, and receipt by the Trustee of the
following:
(1) Back-up Servicing Agreement. Evidence of the execution of the Back-up
Servicing Agreement, if any, with respect to such Series.
(2) Assignment of Mortgage Certificates. The assignment of all of the
Issuer's right, title and interest in and to Mortgage Certificates
securing such Series having aggregate Initial Bond Values, together with
the aggregate Initial Bond Values of the Pledged Loans securing such
Series, which, when taken together with the deposit required pursuant to
Section 4.02(17)(c), are at least equal to the original principal amount
of the Bonds of such
<PAGE>
Series. The Trustee shall use its best efforts to cause each such
Mortgage Certificate to be registered in the name of the Trustee so that
the Trustee shall be the holder of record thereof on or prior to the last
Business Day of the month immediately preceding the Issue Date. In the
event the Trustee is not the holder of record on such date, the Trustee
shall cause each such Mortgage Certificate to be registered in the name
of the Trustee on or prior to the last Business Day of the month in which
the Issue Date occurs and the Issuer shall cause a deposit to be made in
the Collection Account in accordance with Section 4.02(17)(b).
(3) Assignment of Pledged Loans. The assignment of all of the Issuer's
right, title and interest in and to the Pledged Loans securing such
Series having aggregate Initial Bond Values, together with the aggregate
Initial Bond Values of the Mortgage Certificates securing such Series,
which, when taken together with the deposit required pursuant to Section
4.02(17)(c), are at least equal to the principal amount of the Bonds of
such series together with the related Loan Documents. Unless otherwise
set forth in the Terms Indenture, the Trustee shall cause each such
Pledged Loan to be recorded in the name of the Trustee (or its nominee)
on or prior to the last Business Day of the month immediately preceding
the Issue Date for such Series.
(4) Supplemental Debt Service Fund. With respect to each item of GPM
Collateral securing such Series valued on a level debt service basis in
calculating its Initial Bond Value, evidence of funding of the
Supplemental Debt Service Fund for such Series in the form of cash,
Certificates of Deposit or Letters of Credit in an amount, if any,
together with Reinvestment Income thereon at the applicable Assumed
Reinvestment Rate with respect to such item of GPM Collateral, sufficient
to pay the greater of (a) the aggregate remaining Deficiency with respect
to such item of GPM Collateral together with Reinvestment Income thereon
at the applicable Assumed Reinvestment Rate (computed on a Due Period
basis) or (b) the amount,if any, by which the Initial Bond Value of such
item of GPM Collateral (calculated by valuing the scheduled payments on
such item of GPM Collateral on a level debt service basis) exceeds the
Initial Outstanding Mortgage Collateral Amount of such item of GPM
Collateral. The Issuer will be required to value all or a portion of the
GPM Collateral securing such Series on a level debt service basis if it
is determined that the payments of principal and interest on the Mortgage
Collateral securing such Series may be insufficient to meet debt service
requirements on each Class of Bonds of such Series which is not a
Compound Interest Bond in accordance with Section 3.07. Such
determination shall be made prior to the Delivery Date for such Series.
(5) Buy-Down Fund. Evidence of funding of the Buy-Down Fund for such
Series in the form of cash, Certificates of Deposit or Letters of Credit
in an amount, together with Reinvestment Income thereon at the applicable
Assumed Reinvestment Rate, sufficient to pay the aggregate remaining
Shortfall with respect to each Buy-Down Pledged Loan securing such Series
together with Reinvestment Income thereon at the applicable Assumed
Reinvestment Rate (computed on a Due Period basis).
(6) Reserve Fund. Evidence of funding the Reserve Fund for such Series in
the form of cash, Certificates of Deposit or Letters of Credit in an
amount specified in the related Terms Indenture.
(7) Overcollateralization Fund. Evidence of funding of the
Overcollateralization Fund for such Series in the form of cash,
Certificates of Deposit or Letters of Credit in an amount specified in
the related Terms Indenture.
(8) Other Funds. Evidence of funding of the Other Funds for such Series
described in the related Terms Indenture in the form of cash,
Certificates of Deposit or Letters of Credit in an amount specified in
the related Terms Indenture.
(9) Certificate of the Issuer. An Authorized Officer's Certificate from
the Issuer, dated as of the date of the Issuer Order, to the effect that,
in the case of each Mortgage Certificate or Pledged Loan securing such
Series and immediately prior to the delivery thereof on the Delivery Date
for such Series:
(a) The Issuer is the pledgee or owner of such Mortgage
Certificate or Pledged Loan;
(b) The Issuer has acquired, or acquired its security interest in,
such Mortgage Collateral in good faith without notice of any
adverse claim;
<PAGE>
(c) The Issuer has not assigned any interest or participation in
such Mortgage Collateral (or, if any such interest or
participation has been assigned, it has been released);
(d) The Issuer has full right, and the Deposit Trust Agreement
authorizes the Owner-Trustee on behalf of the Issuer, to Grant a
security interest in and assign and pledge such Mortgage
Collateral to the Trustee;
(e) The Special Hazard Insurance Policy, if required, is in effect
with respect to such Pledged Loan;
(f) The Mortgage Bankruptcy Bond, if required, is in effect with
respect to such Pledged Loan;
(g) The Prepayment Interest Bond, if required, is in effect with
respect to such Pledged Loan;
(h) The Repurchase Bond, if required, is in effect with respect to
such Pledged Loan;
(i) With respect to each such Freddie Mac PC, FNMA MBS or Other
Mortgage Certificate, all payments of principal of and interest on
such Freddie Mac PC, FNMA MBS or Other Mortgage Certificate
required to be made through the month preceding the month in which
the Delivery Date occurs have been made;
(j) With respect to each such Freddie Mac PC, FNMA MBS or Other
Mortgage Certificate the information set forth with respect to
such Freddie Mac PC, FNMA MBS or Other Mortgage Certificate in the
Schedule of Mortgage Collateral for the Bonds of such Series is
correct; and
(k) With respect to each such Pledged Loan, each of the
requirements for Pledged Loans securing such Series set forth in
the Terms Indenture for such Series is satisfied.
(10) Certificate of the Servicer of a Pledged Loan. To the extent
requested by the Issuer, an Officers' Certificate from each Servicer of a
Pledged Loan securing such Series, dated as of the date of the Issuer
Order for such Series, as required by the applicable Servicing Agreement.
(11) Certificate as to the Servicer of a GNMA Certificate. An Authorized
Officer's Certificate of the Issuer, or the Servicer, dated as of the
date of the Issuer Order, to the effect that, in the case of each GNMA
Certificate securing such Series and immediately prior to the delivery
thereof to the Trustee:
(a) There are no defaults by the Servicer in complying with the
terms of such GNMA Certificate, and all payments of principal of
and interest on such GNMA Certificate theretofore required to be
made through the month preceding the month in which the Delivery
Date occurs have been made;
(b) The information set forth with respect to such GNMA
Certificate in the Schedule of Mortgage Collateral for such Series
is correct; and
(c) No event of default by the Servicer has occurred under the
guaranty agreement between the Servicer and GNMA pursuant to which
such GNMA Certificate was issued and all preconditions to issuance
of such GNMA Certificate pursuant to such guaranty agreement were
met prior to its issuance.
(12) Deposit to the Supplemental Custodial Reserve Fund. Evidence of a
deposit to the Supplemental Custodial Reserve Fund for such Series equal
to the amount required by Section 12.08 if the Delivery Date of the Bonds
of such Series is after the day of the month on which the Trustee
receives the monthly deposits from the Pledged Loans securing such
Series.
(13) Certificate of Mortgage Insurer. An Officers' Certificate from the
Mortgage Insurer, dated as of the Issuer Order, to the effect that, a
Primary Mortgage Insurance Policy is in effect with respect to each
Pledged Loan
<PAGE>
securing such Series requiring such coverage (indicating the coverage
afforded by each such policy), and an Excess Coverage Mortgage Insurance
Policy, is in effect with respect to each Pledged Loan securing such
Series requiring such coverage.
(14) Certificate of Depositor. An Officer's Certificate from the
Depositor, dated as of the date of the Issuer Order, to the effect that,
in the case of each item of Mortgage Collateral owned by the Depositor,
immediately prior to the delivery thereof to the Trustee:
(a) the Depositor is the owner or pledgee of such mortgage
collateral;
(b) the Depositor has not assigned any interest or
participation in such Mortgage Collateral other than to the Issuer
(or, if any such interest or participation has been assigned, it
has been released); and
(c) the Depositor has the full right to Grant a security
interest and assign and pledge such Mortgage Collateral to the
Issuer.
(15) Opinion of Counsel. An Opinion of Counsel of the Issuer, dated not
earlier than the date of the Issuer Order, to the effect that:
(a) This Standard Provisions Indenture and the Terms Indenture for
such Series have been duly qualified under the Trust Indenture Act
or that no qualification of such Terms Indenture under the Trust
Indenture Act is necessary;
(b) The documents which have been or are therewith delivered to
the Trustee with respect to such Series conform to the
requirements of this Standard Provisions Indenture and the related
Terms Indenture and the Bonds applied for may be lawfully
authenticated and delivered and all conditions precedent provided
for herein or therein relating to such authentication and delivery
have been complied with;
(c) The Issuer has the power and authority under the Deposit Trust
Agreement to assign, pledge and deposit the Trust Estate with the
Trustee as security for such Series; and
(d) Each Mortgage Certificate or Pledged Loan constituting part of
the Trust Estate for such Series has been duly and validly
assigned to the Trustee and each Mortgage Certificate either has
been registered in the name of the Trustee or has been delivered
to the Trustee for registration in the name of the Trustee and all
steps required by the applicable rules of GNMA, Freddie Mac, FNMA
or the issuer of the Other Mortgage Certificates other than
registration by the applicable transfer agent thereof, necessary
to permit the Mortgage Certificates that constitute a part of the
Trust Estate for such Series to be duly and validly registered in
the name of the Trustee have been taken.
(16) Deposits to Collection Account. With respect to such Series unless
otherwise provided in the related Terms Indenture: (a) evidence of a
deposit to the Collection Account for such Series in an amount equal to
one month's interest payments on the Freddie Mac PCs securing such Series
at the interest rate thereon for the unpaid principal amount thereof plus
the applicable number of days' interest on such amount at the Assumed
Reinvestment Rate for the Collection Account if the Delivery Date is
after the 20th day of the month; (b) in the event that the Trustee is not
the holder of record of any Mortgage Certificate on or prior to the last
Business Day of the month immediately preceding the Issue Date for such
Series as described under subparagraph (2) of this section, evidence of a
deposit to the Collection Account in an amount equal to (i) with respect
to Mortgage Certificates other than Freddie Mac PCs, the principal and
interest payment on such Mortgage Certificate on the Due Date thereof in
the month in which the Issue Date occurs and (ii) with respect to Freddie
Mac PCs, an amount equal to the principal and interest payment on the Due
Date in the month immediately following the month in which the Issue Date
occurs, plus in each case the applicable number of days' interest thereon
at the
<PAGE>
applicable Assumed Reinvestment Rate for the Collection Account; (c)
evidence of a deposit sufficient, when taken together with Reinvestment
Income thereon at the applicable Assumed Reinvestment Rate, to pay on the
first Payment Date any amount required to be paid based upon the
difference between the aggregate amount of Bonds of such Series issued on
the Delivery Date and the aggregate Initial Bond Values of the Mortgage
Collateral securing such Series plus interest thereon at the highest Bond
Interest Rate of such Series to such first Payment Date; and (d) evidence
of the deposit to the Collection Account of all amounts received by the
Trustee in respect of the Mortgage Collateral prior to the Delivery Date
(less any amounts representing servicing fees, insurance premiums and
other fees to be deposited into the Supplemental Custodial Reserve Fund
or otherwise applied), provided such amounts have been pledged to secure
the Bonds of such Series hereunder plus the applicable number of days'
interest thereon at the Assumed Reinvestment Rate for the Collection
Account if the Delivery Date is after the day of the month that
Reinvestment Income is to begin to accrue.
(17) Reinvestment Agreements. Delivery to the Trustee of any Reinvestment
Agreements with respect to such Series specified in a Schedule to the
related Terms Indenture or one or more replacement reinvestment
agreements having substantially the same terms as the reinvestment
agreement it replaces.
(18) Mortgagor Bankruptcy Bond, Prepayment Interest Bond, Repurchase
Bond, Pool Insurance Policy and Special Hazard Insurance Policy. Evidence
of the execution and delivery of the Mortgagor Bankruptcy Bond, the
Prepayment Interest Bond and the Repurchase Bond, if any, and of the
issuance of the Pool Insurance Policy and Special Hazard Insurance
Policy, if any, with respect to such Series.
(19) Deposit to the Prepayment Reserve Account. Evidence of a deposit to
the Prepayment Reserve Account for such Series, in an amount required by
each Rating Agency rating the Bonds of such Series.
(20) Other Documents. Such other documents, certificates, instruments or
opinions as may be required by the terms of the Terms Indenture creating
such Series of Bonds.
ARTICLE FIVE: SATISFACTION AND DISCHARGE
Section 5.01. SATISFACTION AND DISCHARGE OF INDENTURE.
This Standard Provisions Indenture shall cease to be of further effect
with respect to a Series except as to (i) rights of registration of
transfer and exchange, (ii) substitution of apparently mutilated,
destroyed, lost or stolen Bonds, (iii) rights of Bondholders of such
Series to receive payments of principal thereof and interest thereon,
(iv) the rights, obligations and immunities of the Trustee hereunder and
(v) the rights of Bondholders of such Series as beneficiaries hereof with
respect to the property so deposited with the Trustee payable to all or
any of them, and the Trustee, on demand of and at the expense of the
Issuer, shall execute proper instruments acknowledging satisfaction and
discharge of this Standard Provisions Indenture with respect to such
Series, when:
(1) either:
(a) all Bonds of such Series theretofore authenticated and
delivered (other than (i) Bonds which have been destroyed,
lost or stolen, and which have been replaced, or paid as
provided in Section 3.06, and (ii) Bonds for whose payment
money has theretofore been deposited in trust or segregated
and held in trust by the Issuer and thereafter repaid to
the Issuer or discharged from such trust, as provided in
Section 9.03) have been delivered to the Trustee for
cancellation; or
(b) all Bonds of such Series not theretofore delivered to
the Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
<PAGE>
(iii) are to be called for redemption within one
year under arrangements satisfactory to the Trustee
for the giving of notice for redemption by the
Issuer,
and the Issuer, in the case of (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee, in trust for
such purpose, an amount sufficient to pay and discharge the entire
indebtedness on such Bonds not theretofore delivered to the
Trustee for cancellation, for principal, for premium, if any, and
for interest to the date of such deposit (in the case of Bonds
which have become due and payable), or to the Maturity or to the
date specified in the event of Redemption or Special Redemption,
as the case may be, provided, however, that (i), (ii) and (iii)
above shall be inapplicable if an election to act in accordance
with the provisions of Section 6.05 shall have been made and not
rescinded;
(2) the Issuer has paid or caused to be paid all other sums
payable hereunder by the Issuer with respect to such Series; and
(3) the Issuer has delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel each stating that all
conditions precedent herein provided for relating to the
satisfaction and discharge of this Standard Provisions Indenture
with respect to the Bonds of such Series have been complied with.
Notwithstanding the satisfaction and discharge of this Standard
Provisions Indenture, the obligations of the Issuer to the Trustee
under Section 7.07 and of the Trustee to the Bondholders under
Section 5.02 shall survive.
Section 5.02. APPLICATION OF TRUST MONEY.
All moneys deposited with the Trustee pursuant to Section 5.01 shall be
held in trust and applied by it, in accordance with the provisions of the
Bonds of the applicable Series and this Standard Provisions Indenture, to
the payment, either directly or through any Paying Agent, as the Trustee
may determine, to the Persons entitled thereto, of the principal,
premium, if any, and interest for the payment of which such money has
been deposited with the Trustee; but such money need not be segregated
from other funds of the same Series except to the extent required herein
or by law.
ARTICLE SIX: REMEDIES
Section 6.01. EVENTS OF DEFAULT.
"Event of Default" with respect to any Series wherever used herein, means
any one of the following events (whatever the reason for such Event of
Default 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):
(1) default in the payment of any principal of or interest on any
Bond of such Series when the same becomes due and payable and such
default shall continue for a period of five days; or
(2) default in the performance, or breach, of any covenant or
warranty of the Issuer in this Standard Provisions Indenture or in
the related Terms Indenture (other than a covenant or warranty a
default in the performance of which or breach of which is
elsewhere in this Section or Article Nine specifically dealt
with), and continuance of such default or breach for a period of
60 days after there shall have been given, by registered or
certified mail, to the Issuer by the Trustee or to the Issuer and
the Trustee by the Holders of at least 25% in principal amount of
the Outstanding Bonds of such Series, a written notice specifying
such default or breach and requiring it to be remedied and stating
that such notice is a "Notice of Default" hereunder; or
<PAGE>
(3) the entry of a decree or order by a court having jurisdiction
in the premises adjudging the Issuer a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the
Issuer under the Federal Bankruptcy Code or any other applicable
Federal or state law, or appointing a receiver, liquidator,
assignee, or sequestrator (or other similar official) of the
Issuer or of any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and the continuance of
any such decree or order unstayed and in effect for a period of 90
consecutive days; or
(4) the institution by the Issuer of proceedings to be adjudicated
a bankrupt or insolvent, or the consent by it to the institution
of bankruptcy or insolvency proceedings against it, or the filing
by it of a petition or answer or consent seeking reorganization or
relief under the Federal Bankruptcy Code or any other similar
applicable Federal or state law, or the consent by it to the
filing of any such petition or to the appointment of a receiver,
liquidator, assignee, trustee or sequestrator (or other similar
official) of the Issuer or of any substantial part of its
property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to
pay its debts generally as they become due, or the taking of
action by the Issuer in furtherance of any such action.
Section 6.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default with respect to the Bonds of a Series occurs and
is continuing and no election to act in accordance with the provisions of
Section 6.05 shall have been made and not rescinded, then and in every
such case the Trustee or the Holders of not less than 25% in principal
amount of the Outstanding Bonds of such Series (voting as a group with
respect to such Series) may declare the principal of all the Bonds of
such Series affected thereby to be immediately due and payable, by a
notice in writing to the Issuer (and to the Trustee if given by
Bondholders), and upon any such declaration such principal shall become
immediately due and payable. Notwithstanding the foregoing, if an Event
of Default with respect to the Bonds of a Series occurs and is continuing
solely as the result of an order or judgment arising out of a Proceeding,
which order or judgment prevents the application by the Trustee, as
provided in this Standard Provisions Indenture, of the proceeds of one or
more Pledged Loans or Mortgage Certificates included in the Trust Estate
for such Series, the Trustee may declare to be immediately due and
payable by lot among all Classes of Bonds of such Series, by notice in
writing to the Issuer, and upon any such declaration there shall become
due and payable, Bonds of such Series in a principal amount equal to the
Outstanding Bond Values of such Pledged Loans or Mortgage Certificates.
Such declaration and any other remedial action in connection therewith by
the Trustee shall be the sole remedy for the Holders of Bonds of such
Series upon the happening of such occurrence.
At any time after such a declaration of acceleration of maturity has been
made and before a judgment or decree for payment of the money due has
been obtained by the Trustee as hereinafter in this Article provided, the
Holders of a majority in principal amount of the Outstanding Bonds of
the Series which has been declared due and payable as herein provided, by
written notice to the Issuer and the Trustee, may rescind and annul such
declaration and its consequences if:
(1) (A) the Issuer has paid or deposited with the Trustee a sum
sufficient to pay
(i) all overdue installments of interest and principal on
all Bonds of such Series,
(ii) to the extent that payment of such interest is lawful,
interest upon overdue installments of interest on the Bonds
of such Series at the Bond Interest Rate for such Series,
and
(iii) all sums paid or advanced by the Trustee hereunder
and the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel; and
(B) all Events of Default with respect to a Series, other
than the non-payment of the interest or
<PAGE>
principal of Bonds of such Series which have become due
solely by such acceleration, have been cured or waived as
provided in Section 6.15; or
(2) an election is made to act in accordance with the provisions
of Section 6.05 with respect to the Event of Default with respect
to the Bonds of such Series which gave rise to such declaration.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
Section 6.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.
The Issuer covenants that if default is made in the payment of any
principal of or interest on any Bond of any Series when such principal
and interest becomes due and payable, the Issuer will, upon demand of
the Trustee, pay to it, for the benefit of the Holder of such Bond of
such Series, but only from the Trust Estate securing the Bonds of such
Series, the whole amount then due and payable on such Bond for principal
and interest, with interest upon the overdue principal and, to the extent
that payments of such interest shall be legally enforceable, upon overdue
installments of interest, at the Bond Interest Rate for such Bond, and,
in addition thereto, such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel.
If the Issuer fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as Trustee of an express trust, may
institute a Proceeding for the collection of the sums so due and unpaid,
and may prosecute such Proceeding to judgment or final decree, and may
enforce the same against the Issuer or any other obligor upon the Bonds
and collect the moneys adjudged or decreed to be payable in the manner
provided by law out of the Trust Estate securing the Bonds, wherever
situated; provided, however, that none of the Trustee, the Owner-Trustee
in its individual capacity nor any holder of any beneficial interest in
the Trust, nor any of their respective partners, beneficiaries, agents,
officers, director, employees or successors or assigns shall be
personally liable for any amounts payable under the Bonds or this
Indenture.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of
the Bondholders by such appropriate Proceedings as the Trustee shall deem
most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Standard
Provisions Indenture or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy or legal or equitable right
vested in the Trustee by this Standard Provisions Indenture or by law.
In case there shall be pending Proceedings relative to the Issuer or any
other obligor upon the Bonds under Title 11 of the United States Code or
any other applicable Federal or state bankruptcy, insolvency or other
similar law, or in case a receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, sequestrator or similar official shall have
been appointed for or taken possession of the Issuer or its property or
such other obligor, or in case of any other comparable judicial
Proceedings relative to the Issuer or other obligor upon the Bonds of any
Series, or to the creditors or property of the Issuer or such other
obligor, the Trustee, irrespective of whether the principal of any Bonds
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any
demand pursuant to the provisions of this Section 6.03, shall be entitled
and empowered, by intervention in such Proceedings or otherwise:
(a) to file and prove a claim or claims for the whole amount of
principal and interest owing and unpaid in respect of the Bonds of
any Series, and to file such other papers or documents as may be
unnecessary or advisable in order to have the claims of the
Trustee (including any claim for reasonable compensation to the
Trustee and each predecessor Trustee, and their respective agents,
attorneys and counsel, and for reimbursement of all expenses and
liabilities incurred, and all advances made, by the Trustee and
each predecessor Trustee, except as a result of negligence or bad
faith) and of the Bondholders allowed in any Proceedings relative
to the Issuer or other obligor upon the Bonds of any Series, or to
the creditors or property of the Issuer or such other obligor,
<PAGE>
(b) unless prohibited by applicable law and regulations, to vote
on behalf of the Holders of the Bonds of any Series in any
election of a trustee or a standby trustee in arrangement,
reorganization, liquidation or other bankruptcy or insolvency
Proceedings or person performing similar functions in comparable
Proceedings, and
(c) to collect and receive any monies or other property payable or
deliverable on any such claims, and to distribute all amounts
received with respect to the claims of the Bondholders and of the
Trustee on their behalf; and any trustee, receiver or liquidator,
custodian or other similar official is hereby authorized by each
of the Bondholders to make payments to the Trustee, and, in the
event that the Trustee shall consent to the making of payments
directly to the Bondholders, to pay the Trustee such amounts as
shall be sufficient to cover reasonable compensation to the
Trustee, each predecessor Trustee and their respective agents,
attorneys and counsel, and all other expenses and liabilities
incurred, and all advances made, by the Trustee and each
predecessor Trustee except as a result of negligence or bad faith.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or vote for or accept or adopt on behalf of any
Bondholder any plan of reorganization, arrangement, adjustment or
composition affecting the Bonds of any Series or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of
any Bondholder in any such Proceeding except, as aforesaid, to vote for
the election of a trustee in bankruptcy or similar person.
In any Proceedings brought by the Trustee (and also any
Proceedings involving the interpretation of any provision of this
Standard Provisions Indenture to which the Trustee shall be a party) the
Trustee shall be held to represent all the Holders of the Bonds of the
Series affected thereby, and it shall not be necessary to make any
Holders of such Bonds parties to any such Proceedings.
Section 6.04. REMEDIES.
(a) If an Event of Default with respect to any Series shall have occurred
and be continuing, the Trustee may, to the extent not inconsistent with
the provisions of Section 6.05, if applicable, do one or more of the
following:
(i) institute Proceedings for the collection of all amounts then
payable on the Bonds of such Series or under this Standard
Provisions Indenture and the Terms Indenture, whether by
declaration or otherwise, enforce any judgment obtained, and
collect from the Trust Estate securing the Bonds of such Series
and the Issuer moneys adjudged due;
(ii) sell all or a portion of the Trust Estate securing the Bonds
of such Series or rights or interests therein, at one or more
public or private sales called and conducted in any manner
permitted by law;
(iii) institute Proceedings from time to time for the complete or
partial foreclosure of this Standard Provisions Indenture and the
Terms Indenture with respect to the Trust Estate securing the
Bonds of such Series; and
(iv) exercise any remedies of a secured party under the Uniform
Commercial Code and take any other appropriate action to protect
and enforce the rights and remedies of the Trustee or the Holders
of the Bonds of such Series hereunder;
PROVIDED, HOWEVER, that without the consent of Holders of the entire
principal amount of Outstanding Bonds of such Series and a determination
by the Trustee that the Trust Estate securing the Bonds of such Series
will not continue to provide sufficient funds for the payment of
principal of and interest on the Bonds of such Series as they would have
become due if the Bonds of such Series had not been declared due and
payable, the Trustee may not sell or otherwise liquidate the Trust Estate
securing the Bonds of such Series unless the proceeds of such sale
<PAGE>
or liquidation distributable to the Holders of Bonds of such Series are
sufficient to discharge in full the amounts then due and unpaid,
notwithstanding any failure to give such notice, and the Trustee shall
give such notice upon the removal or cure of such inability or stay (but
shall have no obligation to effect such removal or cure). Any such
election may be rescinded with respect to any portion of the Trust Estate
securing the Bonds of such Series remaining at the time of such
rescission by written notice to the Trustee and the Issuer from the
Holders of a majority in principal amount of the Outstanding Bonds of
such Series.
Section 6.06. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial Proceeding relative to the Issuer or any other obligor upon the
Bonds of any Series or the property of the Issuer or of such other
obligor or their creditors, the Trustee (irrespective or whether the
principal of the Bonds of such Series shall then be due and payable as
therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand on the Issuer for the
payment of overdue principal or interest) shall be entitled and
empowered, by intervention in such Proceeding or otherwise:
(i) to file and prove a claim for the whole amount of principal
and interest owing and unpaid in respect of the Bonds of such
Series and to file such other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel)
and of the Holders of the Bonds of such Series allowed in such
judicial Proceeding, and
(ii) to collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, or sequestrator (or
other similar official) in any such judicial Proceeding is hereby
authorized by each Holder of Bonds of such Series to make such payments
to the Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Holders of the Bonds of such
Series, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel, and any other amounts due the Trustee under Section
7.07.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of
Bonds of such Series any plan of reorganization, arrangement, adjustment
or composition affecting the Bonds of such Series or the rights of any
Holder thereof, or to authorize the Trustee to vote in respect of the
claim of any Bondholder in any such Proceeding.
Section 6.07. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF BONDS.
All rights of action and claims under this Standard Provisions Indenture
or the Bonds of any Series may be prosecuted and enforced by the Trustee
without the possession of any of the Bonds of such Series or the
production thereof in any Proceeding relating thereto, and any such
Proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for
the ratable benefit of the Holders of the Bonds of the Series affected
thereby in respect of which such judgment has been recovered.
Section 6.08. APPLICATION OF MONEY COLLECTED.
Unless otherwise provided in the Terms Indenture for a Series and except
as provided in Section 6.05, if
<PAGE>
applicable, any money collected by the Trustee with respect to the Bonds
of any Series pursuant to this Article shall be applied in the following
order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money on account of principal or interest, upon
presentation of the Bonds of such Series and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section 7.07;
SECOND: To the payment of the amounts then due and unpaid upon the Bonds
for principal and interest, in respect of which or for the benefit of
which such money has been collected, according to the amounts due and
payable on the Bonds for principal and interest, respectively, with such
payments applied first to interest and then to principal;
THIRD: To the payment of any Excess Cash (1) to the Issuer or its
designates or assigns; (2) next to the Bondholders as a principal payment
as provided in the Terms Indenture; and (3) next as provided in section
12.09;
FOURTH: To the payment, as directed by the Servicer, of all premiums
due on the Special Hazard Insurance Policies, the Excess Coverage
Insurance Policies, the Pool Insurance Policy, the Mortgagor
Bankruptcy Bond, the Prepayment Interest Bond and the Repurchase Bond,
and the amounts to be deposited in the Supplemental Custodial Reserve
Fund;
FIFTH: To the payment of all amounts due the Back-Up Servicer, pursuant
to the Servicing Agreement or the Back-Up Servicing Agreement.
SIXTH: To the payment of all amounts due the Servicer pursuant to the
Servicing Agreement;
SEVENTH: To the payment of all amounts due the legal counsel of the
Issuer, the accountants of the Issuer, and the Owner-Trustee; and
EIGHTH: To the payment of any additional funds to the Issuer or any other
Person legally entitled thereto.
Section 6.09. LIMITATION ON SUITS.
No Holder of any Bond of a Series shall have any right to institute any
Proceedings, judicial or otherwise, with respect to this Standard
Provisions Indenture or for the appointment of a receiver or trustee, or
for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee
of a continuing Event of Default in respect of such Series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Bonds of such Series shall have made written request
to the Trustee to institute Proceedings in respect of such Event
of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
Proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Bonds of such
Series;
<PAGE>
it being understood and intended that no one or more Holders of Bonds of
a Series shall have any right in any manner whatever by virtue of, or by
availing of, any provision of this Standard Provisions Indenture to
affect, disturb or prejudice the rights of any other Holders of Bonds of
such Series or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Standard Provisions
Indenture, except in the manner herein provided and for the equal and
ratable benefit of all the Holders of Bonds of such Series.
In the event the Trustee shall receive conflicting or inconsistent
requests and indemnity from two or more groups of Holders of Bonds, each
representing less than a majority of the then aggregate outstanding
amount of the Outstanding Bonds of such Series, the Trustee in its sole
discretion may determine what action, if any, shall be taken,
notwithstanding any other provisions of this Standard Provisions
Indenture.
Section 6.10. UNCONDITIONAL RIGHTS OF BONDHOLDERS TO RECEIVE PRINCIPAL
AND INTEREST.
Notwithstanding any other provision in this Standard Provisions Indenture
other than Section 3.07(e), the Holder of any Bond shall have the right
which is absolute and unconditional to receive payment of the principal
of and interest on such Bond as such principal and interest becomes due
and payable and to institute suit for the enforcement of any such
payment, and such right shall not be impaired without the consent of such
Holder.
Section 6.11. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Bondholder has instituted any Proceeding to enforce
any right or remedy under this Standard Provisions Indenture and such
Proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Bondholder, then and in
every such case the Issuer, the Trustee and the Bondholder shall, subject
to any determination in such Proceeding, be restored severally and
respectively to their former positions hereunder, and thereafter all
rights and remedies of the Trustee and the Bondholders shall continue as
though no such Proceeding had been instituted.
Section 6.12. RIGHTS AND REMEDIES CUMULATIVE.
No right or remedy herein conferred upon or reserved to the Trustee or to
the Bondholders is intended to be exclusive of any other right or remedy,
and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of
any other appropriate right or remedy.
Section 6.13. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Bond to
exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by
this Article or by law to the Trustee or to the Bondholders may be
exercised from time to time, and as often as may be deemed expedient, by
the Trustee or by the Bondholders, as the case may be.
Section 6.14. CONTROL BY BONDHOLDERS.
The Holders of a majority in principal amount of the Outstanding Bonds of
each Series affected (voting as one class with respect to each Series)
shall have the right to direct the time, method and place of conducting
any Proceeding for any remedy available to the Trustee with respect to
the Bonds of such Series or exercising any trust or power conferred on
the Trustee with respect to such Series, provided that:
(1) such direction shall not be in conflict with any rule of law
or with this Standard Provisions
<PAGE>
Indenture or the Terms Indenture and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction; provided,
however, that, subject to Section 7.01, the Trustee need not take
any action which it determines might involve it in liability or be
unjustly prejudicial to the Bondholders not consenting.
Section 6.15. WAIVER OF PAST DEFAULTS.
The Holders of a majority in principal amount of the Outstanding Bonds of
any Series may on behalf of the Holders of all the Bonds of such Series
waive any past Default with respect to such Series and its consequences,
except a Default:
(1) in the payment of the principal of or interest on any Bond of
such Series unless an election to act in accordance with the
provisions of Section 6.05 shall have been made and not rescinded,
or
(2) in respect of a covenant or provision hereof which under
Section 10.02 cannot be modified or amended without the consent of
the Holder of each Outstanding Bond affected.
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every
purpose of this Standard Provisions Indenture; but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereon.
Section 6.16. UNDERTAKING FOR COSTS.
All parties to this Standard Provisions Indenture agree, and each Holder
of any Bond by his acceptance thereof shall be deemed to have agreed,
that any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Standard Provisions
Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and that such
court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by
such party litigant; but the provisions of this Section shall not apply
to any suit instituted by the Trustee, to any suit instituted by any
Bondholder, or group of Bondholders, holding in the aggregate more than
10% in principal amount of the Outstanding Bonds of a Series, or to any
suit instituted by any Bondholder for the enforcement of the payment of
the principal of or interest on any Bond on or after the Stated Maturity
expressed in such Bond (or, in the case of redemption, on or after the
applicable Redemption Date or Special Redemption Date).
Section 6.17. WAIVER OF STAY OR EXTENSION LAWS.
The Issuer covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law
wherever enacted, now or at any time hereafter in force, which may affect
the covenants or the performance of this Standard Provisions Indenture;
and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution
of every such power as though no such law had been enacted.
Section 6.18. SALE OF TRUST ESTATE.
<PAGE>
(a) The power to effect any Sale of any portion of the Trust Estate
securing a Series pursuant to Section 6.04 shall not be exhausted by any
one or more Series as to any portion of such Trust Estate remaining
unsold, but shall continue unimpaired until the entire Trust Estate
securing the Bonds of such Series shall have been sold or all amounts
payable on the Bonds of such Series and under this Standard Provisions
Indenture with respect thereto shall have been paid. The Trustee may from
time to time postpone any Sale by public announcement made at the time
and place of such Sale. The Trustee hereby expressly waives its right to
any amount fixed by law as compensation for any Sale.
(b) The Trustee may bid for and acquire any portion of the Trust Estate
securing a Series of Bonds in connection with a public Sale thereof, and
may pay all or part of the purchase price by crediting against amounts
owing on the Bonds of such Series or other amounts secured by this
Standard Provisions Indenture, all or part of the net proceeds of such
Sale after deducting the costs, charges and expenses incurred by the
Trustee in connection with such Sale. The Bonds of such Series need not
be produced in order to complete any such Sale, or in order for the net
proceeds of such Sale to be credited against the Bonds of such Series.
The Trustee may hold, lease, operate, manage or otherwise deal with any
property so acquired in any manner permitted by law.
(c) The Trustee shall execute and deliver an appropriate instrument of
conveyance transferring its interest in any portion of the Trust Estate
in connection with a Sale thereof. In addition, the Trustee is hereby
irrevocably appointed the agent and attorney-in-fact of the Issuer to
transfer and convey its interest in any portion of the Trust Estate in
connection with a Sale thereof, and to take all action necessary to
effect such Sale. No purchaser or transferee at such a Sale shall be
bound to ascertain the Trustee's authority, inquire into the satisfaction
of any conditions precedent or see to the application of any moneys.
Section 6.19. ACTION ON BONDS.
The Trustee's right to seek and recover judgment on the Bonds of any
Series or under this Standard Provisions Indenture shall not be affected
by the seeking, obtaining or application of any other relief under or
with respect to this Standard Provisions Indenture. Neither the lien of
this Standard Provisions Indenture nor any rights or remedies of the
Trustee or the Bondholders shall be impaired by the recovery of any
judgment by the Trustee against the Issuer or by the levy of any
execution under such judgment upon any portion of the Trust Estate or
upon any of the assets of the Issuer.
Section 6.20. NO RECOURSE TO TRUST ESTATE.
Unless the Terms Indenture provides otherwise, the Trust Estate Granted
to the Trustee for any Series of Bonds will serve as collateral security
for such Series of Bonds only.
ARTICLE SEVEN: THE TRUSTEE
Section 7.01. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Standard Provisions
Indenture, and no implied covenants or obligations shall be read
into this Standard Provisions Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed by the Issuer and by
advisors engaged by the Issuer. Nothing in the Standard Provisions
Indenture shall require the Trustee to expend or risk its own
funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in
<PAGE>
the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not
reasonably assured to it.
(b) In case an Event of Default with respect to the Bonds of any Series
has occurred and is continuing, the Trustee shall exercise such of the
rights and powers vested in it by this Standard Provisions Indenture, and
use the same degree of care and skill in their exercise, as a prudent man
would exercise or use under the circumstances in the conduct of his own
affairs.
(c) No provision of this Standard Provisions Indenture shall be construed
to relieve the Trustee from liability for its own negligent action, its
own negligent failure to act or its own willful misconduct, except that:
(1) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent
facts;
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance
with the direction of the Holders of a majority in principal
amount of the Outstanding Bonds of any Series relating to the
time, method and place of conducting any Proceeding for any remedy
available to the Trustee, or exercising any trust or power
conferred upon the Trustee, under this Standard Provisions
Indenture; and
(4) no provision of this Standard Provisions Indenture or the
Terms Indenture shall require the Trustee to expend or risk its
own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of
any of its rights or powers, if it shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it
unless such risk or liability relates to its ordinary services
under this Standard Provisions Indenture.
(d) For all purposes of this Standard Provisions Indenture and the Terms
Indenture, the Trustee shall not be deemed to have notice of any Event of
Default unless written notice that an Event of Default has occurred is
received by the Trustee at the Corporation Trust office.
(e) Whether or not therein expressly so provided, every provision of this
Standard Provisions Indenture relating to the conduct of or affecting the
liability of or affording protection to the Trustee shall be subject to
the provisions of this Section.
(f) Notwithstanding any extinguishment of all right, title and interest
of the Issuer in and to the Trust Estate following an Event of Default
and a consequent declaration of acceleration of the Maturity of the
Bonds, whether such extinguishment occurs through a Sale of the Trust
Estate to another Person, the acquisition of the Trust Estate by the
Trustee or otherwise, the rights powers and duties of the Trustee with
respect to the Trust Estate (or the proceeds thereof) and the Holders of
the Bonds and the rights of Bondholders shall continue to be governed by
the terms of the Indenture.
Section 7.02. NOTICE OF DEFAULT.
Within 90 days after the occurrence of any Default known to the Trustee
with respect to a Series, the Trustee shall transmit by mail to the
Rating Agency and to all Holders of Bonds of such Series, as their names
and addresses appear on the Bond Register, notice of such Default
hereunder known to the Trustee, unless such Default shall have been cured
or waived; provided, however, that, except in the case of a Default in
the payment of the principal of or interest on any Bond, the Trustee
shall be protected in withholding such notice if and so long as the board
of directors, the executive committee or a trust committee of directors
and/or Responsible
<PAGE>
Officers of the Trustee in good faith determines that the withholding
of such notice is in the interests of the Bondholders; and provided,
further, that in the case of any Default of the character specified in
Section 6.01(2), no notice under this Subsection 7.02 to Bondholders
shall be given until at least 60 days after the occurrence thereof.
Section 7.03. CERTAIN RIGHTS OF TRUSTEE.
Except as otherwise provided in Section 7.01:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, note
or other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(b) any request or direction of the Issuer mentioned herein shall be
sufficiently evidenced by an Issuer Request or Issuer Order;
(c) whenever in the administration of this Standard Provisions Indenture
the Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action hereunder,
the Trustee (unless other evidence be herein specifically prescribed)
may, in the absence of bad faith on its part, require and rely upon an
Authorized Officer's Certificate;
(d) the Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Standard Provisions Indenture at
the request or direction of any of the Bondholders pursuant to this
Standard Provisions Indenture, unless such Bondholders shall have offered
to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with
such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, note or other paper document, but the Trustee, in its discretion,
may make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Issuer, personally or by agent or
attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care
by it hereunder.
(h) the Trustee shall not be obligated to make an investigation of any
Collateral securing the Bonds delivered to it as provided herein, except
that the Trustee agrees to inspect Loan Documents delivered to it to
verify that, with respect to each Pledged Loan, (i) it has actually
received a Mortgage Note and a Mortgage; (ii) each such Mortgage Note and
Mortgage appear to be originals; (iii) the date of the Mortgage Note is
the same as the date on the corresponding Mortgage; (iv) the initial
principal amount of the Mortgage Note is the same as on the Mortgage (if
stated therein); (v) the payee on the Mortgage Note is the same as the
mortgagee on the Mortgage, and the same is true through any endorsement
of the Mortgage Note and assignments of the Mortgage; (vi) the signatures
on the Mortgage Note appear(s) to be the same in form as on the Mortgage,
and the same on any related modification of, or other agreements
concerning, the mortgage Note and the Mortgage; (vii) the maturity date
of the Mortgage Note and the Mortgage (if stated therein) are the same;
(viii) the Mortgage Note is endorsed as provided in this Indenture; (ix)
the Mortgage was initially recorded, and is assigned to the Trustee in an
approved recordable form; and (x) the items on any schedule delivered by
the Issuer are in accordance with
<PAGE>
the foregoing.
With respect to the delivery of the Original Mortgage Collateral securing
the Bonds, the Trustee shall complete the investigation described herein
and shall notify the Issuer in writing of any discrepancies within 120
days after the receipt of such Mortgage Collateral and with respect to
any subsequent delivery of Mortgage Collateral pursuant to this
Indenture, shall complete such investigation and shall notify the Issuer
in writing of any discrepancy within 90 days after the receipt of such
Mortgage Collateral.
Section 7.04. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF BONDS.
The recitals contained herein and in the Bonds, except the certificate of
authentication, shall be taken as the statements of the Issuer, and the
Trustee assumes no responsibility for their correctness. The Trustee
makes no representation as to the validity or sufficiency of this
Standard Provisions Indenture or of the Bonds. The Trustee shall not be
accountable for the use or application by the Issuer of Bonds or the
proceeds thereof.
Section 7.05. MAY HOLD BONDS.
(a) The Trustee, any Paying Agent, Bond Registrar or any other agent of
the Issuer, in its individual or any other capacity, may become the owner
or pledgee of Bonds and, subject to Sections 7.08 and 7.13, may otherwise
deal with the Issuer with the same rights it would have if it were not
Trustee, Paying Agent, Bond Registrar or such other agent.
(b) The Trustee, or one or more of its Affiliates, may enter into one or
more custodial agreements with one or more Services of the GNMA
Certificates, as issuers of the GNMA Certificates or one or more Services
of the Freddie Mac PCs or FNMA MBSs or to act as custodian or agent of
the documents evidencing and relating to the mortgage loans which are
grouped or pooled under one or more guaranty agreements or servicing
agreements between any such Servicer and GNMA, Freddie Mac or FNMA and
with respect to which Mortgage Certificates are issued, and may, from
time to time, be the depository of custodial accounts with respect to one
or more of such mortgage groups or pools. It is expressly recognized and
agreed by all parties hereto, and each Holder of a Bond by acceptance
thereof shall be deemed to have agreed that, in the event of default
under one or more servicing agreements, the Trustee, or one or more of
its Affiliates, as custodian of one or more mortgage groups or pools or
accounts related thereto, may be obliged to comply with the directions of
GNMA, Freddie Mac or FNMA regarding the property in its possession and,
to the extent that such actions are consistent with the directions of
GNMA, Freddie Mac or FNMA and will not affect the validity or perfection
of the Trustee's lien granted hereunder and under the applicable Terms
Indenture, they shall not be, or be deemed to be, inconsistent or in
conflict with the duties, responsibilities and interests of the Trustee
hereunder.
(c) The Trustee, or one or more of its Affiliates may enter into one or
more custodial agreements with one or more Services of the Pledged Loans,
to act as custodian of the Loan Documents; and further may, from time to
time, be the depository of custodial accounts with respect to such Loan
Documents. It is expressly recognized and agreed by all parties hereto,
and each Holder of a Bond by acceptance thereof shall be deemed to have
agreed, that, in the event of default under one or more Servicing
Agreements, the Trustee, or one or more of its Affiliates, as custodian
of the Loan Documents or accounts related thereto, may be obliged to
comply with the directions of the Back-up Servicer regarding the property
in its possession and, to the extent that such actions are consistent
with the directions of the Back-up Servicer and will not affect the
validity or perfection of the Trustee lien granted herein and under the
applicable Terms Indenture, they shall not be, or be deemed to be,
inconsistent or in conflict with the duties, responsibilities and
interests of the Trustee hereunder.
Section 7.06. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder for a Series need not be
segregated from other funds held by the Trustee in trust hereunder for
such Series except to the extent required herein or required by law. The
Trustee shall be under no liability for interest on any money received by
it hereunder except as otherwise agreed with the
<PAGE>
Issuer.
Section 7.07. COMPENSATION AND REIMBURSEMENT.
The Issuer agrees:
(1) to pay the Trustee reasonable compensation for all services
rendered by it hereunder, including pursuant to any custodial
agreements as provided in Section 7.04 (which compensation shall
not be limited by any provision of law in regard to the
compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse
the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
exercising its powers or performing its duties under this Standard
Provisions Indenture or the Terms Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents, except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith); and
(3) to indemnify the Trustee and any officer, director, employee
or agent of the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad
faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs
and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers
or duties hereunder or under the Terms Indenture.
As security for the performance of the obligations of the Issuer under
this Section, the Issuer Grants to the Trustee a lien ranking junior to
the lien of the Bonds (but senior to all other liens, if any) upon all
property and funds held or collected as part of the Trust Estate by the
Trustee in its capacity as such. The Trust shall not institute any
Proceeding seeking the enforcement of such lien against the Trust Estate
unless (i) such Proceeding is in connection with a Proceeding in
accordance with Article VI for enforcement of the lien of this Indenture
for the benefit of the Holders of Bonds after the occurrence of an Event
of Default (other than an Event of Default arising solely from the
Issuer's failure to pay amounts due the Trustee under this Section 7.07)
and a resulting declaration of acceleration of maturity of the Bonds that
has not been rescinded and annulled, or (ii) such Proceeding does not
seek a Sale or other disposition of the Trust Estate.
Section 7.08. DISQUALIFICATION; CONFLICTING INTERESTS.
(a) If the Trustee has or shall acquire any conflicting interest, as
defined in this Section, it shall, within 90 days after ascertaining that
it has such conflicting interest, either eliminate such conflicting
interest or resign in the manner and with the effect hereinafter
specified in this Article.
(b) In the event that the Trustee shall fail to comply with the
provisions of Subsection (a) of this Section the Trustee shall, within 10
days after the expiration of such 90-day period, transmit by mail to all
Bondholders, as their names and addresses appear in the Bond Register,
notice of such failure.
(c) For the purpose of this Section, the Trustee shall be deemed to have
a conflicting interest if:
(1) the Trustee is trustee under another indenture under which any
other securities, or certificates of interest or participation in
any other securities of the Issuer are outstanding, unless (A)
such other indenture securities are collateral trust indenture
notes under which the only collateral consists of Bonds issued
under this Standard Provisions Indenture, (B) such other indenture
is a collateral trust indenture under which the only collateral
consists of indenture securities, or (C) the Issuer has no
substantial unmortgaged assets and is engaged primarily in the
business of owning, or of owning and developing and/or operating,
real estate and this Standard Provisions Indenture and such other
indenture are secured by wholly separate and distinct parcels of
real estate; provided that there shall be
<PAGE>
excluded from the operation of this paragraph any other indenture
or indentures under which other securities, or certificates of
interest or participation in other securities, of the Issuer are
outstanding, if:
(i) the Standard Provisions Indenture and such other indenture or
indentures are wholly unsecured and such other indenture or
indentures are hereafter qualified under TIA, unless the
Commission shall have found and declared by an order pursuant to
Section 305(b) or Section 307(c) of TIA that differences exist
between the provisions of this Standard Provisions Indenture and
the provisions of such other indenture or indentures which are so
likely to involve a material conflict of interest as to make it
necessary in the public interest or for the protection of
investors to disqualify the Trustee from acting as such under this
Standard Provisions Indenture and such other indenture or
indentures, or
(ii) the Issuer shall have sustained the burden of proving, on
application to the Commission and after opportunity for hearing
thereon, that trusteeship under this Standard Provisions Indenture
and such other indenture or indentures is not so likely to involve
a material conflict of interest as to make it necessary in the
public interest or for the protection of investors to disqualify
the Trustee from acting as such under one of such indentures;
(2) the Trustee or any of its directors or executive officers is
an obligor upon the Bonds or an underwriter for the Issuer;
(3) the Trustee directly or indirectly controls or is directly or
indirectly controlled by or is under direct or indirect common
control with the Issuer or an underwriter for the Issuer;
(4) the Trustee or any of its directors or executive officers is a
director, officer, partner, employee, appointee or representative
of the Issuer, or of an underwriter other than the Trustee itself,
for the Issuer who is currently engaged in the business of
underwriting, except that (i) one individual may be a director or
an executive officer, or both, of the Issuer but may not be at the
same time an executive officer of both the Trustee and the Issuer;
(ii) if and so long as the number of directors of the Trustee in
office is more than nine, one additional individual may be a
director and/or an executive officer or both, of the Trustee and a
director of the Issuer; and
(iii) the Trustee may be designated by the Issuer or any
underwriter for the Issuer to act in the capacity of transfer
agent, registrar, custodian, paying agent, fiscal agent, escrow
agent, or depository, or in any other similar capacity, or subject
to the provisions of paragraph (1) of this Subsection, to act as
trustee, whether under an indenture or otherwise;
(5) 10% or more of the voting securities of the Trustee is beneficially
owned either by the Issuer or by any Authorized Officers thereof, or 20%
or more of such voting securities is beneficially owned, collectively,
by any two or more of such persons; or 10% or more of the voting
securities of the Trustee is beneficially owned either by an underwriter
for the Issuer or by any Authorized Officers thereof, or is beneficially
owned collectively by any two or more such persons;
(6) the Trustee is the beneficial owner of, or holds as collateral
security for, an obligation which is in default, (i) 5% or more of the
voting securities, or 10% or more of any other class of security, of the
Issuer not including the Bonds issued under this Standard Provisions
Indenture and securities issued under any other indenture under which the
Trustee is also trustee, or (ii) 10% or more of any class of security of
an underwriter for the Issuer;
(7) the Trustee is the beneficial owner of, or holds as collateral
security for, an obligation which is in default, 5% or more of the voting
securities of any person who, to the knowledge of the Trustee, owns 10%
or more of the voting securities of, or controls directly or indirectly,
or is under direct or indirect common control with, the Issuer;
(8) the Trustee is the beneficial owner of, or holds as collateral
security for an obligation which is in default, 10% or more of any class
of security of any person who, to the knowledge of the Trustee, owns 50%
or more of the
<PAGE>
voting securities of the Issuer; or
(9) the Trustee owns, on December 1 in any calendar year, in the capacity
of executor, administrator, testamentary or inter vivos trustee,
guardian, committee or conservator, or in any other similar capacity, an
aggregate of 25% or more of the voting securities, or of any class of
security, of any person, the beneficial ownership of a specified
percentage of which would have constituted a conflicting interest under
paragraph (6), (7) or (8) of this Subsection. As to any such securities
of which the Trustee acquired ownership through becoming executor,
administrator, or testamentary trustee of an estate which included them,
the provisions of the preceding sentence shall not apply, for a period of
two years from the date of such acquisition, to the extent that such
securities included in such estate do not exceed 25% of such voting
securities or 25% of any such class of securities. Promptly after
_________ in each calendar year, the Trustee shall make a check of its
holding of such securities in any of the above-mentioned capacities as of
such __________. If the Issuer fails to make payment in full of the
principal of or interest on any of the Bonds when and as the same becomes
due and payable and such failure continues for 30 days thereafter, the
Trustee shall make a prompt check of its holdings of such securities in
any of the above-mentioned capacities as of the date of the expiration of
such 30-day period, and after such date notwithstanding the foregoing
provisions of this paragraph, all such securities so held by the Trustee,
with sole or joint control so long as such failure shall continue, shall
be considered as though beneficially owned by the Trustee for the
purposes of paragraphs (6), (7) and (8) of this Subsection.
The specification of percentages in paragraphs (5) to (9), inclusive, of
this Subsection shall not be construed as indicating that the ownership
of such percentages of the securities of a person is or is not necessary
or sufficient to constitute direct or indirect control for the purposes
of paragraphs (3) or (7) of this Subsection.
For the purposes of paragraphs (6), (7), (8) and (9) of this Subsection
only, (i) the terms "security" and "securities" shall include only such
securities as are generally known as corporate securities, but shall not
include any note or other evidence of indebtedness issued to evidence an
obligation to repay moneys lent to a person by one or more banks, trust
companies or banking firms, or any certificates of interest or
participation in any such note or evidence of indebtedness; (ii) an
obligation shall be deemed to be "in default" when a default in payment
of principal shall have continued for 30 days or more and shall have not
been cured; and (iii) the Trustee shall not be deemed to be the owner or
holder of (A) any security which it holds as collateral security, as
trustee or otherwise, for an obligation which is not in default as
defined in clause (ii) above, or (B) any security which it holds as
collateral security under this Standard Provisions Indenture,
irrespective of any default hereunder, or (C) any security which it holds
as agent for collection, or as custodian, escrow agent, or depository or
in any similar representative capacity.
(d) For the purposes of this Section:
(1) The term "underwriter" when used with reference to the Issuer
means every person who, within three years prior to the time as of
which the determination is made, has purchased from the Issuer
with a view to, or has offered or sold for the Issuer in
connection with, the distribution of any security of the Issuer
outstanding at such time, or has participated or has had a direct
or indirect participation in any such undertaking, or has
participated or has had a participation in the direct or indirect
underwriting of any such undertaking, but such term shall not
include a person whose interest was limited to a commission from
an underwriter or dealer not in excess of the usual and customary
distributors' or sellers' commission.
(2) The term "director" means any director of a corporation, or
any individual performing similar functions with respect to any
organization whether incorporated or unincorporated.
(3) The term "person" means an individual, a corporation, a
partnership, an association, a joint-stock company, a trust, an
unincorporated organization, or a government, or a government or
political subdivision thereof. As used in this paragraph, the term
"trust" shall include only a trust where the interest or interests
of the beneficiary or beneficiaries are evidenced by a security.
<PAGE>
(4) The term "voting security" means any security
currently entitling the owner or holder thereof to vote in the
direction or management of the affairs of a person, or any
security issued under or pursuant to any trust, agreement or
arrangement whereby a trustee or trustees or agent or agents for
the owner or holder of such security are currently entitled to
vote in the direction or management of the affairs of a person.
(5) The term "Issuer" means an obligor upon the Bonds.
(6) The term "executive officer" means the president, every vice
president, every trust officer, the cashier, the secretary and the
treasurer of a corporation, and any individual customarily
performing similar functions with respect to any organization
whether incorporated or unincorporated, but shall not include the
chairman of the board of directors.
(7) The term "Trustee" includes any separate or co-trustee
appointed under Section 7.14.
(e) The percentage of voting securities and other securities specified in
this Section shall be calculated in accordance with the following
provisions:
(1) A specified percentage of the voting securities of the
Trustee, the Issuer or any other person referred to in this
Section (each of whom is referred to as a "person" in this
paragraph) means such amount of the outstanding voting securities
of such person as entitles the holder or holders thereof to cast
such specified percentage of the aggregate votes which the holders
of all the outstanding voting securities of such person are
entitled to cast in the direction or management of the affairs of
such person.
(2) A specified percentage of a class of securities of a person
means such percentage of the aggregate amount of securities of the
class outstanding.
(3) The term "amount," when used in regard to securities, means
the principal amount if relating to evidences of indebtedness, the
number of shares if relating to capital shares, and the number of
units if relating to any other kind of security.
(4) The term "outstanding" means issued and not held by or for the
account of the Issuer. The following securities shall not be
deemed outstanding within the meaning of this definition:
(i) securities of an issuer held in a sinking fund relating
to securities of the issuer of the same class;
(ii) securities of an issuer, held in a sinking fund
relating to another class of securities of the issuer, if
the obligation evidenced by such other class of securities
is not in default as to principal or interest or otherwise;
(iii) securities pledged by the issuer thereof as security
for an obligation of the issuer not in default as to
principal or interest or otherwise; and
(iv) securities held in escrow if placed in escrow by the
issuer thereof;
provided, however, that any voting securities of an issuer shall
be deemed outstanding if any person other than the issuer is
entitled to exercise the voting rights thereof.
(5) A security shall be deemed to be of the same class as another
security if both securities confer upon the holder or holders
thereof substantially the same rights and privileges; provided,
however, that, in the case of secured evidences of indebtedness,
all of which are issued under a single indenture, differences in
the interest rates or maturity dates of various series thereof
shall not be deemed sufficient to constitute such series'
different classes; and provided, further, that, in case of
unsecured evidences of
<PAGE>
indebtedness, differences in the interest rates or maturity dates
thereof shall not be deemed sufficient to constitute them
securities of different classes whether or not they are issued
under a single indenture.
SECTION 7.09. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be a
corporation organized an doing business under the laws of the United
States of America or of any State, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$50,000,000, subject to supervision or examination by Federal or state
authority and having an office within the United States of America. If
such corporation publishes reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then for the purposes of this Section, the combined
capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, is shall
resign immediately in the manner and with the affect hereinafter
specified in this Article.
Section 7.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until
the acceptance of appointment by the successor Trustee under
Section 7.11.
(b) The Trustee may resign at any time with respect to one or more or all
Series of Bonds by giving written notice thereof to the Issuer. If an
instrument of acceptance by a successor Trustee shall not have been
delivered to the Trustee within 30 days after the giving of such notice
of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee for any Series may be removed at any time by Act of the
Holders of a majority in principal amount of the Outstanding Bonds of
such Series, delivered to the Trustee and to the Issuer.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 7.08(a) with respect to
any Series of Bonds after written request therefor by the Issuer or by
any Bondholder who has been a bona fide Holder of a Bond for at least six
months, or
(2) the Trustee shall cease to be eligible under Section 7.09 and shall
fail to resign after written request therefor by the Issuer or by any
such Bondholder, or
(3) the Trustee shall become incapable of acting with respect to any
Series of Bonds or shall be adjudged a bankrupt or insolvent or a
receiver or liquidator of the Trustee or of its property shall be
appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then, in any such case,
(i) the Owner-Trustee may remove the Trustee with respect to the
applicable Series, or (ii) subject to Section 6.16 any Bondholder who has
been a bona fide Holder of a Bond of such Series for at least six months
may, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the removal of the Trustee with
respect to the applicable Series and the appointment of a successor
Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of the Trustee for any
cause, the Owner-Trustee shall promptly appoint a successor Trustee. If
within one year after such resignation, removal or incapability or the
occurrence of such vacancy, a successor trustee shall be appointed by Act
of the Holders of a majority in principal amount of the Outstanding Bonds
of that Series delivered to the Issuer and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of
such appointment, become the successor Trustee and supersede the
successor Trustee appointed by
<PAGE>
the Issuer. If no successor Trustee shall have been so appointed by
the Issuer or the Bondholders and shall have accepted appointment in
the manner hereinafter provided, any Bondholder who has been a bona
fide Holder of a Bond for at least six months may, on behalf of
himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) The Issuer shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee by mailing
written notice of such event by first-class mail, postage prepaid, to the
Rating Agency and to the Holders of the applicable Series of Bonds as
their names and addresses appear in the Bond Register. Each notice shall
include the name of the successor Trustee and the address of its
Corporate Trust Office.
Section 7.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Issuer and the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of
the retiring Trustee with respect to all or any applicable Series shall
become effective and such successor Trustee, without any further act,
deed or conveyance, shall become vested with all the rights, powers,
trusts, duties and obligations of the retiring Trustee with respect to
such Series; but, on request of the Issuer or the successor Trustee, such
retiring Trustee shall, upon payment of its charges then unpaid, execute
and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee, and shall duly assign,
transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder, subject nevertheless to the lien
of this Standard Provisions Indenture. Upon request of any such
successor Trustee, the Issuer shall execute any and all instruments for
more fully and certainly vesting in and confirming to such successor
Trustee all such rights, powers and trusts.
If a successor Trustee is appointed with respect to the Bonds of one or
more (but not all) Series, the Issuer, the predecessor Trustee and each
successor Trustee with respect to the Bonds of any applicable Series
shall execute and deliver an agreement supplemental hereto which shall
contain such provisions as shall be deemed necessary or desirable to
confirm that all the rights, powers, trusts and duties of the predecessor
Trustee with respect to the Bonds of any Series as to which the
predecessor Trustee is not retiring shall continue to be vested in the
predecessor Trustee, and shall add or change any of the provisions of
this Standard Provisions Indenture as shall be necessary to provide for
or facilitate the administration of the trusts hereunder by more than one
Trustee, it being understood that nothing herein or in such supplemental
agreement shall constitute such Trustees, co-trustees of the same trust,
and that each such Trustee shall be a trustee of a trust or trusts under
separate indentures.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible
under this Article and the Trustee or an Affiliate of the Trustee shall
be approved by FNMA or Freddie Mac as a seller-servicer of mortgage
loans.
Section 7.12 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS
OF TRUSTEE.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trustee business of the Trustee, shall be the successor of the
Trustee hereunder, provided such corporation shall be otherwise qualified
and eligible under this Article, without the execution or filing of any
paper or any further act on the part of any of the parties hereto. In
case any Bonds have been authenticated, but not delivered, by the Trustee
then in office, any successor by merger, conversion or consolidation to
such authenticating Trustee may adopt such authentication and deliver the
Bonds so authenticated with the same effect as if such successor Trustee
had itself authenticated such Bonds.
Section 7.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER.
The Trustee shall be subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section
<PAGE>
311(b). A Trustee who has resigned or been removed shall be subject
to TIA Section 311(a) to the extent indicated.
Section 7.14. CO-TRUSTEES AND SEPARATE TRUSTEES.
At any time or times, for the purpose of meeting the legal requirements
of any jurisdiction in which any of the Trust Estate for a Series may at
the time be located, the Issuer and the Trustee shall have power to
appoint, and upon the written request of the Trustee or of the Holders of
at least 25% in principal amount of the Bonds Outstanding for such
Series, the Issuer shall for such purpose join with the Trustee in the
execution, delivery and performance of all instruments and agreements
necessary or proper to appoint one or more Persons approved by the
Trustee either to act as co-trustee, jointly with the Trustee, of all or
any part of the Trust Estate for such Series, or to act as separate
trustee of any such property for such Series, in either case with such
powers as may be provided in the instrument of appointment, and to vest
in such Person or Persons in the capacity aforesaid, any property, title,
right or power deemed necessary or desirable, subject to the other
provisions of this Section. If the Issuer does not join in such
appointment within 15 days after the receipt by it of a request so to do,
or in case an Event of Default for such Series has occurred and is
continuing, the Trustee alone shall have power to make such appointment.
Should any written instrument from the Issuer be required by any
co-trustee or separate trustee so appointed for more fully confirming
to such co-trustee or separate trustee such property, title, right or
power, any and all such instruments shall, on request, be executed,
acknowledged and delivered by the Issuer.
Every co-trustee or separate trustee shall, to the extent permitted by
law, but to such extent only, be appointed subject to the following
terms, namely:
A. The Bonds of a Series shall be authenticated and delivered, and
all rights, powers, duties and obligations hereunder in respect of
the custody of securities, cash and other personal property held
by, or required to be deposited or pledged with, the Trustee
hereunder, shall be exercised solely by the Trustee.
B. The rights, powers, duties and obligations hereby conferred or
imposed upon the Trustee in respect of any property covered by
such appointment shall be conferred or imposed upon and exercised
or performed by the Trustee or by the Trustee and such co-trustee
or separate trustee jointly, as shall be provided in the
instrument appointing such co-trustee or separate trustee, except
to the extent that under any law of any jurisdiction in which any
particular act is to be performed, the Trustee shall be
incompetent or unqualified to perform such act, in which event
such rights, powers, duties and obligations shall be exercised and
performed by such co-trustee or separate trustee.
C. The Trustee may at any time, by an instrument in writing
executed by it, with the concurrence of the Issuer evidenced by an
Authorized Officer's Certificate, accept the resignation of or
remove any co-trustee or separate trustee appointed under this
Section, and, in case an Event of Default for a Series has
occurred and is continuing, the Trustee shall have power to accept
the resignation of, or remove, any such co-trustee or separate
trustee without the concurrence of the Issuer. Upon the written
request of the Trustee, the Issuer shall join with the Trustee in
the execution, delivery and performance of all instruments and
agreements necessary or proper to effectuate such resignation or
removal. If the Issuer does not join in such resignation or
removal within 15 days after the receipt by it of a request so to
do, or in case an Event of Default for such Series has occurred
and is continuing, the Trustee alone shall have power to accept
such resignation or effect such removal. A successor to any
co-trustee or separate trustee so resigned or removed may be
appointed in the manner provided in this Section.
D. No co-trustee or separate trustee hereunder shall be personally
liable by reason of any act or omission of the Trustee, or any
other such trustee hereunder, nor shall the Trustee be personally
liable by reason of any act or omission of any co-trustee or
separate trustee.
<PAGE>
E. Any Act of Bondholders for a Series delivered to the Trustee
shall be deemed to have been delivered to such co-trustee and
separate trustee.
F. If the law of any jurisdiction in which any of the Trust Estate
for a Series may at any time be located requires the appointment
of a co-trustee or separate trustee, then the Trustee shall not
accept the resignation of, or effect the removal of, any
co-trustee or separate trustee in such jurisdiction unless a
successor to such co-trustee or separate trustee has been
appointed for such Series in such jurisdiction in accordance with
this Section.
ARTICLE EIGHT: BONDHOLDERS' LISTS AND REPORTS
BY TRUSTEE AND ISSUER
Section 8.01. ISSUER TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
BONDHOLDERS.
The Issuer will furnish or cause to be furnished to the Trustee (a)
semiannually, not more than 10 days after each Regular Record Date with
respect to each Series of Bonds, a list, in such form as the Trustee may
reasonably require, of the names and addresses of the Holders of Bonds of
such Series as of such Regular Record Date, and (b) at such other times,
as the Trustee may request in writing, within 30 days after receipt by
the Issuer of any such request, a list of similar form and content as of
a date not more than 10 days prior to the time such list is furnished;
provided, however, that so long as the Trustee is the Bond Registrar, no
such list shall be required to be furnished.
Section 8.02. PRESERVATION OF INFORMATION; COMMUNICATION TO BONDHOLDERS.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of the Holders of Bonds of a Series
contained in the most recent list furnished to the Trustee as provided in
Section 8.01 and the names and addresses of the Holders of Bonds of a
Series received by the Trustee in its capacity as Bond Registrar. The
Trustee may destroy any list furnished to it as provided in Section 8.01
upon receipt of a new list so furnished.
(b) If three or more Holders of Bonds ("applicants") apply in writing
to the Trustee, and furnish to the Trustee reasonable proof that each
such applicant has owned a Bond for a period of at least six months
preceding the date of such application, and such application states that
the applicants desire to communicate with other Holders of Bonds with
respect to their rights under this Standard Provisions Indenture or under
the Bonds and is accompanied by a copy of the form of proxy or other
communication which such applicants propose to transmit, then the Trustee
shall, within five Business Days after the receipt of such application,
at its election, either:
(1) afford such applicants access to the information preserved at the
time by the Trustee in accordance with Subsection (a) of this Section; or
(2) inform such applicants as to the approximate number of Holders of
Bonds of such Series or all Bonds, as the case may be, whose names and
addresses appear in the information preserved at the time by the Trustee
in accordance with Subsection (a) of this Section, and as to the
approximate cost of mailing to such Bondholders the form of proxy or
other communication, if any, specified in such application.
If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such
applicants, mail to each Bondholder of such Series or all Bonds, as the
case may be, whose name and address appear in the information preserved
at the time by the Trustee in accordance with Subsection (a) of this
Section, a copy of the form of proxy or other communication which is
specified in such request, with reasonable promptness after a tender to
the Trustee of the material to be mailed and of payment, or provision for
the payment, of the reasonable expenses of mailing, unless within five
days after such tender, the Trustee shall mail to such applicants and
file with the Commission, together with a copy of the material to be
mailed, a written statement to the effect that, in the opinion of the
Trustee, such mailing would be contrary to the
<PAGE>
best interests of the Holders of Bonds of such Series or all Bonds, as
the case may be, or would be in violation of applicable law. Such
written statement shall specify the basis of such opinion. If the
Commission, after opportunity for a hearing upon the objections
specified in the written statement so filed, shall enter an order
refusing to sustain any of such objections or if, after the entry of
an order sustaining one of more of such objections, the Commission
shall find, after notice and opportunity for hearing, that all the
objections so sustained have been met and shall enter an order so
declaring, the Trustee shall mail copies of such material to all such
Bondholders with reasonable promptness after the entry of such order
and the renewal of such tender, otherwise the Trustee shall be
relieved of any obligation or duty to such applicants respecting their
application.
(c) Every Holder of Bonds, by receiving and holding the same, agrees
with the Issuer and the Trustee that neither the Issuer nor the Trustee
shall be held accountable by reason of the disclosure of any such
information as to the names and addresses of the Holders of Bonds in
accordance with Subsection (b) of this Section, regardless of the sources
from which such information was derived, and that the Trustee shall not
be held accountable by reason of mailing any material pursuant to a
request made under Subsection (b) of this Section.
Section 8.03. REPORTS BY TRUSTEE.
(a) Within 60 days after May 15 of each year commencing with the year
after the Issue Date of a Series of Bonds, the Trustee shall transmit by
mail to all Holders of Bonds of such Series, as their names and addresses
appear in the Bond Register for such Series, a brief report dated as of
February 28, ("reporting date") with respect to:
(1) its eligibility under Section 7.09 and its qualifications under
Section 7.08, or in lieu thereof, if to the best of its knowledge it has
continued to be eligible and qualified under said Sections, a written
statement to such effect;
(2) the character and amount of any advances (and if the Trustee
elects so to state, the circumstances surrounding the making thereof)
made by the Trustee (as such) which remain unpaid on the reporting date,
and for the reimbursement of which it claims or may claim a lien or
charge, prior to that of the Bonds of such Series, on the Trust Estate
for such Series or on any property or funds held or collected by it as
Trustee with respect to such Series, except that the Trustee shall not be
required (but may elect) to report such advances if such advances so
remaining unpaid aggregate not more than 1/2 of 1% of the principal
amount of the Bonds Outstanding for such Series on the reporting date;
(3) the amount, interest rate and maturity date of all other
indebtedness owing by the Issuer (or by any other obligor on the Bonds of
such Series) to the Trustee in its individual capacity, on the reporting
date, with a brief description of any property held as collateral
security therefor, except an indebtedness based upon a creditor
relationship arising in any manner described in Section 7.13;
(4) the property and funds relating to such Series, if any, physically
in the possession of the Trustee as such on the reporting date;
(5) any release, or release and substitution, of any property relating
to such Series subject to the lien of the Standard Provisions Indenture
(and the consideration therefore, if any) which it has not previously
reported;
(6) any additional issue of Bonds of such Series which the Trustee
has not previously reported; and
(7) any action taken by the Trustee in the performance of its duties
hereunder which it has not previously reported and which in its opinion
materially affects the Bonds of such Series or the Trustee Estate
securing such Series, except action in respect of a Default, notice of
which has been or is to be withheld by the Trustee in accordance with
Section 7.02.
(b) The Trustee shall transmit by mail to all Holders of Bonds of a
Series, as their names and addresses appear in the Bond Register for such
Series of Bonds, a brief report with respect to the release, or release
and
<PAGE>
substitution, of property relating to such Series subject to the lien
of this Standard Provisions Indenture (and consideration therefor, if
any) unless the fair value of such property is less than 10% of the
principal amount of the Bonds Outstanding of such Series at the time of
such release, or such release and substitution, such report to be
transmitted within 90 days of such time.
(c) A copy of each such report shall, at the time of such transmission to
the Holders of Bonds such Series, be filed by the Trustee with each
securities exchange upon which the Bonds of such Series are listed, and
also with the Commission. The Issuer will notify the Trustee when the
Bonds of any Series are listed on any securities exchange.
(d) The Trustee shall transmit by mail to each Holder of Bonds of a
Series a report with respect to the principal amount of the Bonds of such
Series held by such Holder of Bonds of such Series as of the immediately
preceding Payment Date and the amount of principal, interest and premium,
if any, paid with respect to the Bonds of such Series held by such Holder
of Bonds of such Series since the immediately preceding Payment Date.
Section 8.04. REPORTS BY ISSUER.
The Issuer shall:
(1) file with the Trustee, within 15 days after the Issuer is
required to file the same with the Commission, copies of the
annual reports and of the information, documents and other reports
(or copies of such portions of any of the foregoing as the
Commission may from time to time by rules and regulations
prescribe) which the Issuer may be required to file with the
Commission pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934; or, if the Issuer is not required to file
information, documents or reports pursuant to either of said
Sections, then it will file with the Trustee and the Commission,
in accordance with rules and regulations prescribed from time to
time by the Commission, such of the supplementary and periodic
information, documents and reports which may be required pursuant
to Section 13 of the Securities Exchange Act of 1934 in respect
of a security listed and registered on a national securities
exchange as may be prescribed from time to time in such rules and
regulations;
(2) file with the Trustee and the Commission in accordance with
rules and regulations prescribed from time to time by the
Commission, such additional information, documents and reports
with respect to compliance by the Issuer with the conditions and
covenants of this Standard Provisions Indenture as may be required
from time to time by such rules and regulations;
(3) transmit by mail to all Holders of Bonds of a Series as their
names and addresses appear in the Bond Register for such Series of
Bonds, and to each Rating Agency rating the Bonds of such Series,
within 30 days after the filing thereof with the Trustee, such
summaries of any information, documents and reports required to be
filed by the Issuer pursuant to clauses (1) and (2) of this
Section as may be required by rules and regulations prescribed
from time to time by the Commission; and
(4) transmit by mail to all Holders of Bonds of a Series, as
their names and addresses appear in the Bond Register for such
Series of Bonds and to each Rating Agency rating the Bonds of such
Series, within 120 days after the end of each fiscal year of the
Issuer, (i) an audited balance sheet of the Issuer as of the last
day of the preceding fiscal year and (ii) a statement setting
forth the remaining balance of the Bonds of such Series held by
each Holder of Bonds of such Series on the last day of the
preceding fiscal year.
ARTICLE NINE: COVENANTS OF ISSUER
Section 9.01. PAYMENT OF PRINCIPAL AND INTEREST.
The Issuer will duly and punctually pay the principal of and interest on
the Bonds of each Series solely from
<PAGE>
proceeds of the Trust Estate for such Series Granted hereunder and the
related Terms Indenture in accordance with the terms of the Bonds,
this Standard Provisions Indenture and the related Terms Indenture.
Section 9.02. MAINTENANCE OF OFFICE OR AGENCY.
The Issuer will maintain an office or agency within the United States of
America where Bonds may be presented or surrendered for payment, where
Bonds may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the Issuer in respect of the Bonds
and this Standard Provisions Indenture may be served. The Issuer hereby
initially appoints the Corporate Trust Office of the Trustee as such
office or agency. The Issuer will give prompt written notice to the
Trustee of the location, and of any change in the location, of any such
office or agency. If at any time the Issuer shall fail to maintain any
such office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may
be made or served at the Corporate Trust Office, and the Issuer hereby
appoints the Trustee at its Corporate Trust Office its agent to receive
all such presentations, surrenders, notices and demands.
Section 9.03. MONEY FOR BOND PAYMENTS TO BE HELD IN TRUST.
Subject to the provisions of Section 6.05, if applicable, if the Issuer
shall at any time act as its own Paying Agent, it will, on or before each
Payment Date, Redemption Date or Special Redemption Date for a Series of
Bonds, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal or interest so
becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided, and will promptly notify the Trustee of
its action or failure so to act.
Whenever the Issuer shall have one or more Paying Agents, the Issuer will
on or before each Payment Date, Redemption Date, Special Redemption Date
or other date of payment for a Series of Bonds, deposit with such Paying
Agent a sum sufficient to pay the principal or interest so becoming due
(to the extent funds are then available for such purposes), such sum to
be held in trust for the benefit of the Persons entitled to such
principal or interest, and unless such Paying Agent is the Trustee, the
Issuer will promptly notify the Trustee of it action or failure so to
act.
The Issuer will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall
agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of principal of or
interest on the Bonds in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
(2) give the Trustee notice of any default by the Issuer for any
other obligor upon the Bonds) in the making of any payment of
principal or interest; and
(3) at any time during the continuance of any such default, upon
the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
The Issuer may at any time, for the purpose of obtaining the satisfaction
and discharge of this Standard Provisions Indenture or for any other
purpose, pay, or by Issuer Order direct any Paying Agent to pay, to the
Trustee all sums held in trust by the Issuer or such Paying Agent, such
sums to be held by the Trustee upon the same trusts as those upon which
such sums were held by the Issuer or such Payment Agent; and, upon such
payment by any Paying Agent to the Trustee, such Paying Agent shall be
released from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent or then held by
the Issuer, in trust for the payment of the principal of or interest on
any Bond and remaining unclaimed for six years after such principal or
interest has become due and payable shall be paid to the Issuer upon the
Issuer's Request, or (if then held by the Issuer)
<PAGE>
shall be discharged from such trust; and the Holder of such Bond shall
thereafter, as an unsecured general creditor, look only to the Issuer
for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money (but only to the extent of the
amounts so paid to the Issuer), and all liability of the Issuer as
trustee with respect to such trust money, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being
required to make any such release of payment, may at the expense of
the Issuer cause to be published once, in a newspaper published in the
English language, customarily published on each Business Day and of
general circulation in the city in which the Corporate Trust Office is
located, notice that such money remains unclaimed and that, after a
date specified therein, which shall not be less than 30 days after the
date of such publication, any unclaimed balance of such money then
remaining will be repaid to the Issuer. The Trustee may also adopt
and employ, at the expense of the Issuer, any other reasonable means
of notification of such release of payment (including, but not limited
to, mailing notice of such release to Holders whose Bonds have been
called but have not been surrendered for redemption or whose right to
or interest in moneys due and payable but not claimed is determinable
from the records of any Paying Agent, at the last address of record
for each such Holder).
Section 9.04. CORPORATE EXISTENCE.
(a) Subject to Sections 9.04(b) and 9.04(c), the Owner-Trustee will keep
in full effect its existence as a banking corporation.
(b) Any corporation into which the Owner-Trustee hereunder may be
merged or with which it may be consolidated, or any corporation resulting
form any merger or consolidation to which such Owner-Trustee hereunder
shall be a party, shall be the successor Owner-Trustee under this
Indenture without the execution or filing of any paper, instrument or
further act to be done on the part of the parties hereto, anything
herein, or any agreement relating to such merger or consolidation, by
which any such Owner-Trustee may seek to retain certain powers, rights
and privileges theretofore obtaining for any period of time following
such merger or consolidation, to the contrary notwithstanding.
(c) Any successor to the Owner-Trustee appointed pursuant to the terms
of the Deposit Trust Agreement shall be the successor Owner-Trustee under
this Indenture without the execution or filing of any paper, instrument
or further act to be done of the part of the parties hereto.
(d) Upon any consolidation or merger of or other succession to the
Owner-Trustee in accordance with Section 7.12 hereof, the Person
surviving such consolidation or merger (if other than the Owner-Trustee)
or other Person succeeding to the Owner-Trustee under the Deposit Trust
Agreement may exercise every right and power of the Owner-Trustee under
the Indenture with the same effect as if such Person had been named as
Owner-Trustee herein.
Section 9.05. TRUST EXISTENCE.
The Trust will keep in full effect its existence, rights and franchises
as a trust under the laws of the State of Delaware (unless it becomes a
trust under the laws of any other state or the United States of
America in which case the Trust will keep in full effect its existence,
rights and franchises as a trust under the laws of such other
jurisdiction), and will obtain and preserve its qualification to do
business as a foreign entity in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Indenture or the Bonds.
The Deposit Trust Agreement shall not be amended without the prior
written approval of the Trustee, which approval shall not be unreasonably
withheld.
Section 9.06. PROTECTION OF TRUST ESTATE.
The Issuer and the Trustee will from time to time execute and deliver
all such
<PAGE>
supplements and amendments hereto and all such financing statements,
continuation statements, instruments of further assurance and other
instruments, and will take such other action as the Trustee deems
necessary or advisable to:
(i) Grant more effectively all or any portion of the Trust
Estate for a Series;
(ii) maintain or preserve the lien (and the priority thereof) of
this Standard Provisions Indenture or carry out more effectively
the purposes hereof;
(iii) perfect, publish notice of, or protect the validity of any
Grant made or to be made by this Standard Provisions Indenture;
(iv) enforce any of the Loan Documents, GNMA Certificates, Freddie
Mac PCs, FNMA MBSs or Other Mortgage Certificates; or
(v) preserve and defend title to the Trust Estate securing a
Series and the rights of the Trustee and the Holders of Bonds of
such Series secured thereby in such Trust Estate therein against
the claims of all Persons.
The Issuer hereby designates the Trustee its agent and attorney-in-fact
to execute any financing statement, continuation statement or other
instrument required by the Trustee pursuant to this Section 9.06.
Section 9.07. OPINIONS AS TO TRUST ESTATE.
(a) Promptly and in any event within 90 days after the Issue Date for
each Series, the Issuer shall furnish to the Trustee an Opinion of
Counsel either stating that, in the opinion of such counsel such action
has been taken with respect to the recording and filing of this Standard
Provisions Indenture, any indentures supplemental hereto and any other
requisite documents as is necessary to make effective the lien and
security interest of this Standard Provisions Indenture with respect to
the Trust Estate for such Series and reciting the details of such action,
or stating that, in the opinion of such counsel, no such action is
necessary to make such lien and security interest effective.
(b) On or before ______________ in each calendar year commencing in the
year following the Issue Date for a Series, the Issuer shall furnish to
the Trustee an Opinion of Counsel either stating that, in the opinion of
such counsel, such action has been taken with respect to the recording,
filing, re-recording and refiling of this Standard Provisions Indenture,
any indentures supplemental hereto and any other requisite document as is
necessary to maintain the lien and security interest created by this
Standard Provisions Indenture with respect to the Trust Estate for such
Series (except with respect to any portion of the Trust Estate securing a
Series with an Issue Date less than 120 days prior to the date of such
Opinion of Counsel) and reciting the details of such action or stating
that in the opinion of such counsel no such action is necessary to
maintain such lien and security interest. Such Opinion of Counsel shall
also describe the recording, filing, re-recording and refiling of this
Standard Provisions Indenture, any indentures supplemental hereto and any
other requisite documents that will, in the opinion of such counsel be
required to maintain the lien and security interest of this Standard
Provisions Indenture with respect to the Trust Estate for such Series
until ________ in the following calendar year.
Section 9.08. PERFORMANCE OF OBLIGATIONS; BACK-UP SERVICING AGREEMENT.
(a) The Issuer shall not take any action and will use its best
efforts not to permit any action to be taken by others, which would
release any Person from any of such Person's covenants or obligations
under any of the Loan Documents or under any instrument included in
the Trust Estate for a Series, or which would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair
the validity or effectiveness of, any of the Loan Documents or any
such instrument with respect to such Series, except as expressly
provided in this Standard Provisions Indenture, the Servicing
Agreement, the Back-up Servicing Agreement or such Loan Document for
such Series or other instrument or unless such action will not
<PAGE>
adversely affect the Holders of the Bonds of such Series.
(b) The Issuer shall punctually perform and observe all of its
obligations and agreements contained in the Back-up Servicing Agreement
and the Reinvestment Agreements, if any, with respect to each Series.
(c) Upon any termination of the Servicer's rights and powers pursuant
to the Servicing Agreement, the Trustee shall promptly notify the Rating
Agency and each Insurer. As soon as any successor to the Back-Up
Servicer is appointed, the Trustee shall notify each insurer, specifying
in such notice the name and address of such successor.
(d) To the extent that the Servicer has agreed in the Servicing
Agreement to undertake the rights and responsibilities of the beneficiary
under the Mortgagor Bankruptcy Bond included in the Trust Estate securing
the Bonds on the Delivery Date, the Trustee shall have no responsibility
or duties with respect to such Mortgagor Bankruptcy Bond, except as may
be required, upon request of the Servicer by virtue of the Trustee being
the record holder of a Pledged Loan.
Section 9.09. NEGATIVE COVENANTS.
The Issuer will not:
(1) sell, transfer, exchange or otherwise dispose of any of the Trust
Estate except as expressly permitted by this Indenture;
(2) claim any credit on, or make any deduction from, the principal,
premium, if any, or interest payable in respect of the Bonds by reason of
the payment of any taxes levied or assessed upon any of the Trust Estate
securing the Bonds;
(3) engage in any business or activity other than in connection with
or relating to the issuance of Bonds pursuant to this Indenture and in
connection with reports and distributions to the beneficial owners of the
Trust;
(4) incur, assume or guarantee any indebtedness of any Person secured
by any Mortgage collateral pledged under this Indenture;
(5) incur, assume or guarantee any indebtedness of any Person other
than in connection with the issuance of the Bonds pursuant to this
Indenture;
(6) dissolve or liquidate in whole or in part;
<PAGE>
(7) (i) permit the validity or effectiveness of this Indenture or
any Grant hereunder to be impaired, or permit the lien of this Indenture
to be amended, hypothecated, subordinated, terminated or discharged with
respect to the Bonds, or permit any Person to be released from any
covenants or obligations under this Indenture, except as may be expressly
permitted hereby, (ii) permit any lien, charge, security interest,
mortgage or other encumbrance (other than the lien of this Indenture or
any Permitted Encumbrance) to be created on or extend to or otherwise
arise upon or burden the Trust Estate securing the Bonds or any part
thereof or any interest therein or the proceeds thereof, or (iii) permit
the lien of this Indenture not to constitute a valid first priority
security interest in the Trust Estate securing the Bonds; or
(8) conduct its business in such a manner that it would be deemed to
be an investment company within the meaning of the Investment Company Act
of 1940.
Section 9.10. ISSUER MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Issuer shall not consolidate or merge with or into any other Person
or convey or transfer its properties and assets substantially as an
entirety to any Person, unless:
(1) the Person (if other than the Issuer) formed or surviving such
consolidation or merger or which acquires by conveyance or transfer the
properties and assets of the Issuer substantially as an entirety shall be
a Person organized and existing under the laws of the United States of
America or any State or the District of Columbia, and shall expressly
assume, by an indenture supplemental hereto, executed and delivered to
the Trustee, in form satisfactory to the Trustee, the due and punctual
payment of the principal of an interest on all Bonds and the performance
of every covenant of this Standard Provisions Indenture on the part of
the Issuer to be performed or observed;
(2) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing; and
(3) the Issuer shall have delivered to the Trustee an Authorized
Officer's Certificate and an Opinion of Counsel each stating that such
consolidation, merger, conveyance or transfer and such supplemental
indenture comply with this Article and that all conditions precedent in
this Article provided for relating to such transaction have been complied
with.
Section 9.11. SUCCESSOR SUBSTITUTED.
Upon any consolidation or merger, or any conveyance or transfer of the
properties and assets of the Issuer substantially as an entirety in
accordance with Section 9.09, the Person formed by or surviving such
consolidation or merger (if other than the Issuer) or the Person to which
such conveyance or transfer is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Issuer under this
Standard Provisions Indenture with the same effect as if such Person had
been named as the Issuer herein. In the event of any such conveyance or
transfer, the Person named as the "Issuer" in the first paragraph of this
instrument or any successor which shall theretofore have become such in
the manner prescribed in this Article may be dissolved, wound up and
liquidated at any time thereafter, and such Person thereafter shall be
released from its liabilities as obligor and maker on all the Bonds and
from its obligations under this Standard Provisions Indenture.
Section 9.12. STATEMENT AS TO COMPLIANCE.
The Issuer will deliver to the Trustee, within 120 days after the end of
each fiscal year of the Issuer (commencing with the fiscal year ending on
December 31, 199_), a written statement signed by the Chairman or the
President or a Vice President and by the Treasurer or an Assistant
Treasurer of the Issuer, stating, as to each signer thereof, that:
(1) a review of the activities of the Issuer during such year and
of performance under this Standard
<PAGE>
Provisions Indenture has been made under his supervision; and
(2) to the best of his knowledge, based on such review, the Issuer
has fulfilled all its obligations under this Standard Provisions
Indenture throughout such year, or, if there has been a default in
the fulfillment of any such obligation, specifying each such
default known to him and the nature and status thereof.
Section 9.13. NOTIFICATION OF RATING AGENCIES.
The Issuer shall notify each Rating Agency rating the Bonds of a Series
of the issuance of any replacement Reinvestment Agreement entered into
with a bank, insurance company or other corporation meeting the
requirements set forth in the definition of Eligible Investments other
than a bank, insurance company or other corporation executing the
Reinvestment Agreements listed in a Schedule to a Terms Indenture as of
the Issue Date. In addition, the Issuer shall notify each Rating Agency
rating the Bonds of a Series in the event that any replacement policy or
instrument is obtained for the Excess Coverage Mortgage Insurance
Policies, the Mortgagor Bankruptcy Bond, the Prepayment Interest Bond,
the Repurchase Bond, the Primary Mortgage Insurance Polices, the Pool
Insurance Policy or the Special Hazard Insurance Policy with respect to
such Series from an insurer or other Person other than the Person who
issued such policy or instrument; provided, however, that the Trustee
shall not obtain any such replacement policy or instrument if the result
thereof will be to lower the then rating of any Bonds issued pursuant to
this Standard Provisions Indenture by any Rating Agency rating such
Bonds.
Section 9.14. COVENANTS OF THE ISSUER.
All covenants of the Issuer in this Indenture are covenants solely of
the Issuer and not covenants of the Owner-Trustee in its individual
capacity. The Owner-Trustee and any successor owner-trustee under the
Deposit Trust Agreement is entering into this Indenture solely as
Owner-Trustee under the Deposit Trust Agreement and not in its
individual capacity, and in no case whatsoever shall the Owner-Trustee
or any such successor owner-trustee be personally liable on, or for
any loss in respect of, any of the statements, representations,
warranties or obligations of the Issuer hereunder, as to all of which
the parties hereto agree to look solely to the property of the Issuer.
ARTICLE TEN: SUPPLEMENTAL INDENTURES
Section 10.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF BONDHOLDERS.
Without the consent of the Holders of any Bonds of any Series, the
Issuer, when authorized by a Board Resolution, and the Trustee, at any
time and from time to time, may enter into one or more indentures
supplemental hereto, in form satisfactory to the Trustee, for any of the
following purposes:
(1) to correct or amplify the description of any property at any
time subject to the lien of this Standard Provisions Indenture, or
better to assure, convey and confirm unto the Trustee any property
subject or required to be subjected to the lien of this Standard
Provisions Indenture, or to subject to the lien of this Standard
Provisions Indenture additional property;
(2) to add to the conditions, limitations and restrictions on the
authorized amount, terms and purposes of the issue, authentication
and delivery of any Series of Bonds, as herein set forth,
additional conditions, limitations and restrictions thereafter to
be observed;
(3) to set forth the terms of, and security for, any Series that
has not theretofore been authorized by a Terms Indenture;
(4) to amend Section 4.02 hereof, but only with respect to a
Series that has not theretofore been authorized by a Terms
Indenture;
<PAGE>
(5) to evidence the succession of another Person to the Issuer, and
the assumption by any such successor of the covenants of the Issuer
herein and in the Bonds contained;
(6) to add to the Covenants of the Issuer, for the benefit of the
Holders of all Bonds or the Bonds of any Series, or to surrender any
right or power herein conferred upon the Issuer;
(7) to convey, transfer, assign, mortgage or pledge any property to or
with the Trustee;
(8) to cure any ambiguity, to correct or supplement any provision
herein or in any supplemental indenture which may be defective or
inconsistent with any other provision herein or in any supplemental
indenture, or to make any other provisions with respect to matters or
questions arising under this Standard Provisions Indenture or in any
supplemental indenture, provided that such action shall not adversely
affect the interests of the Holders of the Bonds of any Series;
(9) to evidence and provide for the acceptance of appointment
hereunder by a successor trustee with respect to one or more Series of
Bonds and to add to or change any of the provisions of this Standard
Provisions Indenture as shall be necessary to facilitate the
administration of the trusts hereunder by more than one trustee,
pursuant to the requirements of Section 7.11 hereof; or
(10) to modify, eliminate or add to the provisions of this
Standard Provisions Indenture to such extent as shall be necessary
to effect the Qualification of this Standard Provisions Indenture
under the TIA or under any similar Federal statute hereafter
enacted, and to add to this Standard Provisions Indenture such
other provisions as may be expressly required by the TIA.
The Trustee is hereby authorized to join in the execution of any such
supplemental indenture and to make any further appropriate agreements and
stipulations which may be therein contained, but the Trustee shall not be
obligated to enter into any such supplemental indenture which affects the
Trustee's own rights, duties, liabilities or immunities under this Standard
Provisions Indenture or otherwise.
Section 10.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF BONDHOLDERS.
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Bonds of each Series to be affected, by Act of said
Holders delivered to the Issuer and the Trustee, the Owner-Trustee and the
Trustee may enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to, or changing in any manner or eliminating
any of the provisions of, this Standard Provisions Indenture relating to such
Series or of modifying in any manner the rights of the Holders of the Bonds
of such Series under this Standard Provisions Indenture; provided, however,
that no such supplemental indenture shall, without the consent of the Holder
of each Outstanding Bond affected thereby:
(1) change the Stated Maturity of the principal of, or any installment
of principal or interest on, any Bond, or reduce the principal amount
thereof or the Bond Interest Rate thereon or the Redemption Price or
Special Redemption Price with respect thereto or change the provisions
of this Standard Provisions Indenture and the related Terms Indenture
relating to the application of Trust Estate collections to the payment
of principal of Bonds or change any place of payment where, or the coin
or currency in which, any Bond or the interest thereon is payable, or
impair the right to institute suit for the enforcement of any such
payment on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the applicable Redemption Date or Special
Redemption Date);
(2) reduce the percentage in principal amount of the Outstanding Bonds
of any Series, the consent of the Holders of which is required for any
such supplemental indenture, or the consent of the Holders of which is
required for any waiver of compliance with certain provisions of this
Standard Provisions Indenture or certain defaults hereunder and their
consequences provided for in this Standard Provisions Indenture;
<PAGE>
(3) impair or adversely affect the Trust Estate for a Series except as
otherwise permitted herein;
(4) permit the creation of any lien ranking prior to or on a parity
with the lien of this Standard Provisions Indenture with respect to any
part of a Trust Estate or terminate the lien of this Standard
Provisions Indenture on any property at any time subject hereto or
deprive the Holder of any Bond of the security afforded by the lien of
this Standard Provisions Indenture;
(5) change the percentage required to direct the Trustee to sell or
liquidate the Trust Estate for a Series pursuant to Section 6.04; or
(6) modify any of the provisions of this Section or Section 6.15,
except to increase any such percentage or to provide that certain other
provisions of this Standard Provisions Indenture cannot be modified or
waived without the consent of the Holder of each Outstanding Bond
affected thereby.
The Trustee may in its discretion determine whether any Bonds of a particular
series would be affected by any supplemental indenture and any such
determination shall be conclusive upon the Holders of all Bonds, whether
theretofore or thereafter authenticated and delivered hereunder. The Trustee
shall not be liable for any such determination made in good faith.
It shall not be necessary for any Act of Bondholders under this Section to
approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Trustee of any
supplemental indenture pursuant to this Section, the Issuer shall mail to the
Holders of the Bonds to which such supplemental indenture relates a notice
setting forth in general terms the substance of such supplemental indenture.
Any failure of the Issuer to mail such notice, or any defect therein, shall
not, however, in any way impair or affect the validity of any such
supplemental indenture.
Section 10.03. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing or accepting the additional trusts created by any supplemental
indenture permitted by this Article or the modifications thereby of the
trusts created by this Standard Provisions Indenture, the Trustee shall be
entitled to receive, and (subject to Section 7.01) shall be fully protected
in relying upon, an Opinion of Counsel stating that the execution of such
supplemental indenture is authorized or permitted by this Standard Provisions
Indenture. The Trustee may, but shall not be obligated to, enter into any
such supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Standard Provisions Indenture or otherwise.
Section 10.04. EFFECT OF SUPPLEMENTAL INDENTURE.
Upon the execution of any supplemental indenture under this Article, this
Standard Provisions Indenture shall be modified in accordance therewith, and
such supplemental indenture shall form a part of this Standard Provisions
Indenture for all purposes; and every Holder of Bonds of any Series
theretofore or thereafter authenticated and delivered hereunder shall be
bound thereby.
Section 10.05. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article shall conform
to the requirements of the TIA as then in effect.
Section 10.06. REFERENCE IN BONDS TO SUPPLEMENTAL INDENTURES.
Bonds authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may, and if required by the Trustee shall,
bear a notation in form approved by the Trustee as to any matter
<PAGE>
provided for in such supplemental indenture. If the Issuer shall so
determine, new Bonds so modified as to conform, in the opinion of the Trustee
and the Issuer, to any such supplemental indenture which relates to the
Series of which such Bonds are a part may be prepared and executed by the
Issuer and authenticated and delivered by the Trustee in exchange for
Outstanding Bonds of such Series.
ARTICLE ELEVEN: REDEMPTION OF BONDS
Section 11.01. REDEMPTION AT THE OPTION OF THE ISSUER; ELECTION TO REDEEM.
The Bonds of any Class of a Series shall be redeemable at the option of the
Issuer, in whole or in part, on a pro rata, random lot or other selection
basis as specified in the related Terms Indenture, at the Redemption Prices
specified in such Terms Indenture (exclusive of installments of interest and
principal maturing on or prior to such date, payment of which shall have been
made or duly provided for to the Holders of the Bonds on relevant record
dates or as otherwise provided in this Standard Provisions Indenture and such
Terms Indenture).
Installments of interest and principal due on or prior to a Redemption Date
shall continue to be payable to the Holders of such Bonds of such Series as
of the relevant Regular Record Dates according to their terms and the
provisions of Section 3.07. The election of the Issuer to redeem any Bonds
of such Series pursuant to this Section 11.01 shall be made by the
Owner-Trustee and shall be evidenced by an Authorized Officer's Certificate
directing the Trustee to make the payment of the Redemption Price of all of
the Bonds to be redeemed from funds in the Collection Account, the Debt
Service Funds, the Reserve Fund, the Overcollateralization Fund or the Other
Funds, as applicable, and/or from moneys deposited with the Trustee by the
Issuer pursuant to Section 11.06.
The Issuer shall set the Redemption Date and the Redemption Record Date and
give notice thereof to the Trustee pursuant to Section 11.04.
Section 11.02. SPECIAL REDEMPTION.
All or a portion of the Bonds of any Series (except for a Series with monthly
Payment Dates) shall be subject to special redemption on a pro rata, random
lot or other selection basis as specified in the related Terms Indenture, at
the Redemption Price pursuant to this Section 11.02 on the Special Redemption
Date specified in the related Terms Indenture in the event that (i) the
Issuer makes a determination in accordance with Section 12.11(d) that the
available funds on deposit with the Trustee on the next succeeding Payment
Date would not be sufficient to meet principal and interest requirements of
the Bonds of such Series for such Payment Date as the result of the Principal
Prepayments on the Mortgage Collateral securing such Series since the
immediately preceding Payment Date, and (ii) the Issuer elects not to
deposit, by the third calendar day after such determination, the amount
determined by the Issuer pursuant to Section 12.11(d) as necessary to avoid a
special redemption.
The Trustee shall call for special redemption of the principal amount of
Bonds of a Series as determined in accordance with Section 12.11(d) and such
Bonds shall be due and payable on the applicable Special Redemption Date at
the Special Redemption Price. The Special Redemption Date and the Special
Redemption Price shall be as specified in the related Terms Indenture and the
Special Redemption Record Date shall be as set by the Trustee. All payments
of principal pursuant to any special redemption shall be made in the same
priority and manner as payments of principal on any Payment Date. There shall
be no limit upon the number of times the Trustee may call Bonds of a Series
for special redemption and more than one Special Redemption Date may be fixed
by the Trustee during any Due Period so long as (i) the requisite
determination is made pursuant to Section 12.11(d) and (ii) the requirements
of this Article Eleven are complied with.
Section 11.03. REDEMPTION AT THE OPTION OF BONDHOLDERS.
The Bonds of any Class of a Series may be redeemable at the option of the
Bondholders upon the terms and
<PAGE>
conditions specified in the related Terms Indenture.
Section 11.04. NOTICE TO TRUSTEE.
Unless otherwise specified in the Terms Indenture for a Series, in case of
any redemption pursuant to Section 11.01, the Issuer shall, at least 15 days
prior to a Redemption Date, notify the Trustee of such Redemption Date, the
Redemption Record Date and the principal amount of any Bonds to be redeemed
on such Redemption date.
Section 11.05. NOTICE OF REDEMPTION OR SPECIAL REDEMPTION BY THE ISSUER.
Notice of redemption pursuant to Section 11.01 and Section 11.02 shall be
given by first-class mail, postage prepaid, mailed not less than 10 days
prior to the applicable Redemption Date or Special Redemption Date, to each
Holder of Bonds of the affected Series, at his address in the Bond Register.
All notices of redemption shall state:
(1) the Redemption Date or Special Redemption Date;
(2) the Redemption Price or Special Redemption Price;
(3) that on a Redemption Date or Special Redemption Date, if Bonds of such
Series are not to be paid in full, the Redemption Price or Special Redemption
Price will become due and payable upon the principal portion of each such
Bond of such Series as shall be specified in such notice and that the amount
payable in respect of the redeemed portion of each such Bond of such Series
shall be limited to the Redemption Price or Special Redemption Price therefor
and that interest thereon shall cease to accrue on said date and that payment
of the Redemption Price or Special Redemption Price will be paid by check
mailed to the Persons whose names appear as the registered Holders thereof on
the Bond Register as of the Redemption Record Date or Special Redemption
Record Date applicable to such Redemption Date or Special Redemption Date
and identified in such notice of redemption;
(4) that on a Redemption Date or Special Redemption Date, if Bonds of a Class
of such Series are to be paid in full, the fact of such payment in full and
that interest thereon shall cease to accrue on said date;
(5) if such payment is the final payment on such Bond of such Series; and
(6) the place where such Bonds of such Series are to be surrendered for
payment of the Redemption Price or Special Redemption Price if such Bonds of
such Series are to be paid in full, which shall be the office or agency of
the Issuer to be maintained as provided in Section 9.02.
Notice of redemption of Bonds of a Series shall be given by the Issuer or, at
the Issuer's request, by the Trustee's failure to give notice of redemption,
or any defect therein, to any Holder of any Bond of a Series selected for
redemption shall not impair or affect the validity of the redemption of any
other Bond of such Series.
Section 11.06. DEPOSIT OF REDEMPTION PRICE OR SPECIAL REDEMPTION PRICE.
In the case of all redemptions, on or before the Business Day next preceding
the giving of notice of redemption as provided in Section 11.05, the Issuer
shall deposit with the Trustee an amount of money sufficient to pay the
Redemption Price or Special Redemption Price of all of the Bonds of the
affected Series which are to be redeemed on such Redemption Date or Special
Redemption Date (unless such payment is to be made from the Collection
Account, the Debt Service Funds, the Reserve Fund, the Overcollateralization
Fund or the Other Funds for such Series).
Section 11.07. BONDS PAYABLE ON REDEMPTION DATE OR SPECIAL REDEMPTION DATE.
<PAGE>
Notice of redemption having been given as provided in Section 11.05, the
Bonds of a Series so to be redeemed shall, on the applicable Redemption Date
or Special Redemption Date, become due and payable at the Redemption Price or
the Special Redemption Price and on such Redemption Date or Special
Redemption Date (unless the Issuer shall default in the payment of the
Redemption Price or Special Redemption Price) such Bonds shall cease to bear
interest. On or after the Redemption Date or the Special Redemption Date,
such Bonds shall be paid by the Issuer at the Redemption Price or the Special
Redemption Price; provided, however, that payments due on a Payment Date on
or prior to the Redemption Date or Special Redemption Date shall be payable
to the Holders of such Bonds registered as such on the relevant Regular
Record Dates according to their terms and the provisions of Section 3.07.
If any Bond called for redemption shall not be so paid upon surrender thereof
for redemption, the principal shall, until paid, bear interest from the
Redemption Date or the Special Redemption Date at the applicable Bond
Interest Rate.
ARTICLE TWELVE: ACCOUNTS, ACCOUNTING AND RELEASES
Section 12.01. COLLECTION OF MONEY.
Except as otherwise expressly provided herein, the Trustee may demand payment
or delivery of, and shall receive and collect, directly and without
intervention or assistance of any fiscal agent or other intermediary, all
money and other property payable to or receivable by the Trustee pursuant to
this Standard Provisions Indenture, including all payments due on the
Mortgage Collateral securing a Series in accordance with the terms and
conditions of such Mortgage Collateral. The Trustee shall hold all such
money and property received by it as part of the Trust Estate for the related
Series of Bonds and shall apply it as provided in this Standard Provisions
Indenture and the related Terms Indenture. Except as otherwise expressly
provided in this Standard Provisions Indenture, if any default occurs in the
making of any payment or performance under the Servicing Agreement, the
Back-up Servicing Agreements, the Insurance Polices, the Reinvestment
Agreements or any Mortgage Collateral securing a Series, the Trustee may, and
upon the request of the Holder of a majority in principal amount of the
Outstanding Bonds of such Series shall, take such action as may be
appropriate to ensure such payment or performance, including the institution
and prosecution of appropriate Proceedings. In the event that the Trustee
has not received timely payment on the Mortgage Certificates securing a
Series, the Trustee shall immediately notify GNMA, FNMA, Freddie Mac or other
appropriate Person or such other Persons designated by any of them, as the
case may be, of the failure to receive such payment. The Trustee shall
request that GNMA, FNMA, Freddie Mac or other appropriate Person wire such
payments in immediately available funds to the Trustee, or take such other
action as the Trustee shall designate in accordance with the procedures of
GNMA, FNMA, Freddie Mac or other appropriate person then in effect including
any agreement made with the Issuer. Any such action shall be without
prejudice to any right to claim a Default or Event of Default under this
Standard Provisions Indenture and to proceed thereafter as provided in
Article Six.
Section 12.02. SUPPLEMENTAL DEBT SERVICE FUND.
(a) All moneys received by the Trustee pursuant to Section 4.02(4) with
respect to a Series, together with any Eligible Investments in which such
moneys are or will be invested or reinvested during the term of this Standard
Provisions Indenture and any income or gain realized from such investment,
shall be held by the Trustee in the Supplemental Debt Service Fund as part of
the Trust Estate as security for such Series subject to disbursement and
withdrawal as herein provided. Moneys shall be subject to withdrawal
pursuant to Section 12.02(d)(1), (2) or (3).
(b) All or a portion of the Supplemental Debt Service Fund for each Series
shall be invested and reinvested at the Issuer's direction in one or more
Eligible Investments, provided that the Issuer shall demonstrate compliance
with Section 12.02(e). The Supplemental Debt Service Fund for such Series
shall be invested and reinvested, as fully as practicable in such manner as
the Trustee shall from time to time determine, but only
<PAGE>
in one or more Eligible Investments. All income or other gain from such
investments shall be credited to such Supplemental Debt Service Fund and any
loss resulting from such investments shall be charged to such Supplemental
Debt Service Fund. To the extent specified in the Terms Indenture for a
Series, all or a portion of the income or other gain from such Eligible
Investments of such Supplemental Debt Service Fund in excess of the Assumed
Reinvestment Rate for such Series shall be paid to the Issuer or its
designees.
(c) If any amounts invested as provided in Section 12.02(b) shall be needed
for disbursement from the Supplemental Debt Service Fund for a Series as set
forth in Section 12.02(d), the Trustee shall cause a sufficient amount of
such investments to be sold or otherwise converted to cash to the credit of
such Supplemental Debt Service Fund. The Trustee shall not in any way be
held liable for the inability of the Trustee to make any required payment
from the Supplemental Debt Service Fund for a Series because of any
insufficiency of such Supplemental Debt Service Fund either resulting from
any loss of investment in any Eligible Investment or resulting from
disbursements made pursuant to Section 12.02(d).
(d) Disbursements from the Supplemental Debt Service Fund for a Series shall
be made, to the extent funds therefor are available, only as follows:
(1) On each Payment Date, Redemption Date or Special Redemption Date
for such Series, as the case may be, the Trustee shall withdraw from
the Supplemental Debt Service Fund for such Series the amount, if any,
of the aggregate Deficiency attributable to the GPM Collateral since
the immediately preceding Payment Date, Redemption Date or Special
Redemption Date for such Series, and the amount, if any, needed to pay
principal of the Bonds of such Series as a result of Principal
Prepayments of GPM Collateral securing such Series since the
immediately preceding Payment Date, Redemption Date or Special
Redemption Date for such Series, all as to be set forth in the Reports
called for in Section 12.11(a) and (b) and shall deposit such amount in
the Collection Account for such Series;
(2) If, at the close of business on the last Business Day prior to a
Payment Date, Redemption Date or Special Redemption Date for a Series,
as the case may be, the Trustee shall not have available in the
Collection Account for such Series with respect to the Mortgage
Collateral an amount which, together with the amount to be transferred
pursuant to Section 12.02(d)(1), Section 12.03(d)(1), Section
12.04(d)(1), Section 12.05(d)(1) and Section 12.06(d)(1), shall be
sufficient to make the payments due from such Mortgage Collateral to
Holders of Bonds of such Series on such Payment Date, Redemption Date
or Special Redemption Date, the Trustee shall withdraw first from the
Reserve Fund for such Series, second from the Overcollateralization
Fund for such Series, third from the Other Funds for such Series,
fourth from the Supplemental Debt Service Fund for such Series, and
fifth from the Buy-Down Fund for such Series an amount equal to the
insufficiency and shall deposit such amount in the Collection Account
for such Series. The Trustee shall notify the Issuer of any such
withdrawal; and
(3) Upon receipt by the Trustee of an officer's certificate of the
Issuer to the effect that, with respect to all of the GPM Collateral
securing such Series, the amount of the Supplemental Debt Service Fund
for such Series required at such time pursuant to Section 12.02(e) is
less than the amount of such Supplemental Debt Service Fund then held
by the Trustee, the Trustee shall on the next succeeding Payment Date
pay to the Issuer or its designees or assigns an amount equal to the
difference between the amount of such Supplemental Debt Service Fund
then held by the Trustee and the amount set forth in such officers'
certificate, which amount shall thereupon be deemed not to be part of
the Trust Estate for such Series.
(e) The amount required to be maintained in the Supplemental Debt Service
Fund for a Series as of any date shall be an amount which, when taken
together with Reinvestment Income thereon at the applicable Assumed
Reinvestment Rate, will equal for each item of GPM Collateral securing such
Series valued on level debt service basis in calculating its Initial Bond
Value an amount sufficient to pay the greater of (i) the aggregate remaining
Deficiency with respect to such item of GPM Collateral together with
Reinvestment Income thereon at the applicable Assumed Reinvestment Rate
(computed on a Due Period basis) or (ii) the amount, if any, by which the
Outstanding Bond Value of such item of GPM Collateral (calculated by valuing
the scheduled payments on
<PAGE>
such item of GPM Collateral on a level debt service basis) exceeds the
Outstanding Mortgage Collateral Amount of such item of GPM Collateral.
Section 12.03. BUY-DOWN FUND.
(a) All moneys received by the Trustee pursuant to Section 4.02(7) with
respect to a Series, together with any Eligible Investments in which such
moneys are or will be invested or reinvested during the term of this Standard
Provisions Indenture and any income or other gain realized from such
investment shall, be held by the Trustee in the Buy-Down Fund as part of the
Trust Estate as security for such Series subject to disbursement and
withdrawal as herein provided. Moneys shall be subject to withdrawal
pursuant to Section 12.03(d)(1), (2) or (3).
(b) All or a portion of the Buy-Down Fund for a Series shall be invested and
reinvested at the Issuer's direction in one or more Eligible Investments,
provided that such investment shall demonstrate compliance with Section
12.03(e). If the Issuer shall not have given any directions pursuant to this
Section 12.03(b), the Buy-Down Fund for such Series shall be invested and
reinvested, as fully as practicable, in such manner as the Trustee shall from
time to time determine, but only in one or more Eligible Investments. All
income or other gain from such investments shall be credited to such Buy-Down
Fund and any loss resulting from such investments shall be charged to such
Buy-Down Fund. To the extent specified in the Terms Indenture for a Series,
all or a portion of the income or other gain from such Eligible Investments
of such Buy-Down Fund in excess of the applicable Assumed Reinvestment Rate
for such Series shall be paid to the Issuer or its designees.
(c) If any amounts invested as provided in Section 12.03(b) shall be needed
for disbursement from the Buy-Down Fund for a Series as set forth in Section
12.03(d), the Trustee shall cause a sufficient amount of such investments of
such Buy-Down Fund to be sold or otherwise converted to cash to the credit of
such Buy-Down Fund. The Trustee shall not in any way be held liable for the
inability of the Trustee to make any required payment from the Buy-Down Fund
for a Series because of any insufficiency of such Buy-Down Fund either
resulting from any loss of investment in any Eligible Investment or resulting
from disbursements made pursuant to Section 12.03(d).
(d) Disbursements from the Buy-Down Fund for a Series shall be made, to the
extent funds therefor are available only as follows:
(1) On each Payment Date, Redemption Date or Special Redemption Date
for such Series, as the case may be, the Trustee shall withdraw from
the Buy-Down Fund for such Series the amount, if any, of the aggregate
Shortfall attributable to the Mortgage Collateral since the immediately
preceding Payment Date, Redemption Date or Special Redemption Date for
such Series as set forth in Section 12.11(d) and shall deposit such
amount in the Collection Account for such Series;
(2) If, at the close of business on the last Business Day prior to a
Payment Date, Redemption Date or Special Redemption Date for a Series,
as the case may be, the Trustee shall not have available in the
Collection Account for such Series an amount which, together with the
amount to be transferred pursuant to Section 12.02(d)(1), Section
12.03(d)(1), Section 12.04(d)(1), Section 12.05(d)(1) and Section
12.06(d)(1), shall be sufficient to make the payments due from such
Mortgage Collateral to Holders of Bonds of such Series on such Payment
Date, Redemption Date or Special Redemption Date, the Trustee shall
withdraw first from the Reserve Fund for such Series, second from the
Overcollateralization Fund for such Series, third from the Other Funds
for such Series, fourth from the Supplemental Debt Service Fund for
such Series, and fifth from the Buy-Down Fund for such Series an amount
equal to the insufficiency and shall deposit such amount in the
Collection Account for such Series. The Trustee shall notify the
Issuer of any such withdrawal; and
(3) Upon receipt by the Trustee of an officers' certificate of the
Issuer to the effect that the amount of the Buy-Down Fund for a Series
required at such time, pursuant to Section 12.03(e), is less than the
<PAGE>
amount of such Buy-Down Fund then held by the Trustee, the Trustee
shall on the next succeeding Payment Date pay to the Issuer or its
designees or assigns an amount equal to the difference between the
amount of such Buy-Down Fund then held by the Trustee and the amount
set forth in such officers' certificate, which amount shall thereupon
be deemed not to be part of the Trust Estate for such Series.
(e) The amount required to be maintained in the Buy-Down Fund for a Series
as of any date shall be an amount which, when taken together with
Reinvestment Income thereon at the applicable Assumed Reinvestment Rate
(computed on a Due Period basis), will equal for each Buy-Down Pledged Loan
securing such Series, an amount sufficient to pay fully the remaining
Shortfall with respect to each such Buy-Down Pledged Loan.
Section 12.04. OVERCOLLATERALIZATION FUND.
(a) All monies received by the Trustee pursuant to Section 4.02(7) with
respect to a Series, together with any Eligible Investments in which such
monies are or will be invested or reinvested during the term of this Standard
Provisions Indenture and any income or other gain realized from such
investment, shall be held by the Trustee in the Overcollateralization Fund as
part of the Trust Estate as security for such Series subject to disbursement
or withdrawal as herein provided. Monies shall be subject to withdrawal
pursuant to Section 12.04(d)(1), (2) or (3).
(b) All or a portion of the Overcollateralization Fund for a Series shall be
invested or reinvested at the Issuer's direction in one or more Eligible
Investments provided that such investment shall demonstrate compliance with
Section 12.04(e). If the Issuer shall not have given any direction pursuant
to this Section 12.04(b), the Overcollateralization Fund for such Series
shall be invested and reinvested, as fully as practicable, in such manner as
the Trustee from time to time determines, but only in one or more Eligible
Investments. All income or other gains from such investments shall be
credited to such Overcollateralization Fund and any loss resulting from such
investment shall be charged to such Overcollateralization Fund. To the
extent specified in the Terms Indenture for a Series, all or a portion of the
income or other gains from such Eligible Investments of such
Overcollateralization Fund in excess of the applicable Assumed Reinvestment
Rate for such Series shall be paid to the Issuer or its designees.
(c) If any amounts invested as provided in Section 12.04(b) shall be needed
for disbursement from the Overcollateralization Fund for a Series as set
forth in Section 12.04(d), the Trustee shall cause a sufficient amount of
such investments of such Overcollateralization Fund to be sold or otherwise
converted to cash to the credit of such Overcollateralization Fund. The
Trustee shall not in any way be held liable for the inability of the Trustee
to make any required payments from such Overcollateralization Fund because of
any insufficiency of such Overcollateralization Fund either resulting from
any loss of investment in any Eligible Investment or resulting from
disbursements made pursuant to Section 12.04(d).
(d) Disbursements from the Overcollateralization Fund for a Series shall be
made, to the extent funds are therefore available, only as follows:
(1) On each Payment Date, Redemption Date or Special Redemption Date
for a Series, as the case may be, the Trustee shall withdraw from the
Overcollateralization Fund for such Series the amount, if any, to fund
Loan Losses occurring during the Due Period and shall deposit such
amount in the Collection Account for such Series;
(2) If at the close of business on the last Business Day prior to a
Payment Date, Redemption Date or Special Redemption Date for a Series,
as the case may be, the Trustee shall not have available in the
Collection Account for such Series an amount which, together with the
amount to be transferred pursuant to Section 12.02(d)(1), Section
12.03(d)(1), Section 12.04(d)(1), Section 12.05(d)(1) and Section
12.06(d)(1), shall be sufficient to make the payments due to Holders of
Bonds of such Series on such Payment Date, Redemption Date or Special
Redemption Date, the Trustee shall withdraw first from the Reserve Fund
for such Series, second from the Overcollateralization Fund for such
Series, third from the Other Funds for such Series, fourth from the
Supplemental Debt Service Fund for such Series, and fifth from the
Buy-Down Fund for such Series an amount equal to the insufficiency and
<PAGE>
shall deposit such amount in the Collection Account for such Series.
The Trustee shall notify the Issuer of any such withdrawal from such
Overcollateralization Fund; and
(3) Upon receipt by the Trustee of an officer's certificate of the
Issuer to the effect that the amount of the Overcollateralization Fund
for a Series required at such time pursuant to Section 12.04(e) is less
than the amount of such Overcollateralization Fund then held by the
Trustee, the Trustee shall on the next succeeding Payment Date pay to
the Issuer or its designees or assigns an amount equal to the
difference between the amount of such Overcollateralization Fund then
held by the Trustee and the amount set forth in such officer's
certificate, which amount shall thereupon be deemed not to be part of
the Trust Estate.
(e) The amount required to be maintained in the Overcollateralization Fund
for a Series as of any Payment Date shall be an amount equal to the Aggregate
Initial Overcollateralization Amount reduced by (i) the Aggregate Loan
Losses, if any, and (ii) the difference between the Outstanding Collateral
Value at the Payment Date and the principal amount of the Bonds Outstanding
at the Payment Date.
Section 12.05. OTHER FUNDS.
(a) All monies received by the Trustee pursuant to Section 4.02(8) with
respect to a Series, together with any Eligible Investments in which such
monies are or will be invested or reinvested during the term of this Standard
Provisions Indenture and any income or gain realized from such investment,
shall be held by the Trustee in the Other Funds as part of the Trust Estate
as security for such Series subject to disbursement and withdrawal as herein
provided. Monies shall be subject to withdrawal pursuant to Section
12.05(d)(1), (2) or (3).
(b) All or a portion of the Other Funds for a Series shall be invested or
reinvested at the Issuer's direction in one or more Eligible Investments
provided that the investment shall demonstrate compliance with Section
12.05(e). If the Issuer shall not have given any direction pursuant to this
Section 12.05(b), the Other Funds for such Series shall be invested and
reinvested, as fully as practicable, in such manner as the Trustee shall from
time to time determine, but only in one or more Eligible Investments. All
income or other gains from such investments shall be credited to such Other
Funds and any loss resulting from such investments shall be charged to such
Other Funds. To the extent specified in the Terms Indenture for a Series,
all or a portion of the income or other gain from such Eligible Investments
of such Other Funds in excess of the applicable Assumed Reinvestment Rate for
such Series shall be paid to the Issuer or its designee.
(c) If any amounts invested as provided in Section 12.05(b) shall be needed
for disbursement from the Other Funds for a Series as set forth in Section
12.05(d), the Trustee shall cause a sufficient amount of such investments of
such Other Funds to be sold or otherwise converted to cash for the credit of
such Other Funds. The Trustee shall not in any way be held liable for the
inability of the Trustee to make any required payment from such Other Funds
because of any insufficiency of such Other Funds either resulting from any
loss of investment in any Eligible Investment or resulting from disbursements
made pursuant to Section 12.05(d).
(d) Disbursements from the Other Funds for a Series shall be made, to the
extent that the funds therefor are available, only as follows:
(1) On each Payment Date, Redemption Date or Special Redemption Date
for a Series, as the case may be, the Trustee shall withdraw from the
Other Funds for such Series the amount, if any, required to satisfy the
purposes for which such Other Funds were established as specified in
the related Terms Indenture, and shall deposit such amount in the
Collection Account for such Series;
(2) If, at the close of business on the last Business Day prior to a
Payment Date, Redemption Date or Special Redemption Date for a Series,
as the case may be, the Trustee shall not have available in the
Collection Account for such Series an amount which, together with the
amount to be transferred pursuant to Section 12.02(d)(1), Section
12.03(d)(1), Section 12.04(d)(1), Section 12.05(d)(1) and Section
12.06(d)(1) shall be sufficient to make the payment due to Holders of
Bonds of such Series on
<PAGE>
such Payment Date, Redemption Date or Special Redemption Date, the
Trustee shall withdraw first from the Reserve Fund for such Series,
second from the Overcollateralization Fund for such Series, third from
the Other Funds for such Series, forth from the Supplemental Debt
Service Fund for such Series, and fifth from the Buy-Down Fund for such
Series an amount equal to the insufficiency and shall deposit such
amount in the Collection Account for such Series. The Trustee shall
notify the Issuer of any such withdrawal from such Other Funds; and
(3) Upon receipt by the Trustee of an officer's certificate of the
Issuer to the effect that the amount of the Other Funds for a Series
required at such time, pursuant to Section 12.05(e), is less than the
amount of such Other Funds then held by the Trustee, the Trustee shall
on the next succeeding Payment Date pay to the Issuer or its designees
or assigns an amount equal to the difference between the amount of such
Other Fund then held by the Trustee and the amounts set forth in such
officer's certificate, which amount shall thereupon be deemed not to be
part of the Trust Estate.
(e) The Other Funds for a Series shall be an amount set forth in the related
Terms Indenture on the Issue Date of such Series reduced by any disbursements
pursuant to Subsections (d)(1) or (2) of this Section 12.05 and less such
additional amount as will not result in the lowering of the then rating of
the Bonds of such Series by any rating agency rating the Bonds of such Series.
Section 12.06. RESERVE FUND.
(a) All moneys received by the Trustee pursuant to Section 4.02(6) with
respect to a Series, together with any Eligible Investments in which such
moneys are or will be invested or reinvested during the term of this Standard
Provisions Indenture and any income or other gain realized from such
investment, shall be held by the Trustee in a separate fund (the "Reserve
Fund") as part of the Trust Estate as security for such Series subject to
disbursement and withdrawal as herein provided. Moneys shall be subject to
withdrawal pursuant to Section 12.06(d)(1), (2) or (3).
(b) All or a portion of the Reserve Fund for a Series shall be invested and
reinvested at the Issuer's direction in one or more Eligible Investments
provided that such investment shall demonstrate compliance with Section
12.06(e). If the Issuer shall not have given any directions pursuant to this
Section 12.06(b), the Reserve Fund for such Series shall be invested and
reinvested, as fully as practicable, in such manner as the Trustee shall from
time to time determine, but only in one or more Eligible Investments. All
income or other gain from such investments shall be credited to such Reserve
Fund and any loss resulting from such investments shall be charged to such
Reserve Fund. To the extent specified in the Terms Indenture for a Series,
all or a portion of the income or other gain from such Eligible Investments
of such Reserve Fund in excess of the applicable Assumed Reinvestment Rate
for such Series shall be paid to the Issuer or its designees.
(c) If any amounts invested as provided in Section 12.06(b) shall be needed
for disbursement from the Reserve Fund for a Series as set forth in Section
12.06(d), the Trustee shall cause a sufficient amount of such investments of
such Reserve Fund to be sold or otherwise converted to cash to the credit of
such Reserve Fund. The Trustee shall not in any way be held liable for the
inability of the Trustee to make any required payment from such Reserve Fund
because of any insufficiency of such Reserve Fund either resulting from any
loss of investment in any Eligible Investment or resulting from
disbursements made pursuant to Section 12.06(d).
(d) Disbursements from the Reserve Fund for a Series shall be made, to the
extent funds therefor are available, only as follows:
(1) On each Payment Date, Redemption Date or Special Redemption Date
for a Series, as the case may be, the Trustee shall withdraw from the
Reserve Fund the amount, if any, required to satisfy the purposes for
which such Reserve Fund was established as specified in the related
Terms Indenture, and shall deposit such amount in the Collection
Account for such Series;
(2) If, at the close of business on the last Business Day prior to a
Payment Date, Redemption Date or
<PAGE>
Special Redemption Date for a Series, as the case may be, the Trustee
shall not have available in the Collection Account for such Series an
amount which, together with the amount to be transferred pursuant to
Section 12.02(d)(1), Section 12.03(d)(1), Section 12.04(d)(1), Section
12.05(d)(1) and Section 12.06(d)(1) shall be sufficient to make the
payments due to Holders of Bonds of such Series on such Payment Date,
Redemption Date or Special Redemption Date, the Trustee shall withdraw
from the Reserve Fund for such Series an amount equal to the
insufficiency and shall deposit such amount in the Collection Account
for such Series. The Trustee shall notify the Issuer of any such
withdrawal from such Reserve Fund; and
(3) upon receipt by the Trustee of an officers' certificate of the
Issuer to the effect that the amount of the Reserve Fund for a Series
required at such time, pursuant to Section 12.06(a) is less than the
amount of such Reserve Fund then held by the Trustee, the Trustee shall
on the next succeeding Payment Date pay to the Issuer or its designees
or assigns an amount equal to the difference between the amount of such
Reserve Fund then held by the Trustee and the amount set forth in such
officers' certificate, which amount shall thereupon be deemed not to be
part of the Trust Estate.
(e) The Reserve Funds for a Series shall be an amount set forth in the
related Terms Indenture on the Issue Date of such Series reduced by any
disbursements pursuant to Subsections (d)(1) or (2) of this Section 12.06 and
less such additional amount as will not result in the lowering of the then
rating of the Bonds of such Series by any Rating Agency rating the Bonds of
such Series.
Section 12.07. COLLECTION ACCOUNT.
The Trustee shall, prior to the Delivery Date of the Series No. 1 Bonds,
establish the Collection Account for such Series into which the Trustee shall
from time to time deposit all Collateral Proceeds relating to such Series
(including any proceeds from any deposits to be made by the Services or the
Back-up Servicer pursuant to the Servicing Agreements and Back-up Servicing
Agreement, respectively, with respect to such Series and including any
proceeds from any Insurance Policies for such Series) and all proceeds
transferred from the Debt Service Funds, the Reserve Fund, the
Overcollateralization Fund and the Other Funds with respect to such Series;
provided, however, that all amounts as provided by Section 4.02(17) shall be
deposited in such Collection Account on the Delivery Date. All moneys
deposited from time to time in the Collection Account for a Series pursuant
to this Standard Provisions Indenture shall be held by the Trustee as part of
the Trust Estate for such Series as herein provided:
(a) All payments to be made from time to time by the Trustee to the Holders
of Bonds of a Series out of funds in the Collection Account for such Series
pursuant to this Standard Provisions Indenture shall be made by the Trustee
as the Paying Agent of the Issuer;
(b) Moneys in the Collection Account for a Series shall be invested and
reinvested, but only in one or more Eligible Investments, by the Trustee in
such manner as the Issuer shall from time to time determine, or, if the
Issuer shall not have given any directions, as the Trustee shall direct.
All income or other gain from such investments shall be credited to such
Collection Account and any loss resulting from such investments shall be
charged to such Collection Account. If any amounts invested as aforesaid
shall be needed for disbursement from the Collection Account for a Series to
make the payments due to Holders of Bonds of such Series or to the Issuer as
set forth in the Bond Valuation Report delivered pursuant to Section
12.11(c), the Trustee shall cause a sufficient amount of such investments of
such Collection Account to be sold or otherwise converted to cash to the
credit of such Collection Account. The Trustee shall not in any way be held
liable for any insufficiency in any Collection Account resulting from any
loss on any Eligible Investment; and
(c) Notwithstanding any other provision of this Section 12.07, the Trustee
may accept principal and interest payments on any Mortgage Collateral prior
to the Due Date thereof and distribute from any investment earnings thereof
to such Due Date at the direction of the Issuer pursuant to Section 13.01(a).
Section 12.08. SUPPLEMENTAL CUSTODIAL RESERVE FUND.
<PAGE>
The Trustee shall, prior to the Delivery Date of the Bonds of a Series,
establish the Supplemental Custodial Reserve Fund for such Series into which
the Trustee shall deposit monthly funds withdrawn from the Collection Account
for such Series required to pay insurance premiums on Insurance Policies
securing such Series, amounts required to be paid to the Back-up Servicer, if
any, pursuant to the Back-up Servicing Agreement with respect to such Series
and amounts, if any, due to each Servicer of a Pledged Loan securing such
Series under its Servicing Agreement, all in such amounts set forth in the
monthly Accounting Report referred to in Section 12.11.
(a) All or a portion of the Supplemental Custodial Reserve Fund for a Series
shall be invested and reinvested at the Issuer's direction in one or more
Eligible Investments. If the Issuer shall not have given any direction
pursuant to this Section 12.08, such Supplemental Custodial Reserve Fund
shall be invested and reinvested for the account of the Issuer as fully as
practicable in such manner as the Trustee shall from time to time determine,
but only in one or more Eligible Investments.
(b) Disbursements from the Supplemental Custodial Reserve Fund for a Series
shall be made, to the extent funds therefor are available, and the Trustee
shall withdraw from the Supplemental Custodial Reserve Fund the amount, if
any, set forth in any monthly Accounting Report referred to in Section
12.11(b) as the amount, if any, required to be so withdrawn and at the times
therein specified in order to make the payments due to pay the premiums on
the Excess Coverage Mortgage Insurance Policies, the Pool Insurance Policy,
the Special Hazard Insurance Policy, the Mortgagor Bankruptcy Bond, the
Prepayment Interest Bond, the Repurchase Bond and any endorsements to
Insurance Policies obtained by or on behalf of the Issuer with respect to
such Series and amounts due under the Back-Up Servicing Agreement for such
Series.
(c) On each anniversary date of the Issue Date of a Series and after the
payment of all insurance premiums, the Trustee may release to the Issuer upon
the Issuer's Request any amount remaining on deposit in the Supplemental
Custodial Reserve Fund for such Series and such amount shall thereupon be
deemed not to be a part of the Trust Estate for such Series.
Section 12.09. PREPAYMENT RESERVE ACCOUNT.
To the extent provided in the Terms Indenture for a Series, the Trustee
shall, prior to the Delivery Date of the Bonds of such Series, establish a
separate account (the "Prepayment Reserve Account") for such Series, into
which the Trustee shall deposit on each Payment Date an amount specified in
Section 12.11(c)(13).
(1) Upon the Issuer's Order all or a portion of the Prepayment
Reserve Account for a Series shall be invested and reinvested at
the Issuer's direction in one or more Eligible Investments. If
the Issuer shall not have given any direction pursuant to this
Section 12.09, such Prepayment Reserve Account shall be invested
and reinvested for the account of the Issuer as fully as
practicable in such manner as the Trustee shall from time to time
determine, but only in one or more Eligible Investments.
(2) On any Payment Date, the Trustee shall withdraw from the
Prepayment Reserve Account an amount calculated in accordance with
12.11(c)(13), and shall deposit such amount in the Collection
Account for such Series.
Section 12.10. REPORTS BY TRUSTEE.
The Trustee shall timely supply to the Issuer any information maintained by
the Trustee pursuant to the Indenture as the Issuer may from time to time
request for a Series on the Mortgage Collateral, the Debt Service Funds, the
Reserve Fund, the Overcollateralization Fund, the Other Funds, the Collection
Account and the Supplemental Custodial Reserve Fund reasonably needed to
complete the Accounting Report or the Bond Valuation Report for such Series
or to provide any other information available to the Trustee and required by
Section 12.11.
<PAGE>
Section 12.11. ACCOUNTING.
(a) Mortgage Collateral Report: Not later than two Business Days after
the Determination Date the Issuer shall compile and provide, or cause to
be compiled and provided, to the Trustee and the Issuer a Mortgage
Collateral Report which shall contain the following information and
instructions:
(1) the principal payments with respect to each item of
Mortgage Collateral to be received by, or credited to the account
of, the Trustee; and
(2) the payments of interest (net of servicing, Primary
Mortgage Insurance Policy premiums and agency guarantee fees
withheld by the Services of each item of Mortgage Collateral) on
each item of Mortgage Collateral to be received by, or credited to
the account of, the Trustee.
(b) Monthly: Not later than the last Business Day of each month, or
such other date as may be provided in the Terms Indenture, the Issuer
shall compile and provide or cause to be compiled and provided to the
Trustee the monthly Accounting Report which shall contain the following
information and instructions with respect to the Mortgage Collateral
securing each Series of Bonds:
(1) The Outstanding Mortgage Collateral Amount as of the
Determination Date for the current month;
(2) The insurance premiums, servicing and other fees to be
deposited into the Supplemental Custodial Reserve Fund out of the
payments of interest pursuant to Sections 4.02(21) and 12.08.
(3) The amount of Shortfall, if any, with respect to the Buy-Down
Pledged Loans;
(4) The amount of Deficiency, if any, with respect to the GPM
Collateral;
(5) The amount of any Loan Losses, if any, with respect to
Pledged Loans;
(6) The amount, if any, advanced by Services or the Back-Up
Servicer as advances pursuant to the Servicing Agreements or the
Back-Up Servicing Agreement for nonpayment by the mortgagors;
(7) Instructions to pay to the Back-Up Servicer or a Servicer for
reimbursement the amount of any advances that are not recoverable
from Insurance Proceeds or Liquidation Proceeds;
(8) Instructions to deposit to and/or withdraw from the
Supplemental Custodial Reserve Fund the amounts set forth pursuant
to Section 12.08, the names of the payees thereof and the dates of
the required payments;
(9) Instructions to withdraw from the Overcollateralization Fund
the amounts to be paid to the Back-Up Servicer or Servicers
pursuant to Section 12.04;
(10) Instructions to withdraw from the Buy-Down Fund the amount
set forth pursuant to Section 12.03 (d)(2) and to deposit such
amount in the Collection Account;
(11) Instructions to withdraw from the Supplemental Debt Service
Fund the amount set forth pursuant to Section 12.02(d)(2) and to
deposit such amount in the Collection Account; and
(12) If applicable, the Eligible Investments to be invested in
and the amount of each such investment to be made from the
deposits to the Collection Account during the current month.
(c) Payment Date: Not later than the last Business Day of the month
preceding a Payment Date, or such other date as may be provided in the
Terms Indenture, the Issuer shall compile and provide or cause to be
compiled
<PAGE>
and provided to the Trustee the Bond Valuation Report which shall contain
the following information and instructions with respect to the Series:
(1) The balance required in the Supplemental Debt Service Fund
pursuant to Section 12.02(e) as of the most recent Determination
Date and any excess or deficiency with respect to such fund;
(2) The balance required in the Buy-Down Fund pursuant to Section
12.03(e) as of the most recent Determination Date and any excess
or deficiency with respect to such fund;
(3) The balance required in the Overcollateralization Fund
pursuant to Section 12.04(e) as of the most recent Determination
Date and any excess or deficiency with respect to such fund;
(4) The balance required in the Reserve Fund pursuant to the
Terms Indenture as of the most recent Determination Date and any
excess or deficiency with respect to such fund;
(5) The balance required in any of the Other Funds pursuant to
the Terms Indenture as of the most recent Determination Date any
excess or deficiency with respect to such funds;
(6) The interest due and payable on the next Payment Date on each
Class of Bonds of the Series;
(7) The interest accrued for the current Due Period on each Class
of Compound Interest Bonds of the Series that is to be added to
the principal of such Bonds on the next Payment Date;
(8) The principal amount of Bonds of each Class to remain
outstanding after the next Payment Date;
(9) The Required Principal Payment on the Bonds of each Class on
the next Payment Date;
(10) The portion, if any, of the Excess Cash that is to be
applied pursuant to the provisions of the Terms Indenture to pay
principal on the Bonds of the Series on the next Payment Date;
(11) The aggregate principal amount to be paid on the Bonds of
such Series on the next Payment Date;
(12) The Aggregate Collateral Value and Aggregate Bond Value of
the Mortgage Collateral securing the Series as of the most recent
Determination Date;
(13) The amount, if any, to be deposited to the Prepayment
Reserve Account on the next Payment Date;
(14) The amount of the administration fees as of the most recent
Determination Date;
(15) The amount, if any, in the Collection Account for the Series
available for distribution to the Issuer.
(16) The amount of Loan Losses, if any, occurring during the Due
Period;
(17) Instructions to deposit on the next Payment Date to the
Collection Account (c) from the Supplemental Debt Service Fund the
amount of the excess, if any, set forth pursuant to Section
12.11(c)(1); and (b) from the Buy-Down Fund the amount of the
excess, if any, set forth pursuant to Section 12.11(c)(2);
(18) Instructions to withdraw on the next Payment Date from the
Collection Account (a) the amount of the deficiency, if any, set
forth pursuant to Section 12.11(c)(1) and to deposit such amount
to the Supplemental Debt Service Fund; and (b) the amount of the
deficiency, if any, set forth pursuant to Section 12.11(c)(2) and
to deposit such amount to the Buy-Down Fund;
<PAGE>
(19) Instructions to withdraw on the next Payment Date from the
Collection Account and pay to the Bondholders as principal the
amount set forth pursuant to Section 12.11(c)(11);
(20) Instructions to withdraw on the next Payment Date from the
Collection Account and pay to the Bondholders as interest the
amount set forth pursuant to Section 12.11(c)(6);
(21) Instructions to add to the principal of any Class of
Compound Interest Bonds on the next Payment Date the amount set
forth pursuant to Section 12.11(c)(7);
(22) Instructions to withdraw from the Overcollateralization Fund,
the Reserve Fund and the Other Funds, as the case may be, the
amounts of the excess, if any, determined pursuant to Sections
12.11(c)(3), 12.11(c)(4) and 12.11(c)(5), respectively, and to
deposit such amounts to the Collection Account;
(23) Instructions to withdraw from the Collection Account the
amounts of the deficiency, if any, determined pursuant to Sections
12.11(c)(3), 12.11(c)(4) and 12.11(c)(5) and to deposit such
amounts to the Reserve Fund, the Overcollateralization Fund and
the Other Funds, respectively;
(24) Instructions to withdraw from the Overcollateral-ization
Fund the amount set forth pursuant to Section 12.11(c)(16) and to
deposit such amount to the Collection Account;
(25) Instructions to deposit or withdraw, as the case may be, the
amounts determined pursuant to Section 12.11(c)(13) and 12.09(2)
with respect to the Prepayment Reserve Account;
(26) Instructions to withdraw from the Collection Account the
amounts set forth pursuant to Section 12.11(c)(14) and to pay such
amounts to the payees listed in such instruction on the dates
specified therein; and
(27) Instructions as to the disposition of amounts determined
pursuant to Section 12.11(c)(15) upon their certification required
by Section 13.01(e).
(d) Special Redemption: For each Series that does not provide for
monthly payments of principal and interest, the Issuer shall render or
cause to be rendered to the Trustee a Special Redemption Determination
Report not later than the last Business Day of each month (or such other
date as may be provided in the Terms Indenture) other than a month
immediately preceding a Payment Date. The Special Redemption
Determination Report shall contain the following information and
instructions with respect to the Series:
(1) Determine the Special Redemption Bond Value of the Mortgage
Collateral securing the Series; and
(2) If the principal amount of Bonds Outstanding on the previous
Payment Date exceeds the Special Redemption Bond Value, a Special
Redemption is required in an amount equal to the sum of (a) the
difference between the principal amount of the Bonds Outstanding
on the previous Payment Date and the Special Redemption Bond Value
and (b) interest on the amount calculated pursuant to subsection
(a) above at the applicable Bond Interest Rates, unless the Issuer
deposits in the Collection Account cash or Eligible Investments in
an amount equal to the sum of (a) and (b) above.
The Issuer shall notify the Trustee of the need for a Special Redemption
and the Special Redemption Date by not later than the last day of each
month (or such other date specified in the Terms Indenture) other than a
month preceding a Payment Date.
Section 12.12. TRUST ESTATE.
<PAGE>
(a) The Trustee may, and when required by the provisions of this
Standard Provisions Indenture shall, execute instruments to release
property from the lien of this Standard Provisions Indenture, or convey
the Trustee's interest in the same, in a manner and under circumstances
which are not inconsistent with the provisions of this Standard
Provisions Indenture. No party relying upon an instrument executed by
the Trustee as provided in this Article Twelve shall be bound to
ascertain the Trustee's authority, inquire into the satisfaction of any
conditions precedent or see to the application of any moneys.
(b) Upon the request of the Servicer accompanied by an officers'
certificate and such other documents as required by the Servicing
Agreement for a Series, to the effect that a Pledged Loan securing such
Series has been the subject of a full prepayment so as to become a
prepaid Pledged Loan and stating the fair value thereof, the Trustee
shall release such Pledged Loan including the related Loan Documents to
the Servicer or its designees or assigns in accordance with the
recommendation of the Servicer. Subject to Section 13.05, upon the
Issuer's Request accompanied by an officers' certificate of the Issuer
pursuant to Section 12.02(d)(3), Section 12.03(d)(3), Section
12.04(d)(3), Section 12.05(d)(3) or Section 12.06(d)(3), or upon the
Issuer's Request accompanied by an Officers' Certificate of the Issuer
to the effect that a GNMA Certificate, a Freddie Mac PC, a FNMA MBS or an
Other Mortgage Certificate has been the subject of a full prepayment so
as to become a prepaid GNMA Certificate, a prepaid Freddie Mac PC, a
prepaid FNMA MBS or a prepaid Other Mortgage Certificate and stating the
fair value thereof, the Trustee shall promptly release such GNMA
Certificate, Freddie Mac PC, FNMA MDS or other Mortgage Certificate or
such excess funds in the Supplemental Debt Service Fund, the Buy-Down
Fund, the Reserve Fund, the Overcollateralization Fund or the Other Funds
to the Issuer or its designees or assigns. However, in the event the
amount of the Mortgage Collateral released from the lien of the Standard
Provisions Indenture for such Series for the then current calendar year
equals or exceeds 10% of the aggregate principal amount of the Bonds of
such Series then Outstanding, a certificate shall be provided by an
Independent appraiser or other expert stating the fair value of such
Mortgage Collateral.
(c) In any case in which a Mortgaged Property is to be conveyed to a
Person by a borrower, and the Person is to enter into an assumption
agreement or other equivalent agreement or agreements as provided for in
the Servicing Agreement for a Series which require the signature of the
Trustee, the Servicer shall obtain from the Servicer such agreement or
agreements and such other appropriate documents and deliver them to the
Trustee for signature with a letter explaining the nature of such
documents and the reason or reasons why the Trustee's signature is
required. With such letter, the Servicer shall deliver an officers'
certificate as required by such Servicing Agreement.
(d) Upon compliance with the terms of Section 3.10 relating to the
substitution of an item of Substitute Mortgage Collateral in exchange for
an item of Original Mortgage Collateral or Substitute Mortgage
Collateral, the Trustee shall release to the Issuer or its designees or
assigns (1) the item of Original Mortgage Collateral or Substitute
Mortgage Collateral, (2) all Collateral Proceeds received by the Trustee
on such item of Original Mortgage Collateral or Substitute Mortgage
Collateral on the Due Date prior to the Subsequent Delivery Date, (3) all
amounts deposited in the Collection Account with the Trustee with respect
to such item of Original Mortgage Collateral or Substitute Mortgage
Collateral on the Delivery Date, (4) any investment earnings on such
Collateral Proceeds and such amounts deposited in the Collection Account,
and (5) amounts on deposit in any funds or accounts hereunder relating to
such item of Original Mortgage Collateral or Substitute Mortgage
Collateral.
(e) The Trustee shall, at such time as there are no Bonds Outstanding
for a Series, release the Trust Estate for such Series for the lien of
this Standard Provisions Indenture in accordance with Article Five and
deliver the Trust Estate to the Issuer.
(f) Upon the Issuer's Request, accompanied by an Officers' Certificate
of the Issuer (i) to the effect that, as of the Payment Date immediately
preceding the date of such Officers' Certificate (or, if prior to the
first Payment Date, as of the Issue Date), the Aggregate Outstanding Bond
Value of the Mortgage Collateral securing the Series exceeds the unpaid
principal amount of the Bonds of such Series, (ii) requesting a release
of an amount of such Mortgage Collateral or cash not exceeding such
excess, and representing that each Rating Agency rating
<PAGE>
the Bonds of such Series has confirmed that the release of such Mortgage
Collateral or cash will not result in lowering of the then rating of such
Bonds, (iii) and stating the fair value of such Mortgage Collateral, the
Trustee shall on the next succeeding Payment Date release from the lien
of this Standard Provisions Indenture such Mortgage Collateral or cash or
portions thereof; provided, however, that in the event the amount of the
Mortgage Collateral released from the lien of the Standard Provisions
Indenture for the then current calendar year equals or exceeds 10% of the
aggregate principal amount of the Bonds of such Series then Outstanding,
a certificate shall be provided by an Independent appraiser or other
expert stating the fair value of such Mortgage Collateral. The Officers'
Certificate provided by the Issuer in this Section 12.12(f) shall be
accompanied by a certificate of the firm of Independent certified public
accountants reporting on the financial statements of the Issuer for its
immediately preceding fiscal year certifying as to the amount of the
excess.
Section 12.13. RELEASES OF PLEDGED LOANS WITHDRAWN BY SERVICER.
If any of the representations or warranties of any Servicer set forth in
its Servicing Agreement with respect to any Pledged Loan securing a
Series was materially incorrect or otherwise misleading as of the time
made, the Back-up Servicer for such Series or such Servicer shall either
(i) within 90 days after the Issuer discovers such incorrectness,
eliminate or otherwise cure the circumstance or condition in respect of
which such representation or warranty was incorrect as of the time made,
or (ii) withdraw such Pledged Loan from the lien of this Standard
Provisions Indenture immediately following the expiration of such 90-day
period by depositing in the Collection Account for such Series an amount
equal to the Outstanding Pledged Loan Amount plus interest thereon at the
Mortgage Rate to the end of the month of withdrawal. It is understood
that, without limiting the meaning of the term "materially incorrect or
otherwise misleading," the representations and warranties shall be
materially incorrect or otherwise misleading if (a) the Initial Bond
Value of any Pledged Loan set forth in the applicable Schedule to the
related Terms Indenture would have been smaller had the representations
or warranties with respect to such Pledged Loan been correct as of the
time made or (b) the Trustee or any Holders of Bonds of such Series are
put under any obligation to pay any other Person any sum of money as a
result of any such representation or warranty not being correct as of the
time made.
Section 12.14. DELIVERY OF THE LOAN DOCUMENTS PURSUANT TO BACK-UP
SERVICING AGREEMENT.
As is appropriate for the servicing or foreclosure of any Pledged Loan
securing a Series, the Trustee shall deliver to the Back-Up Servicer for
such Series, or to the Servicer of such Pledged Loan if designated by
such Back-Up Servicer, the Loan Documents for such Pledged Loan upon
receipt by the Trustee on or prior to the Date such release is to be made
of:
(a) Such Officers' Certificate as is required by the Back-Up Servicing
Agreement for such Series; and
(b) A trust receipt in the form prescribed by the Back-Up Servicing
Agreement for such Series, executed by the Back-Up Servicer, providing
that the Back-Up Servicer will hold or retain the Loan Documents in trust
for the benefit of the Trustee and the Holders of Bonds of such Series.
Section 12.15. RECORDS.
In order to facilitate the servicing of the Pledged Loans securing a
Series by the Servicer and the Back-up Servicer for such Series, the
Servicer and the Back-up Servicer shall retain, in accordance with the
provision of the Servicing Agreement or the Back-Up Servicing Agreement
for such Series and this Standard Provisions Indenture, the Records. The
Trustee hereby designates the Servicer or the Back-up Servicer its agent
and bailee to hold the Records pursuant to the Servicing Agreement. By
the designation pursuant to this Section 12.15 and the acceptance of such
designation by the Servicer or the Back-up Servicer pursuant to the
Servicing Agreement, the Trustee, as a secured party, has possession of
the Records for purposes of the California Uniform Commercial Code.
Section 12.16. COLLECTIONS ON THE PLEDGED LOANS.
<PAGE>
In order to facilitate the servicing of the Pledged Loans securing a
Series by the Services of such Pledged Loans, each Servicer of a Pledged
Loan securing such Series shall retain, in accordance with the provisions
of the applicable Servicing Agreement, the Back-Up Servicing Agreement
for such Series and this Standard Provisions Indenture, all collections
on such Pledged Loans prior to the time they are deposited into the
Collection Account for such Series. The Trustee hereby designates each
Servicer of a Pledged Loan securing a Series as its agent and bailee to
hold such collections on such Pledged Loans until they are deposited into
the Collection Account for such Series. By the designation pursuant to
this Section 12.16 and the acceptance of such designation by each
Servicer of a Pledged Loan pursuant to its Servicing Agreement, the
Trustee, as secured party, has possession of all collections on the
Pledged Loans for purposes of the California Uniform Commercial Code.
Section 12.17. AMENDMENTS TO BACK-UP SERVICING AGREEMENT.
The Trustee may, without the consent of any Holder of a Bond of a Series,
enter into or consent to any amendment or supplement to the Back-Up
Servicing Agreement with respect to such Series for the purpose of
increasing the obligations or duties of any party other than the Trustee
or the Holders of Bonds of such Series. The Trustee may, in its
discretion, decline to enter into or consent to any such supplement or
amendment if its own rights, duties or immunities shall be adversely
affected.
Section. 12.18. TERMINATION OF SERVICING AGREEMENTS.
If any Servicer of a Pledged Loan securing a Series materially breaches
or fails to perform or observe any obligations or conditions in its
Servicing Agreement, the Back-Up Servicing Agreement for such Series
requires the Back-Up Servicer for such Series to promptly deliver to the
Trustee and to the Issuer an Officers' Certificate setting forth the
recommendations of the Back-Up Servicer as to what action, if any, should
be taken by the Trustee. In accordance with this recommendation, the
Trustee may terminate any such Servicing Agreement. The Trustee shall
not terminate a Servicing Agreement without cause or incur any
termination fee unless such action can reasonably be expected to benefit
the Holders of Bonds of such Series by increasing ultimate cash proceeds
available to discharge the Bonds of such Series. If the Trustee
terminates any such Servicing Agreement or the Back-Up Servicing
Agreement, the Trustee shall enter into a substitute servicing agreement
for such series or, at the Back-Up Servicer's election, with another
mortgage loan service company acceptable to the Trustee in accordance
with the Back-Up Servicing Agreement for such Series.
Section 12.19. OPINION OF COUNSEL.
The Trustee shall be entitled to receive at least 10 days' notice of any
action to be taken pursuant to Section 12.12 with respect to a Series,
accompanied by copies of any instruments involved, and the Trustee shall
also be entitled to receive an Opinion of Counsel, in form and substance
satisfactory to the Trustee, stating the legal affect of any such action,
outlining the steps required to complete the same, and concluding that
such action will not materially and adversely impair the security for the
Bonds of such Series or the rights of the Holders of Bonds of such Series
in contravention of the provisions of this Standard Provisions Indenture.
Section 12.20. INVESTMENTS.
Notwithstanding anything to the contrary in this Standard Provisions
Indenture, investments of funds held by the Trustee for a Series under
this Standard Provisions Indenture shall be made pursuant to any
Reinvestment Agreements applicable to such Series to the extent provided
in such agreements, and the Trustee shall deposit funds as required by
any such Reinvestment Agreements. No change shall be made in the terms
and conditions of any such Reinvestment Agreements if such change would
result in the lowering of the then rating of the Bonds of such Series by
any Rating Agency rating the Bonds of such Series; however, at all times
the Trustee must invest and hold at least 55% of the initial value of the
Trust Estate in the form of assets secured exclusively by real property;
and at no time shall more than 20% of the total initial value of Trust
Estate consist of assets not secured either exclusively or substantially
by real estate.
<PAGE>
ARTICLE THIRTEEN: APPLICATION OF MONEYS
Section 13.01. DISBURSEMENTS OF MONEYS FROM COLLECTION ACCOUNT.
(a) On each Payment Date for a Series, if either no Default or Event of
Default shall have occurred and be continuing or a Default or Event of
Default shall have occurred and be continuing but the entire unpaid
principal amount of the Bonds of such Series shall not have been declared
due and payable pursuant to Section 6.02, then on such Payment Date, the
Trustee shall withdraw from the Collection Account for such Series and
shall make the following disbursements according to the provisions of the
Terms Indenture.
(b) Promptly following (1) the first Payment Date for a Series and (2)
each Payment Date immediately following any anniversary of the Issue Date
for such Series, the Issuer shall cause to be delivered to the Trustee a
statement from a firm of Independent certified public accountants
indicating (i) that such firm has reviewed the Bond Valuation Report and
applicable information from the Issuer and the Trustee, (ii)
that the firm has traced the Outstanding Mortgage Collateral Amount of
the Mortgage Collateral used in the Bond Valuation Report to the
principal balances supplied to the Trustee by the Issuer, (iii) that the
firm has tested the clerical accuracy and methodology of the calculation
of the Aggregate Outstanding Bond Value of the Mortgage Collateral
securing the Bonds of such Series as of such Payment Date, (iv) that the
firm has tested the clerical accuracy and methodology of the Issuer in
calculating the required balances, if any, in the Debt Service Funds, the
Reserve Fund, the Overcollateralization Fund, the Other Funds and the
Prepayment Reserve Account as of such Payment Date, (v) whether the
remaining scheduled cash flow (net of applicable servicing fees,
insurance premiums and other fees) on the Mortgage Collateral and any
necessary withdrawals from the Debt Service Funds, the Reserve Fund, the
Overcollateralization Fund, the Other Funds and the Prepayment Reserve
Account, together with the Reinvestment Income thereon at the applicable
Assumed Reinvestment Rates, will be sufficient to pay each Class of Bonds
of such Series by its Stated Maturity together with interest due thereon,
and (vi) whether the accounting for the Special Redemption Determination
Report is in accordance with Section 12.11(c).
Section 13.02. DISBURSEMENT OF MONEYS FROM PREPAYMENT ACCOUNT.
Notwithstanding any other provision of this Standard Provisions
Indenture, the Trustee shall not disburse to, or to the order of, the
Issuer any excess funds held by it in the Collection Account, the Debt
Service Funds, the Reserve Fund, the Overcollateralization Fund, the
Prepayment Account, the Prepayment Reserve Account, the Supplemental
Custodial Reserve Fund or the Other Funds for a Series, or release any
Mortgage Collateral for a Series or portions thereof pursuant to Section
12.12, or release or reduce the amount of a Mortgage Bankruptcy Bond or a
Mortgage Repurchase Bond, if purchased, unless it shall have received a
certificate of a firm of independent certified public accountants
acceptable to the Trustee to the effect that the disbursement of such
funds or the release or reduction of a Mortgage Bankruptcy Bond or a
Mortgage Repurchase Bond will not impair the security for the Bonds in
contravention of the provisions of this Standard Provisions Indenture.
Section 13.03. DISBURSEMENT OF MONEYS FROM SUPPLEMENTAL CUSTODIAL RESERVE
FUND.
If any monthly Accounting Report for a Series received by the Trustee
sets forth an amount to be withdrawn from the Supplemental Custodial
Reserve Fund for such Series, the Trustee shall withdraw such funds from
such Supplemental Custodial Reserve Fund and timely pay the premiums due
on the applicable Insurance Policy or the amounts due to the Back-up
Servicer or any Servicer of a Pledged Loan securing such Series.
Section 13.04. TRUST ACCOUNT.
With respect to each Series of Bonds, all moneys for a Series held by, or
deposited with the Trustee in any fund or account pursuant to the
provisions of this Standard Provisions Indenture, including the
Collection Account, the Debt Service Funds, the Reserve Fund, the
Overcollateralization Fund, the Supplemental Custodial Reserve Fund, the
Prepayment Reserve Account, the Prepayment Account and the Other Funds
for such Series, and not invested in Eligible Investments as herein
provided, shall be deposited in one or more trust accounts for the
<PAGE>
benefit of the Holders of Bonds of such Series. To the extent moneys
deposited in a trust account exceed the Federal Deposit Insurance insured
amounts, such account shall be invested in Eligible Investments in an
amount equal to such excess.
Section 13.05. DISBURSEMENTS OF EXCESS FUNDS; RELEASE OF COLLATERAL.
Notwithstanding any other provision of this Standard Provisions
Indenture, the Trustee shall not disburse to, or to the order of, the
Issuer any excess funds held by it in the Collection Account, the Debt
Service Funds, the Reserve Fund, the Overcollateralization Fund, the
Prepayment Account, the Prepayment Reserve Account, the Supplemental
Custodial Reserve Fund or the Other Funds for a Series, or release any
Mortgage Collateral for a Series or portions thereof pursuant to Section
12.12 unless it shall have received a certificate of a firm of
Independent certified public accountants acceptable to the Trustee to the
effect that the disbursement of such funds will not impair the security
for the Bonds in contravention of the provisions of this Standard
Provisions Indenture.
ARTICLE FOURTEEN: BONDHOLDER'S MEETINGS
Section 14.01. PURPOSES FOR WHICH MEETINGS MAY BE CALLED.
A meeting of Holders of Bonds of any or all Series may be called at any
time and from time to time pursuant to the provisions of this Article
Fourteen for any of the following purposes:
(1) to give any notice to the Issuer or to the Trustee, or to
give any directions to the Trustee, or to consent to the waiver of
any Default hereunder and its consequences, or to take any other
action authorized to be taken by Bondholders pursuant to any of
the provisions of Article Six;
(2) to remove the Trustee and appoint a successor trustee
pursuant to the provisions of Article Seven;
(3) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Article Ten; or
(4) to take any other action authorized to be taken by or on
behalf of the Holders of any specified aggregate principal amount
of the Bonds of any or all Series under other provision of this
Standard Provisions Indenture or under applicable law.
Section 14.02 MANNER OF CALLING MEETINGS.
the Trustee may at any time call a meeting of Bondholders to take any
action specified in Section 14.01, to be held at such time and at such
place in the United States of America as the Trustee shall determine.
Notice of every meeting of the Bondholders, setting forth the time and
the place of such meeting and in general terms the action proposed to be
taken at such meeting, shall be mailed not less than 20 nor more than 60
days prior to the date fixed for the meeting to such Bondholders as
provided in Section 15.05. The Trustee may fix in advance, a date as the
record date for determining the Bondholders entitled to notice of or to
vote at any such meeting not less than 35 nor more that 75 days prior to
the date fixed for such meeting.
Section 14.03. CALL OF MEETING BY ISSUER OR BONDHOLDERS.
In case at any time the Issuer or the Holders of at least 10% in
aggregate principal amount of the Bonds of any Series then Outstanding
shall have requested the Trustee to call a meeting of Bondholders of such
Series to take any action authorized in Section 14.01 by written request
setting forth in reasonable detail the action proposed to be taken at the
meeting, and the Trustee shall not have mailed notice of such meeting
within 20 days after receipt of such request, then the Issuer of the
Holders of Bonds in the amount above specified may determine the time
<PAGE>
and place for such meeting, the record date for determining the
Bondholders entitled to notice of or to vote at such meeting, and may
call such meeting to take any action authorized in Section 14.01, by
mailing notice thereof as provided in Section 14.02.
Section 14.04. WHO MAY ATTEND AND VOTE AT MEETINGS.
To be entitled to vote at any meeting of Bondholders of any or all Series
a Person shall (a) be a Holder of one or more Bonds of the Series with
respect to which such meeting was called or (b) be a Person appointed by
an instrument in writing as proxy by a Holder of one or more such Bonds
of the applicable Series. The only Persons who shall be entitled to be
present or to speak at any meeting of Bondholders of any or all Series
shall be the Persons entitled to vote at such meeting and their counsel,
any representatives of the Trustee and its counsel and any
representatives of the Issuer and its counsel.
Section 14.05. REGULATIONS MAY BE MADE BY TRUSTEE.
Notwithstanding any other provisions of this Standard Provisions
Indenture, the Trustee may make such reasonable regulations as it may
deem advisable for any meeting of Bondholders, in regard to proof of the
holding of Bonds and of appointment of proxies, and in regard to the
appointment and duties of inspectors of votes, the submission and
examination of proxies, certificates and other evidence of the right to
vote, and such other matters concerning the conduct of the meeting.
Except as otherwise permitted or required by any such regulations, the
holding of Bonds shall be proved in the manner specified in Section 15.03
and the appointment of any proxy shall be proved in the manner specified
in said Section 15.03; provided, however, that such regulations may
provide that written instruments appointing proxies regular on their face
may be presumed valid and genuine without the proof hereinabove or in
said Section 15.03 specified.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Issuer or by Bondholders as provided in Section 14.03, in which case the
Issuer or the Bondholders calling the meeting as the case may be, shall
in like manner appoint a temporary chairman. A permanent chairman and a
permanent secretary of the meeting shall be elected by vote of the
Holders of a majority in principal amount of the Bonds represented at the
meeting.
At any meeting each Holder of Bonds of any or all Series or proxy shall
be entitled to one vote for each $1,000 of principal amount of
Outstanding Bonds held or represented by him; provided, however, that no
vote shall be cast or counted at any meeting in respect of any Bond
challenged as not Outstanding and ruled by the chairman of the meeting to
be not Outstanding. The chairman of the meeting shall have no right to
vote other than by virtue of Bonds held by him or instruments in writing
as aforesaid duly designating him as the Person to vote on behalf of
other Bondholders. Any meeting of Bondholders duly called pursuant to
the provisions of Section 14.02 or Section 14.03 may be adjourned from
time to time, and the meeting may be held as so adjourned without further
notice.
At any meeting of Bondholders of any or all Series, the presence of
Persons holding or representing Bonds of the applicable Series in an
aggregate principal amount sufficient to take action on the business for
the transaction of which such meeting was called shall constitute a
quorum, but, if less than a quorum is present, the Persons holding or
representing a majority in aggregate principal amount of the Bonds of the
applicable Series represented at the meeting may adjourn such meeting
with the same effect, for all intents and purposes, as though a quorum
had been present, and the meeting may be held as so adjourned without
further notice.
Section 14.06. MANNER OF VOTING AT MEETINGS AND RECORD TO BE KEPT.
The vote upon any matter submitted to any meeting of Bondholders shall be
by written ballots on which shall be subscribed the signatures of the
Holders of Bonds or of their representatives by proxy and the serial
number of numbers of the Bonds held or represented by them. The
permanent chairman of the meeting shall appoint two inspectors of votes
who shall count all votes cast at the meeting for or against any
resolution and who shall file with the secretary of the meeting their
verified written reports in duplicate of all votes cast at the meeting. A
<PAGE>
record duplicate of the proceedings of each meeting of Bondholders shall
be prepared by the secretary of the meeting and there shall be attached
to said record the original reports of the inspectors of votes on any
vote by ballot taken thereat and affidavits by one more Persons having
knowledge of the facts setting forth a copy of the notice of the meeting
and showing that said notice was mailed as provided in Section 14.02.
The record shall show the serial numbers of the Bonds voting in favor of
and against any resolution. The record shall be signed and verified by
the affidavits of the permanent chairman and secretary of the meeting and
one of the duplicates shall be delivered to the Issuer and the other to
the Trustee to be preserved by the Trustee.
Any record so signed and verified shall be conclusive evidence of the
matter therein stated.
Section 14.07. EXERCISE OF RIGHTS OF TRUSTEE AND BONDHOLDERS NOT TO BE
HINDERED OR DELAYED.
Nothing in this Article Fourteen contained shall be deemed or construed
to authorize or permit, by reason of any call of a meeting of Bondholders
or any rights expressly or impliedly conferred hereunder to make such
call, any hindrance or delay in the exercise of any right or rights
conferred upon or reserved to the Trustee or of the Bondholder under any
of the provisions of this Standard Provisions Indenture or of the Bonds.
ARTICLE FIFTEEN: MISCELLANEOUS
Section 15.01. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Issuer to the Trustee to take
any action under any provision of this Standard Provisions Indenture,
the Issuer shall furnish to the Trustee an Authorized Officer's
Certificate or an Officer's Certificate stating that all conditions
precedent, if any, provided for in the Standard Provisions Indenture
relating to the proposed action have been complied with and an Opinion
of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in
the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this
Standard Provisions Indenture relating to such particular application
or request, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Standard Provisions Indenture shall
include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he
has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 15.02. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one
such Person, or that they be so certified or covered by only one
document, but one such Person may certify or give an opinion with respect
to some matters and one or more such Persons as to other matters, and any
such Person may
<PAGE>
certify or give an opinion as to such matters in one or several
documents.
Any certificate or opinion of an Authorized Officer or an officer of
the Issuer may be based, insofar as it relates to legal matters, upon
a certificate or opinion of, or representations by counsel, unless
such officer knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representations with respect to the
matters upon which his certificate or opinion is based are erroneous.
Any such certificate or Opinion of Counsel may be based, insofar as it
relates to factual matters, upon a certificate or opinion or, or
representations by, an Authorized Officer or an officer of the Issuer
stating that the information with respect to such factual matters is
in the possession of the Issuer, as the case may be, unless such
counsel knows, or in the exercise of reasonable care should know, that
the certificate or opinion or representation with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or
other instruments under the Standard Provisions Indenture, they may, but
need not, be consolidated and form one instrument.
Section 15.03. ACTS OF BONDHOLDERS.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Standard Provisions Indenture to
be given or taken by Bondholders may be embodied in and evidenced by one
or more instruments of substantially similar tenor signed by such
Bondholders in person or by an agent duly appointed in writing, and,
except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the
Trustee, and, where it is hereby expressly required, to the Issuer. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the
Bondholders signing such instrument or instruments. Proof of execution
of any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Standard Provisions Indenture and
conclusive in favor of the Trustee and the Issuer, if made in the manner
provided in this Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner which the Trustee deems
sufficient.
(c) The ownership of Bonds shall be proved by the Bond Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Bonds shall bind the Holder
of every Bond issued upon the registration thereof or in exchange
therefor or in lieu thereof, in respect of anything done, omitted or
suffered to be done by the Trustee or the Issuer in reliance thereon,
whether or not notation of such action is made upon such Bond.
Section 15.04. NOTICES,ETC., TO TRUSTEE AND ISSUER.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Bondholders or other documents provided or permitted by this
Standard Provisions Indenture to be made upon, given or furnished to, or
filed with:
(1) the Trustee by any Bondholder or by the Issuer shall be
sufficient for every purpose hereunder if made, given, furnished
or filed in writing to or with the Trustee at its Corporate Trust
Office; or
(2) the Issuer by the Trustee or by any Bondholder shall be
sufficient for every purpose hereunder (except as provided in
Section 6.01(2) if in writing and mailed, first-class postage
prepaid, to the Issuer.
<PAGE>
Section 15.05. NOTICE TO BONDHOLDERS; WAIVER.
Where this Standard Provisions Indenture provides for notice to
Bondholders of any event, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to each Bondholder affected by such event,
at his address as it appears on the Bond Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Bondholders is given
by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Bondholder shall affect the
sufficiency of such notice with respect to other Bondholders, and any
notice which is mailed in the manner herein provided shall conclusively
be presumed to have been duly given.
Where this Standard Provisions Indenture provides for notice in any
manner, such notice may be waived in writing by any Person entitled to
receive such notice, either before or after the event, and such waiver
shall be the equivalent of such notice. Waivers of notice by Bondholders
shall be filed with the Trustee but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such
waiver.
In case, by reason of the suspension of regular mail service as a result
of a strike, work stoppages or similar activity, it shall be impractical
to mail notice of any event to Bondholders when such notice is required
to be given pursuant to any provision of this Standard Provisions
Indenture, then any manner of giving such notice as shall be satisfactory
to the Trustee shall be deemed to be a sufficient giving of such notice.
Section 15.06. CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Standard
Provisions Indenture by any of the provisions of the TIA, such Provision
shall control.
Section 15.07. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section 15.08. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Standard Provisions Indenture by the
Issuer shall bind its successor and assigns, whether so expressed or not.
Section 15.09. SEPARABILITY.
In case any provision in the Standard Provisions Indenture or in the
Bonds shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Section 15.10. BENEFITS OF STANDARD PROVISIONS INDENTURE.
Nothing in this Standard Provisions Indenture or in the Bonds, express or
implied, shall give to any Person, other than the parties hereto and
their successors hereunder, and the Bondholders, any benefit or any legal
or equitable right, remedy or claim under this Standard Provisions
Indenture.
Section 15.11. LEGAL HOLIDAYS.
In any case where the date of any Payment Date shall not be a Business
Day, then (notwithstanding any other provisions of the Bonds or this
Standard Provisions Indenture) payment need not be made on such date, but
may be made on the next succeeding Business Day with the same force and
effect as if made on the nominal date of any such Payment Date and no
interest shall accrue for the period from and after any such nominal
date.
<PAGE>
Section 15.12. GOVERNING LAW.
This Standard Provisions Indenture and each Bond shall be construed in
accordance with and governed by the laws of the State of California
applicable to agreements made and to be performed therein.
Section 15.13. COUNTERPARTS.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
Section 15.14. TRUST OBLIGATION.
No recourse may be taken, directly or indirectly, against (i) the
Owner-Trustee in its individual capacity, (ii) any incorporator,
subscriber to the capital stock, stockholder, officer or director of the
Owner-Trustee or of any predecessor or successor of the Owner-Trustee in
its individual capacity, (iii) any holder of a beneficial interest in the
Trust, (iv) any partner, beneficiary, agent, officer, director, employee
or successor or assign of the holder of a beneficial interest in the
Trust, (v) any incorporator, subscriber to the capital stock,
stockholder, officer, director or employee of the Trustee or any
predecessor or successor of the Trust with respect to the Issuer or the
Trustee under this Indenture or any certificate or other writing
delivered in connection herewith or therewith.
No recourse may be taken, directly or indirectly, against any
incorporator, subscriber to the capital stock, stockholder, officer,
director or employee of the Issuer or of any predecessor or successor of
the Issuer with respect to the Issuer's obligations on the Bonds or under
this Standard Provisions Indenture or any certificate or other writing
delivered in connection herewith or therewith except as otherwise
expressly provided in any such certificate or other writing.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Standard
Provision Indenture to be duly executed by their respective Authorized
Officers or officers hereunto duly authorized, as of the date of this
Agreement.
CRSM Mortgage Securities Trust No.
___, a Delaware business trust
By: Wilmington Trust Company, not in
its individual capacity but solely as
Owner-Trustee under the Deposit Trust
Agreement.
By: _____________________________
___________
as Trustee for Series No. 1 Bonds
By_____________________________
