As filed with the Securities and Exchange Commission on October 22, 1999
REGISTRATION STATEMENT NO. 333-77275
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
REGISTRATION STATEMENT
ON FORM S-3
UNDER
THE SECURITIES ACT OF 1933
J.P. MORGAN ACCEPTANCE CORPORATION I
(Exact name of registrant as specified in its charter)
Delaware 13-3475488
(State of incorporation) (I.R.S. Employer
Identification No.)
60 Wall Street
New York, New York 10260
(212) 648-7741
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
David M. Duzyk, President
60 Wall Street
New York, New York 10260
(212) 648-7741
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
With a copy to:
Siegfried Knopf, Esq.
Brown & Wood LLP
One World Trade Center
New York, New York 10048
Approximate date of commencement of proposed sale to the public: From
time to time after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, please check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
=========================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF TO BE AGGREGATE PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT OFFERING PRICE* FEE
=========================================================================================================================
<S> <C> <C> <C> <C>
Asset Backed Securities............. $1,656,379,452(2) 100% $1,656,379,452(2) $331,278.89(3)
=========================================================================================================================
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* Estimated for the purpose of calculating the registration fee.
(1) This Registration Statement relates to the offering from time to time
of $1,656,379,452 aggregate principal amount of Asset Backed Securities and
to any resales of them in market making transactions by J.P. Morgan
Securities Inc., an affiliate of the Registrant, to the extent required.
(2) $956,379,452 aggregate principal amount of securities registered under
Registration No. 33-23597 referred to below and not previously sold is
carried forward in this Registration Statement pursuant to Rule 429. A
registration fee of $191,275.89 in connection with such unsold amount of
securities was paid previously under the foregoing Registration Statement.
In addition, $700,000,000 aggregate principal amount of securities
registered under Registration No. 33-23761 referred to below and not
previously sold is carried forward in this Registration Statement pursuant
to Rule 429. A registration fee of $140,000 in connection with such unsold
amount of securities was paid previously under the foregoing Registration
Statement.
(3) Previously paid, as noted above.
PURSUANT TO RULE 429 AND RULE 414, THE PROSPECTUS AND FORMS OF THE
PROSPECTUS SUPPLEMENT CONTAINED IN THIS REGISTRATION STATEMENT ALSO RELATE TO,
AND THIS REGISTRATION STATEMENT CONSTITUTES A POST-EFFECTIVE AMENDMENT TO,
REGISTRATION STATEMENT NO. 33-23597, WHICH WAS FILED ON AUGUST 9, 1988 ON FORM
S-11, BY J.P. MORGAN MORTGAGE PASS-THROUGH CORPORATION, AS A RESULT OF A MERGER
OF J.P. MORGAN MORTGAGE PASS-THROUGH CORPORATION INTO THE REGISTRANT. THE MERGER
WAS EFFECTIVE AS OF APRIL 14, 1999. THE REGISTRANT EXPRESSLY ADOPTS REGISTRATION
STATEMENT NO. 33-23597 AS ITS OWN REGISTRATION STATEMENT FOR ALL PURPOSES OF THE
SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934.
IN ADDITION, PURSUANT TO RULE 429, THE PROSPECTUS AND FORMS OF
PROSPECTUS SUPPLEMENT CONTAINED IN THIS REGISTRATION STATEMENT ALSO RELATE TO,
AND THE REGISTRATION STATEMENT CONSTITUTES A POST-EFFECTIVE AMENDMENT TO,
REGISTRATION STATEMENT NO. 33-23761, WHICH WAS FILED BY THE REGISTRANT ON AUGUST
24, 1988 ON FORM S-3 AND FORM S-11, AND ANY UNSOLD SECURITIES REGISTERED
THEREUNDER.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the SEC is effective. This prospectus is not an offer to sell these
securities and is not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
Subject To Completion, Dated October 22, 1999
Prospectus Supplement
To Prospectus dated _____________________
$___________ (approximate)
HOME EQUITY LOAN TRUST 199_
HOME EQUITY LOAN ASSET-BACKED NOTES, SERIES 199)
J.P. MORGAN ACCEPTANCE CORPORATION I
DEPOSITOR
The notes represent
non-recourse tranferor and master servicer
obligations of the
issuer only and do THE TRUST
not represen an o will issue [___] class of senior notes, which are
interest in or offered by this prospectus supplement
obligation of
the depositor, the THE NOTES
trustee or any of
their affiliates. o are secured by the assets of the trust which includes
a pool of [adjustable rate hom equity revolving credit
This prospectus line loan agreements and fixed rate closed-end home
supplement may be equity loans]
used to offer and
sell the notes only o currently have no trading market
if accompanied by
the prospectus. CREDIT ENHANCEMENT
o A spread account will fund shortfalls in payments due
on the notes.
o The transferor interets wil absorbe up to a specified
amount of all losses on the mortgage loans.
o An irrevocable and unconditional guaranty insurance
policy issued by [_______] will guarantee payments on
the notes.
REVIEW THE INFORMATION IN "RISK FACTORS" ON PAGE S-10 IN THIS PROSPECTUS
SUPPLEMENT AND ON PAGE 5 IN THE PROSPECTUS.
J.P. Morgan Securities Inc., the underwriter, will buy the notes from the
depositor at the price specified below. This prospectus supplement and the
attached prospectus may be used by [______], an affiliate of the master
servicer, in connection with offers and sales related to market making
transactions in the notes. These transactions will be at prevailing market
prices at the time of sale. [ ] may act as principal or agent in these
transactions.
PER $1,000 OF
NOTES TOTAL
-------------------------------
Price to Public................................ $ $
Underwriting Discount.......................... $ $
Proceeds, before expenses, to the depositor.... $ $
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF THESE NOTES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
J.P. Morgan & Co.
_________________, 199_
<PAGE>
Persons participating in this offering may engage in transactions that
stabilize, maintain, or otherwise affect the price of the securities.
Specifically, the underwriters may overallot in connection with the offering,
and may bid for, and purchase, the securities in the open market. See
"Underwriting".
This prospectus supplement does not contain complete information about
the offering of the notes. Additional information is contained in the
prospectus, dated _______, 199_ and attached to this prospectus supplement.
Purchasers are urged to read both this prospectus supplement and the prospectus
in full. Sales of the notes offered by this prospectus supplement may not be
consummated unless the purchaser has received both this prospectus supplement
and the prospectus.
No dealer, salesman, or any other person has been authorized to give
any information or to make any representations other than those contained in
this prospectus supplement and the accompanying prospectus and if given or made,
that information or representations must not be relied upon as having been
authorized by the depositor or the underwriter. This prospectus supplement and
the accompanying prospectus shall not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered by this prospectus
supplement in any jurisdiction in which, or to any person to whom, it is
unlawful to make that offer or solicitation in that jurisdiction. The delivery
of this prospectus supplement and the accompanying prospectus at any time does
not imply that the information in this prospectus supplement or in the
prospectus is correct as of any time subsequent to the date hereof.
Until 90 days after the date of this prospectus supplement, all dealers
effecting transactions in the notes, whether or not participating in this
distribution, may be required to deliver a prospectus supplement and the
prospectus to which it relates. This delivery requirement is in addition to the
obligation of dealers to deliver a prospectus supplement and prospectus when
acting as underwriter and with respect to their unsold allotments or
subscriptions.
<PAGE>
Table Of Contents
Page
PROSPECTUS SUPPLEMENT
Summary............................................................S-5
Risk Factors......................................................S-11
The Insurer.......................................................S-14
The Trust.........................................................S-15
The Transferor....................................................S-16
Description of the Mortgage Loans.................................S-18
Description of the Notes..........................................S-26
Pool Factor.......................................................S-47
Maturity and Prepayment Considerations............................S-47
Description of the Agreements.....................................S-49
Use of Proceeds...................................................S-59
Federal Income Tax Consequences...................................S-59
State Taxes.......................................................S-63
ERISA Considerations..............................................S-63
Legal Investment Considerations...................................S-65
Underwriting......................................................S-66
Legal Matters.....................................................S-66
Experts...........................................................S-66
Ratings...........................................................S-67
PROSPECTUS
Risk Factors.........................................................5
The Trust Fund.......................................................7
Use of Proceeds.....................................................25
The Depositor.......................................................25
Credit Enhancement..................................................43
Yield and Prepayment Considerations.................................50
The Agreements......................................................52
Material Legal Aspects of the Loans.................................68
Federal Income Tax Consequences.....................................84
State Tax Considerations...........................................111
ERISA Considerations...............................................111
Legal Investment...................................................118
Method of Distribution.............................................119
Legal Matters......................................................120
Financial Information..............................................120
Rating.............................................................120
Index of Defined Terms.............................................122
<PAGE>
SUMMARY
This summary highlights selected information from this document and
does not contain all of the information that you need to consider in making your
investment decision. Please read this entire prospectus supplement and the
accompanying prospectus for additional information about the Notes.
<TABLE>
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HOME EQUITY LOAN ASSET-BACKED NOTES, SERIES 199_-_
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INITIAL CLASS
PRINCIPAL BALANCE
CLASS/INTEREST NOTE RATE (+/-5%) MATURITY DATE
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<S> <C> <C> <C>
Notes LIBOR + ___% $________________ ____________
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Transferor N.A. N.A. N.A.
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</TABLE>
We expect the actual maturity date for the notes will be
significantly earlier than its maturity date stated in the table
above.
If the note rate exceeds the weighted average of the net loan rates
on any payment date, you will receive interest at the weighted
average net loan rate. We refer you to "Description of the
Notes--Payments on the Notes" for more information regarding the
weighted average net loan rate and other limitations on the payment
of interest on the Notes.
The transferor interest is not being offered pursuant to this
prospectus supplement and the prospectus.
<PAGE>
THE TRANSFEROR AND MASTER SERVICER
o ________________________.
o ________________________ maintains its principal office at ______________.
Its telephone number is _________________.
o The master servicer will receive a monthly fee from the interest payments
on the mortgage loans equal to ___% per annum on the principal balance of
each mortgage loan.
We refer you to "The Transferor" in this prospectus supplement for
additional information.
THE DEPOSITOR
o J.P.Morgan Acceptance Corporation I.
o J.P.Morgan Acceptance Corporation I maintains its principal office at 60
Wall Street, New York, New York 10260. Its telephone number is (212)
648-7741.
We refer you to "The Depositor" in the prospectus for additional
information.
TRUST
o Home Equity Loan Trust 199_-_.
INDENTURE TRUSTEE
o [__________________________]
OWNER TRUSTEE
o [__________________________]
INSURER
o [________________________]
We refer you to "The Insurer" in this prospectus supplement for additional
information.
NOTE RATING
The trust will not issue the notes unless they receive the following
ratings:
o ____ by __________________________.
o ____ by __________________________.
A rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal by either rating agency.
We refer you to "Ratings" and "Risk Factors--Note Rating Based Primarily on
Claims-Paying Ability of the Insurer" in this prospectus supplement for
additional information.
FEDERAL TAX CONSIDERATIONS
For Federal income tax purposes:
o Tax counsel is of the opinion that the notes will be treated as debt
instruments.
o You must agree to treat your note as indebtedness for federal, state and
local income and franchise tax purposes.
We refer you to "Federal Income Tax Considerations" in this prospectus
supplement and in the prospectus for additional information.
ERISA CONSIDERATIONS
The fiduciary responsibility provisions of ERISA can limit investments by
some pension and other employee benefit plans. Pension and other employee
benefit plans should be able to purchase investments like the notes so long
as they are treated as debt under applicable state law and have no
"substantial equity features." Any plan fiduciary considering whether to
purchase the notes on behalf of a plan should consult with its counsel
regarding the applicability of the provisions of ERISA and the Internal
Revenue Code and the availability of any exemptions.
We refer you to "ERISA Considerations" in this prospectus supplement and
the prospectus for additional information.
CUT-OFF DATE
o ______________, 199_.
CLOSING DATE
o ______________, 199_.
PAYMENT DATE
o The __th day of each month, or if that day is not a business day, the next
business day. The first payment date is ____________, 199_.
COLLECTION PERIOD
o The calendar month preceding the month of a payment date.
<PAGE>
REGISTRATION OF NOTES
We will issue the notes in book-entry form. You will hold your interests
either through a depository in the United States or through one of two
depositories in Europe. While the notes are book-entry, they will be
registered in the name of the applicable depository, or in the name of the
depository's nominee.
We refer you to "Risk Factors-- Consequences on Liquidity and Payment Delay
Because of Owning Book-Entry Notes", "Description Of The Notes--Book-Entry
Notes" and "ANNEX I" in this prospectus supplement for additional
information.
ASSETS OF THE TRUST
The trust's assets include:
o a pool of [adjustable rate home equity revolving credit line loan
agreements and fixed rate closed-end home equity loans,] secured by
either first or junior deeds of trust or mortgages on one- to
four-family residential properties;
o payments of interest due on the mortgage loans on and after the cut-off
date and principal payments received on the mortgage loans on and after
the cut-off date;
o property that secured a mortgage loan which has been acquired by
foreclosure or deed in lieu of foreclosure; and
o rights under the hazard insurance policies covering the mortgaged
properties.
During the life of the trust, all new advances made to mortgagors under the
applicable credit line agreement will become assets of the trust. Due to
these advances and any principal payments on the mortgage loans, the pool
balance will generally fluctuate and differ from day to day.
THE MORTGAGE LOANS
(1) Mortgage Loan Statistics
On the closing date, the trust will acquire a pool of [adjustable rate home
equity revolving credit line loan agreements and fixed rate closed-end home
equity loans]. These mortgage loans will have the following characteristics:
o number of mortgage loans: _____
o number of revolving credit-line loans:
o number of closed-end loans:
o aggregate principal balance: $__________
o number of mortgage loans: _____
o mortgaged property location: ___ states
o average credit limit of revolving credit-line loans: $_____
o credit limits on the revolving credit-line loans range: $____ to $____
o interest rates as of ___________ range: _____% to ______%
o weighted average interest rate as of the cut-off date _____% (approximate)
o loan age range: ____ to ____months
o weighted average loan age: __ months
o credit limit utilization rate range for revolving credit-line loans: ___
to ___
o weighted average credit limit utilization rate for revolving credit-line
loans: ___
o gross margin range for revolving credit-line loans: ___ to ___
o weighted average gross margin for revolving credit-line loans: __
o combined loan-to-value ratio range, of ____% to _____% (approximate)
o weighted average combined loan-to-value ratio ____% (approximate)
o all of the revolving credit-line loans bear interest at an adjustable rate
based on [_________].
o balloon loans - loans with amortization schedules that don't fully amortize
by their maturity date: ____% (approximate).
(2) Payment Terms of Mortgage Loans
A. Revolving Credit Line Loans
o Each borrower under a revolving credit-line loan may borrow amounts from
time to time up to the maximum amount of that borrower's line of
credit. If borrowed amounts are repaid, they can be borrowed again.
o Interest - Interest on each revolving credit-line loan is payable monthly
on the related outstanding principal balance for each day in the
billing cycle. The loan rate is variable and is equal to __________.
Principal - The revolving credit-line loans have [a ten year draw period
during which amounts may be borrowed under the credit line agreement,
followed by a ten year repayment period during which the borrower must
repay the outstanding principal of the loan].
B. Closed-End Home Equity Loans
o The amount borrowed under a closed-end loan is fully disbursed on the date
of origination of that loan and the borrower is not entitled to future
advances of cash under that loan.
o Interest on each closed-end loan is payable monthly on the related
outstanding principal balance of the closed-end loan. The loan rate for
most of the closed-end loans is fixed at origination of the closed-end
loan. The loan rate for the remainder of the closed-end loans is
variable and is equal to [________].
C. Simple Interest Loans
o All of the loans compute interest based on a simple interest method. This
means that interest is computed and charged to the borrower on the
outstanding balance of the loan based on the number of days elapsed
between the date through which interest was last paid on the loan
through receipt of the borrower's most current payment. The portions of
each monthly payment that are allocated to interest and principal are
adjusted based on the actual amount interest charged on the simple
interest basis.
We refer you to "Description Of The Mortgage Loans" in this prospectus
supplement for additional information.
THE NOTES
1. General
o The notes will be secured by the assets of the trust.
o Each month, the indenture trustee will calculate the amount you are owed.
o If you hold a note on the day immediately preceding a payment date, you
will be entitled to receive payments on that payment date.
2. Interest Payments: Interest on the notes for a payment date accrues during
the period beginning on the prior payment date, or in the case of the first
payment date, beginning on the closing date, and ending on the day before
the payment date. The indenture trustee will calculate interest based on
the actual number of days in the interest period and a year assumed to
consist of 360 days. On each payment date, you will be entitled to the
following amounts from your portion of interest collections on the mortgage
loans:
o interest at the related note rate that accrued during the interest period
on your invested amount; and
o any interest that was due on a prior payment date and not paid. In
addition, interest will have accrued on the amount of interest which
was previously due and not paid.
3. Principal Payments: From the first payment date and ending on the payment
date in __________ and if events causing an acceleration of payment of
principal do not occur, you will be entitled to the lesser of (a) and (b):
(a) ___% of the principal collected during the prior due period; or
(b) the amount of principal collected during the prior due period minus
advances made to the borrowers under the credit line agreements during
that due period.
On the payment date following ___________, or if events causing an
acceleration of principal occur, you will be entitled to receive the amount
described in (a) above.
We refer you to "Description Of The Notes--Payments on the Notes" in this
prospectus supplement for additional information.
CREDIT ENHANCEMENT
1. The Insurance Policy: [_______________] will issue an insurance policy
which unconditionally guarantees the payment of:
o accrued and unpaid interest due on the notes;
o principal losses on the mortgage loans; and
o any principal amounts owed to noteholders on the maturity date.
We refer you to "Description Of The Notes--The Policy" in this prospectus
supplement for additional information.
[2. The Spread Account: Amounts on deposit in the spread account will be
available to the indenture trustee to pay interest due on the notes and
to cover principal losses on the mortgage loans prior to a draw on the
insurance policy.]
[We refer you to "Description Of The Notes--The Spread Account" in this
prospectus supplement for additional information.]
3. Limited Subordination of Transferor Interest: [After the spread account is
depleted and prior][Prior] to a draw on the policy, losses on the mortgage
loans will be allocable to the transferor interest up to specified levels.
In addition, if the insurer defaults, some payments to the holder of the
transferor interest will be made after payments to the notes.
We refer you to "Description Of The Notes--Overcollateralization" in this
prospectus supplement for additional information.
OPTIONAL TERMINATION
The mortgage loans will be subject to an optional transfer to the owner of
the transferor interest on any payment date after:
o the principal balance of the notes is reduced to any amount less than or
equal to _% of the original principal balance of the notes; and
o all amounts due and owing to the insurer and unreimbursed draws on the
insurance policy, with interest on those draws have been paid.
We refer you to "Description Of The Notes--Termination; Retirement of the
Notes" in this prospectus supplement for additional information.
LEGAL INVESTMENT CONSIDERATIONS
SMMEA defines "mortgage related securities" to include only first mortgages,
and not second mortgages. Because the pool of mortgage loans owned by the
trust includes junior mortgage loans, the notes will not be "mortgage
related securities" under that definition. Some institutions may be limited
in their legal investment authority to only first mortgages or "mortgage
related securities" and will be unable to invest in the notes.
We refer you to "Legal Investment Considerations" in this prospectus
supplement and "Legal Investment" in the prospectus for additional
information.
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS PRIOR TO ANY
PURCHASE OF NOTES. YOU SHOULD ALSO CAREFULLY CONSIDER THE INFORMATION SET FORTH
UNDER "RISK FACTORS" IN THE PROSPECTUS.
CONSEQUENCES ON LIQUIDITY AND PAYMENT DELAY BECAUSE OF OWNING BOOK-ENTRY NOTES
o Limiton Liquidity of Notes. Issuance of notes in book-entry form may reduce
the liquidity of the notes in the secondary trading market since investors
may be unwilling to purchase notes for which they cannot obtain physical
notes.
o Limit on Ability to Transfer or Pledge. Since transactions in the book-entry
notes can be effected only through DTC, participating organizations,
indirect participants and particular banks, your ability to transfer or
pledge a book-entry note to persons or entities that do not participate in
the DTC system or otherwise to take actions in respect of the notes, may be
limited due to lack of a physical note representing the book-entry notes.
o Delays in Payments. You may experience some delay in the receipt of payments
on the book-entry notes since the payments will be forwarded by the indenture
trustee to DTC for DTC to credit the accounts of its participants which
will then credit them to your account either directly or indirectly through
indirect participants, as applicable.
We refer you to "Description Of Notes--Book-Entry Notes" in this prospectus
supplement.
BALLOON LOANS MAY BE MORE LIKELY TO EXPERIENCE DEFAULTS
Balloon loans pose a risk because a borrower must pay a large lump sum
payment of principal at the end of the loan term. If the borrower is unable to
pay the lump sum or refinance that amount, you will suffer a loss if the insurer
fails to perform its obligations under the insurance policy and the other forms
of credit enhancement are insufficient to cover the loss. Approximately ___% of
the mortgage loans are balloon loans.
DELAY IN RECEIPT OF LIQUIDATION PROCEEDS; LIQUIDATION PROCEEDS MAY BE LESS THAN
MORTGAGE LOAN BALANCE
Substantial delays could be encountered in connection with the
liquidation of delinquent mortgage loans. Further, liquidation expenses such as
legal fees, real estate taxes and maintenance and preservation expenses will
reduce the portion of liquidation proceeds payable to you. If a mortgaged
property fails to provide adequate security for the mortgage loan, you will
incur a loss on your investment if the insurer fails to perform its obligations
under the insurance policy.
We refer you to "Legal Aspects Of Loans--Foreclosure" in the
prospectus.
PREPAYMENTS AFFECT TIMING AND RATE OF RETURN ON YOUR INVESTMENT
The yield to maturity on your notes will be directly related to the
rate of principal payments on the mortgage loans. Please consider the following:
o Mortgagors may fully or partially prepay their mortgage loan at any time.
However, some mortgage loans require that the mortgagor pay a fee with any
prepayments in full within five years of origination, except that generally
no fee is required for any prepayment in full made within twelve months of
a loan's maturity date. This may result in the rate of prepayments being
slower than would otherwise be the case.
o During the period that a borrower may borrow money under a revolving credit-
line loan, the borrower may make monthly payments only for the accrued
interest or may also repay some or all of the amounts previously borrowed. In
addition, borrowers may borrow additional amounts up to the maximum amounts
of their lines of credit. As a result, the amount the trust receives in any
month (and in turn the amount of principal paid to you) may change
significantly.
o All of the mortgage loans compute interest due on a simple interest method.
This means that the amount of each monthly payment will vary each month if
the monthly payment is not received on its scheduled due date.
o All the mortgage loans contain due-on-sale provisions. Due-on-sale provisions
require the mortgagor to fully pay the mortgage loan when the mortgaged
property is sold. Generally, the master servicer will enforce the
due-on-sale provision unless prohibited by applicable law.
o The rate of principal payments on pools of mortgage loans is influenced by a
variety of factors, including general economic conditions, interest rates,
the availability of alternative financing and homeowner mobility.
o Home equity loans generally are not viewed by borrowers as permanent
financing. Accordingly, the mortgage loans may experience a higher rate of
prepayment than purchase money first lien mortgage loans.
o We cannot predict the rate at which borrowers will repay their mortgage
loans, nor are we aware of any publicly available studies or statistics on
the rate of prepayment of mortgage loans similar to the mortgage loans in the
pool.
o If you purchased your note at a premium and you receive your principal faster
than expected, your yield to maturity will be lower than you anticipated.
If you purchased your note at a discount and you receive your principal
slower than expected, your yield to maturity will be lower than you
anticipated.
We refer you to "Prepayment And Yield Considerations" in the
prospectus.
NOTE RATING BASED PRIMARILY ON CLAIMS-PAYING ABILITY OF THE INSURER
The rating on the notes depends primarily on an assessment by the
rating agencies of the mortgage loans and upon the claims-paying ability of the
note insurer. Any reduction of the rating assigned to the claims-paying ability
of the insurer may cause a corresponding reduction on the ratings assigned to
the notes. A reduction in the rating assigned to the notes will reduce the
market value of the notes and may affect your ability to sell them. In general,
the rating on your notes addresses credit risk and does not address the
likelihood of prepayments.
We refer you to "Ratings" in this prospectus supplement.
LIEN PRIORITY COULD RESULT IN PAYMENT DELAY AND LOSS
Most of the mortgage loans are secured by mortgages which are junior in
priority. For mortgage loans in the trust secured by first mortgages, the master
servicer may consent under some circumstances to a new first priority lien on
the mortgaged property regardless of the principal amount, which has the effect
of making the first mortgage a junior mortgage. Mortgage loans that are secured
by junior mortgages will receive proceeds from a sale of the related mortgaged
property only after any senior mortgage loans and prior statutory liens have
been paid. If the remaining proceeds are insufficient to satisfy the mortgage
loan in the trust and the insurer fails to perform its obligations under the
insurance policy and the other forms of credit enhancement are insufficient to
cover the loss, then:
o there will be a delay in payments to you while a deficiency judgment against
the borrower is sought; and
o you may incur a loss if a deficiency judgment cannot be obtained or is not
realized upon.
We refer you to "Legal Aspects of the Loans" in the prospectus.
PAYMENTS TO AND RIGHTS OF INVESTORS ADVERSELY AFFECTED BY INSOLVENCY OF THE
DEPOSITOR OR THE TRANSFEROR
The sale of the mortgage loans from the transferor to the depositor
will be treated by the transferor and the depositor as a "true sale" of the
mortgage loans for bankruptcy purposes. If the transferor were to become
insolvent, a receiver or conservator for, or a creditor of, the transferor, may
argue that the transaction between the transferor and the trust is a pledge of
mortgage loans as security for a borrowing rather than a sale. This attempt,
even if unsuccessful, could result in delays in payments to you.
[In the event of the transferor's insolvency, there is a possibility
that the FDIC could be appointed as a receiver or conservator and prevent the
indenture trustee from taking any action with respect to the trust. The FDIC may
enforce the transferor's contracts and may have the power to cause the
transferor to continue to perform the master servicer's duties. This would
prevent the appointment of a successor master servicer and prevent the
liquidation of the mortgage loans or the early retirement of the notes.]
INTEREST PAYMENTS ON THE MORTGAGE LOANS MAY BE REDUCED
Prepayments of Principal May Reduce Interest Payments. If a mortgagor prepays a
mortgage loan in full, the mortgagor is charged interest only up to the
date of the prepayment, instead of a full month. The master servicer is
obligated to reduce its servicing fee in the month of the prepayment so
that one month's interest is paid with that prepayment in full. If the
servicing fee is insufficient to pay interest shortfalls attributed to
prepayments, a shortfall in interest due on the notes may result. The
insurer is required to cover this shortfall. If the insurer fails to
perform its obligations under the insurance policy, you may incur a loss.
Some Interest Shortfalls Are Not Covered by the Master Servicer or the Insurance
Policy. The Soldiers' and Sailors' Civil Relief Act of 1940 permits
modifications to the payment terms for mortgage loans, including a
reduction in the amount of interest paid by the borrower. Neither the
master servicer nor the insurer will pay for any interest shortfalls
created by the Soldiers' and Sailors' Civil Relief Act of 1940. The holders
of the notes will not be entitled to receive any shortfalls in interest
resulting from the application of the Soldiers' and Sailors' Civil Relief
Act of 1940.
RISK OF LOSSES AS A RESULT OF GEOGRAPHIC CONCENTRATION
The mortgaged properties relating to the mortgage loans are located in
__ states. However, __% of the mortgaged properties, by principal balance as of
the cut-off date, are located in ______. If ____________ experiences in the
future weaker economic conditions or greater rates of decline in real estate
values than the United States generally, then the mortgage loans may experience
higher rates of delinquencies, defaults and foreclosures than would otherwise be
the case.
[NOTEHOLDERS COULD BE ADVERSELY AFFECTED IN THE ABSENCE OF YEAR 2000 COMPLIANCE
As is the case with most companies using computers in their operations,
the master servicer is faced with the task of preparing for year 2000. The year
2000 issue is the result of prior computer programs being written using two
digits, rather than four digits, to define the applicable year. Any of the
master servicer's computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. Major
computer system failure or miscalculations may occur as a result. The master
servicer is presently engaged in various procedures to ensure that their
computer systems and software will be year 2000 compliant.
However, if the master servicer or any of its suppliers, customers,
brokers or agents do not successfully and timely achieve year 2000 compliance,
the performance of obligations of the master servicer could be materially
adversely affected. This could result in delays in processing payments on the
mortgage loans and cause a related delay in payments to the holders of the
notes.]
RISK OF INCREASED DELINQUENCY, DEFAULT AND FORECLOSURE EXPERIENCE DUE TO LESS
STRINGENT UNDERWRITING STANDARDS
The transferor's underwriting standards are generally less stringent
than those of Fannie Mae or Freddie Mac with respect to credit history and other
items. If a borrower has a poor credit history, the transferor may still make a
loan to the borrower. This approach to underwriting may result in higher rates
of delinquencies, defaults and foreclosures than for mortgage loans underwritten
in a more traditional manner.
THE INSURER
The information set forth in this section have been provided by the
[________], the insurer. No representation is made by the underwriters, the
transferor, the master servicer or any of their affiliates as to the accuracy of
completeness of that information.
[DESCRIPTION OF INSURER]
THE TRUST
GENERAL
The Home Equity Loan Trust 199_-_ is a business trust formed under the
laws of the State of Delaware pursuant to the trust agreement for the
transactions described in this prospectus supplement. After its formation, the
trust will not engage in any activity other than:
(1) acquiring, holding and managing the mortgage loans and the other
assets of the trust and proceeds therefrom,
(2) issuing the notes and the transferor interest,
(3) making payments on the notes and the transferor interest and
(4) engaging in other activities that are necessary, suitable or
convenient to accomplish the foregoing or are incidental to those activities or
in connection with those activities.
The notes and the transferor interest will be delivered by the trust to
the transferor as consideration for the mortgage loans pursuant to the sale and
servicing agreement.
On the closing date, the trust will purchase mortgage loans having an
aggregate principal balance of approximately $___________ as of the cut-off date
from the transferor pursuant to a sale and servicing agreement dated as of
__________, 199_, among the trust, the depositor, the transferor, the master
servicer, the owner trustee and the indenture trustee. With respect to any date,
the pool principal balance will equal to the aggregate principal balances of all
mortgage loans as of that date.
The assets of the trust will consist primarily of the mortgage loans,
which will be secured by first- or junior-lien mortgages on the mortgaged
properties. See "Description Of The Mortgage Loans" in this prospectus
supplement. The assets of the trust will also include (1) payments in respect on
the mortgage loans received on or after the cut-off date exclusive of payments
in respect of interest accrued on the mortgage loans during ______ and (2)
payments in respect of interest on the delinquent mortgage loans due prior to
the cut-off date and received after the cut-off date, (3) amounts on deposit in
the collection account, distribution account [and the spread account] and (4)
additional ancillary or incidental funds, rights and properties related to the
foregoing.
The assets of the trust will be pledged to the indenture trustee as
security for the notes pursuant to the indenture dated as of _________, between
the trust and the indenture trustee.
The master servicer is obligated to service the mortgage loans pursuant
to the sale and servicing agreement and will be compensated for its services as
described under "--Servicing Compensation and Payment of Expenses" in this
prospectus supplement.
The trust's principal offices are located in __________________, in
care of [____________________], as owner trustee, at the address set forth
below.
THE OWNER TRUSTEE
[__________________] will act as the owner trustee under the trust
agreement. [_________________] is a ____________________________ banking
corporation and its principal offices are located at [_________________________
________________________________].
THE TRANSFEROR
[DESCRIPTION OF THE TRANSFEROR]
CREDIT AND UNDERWRITING GUIDELINES
[Description of the transferor 's credit and underwriting guidelines]
DELINQUENCY AND CHARGE-OFF EXPERIENCE
The following tables set forth the master servicer's delinquency and
charge-off experience on its servicing portfolio of home equity lines of credit
similar to and including the mortgage loans for the periods indicated. There can
be no assurance that the delinquency and charge-off experience on the mortgage
loans will be consistent with the historical information provided below.
Accordingly, this information should not be considered to reflect the credit
quality of the mortgage loans included in the trust, or a basis of assessing the
likelihood, amount or severity of losses on the mortgage loans. The statistical
data in the tables set forth below are based on all of the [mortgage loans][home
equity lines of credit] in the master servicer's servicing, portfolio.
Delinquency as a percentage of aggregate principal balance of mortgage
loans serviced for each period would be higher than those shown if a group of
mortgage loans were artificially isolated at a point in time and the information
showed the activity only in that isolated group.
DELINQUENCY EXPERIENCE OF THE MASTER SERVICER'S PORTFOLIO OF HOME EQUITY LINES
OF CREDIT
The following table sets forth information relating to the delinquency
experience of mortgage loans similar to and including the mortgage loans for the
___ months ended _________, 199_, and the years ended December 31, 199_,
December 31, 199_, December 31, 199_ and December 31, 199_.
The delinquency percentage represents the number and principal balance
of mortgage loans with monthly payments which are contractually past due.
mortgage loans for which the related borrower has declared bankruptcy are not
included unless or until those loans are delinquent pursuant to their repayment
terms.
The 90 days or more category in the table below includes the principal
balance of loans currently in process of foreclosure and loans acquired through
foreclosure or deed in lieu of foreclosure.
<TABLE>
<CAPTION>
YEAR ENDED ____ Months Ended
- ----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 199_ DECEMBER 31, 199_ DECEMBER 31, 199_ DECEMBER 31, 199_ 30, 199_
---------------------- --------------------- ---------------------- --------------------- -----------------------------
NUMBER OF DOLLAR NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR
LOANS AMOUNT(1) OF LOANS AMOUNT(1) OF LOANS AMOUNT(1) OF LOANS AMOUNT(1) OF LOANS AMOUNT(1)
----------- ---------- --------- ----------- ---------- ------------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio $ $ $ $
Delinquency
Percentage(1) % % % %
30-59 days....
60-89 days.... % % % %
90 days or
more(2)...... % % % %
TOTAL.......... % % % % % %
</TABLE>
______________________________
(1) Dollar amounts rounded to the nearest $1,000.
CHARGE-OFF EXPERIENCE OF THE MASTER SERVICER'S PORTFOLIO OF HOME EQUITY LINES
OF CREDIT
The following table sets forth information relating to the loan
charge-off experience of mortgage loans similar to and including the mortgage
loans for the ____ months ended ____________, 199_, and the years ended December
31, 199_, December 31, 199_, December 31, 199_ and December 31, 199_.
"Average Portfolio Balance" during the period is the arithmetic average
of the principal balances of the mortgage loans outstanding on the first and
last days of each period. The Average Portfolio Balance has been rounded to the
nearest $1,000.
"Charge-Offs" are amounts which have been determined by the master
servicer to be uncollectible relating to the mortgage loans for each respective
period and do not include any amount of collections or recoveries received by
the master servicer subsequent to charge-off dates. The master servicer's policy
regarding charge-offs provides that mortgaged properties are reappraised when a
mortgage loan has been delinquent for 180 days and based upon the re-appraisals,
a decision is then made concerning the amounts determined to be uncollectible.
<TABLE>
<CAPTION>
YEAR ENDED ____ MONTHS ENDED
------------------------------------------------------------------------------- -------------------
DECEMBER 31, 199_ DECEMBER 31, 199_ DECEMBER 31, 199_ DECEMBER 31, 199_ ___________, 199_
------------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Average Portfolio $ $ $ $
Balance...............
Charge-Offs............. $ $ $ $
Charge-Offs as a % % % % %(1)
of Average
Portfolio
Balance.................
</TABLE>
______________________________
(1) Annualized.
DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
All statistical information concerning the mortgage loans is based upon
all of the mortgage loans included in the trust. All weighted averages described
in this prospectus supplement are weighted on the basis of the cut-off date pool
balance included in the trust unless otherwise indicated.
Approximately ____% of the mortgage loans are fixed rate closed-end
home equity loans evidenced by promissory notes. Approximately ____% of the
mortgage loans are adjustable rate revolving home equity lines of credit.
All mortgage loans were originated between _________ and ____________.
The aggregate cut-off date principal balance of all mortgage loans was
$___________, which is equal to the aggregate principal balances of the mortgage
loans as of the close of business on the cut-off date (_____________, 199__).
Approximately ____% of the mortgage loans were secured by a first mortgage on
the related mortgaged property, ____% of the mortgage loans were secured by
second mortgages and ___% of the mortgage loans were secured by third mortgages.
No mortgage loan had a combined loan-to-value ratio greater than 100%. As of the
cut-off date, all of the mortgage loans were secured by mortgaged properties
that are one- to four-family residences. As of the cut-off date, ___% of the
mortgage loans were secured by mortgaged properties that are owner-occupied, and
___% of the mortgage loans were secured by non-owner occupied mortgaged
properties. Approximately ____%, ____% and ____% of the mortgage loans were
secured by mortgaged properties in ________, _______ and ________, respectively.
Approximately ____% of the mortgage loans were contractually delinquent 30 days
or more. No mortgage loan was delinquent more than 60 days.
The minimum principal balance of the revolving credit-line loans as of
the cut-off date was $_______, the maximum principal balance of the revolving
credit-line loans as of the cut-off date was $__________, and the average
principal balance of the revolving credit-line loans as of the cut-off date was
$________. As of the cut-off date, the loan rates on the revolving credit-line
loans ranged from ______% per annum to _____% per annum and the weighted average
loan rate was ____% per annum. The average credit limit utilization rate of the
revolving credit-line loans was ____% as of the cut-off date. The weighted
average combined loan-to-value ratio of the revolving credit-line loans was ___%
as of the cut-off date and the weighted average junior mortgage ratio of the
revolving credit-line loans - computed by dividing the greater of the credit
limit and the cut-off date principal balance for each revolving credit-line
loan, provided that the revolving credit-line loan was in a junior lien
position, by the sum of the credit limit or cut-off date principal balance as
applicable and the outstanding balances at the time the revolving credit-line
loan was originated of all senior mortgage loans affecting the mortgaged
property was approximately ____%.
The combined loan-to-value ratio or CLTV of each revolving credit-line
loan is the ratio, expressed as a percentage, of (a) the sum of (1) the greater
of the credit limit and the current balance as of the cut-off date and (2) the
principal balance of any senior mortgage loan as of the origination of that
mortgage loan, over (b) the value, based on an appraised value or other
acceptable valuation method, for the related Mortgaged Property determined in
the origination of that mortgage loan. The CLTV of each closed-end loan is the
ratio, expressed as a percentage, of (1) the sum of (a) the original principal
balance of the closed-end loan at the date of origination plus (b) the remaining
principal balance of the senior lien(s), if any, at the date of origination of
the closed-end loan divided by (2) the value of the related mortgaged property,
based upon the appraisal made at the time of origination of that closed-end loan
or other acceptable valuation method. The average credit limit utilization rate
for the mortgage loans as of the cut-off date is determined by dividing the sum
of the cut-off date principal balances of the mortgage loans by the sum of the
credit limits of the mortgage loans.
MORTGAGE LOAN TERMS
Revolving Credit-Line Loans. The revolving credit-line loans were
originated pursuant to credit line agreements. Under the credit line agreements,
the borrowers may receive an additional balance or a draw at any time during a
draw period. The minimum amount of any draw that a borrower may receive is $100.
The maximum amount of each draw with respect to any revolving credit-line loan
is equal to the excess, if any, of the credit limit over the principal balance
outstanding under the related credit line agreement at the time of the draw.
Approximately ___% (by cut-off date pool balance) of the mortgage loans
have original terms of 20 years, consisting of a draw period of 10 years and an
amortization period of 10 years. During the amortization period, the borrower is
obligated to make monthly payments equal to the sum of 1/120 of the unpaid
balance of the mortgage loan at the end of the draw period plus accrued finance
charges. The loan rate for each of these loans adjusts monthly. Minimal monthly
principal payments may be required to be made by the borrowers during the draw
period, but those payments will not be sufficient to fully amortize the mortgage
loan the draw period.
The borrower's right to make a draw under a revolving credit-line loan
may be suspended, or the credit limit may be reduced under a number of
circumstances, including, but not limited to, a material adverse change in the
borrower's financial circumstances, a significant decline in the appraised value
of the mortgaged property or a default by the borrower of any material
obligation under the credit line agreement. Generally, a suspension or reduction
will not affect the payment terms for previously drawn balances. In the event of
default under a revolving credit-line loan, the right of the borrower to make a
draw may be terminated and the entire outstanding principal balance of the
revolving credit-line loan may be declared immediately due and payable. A
default includes, but is not limited to, the borrower's failure to make any
payment as required, any action or inaction by the borrower that adversely
affects the mortgaged property or the rights in the mortgaged property or any
fraud or material misrepresentation by the borrower in connection with the
revolving credit-line loan. The credit limit may also be increased, upon
completion of satisfactory underwriting review.
Interest accrues on each revolving credit-line loan, payable monthly,
on the related average daily outstanding principal balance for each billing
cycle at a loan rate. The loan rate for each billing cycle is adjusted
quarterly, except for the loans which have a ten year draw period which are
adjusted monthly, and is equal to the index on the last day of the most recently
ended March, June, September or December, or, for loans which have a ten year
draw period, the twentieth day of the prior month plus a gross margin specified
in the related credit line agreement, computed on the basis of a 365 day year
times actual days elapsed. The billing cycle for each revolving credit-line loan
is the calendar month preceding each due date.
The due date for payments under each revolving credit-line loan is the
twentieth day of each month.
The interest on each revolving credit line loan accrued each month is
calculated based on in index on the related adjustment date. The gross margins
for the revolving credit-line loans as of the cut-off date ranged from ___% to
____%. The weighted average gross margins as of the cut-off date for the
revolving credit-line loans was ___%. Substantially all of the revolving
credit-line loans are subject to a maximum loan rate of at least __% per annum.
The revolving credit-line loans have a minimum loan rate equal to the greater of
zero and the gross margin. No revolving credit-line loan is subject to a
periodic rate cap.
Payments made by or on behalf of the borrower for each revolving
credit-line loan are generally required to be applied, first, to any unpaid
interest and second, to the principal balance outstanding with respect to the
mortgage loan.
Closed-end Loans. All of the closed-end loans have loan rates that are
fixed and are evidenced by mortgage or promissory notes secured by deeds of
trust or mortgages on the related mortgaged properties. The closed-end loans
provide that interest is charged to the borrowers, and payments are due, as of a
scheduled day of each month which is fixed at the time of origination. Interest
is computed on the simple interest basis and charged to the borrower on the
outstanding principal balance of the related closed-end loan based on the number
of days elapsed between the date through which interest was last paid through
receipt of the borrower's most current monthly payment. The portions of each
monthly payment that are allocated to interest and principal are adjusted based
on the actual amount of interest charged on that basis. Interest accrues during
the calendar month preceding each due date, computed on the basis of a 365 day
year times actual days elapsed if the closed-end loan is an adjustable loan or a
360 day year of twelve 30-day months, if the closed-end loan is a fixed-rate
loan.
Approximately __% of the closed-end loans bear interest at a loan rate
based on the index plus a gross margin, adjusted quarterly. The adjustment date
is the twentieth day of March, June, September or December. In connection with
each adjustment, the monthly payment is adjusted to an amount sufficient to
fully amortize the mortgage loan over its remaining term. The gross margins for
the adjustable rate closed-end loans as of the cut-off date ranged from ___% to
___%. The weighted average gross margins as of the cut-off date for the
adjustable rate closed-end loans was __%. Substantially all of the adjustable
rate closed-end loans are subject to a maximum loan rate of at least ___% per
annum. The adjustable rate closed-end loans have a minimum loan rate equal to
the gross margin. No adjustable rate closed-end loan is subject to a periodic
rate cap.
MORTGAGE LOAN POOL STATISTICS
The master servicer has computed the following additional information
as of the cut-off date with respect to the mortgage loans to be included in the
trust. In no event will more than 5% of the cut-off date pool principal balance
of the mortgage pool deviate from the characteristics of the mortgage loans
described in this prospectus supplement. The following tables are based on the
cut-off date principal balances of all mortgage loans.
COMBINED LOAN-TO-VALUE RATIOS
PERCENT OF
COMBINED NUMBER OF CUT-OFF DATE POOL BY CUT-OFF DATE
LOAN-TO-VALUE RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------- -------------- ----------------- --------------------
____ to ____........
____ to ____........
____ to ____........
____ to ____........
____ to ____........
____ to ____........
____ to ____........
____ to ____........
____ to ____........
____ to ____........
____ to ____........
____ to ____........
Total............... $ 100.00%
=============== ================= ===================
LIEN PRIORITY
PERCENT OF
NUMBER OF CUT-OFF DATE POOL BY CUT-OFF DATE
LIEN PRIORITY MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------- -------------- ----------------- --------------------
1...........
2...........
3...........
Unknown.....
Total.. $______________ 100.00%
============== ================= ==================
PROPERTY TYPE
PERCENT OF
POOL BY CUT-OFF
NUMBER OF CUT-OFF DATE DATE
MORTGAGE PRINCIPAL PRINCIPAL
PROPERTY TYPE LOANS BALANCE BALANCE
- ------------- -------- ------------ ---------------
1- to 4-Family...... ___ $______ %
Total.......... ___ $______ 100.00%
=== ======= =======
OWNER OCCUPANCY STATUS
PERCENT OF
POOL BY CUT-OFF
NUMBER OF CUT-OFF DATE DATE
MORTGAGE PRINCIPAL PRINCIPAL
OWNER OCCUPANCY STATUS LOANS BALANCE BALANCE
- ---------------------- --------- ------------ ---------------
Owner Occupied.........
Non-Owner Occupied.....
Unknown................ ____ _______ _______
Total............. ____ $______ 100.00%
==== ======= =======
GEOGRAPHIC DISTRIBUTION(1)
PERCENT OF
POOL BY CUT-OFF
NUMBER OF CUT-OFF DATE DATE
MORTGAGE PRINCIPAL PRINCIPAL
OWNER OCCUPANCY STATUS LOANS BALANCE BALANCE
- ---------------------- --------- ------------ ---------------
.......................
.......................
.......................
Total............. _____ $________ 100.00%
===== ========= ========
(1) Geographic location is determined by the address of mortgaged property
securing each mortgage loan.
PRINCIPAL BALANCES
PERCENT
NUMBER OF CUT-OFF DATE BY CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
PRINCIPAL BALANCES LOANS BALANCE BALANCE
- ------------------ --------- ------------ ---------------
$0.01 - _____.........
_____ - _____.........
_____ - _____.........
_____ - _____.........
_____ - _____.........
_____ - _____.........
_____ - _____.........
_____ - _____.........
_____ - _____.........
_____ - _____.........
_____ - _____.........
_____ - _____.........
_____ - _____.........
_____ - _____.........
_____ and greater ....
Total....... _____ $__________ 100.00%
===== =========== =======
REVOLVING CREDIT-LINE LOANS
CREDIT LIMITS
NUMBER PERCENT
OF REVOLVING CUT-OFF DATE BY CUT-OFF DATE
CREDIT-LINE PRINCIPAL PRINCIPAL
CREDIT LIMITS LOANS BALANCE BALANCE
- ------------- ------------ ------------ ---------------
$0.01 - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ and greater...
Total......... _______ $____________ 100.00%
======= ============= =======
REVOLVING CREDIT-LINE LOANS
CREDIT LIMIT UTILIZATION RATES
NUMBER PERCENT BY CUT-OFF
OF REVOLVING CUT-OFF DATE DATE
CREDIT-LINE PRINCIPAL PRINCIPAL
CREDIT LIMIT UTILIZATION RATES LOANS BALANCE BALANCE
- ------------------------------ ------------ ------------ ------------------
less than or equal to __%....
_____ - _____................
_____ - _____................
_____ - _____................
_____ - _____................
_____ - _____................
_____ - _____................
_____ - _____................
_____ - _____................
_____ - _____................
_____ - _____................
_____ - _____................
_____ - _____................
Total................ _________ $___________ 100.00%
LOAN AGE
PERCENT BY CUT-OFF
NUMBER OF CUT-OFF DATE DATE
MORTGAGE LOANS PRINCIPAL PRINCIPAL
LOAN AGE LOANS BALANCE BALANCE
- -------- -------------- ------------ ------------------
0 months........
1-12..............
13-24.............
25-36.............
37-48.............
49-60.............
61-72.............
73-84 ............
85-96 ............
97-108............
109-120...........
121-132 ..........
Total........ _____________ $__________ 100.00%
============= =========== =======
LOAN RATES AS OF THE CUT-OFF DATE
PERCENT BY CUT-OFF
NUMBER OF CUT-OFF DATE DATE
MORTGAGE PRINCIPAL PRINCIPAL
LOAN RATES LOANS BALANCE BALANCE
- ---------- --------- ------------ ------------------
_____ - _____%......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
_____ - _____.......
Total......... _________ $__________ 100.00%
========= =========== =======
GROSS MARGIN FOR ADJUSTABLE RATE MORTGAGE LOANS(1)
NUMBER PERCENT BY CUT-OFF
OF REVOLVING CUT-OFF DATE DATE
CREDIT-LINE PRINCIPAL PRINCIPAL
GROSS MARGIN LOANS BALANCE BALANCE
- ------------ ------------ ------------ ------------------
- -_____ - - _____%...
- -_____ - - _____....
- -_____ - - _____....
- -_____ - _____......
______ - _____......
______ - _____......
______ - _____......
______ - _____......
______ - _____......
______ - _____......
______ - _____......
______ - _____......
______ - _____......
______ - _____......
______ - _____......
______ - _____......
Total......... ________ $________ 100.00%
======== ========= ========
____________________
(1) Each adjustable rate mortgage loan is subject to a minimum loan rate equal
to the greater of zero and the gross margin.
MAXIMUM RATES FOR ADJUSTABLE RATE MORTGAGE LOANS
NUMBER
OF REVOLVING PERCENT BY CUT-OFF DATE
CREDIT-LINE CUT-OFF DATE DATE
MAXIMUM RATES LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------- ------------ ----------------- -----------------------
______%........
______.........
Total ..... __________ $___________ 100.00%
========== ============ ========
<PAGE>
ORIGINATION YEAR
NUMBER OF PERCENT BY CUT-OFF
MORTGAGE CUT-OFF DATE DATE
ORIGINATION YEAR LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------- --------- ----------------- ------------------
198__.........
198__.........
198__.........
198__.........
199__.........
199__.........
199__.........
199__.........
199__.........
199__.........
199__.........
199__.........
Total.... _______ $____________ 100.00%
======= ============= =======
DELINQUENCY STATUS
NUMBER OF PERCENT BY CUT-OFF
NUMBER OF DAYS MORTGAGE CUT-OFF DATE DATE
DELINQUENT LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------- --------- ----------------- ------------------
Current.......
30 to 59......
Total...... _______ $____________ 100.00%
======= ============= ========
DESCRIPTION OF THE NOTES
The trust will issue one class of notes pursuant to the indenture to be
dated as of _________ __, 199__, between the trust and ________, as indenture
trustee. The trust will also issue the transferor interest pursuant to the terms
of a trust agreement to be dated as of _________ __, 199__, among the trust and
__________, as owner trustee. The notes will be secured by the assets of the
trust pursuant to the indenture. In addition, the depositor will enter into a
sale and servicing agreement to be dated as of _________ __, 199__ among
____________, as transferor, the trust, the indenture trustee and the master
servicer. The indenture, the trust agreement and the sale and servicing
agreement are collectively referred to as the agreements in this prospectus
supplement. The forms of the agreements have been filed as exhibits to the
registration statement of which this prospectus supplement and the prospectus
are a part. The following summaries describe material provisions of the
agreements. The summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions of the
agreements. Wherever particular sections or defined terms of the agreements are
referred to, the sections or defined terms are incorporated in this prospectus
supplement by reference.
GENERAL
The notes will be issued in minimum denominations of $1,000 and
multiples of $1 in excess thereof and will evidence specified undivided
interests in the trust. The property of the trust will consist of:
(1) each of the mortgage loans that from time to time are subject to
the sale and servicing agreement (including any Additional Balances arising
after the cut-off date) and the Mortgage Files;
(2) collections on the mortgage loans received on and after the cut-off
date, exclusive of payments in respect of interest accrued on the mortgage loans
during ______ and payments in respect to interest on the delinquent mortgage
loans due prior to the cut-off date and received after the cut-off date;
(3) mortgaged properties relating to the mortgage loans that are
acquired by foreclosure or deed in lieu of foreclosure;
(4) the collection account, the distribution account and the spread
account; and
(5) the insurance policy.
Definitive notes, if issued, will be transferable and exchangeable at
the corporate trust office of the indenture trustee, which will initially act as
note registrar. See "-- Book-Entry Notes" below. No service charge will be made
for any registration of exchange or transfer of notes, but the indenture trustee
may require payment of a sum sufficient to cover any tax or other governmental
charge.
The aggregate undivided interest in the trust represented by the notes
as of the closing date will equal $____________ (the "Original Invested Amount")
which represents ___% of the cut-off date pool balance. The original note
principal balance will equal $__________ with a permitted variance in the
aggregate of plus or minus 5%. Following the closing date, the "Invested Amount"
with respect to any payment date will be an amount equal to the Original
Invested Amount minus (1) the amount of Investor Principal Collections
previously distributed to noteholders, and minus (2) an amount equal to the
product of the Investor Floating Allocation Percentage and the Liquidation Loss
Amounts not allocated to the transferor interest. The principal amount of the
outstanding notes, or note principal balance on any payment date is equal to the
original note principal balance minus the aggregate of amounts actually
distributed as principal to the noteholders. See "-- Payments on the Notes"
below. Each note represents the right to receive payments of interest at the
note rate and payments of principal as described in this prospectus supplement.
The transferor will own the remaining undivided interest in the
mortgage loans, which is equal to the pool balance less the Invested Amount. The
transferor interest will initially equal $_________ which represents
approximately __% of the cut-off date pool balance. The transferor as of any
date is the owner of the transferor interest, which initially will be
____________. In general, the pool balance will vary each day as principal is
paid on the mortgage loans, liquidation losses are incurred, additional balances
are drawn down by borrowers and mortgage loans are transferred to the trust.
The transferor has the right to sell or pledge the transferor interest
at any time, provided:
(1) the rating agencies have notified the transferor, the insurer and
the indenture trustee in writing that the action will not result in the
reduction or withdrawal of the ratings assigned to the notes,
(2) the insurer has consented in writing to the transfer and
(3) other conditions specified in the sale and servicing agreement are
satisfied.
BOOK-ENTRY NOTES
The notes will be book-entry notes. Persons acquiring beneficial
ownership interests in the notes, or note owners, may elect to hold their notes
through DTC in the United States, or Cedelbank or Euroclear in Europe if they
are participants of those systems, or indirectly through organizations which are
participants in those systems. The book-entry notes will be issued in one or
more notes which equal the aggregate principal balance of the notes and will
initially be registered in the name of Cede & Co., the nominee of DTC. Cedelbank
and Euroclear will hold omnibus positions on behalf of their participants
through customers' securities accounts in Cedelbank's and Euroclear's names on
the books of their respective depositaries which in turn will hold those
positions in customers' securities accounts in the depositaries' names on the
books of DTC. Citibank, N.A. will act as depositary for Cedelbank and Chase will
act as depositary for Euroclear. Investors may hold beneficial interests in the
book-entry notes in minimum denominations representing note principal balances
of $1,000 and in multiples of $1 in excess thereof. Except as in this prospectus
supplement, no beneficial owner of a book-entry note will be entitled to receive
a physical or definitive note representing that note. Unless and until
definitive notes are issued, it is anticipated that the only "noteholder" of the
notes will be Cede & Co., as nominee of DTC. Note owners will not be noteholders
as that term is used in the indenture. Note owners are only permitted to
exercise their rights indirectly through participants and DTC.
The beneficial owner's ownership of a book-entry note will be recorded
on the records of the brokerage firm, bank, thrift institution or other
financial intermediary that maintains the beneficial owner's account for that
purpose. In turn, the financial intermediary's ownership of the book-entry note
will be recorded on the records of DTC or of a participating firm that acts as
agent for the financial intermediary, whose interest will in turn be recorded on
the records of DTC, if the beneficial owner's financial intermediary is not a
DTC participant and on the records of Cedelbank or Euroclear, as appropriate.
Note owners will receive all payments of principal of, and interest on,
the notes from the indenture trustee through DTC and DTC participants. While the
notes are outstanding, except under the circumstances described in this
prospectus supplement, under the rules, regulations and procedures creating and
affecting DTC and its operations, DTC is required to make book-entry transfers
among participants on whose behalf it acts with respect to the notes and is
required to receive and transmit payments of principal of, and interest on, the
notes. Participants and indirect participants with whom note owners have
accounts with respect to notes are similarly required to make book-entry
transfers and receive and transmit those payments on behalf of their respective
note owners. Accordingly, although note owners will not possess notes, the DTC
rules provide a mechanism by which note owners will receive payments and will be
able to transfer their interest.
Note owners will not receive or be entitled to receive definitive notes
representing their respective interests in the notes, except under the limited
circumstances described in this prospectus supplement. Unless and until
definitive notes are issued, note owners who are not participants may transfer
ownership of notes only through participants and indirect participants by
instructing those participants and indirect participants to transfer notes, by
book-entry transfer, through DTC for the account of the purchasers of the notes,
which account is maintained with their respective participants. Under the DTC
rules and in accordance with DTC's normal procedures, transfers of ownership of
notes will be executed through DTC and the accounts of the respective
participants at DTC will be debited and credited. Similarly, the participants
and indirect participants will make debits or credits, as the case may be, on
their records on behalf of the selling and purchasing note owners.
Because of time zone differences, credits of securities received in
Cedelbank or Euroclear as a result of a transaction with a participant will be
made during subsequent securities settlement processing and dated the business
day following the DTC settlement date. Such credits or any transactions in
securities settled during that processing will be reported to the relevant
Euroclear or Cedelbank participants on that business day. Cash received in
Cedelbank or Euroclear as a result of sales of securities by or through a
Cedelbank participant or Euroclear participant to a DTC participant will be
received with value on the DTC settlement date but will be available in the
relevant Cedelbank or Euroclear cash account only as of the business day
following settlement in DTC. For information with respect to tax documentation
procedures relating to the notes, see "Federal Income Tax Consequences - Foreign
Investors" and "-- Backup Withholding" in this prospectus supplement and "Global
Clearance, Settlement And Tax Documentation Procedures - U.S. Federal Income Tax
Documentation Requirements" in Annex I to this prospectus supplement.
Transfers between participants will occur in accordance with DTC rules.
Transfers between Cedelbank participants and Euroclear participants will occur
in accordance with their respective rules and operating procedures. Cross-market
transfers between persons holding directly or indirectly through DTC, on the one
hand, and directly or indirectly through Cedelbank participants or Euroclear
participants, on the other, will be effected in DTC in accordance with DTC rules
on behalf of the relevant European international clearing system by the relevant
depositary. However, cross market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in that system in accordance with its rules and procedures and
within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to the relevant depositary to take action to
effect final settlement on its behalf by delivering or receiving securities, in
DTC, and making or receiving payment in accordance with normal procedures for
same day funds settlement applicable to DTC. Cedelbank participants and
Euroclear participants may not deliver instructions, directly to the European
depositaries.
DTC is a New York-chartered limited purpose trust company and performs
services for its participants, some of which and/or their representatives own
DTC. In accordance with its normal procedures, DTC is expected to record the
positions held by each DTC participant in the book-entry notes, whether held for
its own account or as a nominee for another person. In general, beneficial
ownership of book-entry notes will be subject to the rules, regulations and
procedures governing DTC and DTC participants as in effect from time to time.
Cedelbank is incorporated under the laws of Luxembourg as a
professional depository. Cedelbank holds securities for its participating
organizations and facilitates the clearance and settlement of securities
transactions between Cedelbank participants through electronic book-entry
changes in accounts of Cedelbank participants, thus eliminating the need for
physical movement of notes. Transactions may be settled in Cedelbank in any of
28 currencies, including United States dollars. Cedelbank provides to its
Cedelbank participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Cedelbank interfaces with domestic markets
in several countries. As a professional depository, Cedelbank is subject to
regulation by the Luxembourg Monetary Institute. Cedelbank participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and other organizations. Indirect access to Cedelbank is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Cedelbank participant, either
directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear and to clear and settle transactions between Euroclear participants
through simultaneous electronic book-entry delivery against payment, thus
eliminating the need for physical movement of notes and any risk from lack of
simultaneous transfers of securities and cash. Transactions may now be settled
in any of 32 currencies, including United States dollars. Euroclear includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described in this prospectus
supplement. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York, under contract with Euroclear Clearance
Systems S.C., a Belgian cooperative corporation (the "Cooperative"). All
operations are conducted by the Euroclear operator, and all Euroclear securities
clearance accounts and Euroclear cash accounts are accounts with the Euroclear
operator, not the Cooperative. The Cooperative establishes policy for Euroclear
on behalf of Euroclear participants. Euroclear participants include banks,
including central banks, securities brokers and dealers and other professional
financial intermediaries. Indirect access to Euroclear is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear participant, either directly or indirectly.
The Euroclear operator is the Belgian branch of a New York banking
corporation which is member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law. The Terms and Conditions govern transfers of securities and cash within
Euroclear, withdrawals of securities and cash from Euroclear, and receipts of
payments with respect to securities in Euroclear. All securities in Euroclear
are held on a fungible basis without attribution of specific notes to specific
securities clearance accounts. The Euroclear operator acts under the Terms and
Conditions only on behalf of Euroclear participants, and has no record of or
relationship with persons holding through Euroclear participants.
Payments on the book-entry notes will be made on each payment date by
the indenture trustee to DTC. DTC will be responsible for crediting the amount
of those payments to, the accounts of the applicable DTC participants in
accordance with DTC's normal procedures. Each DTC participant will be
responsible for disbursing those payments to the beneficial owners of the
book-entry notes that it represents and to each financial intermediary for which
it acts as agent. Each financial intermediary will be responsible for disbursing
funds to the beneficial owners of the book-entry notes that it represents.
Under a book-entry format, beneficial owners of the book-entry notes
may experience some delay in their receipt of payments, since payments will be
forwarded by the indenture trustee to Cede. Payments with respect to notes held
through Cedelbank or Euroclear will be credited to the cash accounts of
Cedelbank participants or Euroclear participants in accordance with the relevant
system's rules and procedures, to the extent received by the relevant
depositary. Those payments will be subject to tax reporting in accordance with
relevant United States tax laws and regulations. See "Federal Income Tax
Consequences - Foreign Investors" and "- Backup Withholding" in this prospectus
supplement. Because DTC can only act on behalf of financial intermediaries, the
ability of a beneficial owner to pledge book-entry notes to persons or entities
that do not participate in the DTC system, or otherwise take actions in respect
of the book-entry notes, may be limited due to the lack of physical notes for
those book-entry notes. In addition, issuance of the book-entry notes in
book-entry form may reduce the liquidity of those notes in the secondary market
since some potential investors may be unwilling to purchase notes for which they
cannot obtain physical notes.
Monthly and annual reports on the trust provided by the master servicer
to Cede, as nominee of DTC, may be made available to beneficial owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting DTC, and to the financial intermediaries to whose DTC accounts the
book-entry notes of those beneficial owners are credited.
DTC has advised the depositor and the indenture trustee that, unless
and until definitive notes are issued, DTC will take any action permitted to be
taken by the holders of the book-entry notes under the sale and servicing
agreement only at the direction of one or more financial intermediaries to whose
DTC accounts the book-entry notes are credited, to the extent that those actions
are taken on behalf of financial intermediaries whose holdings include those
book-entry notes. Cedelbank or the Euroclear operator, as the case may be, will
take any other action permitted to be taken by a noteholder under the sale and
servicing agreement on behalf of a Cedelbank participant or Euroclear
participant only in accordance with its relevant rules and procedures and
subject to the ability of the relevant depositary to effect actions on its
behalf through DTC. DTC may take actions, at the direction of the related
participants, with respect to some notes which conflict with actions taken with
respect to other notes.
Definitive notes will be issued to beneficial owners of the book-entry
notes, or their nominees, rather than to DTC, only if:
(a) DTC or the trust advises the indenture trustee in writing that DTC
is no longer willing, qualified or able to discharge properly its
responsibilities as nominee and depository with respect to the book-entry notes
and the trust or the indenture trustee is unable to locate a qualified
successor,
(b) the transferor, at its sole option, elects to terminate a
book-entry system through DTC or
(c) after the occurrence of an event of servicing termination,
beneficial owners having percentage interests aggregating not less than 51% of
the note principal balance of the book-entry notes advise the indenture trustee
and DTC through the financial intermediaries and the DTC participants in writing
that the continuation of a book-entry system through DTC or a successor to DTC
is no longer in the best interests of beneficial owners. Upon the occurrence of
any of the events described in the immediately preceding sentence, the indenture
trustee will be required to notify all beneficial owners of the occurrence of
that event and the availability through DTC of definitive notes. Upon surrender
by DTC of the global note or notes representing the book-entry notes and
instructions for re-registration, the indenture trustee will issue definitive
notes, and thereafter the indenture trustee will recognize the holders of the
definitive notes as noteholders under the indenture.
Although DTC, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of notes among participants of DTC,
Cedelbank and Euroclear, they are under no obligation to perform or continue to
perform those procedures and those procedures may be discontinued at any time.
DTC management is aware that some computer applications, systems, and
the like for processing data that are dependent upon calendar dates, including
dates before, on, and after January 1, 2000, may encounter Year 2000 problems.
DTC has informed its participants and other members of the financial community
that it has developed and is implementing a program so that its systems, as the
same relate to the timely payment of distributions, including principal and
interest payments, to securityholders, book-entry deliveries, and settlement of
trades within DTC, continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also
dependent upon other parties, including but not limited to issuers and their
agents, as well as third party vendors from whom DTC licenses software and
hardware, and third party vendors on whom DTC relies for information or the
provision of services, including telecommunication and electrical utility
service providers, among others. DTC has informed the industry that it is
contacting and will continue to contact third party vendors from whom DTC
acquires services to: (1) impress upon them the importance of those services
being year 2000 compliant; and (2) determine the extent of their efforts for
Year 2000 remediation and, as appropriate, testing of their services. In
addition, DTC is in the process of developing contingency plans as it deems
appropriate.
According to DTC, the foregoing information with respect to DTC has
been provided to the industry for informational purposes only and is not
intended to serve as a representation, warranty, or contract modification of any
kind.
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the notes, the depositor will transfer to
the trust all of its right, title and interest in and to each mortgage loan,
including any additional balances arising in the future, related credit line
agreements and mortgage notes, as applicable, and the mortgages and other
related documents, including all collections received on or with respect to each
mortgage loan on or after the cut-off date, exclusive of payments in respect of
(1) interest accrued on the mortgage loans in _____ and (2) payments in respect
of interest on the delinquent mortgage loans due prior to the cut-off date and
received after the cut-off date. The trust, concurrently with that transfer,
will deliver or cause to be delivered the notes to the depositor and the
transferor interest to the transferor. Each mortgage loan transferred to the
trust will be identified on a mortgage loan schedule which will be attached as
an exhibit to the indenture. The mortgage loan schedule will include information
as to the cut-off date principal balance of each mortgage loan, as well as
information with respect to the loan rate.
The indenture trustee will review or cause to be reviewed the mortgage
notes within 60 days of the closing date and the assignments of each mortgage
within 180 days of the closing date. If any related document is found to be
defective in any material respect and the defect is not cured within 90 days
following notification to the transferor by the owner trustee, the trust or the
insurer, the transferor will be obligated to accept the transfer of that
mortgage loan from the trust. Upon the transfer, the principal balance of the
mortgage loan will be deducted from the pool balance, thus reducing the amount
of the transferor interest. If the deduction would cause the transferor interest
to become less than the minimum transferor interest at that time, the transferor
will be obligated to either substitute an eligible substitute mortgage loan or
make a deposit into the collection account in the amount equal to the transfer
deficiency. Any deduction, substitution or deposit will be considered for the
purposes of the sale and servicing agreement a payment in full of that mortgage
loan. Any transfer deposit amount will be treated as a principal collection. No
transfer shall be considered to have occurred until the required deposit to the
collection account is actually made. The obligation of the transferor to accept
a transfer of a defective mortgage loan is the sole remedy regarding any defects
in the mortgage file and related documents available to the owner trustee, the
indenture trustee or the noteholders.
An eligible substitute mortgage loan is a mortgage loan substituted by
the transferor for a defective mortgage loan which must, on the date of
substitution:
(1) have an outstanding principal balance, or in the case of a
substitution of more than one mortgage loan for a defective
mortgage loan, an aggregate principal balance, that is
approximately equal to the transfer deficiency relating to
that defective mortgage loan;
(2) have a loan rate not less than the loan rate of the defective
mortgage loan and not more than 1% in excess of the loan rate
of that defective mortgage loan;
(3) have a loan rate based on the same index with adjustments to
the loan rate made on the same adjustment date as that of the
defective mortgage loan;
(4) have a gross margin that is not less than the gross margin of
the defective mortgage loan and not more than 100 basis points
higher than the gross margin for the defective mortgage loan;
(5) have a mortgage of the same or higher level of priority as the
mortgage relating to the defective mortgage loan;
(6) comply with each representation and warranty as to the
mortgage loans set forth in the sale and servicing agreement,
deemed to be made as of the date of substitution;
(7) have an original combined loan-to-value ratio not greater than
that of the defective mortgage loan; and
(8) satisfy other conditions specified in the sale and servicing
agreement.
To the extent the principal balance of an eligible substitute mortgage
loan is less than the related transfer deficiency, the transferor will be
required to make a deposit to the collection account equal to the difference.
Any amounts will be treated as principal collections.
The transferor will make representations and warranties as to the
accuracy in all material respects of information furnished to the owner trustee
with respect to each mortgage loan, e.g., cut-off date principal balance and the
loan rate. In addition, the transferor will represent and warrant on the closing
date that, among other things:
(1) at the time of transfer to the trust, the transferor has
transferred or assigned all of its rights, title and interest
in or granted a security interest in each mortgage loan and
the related documents, free of any lien and
(2) each mortgage loan complied, at the time or origination, in
all material respects with applicable state and federal laws.
Upon discovery of a breach of any representation and warranty
which materially and adversely affects the interests of the
noteholders or the insurer in the related mortgage loan and
related documents, the transferor will have a period of 60
days after discovery or notice of the breach to effect a cure.
If the breach cannot be cured within the 60-day period, the
transferor will be obligated to accept a transfer of the
defective mortgage loan from the trust. The same procedure and
limitations that are set forth in the two preceding paragraphs
for the transfer of defective mortgage loans will apply to the
transfer of a mortgage loan that is required to be transferred
because of the breach of a representation or warranty in the
sale and servicing agreement that materially and adversely
affects the interests of the noteholders.
Mortgage loans required to be transferred to transferor as described in
the preceding paragraphs are referred to as defective mortgage loans.
Pursuant to the sale and servicing agreement, the master servicer will
service and administer the mortgage loans as more fully set forth above.
AMENDMENTS TO CREDIT LINE AGREEMENTS
Subject to applicable law, the master servicer may change the terms of
the credit line agreements at any time provided that those changes (1) do not
adversely affect the interest of the noteholders or the insurer, and (2) are
consistent with prudent business practice. In addition, the sale and servicing
agreement permits the master servicer, within limitations described in the sale
and servicing agreement, to increase or reduce the credit limit of the related
mortgage loan and reduce the gross margin for that mortgage loan.
OPTIONAL TRANSFERS OF MORTGAGE LOANS TO THE TRANSFEROR
Subject to the conditions specified in the sale and servicing
agreement, on any payment date the transferor may, but shall not be obligated
to, remove on the related payment date from the trust, some mortgage loans
without notice to the noteholders. The transferor is permitted to randomly
designate the mortgage loans to be removed. Mortgage loans so designated will
only be removed upon satisfaction of the conditions specified in the sale and
servicing agreement, including:
(1) the transferor interest as of the transfer date, after giving
effect to removal, exceeds the minimum transferor interest;
(2) the transferor shall have delivered to the indenture trustee
and the insurer a mortgage loan schedule containing a list of
all mortgage loans remaining in the trust after that removal;
(3) the transferor shall represent and warrant that no selection
procedures which the transferor reasonably believes are
adverse to the interests of the noteholders or the insurer
were used by the transferor in selecting those mortgage loans;
(4) in connection with each retransfer of mortgage loans, the
rating agencies shall have been notified of the proposed
transfer and prior to the transfer date the rating agencies
shall have notified the transferor, the indenture trustee and
the Insurer in writing that the transfer will not result in a
reduction or withdrawal of the ratings assigned to the notes
without regard to the insurance policy; and
(5) the transferor shall have delivered to the indenture trustee
and the Insurer an officer's certificate confirming the
satisfaction of the conditions set forth in clauses (1)
through (3) above.
As of any date of determination, the minimum transferor interest is an
amount equal to the lesser of (a) __% of the pool balance on that date and (b)
the transferor interest as of the closing date.
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO COLLECTION ACCOUNT AND DISTRIBUTION
ACCOUNT
The master servicer shall establish and maintain in the name of the
indenture trustee the collection account which is a separate trust account for
the benefit of the noteholders, the insurer and the transferor, as their
interests may appear. The collection account will be an eligible account.
Subject to the investment provisions described in the following paragraphs, upon
receipt by the master servicer of amounts in respect of the mortgage loans,
excluding amounts representing the servicing fee, the master servicer will
deposit those amounts in the collection account. Not later than the determinate
date which is the eighteenth day of the calendar month of each payment date, the
master servicer will notify the indenture trustee of the amount of the deposit
to be included in funds available for the related payment date. Amounts so
deposited may be invested in eligible investments maturing no later than one
business day prior to the date on which amounts on deposit in the collection
account are required to be deposited in the distribution account.
The indenture trustee will establish a distribution account into which
will be deposited amounts withdrawn from the collection account for payment to
noteholders on a payment date. The distribution account will be an eligible
account. Amounts on deposit in an eligible account may be invested in eligible
investments maturing on or before the business day prior to the related payment
date. Net investment earnings on the funds in the distribution account will be
paid to ____________.
An eligible account is a segregated account that is (1) maintained with
a depository institution whose debt obligations at the time of any deposit in an
eligible account have the highest short-term debt rating by the Rating Agencies
and whose accounts are fully insured by either the Savings Association Insurance
Fund or the Bank Insurance Fund of the FDIC with a minimum long-term unsecured
debt rating of "A1" by Moody's and "A" by S&P and Fitch, and which is any of (a)
a federal savings and loan association duly organized, validly existing and in
good standing under the applicable banking laws of any state, (b) an institution
or association duly organized, validly existing and in good standing under the
applicable banking laws of any state, (c) a national banking association duly
organized, validly existing and in good standing under the federal banking laws
or (d) a principal subsidiary of a bank holding company, and in each case of (a)
- - (d), approved in writing by the insurer, (2) a segregated trust account
maintained with the corporate trust department of a federal or state chartered
depository institution or trust company,, having capital and surplus of not less
than $50,000,000, acting in its fiduciary capacity or (3) otherwise acceptable
to each rating agency and the insurer as evidenced by a letter from each rating
agency and the insurer to the indenture trustee, without reduction or withdrawal
of their then current ratings of the notes without regard to the insurance
policy.
Eligible investments are specified in the sale and servicing agreement
and are limited to investments which are acceptable to the insurer and meet the
criteria of the rating agency from time to time as being consistent with their
then current ratings of the notes.
SIMPLE INTEREST EXCESS SUB-ACCOUNT
The sale and servicing agreement requires that the master servicer
establish and maintain in the name of the indenture trustee the simple interest
excess sub-account which is a sub-account of the collection account which must
be an eligible account. The indenture trustee will transfer to the simple
interest excess sub-account all net simple interest excess. Net simple interest
excess means as of any payment date, the excess, if any, of the aggregate amount
of simple interest excess over the amount of simple interest shortfall. Net
simple interest shortfall means, as of any payment date, the excess, if any, of
the aggregate amount of simple interest shortfall over the amount simple
interest excess. Simple interest shortfall means, as of any payment date for
each simple interest qualifying loan, the excess, if any, of (1) 30 days'
interest on the principal balance of all those mortgage loans at the loan rate,
over (2) the portion of the monthly payment received from the mortgagor for that
mortgage loan allocable to interest with respect to the related collection
period. Simple interest excess means, as of any payment date for each simple
interest qualifying loan, the excess, if any, of (1) the portion of the monthly
payment received from the mortgagor for that mortgage loan allocable to interest
with respect to the related collection period, over (2) 30 days' interest on the
principal balance of the mortgage loan at the loan rate. A simple interest
qualifying loan as of any Determination Date is any Mortgage Loan that was
neither prepaid in full during the related collection period and is not
delinquent with respect to a payment that became due during the related
collection period as of the close of business on the determination date
following that collection period.
The master servicer will withdraw amounts on deposit in the simple
interest excess sub-account for deposit to the collection account prior to each
payment date to pay net simple interest shortfalls.
All funds in the simple interest excess sub-account may be invested in
eligible investments. So long as no event of servicing termination shall have
occurred and be continuing, any investment earnings on funds held in the simple
interest excess sub-account are for the account of the master servicer. Upon
receipt of notification of a loss on investment in the simple interest excess
sub-account, the master servicer, including any predecessor master servicer,
which directed the investments, shall promptly remit the amount of the loss from
its own funds to the simple interest excess sub-account.
ALLOCATIONS AND COLLECTIONS
All collections on the mortgage loans will generally be allocated in
accordance with the credit line agreements or the mortgage notes, as applicable,
between amounts collected in respect of interest and amounts collected in
respect of principal. As to any payment date, "Interest Collections" will be
equal to the amounts collected during the related collection period, including
the portion of net liquidation proceeds allocated to interest pursuant to the
terms of the credit line agreements or the mortgage notes, as applicable, less
servicing fees for the related collection period and as adjusted for simple
interest shortfalls and simple interest excess as described in this prospectus
supplement under "--Simple Interest Excess Sub-Account."
As to any payment date, "Principal Collections" will be equal to the
sum of (1) the amounts collected during the related collection period, including
the portion of net liquidation proceeds allocated to principal pursuant to the
terms of the credit line agreements or mortgage notes, as applicable, and (2)
any transfer deposit amounts. Liquidation proceeds are the proceeds, excluding
any amounts drawn on the insurance policy, received in connection with the
liquidation of any mortgage loan, whether through trustee's sale, foreclosure
sale or otherwise. Net liquidation proceeds with respect to a mortgage loan are
equal to the liquidation proceeds, reduced by related expenses, but not
including the portion, if any, of that amount that exceeds the sum of (1) the
principal balance of the mortgage loan plus (2) accrued and unpaid interest on
that principal balance to the end of the collection period during which that
mortgage loan became a liquidated mortgage loan.
With respect to any payment date, the portion of Interest Collections
allocable to the notes ("Investor Interest Collections") will equal the product
of (a) Interest Collections for that payment date and (b) the Investor Floating
Allocation Percentage. With respect to any payment date, the "Investor Floating
Allocation Percentage" is the percentage equivalent of a fraction determined by
dividing (a) the Invested Amount at the close of business on the preceding
payment date or the closing date in the case of the first payment date by (b)
the pool balance at the beginning of the related collection period. The
remaining amount of Interest Collections will be allocated to the transferor
interest.
Principal Collections will be allocated between the noteholders and the
transferor as described in this prospectus supplement.
The indenture trustee will deposit any amounts withdrawn from the
spread account or drawn under the insurance policy into the distribution
account.
With respect to any date, the pool balance will be equal to the
aggregate of the principal balances of all mortgage loans as of that date. The
principal balance of a mortgage loan, other than a liquidated mortgage loan, on
any day is equal to the cut-off date principal balance thereof, plus (1) any
additional balances in respect of that mortgage loan minus (2) all collections
credited against the principal balance of that mortgage loan in accordance with
the related credit line agreement or mortgage note prior to that day. The
principal balance of a liquidated mortgage loan after final recovery of related
liquidation proceeds shall be zero.
"Liquidation Loss Amount" means, with respect to any liquidated
mortgage loan, the unrecovered principal balance of that mortgage loan during
the collection period in which that mortgage loan became a liquidated mortgage
loan, after giving effect to the net liquidation proceeds received in connection
with the liquidation. The "Investor Loss Amount" shall be the product of the
Investor Floating Allocation Percentage and the aggregate of the Liquidation
Loss Amounts for that payment date. A liquidated mortgage loan means, as to any
payment date, any mortgage loan in respect of which the master servicer has
determined, based on the servicing procedures specified in the sale and
servicing agreement, as of the end of the preceding collection period that all
liquidation proceeds which it expects to recover with respect to the disposition
of the related mortgaged property have been recovered.
As to any payment date, the collection period is the calendar month
preceding each payment date.
PAYMENTS ON THE NOTES
Beginning with the first payment date (which will occur on _________
__, 199__), payments on the notes will be made by the indenture trustee or the
paying agent based upon aggregate information provided by the master servicer on
each payment date to the persons in whose names those notes are registered at
the close of business on the day prior to each payment date or, if the notes are
no longer book-entry notes, at the close of business on the last day of the
month preceding that payment date. The term payment date means the twenty-fifth
day of each month or, if that day is not a business day, then the next
succeeding business day. Payments will be made by check or money order mailed
or, upon the request of a noteholder owning notes having denominations
aggregating at least $1,000,000, by wire transfer or otherwise to the address of
the person entitled to those payments as it appears on the note register in
amounts calculated as described in this prospectus supplement on the
determination date. However, the final payment in respect of the notes will be
made only upon presentation and surrender thereof at the office or the agency of
the indenture trustee specified in the notice to noteholders of the final
payment. For purposes of the agreements, a business day is any day other than
(1) a Saturday or Sunday or (2) a day on which the insurer or banking
institutions in the States of [____________] are required or authorized by law
to be closed.
Application of Interest Collections. On each payment date, the
indenture trustee or the paying agent will apply the Investor Interest
Collections in the following manner and order of priority:
(1) as payment to the indenture trustee for its fee for
services rendered pursuant to the sale and servicing agreement and as
payment to the owner trustee for its fee for services rendered pursuant
to the trust agreement;
(2) as payment for the premium for the insurance policy; and
(3) concurrently, as follows:
(a) to the noteholders, as payment for the accrued
interest due and any overdue accrued interest,
with interest on that overdue interest to the
extent permitted by law, on the note principal
balance of the notes; and
(b) to the holder of the transferor interest, the amount
to which it is entitled in accordance with the
provisions of the sale and servicing agreement,
which will generally be equal to the amount accrued
on a notional balance equal to the note principal
balance at a rate equal to the excess of the Net WAC
over the note rate;
provided, however, if Investor Interest Collections prior to giving effect to
withdrawals from the spread account or draws on the insurance policy on that
payment date are insufficient to make the payments required to be made pursuant
to this clause (3), then Investor Interest Collections will be allocated between
subclauses (a) and (b) above, pro rata, based on the amount required to be paid
pursuant to each subclause without giving effect to any shortfall in the
Investor Interest Collections; provided, further, that if the amount on deposit
in the spread account has been depleted and the insurer fails to pay under the
insurance policy, the amount payable pursuant to clause (b) above on any payment
date the occurrence of those events will be paid to the holder of the transferor
interest after payment of principal and interest due on the notes are made on
that payment date.
Calculation of the Note Rate. Interest will be distributed on each
payment date at the note rate for the related interest period on the note
principal balance as of the first day of the interest period reduced by any
Civil Relief Act Interest Shortfalls for that payment date. The note rate for a
payment date will generally equal the sum of (a) LIBOR, determined as specified
in this prospectus supplement, as of the second LIBOR business day prior to the
immediately preceding payment date or as of two LIBOR business days prior to the
closing date, in the case of the first payment date plus (b) ___% per annum.
Notwithstanding the foregoing, in no event will the amount of interest required
to be distributed in respect of the notes on any payment date exceed the amount
calculated at the Net WAC which is equal to the weighted average of the loan
rates, net of the servicing fee rate, the fee payable to the indenture trustee
and the owner trustee expressed as a rate and the rate at which the premium
payable to the insurer is calculated, weighted on the basis of the daily balance
of each mortgage loan during the calendar month preceding the collection period
relating to that payment date or in the case of the first payment date, the
weighted average loan rate as of the cut-off date.
Interest on the notes in respect of any payment date will accrue on the
note principal balance from the preceding payment date or in the case of the
first payment date, from the closing date through the day preceding that payment
date on the basis of the actual number of days in the interest period and a
360-day year. Interest payments on the notes will be funded from Investor
Interest Collections and, if necessary, from the insurance policy pursuant to
its terms. Interest for any payment date due but not paid on that payment date
will be due on the next succeeding payment date together with additional
interest on that amount at a rate equal to the applicable note rate.
Calculation of the LIBOR Rate. On each payment date, LIBOR shall be
established by the indenture trustee. As to any interest period, LIBOR will
equal the rate for United States dollar deposits for one month which appears on
the Telerate Screen Page 3750 as of 11:00 A.M., London time, on the second LIBOR
business day prior to the first day of the interest period. Telerate Screen Page
3750 means the display designated as page 3750 on the Telerate Service, or any
other page as may replace page 3750 on that service for the purpose of
displaying London interbank offered rates of major banks. If that rate does not
appear on that page or alternative page, the rate will be the reference bank
rate. The reference bank rate will be determined on the basis of the rates at
which deposits in U.S. Dollars are offered by the reference banks, which shall
be three major banks that are engaged in transactions in the London interbank
market, selected by the transferor after consultation with the indenture
trustee, as of 11:00 A.M., London time, on the day that is two LIBOR business
days prior to the immediately preceding payment date to prime banks in the
London interbank market for a period of one month in amounts approximately equal
to the principal amount of the notes then outstanding. The indenture trustee
will request the principal London office of each of the reference banks to
provide a quotation of its rate. If at least two quotations are provided, the
rate will be the arithmetic mean of the quotations. If on that date fewer than
two quotations are provided as requested, the rate will be the arithmetic mean
of the rates quoted by two or more major banks in New York City, selected by the
transferor after consultation with the indenture trustee, as of 11:00 A.M., New
York City time, on that date for loans in U.S. Dollars to leading European banks
for a period of one month in amounts approximately equal to the principal amount
of the notes then outstanding. If no quotations can be obtained, the rate will
be LIBOR for the prior payment date. "LIBOR business day" means any day other
than (1) a Saturday or a Sunday or (2) a day on which banking institutions in
the State of New York or in the city of London, England are required or
authorized by law to be closed.
Transferor Collections. Interest Collections allocable to the
transferor interest will be paid to the transferor on each payment date.
Principal Collections allocable to the transferor interest will be distributed
to the transferor only to the extent that the payment will not reduce the amount
of the transferor interest as of the related payment date below the minimum
transferor interest. Amounts not distributed to the transferor because of the
limitations will be retained in the collection account until the transferor
interest exceeds the minimum transferor interest, at which time the excess shall
be released to the transferor.
Payments of Principal Collections. For the period beginning on the
first payment date and, unless a rapid amortization event shall have earlier
occurred, ending immediately after the payment date in _____________, the amount
of Principal Collections payable to noteholders as of each payment date during
the managed amortization period will equal, to the extent funds are available
therefor, the Scheduled Principal Collections Payment Amount for that payment
date. On any payment date during the managed amortization period, the "Scheduled
Principal Collections Payment Amount" shall equal the lesser of (1) the Maximum
Principal Payment and (2) the Alternative Principal Payment. With respect to any
payment date, the "Maximum Principal Payment" will equal the product of the
Investor Fixed Allocation Percentage and Principal Collections for the payment
date. With respect to any payment date, the "Alternative Principal Payment" will
equal the amount, but not less than zero, of Principal Collections for the
payment date less the aggregate of additional balances created during the
related collection period. The rapid amortization period is the period beginning
at the earlier of (1) the occurrence of a rapid amortization event and (2)
immediately following the payment date in __________ and continuing until the
later of when (1) the note principal balance has been reduced to zero and all
amounts then due and owing to the insurer have been paid and (2) the trust is
terminated. See "-- Termination; Retirement of the Notes."
Beginning with the first payment date following the end of the managed
amortization period, the amount of Principal Collections payable to noteholders
on each payment date will be equal to the Maximum Principal Payment.
Payments of principal collections based upon the Investor Fixed
Allocation Percentage may result in payments of principal to noteholders in
amounts that are greater relative to the declining pool balance than would be
the case if the Investor Floating Allocation Percentage were used to determine
the percentage of Principal Collections distributed in respect of the Invested
Amount. Principal Collections not allocated to the noteholders will be allocated
to the transferor interest. The aggregate payments of principal to the
noteholders will not exceed the original note principal balance.
In addition, to the extent of funds available therefor, including funds
available under the insurance policy, on the payment date in __________,
noteholders will be entitled to receive as a payment of principal an amount
equal to the outstanding note principal balance.
The Paying Agent. The paying agent shall initially be the indenture
trustee, together with any successor to the indenture trustee in that capacity.
The paying agent shall have the revocable power to withdraw funds from the
distribution account for the purpose of making payments to the noteholders.
[THE SPREAD ACCOUNT
The sale and servicing agreement requires the master servicer to
establish in the name of the indenture trustee on the closing date and to
maintain the spread account which is a reserve account for the benefit of the
insurer and the noteholders. On the closing date, the indenture trustee will
make a deposit to the spread account, as specified in the sale and servicing
agreement. No additional deposits will be required to be made to the spread
account.
On any payment date prior to giving effect to any draw on the insurance
policy, amounts, if any, on deposit in the spread account will be available to
make any of the following payments on the insurance policy in the following
order of priority:
(1) to the noteholders, any Insured Payment required to be
made on that payment date;
(2) to noteholders, the Investor Loss Amount for that payment
date or unreimbursed Investor Loss Amounts from a previous
payment date;
(3) to reimburse the Insurer for prior draws made under the
Policy (with interest on those draws); and
(4) to pay any other amounts owed to the Insurer pursuant to
the Insurance Agreement.
The sale and servicing agreement permits reduction of the amount on
deposit in the spread account as specified in the sale and servicing agreement.
Any reduction will be dependent on the delinquency and loss performance of the
mortgage loans. The maximum amount required to be on deposit at any time in the
spread account is the spread account requirement.
The amounts on deposit in the spread account in excess of the spread
account requirement will be distributed to the transferor. The transferor will
not be required to refund any amounts previously and properly distributed to it,
regardless of whether there are sufficient funds on a subsequent payment date to
make a full payment to the holders of the notes on the payment date. Funds
credited to the spread account may be invested in eligible investments or other
investments specified in the sale and servicing agreement that are scheduled to
mature on or prior to the next payment date as specified in the sale and
servicing agreement. The spread account shall be an eligible account.
The spread account may be terminated or other assets, including
mortgage loans such as the mortgage loans or a guarantee of the transferor or a
letter of credit issued on behalf of the transferor, may be substituted for some
or all of the assets held in the spread account, if any, provided that the
insurer and the rating agencies consent to that action and the then current
ratings of the notes assigned by the rating agencies are not lowered as a result
thereof.]
RAPID AMORTIZATION EVENTS
As described in this prospectus supplement, the managed amortization
period will continue through the payment date in __________, unless a rapid
amortization event occurs prior to that date in which case the rapid
amortization period will commence prior to that date. The rapid amortization
period is the period commencing on the earlier of (x) the end of the managed
amortization period and (y) the day, if any, upon which a rapid amortization
event occurs and concluding upon the later of (1) termination of the trust and
(2) all amounts due and owing to the insurer and the noteholders have been paid.
Rapid amortization event refers to any of the following events:
(a) failure on the part of the transferor (1) to make a
payment or deposit required under the agreements or (2) to observe or
perform in any material respect any other covenants or agreements of
the transferor set forth in the agreements, which failure continues
unremedied for a period of 30 days after written notice;
(b) any representation or warranty made by the transferor in
the agreements proves to have been incorrect in any material respect
when made and continues to be incorrect in any material respect for a
period of 30 days after written notice and as a result of which the
interests of the noteholders or the Insurer are materially and
adversely affected; provided, however, that a rapid amortization event
shall not be deemed to occur with respect to a breach of representation
and warranty relating to a mortgage loan if the transferor has
purchased or made a substitution for the related mortgage loan or
mortgage loans if applicable during that period or within an additional
60 days, with the consent of the indenture trustee and the Insurer in
accordance with the provisions of the sale and servicing agreement;
(c) the occurrence of events of bankruptcy, insolvency or
receivership relating to the transferor;
(d) the trust becomes subject to regulation by the SEC as an
investment company within the meaning of the Investment Company Act of
1940, as amended; or
(e) the aggregate of all draws under the insurance policy
exceeds __% of the cut-off date pool balance.
In the case of any event described in clause (a) or (b), a rapid
amortization event will be deemed to have occurred only if, after the applicable
grace period, if any, described in those clauses, either the indenture trustee
or noteholders holding notes evidencing more than 51% of the percentage
interests with the consent of the insurer or the insurer so long as there is no
default by the insurer in the performance of its obligations under the insurance
policy, by written notice to the transferor and the master servicer, and to the
indenture trustee if given by the noteholders, declare that a rapid amortization
event has occurred as of the date of that notice. In the case of any event
described in clause (c), (d) or (e) a rapid amortization event will be deemed to
have occurred without any notice or other action on the part of the indenture
trustee, the insurer or the noteholders immediately upon the occurrence of that
event.
In addition to the consequences of a rapid amortization event discussed
above, if the transferor voluntarily files a bankruptcy petition or goes into
liquidation or any person is appointed a receiver or bankruptcy trustee of the
transferor, on the day of any filing or appointment no further additional
balances will be transferred to the trust, the transferor will immediately cease
to transfer additional balances to the trust and the transferor will promptly
give notice to the indenture trustee and the insurer of any filing or
appointment.
Notwithstanding the foregoing, if a conservator or
trustee-in-bankruptcy is appointed for the transferor and no rapid amortization
event exists other than conservatorship, receivership or insolvency of the
transferor, the conservator or receiver may have the power to prevent the
commencement of the rapid amortization period or the sale of mortgage loans
described in this prospectus supplement.
THE POLICY
The following information has been supplied by the insurer for
inclusion in this prospectus supplement. Accordingly, the depositor does not
make any representation as to the accuracy and completeness of this information.
The insurer, in consideration of the payment of the premium and subject
to the terms of the insurance policy, unconditionally and irrevocably guarantees
to any owner that an amount equal to each full and complete insured payment will
be received by the indenture trustee, or its successor, as trustee for the
__________, on behalf of the owners from the insurer, for distribution by the
indenture trustee to each owner of each owner's proportionate share of the
insured payment. The insurer's obligations under the insurance policy with
respect to a particular insured payment shall be discharged to the extent funds
equal to the applicable insured payment are received by the indenture trustee,
whether or not those funds are properly applied by the indenture trustee.
Insured payments shall be made only at the time set forth in the insurance
policy and no accelerated insured payments shall be made regardless of any
acceleration of the notes, unless that acceleration is at the sole option of the
insurer.
Notwithstanding the foregoing paragraph, the insurance policy does not
cover shortfalls, if any, attributable to the liability of the trust or the
indenture trustee for withholding taxes, if any, including interest and
penalties in respect of any liability.
The insurer will pay any insured payment that is a preference amount on
the business day following receipt on a business day by the fiscal agent of
(1) a certified copy of the order requiring the return of a preference
payment,
(2) an opinion of counsel satisfactory to the insurer that the
order is final and not subject to appeal,
(3) an assignment in the form reasonably required by the insurer,
irrevocably assigning to the insurer all rights and claims of the
owner relating to or arising under the notes against the debtor
that made the preference payment or otherwise with respect to the
preference payment and
(4) appropriate instruments to effect the appointment of the insurer
as agent for the owner in any legal proceeding, related to the
preference payment, those instruments being in a form satisfactory
to the insurer, provided that if those documents are received after
12:00 noon, New York City time, on a business day, they will be
deemed to be received on the following business day. Payments in
respect of preference amounts shall be disbursed to the receiver or
trustee in bankruptcy named in the final order of the court
exercising jurisdiction on behalf of the owner and not to any owner
directly unless the owner has returned principal or interest
paid on the notes to the receiver or trustee in bankruptcy, in
which case the payment shall be disbursed to the owner.
The insurer will pay any other amount payable under the insurance
policy no later than 12:00 noon, New York City time, on the later of the payment
date on which the related Deficiency Amount is due or the third business day
following receipt in New York, New York on a business day by ________________,
as fiscal agent for the insurer or any successor fiscal agent appointed by the
insurer of a notice; provided that if notice is received after 12:00 noon, New
York City time, on a business day, it will be deemed to be received on the
following business day. If any notice received by the fiscal agent is not in
proper form or is otherwise insufficient for the purpose of making claim under
the insurance policy, it shall be deemed not to have been received by the fiscal
agent for purposes of this paragraph, and the insurer or the fiscal agent, as
the case may be, shall promptly so advise the indenture trustee and the
indenture trustee may submit an amended notice.
Insured payments due under the insurance policy unless otherwise stated
in the insurance policy will be disbursed by the fiscal agent to the indenture
trustee on behalf of the owners by wire transfer of immediately available funds
in the amount of the insured payment less, in respect of insured payments
related to preference amounts, any amount held by the indenture trustee for the
payment of the insured payment and legally available therefor.
The fiscal agent is the agent of the insurer only and the fiscal agent
shall in no event be liable to the owners for any acts of the fiscal agent or
any failure of the insurer to deposit or cause to be deposited, sufficient funds
to make payments due under the insurance policy.
As used in the insurance policy, the following terms shall have the
following meanings:
"Agreements" means any of the indenture, the trust agreement or the
sale and servicing agreement without regard to any amendment or supplement to
that agreement unless the amendment or modification has been approved in writing
by the insurer.
"Business day" means any day other than (1) a Saturday or a Sunday or
(2) a day on which the insurer or banking institutions in the States of New York
or _________ are required or authorized by law or executive order to be closed.
"Civil relief act interest shortfalls" means for any payment date any
shortfall in interest collections on the mortgage loans during the prior
collection period that are attributable to the Soldiers' and Sailors' Civil
Relief Act of 1940, as amended.
"Deficiency Amount" means for any payment date (A) the excess, if any,
of (1) Investor Interest for that payment date plus any Unpaid Investor Interest
Shortfall, if any, due on the notes over (2) Investor Interest Collections on
deposit in the distribution account available to be distributed therefor on that
payment date and (B) the Guaranteed Principal Amount.
"Final payment date" means the payment date in __________.
"Guaranteed Principal Amount" means (a) for any payment date (other
than the final payment date) the amount, if any, by which the note principal
balance exceeds the Invested Amount on that payment date, after giving effect to
all payments of principal on the notes on that payment date pursuant to the
agreements, and (b) on the final payment date, the outstanding note principal
balance, after giving effect to all other payments of principal on the notes on
that payment date pursuant to the agreements.
"Insured payment" means (1) as of any payment date, any Deficiency
Amount and (2) any preference amount.
"Investor Interest" means, with respect to any payment date, interest
for the related interest period at the applicable note rate on the note
principal balance as of the first day of that Interest Period, after giving
effect to the payments made on the first day of the interest period, net of any
Civil Relief Act Interest Shortfalls for that payment date.
"Notice" means the telephonic or telegraphic notice, promptly confirmed
in writing by telecopy, substantially in the form of Exhibit A attached to the
insurance policy, the original of which is subsequently delivered by registered
or certified mail, from the indenture trustee specifying the insured payment
which shall be due and owing on the applicable payment date.
"Owner" means each holder who, on the applicable payment date, is
entitled under the terms of the applicable notes to payment thereunder.
"Preference Amount" means any amount previously distributed to an owner
on the notes that is recoverable and sought to be recovered as avoidable
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code (11 U.S.C.), as amended from time to time in accordance with a final
nonappealable order of a court having competent jurisdiction.
"Unpaid Investor Shortfall" means, with respect to any payment date,
the aggregate amount, if any, of Investor Interest that was accrued in respect
of prior payment dates and has not been distributed to noteholders.
Capitalized terms used in the insurance policy and not otherwise
defined in the insurance policy shall have the respective meanings set forth in
the sale and servicing agreement as of the date of execution of the insurance
policy, without giving effect to any subsequent amendment or modification to the
sale and servicing agreement unless the amendment or modification has been
approved in writing by the insurer.
Any notice under the insurance policy or service of process on the
fiscal agent or the insurer may be made at the address listed below for the
fiscal agent or the insurer or any other address as the insurer shall specify in
writing to the indenture trustee.
The notice address of the fiscal agent is ________________________,
Attention: Municipal Registrar and Paying Agency, or such other address as the
fiscal agent shall specify to the indenture trustee in writing.
The insurance policy is being issued under and pursuant to, and shall
be construed under, the laws of the State of New York, without giving effect to
the conflict of laws principles thereof.
The insurance provided by the insurance policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
The insurance policy is not cancelable for any reason. The premium on
the insurance policy is not refundable for any reason including payment, or
provision being made for payment, prior to the maturity of the notes.
POOL FACTOR
The pool factor is a seven-digit decimal which the master servicer will
compute monthly expressing the note principal balance of the notes as of each
payment date after giving effect to any payment of principal on that payment
date as a proportion of the original note principal balance. On the closing
date, the pool factor will be 1.0000000. See "Description of the Notes--Payments
on the Notes." After the closing date, the pool factor will decline to reflect
reductions in the related note principal balance resulting from payments of
principal to the notes.
Pursuant to the sale and servicing agreement, monthly reports
concerning the Invested Amount, the pool factor and various other items of
information will be made available to the noteholders. In addition, within 60
days after the end of each calendar year, beginning with the 199__ calendar
year, information for tax reporting purposes will be made available to each
person who has been a Noteholder of record at any time during the preceding
calendar year. See "Description of the Notes--Book-Entry Notes" and "--Reports
to Noteholders" in this prospectus supplement.
MATURITY AND PREPAYMENT CONSIDERATIONS
The agreements, except as otherwise described in this prospectus
supplement, provides that the noteholders will be entitled to receive on each
payment date payments of principal, in the amounts described in this prospectus
supplement under the heading "Description of the Notes," until the note
principal balance is reduced to zero. During the managed amortization period,
noteholders will receive amounts from Principal Collections based upon the
Investor Fixed Allocation Percentage subject to reduction as described in this
prospectus supplement. During the rapid amortization period, noteholders will
receive amounts from Principal Collections based solely upon the Investor Fixed
Allocation Percentage. Because prior payments of Investor Principal Collections
to noteholders reduce the Investor Floating Allocation Percentage but do not
change the Fixed Allocation Percentage, allocations of Principal Collections
based on the Fixed Allocation Percentage may result in payments of principal to
the noteholders in amounts that are, in most cases, greater relative to the
declining balance of the mortgage loans than would be the case if the Investor
Floating Allocation Percentage were used to determine the percentage of
Principal Collections distributed to noteholders. This is especially true during
the rapid amortization period when the noteholders are entitled to receive
Investor Principal Collections and not a lesser amount. In addition, to the
extent of losses allocable to the noteholders, noteholders may also receive as
payment of principal the Investor Floating Allocation Percentage of the amount
of those losses either from the spread account or draws under the insurance
policy. The level of losses may therefore affect the rate of payment of
principal on the notes.
To the extent obligors make more draws than principal payments, the
transferor interest may grow. Because during the rapid amortization period the
noteholders' share of Principal Collections is based upon the Investor Fixed
Allocation Percentage without reduction, an increase in the transferor interest
due to additional draws may also result in noteholders receiving principal at a
greater rate than would otherwise occur if the Investor Floating Allocation
Percentage were used to determine the percentage of Principal Collections
distributed to noteholders. The sale and servicing agreement permits the
transferor, at its option, but subject to the satisfaction of the conditions
specified in the sale and servicing agreement, including the following
conditions, to remove mortgage loans from the trust at any time during the life
of the trust, so long as the transferor interest after giving effect to that
removal is not less than the minimum transferor interest. The removals may
affect the rate at which principal is distributed to noteholders by reducing the
overall pool balance and thus the amount of Principal Collections. See
"Description of the Notes--Optional Retransfers of Mortgage Loans to the
Transferor."
The prepayment experience with respect to the mortgage loans will
affect the weighted average life of the notes.
The rate of prepayment on the mortgage loans cannot be predicted. The
depositor is not aware of any publicly available studies or statistics that
accurately predict or forecast the rate of prepayment of mortgage loans such as
the mortgage loans. Generally, home equity loans are not viewed by borrowers as
permanent financing. Accordingly, the mortgage loans may experience a higher
rate of prepayment than traditional first mortgage loans. Because the revolving
credit-line loans generally do not amortize during the Draw Period, rates of
principal payment on the mortgage loans will generally be slower than those of
traditional fully-amortizing first mortgages in the absence of prepayments on
those mortgage loans. The prepayment experience of the trust with respect to the
mortgage loans may be affected by a wide variety of factors, including general
economic conditions, prevailing interest rate levels, the availability of
alternative financing, homeowner mobility, the frequency and amount of any
future draws on the credit line agreements and changes affecting the
deductibility for Federal income tax purposes of interest payments on home
equity loans. Substantially all of the mortgage loans contain "due-on-sale"
provisions, and the master servicer intends to enforce those provisions, unless
that enforcement is not permitted by applicable law. The enforcement of a
"due-on-sale" provision will have the same effect as a prepayment of the related
mortgage loan. See "Legal Aspects of Loans--Due-on-Sale Clauses" in the
prospectus.
As with fixed rate obligations generally, the rate of prepayment on a
pool of mortgage loans with fixed rates such as the closed-end loans with fixed
loan rates is affected by prevailing market rates for mortgage loans of a
comparable term and risk level. When the market interest rate is below the
interest rate on a mortgage loan, mortgagors may have an increased incentive to
refinance their mortgage loans. Depending on prevailing mortgage rates, the
future outlook for market rates and economic conditions generally, some
mortgagors may sell or refinance mortgaged properties in order to realize their
equity in the mortgaged properties, to meet cash flow needs or to make other
investments.
The yield to an investor who purchases the notes in the secondary
market at a price other than par will vary from the anticipated yield if the
rate of prepayment on the mortgage loans is actually different than the rate
anticipated by that investor at the time the notes were purchased.
Collections on the mortgage loans may vary because, among other things,
borrowers may make payments during any month as low as the minimum monthly
payment for that month which, in the case of the revolving credit-line loans may
be zero, or as high as the entire outstanding principal balance plus accrued
interest and the fees and charges on the revolving credit-line loans. It is
possible that borrowers may fail to make scheduled payments. Collections on the
mortgage loans may vary due to seasonal purchasing and payment habits of
borrowers.
No assurance can be given as to the level of prepayments that will be
experienced by the trust but it can be expected that a portion of borrowers will
not prepay their mortgage loans to any significant degree. See "Description of
the Securities--Weighted Average Life of the Certificates" in the prospectus.
DESCRIPTION OF THE AGREEMENTS
The following summary describes the material terms of the sale and
servicing agreement, the trust agreement and the indenture. This summary does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, the respective provisions of the sale and servicing agreement, the
trust agreement and the indenture. Whenever particular defined terms in the
indenture are referred to, the defined terms are incorporated into this
prospectus supplement by reference. See "The Agreements" in the prospectus.
REPORTS TO NOTEHOLDERS
Concurrently with each payment to the noteholders, the master servicer
will forward to the indenture trustee for mailing to the noteholder and the
insurer a statement setting forth among other items:
(1) the Investor Floating Allocation Percentage for the preceding
collection period;
(2) the amount being distributed to noteholders;
(3) the amount of interest included in the payment and the related
note rate;
(4) the amount, if any, of overdue accrued interest included in the
payment;
(5) the amount, if any, of the remaining overdue accrued interest
after giving effect to the payment;
(6) the amount, if any, of principal included in the payment;
(7) the amount, if any, of the reimbursement of previous Liquidation
Loss Amounts included in the payment;
(8) the amount, if any, of the aggregate unreimbursed Liquidation Loss
Amounts after giving effect to the payment;
(9) the servicing fee for the payment date;
(10) the Invested Amount and the note principal balance, each after
giving effect to the payment;
(11) the pool balance as of the end of the preceding collection period;
(12) the number and aggregate principal balances of the mortgage loans
as to which the minimum monthly payment is delinquent to 30-59
days, 60-89 days and 90 or more days, respectively, as of the end
of the collection period;
(13) the book value of any real estate which is acquired by the trust
through foreclosure or grant of deed in lieu of foreclosure; and
(14) the amount of any draws on the insurance policy.
In the case of information furnished pursuant to clauses (2), (3) in
respect of the amount of interest included in the payment, (4) and (8) above,
the amounts shall be expressed as a dollar amount per note with a $1,000
denomination.
Each year commencing in , the master servicer will be required to
forward to the indenture trustee a statement containing the information set
forth in clauses (3) and (6) above aggregated for that calendar year.
COLLECTION AND OTHER SERVICING PROCEDURES ON MORTGAGE LOANS
The master servicer will make reasonable efforts to collect all
payments called for under the mortgage loans and will, consistent with the sale
and servicing agreement, follow those collection procedures it follows from time
to time with respect to the home equity loans in its servicing portfolio
comparable to the mortgage loans. Consistent with the above, the master servicer
may in its discretion waive any late payment charge or any assumption or other
fee or charge that may be collected in the ordinary course of servicing the
mortgage loans.
With respect to the mortgage loans, the master servicer may arrange
with a borrower a schedule for the payment of interest due and unpaid for a
period, provided that the arrangement is consistent with the master servicer's
policies with respect to the home equity mortgage loans it owns or services. In
accordance with the terms of the sale and servicing agreement, the master
servicer may consent under limited circumstances to the placing of a subsequent
senior lien in respect of a Mortgage Loan.
HAZARD INSURANCE
The master servicer will cause to be maintained for each mortgage loan
fire and hazard insurance with extended coverage customary in the area where the
mortgaged property is located in an amount which is at least equal to the lesser
of (1) the outstanding principal balance on the mortgage loan and any related
senior lien(s); and (2) the maximum insurable value of the improvements securing
the mortgage loan. Generally, if the mortgaged property is in an area identified
in the Federal Register by FEMA as FLOOD ZONE "A", flood insurance has been made
available and the master servicer determines that the insurance is necessary in
accordance with accepted mortgage servicing practices of prudent lending
institutions, the master servicer will cause to be purchased a flood insurance
policy with a generally acceptable insurance carrier, in an amount representing
coverage not less than the lesser of (a) the outstanding principal balance of
the mortgage loan and any related senior lien(s), if any, or (b) the maximum
amount of insurance available under the National Flood Insurance Act of 1968, as
amended. Any amounts collected by the master servicer under those policies,
other than amounts to be applied to the restoration or repair of the mortgaged
property, or to be released to the borrower in accordance with customary
mortgage servicing procedures, will be deposited in the collection account,
subject to retention by the master servicer to the extent those amounts
constitute servicing compensation or to withdrawal pursuant to the sale and
servicing agreement.
In the event that the master servicer obtains and maintains a blanket
policy as provided in the sale and servicing agreement insuring against fire and
hazards of extended coverage on all of the mortgage loans then, to the extent
that policy names the master servicer or its designee as loss payee and provides
coverage in an amount equal to the aggregate unpaid principal balance of the
mortgage loans without coinsurance, and otherwise complies with the requirements
of the first paragraph of this subsection, the master servicer will be deemed
conclusively to have satisfied its obligations with respect to fire and hazard
insurance coverage.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
The master servicer will foreclose upon or otherwise comparably convert
to ownership mortgaged properties securing those mortgage loans that come into
default when, in accordance with applicable servicing procedures under the sale
and servicing agreement, no satisfactory arrangements can be made for the
collection of delinquent payments. In connection with foreclosure or other
conversion, the master servicer will follow those practices it deems necessary
or advisable and that are in keeping with its general subordinate mortgage
servicing activities. The master servicer will not be required to expend its own
funds in connection with foreclosure or other conversion, correction of default
on a related senior mortgage loan or restoration of any property unless, in its
sole judgment, that foreclosure, correction or restoration will increase net
liquidation proceeds. The master servicer will be reimbursed out of liquidation
proceeds for advances of its own funds as liquidation expenses before any net
liquidation proceeds are distributed to noteholders or the transferor.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
With respect to each collection period, the master servicer will
receive from interest collections in respect of the mortgage loans a portion of
that interest collections as a monthly servicing fee in the amount equal to %
per annum on the aggregate principal balances of the mortgage loans as of the
first day of the related collection period or as of the cut-off date for the
first collection period. All assumption fees, late payment charges and other
fees and charges, to the extent collected from borrowers, will be retained by
the master servicer as additional servicing compensation.
The master servicer will pay ongoing expenses associated with the trust
and incurred by it in connection with its responsibilities under the sale and
servicing agreement. In addition, the master servicer will be entitled to
reimbursement for expenses incurred by it in connection with defaulted mortgage
loans and in connection with the restoration of mortgaged properties, the right
of reimbursement being prior to the rights of noteholders to receive any related
net liquidation proceeds.
EVIDENCE AS TO COMPLIANCE
The sale and servicing agreement provides for delivery on or before May
31 in each year, beginning on May 31, , to the indenture trustee, the rating
agencies and the Insurer of an annual statement signed by an officer of the
master servicer to the effect that the master servicer has fulfilled its
material obligations under the sale and servicing agreement throughout the
preceding fiscal year, except as specified in that statement.
MATTERS REGARDING THE MASTER SERVICER AND THE TRANSFEROR
The sale and servicing agreement provides that the master servicer may
not resign from its obligations and duties thereunder, except in connection with
a permitted transfer of servicing, unless (1) those duties and obligations are
no longer permissible under applicable law or are in material conflict by reason
of applicable law with any other activities of a type and nature presently
carried on by it or its subsidiaries or affiliates or (2) upon the satisfaction
of the following conditions: (a) the master servicer has proposed a successor
master servicer to the indenture trustee and the insurer in writing and such
proposed successor master servicer is reasonably acceptable to the indenture
trustee; (b) the rating agencies have confirmed to the indenture trustee and the
insurer that the appointment of the proposed successor master servicer as the
master servicer will not result in the reduction or withdrawal of the then
current rating of the notes; and (c) the proposed successor master servicer is
acceptable to the insurer. No resignation will become effective until the
indenture trustee or a successor master servicer has assumed the master
servicer's obligations and duties under the sale and servicing agreement.
The master servicer may perform any of its duties and obligations under
the sale and servicing agreement through one or more subservicers or delegates,
which may be affiliates of the master servicer. Notwithstanding any arrangement
with subservicers, the master servicer will remain liable and obligated to the
indenture trustee, the owner trustee, the noteholders and the insurer for the
master servicer's duties and obligations under the sale and servicing agreement,
without any diminution of such duties and obligations and as if the master
servicer itself were performing such duties and obligations.
Any person into which, in accordance with the sale and servicing
agreement, the transferor or the master servicer may be merged or consolidated
or any person resulting from any merger or consolidation to which the transferor
or the master servicer is a party, or any person succeeding to the business of
the transferor or the master servicer, will be the successor to the master
servicer under the sale and servicing agreement.
The sale and servicing agreement provides that the master servicer will
indemnify the trust, the indenture trustee and the owner trustee from and
against any loss, liability, expense, damage or injury suffered or sustained as
a result of the master servicer's actions or omissions in connection with the
servicing and administration of the mortgage loans which are not in accordance
with the provisions of the sale and servicing agreement. In the event of an
event of servicing termination resulting in the assumption of servicing
obligations by a successor master servicer, the successor master servicer will
indemnify the transferor for any losses, claims, damages and liabilities of the
transferor as described in this paragraph arising from the successor master
servicer's actions or omissions. The sale and servicing agreement provides that
neither the transferor nor the master servicer nor their directors, officers,
employees or agents will be under any other liability to the trust, the
indenture trustee, the owner trustee, the noteholders or any other person for
any action taken or for refraining from taking any action pursuant to the sale
and servicing agreement. However, neither the transferor nor the master servicer
will be protected against any liability which would otherwise be imposed by
reason of willful misconduct, bad faith or gross negligence of the transferor or
the master servicer in the performance of its duties under the sale and
servicing agreement or by reason of reckless disregard of its obligations
thereunder. In addition, the sale and servicing agreement provides that the
master servicer will not be under any obligation to appear in, prosecute or
defend any legal action which is not incidental to its servicing
responsibilities under the sale and servicing agreement and which in its opinion
may expose it to any expense or liability. The master servicer may, in its sole
discretion, undertake any such legal action which it may deem necessary or
desirable with respect to the sale and servicing agreement and the rights and
duties of the parties to the sale and servicing agreement and the interest of
the noteholders and the insurer thereunder.
EVENTS OF SERVICING TERMINATION
Events of servicing termination will consist of:
(1) any failure by the master servicer to deposit in the
collection account any deposit required to be made under the
sale and servicing agreement;
(2) any failure by the master servicer duly to observe or perform
in any material respect any other of its covenants or
agreements in the sale and servicing agreement which, in each
case, materially and adversely affects the interests of the
noteholders or the insurer and continues unremedied for 30
days after the giving of written notice of the failure to the
master servicer by the indenture trustee, or to the master
servicer and the indenture trustee by the insurer or
noteholders evidencing percentage interests aggregating not
less than 25%;
(3) events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings relating to the
master servicer and actions by the master servicer indicating
insolvency, reorganization or inability to pay its
obligations; or
(4) loss or delinquency tests set forth in the sale and servicing
agreement are not met. Under other circumstances, the
indenture trustee shall, at the direction of the Insurer, or
may, with the consent of the insurer, or the holders of notes
evidencing an aggregate, undivided interest in the trust of at
least 51% of the note principal balance may with the consent
of the insurer so long as there is no default by the insurer
in the performance of its obligations under the insurance
policy deliver written notice to the master servicer
terminating all the rights and obligations of the master
servicer under the sale and servicing agreement.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (1) or (2) above for a period of ten or 30 business
days, respectively, shall not constitute an event of servicing termination if
such delay or failure could not be prevented by the exercise of reasonable
diligence by the master servicer and such delay or failure was caused by an act
of God, or other similar occurrence. Upon the occurrence of any such event the
master servicer shall not be relieved from using its best efforts to perform its
obligations in a timely manner in accordance with the terms of the sale and
servicing agreement and the master servicer shall provide the indenture trustee
and the noteholders prompt notice of such failure or delay by it, together with
a description of its efforts to so perform its obligations.
RIGHTS UPON AN EVENT OF SERVICING TERMINATION
So long as an event of servicing termination remains unremedied, either
the indenture trustee shall at the direction of the Insurer or may, with the
consent of the insurer, or noteholders evidencing an aggregate, undivided
interest in the trust of at least 51% of the Note principal balance with the
consent of the Insurer, may terminate all of the rights and obligations of the
master servicer under the sale and servicing agreement and in and to the
mortgage loans, whereupon the indenture trustee will succeed to all the
responsibilities, duties and liabilities of the master servicer under the sale
and servicing agreement and will be entitled to similar compensation
arrangements. In the event that the indenture trustee would be obligated to
succeed the master servicer but is unwilling or unable so to act, it may
appoint, or petition a court of competent jurisdiction for the appointment of, a
housing and home finance institution or other mortgage loan or home equity loan
master servicer with all licenses and permits required to perform its
obligations under the sale and servicing agreement and having a net worth of at
least $15,000,000 and acceptable to the insurer to act as successor to the
master servicer under the sale and servicing agreement. Pending that
appointment, the indenture trustee will be obligated to act in that capacity
unless prohibited by law. The successor will be entitled to receive the same
compensation that the master servicer would otherwise have received. A receiver
or conservator for the master servicer may be empowered to prevent the
termination and replacement of the master servicer where the only event of
servicing termination that has occurred is an insolvency event.
EVENTS OF DEFAULT UNDER THE INDENTURE
Events of default under the indenture include:
(1) default in the payment of any interest or principal
payment when the same becomes due and payable and continuance of that
default for a period of five days;
(2) failure on the part of the trust to perform in any
material respect any covenant or agreement under the indenture, other
than a covenant covered in clause (i) hereof, which continues for a
period of thirty days after notice thereof is given; and
(3) events of bankruptcy, insolvency, receivership or
liquidation of the trust.
REMEDIES ON EVENT OF DEFAULT UNDER THE INDENTURE
If an event of default under the indenture has occurred and is
continuing, either the indenture trustee or the majority of the then outstanding
amount of the notes may declare the principal amount of the notes due and
payable immediately. That a declaration may be rescinded by a majority of the
then outstanding amount of the notes.
If the principal of the notes has been declared due and payable as
described in the preceding paragraph, the indenture trustee may elect not to
liquidate the assets of the trust provided that the assets are generating
sufficient cash to pay interest and principal as it becomes due and payable to
the noteholders.
However, the indenture trustee may not sell or otherwise liquidate the
assets of the trust following an event of default, other than one described in
clause (1) above, unless (a) the holders of 100% of the notes and the insurer
consents to the sale, or (b) the proceeds of the sale or liquidation are
sufficient to pay all amounts due and owing to the noteholders and the insurer,
or (c) the indenture trustee determines that the assets of the trust would not
be sufficient on an ongoing basis to make all payments on the notes as they
become due and payable and the indenture trustee obtains the consent of the
holders of 66-2/3% of the percentage interests of the notes.
MATTERS REGARDING THE INDENTURE TRUSTEE AND THE OWNER TRUSTEE
Neither the indenture trustee nor any director, officer or employee of
the indenture trustee will be under any liability to the trust of the
noteholders for taking any action or for refraining from the taking of any
action in good faith pursuant to the indenture, or for errors in judgment;
provided, that none of the indenture trustee or any director, officer or
employee thereof will be protected against any liability that would otherwise be
imposed on it by reason of willful malfeasance, bad faith or negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties under the indenture. Subject to the limitations set forth
in the indenture, the indenture trustee and any director, officer, employee or
agent thereof will be indemnified by the trust and held harmless against any
loss, liability or expense incurred in connection with investigating, preparing
to defend or defending any legal action, commenced or threatened, relating to
the indenture, other than any loss, liability or expense incurred by reason of
its own willful malfeasance, bad faith or negligence in the performance of its
duties under the indenture, or by reason of its reckless disregard of its
obligations and duties under the indenture. All persons into which the indenture
trustee may be merged or with which it may be consolidated, or any person
resulting from such merger or consolidation, will be the successor to the
indenture trustee under the indenture.
The owner trustee, the indenture trustee and any of their respective
affiliates may hold notes in their own names or as pledgees. For the purpose of
meeting the legal requirements of some jurisdictions, the master servicer, the
owner trustee and the indenture trustee acting jointly, or in some instances,
the owner trustee or the indenture trustee acting alone, will have the power to
appoint co-trustees or separate trustees of all or any part of the trust. In the
event of an appointment, all rights, powers, duties and obligations conferred or
imposed upon the owner trustee by the sale and servicing agreement and the trust
agreement and the indenture trustee by the indenture will be conferred or
imposed upon the owner trustee and the indenture trustee, respectively, and in
those cases the separate trustee or co-trustee jointly, or, in any jurisdiction
in which the owner trustee or indenture trustee will be incompetent or
unqualified to perform particular acts, singly upon the separate trustee or
co-trustee who will exercise and perform the rights, powers, duties and
obligations solely at the direction of the owner trustee or the indenture
trustee, respectively.
The indenture trustee may resign at any time, in which event the owner
trustee will be obligated to appoint a successor. The owner trustee may resign
at any time, in which event the co-owner trustee will be obligated to appoint a
successor. The master servicer may also remove the owner trustee or the
indenture trustee if either ceases to be eligible under the trust agreement or
the indenture, as the case may be, or becomes legally unable to act or becomes
insolvent. Any resignation or removal of the owner trustee or indenture trustee
and appointment of a successor to the owner trustee or the indenture trustee
will not become effective until acceptance of the appointment by a successor.
DUTIES OF THE OWNER TRUSTEE AND INDENTURE TRUSTEE
The owner trustee will make no representations as to the validity or
sufficiency of the trust agreement, the notes, other than the execution and
authentication thereof, or of any mortgage loans or related documents, and will
not be accountable for the use or application by the transferor or the master
servicer of any funds paid to the transferor or the master servicer in respect
of the notes, or the mortgage loans, or the investment of any monies by the
master servicer before such monies are deposited into the collection account or
the distribution account. So long as no event of default under the Indenture has
occurred and is continuing, the owner trustee will be required to perform only
those duties specifically required of it under the trust agreement. Generally,
those duties will be limited to the receipt of the various certificates, reports
or other instruments required to be furnished to the owner trustee under the
trust agreement, in which case it will only be required to examine them to
determine whether they conform to the requirements of the trust agreement. The
owner trustee will not be charged with knowledge of a failure by the master
servicer to perform its duties under the trust agreement or sale and servicing
agreement which failure constitutes an event of default under the Indenture
unless the owner trustee obtains actual knowledge of such failure as will be
specified in the trust agreement.
The indenture trustee will make no representations as to the validity
or sufficiency of the indenture, the notes, other than the execution and
authentication thereof, or of any mortgage loans or related documents, and will
not be accountable for the use or application by the transferor or the master
servicer of any funds paid to the transferor or the master servicer in respect
of the notes or the mortgage loans, or the use or investment of any monies by
the master servicer before such monies are deposited into the collection account
or the distribution account. So long as no event of default under the Indenture
has occurred and is continuing, the indenture trustee will be required to
perform only those duties specifically required of it under the indenture.
Generally, those duties will be limited to the receipt of the various
certificates, reports or other instruments required to be furnished to the
indenture trustee under the indenture, in which case it will only be required to
examine them to determine whether they conform to the requirements of the
indenture. The indenture trustee will not be charged with knowledge of a failure
by the master servicer to perform its duties under the trust agreement or sale
and servicing agreement which failure constitutes an event of default under the
Indenture unless the indenture trustee obtains actual knowledge of such failure
as will be specified in the indenture.
The indenture trustee will be under no obligation to exercise any of
the rights or powers vested in it by the indenture or to make any investigation
of matters arising thereunder or to institute, conduct or defend any litigation
thereunder or in relation to its rights or powers at the request, order or
direction of any of the noteholders, unless such noteholders have offered to the
indenture trustee reasonable security or indemnity against the costs, expenses
and liabilities that may be incurred by the indenture trustee in the exercise of
its rights or powers.
AMENDMENT
Each of the agreements may be amended from time to time by the master
servicer and the indenture trustee and with the consent of the insurer, but
without the consent of the noteholders, to cure any ambiguity, to correct or
supplement any provisions in an agreement which may be inconsistent with any
other provisions of that agreement, to add to the duties of the transferor or
the master servicer or to add or amend any provisions of that agreement as
required by the rating agencies in order to maintain or improve any rating of
the notes, it being understood that, after obtaining the ratings in effect on
the closing date, neither the indenture trustee nor the master servicer is
obligated to obtain, maintain, or improve any such rating, or to add any other
provisions with respect to matters or questions arising under that agreement
which shall not be inconsistent with the provisions of that agreement, provided
that such action will not, as evidenced by an opinion of counsel, materially and
adversely affect the interests of any noteholder or the insurer; provided, that
any amendment will not be deemed to materially and adversely affect the
noteholders and no opinion will be required to be delivered if the person
requesting the amendment obtains a letter from the rating agencies stating that
the amendment would not result in a downgrading of the then current rating of
the notes. Each of the agreements may also be amended from time to time by the
master servicer and the indenture trustee, with the consent of noteholders
evidencing an aggregate, undivided interest in the trust of at least 51% of the
note principal balance and the insurer for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of the sale
and servicing agreement or of modifying in any manner the rights of the
noteholders, provided that no amendment will (1) reduce in any manner the amount
of, or delay the timing of, collections of payments on the notes or payments
under the insurance policy which are required to be made on any note without the
consent of the holder of that note and the insurer or (2) reduce the aforesaid
percentage required to consent to any amendment, without the consent of the
holders of all notes then outstanding.
TERMINATION; RETIREMENT OF THE NOTES
The trust will terminate on the payment date following the later of (A)
payment in full of all amounts owing to the insurer and (B) the earliest of
(1) the payment date on which the note principal balance has been
reduced to zero,
(2) the final payment (or other liquidation) of the last mortgage
loan in the trust or the disposition of all property acquired
upon foreclosure or by deed in lieu of foreclosure of any
mortgage loan,
(3) the optional transfer to the transferor of the mortgage
loans, and
(4) the payment date in ___________.
The mortgage loans will be subject to optional transfer to the
transferor on any payment date after the note principal balance is reduced to an
amount less than __% of the original note principal balance and all amounts due
and owing to the insurer, including unreimbursed draws on the insurance policy,
together with interest on those draws, as provided under the insurance
agreement, have been paid. The transfer price will be equal to the sum of the
outstanding note principal balance and accrued and unpaid interest on that note
principal balance at the note rate through the day preceding the final payment
date. In no event, however, will the trust created by the trust agreement
continue for more than 21 years after the death of the individuals named in the
sale and servicing agreement. Written notice of termination of the sale and
servicing agreement will be given to each noteholder, and the final payment will
be made only upon surrender and cancellation of the notes at an office or agency
appointed by the indenture trustee which will be specified in the notice of
termination.
THE INDENTURE TRUSTEE
____________, a ___________________ with its principal place of
business in ____________, has been named indenture trustee pursuant to the sale
and servicing agreement.
The commercial bank or trust company serving as indenture trustee may
own notes and have normal banking relationships with the depositor, the master
servicer and the insurer and/or their affiliates.
The indenture trustee may resign at any time, in which event the
depositor will be obligated to appoint a successor indenture trustee, as
approved by the insurer. The depositor or the Insurer may also remove the
indenture trustee if the indenture trustee ceases to be eligible to continue as
such under the sale and servicing agreement or if the indenture trustee becomes
insolvent. Upon becoming aware of circumstances affecting the indenture
trustee's eligibility, the depositor will be obligated to appoint a successor
indenture trustee, as approved by the insurer. Any resignation or removal of the
indenture trustee and appointment of a successor indenture trustee will not
become effective until acceptance of the appointment by the successor indenture
trustee.
No holder of a note will have any right under the sale and servicing
agreement to institute any proceeding with respect to the sale and servicing
agreement unless the insurer has consented in writing to the institution of that
proceeding and the holder previously has given to the indenture trustee written
notice of default and unless noteholders evidencing an aggregate, undivided
interest in the trust of at least 51% of the note principal balance have made
written requests upon the indenture trustee to institute that proceeding in its
own name as indenture trustee thereunder and have offered to the indenture
trustee reasonable indemnity and the indenture trustee for 60 days has neglected
or refused to institute that proceeding. The indenture trustee will be under no
obligation to exercise any of the trusts or powers vested in it by the sale and
servicing agreement or to make any investigation of matters arising thereunder
or to institute, conduct or defend any litigation thereunder or in relation to
its trusts or powers at the request, order or direction of any of the
noteholders, unless those noteholders have offered to the indenture trustee
reasonable security or indemnity against the cost expenses and liabilities which
may be incurred by the indenture trustee.
ACTIVITIES OF THE TRUST
The trust will not:
(1) borrow money;
(2) make loans;
(3) invest in securities for the purpose of exercising control;
(4) underwrite securities;
(5) except as provided in the sale and servicing agreement, engage in
the purchase and sale or turnover of investments;
(6) offer securities in exchange for property (except notes for the
mortgage loans); or
(7) repurchase or otherwise reacquire its securities. See "--Evidence
as to Compliance" above for information regarding reports as to
the compliance by the master servicer with the terms of the sale
and servicing agreement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the notes will be
applied by the depositor to purchase the mortgage loans.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion, which summarizes the material U.S. federal
income tax aspects of the purchase, ownership and disposition of the notes, is
based on the provisions of the Internal Revenue Code of 1986, as amended, the
Treasury Regulations thereunder, and published rulings and court decisions in,
effect as of the date hereof, all of which are subject to change, possibly
retroactively. This discussion does not address every aspect of the U.S. federal
income tax laws which may be relevant to note owners in light of their personal
investment circumstances or to some types of note owners subject to special
treatment under the U.S. federal income tax laws - for example, banks and life
insurance companies. Accordingly, investors should consult their tax advisors
regarding U.S. federal, state, local, foreign and any other tax consequences to
them of investing in the notes.
CHARACTERIZATION OF THE NOTES AS INDEBTEDNESS
Based on the application of existing law to the terms of the
transaction as set forth in the agreements and assuming compliance with the
terms of the agreements as in effect on the date of issuance of the notes, Brown
& Wood LLP, special tax counsel to the trust and counsel to the underwriters, is
of the opinion that (1) the notes will be treated as debt instruments for
federal income tax purposes as of that date and (2) the trust will not be
characterized as an association, or publicly traded partnership, taxable as a
corporation or as a taxable mortgage pool within the meaning of Section 7701
(i). Accordingly, upon issuance, the notes will be treated as debt securities as
described in the prospectus. See "Federal Income Tax Considerations" in the
prospectus.
The transferor and the noteholders express in the sale and servicing
agreement their intent that, for applicable tax purposes, the notes will be
indebtedness secured by the mortgage loans. The transferor and the noteholders,
by accepting the notes, and each note owner by its acquisition of a beneficial
interest in a note, have agreed to treat the notes as indebtedness for U.S.
federal income tax purposes. However, because different criteria are used to
determine the non-tax accounting characterization of the transaction, the
transferor intends to treat this transaction as a sale of an interest in the
principal balances of the mortgage loans for financial accounting and regulatory
purposes.
In general, whether for U.S. federal income tax purposes a transaction
constitutes a sale of property or loan, the repayment of which is secured by
property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction rather than its form or the manner in
which it is labeled. While the IRS and the courts have set forth several factors
to be taken into account in determining whether the substance of a transaction
is a sale of property or a secured loan, the primary factor in making this
determination is whether the transferee has assumed the risk of loss or other
economic burdens relating to the property and has obtained the benefits of
ownership thereof. Tax counsel has analyzed and relied on several factors in
reaching its opinion that the weight of the benefits and burdens of ownership of
the mortgage loans has been retained by the transferor and has not been
transferred to the note owners.
In some instances, courts have held that a taxpayer is bound by the
particular form it has chosen for a transaction, even if the substance of the
transaction does not accord with its form. Tax counsel has advised that the
rationale of those cases will not apply to this transaction, because the form of
the transaction as reflected in the operative provisions, of the documents
either accords with the characterization of the notes as debt or otherwise makes
the rationale of those cases inapplicable to this situation.
TAXATION OF INTEREST INCOME OF NOTE OWNERS
Assuming that the note owners are holders of debt obligations for U.S.
federal income tax purposes, the notes generally will be taxable as debt
securities. See "Federal Income Tax Considerations" in the prospectus.
While it is not anticipated that the notes will be issued at a greater
than de minimis discount, under Treasury regulations it is possible that the
notes could nevertheless be deemed to have been issued with OID if the interest
were not treated as an unconditionally payable under the OID Regulations. If the
OID such regulations were to apply, all of the taxable income to be recognized
with respect to the notes would be includible in income of note owners as OID,
but would not be includible again when the interest is actually received. See
"Federal Income Tax Considerations--Taxation of Debt Securities; Interest and
Acquisition Discount" in the prospectus for a discussion of the application of
the OID rules if the notes are in fact issued at a greater than de minimis
discount or are treated as having been issued with OID under the OID
Regulations. For purposes of calculating OID, it is likely that the notes will
be treated as Pay-Through Securities.
POSSIBLE CLASSIFICATION OF THE NOTES AS A PARTNERSHIP OR ASSOCIATION TAXABLE AS
A CORPORATION
The opinion of tax counsel is not binding on the courts or the IRS, It
is possible that the IRS could assert that for purposes of the Code, the
transaction contemplated by this prospectus with respect to the notes
constitutes a sale of the mortgage loans (or an interest in a mortgage loan) to
the note owners and that the proper classification of the legal relationship
between the transferor and the note owners resulting from this transaction is
that of a partnership, including a publicly traded partnership, a publicly
traded partnership treated as a corporation, or an association taxable as a
corporation. Since tax counsel has advised that the notes will be treated as
indebtedness in the hands of the noteholders for U.S. federal income tax
purposes, the transferor will not attempt to comply with U.S. federal income tax
reporting requirements applicable to partnerships or corporations as such
requirements would apply if the notes were treated as indebtedness.
If it were determined that this transaction created an entity
classified as a corporation, including a publicly traded partnership taxable as
a corporation, the trust would be subject to U.S. federal income tax at
corporate income tax rates on the income it derives from the mortgage loans,
which would reduce the amounts available for payment to the note owners. Cash
payments to the note owners generally would be treated as dividends for tax
purposes to the extent of such corporation's earnings and profits. If the
transaction were treated as creating a partnership between the note owners and
the transferor, the partnership itself would not be subject to U.S. federal
income tax, unless it were to be characterized as a publicly traded partnership
taxable as a corporation; rather, the transferor and each note owner would be
taxed individually on their respective distributive shares of the partnership's
income, gain, loss, deductions and credits. The amount and timing of items of
income and deductions of the note owner could differ if the notes were held to
constitute partnership interests rather than indebtedness.
POSSIBLE CLASSIFICATION AS A TAXABLE MORTGAGE POOL
In relevant part, Section 7701 (i) of the Code provides that any entity
or a portion of an entity that is a "taxable mortgage pool" will be classified
as a taxable corporation and will not be permitted to file a consolidated U.S.
federal income tax return with another corporation. Subject to a grandfather
provision for existing entities, any entity (or a portion of any entity) will be
a taxable mortgage pool if (1) substantially all of its assets consist of debt
instruments, more than 50% of which are real estate mortgages (2) the entity is
the obligor under debt obligations with two or more maturities, and (3) under
the terms of the entity's debt obligations, or an underlying arrangement,
payments on the debt obligations bear a relationship to the debt instruments
held by the entity.
Assuming that all of the provisions of the agreements, as in effect on
the date of issuance, are complied with, tax counsel is of the opinion that the
arrangement created by the agreements will not be a taxable mortgage pool under
Section 7701 (i) of the Code because only one class of indebtedness, secured by
the mortgage loans is being issued.
The opinion of tax counsel is not binding on the IRS or the courts. If
the IRS were to contend successfully, or future regulations were to provide that
the arrangement created by the agreements is a taxable mortgage pool, that
arrangement would be subject to U.S. federal corporate income tax on its taxable
income generated by ownership of the mortgage loans. That tax might reduce
amounts available for payments to note owners. The amount of tax would depend
upon whether payments to note owners would be deductible as interest expense in
computing the taxable income of that arrangement as a taxable mortgage pool.
FOREIGN INVESTORS
In general, subject to exceptions, interest including OID, paid on a
note to a nonresident alien individual, foreign corporation or other non-United
States person is not subject to U.S. federal income tax, provided that such
interest is not effectively connected with a trade or business of the recipient
in the United States and the note owner provides the required foreign person
information certification. See "Federal Income Tax Considerations--Tax Treatment
of Foreign Investors" in the prospectus.
If the interests of the note owners were deemed to be partnership
interests, the partnership, if it were considered to be engaged in a U.S. trade
or business, would be required, on a quarterly basis, to pay withholding tax
equal to the product, for each foreign partner, of such foreign partner's
distributive share of "effectively connected" income of the partnership
multiplied by the highest rate of tax applicable to that foreign partner. In
addition, the foreign partner would be subject to branch profits tax. Each
non-foreign partner would be required to certify to the partnership that it is
not a foreign person. The tax withheld from each foreign partner would be
credited against the foreign partner's U.S. income tax liability.
If the trust were taxable as a corporation, payments to foreign
persons, to the extent treated as dividends, or if the trust were characterized
as a partnership that was not engaged in a trade or business, all interest
payments, would generally be subject to withholding at the rate of 30%, unless
that rate were reduced by an applicable tax treaty.
If, contrary to the opinion of tax counsel, the notes are
recharacterized as equity interests in a partnership, or in an association or
publicly traded partnership taxable as a corporation, any taxes required to be
so withheld will be treated for all purposes of the notes and the insurance
policy as having been paid to the related noteholder.
BACKUP WITHHOLDING
Note owners may be subject to backup withholding at the rate of 31%
with respect to interest paid on the notes if the note owners, upon issuance,
fail to supply the indenture trustee or his broker with his taxpayer
identification number, furnish an incorrect taxpayer identification number, fail
to report interest, dividends, or other "reportable payments", as defined in the
Code, property, or, under some circumstances, fail to provide the indenture
trustee or his broker with a certified statement, under penalty of perjury, that
he is not subject to backup withholding.
The indenture trustee will be required to report annually to the IRS,
and to each noteholder of record, the amount of interest paid, and OID accrued,
if any, on the notes and the amount of interest withheld for U.S. federal income
taxes, if any, for each calendar year, except as to exempt holders. Exempt
holders are generally, holders that are corporations, some tax-exempt
organizations or nonresident aliens who provide certification as to their status
as nonresidents. As long as the only noteholder of record is Cede, as nominee
for DTC, note owners and the IRS will receive tax and other information
including the amount of interest paid on the notes from participants and
indirect participants rather than from the indenture trustee. The indenture
trustee, however, will respond to requests for necessary information to enable
participants, indirect participants and other persons to complete their reports.
Each nonexempt note owner will be required to provide, under penalty of perjury,
a certificate on IRS Form W-9 containing his or her name, address, correct
federal taxpayer identification number and a statement that he or she is not
subject to backup withholding. Should a nonexempt note owner fail to provide the
required certification, the participants or indirect participants or the paying
agent will be required to withhold 31% of the interest and principal otherwise
payable to the holder, and remit the withheld amount to the IRS as a credit
against the holder's Federal income tax liability.
TAX-EXEMPT ENTITIES
A tax-exempt note owner would be subject to less favorite tax treatment
because an interest in a partnership would generate "unrelated business taxable
income" and thus subject the note owner to the "unrelated business, taxable
income" provisions of the Code.
STATE TAXES
The depositor makes no representations regarding the tax consequences
of purchase, ownership or disposition of the notes under the tax laws of any
state. Investors considering an investment in the notes should consult their own
tax advisors regarding such tax consequences.
All investors should consult their own tax advisors regarding the
Federal, state, local, foreign or any other income tax consequences of the
purchase, ownership and disposition of the notes.
ERISA CONSIDERATIONS
GENERAL
ERISA ("ERISA") and Section 4975 of the Code impose restrictions on
employee benefit plans subject to ERISA or plans or arrangements subject to
Section 4975 of the Code and on persons who are parties in interest or
disqualified persons with respect to those plans. Some employee benefit plans,
such as governmental plans and church plans, if no election has been made under
section 410(d) of the Code, are not subject to the restrictions of ERISA, and
assets of such plans may be invested in the notes without regard to the ERISA
considerations described under this heading, subject to other applicable Federal
and state law. However, any governmental or church plan which is qualified under
section 401(a) of the Code and exempt from taxation under section 501(a) of the
Code is subject to the prohibited transaction rules set forth in section 503 of
the Code. Any plan fiduciary which proposes to cause a plan to acquire any of
the notes should consult with its counsel with respect to the potential
consequences under ERISA and the Code, of the plan's acquisition and ownership
of the notes. See "ERISA Considerations" in the prospectus. Investments by plans
are also 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.
PROHIBITED TRANSACTIONS
GENERAL
Section 406 of ERISA prohibits parties in interest with respect to a
Plan from engaging in some transactions including loans involving a plan and its
assets unless a statutory regulatory, or administrative exemption applies to the
transaction. Section 4975 of the Code imposes excise taxes, or, in some cases, a
civil penalty may be assessed pursuant to section 502(i) of ERISA, on parties in
interest which engage in non-exempt prohibited transactions.
Depending on the relevant facts and circumstances, prohibited
transaction exemptions may apply to the purchase or holding of the notes--for
example, Prohibited Transaction Class Exemption ("PTE") 96-23, which exempts
transactions effected on behalf of a plan by an "in-house asset manager"; PTE
95-60, which exempts transactions between insurance company general accounts and
parties in interest; PTE 91-38, which exempts transactions between bank
collective investment funds and parties in interest; PTE 90-1, which exempts
transactions between insurance company pooled separate accounts and parties in
interest; or PTE 84-14, which exempts transactions effected on behalf of a plan
by a "qualified professional asset manager". There can be no assurance that any
of these exemptions will apply with respect to any plan's investment in the
notes, or that such an exemption, if it did apply, would apply to all prohibited
transactions that may occur in connection with such investment.
PLAN ASSET REGULATION
The DOL has issued final regulations concerning the definition of what
constitutes the assets of a plan for purposes of ERISA and the prohibited
transaction provisions of the Code. The plan asset regulation describes the
circumstances under which the assets of an entity in which a plan invests will
be considered to be "plan assets" such that any person who exercises control
over such assets would be subject to ERISA's fiduciary standards. Under the plan
asset regulation, generally, when a plan invests in another entity, the plan's
assets do not include, solely by reason of such investment, any of the
underlying assets of the entity. However, the plan asset regulation provides
that, if a plan acquires an "equity interest" in an entity that is neither a
"publicly-offered security" nor a security issued by an investment company
registered under the Investment Company Act of 1940, the assets of the entity
will be treated as assets of the plan investor unless exceptions apply. If the
notes were deemed to be equity interests and no statutory, regulatory or
administrative exemption applies, the trust could be considered to hold plan
assets by reason of a plan's investment in the notes. Those plan assets would
include an undivided interest in any assets held by the trust. In that event,
the master servicer and other persons, in providing services with respect to the
trust's assets, may be parties in interest with respect to those plans, subject
to the fiduciary responsibility provisions of Title I of ERISA, including the
prohibited transaction provisions of Section 406 of ERISA and Section 4975 of
the Code, with respect to transactions involving the trust's assets. Under the
plan asset regulation, the term "equity interest" is defined as any interest in
an entity other than an instrument that is treated as indebtedness under
"applicable local law" and which has no "substantial equity features." Although
the plan asset regulation is silent with respect to the question of which law
constitutes "applicable local law" for this purpose, the DOL Labor has stated
that these determinations should be made under the state law governing
interpretation of the instrument in question. In the preamble to the plan asset
regulation, the DOL declined to provide a precise definition of what features
are equity features or the circumstances under which such features would be
considered "substantial," noting that the question of whether a plan's interest
has substantial equity features is an inherently factual one, but that in making
a determination it would be appropriate to take into account whether the equity
features are such that a plan's investment would be a practical vehicle for the
indirect provision of investment management services. Based upon the terms of
the notes, the opinion of tax counsel that the notes will be classified as debt
instruments for Federal income tax purposes and the ratings which have been
assigned to the notes, the issuer expects that the notes will not constitute
"equity interests" for purposes of the plan asset regulation. However, if the
notes are deemed nevertheless to be equity interests in the trust and no
statutory, regulatory or administrative exception applies, the trust could be
considered to hold plan assets by reason of a plan's investment in the notes.
REVIEW BY PLAN FIDUCIARIES
Any plan fiduciary considering whether to purchase any notes on behalf
of a plan should consult with its counsel regarding the applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and the
Code to that investment. Among other things, before purchasing any notes, a
fiduciary of a plan should make its own determination as to whether the trust,
as obligor on the notes, is a party in interest with respect to the plan, the
availability of the relief provided in the plan asset regulations and the
availability of any other prohibited transaction exemptions. Purchasers should
analyze whether the decision may have an impact with respect to purchases of the
notes.
LEGAL INVESTMENT CONSIDERATIONS
Although, as a condition to their issuance, the notes will be rated in
the highest rating category of the Rating Agencies, the notes will not
constitute "mortgage related securities" for purposes of SMMEA, because not all
of the mortgages securing the mortgage loans are first mortgages. Accordingly,
many institutions with legal authority to invest in comparably rated securities
based on first mortgage loans may not be legally authorized to invest in the
notes, which because they evidence interests in a pool that includes junior
mortgage loans are not "mortgage related securities" under SMMEA. See "Legal
Investment" in the prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, dated _________ __, 199__, between the depositor and J.P. Morgan
Securities Inc., the depositor has agreed to sell to the underwriter, and the
underwriter has agreed to purchase from the depositor the notes offered by this
prospectus supplement.
In the underwriting agreement, the underwriter has agreed, subject to
the terms and conditions set forth in the underwriting agreement, to purchase
all the notes offered by this prospectus supplement if any of the notes are
purchased.
The depositor has been advised by the underwriter that they propose
initially to offer the notes to the public in Europe and the United States at
the underwriting price set forth in this prospectus supplement and to dealers at
that price, less a discount not in excess of ____% of the note denominations.
The underwriter may allow and such dealers may reallow a discount not in excess
of ___% of the note denominations to other dealers. After the initial public
offering, the public offering price, the concessions and the discounts may be
changed.
The depositor has been advised by the underwriter that they presently
intend to make a market in the notes offered by this prospectus supplement;
however, the underwriter is not obligated to do so, any market-making may be
discontinued at any time, and there can be no assurance that an active public
market for the notes will develop.
In connection with the offering, the underwriter may engage in
transactions that stabilize, maintain or otherwise affect the price of the
notes. Specifically, the underwriter may overallot the offering, creating a
syndicate short position. In addition, the underwriter may bid for, and
purchase, the notes in the open market to cover syndicate shorts or to stabilize
the price of the notes. Any of these activities may stabilize or maintain the
market price of the notes above independent market levels. The underwriter is
not required to engage in these activities, and if commenced, such activities
may be discontinued at any time.
The prospectus supplement and the attached prospectus may be used by
[_______] in connection with offers and sales related to market making
transactions in the notes. [_________] may act as principal or agent in those
transactions. Those transactions will be at prices related to prevailing market
prices at the time of sale. [________] is an affiliate of the master servicer.]
The underwriting agreement provides that the depositor will indemnify
the underwriter against particular civil liabilities, including liabilities
under the Securities Act of 1933, as amended.
LEGAL MATTERS
Legal matters with respect to the notes will be passed upon for the
depositor by Brown & Wood LLP, New York, New York and for the underwriters by
Brown & Wood LLP, New York, New York. Legal matters will be passed upon for the
insurer by _____________.
EXPERTS
The consolidated balance sheets of [Insurer] and its subsidiaries as of
December 31, 199__ and 199__ and the related consolidated statements of income,
changes in shareholder's equity, and cash flows for each of the three years in
the period ended December 31, 199__, incorporated by reference in this
prospectus supplement, have been incorporated into this prospectus supplement in
reliance on the report of _________________, independent accountants, given on
the authority of that firm as experts in accounting and auditing.
RATINGS
It is a condition to issuance that the notes be rated "____" by
__________ and _____ and "_____" by __________.
A securities rating addresses the likelihood of the receipt by
noteholders of payments on the mortgage loans. The rating takes into
consideration the characteristics of the mortgage loans and the structural,
legal and tax aspects associated with the notes. The ratings on the notes do
not, however, constitute statements regarding the likelihood or frequency of
prepayments on the mortgage loans or the possibility that noteholders might
realize a lower than anticipated yield.
The ratings assigned to the notes will depend primarily upon the
creditworthiness of the insurer. Any reduction in a rating assigned to the
claims-paying ability of the insurer below the ratings initially assigned to the
notes may result in a reduction of one or more of the ratings assigned to the
notes.
A securities rating is not a recommendation to buy, sell or hold
securities and may be revised or withdrawn at any time by the assigning rating
organization. Each securities rating should be evaluated independently of
similar ratings on different securities.
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the SEC is effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
Subject To Completion, Dated October 22, 1999
Prospectus supplement
To prospectus dated _____________
$___________ (approximate)
HOME EQUITY LOAN TRUST 199_
HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 199_
J.P. MORGAN ACCEPTANCE CORPORATION I
AS DEPOSITOR
_______________
as seller and master servicer
The certificates THE TRUST
represent
obligations of o will issue [6] classes of senior class A certificates
the trust only which are offered by this prospectus supplement
and do not
represent an o will make a REMIC election for federal income tax purposes
interest in or
obligation of THE CERTIFICATES
the depositor,
the trustee or o represent the entire beneficial interest in a trust,
any of their whose assets are a pool of closed-end fixed and
affiliates. adjustable rate mortgage loans consisting of two loan
groups
This prospectus
supplement o currently have no trading market
may be used to
offer and sell o are not guaranteed
the certificates
only if CREDIT ENHANCEMENT
accompanied by
the prospectus. o will be provided in the form of [overcollateralization]
and an irrevocable and unconditional certificate guaranty
insurance policy issued by [certificate insurer]
REVIEW THE INFORMATION IN "RISK FACTORS" ON PAGE S-10 AND ON PAGE 5 IN THE
PROSPECTUS.
J.P. Morgan Securities Inc., the underwriter, will buy the class A certificates
from J.P. Morgan Acceptance Corporation I at a price equal to ________ of their
face value. The underwriter will sell the class A certificates from time to time
in negotiated transactions. This prospectus supplement and the attached
prospectus may be used by [______], an affiliate of the master servicer, in
connection with offers and sales related to market making transactions in the
class A certificates. These transactions will be at prevailing market prices at
the time of sale. [ ] may act as principal or agent in these transactions.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
J.P. Morgan & Co.
___________, 199_
<PAGE>
This prospectus supplement does not contain complete information about
the offering of the offered certificates. Additional information is contained in
the prospectus, dated _______, 199_ and attached hereto. Purchasers are urged to
read both this prospectus supplement and the prospectus in full. Sales of the
offered certificates by this prospectus supplement may not be consummated unless
the purchaser has received both this prospectus supplement and the prospectus.
No dealer, salesman, or any other person has been authorized to give
any information or to make any representations other than those contained in
this prospectus supplement and the accompanying prospectus and if given or made,
that information or representations must not be relied upon as having been
authorized by the depositor or the underwriter. This prospectus supplement and
the accompanying prospectus shall not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered by this prospectus
supplement in any jurisdiction in which, or to any person to whom, it is
unlawful to make the offer or solicitation in that jurisdiction. The delivery of
this prospectus supplement and the accompanying prospectus at any time does not
imply that the information in this prospectus supplement or in the prospectus is
correct as of any time subsequent to the date of this prospectus supplement.
Until 90 days after the date of this prospectus supplement, all dealers
effecting transactions in the offered certificates, whether or not participating
in this distribution, may be required to deliver a prospectus supplement and the
prospectus to which it relates. This delivery requirement is in addition to the
obligation of dealers to deliver a prospectus supplement and prospectus when
acting as underwriter and with respect to their unsold allotments or
subscriptions.
<PAGE>
TABLE OF CONTENTS
Page
PROSPECTUS SUPPLEMENT
Summary............................................................. S-4
Risk Factors........................................................ S-10
The Certificate Insurer............................................. S-14
The Seller and the Master Servicer.................................. S-14
Description of the Mortgage Loans................................... S-15
Prepayment and Yield Considerations................................. S-35
Description of the Certificates..................................... S-41
Use of Proceeds..................................................... S-71
Federal Income Tax Consequences..................................... S-74
State Taxes......................................................... S-74
ERISA Considerations................................................ S-74
Legal Investment Considerations..................................... S-77
Underwriting........................................................ S-78
Experts............................................................. S-78
Legal Matters....................................................... S-78
Ratings............................................................. S-78
Annex I............................................................. S-80
PROSPECTUS
Risk Factors............................................................5
The Trust Fund..........................................................7
Use of Proceeds.........................................................25
The Depositor...........................................................25
Description of the Securities...........................................25
Credit Enhancement......................................................43
Yield and Prepayment Considerations.....................................50
The Agreements..........................................................52
Material Legal Aspects of the Loans.....................................68
Federal Income Tax Consequences.........................................84
State Tax Considerations................................................111
ERISA Considerations....................................................111
Legal Investment........................................................118
Method of Distribution..................................................119
Legal Matters...........................................................120
Financial Information...................................................120
Rating..................................................................120
Glossary................................................................122
<PAGE>
SUMMARY
This summary highlights selected information from this document and
does not contain all of the information that you need to consider in making your
investment decision. Please read this entire prospectus supplement and the
accompanying prospectus carefully for additional information about the class A
certificates.
HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 199_-_
- --------------------------------------------------------------------------------
INITIAL CLASS LAST SCHEDULED
CERTIFICATE PRINCIPAL DISTRIBUTION
CLASS RATE BALANCE (+/- 5%) DATE
- ----- ----------- ---------------- ---------------
Class A-1 % $ --
- --------------------------------------------------------------------------------
Class A-2 % $ --
- --------------------------------------------------------------------------------
Class A-3 % $ --
- --------------------------------------------------------------------------------
Class A-4 % $ --
- --------------------------------------------------------------------------------
Class A-5 % $ --
- --------------------------------------------------------------------------------
Class A-6 Variable $ --
- --------------------------------------------------------------------------------
Class R N/A $0 --
- --------------------------------------------------------------------------------
We expect the actual last distribution date for each class A
certificate to be significantly earlier than its last scheduled distribution
date in the table above.
The class R certificates are not being offered pursuant to this
registration statement.
<PAGE>
THE SELLER AND MASTER SERVICER
o _________________.
o _______________ maintains its principal office at _________________. Its
telephone number is (___) ________.
o The master servicer will receive from the interest payments on the
mortgage loans equal to __% per annum on the principal balance of each
mortgage loan as a servicing fee.
We refer you to "The Seller and the Master Servicer" in this prospectus
supplement for additional information.
THE DEPOSITOR
o J.P. Morgan Acceptance Corporation I.
o J.P. Morgan Acceptance Corporation I maintains its principal office at
60 Wall Street, New York, New York 10260. Its telephone number is (212)
648-7741.
We refer you to "The Depositor" in this prospectus supplement for
additional information.
TRUST FUND
o Home Equity Loan Trust 199_-_.
TRUSTEE
o [____________________________]
CERTIFICATE INSURER
o [__________________].
We refer you to "The Certificate Insurer" in this prospectus supplement for
additional information.
CERTIFICATE RATING
The trust fund will not issue the class A certificates unless they receive
at least the following ratings:
___ by _________________
___ by _________________
A rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal by either rating agency.
We refer you to "Ratings" and "Risk Factors--Rating of the Securities" in
the prospectus for additional information.
FEDERAL TAX CONSIDERATIONS
For federal income tax purposes:
o An election will be made to treat the trust fund as a REMIC
o The class A certificates will be "regular interests" in the REMIC and will
be treated as debt instruments of the REMIC
o The class R certificates will represent the beneficial ownership of the
sole class of "residual interest" in the REMIC.
We refer you to "Federal Income Tax Considerations" in this prospectus
supplement and in this prospectus for additional information.
ERISA CONSIDERATIONS
The fiduciary responsibility provisions of ERISA can limit investments by
pension and other employee benefit plans. For example, the acquisition of
particular certificates may be considered a "prohibited transaction" under
ERISA. Some exemptions from the prohibited transaction rules could be
applicable to the acquisition of the class A certificates. If you are a
fiduciary of a pension or other employee benefit plan which is subject to
ERISA, you should consult with your counsel regarding the applicability of
the provisions of ERISA and the tax code before purchasing a class A
certificate.
We refer you to "ERISA Considerations" in this prospectus supplement and
the prospectus for additional information.
LEGAL INVESTMENT CONSIDERATIONS
SMMEA defines "mortgage related securities" to include only first
mortgages, and not second mortgages. Because the pool of mortgage loans
owned by the trust fund includes second mortgage loans, the certificates
will not be "mortgage related securities" under that definition. Some
institutions may be limited in their legal investment authority to only
first mortgages or "mortgage related securities" and will be unable to
invest in the class A certificates.
We refer you to "Legal Investment" in this prospectus supplement and the
prospectus for additional information.
CUT-OFF DATE
o ____________, 199_.
CLOSING DATE
o ________________, 199_.
DISTRIBUTION DATE
o The 25th day of each month, or if that day is not a business day, the
next business day. The first distribution date is ___________ 199_.
DUE PERIOD
o The calendar month immediately preceding a determination date or a
distribution date, as applicable.
DESIGNATIONS
o Offered Certificates - The class A certificates.
o Non-Offered Certificates - The class R certificates.
o Regular Certificates - All classes of certificates other than the class R
certificates.
o Residual Certificates - The class R certificates.
o Class A Certificates - class A-1, class A-2, class A-3, class A-4, class
A-5 and class A-6 certificates.
o Fixed Rate or Group 1 Certificates - class A-1, class A-2, class A-3,
class A-4 and class A-5 certificates. These certificates will receive
their payments from loan group 1.
o Variable Rate or Group 2 Certificates - The class A-6 certificates. These
certificates will receive their payments from loan group 2.
o Loan Group 1 - Mortgage loans which bear interest at a fixed rate.
o Loan Group 2 - Mortgage loans which bear interest at an adjustable rate.
REGISTRATION OF CLASS A CERTIFICATES
Book-entry through DTC, Euroclear or Cedelbank.
We refer you to "Risk Factors--Effect on Liquidity and Payment Delay
Because of Owing Book-Entry Certificates", "Description of the
Certificates--Book-Entry Certificates" and "Annex I" in this prospectus
supplement for additional information.
TRUST FUND PROPERTY
The trust fund property is held by the trustee for the benefit of the
certificateholders. The trust fund property includes:
o a pool of closed-end fixed and adjustable rate mortgage loans, secured
by first and second deeds of trust or mortgages on one- to four-family
residential properties;
o payments on the mortgage loans received on and after the cut-off date;
o property that secured a mortgage loan which has been acquired by
foreclosure or deed in lieu of foreclosure;
o rights under the hazard insurance policies covering the mortgaged
properties; and
o amounts on deposit in the accounts described in this prospectus supplement.
THE MORTGAGE LOANS
On the closing date, the trust fund will acquire a pool of ______ fixed and
adjustable rate home equity loans, or "mortgage loans" with an aggregate
principal balance as of the cut-off date of $____________.
The mortgage loans will have the following characteristics as of the cut-off
date:
We refer you to "Description of the Mortgage Loans" in this prospectus
supplement for additional information.
MONTHLY ADVANCES
If the master servicer reasonably believes that cash advances can be
recovered from future payments or collections on the mortgage loans, the
master servicer will make cash advances to the trust fund to cover
delinquent mortgage loan payments. The master servicer will make advances
only to maintain a regular flow of scheduled interest and principal
payments on the certificates, not to guarantee or insure against losses.
We refer you to "Description of the Certificates--Monthly Advances" in this
prospectus supplement for additional information.
THE CERTIFICATES
1. General
o Each month the trustee will calculate the amount you are owed.
o If you hold a certificate on the last day of a calendar month, you
will be entitled to receive payments on the distribution date in the
next month.
We refer you to "Description of the Certificates" in this prospectus
supplement for additional information.
2. Interest Distributions
o Interest accrues on the group 1 certificates from the first day of a
calendar month through the last day of that calendar month.
o Interest accrues on the group 2 certificates from the distribution
date in the month prior to a distribution date through the day before
that distribution date.
On each distribution date, you will be entitled to the following:
o interest at the related certificate rate that accrued during the related
interest period; and
o any interest that was due on a prior distribution date and not paid.
In addition, interest will have accrued on the amount of interest which
was previously due and not paid.
We refer you to "Description of the Certificates--Interest" in this
prospectus supplement for additional information.
3. Principal Distributions
o Principal distributions are payable on each distribution date. The group 1
certificates will be paid sequentially--i.e., no class of group 1
certificates will receive a principal distribution until all classes with
a lower numerical class designation are paid in full.
o Shortfalls in available funds may result in a class receiving less
than what is due to that class.
We refer you to "Description of the Certificates--Principal" in this
prospectus supplement for additional information.
CREDIT ENHANCEMENTS
1. The Certificate Insurance Policy: The certificate insurance policy
guarantees the payment of:
o accrued and unpaid interest on the class A certificates;
o principal losses on the mortgage loans; and
o any principal amounts owed to the holder of the class A certificates on
the last scheduled distribution date.
We refer you to "The Certificate Insurer" in this prospectus supplement for
additional information.
2. Overcollateralization: On the closing date the aggregate principal balance
of the mortgage loans in each group will equal the aggregate principal
balance of the certificates in the related certificate group. The interest
payments on the mortgage loans in each loan group are expected to exceed the
amount of interest due and payable on the certificates in the related
certificate group. A portion of the excess interest will be applied as
principal payments to the most senior class A certificate in the related
certificate group that is outstanding on that distribution date. This
application will result in a limited acceleration of principal payments on
the certificates relative to the amortization of the related mortgage loans,
thus creating overcollateralization for the class A certificates. Once the
required level of overcollateralization is reached, the application of
excess interest payments will stop, until it is again needed to restore or
maintain the required level of overcollateralization.
The level of required overcollateralization will increase and decrease over
time. For example, an increase in the required level of
overcollateralization will result if the delinquency or default experience
on the mortgage loans exceeds set levels. In that event, amortization of
the class A certificates would be accelerated until the level of
overcollateralization reaches its required level.
We refer you to "Description of the Certificates--Overcollateralization" in
this prospectus supplement for additional information.
3. Crosscollateralization
The excess interest generated by one loan group may be used to fund
shortfalls on the certificates relating to the other loan group.
We refer you to "Description of the Certificates--Crosscollateralization"
in this prospectus supplement for additional information.
PRE-FUNDING ACCOUNT
On the closing date, the trustee shall deposit $______________ in the group
1 pre-funding account and $_____________ in the group 2 pre-funding
account. The trust will use the amounts on deposit in the pre-funding
accounts to acquire additional mortgage loans for the related loan group
from the seller. The trustee may only acquire additional mortgage loans
until _________________.
If any amounts are left in the pre-funding accounts on ___________________,
holders of the group 1 certificates will receive amounts left in the group
1 pre-funding account and holders of the group 2 certificates will receive
amounts left in the group 2 pre-funding account on the next distribution
date as payment of principal.
We refer you to "Description of the Certificates--Pre-Funding Account" in
this prospectus supplement for additional information.
CAPITALIZED INTEREST ACCOUNT
On the closing date, the trustee shall deposit $_______________ in the
group 1 capitalized interest account and $____________ in the group 2
capitalized interest account. The trust will use the amounts on deposit in
the capitalized interest accounts to cover interest shortfalls on the
related group of certificates expected to occur prior to the trust fund's
purchase of the additional mortgage loans.
Any amounts left in the capitalized interest account after _______________
will be paid to seller.
We refer you to "Description of the Certificates--Capitalized Interest
Account" in this prospectus supplement for additional information.
OPTIONAL TERMINATION
If the current total pool principal balance declines to or below __% of the
total pool principal balance as of the cut-off date, then the seller may
purchase all of the mortgage loans and the related properties in the trust
fund. If the seller purchases all of the mortgage loans, you will receive a
final distribution and the trust fund will be terminated.
We refer you to "Description of the Certificates--Termination; Purchase of
the Mortgage Loans" in this prospectus supplement for more detail.
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS PRIOR TO ANY
PURCHASE OF CERTIFICATES. YOU SHOULD ALSO CAREFULLY CONSIDER THE INFORMATION SET
FORTH UNDER "RISK FACTORS" IN THE PROSPECTUS.
EFFECT ON LIQUIDITY AND PAYMENT DELAY BECAUSE OF OWNING BOOK-ENTRY CERTIFICATES
o Limit on Liquidity of Certificates. Issuance of certificates in book-entry
form may reduce their liquidity in the secondary trading market since
investors may be unwilling to purchase certificates for which they cannot
obtain physical certificates.
o Limit on Ability to Transfer or Pledge. Since transactions in the
book-entry certificates can be effected only through DTC, participating
organizations, indirect participants and particular banks, your ability to
transfer or pledge a book-entry certificate to persons or entities that do
not participate in the DTC system or otherwise to take actions in respect
of those certificates, may be limited due to the lack of a physical
certificate representing the book-entry certificates.
o Delays in Distributions. You may experience some delay in the receipt of
distributions on the book-entry certificates since the distributions will
be forwarded by the trustee to DTC for DTC to credit the accounts of its
participants which will thereafter credit them to your account either
directly or indirectly through indirect participants, as applicable.
We refer you to "Description of the Certificates--Book-Entry
Certificates" in this prospectus supplement.
BALLOON LOAN RISK
Balloon loans pose a risk because a borrower must pay a large lump sum
payment of principal at the end of the loan term. If the borrower is unable to
pay the lump sum or refinance that amount and the certificate insurer fails to
perform its obligations under the policy, you will suffer a loss. Approximately
___% of the mortgage loans are balloon loans.
DELAY IN RECEIPT OF LIQUIDATION PROCEEDS; LIQUIDATION PROCEEDS MAY BE LESS THAN
MORTGAGE LOAN BALANCE
Substantial delays could be encountered in connection with the liquidation
of delinquent mortgage loans.
Liquidation expenses such as legal fees, real estate taxes and maintenance
and preservation expenses will reduce the portion of liquidation proceeds
payable to you. If a mortgaged property fails to provide adequate security
for the related mortgage loan, you will incur a loss on your investment if
the certificate insurer fails to perform its obligations under the policy.
We refer you to "Legal Aspects of Loans--Foreclosure" in the
prospectus.
PREPAYMENTS AFFECT TIMING AND RATE OF RETURN ON YOUR INVESTMENT
The yield to maturity on your certificates will be directly related to
the rate of principal payments on the mortgage loans. Please consider the
following:
Mortgagors may fully or partially prepay their mortgage loans at any
time. However, some mortgage loans require that the mortgagor pay a fee with any
prepayment. This fee may result in the rate of prepayments being slower than
would be the case if there were no fee.
All the mortgage loans contain due-on-sale provisions. Generally, the
master servicer will enforce the due-on-sale provision unless prohibited by
applicable law. Enforcement of due-on-sale clauses will result in a prepayment
of principal on the related mortgage loan.
The rate of principal payments on pools of mortgage loans is
influenced by a variety of factors, including general economic conditions,
interest rates, the availability of alternative financing and homeowner
mobility.
We cannot predict the rate at which borrowers will repay their
mortgage loans, nor are we aware of any publicly available studies or statistics
on the rate of prepayment of mortgage loans similar to the mortgage loans in the
pool.
We refer you to "Prepayment and Yield Considerations" in this
prospectus supplement.
CERTIFICATE RATING BASED PRIMARILY ON CLAIMS-PAYING ABILITY OF THE CERTIFICATE
INSURER
The rating on the certificates depends primarily on the claims paying
ability of the certificate insurer. Therefore, a reduction of the rating
assigned to the claims-paying ability of the certificate insurer may have a
corresponding reduction on the ratings assigned to the certificates. A reduction
in the rating assigned to the certificates would reduce the market value of the
certificates and may affect your ability to sell them. Generally, the rating on
your certificate addresses credit risk and does not address the likelihood of
prepayments.
We refer you to "Ratings" in this prospectus supplement.
LIEN PRIORITY COULD RESULT IN PAYMENT DELAY AND LOSS
Some of the mortgage loans are secured by mortgages which are junior in
priority. For mortgage loans in the trust fund secured by first mortgages, the
master servicer may consent under limited circumstances to a new first priority
lien regardless of the principal amount, which has the effect of making the
first mortgage a junior mortgage. Mortgage loans that are secured by junior
mortgages will receive proceeds from a sale of the related mortgaged property
only after any senior mortgage loans and prior statutory liens have been paid.
If the remaining proceeds are insufficient to satisfy the mortgage loan in the
trust fund and the certificate insurer fails to perform its obligations under
the policy, then:
o there will be a delay in distributions to you while a deficiency judgment
against the borrower is sought; and
o you may incur a loss if a deficiency judgment cannot be obtained.
DISTRIBUTIONS AND RIGHTS OF INVESTORS ADVERSELY AFFECTED BY INSOLVENCY OF SELLER
The sale of the mortgage loans from the seller to the depositor is
intended as a "true sale" of the mortgage loans for bankruptcy purposes. The
sale of the mortgage loans from the depositor to the trust fund will be treated
by the depositor and the trust fund as a sale of the mortgage loans. If the
seller were to become insolvent, a receiver or conservator for, or a creditor
of, the seller, may argue that the transaction between the seller and the
depositor is a pledge of mortgage loans as security for a borrowing rather than
a sale. The attempt to recharacterize the transfer, even if unsuccessful, could
result in delays in distributions to you.
INTEREST PAYMENTS ON THE MORTGAGE LOANS MAY BE REDUCED
Prepayments of Principal May Reduce Interest Payments. If a mortgagor
fully prepays a mortgage loan, the mortgagor is charged interest only up to the
date of the prepayment, instead of a full month. This may result in an interest
shortfall. The master servicer is obligated to pay that interest shortfall,
without any right of reimbursement, up to the amount of its servicing fee for
that month. If the servicing fee is insufficient to pay interest shortfalls
attributed to prepayments, they will be covered by the policy.
Some Interest Shortfalls Are Not Covered by the Master Servicer or the
Certificate Insurance Policy. The Soldiers' and Sailors' Civil Relief Act of
1940 permits modifications to the payment terms for mortgage loans, including a
reduction in the amount of interest paid by the borrower. Neither the master
servicer nor the certificate insurer will pay for any interest shortfalls
created by the Soldiers' and Sailors' Civil Relief Act of 1940. The holders of
the certificates will not be entitled to receive any shortfalls in interest
resulting from the application of the Soldiers' and Sailors' Civil Relief Act of
1940.
[POSSIBILITY OF LOSSES AS A RESULT OF GEOGRAPHIC CONCENTRATION
The mortgaged properties relating to the mortgage loans are located in
__ states and the District of Columbia. However, __% of the mortgaged properties
(by principal balance as of the cut-off date) are located in _______. If
____________ experiences in the future weaker economic conditions or greater
rates of decline in real estate values than the United States generally, then
the mortgage loans may experience higher rates of delinquencies and foreclosures
than would otherwise be the case. The higher rates of delinquencies and
foreclosures may result in delays in payment or losses to you.]
[POSSIBILITY OF PREPAYMENT DUE TO SUBSEQUENT MORTGAGE LOANS
The trust will buy additional mortgage loans from the seller until
_______. The seller will sell mortgage loans to the trust if it has mortgage
loans to sell. The ability of the seller to originate and acquire additional
mortgage loans is affected by a variety of factors, including interest rates,
unemployment levels, the rate of inflation and consumer perception of economic
conditions generally. If the full amount deposited in the pre-funding accounts
for the purpose of purchasing additional mortgage loans cannot be used for that
purpose within [_____] months from the closing date, any remaining amounts will
be paid to you as a prepayment on the certificates.]
[RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE
As is the case with most companies using computers in their operations,
the master servicer is faced with the task of preparing for year 2000. The year
2000 issue is the result of prior computer programs being written using two
digits, rather than four digits, to define the applicable year. Any of the
master servicer's computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. Major
computer system failure or miscalculations may occur as a result. The master
servicer is presently engaged in various procedures to ensure that their
computer systems and software will be year 2000 compliant.
However, if the master servicer or any of its suppliers, customers,
brokers or agents do not successfully and timely achieve year 2000 compliance,
the performance of obligations of the master servicer could be materially
adversely affected. This could result in delays in processing payments on the
mortgage loans and cause a related delay in distributions to you.]
<PAGE>
THE CERTIFICATE INSURER
The information set forth in this section have been provided by the
certificate insurer. No representation is made by the underwriter, the
depositor, the seller, the master servicer or any of their affiliates as to the
accuracy or completeness of that information.
[DESCRIPTION OF THE CERTIFICATE INSURER]
THE SELLER AND THE MASTER SERVICER
______________ ("__________"), as master servicer will be responsible
for servicing the mortgage loans for the trust fund in accordance with the terms
of the pooling and servicing agreement to be dated as of _____, 199_, among J.P.
Morgan Acceptance Corporation I, as depositor, _____________, as seller and
master servicer, and ________, as trustee. See "--Servicing and Collection
Procedures."
CREDIT AND UNDERWRITING GUIDELINES
The following is a description of the underwriting guidelines
customarily employed by the seller with respect to mortgage loans which it
purchases or originates. Each mortgage loan was underwritten according to these
guidelines.
[Description of Credit and Underwriting Guidelines]
SERVICING AND COLLECTION PROCEDURES
The following is a description of the servicing policies and procedures
customarily and currently employed by the master servicer with respect to the
portion of its mortgage loan portfolio which it services. The master servicer
intends to service the mortgage loans in accordance with these policies and
procedures and in accordance with the Agreement.
[Description of Servicing and Collection Procedures]
DELINQUENCY EXPERIENCE OF THE MASTER SERVICER'S PORTFOLIO OF HOME EQUITY LINES
OF CREDIT
The following table sets forth information relating to the delinquency
experience of mortgage loans similar to and including the mortgage loans for the
___ months ended _________, 199_, and the years ended December 31, 199_,
December 31, 199_, December 31, 199_, December 31, 199_ and December 31, 199_.
The delinquency percentage represents the number and principal balance of
mortgage loans with monthly payments which are contractually past due. Mortgage
loans for which the related borrower has declared bankruptcy are not included
unless or until those loans are delinquent pursuant to their repayment terms.
Dollar amounts are rounded to the nearest $1,000.
<PAGE>
<TABLE>
<CAPTION>
Year Ended Months Ended
--------------------------------------------------------------------------------------------- -----------------
December 31, 199_ December 31, 199_ December 31, 199_ December 31, 199_ December 31, 199_ 30, 199_
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Number of Dollar Number of Dollar Number of Dollar Number of Dollar Number of Dollar Number of Dollar
Loans Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans Amount
--------- ------ --------- ------ --------- ------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> 7<C> <C> <C> <C> <C>
Portfolio.... $ $ $ $ $ $
Delinquency
Percentage % % % % % % %
30-59 days..
60-89....... % % % % % % %
90 days or % % % % % % %
more(1)
TOTAL........ % % % % % % %
</TABLE>
The table above includes the principal balance of loans currently in
process of foreclosure and loans acquired through foreclosure or deed in lieu of
foreclosure.
CHARGE-OFF EXPERIENCE OF THE MASTER SERVICER'S PORTFOLIO OF HOME EQUITY LINES OF
CREDIT
The following table sets forth information relating to the loan
charge-off experience of mortgage loans similar to and including the mortgage
loans for the ____ months ended ____________, 199_, and the years ended December
31, 199_, December 31, 199_, December 31, 199_, December 31, 199_, and December
31, 199_. In the following table, "Average Portfolio Balance" during the period
is the arithmetic average of the principal balances of the mortgage loans
outstanding on the first and last days of each period. The Average Portfolio
Balance has been rounded to the nearest $1,000. "Charge-Offs" are amounts which
have been determined by the master servicer to be uncollectible relating to the
mortgage loans for each respective period and do not include any amount of
collections or recoveries received by the master servicer subsequent to
charge-off dates. The master servicer's policy regarding charge-offs provides
that mortgaged properties are reappraised when a mortgage loan has been
delinquent for 180 days and based upon those appraisals, a decision is then made
concerning the amounts determined to be uncollectible.
<TABLE>
<CAPTION>
Year Ended Months Ended
----------------------------------------------------------------------------------------------------------------
December 31, 199_ December 31, 199_ December 31, 199_ December 31, 199_ December 31, 199_ _________, 199_
------------------ ----------------- ----------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Average $ $ $ $ $ $
Portfolio Balance..
Charge-Offs ....... $ $ $ $ $ $
Charge-Offs as a % % % % % % %
of Average
Portfolio
Balance..........
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF DELINQUENCY AND CHARGE-OFF EXPERIENCE
DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
The statistical information presented in this prospectus supplement is
only with respect to the mortgage loans and describes the mortgage loans in loan
group 1 and the mortgage loans in loan group 2 and is based on the
characteristics of the loan groups as of _______, 199_.
The mortgage loans are divided into two loan groups. Loan group 1
consists of mortgage loans with fixed interest rates. Loan group 2 consists of
mortgage loans with adjustable interest rates. With respect to any date, the
loan group 1 principal balance and the loan group 2 principal balance will be
equal to the aggregate of the principal balances of all mortgage loans in loan
group 1 and loan group 2, respectively, as of that date. The loan group 1
principal balance and the loan group 2 principal balance are each sometimes
referred to in this prospectus supplement as a loan group principal balance.
The mortgage loans to be purchased by the trust fund will be originated
or purchased by the seller and sold by the seller to the depositor and
transferred by the depositor to the trust fund.
The mortgage pool consists of mortgage loans with an aggregate
principal balance as of the __________ of $__________. The principal balance of
a mortgage loan (other than a liquidated mortgage loan) on any day is equal to
its cut-off date principal balance minus all collections applied in reduction of
the cut-off date principal balance of that mortgage loan. With respect to any
date, the pool principal balance will be equal to the aggregate of the principal
balances of all the mortgage loans as of that date. The mortgage pool consists
of fixed and adjustable rate mortgage loans with remaining terms to stated
maturity of not more than months (including both fully amortizing and balloon
loans). Approximately % of the mortgage loans (by cut-off date pool principal
balance) were 30 to 59 days delinquent. No mortgage loan was more than 59 days
delinquent as of the cut-off date. With respect to the mortgage loans, the
average cut-off date principal balance was $ , and the minimum cut-off date
principal balance was $ , the maximum cut-off date principal balance was $ .
Interest on each mortgage loan is payable monthly on the outstanding principal
balance of that mortgage loan at a rate per annum -- the loan rate -- specified
in the related mortgage note. The minimum loaN rate and the maximum loan rate on
the cut-off date were % and % per annum, respectively, and the weighted average
loan rate as of the cut-off date was % per annum. The weighted average
loan-to-value ratio of the mortgage loans was % as of the cut-off date.
Approximately % of the mortgage loans (by cut-off date pool principal balance)
are balloon loans, which means they are mortgage loans in which borrowers are
not required to make monthly payments of principal that will fully amortize the
related mortgage loan by their maturity. Each mortgage loan was originated on or
after . The remaining terms to stated maturity as of the cut-off date of the
mortgage loans range from months to months; the weighted average remaining term
to stated maturity of the mortgage loans as of the cut-off date is months. In no
event will more than 5% of the cut-off date pool principal balance of the
mortgage pool deviate from the characteristics of the mortgage loans described
in this prospectus supplement.
The mortgage loans provide that interest is charged to the borrowers
thereunder, and payments are due from the borrowers, as of a scheduled day of
each month which is fixed at the time of origination. Scheduled monthly payments
made by the borrowers on the mortgage loans either earlier or later than the
scheduled due dates of those mortgage loans will not affect the amortization
schedule or the relative application of the payments to principal and interest.
LOAN GROUP 1 STATISTICS
The sum of the columns below may not equal the total indicated due to
rounding. In addition, unless otherwise set forth in this prospectus supplement,
all percentages set forth in this prospectus supplement with respect to the
mortgage loans in loan group 1 are percentages of the cut-off date loan group 1
principal balance.
The mortgage loans in loan group 1 consist of ___ loans, and the
related mortgaged properties are located in __ states and the District of
Columbia. As of the cut-off date, the mortgage loans in loan group 1 had an
aggregate principal balance of $__________, the maximum principal balance of any
of the mortgage loans in loan group 1 was $__________, the minimum principal
balance of the mortgage loans in loan group 1 was $________, and the principal
balance of the mortgage loans averaged $_________. As of the cut-off date, the
loan rates on the mortgage loans in loan group 1 ranged from ____% to _____% per
annum, and the weighted average loan rate for mortgage loans in loan group 1 was
______% per annum. As of the cut-off date, the original term to stated maturity
of each of the mortgage loans in loan group 1 was ___ months, the remaining term
to stated maturity ranged from ___ months to ___ months, the weighted average
remaining term to stated maturity was ___ months and the loan-to-value ratio
ranged from % to % with a weighted average loan-to-value ratio of %. All of the
mortgage loans in loan group 1 are secured by first liens. % of the mortgage
loans in loan group 1 require monthly payments of principal that will fully
amortize the mortgage loans by their respective maturity dates, and % of the
mortgage loans in loan group 1 are balloon loans.
<PAGE>
Cut-Off Date Loan Group 1 Principal Balances
Cut-Off Date % of Cut-Off Date
Range of Cut-Off Number of Loan Group 1 Loan Group 1
Date Principal Balances mortgage loans Principal Balance Principal Balance
- ----------------------- -------------- ----------------- -----------------
<PAGE>
Geographic Distribution by State
Loan Group 1
Cut-Off Date % of Cut-Off Date
Number of Loan Group 1 Loan Group 1
State mortgage loans Principal Balance Principal Balance
- ----- -------------- ----------------- -----------------
<PAGE>
Loan-to-Value Ratios(1)
Loan Group 1
Cut-Off Date % of Cut-Off Date
Number of Loan Group 1 Loan Group 1
Loan-to-Value Ratio mortgage loans Principal Balance Principal Balance
- ------------------- -------------- ----------------- -----------------
________________________________________________________________________________
(1) The loan-to-value ratios shown above are equal, with respect to each
mortgage loan, to (1) the original principal balance of the mortgage
loan at the date of origination divided by (2) the lesser of (a) the
value of the related mortgaged property, based upon the appraisal made
at the time of origination of the mortgage loan or (b) the purchase
price of the mortgaged property if the mortgage loan proceeds from the
mortgage loan are used to purchase the mortgaged property.
<PAGE>
Loan Rates
Loan Group 1
Cut-Off Date % of Cut-Off Date
Number of Loan Group 1 Loan Group 1
Loan Rates mortgage loans Principal Balance Principal Balance
- ---------- -------------- ----------------- -----------------
Original Term to Stated Maturity
Loan Group 1
Cut-Off Date % of Cut-Off Date
Original Term to Number of Loan Group 1 Loan Group 1
Stated Maturity mortgage loans Principal Balance Principal Balance
- ---------------- -------------- ----------------- -----------------
<PAGE>
Remaining Months to Stated Maturity
Loan Group 1
Cut-Off Date % of Cut-Off Date
Remaining Term to Number of Loan Group 1 Loan Group 1
Stated Maturity mortgage loans Principal Balance Principal Balance
- ----------------- -------------- ----------------- -----------------
<PAGE>
Months Since Origination
Loan Group 1
Cut-Off Date % of Cut-Off Date
Months Since Number of Loan Group 1 Loan Group 1
Origination mortgage loans Principal Balance Principal Balance
- ------------ -------------- ----------------- -----------------
Property Type
Loan Group 1
Cut-Off Date % of Cut-Off Date
Number of Loan Group 1 Loan Group 1
Property Type mortgage loans Principal Balance Principal Balance
- ------------- -------------- ----------------- -----------------
<PAGE>
Occupancy Type
Loan Group 1
Cut-Off Date % of Cut-Off Date
Number of Loan Group 1 Loan Group 1
Occupancy Type mortgage loans Principal Balance Principal Balance
- -------------- -------------- ----------------- -----------------
[CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS
The pooling and servicing agreement permits the trust fund to purchase
from the seller, subsequent to the date of this prospectus supplement and prior
to _______, 19__, subsequent mortgage loans in an amount not to exceed
approximately $________ in aggregate principal balance for inclusion in the
trust fund. Each subsequent mortgage loan will have been originated or purchased
by the seller in accordance with the underwriting guidelines set forth above
under "--Underwriting and Credit Guidelines." Accordingly, the statistical
characteristics of the mortgage pool set forth above are based exclusively on
the initial mortgage loans and the statistical characteristics of the mortgage
pool after giving effect to the acquisition of any subsequent mortgage loans
will likely differ from the information specified in this prospectus supplement.
The date on which the seller transfers a subsequent mortgage loan to the trust
fund shall be referred to in this prospectus supplement as the subsequent
transfer date.
In any event, each conveyance of subsequent mortgage loans will be
subject to, among other things, the following conditions:
(1) the subsequent mortgage loans must (a) satisfy the eligibility
criteria set forth in the prospectus under "The Loan Program--
Representations by sellers; Repurchases" and (b)comply with each
representation and warranty as to the mortgage loans set forth in
the pooling and servicing agreement;
(2) the subsequent mortgage loan must not have been selected by the
seller in a manner that it believes is adverse to the interests of
the certificateholders,
(3) no subsequent mortgage loan may be ___ or more days contractually
delinquent as of the applicable cut-off date;
(4) no subsequent mortgage loan may have a remaining term to maturity
in excess of ___ years;
(5) no subsequent mortgage loan may have a loan rate less than ____%;
(6) following the purchase of the subsequent mortgage loans by the
trust fund, the mortgage loans (a) will have a weighted average
loan rate of at least ____%; (b) will have a weighted average
loan-to-value ratio of not more than ____%; (c) will not have a
weighted average remaining term to stated maturity of more than
____ months; and (d) will, in each case, have a principal balance
in excess of $_______ as of the cut-off date;
(7) the seller [, the depositor and the trustee shall not have been
notified by either rating agency that the conveyance of the
subsequent mortgage loans will result in a qualification,
modification or withdrawal of its then-current rating of any class
of certificates] [shall have notified each rating agency of the
conveyance as required by the pooling and servicing agreement];
and
(8) the trustee shall have received opinions of counsel as to, among
other things, the enforceability and validity of the transfer
agreements relating to the conveyance of the subsequent mortgage
loans.]
All subsequent mortgage loans shall be added from a specified group of
mortgage loans.]
LOAN GROUP 2 STATISTICS
The sum of the columns below may not equal the total indicated due to
rounding. In addition, unless otherwise set forth in this prospectus supplement,
all percentages set forth in this prospectus supplement with respect to the
mortgage loans in loan group 2 are percentages of the cut-off date loan group 2
principal balance.
The mortgage loans in loan group 2 bear interest rates that adjust
based on the London interbank offered rate for six-month United States dollar
deposits.
The mortgage loans in loan group 2 consist of _____ loans, and the
related mortgaged properties are located in ___ states and the District of
Columbia. As of the cut-off date, the mortgage loans in loan group 2 had an
aggregate principal balance of $______________, the maximum principal balance of
any of the mortgage loans in loan group 2 was $__________, the minimum principal
balance of the mortgage loans in loan group 2 was $________ and the principal
balance of the mortgage loans averaged $_________. As of the cut-off date, the
loan rates on the mortgage loans in loan group 2 ranged from ____% to _____% per
annum, and the weighted average loan rate for mortgage loans in loan group 2 was
_____% per annum. As of the cut-off date, the original term to stated maturity
of the mortgage loans in loan group 2 was ___ months, the remaining term to
stated maturity ranged from ___ months to ___ months, the weighted average
remaining term to stated maturity was ___ months and the loan-to-value ratio
ranged from % to % with a weighted average of %. The mortgage loans in loan
group 2 had stated maturities ranging from to . [All] of the mortgage loans in
loan group 2 require monthly payments of principal that will fully amortize the
mortgage loans by their respective maturity dates. All of the mortgage loans in
loan group 2 have loan rates which adjust semi-annually. All of the mortgage
loans in loan group 2 have minimum and maximum loan rates. The weighted average
minimum loan rate of the mortgage loans in loan group 2 is approximately % per
annum, with minimum loan rates that range from approximately % per annum to %
per annum. The weighted average maximum loan rate of the mortgage loans in loan
group 2 is approximately % per annum, with maximum loan rates that range from
approximately % per annum to % per annum. The mortgage loans in loan group 2
have a weighted average gross margin of approximately % per annum, with gross
margins that range from approximately % per annum to % per annum. The mortgage
loans in loan group 2 have a weighted average periodic cap of approximately %
per annum, with periodic caps that range from approximately % per annum to %
per annum. % of the mortgage loans in loan group 2 adjust after [one] year; %
of the mortgage loans in loan group 2 adjust after [three] years; % of the
mortgage loans in loan group 2 adjust after [five] years. The weighted average
number of months to the next reset date of the mortgage loans in loan group 2 is
approximately , with a maximum number of months of and a minimum number of
months of .
<PAGE>
Cut-Off Date Loan Group 2 Principal Balances
Range of Cut-Off Cut-Off Date % of Cut-Off Date
Date Principal Number of Loan Group 2 Loan Group 2
Balances mortgage loans Principal Balance Principal Balance
- ---------------- -------------- ----------------- -----------------
<PAGE>
Geographic Distribution by State(1)
Loan Group 2
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
State mortgage loans Principal Balance Principal Balance
- ----- -------------- ----------------- -----------------
________________________________________________________________________________
(1) Determined by the property address designated in the related mortgage.
<PAGE>
Loan-to-Value Ratios(1)
Loan Group 2
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
Loan-to-Value Ratio mortgage loans Principal Balance Principal Balance
- ------------------- -------------- ----------------- -----------------
________________________________________________________________________________
(1) The loan-to-value ratios shown above are equal, with respect to each
mortgage loan, to (1) the original principal balance of the mortgage
loan at the date of origination divided by (2) the lesser of (a) the
value of the related mortgaged property, based upon the appraisal made
at the time of origination of the mortgage loan or (b) the purchase
price of the mortgaged property if the mortgage loan proceeds from the
mortgage loan are used to purchase the mortgaged property.
<PAGE>
Loan Rates
Loan Group 2
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
Loan Rates mortgage loans Principal Balance Principal Balance
- ---------- -------------- ----------------- -----------------
Original Term to Stated Maturity
Loan Group 2
Cut-Off Date % of Cut-Off Date
Original Term to Number of Loan Group 2 Loan Group 2
Stated Maturity mortgage loans Principal Balance Principal Balance
- ---------------- -------------- ----------------- -----------------
<PAGE>
Remaining Months to Stated Maturity
Loan Group 2
Cut-Off Date % of Cut-Off Date
Remaining Term to Number of Loan Group 2 Loan Group 2
Stated Maturity mortgage loans Principal Balance Principal Balance
- ----------------- -------------- ----------------- -----------------
<PAGE>
Months Since Origination
Loan Group 2
Cut-Off Date % of Cut-Off Date
Months Since Number of Loan Group 2 Loan Group 2
Origination mortgage loans Principal Balance Principal Balance
- ------------ -------------- ----------------- -----------------
Property Type
Loan Group 2
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
Property Type mortgage loans Principal Balance Principal Balance
- ------------- -------------- ----------------- -----------------
<PAGE>
Occupancy Type
Loan Group 2
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
Occupancy Type mortgage loans Principal Balance Principal Balance
- -------------- -------------- ----------------- -----------------
Margin
Loan Group 2
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
Margin mortgage loans Principal Balance Principal Balance
- ------ -------------- ----------------- -----------------
Lifetime Cap
Loan Group 2
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
Lifetime Cap mortgage loans Principal Balance Principal Balance
- ------------ -------------- ----------------- -----------------
Floor
Loan Group 2
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
Floor mortgage loans Principal Balance Principal Balance
- ----- -------------- ----------------- -----------------
<PAGE>
PREPAYMENT AND YIELD CONSIDERATIONS
GENERAL
The rate of principal payments on the class A certificates, the
aggregate amount of distributions on the class A certificates and the yield to
maturity of the class A certificates will be related to the rate and timing of
payments of principal on the mortgage loans in the related loan group. The rate
of principal payments on the mortgage loans will in turn be affected by the
amortization schedules of the mortgage loans and by the rate of principal
prepayments, including for this purpose prepayments resulting from refinancing,
liquidations of the mortgage loans due to defaults, casualties, condemnations
and repurchases by the seller. The mortgage loans may be prepaid by the
mortgagors at any time. However, approximately __% of the mortgage loans are
subject to prepayment penalties which vary from jurisdiction to jurisdiction.
Prepayments, liquidations and purchases of the mortgage loans in a loan
group, including any optional purchase by the master servicer of the remaining
mortgage loans in connection with the termination of the trust fund, will result
in distributions on the related class A certificates of principal amounts which
would otherwise be distributed over the remaining terms of the mortgage loans.
Since the rate of payment of principal of the mortgage loans will depend on
future events and a variety of factors, no assurance can be given as to the rate
or the rate of principal prepayments. The extent to which the yield to maturity
of a class A certificate may vary from the anticipated yield will depend upon
the degree to which a certificate is purchased at a discount or premium, and the
degree to which the timing of payments thereon is sensitive to prepayments,
liquidations and purchases of the mortgage loans.
The rate of prepayment on the mortgage loans cannot be predicted. The
prepayment experience of the trust fund with respect to the mortgage loans may
be affected by a wide variety of factors, including economic conditions,
prevailing interest rate levels, the availability of alternative financing and
homeowner mobility and changes affecting the deductibility for federal income
tax purposes of interest payments on loans. All of the mortgage loans contain
"due-on-sale" provisions, and, with respect to the mortgage loans, the master
servicer is required by the pooling and servicing agreement to enforce the
provisions, unless the enforcement is not permitted by applicable law. The
enforcement of a "due-on-sale" provision will have the same effect as a
prepayment of the related mortgage loan. See "Legal Aspects of
Loans--Due-on-Sale Clauses in Mortgage Loans" in the prospectus.
As with fixed rate obligations generally, the rate of prepayment on a
pool of mortgage loans with fixed rates such as the mortgage loans in the loan
group 1 is affected by prevailing market rates for mortgage loans of a
comparable term and risk level. When the market interest rate is below the
interest rate on a mortgage, mortgagors may have an increased incentive to
refinance their mortgage loans. Depending on prevailing market rates, the future
outlook for market rates and economic conditions generally, some mortgagors may
sell or refinance mortgaged properties in order to realize their equity in the
mortgaged properties, to meet cash flow needs or to make other investments.
All of the mortgage loans in the loan group 2 are adjustable-rate
mortgage loans. As is the case with conventional fixed-rate mortgage loans,
adjustable-rate mortgage loans may be subject to a greater rate of principal
prepayments in a declining interest rate environment. For example, if prevailing
interest rates fall significantly, adjustable-rate mortgage loans could be
subject to higher prepayment rates than if prevailing interest rates remain
constant because the availability of fixed-rate mortgage loans at competitive
interest rates may encourage mortgagors to refinance their adjustable-rate
mortgage loans at competitive interest rates may encourage mortgagors to
refinance their adjustable-rate mortgage loans to "lock in" a lower fixed
interest rate. However, no assurance can be given as to the level of prepayments
that the mortgage loans will experience.
In addition to the foregoing factors affecting the weighted average
life of the class A certificates, the use of excess interest to pay principal of
the class A certificates of the related certificate group to the extent required
by the pooling and servicing agreement will result in the acceleration of the
class ___ and class ___ certificates, as applicable, relative to the
amortization of the mortgage loans in the related loan group in early months of
the transaction as well as, with respect to group 1 certificates, accelerating
the first date on which each other class of group 1 certificates will begin to
receive distributions of principal than would otherwise be the case. This
acceleration feature creates overcollateralization which results from the excess
of the aggregate principal balance of mortgage loans in a loan group over the
aggregate class A principal balance of the related certificate group. Once the
required level of overcollateralization for a certificate group is reached, the
acceleration feature for that certificate group will cease, unless necessary to
maintain the required level of overcollateralization for that certificate group.
See "Description of the Certificates--Overcollateralization Provisions."
WEIGHTED AVERAGE LIVES
Generally, greater than anticipated prepayments of principal will
increase the yield on the class A certificates purchased at a price less than
par and will decrease the yield on the class A certificates purchased at a price
greater than par. The effect on an investor's yield due to principal prepayments
on the mortgage loans occurring at a rate that is faster, or slower, than the
rate anticipated by the investor in the period immediately following the
issuance of the certificates will not be entirely offset by a subsequent like
reduction, or increase, in the rate of principal payments. The weighted average
life of the class A certificates will also be affected by the amount and timing
of delinquencies and defaults on the mortgage loans and the recoveries, if any,
on defaulted mortgage loans and foreclosed properties.
The "weighted average life" of a certificate refers to the average
amount of time that will elapse from the date of issuance to the date each
dollar in respect of principal of that certificate is repaid. The weighted
average life of any class of class A certificates will be influenced by, among
other factors, the rate at which principal payments are made on the mortgage
loans, including, with respect to the group 1 certificates, final payments made
upon the maturity of balloon loans.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this prospectus supplement is
the prepayment assumption, which represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of the pool of mortgage
loans for the life of those mortgage loans. A 100% prepayment assumption assumes
a conditional prepayment rate of 4% per annum of the outstanding principal
balance of those mortgage loans in the first month of the life of the mortgage
loans and an additional 1.45%, precisely 16/11, expressed as a percentage per
annum, in each month thereafter until the twelfth month; beginning in the
twelfth month and in each month thereafter during the life of the mortgage
loans, a conditional prepayment rate of 20% per annum each month is assumed. As
used in the table below, 0% prepayment assumption assumes a conditional
prepayment rate equal to 0% of the prepayment assumption, i.e., no prepayments.
Correspondingly, 200% prepayment assumption assumes prepayment rates equal to
200% of the prepayment assumption, and so forth. The prepayment assumption does
not purport to be a historical description of prepayment experience or a
prediction of the anticipated rate of prepayment of any pool of mortgage loans,
including the mortgage loans. The depositor believes that no existing statistics
of which it is aware provide a reliable basis for holders of the class A
certificates to predict the amount or the timing of receipt of prepayments on
the mortgage loans.
Since the tables were prepared on the basis of the assumptions in the
following paragraph, there are discrepancies between characteristics of the
actual mortgage loans and the characteristics of the mortgage loans assumed in
preparing the tables. Any discrepancy may have an effect upon the percentages of
the principal balances outstanding and weighted average lives of the class A
certificates set forth in the tables. In addition, since the actual mortgage
loans in the trust fund have characteristics which differ from those assumed in
preparing the tables set forth below, the distributions of principal on the
class A certificates may be made earlier or later than as indicated in the
tables.
For the purpose of the tables below, it is assumed that:
(1) the mortgage loans consist of pools of loans with the level-pay and
balloon amortization characteristics set forth below,
(2) the closing date for the class A certificates is ________________,
(3) distributions on the class A certificates are made on the 25th day
of each month regardless of the day on which the distribution date actually
occurs, commencing in _____________ and are made in accordance with the
priorities described in this prospectus supplement under the heading
"Description of the Certificates--Priority of Distributions",
(4) the scheduled monthly payments of principal and interest on the
mortgage loans will be timely delivered on the first day of each month with no
defaults, commencing in _______________,
(5) the mortgage loans' prepayment rates are a multiple of the
Prepayment Assumption,
(6) all prepayments are prepayments in full received on the last day of
each month commencing ______________ and include 30 days' interest thereon,
(7) no optional termination is exercised,
(8) the class A certificates of each class have the respective
certificate rates and initial class A principal balances as set forth in this
prospectus supplement,
(9) the overcollateralization levels are set initially as specified in
the pooling and servicing agreement, and thereafter decrease in accordance with
the provisions of the pooling and servicing agreement,
[(10) with respect to pools of loans with an assumed cut-off date of
_________________, interest will be calculated at a rate of % per annum for one
month],
(11) six-month LIBOR for each interest period will be % and
(12) one-month LIBOR for each interest period will be %.
Original Original Remaining
Amortization Term to Term to
Amortization Principal Term Maturity Maturity
Methodology Balance Loan Rate (months) (months) (months)
- ------------ --------- --------- ------------- -------- ---------
GROUP 1
Balloon.... $
Level Pay... $
Level Pay... $
Subject to the foregoing discussion and assumptions, the following
table indicates the weighted average life of each class of class A certificates,
and sets forth the percentages of the initial class A principal balance of each
class of class A certificates that would be outstanding after each of the dates
shown at various percentages of prepayment assumption.
<TABLE>
<CAPTION>
Original Original Remaining
Months Maximum Minimum Amortization Term to Term to
Amortization Principal Loan to Rate Gross Interest Interest Term Maturity Maturity
Methodology Balance Rate Change Margin Rate Rate (months) (months) (months)
- ------------ --------- ---- ------- ------ -------- -------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GROUP 2
Balloon..... $
Level Pay... $
Level Pay... $
</TABLE>
<PAGE>
Percent of Initial Class A Principal Balance Outstanding
at the Following Percentages of the Prepayment Assumption
CLASS A-1 CLASS A-2
--------- ---------
DISTRIBUTION DATE % % % % % % % %
- ----------------- - - - - - - - -
Initial 100 100 100 100 100 100 100 100
Percentage.....
Weighted Average
Life (years)*..
________________________________________________________________________________
* The weighted average life of a certificate of any class is determined
by (1) multiplying the amount of each distribution in reduction of the
related class A principal balance by the number of years from the date
of issuance of the certificate to the related distribution date, (2)
adding the results, and (3) dividing the sum by the highest related
principal balance of the certificate.
CLASS A-3 CLASS A-4
--------- ---------
DISTRIBUTION DATE % % % % % % % %
- ----------------- - - - - - - - -
Initial 100 100 100 100 100 100 100 100
Percentage.....
Weighted Average
Life (years)*..
________________________________________________________________________________
* The weighted average life of a certificate of any class is determined
by (1i) multiplying the amount of each distribution in reduction of the
related class A principal balance by the number of years from the date
of issuance of the certificate to the related distribution date, (2)
adding the results, and (3) dividing the sum by the highest related
principal balance of the certificate.
CLASS A-5 CLASS A-6
--------- ---------
DISTRIBUTION DATE % % % % % % % %
- ----------------- - - - - - - - -
Initial 100 100 100 100 100 100 100 100
Percentage.......
Weighted Average
Life (years)*....
________________________________________________________________________________
* The weighted average life of a certificate of any class is determined
by (1) multiplying the amount of each distribution in reduction of the
related class A principal balance by the number of years from the date
of issuance of the certificate to the related distribution date, (2)
adding the results, and (3) dividing the sum by the highest related
principal balance of the certificate.
These tables have been prepared based on the assumptions described
above, including the assumptions regarding the characteristics and performance
of the mortgage loans, which differ from the actual characteristics and
performance of the mortgage loans, and should be read in conjunction with those
tables.
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The series 199_-certificates will be issued pursuant to the pooling and
servicing agreement. The form of the pooling servicing agreement has been filed
as an exhibit to the registration statement of which this prospectus supplement
and the prospectus is a part. The following summaries describe material
provisions of the pooling and servicing agreement. The summaries do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all of the provisions of the pooling and servicing agreement.
Wherever particular sections or defined terms of the pooling and servicing
agreement are referred to, those sections or defined terms are incorporated into
this prospectus supplement by reference.
GENERAL
The offered certificates will be issued in denominations of $1,000 and
multiples of $1 in excess of $1,000 and will evidence specified undivided
interests in the trust fund. The property of the trust fund will consist of, to
the extent provided in the pooling and servicing agreement:
(1) the mortgage loans;
(2) payments on the mortgage loans received on and after the
cut-off date, exclusive of payments in respect of interest on the
mortgage loans due prior to the cut-off date and received thereafter;
(3) mortgaged properties relating to the mortgage loans that
are acquired by foreclosure or deed in lieu of foreclosure;
(4) the collection account and the distribution account and
funds on deposit in those accounts, excluding net earnings thereon; and
(5) rights under hazard insurance policies covering the
mortgaged properties. In addition, the seller has caused the
certificate insurer to issue an irrevocable and unconditional
certificate guaranty insurance policy for the benefit of the holders of
the class A certificates, pursuant to which the certificate insurer
will guarantee payments to those certificateholders as in this
prospectus supplement. Definitive certificates will be transferable and
exchangeable at the corporate trust office of the trustee, which will
initially act as certificate registrar. See "--Book-Entry Certificates"
below. No service charge will be made for any registration of exchange
or transfer of certificates, but the trustee may require payment of a
sum sufficient to cover any tax or other governmental charge.
Each mortgage loan in the trust fund will be assigned to one of two
mortgage loan groups. The class A-1, class A-2, class A-3, class A-4 and class
A-5 certificates, or Group 1 Certificates, will represent undivided ownership
interests in the mortgage loans assigned to loan group 1, all collections
thereon, exclusive of payments in respect of interest on the mortgage loan due
prior to the cut-off date and received thereafter, and the proceeds of those
mortgage loans. The class A-6 certificates, or Group 2 Certificates, will
represent undivided ownership interests in the mortgage loans assigned to loan
group 2, all collections thereon, exclusive of payments in respect of interest
on the mortgage loans due prior to the cut-off date and received thereafter, and
the proceeds of those mortgage loans. The class principal balance of a class of
class A certificates on any distribution date is equal to the applicable class A
principal balance on the closing date minus the aggregate of amounts actually
distributed as principal to the holders of that class of certificates. On any
date, the aggregate class A principal balance is, with respect to the Group 1
Certificates, the aggregate of the class A principal balances of the class A-1,
class A-2, class A-3, class A-4 and class A-5 certificates and with respect to
the Group 2 Certificates, the class A principal balance of the class A-6
certificates.
The trust fund will issue six classes of class A certificates and one
class of subordinated certificates, the Class R Certificates. Only the class A
certificates are being offered by this prospectus supplement. Each class of
offered certificates represents the right to receive payments of interest at
that certificate rate for that class and payments of principal as described
under the heading "--Priority of Distributions."
A certificateholder is the Person in whose name a Certificate is
registered in the Certificate Register.
The "percentage interest" of a class A certificate as of any date of
determination will be equal to the percentage obtained by dividing the
denomination of that certificate by the class A principal balance for the
related class as of the cut-off date.
The certificates will not be listed on any securities exchange.
BOOK-ENTRY CERTIFICATES
The offered certificates will be book-entry certificates. Persons
acquiring beneficial ownership interests in the offered certificates, or
certificate owners, will hold their offered certificates through the DTC in the
United States, or Cedelbank or Euroclear in Europe if they are participants of
those systems, or indirectly through organizations which are participants in
those systems. The book-entry certificates will be issued in one or more
certificates which equal the aggregate principal balance of the offered
certificates and will initially be registered in the name of Cede, the nominee
of DTC. Cedelbank and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in Cedelbank's and
Euroclear's names on the books of their respective depositaries which in turn
will hold those positions in customers' securities accounts in the depositaries'
names on the books of DTC. Citibank will act as depositary for Cedelbank and The
Chase Manhattan Bank will act as depositary for Euroclear. Investors may hold
their beneficial interests in the book-entry certificates in minimum
denominations representing class principal balances of $1,000 and in multiples
of $1 in excess of $1,000. Except as described in this prospectus supplement, no
person acquiring a book-entry certificate will be entitled to receive a
physical, definitive certificate. Unless and until definitive certificates are
issued, it is anticipated that the only certificateholder of the offered
certificates will be Cede, as nominee of DTC. Certificate owners will not be
certificateholders as that term is used in the pooling and servicing agreement.
Certificate owners are only permitted to exercise their rights indirectly
through participants and DTC.
The beneficial owner's ownership of a book-entry certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary that maintains the beneficial owner's account for that
purpose. In turn, the financial intermediary's ownership of that book-entry
certificate will be recorded on the records of DTC, or of a participating firm
that acts as agent for the financial intermediary, whose interest will in turn
be recorded on the records of DTC, if the beneficial owner's financial
intermediary is not a DTC participant and on the records of Cedelbank or
Euroclear, as appropriate.
Certificate owners will receive all distributions of principal of, and
interest on, the offered certificates from the trustee through DTC and DTC
participants. While the offered certificates are outstanding, except under the
circumstances described in this prospectus supplement, under the rules,
regulations and procedures creating and affecting DTC and its operations, DTC is
required to make book-entry transfers among DTC participants on whose behalf it
acts with respect to the offered certificates and is required to receive and
transmit distributions of principal of, and interest on, the offered
certificates. Participants and indirect participants with whom certificate
owners have accounts with respect to offered certificates are similarly required
to make book-entry transfers and receive and transmit the distributions on
behalf of their respective certificate owners. Accordingly, although certificate
owners will not possess certificates, the DTC rules provide a mechanism by which
certificate owners will receive distributions and will be able to transfer their
interest.
Certificate owners will not receive or be entitled to receive
certificates representing their respective interests in the offered
certificates, except under the limited circumstances described below. Unless and
until definitive certificates are issued, certificate owners who are not
participants may transfer ownership of offered certificates only through DTC
participants and indirect participants by instructing the DTC participants and
indirect participants to transfer offered certificates, by book-entry transfer,
through DTC for the account of the purchasers of those offered certificates,
which account is maintained with their respective DTC participants. Under the
DTC rules and in accordance with DTC's normal procedures, transfers of ownership
of offered certificates will be executed through DTC and the accounts of the
respective DTC participants at DTC will be debited and credited. Similarly, the
DTC participants and indirect participants will make debits or credits, as the
case may be, on their records on behalf of the selling and purchasing
certificate owners.
Because of time zone differences, credits of securities received in
Cedelbank or Euroclear as a result of a transaction with a DTC participant will
be made during subsequent securities settlement processing and dated the
business day following the DTC settlement date. Credits or any transactions in
those securities settled during the processing will be reported to the relevant
Euroclear or Cedelbank participants on the business day. Cash received in
Cedelbank or Euroclear as a result of sales of securities by or through a
Cedelbank participant or Euroclear participant to a DTC participant will be
received with value on the DTC settlement date but will be available in the
relevant Cedelbank or Euroclear cash account only as of the business day
following settlement in DTC. For information with respect to tax documentation
procedures relating to the certificates, see "Federal Income Tax
Consequences--Foreign Investors" and "--Backup Withholding" in this prospectus
supplement and "GlobaL Clearance, Settlement and Tax Documentation
Procedures--U.S. Federal Income Tax Documentation Requirements" in Annex I
hereto.
Transfers between DTC participants will occur in accordance with DTC
rules. Transfers between Cedelbank participants and Euroclear participants will
occur in accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedelbank
participants or Euroclear participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the relevant depositary. However, cross market transactions
will require delivery of instructions to the relevant European international
clearing system by the counterparty in that system in accordance with its rules
and procedures and within its established deadlines, European time. The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to the relevant depositary to take
action to effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment in accordance with normal
procedures for same day funds settlement applicable to DTC. Cedelbank
participants and Euroclear participants may not deliver instructions directly to
the European depositaries.
DTC, which is a New York-chartered limited purpose trust company,
performs services for its participants, some of which and/or their
representatives own DTC. In accordance with its normal procedures, DTC is
expected to record the positions held by each DTC participant in the book-entry
certificates, whether held for its own account or as a nominee for another
person. In general, beneficial ownership of book-entry certificates will be
subject to the rules, regulations and procedures governing DTC and DTC
participants as in effect from time to time.
Cedelbank is incorporated under the laws of Luxembourg as a
professional depository. Cedelbank holds securities for its participating
organizations and facilitates the clearance and settlement of securities
transactions between Cedelbank participants through electronic book-entry
changes in accounts of Cedelbank participants, thus eliminating the need for
physical movement of certificates. Transactions may be settled in Cedelbank in
any of 28 currencies, including United States dollars. Cedelbank provides to its
Cedelbank participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Cedelbank interfaces with domestic markets
in several countries. As a professional depository, Cedelbank is subject to
regulation by the Luxembourg Monetary Institute. Cedelbank participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and other organizations. Indirect access to Cedelbank is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Cedelbank participant, either
directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
and to clear and settle transactions between Euroclear participants through
simultaneous electronic book-entry delivery against payment, thus eliminating
the need for physical movement of certificates and any risk from lack of
simultaneous transfers of securities and cash. Transactions may be settled in
any of 32 currencies, including United States dollars. Euroclear includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. Euroclear is
operated by the Brussels, Belgium office of Morgan Guaranty Trust Company of New
York, under contract with Euroclear Clearance Systems S.C., a Belgian
cooperative corporation, the cooperative. All operations are conducted by the
Euroclear operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear operator, not the
cooperative. The cooperative establishes policy for Euroclear on behalf of
Euroclear participants. Euroclear participants include banks, including central
banks, securities brokers and dealers and other professional financial
intermediaries. Indirect access to Euroclear is also available to other firms
that clear through or maintain a custodial relationship with a Euroclear
participant, either directly or indirectly.
The Euroclear operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear system and applicable Belgian
law, collectively, the terms and conditions. The terms and conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear operator acts under the terms and conditions only on behalf of
Euroclear participants, and has no record of or relationship with persons
holding through Euroclear participants.
Distributions on the book-entry certificates will be made on each
distribution date by the trustee to DTC. DTC will be responsible for crediting
the amount of the payments to the accounts of the applicable DTC participants in
accordance with DTC's normal procedures. Each DTC participant will be
responsible for disbursing payments to the beneficial owners of the book-entry
certificates that it represents and to each financial intermediary for which it
acts as agent. Each financial intermediary will be responsible for disbursing
funds to the beneficial owners of the book-entry certificates that it
represents.
Under a book-entry format, beneficial owners of the book-entry
certificates may experience some delay in their receipt of payments, since the
payments will be forwarded by the trustee to Cede. Distributions with respect to
certificates held through Cedelbank or Euroclear will be credited to the cash
accounts of Cedelbank participants or Euroclear participants in accordance with
the relevant system's rules and procedures, to the extent received by the
relevant depositary. Those distributions will be subject to tax reporting in
accordance with relevant United States tax laws and regulations. See "Federal
Income Tax Consequences--Foreign Investors" and "--Backup Withholding" in this
prospectus supplement. Because DTC can only act on behalf of financial
intermediaries, the ability of a beneficial owner to pledge book-entry
certificates to persons or entities that do not participate in the depository
system, or otherwise take actions in respect of the book-entry certificates, may
be limited due to the lack of physical certificates for the book-entry
certificates.
Monthly and annual reports on the trust fund will be provided to Cede,
as nominee of DTC, and may be made available by Cede to beneficial owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting the depository, and to the financial intermediaries to whose DTC
accounts the book-entry certificates of the beneficial owners are credited.
DTC has advised the trustee that, unless and until definitive
certificates are issued, DTC will take any action permitted to be taken by the
holders of the book-entry certificates under the pooling and servicing agreement
only at the direction of one or more financial intermediaries to whose DTC
accounts the book-entry certificates are credited, to the extent that actions
are taken on behalf of financial intermediaries whose holdings include those
book-entry certificates. Cedelbank or the Euroclear operator, as the case may
be, will take any other action permitted to be taken by a certificateholder
under the pooling and servicing agreement on behalf of a Cedelbank participant
or Euroclear participant only in accordance with its relevant rules and
procedures and subject to the ability of the relevant depositary to effect
actions on its behalf through DTC. DTC may take actions, at the direction of the
related participants, with respect to some class A certificates which conflict
with actions taken with respect to other class A certificates.
Definitive certificates will be issued to beneficial owners of the
book-entry certificates, or their nominees, rather than to DTC, only if:
(a) DTC or the depositor advises the trustee in writing that
DTC is no longer willing, qualified or able to discharge properly its
responsibilities as nominee and depository with respect to the
book-entry certificates and the depositor or the trustee is unable to
locate a qualified successor,
(b) the depositor, at its sole option, with the consent of the
trustee, elects to terminate a book-entry system through DTC or
(c) after the occurrence of an event of servicing termination,
beneficial owners having percentage interests aggregating not less than
51% of the aggregate class A principal balance of the book-entry
certificates advise the trustee and DTC through the financial
intermediaries and the DTC participants in writing that the
continuation of a book-entry system through DTC or a successor thereto
is no longer in the best interests of beneficial owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the trustee will be required to notify all beneficial
owners of the occurrence of that event and the availability through DTC of
definitive certificates. Upon surrender by DTC of the global certificate or
certificates representing the book-entry certificates and instructions for
re-registration, the trustee will issue definitive certificates, and thereafter
the trustee will recognize the holders of those definitive certificates as
certificateholders under the pooling and servicing agreement.
Although DTC, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of class A certificates among
participants of DTC, Cedelbank and Euroclear, they are under no obligation to
perform or continue to perform those procedures and those procedures may be
discontinued at any time.
Neither the depositor, the seller, the master servicer nor the trustee
will have any responsibility for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the book-entry
certificates held by Cede, as nominee for DTC, or for maintaining, supervising
or reviewing any records relating to those beneficial ownership interests.
ASSIGNMENT OF MORTGAGE LOANS
On the closing date, the depositor will transfer to the trust fund all
of its right, title and interest in and to each mortgage loan, the related
mortgage notes, mortgages and other related documents, including all payments
received on or with respect to each mortgage loan on or after the applicable
cut-off date, exclusive of payments in respect of interest on the mortgage loans
due prior to the cut-off date and received thereafter. The trustee, concurrently
with the transfer, will deliver the certificates to the depositor. Each mortgage
loan transferred to the trust fund will be identified on a mortgage loan
schedule delivered to the trustee pursuant to the pooling and servicing
agreement. The mortgage loan schedule will include information as to the
principal balance of each mortgage loan as of the cut-off date, its loan rate as
well as other information.
Within 60 days of the closing date, the trustee will review the
mortgage loans and the related documents pursuant to the pooling and servicing
agreement and if any mortgage loan or related document is found to be defective
in any material respect and the defect is not cured within 90 days following
notification of the defect to the seller, the seller will be obligated to either
(1) substitute for the mortgage loan an eligible substitute mortgage loan;
however, substitution is permitted only within two years of the closing date and
may not be made unless an opinion of counsel is provided to the effect that
substitution will not disqualify the trust fund as a REMIC or result in a
prohibited transaction tax under the Internal Revenue Code or (2) purchase the
mortgage loan at a purchase price equal to the outstanding principal balance of
the mortgage loan as of the date of purchase, plus all accrued and unpaid
interest thereon, computed at the loan rate, net of the master servicing fee if
the seller is the master servicer, plus the amount of any unreimbursed servicing
advances made by the master servicer. The purchase price will be deposited in
the collection account on or prior to the next succeeding determination date
after the obligation arises. The determination date is the eighteenth day of
each month. The obligation of the seller to repurchase or substitute for a
defective mortgage loan is the sole remedy regarding any defects in the mortgage
loans and related documents available to the trustee or the certificateholders.
In connection with the substitution of an eligible substitute mortgage
loan, the seller will be required to deposit in the collection account on or
prior to the next succeeding determination date after the obligation arises the
substitution amount which is equal to the excess of the principal balance of the
related defective mortgage loan over the principal balance of the eligible
substitute mortgage loan.
An eligible substitute mortgage loan is a mortgage loan substituted by
the seller for a defective mortgage loan which must, on the date of
substitution:
(1) have an outstanding principal balance, or in the case of a
substitution of more than one mortgage loan for a defective mortgage
loan, an aggregate principal balance, not in excess of and not more
than 5% less than the principal balance of the defective mortgage loan;
(2) have a loan rate not less than the loan rate of the
defective mortgage loan and not more than 1% in excess of the loan rate
of the defective mortgage loan;
(3) if the defective mortgage loan is in loan group 2, have a
loan rate based on the same index with adjustments to the loan rate
made on the same interest rate adjustment date as that of the defective
mortgage loan and have a margin that is not less than the margin of the
defective mortgage loan and not more than 100 basis points higher than
the margin for the defective mortgage loan; or
(4) have a mortgage of the same or higher level of priority as
the mortgage relating to the defective mortgage loan at the time the
mortgage was transferred to the trust fund;
(5) have a remaining term to maturity not more than six months
earlier and not later than the remaining term to maturity of the
defective mortgage loan;
(6) comply with each representation and warranty set forth in
the pooling and servicing agreement made as of the date of
substitution;
(7) have an original loan-to-value ratio not greater than that
of the defective mortgage loan;
(8) if the defective mortgage loan is in loan group 2, have a
lifetime rate cap and a periodic rate cap no lower than the lifetime
rate cap and periodic rate cap, respectively, applicable to the
defective mortgage loan; and
(9) be of the same type of mortgaged property as the defective
mortgage loan or a detached single family residence. More than one
eligible substitute mortgage loan may be substituted for a defective
mortgage loan if the eligible substitute mortgage loans meet the
foregoing attributes in the aggregate and the substitution is approved
in writing in advance by the certificate insurer.
The seller will make representations and warranties as to the accuracy
in all material respects of information furnished to the trustee with respect to
each mortgage loan- e.g., cut-off date principal balance and the loan rate. In
addition, the seller will represent and warrant, on the closing date, that,
among other things:
(1) at the time of transfer to the trust fund, the seller has
transferred or assigned all of its right, title and interest in each
mortgage loan and the related documents, free of any lien; and
(2) each mortgage loan complied, at the time of origination,
in all material respects with applicable state and federal laws. Upon
discovery of a breach of any representation and warranty which
materially and adversely affects the interests of the trust fund, the
certificateholders or the certificate insurer in the related mortgage
loan and related documents, the seller will have a period of 60 days
after discovery or notice of the breach to effect a cure. If the breach
cannot be cured within the 60-day period, the seller will be obligated
to (1) substitute for the defective mortgage loan an eligible
substitute mortgage loan or (2) purchase the defective mortgage loan
from the trust fund. The same procedure and limitations that are set
forth above for the substitution or purchase of defective mortgage
loans as a result of deficient documentation relating thereto will
apply to the substitution or purchase of a defective mortgage loan as a
result of a breach of a representation or warranty in the pooling and
servicing agreement that materially and adversely affects the interests
of the certificateholders or the certificate insurer.
Mortgage loans required to be transferred to the seller as described in
the preceding paragraphs are referred to as defective mortgage loans.
Pursuant to the pooling and servicing agreement, the master servicer
will service and administer the mortgage loans as more fully set forth above.
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO COLLECTION ACCOUNT AND DISTRIBUTION
ACCOUNT
The master servicer shall establish and maintain in the name of the
trustee a separate trust account, the collection account, for the benefit of the
holders of the certificates. The collection account will be an eligible account.
Subject to the investment provision described in the following paragraphs, upon
receipt by the master servicer of amounts in respect of the mortgage loans, net
of amounts representing the master servicing fee, the master servicer will
deposit those amounts in the collection account. Amounts so deposited may be
invested in eligible investments described in the pooling and servicing
agreement maturing no later than two business days prior to the next succeeding
date on which amounts on deposit in the collection account are required to be
deposited in the distribution account.
The trustee will establish the distribution account into which will be
deposited amounts withdrawn from the collection account for distribution to
certificateholders on a distribution date. The distribution account will be an
eligible account. Amounts on deposit in the distribution account may be invested
in eligible investments maturing on or before the business day prior to the
related distribution date.
An eligible account is an account that is (1) maintained with a
depository institution whose debt obligations at the time of any deposit in that
account have the highest short-term debt rating by the rating agencies, and
whose accounts are fully insured by either the Savings Association Insurance
Fund or the Bank Insurance Fund of the FDIC established by the fund with a
minimum long-term unsecured debt rating of "A2" by Moody's and "A" by S&P,
otherwise acceptable to each rating agency and the certificate insurer as
evidenced by a letter from each rating agency and the certificate insurer to the
trustee, without reduction or withdrawal of their then current ratings of the
certificates.
Eligible investments and are limited to investments that meet the
criteria of the rating agencies from time to time as being consistent with their
then current ratings of the certificates. Eligible investments are limited to:
(1) direct obligations of, or obligations fully guaranteed as
to timely payment of principal and interest by, the United States or
any agency or instrumentality of the United States, provided that those
obligations are backed by the full faith and credit of the United
States;
(2) repurchase agreements on obligations specified in clause
(1) maturing not more than three months from the date of acquisition of
that obligation, provided that the short-term unsecured debt
obligations of the party agreeing to repurchase those obligations are
at the time rated by each rating agency in its highest short-term
rating category;
(3) certificates of deposit, time deposits and bankers'
acceptances which, if Moody's is a rating agency, shall each have an
original maturity of not more than 90 days and, in the case of bankers'
acceptances, shall in no event have an original maturity of more than
365 days of any U.S. depository institution or trust company
incorporated under the laws of the United States or any state of the
United States and subject to supervision and examination by federal
and/or state banking authorities, provided that the unsecured
short-term debt obligations of that depository institution or trust
company at the date of acquisition of the obligations have been rated
by each of the rating agencies in its highest unsecured short-term debt
rating category;
(4) commercial paper having original maturities of not more
than 90 days of any corporation incorporated under the laws of the
United States or any state of the United States which on the date of
acquisition has been rated by the Rating Agencies in their highest
short-term rating categories;
(5) short term investment funds sponsored by any trust company
or bank incorporated under the laws of the United States or any state
of the United States which on the date of acquisition has been rated by
the rating agencies in their respective highest rating category of long
term unsecured debt;
(6) interests in any money market fund which at the date of
acquisition of the interests in that fund and throughout the time as
the interest is held in that fund has the rating specified by each
Rating Agency; and
(7) other obligations or securities that are acceptable to
each rating agency as an eligible investment hereunder and will not
result in a reduction in the then current rating of the certificates,
as evidenced by a letter to that effect from the rating agency and with
respect to which the master servicer has received confirmation that,
for tax purposes, the investment complies with the last clause of this
definition; provided that no instrument described hereunder shall
evidence either the right to receive (a) only interest with respect to
the obligations underlying that instrument or (b) both principal and
interest payments derived from obligations underlying that instrument
and the interest and principal payments with respect to that instrument
provided a yield to maturity at par greater than 120% of the yield to
maturity at par of the underlying obligations; and provided, further,
that no instrument described hereunder may be purchased at a price
greater than par if that instrument may be prepaid or called at a price
less than its purchase price prior to its stated maturity.
ADVANCES
Not later than two business days prior to each distribution date, the
master servicer will remit to the trustee for deposit in the distribution
account the monthly advance, which is an amount, to be distributed on the
related distribution date, equal to the sum of the interest accrued and
principal due on each mortgage loan through the related due date but not
received by the master servicer as of the close of business on the last day of
the related due period, net of the Master Servicing Fee. The obligation of the
master servicer to remit the monthly advance continues with respect to each
mortgage loan until that mortgage loan becomes a liquidated mortgage loan.
In the course of performing its servicing obligations, the master
servicer will pay all reasonable and customary "out-of-pocket" costs and
expenses incurred in the performance of its servicing obligations, including,
but not limited to, the cost of (1) the preservation, restoration and protection
of the mortgaged properties, (2) any enforcement or judicial proceedings,
including foreclosures, and (3) the management and liquidation of mortgaged
properties acquired in satisfaction of the related mortgage. These expenditures
will constitute a servicing advance.
The master servicer's right to reimbursement for servicing advances is
limited to late collections on the related mortgage loan, including liquidation
proceeds, insurance proceeds and other amounts as may be collected by the master
servicer from the related mortgagor or otherwise relating to the mortgage loan
in respect of which unreimbursed amounts are owed. The master servicer's right
to reimbursement for monthly advances shall be limited to late collections of
interest on any mortgage loan and to liquidation proceeds and insurance proceeds
on the related mortgage loan. The master servicer's right to reimbursement is
prior to the rights of certificateholders.
Notwithstanding the foregoing, the master servicer is not required to
make any monthly advance or servicing advance if in the good faith judgment and
sole discretion of the master servicer, the master servicer determines that the
advance will not be ultimately recoverable from collections received from the
mortgagor in respect of the related mortgage loan or other recoveries in respect
of the mortgage loan. However, if any servicing advance or monthly advance is
determined by the master servicer to be nonrecoverable from those sources, the
amount of that advance may be reimbursed to the master servicer from other
amounts on deposit in the collection account.
DISTRIBUTION DATES
On the 25th day of each month, or if that day is not a business day,
then the next succeeding business day, commencing in ______________________, the
holders of the offered certificates will be entitled to receive, from amounts
then on deposit in the distribution account, to the extent of funds available
therefor in accordance with the priorities and in the amounts described below
under "--Priority of Distributions," an aggregate amount equal to the sum of (a)
the class Interest Distribution for each class of offered certificates and (b)
the class A Principal Distribution for each certificate group. Distributions
will be made (1) in immediately available funds to holders of offered
certificates, the aggregate principal balance of which is at least $1,000,000,
by wire transfer or otherwise, to the account of that certificateholder at a
domestic bank or other entity having appropriate facilities therefor, if that
certificateholder has so notified the trustee in accordance with the pooling and
servicing agreement, or (2) by check mailed to the address of the person
entitled thereto as it appears on the certificate register maintained by the
trustee as that registrar.
DEPOSITS TO THE DISTRIBUTION ACCOUNT
No later than one business day prior to each distribution date, the
following amounts in respect of a loan group and the previous due period shall
be deposited into the distribution account and shall constitute the Available
Funds for the related certificate group for that distribution date:
(1) payments of principal and interest on the mortgage loans
in that loan group net of amounts representing the master servicing fee
with respect to each mortgage loan in the related loan group and
reimbursement for related monthly advances and servicing advances);
(2) net liquidation proceeds and insurance proceeds with
respect to the mortgage loans in that loan group net of amounts applied
to the restoration or repair of a mortgaged property;
(3) the purchase price for repurchased defective mortgage
loans with respect to the mortgage loans in that loan group and any
related substitution adjustment;
(4) payments from the master servicer in connection with (a)
monthly advances, (b) prepayment interest shortfalls and (c) the
termination of the trust fund with respect to the mortgage loans in
that loan group as provided in the pooling and servicing agreement; and
(5) any amounts paid under the policy in respect of the
related certificate group.
PRIORITY OF DISTRIBUTIONS
On each distribution date the trustee shall withdraw from the
distribution account the sum of (a) the Available Funds with respect to the
group 1 certificates and (b) the Available Funds with respect to the group 2
certificates, together, the amount available, and make distributions of those
amounts as described below and to the extent of the amount available:
A. With respect to the group 1 certificates, the related
Available Funds within the following order of priority:
(1) to the trustee, the related trustee fee for that
distribution date;
(2) to holders of each class of group 1 certificates,
an amount equal to the related class Interest Distribution for
that distribution date;
(3) sequentially, to the class A-1, class A-2, class
A-3, class A-4 and class A-5 certificateholders, in that
order, until the respective class A principal balance of each
class is reduced to zero, the related class A principal
distribution, other than the portion constituting the
Distributable Excess Spread, for that distribution date;
provided, however, that after the occurrence and continuance
of an insurer default, the class A Principal Distribution for
the group 1 certificates will be distributed pro rata to the
holders of the class A certificates based on the respective
class A principal balances;
(4) to the certificate insurer, the amount owing to
the certificate insurer under the insurance agreement for the
premium payable in respect of the group 1 certificates; and
(5) sequentially, to the class A-1, class A-2, class
A-3, class A-4 and class A-5 certificateholders, in that
order, until the respective class A principal balance of each
class is reduced to zero, the related Distributable Excess
Spread for that distribution date; provided, however, that
after the occurrence and continuance of an insurer default,
the Distributable Excess Spread for the group 1 certificates
will be distributed pro rata to the holders of the class A
certificates based on the respective class A principal
balances.
B. With respect to the group 2 certificates, the related
Available Funds in the following order of priority:
(1) to the trustee, the related trustee fee for that
distribution date;
(2) to the holders of the class A-6 certificates, an
amount equal to the Class Interest Distribution for the class
A-6 certificates for that distribution date;
(3) to the holders of the class A-6 certificates, the
class A Principal Distribution for the class A-6 certificates,
other than the portion constituting the related Distributable
Excess Spread;
(4) to the certificate insurer, the amount owing to
the certificate insurer under the insurance agreement for the
premium payable in respect of the group 2 certificates; and
(5) to the holders of the class A-6 certificates
until the class A-6 principal balance is reduced to zero, the
related Distributable Excess Spread for that distribution
date.
C. On any distribution date, to the extent available funds for a
certificate group are insufficient to make the distributions
specified above pursuant to the applicable subclause, available
funds for the other certificate group remaining after making the
distributions required to be made pursuant to the applicable
subclause for the other certificate group shall be distributed to
the extent of that insufficiency in accordance with the priorities
for distribution set forth in the subclause above with respect to
the certificate group experiencing the insufficiency.
D. After making the distributions referred to in subclauses A,
B and C above, the trustee shall make distributions in the
following order of priority, to the extent of the balance of the
amount available:
(1) to the master servicer, the amount of any
accrued and unpaid master servicing fee;
(2) to the certificate insurer, amounts owing to
the certificate insurer for reimbursement for prior draws
made on the policy;
(3) to the master servicer, the amount of
nonrecoverable advances not previously reimbursed;
(4) to the certificate insurer, any other amounts
owing to the certificate insurer under the insurance
agreement;
(5) to the class A-6 certificateholders, the class
A-6 interest carryover; and
(6) to the class R certificateholders, the balance.
"Class A-6 Interest Carryover" means, with respect to any distribution
date on which the certificate rate for the class A-6 certificates is based upon
the Net Funds Cap, the excess of (1) the amount of interest the class A-6
certificates would be entitled to receive on that distribution date had that
rate been calculated pursuant to the lesser of clause (A) and clause (C) of the
definition of Certificate Rate over (2) the amount of interest the class A-6
certificates actually receives on the distribution date, plus accrued interest
thereon at the rate determined pursuant to clause (1) above for that
distribution date.
THE CERTIFICATE RATE
The certificate rate for any interest period with respect to the Group
1 Certificates will be:
Class A-1 __%
Class A-2 __%
Class A-3 __%
Class A-4 __%
Class A-5 __%
The interest period with respect to each distribution date and group 1
certificates, is the period from the first day of the calendar month preceding
the month of that distribution date through the last day of that calendar month.
The interest period with respect to each distribution date and group 2
certificates is the period from the distribution date in the month preceding the
month of that distribution date or, in the case of the first distribution date,
from the closing date through the day before that distribution date. Interest in
respect of any distribution date will accrue on the group 1 certificates during
each interest period on the basis of a 360-day year consisting of twelve 30-day
months.
The certificate rate with respect to the class A-6 certificates for an
interest period will equal the least of (A) the sum of the LIBOR Rate plus
____%, (B) the Net Funds Cap for that distribution date and (C) ____% per annum.
The Net Funds Cap for any distribution date shall equal the difference
between (A) the average of the loan rates of the mortgage loans in loan group 2
as of the first day of the month preceding the month of that distribution date,
weighted on the basis of the related principal balances as of that date and (B)
the sum of (1) the master servicing fee rate and the rate at which the trustee
fee and the premium payable to the certificate insurer are calculated and (2)
commencing with the thirteenth distribution date, ___%. With respect to the
class A-6 certificates, interest in respect of any distribution date will accrue
during each interest period on the basis of a 360-day year and the actual number
of days elapsed.
The "LIBOR Rate" is the rate for United States dollar deposits for one
month which appear on the Telerate Screen LIBO Page 3750 as of 11:00 A.M.,
London time, on the second LIBOR business day prior to the first day of any
interest period relating to the class A-6 certificates, or the second LIBOR
business day prior to the closing date, in the case of the first distribution
date). If that rate does not appear on that page or the other page as may
replace that page on that service, or if that service is no longer offered, the
other service for displaying the LIBOR Rate or comparable rates as may be
reasonably selected by the seller, after consultation with the trustee, the rate
will be the Reference Bank Rate. If no quotations can be obtained and no
Reference Bank Rate is available, the LIBOR Rate will be the LIBOR Rate
applicable to the preceding distribution date. On the second LIBOR business day
immediately preceding each distribution date, the trustee shall determine the
LIBOR Rate for the interest period commencing on that distribution date and
inform the master servicer of the rate.
INTEREST
On each distribution date, to the extent of funds available therefor,
the Class Interest Distribution will be distributed with respect to each class
of class A certificates in an amount equal to the sum of (a) that one month's
interest at the related certificate rate on the related class A principal
balance immediately prior to that distribution date, or the class Monthly
Interest Distributable Amount, and (b) any class Interest Carryover Shortfall
for that class of class A certificates for that distribution date. As to any
distribution date and class of class A certificates, the class Interest
Carryover Shortfall is the sum of (1) the excess of the related class Monthly
Interest Distributable Amount for the preceding distribution rate and any
outstanding class Interest Carryover Shortfall with respect to that class on the
preceding distribution date, over the amount in respect of interest that is
actually distributed to that class on the preceding distribution date plus (2)
one month's interest on that excess, to the extent permitted by law, at the
related certificate rate. The interest entitlement described in (a) above will
be reduced by the class' pro rata share of Civil Relief Act Interest Shortfalls,
if any, for that distribution date. Civil Relief Act Interest Shortfalls will
not be covered by payments under the policy.
On each distribution date, the class Interest Distribution for each
class of class A certificates in a certificate group will be distributed on an
equal priority and any shortfall in the amount required to be distributed as
interest thereon to each class will be allocated between those classes pro rata
based on the amount each class would have been distributed in the absence of
that shortfall.
PRINCIPAL
On each distribution date, to the extent of funds available, in
accordance with the priorities described above under "--Priorities of
Distributions," principal will be distributed to the holders of class A
certificates of each certificate group then entitled to distributions of
principal in an amount equal to the lesser of (A) the related aggregate class A
principal balance and (B) the related class A Principal Distribution for that
distribution date. "Class A Principal Distribution" means, with respect to any
distribution date and certificate group, the sum of the related class A Monthly
Principal Distributable Amount for that distribution date and any outstanding
class A Principal Carryover Shortfall as of the close of business on the
preceding distribution date.
"Class A Monthly Principal Distributable Amount" means, with respect to
any distribution date and certificate group, to the extent of funds available
therefor, the amount equal to the sum of the following amounts (without
duplication) with respect to the immediately preceding due period:
(1) each payment of principal on a mortgage loan in the
related loan group received by the master servicer during that due
period, including all full and partial principal prepayments,
(2) the principal balance as of the end of the immediately
preceding due period of each mortgage loan in the related loan group
that became a liquidated mortgage loan for the first time during the
related due period,
(3) the portion of the purchase price allocable to principal
of all repurchased defective mortgage loans in the related loan group
with respect to that due period,
(4) any substitution adjustments received on or prior to the
previous determination date and not yet distributed with respect to the
related loan group, and
(5) that portion, not greater than 100%, of Excess Spread, if
any, required to be distributed on that distribution date to satisfy
the required level of overcollateralization for the related loan group
for that distribution date, which amount is the Distributable Excess
Spread.
Class A Principal Carryover Shortfall means, with respect to any
distribution date and certificate group, the excess of the sum of the related
class A Monthly Principal Distributable Amount for the preceding distribution
date and any outstanding class A Principal Carryover Shortfall with respect to
that certificate group on the preceding distribution date over the amount in
respect of principal that is actually distributed to the class A
certificateholders of that certificate group on the preceding distribution date.
If the required level of overcollateralization for a certificate group
is reduced below the then existing amount of overcollateralization or if the
required level of overcollateralization for that certificate group is satisfied,
the amount of the related class A Monthly Principal Distributable Amount on the
following distribution date will be reduced by the amount of that reduction or
by the amount necessary to assure that the overcollateralization will not exceed
the required level of overcollateralization for a certificate group after giving
effect to the distribution in respect of principal with respect to that
certificate group to be made on that distribution date.
The application of Distributable Excess Spread in respect of a
certificate group is intended to create overcollateralization to provide a
source of additional cashflow to cover losses on the mortgage loans in the
related loan group. If the amount of losses in a particular due period for a
loan group exceeds the amount of the related Excess Spread for the related
distribution date, subject to the provisions described below under
"--Crosscollateralization," the amount distributed in respect of principal will
be reduced. A draw on the policy in respect of principal will not be made until
the class A principal balance of a certificates group exceeds the aggregate
principal balance of the mortgage loans in the related loan group. See "--The
Policy" in this prospectus supplement. Accordingly, there may be distribution
dates on which class A certificateholders receive little or no distributions in
respect of principal.
So long as an insurer default has not occurred and is continuing,
distributions of the class A Principal Distribution with respect to the group 1
certificates will be applied, sequentially, to the distribution of principal to
the class A-1, class A-2, class A-3, class A-4 and class A-5 certificates, in
that order, so that no class of group 1 certificates having a higher numerical
designation is entitled to distributions of principal until the class A
principal balance of each class of certificates having a lower numerical
designation has been reduced to zero. On any distribution date if an insurer
default has occurred and is continuing, the class A Principal Distribution with
respect to the group 1 certificates will be applied to the distribution of
principal of each class outstanding on a pro rata basis in accordance with the
class A principal balance of each class.
On each distribution date following an insurer default, net losses
realized in respect of liquidated mortgage loans in a loan group, to the extent
that amount is not covered by available funds from the related loan group or the
crosscollateralization mechanics described in this prospectus supplement, will
reduce the amount of overcollateralization, if any, with respect to the related
certificate group.
Due period means, with respect to any determination date or
distribution date, the calendar month immediately preceding that determination
date or distribution date, as the case may be.
A liquidated mortgage loan, as to any distribution date, is a mortgage
loan with respect to which the master servicer has determined, in accordance
with the servicing procedures specified in the pooling and servicing agreement,
as of the end of the preceding due period, that all liquidation proceeds which
it expects to recover with respect to that mortgage loan, including disposition
of the related REO Property, have been recovered.
Excess Spread means, with respect to any distribution date and loan
group, the positive excess, if any, of (x) available funds for the related
certificate group for that distribution date over (y) the amount required to be
distributed pursuant to subclause A items (1) through (4), with respect to the
group 1 certificates and subclause B items (1) through (4), with respect to the
group 2 certificates, in each case set forth under the heading "Description of
Certificates--Priority of Distributions" on that distribution date.
An Insurer Default will occur in the event the certificate insurer
fails to make a payment required under the policy or if events of bankruptcy or
insolvency occur with respect to the certificate insurer.
THE POLICY
The following information has been supplied by the certificate insurer
for inclusion in this prospectus supplement. Accordingly, neither the depositor
nor the master servicer makes any representation as to the accuracy and
completeness of the following information.
The certificate insurer, in consideration of the payment of the premium
and subject to the terms of the policy, unconditionally and irrevocably
guarantees to any owner that an amount equal to each full and complete insured
payment will be received by the trustee, on behalf of the owners from the
certificate insurer, for distribution by the trustee to each owner of each
owner's proportionate share of the insured payment. The certificate insurer's
obligations under the policy with respect to a particular insured payment shall
be discharged to the extent funds equal to the applicable insured payment are
received by the trustee, whether or not those funds are properly applied by the
trustee. Insured payments shall be made only at the time set forth in the policy
and no accelerated insured payments shall be made regardless of any acceleration
of the class A certificates, unless that acceleration is at the sole option of
the certificate insurer.
Notwithstanding the foregoing paragraph, the policy does not cover
shortfalls, if any, attributable to the liability of the trust fund, the REMIC
or the trustee for withholding taxes, if any, including interest and penalties
in respect of any liability of that type.
The certificate insurer will pay any insured payment that is a
preference amount on the business day following receipt on a business day by the
fiscal agent of:
(1) a certified copy of the order requiring the return of
a preference payment,
(2) an opinion of counsel satisfactory to the certificate
insurer that the order is final and not subject to appeal,
(3) an assignment in form as is reasonably required by the
certificate insurer, irrevocably assigning to the certificate insurer
all rights and claims of the owner relating to or arising under the
class A certificates against the debtor that made that preference
payment or otherwise with respect to that preference amount, and
(4) appropriate instruments to effect the appointment of the
certificate insurer as agent for that owner in any legal proceeding
related to the preference amount, those instruments being in a form
satisfactory to the certificate insurer, provided that if the documents
are received after 12:00 noon New York City time on that business day,
they will be deemed to be received on the following business day. Those
payments shall be disbursed to the receiver or trustee in bankruptcy
named in the final order of the court exercising jurisdiction on behalf
of the owners and not any owner directly unless that owner has returned
principal or interest paid on the class A certificates to the receiver
or trustee in bankruptcy, in which case that payment shall be disbursed
to that owner.
The certificate insurer will pay any other amount payable under that
policy no later than 12:00 noon New York City time on the later of the
distribution date on which the deficiency amount is due or the business day
following receipt in New York, New York on a business day by State Street Bank
and Trust Company, N.A., as fiscal agent for the certificate insurer or any
successor fiscal agent appointed by the certificate insurer of a notice;
provided that if that notice is received after 12:00 noon New York City time on
that business day, it will be deemed to be received on the following business
day. If any notice received by the fiscal agent is not in proper form or is
otherwise insufficient for the purpose of making claim under the policy it shall
be deemed not to have been received by the fiscal agent for purposes of this
paragraph, and the certificate insurer or the fiscal agent, as the case may be,
shall promptly so advise the trustee and the trustee may submit an amended
notice.
Insured payments due under the policy unless otherwise stated in the
policy will be disbursed by the fiscal agent to the trustee on behalf of the
owners by wire transfer of immediately available funds in the amount of the
insured payment less, in respect of insured payments related to Preference
Amounts, any amount held by the trustee for the payment of that insured payment
and legally available therefor.
The fiscal agent is the agent of the certificate insurer only and the
fiscal agent shall in no event be liable to the owners for any acts of the
fiscal agent or any failure of the certificate insurer to deposit or cause to be
deposited, sufficient funds to make payments due under the policy.
As used in the policy, the following terms shall have the following
meanings:
Agreement means the pooling and servicing agreement, dated as
of _________________, between J.P. Morgan Acceptance Corporation I, as
depositor, ____________, as seller and master servicer, and the trustee,
as trustee, without regard to any amendment or supplement thereto unless
that amendment or modification has been approved in writing by the
certificate insurer.
Business day means any day other than a Saturday, a Sunday or a
day on which banking institutions in New York City or the city in which
the corporate trust office of the trustee under the Agreement is located
are authorized or obligated by law or executive order to close.
Deficiency amount means for any distribution date (A) the
excess, if any, of (1) class Monthly Interest Distributable Amount net
of any Civil Relief Act Interest Shortfalls plus any class Interest
Carryover Shortfall over (2) funds on deposit in the distribution
account net of the trustee's fee and the insurance premium for that
distribution date and (B) the Guaranteed Principal Amount.
Guaranteed Principal Amount means for any distribution date (a)
the amount which is required to reduce the then outstanding class A
principal balance after giving effect to the distributions, if any, to
the holders in respect of principal on that distribution date to an
amount equal to the aggregate principal balance of the mortgage loans as
of the last day of the immediately preceding due period and (b) on
__________, ____ after all distributions have been made including
distributions pursuant to clause (a) of this definition of "Guaranteed
Principal Amount," an amount equal to the then outstanding class A
principal balance.
Insured payment means (1) as of any distribution date, any
deficiency amount and (2) any preference amount.
Notice means the telephonic or telegraphic notice, promptly
confirmed in writing, in the case of a telephonic notice, by telecopy,
substantially in the form of exhibit A attached to the policy, the
original of which is subsequently delivered by registered or certified
mail, from the trustee specifying the insured payment which shall be due
and owing on the applicable distribution date.
Owner means each holder who, on the applicable distribution
date, is entitled under the terms of the applicable class A certificates
to payment under the policy.
Preference Amount means any amount previously distributed to an
owner on the class A certificates that is recoverable and sought to be
recovered as a voidable preference by a trustee in bankruptcy pursuant
to the United States Bankruptcy Code (11 U.S.C.), as amended from time
to time in accordance with a final nonappealable order of a court having
competent jurisdiction.
Any notice under the policy or service of process on the fiscal agent
may be made at the address listed below for the fiscal agent or another address
as the certificate insurer shall specify to the trustee in writing.
The notice address of the fiscal agent is _____________________________
Attention: ________________, or another address as the fiscal agent shall
specify to the trustee in writing.
The policy is being issued under and pursuant to, and shall be
construed under, the laws of the State of New York, without giving effect to the
conflict of laws principles of the laws of the State of New York.
The insurance provided by the policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
The policy is not cancelable for any reason. The premium on the policy
is not refundable for any reason including payment, or provision being made for
payment, prior to the maturity of the class A certificates.
OVERCOLLATERALIZATION
The credit enhancement provisions of the trust fund result in a limited
acceleration of the class A certificates of a certificate group relative to the
amortization of the mortgage loans in the related loan group in the early months
of the transaction. The accelerated amortization is achieved by the application
of Distributable Excess Spread relating to a loan group to principal
distributions on the class A certificates of the related certificate group. This
acceleration feature creates, with respect to each certificate group,
overcollateralization, i.e., the excess of the aggregate outstanding principal
balance of the mortgage loans in the related loan group over the related
aggregate class A principal balance. Once the required level of
overcollateralization is reached for a certificate group, and subject to the
provisions described in the next paragraph, the acceleration feature for the
certificate group will cease, until necessary to maintain the required level of
overcollateralization for that certificate group.
The pooling and servicing agreement provides that, subject to floors,
caps and triggers, the required level of overcollateralization with respect to a
certificate group may increase or decrease over time. Any decrease in the
required level of overcollateralization for a loan group will occur only at the
sole discretion of the certificate insurer. Any decrease will have the effect of
reducing the amortization of the class A certificates of the related certificate
group below what it otherwise would have been.
CROSSCOLLATERALIZATION
Excess Spread with respect to a loan group will be available to cover
limited shortfalls with respect to the offered certificates relating to the
other loan group as described above under the caption "--Priority of
Distributions".
PRE-FUNDING ACCOUNT
On the closing date, $___________ will be deposited in the pre-funding
account, which account shall be in the name of and maintained by the trustee and
shall be part of the trust fund and will be used to acquire subsequent mortgage
loans. During the period beginning on the closing date and terminating on
_____________, 19__, the pre-funded amount will be reduced by the amount used to
purchase subsequent mortgage loans in accordance with the pooling and servicing
agreement. Any pre-funded amount remaining at the end of the funding period will
be distributed to holders of the classes of certificates entitled to receive
principal on the distribution date in ______________, 19__ in reduction of the
related principal balances, which results in a partial principal prepayment of
the related certificates on that date.
Amounts on deposit in the pre-funding account will be invested in
permitted investments. All interest and any other investment earnings on amounts
on deposit in the pre-funding account will be deposited in the capitalized
interest account. The pre-funding account shall not be an asset of the REMIC.
All reinvestment earnings on the pre-funding account shall be owned by, and be
taxable to, the seller.
CAPITALIZED INTEREST ACCOUNT
On the closing date there will be deposited in the Capitalized Interest
Account maintained with and in the name of the trustee on behalf of the trust
fund a portion of the proceeds of the sale of the certificates. The amount
deposited in the Capitalized Interest Account will be used by the trustee on the
distribution dates in __________________ 19__, _____________ 19__ and
______________, 19__ to cover shortfalls in interest on the certificates that
may arise as a result of the utilization of the pre-funding account for the
purchase by the trust fund of subsequent mortgage loans after the closing date.
Any amounts remaining in the capitalized interest account at the end of the
funding period which are not needed to cover shortfalls on the distribution date
in ___________ 19__ are required to be paid directly to the seller.] The
capitalized interest account shall not be an asset of the REMIC. All
reinvestment earnings on the capitalized interest account shall be owned by, and
be taxable to, the seller.]
REPORTS TO CERTIFICATEHOLDERS
Concurrently with each distribution to the certificateholders, the
trustee will forward to each certificateholder a statement based solely on
information received from the master servicer setting forth among other items
with respect to each distribution date:
(1) the aggregate amount of the distribution to each class of
certificateholders on that distribution date;
(2) the amount of distribution set forth in paragraph (1)
above in respect of interest and the amount of that distribution in
respect of any class Interest Carryover Shortfall, and the amount of
any class Interest Carryover Shortfall remaining;
(3) the amount of distribution set forth in paragraph (1)
above in respect of principal and the amount of that distribution in
respect of the class A Principal Carryover Shortfall, and any remaining
class A Principal Carryover Shortfall;
(4) the amount of Excess Spread for each loan group and the
amount applied as to a distribution on the certificates;
(5) the Guaranteed Principal Amount with respect to each
certificate group, if any, for that distribution date;
(6) the amount paid under the policy for that distribution
date in respect of the class Interest Distribution to each class of
certificates;
(7) the master servicing fee;
(8) the pool principal balance, the loan group 1 principal
balance and the loan group 2 principal balance, in each case as of the
close of business on the last day of the preceding due period;
(9) the aggregate class A principal balance of each
certificate group after giving effect to payments allocated to
principal above;
(10) the amount of overcollateralization relating to each loan
group as of the close of business on the distribution date, after
giving effect to distributions of principal on that distribution date;
(11) the number and aggregate principal balances of the
mortgage loans as to which the minimum monthly payment is delinquent
for 30-59 days, 60-89 days and 90 or more days, respectively, as of the
end of the preceding due period;
(12) the book value of any real estate which is acquired by
the trust fund through foreclosure or grant of deed in lieu of
foreclosure;
(13) the aggregate amount of prepayments received on the
mortgage loans during the previous due period and specifying the amount
for each loan group; and
(14) the weighted average loan rate on the mortgage loans and
specifying the weighted average loan rate for each loan group as of the
first day of the month prior to the distribution date.
In the case of information furnished pursuant to clauses (2) and (3)
above, the amounts shall be expressed as a dollar amount per certificate with a
$1,000 denomination.
Within 60 days after the end of each calendar year, the trustee will
forward to each person, if requested in writing by that person, who was a
certificateholder during the prior calendar year a statement containing the
information set forth in clauses (2) and (3) above aggregated for that calendar
year.
LAST SCHEDULED DISTRIBUTION DATE
The last scheduled distribution date for each class of offered
certificates is as follows:
Class Date
----- ----
Class A-1 Certificates
Class A-2 Certificates
Class A-3 Certificates
Class A-4 Certificates
Class A-5 Certificates
Class A-6 Certificates
It is expected that the actual last distribution date for each class of
offered certificates will occur significantly earlier than these scheduled
distribution dates. See "Prepayment and Yield Considerations".
The last scheduled distribution dates are based on a 0% Prepayment
Assumption with no Distributable Excess Spread used to make accelerated payments
of principal to the holders of the related offered certificates and the
assumptions set forth above under "Prepayment and Yield Considerations--Weighted
Average Lives"; provided that the last scheduled distribution dates for the
class A-5 certificates and the class A-6 certificates have been calculated
assuming that the mortgage loan in the related loan group having the latest
maturity date allowed by the pooling and servicing agreement amortizes according
to its terms, plus one year.
COLLECTION AND OTHER SERVICING PROCEDURES ON MORTGAGE LOANS
The master servicer will make reasonable efforts to collect all
payments called for under the mortgage loans and will, consistent with the
pooling and servicing agreement, follow the collection procedures as it follows
from time to time with respect to the loans in its servicing portfolio
comparable to the mortgage loans. Consistent with the above, the master servicer
may in its discretion waive any late payment charge or any assumption or other
fee or charge that may be collected in the ordinary course of servicing the
mortgage loans.
With respect to the mortgage loans, the master servicer may arrange
with a borrower a schedule for the payment of interest due and unpaid for a
period, provided that any arrangement is consistent with the master servicer's
policies with respect to the mortgage loans it owns or services.
HAZARD INSURANCE
The master servicer will cause to be maintained fire and hazard
insurance with extended coverage customary in the area where the mortgaged
property is located, in an amount which is at least equal to the lesser of (1)
the maximum insurable value of the improvements securing that mortgage loan from
time to time and (2) the combined principal balance owing on that mortgage loan
and any mortgage loan senior to that mortgage loan.
The master servicer shall also maintain on property acquired upon
foreclosure, or by deed in lieu of foreclosure, hazard insurance with extended
coverage in an amount which is at least equal to the lesser of (1) the maximum
insurable value from time to time of the improvements which are a part of the
property and (2) the combined principal balance owing on that mortgage loan and
any mortgage loan senior to that mortgage loan. In cases in which any mortgaged
property is located in a federally designated flood area as designated by FEMA,
the hazard insurance to be maintained for the related mortgage loan shall
include flood insurance to the extent it is available and the master servicer
has determined that insurance is necessary in accordance with accepted first and
second mortgage loan servicing standards, as applicable. All flood insurance
shall be in amounts equal to the lesser of (A) the amount in clause (2) above
and (B) the maximum amount of insurance available under the National Flood
Insurance Act of 1968, as amended. The master servicer will also maintain on REO
Property, to the extent insurance is available, fire and hazard insurance in the
applicable amounts described above, liability insurance and, to the extent
required and available under the National Flood Insurance Act of 1968, as
amended, and the master servicer determines that insurance is necessary in
accordance with accepted mortgage servicing practices of prudent lending
institutions, flood insurance in an amount equal to that required above. Any
amounts collected by the master servicer under any of those policies, other than
amounts to be applied to the restoration or repair of the mortgaged property, or
to be released to the mortgagor in accordance with customary mortgage servicing
procedures, will be deposited in the collection account, subject to retention by
the master servicer to the extent those amounts constitute servicing
compensation or to withdrawal pursuant to the pooling and servicing agreement.
In the event that the master servicer obtains and maintains a blanket
policy as provided in the pooling and servicing agreement insuring against fire
and hazards of extended coverage on all of the mortgage loans, then, to the
extent that policy names the master servicer as loss payee and provides coverage
in an amount equal to the aggregate unpaid principal balance of the mortgage
loans without coinsurance, and otherwise complies with the requirements of the
first paragraph of this subsection, the master servicer will be deemed
conclusively to have satisfied its obligations with respect to fire and hazard
insurance coverage.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
The master servicer will foreclose upon or otherwise comparably convert
to ownership mortgaged properties securing those mortgage loans that come into
default when, in accordance with applicable servicing procedures under the
pooling and servicing agreement, no satisfactory arrangements can be made for
the collection of delinquent payments. In connection with the foreclosure or
other conversion, the master servicer will follow those practices it deems
necessary or advisable and as are in keeping with its general mortgage servicing
activities, provided that the master servicer will not be required to expend its
own funds in connection with foreclosure or other conversion, correction of
default on a related senior mortgage loan or restoration of any property unless,
in its sole judgment, the foreclosure, correction or restoration will increase
net liquidation proceeds in excess of liquidation expenses. The master servicer
will be reimbursed out of liquidation proceeds for advances of its own funds as
liquidation expenses before any net liquidation proceeds in excess of
liquidation expenses are distributed to certificateholders.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
With respect to each due period, the master servicer will receive from
interest payments in respect of the mortgage loans, on behalf of itself, a
portion of the interest payments as a master servicing fee in the amount equal
to ____% per annum on the principal balance of each mortgage loan as of the
first day of each due period. All assumption fees, late payment charges and
other fees and charges, to the extent collected from borrowers, will be retained
by the master servicer as additional servicing compensation.
Interest shortfalls resulting from the application of the Civil Relief
Act will not be covered by the policy, although prepayment interest shortfalls,
after application of the master servicing fee, will be so covered. The master
servicer is not obligated to offset any of the master servicing fee against, or
to provide any other funds to cover, any shortfalls in interest collections on
the mortgage loans that are attributable to the application of the Civil Relief
Act. See "Risk Factors--Payments on the Mortgage Loans" in this prospectus
supplement.
EVIDENCE AS TO COMPLIANCE
The pooling and servicing agreement provides for delivery on or before
the last day of the fifth month following the end of the master servicer's
fiscal year, beginning in 199_, to the trustee, the depositor, the certificate
insurer and the rating agencies of an annual statement signed by an officer of
the master servicer to the effect that the master servicer has fulfilled its
material obligations under the pooling and servicing agreement throughout the
preceding fiscal year, except as specified in that statement.
On or before the last day of the fifth month following the end of the
master servicer's fiscal year, beginning in 199_, the master servicer will
furnish a report prepared by a firm of nationally recognized independent public
accountants - who may also render other services to the master servicer or the
depositor ________ to the trustee, the depositor, the certificate insurer and
the rating agencies to the effect that they have examined documents and the
records relating to servicing of the mortgage loans under the Uniform Single
Attestation Program for Mortgage Bankers and the firm's conclusion with respect
to those documents and records.
The master servicer's fiscal year is the calendar year.
MATTERS REGARDING THE MASTER SERVICER
The pooling and servicing agreement provides that the master servicer
may not resign from its obligations and duties thereunder, except in connection
with a permitted transfer of servicing, unless (1) the duties and obligations
are no longer permissible under applicable law as evidenced by an opinion of
counsel delivered to the certificate insurer or (2) upon the satisfaction of the
following conditions: (a) the master servicer has proposed a successor master
servicer to the trustee in writing and the proposed successor master servicer is
reasonably acceptable to the trustee; (b) the rating agencies have confirmed to
the trustee that the appointment of the proposed successor master servicer as
the master servicer will not result in the reduction or withdrawal of the then
current rating of the certificates; and (c) the proposed successor master
servicer is reasonably acceptable to the certificate insurer. No resignation
will become effective until the trustee or a successor master servicer has
assumed the master servicer's obligations and duties under the pooling and
servicing agreement.
The master servicer may perform any of its duties and obligations under
the pooling and servicing agreement through one or more subservicers or
delegates, which may be affiliates of the master servicer. Notwithstanding any
arrangement, the master servicer will remain liable and obligated to the trustee
and the certificateholders for the master servicer's duties and obligations
under the pooling and servicing agreement, without any diminution of those
duties and obligations and as if the master servicer itself were performing
those duties and obligations.
The master servicer may agree to changes in the terms of a mortgage
loan, provided, however, that those changes:
(1) will not cause the trust fund to fail to qualify as a REMIC and do
not adversely affect the interests of the certificateholders or the certificate
insurer,
(2) are consistent with prudent business practices and
(3) do not change the loan rate of that mortgage loan or extend the
maturity date of that mortgage loan in excess of one year unless the related
mortgager is in default, or a default is, in the judgment of the master
servicer, imminent. Any changes to the terms of a mortgage loan that would cause
the trust fund to fail to qualify as a REMIC, however, may be agreed to by the
master servicer, provided that the master servicer has determined those changes
are necessary to avoid a prepayment of that mortgage loan, those changes are in
accordance with prudent business practices and the master servicer purchases
that mortgage loan in accordance with the terms of the pooling and servicing
agreement.
The pooling and servicing agreement provides that the master servicer
will indemnify the trust fund and the trustee from and against any loss,
liability, expense, damage or injury suffered or sustained as a result of the
master servicer's actions or omissions in connection with the servicing and
administration of the mortgage loans which are not in accordance with the
provisions of the pooling and servicing agreement. The pooling and servicing
agreement provides that neither the depositor nor the master servicer nor their
directors, officers, employees or agents will be under any other liability to
the trust fund, the trustee, the certificateholders or any other person for any
action taken or for refraining from taking any action pursuant to the pooling
and servicing agreement. However, neither the depositor nor the master servicer
will be protected against any liability which would otherwise be imposed by
reason of willful misconduct, bad faith or gross negligence of the depositor or
the master servicer, as the case may be, in the performance of its duties under
the pooling and servicing agreement or by reason of reckless disregard of its
obligations thereunder. In addition, the pooling and servicing agreement
provides that the master servicer will not be under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its servicing
responsibilities under the pooling and servicing agreement. The master servicer
may, in its sole discretion, undertake any legal action which it may deem
necessary or desirable with respect to the pooling and servicing agreement and
the rights and duties of the parties thereto and the interest of the
certificateholders thereunder.
Any corporation into which the master servicer may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the master servicer shall be a party, or any corporation
succeeding to the business of the master servicer shall be the successor of the
master servicer under the pooling and servicing agreement, without the execution
or filing of any paper or any further act on the part of any of the parties to
the pooling and servicing agreement, anything in the pooling and servicing
agreement to the contrary notwithstanding.
EVENTS OF DEFAULT
Events of Default will consist of:
(1) (A) any failure of the master servicer to make any
required monthly advance or (B) any other failure of the master
servicer to deposit in the collection account or distribution account
any deposit required to be made under the pooling and servicing
agreement, which failure continues unremedied for two business days
after the giving of written notice of the failure to the master
servicer by the trustee, or to the master servicer and the trustee by
the certificate insurer or any certificateholder;
(2) any failure by the master servicer duly to observe or
perform in any material respect any other of its covenants or
agreements in the pooling and servicing agreement which, in each case,
materially and adversely affects the interests of the
certificateholders or the certificate insurer and continues unremedied
for 30 days after the giving of written notice of the failure to the
master servicer by the trustee, or to the master servicer and the
trustee by the certificate insurer or any certificateholder;
(3) any failure by the master servicer to make any required
servicing advance, which failure continues unremedied for a period of
30 days after the giving of written notice of the failure to the master
servicer by the trustee, or to the master servicer and the trustee by
the certificate insurer or any certificateholder; or
(4) events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings relating to the master
servicer and actions by the master servicer indicating insolvency,
reorganization or inability to pay its obligations.
Upon the occurrence and continuation beyond the applicable grace period
of the event described in clause (1) (A) above, if any monthly advance is not
made by 4:00 P.M., New York City time, on the second business day following
written notice to the master servicer of that event, the trustee will make the
monthly advance and either the trustee or a successor master servicer will
immediately assume the duties of the master servicer.
Upon removal or resignation of the master servicer, the trustee will be
the successor master servicer. The trustee, as successor master servicer, will
be obligated to make monthly advances and servicing advances and other advances
unless it determines reasonably and in good faith that the advances would not be
recoverable.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (1) above for a period of ten (10) business days or
referred to under clause (2) above for a period of thirty (30) business days,
shall not constitute an Event of Default if the delay or failure could not be
prevented by the exercise of reasonable diligence by the master servicer and the
delay or failure was caused by an act of God or other similar occurrence. Upon
the occurrence of any event the master servicer shall not be relieved from using
its best efforts to perform its obligations in a timely manner in accordance
with the terms of the pooling and servicing agreement and the master servicer
shall provide the trustee, the certificate insurer and the certificateholders
prompt notice of the failure or delay by it, together with a description of its
efforts to so perform its obligations.
RIGHTS UPON AN EVENT OF DEFAULT
So long as an Event of Default remains unremedied, either the trustee,
certificateholders holding certificates evidencing at least 51% of the voting
rights in the trust fund, with the consent of the certificate insurer, or the
certificate insurer may terminate all of the rights and obligations of the
master servicer under the pooling and servicing agreement and in and to the
mortgage loans, whereupon the trustee will succeed to all the responsibilities,
duties and liabilities of the master servicer under the pooling and servicing
agreement and will be entitled to similar compensation arrangements. In the
event that the trustee would be obligated to succeed to all the
responsibilities, duties and liabilities of the master servicer but is unwilling
or unable so to act, it may appoint, or petition a court of competent
jurisdiction for the appointment of, a housing and home finance institution or
other mortgage loan or home equity loan servicer with all licenses and permits
required to perform its obligations under the pooling and servicing agreement
and having a net worth of at least $50,000,000 and acceptable to the certificate
insurer to act as successor to the master servicer under the pooling and
servicing agreement. Pending that appointment, the trustee will be obligated to
act as successor master servicer unless prohibited by law. The successor will be
entitled to receive the same compensation that the master servicer would
otherwise have received, or any lesser compensation as the trustee and the
successor may agree. A receiver or conservator for the master servicer may be
empowered to prevent the termination and replacement of the master servicer if
the only Event of Default that has occurred is an insolvency event.
AMENDMENT
The pooling and servicing agreement may be amended from time to time by
the seller, the master servicer, and the trustee and with the consent of the
certificate insurer, but without the consent of the certificateholders, to cure
any ambiguity, to correct or supplement any provisions in the pooling and
servicing agreement which may be inconsistent with any other provisions of the
pooling and servicing agreement, to add to the duties of the seller or the
master servicer to comply with any requirements imposed by the Internal Revenue
Code or any regulation thereunder, or to add or amend any provisions of the
pooling and servicing agreement as required by the rating agencies in order to
maintain or improve any rating of the offered certificates - it being understood
that, after obtaining the ratings in effect on the closing date, neither the
seller, the trustee, the certificate insurer nor the master servicer is
obligated to obtain, maintain, or improve any rating of the offered certificates
- - or to add any other provisions with respect to matters or questions arising
under the pooling and servicing agreement which shall not be inconsistent with
the provisions of the agreement; provided that that action will not, as
evidenced by an opinion of counsel, materially and adversely affect the
interests of any certificateholder or the certificate insurer; provided,
further, that any amendment will not be deemed to materially and adversely
affect the certificateholders and no opinion will be required to be delivered if
the person requesting the amendment obtains a letter from the rating agencies
stating that the amendment would not result in a downgrading of the then current
rating of the offered certificates. The pooling and servicing agreement may also
be amended from time to time by the seller, the master servicer, and the
trustee, with the consent of certificateholders evidencing at least 51% of the
percentage interests of each class affected by that amendment and the
certificate insurer for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the pooling and servicing
agreement or of modifying in any manner the rights of the certificateholders,
provided that no amendment will (1) reduce in any manner the amount of, or delay
the timing of, collections of payments on the certificates or distributions or
payments under the policy which are required to be made on any certificate
without the consent of the certificateholder or (2) reduce the aforesaid
percentage required to consent to any amendment, without the consent of the
holders of all offered certificates then outstanding.
TERMINATION; PURCHASE OF MORTGAGE LOANS
The trust fund will terminate on the distribution date following the
later of (A) payment in full of all amounts owing to the certificate insurer
unless the certificate insurer shall otherwise consent and (B) the earliest of:
(1) the distribution date on which the aggregate class A
principal balance has been reduced to zero,
(2) the final payment or other liquidation of the last
mortgage loan in the trust fund,
(3) the optional purchase by the master servicer of the
mortgage loans, as described below and
(4) the distribution date in [ ] on which date the policy will
be available to pay the outstanding aggregate class A principal balance
of the class A certificates.
Subject to provisions in the pooling and servicing agreement concerning
adopting a plan of complete liquidation, the master servicer may, at its option,
terminate the pooling and servicing agreement on any date on which the pool
principal balance is less than 5% of the sum of the cut-off date pool principal
balance by purchasing, on the next succeeding distribution date, all of the
outstanding mortgage loans at a price equal to the sum of the outstanding pool
principal balance, subject to reduction as provided in the pooling and servicing
agreement if the purchase price is based in part on the appraised value of any
REO Property included in the trust fund and the appraised value is less than the
principal balance of the related mortgage loan, and accrued and unpaid interest
thereon at the weighted average of the loan rates through the end of the due
period preceding the final distribution date together with all amounts due and
owing to the certificate insurer.
Any purchase of the remaining mortgage loans shall be accomplished by
deposit into the distribution account of the purchase price specified above.
VOTING RIGHTS
Under the pooling and servicing agreement, the voting rights will be
allocated to the class A certificates among the classes in proportion to their
respective class principal balances. Voting rights allocated to a class of
certificates will be further allocated among the certificates of that class on
the basis of their respective percentage interests. [So long as no insurer
default is continuing, the certificate insurer will be entitled to exercise the
voting rights of the class A certificates].
THE TRUSTEE
________________________________________, has been named trustee
pursuant to the pooling and servicing agreement.
The trustee may have normal banking relationships with the depositor
and the master servicer.
The trustee may resign at any time, in which event the depositor will
be obligated to appoint a successor trustee, as approved by the certificate
insurer. The depositor may also remove the trustee if the trustee ceases to be
eligible to continue as trustee under the pooling and servicing agreement or if
the trustee becomes insolvent. Upon becoming aware of those circumstances, the
depositor will be obligated to appoint a successor trustee, as approved by the
certificate insurer. Any resignation or removal of the trustee and appointment
of a successor trustee will not become effective until acceptance of the
appointment by the successor trustee.
No holder of a certificate will have any right under the pooling and
servicing agreement to institute any proceeding with respect to the pooling and
servicing agreement unless the holder previously has given to the trustee
written notice of default and unless certificateholders holding certificates
evidencing at least 51% of the percentage interests in the trust fund have made
written requests upon the trustee to institute the proceeding in its own name as
trustee thereunder and have offered to the trustee reasonable indemnity and the
trustee for 60 days has neglected or refused to institute any proceeding. The
trustee will be under no obligation to exercise any of the trusts or powers
vested in it by the pooling and servicing agreement or to make any investigation
of matters arising thereunder or to institute, conduct or defend any litigation
thereunder or in relation thereto at the request, order or direction of any of
the certificateholders, unless those certificateholders have offered to the
trustee reasonable security or indemnity against the cost, expenses and
liabilities which may be incurred by the trustee in connection with the exercise
of those trusts or powers.
USE OF PROCEEDS
The net proceeds to be received from the sale of the certificates will
be applied by the depositor towards the purchase of the mortgage loans.
FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the trust fund as a REMIC for federal
income tax purposes under the Internal Revenue Code. In the opinion of Brown &
Wood LLP, the class A certificates will be designated as "regular interests" in
the REMIC and the class R certificates will be designated as the sole class of
residual interests in the REMIC. See "Federal Income Tax Consequences--Taxation
of the REMIC and its Holders" in the prospectus.
The offered certificates generally will be treated as debt instruments
issued by the REMIC for federal income tax purposes. Income on the certificates
must be reported under an accrual method of accounting.
The offered certificates may, depending on their issue price, be issued
with OID for federal income tax purposes. Holders of certificates issued with
OID will be required to include OID in income as it accrues under a constant
yield method, in advance of the receipt of cash attributable to that income. The
OID regulations do not contain provisions specifically interpreting Code Section
1272(a)(6) which applies to prepayable securities like the offered certificates.
Until the Treasury issues guidance to the contrary, the trustee intends to base
its OID computation on Code Section 1272(a)(6) and the OID Regulations as
described in the prospectus. However, because no regulatory guidance currently
exists under Code Section 1272(a)(6), there can be no assurance that described
methodology represents the correct manner of calculating OID.
The yield used to calculate accruals of OID with respect to the offered
certificates with OID will be the original yield to maturity of the
certificates, determined by assuming that the mortgage loans in loan group 1
will prepay in accordance with % of the prepayment assumption and that the
mortgage loans in loan group 2 will prepay in accordance with % of the
prepayment assumption. No representation is made as to the actual rate at which
the mortgage loans will prepay.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The prepayment assumption model used in this
prospectus is based on CPR. CPR represents a constant rate of prepayment on the
mortgage loans each month relative to the aggregate outstanding principal
balance of the mortgage loans. CPR does not purport to be either an historical
description of the prepayment experience of any pool of mortgage loans or a
prediction of the anticipated rate of prepayment of any pool of mortgage loans,
including the mortgage loans, and there is no assurance that the mortgage loans
will prepay at the specified CPR. The depositor does not make any representation
about the appropriateness of the CPR model.
In the opinion of Brown & Wood LLP, the offered certificates will be
treated as regular interests in a REMIC under section 860G of the Code.
Accordingly, the offered certificates will be treated as (1) assets described in
section 7701(a)(19)(C) of the Code, and (2) "real estate assets" within the
meaning of section 856(c)(4)(A) of the Code, in each case to the extent
described in the prospectus. Interest on the offered certificates will be
treated as interest on obligations secured by mortgages on real property within
the meaning of section 856(c)(3)(B) of the Code to the same extent that the
offered certificates are treated as real estate assets. See "Federal Income Tax
Consequences" in the prospectus.
BACKUP WITHHOLDING
Some certificate owners may be subject to backup withholding at the
rate of 31% with respect to interest paid on the offered certificates if the
certificate owners, upon issuance, fail to supply the trustee or their broker
with their taxpayer identification number, furnish an incorrect taxpayer
identification number, fails to report interest, dividends, or other "reportable
payments", as defined in the Code, properly, or, under limited circumstances,
fails to provide the trustee or their broker with a certified statement, under
penalty of perjury, that they are not subject to backup withholding.
The trustee will be required to report annually to the IRS, and to each
offered certificateholder of record, the amount of interest paid and OID
accrued, if any, on the offered certificates, and the amount of interest
withheld for Federal income taxes, if any for each calendar year, except as to
exempt holders (generally, holders that are corporations, some tax-exempt
organizations or nonresident aliens who provide certification as to their status
as nonresidents). As long as the only class A certificateholder of record is
Cede, as nominee for DTC, certificate owners and the IRS will receive tax and
other information including the amount of interest paid on those certificates
owned from DTC participants and Indirect DTC participants rather than from the
trustee. The trustee, however, will respond to requests for necessary
information to enable DTC participants, Indirect DTC participants and other
persons to complete their reports. Each non-exempt certificate owner will be
required to provide, under penalty of perjury, a certificate on IRS Form W-9
containing his or her name, address, correct federal taxpayer identification
number and a statement that he or she is not subject to backup withholding.
Should a nonexempt certificate owner fail to provide the required certification,
the DTC participants or Indirect DTC participants or the Paying Agent will be
required to withhold 31% of the interest and principal otherwise payable to the
holder, and remit the withheld amount to the IRS as a credit against the
holder's federal income tax liability.
Those amounts will be deemed distributed to the affected certificate
owner for all purposes of the certificates, the pooling and servicing agreement
and the policy.
The New Withholding Regulations, which are final regulations dealing
with withholding tax on income paid to foreign persons, backup withholding and
related matters were issued by the Treasury Department on October 6, 1997. The
New Withholding Regulations generally will be effective for payments made after
December 31, 1999, subject to transition rules. Prospective certificate owners
are strongly urged to consult their own tax advisors with respect to the New
Withholding Regulations.
FEDERAL INCOME TAX CONSEQUENCES TO FOREIGN INVESTORS
The following information describes the United States federal income
tax treatment of holders that are foreign investors. The term Foreign Investor
means any person other than:
(1) a citizen or resident of the United States,
(2) a corporation, partnership or other entity organized in or
under the laws of the United States, any state of the United States or
the District of Columbia, other than a partnership that is not treated
as a United States person under any applicable Treasury regulations,
(3) an estate the income of which is includible in gross
income for United States federal income tax purposes, regardless of its
source,
(4) a trust fund if a court within the United States is able
to exercise primary supervision over the administration of the trust
fund and one or more United States persons have authority to control
all substantial decisions of the trust fund, or
(5) some trusts treated as United States persons before August
20, 1996 that elect to continue to be so treated to the extent provided
in regulations.
The Code and Treasury regulations generally subject interest paid to a
foreign investor to a withholding tax at a rate of 30% unless that rate were
changed by an applicable treaty. The withholding tax, however, is eliminated
with respect to particular "portfolio debt investments" issued to foreign
investors. Portfolio debt investments include debt instruments issued in
registered form for which the United States payor receives a statement that the
beneficial owner of the instrument is a foreign investor. The offered
certificates will be issued in registered form, therefore if the information
required by the Code is furnished and no other exceptions to the withholding tax
exemption are applicable, no withholding tax will apply to the offered
certificates.
For the offered certificates to constitute portfolio debt investments
exempt from the United States withholding tax, the withholding agent must
receive from the certificate owner an executed IRS Form W-8 or similar form
signed under penalty of perjury by the certificate owner stating that the
certificate owner is a foreign investor and providing the certificate owner's
name and address. The statement must be received by the withholding agent in the
calendar year in which the interest payment is made, or in either of the two
preceding calendar years.
A certificate owner that is a nonresident alien or foreign corporation
will not be subject to United States federal income tax on gain realized on the
sale, exchange, or redemption of the offered certificate, provided that:
(1) the gain is not effectively connected with a trade or
business carried on by the certificate owner in the United States,
(2) in the case of a certificate owner that is an individual,
the certificate owner is not present in the United States for 183 days
or more during the taxable year in which the sale, exchange or
redemption occurs and
(3) in the case of gain representing accrued interest, the
conditions described in the immediately preceding paragraph are
satisfied.
In addition, prospective certificate owners are strongly urged to
consult their own tax advisors with respect to the New Withholding Regulations.
See "Federal Income Tax Consequences - Backup Withholding".
STATE TAXES
The depositor makes no representations regarding the tax consequences
of purchase, ownership or disposition of the offered certificates under the tax
laws of any state. Investors considering an investment in the certificates
should consult their own tax advisors regarding those tax consequences.
All investors should consult their own tax advisors regarding the
Federal, state, local or foreign income tax consequences of the purchase,
ownership and disposition of the certificates.
ERISA CONSIDERATIONS
Any Plan fiduciary which proposes to cause a Plan to acquire any of the
offered certificates should consult with its counsel with respect to the
potential consequences under ERISA, and the Code, of the Plan's acquisition and
ownership of those certificates. See "ERISA Considerations" in the prospectus.
DOL has granted an exemption to J.P. Morgan Securities Inc. (the
"underwriter") Prohibited Transaction Exemption 90-23, Application No. D-7989,
55 Fed. Reg. 20545 (1990) which exempts from the application of the prohibited
transaction rules transactions relating to (1) the acquisition, sale and holding
by Plans of particular certificates representing an undivided interest in
particular asset-backed pass-through trusts, with respect to which J.P. Morgan
Securities Inc. or any of its affiliates is the sole underwriter or the manager
or co-manager of the underwriting syndicate; and (2) the servicing, operation
and management of asset-backed pass-through trusts, provided that the general
conditions and other conditions set forth in the exemption are satisfied. The
exemption will apply to the acquisition, holding and resale of the class A
certificates by a Plan, provided that specified conditions are met.
Among the conditions which must be satisfied for the exemption to apply
are the following:
(1) The acquisition of the class A certificates by a Plan is on
terms, including the price for those certificates, that are at least as
favorable to the investing Plan as they would be in an arm's-length
transaction with an unrelated party;
(2) The rights and interests evidenced by the class A
certificates acquired by the Plan are not subordinated to the rights and
interests evidenced by other certificates of the trust fund;
(3) The class A certificates acquired by the Plan have received
a rating at the time of acquisition that is in one of the three highest
generic rating categories from S&P, Moody's, Duff & Phelps or Fitch
(each, a "Rating Agency");
(4) The sum of all payments made to and retained by the
underwriter in connection with the distribution of the class A
certificates represents not more than reasonable compensation for
underwriting the certificates; the sum of all payments made to and
retained by the seller pursuant to the sale of the mortgage loans to the
trust fund represents not more than the fair market value of the
mortgage loans; the sum of all payments made to and retained by the
master servicer represents not more than reasonable compensation for any
of the master servicer's services under the pooling and servicing
agreement and reimbursement of the master servicer's reasonable expenses
in connection with providing those services;
(5) The trustee is not an affiliate of any underwriter, the
seller, any servicer, the master servicer, the certificate insurer, any
borrower whose obligations under one or more mortgage loans constitute
more than 5% of the aggregate unamortized principal balance of the
assets in the trust fund, or any of their respective affiliates; and
(6) The Plan investing in the class A certificates is an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of
the SEC under the Securities Act of 1933, as amended.
On July 21, 1997, DOL published in the Federal Register an amendment to
the exemption, which extends exemptive relief to particular mortgage-backed and
asset-backed securities transactions using pre-funding accounts for trusts
issuing pass-through certificates. The amendment generally allows mortgage loans
or other secured receivables (the "Obligations") supporting payments to
certificateholders, and having a value equal to no more than twenty-five percent
(25%) of the total principal amount of the certificates being offered by the
trust, to be transferred to the trust within a 90-day or three-month period
following the closing date, instead of requiring that all Obligations be either
identified or transferred on or before the closing date. The relief is available
when the following conditions are met:
(1) The ratio of the amount allocated to the pre-funding
account to the total principal amount of the certificates being offered
must not exceed twenty-five percent (25%).
(2) All Obligations transferred after the closing date must
meet the same terms and conditions for eligibility as the original
Obligations used to create the trust, which terms and conditions have
been approved by a rating agency.
(3) The transfer of the additional Obligations to the trust
during the pre-funding period must not result in the certificates to be
covered by the exemption receiving a lower credit rating from a rating
agency upon termination of the funding period than the rating that was
obtained at the time of the initial issuance of the certificates by the
trust.
(4) Solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate for all of the Obligations in
the trust at the end of the funding period must not be more than 100
basis points lower than the average interest rate for the Obligations
transferred to the trust on the closing date.
(5) In order to insure that the characteristics of the
additional Obligations are substantially similar to the original
Obligations which were transferred to the trust fund:
(i) the characteristics of the additional Obligations must
be monitored by an insurer or other credit support provider that is
independent of the depositor; or
(ii) an independent accountant retained by the depositor
must provide the depositor with a letter, with copies provided to
each rating agency rating the certificates, the related underwriter
and the related trustee stating whether or not the characteristics
of the additional Obligations conform to the characteristics
described in the related prospectus or prospectus supplement and/or
pooling and servicing agreement. In preparing that letter, the
independent accountant must use the same type of procedures as were
applicable to the Obligations transferred to the trust as of the
closing date.
(6) The funding period must end no later than three months or
90 days after the closing date or earlier in particular circumstances if
the pre-funding account falls below the minimum level specified in the
pooling and servicing agreement or an Event of Default occurs.
(7) Amounts transferred to any pre-funding account and/or
capitalized interest account used in connection with the pre-funding may
be invested only in permitted investments.
(8) The related prospectus or prospectus supplement must
describe:
(i) any pre-funding account and/or capitalized interest
account used in connection with a pre-funding account;
(ii) the duration of the funding period;
(iii) the percentage and/or dollar amount of the
pre-funding limit for the trust; and
(iv) that the amounts remaining in the pre-funding account
at the end of the funding period will be remitted to
certificateholders as repayments of principal.
(9) The related pooling and servicing agreement must describe
the permitted investments for the pre-funding account and/or capitalized
interest account and, if not disclosed in the related prospectus or
prospectus supplement, the terms and conditions for eligibility of
additional Obligations.
The underwriter believes that the exemption as amended will apply to
the acquisition and holding of the class A certificates by Plans and that all
conditions of the exemption other than those within the control of the investors
will be met.
Any Plan fiduciary considering whether to purchase any class A
certificates on behalf of a Plan should consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to that investment. Among other things, before
purchasing any class A certificates, a fiduciary of a Plan subject to the
fiduciary responsibility provisions of ERISA or an employee benefit plan subject
to the prohibited transaction provisions of the Code should make its own
determination as to the availability of the exemptive relief provided in the
Exemption, and also consider the availability of any other prohibited
transaction exemptions.
LEGAL INVESTMENT
The offered certificates will constitute "mortgage related securities"
for purposes of SMMEA so long as they are rated in one of the two highest rating
categories by at least one nationally recognized statistical rating organization
and, as such, are legal investments for specified entities to the extent
provided in SMMEA.
Institutions whose investment activities are subject to review by
federal or state regulatory authorities should consult with their counsel or the
applicable authorities to determine whether an investment in the offered
certificates complies with applicable guidelines, policy statements or
restrictions. See "Legal Investment" in the prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, dated ____________________, between the depositor and J.P. Morgan
Securities Inc., the depositor has agreed to sell to the underwriter and the
underwriter has agreed to purchase from the depositor the class A certificates.
Distributions of the offered certificates will be made from time to
time in negotiated transactions or otherwise at varying prices to be determined
at the time of sale. Proceeds to the depositor from the sale of the offered
certificates will be approximately $ , plus accrued interest, before deducting
expenses payable by the depositor, estimated to be $ in the aggregate. In
connection with the purchase and sale of the offered certificates, the
underwriter may be deemed to have received compensation from the depositor in
the form of underwriting discounts.
The depositor has been advised by the underwriter that it presently
intends to make a market in the offered certificates; however, it is not
obligated to do so, any market-making may be discontinued at any time, and there
can be no assurance that an active public market for the offered certificates
will develop.
The offers and sales related to the prospectus supplement and the
attached prospectus may be used by [_______] in connection with market making
transactions in the offered certificates. [_________] may act as principal or
agent in those transactions. Those transactions will be at prices related to
prevailing market prices at the time of sale. [________] is an affiliate of the
master servicer.]
The underwriting agreement provides that the depositor will indemnify
the underwriter against specified civil liabilities, including liabilities under
the Securities Act.
EXPERTS
[__________]
LEGAL MATTERS
Legal matters with respect to the class A certificates will be passed
upon for the depositor by Brown & Wood LLP, New York, New York, and for the
underwriter by ____________________.
RATINGS
It is a condition to the issuance of the class A certificates that they
receive ratings of "AAA" by _______ and "Aaa" by ______.
A securities rating addresses the likelihood of the receipt by class A
certificateholders of distributions on the mortgage loans. The rating takes into
consideration the characteristics of the mortgage loans and the structural,
legal and tax aspects associated with the class A certificates. The ratings on
the class A certificates do not, however, constitute statements regarding the
likelihood or frequency of prepayments on the mortgage loans or the possibility
that class A certificateholders might realize a lower than anticipated yield.
The ratings assigned to the class A certificates will depend primarily
upon the creditworthiness of the certificate insurer. Any reduction in a rating
assigned to the claims-paying ability of the certificate insurer below the
ratings initially assigned to the class A certificates may result in a reduction
of one or more of the ratings assigned to the class A certificates.
A securities rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each securities rating should be evaluated
independently of similar ratings on different securities.
<PAGE>
Annex I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in limited circumstances, the globally offered Home Equity Loan
Asset-Backed Certificates, Series 199___ (the "Global Securities") will be
available only in book-entry form. Investors in the Global Securities may hold
the Global Securities through any of DTC, Cedelbank or Euroclear. The Global
Securities will be tradeable as home market instruments in both the European and
U.S. domestic markets. Initial settlement and all secondary trades will settle
in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedelbank and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice - i.e., seven calendar day settlement.
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior home equity loan asset-backed
certificates issues.
Secondary cross-market trading between Cedelbank or Euroclear and DTC
participants holding certificates will be effected on a delivery-against-payment
basis through the respective depositaries of Cedelbank and Euroclear (in that
capacity) and as DTC participants.
Non-U.S. holders of Global Securities will be subject to U.S.
withholding taxes unless the holders meet specified requirements and deliver
appropriate U.S. tax documents to the securities clearing organizations or their
participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the
name of Cede as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect participants in DTC. As a result, Cedelbank and Euroclear
will hold positions on behalf of their participants through their respective
Depositaries, which in turn will hold those positions in accounts as DTC
participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to prior home equity loan
asset-backed certificates issues. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the settlement
date.
Investors electing to hold their Global Securities through Cedelbank or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to prior home
equity loan asset-backed certificates issues in same-day funds.
Trading between Cedelbank and/or Euroclear Participants. Secondary
market trading between Cedelbank participants or Euroclear participants will be
settled using the procedures applicable to conventional eurobonds in same-day
funds.
Trading between DTC seller and Cedelbank or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC participant to
the account of a Cedelbank participant or a Euroclear participant, the purchaser
will send instructions to Cedelbank or Euroclear through a Cedelbank participant
or Euroclear participant at least one business day prior to settlement.
Cedelbank or Euroclear will instruct the respective depositary, as the case may
be, to receive the Global Securities against payment. Payment will include
interest accrued on the Global Securities from and including the last coupon
payment date to and excluding the settlement date, on the basis of either the
actual number of days in the accrual period and a year assumed to consist of 360
days or a 360-day year of 12 30-day months as applicable to the related class of
Global Securities. For transactions settling on the 31st of the month, payment
will include interest accrued to and excluding the first day of the following
month. Payment will then be made by the respective depositary of the DTC
participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Cedelbank participant's or Euroclear participant's
account. The securities credit will appear the next day European time and the
cash debt will be back-valued to, and the interest on the Global Securities will
accrue from, the value date, which would be the preceding day when settlement
occurred in New York. If settlement is not completed on the intended value date,
the Cedelbank or Euroclear cash debt will be valued instead as of the actual
settlement date.
Cedelbank participants and Euroclear participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedelbank or Euroclear. Under
this approach, they may take on credit exposure to Cedelbank or Euroclear until
the Global Securities are credited to their accounts one day later.
As an alternative, if Cedelbank or Euroclear has extended a line of
credit to them, Cedelbank participants or Euroclear participants can elect not
to preposition funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, Cedelbank participants or Euroclear
participants purchasing Global Securities would incur overdraft charges for one
day, assuming they cleared the overdraft when the Global Securities were
credited to their accounts. However, interest on the Global Securities would
accrue from the value date. Therefore, in many cases the investment income on
the Global Securities earned during that one-day period may substantially reduce
or offset the amount of the overdraft charges, although this result will depend
on each Cedelbank participant's or Euroclear participant's particular cost of
funds.
Since the settlement is taking place during New York business hours,
DTC participants can employ their usual procedures for sending Global Securities
to the respective European depositary for the benefit of Cedelbank participants
or Euroclear participants. The sale proceeds will be available to the DTC seller
on the settlement date. Thus, to the DTC participants a cross-market transaction
will settle no differently than a trade between two DTC participants.
Trading between Cedelbank or Euroclear Seller and DTC Purchaser. Due to
time zone differences in their favor, Cedelbank participants and Euroclear
participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective depositary, to a DTC participant. The seller will send
instructions to Cedelbank or Euroclear through a Cedelbank participant or
Euroclear participant at least one business day prior to settlement. In these
cases Cedelbank or Euroclear will instruct the respective depositary, as
appropriate, to deliver the Global Securities to the DTC participant's account
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment to and excluding the settlement date
on the basis of either the actual number of days in that accrual period and a
year assumed to consist of 360 days or a 360-day year of 12 30-day months as
applicable to the related class of Global Securities. For transactions settling
on the 31st of the month, payment will include interest accrued to and excluding
the first day of the following month. The payment will then be reflected in the
account of the Cedelbank participant or Euroclear participant the following day,
and receipt of the cash proceeds in the Cedelbank participant's or Euroclear
participant's account would be back-valued to the value date, which would be the
preceding day, when settlement occurred in New York. Should the Cedelbank
participant or Euroclear participant have a line of credit with its respective
clearing system and elect to be in debt in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
incurred over that one-day period. If settlement is not completed on the
intended value date, receipt of the cash proceeds in the Cedelbank participant's
or Euroclear participant's account would instead be valued as of the actual
settlement date.
Finally, day traders that use Cedelbank or Euroclear and that purchase
Global Securities from DTC participants for delivery to Cedelbank participants
or Euroclear participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through Cedelbank or Euroclear for one day, until the
purchase side of the day trade is reflected in their Cedelbank or Euroclear
accounts, in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedelbank or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC participant is at least one
day prior to the value date for the sale to the Cedelbank participant or
Euroclear participant.
U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Cedelbank or Euroclear, or through DTC if the holder has an address outside the
U.S., will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (1) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business in the chain of intermediaries between the beneficial owner and the
U.S. entity required to withhold tax complies with applicable certification
requirements and (2) the beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of the change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 - Exemption from Withholding of Tax on
Income Effectively Connected with the Conduct of a Trade or Business in the
United States.
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. persons that are certificate owners residing in
a country that has a tax treaty with the United States can obtain an exemption
or reduced tax rate (depending on the treaty terms) by filing Form 1001
(Ownership, Exemption or Reduced Rate Certificate). If the treaty provides only
for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the certificate
owners or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The certificate owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means
(1) a citizen or resident of the United States,
(2) a corporation or partnership organized in or under the
laws of the United States or any political subdivision of the United
States,
(3) an estate the income of which is includible in gross
income for United States tax purposes, regardless of its source, or
(4) a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and
one or more United States trustees have authority to control all
substantial decisions of the trust. This summary does not deal with all
aspects of U.S. federal income tax withholding that may be relevant to
foreign holders of the Global Securities. Investors are advised to
consult their own tax advisors for specific tax advice concerning their
holding and disposing of the Global Securities.
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the SEC is
effective. This prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
Subject To Completion, Dated October 22, 1999
Prospectus
J.P. Morgan Acceptance Corporation I
CONSIDER CAREFULLY Asset Backed Securities
THE RISK FACTORS (Issuable in Series)
BEGINNING ON PAGE 5 ________________
OF THIS PROSPECTUS.
J.P. Morgan Acceptance Corporation I may periodically
The securities establish trusts which will issue securities. The
represent obligations securities may be in the form of asset-backed
of the trust only and certificates or asset-backed notes. Each issue of
do not represent an securities will have its own series designation.
interest in or
obligation of J.P. Each trust will consist of one or more of the
Morgan Acceptance following:
Corporation I, the
master servicer or any o mortgage loans secured by senior or junior liens on
of their affiliates. one- to four-family residential properties;
This prospectus may o closed-end and/or revolving home equity loans secured
be used to offer and by senior or junior liens on one- to four-family
sell the securities residential properties;
only if accompanied
by a prospectus o home improvement installment sales contracts and
supplement. installment loan agreements unsecured or secured by
senior or junior liens on one- to four-family
residential properties or by purchase money security
interests in the home improvements financed thereby;
o manufactured housing installment sales contracts and
installment loan agreements secured by senior or
junior liens on manufactured homes or by mortgages on
real estate on which the manufactured homes are
located;
o mortgaged backed securities issued or guaranteed by
Ginnie Mae, Freddie Mac or Fannie Mae; and
o privately issued mortgage backed securities
representing interests in any of the above asset
types.
Each series of securities will:
o either evidence beneficial ownership of a trust or be
secured by the assets of a trust;
o will be issued in one or more classes of securities.
A class of securities:
o will be entitled to all, some or none of the interest
payments and principal payments on the assets of the
trust;
o may be senior or subordinate in right of payment to
other classes; and
o may receive payments from an insurance policy, cash
account or other form of credit enhancement to cover
losses on the trust assets.
o No market will exist for the securities of any series
before the securities are issued. In addition, even
after the securities of a series have been issued and
sold, there can be no assurance that a resale market
will develop.
o The securities may be offered to the public through
different methods as described in "Method of
Distribution" in this prospectus.
o Neither the SEC nor any state securities commission
has approved or disapproved these securities or
determined if this prospectus is truthful or
complete. Any representation to the contrary is a
criminal offense.
________________, 1999
<PAGE>
Important Notice About Information Presented In This Prospectus And The
Accompanying Prospectus Supplement.
We provide information to you about the securities in two separate documents
that progressively provide more detail:
(a) this prospectus, which provides general information, some of
which may not apply to your series of securities and
(b) the accompanying prospectus supplement, which describes the
specific terms of your series of securities.
If the terms of a particular series of securities vary between this prospectus
and the accompanying prospectus supplement, you should rely on the information
in the prospectus supplement.
You should rely only on the information provided in this prospectus and the
accompanying prospectus supplement, including the information incorporated by
reference. We have not authorized anyone to provide you with different
information. We are not offering the securities in any state where the offer is
not permitted.
We include cross-references in this prospectus and the accompanying prospectus
supplement to captions in these materials where you can find further related
discussions. The following Table of Contents and the Table of Contents included
in the accompanying prospectus supplement provide the pages on which these
captions are located.
<PAGE>
Table of Contents
Page
RISK FACTORS.................................................................6
Limited Resale Market for Securities Could Adversely Affect Your
Ability to Liquidate Your Investment..................................6
Protection Against Losses is Limited Since Securities Will Receive
Payments Only From Specified Sources..................................6
Nature of Mortgages Securing the Loans May Delay Receipt of, or
Result in Shortfalls in Proceeds Payable on a Loan....................7
You Could Be Adversely Affected By Violations of Environmental Laws.....8
Value of Trust Assets May Be Less Than Outstanding Principal
Balance of the Related Securities.....................................8
THE TRUST FUND...............................................................9
General.................................................................9
The Loans..............................................................11
Modification of Loans..................................................16
Agency Securities......................................................16
Private Mortgage-Backed Securities.....................................23
Representations by Sellers or Originators; Repurchases.................26
Substitution of Trust Fund Assets......................................28
USE OF PROCEEDS.............................................................28
THE DEPOSITOR...............................................................28
DESCRIPTION OF THE SECURITIES...............................................29
General................................................................29
Distributions on Securities............................................31
Advances...............................................................33
Reports to Securityholders.............................................34
Categories of Classes of Securities....................................36
Indices Applicable to Floating Rate and Inverse Floating Rate
Classes..............................................................39
LIBOR..................................................................40
COFI...................................................................41
Treasury Index.........................................................43
Prime Rate.............................................................43
Book-Entry Registration of Securities..................................44
CREDIT ENHANCEMENT..........................................................47
General................................................................47
Subordination..........................................................48
Letter of Credit.......................................................49
Insurance Policies, Surety Bonds and Guaranties........................50
Over-Collateralization.................................................50
Spread Account.........................................................50
Reserve Accounts.......................................................50
Pool Insurance Policies................................................53
Cross-Collateralization................................................54
Other Insurance, Surety Bonds, Guaranties, and Letters of
Credit...............................................................55
Derivative Products....................................................55
YIELD AND PREPAYMENT CONSIDERATIONS.........................................55
THE AGREEMENTS..............................................................58
Assignment of the Trust Fund Assets....................................58
No Recourse to Sellers, Originators, Depositor or Master
Servicer.............................................................61
Payments on Loans; Deposits to Security Account........................61
Pre-Funding Account....................................................64
Sub-Servicing by Sellers...............................................65
Hazard Insurance.......................................................66
Realization Upon Defaulted Loans.......................................68
Servicing and Other Compensation and Payment of Expenses...............70
Evidence as to Compliance..............................................70
Matters Regarding the Master Servicer and the Depositor................71
Events of Default; Rights Upon Event of Default........................72
Amendment..............................................................75
Termination; Optional Termination......................................76
The Trustee............................................................77
MATERIAL LEGAL ASPECTS OF THE LOANS.........................................77
General................................................................77
Foreclosure/Repossession...............................................78
Environmental Risks....................................................81
Rights of Redemption...................................................82
Anti-deficiency Legislation and Other Limitations on Lenders...........83
Due-on-Sale Clauses....................................................84
Enforceability of Prepayment and Late Payment Fees.....................85
Applicability of Usury Laws............................................85
The Contracts..........................................................85
Installment Contracts..................................................88
Soldiers' and Sailors' Civil Relief Act................................89
Junior Mortgages; Rights of Senior Mortgagees..........................89
The Title I Program....................................................91
Consumer Protection Laws...............................................95
FEDERAL INCOME TAX CONSEQUENCES.............................................95
General................................................................95
Taxation of Debt Securities............................................96
Taxation of the REMIC and Its Holders.................................102
REMIC Expenses; Single Class REMICS...................................103
Taxation of the REMIC.................................................104
Taxation of Holders of Residual Interest Securities...................105
Administrative Matters................................................108
Tax Status as a Grantor Trust.........................................109
Sale or Exchange......................................................112
Miscellaneous Tax Aspects.............................................112
Tax Treatment of Foreign Investors....................................113
Tax Characterization of the Trust Fund as a Partnership...............114
Tax Consequences to Holders of the Notes..............................115
Tax Consequences to Holders of the Certificates.......................117
Taxation of Trust as FASIT............................................122
Treatment of FASIT Regular Securities.................................125
Treatment of High-Yield Interests.....................................125
Tax Treatment of FASIT Ownership Securities...........................126
STATE TAX CONSIDERATIONS...................................................127
ERISA CONSIDERATIONS.......................................................127
General...............................................................127
Prohibited Transactions...............................................128
General...............................................................128
Plan Asset Regulation.................................................128
Exemption 83-1........................................................129
The Underwriter's Exemption...........................................130
Insurance Company Purchasers..........................................134
Consultation with Counsel.............................................134
LEGAL INVESTMENT...........................................................135
METHOD OF DISTRIBUTION.....................................................136
LEGAL MATTERS..............................................................137
FINANCIAL INFORMATION......................................................137
RATING.....................................................................137
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase any of the securities.
LIMITED RESALE MARKET FOR SECURITIES COULD ADVERSELY AFFECT YOUR ABILITY TO
LIQUIDATE YOUR INVESTMENT
No market will exist for the securities of any series before they are
issued. We cannot give you any assurances that a resale market will develop
following the issuance and sale of any series of securities. There have been
times in the past when the absence of a liquid resale market for similar asset
and mortgage backed securities has rendered investors unable to sell their
securities at all or at other than a significant loss. Consequently, at a time
when you desire to sell your securities, you may not be able to do so.
Alternatively, you may be able to do so only at a price significantly below that
which would be obtainable were there a liquid resale market for your securities.
PROTECTION AGAINST LOSSES IS LIMITED SINCE SECURITIES WILL RECEIVE PAYMENTS
ONLY FROM SPECIFIED SOURCES
The securities of each series will be payable solely from the assets of
the related trust, including any applicable credit enhancement. In addition, at
the times specified in the related prospectus supplement, some assets of the
trust may be released to the seller, the depositor, the master servicer, a
credit enhancement provider or other person. Once released, those assets will no
longer be available to make payments to securityholders.
The securities will not represent an interest in the seller, the
depositor, the master servicer or any of their respective affiliates, nor will
the securities represent an obligation of any of them. The seller of loans or
mortgage backed securities to the depositor for inclusion in a trust will make
particular representations and warranties as to those assets. Those
representations and warranties will be described in the related prospectus
supplement. The only obligation of the seller with respect to a trust will be to
repurchase a trust asset if the seller or originator breaches a representation
and warranty concerning the related trust asset. There will be no recourse
against the seller, the depositor or the master servicer if any required
distribution on the securities is not made. Consequently, you will be reliant
entirely on the trust assets and any available credit enhancement for payments
on the securities. If payments on the trust assets are insufficient to make all
payments required on the securities you may incur a loss of your investment.
Credit enhancement is intended to reduce the effect of delinquent
payments or loan losses on those classes of securities that have the benefit of
the credit enhancement. However, the amount of any credit enhancement may
decline or be depleted before the securities are paid in full. Third party
providers of credit enhancement like insurance policies could default. In
addition, credit enhancement may not cover all potential sources of loss,
including, for instance, a loss resulting from fraud or negligence by a loan
originator or other party. Credit enhancement may therefore be limited in
coverage and in amount. It may also include the credit risk of a third party
like an insurer. The terms of any credit enhancement and the limitations will be
described in the related prospectus supplement.
You must carefully assess the specific assets of the trust issuing your
securities and any credit enhancement because they will be your only protection
against losses on your investment.
NATURE OF MORTGAGES SECURING THE LOANS MAY DELAY RECEIPT OF, OR RESULT IN
SHORTFALLS IN PROCEEDS PAYABLE ON A LOAN
o Decline in Property Values May Increase Loan Losses. Your investment
may be adversely affected by declines in property values. If the outstanding
balance of a mortgage loan or contract and any secondary financing on the
underlying property is greater than the value of the property, there is an
increased risk of delinquency, foreclosure and loss. A decline in property
values could extinguish the value of a junior mortgagee's interest in a property
and, thus, reduce proceeds payable to the securityholders.
o Delays Due to Liquidation Procedures. Substantial delays may occur
before defaulted loans are liquidated and the proceeds forwarded to investors.
Property foreclosure actions are regulated by state statutes and rules and are
subject to many of the delays and expenses that characterize lawsuits if
defenses or counterclaims are made. As a result, foreclosure actions can
sometimes take several years to complete and property proceeds may not cover the
defaulted loan amount. Some states prohibit a mortgage lender from obtaining a
judgment against the borrower for amounts not covered by property proceeds if
the property is sold outside of a judicial proceeding. As a result, you may
experience delays in receipt of moneys payable to you.
We refer you to "Material Legal Aspects of the Loans--Anti-Deficiency
Legislation and other Limitations on Lenders" for additional information.
o Junior Liens Satisfied After Senior Liens. The trust may contain
loans that are in a junior lien position. Mortgages or deeds of trust securing
junior loans will be satisfied after the claims of the senior mortgage holders
and the foreclosure costs are satisfied. In addition, a junior mortgage lender
may only foreclose subject to any related senior mortgage. As a result, the
junior mortgage lender generally must either pay the related senior mortgage
lender in full at or before the foreclosure sale or agree to make the regular
payments on the senior mortgage. Since the trust will not have any source of
funds to satisfy any senior mortgage or to continue making payments on that
mortgage, the trust's ability as a practical matter to foreclose on any junior
mortgage will be limited. In addition, since foreclosure proceeds first retire
any senior liens, the foreclosure proceeds may not be sufficient to pay all
amounts owed to you.
o Regulated by Consumer Protection Laws. Most states have laws and
public policies for the protection of consumers that prohibit unfair and
deceptive practices in the origination, servicing and collection of loans,
regulate interest rates and other loan changes and require licensing of loan
originators and servicers. Violations of these laws may limit the ability of the
master servicer to collect interest or principal on the loans and may entitle
the borrowers to a refund of amounts previously paid. Any limit on the master
servicer's ability to collect interest or principal on a loan may result in a
loss to you.
The loans may also be subject to federal laws relating to the
origination and underwriting of loans. These laws:
o require specified disclosures to the borrowers regarding the terms of
the loans;
o 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;
o regulate the use and reporting of information related to the borrower's
credit experience;
o require additional application disclosures, limit changes that may be
made to the loan documents without the borrower's consent and restrict a
lender's ability to declare a default or to suspend or reduce a
borrower's credit limit to enumerated events;
o permit a homeowner to withhold payment if defective craftsmanship or
incomplete work do not meet the quality and durability standards agreed
to by the homeowner and the contractor; and
o limit the ability of the master servicer to collect full amounts of
interest on some loans and interfere with the ability of the master
servicer to foreclose on some properties.
If particular provisions of these federal laws are violated, the master
servicer may be unable to collect all or part of the principal or interest on
the loans. The trust also could be subject to damages and administrative
enforcement. In either event, losses on your investment could result.
We refer you to "Material Legal Aspects of the Loans" for additional
information.
o Non-Owner Occupied Properties. The mortgaged properties in the trust
fund may not be owner occupied. Rates of delinquencies, foreclosures and losses
on mortgage loans secured by non-owner occupied properties may be higher than
mortgage loans secured by a primary residence.
YOU COULD BE ADVERSELY AFFECTED BY VIOLATIONS OF ENVIRONMENTAL LAWS
Under the laws of some states, contamination of a property may give
rise to a lien on the property to assure the costs of cleanup. In several
states, a lien to assure cleanup has priority over the lien of an existing
mortgage. In addition, the trust issuing your securities, because it is a
mortgage holder, may be held responsible for the costs associated with the clean
up of hazardous substances released at a property. Those costs could result in a
loss to the securityholders.
We refer you to "Material Legal Aspects of the Loans--Environmental
Risks" for additional information.
VALUE OF TRUST ASSETS MAY BE LESS THAN OUTSTANDING PRINCIPAL BALANCE OF THE
RELATED SECURITIES
There is no assurance that the value of the trust assets for any series
of securities at any time will equal or exceed the principal amount of the
outstanding securities of the series. If trust assets have to be sold because of
an event of default or otherwise, providers of services to the trust (including
the trustee, the master servicer and the credit enhancer, if any) generally will
be entitled to receive the proceeds of the sale to the extent of their unpaid
fees and other amounts due them before any proceeds are paid to securityholders.
As a result, you may not receive the full amount of interest and principal due
on your security.
THE TRUST FUND
GENERAL
The certificates of each series will represent interests in the assets
of a trust fund established by the depositor, and the notes of each series will
be secured by the pledge of the assets of the related trust fund. The trust fund
for each series will be held by the trustee for the benefit of the related
securityholders. The assets of each trust fund will consist primarily of a pool
comprised of, as specified in the related prospectus supplement, any one or more
of the following:
(a) single family mortgage loans, including:
mortgage loans secured by first, second and/or more subordinate liens
on one- to four-family residential properties,
1. closed-end and/or revolving home equity loans secured by
first, second and/or more subordinate liens on one-to four-family
residential properties,
2. home improvement installment sale contracts and installment
loan agreements that are either unsecured or secured by first, second
and/or more subordinate liens on one- to four-family residential
properties, or by purchase money security interests in the home
improvements financed thereby, including loans insured under the
FHA Title I Credit Insurance program administered pursuant to the
National Housing Act of 1934, and
3. manufactured housing installment sales contracts and
installment loan agreements secured by first, second and/or more
subordinate liens on manufactured homes or by mortgages on real estate
on which the related manufactured homes are located;
(b) mortgaged-backed securities issued or guaranteed by Ginnie Mae,
Fannie Mae or Freddie Mac;
(c) privately issued mortgaged-backed securities representing
interests in any of the above asset types; and
(d) all monies due thereunder net, if and as provided in the related
prospectus supplement, of required amounts payable to the servicer of
the loans, agency securities or private mortgaged-backed securities,
together with payments in respect of, and other accounts, obligations
or agreements, in each case, as specified in the related prospectus
supplement.
The pool will be created on the first day of the month of the issuance of the
related series of securities or any other date specified in the related
prospectus supplement, which date is the cut-off date. The securities will be
entitled to payment from the assets of the related trust fund or funds or other
assets pledged for the benefit of the securityholders, as specified in the
related prospectus supplement, and will not be entitled to payments in respect
of the assets of any other trust fund established by the depositor.
The trust fund assets will be acquired by the depositor, either
directly or through affiliates, from sellers. The sellers may be affiliates of
the depositor. Loans acquired by the depositor will have been originated in
accordance with the underwriting criteria described in this prospectus under
"The Loans -- Underwriting Standards." The depositor will cause the trust fund
assets to be assigned without recourse to the trustee named in the related
prospectus supplement for the benefit of the holders of the securities of the
related series. The master servicer named in the related prospectus supplement
will service the trust fund assets, either directly or through other servicing
institutions as subservicers, pursuant to a pooling and servicing agreement
among the depositor, the master servicer and the trustee with respect to a
series consisting of certificates, or a master servicing agreement or a sale and
servicing agreement between the trustee and the master servicer with respect to
a series consisting of notes or of certificates and notes, and will receive a
fee for its services. See "The Agreements." With respect to loans serviced by
the master servicer through a subservicer, the master servicer will remain
liable for its servicing obligations under the related agreement as if the
master servicer alone were servicing those loans.
Any mortgage backed securities issued or guaranteed by Ginnie Mae,
Fannie Mae or Freddie Mac will be securities that are exempt from registration
under the Securities Act of 1933.
As used in this prospectus, agreement means, with respect to a series
consisting of certificates, the pooling and servicing agreement, and with
respect to a series consisting of notes or of certificates and notes, the trust
agreement, the indenture and the master servicing agreement, as the context
requires.
If so specified in the related prospectus supplement, a trust fund
relating to a series of securities may be a business trust formed under the laws
of the state specified in the related prospectus supplement pursuant to a trust
agreement between the depositor and the trustee of the related trust fund.
With respect to each trust fund, prior to the initial offering of the
related series of securities, the trust fund will have no assets or liabilities.
No trust fund is expected to engage in any activities other than acquiring,
managing and holding the related trust fund assets and other assets contemplated
in this prospectus and in the related prospectus supplement and the proceeds
thereof, issuing securities and making payments and distributions on the
securities and related activities. No trust fund is expected to have any source
of capital other than its assets and any related credit enhancement.
In general, the only obligations of the depositor with respect to a
series of securities will be to obtain representations and warranties from the
sellers or the originators regarding the assets to the depositor for inclusion
in the related trust fund. The deposit will also assign to the trustee for the
related series the assets to be included in the related trust fund and the
depositor's rights with respect to those representations and warranties. See
"The Agreements -- Assignment of the Trust Fund Assets." A prospectus
supplement, however, may describe additional obligations of the depositor for
the related trust fund. The obligations of the master servicer with respect to
the loans included in a trust fund will consist principally of its contractual
servicing obligations under the related agreement, including its obligation to
enforce the obligations of the subservicers or sellers, or both, as more fully
described in this prospectus under "The Trust Fund -- Representations by Sellers
or Originators; Repurchases" and "The Agreements -- Sub-Servicing By Sellers"
and "-- Assignment of the Trust Fund Assets", and its obligation, if any, to
make cash advances in the event of delinquencies in payments on or with respect
to the loans in the amounts described in this prospectus under "Description of
the Securities -- Advances." The obligations of the master servicer to make
advances may be subject to limitations, as described in this prospectus and in
the related prospectus supplement.
The following is a brief description of the assets expected to be
included in the trust funds. If specific information respecting the trust fund
assets is not known at the time the related series of securities initially is
offered, more general information of the nature described in this prospectus
will be provided in the related prospectus supplement, and specific information
will be set forth in a report on Form 8-K to be filed with the SEC within
fifteen days after the initial issuance of those securities. A copy of the
agreement with respect to each series of securities will be attached to the Form
8-K and will be available for inspection at the corporate trust office of the
trustee specified in the related prospectus supplement. A schedule of the loans,
agency securities and/or private mortgage-backed securities relating to a series
will be attached to the agreement delivered to the trustee upon delivery of the
securities. If so specified in the related prospectus supplement, the actual
statistical characteristics of a pool as of the closing date may differ from
those set forth in the prospectus supplement. However, in no event will more
than five percent of the assets as a percentage of the cut-off date pool
principal balance vary from the characteristics described in the related
prospectus supplement.
THE LOANS
General. Loans may consist of mortgage loans or deeds of trust secured
by first or subordinated liens on one- to four-family residential properties,
home equity loans, home improvement contracts or manufactured housing contracts.
If so specified, the loans may include cooperative apartment loans secured by
security interests in shares issued by private, non-profit, cooperative housing
corporations and in the related proprietary leases or occupancy agreements
granting exclusive rights to occupy specific dwelling units in the cooperatives'
buildings. As more fully described in the related prospectus supplement, the
loans may be "conventional" loans or loans that are insured or guaranteed by a
governmental agency like the FHA or VA. The loans will have been originated in
accordance with the underwriting criteria specified in the related prospectus
supplement.
In general, the loans in a pool will have monthly payments due on the
first day of each month. However, as described in the related prospectus
supplement, the loans in a pool may have payments due more or less frequently
than monthly. In addition, payments may be due on any day during a month. The
payment terms of the loans to be included in a trust fund will be described in
the related prospectus supplement and may include any of the following features,
all as described in this prospectus or in the related prospectus supplement:
(a) Interest may be payable at a fixed rate, a rate adjustable from
time to time in relation to an index specified in the related prospectus
supplement, a rate that is fixed for a period of time or under limited
circumstances and is followed by an adjustable rate, a rate that otherwise
varies from time to time, or a rate that is convertible from an adjustable
rate to a fixed rate. Changes to an adjustable rate may be subject to
periodic limitations, maximum rates, minimum rates or a combination of
those limitations. As specified in the related prospectus supplement, the
loans may provide for payments in level monthly installments, for balloon
payments, or for payments that are allocated to principal and interest
according to the "sum of the digits" or "Rule of 78s" methods. Accrued
interest may be deferred and added to the principal of a loan for the
periods and under the circumstances as may be specified in the related
prospectus supplement. Loans may provide for the payment of interest at a
rate lower than the loan rate for a period of time or for the life of the
loan, and the amount of any difference may be contributed from funds
supplied by the seller of the property or another source.
(b) Principal may be payable on a level debt service basis to fully
amortize the loan over its term, may be calculated on the basis of an
assumed amortization schedule that is significantly longer than the
original term to maturity or on an interest rate that is different from the
loan rate or may not be amortized during all or a portion of the original
term. Payment of all or a substantial portion of the principal may be due
on maturity -- a balloon payment. Principal may include interest that has
been deferred and added to the principal balance of the loan.
(c) Monthly payments of principal and interest may be fixed for the
life of the loan, may increase over a specified period of time or may
change from period to period. Loans may include limits on periodic
increases or decreases in the amount of monthly payments and may include
maximum or minimum amounts of monthly payments.
(d) Prepayments of principal may be subject to a prepayment fee,
which may be fixed for the life of the loan or may decline over time, and
may be prohibited for the life of the loan or for particular lockout
periods. Some loans may permit prepayments after expiration of the
applicable lockout period and may require the payment of a prepayment fee
in connection with any subsequent prepayment. Other loans may permit
prepayments without payment of a fee unless the prepayment occurs during
specified time periods. The loans may include "due on sale" clauses which
permit the mortgagee to demand payment of the entire loan in connection
with the sale or transfers of the related property. Other loans may be
assumable by persons meeting the then applicable underwriting standards of
the related seller.
A trust fund may contain buydown loans that include provisions for a
third party to subsidize partially the monthly payments of the borrowers on
those loans during the early years of those loans, the difference to be made up
from a buydown fund contributed by that third party at the time of origination
of the loan. A buydown fund will be in an amount equal either to the discounted
value or full aggregate amount of future payment subsidies. The underlying
assumption of buydown plans is that the income of the borrower will increase
during the buydown period as a result of normal increases in compensation and
inflation, so that the borrower will be able to meet the full loan payments at
the end of the buydown period. If assumption of increased income is not
fulfilled, the possibility of defaults on buydown loans is increased. The
related prospectus supplement will contain information with respect to any
buydown loan concerning limitations on the interest rate paid by the borrower
initially, on annual increases in the interest rate and on the length of the
buydown period.
The real property which secures repayment of the loans is referred to
as the mortgaged properties. Home improvement contracts and manufactured housing
contracts may, and the other loans will, be secured by mortgages or deeds of
trust or other similar security instruments creating a lien on a mortgaged
property. In the case of home equity loans, the related liens may be
subordinated to one or more senior liens on the related mortgaged properties as
described in the related prospectus supplement. As specified in the related
prospectus supplement, home improvement contracts and manufactured housing
contracts may be unsecured or secured by purchase money security interests in
the home improvements and manufactured homes financed thereby. The mortgaged
properties, the home improvements and the manufactured homes are collectively
referred to in this prospectus as the properties. The properties relating to
loans will consist primarily of detached or semi-detached one- to four-family
dwelling units, townhouses, rowhouses, individual condominium units, individual
units in planned unit developments, and other dwelling units--single-family
properties--or mixed-use properties. Any mixed-use property will not exceed
three stories and will be predominantly one- to four-family residential in that
its primary use will be for dwelling, with the remainder of its space for
retail, professional or other commercial uses. Properties may include vacation
and second homes, investment properties and leasehold interests. In the case of
leasehold interests, the term of the leasehold will exceed the scheduled
maturity of the loan by a time period specified in the related prospectus
supplement. The properties may be located in any one of the fifty states, the
District of Columbia, Guam, Puerto Rico or any other territory of the United
States.
Loans with specified loan-to-value ratios and/or principal balances may
be covered wholly or partially by primary mortgage guaranty insurance policies.
The existence, extent and duration of any coverage provided by primary mortgage
guaranty insurance policies will be described in the related prospectus
supplement.
The aggregate principal balance of loans secured by properties that are
owner-occupied will be disclosed in the related prospectus supplement.
Typically, the basis for a representation that a given percentage of the loans
is secured by single family properties that are owner-occupied will be either
(1) the making of a representation by the borrower at the loan's origination
either that the underlying property will be used by the borrower for a period of
at least six months every year or that the borrower intends to use the property
as a primary residence or (2) a finding that the address of the underlying
property is the borrower's mailing address.
Home Equity Loans. As more fully described in the related prospectus
supplement, interest on each revolving credit line loan, excluding introduction
rates offered from time to time during promotional periods, is computed and
payable monthly on the average daily outstanding principal balance of that loan.
Principal amounts on a revolving credit line loan may be drawn down, subject to
a maximum amount as set forth in the related prospectus supplement, or repaid
under each revolving credit line loan from time to time, but may be subject to a
minimum periodic payment. The related prospectus supplement will indicate the
extent, if any, to which the trust fund will include any amounts borrowed under
a revolving credit line loan after the cut-off date.
The full amount of a closed-end loan is advanced at the inception of
the loan and generally is repayable in equal, or substantially equal,
installments of an amount sufficient to amortize fully the loan at its stated
maturity. Except to the extent provided in the related prospectus supplement,
the original terms to stated maturity of closed-end loans generally will not
exceed 360 months. If specified in the related prospectus supplement, the terms
to stated maturity of closed-end loans may exceed 360 months. Under limited
circumstances, under either a revolving credit line loan or a closed-end loan, a
borrower may choose an interest only payment option and will be obligated to pay
only the amount of interest which accrues on the loan during the billing cycle.
An interest only payment option may be available for a specified period before
the borrower must begin paying at least the minimum monthly payment of a
specified percentage of the average outstanding balance of the loan.
Home Improvement Contracts. The trust fund assets for a series of
securities may consist, in whole or in part, of home improvement contracts
originated by a commercial bank, a savings and loan association, a commercial
mortgage banker or other financial institution in the ordinary course of
business. The home improvements securing the home improvement contracts may
include, but are not limited to, replacement windows, house siding, new roofs,
swimming pools, satellite dishes, kitchen and bathroom remodeling goods and
solar heating panels. As specified in the related prospectus supplement, the
home improvement contracts will either be unsecured or secured by mortgages on
single family properties which are generally subordinate to other mortgages on
the same property, or secured by purchase money security interests in the home
improvements financed thereby. The home improvement contracts may be fully
amortizing or provide for balloon payments and may have fixed interest rates or
adjustable interest rates and may provide for other payment characteristics as
in this prospectus and in the related prospectus supplement. The initial
loan-to-value ratio of a home improvement contract will be computed in the
manner described in the related prospectus supplement.
Manufactured Housing Contracts. The trust fund assets for a series may
consist, in whole or part, of conventional manufactured housing installment
sales contracts and installment loan agreements, originated by a manufactured
housing dealer in the ordinary course of business. As specified in the related
prospectus supplement, the manufactured housing contracts will be secured by
manufactured homes, located in any of the fifty states or the District of
Columbia or by mortgages on the real estate on which the manufactured homes are
located.
The manufactured homes securing the manufactured housing contracts will
consist of manufactured homes within the meaning of 42 United States Code,
Section 5402(6), or manufactured homes meeting those other standards as shall be
described in the related prospectus supplement. Section 5402(6) defines a
"manufactured home" as "a structure, transportable in one or more sections,
which, in the traveling mode, is eight body feet or more in width or forty body
feet or more in length, or, when erected on site, is three hundred twenty or
more square feet, and which is built on a permanent chassis and designed to be
used as a dwelling with or without a permanent foundation when connected to the
required utilities, and includes the plumbing, heating, air conditioning and
electrical systems contained therein; except that the term shall include any
structure which meets all the requirements of [this] paragraph except the size
requirements and with respect to which the manufacturer voluntarily files a
certification required by the Secretary of Housing and Urban Development and
complies with the standards established under [this] chapter."
Manufactured homes, and home improvements, unlike mortgaged properties,
generally depreciate in value. Consequently, at any time after origination it is
possible, especially in the case of contracts with high loan-to-value ratios at
origination, that the market value of a manufactured home or home improvement
may be lower than the principal amount outstanding under the related contract.
Additional Information. Each prospectus supplement will contain
information, as of the date of that prospectus supplement or the related cut-off
date and to the extent then specifically known to the depositor, with respect to
the loans contained in the related pool, including:
(1) the aggregate outstanding principal balance and the average
outstanding principal balance of the loans as of the applicable cut-off
date,
(2) the type of property securing the loan -- e.g., single family
residences, individual units in condominium apartment buildings, two- to
four-family dwelling units, other real property, home improvements or
manufactured homes,
(3) the original terms to maturity of the loans,
(4) the largest principal balance and the smallest principal balance
of any of the loans,
(5) the earliest origination date and latest maturity date of any of
the loans,
(6) the loan-to-value ratios or combined loan-to-value ratios, as
applicable, of the loans,
(7) the loan rates or APR's or range of loan rates or APR's borne by
the loans,
(8) the maximum and minimum per annum loan rates, and
(9) the geographical location of the loans.
If specific information about the loans is not known to the depositor at the
time the related securities are initially offered, more general information of
the nature described above will be provided in the related prospectus
supplement, and specific information will be set forth in the Form 8-K filed
within 15 days of the closing date.
No assurance can be given that values of the properties have remained
or will remain at their levels on the dates of origination of the related loans.
If the residential real estate market should experience an overall decline in
property values causing the sum of the outstanding principal balances of the
loans and any primary or secondary financing on the properties, as applicable,
in a particular pool to become equal to or greater than the value of the
properties, the actual rates of delinquencies, foreclosures and losses could be
higher than those now generally experienced in the mortgage lending industry. In
addition, adverse economic conditions and other factors, which may or may not
affect real property values, may affect the timely payment by borrowers of
scheduled payments of principal and interest on the loans and, accordingly, the
actual rates of delinquencies, foreclosures and losses with respect to any pool.
To the extent that losses are not covered by subordination provisions or
alternative arrangements, those losses will be borne, at least in part, by the
holders of the securities of the related series.
Underwriting Standards. The loans will be acquired by the depositor,
either directly or through affiliates, from the sellers. The depositor does not
originate loans and has not identified specific originators or sellers of loans
from whom the depositor, either directly or through affiliates, will purchase
the loans to be included in a trust fund. The underwriting standards for loans
of a particular series will be described in the related prospectus supplement.
Each seller or originator will represent and warrant that all loans originated
and/or sold by it to the depositor or one of its affiliates will have been
underwritten in accordance with standards consistent with those utilized by
lenders generally during the period of origination for similar types of loans.
As to any loan insured by the FHA or partially guaranteed by the VA, the seller
or originator will represent that it has complied with underwriting policies of
the FHA or the VA, as the case may be.
Underwriting standards are applied by or on behalf of a lender to
evaluate the borrower's credit standing and repayment ability, and the value and
adequacy of the related mortgaged property, home improvements or manufactured
home, as applicable, as collateral.
The maximum loan amount will vary depending upon a borrower's credit
grade and loan program but will not generally exceed an amount specified in the
related prospectus supplement. Variations in maximum loan amount limits will be
permitted based on compensating factors. Compensating factors may generally
include, but are not limited to, and to the extent specified in the related
prospectus supplement, low loan-to-value ratio, low debt-to-income ratio, stable
employment, favorable credit history and the nature of the underlying first
mortgage loan, if applicable.
MODIFICATION OF LOANS
The master servicer for the loans of a particular series may agree,
subject to the terms and conditions set forth in the agreements for the related
series of securities, to modify, waive or amend any term of a loan in a manner
that is consistent with the servicing standard set forth in the related
agreement and described in the related prospectus supplement. However, those
agreements will require that the modification, waiver or amendment not affect
the tax status of the trust fund or cause any tax to be imposed on the trust
fund or materially impair the security for the related loan.
AGENCY SECURITIES
Ginnie Mae. Ginnie Mae is a wholly-owned corporate instrumentality of
HUD. Section 306(g) of Title II of the National Housing Act of 1934, as amended,
authorizes Ginnie Mae to, among other things, guarantee the timely payment of
principal of and interest on certificates which represent an interest in a pool
of mortgage loans insured by the FHA under the National Housing Act or Title V
of the National Housing Act of 1949, or partially guaranteed by the VA under the
Servicemen's Readjustment Act of 1944, as amended, or Chapter 37 of Title 38,
United States Code.
Section 306 (g) of the National 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 guarantee under this subsection." In
order to meet its obligations under any guarantee under Section 306 (g) of the
National Housing Act, Ginnie Mae may, under Section 306(d) of the National
Housing Act, borrow from the United States Treasury in an amount which is at any
time sufficient to enable Ginnie Mae, with no limitations as to amount, to
perform its obligations under its guarantee.
Ginnie Mae Certificates. Each Ginnie Mae Certificate held in a trust
fund for a series of securities will be a "fully modified pass-through"
mortgaged-backed certificate issued and serviced by a mortgage banking company
or other financial concern approved by Ginnie Mae or approved by Fannie Mae as a
seller-servicer of FHA Loans and/or VA Loans. Each Ginnie Mae Certificate may be
a GNMA I Certificate or a GNMA II Certificate. The mortgage loans underlying the
Ginnie Mae Certificates will consist of FHA Loans and/or VA Loans. Each mortgage
loan of this type is secured by a one- to four-family residential property or a
manufactured home. Ginnie Mae will approve the issuance of each Ginnie Mae
Certificate in accordance with a guaranty agreement between Ginnie Mae and the
issuer and servicer of the Ginnie Mae Certificate. Pursuant to its guaranty
agreement, a Ginnie Mae servicer will be required to advance its own funds in
order to make timely payments of all amounts due on each of the related Ginnie
Mae Certificates, even if the payments received by the Ginnie Mae servicer on
the FHA Loans or VA Loans underlying each of those Ginnie Mae Certificates are
less than the amounts due on those Ginnie Mae Certificates.
The full and timely payment of principal of and interest on each Ginnie
Mae Certificate will be guaranteed by Ginnie Mae, which obligation is backed by
the full faith and credit of the United States. Each Ginnie Mae Certificate will
have an original maturity of not more than 40 years (but may have original
maturities of substantially less than 40 years). Each Ginnie Mae Certificate
will provide for the payment by or on behalf of the Ginnie Mae servicer to the
registered holder of the Ginnie Mae Certificate of scheduled monthly payments of
principal and interest equal to the registered holder's proportionate interest
in the aggregate amount of the monthly principal and interest payment on each
FHA Loan or VA Loan underlying the Ginnie Mae Certificate, less the applicable
servicing and guarantee fee which together equal the difference between the
interest on the FHA Loans or VA Loans and the pass-through rate on the Ginnie
Mae Certificate. In addition, each payment will include proportionate
pass-through payments of any prepayments of principal on the FHA Loans or VA
Loans underlying the Ginnie Mae Certificate and liquidation proceeds in the
event of a foreclosure or other disposition of any the related FHA Loans or VA
Loans.
If a Ginnie Mae servicer is unable to make the payments on a Ginnie Mae
Certificate as it becomes due, it must promptly notify Ginnie Mae and request
Ginnie Mae to make the payment. Upon notification and request, Ginnie Mae will
make payments directly to the registered holder of a Ginnie Mae Certificate. In
the event no payment is made by a Ginnie Mae servicer and the Ginnie Mae
servicer fails to notify and request Ginnie Mae to make the payment, the holder
of the related Ginnie Mae Certificate will have recourse only against Ginnie Mae
to obtain the payment. The trustee or its nominee, as registered holder of the
Ginnie Mae Certificates held in a trust fund, will have the right to proceed
directly against Ginnie Mae under the terms of the guaranty agreements relating
to the Ginnie Mae Certificates for any amounts that are not paid when due.
All mortgage loans underlying a particular Ginnie Mae Certificate must
have the same interest rate, except for pools of mortgage loans secured by
manufactured homes, over the term of the loan. The interest rate on a GNMA I
Certificate will equal the interest rate on the mortgage loans included in the
pool of mortgage loans underlying the GNMA I Certificate, less one-half
percentage point per annum of the unpaid principal balance of the mortgage
loans.
Mortgage loans underlying a particular GNMA II Certificate may have per
annum interest rates that vary from each other by up to one percentage point.
The interest rate on each GNMA II Certificate will be between one-half
percentage point and one and one-half percentage points lower than the highest
interest rate on the mortgage loans included in the pool of mortgage loans
underlying the GNMA II Certificate (except for pools of mortgage loans secured
by manufactured homes).
Regular monthly installment payments on each Ginnie Mae Certificate
will be comprised of interest due as specified on a Ginnie Mae Certificate plus
the scheduled principal payments on the FHA Loans or VA Loans underlying a
Ginnie Mae Certificate due on the first day of the month in which the scheduled
monthly installments on a Ginnie Mae Certificate is due. Regular monthly
installments on each Ginnie Mae Certificate are required to be paid to the
trustee identified in the related prospectus supplement as registered holder by
the 15th day of each month in the case of a GNMA I Certificate and are required
to be mailed to the Trustee by the 20th day of each month in the case of a GNMA
II Certificate. Any principal prepayments on any FHA Loans or VA Loans
underlying a Ginnie Mae Certificate held in a trust fund or any other early
recovery of principal on a loan will be passed through to the trustee identified
in the related prospectus supplement as the registered holder of a Ginnie Mae
Certificate.
Ginnie Mae Certificates may be backed by graduated payment mortgage
loans or by "buydown" mortgage loans for which funds will have been provided,
and deposited into escrow accounts, for application to the payment of a portion
of the borrowers' monthly payments during the early years of the mortgage loan.
Payments due the registered holders of Ginnie Mae Certificates backed by pools
containing "buydown" mortgage loans will be computed in the same manner as
payments derived from other Ginnie Mae Certificates and will include amounts to
be collected from both the borrower and the related escrow account. The
graduated payment mortgage loans will provide for graduated interest payments
that, during the early years of the mortgage loans, will be less than the amount
of stated interest on the mortgage loans. The interest not so paid will be added
to the principal of the graduated payment mortgage loans and, together with
interest on that interest, will be paid in subsequent years. The obligations of
Ginnie Mae and of a Ginnie Mae issuer/servicer will be the same irrespective of
whether the Ginnie Mae Certificates are backed by graduated payment mortgage
loans or "buydown" mortgage loans. No statistics comparable to the FHA's
prepayment experience on level payment, non-buydown loans are available in
inspect of graduated payment or buydown mortgages. Ginnie Mae Certificates
related to a series of certificates may be held in book-entry form.
Fannie Mae. Fannie Mae is a federally chartered and privately owned
corporation organized and existing under the Federal National Mortgage
Association Charter Act. Fannie Mae 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.
Fannie Mae provides funds to the mortgage market primarily by
purchasing mortgage loans from lenders, thereby replenishing their funds for
additional lending. Fannie Mae acquires funds to purchase 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, Fannie Mae helps to redistribute mortgage funds from capital-surplus
to capital-short areas.
Fannie Mae Certificates. Fannie Mae Certificates are either guaranteed
mortgage pass-through certificates or stripped mortgage-backed securities. The
following discussion of Fannie Mae Certificates applies equally to both types of
Fannie Mae Certificates, except as otherwise indicated. Each Fannie Mae
Certificate included in the trust fund for a series will represent a fractional
undivided interest in a pool of mortgage loans formed by Fannie Mae. Each pool
formed by Fannie Mae will consist of mortgage loans of one of the following
types:
(1) fixed-rate level installment conventional mortgage loans;
(2) fixed-rate level installment mortgage loans that are insured by
FHA or partially guaranteed by the VA;
(3) adjustable rate conventional mortgage loans or
(4) adjustable rate mortgage loans that are insured by the FHA or
partially guaranteed by the VA.
Each mortgage loan must meet the applicable standards set forth under the Fannie
Mae purchase program. Each of those mortgage loans will be secured by a first
lien on a one- to four-family residential property.
Each Fannie Mae Certificate will be issued pursuant to a trust
indenture. Original maturities of substantially all of the conventional, level
payment mortgage loans underlying a Fannie Mae Certificate are expected to be
between either 8 to 15 years or 20 to 40 years. The original maturities of
substantially all of the fixed rate level payment FHA Loans or VA Loans are
expected to be 30 years.
Mortgage loans underlying a Fannie Mae Certificate may have annual
interest rates that vary by as much as two percentage points from each other.
The rate of interest payable on a Fannie Mae guaranteed mortgage-backed
certificate and the series pass-through rate payable with respect to a Fannie
Mae stripped mortgage-backed securities is equal to the lowest interest rate of
any mortgage loan in the related pool, less a specified minimum annual
percentage representing servicing compensation and Fannie Mae's guaranty fee.
Under a regular servicing option pursuant to which the mortgagee or other
servicer assumes the entire risk of foreclosure losses, the annual interest
rates on the mortgage loans underlying a Fannie Mae Certificate will be between
50 basis points and 250 basis points greater than the annual pass-through rate
if a Fannie Mae MBS or the series pass-through rate if a Fannie Mae stripped
mortgage-backed securities; and under a special servicing option (pursuant to
which Fannie Mae assumes the entire risk for foreclosure losses), the annual
interest rates on the mortgage loans underlying a Fannie Mae Certificate will
generally be between 55 basis points and 255 basis points greater than the
annual Fannie Mae Certificate pass-through rate if a Fannie Mae guaranteed
mortgage-backed certificate, or the series pass-through rate if a Fannie Mae
stripped mortgage-backed security.
Fannie Mae guarantees to each registered holder of a Fannie Mae
Certificate that it will distribute on a timely basis amounts representing that
holder's proportionate share of scheduled principal and interest payments at the
applicable pass-through rate provided for by the Fannie Mae Certificate on the
underlying mortgage loans, whether or not received, and the holder's
proportionate share of the full principal amount of any foreclosed or other
finally liquidated mortgage loan, whether or not the principal amount is
actually recovered. The obligations of Fannie Mae under its guarantees are
obligations solely of Fannie Mae and are not backed by, nor entitled to, the
full faith and credit of the United States. If Fannie Mae were unable to satisfy
its obligations, distributions to holders of Fannie Mae Certificates would
consist solely of payments and other recoveries on the underlying mortgage loans
and, accordingly, monthly distributions to holders of Fannie Mae Certificates
would be affected by delinquent payments and defaults on those mortgage loans.
Fannie Mae stripped mortgage-backed securities are issued in series of
two or more classes, with each class representing a specified undivided
fractional interest in principal distributions and interest distributions,
adjusted to the series pass-through rate, on the underlying pool of mortgage
loans. The fractional interests of each class in principal and interest
distributions are not identical, but the classes in the aggregate represent 100%
of the principal distributions and interest distributions, adjusted to the
series pass-through rate, on the respective pool. Because of the difference
between the fractional interests in principal and interest of each class, the
effective rate of interest on the principal of each class of Fannie Mae stripped
mortgage-backed securities may be significantly higher or lower than the series
pass-through rate and/or the weighted average interest rate of the underlying
mortgage loans.
Unless otherwise specified by Fannie Mae, Fannie Mae Certificates
evidencing interests in pools of mortgages formed on or after May 1, 1985 will
be available in book-entry form only. Distributions of principal and interest on
each Fannie Mae Certificate will be made by Fannie Mae on the 25th day of each
month to the persons in whose name the Fannie Mae Certificate is entered in the
books of the Federal Reserve Banks, or registered on the Fannie Mae Certificate
register in the case of fully registered Fannie Mae Certificates as of the close
of business on the last day of the preceding month. With respect to Fannie Mae
Certificates issued in book-entry form, distributions on the Fannie Mae
Certificates will be made by wire, and with respect to fully registered Fannie
Mae Certificates, distributions on the Fannie Mae Certificates will be made by
check.
Freddie Mac. Freddie Mac is a publicly held United States government
sponsored enterprise created pursuant to the Federal Home Loan Mortgage
Corporation Act, Title III of the Emergency Home Finance Act of 1970, as
amended. The common stock of Freddie Mac is owned by the Federal Home Loan
Banks. Freddie Mac 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 Freddie Mac currently consists
of the purchase of first lien conventional mortgage loans FHA Loans, VA Loans or
participation interests in those mortgage loans and the sale of the loans or
participations so purchased in the form of mortgage securities, primarily
Freddie Mac Certificates. Freddie Mac is confined to purchasing, so far as
practicable, mortgage loans that it deems to be of the quality, type and class
which meet generally the purchase standards imposed by private institutional
mortgage investors.
Freddie Mac Certificates. Each Freddie Mac Certificate included in a
trust fund for a series will represent an undivided interest in a pool of
mortgage loans that may consist of first lien conventional loans, FHA Loans or
VA Loans. Freddie Mac Certificates are sold under the terms of a Mortgage
Participation Certificate Agreement. A Freddie Mac Certificate may be issued
under either Freddie Mac's Cash Program or Guarantor Program. Typically,
mortgage loans underlying the Freddie Mac Certificates held by a trust fund will
consist of mortgage loans with original terms to maturity of between 10 and 40
years. Each of those mortgage loans must meet the applicable standards set forth
in the Freddie Mac Act. A Freddie Mac Certificate group may include whole loans,
participation interests in whole loans and undivided interests in whole loans
and/or participations comprising another Freddie Mac Certificate group. Under
the guarantor program, any Freddie Mac Certificate group may include only whole
loans or participation interests in whole loans.
Freddie Mac guarantees to each registered holder of a Freddie Mac
Certificate the timely payment of interest on the underlying mortgage loans to
the extent of the applicable certificate rate on the registered holder's pro
rata share of the unpaid principal balance outstanding on the underlying
mortgage loans in the Freddie Mac Certificate group represented by a Freddie Mac
Certificate, whether or not received. Freddie Mac also guarantees to each
registered holder of a Freddie Mac Certificate ultimate receipt by a holder of
all principal on the underlying mortgage loans, without any offset or deduction,
to the extent of that holder's pro rata share thereof, but does not, except if
and to the extent specified in the prospectus supplement for a series, guarantee
the timely payment of scheduled principal. Under Freddie Mac's Gold PC Program,
Freddie Mac guarantees the timely payment of principal based on the difference
between the pool factor published in the month preceding the month of
distribution and the pool factor published in the related month of distribution.
Pursuant to its guarantees, Freddie Mac indemnifies holders of Freddie Mac
Certificates against any diminution in principal by reason of charges for
property repairs, maintenance and foreclosure. Freddie Mac may remit the amount
due on account of its guarantee of collection of principal at any time after
default on an underlying mortgage loan, but not later than (1) 30 days following
foreclosure sale, (2) 30 days following payment of the claim by any mortgage
insurer, or (3) 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 Freddie Mac Certificates, including the timing of demand for
acceleration, Freddie Mac reserves the right to exercise its judgment with
respect to the mortgage loans in the same manner as for mortgage loans which it
has purchased but not sold. The length of time necessary for Freddie Mac to
determine that a mortgage loan should be accelerated varies with the particular
circumstances of each mortgagor, and Freddie Mac has not adopted standards which
require that the demand be made within any specified period.
Freddie Mac Certificates are not guaranteed by the United States or by
any Federal Home Loan Bank and do not constitute debts or obligations of the
United States or any Federal Home Loan Bank. The obligations of Freddie Mac
under its guarantee are obligations solely of Freddie Mac and are not backed by,
nor entitled to, the full faith and credit of the United States. If Freddie Mac
were unable to satisfy its obligations, distributions to holders of Freddie Mac
Certificates would consist solely of payments and other recoveries on the
underlying mortgage loans and, accordingly, monthly distributions to holders of
Freddie Mac Certificates would be affected by delinquent payments and defaults
on those mortgage loans.
Registered holders of Freddie Mac Certificates are entitled to receive
their monthly pro rata share of all principal payments on the underlying
mortgage loans received by Freddie Mac, including any scheduled principal
payments, full and partial prepayments of principal and principal received by
Freddie Mac by virtue of condemnation, insurance, liquidation or foreclosure,
and repurchases of the mortgage loans by Freddie Mac or the seller thereof.
Freddie Mac is required to remit each registered Freddie Mac Certificateholder's
pro rata share of principal payments on the underlying mortgage loans, interest
at the Freddie Mac pass-through rate and any other sums like prepayment fees,
within 60 days of the date on which those payments are deemed to have been
received by Freddie Mac.
Under Freddie Mac's Cash Program, with respect to pools formed prior to
June 1, 1987, there is no limitation on be amount by which interest rates on the
mortgage loans underlying a Freddie Mac Certificate may exceed the pass-through
rate on the Freddie Mac Certificate. With respect to Freddie Mac Certificates
issued on or after June 1, 1987, the maximum interest rate on the mortgage loans
underlying those Freddie Mac Certificates may exceed the pass-through rate of
the Freddie Mac Certificates by 50 to 100 basis points. Under that program,
Freddie Mac purchases groups of whole mortgage loans from sellers at specified
percentages of their unpaid principal balances, adjusted for accrued or prepaid
interest, which when applied to the interest rate of the mortgage loans and
participations purchased, results in the yield expressed as a percentage
required by Freddie Mac. The required yield, which includes a minimum servicing
fee retained by the servicer, is calculated using the outstanding principal
balance. The range of interest rates on the mortgage loans and participations in
a Freddie Mac Certificate group under the Cash Program will vary since mortgage
loans and participations are purchased and assigned to a Freddie Mac Certificate
group based upon their yield to Freddie Mac rather than on the interest rate on
the underlying mortgage loans.
Under Freddie Mac's Guarantor Program, the pass-through rate on a
Freddie Mac Certificate is established based upon the lowest interest rate on
the underlying mortgage loans, minus a minimum servicing fee and the amount of
Freddie Mac's management and guaranty income as agreed upon between the seller
and Freddie Mac. For Freddie Mac Certificate groups formed under the Guarantor
Program with certificate numbers beginning with 18-012, the range between the
lowest and the highest annual interest rates on the mortgage loans in a Freddie
Mac Certificate group may not exceed two percentage points.
Freddie Mac Certificates duly presented for registration of ownership
on or before the last business day of a month are registered effective as of the
first day of the month. The first remittance to a registered holder of a Freddie
Mac Certificate will be distributed so as to be received normally by the 15th
day of the second month following the month in which the purchaser became a
registered holder of the Freddie Mac Certificates. Thereafter, the remittance
will be distributed monthly to the registered holder so as to be received
normally by the 15th day of each month. The Federal Reserve Bank of New York
maintains book-entry accounts with respect to Freddie Mac Certificates sold by
Freddie Mac on or after January 2, 1985, and makes payments of principal and
interest each month to the registered holders thereof in accordance with the
holders' instructions.
Stripped Mortgage-Backed Securities. Agency securities may consist of
one or more stripped mortgage-backed securities, each as described in this
prospectus and in the related prospectus supplement. Each Agency security which
consists of one or more stripped mortgage-backed securities will represent an
undivided interest in all or part of either the principal distributions or the
interest distributions, or in some specified portion of the principal and
interest distributions, on particular Freddie Mac, Fannie Mae, Ginnie Mae or
other government agency or government-sponsored agency certificates. The
underlying securities will be held under a trust agreement by Freddie Mac,
Fannie Mae, Ginnie Mae or another government agency or government-sponsored
agency, each as trustee, or by another trustee named in the related prospectus
supplement. Freddie Mac, Fannie Mae, Ginnie Mae or another government agency or
government-sponsored agency will guarantee each stripped agency security to the
same extent as the applicable entity guarantees the underlying securities
backing the stripped agency security, unless otherwise specified in the related
prospectus supplement.
Other Agency Securities. If specified in the related prospectus
supplement, a trust fund may include other mortgage pass-through certificates
issued or guaranteed by Ginnie Mae, Fannie Mae, Freddie Mac or other government
agencies or government-sponsored agencies. The characteristics of any other
mortgage pass-through certificates issued or guaranteed by Ginnie Mae, Fannie
Mae, Freddie Mac or other government agencies or government-sponsored agencies
will be described in that prospectus supplement. If so specified, a combination
of different types of agency securities may be held in a trust fund.
PRIVATE MORTGAGE-BACKED SECURITIES
General. Private mortgage-backed securities may consist of (a) mortgage
pass-through certificates evidencing an undivided interest in an asset pool, or
(b) CMOs secured by an asset pool. Each asset pool will consist either of loans
or mortgage-backed securities that would otherwise qualify for inclusion as
trust assets under this prospectus. Private mortgage-backed securities will have
been issued pursuant to an agreement that will be described in the related
prospectus supplement. The seller/servicer of the loans underlying the PMBS will
have entered into the PMBS agreement with a trustee. The PMBS trustee or its
agent, or a custodian, will possess the loans underlying the private
mortgage-backed security. Loans underlying a private mortgage-backed security
will be serviced by the PMBS servicer directly or by one or more sub-servicers
who may be subject to the supervision of the PMBS servicer.
The issuer of the private mortgage-backed security will be a financial
institution or other entity engaged generally in the business of mortgage
lending or the acquisition of mortgage loans, a public agency or instrumentality
of a state, local or federal government, or a limited purpose or other
corporation organized for the purpose of, among other things, establishing
trusts and acquiring and selling housing loans to those trusts and selling
beneficial interests in those trusts. If so specified in the prospectus
supplement, the PMBS issuer may be an affiliate of the depositor. If the PMBS
issuer is not an affiliate of the depositor, the related private mortgage-backed
security:
(1) will be acquired in the secondary market and not pursuant to an
initial offering of the securities,
(2) the related PMBS issuer will generally not be involved in the
issuance of the securities other than as set forth in the next two
succeeding sentences, and
(3) will have previously been registered under the Securities Act of
1933, as amended or will be freely transferable pursuant to Rule 144(k)
promulgated under the Securities Act of 1933.
The obligations of the PMBS issuer will generally be limited to representations
and warranties with respect to the assets conveyed by it to the related trust.
Unless otherwise specified in the related prospectus supplement, the PMBS issuer
will not have guaranteed any of the assets conveyed to the related trust or any
of the private mortgage-backed securities issued under the PMBS agreement.
Additionally, although the mortgage loans underlying the private mortgage-backed
securities may be guaranteed by an agency or instrumentality of the United
States, the private mortgage-backed securities themselves will not be so
guaranteed.
Distributions of principal and interest will be made on the private
mortgage-backed securities on the dates specified in the related prospectus
supplement. The private mortgage-backed securities may be entitled to receive
nominal or no principal distributions or nominal or no interest distributions.
Principal and interest distributions will be made on the private mortgage-backed
securities by the PMBS trustee or the PMBS servicer. The PMBS issuer or the PMBS
servicer may have the right to repurchase assets underlying the private
mortgage-backed securities after a specified date or under other circumstances
specified in the related prospectus supplement.
Underlying Loans. The mortgage loans underlying the private
mortgage-backed securities may consist of, but are not limited to, fixed rate,
level payment, fully amortizing or graduated payment mortgage loans, buydown
loans, adjustable rate mortgage loans, loans having balloon or other special
payment features, home equity loans, including closed-end loans and revolving
lines of credit, home improvement contracts, manufactured housing contracts and
cooperative loans. As described in the prospectus supplement,
(1) no mortgage loan underlying the private mortgage-backed securities
will have had a combined loan-to-value ratio at origination in excess of
the percentage set forth in the related prospectus supplement,
(2) the underlying mortgage loan may have had an original term to
stated maturity of not less than 5 years and not more than 40 years or any
other term specified in the related prospectus supplement,
(3) the underlying mortgage loan, other than cooperative loans, may be
required to be covered by a standard hazard insurance policy, which may be
a blanket policy, and
(4) the underlying mortgage loan other than cooperative loans or
contracts secured by a manufactured home, may be covered by a title
insurance policy.
Credit Support Relating to Private Mortgage-Backed Securities. Credit
support in the form of subordination of other private mortgage certificates
issued under the PMBS agreement, reserve funds, insurance policies, letters of
credit, financial guaranty insurance policies, guarantees or other types of
credit support may be provided with respect to the mortgage loans underlying the
private mortgage-backed securities or with respect to the private
mortgage-backed securities themselves.
Additional Information. The prospectus supplement for a series for
which the related trust fund includes private mortgage-backed securities will
specify:
(1) the aggregate approximate principal amount and type of the private
mortgage-backed securities to be included in the trust fund,
(2) characteristics of the mortgage loans underlying the private
mortgage-backed securities including (A) the payment features of the
mortgage loans, (B) the approximate aggregate principal balance, if known,
of underlying mortgage loans insured or guaranteed by a governmental
entity, (C) the servicing fee or range of servicing fees with respect to
the underlying mortgage loans, and (D) the minimum and maximum stated
maturities of the underlying mortgage loans at origination,
(3) the maximum original term-to-stated maturity of the private
mortgage-backed securities,
(4) the weighted average term-to-stated maturity of the private
mortgage-backed securities,
(5) the pass-through or certificate rate of the private mortgage-
backed securities,
(6) the weighted average pass-through or certificate rate of the
private mortgage-backed securities,
(7) the PMBS issuer, the PMBS servicer, and the PMBS trustee for the
private mortgage-backed securities,
(8) characteristics of credit support, if any, like reserve funds,
insurance policies, letters of credit or guarantees relating to the
mortgage loans underlying the private mortgage-backed securities or to the
private mortgage-backed securities themselves,
(9) the terms on which the underlying mortgage loans for the private
mortgage-backed securities may, or are required to, be purchased prior to
their stated maturity or the stated maturity of the private mortgage-backed
securities and
(10) the terms on which other mortgage loans may be substituted for
those originally underlying the private mortgage-backed securities.
REPRESENTATIONS BY SELLERS OR ORIGINATORS; REPURCHASES
Each seller or originator of loans that are included in a trust fund
for a series of securities will have made representations and warranties in
respect of the loans sold by that seller or originated by that originator. The
representations and warranties may include, among other things:
(1) that title insurance, or in the case of properties located in
areas where those policies are generally not available, an attorney's
certificate of title, and any required hazard insurance policy were
effective at origination of each loan, other than a cooperative loan, and
that each policy, or certificate of title as applicable, remained in effect
on the date of purchase of the loan from the originator by the seller or
the depositor or from the seller by or on behalf of the depositor;
(2) that the seller or originator had good title to each loan and that
loan was subject to no offsets, defenses, counterclaims or rights of
rescission except to the extent that any buydown agreement may forgive some
indebtedness of a borrower;
(3) that each loan constituted a valid lien on, or a perfected
security interest with respect to, the related property, subject only to
permissible liens disclosed, if applicable, title insurance exceptions, if
applicable, and other exceptions described in the related agreement, and
that the property was free from damage and was in acceptable condition;
(4) that there were no delinquent tax or assessment liens against the
property;
(5) that no required payment on a loan was delinquent more than the
number of days specified in the related prospectus supplement; and
(6) that each loan was made in compliance with, and is enforceable
under, all applicable local, state and federal laws and regulations in all
material respects.
However, the prospectus supplement relating to a series of securities may
contain additional or different representations and warranties for the loans in
the related trust fund.
If so specified in the related prospectus supplement, the
representations and warranties of a seller or originator in respect of a loan
will be made not as of the cut-off date but as of the date on which the
applicable originator sold the loan to the seller or the depositor or the
applicable seller sold the loan to the depositor or one of its affiliates. Under
those circumstances, a substantial period of time may have elapsed between the
sale date and the date of initial issuance of the series of securities
evidencing an interest in the loan. Since the representations and warranties of
a seller or originator do not address events that may occur following the sale
of a loan by that seller or originator, its repurchase obligation described in
this prospectus will not arise if the relevant event that would otherwise have
given rise to a repurchase obligation with respect to a loan occurs after the
date of sale of the loan by the applicable originator or seller. However, the
depositor will not include any loan in the trust fund for any series of
securities if anything has come to the depositor's attention that would cause it
to believe that the representations and warranties of a seller or originator
will not be accurate and complete in all material respects in respect of the
loan as of the date of initial issuance of the related series of securities. If
the master servicer is also a seller or originator of loans with respect to a
particular series of securities, the representations will be in addition to the
representations and warranties made by the master servicer in its capacity as a
master servicer.
The master servicer or the trustee, if the master servicer is also the
seller or originator, will promptly notify the relevant seller or originator of
any breach of any representation or warranty made by it in respect of a loan
which materially and adversely affects the interests of the securityholders in
the loan. If the applicable seller or originator cannot cure a breach within the
time period specified in the related prospectus supplement following notice from
the master servicer or the trustee, as the case may be, then that seller or
originator will be obligated either (1) to repurchase the loan from the trust
fund at a price equal to 100% of the unpaid principal balance thereof as of the
date of the repurchase plus accrued interest on the unpaid principal balance to
the first day of the month following the month of repurchase at the loan rate,
less any advances or amount payable as related servicing compensation if the
seller or originator is the master servicer, or (2) substitute for the loan a
replacement loan that satisfies the criteria specified in the related prospectus
supplement. If a REMIC election is to be made with respect to a trust fund, the
master servicer or a holder of the related residual certificate generally will
be obligated to pay any prohibited transaction tax which may arise in connection
with any repurchase or substitution and the trustee must have received a
satisfactory opinion of counsel that the repurchase or substitution will not
cause the trust fund to lose its status as a REMIC or otherwise subject the
trust fund to a prohibited transaction tax. The master servicer may be entitled
to reimbursement for any payment from the assets of the related trust fund or
from any holder of the related residual certificate. See "Description of the
Securities -- General." Except in those cases in which the master servicer is
the seller or originator, the master servicer will be required under the
applicable agreement to enforce this obligation for the benefit of the trustee
and the holders of the securities, following the practices it would employ in
its good faith business judgment were it the owner of the loan. This repurchase
or substitution obligation will constitute the sole remedy available to holders
of securities or the trustee for a breach of representation by a seller or
originator.
Neither the depositor nor the master servicer, unless the master
servicer is the seller or originator, will be obligated to purchase or
substitute a loan if a seller or originator defaults on its obligation to do so,
and no assurance can be given that sellers or originators will carry out their
respective repurchase or substitution obligations with respect to loans.
However, to the extent that a breach of a representation and warranty of a
seller or originator may also constitute a breach of a representation made by
the master servicer, the master servicer may have a repurchase or substitution
obligation as described under "The Agreements Assignment of Trust Fund Assets."
SUBSTITUTION OF TRUST FUND ASSETS
Substitution of trust fund assets will be permitted in the event of
breaches of representations and warranties with respect to any original trust
fund asset or in the event the documentation with respect to any trust fund
asset is determined by the trustee to be incomplete. The period during which the
substitution will be permitted will be indicated in the related prospectus
supplement. Substitution of trust fund assets will be permitted if, among other
things, the credit criteria relating to the origination of the initial trust
fund assets is substantially equivalent to the credit criteria relating to the
origination of the substitute trust fund assets. The related prospectus
supplement will describe any other conditions upon which trust fund assets may
be substituted for trust fund assets initially included in the trust fund.
USE OF PROCEEDS
The depositor will apply all or substantially all of the net proceeds
from the sale of each series of securities for one or more of the following
purposes:
(1) to purchase the related trust fund assets,
(2) to establish any pre-funding account, capitalized interest account
or reserve account as described in the related prospectus supplement and
(3) to pay the costs of structuring and issuing the securities,
including the costs of obtaining any credit enhancement as described under
"Credit Enhancement".
The depositor expects to sell securities in series from time to time,
but the timing and amount of offerings of securities will depend on a number of
factors, including the volume of trust fund assets acquired by the depositor,
prevailing interest rates, availability of funds and general market conditions.
THE DEPOSITOR
J.P. Morgan Acceptance Corporation I is a direct, wholly-owned
subsidiary of J.P. Morgan Securities Holdings Inc., which is a direct,
wholly-owned subsidiary of J.P. Morgan & Co. Incorporated. J.P. Morgan
Acceptance Corporation I will act as the depositor for the trust with respect to
each series of securities. As depositor it will establish the trust and will be
the party that deposits, sells or otherwise conveys the trust fund assets to the
trust. The depositor was incorporated in the State of Delaware on June 27, 1988.
The principal executive offices of the depositor are located at 60 Wall Street,
New York, New York 10260. Its telephone number is (212) 648-7741. The depositor
does not have, nor is it expected in the future to have, any significant assets.
Neither the depositor nor any of the depositor's affiliates will insure
or guarantee distributions on the securities of any series.
DESCRIPTION OF THE SECURITIES
Each series of certificates will be issued pursuant to separate pooling
and servicing agreements or trust agreements among the depositor and the
entities named in the related prospectus supplement as master servicer and
trustee. A form of each of the pooling and servicing agreement and trust
agreement has been filed as an exhibit to the registration statement of which
this prospectus forms a part. Each series of notes will be issued pursuant to an
indenture between the related trust fund and the entity named in the related
prospectus supplement as indenture trustee, and the related loans will be
serviced by the master servicer pursuant to a master servicing agreement or a
sale and servicing agreement. A form of indenture and a form of master servicing
agreement have been filed as exhibits to the registration statement of which
this prospectus forms a part. A series of securities may consist of both notes
and certificates. The provisions of each of the above agreements will vary
depending upon the nature of the securities to be issued thereunder and the
nature of the related trust fund. The following are descriptions of the material
provisions which may appear in any of the above agreements. The prospectus
supplement for a series of securities will describe more fully the provisions of
the agreements for the related series. The descriptions are subject to, and are
qualified in their entirety by reference to, all of the provisions of the
agreements for each series of securities and the applicable prospectus
supplement.
GENERAL
The securities of each series will be issued in book-entry or fully
registered form, in the authorized denominations specified in the related
prospectus supplement. If the securities are certificates, they will evidence
specified beneficial ownership interests in the assets of the related trust
fund. If the securities are notes, they will be debt obligations secured by the
assets of the related trust fund. The securities generally will not be entitled
to payments in respect of the assets included in any other trust fund
established by the depositor. However, if so specified in the related prospectus
supplement, the securities may be entitled to payments in respect of the assets
of other trust funds established by the depositor. In general, the securities
will not represent obligations of the depositor or any affiliate of the
depositor. A trust fund may include loans that are guaranteed or insured as set
forth in the related prospectus supplement. Each trust fund will consist of, to
the extent provided in the related agreement,
(1) the trust fund assets, as from time to time are subject to the
related indenture or pooling and servicing agreement, exclusive of any
retained interest described in the related prospectus supplement, including
all payments of interest and principal received after the cut-off date with
respect to the loans included in the trust fund assets to the extent not
applied in computing the principal balance of the loans as of the cut-off
date;
(2) the assets as from time to time are required to be deposited in
the related security account, as described in this prospectus under "The
Agreements -- Payments on Loans; Deposits to SecurityAccount";
(3) property which secured a loan and which is acquired on behalf of
the securityholders by foreclosure or deed in lieu of foreclosure; and
(4) any insurance policies or other forms of credit enhancement
required to be maintained pursuant to the related agreement.
If so specified in the related prospectus supplement, a trust fund may also
include one or more of the following: reinvestment income on payments received
on the trust fund assets, a reserve account, a mortgage pool insurance policy, a
special hazard insurance policy, a bankruptcy bond, one or more letters of
credit, a surety bond, guaranties or similar instruments or other agreements.
Each series of securities will be issued in one or more classes. Each
class of certificates of a series will evidence beneficial ownership of a
specified percentage or portion of future interest and principal payments on the
related trust fund assets. A class of certificates may represent different
specified percentages or portions of interest and principal payments on the
related trust fund assets. In each case, that percentage or portion may be zero
or may represent any other specified interest to and including 100%, as
specified in the related prospectus supplement. Each class of notes of a series
will be secured by the related trust fund assets. A series of securities may
include one or more classes that are senior in right to payment to one or more
other classes of securities of the series. A series or classes of securities may
be covered by insurance policies, surety bonds or other forms of credit
enhancement, in each case as described under "Credit Enhancement" and in the
related prospectus supplement. One or more classes of securities of a series may
be entitled to receive distributions of principal, interest or any combination
thereof. Distributions on one or more classes of a series of securities may be
made prior to one or more other classes, after the occurrence of specified
events, in accordance with a schedule or formula or on the basis of collections
from designated portions of the related trust fund assets, in each case as
specified in the related prospectus supplement. The timing and amounts of
distributions may vary among classes or over time as specified in the related
prospectus supplement.
Distributions of principal and interest or of principal only or
interest only, as applicable, on the related securities will be made by the
trustee on each distribution date, which may be monthly, quarterly,
semi-annually or at other intervals and on the dates as are specified in the
related prospectus supplement. Distributions of principal and interest or of
principal only or interest only, as applicable, will be made in proportion to
the percentages specified in the related prospectus supplement. Distributions
will be made to the persons in whose names the securities are registered at the
close of business on the related record date specified in the related prospectus
supplement. Distributions will be made in the manner specified in the related
prospectus supplement to the persons entitled to distributions at the address
appearing in the security register; provided, however, that the final
distribution in retirement of the securities will be made only upon presentation
and surrender of the securities at the office or agency of the trustee or other
person specified in the notice to securityholders of that final distribution.
The securities will be freely transferable and exchangeable at the
corporate trust office of the trustee as set forth in the related prospectus
supplement. No service charge will be made for any registration of exchange or
transfer of securities of any series, but the trustee may require payment of a
sum sufficient to cover any related tax or other governmental charge.
Under current law the purchase and holding of a class of securities by
or on behalf of any employee benefit plan or other retirement arrangement,
including individual retirement accounts and annuities, Keogh plans and
collective investment funds in which those plans, accounts or arrangements are
invested, subject to provisions of ERISA or the Code, could result in prohibited
transactions, within the meaning of ERISA and the Internal Revenue Code. See
"ERISA Considerations." Each prospectus supplement may identify one or more
classes of securities that are restricted from purchases by plans. The transfer
of securities of a restricted class will not be registered unless the transferee
(i) represents that it is not, and is not purchasing on behalf of, any plan,
account or arrangement or (ii) provides an opinion of counsel satisfactory to
the trustee and the depositor that the purchase of securities of that class by
or on behalf of that plan, account or arrangement is permissible under
applicable law and will not subject the trustee, the master servicer or the
depositor to any obligation or liability in addition to those undertaken in the
agreements. If the restricted class of securities is held in book-entry form,
the conditions in the preceding sentence may be deemed satisfied by the
transferee's acceptance of the security.
As to each series, an election may be made to treat the related trust
fund or designated portions of the trust fund as a REMIC as defined in the
Internal Revenue Code. The related prospectus supplement will specify whether a
REMIC election is to be made. Alternatively, the agreement for a series may
provide that a REMIC election may be made at the discretion of the depositor or
the master servicer and may only be made if specified conditions are satisfied.
As to any of those series, the terms and provisions applicable to the making of
a REMIC election will be set forth in the related prospectus supplement. If a
REMIC election is made with respect to a series, one of the classes will be
designated as evidencing the sole class of "residual interests" in the related
REMIC, as defined in the Code. All other classes of securities in that series
will constitute "regular interests" in the related REMIC, as defined in the
Code. As to each series with respect to which a REMIC election is to be made,
the trustee, the master servicer or a holder of the related residual certificate
will be obligated to take all actions required in order to comply with
applicable laws and regulations and will be obligated to pay any prohibited
transaction taxes. The trustee or the master servicer may be entitled to
reimbursement for any payment in respect of prohibited transaction taxes from
the assets of the trust fund or from any holder of the related residual
certificate if so specified in the related prospectus supplement.
DISTRIBUTIONS ON SECURITIES
General. In general, the method of determining the amount of
distributions on a particular series of securities will depend on the type of
credit support, if any, that is used with respect to the series. See "Credit
Enhancement." Set forth below are descriptions of various methods that may be
used to determine the amount of distributions on the securities of a particular
series. The prospectus supplement for each series of securities will describe
the method to be used in determining the amount of distributions on the
securities of that series.
Distributions allocable to principal and interest on the securities
will be made by the trustee out of, and only to the extent of, funds in the
related security account, including any funds transferred from any reserve
account. As between securities of different classes and as between distributions
of principal, and, if applicable, between distributions of principal prepayments
and scheduled payments of principal, and interest, distributions made on any
distribution date will be applied as specified in the related prospectus
supplement. The prospectus supplement will also describe the method for
allocating the distributions among securities of a particular class.
Available Funds. All distributions on the securities of each series on
each distribution date will be made from the available funds, in accordance with
the terms described in the related prospectus supplement and specified in the
agreement. Available funds for each distribution date will generally equal the
amount on deposit in the related security account allocable to the securities of
that series on that distribution date, net of related fees and expenses payable
by the related trust fund, other than amounts to be held in that security
account for distribution on future distribution dates.
Distributions of Interest. Interest will accrue on each class of
securities entitled to interest at the pass-through rate or interest rate, as
applicable, specified in the related prospectus supplement. In any case, the
rate will be a fixed rate per annum or a variable rate calculated in the method
and for the periods described in the related prospectus supplement. To the
extent funds are available therefor, interest accrued during the specified
period on each class of securities entitled to interest, other than a class of
securities that provides for interest that accrues, but is not currently payable
will be distributable on the distribution dates specified in the related
prospectus supplement until the aggregate class security balance of the
securities of that class has been distributed in full or, in the case of
securities entitled only to distributions allocable to interest, until the
aggregate notional amount of those securities is reduced to zero or for the
period of time designated in the related prospectus supplement. The original
class security balance of each security will equal the aggregate distributions
allocable to principal to which that security is entitled. Distributions
allocable to interest on each security that is not entitled to distributions
allocable to principal will be calculated based on the notional amount of that
security. The notional amount of a security will not evidence an interest in or
entitlement to distributions allocable to principal but will be used solely for
convenience in expressing the calculation of interest and for other specified
purposes.
Interest payable on the securities of a series on a distribution date
will include all interest accrued during the period specified in the related
prospectus supplement. In the event interest accrues over a period ending two or
more days prior to a distribution date, the effective yield to securityholders
will be reduced from the yield that would otherwise be obtainable if interest
payable on the security were to accrue through the day immediately preceding
that distribution date, and the effective yield at par to securityholders will
be less than the indicated coupon rate.
Distributions of Principal. The related prospectus supplement will
specify the method by which the amount of principal to be distributed on the
securities on each distribution date will be calculated and the manner in which
that amount will be allocated among the classes of securities entitled to
distributions of principal. The aggregate class security balance of any class of
securities entitled to distributions of principal generally will be the
aggregate original class security balance of that class of securities specified
in the related prospectus supplement, reduced by all distributions reported to
the holders of that securities as allocable to principal and, (1) in the case of
accrual securities, unless otherwise specified in the related prospectus
supplement, increased by all interest accrued but not then distributable on the
accrual securities and (2) in the case of adjustable rate securities, subject to
the effect of negative amortization, if applicable.
If so provided in the related prospectus supplement, one or more
classes of securities will be entitled to receive all or a disproportionate
percentage of the payments of principal which are received from borrowers,
including principal prepayments, which are received in advance of their
scheduled due dates and are not accompanied by amounts representing scheduled
interest due after the month of those payments in the percentages and under the
circumstances or for the periods specified in the prospectus supplement. Any
allocation of those principal payments to a class or classes of securities will
have the effect of accelerating the amortization of those securities while
increasing the interests evidenced by one or more other classes of securities in
the trust fund. Increasing the interests of the some classes of securities
relative to that of other securities is intended to preserve the availability of
the subordination provided by the other securities. See "Credit Enhancement --
Subordination."
Unscheduled Distributions. If specified in the related prospectus
supplement, the securities may receive distributions before the next scheduled
distribution date under the circumstances and in the manner described in this
prospectus and in that prospectus supplement. If applicable, the trustee will be
required to make unscheduled distributions on the day and in the amount
specified in the related prospectus supplement if, due to substantial payments
of principal, including principal prepayments, on the trust fund assets, the
trustee or the master servicer determines that the funds available or
anticipated to be available from the security account and, if applicable, any
reserve account, may be insufficient to make required distributions on the
securities on the related distribution date. Typically, the amount of any
unscheduled distribution that is allocable to principal will not exceed the
amount that would otherwise have been required to be distributed as principal on
the securities on the next distribution date; however, if so specified in the
related prospectus supplement, it may. The unscheduled distributions may or may
not include interest at the applicable pass-through rate, if any, or interest
rate, if any, on the amount of the unscheduled distribution allocable to
principal for the period and to the date specified in that prospectus
supplement.
ADVANCES
If so specified in the related prospectus supplement, the master
servicer will be required to advance on or before each distribution date from
its own funds, funds advanced by sub-servicers or funds held in the security
account for future distributions to the holders of securities of the related
series, an amount equal to the aggregate of payments of interest and/or
principal that were delinquent on the date specified in the related prospectus
supplement and were not advanced by any sub-servicer, net of the servicing fee.
The master servicer will make advances if the master servicer determines that
those advances may be recoverable out of late payments by borrowers, liquidation
proceeds, insurance proceeds or otherwise. In the case of cooperative loans, the
master servicer also may be required to advance any unpaid maintenance fees and
other charges under the related proprietary leases as specified in the related
prospectus supplement. In addition, to the extent provided in the related
prospectus supplement, a cash account may be established to provide for advances
to be made in the event of payment defaults or collection shortfalls on trust
fund assets.
In making advances, the master servicer will endeavor to maintain a
regular flow of scheduled interest and principal payments to holders of the
securities, rather than to guarantee or insure against losses. If advances are
made by the master servicer from cash being held for future distribution to
securityholders, the master servicer will replace those funds on or before any
future distribution date to the extent that funds in the applicable security
account on that distribution date would be less than the amount required to be
available for distributions to securityholders on that date. Any master servicer
funds advanced will be reimbursable to the master servicer out of recoveries on
the specific loans with respect to which the advances were made, e.g., late
payments made by the related borrower, any related insurance proceeds,
liquidation proceeds or proceeds of any loan purchased by the depositor, a
sub-servicer or a seller pursuant to the related agreement. Advances by the
master servicer, and any advances by a sub-servicer, also will be reimbursable
to the master servicer, or sub-servicer, from cash otherwise distributable to
securityholders, including the holders of senior securities, to the extent that
the master servicer determines that any advances previously made are not
ultimately recoverable as described above. To the extent provided in the related
prospectus supplement, the master servicer also will be obligated to make
advances, to the extent recoverable out of insurance proceeds, liquidation
proceeds or otherwise, in respect of taxes and insurance premiums not paid by
borrowers on a timely basis. Funds so advanced are reimbursable to the master
servicer to the extent permitted by the related agreement. The obligations of
the master servicer to make advances may be supported by a cash advance reserve
fund, a surety bond or other arrangement, in each case as described in the
related prospectus supplement.
If so specified in the related prospectus supplement, in the event the
master servicer or a sub-servicer fails to make a required advance, the trustee
will be obligated to make an advance in its capacity as successor servicer. If
the trustee makes an advance, it will be entitled to be reimbursed for that
advance to the same extent and degree as the master servicer or a sub-servicer
is entitled to be reimbursed for advances. See "-- Distributions on Securities"
above.
REPORTS TO SECURITYHOLDERS
Prior to or concurrently with each distribution on a distribution date,
the master servicer or the trustee will furnish to each securityholder of record
of the related series a statement setting forth, to the extent applicable to
that series of securities, among other things:
(1) the amount of the distribution allocable to principal, separately
identifying the aggregate amount of any principal prepayments and if so
specified in the related prospectus supplement, any applicable prepayment
penalties included in that distribution;
(2) the amount of the distribution allocable to interest;
(3) the amount of any advance;
(4) the aggregate amount (a) otherwise allocable to the subordinated
securityholders on that distribution date, and (b) withdrawn from the
reserve account, if any, that is included in the amounts distributed to the
senior securityholders;
(5) the outstanding principal balance or notional amount of each class
of the related series after giving effect to the distribution of principal
on that distribution date;
(6) the percentage of principal payments on the loans, excluding
prepayments, if any, which each class will be entitled to receive on the
following distribution date;
(7) the percentage of principal prepayments on the loans, if any,
which each class will be entitled to receive on the following distribution
date;
(8) the related amount of the servicing compensation retained or
withdrawn from the security account by the master servicer, and the amount
of additional servicing compensation received by the master servicer
attributable to penalties, fees, excess liquidation proceeds and other
similar charges and items;
(9) the number and aggregate principal balances of loans (A)
delinquent, exclusive of loans in foreclosure, (1) 1 to 30 days, (2) 31 to
60 days, (3) 61 to 90 days and (4) 91 or more days, (B) in foreclosure and
delinquent (1) 1 to 30 days, (2) 31 to 60 days, (3) 61 to 90 days and (4)
91 or more days as of the close of business on the last day of the calendar
month preceding that distribution date;
(10) the book value of any real estate acquired through foreclosure or
grant of a deed in lieu of foreclosure;
(11) the pass-through rate or interest rate, as applicable, if
adjusted from the date of the last statement, of any class expected to be
applicable to the next distribution to that class;
(12) if applicable, the amount remaining in any reserve account at the
close of business on the distribution date;
(13) the pass-through rate or interest rate, as applicable, as of the
day prior to the immediately preceding distribution date; and
(14) any amounts remaining under letters of credit, pool policies or
other forms of credit enhancement.
Where applicable, any amount set forth above may be expressed as a
dollar amount per single security of the relevant class having the percentage
interest specified in the related prospectus supplement. The report to
securityholders for any series of securities may include additional or other
information of a similar nature to that specified above.
In addition, within a reasonable period of time after the end of each
calendar year, the master servicer or the trustee will mail to each
securityholder of record at any time during that calendar year a report (a) as
to the aggregate of amounts reported pursuant to (1) and (2) above for that
calendar year or, in the event that person was a securityholder of record during
a portion of that calendar year, for the applicable portion of that year and (b)
any other customary information as may be deemed necessary or desirable for
securityholders to prepare their tax returns.
CATEGORIES OF CLASSES OF SECURITIES
The securities of any series may be comprised of one or more classes.
Classes of securities, in general, fall into different categories. The following
chart identifies and generally defines the more typical categories. The
prospectus supplement for a series of securities may identify the classes which
comprise that series by reference to the following categories.
Categories of Classes Definition
Principal Types
Accretion Directed................ A class that receives principal payments from
the accreted interest from specified Accrual
classes. An Accretion Directed class also may
receive principal payments from principal
paid on the underlying trust fund assets for
the related series.
Component Securities.............. A class consisting of components. The
components of a class of Component Securities
may have different principal and/or interest
payment characteristics but together
constitute a single class. Each component of
a class of Component Securities may be
identified as falling into one or more of the
categories in this chart.
Notional Amount Securities........ A class having no principal balance and
bearing interest on a notional amount. The
notional amount is used for purposes of the
determination of interest distributions.
Planned Principal Class or PACs... A class that is designed to receive principal
payments using a predetermined principal
balance schedule derived by assuming two
constant prepayment rates for the underlying
trust fund assets. These two rates are the
endpoints for the "structuring range" for the
Planned Principal Class. The Planned
Principal Classes in any series of securities
may be subdivided into different
categories--e.g., Primary Planned Principal
Classes, Secondary Planned Principal Classes
and so forth--having different effective
structuring ranges and different principal
payment priorities. The structuring range for
the Secondary Planned Principal Class of a
series of securities will be narrower than
that for the Primary Planned Principal Class
of that series.
Scheduled Principal Class......... A class that is designed to receive principal
payments using a predetermined principal
balance schedule but is not designated as a
Planned Principal Class or Targeted Principal
Class. In many cases, the schedule is derived
by assuming two constant prepayment rates for
the underlying trust fund assets. These two
rates are the endpoints for the "structuring
range" for the Scheduled Principal Class.
Sequential Pay Class.............. Classes that receive principal payments in a
prescribed sequence, that do not have
predetermined principal balance schedules and
that under all circumstances receive payments
of principal continuously from the first
distribution date on which they receive
principal until they are retired. A single
class that receives principal payments before
or after all other classes in the same series
of securities may be identified as a
Sequential Pay Class.
Strip............................. A class that receives a constant proportion,
or "strip," of the principal payments on the
underlying trust fund assets.
Support Class or Companion Class.. A class that receives principal payments on
any distribution date only if scheduled
payments have been made on specified Planned
Principal Classes, Targeted Principal Classes
and/or Scheduled Principal Classes on that
distribution date.
Targeted Principal Class or TACs.. A class that is designed to receive principal
payments using a predetermined principal
balance schedule derived by assuming a single
constant prepayment rate for the underlying
trust fund assets.
Interest Types
Fixed Rate........................ A class with an interest rate that is fixed
throughout the life of that class.
Floating Rate..................... A class with an interest rate that resets
periodically based upon a designated index
and that varies directly with changes in that
index as specified in the related prospectus
supplement. Interest payable to a Floating
Rate class on a distribution date may be
subject to a cap based on the amount of funds
available to pay interest on that
distribution date.
Inverse Floating Rate............. A class with an interest rate that resets
periodically based upon a designated index as
specified in the related prospectus
supplement and that varies inversely with
changes in that index.
Variable Rate..................... A class with an interest rate that resets
periodically and is calculated by reference
to the rate or rates of interest applicable
to specified assets or instruments--e.g., the
loan rates borne by the underlying loans.
Auction Rate...................... A class with an interest rate that resets
periodically to an auction rate that is
calculated on the basis of auction procedures
described in the related prospectus
supplement.
Interest Only..................... A class that receives some or all of the
interest payments made on the underlying
trust fund assets or other assets of the
trust fund and little or no principal.
Interest Only classes have either a nominal
principal balance or a notional amount. A
nominal principal balance represents actual
principal that will be paid on the class. It
is referred to as nominal since it is
extremely small compared to other classes. A
notional amount is the amount used as a
reference to calculate the amount of interest
due on an Interest Only class that is not
entitled to any distributions in respect of
principal.
Principal Only.................... A class that does not bear interest and is
entitled to receive distributions in respect
of principal only.
Partial Accrual................... A class that accretes a portion of the amount
of accrued interest with respect to that
class. The accreted interest will not be
distributed but will instead be added to the
principal balance of that class on each
applicable distribution date, with the
remainder of the accrued interest to be
distributed currently as interest on that
class. This partial accrual without
distribution may continue until a specified
event has occurred or until the Partial
Accrual class is retired.
Accrual........................... A class that accretes the full amount of
accrued interest with respect to that class.
The accreted interest will not be distributed
but will instead be added as principal to the
principal balance of that class on each
applicable distribution date. This accrual
without distribution may continue until some
specified event has occurred or until the
Accrual Class is retired.
INDICES APPLICABLE TO FLOATING RATE AND INVERSE FLOATING RATE CLASSES
The indices applicable to Floating Rate and Inverse Floating Rate
Classes will be LIBOR, the Eleventh District Cost of Funds Index, the Treasury
Index, the Prime Rate, in each case calculated as described in this prospectus
or any other index described in the related prospectus supplement.
LIBOR
On the date specified in the related prospectus supplement the person
designated in the related agreement will determine LIBOR by reference to the
quotations, as set forth on the Reuters Screen LIBO Page as defined in the
International Swap Dealers Association, Inc. Code of Standard Wording,
Assumptions and Provisions for Swaps, 1986 Edition or on the Telerate Screen
Page 3750 offered by the principal London office of each of the designated
reference banks meeting the criteria set forth below for making one-month United
States dollar deposits in leading banks in the London Interbank market, as of
11:00 a.m., London time, on that determination date. In lieu of relying on the
quotations for those reference banks that appear at that time on the Reuters
Screen LIBO Page or on the Telerate Screen Page 3750, the calculation agent will
request each of the reference banks to provide offered quotations at that time.
LIBOR will be established as follows:
(a) If on any LIBOR determination date two or more reference banks
provide offered quotations, LIBOR for the next interest accrual period
shall be the arithmetic mean of the offered quotations (rounded upwards if
necessary to the nearest whole multiple of 1/32%).
(b) If on any LIBOR determination date only one or none of the
reference banks provides offered quotations, LIBOR for the next interest
accrual period shall be whichever is the higher of (1) LIBOR as determined
on the previous LIBOR determination date or (2) the reserve interest rate,
which is the rate per annum which the calculation agent determines to be
either (a) the arithmetic mean, rounded upwards if necessary to the nearest
whole multiple of 1/32%, of the one-month United States dollar lending
rates that New York City banks selected by the calculation agent are
quoting, on the relevant LIBOR determination date, to the principal London
offices of at least two of the reference banks to which quotations are, in
the opinion of the calculation agent, being so made, or (b) in the event
that the calculation agent can determine no arithmetic mean, the lowest
one-month United States dollar lending rate which New York City banks
selected by the calculation agent are quoting on the LIBOR determination
date to leading European banks.
(c) If on any LIBOR determination date for a class specified in
the related prospectus supplement, the calculation agent is required but is
unable to determine the reserve interest rate in the manner provided in
paragraph (b) above, LIBOR for the next interest accrual period shall be
LIBOR as determined on the preceding LIBOR determination date, or, in the
case of the first LIBOR determination date, LIBOR shall be deemed to be the
per annum rate specified as such in the related prospectus supplement.
Each reference bank (1) shall be a leading bank engaged in transactions
in Eurodollar deposits in the international Eurocurrency market; (2) shall not
control, be controlled by, or be under common control with the calculation
agent; and (3) shall have an established place of business in London. If any
reference bank should be unwilling or unable to act as such or if appointment of
any reference bank is terminated, another leading bank meeting the criteria
specified above will be appointed.
The establishment of LIBOR on each LIBOR determination date by the
calculation agent and its calculation of the rate of interest for the applicable
classes for the related interest accrual period shall, in the absence of
manifest error, be final and binding.
COFI
The Eleventh District Cost of Funds Index is designed to represent the
monthly weighted average cost of funds for savings institutions in Arizona,
California and Nevada that are member institutions of the Eleventh Federal Home
Loan Bank District. The Eleventh District Cost of Funds Index for a particular
month reflects the interest costs paid on all types of funds held by Eleventh
District member institutions and is calculated by dividing the cost of funds by
the average of the total amount of those funds outstanding at the end of that
month and of the prior month and annualizing and adjusting the result to reflect
the actual number of days in the particular month. If necessary, before these
calculations are made, the component figures are adjusted by the Federal Home
Loan Bank of San Francisco, or FHLBSF, to neutralize the effect of events such
as member institutions leaving the Eleventh District or acquiring institutions
outside the Eleventh District. The Eleventh District Cost of Funds Index is
weighted to reflect the relative amount of each type of funds held at the end of
the relevant month. The major components of funds of Eleventh District member
institutions re:
(1) savings deposits,
(2) time deposits,
(3) FHLBSF advances,
(4) repurchase agreements and
(5) all other borrowings.
Because the component funds represent a variety of maturities whose costs may
react in different ways to changing conditions, the Eleventh District Cost of
Funds Index does not necessarily reflect current market rates.
A number of factors affect the performance of the Eleventh District
Cost of Funds Index, which may cause it to move in a manner different from
indices tied to specific interest rates, such as United States Treasury bills or
LIBOR. Because the liabilities upon which the Eleventh District Cost of Funds
Index is based were issued at various times under various market conditions and
with various maturities, the Eleventh District Cost of Funds Index may not
necessarily reflect the prevailing market interest rates on new liabilities with
similar maturities. Moreover, as stated above, the Eleventh District Cost of
Funds Index is designed to represent the average cost of funds for Eleventh
District savings institutions for the month prior to the month in which it is
due to be published. Additionally, the Eleventh District Cost of Funds Index may
not necessarily move in the same direction as market interest rates at all
times, since, as longer term deposits or borrowings mature and are renewed at
prevailing market interest rates, the Eleventh District Cost of Funds Index is
influenced by the differential between the prior and the new rates on those
deposits or borrowings. In addition, movements of the Eleventh District Cost of
Funds Index, as compared to other indices tied to specific interest rates, may
be affected by changes instituted by the FHLBSF in the method used to calculate
the Eleventh District Cost of Funds Index.
The FHLBSF publishes the Eleventh District Cost of Funds Index in its
monthly Information Bulletin. Any individual may request regular receipt by mail
of Information Bulletins by writing the Federal Home Loan Bank of San Francisco,
P.O. Box 7948, 600 California Street, San Francisco, California 94120, or by
calling (415) 616-1000. In addition, the Eleventh District Cost of Funds Index
may also be obtained by calling the FHLBSF at (415) 616-2600.
The FHLBSF has stated in its Information Bulletin that the Eleventh
District Cost of Funds Index for a month "will be announced on or near the last
working day" of the following month and also has stated that it "cannot
guarantee the announcement" of the index on an exact date. So long as the index
for a month is announced on or before the tenth day of the second following
month, the interest rate for each class of securities of a series as to which
the applicable interest rate is determined by reference to an index denominated
as COFI for the interest accrual period commencing in the second following month
will be based on the Eleventh District Cost of Funds Index for the second
preceding month. If publication is delayed beyond the tenth day, the interest
rate will be based on the Eleventh District Cost of Funds Index for the third
preceding month.
If on the tenth day or any other day specified in the related
prospectus supplement of the month in which any interest accrual period
commences for a class of COFI securities the most recently published Eleventh
District Cost of Funds Index relates to a month prior to the third preceding
month, the index for the current interest accrual period and for each succeeding
interest accrual period will, except as described in the next to last sentence
of this paragraph, be based on the National Cost of Funds Index published by the
OTS for the third preceding month, or the fourth preceding month if the National
Cost of Funds Index for the third preceding month has not been published on the
tenth day of an interest accrual period. Information on the National Cost of
Funds Index may be obtained by writing the OTS at 1700 G Street, N.W.,
Washington, D.C. 20552 or calling (202) 906-6677, and the current National Cost
of Funds Index may be obtained by calling (202) 906-6988. If on any tenth day of
the month in which an interest accrual period commences the most recently
published National Cost of Funds Index relates to a month prior to the fourth
preceding month, the applicable index for that interest accrual period and each
succeeding interest accrual period will be based on LIBOR, as determined by the
calculation agent in accordance with the agreement relating to the series of
securities. A change of index from the Eleventh District Cost of Funds Index to
an alternative index will result in a change in the index level, and,
particularly if LIBOR is the alternative index, could increase its volatility.
The establishment of COFI by the calculation agent and its calculation
of the rates of interest for the applicable classes for the related interest
accrual period shall, in the absence of manifest error, be final and binding.
TREASURY INDEX
On the date specified in the related prospectus supplement for each
class of the securities of a series as to which the applicable interest rate is
determined by reference to an index denominated as a Treasury Index, the
calculation agent will ascertain the Treasury Index for Treasury securities of
the maturity and for the period, or, if applicable, date, specified in the
related prospectus supplement. As described in the related prospectus
supplement, the Treasury Index for any period means the average of the yield for
each business day during the period specified in the related prospectus
supplement, and for any date means the yield for that date, expressed as a per
annum percentage rate, on (1) U.S. Treasury securities adjusted to the "constant
maturity" specified in that prospectus supplement or (2) if no "constant
maturity" is so specified, U.S. Treasury securities trading on the secondary
market having the maturity specified in that prospectus supplement, in each case
as published by the Federal Reserve Board in its Statistical Release No.
H.15(519). Statistical Release No. H.15(519) is published on Monday or Tuesday
of each week and may be obtained by writing or calling the Publications
Department at the Board of Governors of the Federal Reserve System, 21st and C
Streets, Washington, D.C. 20551 (202) 452-3244. If the calculation agent has not
yet received Statistical Release No. H.15(519) for that week, then it will use
the Statistical Release from the immediately preceding week.
Yields on U.S. Treasury securities at "constant maturity" are derived
from the U.S. Treasury's daily yield curve. This curve, which relates the yield
on a security to its time to maturity, is based on the closing market bid yields
on actively traded Treasury securities in the over-the-counter market. These
market yields are calculated from composites of quotations reported by five
leading U.S. Government securities dealers to the Federal Reserve Bank of New
York. This method provides a yield for a given maturity even if no security with
that exact maturity is outstanding. In the event that the Treasury Index is no
longer published, a new index based upon comparable data and methodology will be
designated in accordance with the agreement relating to the particular series of
securities. The calculation agent's determination of the Treasury Index, and its
calculation of the rates of interest for the applicable classes for the related
interest accrual period, shall, in the absence of manifest error, be final and
binding.
PRIME RATE
On the date specified in the related prospectus supplement for each
class of securities of a series as to which the applicable interest rate is
determined by reference to an index denominated as the Prime Rate, the
calculation agent will ascertain the Prime Rate for the related interest accrual
period. As described in the related prospectus supplement, the Prime Rate for an
interest accrual period will be the "Prime Rate" as published in the "Money
Rates" section of The Wall Street Journal, or if not so published, the "Prime
Rate" as published in a newspaper of general circulation selected by the
calculation agent in its sole discretion, on the related determination date. If
a prime rate range is given, then the average of the range will be used. In the
event that the Prime Rate is no longer published, a new index based upon
comparable data and methodology will be designated in accordance with the
agreement relating to the particular series of securities. The calculation
agent's determination of the Prime Rate and its calculation of the rates of
interest for the related interest accrual period shall in the absence of
manifest error, be final and binding.
BOOK-ENTRY REGISTRATION OF SECURITIES
As described in the related prospectus supplement, if not issued in
fully registered form, each class of securities will be registered as book-entry
securities. Persons acquiring beneficial ownership interests in the
securities--the security owners--will hold their securities through The
Depository Trust Company in the United States, or Cedelbank or Euroclear in
Europe if they are participants of the systems, or indirectly through
organizations that are participants in those systems. The book-entry securities
will be issued in one or more certificates which equal the aggregate principal
balance of the securities and will initially be registered in the name of Cede &
Co., the nominee of DTC. Cedelbank and Euroclear will hold omnibus positions on
behalf of their participants through customers' securities accounts in
Cedelbank's and Euroclear's names on the books of their respective depositaries
which in turn will hold those positions in customers' securities accounts in the
depositaries' names on the books of DTC. Citibank, N.A., will act as depositary
for Cedelbank and The Chase Manhattan Bank will act as depositary for Euroclear.
Except as described in this prospectus, no person acquiring a book-entry
security will be entitled to receive a physical certificate representing that
security. Unless and until definitive securities are issued, it is anticipated
that the only securityholders of the securities will be Cede & Co., as nominee
of DTC. Security owners are only permitted to exercise their rights indirectly
through participants and DTC.
The beneficial owner's ownership of a book-entry security will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary that maintains the beneficial owner's account for that
purpose. In turn, the financial intermediary's ownership of a book-entry
security will be recorded on the records of DTC or of a participating firm that
acts as agent for the Financial Intermediary, whose interest will in turn be
recorded on the records of DTC, if the beneficial owner's Financial Intermediary
is not a DTC participant, and on the records of Cedelbank or Euroclear, as
appropriate.
Security owners will receive all distributions of principal of, and
interest on, the securities from the trustee through DTC and DTC participants.
While the securities are outstanding, except under the circumstances described
in this prospectus, under the rules, regulations and procedures creating and
affecting DTC and its operations, DTC is required to make book-entry transfers
among participants on whose behalf it acts with respect to the securities and is
required to receive and transmit distributions of principal of, and interest on,
the securities. Participants and indirect participants with whom security owners
have accounts with respect to securities are similarly required to make
book-entry transfers and receive and transmit the distributions on behalf of
their respective security owners. Accordingly, although security owners will not
possess certificates, the DTC rules provide a mechanism by which security owners
will receive distributions and will be able to transfer their interest.
Security owners will not receive or be entitled to receive certificates
representing their respective interests in the securities, except under the
limited circumstances described in this prospectus. Unless and until definitive
securities are issued, security owners who are not participants may transfer
ownership of Securities only through Participants and indirect participants by
instructing the Participants and indirect participants to transfer securities,
by book-entry transfer, through DTC for the account of the purchasers of those
securities, which account is maintained with their respective participants.
Under the DTC rules and in accordance with DTC's normal procedures, transfers of
ownership of securities will be executed through DTC and the accounts of the
respective participants at DTC will be debited and credited. Similarly, the
participants and indirect participants will make debits or credits, as the case
may be, on their records on behalf of the selling and purchasing security
owners.
Because of time zone differences, credits of securities received in
Cedelbank or Euroclear as a result of a transaction with a participant will be
made during subsequent securities settlement processing and dated the business
day following the DTC settlement date. Credits or any transactions in securities
settled during the processing will be reported to the relevant Euroclear or
Cedelbank participants on that business day. Cash received in Cedelbank or
Euroclear as a result of sales of securities by or through a Cedelbank
participant or Euroclear participant to a DTC participant will be received with
value on the DTC settlement date but will be available in the relevant Cedelbank
or Euroclear cash account only as of the business day following settlement in
DTC.
Transfers between participants will occur in accordance with the DTC
rules. Transfers between Cedelbank participants and Euroclear participants will
occur in accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedelbank
participants or Euroclear participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the relevant depositary; however, cross-market transactions
will require delivery of instructions to the relevant European international
clearing system by the counterparty in that system in accordance with its rules
and procedures and within its established deadlines--European time. The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to the relevant depositary to take
action to effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment in accordance with normal
procedures for same day funds settlement applicable to DTC. Cedelbank
participants and Euroclear participants may not deliver instructions directly to
the European depositaries.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, 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. DTC is owned by a number of its direct participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc.
Cedelbank is a duly licensed bank organized as a "societe anonyme",
limited company, under the laws of Luxembourg. Cedelbank holds securities for
its participants, or participating organizations and facilitates the clearance
and settlement of securities transactions between Cedelbank participants through
electronic book-entry changes in accounts of Cedelbank participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in Cedelbank in any of 37 currencies, including United States dollars.
Cedelbank provides to As Cedelbank participants, among other things, services
for safekeeping, administration, clearance and settlement of internationally
traded securities and securities lending and borrowing. Cedelbank interfaces
with domestic markets in several countries. As a licensed bank, Cedelbank is
subject to regulation by the Luxembourg Monetary Institute. Cedelbank
participants are recognized financial institutions around the world, including
underwriters, securities brokers and dealers, banks, trust companies, clearing
corporations and other organizations. Indirect access to Cedelbank is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Cedelbank participant,
either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
and to clear and settle transactions between Euroclear participants through
simultaneous electronic book-entry delivery against payment, thereby eliminating
the need for physical movement of certificates and any risk from lack of
simultaneous transfers of securities and cash. Transactions may be settled in
any of 32 currencies, including United States dollars. Euroclear includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. Euroclear is
operated by the Brussels, Belgium office of Morgan Guaranty Trust Company of New
York, as Euroclear operator, under contract with Euroclear Clearance Systems
S.C., a Belgian cooperative corporation. All operations are conducted by Morgan,
and all Euroclear securities clearance accounts and Euroclear cash accounts are
accounts with the Euroclear operator, not the Belgian cooperative. The Belgian
cooperative establishes policy for Euroclear on behalf of Euroclear
participants. Euroclear participants include banks, central banks, securities
brokers and dealers and other professional financial intermediaries. Indirect
access to Euroclear is also available to other firms that clear through or
maintain a custodial relationship with a Euroclear Participant, either directly
or indirectly.
Morgan is the Belgian branch of a New York banking corporation which is
a member bank of the Federal Reserve System. As a member bank of the Federal
Reserve System, it is regulated and examined by the Board of Governors of the
Federal Reserve System and the New York State Banking Department, as well as the
Belgian Banking Commission.
Securities clearance accounts and cash accounts with Morgan are
governed by the Terms and Conditions Governing Use of Euroclear and the related
Operating Procedures of the Euroclear System and applicable Belgian law. The
Terms and Conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipts of payments with
respect to securities in Euroclear. All securities in Euroclear are held on a
fungible basis without attribution of specific certificates to specific
securities clearance accounts. The Euroclear operator acts under the Terms and
Conditions only on behalf of Euroclear participants, and has no record of or
relationship with persons holding through Euroclear participants.
Under a book-entry format, beneficial owners of the book-entry
securities may experience some delay in their receipt of payments, since
payments will be forwarded by the trustee to Cede & Co., as nominee of DTC.
Distributions with respect to securities held through Cedelbank or Euroclear
will be credited to the cash accounts of Cedelbank participants or Euroclear
participants in accordance with the relevant system's rules and procedures, to
the extent received by the relevant depositary. Distributions will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations. See "Federal Income Tax Consequences -- Tax Treatment of Foreign
Investors" and "-- Tax Consequences to Holders of the Notes -- Backup
Withholding." Because DTC can only act on behalf of financial intermediaries,
the ability of a beneficial owner to pledge book-entry securities to persons or
entities that do not participate in the depository system, may be limited due to
the lack of physical certificates for book-entry securities.
Monthly and annual reports on the trust fund will be provided to Cede &
Co., as nominee of DTC, and may be made available by Cede & Co. to beneficial
owners upon request, in accordance with the rules, regulations and procedures
creating and affecting the depository, and to the financial intermediaries to
whose DTC accounts the book-entry securities of those beneficial owners are
credited.
DTC has advised the depositor that, unless and until definitive
securities are issued, DTC will take any action permitted to be taken by the
holders of the book-entry securities under the applicable agreement only at the
direction of one or more financial intermediaries to whose DTC accounts the
book-entry securities are credited, to the extent that actions are taken on
behalf of financial intermediaries whose holdings include those book-entry
securities. Cedelbank or the Euroclear operator, as the case may be, will take
any other action permitted to be taken by a securityholder under the agreement
on behalf of a Cedelbank participant or Euroclear participant only in accordance
with its relevant rules and procedures and subject to the ability of the
relevant depositary to effect those actions on its behalf through DTC. DTC may
take actions, at the direction of the related participants, with respect to some
securities which conflict with actions taken with respect to other securities.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the trustee will be required to notify all beneficial
owners of the occurrence of that event and the availability through DTC of
definitive securities. Upon surrender by DTC of be global certificate or
certificates representing the book-entry securities and instructions for
re-registration, the trustee will issue definitive securities, and thereafter
the trustee will recognize the holders of the definitive securities as
securityholders under the applicable agreement.
Although DTC, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of securities among participants of
DTC, Cedelbank and Euroclear, they are under no obligation to perform or
continue to perform those procedures and those procedures may be discontinued at
any time.
None of the master servicer, the depositor or the trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the book-entry securities held by
Cede & Co., as nominee of DTC, or for maintaining, supervising or reviewing any
records relating to the beneficial ownership interests.
CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided with respect to one or more classes
of a series of securities or with respect to the related trust fund assets.
Credit enhancement may be in the form of a limited financial guaranty policy
issued by an entity named in the related prospectus supplement, the
subordination of one or more classes of the securities of that series, the
establishment of one or more reserve accounts, the use of a
cross-collateralization feature, use of a mortgage pool insurance policy, FHA
Insurance, VA Guarantee, bankruptcy bond, special hazard insurance policy,
surety bond, letter of credit, guaranteed investment contract,
overcollateralization, interest rate swap agreement, interest rate cap agreement
or another method of credit enhancement contemplated in this prospectus and
described in the related prospectus supplement, or any combination of the
foregoing. Credit enhancement will not provide protection against all risks of
loss and will not guarantee repayment of the entire principal balance of the
securities and interest on those securities. If losses occur which exceed the
amount covered by credit enhancement or which are not covered by the credit
enhancement, securityholders will bear their allocable share of any
deficiencies.
SUBORDINATION
If so specified in the related prospectus supplement, protection
afforded to holders of one or more classes of securities of a series by means of
the subordination feature may be accomplished by the preferential right of
holders of one or more other classes of that series to distributions in respect
of scheduled principal, principal prepayments, interest or any combination
thereof that otherwise would have been payable to holders of one or more classes
of subordinated securities under the circumstances and to the extent specified
in the related prospectus supplement. Protection may also be afforded to the
holders of senior securities of a series by:
(1) reducing the ownership interest, if applicable, of the related
subordinated securities;
(2) a combination of the immediately preceding sentence and clause (1)
above; or
(3) another method described in the related prospectus supplement.
If so specified in the related prospectus supplement, delays in receipt of
scheduled payments on the loans held in a trust fund and losses on defaulted
loans may be borne first by the various classes of subordinated securities and
thereafter by the various classes of senior securities, in each case under the
circumstances and subject to the limitations specified in that prospectus
supplement. The aggregate distributions in respect of delinquent payments on the
loans over the lives of the securities or at any time, the aggregate losses in
respect of defaulted loans which must be borne by the subordinated securities by
virtue of subordination and the amount of the distributions otherwise
distributable to the subordinated securityholders that will be distributable to
senior securityholders on any distribution date may be limited as specified in
the related prospectus supplement. If aggregate distributions in respect of
delinquent payment on the loans or aggregate losses in respect of those loans
were to exceed an amount specified in the related prospectus supplement, holders
of senior securities would experience losses on the securities.
In addition to or in lieu of the foregoing, if so specified in the
related prospectus supplement, all or any portion of distributions otherwise
payable to holders of subordinated securities on any distribution date may
instead be deposited into one or more reserve accounts established with the
trustee or distributed to holders of senior securities. Deposits may be made on
each distribution date, for specified periods or until the balance in the
reserve account has reached a specified amount and, following payments from the
reserve account to holders of senior securities or otherwise, thereafter to the
extent necessary to restore the balance in the reserve account to required
levels, in each case as specified in the related prospectus supplement. Amounts
on deposit in the reserve account may be released to the holders of classes of
securities at the times and under the circumstances specified in that prospectus
supplement.
If specified in the related prospectus supplement, various classes of
senior securities and subordinated securities may themselves be subordinate in
their right to receive specified distributions to other classes of senior and
subordinated securities, respectively, through a cross-collateralization
mechanism or otherwise.
As between classes of senior securities and as between classes of
subordinated securities, distributions may be allocated among those classes:
(1) in the order of their scheduled final distribution dates,
(2) in accordance with a schedule or formula,
(3) in relation to the occurrence of events, or
(4) by another method as specified in the related prospectus supplement.
As between classes of subordinated securities, payments to holders of senior
securities on account of delinquencies or losses and payments to any reserve
account will be allocated as specified in the related prospectus supplement.
LETTER OF CREDIT
The letter of credit, if any, with respect to a series of securities
will be issued by the bank or financial institution specified in the related
prospectus supplement. Under the letter of credit, the entity providing the L/C
will be obligated to honor drawings thereunder in an aggregate fixed dollar
amount, net of unreimbursed payments thereunder, equal to the percentage
specified in the related prospectus supplement of the aggregate principal
balance of the loans on the related cut-off date or of one or more classes of
securities. If so specified in the related prospectus supplement, the letter of
credit may permit drawings in the event of losses not covered by insurance
policies or other credit support, such as losses arising from damage not covered
by standard hazard insurance policies, losses resulting from the bankruptcy of a
borrower and the application of applicable provisions of the federal Bankruptcy
Code, or losses resulting from denial of insurance coverage due to
misrepresentations in connection with the origination of a loan. The amount
available under the letter of credit will, in all cases, be reduced to the
extent of the unreimbursed payments thereunder. The obligations of the entity
providing the L/C under the letter of credit for each series of securities will
expire at the earlier of the date specified in the related prospectus supplement
or the termination of the trust fund. See "The Agreements -- Termination;
Optional Termination." A copy of the letter of credit for a series, if any, will
be filed with the SEC as an exhibit to a Current Report on Form 8-K to be filed
within 15 days of issuance of the securities of the related series.
INSURANCE POLICIES, SURETY BONDS AND GUARANTIES
If so provided in the prospectus supplement for a series of securities,
deficiencies in amounts otherwise payable on those securities or classes thereof
will be covered by insurance policies and/or surety bonds provided by one or
more insurance companies or sureties. Those instruments may cover, with respect
to one or more classes of securities of the related series, timely distributions
of interest and/or full distributions of principal on the basis of a schedule of
principal distributions set forth in or determined in the manner specified in
the related prospectus supplement. In addition, if specified in the related
prospectus supplement, a trust fund may also include bankruptcy bonds, special
hazard insurance policies, other insurance or guaranties for the purpose of:
(1) maintaining timely payments or providing additional protection against
losses on the trust fund assets,
(2) paying administrative expenses or
(3) establishing a minimum reinvestment rate on the payments made in
respect of those assets or principal payment rate on those assets.
Arrangements may include agreements under which securityholders are entitled to
receive amounts deposited in various accounts held by the trustee upon the terms
specified in the related prospectus supplement. A copy of any arrangement
instrument for a series will be filed with the SEC as an exhibit to a Current
Report on Form 8-K to be filed with the SEC within 15 days of issuance of the
securities of the related series.
OVER-COLLATERALIZATION
If so provided in the prospectus supplement for a series of securities,
a portion of the interest payment on each loan included in the trust fund may be
applied as an additional distribution in respect of principal to reduce the
principal balance of a class or classes of securities and, thus, accelerate the
rate of payment of principal on that class or those classes of securities.
SPREAD ACCOUNT
If so specified in the related prospectus supplement, support for a
series or one or more Classes of a series of securities may be provided by the
periodic deposit of a portion of available excess cash flow from the trust fund
assets into a spread account intended to assure the subsequent distribution of
interest and principal on the securities of that series or Class or Classes of a
series of securities in the manner specified in the related prospectus
supplement.
RESERVE ACCOUNTS
If specified in the related prospectus supplement, credit support with
respect to a series of securities will be provided by the establishment and
maintenance with the trustee for that series of securities, in trust, of one or
more reserve accounts for that series. The prospectus supplement relating to a
series will specify whether or not any reserve accounts will be included in the
trust fund for that series.
The reserve account for a series will be funded:
(1) by the deposit in the reserve account of cash, United States Treasury
securities, instruments evidencing ownership of principal or interest
payments on those amounts or instruments, letters of credit, demand
notes, certificates of deposit or a combination thereof in the
aggregate amount specified in the related prospectus supplement,
(2) by the deposit in the reserve account from time to time of amounts, as
specified in the related prospectus supplement to which the
subordinate securityholders, if any, would otherwise be entitled or
(3) in any other manner as may be specified in the related prospectus
supplement.
Any amounts on deposit in the reserve account and the proceeds of any
other instrument upon maturity will be held in cash or will be invested in
permitted investments which may include:
(1) obligations of the United States or any agency thereof, provided those
obligations are backed by the full faith and credit of the United
States;
(2) general obligations of or obligations guaranteed by any state of the
United States or the District of Columbia receiving the highest
long-term debt rating of each rating agency rating the related series
of securities, or a lower rating as will not result in he downgrading
or withdrawal of the ratings then assigned to those securities by each
rating agency rating those securities;
(3) commercial or finance company paper which is then receiving the
highest commercial or finance company paper rating of each rating
agency rating those securities, or a lower rating as will not result
in the downgrading or withdrawal of the ratings then assigned to those
securities by each rating agency rating those securities;
(4) certificates of deposit, demand or time deposits, or bankers'
acceptances issued by any depository institution or trust company
incorporated under the laws of the United States or of any state
thereof and subject to supervision and examination by federal and/or
state banking authorities, provided that the commercial paper and/or
long-term unsecured debt obligations of that depository institution or
trust company, or in the case of the principal depository institution
in a holding company system, the commercial paper or long-term
unsecured debt obligations of the holding company, but only if Moody's
is not a rating agency, are then rated in one of the two highest long
term and the highest short-term ratings of each rating agency for
those securities, or any lower ratings as will not result in the
downgrading or withdrawal of the rating then assigned to those
securities by any rating agency;
(5) demand or time deposits or certificates of deposit issued by any bank
or trust company or savings institution to the extent that the
deposits are fully insured by the FDIC;
(6) guaranteed reinvestment agreements issued by any bank, insurance
company or other corporation containing, at the time of the issuance
of those agreements, the terms and conditions as will not result in
the downgrading or withdrawal of the rating then assigned to the
related securities by any rating agency rating those securities;
(7) repurchase obligations with respect to any security described in
clauses (1) and (2) above, in either case entered into with a
depository institution or trust company acting as principal described
in clause (4) above;
(8) securities, other than stripped bonds, stripped coupons or instruments
sold at a purchase price in excess of 115% of the face amount thereof,
bearing interest or sold at a discount and issued by any corporation
incorporated under the laws of the United States or any state thereof
which, at the time of the investment, have one of the two highest
ratings of each rating agency, except that if the Rating Agency is
Moody's, the rating shall be the highest commercial paper rating of
Moody's for any securities, or a lower rating as will not result in
the downgrading or withdrawal of the rating then assigned to the
securities by any rating agency rating those securities;
(9) interests in any money market fund which at the date of acquisition of
the interests in that fund and throughout the time those interests are
held in the fund has the highest applicable rating by each rating
agency rating those securities or any lower rating as will not result
in the downgrading or withdrawal of the ratings then assigned to the
securities by each rating agency rating those securities; and
(10) short term investment funds sponsored by any trust company or national
banking association incorporated under the laws of the United States
or any state thereof which on the date of acquisition has been rated
by each rating agency rating those securities in their respective
highest applicable rating category or any lower rating as will not
result in the downgrading or withdrawal of the ratings then assigned
to those securities by each rating agency rating those securities;
provided, that no instrument shall be a permitted investment if that instrument
evidences the right to receive interest only payments with respect to the
obligations underlying that instrument. If a letter of credit is deposited with
the trustee, the letter of credit will be irrevocable. In general, any
instrument deposited in the spread account will name the trustee, in its
capacity as trustee for the holders of the securities, as beneficiary and will
be issued by an entity acceptable to each rating agency that rates the
securities of the related series. If approved by each rating agency rating a
series of securities, the instruments deposited in the spread account may be in
the name of another entity. Additional information with respect to instruments
deposited in the reserve accounts will be set forth in the related prospectus
supplement.
Any amounts so deposited and payments on instruments so deposited will
be available for withdrawal from the reserve account for distribution to the
holders of securities of the related series for the purposes, in the manner and
at the times specified in the related prospectus supplement.
POOL INSURANCE POLICIES
If specified in the related prospectus supplement, a separate pool
insurance policy will be obtained for the loans included in the trust fund. The
insurer issuing the pool insurance policy will be named in that prospectus
supplement.
Each pool insurance policy will, subject to the limitations described
in this prospectus, cover loss by reason of default in payment on loans in the
pool in an amount equal to a percentage specified in the related prospectus
supplement of the aggregate principal balance of the loans on the cut-off date
which are not covered as to their entire outstanding principal balances by
primary mortgage insurance policies. As more fully described in this prospectus,
the master servicer will present claims thereunder to the pool insurer on behalf
of itself, the trustee and the holders of the securities of the related series.
The pool insurance policies, however, are not blanket policies against loss,
since claims thereunder may only be made respecting particular defaulted loans
and only upon satisfaction of the conditions precedent described in this
prospectus. Typically, the pool insurance policies will not cover losses due to
a failure to pay or denial of a claim under a primary mortgage insurance policy;
however, if so specified in the related prospectus supplement, the pool
insurance policies may cover those claims.
The pool insurance policy may provide that no claims may be validly
presented unless:
(1) any required primary mortgage insurance policy is in effect for the
defaulted loan and a claim thereunder has been submitted and settled;
(2) hazard insurance on the related property has been kept in force and
real estate taxes and other protection and preservation expenses have
been paid;
(3) if there has been physical loss or damage to the property, it has been
restored to its physical condition, reasonable wear and tear excepted,
at the time of issuance of the policy; and
(4) the insured has acquired good and merchantable title to the property
free and clear of liens except limited, permitted encumbrances.
Upon satisfaction of these conditions, the pool insurer will have the option
either (a) to purchase the property securing the defaulted loan at a price equal
to the principal balance thereof plus accrued and unpaid interest at the loan
rate to the date of the purchase and a portion of expenses incurred by the
master servicer on behalf of the trustee and securityholders, or (b) to pay the
amount by which the sum of the principal balance of the defaulted loan plus
accrued and unpaid interest at the loan rate to the date of payment of the claim
and the aforementioned expenses exceeds the proceeds received from an approved
sale of the property, in either case net of a portion of amounts paid or assumed
to have been paid under the related primary mortgage insurance policy.
If any property securing a defaulted loan is damaged and proceeds, if
any, from the related 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 master
servicer will not be required to expend its own funds to restore the damaged
property unless it determines that (1) the restoration will increase the
proceeds to securityholders on liquidation of the loan after reimbursement of
the master servicer for its expenses and (2) the expenses will be recoverable by
it through proceeds of the sale of the property or proceeds of the related pool
insurance policy or any related primary mortgage insurance policy.
The pool insurance policy generally will not insure, and many primary
mortgage insurance policies do not insure, against loss sustained by reason of a
default arising from, among other things, (1) fraud or negligence in the
origination or servicing of a loan, including misrepresentation by the borrower,
the originator or persons involved in the origination thereof, or (2) failure to
construct a property in accordance with plans and specifications. A failure of
coverage attributable to one of the foregoing events might result in a breach of
the related seller's or originator's representations described above, and, might
give rise to an obligation on the part of the applicable seller or originator to
repurchase the defaulted loan if the breach cannot be cured by that seller or
originator. No pool insurance policy will cover, and many primary mortgage
insurance policies do not cover, a claim in respect of a defaulted loan
occurring when the servicer of that loan, at the time of default or thereafter,
was not approved by the applicable insurer.
The original amount of coverage under each pool insurance policy will
be reduced over the life of the related securities by the aggregate dollar
amount of claims paid less the aggregate of the net amounts realized by the pool
insurer upon disposition of all foreclosed properties. The amount of claims paid
will include a portion of expenses incurred by the master servicer as well as,
in most cases, accrued interest on delinquent loans to the date of payment of
the claim. Accordingly, if aggregate net claims paid under any pool insurance
policy reach the original policy limit, coverage under that pool insurance
policy will be exhausted and any further losses will be borne by the related
securityholders.
CROSS-COLLATERALIZATION
If specified in the related prospectus supplement, the beneficial
ownership of separate groups of assets included in a trust fund may be evidenced
by separate classes of the related series of securities. In that case, credit
support may be provided by a cross-collateralization feature which requires that
distributions be made with respect to securities evidencing a beneficial
ownership interest in, or secured by, one or more asset groups within the same
trust fund prior to distributions to subordinated securities evidencing a
beneficial ownership interest in, or secured by, one or more other asset groups
within that trust fund. Cross-collateralization may be provided by (1) the
allocation of a portion of excess amounts generated by one or more asset groups
within the same trust fund to one or more other asset groups within the same
trust fund or (2) the allocation of losses with respect to one or more asset
groups to one or more other asset groups within the same trust fund. Excess
amounts will be applied and/or losses will be allocated to the class or classes
of subordinated securities of the related series then outstanding having the
lowest rating assigned by any rating agency or the lowest payment priority, in
each case to the extent and in the manner more specifically described in the
related prospectus supplement. The prospectus supplement for a series which
includes a cross-collateralization feature will describe the manner and
conditions for applying the cross-collateralization feature.
If specified in the related prospectus supplement, the coverage
provided by one or more forms of credit support described in this prospectus may
apply concurrently to two or more related trust funds. If applicable, the
related prospectus supplement will identify the trust funds to which credit
support relates and the manner of determining the amount of the coverage
provided thereby and of the application of the coverage to the identified trust
funds.
OTHER INSURANCE, SURETY BONDS, GUARANTIES, AND LETTERS OF CREDIT
If specified in the related prospectus supplement, a trust fund may
also include bankruptcy bonds, special hazard insurance policies, other
insurance, guaranties, or similar arrangements for the purpose of:
(1) maintaining timely payments or providing additional protection against
losses on the assets included in that trust fund,
(2) paying administrative expenses or
(3) establishing a minimum reinvestment rate on the payments made in
respect of the assets or principal payment rate on the assets.
Those arrangements may include agreements under which securityholders are
entitled to receive amounts deposited in various accounts held by the trustee
upon the terms specified in the related prospectus supplement.
DERIVATIVE PRODUCTS
If specified in the related prospectus supplement, a trust fund may
also include a derivative arrangement with respect to the securities of any
series or any class or classes of a series of securities. A derivative
arrangement may include a guaranteed rate agreement, a maturity liquidity
facility, a tax protection agreement, an interest rate cap or floor agreement,
an interest rate or currency swap agreement or any other similar arrangement, in
each case as described in the related prospectus supplement.
YIELD AND PREPAYMENT CONSIDERATIONS
The yields to maturity and weighted average lives of the securities
will be affected primarily by the amount and timing of principal payments
received on or in respect of the assets included in the related trust fund. The
original terms to maturity of the loans in a given pool will vary depending upon
the type of loans included in that pool. Each prospectus supplement will contain
information with respect to the type and maturities of the loans in the related
pool. The related prospectus supplement will specify the circumstances, if any,
under which the related loans will be subject to prepayment penalties. The
prepayment experience on the loans in a pool will affect the weighted average
life of the related series of securities.
The rate of prepayment on the loans cannot be predicted. Home equity
loans and home improvement contracts have been originated in significant volume
only during the past few years and the depositor is not aware of any publicly
available studies or statistics on the rate of prepayment of those loans.
Generally, home equity loans and home improvement contracts are not viewed by
borrowers as permanent financing. Accordingly, the loans may experience a higher
rate of prepayment than traditional first mortgage loans. On the other hand,
because home equity loans such as the revolving credit line loans generally are
not fully amortizing, the absence of voluntary borrower prepayments could cause
rates of principal payments lower than, or similar to, those of traditional
fully-amortizing first mortgage loans. The prepayment experience of the related
trust fund may be affected by a wide variety of factors, including general
economic conditions, prevailing interest rate levels, the availability of
alternative financing, homeowner mobility and the frequency and amount of any
future draws on any revolving credit line loans. Other factors that might be
expected to affect the prepayment rate of a pool of home equity mortgage loans
or home improvement contracts include the amounts of, and interest rates on, the
underlying senior mortgage loans, and the use of first mortgage loans as
long-term financing for home purchase and subordinate mortgage loans as
shorter-term financing for a variety of purposes, including home improvement,
education expenses and purchases of consumer durables such as automobiles.
Accordingly, the loans may experience a higher rate of prepayment than
traditional fixed-rate mortgage loans. In addition, any future limitations on
the right of borrowers to deduct interest payments on home equity loans for
federal income tax purposes may further increase the rate of prepayments of the
loans. The enforcement of a "due-on-sale" provision will have the same effect as
a prepayment of the related loan. See "Material Legal Aspects of the Loans --
Due-on-Sale Clauses." The yield to an investor who purchases securities in the
secondary market at a price other than par will vary from the anticipated yield
if the rate of prepayment on the loans is actually different from the rate
anticipated by that investor at the time those securities were purchased.
Collections on revolving credit line loans may vary because, among
other things, borrowers may (1) make payments during any month as low as the
minimum monthly payment for the month or, during the interest-only period for a
portion of revolving credit line loans and, in more limited circumstances,
closed-end loans, with respect to which an interest-only payment option has been
selected, the interest and the fees and charges for the month or (2) make
payments as high as the entire outstanding principal balance plus accrued
interest and the fees and charges on the revolving credit line loans. It is
possible that borrowers may fail to make the required periodic payments. In
addition, collections on the loans may vary due to seasonal purchasing and the
payment habits of borrowers.
If specified in the related prospectus supplement, conventional loans
will contain due-on-sale provisions permitting the mortgagee to accelerate the
maturity of the loan upon sale or transfers by the borrower of the related
property. On the other hand, if specified in the related prospectus supplement,
conventional loans will not contain due-on-sale provisions. Loans insured by the
FHA, and Single Family Loans partially guaranteed by the VA, are assumable with
the consent of the FHA and the VA, respectively. Thus, the rate of prepayments
on the loans may be lower than that of conventional loans bearing comparable
interest rates. As described in the related prospectus supplement, the master
servicer generally will enforce any due-on-sale or due-on-encumbrance clause, to
the extent it has knowledge of the conveyance or further encumbrance or the
proposed conveyance or proposed further encumbrance of the property and
reasonably believes that it is entitled to do so under applicable law; provided,
however, that the master servicer will not take any enforcement action that
would impair or threaten to impair any recovery under any related insurance
policy. See "The Agreements -- Collection Procedures" and "Material Legal
Aspects of the Loans" for a description of the applicable provisions of each
agreement and legal developments that may affect the prepayment experience on
the loans.
The rate of prepayments with respect to conventional mortgage loans has
fluctuated significantly in recent years. In general, if prevailing rates fall
significantly below the loan rates borne by the loans, those loans are more
likely to be subject to higher prepayment rates than if prevailing interest
rates remain at or above those loan rates. Conversely, if prevailing interest
rates rise appreciably above the loan rates borne by the loans, those loans are
more likely to experience a lower prepayment rate than if prevailing rates
remain at or below those loan rates. However, there can be no assurance that the
preceding sentence will be the case.
When a full prepayment is made on a loan, the borrower is charged
interest on the principal amount of the loan prepaid only for the number of days
in the month actually elapsed up to the date of the prepayment, rather than for
a full month. In most cases, the effect of prepayments in full will be to reduce
the amount of interest passed through or paid in the following month to holders
of securities because interest on the principal amount of any loan so prepaid
generally will be paid only to the date of prepayment. If so specified in the
related prospectus supplement there may be a provision for the servicer or some
other specific entity to cover the shortfall resulting from prepayment in full.
Partial prepayments in a given month may be applied to the outstanding principal
balances of the loans so prepaid on the first day of the month of receipt or the
month following receipt. In the latter case, partial prepayments will not reduce
the amount of interest passed through or paid in that month. In most cases,
neither full nor partial prepayments will be passed through or paid until the
month following receipt.
Even assuming that the properties provide adequate security for the
loans, substantial delays could be encountered in connection with the
liquidation of defaulted loans and corresponding delays in the receipt of
related proceeds by securityholders could occur. An action to foreclose on a
property securing a loan is regulated by state statutes and rules and is subject
to many of the delays and expenses of other lawsuits if defenses or
counterclaims are interposed. Foreclosure actions may require several years to
complete. Furthermore, in some states an action to obtain a deficiency judgment
is not permitted following a nonjudicial sale of a property. In the event of a
default by a borrower, these restrictions among other things, may impede the
ability of the master servicer to foreclose on or sell the property or to obtain
liquidation proceeds sufficient to repay all amounts due on the related loan. In
addition, the master servicer will be entitled to deduct from related
liquidation proceeds all expenses reasonably incurred in attempting to recover
amounts due on defaulted loans and not yet repaid, including payments to senior
lienholders, legal fees and costs of legal action, real estate taxes and
maintenance and preservation expenses.
Liquidation expenses with respect to defaulted mortgage loans do not
vary directly with the outstanding principal balance of the loan at the time of
default. Therefore, assuming that a servicer took the same steps in realizing
upon a defaulted mortgage loan having a small remaining principal balance as it
would in the case of a defaulted mortgage loan having a large remaining
principal balance, the amount realized after expenses of liquidation would be
smaller as a percentage of the remaining principal balance of the small mortgage
loan than would be the case with the other defaulted mortgage loan having a
large remaining principal balance.
Applicable state laws generally regulate interest rates and other
charges, require disclosures, and require licensing of some originators and
servicers of loans. In addition, most have other laws, public policy and general
principles of equity relating to the protection of consumers, unfair and
deceptive practices and practices which may apply to the origination, servicing
and collection of the loans. Depending on the provisions of the applicable law
and the specific facts and circumstances involved, violations of these laws,
policies and principles may limit the ability of the master servicer to collect
all or part of the principal of or may entitle the borrower to a refund of
amounts previously paid and, in addition, could interest on the loans, subject
the master servicer to damages and administrative sanctions.
If the rate at which interest is passed through or paid to the holders
of securities of a series is calculated on a loan-by-loan basis,
disproportionate principal prepayments among loans with different loan rates
will affect the yield on those securities. In most cases, the effective yield to
securityholders will be lower than the yield otherwise produced by the
applicable pass-through rate or interest rate and purchase price, because while
interest will accrue on each loan from the first day of the month, the
distribution of that interest will not be made earlier than the month following
the month of accrual.
Under some circumstances, the master servicer, the holders of the
residual interests in a REMIC or any person specified in the related prospectus
supplement may have the option to purchase the assets of a trust fund thereby
effecting earlier retirement of the related series of securities. See "The
Agreements -Termination; Optional Termination."
The relative contribution of the various factors affecting prepayment
may also vary from time to time. There can be no assurance as to the rate of
payment of principal of the trust fund assets at any time or over the lives of
the securities.
The prospectus supplement relating to a series of securities will
discuss in greater detail the effect of the rate and timing of principal
payments, including prepayments, delinquencies and losses on the yield, weighted
average lives and maturities of those securities.
THE AGREEMENTS
Set forth below is a description of the material provisions of the
indentures, pooling and servicing agreements and trust agreements which, as
applicable, will govern the terms of each series of securities and which are not
described elsewhere in this prospectus. The description of these agreements is
subject to, and qualified in its entirety by reference to, the provisions of
each agreement. Where particular provisions or terms used in the agreements are
referred to, the provisions or terms are as specified in the agreements.
ASSIGNMENT OF THE TRUST FUND ASSETS
Assignment of the Loans. At the time of issuance of the securities of a
series, and except as otherwise specified in the related prospectus supplement,
the depositor will cause the loans comprising the related trust fund to be
assigned to the trustee, without recourse, together with all principal and
interest received by or on behalf of the depositor on or with respect to those
loans after the cut-off date, other than principal and interest due on or before
the cut-off date and other than any retained interest specified in the related
prospectus supplement. The trustee will, concurrently with the assignment,
deliver the securities to the depositor in exchange for the loans. Each loan
will be identified in a schedule appearing as an exhibit to the related
agreement. The schedule will include information as to the outstanding principal
balance of each loan after application of payments due on or before the cut-off
date, as well as information regarding the loan rate or APR, the maturity of the
loan, the loan-to-value ratios or combined loan-to-value ratios, as applicable,
at origination and other information.
If specified in the related prospectus supplement, within the time
period specified in that prospectus supplement, the depositor, or the seller of
the related loans to the depositor, will be required to deliver or cause to be
delivered to the trustee or to the trustee's custodian as to each mortgage loan
or home equity loan, among other things:
(1) the mortgage note or contract endorsed without recourse in blank or to
the order of the trustee,
(2) the mortgage, deed of trust or similar instrument with evidence of
recording indicated on the mortgage, deed of trust or similar
instrument, except for any mortgage not returned from the public
recording office, in which case the depositor or seller will deliver
or cause to be delivered a copy of the mortgage together with a
certificate that the original of the mortgage was delivered to the
applicable recording office,
(3) an assignment of the mortgage to the trustee, which assignment will be
in recordable form in the case of a mortgage assignment, and
(4) the other security documents, including those relating to any senior
interests in the property, as may be specified in the related
prospectus supplement or the related agreement.
Notwithstanding the foregoing, if specified in the prospectus supplement, the
depositor or the seller may maintain possession of the documents in clauses (1)
through (4) above for the life of the transaction or until the occurrence of
events described in that prospectus supplement.
If specified in the related prospectus supplement, the depositor or the
seller will promptly cause the assignments of the related loans to be recorded
in the appropriate public office for real property records, except in states in
which, in the opinion of counsel acceptable to the trustee, the recording is not
required to protect the trustee's interest in the loans against the claim of any
subsequent transferee or any successor to or creditor of the depositor or the
originators of the loans. Alternatively, if specified in the related prospectus
supplement, the depositor or the seller will not cause the assignments of the
loans to be recorded or will cause the recordation only upon the occurrence of
events specified in that prospective supplement.
With respect to any loans that are cooperative loans, the depositor or
the seller will cause to be delivered to the trustee the related original
cooperative note endorsed without recourse in blank or to the order of the
trustee, the original security agreement, the proprietary lease or occupancy
agreement, the recognition agreement, an executed financing agreement and the
relevant stock certificate, related blank stock powers and any other document
specified in the related prospectus supplement. If so specified in the related
prospectus supplement, the depositor or the seller will cause to be filed in the
appropriate office an assignment and a financing statement evidencing the
trustee's security interest in each cooperative loan.
If specified in the related prospectus supplement, the depositor or the
seller will as to each manufactured housing contract or home improvement
contract, deliver or cause to be delivered to the trustee the original contract
and copies of documents and instruments related to each contract and, other than
in the case of unsecured contracts, the security interest in the property
securing that contract. In order to give notice of the right, title and interest
of securityholders to the contracts, if specified in the related prospectus
supplement, the depositor or the seller will cause a UCC-1 financing statement
to be executed by the depositor or the seller identifying the trustee as the
secured party and identifying all contracts as collateral. If so specified in
the related prospectus supplement, the contracts will not be stamped or
otherwise marked to reflect their assignment to the trustee. Therefore, if,
through negligence, fraud or otherwise, a subsequent purchaser were able to take
physical possession of the contracts without notice of the assignment, the
interest of securityholders in the contracts could be defeated. See "Material
Legal Aspects of the Loans -- The Contracts."
The trustee or its custodian will review the loan documents delivered
to it within the time period specified in the related prospectus supplement
after receipt thereof, and the trustee will hold those documents in trust for
the benefit of the related securityholders. If any document is found to be
missing or defective in any material respect, the trustee or its custodian will
notify the master servicer and the depositor, and the master servicer will
notify the related seller or originator.
If the applicable seller or originator cannot cure the omission or
defect within the time period specified in the related prospectus supplement
after receipt of notice, that seller or originator will be obligated to either
(1) purchase the related loan from the trust fund at the purchase price or (2)
if so specified in the related prospectus supplement, remove that loan from the
trust fund and substitute in its place one or more other loans that meets
requirements set forth in the prospectus supplement. There can be no assurance
that a seller or originator will fulfill this purchase or substitution
obligation. Although the master servicer may be obligated to enforce the
obligation to the extent described above under "The Trust Fund --
Representations by Sellers or Originators; Repurchases," neither the master
servicer nor the depositor will be obligated to purchase or replace the loan if
the seller or originator defaults on its obligation, unless the breach also
constitutes a breach of the representations or warranties of the master servicer
or the depositor, as the case may be. This obligation to cure, purchase or
substitute constitutes the sole remedy available to the securityholders or the
trustee for omission of, or a material defect in, a constituent document.
The trustee will be authorized to appoint a custodian pursuant to a
custodial agreement to maintain possession of and, if applicable, to review the
documents relating to the loans as agent of the trustee.
The master servicer will make representations and warranties regarding
its authority to enter into, and its ability to perform its obligations under,
the agreement. Upon a breach of any representation of the master servicer
regarding its authority or its ability which materially and adversely affects
the interests of the securityholders in a loan, the master servicer will be
obligated either to cure the breach in all material respects or to purchase at
the purchase price or if so specified in the related prospectus supplement,
replace the loan. This obligation to cure, purchase or substitute constitutes
the sole remedy available to the securityholders or the trustee for that breach
of representation by the master servicer.
Notwithstanding the foregoing provisions, with respect to a trust fund
for which a REMIC election is to be made, no purchase or substitution of a loan
will be made if the purchase or substitution would result in a prohibited
transaction tax under the Code.
NO RECOURSE TO SELLERS, ORIGINATORS, DEPOSITOR OR MASTER SERVICER
As described above under "-- Assignment of the Trust Fund Assets," the
depositor will cause the loans comprising the related trust fund to be assigned
to the trustee, without recourse. However, each seller of the loans to the
depositor or the originator of the loans will be obligated to repurchase or
substitute for any loan as to which representations and warranties are breached
or for failure to deliver the required documents relating to the loans as
described above under "-- Assignment of the Trust Fund Assets" and under "The
Trust Fund -- Representations by Sellers or Originators; Repurchases." These
obligations to purchase or substitute constitute the sole remedy available to
the securityholders or the trustee for a breach of any representation or failure
to deliver a constituent document.
PAYMENTS ON LOANS; DEPOSITS TO SECURITY ACCOUNT
The master servicer will establish and maintain or cause to be
established and maintained with respect to the related trust fund a separate
account or accounts for the collection of payments on the related trust fund
assets in the trust fund which, unless otherwise specified in the related
prospectus supplement, must be either:
(1) maintained with a depository institution the debt obligations of
which, or in the case of a depository institution that is the
principal subsidiary of a holding company, the obligations of which,
are rated in one of the two highest rating categories by the rating
agency or rating agencies that rated one or more classes of the
related series of securities,
(2) an account or accounts the deposits in which are fully insured by
either the Bank Insurance Fund of the FDIC or the Savings Association
Insurance Fund (as successor to the Federal Savings and Loan Insurance
Corporation),
(3) an account or accounts the deposits in which are insured by the BIF or
SAIF to the limits established by the FDIC, and the uninsured deposits
in which are otherwise secured such that, as evidenced by an opinion
of counsel, the securityholders have a claim with respect to the funds
in the security account or a perfected first priority security
interest against any collateral securing those funds that is superior
to the claims of any other depositors or general creditors of the
depository institution with which the security account is maintained,
or
(4) an account or accounts otherwise acceptable to each rating agency.
The collateral eligible to secure amounts in the security account is limited to
permitted investments. A security account may be maintained as an interest
bearing account or the funds held in the security account may be invested
pending each succeeding distribution date in permitted investments. The related
prospectus supplement will specify whether the master servicer or its designee
will be entitled to receive any interest or other income earned on funds in the
security account as additional compensation and the entity that will be
obligated to deposit in the security account the amount of any loss immediately
as realized. The security account may be maintained with the master servicer or
with a depository institution that is an affiliate of the master servicer,
provided it meets the standards set forth above.
The master servicer will deposit or cause to be deposited in the
security account for each trust fund, to the extent applicable and unless
otherwise provided in the agreement, the following payments and collections
received or advances made by or on behalf of it subsequent to the cut-off date,
other than payments due on or before the cut-off date and exclusive of any
amounts representing retained interest:
(1) all payments on account of principal, including principal
prepayments and, if specified in the related prospectus supplement, any
applicable prepayment penalties, on the loans;
(2) all payments on account of interest on the loans, net of
applicable servicing compensation;
(3) all proceeds, net of unreimbursed payments of property taxes,
insurance premiums and similar items incurred, and unreimbursed advances
made, by the master servicer, if any, of the hazard insurance policies and
any primary mortgage insurance policies, to the extent those proceeds are
not applied to the restoration of the property or released to the mortgagor
in accordance with the master servicer's normal servicing procedures and
all other cash amounts, net of unreimbursed expenses incurred in connection
with liquidation or foreclosure and unreimbursed advances made, by the
master servicer, if any, received and retained in connection with the
liquidation of defaulted loans, by foreclosure or otherwise, together with
any net proceeds received on a monthly basis with respect to any properties
acquired on behalf of the securityholders by foreclosure or deed in lieu of
foreclosure;
(4) all proceeds of any loan or property in respect thereof purchased
by the master servicer, the depositor or any seller or originators as
described under "The Trust Funds -- Representations by Sellers or
Originators; Repurchases" or under "-- Assignment of Trust Fund Assets"
above and all proceeds of any Loan repurchased as described under "--
Termination; Optional Termination" below;
(5) all payments required to be deposited in the security account with
respect to any deductible clause in any blanket insurance policy described
under "-- Hazard Insurance" below;
(6) any amount required to be deposited by the master servicer in
connection with losses realized on investments for the benefit of the
master servicer of funds held in the security account and, to the extent
specified in the related prospectus supplement, any payments required to be
made by the master servicer in connection with prepayment interest
shortfalls; and
(7) all other amounts required to be deposited in the security account
pursuant to the agreement.
The master servicer or the depositor, as applicable, will from time to
time direct the institution that maintains the security account to withdraw
funds from the security account for specified purposes which may include the
following:
(1) to pay to the master servicer the servicing fees described in the
related prospectus supplement, the master servicing fees and, as additional
servicing compensation, earnings on or investment income with respect to
funds in the amounts in the security account credited to the security
account;
(2) to reimburse the master servicer for advances, the right of
reimbursement with respect to any loan being limited to amounts received
that represent late recoveries of payments of principal and/or interest on
the Loan (or Insurance Proceeds or Liquidation Proceeds with respect to
that loan) with respect to which the Advance was made;
(3) to reimburse the master servicer for any advances previously made
which the master servicer has determined to be nonrecoverable;
(4) to reimburse the master servicer from insurance proceeds for
expenses incurred by the master servicer and covered by the related
insurance policies;
(5) to reimburse the master servicer for unpaid master servicing fees
and unreimbursed out-of-pocket costs and expenses incurred by the master
servicer in the performance of its servicing obligations, the right of
reimbursement being limited to amounts received representing late
recoveries of the payments for which the advances were made;
(6) to pay to the master servicer, with respect to each loan or
property acquired in respect thereof that has been purchased by the master
servicer pursuant to the Agreement, all amounts received on the loan or
property and not taken into account in determining the principal balance of
the repurchased Loan;
(7) to reimburse the master servicer or the depositor for expenses
incurred and reimbursable pursuant to the agreement;
(8) to withdraw any amount deposited in the security account and not
required to be deposited in the security account; and
(9) to clear and terminate the security account upon termination of
the agreement.
In addition, on or prior to the business day immediately preceding each
distribution date or any other day specified in the related prospectus
supplement, the master servicer shall withdraw from the security account the
amount of available funds, to the extent on deposit, for deposit in an account
maintained by the trustee for the related series of securities.
PRE-FUNDING ACCOUNT
If so provided in the related prospectus supplement, a funding period
will be established for the related series of securities and the master servicer
will establish and maintain a pre-funding account. Any pre-funding account for a
trust fund will be maintained in the name of the related trustee, and will be
the account into which the depositor or the seller will deposit cash from the
proceeds of the issuance of the related securities in an amount equal to the
pre-funded amount on the related closing date. The pre-funded amount will not
exceed 25% of the initial aggregate principal amount of the certificates and/or
notes of the related series. Any funding period for a trust fund will begin on
the related closing date and will end on the date specified in the related
prospectus supplement, which in no event will be later than the date that is one
year after the related closing date.
The pre-funding account will be designed solely to hold funds to be
applied by the related trustee during the funding period to pay to the depositor
or the seller the purchase price for loans deposited into the trust fund
subsequent to the related closing date. The purchase of these subsequent loans
will be the sole use for which amounts on deposit in the pre-funding account may
be used during the funding period. Monies on deposit in the pre-funding account
will not be available to cover losses on or in respect of the related loans.
Each subsequent loan that is purchased by the related trustee will be required
to be underwritten in accordance with the eligibility criteria set forth in the
related agreement and in the related prospectus supplement. The eligibility
criteria will be determined in consultation with the applicable rating agency or
rating agencies prior to the issuance of the related series of securities and
are designed to ensure that if subsequent loans were included as part of the
initial loans, the credit quality of the assets would be consistent with the
initial rating or ratings of the securities of that series. The depositor or the
seller will certify to the trustee that all conditions precedent to the transfer
of the subsequent loans to the trust fund, including, among other things, the
satisfaction of the related eligibility criteria, have been satisfied. It is a
condition precedent to the transfer of any subsequent loans to the trust fund
that the applicable rating agency or rating agencies, after receiving prior
notice of the proposed transfer of the subsequent loans to the trust fund, will
not have advised the depositor, the seller or the related trustee that the
conveyance of the subsequent loans to the trust fund will result in a
qualification, modification or withdrawal of their current rating of any
securities of that series. Upon the purchase by the trustee of a subsequent
loan, that subsequent loan will be included in the related trust fund assets.
Monies on deposit in the pre-funding account may be invested in permitted
investments under the circumstances and in the manner described in the related
agreement. Earnings on investment of funds in the pre-funding account will be
deposited into the related security account or any other trust account as is
specified in the related prospectus supplement or released to the depositor, the
seller or the master servicer or any other party and in the manner specified in
the related prospectus supplement. Losses on the investment of funds in the
pre-funding account will be charged against the funds on deposit in the
pre-funding account unless otherwise specified in the related prospectus
supplement. Any amounts remaining in the pre-funding account at the end of the
funding period will be distributed to the related securityholders in the manner
and priority specified in the related prospectus supplement, as a prepayment of
principal of the related securities. The depositor will include information
regarding the additional subsequent loans in a Current Report on Form 8-K, to be
filed after the end of the funding period, to the extent that the information,
individually or in the aggregate, is material.
In addition, if so provided in the related prospectus supplement, the
master servicer will establish and maintain, in the name of the trustee on
behalf of the related securityholders, a capitalized account into which the
depositor will deposit cash from the proceeds of the issuance of the related
securities in an amount necessary to cover shortfalls in interest on the related
series of securities that may arise as a result of a portion of the assets of
the trust fund not being invested in loans and the utilization of the
pre-funding account as described above. The capitalized interest account shall
be maintained with the trustee for the related series of securities and is
designed solely to cover the above-mentioned interest shortfalls. Monies on
deposit in the capitalized interest account will not be available to cover
losses on or in respect of the related loans. Amounts on deposit in the
capitalized interest account will be distributed to securityholders on the
distribution dates occurring in the funding period to cover any shortfalls in
interest on the related series of securities as described in the related
prospectus supplement. Monies on deposit in the capitalized interest account may
be invested in Permitted Investments under the circumstances and in the manner
described in the related agreement. Earnings on and investment of funds in the
capitalized interest account will be deposited into the related security account
or any other trust account as specified in the related prospectus supplement or
released to the depositor or the master servicer or any other party and in the
manner specified in the related prospectus supplement. Losses on the investment
of funds in the capitalized interest account will be charged against the funds
on deposit in the capitalized interest account unless otherwise specified in the
related prospectus supplement. To the extent that the entire amount on deposit
in the capitalized interest account has not been applied to cover shortfalls in
interest on the related series of securities by the end of the funding period,
any amounts remaining in the capitalized interest account will be paid to the
depositor or the seller as specified in the related prospectus supplement.
SUB-SERVICING BY SELLERS
Each seller of a loan to the depositor in connection with a series or
any other servicing entity may act as the sub-servicer for a loan in connection
with that series pursuant to a sub-servicer agreement, which will not contain
any terms inconsistent with the related agreement. While each sub-servicing
agreement will be a contract solely between the master servicer and the
sub-servicer, the agreement pursuant to which a series of securities is issued
will provide that, if for any reason the master servicer for that series of
securities is no longer the master servicer of the related loans, the trustee or
any successor master servicer may assume the master servicer's rights and
obligations under the sub-servicing agreement. Notwithstanding any subservicing
arrangement, unless otherwise provided in the related prospectus supplement, the
master servicer will remain liable for its servicing duties and obligations
under the master servicing agreement as if the master servicer alone were
servicing the loans.
HAZARD INSURANCE
Except as otherwise specified in the related prospectus supplement, the
master servicer will require the mortgagor or obligor on each loan to maintain a
hazard insurance policy providing for no less than the coverage of the standard
form of fire insurance policy with extended coverage customary for the type of
property in the state in which the property is located. Coverage will be in an
amount that is at least equal to the lesser of (1) the maximum insurable value
of the improvements securing the loan or (2) the greater of (y) the outstanding
principal balance of the loan and (z) an amount such that the proceeds of the
policy shall be sufficient to prevent the mortgagor and/or the mortgagee from
becoming a co-insurer. All amounts collected by the master servicer under any
hazard policy, except for amounts to be applied to the restoration or repair of
the property or released to the mortgagor or obligor in accordance with the
master servicer's normal servicing procedures will be deposited in the related
security account. In the event that the master servicer maintains a blanket
policy insuring against hazard losses on all the loans comprising part of a
trust fund, it will conclusively be deemed to have satisfied its obligation
relating to the maintenance of hazard insurance. A blanket policy may contain a
deductible clause, in which case the master servicer will be required to deposit
from its own funds into the related security account the amounts which would
have been deposited in the security account but for that clause.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements securing a loan by
fire, lightning, explosion, smoke, windstorm and hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the loans may have been underwritten
by different insurers under different state laws in accordance with different
applicable forms and therefore may not contain identical terms and conditions,
the basic terms thereof are dictated by respective state laws, and most policies
typically do not cover any physical damage resulting from the following: war,
revolution, governmental actions, floods and other water-related causes, earth
movement including earthquakes, landslides and mud flows, nuclear reactions, wet
or dry rot, vermin, rodents, insects or domestic animals, theft and, in some
cases, vandalism. The foregoing list is merely indicative of a subset of the
kinds of uninsured risks and is not intended to be all inclusive. If the
property securing a loan is located in a federally designated special flood area
at the time of origination, the master servicer will require the mortgagor or
obligor to obtain and maintain flood insurance.
The hazard insurance policies covering properties securing the Loans
typically contain a clause which in effect requires the insured at all time to
carry insurance of a specified percentage of a specified percentage, generally
80% to 90%, of the full replacement value of the insured property in order to
recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, then the insurer's liability in the event of
partial loss will not exceed the larger of (1) the actual cash value, generally
defined as replacement cost at the time and place of loss, less physical
depreciation, of the improvements damaged or destroyed or (2) the proportion of
the loss as the amount of insurance carried bears to the specified percentage of
the full replacement cost of the improvements. Since the amount of hazard
insurance the master servicer may cause to be maintained on the improvements
securing the loans declines as the principal balances owing on the loans
decrease, and since improved real estate generally has appreciated in value over
time in the past, the effect of this requirement in the event of partial loss
may be that hazard insurance proceeds will be insufficient to restore fully the
damaged property. If specified in the related prospectus supplement, a special
hazard insurance policy will be obtained to insure against a portion of the
uninsured risks described above. See "Credit Enhancement."
In general, the master servicer will not require that a standard hazard
or flood insurance policy be maintained on the cooperative dwelling relating to
any cooperative loan. Generally, the cooperative itself is responsible for
maintenance of hazard insurance for the property owned by the cooperative and
the tenant-stockholders of that cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a cooperative and the related
borrower on a cooperative loan do not maintain insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to the borrower's cooperative dwelling or the
cooperative's building could significantly reduce the value of the collateral
securing that cooperative loan to the extent not covered by other credit
support.
If the property securing a defaulted loan is damaged and proceeds, if
any, from the related hazard insurance policy are insufficient to restore the
damaged property, the master servicer is not required to expend its own funds to
restore the damaged property unless it determines (1) that the restoration will
increase the proceeds to securityholders on liquidation of the loan after
reimbursement of the master servicer for its expenses and (2) that the related
expenses will be recoverable by it from related Insurance proceeds or
liquidation proceeds.
If recovery on a defaulted loan under any related insurance policy is
not available for the reasons set forth in the preceding paragraph, or if the
defaulted loan is not covered by an insurance policy, the master servicer will
be obligated to follow or cause to be followed the normal practices and
procedures it deems necessary or advisable to realize upon the defaulted loan.
If the proceeds of any liquidation of the property securing the defaulted loan
are less than the principal balance of that loan plus interest accrued on the
loan that is payable to securityholders, the trust fund will realize a loss in
the amount of that difference plus the aggregate of expenses incurred by the
master servicer in connection with the proceedings and which are reimbursable
under the agreement. In the unlikely event that any of those proceedings result
in a total recovery which is, after reimbursement to the master servicer of its
expenses, in excess of the principal balance of that loan plus interest accrued
on the loan that is payable to securityholders, the master servicer will be
entitled to withdraw or retain from the security account amounts representing
its normal servicing compensation with respect to that loan and amounts
representing the balance of the excess, exclusive of any amount required by law
to be forwarded to the related borrower, as additional servicing compensation.
If specified in the related prospectus supplement, if the master
servicer or its designee recovers insurance proceeds which, when added to any
related liquidation proceeds and after deduction of a portion of expenses
reimbursable to the master servicer, exceed the principal balance of the related
loan plus interest accrued on the loan that is payable to securityholders, the
master servicer will be entitled to withdraw or retain from the security account
amounts representing its normal servicing compensation with respect to that
loan. In the event that the master servicer has expended its own funds to
restore the damaged property and those funds have not been reimbursed under the
related hazard insurance policy, it will be entitled to withdraw from the
security account out of related liquidation proceeds or insurance proceeds an
amount equal to the expenses incurred by it, in which event the trust fund may
realize a loss up to the amount so charged. Since insurance proceeds cannot
exceed deficiency claims and a portion of expenses incurred by the master
servicer, no payment or recovery will result in a recovery to the trust fund
which exceeds the principal balance of the defaulted loan together with accrued
interest on the loan. See "Credit Enhancement."
In general, the proceeds from any liquidation of a loan will be applied
in the following order of priority:
o first, to reimburse the master servicer for any unreimbursed expenses
incurred by it to restore the related property and any unreimbursed
servicing compensation payable to the master servicer with respect to
that loan;
o second, to reimburse the master servicer for any unreimbursed advances
with respect to that loan;
o third, to accrued and unpaid interest, to the extent no advance has been
made for the amount, on that loan; and
o fourth, as a recovery of principal of that loan.
The related prospectus supplement may specify an alternative priority
of allocation of proceeds from the liquidation of a loan.
REALIZATION UPON DEFAULTED LOANS
General. The master servicer will use its reasonable best efforts to
foreclose upon, repossess or otherwise comparably convert the ownership of the
properties securing the related loans as come into and continue in default and
as to which no satisfactory arrangements can be made for the collection of
delinquent payments. In connection with a foreclosure or other conversion, the
master servicer will follow the practices and procedures as deems necessary or
advisable and as are normal and usual in its servicing activities with respect
to comparable loans serviced by it. However, the master servicer will not be
required to expend its own funds in connection with any foreclosure or towards
the restoration of the property unless it determines that: (1) the restoration
or foreclosure will increase the liquidation proceeds in respect of the related
loan available to the securityholders after reimbursement to itself for the
expenses and (2) the expenses will be recoverable by it either through
liquidation proceeds or the proceeds of insurance. Notwithstanding anything to
the contrary in this prospectus, in the case of a trust fund for which a REMIC
election has been made, the master servicer shall liquidate any property
acquired through foreclosure within three years after the acquisition of the
beneficial ownership of that property. While the holder of a property acquired
through foreclosure can often maximize its recovery by providing financing to a
new purchaser, the trust fund, if applicable, will have no ability to do so and
neither the master servicer nor the depositor will be required to do so.
The master servicer may arrange with the obligor on a defaulted loan, a
modification of that loan to the extent provided in the related prospectus
supplement. Modifications may only be entered into if they meet the underwriting
policies and procedures employed by the master servicer in servicing receivables
for its own account and meet the other conditions described in the related
prospectus supplement.
Primary Mortgage Insurance Policies. If so specified in the related
prospectus supplement, the master servicer will maintain or cause to be
maintained, as the case may be, in full force and effect, a primary mortgage
insurance policy with regard to each loan for which the coverage is required.
Primary mortgage insurance policies reimburse specified losses sustained by
reason of defaults in payments by borrowers. Although the terms and conditions
of primary mortgage insurance policies differ, each primary mortgage insurance
policy will generally cover losses up to an amount equal to the excess of the
unpaid principal amount of a defaulted loan plus accrued and unpaid interest on
that loan and approved expenses over a specified percentage of the value of the
related mortgaged property. The master servicer will not cancel or refuse to
renew any primary mortgage insurance policy in effect at the time of the initial
issuance of a series of securities that is required to be kept in force under
the applicable agreement unless the replacement primary mortgage insurance
policy for the cancelled or nonrenewed policy is maintained with an insurer
whose claims-paying ability is sufficient to maintain the current rating of the
classes of securities of that series that have been rated.
FHA Insurance; VA Guaranties. Loans designated in the related
prospectus supplement as insured by the FHA will be insured by the FHA as
authorized under the United States Housing Act of 1937, as amended. In addition
to the Title I Program of the FHA, see "Material Legal Aspects of the loans --
The Title I Program," some loans will be insured under various FHA programs
including the standard FHA 203(b) program to finance the acquisition of one- to
four-family housing units and the FHA 245 graduated payment mortgage program.
These programs generally limit the principal amount and interest rates of the
mortgage loans insured. Loans insured by FHA generally require a minimum down
payment of approximately 5% of the original principal amount of the loan. No
FHA-insured loans relating to a series may have an interest rate or original
principal amount exceeding the applicable FHA limits at the time of origination
of the related loan.
Loans designated in the related prospectus supplement as guaranteed by
the VA will be partially guaranteed by the VA under the Serviceman's
Readjustment Act of 1944, as amended. The Serviceman's Readjustment Act of 1944,
as amended, permits a veteran or a spouse, in some instances, to obtain a
mortgage loan guaranty by the VA covering mortgage financing of the purchase of
a one-to four-family dwelling unit at interest rates permitted by the VA. The
program has no mortgage loan limits, requires no down payment from the purchaser
and permits the guaranty of mortgage loans of up to 30 years' duration. However,
no loan guaranteed by the VA will have an original principal amount greater than
five times the partial VA guaranty for that loan. The maximum guaranty that may
be issued by the VA under a VA guaranteed mortgage loan depends upon the
original principal amount of the mortgage loan, as further described in 38
United States Code Section 1803(a), as amended.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The master servicing fee is the principal servicing compensation to be
paid to the master servicer in respect of its master servicing activities for
each series of securities will be equal to the percentage per annum described in
the related prospectus supplement, which may vary, of the outstanding principal
balance of each loan, and the compensation will be retained by it from
collections of interest on the related loan in the related trust fund. In
addition, the master servicer or Sub-Servicer may be entitled to retain all
prepayment charges, assumption fees and late payment charges, to the extent
collected from borrowers, and any benefit that may accrue as a result of the
investment of funds in the applicable security account to the extent specified
in the related prospectus supplement.
The master servicer will pay or cause to be paid specified ongoing
expenses associated with each trust fund and incurred by it in connection with
its responsibilities under the related agreement, including, without limitation,
payment of any fee or other amount payable in respect of any credit enhancement
arrangements, payment of the fees and disbursements of the trustee, any
custodian appointed by the trustee, the certificate registrar and any paying
agent, and payment of expenses incurred in enforcing the obligations of
sub-servicers and sellers. The master servicer will be entitled to reimbursement
of expenses incurred in enforcing the obligations of sub-servicers and sellers
under limited circumstances as described in the related prospectus supplement or
the applicable agreement.
EVIDENCE AS TO COMPLIANCE
Each agreement will provide that on or before a specified date in each
year, a firm of independent public accountants will furnish a statement to the
trustee to the effect that, on the basis of the examination by that firm
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers, the Audit Program for Mortgages serviced for FHLMC
or other program as specified in the related prospectus supplement, the
servicing by or on behalf of the master servicer of mortgage loans or private
asset backed securities, or under pooling and servicing agreements substantially
similar to each other, including the related agreement, was conducted in
compliance with those agreements except for any significant exceptions or errors
in records that, in the opinion of the firm, the Audit Program for Mortgages
serviced for FHLMC, or the Uniform Single Attestation Program for Mortgage
Bankers, it is required to report. In rendering its statement the firm may rely,
as to matters relating to the direct servicing of loans by sub-servicers, upon
comparable statements for examinations conducted substantially in compliance
with the Uniform Single Attestation Program for Mortgage Bankers or the Audit
Program for Mortgages serviced for FHLMC rendered within one year of that
statement of firms of independent public accountants with respect to the related
sub-servicer.
Each agreement will also provide for delivery to the trustee, on or
before a specified date in each year, of an annual statement signed by two
officers of the master servicer to the effect that the master servicer has
fulfilled its obligations under the agreement throughout the preceding year.
Copies of the annual accountants' statement and the statement of
officers of the master servicer may be obtained by securityholders of the
related series without charge upon written request to the master servicer at the
address set forth in the related prospectus supplement.
MATTERS REGARDING THE MASTER SERVICER AND THE DEPOSITOR
The master servicer under each pooling and servicing agreement or
master servicing agreement, as applicable, will be named in the related
prospectus supplement. Each servicing agreement will provide that the master
servicer may not resign from its obligations and duties under that agreement
except upon a determination that its duties thereunder are no longer permissible
under applicable law. The master servicer may, however, be removed from its
obligations and duties as set forth in the agreement. No resignation will become
effective until the trustee or a successor servicer has assumed the master
servicer's obligations and duties under the agreement.
Each servicing agreement will further provide that neither the master
servicer, the depositor nor any director, officer, employee, or agent of the
master servicer or the depositor will be under any liability to the related
trust fund or securityholders for any action taken or for refraining from the
taking of any action in good faith pursuant to the agreement, or for errors in
judgment; provided, however, that neither the master servicer, the depositor nor
any director, officer, employee, or agent of the master servicer or the
depositor will be protected against any liability which would otherwise be
imposed by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. Each servicing agreement will further provide
that the master servicer, the depositor and any director, officer, employee or
agent of the master servicer or the depositor will be entitled to
indemnification by the related trust fund and will be held harmless against any
loss, liability or expense incurred in connection with any legal action relating
to the agreement or the securities, other than any loss, liability or expense
related to any specific loan or loans, except any loss, liability or expense
otherwise reimbursable pursuant to the agreement, and any loss, liability or
expense incurred by reason of willful misfeasance, bad faith or gross negligence
in the performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. In addition, each agreement will provide that
neither the master servicer nor the depositor will be under any obligation to
appear in, prosecute or defend any legal action which is not incidental to its
respective responsibilities under the agreement and which in its opinion may
involve it in any expense or liability. The master servicer or the depositor
may, however, in its discretion undertake any action which it may deem necessary
or desirable with respect to the agreement and the rights and duties of the
parties to the agreement and the interests of the securityholders thereunder. In
that event, the legal expenses and costs of the action and any liability
resulting therefrom will be expenses, costs and liabilities of the trust fund
and the master servicer or the depositor, as the case may be, will be entitled
to be reimbursed therefor out of funds otherwise distributable to
securityholders.
Except as otherwise specified in the related prospectus supplement, any
person into which the master servicer may be merged or consolidated, or any
person resulting from any merger or consolidation to which the master servicer
is a party, or any person succeeding to the business of the master servicer,
will be the successor of the master servicer under each agreement and further
provided that the merger, consolidation or succession does not adversely affect
the then current rating or ratings of the class or classes of securities of that
series that have been rated.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
Pooling and Servicing Agreement; Master Servicing Agreement. Events of
default under each agreement generally will consist of:
(1) failure by the master servicer to distribute or cause to be
distributed to securityholders of any class any required payment,
other than an advance, which continues unremedied for five days after
the giving of written notice of the failure to the master servicer by
the trustee or the depositor, or to the master servicer, the depositor
and the trustee by the holders of securities of that class evidencing
not less than 25% of the voting interests constituting that class;
(2) any failure by the master servicer to make an advance as required
under the agreement, unless cured as specified in that agreement;
(3) any failure by the master servicer duly to observe or perform in any
material respect any of its other covenants or agreements in the
agreement which continues unremedied for thirty days after the giving
of written notice of the failure to the master servicer by the trustee
or the depositor, or to the master servicer, the depositor and the
trustee by the holders of securities of any class evidencing not less
than 25% of the aggregate voting interests constituting that class;
and
(4) events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceeding and actions by or on behalf of the
master servicer indicating its insolvency, reorganization or inability
to pay its obligations.
The prospectus supplement for a series of securities may describe
additional or alternative events of default for the pooling and servicing
agreement or the master servicing agreement.
If specified in the related prospectus supplement, the agreement will
permit the trustee to sell the trust fund assets and the other assets of the
trust fund described under "Credit Enhancement" in this prospectus in the event
that payments in respect to the trust fund assets are insufficient to make
payments required in the agreement. The assets of the trust fund will be sold
only under the circumstances and in the manner specified in the related
prospectus supplement.
So long as an event of default under an agreement remains unremedied,
the depositor or the trustee may, and at the direction of holders of securities
of any class evidencing not less than 25% of the aggregate voting interests
constituting a class and under the other circumstances specified in the related
agreement, the trustee shall terminate all of the rights and obligations of the
master servicer under the agreement relating to that trust fund and in and to
the related trust fund assets. Upon termination, the trustee or another entity
in the related prospectus supplement will succeed to all of the
responsibilities, duties and liabilities of the master servicer under the
agreement, including, if specified in the related prospectus supplement, the
obligation to make advances, and will be entitled to similar compensation
arrangements. In the event that the trustee is unwilling or unable so to act, it
may appoint, or petition a court of competent jurisdiction for the appointment
of, a mortgage loan servicing institution meeting the qualifications set forth
in the related agreement to act as successor to the master servicer under the
agreement. Pending the appointment, the trustee is obligated to act in that
capacity. The trustee and any successor may agree upon the servicing
compensation to be paid, which in no event may be greater than the compensation
payable to the master servicer under the agreement.
No securityholder, solely by virtue of that holder's status as a
securityholder, will have any right under any agreement to institute any
proceeding with respect to the related agreement, unless that holder previously
has given to the trustee written notice of default and unless the holders of
securities of any class of that series evidencing not less than 25% of the
aggregate voting interests constituting that class have made written request
upon the trustee to institute a proceeding in its own name as trustee thereunder
and have offered to the trustee reasonable indemnity, and the trustee for 60
days has neglected or refused to institute any proceeding.
Indenture. Except as otherwise specified in the related prospectus
supplement, events of default under the indenture for each series of notes
include:
(1) a default in the payment of any principal of or interest on any note
of that series which continues unremedied for five days after the
giving of written notice of the default is given as specified in the
related prospectus supplement;
(2) failure to perform in any material respect any other covenant of the
depositor or the trust fund in the indenture which continues for a
period of thirty (30) days after notice thereof is given in accordance
with the procedures described in the related prospectus supplement;
(3) events of bankruptcy, insolvency, receivership or liquidation of the
depositor or the trust fund; or
(4) any other event of default provided with respect to notes of that
series including but not limited to defaults on the part of the
issuer, if any, of a credit enhancement instrument supporting the
notes.
If an event of default with respect to the notes of any series at the
time outstanding occurs and is continuing, either the trustee or the holders of
a majority of the then aggregate outstanding amount of the notes of that series
may declare the principal amount, of all the notes of the series to be due and
payable immediately. That declaration may, under limited circumstances, be
rescinded and annulled by the holders of more than 50% of the percentage
interests of the notes of that series.
If, following an event of default with respect to any series of notes,
the notes of that series have been declared to be due and payable, the trustee
may, in its discretion, notwithstanding the acceleration, elect to maintain
possession of the collateral securing the notes of that series and to continue
to apply distributions on the collateral as if there had been no declaration of
acceleration if the collateral continues to provide sufficient funds for the
payment of principal of and interest on the notes of that series as they would
have become due if there had not been a declaration. In addition, the trustee
may not sell or otherwise liquidate the collateral securing the notes of a
series following an event of default, other than a default in the payment of any
principal or interest on any note of that series for five days or more, unless:
(a) the holders of 100% of the voting interests of the notes of that
series consent to the sale,
(b) the proceeds of the sale or liquidation are sufficient to pay in full
the principal of and accrued interest, due and unpaid, on the
outstanding notes of that series at the date of the sale or
(c) the trustee determines that the collateral would not be sufficient on
an ongoing basis to make all payments on those notes as the payments
would have become due if the notes had not been declared due and
payable, and the trustee obtains the consent of the holders of 66 2/3%
of the voting interests of the notes of that series.
In the event that the trustee liquidates the collateral in connection
with an event of default involving a default for five days or more in the
payment of principal of or interest on the notes of a series, the indenture
provides that the trustee will have a prior lien on the proceeds of any
liquidation for unpaid fees and expenses. As a result, upon the occurrence of an
event of default, the amount available for distribution to the noteholders would
be less than would otherwise be the case. However, the trustee may not institute
a proceeding for the enforcement of its lien except in connection with a
proceeding for the enforcement of the lien of the indenture for the benefit of
the noteholders after the occurrence of an event of default.
Except as otherwise specified in the related prospectus supplement, in
the event the principal of the notes of a series is declared due and payable, as
described above, the holders of any notes declared due and payable which was
issued at a discount from par may be entitled to receive no more than an amount
equal to the unpaid principal amount thereof less the amount of the discount
which is unamortized.
Subject to the provisions of the indenture relating to the duties of
the trustee, in case an event of default shall occur and be continuing with
respect to a series of notes, the trustee shall be under no obligation to
exercise any of the rights or powers under the Indenture at the request or
direction of any of the holders of notes of that series, unless those holders
offered to the trustee security or indemnity satisfactory to it against the
costs, expenses and liabilities which might be incurred by it in complying with
that request or direction. Subject to those provisions for indemnification and
limitations contained in the indenture, the holders of a majority of the then
aggregate outstanding amount of the notes of that series shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the trustee or exercising any trust or power conferred on the
trustee with respect to the notes of that series, and the holders of a majority
of the then aggregate outstanding amount of the notes of that series may, in
some cases, waive any default with respect to a series, except a default in the
payment of principal or interest or a default in respect of a covenant or
provision of the indenture that cannot be modified without the waiver or consent
of all the holders of the outstanding notes of that series affected thereby.
AMENDMENT
Except as otherwise specified in the related prospectus supplement,
each agreement may be amended by the depositor, the master servicer and the
trustee, without the consent of any of the securityholders, and any other party
specified in the related prospectus supplement:
(1) to cure any ambiguity;
(2) to correct or supplement any provision in that agreement which may be
defective or inconsistent with any other provision in that agreement;
or
(3) to make any other revisions with respect to matters or questions
arising under the Agreement which are not inconsistent with the
provisions thereof, provided that the amendment will not adversely
affect in any material respect the interests of any securityholder.
An amendment will be deemed not to adversely affect in any material respect the
interests of the securityholders if the person requesting that amendment obtains
a letter from each rating agency requested to rate the class or classes of
securities of that series stating that the amendment will not result in the
downgrading or withdrawal of the respective ratings then assigned to the related
securities. In addition, to the extent provided in the related agreement, an
agreement may be amended without the consent of any of the securityholders, to
change the manner in which the security account is maintained, provided that any
change does not adversely affect the then current rating on the class or classes
of securities of that series that have been rated. In addition, if a REMIC
election is made with respect to a trust fund, the related agreement may be
amended to modify, eliminate or add to any of its provisions to the extent
necessary to maintain the qualification of the related trust fund as a REMIC,
provided that the trustee has received an opinion of counsel to the effect that
the action is necessary or helpful to maintain that qualification.
Except as otherwise specified in the related prospectus supplement,
each agreement may also be amended by the depositor, the master servicer and the
trustee with consent of holders of securities of the related series evidencing
not less than 66% of the aggregate voting interests of each class affected
thereby for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the agreement or of modifying in any manner
the rights of the holders of the related securities; provided, however, that no
amendment of this type may (1) reduce in any manner the amount of or delay the
timing of, payments received on loans which are required to be distributed on
any security without the consent of the holder of that security, or (2) reduce
the aforesaid percentage of securities of any class the holders of which are
required to consent to that amendment without the consent of the holders of all
securities of the class covered by the related agreement then outstanding. If a
REMIC election is made with respect to a trust fund, the trustee will not be
entitled to consent to an amendment to the related agreement without having
first received an opinion of counsel to the effect that the amendment will not
cause the related trust fund to fail to qualify as a REMIC.
TERMINATION; OPTIONAL TERMINATION
Pooling and Servicing Agreement; Trust Agreement. In addition, to the
circumstances specified in the related agreement, the obligations created by
each pooling and servicing agreement and trust agreement for each series of
securities will terminate upon the payment to the related securityholders of all
amounts held in the security account or by the master servicer and required to
be paid to them pursuant to that agreement following the later of (1) the final
payment of or other liquidation of the last of the trust fund assets subject to
that agreement or the disposition of all property acquired upon foreclosure of
any trust fund assets remaining in the trust fund and (2) the purchase by the
master servicer or, if REMIC treatment has been elected and if specified in the
related prospectus supplement, by the holder of the residual interest in the
REMIC --see "Federal Income Tax Consequences", from the related trust fund of
all of the remaining trust fund assets and all property acquired in respect of
those trust fund assets.
Any purchase of trust fund assets and property acquired in respect of
trust fund assets evidenced by a series of securities will be made at the option
of the master servicer, any other person or, if applicable, the holder of the
REMIC residual interest, at a price specified in the related prospectus
supplement. The exercise of that option will effect early retirement of the
securities of that series, but the right of the master servicer, any other
person or, if applicable, the holder of the REMIC residual interest, to so
purchase is subject to the principal balance of the related trust fund assets
being less than the percentage specified in the related prospectus supplement of
the aggregate principal balance of the trust fund assets at the Cut-off Date for
the Series. Upon that requirement being satisfied, the parties specified in the
related prospectus supplement may purchase all trust fund assets and thereby
effect retirement of the related series of securities. In that event, the
applicable purchase price will be sufficient to pay the aggregate outstanding
principal balance of that series of securities and any undistributed shortfall
in interest of that series of securities as will be described in the related
prospectus supplement. The foregoing is subject to the provision that if a REMIC
election is made with respect to a trust fund, any repurchase pursuant to clause
(2) above will be made only in connection with a "qualified liquidation" of the
REMIC within the meaning of Section 860F(g)(4) of the Code.
Indenture. The indenture will be discharged with respect to a series of
notes, other than continuing rights specified in the indenture, upon the
delivery to the trustee for cancellation of all the notes of that series or,
with specified limitations, upon deposit with the trustee of funds sufficient
for the payment in full of all of the notes of that series.
In addition to that discharge with limitations, the indenture will
provide that, if so specified with respect to the notes of any series, the
related trust fund will be discharged from any and all obligations in respect of
the notes of that series, except for specified obligations relating to temporary
notes and exchange of notes, to register the transfer of or exchange notes of
that series, to replace stolen, lost or mutilated notes of that series, to
maintain paying agencies and to hold monies for payment in trust, upon the
deposit with the Trustee, in trust, of money and/or direct obligations of or
obligations guaranteed by the United States of America which through the payment
of interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of and each
installment of interest on the notes of that series on the last scheduled
distribution date for the notes and any installment of interest on those notes
in accordance with the terms of the Indenture and the notes of that series. In
the event of that defeasance and discharge of notes of a series, holders of
notes of that series would be able to look only to money and/or direct
obligations for payment of principal and interest, if any, on their notes until
maturity.
THE TRUSTEE
The trustee under each applicable agreement will be named in the
applicable prospectus supplement. The commercial bank or trust company serving
as trustee may have normal banking relationships with the depositor, the master
servicer and any of their respective affiliates.
MATERIAL LEGAL ASPECTS OF THE LOANS
The following discussion contains summaries, which are general in
nature, of the material legal matters relating to the loans. Because legal
aspects are governed primarily by applicable state law, which laws may differ
substantially, the descriptions do not, except as expressly provided below,
reflect the laws of any particular state, nor to encompass the laws of all
states in which the security for the loans is situated.
GENERAL
The loans for a series may be secured by deeds of trust, mortgages,
security deeds or deeds to secure debt, depending upon the prevailing practice
in the state in which the property subject to the loan is located. Deeds of
trust are used almost exclusively in California instead of mortgages. A mortgage
creates a lien upon the real property encumbered by the mortgage, which lien is
generally not prior to the lien for real estate taxes and assessments. Priority
between mortgages depends on their terms and generally on the order of recording
with a state or county office. There are two parties to a mortgage, the
mortgagor, who is the borrower and owner of the mortgaged property, and the
mortgagee, who is the lender. Under the mortgage instrument, the mortgagor
delivers to the mortgagee a note or bond and the mortgage. Although a deed of
trust is similar to a mortgage, a deed of trust formally has three parties, the
borrower-property owner called the trustor, similar to a mortgagor, a lender,
similar to a mortgagee, called the beneficiary, and a third-party grantee called
the trustee. Under a deed of trust, the borrower grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale, to
the trustee to secure payment of the obligation. A security deed and a deed to
secure debt are special types of deeds which indicate on their face that they
are granted to secure an underlying debt. By executing a security deed or deed
to secure debt, the grantor conveys title to, as opposed to merely creating a
lien upon, the subject property to the grantee until the time at which the
underlying debt is repaid. The trustee's authority under a deed of trust, the
mortgagee's authority under a mortgage and the grantee's authority under a
security deed or deed to secure debt are governed by law and, with respect to
some deeds of trust, the directions of the beneficiary.
Cooperatives. A portion of the loans may be cooperative loans. The
cooperative owns all the real property that comprises the project, including the
land, separate dwelling units and all common areas. The cooperative is directly
responsible for project management and, in most cases, payment of real estate
taxes and hazard and liability insurance. If there is a blanket mortgage on the
cooperative and/or underlying land, as is generally the case, the cooperative,
as project mortgagor, is also responsible for meeting these mortgage
obligations. A blanket mortgage is ordinarily incurred by the cooperative in
connection with the construction or purchase of the cooperative's apartment
building. The interest of the occupant under proprietary leases or occupancy
agreements to which that cooperative is a party are generally subordinate to the
interest of the holder of the blanket mortgage in that building. If the
cooperative is unable to meet the payment obligations arising under its blanket
mortgage, the mortgagee holding the blanket mortgage could foreclose on that
mortgage and terminate all subordinate proprietary leases and occupancy
agreements. In addition, the blanket mortgage on a cooperative may provide
financing in the form of a mortgage that does not fully amortize with a
significant portion of principal being due in one lump sum at final maturity.
The inability of the cooperative to refinance this mortgage and its consequent
inability to make the final payment could lead to foreclosure by the mortgagee
providing the financing. A foreclosure in either event by the holder of the
blanket mortgage could eliminate or significantly diminish the value of any
collateral held by the lender who financed the purchase by an individual
tenant-stockholder of cooperative shares or, in the case of a trust fund
including cooperative loans, the collateral securing the cooperative loans.
The cooperative is owned by tenant-stockholders who, through ownership
of stock, shares or membership certificates in the corporation, receive
proprietary leases or occupancy agreements which confer exclusive rights to
occupy specific units. Generally, a tenant-stockholder of a cooperative must
make a monthly payment to the cooperative representing that tenant-stockholder's
pro rata share of the cooperative's payments for its blanket mortgage, real
property taxes, maintenance expenses and other capital or ordinary expenses. An
ownership interest in a cooperative and accompanying rights is financed through
a cooperative share loan evidenced by a promissory note and secured by a
security interest in the occupancy agreement or proprietary lease and in the
related cooperative shares. The lender takes possession of the share certificate
and a counterpart of the proprietary lease or occupancy agreement, and a
financing statement covering the proprietary lease or occupancy agreement and
the cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of cooperative
shares.
FORECLOSURE/REPOSSESSION
Deed of Trust. Foreclosure of a deed of trust is generally accomplished
by a non-judicial sale under a specific provision in the deed of trust which
authorizes the trustee to sell the property at public auction upon any default
by the borrower under the terms of the note or deed of trust. In some states,
that foreclosure also may be accomplished by judicial action in the manner
provided for foreclosure of mortgages. In addition to any notice requirements
contained in a deed of trust, in some states, like California, the trustee must
record a notice of default and send a copy to the borrower-trustor, to any
person who has recorded a request for a copy of any notice of default and notice
of sale, to any successor in interest to the borrower-trustor, to the
beneficiary of any junior deed of trust and to other specified persons. In some
states, including California, the borrower-trustor has the right to reinstate
the loan at any time following default until shortly before the trustee's sale.
In general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a statutorily prescribed reinstatement period, cure a
monetary default by paying the entire amount in arrears plus other designated
costs and expenses incurred in enforcing the obligation. Generally, state law
controls the amount of foreclosure expenses and costs, including attorney's
fees, which may be recovered by a lender. After the reinstatement period has
expired without the default having been cured, the borrower or junior lienholder
no longer has the right to reinstate the loan and must pay the loan in full to
prevent the scheduled foreclosure sale. If the deed of trust is not reinstated
within any applicable cure period, a notice of sale must be posted in a public
place and, in most states, including California, published for a specific period
of time in one or more newspapers. In addition, some state laws require that a
copy of the notice of sale be posted on the property and sent to all parties
having an interest of record in the real property. In California, the entire
process from recording a notice of default to a non-judicial sale usually takes
four to five months.
Mortgages. Foreclosure of a mortgage is generally accomplished by
judicial action. The action is initiated by the service of legal pleadings upon
all parties having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties. Judicial foreclosure proceedings are often not contested by any of the
parties. When the mortgagee's right to foreclosure is contested, the legal
proceedings necessary to resolve the issue can be time consuming. After the
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other court officer to conduct
the sale of the property. In some states, mortgages may also be foreclosed by
advertisement, pursuant to a power of sale provided in the related mortgage.
Although foreclosure sales are typically public sales, frequently no
third party purchaser bids in excess of the lender's lien because of the
difficulty of determining the exact status of title to the property, the
possible deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus, the foreclosing lender often purchases the property from the
trustee or referee for an amount equal to the principal amount outstanding under
the loan, accrued and unpaid interest and the expenses of foreclosure in which
event the mortgagor's debt will be extinguished or the lender may purchase for a
lesser amount in order to preserve its right against a borrower to seek a
deficiency judgment in states where that judgment is available. Thereafter,
subject to the right of the borrower in some states to remain in possession
during the redemption period, the lender will assume the burden of ownership,
including obtaining hazard insurance and making those repairs at its own expense
as are necessary to render the property suitable for sale. The lender will
commonly obtain the services of a real estate broker and pay the broker's
commission in connection with the sale of the property. Depending upon market
conditions, the ultimate proceeds of the sale of the property may not equal the
lender's investment in the property. Any loss may be reduced by the receipt of
any mortgage guaranty insurance proceeds.
Courts have imposed general equitable principles upon foreclosure.
These equitable principles are generally designed to mitigate the legal
consequences to the borrower of the borrower's defaults under the loan
documents.
Some courts have been faced with the issue of whether federal or state
constitutional provisions reflecting due process concerns for fair notice
require that borrowers under deeds of trust receive notice longer than that
prescribed by statute. For the most part, these cases have upheld the notice
provisions as being reasonable, or have found that the sale by a trustee under a
deed of trust does not involve sufficient state action to afford constitutional
protection to the borrower.
When the beneficiary under a junior mortgage or deed of trust cures the
default and reinstates or redeems by paying the full amount of the senior
mortgage or deed of trust, the amount paid by the beneficiary to cure or redeem
becomes a part of the indebtedness secured by the junior mortgage or deed of
trust. See "--Junior Mortgages; Rights of Senior Mortgagees" below.
Cooperative Loans. The cooperative shares owned by the
tenant-stockholder and pledged to the lender are, in almost all cases, subject
to restrictions on transfer as set forth in the cooperative's certificate of
incorporation and bylaws, as well as the proprietary lease or occupancy
agreement, and may be cancelled by the cooperative for failure by the
tenant-stockholder to pay rent or other obligations or charges owed by that
tenant-stockholder, including mechanics' liens against the cooperative apartment
building incurred by that tenant-stockholder. The proprietary lease or occupancy
agreement generally permits the Cooperative to terminate that lease or agreement
in the event an obligor fails to make payments or defaults in the performance of
covenants required thereunder. Typically, the lender and the cooperative enter
into a recognition agreement which establishes the rights and obligations of
both parties in the event of a default by the tenant-stockholder on its
obligations under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that
the tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate the lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds form the sale of the cooperative apartment,
subject, however, to the cooperative's right to sums due under that proprietary
lease or occupancy agreement. The total amount owed to the cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the cooperative loan and accrued and unpaid interest on
that loan.
Recognition agreements also provide that in the event of a foreclosure
on a cooperative loan, the lender must obtain the approval or consent of the
cooperative as required by the proprietary lease before transferring the
cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
In some states, foreclosure on the cooperative shares is accomplished
by a sale in accordance with the provisions of Article 9 of the UCC and the
security agreement relating to those shares. Article 9 of the UCC requires that
a sale be conducted in a "commercially reasonable" manner. Whether a foreclosure
sale has been conducted in a "commercially reasonable" manner will depend on the
facts in each case. In determining commercial reasonableness, a court will look
to the notice given the debtor and the method, manner, time, place and terms of
the foreclosure. Generally, a sale conducted according to the usual practice of
banks selling similar collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be
applied first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the cooperative to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds remaining, the
lender must account to the tenant-stockholder for the surplus. Conversely, if a
portion of the indebtedness remains unpaid, the tenant-stockholder is generally
responsible for the deficiency. See "--Anti-Deficiency Legislation and Other
Limitations on Lenders" below.
In the case of foreclosure on a building which was converted from a
rental building to a building owned by a cooperative under a non-eviction plan,
some states require that a purchaser at a foreclosure sale take the property
subject to rent control and rent stabilization laws which apply to some tenants
who elected to remain in the building but who did not purchase shares in the
cooperative when the building was so converted.
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may subject the lender to
unforeseen environmental risks. Under the laws of some states, contamination of
a property may give rise to a lien on the property to assure the payment of the
costs of clean-up. In several states a lien to assure the payment of the costs
of clean-up has priority over the lien of an existing mortgage against that
property. In addition, under CERCLA the EPA may impose a lien on property where
EPA has incurred clean-up costs. However, a CERCLA lien is subordinate to
pre-existing, perfected security interests.
Under the laws of some states, and under CERCLA, there are
circumstances under which a secured lender may be held liable as an "owner" or
"operator" for the costs of addressing releases or threatened releases of
hazardous substances at a property, even though the environmental damage or
threat was caused by a prior or current owner or operator. CERCLA imposes
liability for those costs on any and all "responsible parties," including owners
or operators. However, CERCLA excludes from the definition of "owner or
operator" a secured creditor who holds indicia of ownership primarily to protect
its security interest -the "secured creditor exclusion"- but without
"participating in the management" of the property. Thus, if a lender's
activities begin to encroach on the actual management of a contaminated facility
or property, the lender may incur liability as an "owner or operator" under
CERCLA. Similarly, if a lender forecloses and takes title to a contaminated
facility or property, the lender may incur CERCLA liability in various
circumstances, including, but not limited to, when it holds the facility or
property as an investment, including leasing the facility or property to a third
party, or fails to dispose of the property in a commercially reasonable time
frame.
The Asset Conservation, Lender Liability and Deposit Insurance
Protection Act of 1996 amended CERCLA to clarify when actions taken by a lender
constitute participation in the management of a mortgaged property or the
business of a borrower, so as to render the secured creditor exemption
unavailable to a lender. It provides that, in order to be deemed to have
participated in the management of a mortgaged property, a lender must actually
participate in the operational affairs of the property or the borrower. The
legislation also provides that participation in the management of the property
does not include "merely having the capacity to influence, or unexercised right
to control" operations. Rather, a lender will lose the protection of the secured
creditor exemption only if it exercises decision-making control over the
borrower's environmental compliance and hazardous substance handling and
disposal practices, or assumes day-to-day management of all operational
functions of the mortgaged property.
If a lender is or becomes liable, it can bring an action for
contribution against any other "responsible parties," including a previous owner
or operator, who created the environmental hazard, but those persons or entities
may be bankrupt or otherwise judgment proof. The costs associated with
environmental cleanup may be substantial. It is conceivable that costs arising
from the circumstances set forth above could result in a loss to
securityholders.
A secured creditor exclusion does not govern liability for cleanup
costs under federal laws other than CERCLA, except with respect to underground
petroleum storage tanks regulated under the federal Resource Conservation and
Recovery Act ("RCRA"). The Asset Conservation, Lender Liability and Deposit
Insurance Protection Act of 1996 amended RCRA so that the protections accorded
to lenders under CERCLA are also accorded to the holders of security interests
in underground petroleum storage tanks. It also endorsed EPA's lender liability
rule for underground petroleum storage tanks under Subtitle I of RCRA. Under
this rule, a holder of a security interest in an underground petroleum storage
tank or real property containing an underground petroleum storage tank is not
considered an operator of the underground petroleum storage tank as long as
petroleum is not added to, stored in or dispensed from the tank. It should be
noted, however, that liability for cleanup of petroleum contamination may be
governed by state law, which may not provide for any specific protection for
secured creditors.
It is anticipated that, at the time the loans to be included in the
trust fund are originated, no environmental assessment or a very limited
environmental assessment of the mortgaged properties will be conducted.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure
of a mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In other
states, including California, this right of redemption applies only to sales
following judicial foreclosure, and not to sales pursuant to a non-judicial
power of sale. In most states where the right of redemption is available,
statutory redemption may occur upon payment of the foreclosure purchase price,
accrued interest and taxes. In other states, redemption may be authorized if the
prior borrower pays only a portion of the sums due. The effect of a statutory
right of redemption is to diminish the ability of the lender to sell the
foreclosed property. The exercise of a right of redemption would defeat the
title of any purchaser from the lender subsequent to foreclosure or sale under a
deed of trust. Consequently, the practical effect of the redemption right is to
force the lender to retain the property and pay the expenses of ownership until
the redemption period has run. In some states, there is no right to redeem
property after a trustee's sale under a deed of trust.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Some states have imposed statutory and judicial restrictions that limit
the remedies of a beneficiary under a deed of trust or a mortgagee under a
mortgage. In some states, including California, statutes and case law limit the
right of the beneficiary or mortgagee to obtain a deficiency judgment against
borrowers financing the purchase of their residence or following sale under a
deed of trust or other foreclosure proceedings. A deficiency judgment is a
personal judgment against the borrower equal in most cases to the difference
between the amount due to the lender and the fair market value of the real
property at the time of the foreclosure sale. As a result of these prohibitions,
it is anticipated that in most instances the master servicer will utilize the
non-judicial foreclosure remedy and will not seek deficiency judgments against
defaulting borrowers.
Some state statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In other states, the lender has the option of bringing a personal action against
the borrower on the debt without first exhausting the security; however, in some
of these states, the lender, following judgment on that personal action, may be
deemed to have elected a remedy and may be precluded from exercising remedies
with respect to the security. Consequently, the practical effect of the election
requirement, when applicable, is that lenders will usually proceed first against
the security rather than bringing a personal action against the borrower. In
some states, exceptions to the anti-deficiency statutes are provided for in
specific instances where the value of the lender's security has been impaired by
acts or omissions of the borrower, for example, in the event of waste of the
property. Finally, other statutory provisions limit any deficiency judgment
against the prior borrower following a foreclosure sale to the excess of the
outstanding debt over the fair market value of the property at the time of the
public sale. The purpose of these statutes is generally to prevent a beneficiary
or a mortgagee from obtaining a large deficiency judgment against the former
borrower as a result of low or no bids at the foreclosure sale.
Generally, Article 9 of the UCC governs foreclosure on cooperative
shares and the related proprietary lease or occupancy agreement. Some courts
have interpreted section 9-504 of the UCC to prohibit a deficiency award unless
the creditor establishes that the sale of the collateral, which, in the case of
a cooperative loan, would be the shares of the cooperative and the related
proprietary lease or occupancy agreement, was conducted in a commercially
reasonable manner.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws
and state laws affording relief to debtors, may interfere with or affect the
ability of the secured mortgage lender to realize upon its security. For
example, in a proceeding under the federal Bankruptcy Code, a lender may not
foreclose on a mortgaged property without the permission of the bankruptcy
court. The rehabilitation plan proposed by the debtor may provide, if the
mortgaged property is not the debtor's principal residence and the court
determines that the value of the mortgaged property is less than the principal
balance of the mortgage loan, for the reduction of the secured indebtedness to
the value of the mortgaged property as of the date of the commencement of the
bankruptcy, rendering the lender a general unsecured creditor for the
difference, and also may reduce the monthly payments due under that mortgage
loan, change the rate of interest and alter the mortgage loan repayment
schedule. The effect of any of those proceedings under the federal Bankruptcy
Code, including but not limited to any automatic stay, could result in delays in
receiving payments on the Loans underlying a series of securities and possible
reductions in the aggregate amount of those payments.
The federal tax laws provide priority of some tax liens over the lien
of a mortgage or secured party.
DUE-ON-SALE CLAUSES
The loans to be included in a trust fund may or may not contain a
due-on-sale clause which will generally provide that if the mortgagor or obligor
sells, transfers or conveys the property, the loan or contract may be
accelerated by the mortgagee or secured party. Court decisions and legislative
actions have placed substantial restriction on the right of lenders to enforce
those clauses in many states. For instance, the California Supreme Court in
August 1978 held that due-on-sale clauses were generally unenforceable. However,
the Garn-St Germain Act, subject to exceptions, preempts state constitutional,
statutory and case law prohibiting the enforcement of due-on-sale clauses. As a
result, due-on-sale clauses have become generally enforceable except in those
states whose legislatures exercised their authority to regulate the
enforceability of those clauses with respect to mortgage loans that were (1)
originated or assumed during the "window period" under the Garn-St Germain Act
which ended in all cases not later than October 15, 1982, and (2) originated by
lenders other than national banks, federal savings institutions and federal
credit unions. Freddie Mac has taken the position in its published mortgage
servicing standards that, out of a total of eleven "window period states," five
states (Arizona, Michigan, Minnesota, New Mexico and Utah) have enacted statutes
extending, on various terms and for varying periods, the prohibition on
enforcement of due-on-sale clauses with respect to particular categories of
window period loans. Also, the Garn-St Germain Act does "encourage" lenders to
permit assumption of loans at the original rate of interest or at some other
rate less than the average of the original rate and the market rate.
As to loans secured by an owner-occupied residence, the Garn-St Germain
Act sets forth nine specific instances in which a mortgagee covered by the act
may not exercise its rights under a due-on-sale clause, notwithstanding the fact
that a transfer of the property may have occurred. The inability to enforce a
due-on-sale clause may result in transfer of the related mortgaged property to
an uncreditworthy person, which could increase the likelihood of default or may
result in a mortgage bearing an interest rate below the current market rate
being assumed by a new home buyer, which may affect the average life of the
loans and the number of loans which may extend to maturity.
Further, under federal bankruptcy law, due-on-sale clauses may not be
enforceable in bankruptcy proceedings and may, under limited circumstances, be
eliminated in any modified mortgage resulting from that bankruptcy proceeding.
ENFORCEABILITY OF PREPAYMENT AND LATE PAYMENT FEES
Forms of notes, mortgages and deeds of trust used by lenders may
contain provisions obligating the borrower to pay a late charge if payments are
not timely made, and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In some states, there are
or may be specific limitations upon the late charges which a lender may collect
from a borrower for delinquent payments. Some states also limit the amounts that
a lender may collect from a borrower as an additional charge if the loan is
prepaid. Under some state laws, prepayment charges may not be imposed after a
specified period of time following the origination of mortgage loans with
respect to prepayments on loans secured by liens encumbering owner-occupied
residential properties. Since many of the Properties will be owner-occupied, it
is anticipated that prepayment charges may not be imposed with respect to many
of the loans. The absence of that type of a restraint on prepayment,
particularly with respect to fixed rate loans having higher loan rates, may
increase the likelihood of refinancing or other early retirement of those loans
or contracts. Late charges and prepayment fees are typically retained by
servicers as additional servicing compensation.
APPLICABILITY OF USURY LAWS
Title V provides that state usury limitations shall not apply to some
types of residential first mortgage loans originated by particular lenders after
March 31, 1980. The OTS, as successor to the Federal Home Loan Bank Board, is
authorized to issue rules and regulations and to publish interpretations
governing implementation of Title V. The statute authorized the states to
reimpose interest rate limits by adopting, before April 1, 1983, a law or
constitutional provision which expressly rejects an application of the federal
law. Fifteen states adopted a similar law prior to the April 1, 1983 deadline.
In addition, even where Title V is not so rejected, any state is authorized by
the law to adopt a provision limiting discount points or other charges on
mortgage loans covered by Title V. Some states have taken action to reimpose
interest rate limits and/or to limit discount points or other charges.
THE CONTRACTS
General. The manufactured housing contracts and home improvement
contracts, other than those that are unsecured or are secured by mortgages on
real estate generally, are "chattel paper" or constitute "purchase money
security interests" each as defined in the UCC. Pursuant to the UCC, the sale of
chattel paper is treated in a manner similar to perfection of a security
interest in chattel paper. Under the related agreement, the depositor or the
seller will transfer physical possession of the contracts to the trustee or a
designated custodian or may retain possession of the contracts as custodian for
the trustee. In addition, the depositor will make an appropriate filing of a
UCC-1 financing statement in the appropriate states to, among other things, give
notice of the trust fund's ownership of the contracts. The contracts will not be
stamped or otherwise marked to reflect their assignment from the depositor to
the trustee unless the related prospectus supplement states that they will be so
stamped. With respect to each transaction, a decision will be made as to whether
or not the contracts will be stamped or otherwise marked to reflect their
assignment from the depositor to the trustee, based upon, among other things,
the practices and procedures of the related originator and master servicer and
after consultation with the applicable rating agency or rating agencies.
Therefore, if the contracts are not stamped or otherwise marked to reflect their
assignment from the depositor to the trustee and through negligence, fraud or
otherwise, a subsequent purchaser were able to take physical possession of the
contracts without notice of the assignment, the trust fund's interest in the
contracts could be defeated.
Security Interests in Home Improvements. The contracts that are secured
by the home improvements financed thereby grant to the originator of those
contracts a purchase money security interest in the home improvements to secure
all or part of the purchase price of the home improvements and related services.
A financing statement generally is not required to be filed to perfect a
purchase money security interest in consumer goods. The purchase money security
interests are assignable. In general, a purchase money security interest grants
to the holder a security interest that has priority over a conflicting security
interest in the same collateral and the proceeds of that collateral. However, to
the extent that the collateral subject to a purchase money security interest
becomes a fixture, in order for the related purchase money security interest to
take priority over a conflicting interest in the fixture, the holder's interest
in that home improvement must generally be perfected by a timely fixture filing.
In general, a security interest does not exist under the UCC in ordinary
building material incorporated into an improvement on land. Home improvement
contracts that finance lumber, bricks, other types of ordinary building material
or other goods that are deemed to lose that characterization upon incorporation
of those materials into the related property, will not be secured by a purchase
money security interest in the home improvement being financed.
Enforcement of Security Interest in Home Improvements. So long as the
home improvement has not become subject to the real estate law, a creditor can
repossess a home improvement securing a contract by voluntary surrender, by
"self-help" repossession that is "peaceful"--i.e., without breach of the
peace--or, in the absence of voluntary surrender and the ability to repossess
without breach of the peace, by judicial process. The holder of a contract must
give the debtor a number of days' notice, which varies from 10 to 30 days
depending on the state, prior to commencement of any repossession. The UCC and
consumer protection laws in most states place restrictions on repossession
sales, including requiring prior notice to the debtor and commercial
reasonableness in effecting a repossession sale. The law in most states also
requires that the debtor be given notice of any sale prior to resale of the unit
that the debtor may redeem at or before the resale.
Under the laws of most states, a creditor is entitled to obtain a
deficiency judgment from a debtor for any deficiency on repossession and resale
of the property securing the debtor's loan. However, some states impose
prohibitions or limitations on deficiency judgments, and in many cases the
defaulting borrower would have no assets with which to pay a judgment.
Other statutory provisions, including federal and state bankruptcy and
insolvency laws and general equitable principles, may limit or delay the ability
of a lender to repossess and resell collateral or enforce a deficiency judgment.
Security Interests in the Manufactured Homes. The manufactured homes
securing the manufactured housing contracts may be located in all 50 states and
the District of Columbia. Security interests in manufactured homes may be
perfected either by notation of the secured party's lien on the certificate of
title or by delivery of the required documents and payment of a fee to the state
motor vehicle authority, depending on state law. The security interests of the
related trustee in the manufactured homes will not be noted on the certificates
of title or by delivery of the required documents and payment of fees to the
applicable state motor vehicle authorities unless the related prospectus
supplement so states. With respect to each transaction, a decision will be made
as to whether or not the security interests of the related trustee in the
manufactured homes will be noted on the certificates of title and the required
documents and fees will be delivered to the applicable state motor vehicle
authorities based upon, among other things, the practices and procedures of the
related originator and master servicer and after consultation with the
applicable rating agency or rating agencies. In some nontitle states, perfection
pursuant to the provisions of the UCC is required. As manufactured homes have
become large and often have been attached to their sites without any apparent
intention to move them, courts in many states have held that manufactured homes,
under particular circumstances, may become subject to real estate title and
recording laws. As a result, a security interest in a manufactured home could be
rendered subordinate to the interests of other parties claiming an interest in
the manufactured home under applicable state real estate law. In order to
perfect a security interest in a manufactured home under real estate laws, the
secured party must file either a "fixture filing" under the provisions of the
UCC or a real estate mortgage under the real estate laws of the state where the
home is located. These filings must be made in the real estate records office of
the county where the manufactured home is located. If so specified in the
related prospectus supplement, the manufactured housing contracts may contain
provisions prohibiting the borrower from permanently attaching the manufactured
home to its site. So long as the borrower does not violate this agreement, a
security interest in the manufactured home will be governed by the certificate
of title laws or the UCC, and the notation of the security interest on the
certificate of title or the filing of a UCC financing statement will be
effective to maintain the priority of the security interest in the manufactured
home. If, however, a manufactured home is permanently attached to its site, the
related lender may be required to perfect a security interest in the
manufactured home under applicable real estate laws.
In the event that the owner of a manufactured home moves it to a state
other than the state in which the manufactured home initially is registered,
under the laws of most states the perfected security interest in the
manufactured home would continue for four months after that relocation and
thereafter only if and after the owner re-registers the manufactured home in
that state. If the owner were to relocate a manufactured home to another state
and not re-register a security interest in that state, the security interest in
the manufactured home would cease to be perfected. A majority of states
generally require surrender of a certificate of title to re-register a
manufactured home; accordingly, the secured party must surrender possession if
it holds the certificate of title to that manufactured home or, in the case of
manufactured homes registered in states which provide for notation of lien on
the certificate of title, notice of surrender would be given to the secured
party noted on the certificate of title. In states which do not require a
certificate of title for registration of a manufactured home, re-registration
could defeat perfection.
Under the laws of most states, liens for repairs performed on a
manufactured home and liens for personal property taxes take priority over a
perfected security interest in the manufactured home.
Consumer Protection Laws. The so-called "Holder-in-Due Course" rule of
the FTC is intended to defeat the ability of the transferor of a consumer credit
contract which is the seller of goods which gave rise to the transaction, and
particular, related lenders and assignees, to transfer that contract free of
notice of claims by the debtor thereunder. The effect of this rule is to subject
the assignee of a contract of this type to all claims and defenses which the
debtor could assert against the seller of goods. Liability under this rule is
limited to amounts paid under a contract; however, the obligor also may be able
to assert the rule to set off remaining amounts due as a defense against a claim
brought by the Trustee against that obligor. Numerous other federal and state
consumer protection laws impose requirements applicable to the origination and
lending pursuant to the contracts, including the Truth in Lending Act, the
Federal Trade Commission Act, the Fair Credit Billing Act, the Fair Credit
Reporting Act, the Equal Credit Opportunity Act, the Fair Debt Collection
Practices Act and the Uniform Consumer Credit Code. In the case of some of these
laws, the failure to comply with their provisions may affect the enforceability
of the related contract.
Applicability of Usury Laws. Title V provides that, subject to the
following conditions, state usury limitations shall not apply to any contract
which is secured by a first lien on particular kinds of consumer goods. The
contracts would be covered if they satisfy conditions governing, among other
things, the terms of any prepayments, late charges and deferral fees and
requiring a 30-day notice period prior to instituting any action leading to
repossession of the related unit.
Title V authorized any state to reimpose limitations on interest rates
and finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen states
adopted a similar law prior to the April 1, 1983 deadline. In addition, even
where Title V was not rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
INSTALLMENT CONTRACTS
The loans may also consist of installment contracts. Under an
installment contract the seller (referred to in this section as the "lender")
retains legal title to the property and enters into an agreement with the
purchaser referred to in this section as the "borrower") for the payment of the
purchase price, plus interest, over the term of that contract. Only after full
performance by the borrower of the contract is the lender obligated to convey
title to the property to the purchaser. As with mortgage or deed of trust
financing, during the effective period of the installment contract, the borrower
is generally responsible for maintaining the property in good condition and for
paying real estate taxes, assessments and hazard insurance premiums associated
with the property.
The method of enforcing the rights of the lender under an installment
contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to its terms. The terms of installment contracts
generally provide that upon a default by the borrower, the borrower loses his or
her right to occupy the property, the entire indebtedness is accelerated, and
the buyer's equitable interest in the property is forfeited. The lender in that
type of a situation does not have to foreclose in order to obtain title to the
property, although in some cases a quiet title action is in order if the
borrower has filed the installment contract in local land records and an
ejectment action may be necessary to recover possession. In a few states,
particularly in cases of borrower default during the early years of an
installment contract, the courts will permit ejectment of the buyer and a
forfeiture of his or her interest in the property. However, most state
legislatures have enacted provisions by analogy to mortgage law protecting
borrowers under installment contracts from the harsh consequences of forfeiture.
Under those statutes, a judicial or nonjudicial foreclosure may be required, the
lender may be required to give notice of default and the borrower may be granted
some grace period during which the installment contract may be reinstated upon
full payment of the default amount and the borrower may have a post-foreclosure
statutory redemption right. In other states, courts in equity may permit a
borrower with significant investment in the property under an installment
contract for the sale of real estate to share in the proceeds of sale of the
property after the indebtedness is repaid or may otherwise refuse to enforce the
forfeiture clause. Nevertheless, generally speaking, the lender's procedures for
obtaining possession and clear title under an installment contract in a given
state are simpler and less time-consuming and costly than are the procedures for
foreclosing and obtaining clear title to a property subject to one or more
liens.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended, or the Relief Act, a borrower who enters military
service after the origination of that borrower's loan including a borrower who
is a member of the National Guard or is in reserve status at the time of the
origination of the loan and is later called to active duty, may not be charged
interest above an annual rate of 6% during the period of that borrower's active
duty status, unless a court orders otherwise upon application of the lender. It
is possible that the interest rate limitation could have an effect, for an
indeterminate period of time, on the ability of the master servicer to collect
full amounts of interest on some of the loans. Any shortfall in interest
collections resulting from the application of the Relief Act could result in
losses to Securityholders. The Relief Act also imposes limitations which would
impair the ability of the master servicer to foreclose on an affected loan
during the borrower's period of active duty status. Moreover, the Relief Act
permits the extension of a loan's maturity and the re-adjustment of its payment
schedule beyond the completion of military service. Thus, in the event that a
Loan of this type goes into default, there may be delays and losses occasioned
by the inability to realize upon the property in a timely fashion.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGEES
To the extent that the loans comprising the trust fund for a series are
secured by mortgages which are junior to other mortgages held by other lenders
or institutional investors, the rights of the trust fund, and therefore the
Securityholders, as mortgagee under any junior mortgage, are subordinate to
those of any mortgagee under any senior mortgage. The senior mortgagee has the
right to receive hazard insurance and condemnation proceeds and to cause the
property securing the loan to be sold upon default of the mortgagor, thereby
extinguishing the junior mortgagee's lien unless the junior mortgagee asserts
its subordinate interest in the property in foreclosure litigation and,
possibly, satisfies the defaulted senior mortgage. A junior mortgagee may
satisfy a defaulted senior loan in full and, in some states, may cure a default
and bring the senior loan current, in either event adding the amounts expended
to the balance due on the junior loan. In most states, absent a provision in the
mortgage or deed of trust, no notice of default is required to be given to a
junior mortgagee.
The standard form of the mortgage used by most institutional lenders
confers on the mortgagee the right both to receive all proceeds collected under
any hazard insurance policy and all awards made in connection with condemnation
proceedings, and to apply the proceeds and awards to any indebtedness secured by
the mortgage, in that order as the mortgagee may determine. Thus, in the event
improvements on the property are damaged or destroyed by fire or other casualty,
or in the event the property is taken by condemnation, the mortgagee or
beneficiary under senior mortgages will have priority to collect any insurance
proceeds payable under a hazard insurance policy and any award of damages in
connection with the condemnation and to apply the same to the indebtedness
secured by the senior mortgages. Proceeds in excess of the amount of senior
mortgage indebtedness, in most cases, may be applied to the indebtedness of a
junior mortgage.
Another provision sometimes found in the form of the mortgage or deed
of trust used by institutional lenders obligates the mortgagor to pay before
delinquency all taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee under the mortgage. Upon a
failure of the mortgagor to perform any of these obligations, the mortgagee is
given the right under some mortgages to perform these obligations, at its
election, with the mortgagor agreeing to reimburse the mortgagee for any sums
expended by the mortgagee on behalf of the mortgagor. All sums so expended by
the mortgagee become part of the indebtedness secured by the mortgage.
The form of credit line trust deed or mortgage generally used by most
institutional lenders which make revolving credit line loans typically contains
a "future advance" clause, which provides, in essence, that additional amounts
advanced to or on behalf of the borrower by the beneficiary or lender are to be
secured by the deed of trust or mortgage. Any amounts so advanced after the
cut-off date with respect to any mortgage will not be included in the trust
fund. The priority of the lien securing any advance made under the clause may
depend in most states on whether the deed of trust or mortgage is called and
recorded as a credit line deed of trust or mortgage. If the beneficiary or
lender advances additional amounts, the advance is entitled to receive the same
priority as amounts initially advanced under the trust deed or mortgage,
notwithstanding the fact that there may be junior trust deeds or mortgages and
other liens which intervene between the date of recording of the trust deed or
mortgage and the date of the future advance, and notwithstanding that the
beneficiary or lender had actual knowledge of the intervening junior trust deeds
or mortgages and other liens at the time of the advance. In most states, the
trust deed or mortgage lien securing mortgage loans of the type which includes
home equity credit lines applies retroactively to the date of the original
recording of the trust deed or mortgage, provided that the total amount of
advances under the home equity credit line does not exceed the maximum specified
principal amount of the recorded trust deed or mortgage, except as to advances
made after receipt by the lender of a written notice of lien from a judgment
lien creditor of the trustor.
THE TITLE I PROGRAM
General. Some of the Loans contained in a trust fund may be loans
insured under the FHA Title I Credit Insurance program created pursuant to
Sections 1 and 2(a) of the National Housing Act of 1934 (the "Title I Program").
Under the Title I Program, the FHA is authorized and empowered to insure
qualified lending institutions against losses on eligible loans. The Title I
Program operates as a coinsurance program in which the FHA insures up to 90% of
specified losses incurred on an individual insured loan, including the unpaid
principal balance of the loan, but only to the extent of the insurance coverage
available in the lender's FHA insurance coverage reserve account. The owner of
the loan bears the uninsured loss on each loan.
The types of loans which are eligible for FHA insurance under the Title
I Program include property improvement loans ("Property Improvement Loans" or
"Title I Loans"). A Property Improvement Loan or Title I Loan means a loan made
to finance actions or items that substantially protect or improve the basic
livability or utility of a property and includes single family improvement
loans.
There are two basic methods of lending or originating loans, which
include a "direct loan" or a "dealer loan." With respect to a direct loan, the
borrower makes application directly to a lender without any assistance from a
dealer, which application may be filled out by the borrower or by a person
acting at the direction of the borrower who does not have a financial interest
in the loan transaction, and the lender may disburse the loan proceeds solely to
the borrower or jointly to the borrower and other parties to the transaction.
With respect to a dealer loan, the dealer, who has a direct or indirect
financial interest in the loan transaction, assists the borrower in preparing
the loan application or otherwise assists the borrower in obtaining the loan
from lender and the lender may distribute proceeds solely to the dealer or the
borrower or jointly to the borrower and the dealer or other parties. With
respect to a dealer Title I Loan, a dealer may include a seller, a contractor or
supplier of goods or services.
Loans insured under the Title I Program are required to have fixed
interest rates and, generally, provide for equal installment payments due
weekly, biweekly, semi-monthly or monthly, except that a loan may be payable
quarterly or semi-annually in order to correspond with the borrower's irregular
flow of income. The first or last payments or both may vary in amount but may
not exceed 150% of the regular installment payment, and the first payment may be
due no later than two months from the date of the loan. The note must contain a
provision permitting full or partial prepayment of the loan. The interest rate
may be established by the lender and must be fixed for the term of the loan and
recited in the note. Interest on an insured loan must accrue from the date of
the loan and be calculated according to the actuarial method. The lender must
assure that the note and all other documents evidencing the loan are in
compliance with applicable federal, state and local laws.
Each insured lender is required to use prudent lending standards in
underwriting individual loans and to satisfy the applicable loan underwriting
requirements under the Title I Program prior to its approval of the loan and
disbursement of loan proceeds. Generally, the lender must exercise prudence and
diligence to determine whether the borrower and any co-maker is solvent and an
acceptable credit risk, with a reasonable ability to make payments on the loan
obligation. The lender's credit application and review must determine whether
the borrower's income will be adequate to meet the periodic payments required by
the loan, as well as the borrower's other housing and recurring expenses. This
determination must be made in accordance with the expense-to-income ratios
published by the Secretary of HUD.
Under the Title I Program, the FHA does not review or approve for
qualification for insurance the individual loans insured thereunder at the time
of approval by the lending institution, as is typically the case with other
federal loan programs. If, after a loan has been made and reported for insurance
under the Title I Program, the lender discovers any material misstatement of
fact or that the loan proceeds have been misused by the borrower, dealer or any
other party, it shall promptly report this to the FHA. In that case, provided
that the validity of any lien on the property has not been impaired, the
insurance of the loan under the Title I Program will not be affected unless the
material misstatements of fact or misuse of loan proceeds was caused by, or was
knowingly sanctioned by, the lender or its employees.
Requirements for Title I Loans. The maximum principal amount for Title
I Loans must not exceed the actual cost of the project plus any applicable fees
and charges allowed under the Title I Program; provided that the maximum amount
does not exceed $25,000, or the then current applicable amount, for a single
family property improvement loan. Generally, the term of a Title I Loan may not
be less than six months nor greater than 20 years and 32 days. A borrower may
obtain multiple Title I Loans with respect to multiple properties, and a
borrower may obtain more than one Title I Loan with respect to a single
property, in each case as long as the total outstanding balance of all Title I
Loans in the same property does not exceed the maximum loan amount for the type
of Title I Loan having the highest permissible loan amount.
Borrower eligibility for a Title I Loan requires that the borrower have
at least a one-half interest in either fee simple title to the real property, a
lease on the property for a term expiring at least six months after the final
maturity of the Title I Loan or a recorded land installment contract for the
purchase of the real property, and that the borrower have equity in the property
being improved at least equal to the amount of the Title I Loan if the loan
amount exceeds $15,000. Any Title I Loan in excess of $7,500 must be secured by
a recorded lien on the improved property which is evidenced by a mortgage or
deed of trust executed by the borrower and all other owners in fee simple.
The proceeds from a Title I Loan may be used only to finance property
improvements which substantially protect or improve the basic livability or
utility of the property as disclosed in the loan application. The Secretary of
HUD has published a list of items and activities which cannot be financed with
proceeds from any Title I Loan and from time to time, the Secretary of HUD may
amend the list of items and activities. With respect to any dealer Title I Loan,
before the lender may disburse funds, the lender must have in its possession a
completion certificate on a HUD approved form, signed by the borrower and the
dealer. With respect to any direct Title I Loan, the lender is required to
obtain, promptly upon completion of the improvements but not later than six
months after disbursement of the loan proceeds with one six month extension if
necessary, a completion certificate, signed by the borrower. The lender is
required to conduct an on-site inspection on any Title I Loan where the
principal obligation is $7,500 or more, and on any direct Title I Loan where the
borrower fails to submit a completion certificate.
FHA Insurance Coverage. Under the Title I Program, the FHA establishes
an insurance coverage reserve account for each lender which has been granted a
Title I insurance contract. The amount of insurance coverage in this account is
10% of the amount disbursed, advanced or expended by the lender in originating
or purchasing eligible loans registered with FHA for Title I insurance, with
adjustments. The balance in the insurance coverage reserve account is the
maximum amount of insurance claims the FHA is required to pay. Loans to be
insured under the Title I Program will be registered for insurance by the FHA
and the insurance coverage attributable to those loans will be included in the
insurance coverage reserve account for the originating or purchasing lender
following the receipt and acknowledgment by the FHA of a loan report on the
prescribed form pursuant to the Title I regulations. The FHA charges a fee of
0.50% per annum of the net proceeds (the original balance) of any eligible loan
so reported and acknowledged for insurance by the originating lender. The FHA
bills the lender for the insurance premium on each insured loan annually, on
approximately the anniversary date of the loan's origination. If an insured loan
is prepaid during that year, FHA will not refund or abate the insurance premium.
Under the Title I Program the FHA will reduce the insurance coverage
available in the lender's FHA insurance coverage reserve account with respect to
loans insured under the lender's contract of insurance by (1) the amount of the
FHA insurance claims approved for payment relating to the insured loans and (2)
the amount of insurance coverage attributable to insured loans sold by the
lender, and the insurance coverage may be reduced for any FHA insurance claims
rejected by the FHA. The balance of the lender's FHA insurance coverage reserve
account will be further adjusted as required under Title I or by the FHA, and
the insurance coverage in that reserve account may be earmarked with respect to
each or any eligible loans insured thereunder, if a determination is made by the
Secretary of HUD that it is in its interest to do so. Origination and
acquisitions of new eligible loans will continue to increase a lender's
insurance coverage reserve account balance by 10% of the amount disbursed,
advanced or expended in originating or acquiring the eligible loans registered
with the FHA for insurance under the Title I Program. The Secretary of HUD may
transfer insurance coverage between insurance coverage reserve accounts with
earmarking with respect to a particular insured loan or group of insured loans
when a determination is made that it is in the Secretary's interest to do so.
The lender may transfer, except as collateral in a bona fide
transaction, insured loans and loans reported for insurance only to another
qualified lender under a valid Title I contract of insurance. Unless an insured
loan is transferred with recourse or with a guaranty or repurchase agreement,
the FHA, upon receipt of written notification of the transfer of that loan in
accordance with the Title I regulations, will transfer from the transferor's
insurance coverage reserve account to the transferee's insurance coverage
reserve account an amount, if available, equal to 10% of the actual purchase
price or the net unpaid principal balance of that loan--whichever is less.
However, under the Title I Program not more than $5,000 in insurance coverage
shall be transferred to or from a lender's insurance coverage reserve account
during any October 1 to September 30 period without the prior approval of the
Secretary of HUD.
Claims Procedures Under Title I. Under the Title I Program, the lender
may accelerate an insured loan following a default on that loan only after the
lender or its agent has contacted the borrower in a face-to-face meeting or by
telephone to discuss the reasons for the default and to seek its cure. If the
borrower does not cure the default or agree to a modification agreement or
repayment plan, the lender will notify the borrower in writing that, unless
within 30 days the default is cured or the borrower enters into a modification
agreement or repayment plan, the loan will be accelerated and that, if the
default persists, the lender will report the default to an appropriate credit
agency. The lender may rescind the acceleration of maturity after full payment
is due and reinstate the loan only if the borrower brings the loan current,
executes a modification agreement or agrees to an acceptable repayment plan.
Following acceleration of maturity upon a secured Title I Loan, the
lender may either (a) proceed against the property under any security
instrument, or (b) make a claim under the lender's contract of insurance. If the
lender chooses to proceed against the property under a security instrument, or
if it accepts a voluntary conveyance or surrender of the property, the lender
may file an insurance claim only with the prior approval of the Secretary of
HUD.
When a lender files an insurance claim with the FHA under the Title I
Program, the FHA reviews the claim, the complete loan file and documentation of
the lender's efforts to obtain recourse against any dealer who has agreed to
provide recourse, certification of compliance with applicable state and local
laws in carrying out any foreclosure or repossession, and evidence that the
lender has properly filed proofs of claims where the borrower is bankrupt or
deceased. Generally, a claim for reimbursement for loss on any Title I Loan must
be filed with the FHA no later than nine months after the date of default of
that loan. Concurrently with filing the insurance claim, the lender shall assign
to the United States of America the lender's entire interest in the loan note,
or a judgment in lieu of the note, in any security held and in any claim filed
in any legal proceedings. If, at the time the note is assigned to the United
States, the Secretary has reason to believe that the note is not valid or
enforceable against the borrower, the FHA may deny the claim and reassign the
note to the lender. If either defect is discovered after the FHA has paid a
claim, the FHA may require the lender to repurchase the paid claim and to accept
a reassignment of the loan note. If the lender subsequently obtains a valid and
enforceable judgment against the borrower, the lender may resubmit a new
insurance claim with an assignment of the judgment. The FHA may contest any
insurance claim and make a demand for repurchase of the loan at any time up to
two years from the date the claim was certified for payment and may do so
thereafter in the event of fraud or misrepresentation on the part of the lender.
Under the Title I Program the amount of an FHA insurance claim payment,
when made, is equal to the claimable amount, up to the amount of insurance
coverage in the lender's insurance coverage reserve account. For the purposes
hereof, the claimable amount means an amount equal to 90% of the sum of:
(a) the unpaid loan obligation, net unpaid principal and the uncollected
interest earned to the date of default, with adjustments to the unpaid
loan obligation if the lender has proceeded against property securing
that loan;
(b) the interest on the unpaid amount of the loan obligation from the
date of default to the date of the claim's initial submission for
payment plus 15 calendar days, but not to exceed 9 months from the
date of default, calculated at the rate of 7% per annum;
(c) the uncollected court costs;
(d) the attorney's fees not to exceed $500; and
(e) the expenses for recording the assignment of the security to the
United States.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws impose substantive
requirements upon mortgage lenders in connection with the origination, servicing
and enforcement of the loans that will be included in a trust fund. These laws
include the federal Truth-in-Lending Act and Regulation Z promulgated
thereunder, Real Estate Settlement Procedures Act and Regulation B promulgated
thereunder, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit
Reporting Act and related statutes and regulations. In particular, Regulation Z
requires disclosures to the borrowers regarding the terms of the loans; the
Equal Credit Opportunity Act and Regulation B promulgated thereunder prohibit
discrimination on the basis of age, race, color, sex, religion, marital status,
national origin, receipt of public assistance or the exercise of any right under
the Consumer Credit Protection Act, in the extension of credit; and the Fair
Credit Reporting Act regulates the use and reporting of information related to
the borrower's credit experience. Particular provisions of these laws impose
specific statutory liabilities upon lenders who fail to comply therewith. In
addition, violations of those laws may limit the ability of the originators to
collect all or part of the principal of or interest on the loans and could
subject the originators and in some case their assignees to damages and
administrative enforcement.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the material federal income tax
consequences of the purchase, ownership, and disposition of the securities and
is based on advice of Brown & Wood LLP, special counsel to the depositor. The
summary is based upon the provisions of the Code, the regulations promulgated
thereunder, including, where applicable, proposed regulations, and the judicial
and administrative rulings and decisions now in effect, all of which are subject
to change or possible differing interpretations. The statutory provisions,
regulations, and interpretations on which this interpretation is based are
subject to change, and that type of a change could apply retroactively.
The summary does not purport to deal with all aspects of federal income
taxation that may affect particular investors in light of their individual
circumstances, nor with particular types of investors subject to special
treatment under the federal income tax laws. This summary focuses primarily upon
investors who will hold securities as "capital assets", generally, property held
for investment, within the meaning of Section 1221 of the Code, but much of the
discussion is applicable to other investors as well. Prospective investors are
advised to consult their own tax advisers concerning the federal, state, local
and any other tax consequences to them of the purchase, ownership and
disposition of the securities.
The federal income tax consequences to holders of securities will vary
depending on whether:
(1) the securities of a series are classified as indebtedness;
(2) an election is made to treat the trust fund relating to a particular
series of securities as a REMIC under the Internal Revenue Code of
1986, as amended, or the Code;
(3) the securities represent an ownership interest in some or all of the
assets included in the trust fund for a series; or
(4) the trust fund relating to a particular series of certificates is
treated as a partnership.
The prospectus supplement for each series of securities will specify how the
securities will be treated for federal income tax purposes and will discuss
whether a REMIC election, if any, will be made with respect to that series.
Prior to issuance of each series of securities, the depositor shall file with
the SEC a Form 8-K on behalf of the related trust fund containing an opinion of
counsel to the depositor with respect to the validity of the information set
forth under "Federal Income Tax Consequences" in this prospectus and in the
related prospectus supplement.
TAXATION OF DEBT SECURITIES
General. If securities of a series being issued as certificates or
notes are structured as indebtedness secured by the assets of the trust fund,
assuming compliance with all provisions of the related documents and applicable
law, Brown & Wood LLP, special counsel to the depositor, is of the opinion that
the securities will be treated as debt for United States federal income tax
purposes, and at the time those securities are issued will deliver an opinion
generally to that effect.
Status as Real Property Loans. Except to the extent otherwise provided
in the related prospectus supplement, special counsel to the depositor
identified in the prospectus supplement will have advised the depositor that:
(1) Securities held by a domestic building and loan association will
constitute "loans...secured by an interest in real property" within
the meaning of Code Section 7701(a)(19)(C)(v);
(2) Securities held by a real estate investment trust will constitute
"real estate assets" within the meaning of Code Section 856(c)(4)(A
and interest on securities will be considered "interest on obligations
secured by mortgages on real property or on interests in real
property" within the meaning of Code Section 856(c)(3)(B); and
(3) Securities representing interests in obligations secured by
manufactured housing treated as single family residences under Code
Section 25(e)(10) will be considered interests in "qualified
mortgages" as defined in Code Section 860G(a)(3).
The Small Business Job Protection Act of 1996, as part of the repeal of
the bad debt reserve method for thrift institutions, repealed the application of
Code Section 593(d) to any taxable year beginning after December 31, 1995.
Interest and Acquisition Discount. Securities representing regular
interests in a REMIC are generally taxable to holders in the same manner as
evidences of indebtedness issued by the REMIC. Stated interest on the Regular
Interest Securities will be taxable as ordinary income and taken into account
using the accrual method of accounting, regardless of the holder's normal
accounting method. Interest, other than OID, on securities, other than Regular
Interest Securities, that are characterized as indebtedness for federal income
tax purposes will be includible in income by holders thereof in accordance with
their usual methods of accounting. Securities characterized as debt for federal
income tax purposes and Regular Interest Securities will be referred to
collectively as "Debt Securities."
Debt Securities that are Compound Interest Securities--Generally,
securities all or a portion of the interest on which is not paid
currently--will, and some of the other Debt Securities may, be issued with OID.
The following discussion is based in part on the OID Regulations governing OID
which are set forth in Sections 1271-1275 of the Code and the Treasury
regulations issued thereunder on February 2, 1994. A holder of Debt Securities
should be aware, however, that the OID Regulations do not adequately address
some issues relevant to prepayable securities, such as the Debt Securities.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Debt Security and its issue price. A holder of
a Debt Security must include OID in gross income as ordinary interest income as
it accrues under a method taking into account an economic accrual of the
discount. In general, OID must be included in income in advance of the receipt
of the cash representing that income. The amount of OID on a Debt Security will
be considered to be zero if it is less than a de minimis amount determined under
the Code.
The issue price of a Debt Security is the first price at which a
substantial amount of Debt Securities of that class are sold to the public,
excluding bond houses, brokers, underwriters or wholesalers. If less than a
substantial amount of a particular class of Debt Securities is sold for cash on
or prior to the related closing date, the issue price for that class will be
treated as the fair market value of that class on that closing date. The issue
price of a Debt Security also includes the amount paid by an initial Debt
Security holder for accrued interest that relates to a period prior to the issue
date of the Debt Security. The stated redemption price at maturity of a Debt
Security includes the original principal amount of the Debt Security, but
generally will not include distributions of interest if those distributions
constitute "qualified stated interest."
Under the OID Regulations, qualified stated interest generally means
interest payable at a single fixed rate or qualified variable rate, as described
in this prospectus, provided that those interest payments are unconditionally
payable at intervals of one year or less during the entire term of the Debt
Security. The OID Regulations state that interest payments are unconditionally
payable only if a late payment or nonpayment is expected to be penalized or
reasonable remedies exist to compel payment. Some Debt Securities may provide
for default remedies in the event of late payment or nonpayment of interest. The
interest on those Debt Securities will be unconditionally payable and constitute
qualified stated interest, not OID. However, absent clarification of the OID
Regulations, where Debt Securities do not provide for default remedies, the
interest payments will be included in the Debt Security's stated redemption
price at maturity and taxed as OID. Interest is payable at a single fixed rate
only if the rate appropriately takes into account the length of the interval
between payments. Distributions of interest on Debt Securities with respect to
which deferred interest will accrue, will not constitute qualified stated
interest payments, in which case the stated redemption price at maturity of
those Debt Securities includes all distributions of interest as well as
principal on those Debt Securities. Where the interval between the issue date
and the first distribution date on a Debt Security is either longer or shorter
than the interval between subsequent distribution dates, all or part of the
interest foregone, in the case of the longer interval, and all of the additional
interest, in the case of the shorter interval, will be included in the stated
redemption price at maturity and tested under the de minimis rule described in
this prospectus. In the case of a Debt Security with a long first period which
has non-de minimis OID, all stated interest in excess of interest payable at the
effective interest rate for the long first period will be included in the stated
redemption price at maturity and the Debt Security will generally have OID.
Holders of Debt Securities should consult their own tax advisors to determine
the issue price and stated redemption price at maturity of a Debt Security.
Under the de minimis rule OID on a Debt Security will be considered to
be zero if the OID is less than 0.25% of the stated redemption price at maturity
of the Debt Security multiplied by the weighted average maturity of the Debt
Security. For this purpose, the weighted average maturity of the Debt Security
is computed as the sum of the amounts determined by multiplying the number of
full years -- i.e., rounding down partial years -- from the issue date until
each distribution in reduction of stated redemption price at maturity is
scheduled to be made by a fraction, the numerator of which is the amount of each
distribution included in the stated redemption price at maturity of the Debt
Security and the denominator of which is the stated redemption price at maturity
of the Debt Security. Holders generally must report de minimis OID pro rata as
principal payments are received, and that income will be capital gain if the
Debt Security is held as a capital asset. However, accrual method holders may
elect to accrue all de minimis OID as well as market discount under a constant
interest method.
Debt Securities may provide for interest based on a qualified variable
rate. Under the OID Regulations, interest is treated as payable at a qualified
variable rate and not as contingent interest if, generally:
(1) the interest is unconditionally payable at least annually at a
"current value" of the index,
(2) the issue price of the debt instrument does not exceed the total
noncontingent principal payments,
(3) interest is based on a "qualified floating rate," an "objective rate,"
or a combination of "qualified floating rates" that do not operate in
a manner that significantly accelerates or defers interest payments
on that Debt Security and
(4) the principal payments are not contingent.
In the case of Compound Interest Securities, some Interest Weighted Securities,
and other Debt Securities, none of the payments under the instrument will be
considered qualified stated interest, and thus the aggregate amount of all
payments will be included in the stated redemption price.
In addition, the IRS has issued regulations the Contingent Regulations)
governing the calculation of OID on instruments having contingent interest
payments. The Contingent Regulations specifically do not apply for purposes of
calculating OID on debt instruments subject to Code Section 1272(a)(6), such as
the Debt Securities. Additionally, the OID Regulations do not contain provisions
specifically interpreting Code Section 1272(a)(6). Until the Treasury issues
guidance to the contrary, the Trustee intends to base its computation on Code
Section 1272(a)(6) and the OID Regulations as described in this prospectus.
However, because no regulatory guidance currently exists under Code Section
1272(a)(6), there can be no assurance that the methodology represents the
correct manner of calculating OID.
The holder of a Debt Security issued with OID must include in gross
income, for all days during its taxable year on which it holds the Debt
Security, the sum of the "daily portions" of that OID. The daily portion of OID
includible in income by a holder will be computed by allocating to each day
during a taxable year a pro rata portion of the OID that accrued during the
relevant accrual period. In the case of a Debt Security that is not a Regular
Interest Security and the principal payments on which are not subject to
acceleration resulting from prepayments on the trust fund accounts, the amount
of OID for an accrual period, which is generally the period over which interest
accrues on the debt instrument, will equal the product of the yield to maturity
of the Debt Security and the adjusted issue price of the Debt Security on the
first day of that accrual period, reduced by any payments of qualified stated
interest allocable to that accrual period. The adjusted issue price of a Debt
Security on the first day of an accrual period is the sum of the issue price of
the Debt Security plus prior accruals of OID, reduced by the total payments made
with respect to that Debt Security on or before the first day of that accrual
period, other than qualified stated interest payments.
The amount of OID to be included in income by a holder of a Pay-Through
Security, like some classes of the Debt Securities, that is subject to
acceleration due to prepayments on other debt obligations securing those
instruments, is computed by taking into account the Prepayment Assumption rate
of prepayments assumed in pricing the debt instrument. The amount of OID that
will accrue during an accrual period on a Pay-Through Security is the excess, if
any, of the sum of (a) the present value of all payments remaining to be made on
the Pay-Through Security as of the close of the accrual period and (b) the
payments during the accrual period of amounts included in the stated redemption
price at maturity of the Pay-Through Security, over the adjusted issue price of
the Pay-Through Security at the beginning of the accrual period. The present
value of the remaining payments is to be determined on the basis of three
factors: (1) the original yield to maturity of the Pay-Through Security
determined on the basis of compounding at the end of each accrual period and
properly adjusted for the length of the accrual period, (2) events which have
occurred before the end of the accrual period and (3) the assumption that the
remaining payments will be made in accordance with the original Prepayment
Assumption. The effect of this method is to increase the portions of OID
required to be included in income by a holder of a Pay-Through Security to take
into account prepayments with respect to the loans at a rate that exceeds the
Prepayment Assumption, and to decrease, but not below zero for any period, the
portions of original issue discount required to be included in income by a
holder of a Pay-Through Security to take into account prepayments with respect
to the loans at a rate that is slower than the Prepayment Assumption. Although
original issue discount will be reported to holders of Pay-Through Securities
based on the Prepayment Assumption, no representation is made to holders of
Pay-Through Securities that loans will be prepaid at that rate or at any other
rate.
The depositor may adjust the accrual of OID on a class of Regular
Interest Securities, or other regular interests in a REMIC, in a manner that it
believes to be appropriate, to take account of realized losses on the loans,
although the OID Regulations do not provide for those adjustments. If the IRS
were to require that OID be accrued without those adjustments, the rate of
accrual of OID for a class of Regular Interest Securities could increase.
Some classes of Regular Interest Securities may represent more than one
class of REMIC regular interests. The trustee intends, based on the OID
Regulations, to calculate OID on those securities as if, solely for the purposes
of computing OID, the separate regular interests were a single debt instrument
unless the related prospectus supplement specifies that the trustee will treat
the separate regular interests separately.
A subsequent holder of a Debt Security will also be required to include
OID in gross income, but a subsequent holder who purchases that Debt Security
for an amount that exceeds its adjusted issue price will be entitled, as will an
initial holder who pays more than a Debt Security's issue price, to offset the
OID by comparable economic accruals of portions of that excess.
Effects of Defaults and Delinquencies. Holders of securities will be
required to report income with respect to the related securities under an
accrual method without giving effect to delays and reductions in distributions
attributable to a default or delinquency on the trust fund assets, except
possibly to the extent that it can be established that the amounts are
uncollectible. As a result, the amount of income, including OID, reported by a
holder of a security in any period could significantly exceed the amount of cash
distributed to that holder in that period. The holder will eventually be allowed
a loss (or will be allowed to report a lesser amount of income) to the extent
that the aggregate amount of distributions on the securities is deducted as a
result of a trust fund asset default. However, the timing and character of
losses or reductions in income are uncertain and, accordingly, holders of
securities should consult their own tax advisors on this point.
Interest Weighted Securities. It is not clear how income should be
accrued with respect to Regular Interest Securities or Stripped Securities the
payments on which consist solely or primarily of a specified portion of the
interest payments on qualified mortgages held by the REMIC or on loans
underlying Pass-Through Securities. The depositor intends to take the position
that all of the income derived from an Interest Weighted Security should be
treated as OID and that the amount and rate of accrual of that OID should be
calculated by treating the Interest Weighted Security as a Compound Interest
Security. However, in the case of Interest Weighted Securities that are entitled
to some payments of principal and that are Regular Interest Securities, the IRS
could assert that income derived from an Interest Weighted Security should be
calculated as if the security were a security purchased at a premium equal to
the excess of the price paid by the holder for that security over its stated
principal amount, if any. Under this approach, a holder would be entitled to
amortize the premium only if it has in effect an election under Section 171 of
the Code with respect to all taxable debt instruments held by that holder, as
described in this prospectus. Alternatively, the IRS could assert that an
Interest Weighted Security should be taxable under the rules governing bonds
issued with contingent payments. This treatment may be more likely in the case
of Interest Weighted Securities that are Stripped Securities as described in
this prospectus. See "--Tax Status as a Grantor Trust -- Discount or Premium on
Pass-Through Securities."
Variable Rate Debt Securities. In the case of Debt Securities bearing
interest at a rate that varies directly, according to a fixed formula, with an
objective index, it appears that (1) the yield to maturity of those Debt
Securities and (2) in the case of Pay-Through Securities, the present value of
all payments remaining to be made on those Debt Securities, should be calculated
as if the interest index remained at its value as of the issue date of those
securities. Because the proper method of adjusting accruals of OID on a variable
rate Debt Security is uncertain, holders of variable rate Debt Securities should
consult their own tax advisers regarding the appropriate treatment of those
securities for federal income tax purposes.
Market Discount. A purchaser of a security may be subject to the market
discount rules of Sections 1276-1278 of the Code. A holder of a Debt Security
that acquires a Debt Security with more than a prescribed de minimis amount of
"market discount" -- generally, the excess of the principal amount of the Debt
Security over the purchaser's purchase price -- will be required to include
accrued market discount in income as ordinary income in each month, but limited
to an amount not exceeding the principal payments on the Debt Security received
in that month and, if the securities are sold, the gain realized. The market
discount would accrue in a manner to be provided in Treasury regulations but,
until those regulations are issued, the market discount would in general accrue
either (1) on the basis of a constant yield, in the case of a Pay-Through
Security, taking into account a prepayment assumption, or (2) in the ratio of
(a) in the case of securities, or in the case of a Pass-Through Security, as set
forth below, the loans underlying that security, not originally issued with
original issue discount, stated interest payable in the relevant period to total
stated interest remaining to be paid at the beginning of the period or (b) in
the case of securities, or, in the case of a Pass-Through Security, as described
in this prospectus, the loans underlying that security, originally issued at a
discount, OID in the relevant period to total OID remaining to be paid.
Section 1277 of the Code provides that, regardless of the origination
date of the Debt Security, or, in the case of a Pass-Through Security, the
loans, the excess of interest paid or accrued to purchase or carry a security,
or, in the case of a Pass-Through Security, as described in this prospectus, the
underlying loans, with market discount over interest received on that security
is allowed as a current deduction only to the extent the excess is greater than
the market discount that accrued during the taxable year in which the interest
expense was incurred. In general, the deferred portion of any interest expense
will be deductible when the market discount is included in income, including
upon the sale, disposition, or repayment of the security, or in the case of a
Pass-Through Security, an underlying loan. A holder may elect to include market
discount in income currently as it accrues, on all market discount obligations
acquired by the holder during the taxable year the election is made and
thereafter, in which case the interest deferral rule will not apply.
Premium. A holder who purchases a Debt Security, other than an Interest
Weighted Security to the extent described above, at a cost greater than its
stated redemption price at maturity, generally will be considered to have
purchased the security at a premium, which it may elect to amortize as an offset
to interest income on the security, and not as a separate deduction item, on a
constant yield method. Although no regulations addressing the computation of
premium accrual on securities similar to the securities have been issued, the
legislative history of the Tax Reform Act of 1986, or the 1986 Act, indicates
that premium is to be accrued in the same manner as market discount.
Accordingly, it appears that the accrual of premium on a class of Pay-Through
Securities will be calculated using the prepayment assumption used in pricing
that class. If a holder of a Debt Security makes an election to amortize premium
on a Debt Security, that election will apply to all taxable debt instruments,
including all REMIC regular interests and all pass-through certificates
representing ownership interests in a trust holding debt obligations, held by
the holder at the beginning of the taxable year in which the election is made,
and to all taxable debt instruments acquired thereafter by the holder, and will
be irrevocable without the consent of the IRS. Purchasers who pay a premium for
the securities should consult their tax advisers regarding the election to
amortize premium and the method to be employed.
The IRS has issued Amortizable Bond Premium Regulations dealing with
amortizable bond premium. These regulations specifically do not apply to
prepayable debt instruments subject to Code Section 1272(a)(6) like the
securities. Absent further guidance from the IRS, the trustee intends to account
for amortizable bond premium in the manner described above. Prospective
purchasers of the securities should consult their tax advisors regarding the
possible application of the Amortizable Bond Premium Regulations.
Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit a holder of a Debt Security to elect to accrue all interest,
discount, including de minimis market or original issue discount, and premium in
income as interest, based on a constant yield method for Debt Securities
acquired on or after April 4, 1994. If that election were to be made with
respect to a Debt Security with market discount, the holder of the Debt Security
would be deemed to have made an election to include in income currently market
discount with respect to all other debt instruments having market discount that
the holder of the Debt Security acquires during the year of the election or
thereafter. Similarly, a holder of a Debt Security that makes this election for
a Debt Security that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that the holder owns or acquires. The election to
accrue interest, discount and premium on a constant yield method with respect to
a Debt Security is irrevocable.
TAXATION OF THE REMIC AND ITS HOLDERS
General. If a REMIC election is made with respect to a series of
securities, then upon the issuance of those securities, assuming the election is
properly made, the provisions of the applicable agreements are compiled with,
and the statutory and regulatory requirements are satisfied, Brown & Wood LLP,
special counsel to the depositor, is of the opinion that the arrangement by
which the securities of that series are issued will be treated as a REMIC. At
the time the securities are issued will deliver an opinion generally to that
effect and to the effect that the securities designated as "regular interests"
in the REMIC will be regular interests in a REMIC and will be treated as
indebtedness issued by the REMIC, and that the securities designated as the sole
class of "residual interests" in the REMIC will be treated as the "residual
interest" in the REMIC for United States federal income tax purposes for as long
as all of the provisions of the applicable agreement are complied with and the
statutory and regulatory requirements are satisfied. Securities will be
designated as "Regular Interests" or "Residual Interests" in a REMIC, as
specified in the related prospectus supplement.
Except to the extent specified otherwise in a prospectus supplement, if
a REMIC election is made with respect to a series of securities, (1) securities
held by a domestic building and loan association will constitute "a regular or a
residual interest in a REMIC" within the meaning of Code Section
7701(a)(19)(C)(xi), assuming that at least 95% of the REMIC's assets consist of
cash, government securities, "loans secured by an interest in real property,"
and other types of assets described in Code Section 7701(a)(19)(C); and (2)
securities held by a real estate investment trust will constitute "real estate
assets" within the meaning of Code Section 856(c)(5)(B), and income with respect
to the securities will be considered "interest on obligations secured by
mortgages on real property or on interests in real property" within the meaning
of Code Section 856(c)(3)(B), assuming, for both purposes, that at least 95% of
the REMIC's assets are qualifying assets, and (3) effective September 1, 1997,
Regular Interest Securities held by a FASIT will qualify for treatment as
"permitted assets" within the meaning of section 860L(c)(1)(G) of the Code. If
less than 95% of the REMIC's assets consist of assets described in (1) or (2)
above, then a security will qualify for the tax treatment described in (1) or
(2) in the proportion that those REMIC assets are qualifying assets.
Status of Manufactured Housing Contracts. The REMIC Regulations provide
that obligations secured by interests in manufactured housing that qualify as
"single family residences" within the meaning of Code Section 25(e)(10) may be
treated as "qualified mortgages" of the REMIC.
Under Section 25(e)(10), the term "single family residence" includes
any manufactured home which has a minimum of 400 square feet of living space, a
minimum width in excess of 102 inches and which is a kind customarily used at a
fixed location.
The Small Business Job Protection Act of 1996, as part of the repeal of
the bad debt reserve method for thrift institutions, repealed the application of
Code Section 593(d) to any taxable year beginning after December 31, 1995.
REMIC EXPENSES; SINGLE CLASS REMICS
As a general rule, all of the expenses of a REMIC will be taken into
account by holders of the Residual Interest Securities. In the case of a "single
class REMIC," however, the expenses will be allocated, under Treasury
regulations, among the holders of the Regular Interest Securities and the
holders of the Residual Interest Securities on a daily basis in proportion to
the relative amounts of income accruing to each holder of a Residual Interest
Security or Regular Interest Security on that day. In the case of a holder of a
Regular Interest Security who is an individual or a "pass-through interest
holder", including some pass-through entities but not including real estate
investment trusts, the expenses will be deductible only to the extent that those
expenses, plus other "miscellaneous itemized deductions" of the holder of a
Regular Interest Security, exceed 2% of the holder's adjusted gross income. In
addition, the amount of itemized deductions otherwise allowable for the taxable
year for an individual whose adjusted gross income exceeds the applicable
amount, which amount will be adjusted for inflation for taxable years beginning
after 1990, will be reduced by the lesser of (1) 3% of the excess of adjusted
gross income over the applicable amount, or (2) 80% of the amount of itemized
deductions otherwise allowable for that taxable year. The reduction or
disallowance of this deduction may have a significant impact on the yield of the
Regular Interest Security to a holder. In general terms, a single class REMIC is
one that either (1) would qualify, under existing Treasury regulations, as a
grantor trust if it were not a REMIC, treating all interests as ownership
interests, even if they would be classified as debt for federal income tax
purposes, or (2) is similar to a grantor trust and which is structured with the
principal purpose of avoiding the single class REMIC rules. In general the
expenses of the REMIC will be allocated to holders of the related Residual
Interest Securities. The prospectus supplement, however, may specify another
entity to whom the expenses of the REMIC may be allocated.
TAXATION OF THE REMIC
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level tax. Rather, the
taxable income or net loss of a REMIC is taken into account by the holders of
residual interests in the REMIC. As described above, the regular interests are
generally taxable as debt of the REMIC.
Calculation of REMIC Income. The taxable income or net loss of a REMIC
is determined under an accrual method of accounting and in the same manner as in
the case of an individual, with adjustments. In general, the taxable income or
net loss will be the difference between (1) the gross income produced by the
REMIC's assets, including stated interest and any original issue discount or
market discount on loans and other assets, and (2) deductions, including stated
interest and original issue discount accrued on Regular Interest Securities,
amortization of any premium with respect to loans, and servicing fees and other
expenses of the REMIC. A holder of a Residual Interest Security that is an
individual or a "pass-through interest holder", including some pass-through
entities, but not including real estate investment trusts, will be unable to
deduct servicing fees payable on the loans or other administrative expenses of
the REMIC for a given taxable year, to the extent that those expenses, when
aggregated with that holder's other miscellaneous itemized deductions for that
year, do not exceed two percent of that holder's adjusted gross income.
For purposes of computing its taxable income or net loss, the REMIC
should have an initial aggregate tax basis in its assets equal to the aggregate
fair market value of the regular interests and the residual interests on the
startup day, generally, the day that the interests are issued. That aggregate
basis will be allocated among the assets of the REMIC in proportion to their
respective fair market values.
The OID provisions of the Code apply to loans of individuals originated
on or after March 2, 1984, and the market discount provisions apply to loans
originated after July 18, 1984. Subject to possible application of the de
minimis rules, the method of accrual by the REMIC of OID income on those loans
will be equivalent to the method under which holders of Pay-Through Securities
accrue original issue discount -- i.e., under the constant yield method taking
into account the Prepayment Assumption. The REMIC will deduct OID on the Regular
Interest Securities in the same manner that the holders of the Regular Interest
Securities include the discount in income, but without regard to the de minimis
rules. See "Federal Income Tax Consequences -- General" above. However, a REMIC
that acquires loans at a market discount must include the market discount in
income currently, as it accrues, on a constant interest basis.
To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the life
of the loans, taking into account the Prepayment Assumption, on a constant yield
method. Although the law is somewhat unclear regarding recovery of premium
attributable to loans originated on or before that date, it is possible that the
premium may be recovered in proportion to payments of loan principal.
Prohibited Transactions and Contributions Tax. The REMIC will be
subject to a 100% tax on any net income derived from a "prohibited transaction."
For this purpose, net income will be calculated without taking into account any
losses from prohibited transactions or any deductions attributable to any
prohibited transaction that resulted in a loss. In general, prohibited
transactions include:
(1) subject to limited exceptions, the sale or other disposition of any
qualified mortgage transferred to the REMIC;
(2) subject to a limited exception, the sale or other disposition of a
cash flow investment;
(3) the receipt of any income from assets not permitted to be held by the
REMIC pursuant to the Code; or
(4) the receipt of any fees or other compensation for services rendered
by the REMIC.
It is anticipated that a REMIC will not engage in any prohibited transactions in
which it would recognize a material amount of net income. In addition, subject
to a number of exceptions, a tax is imposed at the rate of 100% on amounts
contributed to a REMIC after the close of the three-month period beginning on
the startup day. The holders of Residual Interest Securities will generally be
responsible for the payment of any taxes for prohibited transactions imposed on
the REMIC. To the extent not paid by those holders or otherwise, however, taxes
that will be paid out of the trust fund and will be allocated pro rata to all
outstanding classes of securities of that REMIC.
TAXATION OF HOLDERS OF RESIDUAL INTEREST SECURITIES
The holder of a Residual Interest Security will take into account the
"daily portion" of the taxable income or net loss of the REMIC for each day
during the taxable year on which that holder held the Residual Interest
Security. The daily portion is determined by allocating to each day in any
calendar quarter its ratable portion of the taxable income or net loss of the
REMIC for that quarter, and by allocating that amount among the holders, on that
day, of the Residual Interest Securities in proportion to their respective
holdings on that day.
The holder of a Residual Interest Security must report its
proportionate share of the taxable income of the REMIC whether or not it
receives cash distributions from the REMIC attributable to the income or loss.
The reporting of taxable income without corresponding distributions could occur,
for example, in some REMIC issues in which the loans held by the REMIC were
issued or acquired at a discount, since mortgage prepayments cause recognition
of discount income, while the corresponding portion of the prepayment could be
used in whole or in part to make principal payments on REMIC Regular Interests
issued without any discount or at an insubstantial discount -- if this occurs,
it is likely that cash distributions will exceed taxable income in later years.
Taxable income may also be greater in earlier years of some REMIC issues as a
result of the fact that interest expense deductions, as a percentage of
outstanding principal on REMIC Regular Interest Securities, will typically
increase over time as lower yielding securities are paid, whereas interest
income with respect to loans will generally remain constant over time as a
percentage of loan principal.
In any event, because the holder of a residual interest is taxed on the
net income of the REMIC, the taxable income derived from a Residual Interest
Security in a given taxable year will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pretax yield. Therefore, the after-tax
yield on the Residual Interest Security may be less than that of a corporate
bond or stripped instrument having similar cash flow characteristics and Pretax
Yield.
Limitation on Losses. The amount of the REMIC's net loss that a holder
may take into account currently is limited to the holder's adjusted basis at the
end of the calendar quarter in which that loss arises. A holder's basis in a
Residual Interest Security will initially equal that holder's purchase price,
and will subsequently be increased by the amount of the REMIC's taxable income
allocated to the holder, and decreased, but not below zero, by the amount of
distributions made and the amount of the REMIC's net loss allocated to the
holder. Any disallowed loss may be carried forward indefinitely, but may be used
only to offset income of the REMIC generated by the same REMIC. The ability of
holders of Residual Interest Securities to deduct net losses may be subject to
additional limitations under the Code, as to which those holders should consult
their tax advisers.
Distributions. Distributions on a Residual Interest Security, whether
at their scheduled times or as a result of prepayments, will generally not
result in any additional taxable income or loss to a holder of a Residual
Interest Security. If the amount of a payment exceeds a holder's adjusted basis
in the Residual Interest Security, however, the holder will recognize gain,
treated as gain from the sale of the Residual Interest Security, to the extent
of the excess.
Sale or Exchange. A holder of a Residual Interest Security will
recognize gain or loss on the sale or exchange of a Residual Interest Security
equal to the difference, if any, between the amount realized and that holder's
adjusted basis in the Residual Interest Security at the time of the sale or
exchange. Except to the extent provided in regulations which have not yet been
issued, any loss upon disposition of a Residual Interest Security will be
disallowed if the selling holder acquires any residual interest in a REMIC or
similar mortgage pool within six months before or after disposition.
Excess Inclusions. The portion of the REMIC taxable income of a holder
of a Residual Interest Security consisting of "excess inclusion" income may not
be offset by other deductions or losses, including net operating losses, on that
holder's federal income tax return. Further, if the holder of a Residual
Interest Security is an organization subject to the tax on unrelated business
income imposed by Code Section 511, that holder's excess inclusion income will
be treated as unrelated business taxable income of that holder. In addition,
under Treasury regulations yet to be issued, if a real estate investment trust,
a regulated investment company, a common trust fund, or some cooperatives were
to own a Residual Interest Security, a portion of dividends, or other
distributions, paid by the real estate investment trust, or other entity, would
be treated as excess inclusion income. If a Residual Security is owned by a
foreign person, excess inclusion income is subject to tax at a rate of 30% which
may not be reduced by treaty, is not eligible for treatment as "portfolio
interest" and is subject to additional limitations. See "-- Tax Treatment of
Foreign Investors." The Small Business Job Protection Act of 1996 eliminated the
special rule permitting Section 593 institutions to use net operating losses and
other allowable deductions to offset their excess inclusion income from REMIC
residual certificates that have "significant value" within the meaning of the
REMIC Regulations, effective for taxable years beginning after December 31,
1995, except with respect to residual certificates continuously held by a
Section 593 institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides
three rules for determining the effect on excess inclusions on the alternative
minimum taxable income of a residual holder. First, alternative minimum taxable
income for a residual holder is determined without regard to the special rule
that taxable income cannot be less than excess inclusions. Second, a residual
holder's alternative minimum taxable income for a tax year cannot be less than
excess inclusions for the year. Third, the amount of any alternative minimum tax
net operating loss deductions must be computed without regard to any excess
inclusions. These rules are effective for tax years beginning after December 31,
1995, unless a residual holder elects to have these rules apply only to tax
years beginning after August 20, 1996.
The excess inclusion portion of a REMIC's income is generally equal to
the excess, if any, of REMIC taxable income for the quarterly period allocable
to a Residual Interest Security, over the daily accruals for a quarterly period
of (1) 120% of the long term applicable federal rate on the startup day
multiplied by (2) the adjusted issue price of the Residual Interest Security at
the beginning of that quarterly period. The adjusted issue price of a Residual
Interest Security at the beginning of each calendar quarter will equal its issue
price, calculated in a manner analogous to the determination of the issue price
of a Regular Interest Security, increased by the aggregate of the daily accruals
for prior calendar quarters, and decreased, but not below zero, by the amount of
loss allocated to a holder and the amount of distributions made on the Residual
Interest Security before the beginning of the quarter. The long-term federal
rate, which is announced monthly by the Treasury Department, is an interest rate
that is based on the average market yield of outstanding marketable obligations
of the United States government having remaining maturities in excess of nine
years.
Under the REMIC Regulations, in some circumstances, transfers of
Residual Interest Securities may be disregarded. See "-- Restrictions on
Ownership and Transfer of Residual Interest Securities" and "-- Tax Treatment of
Foreign Investors" below.
Restrictions on Ownership and Transfer of Residual Interest Securities.
As a condition to qualification as a REMIC, reasonable arrangements must be made
to prevent the ownership of a REMIC residual interest by "Disqualified
Organization. Disqualified Organizations include the United States, any State or
political subdivision thereof, any foreign government, any international
organization, or any agency or instrumentality of any of the foregoing, a rural
electric or telephone cooperative described in Section 1381(a)(2)(C) of the
Code, or any entity exempt from the tax imposed by Sections 1-1399 of the Code,
if that entity is not subject to tax on its unrelated business income.
Accordingly, the applicable agreement will prohibit Disqualified Organizations
from owning a Residual Interest Security. In addition, no transfer of a Residual
Interest Security will be permitted unless the proposed transferee shall have
furnished to the trustee an affidavit representing and warranting that it is
neither a Disqualified Organization nor an agent or nominee acting on behalf of
a Disqualified Organization.
If a Residual Interest Security is transferred to a Disqualified
Organization after March 31, 1988, in violation of the restrictions set forth
above, a substantial tax will be imposed on the transferor of that Residual
Interest Security at the time of the transfer. In addition, if a Disqualified
Organization holds an interest in a pass-through entity after March 31, 1988,
including, among others, a partnership, trust, real estate investment trust,
regulated investment company, or any person holding as nominee, that owns a
Residual Interest Security, the pass-through entity will be required to pay an
annual tax on its allocable share of the excess inclusion income of the REMIC.
Under the REMIC Regulations, if a Residual Interest Security is a
"noneconomic residual interest," as described in this prospectus, a transfer of
a Residual Interest Security to a United States person will be disregarded for
all Federal tax purposes unless no significant purpose of the transfer was to
impede the assessment or collection of tax. A Residual Interest Security is a
"noneconomic residual interest" unless, at the time of the transfer (1) the
present value of the expected future distributions on the Residual Interest
Security at least equals the product of the present value of the anticipated
excess inclusions and the highest rate of tax for the year in which the transfer
occurs, and (2) the transferor reasonably expects that the transferee will
receive distributions from the REMIC at or after the time at which the taxes
accrue on the anticipated excess inclusions in an amount sufficient to satisfy
the accrued taxes. If a transfer of a Residual Interest Security is disregarded,
the transferor would be liable for any Federal income tax imposed upon taxable
income derived by the transferee from the REMIC. The REMIC Regulations provide
no guidance as to how to determine if a significant purpose of a transfer is to
impede the assessment or collection of tax. A similar type of limitation exists
with respect to transfers of residual interests by foreign persons to United
States persons. See "-- Tax Treatment of Foreign Investors."
Mark to Market Rules. Under IRS regulations, a REMIC Residual Interest
Security acquired after January 3, 1995 cannot be marked-to-market.
ADMINISTRATIVE MATTERS
The REMIC's books must be maintained on a calendar year basis and the
REMIC must file an annual federal income tax return. The REMIC will also be
subject to the procedural and administrative rules of the Code applicable to
partnerships, including the determination of any adjustments to, among other
things, items of REMIC income, gain, loss, deduction, or credit, by the IRS in a
unified administrative proceeding.
TAX STATUS AS A GRANTOR TRUST
General. If the related prospectus supplement does not specify that an
election will be made to treat the assets of the trust fund as one or more
REMICs or to treat the trust fund as a partnership, then the depositor will have
structured the trust fund, or the portion of its assets for which a REMIC
election will not be made, to be classified for United States federal income tax
purposes as a grantor trust under Subpart E, Part I of Subchapter J of the Code,
in which case, Brown & Wood LLP, special counsel to the depositor, is of the
opinion that, assuming compliance with the agreements and with applicable law,
that arrangement will not be treated as an association taxable as a corporation
for United States federal income tax purposes, and the securities will be
treated as representing ownership interests in the related trust fund assets and
at the time those Pass-Through Securities are issued, special counsel to the
depositor will deliver an opinion generally to that effect. In some series there
will be no separation of the principal and interest payments on the loans. In
those circumstances, a holder of a Pass-Through Security will be considered to
have purchased a pro rata undivided interest in each of the loans. With Stripped
Securities, the sale of the securities will produce a separation in the
ownership of all or a portion of the principal payments from all or a portion of
the interest payments on the loans.
Each holder of a Pass-Through Security must report on its federal
income tax return its share of the gross income derived from the loans, not
reduced by the amount payable as fees to the trustee and the servicer and
similar fees, at the same time and in the same manner as those items would have
been reported under the holder's tax accounting method had it held its interest
in the loans directly, received directly its share of the amounts received with
respect to the loans, and paid directly its share of fees. In the case of
Pass-Through Securities other than Stripped Securities, that income will consist
of a pro rata share of all of the income derived from all of the loans and, in
the case of Stripped Securities, the income will consist of a pro rata share of
the income derived from each stripped bond or stripped coupon in which the
holder owns an interest. The holder of a security will generally be entitled to
deduct fees under Section 162 or Section 212 of the Code to the extent that
those fees represent "reasonable" compensation for the services rendered by the
trustee and the servicer, or third parties that are compensated for the
performance of services. In the case of a noncorporate holder, however, fees
payable to the trustee and the servicer to the extent not otherwise disallowed,
e.g., because they exceed reasonable compensation will be deductible in
computing the holder's regular tax liability only to the extent that those fees,
when added to other miscellaneous itemized deductions, exceed 2% of adjusted
gross income and may not be deductible to any extent in computing that holder's
alternative minimum tax liability. In addition, the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount, which amount will be
adjusted for inflation in taxable years beginning after 1990, will be reduced by
the lesser of (1) 3% of the excess of adjusted gross income over the applicable
amount or (2) 80% of the amount of itemized deductions otherwise allowable for
that taxable year.
Discount or Premium on Pass-Through Securities. The holder's purchase
price of a Pass-Through Security is to be allocated among the loans in
proportion to their fair market values, determined as of the time of purchase of
the securities. In the typical case, the trustee, to the extent necessary to
fulfill its reporting obligations, will treat each loan as having a fair market
value proportional to the share of the aggregate principal balances of all of
the loans that it represents, since the securities, unless otherwise specified
in the related prospectus supplement, will have a relatively uniform interest
rate and other common characteristics. To the extent that the portion of the
purchase price of a Pass-Through Security allocated to a loan, other than to a
right to receive any accrued interest on that Pass-Through Security and any
undistributed principal payments, is less than or greater than the portion of
the principal balance of the loan allocable to the security, the interest in the
loan allocable to the Pass-Through Security will be deemed to have been acquired
at a discount or premium, respectively.
The treatment of any discount will depend on whether the discount
represents OID or market discount. In the case of a loan with OID in excess of a
prescribed de minimis amount or a Stripped Security, a holder of a security will
be required to report as interest income in each taxable year its share of the
amount of OID that accrues during that year in the manner described above. OID
with respect to a loan could arise, for example, by virtue of the financing of
points by the originator of the loan, or by virtue of the charging of points by
the originator of the loan in an amount greater than a statutory de minimis
exception, in circumstances under which the points are not currently deductible
pursuant to applicable Code provisions. Any market discount or premium on a loan
will be includible in income, generally in the manner described above, except
that in the case of Pass-Through Securities, market discount is calculated with
respect to the loans underlying the security, rather than with respect to the
security. A holder of a security that acquires an interest in a loan originated
after July 18, 1984 with more than a de minimis amount of market discount,
generally, the excess of the principal amount of the loan over the purchaser's
allocable purchase price, will be required to include accrued market discount in
income in the manner set forth above. See "-- Taxation of Debt Securities;
Market Discount" and "-- Premium" above.
In the case of market discount on a Pass-Through Security attributable
to loans originated on or before July 18, 1984, the holder generally will be
required to allocate the portion of that discount that is allocable to a loan
among the principal payments on the loan and to include the discount allocable
to each principal payment in ordinary income at the time the principal payment
is made. That treatment would generally result in discount being included in
income at a slower rate than discount would be required to be included in income
using the method described in the preceding paragraph.
Stripped Securities. A Stripped Security may represent a right to
receive only a portion of the interest payments on the loans, a right to receive
only principal payments on the loans, or a right to receive payments of both
interest and principal. Ratio Strip Securities may represent a right to receive
differing percentages of both the interest and principal on each loan. Pursuant
to Section 1286 of the Code, the separation of ownership of the right to receive
some or all of the interest payments on an obligation from ownership of the
right to receive some or all of the principal payments results in the creation
of "stripped bonds" with respect to principal payments and "stripped coupons"
with respect to interest payments. Section 1286 of the Code applies the OID
rules to stripped bonds and stripped coupons. For purposes of computing original
issue discount, a stripped bond or a stripped coupon is treated as a debt
instrument issued on the date that the stripped interest is purchased with an
issue price equal to its purchase price or, if more than one stripped interest
is purchased, the ratable share of the purchase price allocable to that stripped
interest.
Servicing fees in excess of reasonable servicing fees, excess
servicing, will be treated under the stripped bond rules. If the excess
servicing fee is less than 100 basis points -- i.e., 1% interest on the loan
principal balance, or the securities are initially sold with a de minimis
discount, assuming no prepayment assumption is required, any non-de minimis
discount arising from a subsequent transfer of the securities should be treated
as market discount. The IRS appears to require that reasonable servicing fees be
calculated on a loan by loan basis, which could result in some loans being
treated as having more than 100 basis points of interest stripped off.
The Code, OID Regulations and judicial decisions provide no direct
guidance as to how the interest and original issue discount rules are to apply
to Stripped Securities and other Pass-Through Securities. Under the Cash Flow
Bond Method described above for Pay-Through Securities, a prepayment assumption
is used and periodic recalculations are made which take into account with
respect to each accrual period the effect of prepayments during that period.
However, the 1986 Act does not, absent Treasury regulations, appear specifically
to cover instruments such as the Stripped Securities which technically represent
ownership interests in the underlying loans, rather than being debt instruments
"secured by" those loans. Nevertheless, it is believed that the Cash Flow Bond
Method is a reasonable method of reporting income for those securities, and it
is expected that OID will be reported on that basis unless otherwise specified
in the related prospectus supplement. In applying the calculation to
Pass-Through Securities, the trustee will treat all payments to be received by a
holder with respect to the underlying loans as payments on a single installment
obligation. The IRS could, however, assert that original issue discount must be
calculated separately for each loan underlying a security.
Under some circumstances, if the loans prepay at a rate faster than the
Prepayment Assumption, the use of the Cash Flow Bond Method may accelerate a
holder's recognition of income. If, however, the loans prepay at a rate slower
than the Prepayment Assumption, in some circumstances the use of this method may
decelerate a holder's recognition of income.
In the case of a Stripped Security that is an Interest Weighted
Security, the trustee intends, absent contrary authority, to report income to
holders of securities as OID, in the manner described above for Interest
Weighted Securities.
Possible Alternative Characterizations. The characterizations of the
Stripped Securities described above are not the only possible interpretations of
the applicable Code provisions. Among other possibilities, the IRS could contend
that (1) in some series, each non-Interest Weighted Security is composed of an
unstripped undivided ownership interest in loans and an installment obligation
consisting of stripped principal payments; (2) the non-Interest Weighted
Securities are subject to the contingent payment provisions of the Contingent
Regulations; or (3) each Interest Weighted Stripped Security is composed of an
unstripped undivided ownership interest in loans and an installment obligation
consisting of stripped interest payments.
Given the variety of alternatives for treatment of the Stripped
Securities and the different federal income tax consequences that result from
each alternative, potential purchasers are urged to consult their own tax
advisers regarding the proper treatment of the securities for federal income tax
purposes.
Character as Qualifying Loans. In the case of Stripped Securities,
there is no specific legal authority existing regarding whether the character of
the securities, for federal income tax purposes, will be the same as the loans.
The IRS could take the position that the loans' character is not carried over to
the securities in those circumstances. Pass-Through Securities will be, and,
although the matter is not free from doubt, Stripped Securities should be,
considered to represent "real estate assets" within the meaning of Section
856(c)(5)(B) of the Code, and "loans secured by an interest in real property"
within the meaning of Section 7701(a)(19)(C)(v) of the Code; interest income
attributable to the securities should be considered to represent "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of Section 856(c)(3)(B) of the Code. Reserves or
funds underlying the securities may cause a proportionate reduction in the
above-described qualifying status categories of securities.
SALE OR EXCHANGE
Subject to the discussion below with respect to trust funds as to which
a partnership election is made, a holder's tax basis in its security is the
price a holder pays for a security, plus amounts of original issue or market
discount included in income and reduced by any payments received, other than
qualified stated interest payments, and any amortized premium. Gain or loss
recognized on a sale, exchange, or redemption of a security, measured by the
difference between the amount realized and the security's basis as so adjusted,
will generally be capital gain or loss, assuming that the security is held as a
capital asset. The capital gain or loss will generally be long-term capital gain
if a holder held the Security for more than one year prior to the disposition of
the security. In the case of a security held by a bank, thrift, or similar
institution described in Section 582 of the Code, however, gain or loss realized
on the sale or exchange of a Regular Interest Security will be taxable as
ordinary income or loss. In addition, gain from the disposition of a Regular
Interest Security that might otherwise be capital gain will be treated as
ordinary income to the extent of the excess, if any, of (1) the amount that
would have been includible in the holder's income if the yield on a Regular
Interest Security had equaled 110% of the applicable federal rate as of the
beginning of the holder's holding period, over (2) the amount of ordinary income
actually recognized by the holder with respect to the Regular Interest Security.
MISCELLANEOUS TAX ASPECTS
Backup Withholding. Subject to the discussion below with respect to
trust funds as to which a partnership election is made, a holder of a security,
other than a holder of a REMIC Residual Security, may, under some circumstances,
be subject to "backup withholding" at a rate of 31% with respect to
distributions or the proceeds of a sale of certificates to or through brokers
that represent interest or original issue discount on the securities. This
withholding generally applies if the holder of a security
(1) fails to furnish the trustee with its TIN;
(2) furnishes the trustee an incorrect TIN;
(3) fails to report properly interest, dividends or other "reportable
payments" as defined in the Code; or
(4) under some circumstances, fails to provide the trustee or the holder's
securities broker with a certified statement, signed under penalty of
perjury, that the TIN provided is its correct number and that the
holder is not subject to backup withholding.
Backup withholding will not apply, however, with respect to some payments made
to holders of securities, including payments to particular exempt recipients,
like exempt organizations, and to some nonresident, alien individual, foreign
partnership or foreign corporation. Holders of securities should consult their
tax advisers as to their qualification for exemption from backup withholding and
the procedure for obtaining the exemption.
The trustee will report to the holders of securities and to the master
servicer for each calendar year the amount of any "reportable payments" during
that year and the amount of tax withheld, if any, with respect to payments on
the securities.
TAX TREATMENT OF FOREIGN INVESTORS
Subject to the discussion below with respect to trust funds as to which
a partnership election is made, under the Code, unless interest, including OID,
paid on a security, other than a Residual Interest Security, is considered to be
"effectively connected" with a trade or business conducted in the United States
by a nonresident alien individual, foreign partnership or foreign corporation,
the interest will normally qualify as portfolio interest, except where (1) the
recipient is a holder, directly or by attribution, of 10% or more of the capital
or profits interest in the issuer, or (2) the recipient is a controlled foreign
corporation to which the issuer is a related person, and will be exempt from
federal income tax. Upon receipt of appropriate ownership statements, the issuer
normally will be relieved of obligations to withhold tax from that interest
payments. These provisions supersede the generally applicable provisions of
United States law that would otherwise require the issuer to withhold at a 30%
rate, unless that rate were reduced or eliminated by an applicable tax treaty,
on, among other things, interest and other fixed or determinable, annual or
periodic income paid to nonresident alien individuals, foreign partnerships or
foreign corporations. Holders of Pass-Through Securities and Stripped
Securities, including Ratio Strip Securities, however, may be subject to
withholding to the extent that the loans were originated on or before July 18,
1984.
Interest and OID of holders of securities who are foreign persons are
not subject to withholding if they are effectively connected with a United
States business conducted by the holder. They will, however, generally be
subject to the regular United States income tax.
Payments to holders of Residual Interest Securities who are foreign
persons will generally be treated as interest for purposes of the 30%, or lower
treaty rate, United States withholding tax. Holders of Residual Interest
Securities should assume that that income does not qualify for exemption from
United States withholding tax as "portfolio interest." It is clear that, to the
extent that a payment represents a portion of REMIC taxable income that
constitutes excess inclusion income, a holder of a Residual Interest Security
will not be entitled to an exemption from or reduction of the 30%, or lower
treaty rate, withholding tax rule. If the payments are subject to United States
withholding tax, they generally will be taken into account for withholding tax
purposes only when paid or distributed, or when the Residual Interest Security
is disposed of. The Treasury has statutory authority, however, to promulgate
regulations which would require those amounts to be taken into account at an
earlier time in order to prevent the avoidance of tax. Those regulations could,
for example, require withholding prior to the distribution of cash in the case
of Residual Interest Securities that do not have significant value. Under the
REMIC Regulations, if a Residual Interest Security has tax avoidance potential,
a transfer of a Residual Interest Security to a nonresident alien individual,
foreign partnership or foreign corporation will be disregarded for all federal
tax purposes. A Residual Interest Security has tax avoidance potential unless,
at the time of the transfer the transferor reasonably expects that the REMIC
will distribute to the transferee residual interest holder amounts that will
equal at least 30% of each excess inclusion, and that those amounts will be
distributed at or after the time at which the excess inclusions accrue and not
later than the calendar year following the calendar year of accrual. If a
Nonresident transfers a Residual Interest Security to a United States person,
and if the transfer has the effect of allowing the transferor to avoid tax on
accrued excess inclusions, then the transfer is disregarded and the transferor
continues to be treated as the owner of the Residual Interest Security for
purposes of the withholding tax provisions of the Code. See "-- Taxation of
Holders of Residual Interest Securities -- Excess Inclusions."
The New Withholding Regulations, which are final regulations dealing
with withholding tax on income paid to foreign persons and related matters, were
issued by the Treasury Department on October 6, 1997. The New Withholding
Regulations will generally be effective for payments made after December 31,
1999, subject to transition rules. Prospective securityholders who are foreign
persons are strongly urged to consult their own tax advisors with respect to the
New Withholding Regulations.
TAX CHARACTERIZATION OF THE TRUST FUND AS A PARTNERSHIP
If the related prospectus supplement specifies that an election will be
made to treat the trust fund as a partnership, pursuant to agreements upon which
counsel shall conclude that (1) the trust fund will not have the characteristics
necessary for a business trust to be classified as an association taxable as a
corporation and (2) the nature of the income of the trust fund will exempt it
from the rule that some publicly traded partnerships are taxable as corporations
or the issuance of the securities has been structured as a private placement
under an IRS safe harbor, so that the trust fund will not be characterized as a
publicly traded partnership taxable as a corporation, then assuming compliance
with the related agreement and related documents and applicable law, Brown &
Wood LLP, special counsel to the depositor, is of the opinion that the trust
fund will not be treated as an association, or as a publicly traded partnership,
taxable as a corporation for United States federal income tax purposes, and upon
the issuance of those securities, will deliver an opinion generally to that
effect. If the securities are structured as indebtedness issued by the
partnership, special counsel to the depositor also will opine that the
securities should be treated as debt for United States federal income tax
purposes, and, if the securities are structured as equity interests in the
partnership, will opine that the securities should be treated as equity interest
in the partnership for United States federal income tax purposes, in each case
assuming compliance with the related agreements and applicable law.
If the trust fund were taxable as a corporation for federal income tax
purposes, the trust fund would be subject to corporate income tax on its taxable
income. The trust fund's taxable income would include all its income, possibly
reduced by its interest expense on the notes. Any corporate income tax could
materially reduce cash available to make payments on the notes and distributions
on the certificates, and holders of certificates could be liable for any tax
that is unpaid by the trust fund.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
Treatment of the Notes as Indebtedness. In the case of a trust fund
that issues notes intended to be debt for federal income tax purposes, the trust
fund will agree, and the holders of notes will agree by their purchase of notes,
to treat the notes as debt for federal income tax purposes. Special counsel to
the depositor will, to the extent provided in the related prospectus supplement,
opine that the notes will be classified as debt for federal income tax purposes.
The discussion below assumes this characterization of the notes is correct.
OID, etc. The discussion below assumes that all payments on the notes
are denominated in U.S. dollars, and that the notes are not Stripped Securities.
Moreover, the discussion assumes that the interest formula for the notes meets
the requirements for "qualified stated interest" under the OID regulations, and
that any OID on the notes -- i.e. -- any excess of the principal amount of the
notes over their issue price -- does not exceed a de minimis amount (i.e., 0.25%
of their principal amount multiplied by the number of full years included in
their term, all within the meaning of the OID regulations. If these conditions
are not satisfied with respect to any given series of notes, additional tax
considerations with respect to those notes will be disclosed in the applicable
prospectus supplement.
Interest Income on the Notes. Based on the above assumptions, except as
discussed in the following paragraph, the notes will not be considered issued
with OID. The stated interest on a note will be taxable to a holder of a note as
ordinary interest income when received or accrued in accordance with that
holder's method of tax accounting. Under the OID regulations, a holder of a note
issued with a de minimis amount of OID must include the OID in income, on a pro
rata basis, as principal payments are made on the note. It is believed that any
prepayment premium paid as a result of a mandatory redemption will be taxable as
contingent interest when it becomes fixed and unconditionally payable. A
purchaser who buys a note for more or less than its principal amount will
generally be subject, respectively, to the premium amortization or market
discount rules of the Code.
A holder of a short-term note -- with a fixed maturity date of not more
than one year from the issue date of that note -- may be subject to special
rules. An accrual basis holder of a short-term note, and some cash method
holders, including regulated investment companies, as set forth in Section 1281
of the Code, generally would be required to report interest income as interest
accrues on a straight-line basis over the term of each interest period. Other
cash basis holders of a short-term note would, in general, be required to report
interest income as interest is paid, or, if earlier, upon the taxable
disposition of the short-term note). However, a cash basis holder of a
short-term note reporting interest income as it is paid may be required to defer
a portion of any interest expense otherwise deductible on indebtedness incurred
to purchase or carry the short-term note until the taxable disposition of the
short-term note. A cash basis taxpayer may elect under Section 1281 of the Code
to accrue interest income on all nongovernment debt obligations with a term of
one year or less, in which case the taxpayer would include interest on the
short-term note in income as it accrues, but would not be subject to the
interest expense deferral rule referred to in the preceding sentence. Special
rules apply if a short-term note is purchased for more or less than its
principal amount.
Sale or Other Disposition. If a holder of a note sells a note, the
holder will recognize gain or loss in an amount equal to the difference between
the amount realized on the sale and the holder's adjusted tax basis in the note.
The adjusted tax basis of a note to a particular holder of a note will equal the
holder's cost for the note, increased by any market discount, acquisition
discount, OID and gain previously included by that holder in income with respect
to the note and decreased by the amount of bond premium, if any, previously
amortized and by the amount of principal payments previously received by that
holder with respect to the note. Any gain or loss will be capital gain or loss
if the note was held as a capital asset, except for gain representing accrued
interest and accrued market discount not previously included in income. Capital
losses generally may be used only to offset capital gains.
Foreign Holders. Interest payments made, or accrued, to a holder of a
note who is a nonresident alien, foreign corporation or other non-United States
person, or a foreign person, generally will be considered "portfolio interest,"
and generally will not be subject to United States federal income tax and
withholding tax, if the interest is not effectively connected with the conduct
of a trade or business within the United States by the foreign person and the
foreign person (1) is not actually or constructively a "10 percent shareholder"
of the trust fund or the seller, including a holder of 10% of the outstanding
certificates, or a "controlled foreign corporation" with respect to which the
trust fund or the seller is a "related person" within the meaning of the Code
and (2) provides the depositor or other person who is otherwise required to
withhold U.S. tax with respect to the notes with an appropriate statement on
Form W-8 or a similar form, signed under penalties of perjury, certifying that
the beneficial owner of the note is a foreign person and providing the foreign
person's name and address. If a note is held through a securities clearing
organization or other financial institutions, the organization or institution
may provide the relevant signed statement to the withholding agent; in that
case, however, the signed statement must be accompanied by a Form W-8 or
substitute form provided by the foreign person that owns the note. If the
interest is not portfolio interest, then it will be subject to United States
federal income and withholding tax at a rate of 30 percent, unless reduced or
eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (1) the gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (2) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
Backup Withholding. Each holder of a note, other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident, will be required to
provide, under penalties of perjury, a certificate containing the holder's name,
address, correct federal taxpayer identification number and a statement that the
holder is not subject to backup withholding. Should a nonexempt holder of a note
fail to provide the required certification, the trust fund will be required to
withhold 31 percent of the amount otherwise payable to the holder, and remit the
withheld amount to the IRS as a credit against the holder's federal income tax
liability.
Possible Alternative Treatments of the Notes. If, contrary to the
opinion of special counsel to the depositor, the IRS successfully asserted that
one or more of the notes did not represent debt for federal income tax purposes,
the notes might be treated as equity interests in the trust fund. If so treated,
the trust fund might be taxable as a corporation with the adverse consequences
described above, and the taxable corporation would not be able to reduce its
taxable income by deductions for interest expense on notes recharacterized as
equity. Alternatively, and most likely in the view of special counsel to the
depositor, the trust fund might be treated as a publicly traded partnership that
would not be taxable as a corporation because it would meet applicable
qualifying income tests. Nonetheless, treatment of the notes as equity interests
in such a publicly traded partnership could have adverse tax consequences to
some holders. For example, income to some tax-exempt entities, including pension
funds, would be "unrelated business taxable income," income to foreign holders
generally would be subject to U.S. tax and U.S. tax return filing and
withholding requirements, and individual holders might be subject to limitations
on their ability to deduct their share of the trust fund's expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
Treatment of the Trust Fund as a Partnership. In the case of a trust
fund that will elect to be treated as a partnership, the trust fund and the
master servicer will agree, and the holders of certificates will agree by their
purchase of certificates, to treat the trust fund as a partnership for purposes
of federal and state income tax, franchise tax and any other tax measured in
whole or in part by income, with the assets of the partnership being the assets
held by the trust fund, the partners of the partnership being the holders of
certificates, and the notes being debt of the partnership. However, the proper
characterization of the arrangement involving the trust fund, the certificates,
the notes, the trust fund and the master servicer is not clear because there is
no authority on transactions closely comparable to that contemplated in this
prospectus.
A variety of alternative characterizations are possible. For example,
because the certificates have some features characteristic of debt, the
certificates might be considered debt of the trust fund. Any such
characterization would not result in materially adverse tax consequences to
holders of certificates as compared to the consequences from treatment of the
certificates as equity in a partnership, described in this prospectus. The
following discussion assumes that the certificates represent equity interests in
a partnership.
The following discussion assumes that all payments on the certificates
are denominated in U.S. dollars, none of the certificates are Stripped
Securities, and that a series of securities includes a single class of
certificates. If these conditions are not satisfied with respect to any given
series of certificates, additional tax considerations with respect to those
certificates will be disclosed in the applicable prospectus supplement.
Partnership Taxation. As a partnership, the trust fund will not be
subject to federal income tax. Rather, each holder of a certificate will be
required to separately take into account that holder's allocated share of
income, gains, losses, deductions and credits of the trust fund. The trust
fund's income will consist primarily of interest and finance charges earned on
the loans, including appropriate adjustments for market discount, OID and bond
premium, and any gain upon collection or disposition of loans. The trust fund's
deductions will consist primarily of interest accruing with respect to the
notes, servicing and other fees, and losses or deductions upon collection or
disposition of loans.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement --
here, the trust agreement and related documents. The trust agreement will
provide, in general, that the certificateholders will be allocated taxable
income of the trust fund for each month equal to the sum of:
(1) the interest that accrues on the certificates in accordance with their
terms for that month, including interest accruing at the pass-through
rate for that month and interest on amounts previously due on the
certificates but not yet distributed;
(2) any trust fund income attributable to discount on the loans that
corresponds to any excess of the principal amount of the certificates
over their initial issue price;
(3) prepayment premium payable to the holders of certificates for that
month; and
(4) any other amounts of income payable to the holders of certificates for
that month.
The allocation will be reduced by any amortization by the trust fund of premium
on loans that corresponds to any excess of the issue price of certificates over
their principal amount. All remaining taxable income of the trust fund will be
allocated to the depositor. Based on the economic arrangement of the parties,
this approach for allocating trust fund income should be permissible under
applicable Treasury regulations, although no assurance can be given that the IRS
would not require a greater amount of income to be allocated to holders of
certificates. Moreover, even under the foregoing method of allocation, holders
of certificates may be allocated income equal to the entire pass-through rate
plus the other items described above even though the trust fund might not have
sufficient cash to make current cash distributions of that amount. Thus, cash
basis holders will in effect be required to report income from the certificates
on the accrual basis and holders of certificates may become liable for taxes on
trust fund income even if they have not received cash from the trust fund to pay
those taxes. In addition, because tax allocations and tax reporting will be done
on a uniform basis for all holders of certificates but holders of certificates
may be purchasing certificates at different times and at different prices,
holders of certificates may be required to report on their tax returns taxable
income that is greater or less than the amount reported to them by the trust
fund.
All of the taxable income allocated to a holder of a certificate that
is a pension, profit sharing or employee benefit plan or other tax-exempt
entity, including an individual retirement account, will constitute "unrelated
business taxable income" generally taxable to that holder under the Code.
An individual taxpayer's share of expenses of the trust fund, including
fees to the master servicer but not interest expense, would be miscellaneous
itemized deductions. Those deductions might be disallowed to the individual in
whole or in part and might result in that holder being taxed on an amount of
income that exceeds the amount of cash actually distributed to that holder over
the life of the trust fund.
The trust fund intends to make all tax calculations relating to income
and allocations to holders of certificates on an aggregate basis. If the IRS
were to require that those calculations be made separately for each loan, the
trust fund might be required to incur additional expense but it is believed that
there would not be a material adverse effect on holders of certificates.
Discount and Premium. It is believed that the loans were not issued
with OID, and, therefore, the trust fund should not have OID income. However,
the purchase price paid by the trust fund for the loans may be greater or less
than the remaining principal balance of the loans at the time of purchase. If
so, the loan will have been acquired at a premium or discount, as the case may
be. As indicated above, the trust fund will make this calculation on an
aggregate basis, but might be required to recompute it on a loan by loan basis.
If the trust fund acquires the loans at a market discount or premium,
the trust fund will elect to include the discount in income currently as it
accrues over the life of the loans or to offset the premium against interest
income on the loans. As indicated above, a portion of the market discount income
or premium deduction may be allocated to holders of certificates.
Section 708 Termination. Under Section 708 of the Code, the trust fund
will be deemed to terminate for federal income tax purposes if 50% or more of
the capital and profits interests in the trust fund are sold or exchanged within
a 12-month period. If a termination occurs, the trust fund will be considered to
contribute all of its assets and liabilities to a new partnership and,
immediately thereafter, to liquidate by distributing interests in the new
partnership to the certificateholders, with the trust fund, as the new
partnership, thereafter continuing the business of the partnership deemed
liquidated. The trust fund will not comply with particular technical
requirements that might apply when a constructive termination occurs. As a
result, the trust fund may be subject to tax penalties and may incur additional
expenses if it is required to comply with those requirements. Furthermore, the
trust fund might not be able to comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the certificates sold.
A holder's tax basis in a certificate will generally equal the holder's cost
increased by the holder's share of trust fund income, includible in income, and
decreased by any distributions received with respect to that certificate. In
addition, both the tax basis in the certificates and the amount realized on a
sale of a certificate would include the holder's share of the notes and other
liabilities of the trust fund. A holder acquiring certificates at different
prices may be required to maintain a single aggregate adjusted tax basis in
those certificates, and, upon sale or other disposition of some of the
certificates, allocate a portion of the aggregate tax basis to the certificates
sold, rather than maintaining a separate tax basis in each certificate for
purposes of computing gain or loss on a sale of that Certificate.
Any gain on the sale of a certificate attributable to the holder's
share of unrecognized accrued market discount on the loans would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The trust fund does not expect to have any other assets
that would give rise to special reporting requirements. Thus, to avoid those
special reporting requirements, the trust fund will elect to include market
discount in income as it accrues.
If a holder of a certificate is required to recognize an aggregate
amount of income, not including income attributable to disallowed itemized
deductions described above, over the life of the certificates that exceeds the
aggregate cash distributions with respect to those certificates, that excess
will generally give rise to a capital loss upon the retirement of the
certificates.
Allocations Between Transferors and Transferees. In general, the trust
fund's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the holders of
certificates in proportion to the principal amount of certificates owned by them
as of the close of the last day of that month. As a result, a holder purchasing
certificates may be allocated tax items, which will affect its tax liability and
tax basis, attributable to periods before the actual transaction.
The use of that monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed, or only applies to
transfers of less than all of the partner's interest, taxable income or losses
of the trust fund might be reallocated among the holders of certificates. The
trust fund's method of allocation between transferors and transferees may be
revised to conform to a method permitted by future regulations.
Section 754 Election. In the event that a holder of a certificate sells
its certificates at a profit, loss, the purchasing holder of a certificate will
have a higher, lower, basis in the certificates than the selling holder of a
certificate had. The tax basis of the trust fund's assets will not be adjusted
to reflect that higher, or lower, basis unless the trust fund were to file an
election under Section 754 of the Code. In order to avoid the administrative
complexities that would be involved in keeping accurate accounting records, as
well as potentially onerous information reporting requirements, the trust fund
will not make the election. As a result, holders of certificates might be
allocated a greater or lesser amount of trust fund income than would be
appropriate based on their own purchase price for certificates.
Administrative Matters. The trustee under a trust agreement is required
to keep or have kept complete and accurate books of the trust fund. The books
will be maintained for financial reporting and tax purposes on an accrual basis
and the fiscal year of the trust fund will be the calendar year. The trustee
under a trust agreement will file a partnership information return (IRS Form
1065) with the IRS for each taxable year of the trust fund and will report each
holder's allocable share of items of trust fund income and expense to holders
and the IRS on Schedule K-1. The trust fund will provide the Schedule K-l
information to nominees that fail to provide the trust fund with the information
statement described in this prospectus and those nominees will be required to
forward that information to the beneficial owners of the certificates.
Generally, holders must file tax returns that are consistent with the
information return filed by the trust fund or be subject to penalties unless the
holder notifies the IRS of all those inconsistencies.
Under Section 6031 of the Code, any person that holds certificates as a
nominee at any time during a calendar year is required to furnish the trust fund
with a statement containing information on the nominee, the beneficial owners
and the certificates so held. That information includes (1) the name, address
and taxpayer identification number of the nominee and (2) as to each beneficial
owner (x) the name, address and identification number of that person, (y)
whether that person is a United States person, a tax-exempt entity or a foreign
government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) some information on
certificates that were held, bought or sold on behalf of that person throughout
the year. In addition, brokers and financial institutions that hold certificates
through a nominee are required to furnish directly to the trust fund information
as to themselves and their ownership of certificates. A clearing agency
registered under Section 17A of the Exchange Act is not required to furnish the
information statement to the trust fund. The information referred to above for
any calendar year must be furnished to the trust fund on or before the following
January 31. Nominees, brokers and financial institutions that fail to provide
the trust fund with the information described above may be subject to penalties.
The depositor will be designated as the tax matters partner in the
related agreement and, as such, will be responsible for representing the holders
of certificates in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the trust fund by the appropriate taxing authorities
could result in an adjustment of the returns of the holders of certificates,
and, under some circumstances, a holder of a certificate may be precluded from
separately litigating a proposed adjustment to the items of the trust fund. An
adjustment could also result in an audit of a holder's returns and adjustments
of items not related to the income and losses of the trust fund.
Tax Consequences to Foreign Holders of Certificates. It is not clear
whether the trust fund would be considered to be engaged in a trade or business
in the United States for purposes of federal withholding taxes with respect to
non-U.S. persons because there is no clear authority dealing with that issue
under facts substantially similar to those described in this prospectus.
Although it is not expected that the trust fund would be engaged in a trade or
business in the United States for those purposes, the trust fund will withhold
as if it were so engaged in order to protect the trust fund from possible
adverse consequences of a failure to withhold. The trust fund expects to
withhold on the portion of its taxable income that is allocable to foreign
holders of Certificates pursuant to Section 1446 of the Code, as if that income
were effectively connected to a U.S. trade or business, at a rate of 35% for
foreign holders that are taxable as corporations and 39.6% for all other foreign
holders. Subsequent adoption of Treasury regulations or the issuance of other
administrative pronouncements may require the trust fund to change its
withholding procedures. In determining a holder's withholding status, the trust
fund may rely on IRS Form W-8, IRS Form W-9 or the holder's certification of
nonforeign status signed under penalties of perjury.
The term U.S. Person means a citizen or resident of the United States,
a corporation or partnership, including an entity treated as a corporation or
partnership for U.S. federal income tax purposes created in the United States or
organized under the laws of the United States or any state thereof or the
District of Columbia, except, in the case of a partnership as otherwise provided
by regulations, an estate, the income of which is includible in gross income for
U.S. federal income tax purposes regardless of its source or a trust whose
administration is subject to the primary supervision of a United States court
and has one or more United States persons who have authority to control all
substantial decisions of the trust.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return, including, in the case of a corporation, the branch
profits tax, on its share of the trust fund's income. Each foreign holder must
obtain a taxpayer identification number from the IRS and submit that number to
the trust fund on Form W-8 in order to assure appropriate crediting of the taxes
withheld. A foreign holder generally would be entitled to file with the IRS a
claim for refund with respect to taxes withheld by the trust fund taking the
position that no taxes were due because the trust fund was not engaged in a U.S.
trade or business. However, interest payments made, or accrued, to a holder of a
certificate who is a foreign person generally will be considered guaranteed
payments to the extent that those payments are determined without regard to the
income of the trust fund. If these interest payments are properly characterized
as guaranteed payments, then the interest will not be considered "portfolio
interest." As a result, holders of certificates will be subject to United States
federal income tax and withholding tax at a rate of 30 percent, unless reduced
or eliminated pursuant to an applicable treaty. In that case, a foreign holder
would only be entitled to claim a refund for that portion of the taxes in excess
of the taxes that should be withheld with respect to the guaranteed payments.
Backup Withholding. Distributions made on the certificates and proceeds
from the sale of the certificates will be subject to a "backup" withholding tax
of 31% if, in general, the certificateholder fails to comply with the
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
TAXATION OF TRUST AS FASIT
In the opinion of Brown & Wood LLP, special tax counsel to the trust
fund, if a FASIT election is made with respect to a series of securities, the
trust fund will be formed to qualify as a FASIT. The Small Business and Job
Protection Act of 1996 added Section 860H through 860L to the Code (the "FASIT
Provisions"), which provide for a new type of entity for federal income tax
purposes known as a FASIT. Although the FASIT provisions of the Code became
effective on September 1, 1997, no Treasury regulations or other administrative
guidance have been issued with respect for those provisions. Accordingly,
definitive guidance cannot be provided with respect to many aspects of the tax
treatment of FASIT Regular Securityholders. Investors should also note that the
FASIT discussion contained in this prospectus constitutes only a summary of the
U.S. federal income tax consequences to the holders of FASIT Securities. With
respect to each series of FASIT Regular Securities, the related prospectus
supplement will provide a detailed discussion regarding the federal income tax
consequences associated with the particular transaction.
FASIT Securities will be classified as either FASIT Regular Securities,
which generally will be treated as debt for U.S. federal income tax purposes, or
FASIT Ownership Securities, which generally are not treated as debt for those
purposes, but rather as representing rights and responsibilities with respect to
the taxable income or loss of the related series FASIT. The prospectus
supplement for each series of securities will indicate which securities of that
series will be designated as FASIT Regular Securities, and which, if any, will
be designated as FASIT Ownership Securities.
Qualification as a FASIT. The trust fund will qualify under the Code as
a FASIT in which FASIT Regular Securities and the ownership interest security
will constitute the "regular interests" and the "ownership interest,"
respectively, if:
(1) a FASIT election is in effect,
(2) tests concerning (A) the composition of the FASIT's assets and (B) the
nature of the Securityholders' interests in the FASIT are met on a
continuing basis, and
(3) the trust fund is not a regulated investment company as defined in
section 851(a) of the Code.
Asset Composition. In order for the trust fund to be eligible for FASIT
status, substantially all of the assets of the trust fund must consist of
"permitted assets" as of the close of the third month beginning after the
closing date and at all times thereafter (the "FASIT Qualification Test").
Permitted assets include:
(1) cash or cash equivalents,
(2) debt instruments with fixed terms that would qualify as regular
interests if issued by a REMIC as defined in section 860D of the Code
-- (generally, instruments that provide for interest at a fixed rate,
a qualifying variable rate, or a qualifying interest-only ("IO") type
rate,
(3) foreclosure property,
(4) hedging instruments -- generally, interest and currency rate swaps and
credit enhancement contracts -- that are reasonably required to
guarantee or hedge against the FASIT's risks associated with being the
obligor on FASIT interests,
(5) contract rights to acquire qualifying debt instruments or qualifying
hedging instruments,
(6) FASIT regular interests, and
(7) REMIC regular interests.
Permitted assets do not include any debt instruments issued by the holder of the
FASIT's ownership interest or by any person related to that holder.
Interest in a FASIT. In addition to the foregoing asset qualification
requirements, the interests in a FASIT also must meet additional requirements.
All of the interests in a FASIT must belong to either of the following: (1) one
or more classes of regular interests or (2) a single class of ownership interest
that is held by a fully taxable domestic C Corporation.
A FASIT interest generally qualifies as a regular interest if:
(1) it is designated as a regular interest,
(2) it has a stated maturity no greater than thirty years,
(3) it entitles its holder to a specified principal amount,
(4) the issue price of the interest does not exceed 125% of its stated
principal amount,
(5) the yield to maturity of the interest is less than the applicable
Treasury rate published by the IRS plus 5%, and
(6) if it pays interest, that interest is payable at either (a) a fixed
rate with respect to the principal amount of the regular interest or
(b) a permissible variable rate with respect to that principal amount.
Permissible variable rates for FASIT regular interests are the same as
those for REMIC regular interests -- i.e., qualified floating rates
and weighted average rates.
Interest will be considered to be based on a permissible variable rate if
generally:
(1) the interest is unconditionally payable at least annually,
(2) the issue price of the debt instrument does not exceed the total
noncontingent principal payments, and
(3) interest is based on a "qualified floating rates," an "objective
rate," a combination of a single fixed rate and one or more "qualified
floating rates," one "qualified inverse floating rate," or a
combination of "qualified floating rates" that do not operate in a
manner that significantly accelerates or defers interest payments on
that FASIT regular interest.
If an interest in a FASIT fails to meet one or more of the requirements
set out in clause (3), (4) or (5) in the immediately preceding paragraph, but
otherwise meets all requirements to be treated as a FASIT, it may still qualify
as a type of regular interest known as a "High-Yield Interest." In addition, if
an interest in a FASIT fails to meet the requirement of clause (6), but the
interest payable on the interest consists of a specified portion of the interest
payments on permitted assets and that portion does not vary over the life of the
security, the interest will also qualify as a High-Yield Interest. A High-Yield
Interest may be held only by domestic C corporations that are fully subject to
corporate income tax ("Eligible Corporations"), other FASITs, and dealers in
securities who acquire those interests as inventory, rather than for investment.
In addition, holders of High-Yield Interests are subject to limitations on
offset of income derived from that interest. See "Federal Income Tax
Consequences--Taxation of Trust as a FASIT--Treatment of High-Yield Interests."
Consequences of Disqualification. If the trust fund fails to comply
with one or more of the Code's ongoing requirements for FASIT status during any
taxable year, the Code provides that its FASIT status may be lost for that year
and thereafter. If FASIT status is lost, the treatment of the former FASIT and
interests in that FASIT for U.S. federal income tax purposes is uncertain.
Although the Code authorizes the Treasury to issue regulations that address
situations where a failure to meet the requirements for FASIT status occurs
inadvertently and in good faith, those regulations have not yet been issued. It
is possible that disqualification relief might be accompanied by sanctions, such
as the imposition of a corporate tax on all or a portion of the FASIT's income
for the period of time in which the requirements for FASIT status are not
satisfied. Nevertheless, in the opinion of Tax Counsel, if the trust fund fails
to qualify as a FASIT it will qualify as a partnership. See "--Taxation of the
Trust Fund as Partnership."
TREATMENT OF FASIT REGULAR SECURITIES
Payments received by holders of FASIT Regular Securities generally will
be accorded the same tax treatment under the Code as payments received on other
taxable debt instruments. Holders of FASIT Regular Securities must report income
from those securities under an accrual method of accounting, even if they
otherwise would have used the cash receipts and disbursements method. Except in
the case of FASIT Regular Securities issued with original issue discount,
interest paid or accrued on a FASIT Regular Security generally will be treated
as ordinary income to the holder and a principal payment on that security will
be treated as a return of capital to the extent that the securityholder's basis
is allocable to that payment. FASIT Regular Securities issued with original
issue discount or acquired with market discount or premium generally will treat
interest and principal payments on the securities in the same manner described
for senior securities. See "Taxation of Trust as Partnership--Treatment of
Senior Securities--OID, Etc." below. High-Yield Securities may be held only by
Eligible Corporations, other FASITs, and some securities dealers. Holders of
High-Yield Securities are subject to limitations on their ability to use current
losses or net operating loss carryforwards or carrybacks to offset any income
derived from those securities.
If the FASIT Regular Security is sold, the securityholder generally
will recognize gain or loss upon the sale in the manner described in this
prospectus for offered senior securities. See "Taxation of Trust as
Partnership--Treatment of Senior Securities--Sale or Other Disposition." In
addition, if a FASIT regular interest becomes wholly or partially worthless as a
result of losses on the underlying assets, some holders of the security may be
allowed to deduct the loss sustained.
TREATMENT OF HIGH-YIELD INTERESTS
High-Yield Interests are subject to special rules regarding the
eligibility of holders of that interest, and the ability of the holders to
offset income derived from their FASIT Security with losses. High-Yield
Interests only may be held by Eligible Corporations, other FASITs, and dealers
in securities who acquire those interests as inventory. If a securities dealer,
other than an Eligible Corporation, initially acquires a High-Yield Interest as
inventory, but later begins to hold it for investment, the dealer will be
subject to an excise tax equal to the income from the High-Yield Interest
multiplied by the highest corporate income tax rate. In addition, transfers of
High-Yield Interests to disqualified holders will be disregarded for federal
income tax purposes, and the transferor will continue to be treated as the
holder of the High-Yield Interest.
The holder of a High-Yield Interest may not use non-FASIT current
losses or net operating loss carryforwards or carrybacks to offset any income
derived from the High-Yield Interest, for either regular federal income tax
purposes or for alternative minimum tax purposes. In addition, the FASIT
provisions contain an anti-abuse rule that imposes corporate income tax on
income derived from a FASIT Regular Security that is held by a pass-through
entity, other than another FASIT, that issues debt or equity securities backed
by the FASIT Regular Security and that have the same features as High-Yield
Interests.
TAX TREATMENT OF FASIT OWNERSHIP SECURITIES
A FASIT Ownership Security represents the residual equity interest in a
FASIT. As such, the holder of a FASIT Ownership Security determines its taxable
income by taking into account all assets, liabilities, and items of income,
gain, deduction, loss, and credit of a FASIT. In general, the character of the
income to the holder of a FASIT Ownership Interest will be the same as the
character of the income to the FASIT, except that any tax-exempt interest income
taken into account by the holder of a FASIT Ownership Interest is treated as
ordinary income. In determining that taxable income, the holder of a FASIT
Ownership Security must determine the amount of interest, original issue
discount, market discount, and premium recognized with respect to the FASIT's
assets and the FASIT Regular Securities issued by the FASIT according to a
constant yield methodology and under an accrual method of accounting. In
addition, holders of FASIT Ownership Securities are subject to the same
limitations on their ability to use losses to offset income from their FASIT
Regular Securities as are holders of High-Yield Interest. See "Federal Income
Tax Consequences--FASIT Regular Securities--Tax Treatment of FASIT Regular
Securities-Treatment of High-Yield Interests."
Rules similar to the wash sale rules applicable to REMIC residual
securities also will apply to FASIT Ownership Securities. Accordingly, losses on
dispositions of a FASIT Ownership Security generally will be disallowed where
within six months before or after the disposition, the seller of the security
acquires any other FASIT Ownership Security that is economically comparable to a
FASIT Ownership Security. In addition, if any security that is sold or
contributed to a FASIT by the holders of the related FASIT Ownership Security
was required to be marked-to-market under section 475 of the Code by that
holder, then section 475 of the Code will continue to apply to those securities,
except that the amount realized under the mark-to-market rules or the
securities' value after applying special valuation rules contained in the FASIT
provisions. Those special valuation rules generally require that the value of
debt instruments that are not traded on an established securities market be
determined by calculating the present value of the reasonably expected payments
under the instrument using a discount rate of 120% of the applicable Federal
rate, compounded semi-annually.
The holder of a FASIT Ownership Security will be subject to a tax equal
to 100% of the net income derived by the FASIT from any "prohibited
transactions." Prohibited transactions include
(1) the receipt of income derived from assets that are not permitted
assets,
(2) some types of dispositions of permitted assets,
(3) the receipt of any income derived from any loan originated by a FASIT,
and
(4) in some cases, the receipt of income representing a servicing fee or
other compensation. Any series for which a FASIT election is made
generally will be structured in order to avoid application of the
prohibited transaction tax.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in
"Federal Income Tax Consequences," potential investors should consider the state
and local income tax consequences of the acquisition, ownership, and disposition
of the securities. State and local income tax law may differ substantially from
the corresponding federal law, and this discussion does not purport to describe
any aspect of the income tax laws of any state or locality. Therefore, potential
investors should consult their own tax advisors with respect to the various
state and local tax consequences of an investment in the securities.
ERISA CONSIDERATIONS
GENERAL
ERISA and the Code impose requirements on employee benefit plans and
other retirement plans and arrangements, including, but not limited to,
individual retirement accounts and annuities, as well as on collective
investment funds and separate and general accounts in which the plans or
arrangements are invested (all of which are referred to as a "Plan".
Generally, ERISA applies to investments made by Plans. Among other things,
ERISA requires that the assets of Plans be held in trust and that the trustee,
or other duly authorized fiduciary, have exclusive authority and discretion to
manage and control the assets of those Plans. ERISA also imposes duties on
persons who are fiduciaries of Plans. Under ERISA, any person who exercises
any authority or control respecting the management or disposition of the
assets of a Plan is considered to be a fiduciary of that Plan, subject to
exceptions not here relevant.
Any Plan fiduciary or other person which proposes to cause a Plan to
acquire any of the securities should determine whether that investment is
permitted under the governing Plan instruments and is prudent and appropriate
for the Plan in view of its overall investment policy and the composition and
diversification of its portfolio. More generally, any Plan fiduciary which
proposes to cause a Plan to acquire any of the securities or any other person
proposing to use the assets of a Plan to acquire any of the securities should
consult with its counsel with respect to the potential consequences under ERISA
and the Code, including under the prohibited transactions rules described in
this prospectus, of the acquisition and ownership of those securities.
Some employee benefit plans, such as governmental plans and church
plans, if no election has been made under section 410(d) of the Code, are not
subject to the restrictions of ERISA, and assets of those plans may be invested
in the securities without regard to the ERISA considerations described in this
prospectus, within other applicable federal and state law. However, any
governmental or church plan which is qualified under section 401(a) of the Code
and exempt from taxation under section 501(a) of the Code is subject to the
prohibited transaction rules set forth in section 503 of the Code.
PROHIBITED TRANSACTIONS
GENERAL
Sections 406 and 407 of ERISA and section 4975 of the Code prohibit
some transactions involving the assets of a Plan and "disqualified persons",
within the meaning of the Code, and "parties in interest", within the meaning of
ERISA; collectively "Parties in Interest", who have specified relationships to
the Plan, unless an exemption applies. Therefore, a Plan fiduciary or any other
person using the assets of a Plan considering an investment in the securities
should also consider whether that investment might constitute or give rise to a
prohibited transaction under ERISA or the Code, or whether there is an
applicable exemption.
PLAN ASSET REGULATION
The DOL has issued Plan Asset Regulations, which are final regulations
defining the "assets" of a Plan for purposes of ERISA and the prohibited
transaction provisions of the Code (29 C.F.R. ss.ss. 2510.3-101. The Plan Asset
Regulation describes the circumstances under which the assets of an entity in
which a Plan invests will be considered to be "plan assets" so that any person
who exercises control over those assets would be subject to ERISA's fiduciary
standards. Under the Plan Asset Regulation, generally when a Plan invests in
another entity, the Plan's assets do not include, solely by reason of that
investment, any of the underlying assets of the entity. However, the Plan Asset
Regulation provides that, if a Plan acquires an "equity interest" in an entity
that is neither a "publicly-offered security" -- defined as a security which is
widely held, freely transferable and registered under the Securities Exchange
Act of 1934, as amended -- nor a security issued by an investment company
registered under the Investment Company Act of 1940, as amended, the assets of
the entity will be treated as assets of the Plan unless exceptions apply. If the
securities were deemed to be equity interests and no statutory, regulatory or
administrative exemption applies, the trust fund could be considered to hold
plan assets by reason of a Plan's investment in the securities. Those plan
assets would include an undivided interest in any assets held by the trust fund.
In that event, the trustee and other persons, in providing services with respect
to the trust fund's assets, may be Parties in Interest with respect to those
Plans, subject to the fiduciary responsibility provisions of ERISA, including
the prohibited transaction provisions with respect to transactions involving the
trust fund's assets.
Under the Plan Asset Regulation, the term "equity interest" is defined
as any interest in an entity other than an instrument that is treated as
indebtedness under "applicable local law" and which has no "substantial equity
features." Although the Plan Asset Regulation is silent with respect to the
question of which law constitutes "applicable local law" for this purpose, the
DOL has stated that these determinations should be made under the state law
governing interpretation of the instrument in question. In the preamble to the
Plan Asset Regulation, the DOL declined to provide a precise definition of what
features are equity features or the circumstances under which those features
would be considered "substantial," noting that the question of whether a plan's
interest has substantial equity features is an inherently factual one, but that
in making a determination it would be appropriate to take into account whether
the equity features are such that a Plan's investment would be a practical
vehicle for the indirect provision of investment management services. The
prospectus supplement issued in connection with a particular series of
securities will indicate the anticipated treatment of these Securities under the
Plan Asset Regulation.
EXEMPTION 83-1
In Prohibited Transaction Class Exemption 83-1, the DOL exempted from
ERISA's prohibited transaction rules specified transactions relating to the
operation of residential mortgage pool investment trusts and the purchase, sale
and holding of "mortgage pool pass-through certificates" in the initial issuance
of those certificates. PTE 83-1 permits, subject to particular conditions,
transactions which might otherwise be prohibited between Plans and Parties in
Interest with respect to those Plans related to the origination, maintenance and
termination of mortgage pools consisting of mortgage loans secured by first or
second mortgages or deeds of trust on single-family residential property, and
the acquisition and holding of mortgage pool pass-through certificates
representing an interest in those mortgage pools by Plans. If the general
conditions of PTE 83-1 are satisfied, investments by a Plan in Single Family
Securities certificates that represent interests in a pool consisting of loans
will be exempt from the prohibitions of ERISA Sections 406(a) and 407, relating
generally to transactions with Parties in Interest who are not fiduciaries, if
the Plan purchases the Single Family Securities at no more than fair market
value and will be exempt from the prohibitions of ERISA Sections 406(b)(1) and
(2), relating generally to transactions with fiduciaries, if, in addition, the
purchase is approved by an independent fiduciary, no sales commission is paid to
the pool sponsor, the Plan does not purchase more than 25% of all Single Family
Securities, and at least 50% of all Single Family Securities are purchased by
persons independent of the pool sponsor or pool trustee. PTE 83-1 does not
provide an exemption for transactions involving subordinate securities.
Accordingly, it is not anticipated that a transfer of a subordinate security or
a security which is not a Single Family Security may be made to a Plan pursuant
to this exemption.
The discussion in this and the next succeeding paragraph applies only
to Single Family Securities. The depositor believes that, for purposes of PTE
83-1, the term "mortgage pool pass-through certificate" would include securities
issued in a series consisting of only a single class of securities provided that
the securities evidence the beneficial ownership of both a specified percentage
of future interest payments, greater than 0%, and a specified percentage of
future principal payments, greater than 0%, on the loans. It is not clear
whether a class of securities that evidences the beneficial ownership in a trust
fund divided into loan groups, beneficial ownership of a specified percentage of
interest payments only or principal payments only, or a notional amount of
either principal or interest payments, or a class of securities entitled to
receive payments of interest and principal on the loans only after payments to
other classes or after the occurrence of specified events would be a "mortgage
pass-through certificate" for purposes of PTE 83-1.
PTE 83-1 sets forth three general conditions which must be satisfied
for any transaction to be eligible for exemption:
(1) the maintenance of a system of insurance or other protection for the
pooled mortgage loans and property securing those loans, and for
indemnifying securityholders against reductions in pass-through
payments due to property damage or defaults in loan payments in an
amount not less than the greater of one percent of the aggregate
principal balance of all covered pooled mortgage loans or the
principal balance of the largest covered pooled mortgage loan;
(2) the existence of a pool trustee who is not an affiliate of the pool
sponsor; and
(3) a limitation on the amount of the payment retained by the pool
sponsor, together with other funds inuring to its benefit, to not more
than adequate consideration for selling the mortgage loans plus
reasonable compensation for services provided by the pool sponsor to
the pool.
The depositor believes that the first general condition referred to
above will be satisfied with respect to the Single Family Securities in a series
if any reserve account, subordination by shifting of interests, pool insurance
or other form of credit enhancement described under "Credit Enhancement" in this
prospectus with respect to those Single Family Securities is maintained in an
amount not less than the greater of one percent of the aggregate principal
balance of the loans or the principal balance of the largest loan. See
"Description of the Securities" in this prospectus. In the absence of a ruling
that the system of insurance or other protection with respect to a series of
Single Family Securities satisfies the first general condition referred to
above, there can be no assurance that these features will be so viewed by the
DOL. The trustee will not be affiliated with the depositor.
Each Plan fiduciary or other person who is responsible for making the
investment decisions whether to purchase or commit to purchase and to hold
Single Family Securities must make its own determination as to whether the first
and third general conditions, and the specific conditions described briefly in
the preceding paragraph, of PTE 83-1 have been satisfied, or as to the
availability of any other prohibited transaction exemptions.
THE UNDERWRITER'S EXEMPTION
The DOL has granted to J.P. Morgan Securities Inc. an administrative
exemption (Prohibited Transaction Exemption 90-23, 55 Fed. Reg. 20545 (1990)
from some of the prohibited transaction rules of ERISA and the related excise
tax provisions of Section 4975 of the Code with respect to the initial purchase,
the holding and the subsequent resale by Plans of certificates in pass-through
trusts that consist of receivables, loans, and other obligations that meet the
conditions and requirements of the J.P. Morgan Exemption. Identical exemptions
have been granted to other underwriters. If J.P. Morgan Securities Inc. is not
the underwriter of a series of certificates, the related prospectus supplement
will indicate whether the underwriter of that series has received an exemption
of that type.
Among the conditions that must be satisfied for the J.P. Morgan
Exemption to apply are the following:
(1) the acquisition of the certificates by a Plan is on terms,
including the price for those securities, that are at least as favorable to
the Plan as they would be in an arm's length transaction with an unrelated
party;
(2) the rights and interests evidenced by the certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by
other certificates of the trust fund;
(3) the certificates acquired by the Plan have received a rating at the
time of acquisition that is one of the three highest generic rating
categories from one of S&P, Moody's, Duff & Phelps or Fitch;
(4) the trustee must not be an affiliate of any other member of the
Restricted Group;
(5) the sum of all payments made to and retained by the underwriter in
connection with the distribution of the certificates represents not more
than reasonable compensation for underwriting those certificates; the sum
of all payments made to and retained by the depositor pursuant to the
assignment of the trust fund assets to the trust fund represents not more
than the fair market value of those trust fund assets; the sum of all
payments made to and retained by the master servicer and any other servicer
represents not more than reasonable compensation for that person's services
under the related agreement and reimbursements of that person's reasonable
expenses in connection therewith; and
(6) the Plan investing in the certificates is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the SEC under the
Securities Act of 1933, as amended.
The trust fund must also meet the following requirements:
(a) the corpus of the trust fund must consist solely of assets of the
type that have been included in other investment pools;
(b) certificates evidencing interests in other investment pools must
have been rated in one of the three highest rating categories of S&P,
Moody's, Fitch or Duff & Phelps for at least one year prior to the Plan's
acquisition of the securities; and
(iii) certificates evidencing interests in other investment pools must
have been purchased by investors other than Plans for at least one year
prior to any Plan's acquisition of the securities.
On July 21, 1997, the DOL published in the Federal Register an
amendment to the J.P. Morgan Exemption, which extends exemptive relief to some
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. The amendment generally
allows mortgage loans or other secured receivables (the "Obligations")
supporting payments to certificateholders, and having a value equal to no more
than twenty-five percent (25%) of the total principal amount of the certificates
being offered by the trust, to be transferred to the trust within a 90-day or
three-month period following the closing date (the "Pre-Funding Period"),
instead of requiring that all those Obligations be either identified or
transferred on or before the closing date. The relief is available when the
following conditions are met:
(1) The ratio of the amount allocated to the pre-funding account to the
total principal amount of the certificates being offered (the "Pre-Funding
Limit") must not exceed twenty-five percent (25%).
(2) All Obligations transferred after the closing date (the "Additional
Obligations") must meet the same terms and conditions for eligibility as
the original Obligations used to create the trust, which terms and
conditions have been approved by a rating agency.
(3) The transfer of those Additional Obligations to the trust during
the Pre-Funding Period must not result in the certificates to be covered by
the Exemption receiving a lower credit rating from a rating agency upon
termination of the Pre-Funding Period than the rating that was obtained at
the time of the initial issuance of the certificates by the trust.
(4) Solely as a result of the use of pre-funding, the weighted average
annual percentage interest rate for all of the Obligations in the trust at
the end of the Pre-Funding Period must not be more than 100 basis points
lower than the average interest rate for the Obligations transferred to the
trust on the closing date.
(5) In order to insure that the characteristics of the Additional
Obligations are substantially similar to the original Obligations which
were transferred to the trust fund:
(a) the characteristics of the Additional Obligations must be
monitored by an insurer or other credit support provider that is
independent of the depositor; or
(b) an independent accountant retained by the depositor must
provide the depositor with a letter, with copies provided to each
rating agency rating the certificates, the related underwriter and the
related trustee, stating whether or not the characteristics of the
Additional Obligations conform to the characteristics described in the
related prospectus or prospectus supplement and/or pooling and
servicing agreement. In preparing that letter, the independent
accountant must use the same type of procedures as were applicable to
the Obligations transferred to the trust as of the closing date.
(6) The Pre-Funding Period must end no later than three months or 90
days after the closing date or earlier in some circumstances if the
pre-funding account falls below the minimum level specified in the pooling
and servicing agreement or an Event of Default occurs.
(7) Amounts transferred to any pre-funding account and/or capitalized
interest account used in connection with the pre-funding may be invested
only in permitted investments.
(8) The related prospectus or prospectus supplement must describe:
(a) any pre-funding account and/or capitalized interest account
used in connection with a pre-funding account;
(b) the duration of the Pre-Funding Period;
(c) the percentage and/or dollar amount of the Pre-Funding Limit
for the trust; and
(d) that the amounts remaining in the pre-funding account at the
end of the Pre-Funding Period will be remitted to certificateholders as
repayments of principal.
(9) The related pooling and servicing agreement must describe the
permitted investments for the pre-funding account and/or capitalized
interest account and, if not disclosed in the related prospectus or
prospectus supplement, the terms and conditions for eligibility of
Additional Obligations.
Moreover, the Exemption provides relief from some self-dealing/conflict
of interest prohibited transactions that may occur when any person who has
discretionary authority or renders investment advice with respect to the
investment of plan assets causes a Plan to acquire certificates in a trust,
provided that, among other requirements:
(1) that person (or its affiliate) is an obligor with respect to five
percent or less of the fair market value of the obligations or
receivables contained in the trust;
(2) the Plan is not a plan with respect to which any member of the
Restricted Group is the "plan sponsor" as defined in Section 3(16)(B)
of ERISA;
(3) in the case of an acquisition in connection with the initial issuance
of certificates, at least fifty percent of each class of certificates
in which Plans have invested is acquired by persons independent of the
Restricted Group and at least fifty percent of the aggregate interest
in the trust fund is acquired by persons independent of the Restricted
Group;
(4) a Plan's investment in certificates of any class does not exceed
twenty-five percent of all of the certificates of that class
outstanding at the time of the acquisition; and
(5) immediately after the acquisition, no more than twenty-five percent of
the assets of any Plan with respect to which that person has
discretionary authority or renders investment advice are invested in
certificates representing an interest in one or more trusts containing
assets sold or serviced by the same entity.
The J.P. Morgan Exemption does not apply to Plans sponsored by the seller, the
depositor, J.P. Morgan and the other underwriters set forth in the related
prospectus supplement, the trustee, the master servicer, any sub-servicer, the
pool insurer, any obligor with respect to the trust fund asset included in the
trust fund constituting more than five percent of the aggregate unamortized
principal balance of the assets in the trust fund, or any affiliate of any of
those parties -- the Restricted Group.
The J.P. Morgan Exemption may apply to the acquisition, holding and
transfer of the certificates by Plans if all of the conditions of the J.P.
Morgan Exemption are met, including those within the control of the investor. As
of the date hereof, there is no single trust fund asset included in the trust
fund that constitutes more than five percent of the aggregate unamortized
principal balance of the assets of the trust fund.
INSURANCE COMPANY PURCHASERS
Purchasers that are insurance companies should consult with their legal
advisors with respect to the applicability of Prohibited Transaction Class
Exemption 95-60, regarding transactions by insurance company general accounts.
In addition to any exemption that may be available under PTE 95-60 for the
purchase and holding of securities by an insurance company general account, the
Small Business Job Protection Act of 1996 added a new Section 401(c) to ERISA,
which provides exemptive relief from the provisions of Part 4 of Title I of
ERISA and Section 4975 of the Code, including the prohibited transaction
restrictions imposed by ERISA and the Code, for transactions involving an
insurance company general account. Pursuant to Section 401(c) of ERISA, the DOL
published proposed regulations on December 22, 1997, but the required final
regulations (the "401(c) Regulations") have not been issued as of the date
thereof. The 401(c) Regulations which are to provide guidance for the purpose of
determining, in cases where insurance policies supported by an insurer's general
account are issued to or for the benefit of a Plan on or before December 31,
1998, which general account assets constitute plan assets. Section 401(c) of
ERISA generally provides that, until the date which is 18 months after the
401(c) Regulations become final, no person shall be subject to liability under
Part 4 of Title I of ERISA and Section 4975 of the Code on the basis of a claim
that the assets of an insurance company general account constitute plan assets,
unless (1) as otherwise provided by the Secretary of Labor in the 401(c)
Regulations to prevent avoidance of the regulations or (2) an action is brought
by the Secretary of Labor for breaches of fiduciary duty which would also
constitute a violation of federal or state criminal law. Any assets of an
insurance company general account which support insurance policies issued to a
Plan after December 31, 1998 or issued to Plans on or before December 31, 1998
for which the insurance company does not comply with the 401(c) Regulations may
be treated as plan assets. In addition, because Section 401(c) does not relate
to insurance company separate accounts, separate account assets are still
treated as plan assets of any Plan invested in that separate account. Insurance
companies contemplating the investment of general account assets in the
securities should consult with their legal counsel with respect to the
applicability of Section 401(c) of ERISA, including the general account's
ability to continue to hold the Securities after the date which is 18 months
after the date the 401(c) Regulations become final.
CONSULTATION WITH COUNSEL
There can be no assurance that the J.P. Morgan Exemption or any other
DOL exemption will apply with respect to any particular Plan that acquires the
securities or, even if all of the conditions specified in the exemption were
satisfied, that the exemption would apply to all transactions involving a trust
fund. Prospective Plan investors should consult with their legal counsel
concerning the impact of ERISA and the Code and the potential consequences to
their specific circumstances prior to making an investment in the securities.
Any fiduciary or other investor of plan assets that proposes to acquire
or hold securities on behalf of a Plan or with plan assets should consult with
its counsel with respect to the potential applicability of the fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions of
ERISA and Section 4975 of the Code to the proposed investment and the J.P.
Morgan Exemption and the availability of exemptive relief under any class
exemption.
LEGAL INVESTMENT
The prospectus supplement for each series of securities will specify
which, if any, of the classes of securities offered thereby constitute "mortgage
related securities" for purposes of the Secondary Mortgage Market Enhancement
Act of 1984. Classes of securities that qualify as "mortgage related securities"
will be legal investments for persons, trusts, corporations, partnerships,
associations, business trusts, and business entities, including depository
institutions, life insurance companies and pension funds, created pursuant to or
existing under the laws of the United States or of any state, including the
District of Columbia and Puerto Rico, whose authorized investments are subject
to state regulations to the same extent as, under applicable law, obligations
issued by or guaranteed as to principal and interest by the United States or
those entities. Under SMMEA, if a state enacts legislation prior to October 4,
1991 specifically limiting the legal investment authority of those entities with
respect to "mortgage related securities," securities will constitute legal
investments for entities subject to that legislation only to the extent provided
in that legislation. Approximately twenty-one states adopted that legislation
prior to the October 4, 1991 deadline. SMMEA provides, however, that in no event
will the enactment of that legislation affect the validity of any contractual
commitment to purchase, hold or invest in securities, or require the sale or
other disposition of securities, so long as the contractual commitment was made
or those securities were acquired prior to the enactment of that legislation.
SMMEA also amended the legal investment authority of
federally-chartered depository institutions as follows: federal savings and loan
associations and federal savings banks may invest in, sell or otherwise deal in
securities without limitations as to the percentage of their assets represented
thereby, federal credit unions may invest in mortgage related securities, and
national banks may purchase securities for their own account without regard to
the limitations generally applicable to investment securities set forth in 12
U.S.C. 24 (Seventh), subject in each case to those regulations as the applicable
federal authority may prescribe. In this connection, federal credit unions
should review the NCUA Letter to Credit Unions No. 96, as modified by Letter to
Credit Unions No. 108, which includes guidelines to assist federal credit unions
in making investment decisions for mortgage related securities and the NCUA's
regulation "Investment and Deposit Activities" (12 C.F.R. Part 703), which sets
forth restrictions on investment by federal credit unions in mortgage related
securities -- in each case whether or not the class of securities under
consideration for purchase constituted a "mortgage related security".
All depository institutions considering an investment in the
securities, whether or not the class of securities under consideration for
purchase constitutes a "mortgage related security", should review the Federal
Financial Institutions Examination Council's Supervisory Policy Statement on the
Securities Activities to the extent adopted by their respective regulators
setting forth, in relevant part, some securities trading and sales practices
deemed unsuitable for an institution's investment portfolio, and guidelines for,
and restrictions on, investing in mortgage derivative products, including
"mortgage related securities," which are "high-risk mortgage securities" as
defined in the Policy Statement. According to the Policy Statement, "high-risk
mortgage securities" include securities such as securities not entitled to
distributions allocated to principal or interest, or subordinated securities.
Under the Policy Statement, it is the responsibility of each depository
institution to determine, prior to purchase, and at stated intervals thereafter,
whether a particular mortgage derivative product is a "high-risk mortgage
security," and whether the purchase, or retention, of that product would be
consistent with the Policy Statement.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to "prudent investor" provisions which may restrict or prohibit investment in
securities which are not "interest bearing" or "income paying."
There may be other restrictions on the ability of some investors,
including depository institutions, either to purchase securities or to purchase
securities representing more than a specified percentage of the investor's
assets. Investors should consult their own legal advisors in determining whether
and to what extent the securities constitute legal investments for those
investors.
METHOD OF DISTRIBUTION
The securities offered hereby and by the related prospectus supplement
will be offered in series. The distribution of the securities may be effected
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment therefor. If so
specified in the related prospectus supplement, the securities will be
distributed in a firm commitment underwriting, subject to the terms and
conditions of the underwriting agreement, by J.P. Morgan Securities Inc., an
affiliate of the depositor, acting as underwriter with other underwriters, if
any, named in the underwriting agreement. In that event, the prospectus
supplement may also specify that the underwriters will not be obligated to pay
for any securities agreed to be purchased by purchasers pursuant to purchase
agreements acceptable to the depositor. In connection with the sale of
securities, underwriters may receive compensation from the depositor or from
purchasers of securities in the form of discounts, concessions or commissions.
The prospectus supplement will describe any compensation paid by the depositor.
Alternatively, the prospectus supplement may specify that securities
will be distributed by J.P. Morgan Securities Inc. acting as agent or in some
cases as principal with respect to securities that it has previously purchased
or agreed to purchase. If J.P. Morgan Securities Inc. acts as agent in the sale
of securities, J.P. Morgan Securities Inc. will receive a selling commission
with respect to those securities, depending on market conditions, expressed as a
percentage of the aggregate principal balance or notional amount of those
securities as of the cut-off date. The exact percentage for each series of
securities will be disclosed in the related prospectus supplement. To the extent
that J.P. Morgan Securities Inc. elects to purchase securities as principal,
J.P. Morgan Securities Inc. may realize losses or profits based upon the
difference between its purchase price and the sales price. The prospectus
supplement with respect to any series offered other than through underwriters
will contain information regarding the nature of that offering and any
agreements to be entered into between the depositor and purchasers of securities
of that series.
If specified in the related prospectus supplement, an underwriter named
in that prospectus supplement may use the prospectus supplement and the attached
prospectus in connection with offers and sales related to market making
transactions in the related securities. The underwriter named in that prospectus
supplement may act as principal or agent in those transactions. Those
transactions will be at prices related to prevailing market prices at the time
of sale.
The depositor will indemnify J.P. Morgan Securities Inc. and any
underwriters against civil liabilities, including liabilities under the
Securities Act of 1933, or will contribute to payments J.P. Morgan Securities
Inc. and any underwriters may be required to make in respect of those civil
liabilities.
Securities will be sold primarily to institutional investors.
Purchasers of securities, including dealers, may, depending on the facts and
circumstances of those purchases, be deemed to be "underwriters" within the
meaning of the Securities Act of 1933 in connection with reoffers and sales by
them of securities. Certificateholders should consult with their legal advisors
in this regard prior to the reoffer or sale.
As to each series of securities, only those classes rated in an
investment grade rating category by any rating agency will be offered hereby.
Any non-investment grade class may be initially retained by the depositor, and
may be sold by the depositor at any time in private transactions.
LEGAL MATTERS
The validity of the securities of each series, including federal income
tax consequences with respect to that series, will be passed upon for the
depositor by Brown & Wood LLP.
FINANCIAL INFORMATION
A new trust fund will be formed with respect to each series of
securities and no trust fund will engage in any business activities or have any
assets or obligations prior to the issuance of the related series of securities.
Accordingly, no financial statements with respect to any trust fund will be
included in this prospectus or in the related prospectus supplement.
RATING
It is a condition to the issuance of the securities of each series
offered hereby and by the prospectus supplement that they shall have been rated
in one of the four highest rating categories by the nationally recognized
statistical rating agency or agencies specified in the related prospectus
supplement.
Any rating would be based on, among other things, the adequacy of the
value of the trust fund assets and any credit enhancement with respect to that
class and will reflect that rating agency's assessment solely of the likelihood
that holders of a class of securities of that class will receive payments to
which those securityholders are entitled under the related agreement. The rating
will not constitute an assessment of the likelihood that principal prepayments
on the related loans will be made, the degree to which the rate of those
prepayments might differ from that originally anticipated or the likelihood of
early optional termination of the series of securities. The rating should not be
deemed a recommendation to purchase, hold or sell securities, inasmuch as it
does not address market price or suitability for a particular investor. Each
security rating should be evaluated independently of any other security rating.
The rating will not address the possibility that prepayment at higher or lower
rates than anticipated by an investor may cause that investor to experience a
lower than anticipated yield or that an investor purchasing a security at a
significant premium might fail to recoup its initial investment under particular
prepayment scenarios.
There is also no assurance that any rating will remain in effect for
any given period of time or that it may not be lowered or withdrawn entirely by
the rating agency in the future if in its judgment circumstances in the future
so warrant. In addition to being lowered or withdrawn due to any erosion in the
adequacy of the value of the trust fund assets or any credit enhancement with
respect to a series, that rating might also be lowered or withdrawn among other
reasons, because of an adverse change in the financial or other condition of a
credit enhancement provider or a change in the rating of the credit enhancement
provider's long term debt.
The amount, type and nature of credit enhancement, if any, established
with respect to a series of securities will be determined on the basis of
criteria established by each rating agency rating classes of that series. The
criteria are sometimes based upon an actuarial analysis of the behavior of
mortgage loans in a larger group. The analysis is often the basis upon which
each rating agency determines the amount of credit enhancement required with
respect to each class. There can be no assurance that the historical data
supporting any actuarial analysis will accurately reflect future experience nor
any assurance that the data derived from a large pool of mortgage loans
accurately predicts the delinquency, foreclosure or loss experience of any
particular pool of loans. No assurance can be given that values of any
properties have remained or will remain at their levels on the respective dates
of origination of the related loans. If the residential real estate markets
should experience an overall decline in property values such that the
outstanding principal balances of the loans in a particular trust fund and any
secondary financing on the related properties become equal to or greater than
the value of the properties, the rates of delinquencies, foreclosures and losses
could be higher than those now generally experienced in the mortgage lending
industry. In additional, adverse economic conditions, which may or may not
affect real property values, may affect the timely payment by mortgagors of
scheduled payments of principal and interest on the loans and, accordingly, the
rates of delinquencies, foreclosures and losses with respect to any trust fund.
To the extent that losses are not covered by credit enhancement, those losses
will be borne, at least in part, by the holders of one or more classes of the
securities of the related series.
<PAGE>
GLOSSARY
The following are abbreviated definitions of capitalized terms used in
this prospectus.
"401(c) Regulations" means the published proposed regulations published
by DOL on December 22, 1997 pursuant to Section 401(c) of ERISA.
"Contingent Regulations" means the regulations issued by the IRS
governing the calculation of OID on instruments having contingent interest
payments.
"Debt Securities" means securities characterized as debt for federal
income tax purposes and Regular Interest Securities.
"OID" means "original issue discount."
"Parties in Interest" means, collectively, "disqualified persons"
within the meaning of the Code and "parties in interest" under ERISA who have
specified relationships with a Plan without an applicable exemption under ERISA
or the Code.
"Plan" means employee benefit plans and other retirement plans and
arrangements, including, but not limited to, individual retirement accounts and
annuities, as well as collective investment funds and separate general accounts
in which the plans or arrangements are invested, which have requirements imposed
upon them under ERISA and the Code.
"Plan Asset Regulation" means the final regulations issued by DOL that
define the "assets" of a Plan for purposes of ERISA and the prohibited
transaction provisions of the Code (under 29 C.F.R. Sections 2510.3-101).
"Prime Rate" means the "Prime Rate" published in the "Money Rates"
section of The Wall Street Journal, or if not so published, the "Prime Rate" as
published in a newspaper of general circulation selected by the calculation
agent in it sole discretion.
"Property Improvement Loans" means types of loans that are eligible for
FHA insurance under the Title I Program that are made to finance actions or
items that substantially protect or improve the basic livability or utility of a
property.
"RCRA" means the federal Resource Conversation and Recovery Act.
"Regular Interests" means securities that are designated as "regular
interests" in a REMIC.
"Relief Act" means the Soldiers' and Sailors' Civil Relief Act of 1940.
"REMIC" means a "real estate mortgage investment conduit"
"Residual Interests" means securities that are designated as "residual
interests" in a REMIC.
"Title I Loans" means types of loans that are eligible for FHA
insurance under the Title I Program that are made to finance actions or items
that substantially protect or improve the basic livability or utility of a
property.
"Title I Programs" means the FHA Title I Credit Insurance program
created pursuant to Sections 1 and 2(a) of the National Housing Act of 1934.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
The following table sets forth the estimated expenses to be incurred in
connection with the offering of the Securities, other than underwriting
discounts and commissions:
SEC Registration Fee................................. $331,278.89
Trustee's Fees and Expenses.......................... 10,000.00
Printing and Engraving............................... 30,000.00
Legal Fees and Expenses.............................. 100,000.00
Blue Sky Fees........................................ 12,500.00
Accounting Fees and Expenses......................... 20,000.00
Rating Agency Fees................................... 64,000.00
Miscellaneous........................................ 10,000.00
Total.............................................. $477,778.00
==============
______________________________
* All amounts, except the SEC Registration Fee, are estimates of aggregate
expenses incurred or to be incurred in connection with the issuance and
distribution of Securities in an aggregate principal amount assumed for these
purposes to be equal to $_____ of Securities registered hereby.
** To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 8(b) of the proposed form of Underwriting Agreement, the
Underwriters are obligated under certain circumstances to indemnify certain
controlling persons of the Registrant against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Act").
The Registrant's Certificate of Incorporation provides for
indemnification of directors and officers of the Registrant to the full extent
permitted by Delaware law.
Section 145 of the Delaware General Corporation Law provides, in
substance, that Delaware corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents in
connection with actions, suits or proceedings brought against them by a third
party or in the right of the corporation, by reason of the fact that they were
or are such directors, officers, employees or agents, against expenses incurred
in any such action, suit or proceeding. The Delaware General Corporation Law
also provides that the Registrant may purchase insurance on behalf of any such
director, officer, employee or agent.
ITEM 16. EXHIBITS.
(a) FINANCIAL STATEMENTS:
None.
(b) EXHIBITS:
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Registrant.*
3.2 By-laws of the Registrant.*
4.1 Forms of Pooling and Servicing Agreement.
4.2 Form of Trust Agreement.
4.3 Form of Indenture.
5.1 Opinion of Brown & Wood LLP as to legality of the Securities.
8.1 Opinion of Brown & Wood LLP as to certain tax matters.
10.1 Form of Mortgage Loan Purchase Agreement.
10.2 Form of Master Servicing Agreement
23.1 Consent of Brown & Wood LLP (included in Exhibits 5.1 and 8.1
hereto).
24.1 Powers of Attorney (included on Page II-4).
______________________________
* Incorporated by reference from Registration Statement No. 33-23761
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) To reflect in the Prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934, as amended (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934, as amended), that is incorporated
by reference in the registration statement shall be deemed 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.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933, as amended, and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933, as amended, and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that (1) it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and (2) it reasonably
believes that the security rating requirement of Transaction Requirement B.5 of
Form S-3 will be met by the time of sale of each series of securities to which
this Registration Statement relates and has duly caused this Amendment No. 2 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in New York, New York, on the 15th day of October,
1999.
J.P. MORGAN ACCEPTANCE CORPORATION I
By: /s/ David M. Duzyk
--------------------------
Name: David M. Duzyk
Title: President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David M. Duzyk President (Principal Executive Officer) October 15, 1999
- -----------------------------------
David M. Duzyk
* Controller (Principal Financial and October 15, 1999
- ----------------------------------- Accounting Officer)
Aashish R. Kamat
*
- ----------------------------------- Director, Chairman of the Board October 15, 1999
William S. Demchak
*
- ----------------------------------- Director October 15, 1999
Debra F. Stone
*
- ----------------------------------- Director October 15, 1999
Edwin F. McMichael
</TABLE>
*By:/s/ David M. Duzyk
-------------------
Attorney-in-fact
Exhibit 1.1
FORM OF UNDERWRITING AGREEMENT
$------------------
J.P. MORGAN ACCEPTANCE CORPORATION I
Home Equity Loan Asset-Backed Certificates, Series 199_-__ Classes _________
UNDERWRITING AGREEMENT
----------------------
_____________, 19__
J.P. Morgan Securities Inc.
[Co-Manager]
[As Representatives/1/ of the
Several Underwriters Listed
in Schedule I
c/o J.P. Morgan Securities Inc.]
60 Wall Street
New York, New York 10260-0060
Ladies and Gentlemen:
J.P. Morgan Acceptance Corporation I, a Delaware corporation (the
"Depositor"), proposes to sell to
______________________________________________ (the "Underwriters"), [for whom
you are acting as representatives (the "Representatives"),] $____________
principal amount of Home Equity Loan Asset-Backed Certificates, Series
199_-___, Classes __________ (the " Certificates"). The Certificates will
represent beneficial interests in, among other things, a pool of mortgage
loans described in the Prospectus referred to below (the "Mortgage Loans") and
certain moneys received under the Mortgage Loans after __________, 19__ (the
"Cutoff Date"). The Certificates will be issued pursuant to the provisions of
a Pooling and Servicing Agreement to be dated as of ______________, 19__ (the
"Pooling and Servicing Agreement") between the Depositor, __________________,
as master
- ---------------
/1/ If JPMSI is the sole representative, global change "Representatives" for
"Representative". If JPMSI is sole manager, global change "Underwriters" for
"Underwriter" and "Representatives" for "Underwriter" and delete or change
bracketed language throughout, as appropriate.
<PAGE>
servicer (the "Master Servicer), ________________, as special
servicer (the "Special Servicer") and
_______________________________________________, as Trustee (the "Trustee").
The Depositor has prepared and filed with the Securities and Exchange
Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Securities Act"), a registration
statement, including a prospectus, relating to the Certificates. The
registration statement as amended at the time when it became effective, or, if
a post-effective amendment is filed with respect thereto, as amended by such
post-effective amendment at the time of its effectiveness, is referred to in
this Agreement as the "Registration Statement". The Depositor also has filed
with, or proposes to file with, the Commission pursuant to Rule 424 under the
Securities Act a prospectus supplement specifically relating to the
Certificates. The related prospectus covering the Certificates in the form
first used to confirm sales of the Certificates is hereinafter referred to as
the "Basic Prospectus", and the Basic Prospectus as supplemented by the
prospectus supplement specifically relating to the Certificates in the form
first used to confirm sales of the Certificates is hereinafter referred to as
the "Prospectus". Any reference in this Agreement to the Registration
Statement, any preliminary prospectus or the Prospectus shall be deemed to
refer to and include the documents incorporated by reference therein pursuant
to Item 12 of Form S-3 under the Securities Act, as of the effective date of
the Registration Statement or the date of such preliminary prospectus or the
Prospectus, as the case may be, and any reference to "amend" "amendment" or
"supplement" with respect to the Registration Statement, any preliminary
prospectus or the Prospectus shall be deemed to refer to and include any
documents filed after such date under the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder
(collectively, the "Exchange Act") that are deemed to be incorporated by
reference therein.
When used in this Agreement, "Basic Documents" shall mean the Pooling and
Servicing Agreement, the Certificates, the loan sale agreement dated as of
__________, 199_ (the "Loan Sale Agreement") between the Depositor and [Morgan
Guaranty Trust Company of New York ("MGT")] and any other contract, agreement
or instrument which is or is to be entered into by the Depositor on the
Closing Date or otherwise in connection with any of the foregoing or this
Agreement. To the extent not defined herein, capitalized terms used herein
have the meanings assigned to such terms in the Prospectus.
The Depositor hereby agrees with the Underwriters as follows:
1. Purchase and Sale. The Depositor agrees to sell the Certificates to
the [several] Underwriters as hereinafter provided, and [each] [the]
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees to
purchase[, severally and not jointly,] from the Depositor the [respective
principal amount of] Certificates [set forth opposite such Underwriter's name
in Schedule I hereto] at a price per Class equal to ______% of their principal
amount plus accrued interest, if any, on the principal amount thereof at the
applicable Pass-Through Rate set fort on Schedule I hereto from
______________, 19__ to the date of payment and delivery.
2. Offering. The Depositor understands that the Underwriters intend[s]
(i) to make a public offering of [their respective portions of] the
Certificates as soon after the parties hereto have executed and delivered this
Agreement as in the judgment of the Representatives is advisable and (ii)
initially to offer the Certificates upon the terms set forth in the
Prospectus.
3. Delivery and Payment. Payment for the Certificates shall be made by
wire transfer in immediately available funds to the account specified by the
Depositor to the Representatives no later than noon the Business Day (as
defined below) prior to the Closing Date (as defined below), at 10:00 A.M.,
New York City time on ________, 19__, or at such other time on the same or
such other date, not later than the fifth Business Day thereafter, as the
Representatives and the Depositor may agree upon in writing. The time and date
of such payment are referred to herein as the "Closing Date". As used herein,
the term "Business Day" means any day other than a day on which banks are
permitted or required to be closed in New York City.
Payment for the Certificates shall be made against delivery to the
nominee of the Depository Trust Company for the account of the Representatives
[for the respective accounts of the several Underwriters] of one or more
global notes (the "Global Note") representing the Certificates, with any
transfer taxes payable in connection with the transfer to the Underwriters of
the Certificates duly paid by the Depositor. The Global Note will be made
available for inspection by the Representatives at the office of J.P. Morgan
Securities Inc. at the address set forth above not later than 1:00 P.M., New
York City time, on the Business Day prior to the Closing Date.
4. Representations and Warranties. The Depositor represents and warrants
to each Underwriter that:
(a) no order preventing or suspending the use of any preliminary
prospectus has been issued by the Commission, and each preliminary
prospectus filed as part of the Registration Statement as originally
filed or as part of any amendment thereto, or filed pursuant to Rule 424
under the Securities Act, complied when so filed in all material respects
with the Securities Act, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided that
this representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information
relating to [any] [the] Underwriter furnished to the Depositor in writing
by [such] [the] Underwriter [through the Representatives] expressly for
use therein;
(b) the Registration Statement has been declared effective by the
Commission under the Securities Act; no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceeding for that purpose has been instituted or, to the knowledge of
the Depositor, threatened by the Commission; and the Registration
Statement and Prospectus (as amended or supplemented if the Depositor
shall have furnished any amendments or supplements thereto) comply, or
will comply, as the case may be, in all material respects with the
Securities Act and do not and will not, as of the applicable effective
date as to the Registration Statement and any amendment thereto and as of
the date of the Prospectus and any amendment or supplement thereto,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Prospectus, as amended or
supplemented, if applicable, at the Closing Date will not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; except that the
foregoing representations and warranties shall not apply to statements or
omissions in the Registration Statement or the Prospectus made in
reliance upon and in conformity with information relating to [any] [the]
Underwriter furnished to the Depositor in writing by [such] [the]
Underwriter [through the Representatives] expressly for use therein;
(c) the documents incorporated by reference in the Prospectus, when
they became effective or were filed with the Commission, as the case may
be, conformed in all material respects to the requirements of the
Securities Act or the Exchange Act, as applicable, and none of such
documents contained an untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
and any further documents so filed and incorporated by reference in the
Prospectus, when such documents are filed with the Commission, will
conform in all material respects to the requirements of the Exchange Act,
and will not contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(d) the Depositor has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the state of its
incorporation, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and
has been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties, or conducts any
business, so as to require such qualification, other than where the
failure to be so qualified or in good standing would not have a material
adverse effect on the transactions contemplated herein or in the Basic
Documents;
(e) this Agreement has been duly authorized, executed and delivered
by the Depositor;
(f) the Certificates have been duly and validly authorized and, when
such Certificates are duly and validly executed and authenticated by the
Trustee and delivered in accordance with the Pooling and Servicing
Agreement and delivered and paid for pursuant to this Agreement will be
validly issued and outstanding and entitled to the benefits and security
afforded by the Pooling and Servicing Agreement; each of the Basic
Documents has been duly authorized and, when executed and delivered by
the Depositor and, in the case of the Basic Documents, the other parties
thereto, each of the Basic Documents will constitute a legal, valid and
binding obligation of the Depositor, enforceable against the Depositor in
accordance with its terms, subject as to enforceability to applicable
bankruptcy, insolvency, reorganization, conservatorship, receivership,
liquidation or other similar laws affecting the enforcement of creditors
rights generally and to general equitable principles; and the
Certificates and the Basic Documents each will conform to the
descriptions thereof in the Prospectus;
(g) the Depositor is not, nor with the giving of notice or lapse of
time or both would be, in violation of or in default under, its
Certificate of Incorporation or By-Laws or any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument to which the
Depositor is a party or by which it or any of its properties is bound,
except for violations and defaults which individually and in the
aggregate would not have a material adverse effect on the transactions
contemplated herein or in the Basic Documents; the issue and sale of the
Certificates and the performance by the Depositor of all of the
provisions of its obligations under the Certificates, the Basic Documents
and this Agreement and the consummation of the transactions herein and
therein contemplated will not conflict with or result in a breach of any
of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Depositor is a party or by which the Depositor is
bound or to which any of the property or assets of the Depositor is
subject, nor will any such action result in any violation of the
provisions of the Certificate of Incorporation or the By-Laws of the
Depositor or any applicable law or statute or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Depositor, or any of its properties; and no
consent, approval, authorization, order, license, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Certificates or the consummation
by the Depositor of the transactions contemplated by this Agreement or
the Basic Documents, except such consents, approvals, authorizations,
orders, licenses, registrations or qualifications as have been obtained
under the Securities Act, and as may be required under state securities
or Blue Sky Laws in connection with the purchase and distribution of the
Certificates by the Underwriters;
(h) other than as set forth or contemplated in the Prospectus, there
are no legal or governmental investigations, actions, suits or
proceedings pending or, to the knowledge of the Depositor, threatened
against or affecting the Depositor or its properties or, to which the
Depositor is or may be a party or to which the Depositor or any property
of the Depositor is or may be the subject, (i) asserting the invalidity
of this Agreement or of any of the Basic Documents, (ii) seeking to
prevent the issuance of the Certificates or the consummation of any of
the transactions contemplated by this Agreement or any of the Basic
Documents, (iii) that may adversely affect the federal or state income,
excise, franchise or similar tax attributes of the Certificates, (iv)
that could materially and adversely affect the Depositor's performance of
its obligations under, or the validity or enforceability of, this
Agreement or any of the Basic Documents or (v) which could individually
or in the aggregate reasonably be expected to have a material adverse
effect on the interests of the holders of the Certificates or the
marketability of the Certificates; and there are no statutes,
regulations, contracts or other documents that are required to be filed
as an exhibit to the Registration Statement or required to be described
in the Registration Statement or the Prospectus which are not filed or
described as required;
(i) the computer tape with respect to the Mortgage Loans to be
deposited in the Trust Fund created as of the Cutoff Date and made
available to the Underwriters by the Depositor was complete and accurate
in all material respects as of the date hereof; the Depositor has good
and marketable title to the Mortgage Loans free and clear of all liens,
encumbrances and defects, except such as are described or referred to in
the Prospectus, and by assignment and delivery of each of the Mortgage
Loans to the Trustee as of the Closing Date, the Depositor will transfer
title in the Mortgage Loans to the Trust Fund, subject to no prior lien,
mortgage, security interest, pledge, adverse claim, change or
encumbrance;
(j) the representations and warranties of the Depositor contained in
the Basic Documents are true and correct in all material respects; and
(k) [Ernst & Young LLP] are independent public accountants with
respect to the Depositor within the meanings of the Securities Act.
5. Covenants and Agreements. The Depositor covenants and agrees with
[each of] the [several] Underwriters as follows:
(a) to file the final Prospectus with the Commission within the time
periods specified by Rule 424(b) under the Securities Act, and to furnish
copies of the Prospectus to the Underwriters in New York City prior to
10:00 a.m., New York City time, on the Business Day next succeeding the
date of this Agreement in such quantities as the Representatives may
reasonably request;
(b) to deliver, at the expense of the Depositor, to the
Representatives, /2/ signed copies of the Registration Statement (as
originally filed) and each amendment thereto, in each case including
exhibits and documents incorporated by reference therein, and to each
other Underwriter a conformed copy of the Registration Statement (as
originally filed) and each amendment thereto, in each case without
exhibits but including the documents incorporated by reference therein
and, during the period mentioned in paragraph (e) below, to [each of] the
Underwriters as many copies of the Prospectus
- ---------------
/2/ One for each Representative and one for Underwriters' counsel.
<PAGE>
(including all amendments and supplements thereto and documents
incorporated by reference therein) as the Representatives may reasonably
request;
(c) before filing any amendment or supplement to the Registration
Statement or the Prospectus, whether before or after the time the
Registration Statement becomes effective, to furnish to the
Representatives a copy of the proposed amendment or supplement for review
and not to file any such proposed amendment or supplement to which the
Representatives reasonably object[s];
(d) to advise the Representatives promptly, and to confirm such
advice in writing, (i) when any amendment to the Registration Statement
has been filed or becomes effective, (ii) when any supplement to the
Prospectus or any amendment to the Prospectus has been filed and to
furnish the Representatives with copies thereof, (iii) of any request by
the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for any additional
information, (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of any
order preventing or suspending the use of any preliminary prospectus or
the Prospectus or the initiation or threatening of any proceeding for
that purpose, (v) of the occurrence of any event, within the period
referenced in paragraph (e) below, as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, and (vi) of the
receipt by the Depositor of any notification with respect to any
suspension of the qualification of the Certificates for offer and sale in
any jurisdiction or the initiation or threatening of any proceeding for
such purpose; and to use its best efforts to prevent the issuance of any
such stop order, or of any order preventing or suspending the use of any
preliminary prospectus or the Prospectus, or of any order suspending and
such qualification of the Certificates, or notification of any such order
thereof and, if issued, to obtain as soon as possible the withdrawal
thereof;
(e) if, during such period of time after the first date of the
public offering of the Certificates as in the opinion of counsel for the
Underwriters a prospectus relating to the Certificates is required by law
to be delivered in connection with sales by [an] [the] Underwriter or a
dealer, any event shall occur as a result of which it is necessary to
amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances when the Prospectus is
delivered to a purchaser, not misleading, or if it is necessary to amend
or supplement the Prospectus to comply with law, forthwith to prepare and
furnish, at the expense of the Depositor, to the Underwriters and to the
dealers (whose names and addresses the Representatives will furnish to
the Depositor) to which Certificates may have been sold by the
Representatives [on behalf of the Underwriters] and to any other dealers
upon request, such amendments or supplements to the Prospectus as may be
necessary so that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus will comply with law;
(f) to endeavor to qualify the Certificates for offer and sale under
the Certificates or Blue Sky laws of such jurisdictions as the
Representatives shall reasonably request and to continue such
qualification in effect so long as reasonably required for distribution
of the Certificates; provided that the Depositor shall not be required to
file a general consent to service of process in any jurisdiction;
(g) to make generally available to the holders of the Certificates
and to the Representatives as soon as practicable an earnings statement
covering a period of at least twelve months beginning with the first
fiscal quarter of the Trust Fund occurring after the effective date of
the Registration Statement, which shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 of the Commission promulgated
thereunder;
(h) so long as the Certificates are outstanding, to furnish to the
Representatives (i) copies of each certificate, the annual statements of
compliance and the annual independent certified public accountant's
servicing reports furnished to the Trustee pursuant to the Pooling and
Servicing Agreement by first class mail as soon as practicable after such
statements and reports are furnished to the Trustee, (ii) copies of each
amendment to any of the Basic Documents, (iii) copies of all reports or
other communications (financial or other) furnished to holders of the
Certificates, and copies of any reports and financial statements
furnished to or filed with the Commission, any governmental or regulatory
authority or any national securities exchange, and (iv) from time to time
such other information concerning the Trust Fund or the Depositor as the
Representatives may reasonably request;
(i) to the extent, if any, that the ratings provided with respect to
the Certificates by the Rating Agencies are conditional upon the
furnishing of documents or the taking of any other action by the
Depositor, the Depositor shall use its best efforts to furnish such
documents and take any other such action; and
(j) to use the net proceeds received by the Depositor from the sale
of the Certificates pursuant to this Agreement in the manner specified in
the Prospectus under the caption "Use of Proceeds".
6. Conditions to the Obligations of the Underwriters. The [several]
obligations of the Underwriters hereunder are subject to the performance by
the Depositor of its obligations hereunder and to the following additional
conditions:
(a) if a post-effective amendment is required to be filed under the
Securities Act, such post-effective amendment shall have become
effective, not later than 5:00 P.M., New York City time, on the date
hereof; and no stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment shall be in
effect, and no proceedings for such purpose shall be pending before or
threatened by the Commission; the Prospectus shall have been filed with
the Commission pursuant to Rule 424(b) within the applicable time period
prescribed for such filing by the rules and regulations under the
Securities Act and in accordance with Section 5(a) hereof; and all
requests for additional information shall have been complied with to the
satisfaction of the Representatives;
(b) the representations and warranties of the Depositor contained
herein are true and correct on and as of the Closing Date as if made on
and as of the Closing Date and the representations and warranties of the
Depositor and the Servicers in the Pooling and Servicing Agreement will
be true and correct on the Closing Date; and the Depositor shall have
complied with all agreements and all conditions on its part to be
performed or satisfied hereunder and under the Basic Documents at or
prior to the Closing Date;
(c) the Representatives shall have received on and as of the Closing
Date a certificate of an executive officer of the Depositor satisfactory
to the Representatives to the effect set forth in subsections (a) and (b)
of this Section;
(d) Brown & Wood, counsel for the Depositor, shall have furnished to
the Representatives their written opinion, dated the Closing Date, in
form and substance satisfactory to the Representatives, to the effect
that:/3/
(i) the Depositor has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware, with power and authority (corporate and other) to
own its properties and conduct its business as described in the
Prospectus;
(ii) the Depositor has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of the State of New York, which the Depositor has
advised such counsel in writing is the only jurisdiction in which it
owns or leases properties, or conducts any material business, so as
to require such qualification;
[(iii) other than as set forth or contemplated in the
Prospectus, there are no legal or governmental investigations,
actions, suits or proceedings pending or, to the best of such
counsel's knowledge, threatened against or affecting the Depositor
or any of its properties, or to which the Depositor is or may be a
party or to which any property of the Depositor is or may be the
subject (i) that are required to be disclosed in the Registration
Statement or the Prospectus, (ii) asserting the invalidity of this
Agreement or of any of the Basic Documents, (iii)
- ---------------
/3/ The bracketed sections are from the JPMSI form of UA but were not included
in the B&W opinion in the C2 UA. Can B&W give these going forward? Let's
discuss.
<PAGE>
seeking to prevent the issuance of the Certificates or the
consummation of any of the transactions contemplated by this
Agreement or any of the Basic Documents, (iv) that may adversely
affect the federal or state income, excise, franchise or similar
tax attributes of the Certificates, (v) that could materially
and adversely affect the Seller's obligations under this Agreement
or any of the Basic Documents or (vi) which, if determined
adversely to the Depositor, could individually or in the aggregate
reasonably be expected to have a material adverse effect on the
general affairs, business, prospects, management, financial
position, stockholders' equity or results of operations of the
Depositor taken as a whole or that would reasonably be expected
to materially adversely affect the interests of the holders of
the Certificates;]
(iv) such counsel does not know of any statutes, regulations,
contracts or other documents that are required to be described in
the Registration Statement or the Prospectus or required to be filed
as an exhibit to the Registration Statement that are not described
or filed as required;
(v) this Agreement has been duly authorized, executed and
delivered by the Depositor;
(vi) the Certificates have been duly and validly authorized
and, when such Certificates are duly and validly executed and
authenticated by the Trustee and delivered in accordance with the
Pooling and Servicing Agreement and delivered and paid for pursuant
to this Agreement will be validly issued and outstanding and
entitled to the benefits and security afforded by the Pooling and
Servicing Agreement;
(vii) each of the Basic Documents has been duly authorized,
executed and delivered by the Depositor and constitutes a valid and
binding obligation of the Depositor enforceable against the
Depositor in accordance with its terms, subject as to enforceability
to applicable bankruptcy, insolvency, reorganization,
conservatorship, receivership, liquidation or other similar laws
affecting the enforcement of creditors rights generally and to
general equitable principles;
(viii) [the Depositor is not, nor with the giving of notice or
lapse of time or both would be, in violation of or in default under,
its Certificate of Incorporation or By-Laws or any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument known to such counsel to which the Depositor is a party
or by which it or any of its properties is bound, except for
violations and defaults which individually and in the aggregate are
not material to the Depositor taken as a whole or to the holders of
the Certificates;] the issue and sale of the Certificates and the
execution, delivery and performance by the Depositor of the
Certificates, the Basic Documents and this Agreement and the
consummation of the transactions herein and therein contemplated
will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument known to such counsel to which the Depositor is a party
or by which the Depositor is bound or to which any of the property
or assets of the Depositor is subject, nor will any such action
result in any violation of the provisions of the Certificate of
Incorporation, or the By-Laws of the Depositor or any applicable law
or statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Depositor,
or any of its properties;
(ix) no consent, approval, authorization, order, license,
registration or qualification of or with any court or governmental
agency or body is required for the issue and sale of the
Certificates or the consummation of the other transactions
contemplated by this Agreement or the Basic Documents, except such
consents, approvals, authorizations, orders, licenses, registrations
or qualifications as have been obtained under the Securities Act and
as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Certificates by
the Underwriter;
(x) the statements in the Prospectus under "Description of the
Pooling and Servicing Agreement" and "Description of Certificates"
insofar as such statements constitute a summary of the legal
matters, documents or proceedings referred to therein, fairly
present the information called for with respect to such legal
matters, documents or proceedings; the statements in the
Registration Statement and the Prospectus under the headings
"Certain Federal Income Tax Consequences, "State Tax
Considerations", "ERISA Considerations", ["Certain Legal Aspects of
the Mortgage Loans and the Leases"] and "Legal Investment", to the
extent they constitute descriptions of matters of law or legal
conclusions with respect thereto, have been prepared or reviewed by
such counsel and are correct in all material respects;
(xi) such counsel is of the opinion that the Registration
Statement and the Prospectus and any amendments and supplements
thereto (other than any accounting, statistical or financial data
included therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements of
the Securities Act; and such counsel believes that (other than the
accounting, statistical or financial data included therein, as to
which such counsel need express no belief) the Registration
Statement and the prospectus included therein at the time the
Registration Statement became effective did not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and that the Prospectus, as amended or
supplemented, if applicable, does not contain any untrue statement
of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
[(xii) the documents incorporated by reference in the
Prospectus or any further amendment or supplement thereto made by
the Depositor prior to the Closing Date (other than any accounting,
statistical or financial data included therein, as to which such
counsel need express no opinion), when they were filed with the
Commission, complied as to form in all material respects with the
requirements of the Securities Act or the Exchange Act, as
applicable, and the rules and regulations of the Commission
thereunder; and they have no reason to believe that any of such
documents, when such documents were so filed, contained an untrue
statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of
the circumstances under which they were made when such documents
were so filed, not misleading;]
(xiii) the Registration Statement has become effective under
the Securities Act and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been
issued under the Securities Act and no proceedings for that purpose
have been instituted or threatened by the commissioner.
(xiv) the Pooling and Servicing Agreement is not required to be
qualified under the Trust Indenture Act of 1939, as amended, and the
Trust Fund is not required to be registered as an "investment
company" under the Investment Company Act of 1940, as amended; and
(xv) assuming compliance with all of the provisions of the
Pooling and Servicing Agreement, under existing law, (a) the Trust
Fund will be treated as ____ separate "real estate mortgage
investment conduits" (each a "REMIC") as defined by Section 860D of
the Internal Revenue Code of 1986 (the "Code"), (b) the Class ___
Certificates will represent beneficial interests in regular
interests in the REMIC ____ as the term "regular interest" is
defined in the Code, and (c) the Class R- __ Certificates will be
treated as the sole class of "residual interests" in each REMIC, as
the term "residual interest" is defined in the Code. However,
continuation of the status of the Trust Fund as a REMIC may entail
compliance with statutory changes in the future and with regulations
not yet issued.
(e) on the date hereof and also on the Closing Date, [Ernst & Young
LLP] shall have furnished to you letters, dated the respective dates of
delivery thereof, in form and substance satisfactory to you;
(f) the Representatives shall have received on and as of the Closing
Date an opinion of Brown & Wood, counsel to the Underwriters, with
respect to the validity of the Pooling and Servicing Agreement and the
Certificates, the Registration Statement, the Prospectus and other
related matters as the Representatives may reasonably request, and such
counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon such matters;
(g) [Insert A & K's opinion, Trustee's counsel opinion, Master
Servicer's counsel opinion, Special Servicer's counsel opinion, MGT's
counsel opinion, MGT closing certificate, Master Servicer, Primary
Servicer and Special Servicer closing certificates, all from C2
underwriting agreement.]
(h) the Representative shall have received a letter or letters from
each counsel delivering any written opinion to any Rating Agency in
connection with the transaction described herein which is not otherwise
described in this Agreement allowing the Representative to rely on such
opinion as if it were addressed to the Representative;
(i) the Representative shall have received copies of letters from
[Standard & Poor's Rating Services and Fitch Investors Service, L.P.]
(the "Rating Agencies") stating that the Certificates shall have been
rated as set forth on Schedule I hereto by the Rating Agencies; and
(j) on or prior to the Closing Date the Depositor shall have
furnished to the Representatives such further certificates and documents
as the Representatives shall reasonably request.
7. Indemnification and Contribution. (a) The Depositor [and J.P. Morgan
Securities Holdings Inc. ("JPMSH")]/4/ agree[s] to [jointly and severally]
indemnify and hold harmless [each] [the] Underwriter and each person, if any,
who controls [any] [the] Underwriter within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, damages and liabilities (including, without
limitation, the legal fees and other expenses incurred in connection with any
suit, action or proceeding or any claim asserted) caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or the Prospectus (as amended or supplemented if the
Depositor shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information relating to [any] [the] Underwriter furnished to the
Depositor in writing by [such] [the] Underwriter [through the Representatives]
expressly for use therein;
(b) [Each] [the] Underwriter agrees [, severally and not jointly,]
to indemnify and hold harmless the Depositor, its directors, its officers
who sign the Registration Statement [, JPMSH ]/5/ and each person who
controls the Depositor within the meaning of
- ---------------
/4/ If there are co-managers, insert bracketed language.
/5/ Insert bracketed language for JPMSH only to the extent inserted in previous
paragraph.
<PAGE>
Section 15 of the Securities Act and Section 20 of the Exchange Act
to the same extent as the foregoing indemnity from the Depositor
[and JPMSH] to [each] [the] Underwriter, but only with reference to
information relating to [such] [the] Underwriter furnished to the
Depositor in writing by [such] [the] Underwriter [through the
Representatives] expressly for use in the Registration Statement,
the Prospectus, any amendment or supplement thereto, or any
preliminary prospectus.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted
against any person in respect of which indemnity may be sought pursuant
to Subsections (a) or (b) above, such person (the "Indemnified Person")
shall promptly notify the person against whom such indemnity may be
sought (the "Indemnifying Person") in writing, and the Indemnifying
Person, upon request of the Indemnified Person, shall retain counsel
reasonably satisfactory to the Indemnified Person to represent the
Indemnified Person and any others the Indemnifying Person may designate
in such proceeding and shall pay the fees and expenses of such counsel
related to such proceeding. In any such proceeding, any Indemnified
Person shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such Indemnified
Person unless (i) the Indemnifying Person and the Indemnified Person
shall have mutually agreed to the contrary, (ii) the Indemnifying Person
has failed within a reasonable time to retain counsel reasonably
satisfactory to the Indemnified Person or (iii) the named parties in any
such proceeding (including any impleaded parties) include both the
Indemnifying Person and the Indemnified Person and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
Indemnifying Person shall not, in connection with any proceeding or
related proceeding in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm (in addition to any local
counsel) for all Indemnified Persons, and that all such fees and expenses
shall be reimbursed as they are incurred. Any such separate firm for the
Underwriters and such control persons of the Underwriters shall be
designated in writing by J.P. Morgan Securities Inc. and any such
separate firm for the Depositor, its directors, its officers who sign the
Registration Statement[, JPMSH]/6/ and such control persons of the
Depositor shall be designated in writing by the Depositor. The
Indemnifying Person shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the
Indemnifying Person agrees to indemnify any Indemnified Person from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an Indemnified
Person shall have requested an Indemnifying Person to reimburse the
Indemnified Person for fees and expenses of counsel as contemplated by
the third sentence of this subsection (c), the Indemnifying Person agrees
that it shall be liable for any settlement of any proceeding
- ---------------
/6/ Insert bracketed language only to the extent inserted in previous paragraph.
<PAGE>
effected without its written consent if (i) such settlement is entered
into more than 30 days after receipt by such Indemnifying Person of the
aforesaid request and (ii) such Indemnifying Person shall not have
reimbursed the Indemnified Person in accordance with such request prior
to the date of such settlement. No Indemnifying Person shall, without
the prior written consent of the Indemnified Person, effect any settlement
of any pending or threatened proceeding in respect of which any
Indemnified Person is or could have been a party and indemnity could
have been sought hereunder by such Indemnified Person, unless such
settlement includes an unconditional release of such Indemnified Person
from all liability on claims that are the subject matter of such
proceeding.
(d) If the indemnification provided for in subsections (a) or (b)
above is unavailable to an Indemnified Person in respect of any losses,
claims, damages or liabilities referred to therein, then each
Indemnifying Person under such subsection, in lieu of indemnifying such
Indemnified Person thereunder, shall contribute to the amount paid or
payable by such Indemnified Person as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to
reflect the relative benefits received by the Depositor on the one hand
and the Underwriters on the other hand from the offering of the
Certificates or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above
but also the relative fault of the Depositor on the one hand and the
Underwriters on the other in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as
any other relevant equitable considerations. The relative benefits
received by the Depositor on the one hand and the Underwriters on the
other shall be deemed to be in the same respective proportions as the net
proceeds from the offering (before deducting expenses) received by the
Depositor and the total underwriting discounts and the commissions
received by the Underwriters bear to the aggregate public offering price
of the Certificates. The relative fault of the Depositor on the one hand
and the Underwriters on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Depositor or by the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
The Depositor and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Person as a result of
the losses, claims, damages and liabilities referred to in this subsection (d)
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses incurred by such Indemnified Person in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7, in no event shall [an] [the] Underwriter be
required to contribute any amount in excess of the amount by which the total
price at which the Certificates underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. [The Underwriters' obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective principal amount of Certificates set forth opposite their names in
Schedule I hereto, and not joint.]
The remedies provided for in this Section 7 are not exclusive and shall
not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(e) The indemnity and contribution agreements contained in this
Section 7 and the representations and warranties of the Depositor set
forth in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of [any] [the] Underwriter or any
person controlling [any] [the] Underwriter or by or on behalf of the
Depositor, its officers or directors or any other person controlling the
Depositor and (iii) acceptance of and payment for any of the
Certificates.
8. Termination. Notwithstanding anything herein contained, this Agreement
may be terminated in the absolute discretion of the Representatives, by notice
given to the Depositor, if after the execution and delivery of this Agreement
and prior to the Closing Date (i) trading generally shall have been suspended
or materially limited on or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange, the National Association of Securities
Dealers, Inc., the Chicago Board Options Exchange, the Chicago Mercantile
Exchange or the Chicago Board of Trade, (ii) a general moratorium on
commercial banking activities in New York shall have been declared by either
Federal or New York State authorities, or (iii) there shall have occurred any
outbreak or escalation of hostilities or any change in financial markets or
any calamity or crisis that, in the judgment of the Representatives, is
material and adverse and which, in the judgment of the Representatives, makes
it impracticable to market the Certificates on the terms and in the manner
contemplated in the Prospectus.
9. Effectiveness of Agreement[; Default of Underwriters]. This Agreement
shall become effective upon execution and delivery hereof by the parties
hereto.
[If on the Closing Date any one or more of the Underwriters shall fail or
refuse to purchase Certificates which it or they have agreed to purchase
hereunder on such date, and the aggregate principal amount of Certificates
which such defaulting Underwriter or Underwriters agreed but failed or refused
to purchase is not more than one-tenth of the aggregate principal amount of
the Certificates to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the principal amount of
Certificates set forth opposite their respective names in Schedule I bears to
the aggregate principal amount of Certificates set forth opposite the names of
all such non-defaulting Underwriters, or in such other proportions as the
Representatives may specify, to purchase the Certificates which such
defaulting Underwriter or Underwriters agreed but failed or refused to
purchase on such date; provided that in no event shall the principal amount of
Certificates that any Underwriter has agreed to purchase pursuant to Section 1
be increased pursuant to this Section 9 by an amount in excess of one-ninth of
such principal amount of Certificates without the written consent of such
Underwriter. If on the Closing Date any Underwriter or Underwriters shall fail
or refuse to purchase Certificates which it or they have agreed to purchase
hereunder on such date, and the aggregate principal amount of Certificates
with respect to which such default occurs is more than one-tenth of the
aggregate principal amount of Certificates to be purchased on such date, and
arrangements satisfactory to the Representatives and the Depositor for the
purchase of such Certificates are not made within 36 hours after such default,
this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter or the Depositor. In any such case either you or
the Depositor shall have the right to postpone the Closing Date, but in no
event for longer than seven days, in order that the required changes, if any,
in the Registration Statement and in the Prospectus or in any other documents
or arrangements may be effected. Any action taken under this paragraph shall
not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.]
10. Payment of Expenses. (a) JPMSI will pay all costs and expenses of the
Depositor in connection with the transactions herein contemplated, including,
but not limited to: (i) the costs and expenses of the Depositor in connection
with the purchase of the Mortgage Collateral; (ii) the fees and disbursements
of counsel to the Depositor; (iii) the costs and expenses of reproducing and
delivering the Pooling and Servicing Agreement and printing (or otherwise
reproducing) and delivering the Certificates; (iv) the fees, costs and
expenses of the Trustee and its counsel; (v) all accounting fees and
disbursements; (vi) the costs and expenses in connection with the
qualification or exemption of the Certificates under state securities or Blue
Sky laws, including filing fees and reasonable fees and disbursements of
counsel in connection therewith; (vii) the costs and expenses in connection
with any determination of the eligibility of the Certificates for investment
by institutional investors in any jurisdiction and the preparation of any
Legal Investment Survey, including reasonable fees and disbursements of
counsel in connection therewith; (viii) the costs and expenses in connection
with printing (or otherwise reproducing ) and delivering the Registration
Statement and Prospectus and the reproducing and delivery of this Agreement
and the furnishing to the Underwriters of such copies of the Registration
Statement, Prospectus and this Agreement as the Underwriters may reasonably
request; and (ix) the fees of the rating agency or agencies requested to rate
the Certificates. Except as provided in the following paragraph (b), each
Underwriter shall be responsible for paying all costs and expenses incurred by
it in connection with its purchase and sale of Certificates including, but not
limited to, the fees and disbursements of its counsel.
(b) If this Agreement shall be terminated by the Underwriters[, or
any of them,] because of any failure or refusal on the part of the
Depositor to comply with the terms or to fulfill any of the conditions of
this Agreement, or if for any reason the Depositor shall be unable to
perform its obligations under this Agreement or any condition of the
[Underwriters'] [Underwriter's] obligations cannot be fulfilled, J.P.
Morgan Securities Inc. agrees to reimburse the Underwriters [or such
Underwriters as have so terminated this Agreement with respect to
themselves, severally,] for all out-of-pocket expenses (including the
fees and expenses of their counsel) reasonably incurred by [such] [the]
Underwriters in connection with this Agreement or the offering
contemplated hereunder.
11. Successors. This Agreement shall inure to the benefit of and be
binding upon the Depositor, the Underwriters, any controlling persons referred
to herein and their respective successors and assigns. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any
other person, firm or corporation any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision herein contained.
No purchaser of Certificates from any Underwriter shall be deemed to be a
successor by reason merely of such purchase.
12. [Actions by Representative;] Notices. [Any action by the Underwriters
hereunder may be taken by [the Representatives jointly or by/7/] J.P. Morgan
Securities Inc. [alone/8/] on behalf of the Underwriters, and any such action
taken by [the Representatives jointly or by/9/] J.P. Morgan Securities Inc.
[alone/10/] shall be binding upon the Underwriters.] All notices and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if mailed or transmitted by any standard form of telecommunication.
Notices to the Underwriters shall be given to [the Representatives c/o] J.P.
Morgan Securities Inc., 60 Wall Street, New York, New York 10060-0060
(Facsimile No.: (212) 648-5909); Attention: Syndicate Desk. Notices to the
Depositor shall be given to it at J.P. Morgan Commercial Mortgage Finance
Corp, 60 Wall Street, New York, New York 10260-0060, (Facsimile No.: (212)
648-5138); Attention: Michael A. Jungman, President.
13. Counterparts; Applicable Law. This Agreement may be signed in
counterparts, each of which shall be an original and all of which together
shall constitute one and the same instrument. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York, without
giving effect to the conflicts of laws provisions thereof.
- ---------------
/7/Delete if JPMS is the sole representative.
/8/Delete if JPMS is the sole representative.
/9/Delete if JPMS is the sole representative.
/10/Delete if JPMS is the sole representative.
<PAGE>
If the foregoing is in accordance with your understanding, please sign
and return the enclosed counterparts hereof.
Very truly yours,
J.P. MORGAN ACCEPTANCE CORPORATION I
By:_________________________________
Name:
Title:
[J.P. MORGAN SECURITIES
HOLDINGS INC.
By:_________________________________
Name:
Title: ]
Accepted: __________, 199_
J.P. Morgan Securities Inc.
[Co-Manager/11/]
[Acting severally on behalf
of themselves/12/ and the
several Underwriters listed
in Schedule I hereto.]
[By: J.P. Morgan Securities Inc./13/]
[Acting on behalf of itself and the
several Underwriters listed in
Schedule I hereto.]
By:___________________________
Title:
- ---------------
/11/Delete if JPMSI is sole Representative.
/12/Delete if JPMSI is sole Representative and change "themselves" to "itself".
/13/Delete if JPMSI is sole Representative and change "themselves" to "itself".
<PAGE>
SCHEDULE I
----------
[INSERT FORM OF SCHEDULE I
FROM C2 UNDERWRITING AGREEMENT]
PRINCIPAL AMOUNT OF
CERTIFICATES TO BE PURCHASED
----------------------------
Underwriter
- -----------
J.P. Morgan Securities Inc..............
[Co-Manager]............................
Total..........................
Exhibit 4.1
Form of Pooling and Servicing Agreement
J.P. MORGAN ACCEPTANCE CORPORATION I,
as Depositor,
[ ],
as Seller and Servicer,
[ ],
as Transferor,
and
[------------],
as Trustee
-----------------------
POOLING AND SERVICING AGREEMENT
Dated as of [ ]
----------------------
Home Equity Loan Asset-Backed Certificates
Series 199_-_
<PAGE>
Table of Contents
Page
----
ARTICLE I.
Definitions
Section 1.01. Definitions...............................................8
Section 1.02. Interest Calculations....................................25
ARTICLE II.
Conveyance of Mortgage Loans; Original Issuance of Certificates; Tax Treatment
Section 2.01. Conveyance of Mortgage Loans; Retention of Obligation
to Fund Advances Under Credit Line Agreements...........26
Section 2.02. Acceptance by Trustee; Retransfer of Mortgage Loans.....29
Section 2.03. Representations and Warranties Regarding the Servicer
and the Transferor......................................30
Section 2.04. Representations and Warranties of the Transferor
Regarding the Mortgage Loans; Retransfer of Certain
Mortgage Loans..........................................33
Section 2.05. Covenants of the Depositor and the Transferor...........38
Section 2.06. Retransfers of Mortgage Loans at Election of Transferor.39
Section 2.07. Execution and Authentication of Certificates............40
Section 2.08. Tax Treatment...........................................40
Section 2.09. Representations and Warranties of the Depositor.........40
Section 2.10. Conveyance of the Subsequent Mortgage Loans.............41
ARTICLE III.
Administration and Servicing of Mortgage Loans
Section 3.01. The Servicer............................................43
Section 3.02. Collection of Certain Mortgage Loan Payments............44
Section 3.03. Withdrawals from the Collection Account.................45
Section 3.04. Maintenance of Hazard Insurance; Property Protection
Expenses................................................46
Section 3.05. Assumption and Modification Agreements..................47
Section 3.06. Realization Upon Defaulted Mortgage Loans; Repurchase
of Certain Mortgage Loans...............................47
Section 3.07. Trustee to Cooperate....................................48
Section 3.08. Servicing Compensation; Payment of Certain Expenses
by Servicer.............................................49
Section 3.09. Annual Statement as to Compliance.......................49
Section 3.10. Annual Servicing Report.................................49
Section 3.11. Annual Opinion of Counsel...............................50
Section 3.12. Access to Certain Documentation and Information
Regarding the Mortgage Loans............................50
Section 3.13. Maintenance of Certain Servicing Insurance Policies.....50
Section 3.14. Reports to the Securities and Exchange Commission.......50
Section 3.15. Tax Returns.............................................50
Section 3.16. Information Required by the Internal Revenue Service
Generally and Reports of Foreclosures and Abandonments
of Mortgaged Property...................................51
ARTICLE IV.
Servicing Certificate
Section 4.01. Servicing Certificate...................................52
Section 4.02. Claims upon the Policy..................................54
Section 4.03. Spread Account..........................................55
Section 4.04. Effect of Payments by the Credit Enhancer; Subrogation..56
ARTICLE V.
Payments and Statements to Certificateholders; Rights of Certificateholders
Section 5.01. Distributions...........................................57
Section 5.02. Calculation of the Class A Certificate Rate.............59
Section 5.03. Statements to Certificateholders........................60
Section 5.04. Rights of Certificateholders............................61
Section 5.05. Funding Account.........................................61
ARTICLE VI.
The Certificates
Section 6.01. The Certificates........................................63
Section 6.02. Registration of Transfer and Exchange of Investor
Certificates; Appointment of Registrar..................63
Section 6.03. Mutilated, Destroyed, Lost or Stolen Certificates.......65
Section 6.04. Persons Deemed Owners...................................65
Section 6.05. Restrictions on Transfer of Transferor Certificates.....65
Section 6.06. Appointment of Paying Agent.............................67
Section 6.07. Acceptance of Obligations...............................68
ARTICLE VII.
The Servicer, the Transferor and the Depositor
Section 7.01. Liability of the Transferor, the Servicer and the
Depositor...............................................69
Section 7.02. Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer, the Transferor or the
Depositor...............................................69
Section 7.03. Limitation on Liability of the Servicer and Others......69
Section 7.04. Servicer Not to Resign..................................70
Section 7.05. Delegation of Duties....................................70
Section 7.06. Indemnification of the Trust by the Servicer............70
Section 7.07. Indemnification of the Trust by the Transferor..........70
Section 7.08. Limitation on Liability of the Transferor...............71
Section 7.09. Limitation on Liability of the Depositor................71
ARTICLE VIII.
Servicing Termination
Section 8.01. Events of Servicing Termination.........................72
Section 8.02. Trustee to Act; Appointment of Successor................73
Section 8.03. Notification to Certificateholders......................74
ARTICLE IX.
The Trustee
Section 9.01. Duties of Trustee.......................................75
Section 9.02. Certain Matters Affecting the Trustee...................76
Section 9.03. Trustee Not Liable for Certificates or Mortgage Loans...77
Section 9.04. Trustee May Own Certificates............................78
Section 9.05. Servicer to Pay Trustee's Fees and Expenses; Servicer
to Indemnify............................................78
Section 9.06. Eligibility Requirements for Trustee....................78
Section 9.07. Resignation or Removal of Trustee.......................79
Section 9.08. Successor Trustee.......................................79
Section 9.09. Merger or Consolidation of Trustee......................80
Section 9.10. Appointment of Co-Trustee or Separate Trustee...........80
Section 9.11. Limitation of Liability.................................81
Section 9.12. Trustee May Enforce Claims Without Possession of
Certificates............................................81
Section 9.13. Suits for Enforcement...................................82
ARTICLE X.
Termination
Section 10.01. Termination.............................................83
ARTICLE XI.
Rapid Amortization Events
Section 11.01. Rapid Amortization Events...............................85
Section 11.02. Additional Rights Upon the Occurrence of Certain
Events..................................................86
ARTICLE XII.
Miscellaneous Provisions
Section 12.01. Amendment...............................................88
Section 12.02. Recordation of Agreement................................89
Section 12.03. Limitation on Rights of Certificateholders..............89
Section 12.04. Governing Law...........................................90
Section 12.05. Notices.................................................90
Section 12.06. Severability of Provisions..............................91
Section 12.07. Assignment..............................................91
Section 12.08. Certificates Nonassessable and Fully Paid...............91
Section 12.09. Third-Party Beneficiaries...............................91
Section 12.10. Counterparts............................................91
Section 12.11. Effect of Headings and Table of Contents................91
Section 12.12. Insurance Agreement.....................................91
<PAGE>
EXHIBIT
- -------
EXHIBIT A - FORM OF CERTIFICATE........................................A-1
EXHIBIT B - FORM OF TRANSFEROR CERTIFICATE.............................B-1
EXHIBIT C - MORTGAGE LOAN SCHEDULE.....................................C-1
EXHIBIT D - RESERVED...................................................D-1
EXHIBIT E - ANNUAL OPINION OF COUNSEL..................................E-1
EXHIBIT F - FORM OF CREDIT LINE AGREEMENT..............................F-1
EXHIBIT G - RESERVED...................................................G-1
EXHIBIT H - RESERVED...................................................H-1
EXHIBIT I - LETTER OF REPRESENTATIONS..................................I-1
EXHIBIT J - RESERVED...................................................J-1
EXHIBIT K - FORM OF INVESTMENT LETTER..................................K-1
EXHIBIT L - FORM OF REQUEST FOR RELEASE................................L-1
<PAGE>
This Pooling and Servicing Agreement, dated as of [ ], among J.P. MORGAN
ACCEPTANCE CORPORATION I, as Depositor (the "Depositor"), [ ], as Seller and
Servicer (in such capacities, the "Seller" and the "Servicer"), [ ], as
Transferor (the "Transferor"), and [_________________], as Trustee (the
"Trustee"),
W I T N E S S E T H T H A T:
----------------------------
In consideration of the mutual agreements herein contained, the parties
hereto agree as follows:
ARTICLE I.
Definitions
Section 1.01. Definitions. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise requires, shall have
the meanings specified in this Article.
Accelerated Principal Distribution Amount: With respect to any
Distribution Date, the amount, if any, required to reduce the Class A
Certificate Principal Balance (after giving effect to the distribution of all
other amounts actually distributed on the Class A Certificates on such
Distribution Date) so that the Invested Amount (immediately following such
Distribution Date) exceeds the Class A Certificate Principal Balance (as so
reduced) by the Required Overcollateralization Amount.
Additional Balance: As to any HELOC and day, the aggregate amount of
all Draws conveyed to the Trust pursuant to Section 2.01.
Adjustment Date: With respect to any HELOC and Interest Period, the
second LIBOR Business Day preceding the first day of such Interest Period.
Affiliate: With respect to any Person, any other Person controlling,
controlled by or under common control with such Person. For purposes of this
definition, "control" means the power to direct the management and policies of a
Person, directly or indirectly, whether through ownership of voting securities,
by contract or otherwise and "controlling" and "controlled" shall have meanings
correlative to the foregoing.
Agreement: This Pooling and Servicing Agreement and all amendments
hereof and supplements hereto.
Alternative Principal Payment: As to any Distribution Date, the greater
of (x) ___% of the Class A Certificate Principal Balance immediately prior to
the Distribution Date or (y) the amount (but not less than zero) equal to
Principal Collections for such Distribution Date less the aggregate of Draws
under the Credit Line Agreements during the related Collection Period.
Appraised Value: As to any Mortgaged Property, the value established by
a drive by inspection of such Mortgaged Property made to establish compliance
with the underwriting criteria then in effect in connection with the application
for the Mortgage Loan secured by such Mortgaged Property.
Asset Balance: As to any Mortgage Loan, other than a Liquidated
Mortgage Loan, and day, the related Cut-Off Date Asset Balance, plus (i) with
respect to each HELOC, any Additional Balance in respect of such HELOC, minus
(ii) with respect to each Mortgage Loan, all collections credited as principal
against the Asset Balance of any such Mortgage Loan in accordance with the
related Loan Agreement. For purposes of this definition, a Liquidated Mortgage
Loan shall be deemed to have an Asset Balance equal to the Asset Balance of the
related Mortgage Loan immediately prior to the final recovery of related
Liquidation Proceeds and an Asset Balance of zero thereafter.
Assignment of Mortgage: With respect to any Mortgage, an assignment,
notice of transfer or equivalent instrument, in recordable form, sufficient
under the laws of the jurisdiction in which the related Mortgaged Property is
located to reflect the sale of the Mortgage to the Trustee, which assignment,
notice of transfer or equivalent instrument may be in the form of one or more
blanket assignments covering the Mortgage Loans secured by Mortgaged Properties
located in the same jurisdiction.
Authorized Newspaper: A newspaper of general circulation in the Borough
of Manhattan, The City of New York, printed in the English language and
customarily published on each Business Day, whether or not published on
Saturdays, Sundays and holidays.
BIF: The Bank Insurance Fund, as from time to time constituted, created
under the Financial Institutions Reform, Recovery and Enhancement Act of 1989,
or if at any time after the execution of this instrument the Bank Insurance Fund
is not existing and performing duties now assigned to it, the body performing
such duties on such date.
Billing Cycle: With respect to any Mortgage Loan and Collection Period,
the billing period specified in the related Loan Agreement and with respect to
which amounts billed are received during such Collection Period.
Book-Entry Certificate: Any Investor Certificate registered in the name
of the Depository or its nominee, ownership of which is reflected on the books
of the Depository or on the books of a Person maintaining an account with such
Depository (directly or as an indirect participant in accordance with the rules
of such Depository).
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a
day on which banking institutions in the State of New York, California or the
State in which the Corporate Trust Office is located are required or authorized
by law to be closed.
Certificate: A Class A Certificate, a Class S Certificate or a
Transferor Certificate.
Certificate Owner: The Person who is the beneficial owner of a
Book-Entry Certificate.
Certificate Register and Certificate Registrar: The register maintained
and the registrar appointed pursuant to Section 6.02.
Certificateholder or Holder: The Person in whose name a Certificate is
registered in the Certificate Register, except that, solely for the purpose of
giving any consent, direction, waiver or request pursuant to this Agreement, (x)
any Investor Certificate registered in the name of the Transferor, or any Person
known to a Responsible Officer to be an Affiliate of either the Depositor or the
Transferor and (y) any Investor Certificate for which the Transferor, or any
Person known to a Responsible Officer to be an Affiliate of either such entity
is the Certificate Owner shall be deemed not to be outstanding (unless to the
knowledge of a Responsible Officer (i) the Transferor, or such Affiliate is
acting as trustee or nominee for a Person who is not an Affiliate of the
Transferor and who makes the voting decision with respect to such Investor
Certificate or (ii) the Transferor, or such Affiliate is the Certificate Owner
of all the Investor Certificates) and the Percentage Interest evidenced thereby
shall not be taken into account in determining whether the requisite amount of
Percentage Interests necessary to effect any such consent, direction, waiver or
request has been obtained.
Class A Certificate: Any certificate executed and authenticated by the
Trustee substantially in the form set forth in Exhibit A-1 hereto.
Class A Certificate Carry Forward Interest: As to any Distribution
Date, the amount, if any, by which interest accrued on the Class A Certificates
at the Class A Certificate Rate (without giving effect to the proviso in the
definition thereof) for the related Interest Period exceeds the Class A Interest
Payment Cap.
Class A Certificate Distribution Amount: As to any Distribution Date,
the sum of all amounts to be distributed to the Holders of Class A Certificates
pursuant to Article V and Article XI hereof.
Class A Certificate Interest: With respect to any Distribution Date,
interest for the related Interest Period at the applicable Class A Certificate
Rate on the Class A Certificate Principal Balance as of the first day of such
Interest Period (after giving effect to the distributions made on the first day
of such Interest Period).
Class A Certificate Principal Balance: With respect to any Distribution
Date, (a) the Original Class A Certificate Principal Balance less (b) the
aggregate of amounts actually distributed as principal on the Class A
Certificates.
Class A Certificate Rate: With respect to the first Interest Period,
_____%, and for any subsequent Interest Period, the sum of (a) LIBOR as of the
second LIBOR Business Day prior to the first day of such Interest Period and (b)
___%; provided, however, that in no event shall the Class A Certificate Rate
with respect to any Interest Period exceed the Maximum Rate for such Interest
Period.
Class A Certificateholder: The Holder of a Class A Certificate.
Class A Interest Payment Cap: With respect to any Distribution Date, an
amount equal to accrued interest on the Class A Certificate Principal Balance
for the related Interest Period at the Maximum Rate.
Class S Certificate: Any Certificate executed and authenticated by the
Trustee substantially in the form set forth in Exhibit A-2.
Class S Certificate Interest: With respect to any Distribution Date,
interest for the related Interest Period at the Class S Certificate Rate on the
Class S Notional Amount as of the first day of such Interest Period (after
giving effect to distributions made on the first day of such Interest Period).
Class S Certificateholder: The Holder of a Class S Certificate.
Class S Notional Amount: With respect to any Distribution Date, the
Class A Certificate Principal Balance for such Distribution Date (before giving
effect to distributions made on such Distribution Date).
Closed-End Loan: Each Mortgage Loan originated under a Loan Agreement
providing for a single advance of funds on the date of origination and no
additional advances during the term of such Mortgage Loan.
Closing Date: [date].
Code: The Internal Revenue Code of 1986, as the same may be amended
from time to time (or any successor statute thereto).
Collection Account: The custodial account or accounts created and
maintained for the benefit of the Investor Certificateholders and the Credit
Enhancer pursuant to Section 3.02(b). The Collection Account shall be an
Eligible Account.
Collection Period: With respect to any Distribution Date and any
Mortgage Loan, the calendar month preceding such Distribution Date.
Combined Loan-to-Value Ratio: With respect to any HELOC as of any date,
the percentage equivalent of the fraction, the numerator of which is the sum of
(i) the Credit Limit and (ii) the outstanding principal balance as of the date
of execution of the related original Credit Line Agreement (or any subsequent
date as of which such outstanding principal balance may be determined in
connection with an increase in the Credit Limit for such HELOC) of any mortgage
loan or mortgage loans that are senior or equal in priority to the HELOC and
that is or are secured by the same Mortgaged Property and the denominator of
which is the Valuation of the related Mortgaged Property. With respect to any
Closed-End Loan, the percentage equivalent of the fraction, the numerator of
which is the sum of (i) the original principal balance of such Closed-End Loan
and (ii) the outstanding principal balance as of the date of execution of the
related Loan Agreement of any mortgage loan or mortgage loans that are senior or
equal in priority to the Closed-End Loan and that is or are secured by the same
Mortgaged Property and the denominator of which is the Valuation of the related
Mortgaged Property.
Corporate Trust Office: The principal office of the Trustee at which at
any particular time its corporate business shall be administered, which office
on the Closing Date is located at ___________________________, Attention:
- -------------------.
Credit Enhancement Draw Amount: As to any Distribution Date, an amount
equal to the sum of (1) the amount by which (a) the amount to be distributed to
Investor Certificateholders pursuant to Sections 5.01(a)(iii) and 5.01(a)(iv)
exceeds (b) the sum of (i) the amount of Investor Interest Collections on
deposit in the Collection Account on the Business Day preceding such
Distribution Date that is available to be applied therefor, (ii) the amount, if
any, deposited in the Collection Account in respect of such Distribution Date
pursuant to Section 4.05, (iii) the amount transferred to the Collection Account
from the Funding Account pursuant to Section 5.05(c)(iii) and (iv) any amount
transferred from the Spread Account to the Collection Account pursuant to
Section 4.03, (2) the Guaranteed Principal Distribution Amount and (3) any
Preference Claim for such Distribution Date.
Credit Enhancer: [ ], a [New York monoline stock insurance
company], any successor thereto or any replacement credit enhancer substituted
pursuant to Section 4.03.
Credit Enhancer Default: The failure by the Credit Enhancer to make a
payment required under the Policy in accordance with the terms thereof.
Credit Limit: As to any HELOC, the maximum Asset Balance permitted
under the terms of the related Credit Line Agreement.
Credit Limit Utilization Rate: As to any HELOC, the percentage
equivalent of a fraction the numerator of which is the Cut-Off Date Asset
Balance for such Mortgage Loan and the denominator of which is the related
Credit Limit.
Credit Line Agreement: With respect to any HELOC, the related credit
line account agreement executed by the related Mortgagor and any amendment or
modification thereof.
Custodial Agreement: Any Custodial Agreement between any Custodian and
the Trustee, which is reasonably acceptable in form and substance to the Credit
Enhancer, relating to the custody of the Mortgage Loans and the Related
Documents.
Custodian: Any custodian appointed by the Trustee under a Custodial
Agreement to maintain all or a portion of the Mortgage Files pursuant to Section
2.01(b).
Cut-Off Date: With respect to each Initial Mortgage Loan, [date] and
with respect to each Subsequent Mortgage Loan, the date on which such Subsequent
Mortgage Loan was transferred to the Trust.
Cut-Off Date Asset Balance: With respect to any Mortgage Loan, the
unpaid principal balance thereof as of the Cut-Off Date.
Cut-Off Date Pool Balance: The Pool Balance calculated as of the
Cut-Off Date.
Defective Mortgage Loan: A Mortgage Loan subject to retransfer pursuant
to Section 2.02, 2.04 or 2.09.
Definitive Certificates: As defined in Section 6.02(c).
Delivery Event: As defined in Section 2.01.
Depositor: J.P. Morgan Securities Inc. or its successor in interest.
Depository: The initial Depository shall be The Depository Trust
Company, the nominee of which is Cede & Co., as the registered Holder of Class A
Certificates evidencing $__________ in initial aggregate principal amount of the
Class A Certificates and as the registered Holder of Class S Certificates
evidencing $______ in initial aggregate notional amount of the Class S
Certificates. The Depository shall at all times be a "clearing corporation" as
defined in Section 8-102(3) of the UCC of the State of New York.
Depository Participant: A broker, dealer, bank or other financial
institution or other Person for whom from time to time the Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
Determination Date: With respect to any Distribution Date, the third
Business Day prior to such Distribution Date.
Distribution Date: The [fifteenth] day of each month, or if such day is
not a Business Day, then the next Business Day, beginning in the month
immediately following the month of the initial issuance of the Certificates.
Draw: With respect to any HELOC, an additional borrowing by the
Mortgagor subsequent to the Cut-Off Date in accordance with the related Mortgage
Note.
Due Date: As to any Mortgage Loan, the twenty-fifth day of the month.
Electronic Ledger: The electronic master record of home equity credit
line mortgage loans maintained by the Servicer or by the [Transferor], as
appropriate.
Eligible Account: An account that is either (i) maintained with a
depository institution whose (a) short-term debt obligations throughout the time
of any deposit therein are rated in the highest short-term debt rating category
by Standard & Poor's and (b) short-term and long-term obligations throughout the
time of any deposit therein are rated at least P-1 and A2, respectively by
Moody's, (ii) an account or accounts maintained with a depository institution
with a minimum long term unsecured debt rating of Baa3 by Moody's provided that
the deposits in such account or accounts are fully insured by either the BIF or
the SAIF, or (iii) a segregated trust account maintained (A) with the corporate
trust department of the Trustee in its fiduciary capacity, or (B) with an
institution with capital and surplus of not less than $50,000,000 and with a
minimum long-term unsecured debt rating of at least Baa3 by Moody's and BBB- by
Standard & Poor's or (iv) an account otherwise acceptable to each Rating Agency
and the Credit Enhancer, as evidenced at closing by delivery of a rating letter
by each Rating Agency and thereafter by delivery of a letter from each Rating
Agency and the Credit Enhancer to the Trustee, within 30 days of receipt of
notice of such deposit, to reduce or withdraw its then-current rating of the
Certificates without regard to the Policy.
Eligible Investments: One or more of the following (excluding any
callable investments purchased at a premium):
(i) direct obligations of, or obligations fully guaranteed as to
timely payment of principal and interest by, the United States or any
agency or instrumentality thereof, provided that such obligations are
backed by the full faith and credit of the United States;
(ii) repurchase agreements on obligations specified in clause (i)
maturing not more than three months from the date of acquisition
thereof, provided that the short-term unsecured debt obligations of the
party agreeing to repurchase such obligations are at the time rated by
each Rating Agency in its highest short-term rating category (which is
A-1+ for Standard & Poor's and P-1 for Moody's);
(iii) certificates of deposit, time deposits and bankers'
acceptances (which, if Moody's is a Rating Agency, shall each have an
original maturity of not more than 90 days and, in the case of bankers'
acceptances, shall in no event have an original maturity of more than
365 days) of any U.S. depository institution or trust company
incorporated under the laws of the United States or any state thereof
and subject to supervision and examination by federal and/or state
banking authorities, provided that the unsecured short-term debt
obligations of such depository institution or trust company at the date
of acquisition thereof have been rated by each of Moody's and Standard
& Poor's in its highest unsecured short-term debt rating category;
(iv) commercial paper (having original maturities of not more
than 270 days) of any corporation incorporated under the laws of the
United States or any state thereof which on the date of acquisition has
been rated by Standard & Poor's and Moody's in their highest short-term
debt rating categories;
(v) short term investment funds ("STIFS") sponsored by any trust
company or national banking association incorporated under the laws of
the United States or any state thereof which on the date of acquisition
has been rated by Standard & Poor's and Moody's in their respective
highest applicable rating category; and
(vi) interests in any money market fund which at the date of
acquisition of the interests in such fund and throughout the time such
interests are held in such fund has a rating of Aaa by Moody's and
either AAAm or AAAm-G by Standard & Poor's or such lower rating as will
not result in the qualification, downgrading or withdrawal of the
then-current rating assigned to the Certificates by each Rating Agency
without regard to the Policy;
(vii) other obligations or securities that are acceptable to each
Rating Agency and the Credit Enhancer as an Eligible Investment
hereunder and will not result in a reduction in the then current rating
of the Certificates without regard to the Policy, as evidenced by a
letter to such effect from such Rating Agency and the Credit Enhancer
and with respect to which the Servicer has received confirmation that,
for tax purposes, the investment complies with the last clause of this
definition;
provided that no instrument described hereunder shall evidence either the right
to receive (a) only interest with respect to the obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that no instrument described hereunder may be purchased at a price greater than
par if such instrument may be prepaid or called at a price less than its
purchase price prior to its stated maturity.
Eligible Substitute Mortgage Loan: A Mortgage Loan substituted by the
Transferor for a Defective Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding Asset Balance (or in the case of a
substitution of more than one Mortgage Loan for a Defective Mortgage Loan, an
aggregate Asset Balance), not [ten percent more or ten] percent less than the
Transfer Deficiency, if any, relating to such Defective Mortgage Loan; (ii) have
a Loan Rate not less than [the Loan Rate of the Defective Mortgage Loan] and not
more than [1]% in excess of the Loan Rate of such Defective Mortgage Loan; (iii)
with respect to each HELOC, have a Loan Rate based on the [same Index with
adjustments to such Loan Rate made on the same] Interest Rate Adjustment Date as
that of the Defective Mortgage Loan; (iv) with respect to each HELOC, have a
Gross Margin that is [not less] than the Gross Margin of the Defective Mortgage
Loan and not more than [100] basis points higher than the Gross Margin for the
Defective Mortgage Loan; (v) have a Mortgage of the same or higher level of
priority as the Mortgage relating to the Defective Mortgage Loan at the time
such Mortgage was transferred to the Trust; (vi) have a remaining term to
maturity not more than [six] months earlier than the remaining term to maturity
of the Defective Mortgage Loan; (vii) comply with each representation and
warranty set forth in Section 2.04 (deemed to be made as of the date of
substitution); and (viii) have an original Combined Loan-to-Value Ratio not
greater than that of the Defective Mortgage Loan. More than one Eligible
Substitute Mortgage Loan may be substituted for a Defective Mortgage Loan if
such Eligible Substitute Mortgage Loans meet the foregoing attributes in the
aggregate and such substitution is approved in writing in advance by the Credit
Enhancer.
Endorsement: As defined in the Policy.
ERISA: Employee Retirement Income Security Act of 1974, as amended.
Event of Servicing Termination: As defined in Section 8.01.
FDIC: The Federal Deposit Insurance Corporation or any successor
thereto.
Fiscal Agent: As defined in the Policy.
Foreclosure Profit: With respect to a Liquidated Mortgage Loan, the
amount, if any, by which (i) the aggregate of its Net Liquidation Proceeds
exceeds (ii) the related Asset Balance (plus accrued and unpaid interest thereon
at the applicable Loan Rate from the date interest was last paid through the
last day in the related Collection Period) of such Liquidated Mortgage Loan
immediately prior to the final recovery of its Liquidation Proceeds.
Funding Account: The custodial account or accounts established and
maintained with the Trustee for the benefit of the Investor Certificateholders
pursuant to Section 5.05. The Funding Account shall be an Eligible Account.
Funding Period: The period commencing on the Closing Date and ending on
the earlier of (i) the close of business on the [________] Distribution Date,
and (ii) the commencement of the Rapid Amortization Period.
Gross Margin: As to any HELOC, the percentage set forth as the "Gross
Margin" for such HELOC on Exhibit C hereto.
Guaranteed Distribution: With respect to any Distribution Date, the sum
of the (i) the Guaranteed Principal Distribution Amount and (ii) the amount to
be distributed to Certificateholders pursuant to Sections 5.01(a)(iii) and
5.01(a)(iv) for such Distribution Date.
Guaranteed Principal Distribution Amount: With respect to (i) any
Distribution Date on or after which the Transferor Subordinated Amount has been
reduced to zero, other than the Distribution Date in ______________, the amount,
if any, required to reduce the Class A Certificate Principal Balance (after
giving effect to the distributions of Interest Collections and Principal
Collections that are allocable to principal on the Class A Certificates on such
Distribution Date) to the Invested Amount immediately following such
Distribution Date and (ii) the Distribution Date in ______________, the amount
by which the outstanding Class A Certificate Principal Balance (after giving
effect to Interest Collections allocable and distributable to principal on the
Class A Certificates on such Distribution Date) exceeds the sum of the amounts
on deposit in the Collection Account available to be distributed to the Class A
Certificateholders pursuant to Section 5.01(b) hereof.
HELOC: Any Mortgage Loan originated pursuant to a Loan Agreement
providing for Draws.
Index: With respect to each Interest Rate Adjustment Date for a HELOC,
the highest "prime rate" as published in the "Money Rates" table of The Wall
Street Journal as of the first business day of the calendar month.
Initial Closed-End Loan: Each Closed-End Loan transferred and assigned
to the Trustee on the Closing Date.
Initial Cut-Off Date Pool Balance: $______________.
Initial HELOC: Each HELOC transferred and assigned to the Trustee on
the Closing Date.
Initial Mortgage Loan: Each Initial HELOC and Initial Closed-End Loan.
Insolvency Event: As defined in Section 11.02.
Insurance Agreement: The insurance and reimbursement agreement dated as
of [date] among the Depositor, the Transferor, the Servicer, the Trustee and the
Credit Enhancer, including any amendments and supplements thereto.
Insurance Proceeds: Proceeds paid by any insurer (other than the Credit
Enhancer) pursuant to any insurance policy covering a Mortgage Loan, or amounts
required to be paid by the Servicer pursuant to the last sentence of Section
3.04, net of any component thereof (i) covering any expenses incurred by or on
behalf of the Servicer in connection with obtaining such proceeds, (ii) that is
applied to the restoration or repair of the related Mortgaged Property, (iii)
released to the Mortgagor in accordance with the Servicer's normal servicing
procedures or (iv) required to be paid to any holder of a mortgage senior to
such Mortgage Loan.
Interest Collections: As to any Distribution Date, the sum of all
payments by or on behalf of Mortgagors and any other amounts constituting
interest (including without limitation such portion of Insurance Proceeds and
Net Liquidation Proceeds as is allocable to interest on the applicable Mortgage
Loan) collected by the Servicer under the Mortgage Loans (excluding any fees
(including annual fees) or late charges or similar administrative fees paid by
Mortgagors) during the related Collection Period minus the Servicing Fee payable
to the Servicer with respect to the related Collection Period. The terms of the
related Loan Agreement shall determine the portion of each payment in respect of
such Mortgage Loan that constitutes principal or interest.
Interest Period: With respect to any Distribution Date other than the
first Distribution Date, the period beginning on the preceding Distribution Date
and ending on the day preceding such Distribution Date, and in the case of the
first Distribution Date, the period beginning on the Closing Date and ending on
the day preceding the first Distribution Date.
Interest Rate Adjustment Date: With respect to each HELOC, any date on
which the Loan Rate is adjusted in accordance with the related Credit Line
Agreement.
Invested Amount: With respect to any Distribution Date, an amount equal
to the Original Invested Amount minus (i) the amount of Principal Collections
previously distributed to Class A Certificateholders (including amounts
previously distributed to Class A Certificateholders from Principal Collections
on deposit in the Funding Account) and minus (ii) the Investor Loss Amounts for
prior Distribution Dates.
Investor Certificate: Any Class A Certificate or Class S Certificate.
Investor Certificateholder: The Holder of an Investor Certificate.
Investor Fixed Allocation Percentage: [98]%.
Investor Floating Allocation Percentage: With respect to any
Distribution Date, the percentage equivalent of a fraction, the numerator of
which is the Invested Amount at the close of business on the preceding
Distribution Date (or at the Closing Date in the case of the first Distribution
Date) and the denominator of which is the sum of (a) the Pool Balance,
calculated as of the beginning of the related Collection Period and (b) the
amount of Principal Collections on deposit in the Funding Account as of the
close of business on the preceding Distribution Date.
Investor Interest Collections: As to any Distribution Date, the product
of (i) the Interest Collections during the related Collection Period and (ii)
the Investor Floating Allocation Percentage for such Distribution Date.
Investor Loss Amount: With respect to any Distribution Date, the amount
equal to the product of (i) the Investor Floating Allocation Percentage for such
Distribution Date and (ii) the aggregate of the Liquidation Loss Amounts for
such Distribution Date.
Investor Loss Reduction Amount: With respect to any Distribution Date,
the portion, if any, of the Investor Loss Amount for such Distribution Date and
all prior Distribution Dates that has not been (a) distributed to Class A
Certificateholders on such Distribution Date pursuant to Section 5.01(a)(iv) or
5.01(a)(v) or by way of the Credit Enhancement Draw Amount or (b) reallocated to
the Transferor Principal Balance pursuant to Section 5.01(c).
LIBOR: As to any date, the rate for United States dollar deposits for
one month which appear on the Telerate Screen LIBOR Page 3750 as of 11:00 A.M.,
London time. If such rate does not appear on such page (or such other page as
may replace that page on that service, or if such service is no longer offered,
such other service for displaying LIBOR or comparable rates as may be reasonably
selected by the Depositor after consultation with the Trustee), the rate will be
the Reference Bank Rate. If no such quotations can be obtained and no Reference
Bank Rate is available, LIBOR will be LIBOR applicable to the preceding
Distribution Date.
LIBOR Business Day: Any day other than (i) a Saturday or a Sunday or
(ii) a day on which banking institutions in the State of New York or in the city
of London, England are required or authorized by law to be closed.
Lien: Any mortgage, deed of trust, pledge, conveyance, hypothecation,
assignment, participation, deposit arrangement, encumbrance, lien (statutory or
other), preference, priority right or interest or other security agreement or
preferential arrangement of any kind or nature whatsoever, including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing and the filing of any financing statement under the UCC (other than
any such financing statement filed for informational purposes only) or
comparable law of any jurisdiction to evidence any of the foregoing; provided,
however, that any assignment pursuant to Section 7.02 hereof shall not be deemed
to constitute a Lien.
Lifetime Rate Cap: With respect to each HELOC with respect to which the
related Mortgage Note provides for a lifetime rate cap, the maximum Loan Rate
permitted over the life of such HELOC under the terms of the related Credit Line
Agreement, as set forth on Exhibit C hereto.
Liquidated Mortgage Loan: As to any Distribution Date, any Mortgage
Loan in respect of which the Servicer has determined, in accordance with the
servicing procedures specified herein, as of the end of the related Collection
Period, that all Liquidation Proceeds which it expects to recover with respect
to the disposition of such Mortgage Loan or the related REO have been recovered.
Liquidation Expenses: Out-of-pocket expenses (exclusive of overhead)
which are incurred by the Servicer in connection with the liquidation of any
Mortgage Loan and not recovered under any insurance policy, including, without
limitation, legal fees and expenses, any unreimbursed amount expended pursuant
to Section 3.06 (including, without limitation, amounts advanced to correct
defaults on any mortgage loan which is senior to such Mortgage Loan and amounts
advanced to keep current or pay off a mortgage loan that is senior to such
Mortgage Loan) respecting the related Mortgage Loan and any related and
unreimbursed expenditures with respect to real estate property taxes, water or
sewer taxes, condominium association dues, property restoration or preservation
or insurance against casualty, loss or damage.
Liquidation Loss Amount: With respect to any Distribution Date and any
Mortgage Loan that becomes a Liquidated Mortgage Loan during the related
Collection Period, the unrecovered Asset Balance thereof at the end of such
Collection Period, after giving effect to the Net Liquidation Proceeds applied
in reduction of such Asset Balance.
Liquidation Proceeds: Proceeds (including Insurance Proceeds but not
including amounts drawn under the Policy) received in connection with the
liquidation of any Mortgage Loan or related REO, whether through trustee's sale,
foreclosure sale or otherwise.
Loan Agreement: With respect to any HELOC, the related Credit Line
Agreement. With respect to any Closed-End Loan, the related Mortgage Note.
Loan Rate: With respect to any HELOC and as of any day, the per annum
rate of interest applicable under the related Credit Line Agreement to the
calculation of interest for such day on the Asset Balance of such Mortgage Loan.
With respect to any Closed-End Loan and as of any day, the fixed per annum rate
of interest payable under the related Mortgage Note.
Loan Rate Cap: With respect to each HELOC, the lesser of (i) the
Lifetime Rate Cap, if any, or (ii) the applicable state usury ceiling, if any.
Managed Amortization Period: The period from the termination of the
Funding Period to the Rapid Amortization Commencement Date.
Maximum Principal Payment: With respect to any Distribution Date, the
Investor Fixed Allocation Percentage of the Principal Collections for such
Distribution Date.
Maximum Rate: As to any Interest Period, the Weighted Average Net Loan
Rate for the Collection Period during which such Interest Period begins
(adjusted to an effective rate reflecting accrued interest calculated on the
basis of the actual number of days in the Collection Period commencing in the
month in which such Interest Period commences and a year assumed to consist of
360 days).
Minimum Monthly Payment: With respect to any Mortgage Loan and any
month, the minimum amount required to be paid by the related Mortgagor in that
month.
Minimum Transferor Interest: With respect to any date, an amount equal
to the lesser of [(a) 5% of the Pool Balance on such date and (b) the Transferor
Principal Balance as of the Closing Date].
Moody's: Moody's Investors Service, Inc. or its successor in interest.
Mortgage: The mortgage, deed of trust or other instrument creating a
first or second lien on an estate in fee simple interest in real property
securing a Mortgage Loan.
Mortgage File: The mortgage documents listed in Section 2.01 pertaining
to a particular Mortgage Loan and any additional documents required to be added
to the Mortgage File pursuant to this Agreement.
Mortgage Loan Schedule: With respect to any date, the schedule of
Mortgage Loans included in the Trust on such date. The schedule of Initial
Mortgage Loans as of the Cut-Off Date is the schedule set forth herein as
Exhibit C, which schedule sets forth as to each such Mortgage Loan, to the
extent applicable, (i) the Cut-Off Date Asset Balance, (ii) the Credit Limit,
(iii) the Gross Margin, (iv) the Lifetime Rate Cap, (v) the account number, (vi)
the current Loan Rate, (vii) the Combined Loan-to-Value Ratio, (viii) a code
specifying the property type, (ix) a code specifying documentation type and (x)
a code specifying lien position. The Mortgage Loan Schedule will be deemed to be
amended from time to time to reflect Additional Balances, Eligible Substitute
Mortgage Loans and Subsequent Mortgage Loans.
Mortgage Loans: The mortgage loans, including any Additional Balances
with respect thereto, that are transferred and assigned to the Trustee pursuant
to Section 2.01, together with the Related Documents, exclusive of Mortgage
Loans that are retransferred to the Depositor, the Servicer or the Transferor
from time to time pursuant to Section 2.02, 2.04, 2.05, 2.06, 2.09 or 3.01 as
from time to time are held as a part of the Trust. The mortgage loans originally
so held are identified in the Mortgage Loan Schedule delivered on the Closing
Date. The Mortgage Loans shall also include any Eligible Substitute Mortgage
Loan substituted by the Transferor for a Defective Mortgage Loan pursuant to
Sections 2.02 and 2.04.
Mortgage Note: With respect to a HELOC, the Credit Line Agreement
pursuant to which the related mortgagor agrees to pay the indebtedness evidenced
thereby and secured by the related Mortgage. With respect to a Closed-End Loan,
the note pursuant to which the related Mortgagor agrees to pay the indebtedness
evidenced thereby which is secured by the related Mortgage.
Mortgaged Property: The underlying property, including any real
property and improvements thereon, securing a Mortgage Loan.
Mortgagor: The obligor or obligors under a Loan Agreement.
Net Liquidation Proceeds: With respect to any Liquidated Mortgage Loan,
Liquidation Proceeds net of Liquidation Expenses.
Net Loan Rate: With respect to any Mortgage Loan and as to any day, the
Loan Rate less the Servicing Fee Rate, the Premium Fee Rate and the Trustee Fee
Rate.
Officer's Certificate: A certificate signed by the President, an
Executive Vice President, a Senior Vice President, a Vice President, an
Assistant Vice President, the Treasurer, Assistant Treasurer, Controller or
Assistant Controller of the Depositor, the Servicer or the Transferor, as the
case may be, and delivered to the Trustee.
Opinion of Counsel: A written opinion of counsel acceptable to the
Trustee, who may be in-house counsel for the Depositor, the Servicer or the
Transferor (except that any opinion pursuant to Section 7.04 or relating to
taxation must be an opinion of independent outside counsel) and who, in the case
of opinions delivered to the Credit Enhancer and the Rating Agency, is
reasonably acceptable to it.
Original Class A Certificate Principal Balance: $__________.
Original Invested Amount: $_________ [Same as Original Class A
Certificate Principal Balance.]
Overcollateralization Amount: At the time of reference thereto, the
amount, if any, by which the Invested Amount exceeds the Class A Certificate
Principal Balance.
Paying Agent: Any paying agent appointed pursuant to Section 6.06.
Percentage Interest: As to any Investor Certificate, the percentage
obtained by dividing the principal denomination (or notional amount) of such
Investor Certificate by the aggregate of the principal denominations (or
notional amounts) of all Investor Certificates of the same class.
Person: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
Policy: The financial guaranty insurance policy number _______, dated
as of the Closing Date, issued by the Credit Enhancer to the Trustee for the
benefit of the Investor Certificateholders.
Pool Balance: With respect to any date, the aggregate of the Asset
Balances of all Mortgage Loans as of such date.
Pool Factor: With respect to any Distribution Date, the percentage,
carried to seven places, obtained by dividing the Class A Certificate Principal
Balance for such Distribution Date by the Original Class A Certificate Principal
Balance.
Preference Claim: As defined in Section 4.02.
Premium Fee Rate: As described in the Insurance Agreement.
Principal Collections: As to any Distribution Date, the sum of all
payments by or on behalf of Mortgagors and any other amounts constituting
principal (including but not limited to any portion of Insurance Proceeds or Net
Liquidation Proceeds allocable to principal of the applicable Mortgage Loan, and
Transfer Deposit Amounts, but excluding Foreclosure Profits) collected by the
Servicer under the Mortgage Loans during the related Collection Period. The
terms of the related Loan Agreement shall determine the portion of each payment
in respect of a Mortgage Loan that constitutes principal or interest.
Purchase Agreement: The Mortgage Loan Purchase Agreement, dated as of
the Cut-off Date, between Headlands, as seller, and Headlands SPC, as purchaser,
with respect to the Mortgage Loans.
Rapid Amortization Commencement Date: The earlier of (i) the
Distribution Date in ______________ and (ii) the Distribution Date next
succeeding the Collection Period in which a Rapid Amortization Event is deemed
to occur pursuant to Section 11.01.
Rapid Amortization Event: As defined in Section 11.01.
Rapid Amortization Period: The period commencing on the Rapid
Amortization Date and continuing until the termination of the Trust pursuant to
Section 10.01.
Rating Agency: Any statistical credit rating agency, or its successor,
that rated the Investor Certificates at the request of the Depositor at the time
of the initial issuance of the Certificates. If such agency or a successor is no
longer in existence, "Rating Agency" shall be such statistical credit rating
agency, or other comparable Person, designated by the Depositor and the Credit
Enhancer, notice of which designation shall be given to the Trustee. References
herein to the highest short term unsecured rating category of a Rating Agency
shall mean A-1+ or better in the case of Standard & Poor's and P-1 or better in
the case of Moody's and in the case of any other Rating Agency shall mean the
ratings such other Rating Agency deems equivalent to the foregoing ratings.
References herein to the highest long-term rating category of a Rating Agency
shall mean "AAA" in the case of Standard & Poor's and "Aaa" in the case of
Moody's and in the case of any other Rating Agency, the rating such other Rating
Agency deems equivalent to the foregoing ratings.
Record Date: The last day preceding the related Distribution Date;
provided, however, that following the date on which Definitive Certificates are
available pursuant to Section 6.02(c) the Record Date shall be the last day of
the calendar month preceding the month in which the related Distribution Date
occurs.
Reference Bank Rate: As to any Interest Period as follows: the
arithmetic mean (rounded upwards, if necessary, to the nearest one sixteenth of
a percent) of the offered rates for United States dollar deposits for one month
which are offered by the Reference Banks as of 11:00 A.M., London time, on the
second LIBOR Business Day prior to the first day of such Interest Period to
prime banks in the London interbank market for a period of one month in amounts
approximately equal to the outstanding Class A Certificate Principal Balance;
provided that at least two such Reference Banks provide such rate. If fewer than
two offered rates appear, the Reference Bank Rate will be the arithmetic mean of
the rates quoted by one or more major banks in New York City, selected by the
Depositor after consultation with the Trustee, as of 11:00 A.M., New York City
time, on such date for loans in U.S. Dollars to leading European Banks for a
period of one month in amounts approximately equal to the outstanding Class A
Certificate Principal Balance. If no such quotations can be obtained, the
Reference Bank Rate shall be LIBOR applicable to the preceding Interest Period.
Reference Banks: Three major banks that are engaged in the London
interbank market, selected by the Depositor after consultation with the Trustee.
Related Documents: As defined in Section 2.01.
REO: A Mortgaged Property that is acquired by the Trust in foreclosure
or by deed in lieu of foreclosure.
Required Overcollateralization Amount: As defined in the Insurance
Agreement.
Responsible Officer: When used with respect to the Trustee, any officer
of the Trustee with direct responsibility for the administration of this
Agreement and also, with respect to a particular matter, any other officer to
whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject.
Retransfer Date: As defined in Section 2.06.
Retransfer Notice Date: As defined in Section 2.06.
SAIF: The Savings Association Insurance Fund, as from time to time
constituted, created under the Financial Institutions Reform, Recovery and
Enhancement Act of 1989, or if at any time after the execution of this
instrument the Savings Association Insurance Fund is not existing and performing
duties now assigned to it, the body performing such duties on such date.
Scheduled Principal Collections Distribution Amount: With respect to
any Distribution Date during the Funding Period or the Managed Amortization
Period and the Class A Certificates, an amount equal to the lesser of (i) the
Maximum Principal Payment and (ii) the Alternative Principal Payment. With
respect to any Distribution Date in respect of the Rapid Amortization Period,
the Maximum Principal Payment.
Seller: [ ], a [ ] corporation and any successor thereto.
Servicer: [ ], a [ ] corporation, any successor
thereto and, after its termination as Servicer, any successor hereunder.
Servicing Certificate: A certificate completed and executed by a
Servicing Officer in accordance with Section 4.01.
Servicing Fee: With respect to any Distribution Date, the product of
(i) the Servicing Fee Rate divided by 12 and (ii) the aggregate Asset Balance of
the Mortgage Loans on the first day of the Collection Period preceding such
Distribution Date (or at the Cut-Off Date with respect to the first Distribution
Date).
Servicing Fee Rate: ____% per annum.
Servicing Officer: Any officer of the Servicer involved in, or
responsible for, the administration and servicing of the Mortgage Loans whose
name and specimen signature appear on a list of servicing officers furnished to
the Trustee (with a copy to the Credit Enhancer) by the Servicer on the Closing
Date, as such list may be amended from time to time.
Spread Account: The account created pursuant to Section 4.03 and
maintained pursuant to the Insurance Agreement.
Spread Account Maximum: As defined in the Insurance Agreement.
Standard & Poor's: Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc., or its successor in interest.
Subsequent Mortgage Loan: Each HELOC acquired pursuant to Section 2.10
with funds on deposit in the Funding Account during the Funding Period on the
related Subsequent Transfer Date.
Subsequent Transfer Date: With respect to Subsequent Mortgage Loans,
any Distribution Date during the Funding Period.
Telerate Screen LIBOR Page 3750: The display designated as page 3750 on
the Telerate Service (or such other page as may replace page 3750 on that
service for the purpose of displaying London inter-bank offered rates of major
banks).
Transfer Date: With respect to each Subsequent Mortgage Loan, the
Subsequent Transfer Date, and with respect to each Eligible Substitute Mortgage
Loan, the date on which such Eligible Substitute Mortgage Loan shall have been
transferred to the Trust.
Transfer Deficiency: As defined in Section 2.02.
Transfer Deposit Amount: As defined in Section 2.02.
Transferor or Transferor Certificateholders: The Holders of the
Transferor Certificates which shall initially be Headlands SPC.
Transferor Available Funds: As to any Distribution Date, Transferor
Collections up to but not exceeding the Transferor Subordinated Amount
immediately prior to such Distribution Date.
Transferor Certificates: The certificates executed and authenticated by
the Trustee substantially in the form set forth in Exhibit B hereto.
Transferor Collections: As to any period, the sum of Transferor
Interest Collections and Transferor Principal Collections for such period.
Transferor Interest Collections: Interest Collections that are not
Investor Interest Collections.
Transferor Principal Balance: As of any date of determination, the
amount equal to (i) the Pool Balance at the end of the day next preceding such
date of determination less (ii) the Invested Amount as of the close of business
on the preceding Distribution Date plus (iii) Principal Collections on deposit
in the Funding Account.
Transferor Principal Collections: On any Distribution Date, Principal
Collections received during the related Collection Period minus the amount of
such Principal Collections required to be distributed to Class A
Certificateholders pursuant to Section 5.01(b) or required to be deposited to
the Funding Account pursuant to Section 5.05.
Transferor Subordinated Amount: At the time of reference thereto, the
lesser of (a) $_____________ less the sum of (i) the aggregate amount of
Transferor Collections previously applied pursuant to Section 5.01(c), (ii) the
aggregate amount of Investor Loss Amounts that have previously been reallocated
to the Transferor Principal Balance pursuant to the second sentence of Section
5.01(c) and (iii) the amount by which the Overcollateralization Amount exceeds
$_______________ and (b) the Transferor Subordinated Amount on the previous
Distribution Date; provided that the Transferor Subordinated Amount shall not be
less than zero.
Trust: The trust created by this Agreement, the corpus of which
consists of the Mortgage Loans, such other assets as shall from time to time be
identified as deposited in the Collection Account in accordance with this
Agreement, property that secured a Mortgage Loan and that has become REO, the
interest of the Depositor in certain hazard insurance policies maintained by the
Mortgagors or the Servicer in respect of the Mortgage Loans, the Policy, an
assignment of the Transferor's rights under the Purchase Agreement, such assets
as may be deposited from time to time in the Spread Account and the Funding
Account, and all proceeds of each of the foregoing (exclusive of payments of
accrued interest on the Mortgage Loans which are due on or prior to the Cut-Off
Date).
Trustee: [_______________] or any successor Trustee appointed in
accordance with this Agreement that has accepted such appointment in
accordance with this Agreement.
Trustee Fee: A fee which is separately agreed to between the Servicer
and the Trustee.
Trustee Fee Rate: The per annum rate at which the Trustee Fee is
calculated.
UCC: The Uniform Commercial Code, as amended from time to time, as in
effect in any specified jurisdiction.
Unpaid Class A Certificate Carry Forward Interest Amount: With respect
to any Distribution Date, the aggregate amount, if any, of any Class A
Certificate Carry Forward Interest that was accrued in respect of prior
Distribution Dates and which has not been distributed to Class A
Certificateholders.
Unpaid Class A Certificate Interest Shortfall: With respect to any
Distribution Date, the aggregate amount, if any, of Class A Certificate Interest
that was accrued in respect of a prior Distribution Date and has not been
distributed to Class A Certificateholders.
Unpaid Class S Certificate Interest Shortfall: With respect to any
Distribution Date, the aggregate amount, if any, of Class S Certificate Interest
that was accrued in respect of a prior Distribution Date and has not been
distributed to Class S Certificateholders.
Valuation: With respect to any Mortgaged Property and time referred to
herein, the Appraised Value of the Mortgaged Property.
Voting Rights: The portion of the aggregate voting rights of all the
Certificates evidenced by a Class of Certificates. At all times during the term
of this Agreement, [98%] of all of the Voting Rights shall be allocated among
Holders of the Class A Certificates and the Holders of the Class S Certificates
shall be entitled to [2%] of all of the Voting Rights. Voting Rights allocated
to a Class of Certificates shall be allocated among the Certificates of each
such Class in accordance with their respective Percentage Interests.
Weighted Average Net Loan Rate: As to any Collection Period, the
average of the daily Net Loan Rate for each Mortgage Loan for each day during
the related Billing Cycle, weighted on the basis of the daily average of the
related Asset Balances outstanding for each day in such Billing Cycle for each
Mortgage Loan as determined by the Servicer in accordance with the Servicer's
normal servicing procedures.
Section 1.02. Interest Calculations. All calculations of interest
hereunder that are made in respect of the Asset Balance of a Mortgage Loan shall
be made on a daily basis using a 365-day year. All calculations of interest on
the Investor Certificates shall be made on the basis of the actual number of
days in an Interest Period and a year assumed to consist of 360 days. The
calculation of the Servicing Fee shall be made on the basis of a 360-day year
consisting of twelve 30-day months. All dollar amounts calculated hereunder
shall be rounded to the nearest penny with one-half of one penny being rounded
down. <PAGE>
ARTICLE II.
Conveyance of Mortgage Loans;
Original Issuance of Certificates;
Tax Treatment
Section 2.01. Conveyance of Mortgage Loans; Retention of Obligation to
Fund Advances Under Credit Line Agreements. The Transferor hereby sells,
transfers, assigns, sets over and otherwise conveys to the Depositor, without
recourse (subject to Section 2.02 and 2.04), all of its right, title and
interest in and to (i) each Initial Mortgage Loan, including its Asset Balance
and all collections in respect thereof received on or after the Cut-Off Date
(excluding payments in respect of accrued interest due prior to the Cut-Off
Date); (ii) property that secured an Initial Mortgage Loan that is acquired by
foreclosure or deed in lieu of foreclosure; (iii) the Transferor's rights under
the Purchase Agreement (including all representations and warranties of the
Seller contained therein); and (iv) the Transferor's rights under the hazard
insurance policies. The Transferor has entered into this Agreement in
consideration for the purchase of the Mortgage Loans by the Depositor and has
agreed to take the actions specified herein.
The Depositor, concurrently with the execution and delivery of this
Agreement, hereby sells, transfers, assigns, sets over and otherwise conveys to
the Trust, without recourse (subject to Sections 2.02 and 2.04), all of its
right, title and interest in and to (i) each Initial Mortgage Loan, including
its Asset Balance and all collections in respect thereof received on or after
the Cut-Off Date (excluding payments in respect of accrued interest due prior to
the Cut-off Date); (ii) property that secured an Initial Mortgage Loan that is
acquired by foreclosure or deed in lieu of foreclosure; (iii) all rights under
the Purchase Agreement assigned by the Transferor to the Depositor (including
all representations and warranties of the Seller contained therein); (iv) the
Depositor's rights under the hazard insurance policies; (v) the Spread Account;
(vi) the Policy; (vii) the Funding Account; and (viii) all other assets included
or to be included in the Trust for the benefit of Certificateholders; provided,
however, neither the Trustee nor the Trust assumes the obligation under any
Credit Line Agreement that provides for the funding of future advances to the
Mortgagor thereunder, and neither the Trust nor the Trustee shall be obligated
or permitted to fund any such future advances. With respect to the HELOCs,
Additional Balances shall be part of the related Asset Balance and are hereby
transferred to the Trust on the Closing Date pursuant to this Section 2.01, and
therefore part of the Trust property. In addition, on or prior to the Closing
Date, the Depositor shall cause the Credit Enhancer to deliver the Policy to the
Trustee for the benefit of the Investor Certificateholders. The foregoing
transfer, assignment, set-over and conveyance to the Trust shall be made to the
Trustee, on behalf of the Trust, and each reference in this Agreement to such
transfer, assignment, set-over and conveyance shall be construed accordingly.
Each of the Transferor and the Depositor agrees to take or cause to be
taken such actions and execute such documents (including without limitation the
filing of all necessary continuation statements for the UCC-1 financing
statements filed in the States of [ ] and [ ], respectively, (which shall have
been filed within 10 days of the Closing Date) describing the Cut-Off Date Asset
Balances and Additional Balances and naming (i) the Transferor as debtor and the
Depositor as secured party and (ii) the Depositor as debtor and the Trustee as
secured party and any amendments to UCC-1 financing statements required to
reflect a change in the name or corporate structure of the Transferor or the
Depositor or the filing of any additional UCC-1 financing statements due to the
change in the principal office of the Depositor (within 10 days of any event
necessitating such filing) as are necessary to perfect and protect the
Certificateholders' and Credit Enhancer's interests in each Cut-Off Date Asset
Balance and Additional Balances and the proceeds thereof (other than maintaining
possession by the Trustee of the Mortgage Loans and the Mortgage Files).
In connection with such transfer and assignment, the Servicer shall
deliver to the Trustee the following documents or instruments (the "Related
Documents") with respect to each Initial Mortgage Loan on the Closing Date and
will deliver with respect to each Subsequent Mortgage Loan on the related
Subsequent Transfer Date:
(i) the original Mortgage Note endorsed in blank;
(ii) an original Assignment of Mortgage in blank in recordable
form;
(iii) the original recorded Mortgage or, if, in connection with any
Mortgage Loan, the original recorded Mortgage with evidence of
recording thereon cannot be delivered on or prior to the Closing Date
because of a delay caused by the public recording office where such
original Mortgage has been delivered for recordation or because such
original Mortgage has been lost, the Transferor, at the direction of
the Depositor, shall deliver or cause to be delivered to the Custodian,
as agent for the Trustee, a true and correct copy of such Mortgage,
together with (i) in the case of a delay caused by the public recording
office, an Officer's Certificate of the Depositor stating that such
original Mortgage has been dispatched to the appropriate public
recording official or (ii) in the case of an original Mortgage that has
been lost, a certificate by the appropriate county recording office
where such Mortgage is recorded;
(iv) if applicable, the original intervening assignments, if any
("Intervening Assignments"), with evidence of recording thereon,
showing a complete chain of title to the Mortgage from the originator
to the Depositor or, if any such original Intervening Assignment has
not been returned from the applicable recording office or has been
lost, a true and correct copy thereof, together with (i) in the case of
a delay caused by the public recording office, an Officer's Certificate
of the Transferor stating that such original Intervening Assignment has
been dispatched to the appropriate public recording official for
recordation or (ii) in the case of an original Intervening Assignment
that has been lost, a certificate by the appropriate county recording
office where such Mortgage is recorded;
(v) either a title policy, a title search or guaranty of title
with respect to the related Mortgaged Property;
(vi) the original of any guaranty executed in connection with the
Mortgage Note;
(vii) the original of each assumption, modification,
consolidation or substitution agreement, if any, relating to the
Mortgage Loan; and
(viii) any security agreement, chattel mortgage or equivalent
instrument executed in connection with the Mortgage;
provided, however, that as to any Mortgage Loan, if (a) as evidenced by an
Opinion of Counsel delivered to and in form and substance satisfactory to the
Trustee and the Credit Enhancer, (x) an optical image or other representation of
the related documents specified in clauses (i) through (viii) above are
enforceable in the relevant jurisdictions to the same extent as the original of
such document and (y) such optical image or other representation does not impair
the ability of an owner of such Mortgage Loan to transfer its interest in such
Mortgage Loan, and (b) the retention of such documents in such format will not
result in a reduction in the then current rating of the Investor Certificates,
without regard to the Policy, such optical image or other representation may be
held by the Servicer, as custodian for the Trustee or assignee in lieu of the
physical documents specified above.
The Transferor hereby confirms to the Trustee that it has caused the
portions of the Electronic Ledgers relating to the Initial Mortgage Loans as of
the Closing Date, and that it will cause such Electronic Ledgers with respect to
each Subsequent Mortgage Loan as of the related Subsequent Transfer Date, to be
clearly and unambiguously marked, and has made, or will make, the appropriate
entries in its general accounting records to indicate that such Mortgage Loans
have been transferred to the Trust. The Servicer hereby confirms to the Trustee
that it has clearly and unambiguously made appropriate entries in its general
accounting records indicating that such Mortgage Loans constitute part of the
Trust and are serviced by it on behalf of the Trust in accordance with the terms
hereof. The Servicer hereby confirms to the Trustee that it will clearly and
unambiguously make appropriate entries in its general accounting records
indicating that each Subsequent Mortgage Loan constitutes part of the Trust and
is serviced by it on behalf of the Trust in accordance with the terms hereof as
of the related Subsequent Transfer Date.
Notwithstanding the characterization of the Class A Certificates as
debt for Federal, state and local income and franchise tax purposes, the parties
hereto intend to treat the transfer of the Mortgage Loans to the Trust as
provided herein as a sale, for certain non-tax purposes, of all the Transferor's
and Depositor's right, title and interest in and to the Mortgage Loans, whether
now existing or hereafter created, and the other property described above and
all proceeds thereof. In the event such transfer is deemed not to be a sale for
such purposes, the Transferor hereby grants to the Depositor and the Depositor
grants to the Trust, a security interest in all of such party's right, title and
interest in, to and under the Mortgage Loans, whether now existing or hereafter
created, and the other property described above and all proceeds thereof; and
this Agreement shall constitute a security agreement under applicable law.
Within 90 days following delivery of the Mortgage Files to the Trustee
pursuant to this Section, the Trustee shall review each such Mortgage File to
ascertain that all required documents set forth in this Section 2.01 have been
executed and received, and that such documents relate to the Mortgage Loans
identified on the Mortgage Loan Schedule and in so doing the Trustee may rely on
the purported due execution and genuineness of any signature thereon. If within
such 90-day period the Trustee finds any document constituting a part of a
Mortgage File not to have been executed or received or to be unrelated to the
Mortgage Loans identified in said Mortgage Loan Schedule or, if in the course of
its review, the Trustee determines that such Mortgage File is otherwise
defective in any material respect, the Trustee shall promptly upon the
conclusion of its review notify the Transferor, the Depositor and the Credit
Enhancer, and the Transferor shall have a period of 90 days after such notice
within which to correct or cure any such defect.
The Trustee shall have no responsibility for reviewing any Mortgage
File except as expressly provided in this Section 2.01. In reviewing any
Mortgage File pursuant to this Section, the Trustee shall have no responsibility
for determining whether any document is valid and binding, whether the text of
any assignment or endorsement is in proper or recordable form (except, if
applicable, to determine if the Trustee is the assignee or endorsee), whether
any document has been recorded in accordance with the requirements of any
applicable jurisdiction, or whether a blanket assignment is permitted in any
applicable jurisdiction, whether any Person executing any document is authorized
to do so or whether any signature thereon is genuine, but shall only be required
to determine whether a document has been executed, that it appears to be what it
purports to be, and, where applicable, that it purports to be recorded.
Section 2.02. Acceptance by Trustee; Retransfer of Mortgage Loans. (a)
The Trustee hereby acknowledges its receipt of the Policy and the Mortgage
Loans, and declares that the Trustee holds and will hold such instrument, and to
the extent that any documents are delivered to it pursuant to Section 2.01, will
hold such documents, and all amounts received by it thereunder and hereunder, in
trust, upon the terms herein set forth, for the use and benefit of all present
and future Certificateholders and the Credit Enhancer. If the time to cure any
defect in respect of any Mortgage Loan of which the Trustee has notified the
Transferor and the Depositor following the review pursuant to Section 2.01 has
expired or if at any time any loss is suffered by the Trustee on behalf of the
Certificateholders or the Credit Enhancer, in respect of any Mortgage Loan as a
result of (i) a defect in any document constituting a part of its Mortgage File
or (ii) an Assignment of Mortgage to the Trustee not having been recorded as
required by Section 2.01, then on the next succeeding Business Day upon the
deposit to the Collection Account of the Transfer Deposit Amount, if any, and
upon satisfaction of the applicable conditions described herein, all right,
title and interest of the Trust in and to such Mortgage Loan shall be deemed to
be retransferred, reassigned and otherwise reconveyed, without recourse,
representation or warranty, to the Transferor on such Business Day and the Asset
Balance of such Mortgage Loan shall be deducted from the Pool Balance; provided,
however, that interest accrued on the Asset Balance of such Mortgage Loan to the
end of the related Collection Period shall be the property of the Trust. The
Trustee shall determine if the reduction of such Asset Balance from the Pool
Balance in accordance with the preceding sentence would cause the Transferor
Principal Balance to be less than the Minimum Transferor Interest ("Transfer
Deficiency"), in which event the Trustee shall deliver written notice of such
deficiency to the Transferor, and within five Business Days after the Business
Day of such retransfer the Transferor shall either (i) substitute an Eligible
Substitute Mortgage Loan or (ii) deposit into the Collection Account an amount
(the "Transfer Deposit Amount") in immediately available funds equal to the
Transfer Deficiency or a combination of both (i) and (ii) above. Such reduction
or substitution and the actual payment of any Transfer Deposit Amount, if any,
shall be deemed to be payment in full for such Mortgage Loan. Upon receipt of
any Eligible Substitute Mortgage Loan or of written notification signed by a
Servicing Officer to the effect that the Transfer Deposit Amount in respect of a
Defective Mortgage Loan has been deposited into the Collection Account or, if
the Transferor Principal Balance is not reduced below the Minimum Transferor
Interest as a result of the deemed retransfer of a Defective Mortgage Loan, then
as promptly as practicable following such deemed transfer, the Trustee shall
execute such documents and instruments of transfer presented by the Transferor,
in each case without recourse, representation or warranty, and take such other
actions as shall reasonably be requested by the Transferor to effect such
transfer by the Trust of such Defective Mortgage Loan pursuant to this Section.
It is understood and agreed that the obligation of the Transferor to accept a
transfer of a Defective Mortgage Loan and to either convey an Eligible
Substitute Mortgage Loan or to make a deposit of any related Transfer Deposit
Amount into the Collection Account shall constitute the sole remedy respecting
such defect available to Certificateholders, the Trustee and the Credit Enhancer
against the Transferor.
The Servicer, promptly following the transfer of a Defective Mortgage
Loan from or to the Trust pursuant to this Section, shall amend the Mortgage
Loan Schedule and make appropriate entries in its general account records to
reflect such transfer. The Servicer shall, following such retransfer,
appropriately mark its records to indicate that it is no longer servicing such
Mortgage Loan on behalf of the Trust. The Transferor, promptly following such
transfer, shall appropriately mark its Electronic Ledger and make appropriate
entries in its general account records to reflect such transfer.
Notwithstanding any other provision of this Section, a retransfer of a
Defective Mortgage Loan to the Transferor pursuant to this Section that would
cause the Transferor Principal Balance to be less than the Minimum Transferor
Interest shall not occur if either the Transferor fails to convey an Eligible
Substitute Mortgage Loan or to deposit into the Collection Account any related
Transfer Deposit Amount required by this Section with respect to the transfer of
such Defective Mortgage Loan.
(b) As to any Eligible Substitute Mortgage Loan or Loans, the
Transferor shall deliver to the Trustee with respect to such Eligible Substitute
Mortgage Loan or Loans such documents and agreements as are required to be held
by the Trustee in accordance with Section 2.01. For any Collection Period during
which the Transferor substitutes one or more Eligible Substitute Mortgage Loans,
the Servicer shall determine the Transfer Deposit Amount which amount shall be
deposited by the Transferor in the Collection Account at the time of
substitution. All amounts received in respect of the Eligible Substitute
Mortgage Loan or Loans during the Collection Period in which the circumstances
giving rise to such substitution occur shall not be a part of the Trust Fund and
shall not be deposited by the Servicer in the Collection Account. All amounts
received by the Servicer during the Collection Period in which the circumstances
giving rise to such substitution occur in respect of any Defective Mortgage Loan
so removed by the Trust Fund shall be deposited by the Servicer in the
Collection Account. Upon such substitution, the Eligible Substitute Mortgage
Loan or Loans shall be subject to the terms of this Agreement in all respects,
and the Transferor shall be deemed to have made with respect to such Eligible
Substitute Mortgage Loan or Loans, as of the date of substitution, the
covenants, representations and warranties set forth in Section 2.04. The
procedures applied by the Transferor in selecting each Eligible Substitute
Mortgage Loan shall not be materially adverse to the interests of the Trustee,
the Certificateholders and the Credit Enhancer.
Section 2.03. Representations and Warranties Regarding the Servicer and
the Transferor. (a) The Servicer represents and warrants to the Trustee and the
Credit Enhancer that as of the Closing Date and as of the Subsequent Transfer
Date:
(i) The Servicer is a [state] corporation, validly existing and in good
standing under the laws of the State of [ ], and has the corporate power to own
its assets and to transact the business in which it is currently engaged. The
Servicer is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the character of the business
transacted by it or any properties owned or leased by it requires such
qualification and in which the failure so to qualify would have a material
adverse effect on the business, properties, assets, or condition (financial or
other) of the Servicer;
(ii) The Servicer has the power and authority to make, execute, deliver
and perform this Agreement and all of the transactions contemplated under the
Agreement, and has taken all necessary corporate action to authorize the
execution, delivery and performance of this Agreement. When executed and
delivered, this Agreement will constitute the legal, valid and binding
obligation of the Servicer enforceable in accordance with its terms, except as
enforcement of such terms may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by the availability of equitable remedies;
(iii) The Servicer is not required to obtain the consent of any other
party or any consent, license, approval or authorization from, or registration
or declaration with, any governmental authority, bureau or agency in connection
with the execution, delivery, performance, validity or enforceability of this
Agreement, except for such consent, license, approval or authorization, or
registration or declaration, as shall have been obtained or filed, as the case
may be, prior to the Closing Date;
(iv) The execution, delivery and performance of this Agreement by the
Servicer will not violate any provision of any existing law or regulation or any
order or decree of any court applicable to the Servicer or any provision of the
Certificate of Incorporation or Bylaws of the Servicer, or constitute a material
breach of any mortgage, indenture, contract or other agreement to which the
Servicer is a party or by which the Servicer may be bound; and
(v) No litigation or administrative proceeding of or before any court,
tribunal or governmental body is currently pending, or to the knowledge of the
Servicer threatened, against the Servicer or any of its properties or with
respect to this Agreement or the Certificates which in the opinion of the
Servicer has a reasonable likelihood of resulting in a material adverse effect
on the transactions contemplated by this Agreement.
The representations and warranties set forth in this Section 2.03(a) shall
survive the sale and assignment of the Mortgage Loans to the Trust. Upon
discovery of a breach of any representations and warranties which materially and
adversely affects the interests of the Certificateholders or the Credit
Enhancer, the person discovering such breach shall give prompt written notice to
the other parties and to the Credit Enhancer. Within 90 days of its discovery or
its receipt of notice of breach, or, with the prior written consent of a
Responsible Officer of the Trustee, such longer period specified in such
consent, the Servicer shall cure such breach in all material respects.
(b) The Transferor represents and warrants to the Trustee and the
Credit Enhancer that as of the Closing Date and as of each Subsequent Transfer
Date:
(i) The Transferor is a [ ] corporation, validly existing and in
good standing under the laws of the State of [ ], and has the corporate
power to own its assets and to transact the business in which it is
currently engaged. The Transferor is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in
which the character of the business transacted by it or any properties
owned or leased by it requires such qualification and in which the
failure so to qualify would have a material adverse effect on the
business, properties, assets, or condition (financial or other) of the
Transferor;
(ii) The Transferor has the power and authority to make, execute,
deliver and perform this Agreement and all of the transactions
contemplated under the Agreement, and has taken all necessary corporate
action to authorize the execution, delivery and performance of this
Agreement. When executed and delivered, this Agreement will constitute
the legal, valid and binding obligation of the Transferor enforceable
in accordance with its terms, except as enforcement of such terms may
be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights
generally and by the availability of equitable remedies;
(iii) The Transferor is not required to obtain the consent of any
other party or any consent, license, approval or authorization from, or
registration or declaration with, any governmental authority, bureau or
agency in connection with the execution, delivery, performance,
validity or enforceability of this Agreement, except for such consent,
license, approval or authorization, or registration or declaration, as
shall have been obtained or filed, as the case may be, prior to the
Closing Date;
(iv) The execution, delivery and performance of this Agreement by
the Transferor will not violate any provision of any existing law or
regulation or any order or decree of any court applicable to the
Transferor or any provision of the Certificate of Incorporation or
Bylaws of the Transferor, or constitute a material breach of any
mortgage, indenture, contract or other agreement to which the
Transferor is a party or by which the Transferor may be bound; and
(v) No litigation or administrative proceeding of or before any
court, tribunal or governmental body is currently pending, or to the
knowledge of the Transferor threatened, against the Transferor or any
of its properties or with respect to this Agreement or the Certificates
which in the opinion of the Transferor has a reasonable likelihood of
resulting in a material adverse effect on the transactions contemplated
by this Agreement.
The representations and warranties set forth in this Section 2.03(b) shall
survive the sale and assignment of the Mortgage Loans to the Trust. Upon
discovery of a breach of any representations and warranties which materially and
adversely affects the interests of the Certificateholders or the Credit
Enhancer, the person discovering such breach shall give prompt written notice to
the other parties and to the Credit Enhancer. Within 90 days of its discovery or
its receipt of notice of breach, or, with the prior written consent of a
Responsible Officer of the Trustee, such longer period specified in such
consent, the Transferor shall cure such breach in all material respects.
Section 2.04. Representations and Warranties of the Transferor
Regarding the Mortgage Loans; Retransfer of Certain Mortgage Loans. (a) The
Transferor hereby represents and warrants to the Trustee, the Depositor and the
Credit Enhancer that as of the Closing Date with respect to the Mortgage Loans
and as of the applicable Transfer Date with respect to any Subsequent Mortgage
Loan and any Eligible Substitute Mortgage Loan,
(i) As of the Closing Date with respect to the Initial Mortgage
Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loan and any Eligible Substitute Mortgage Loan and, with
respect to any HELOC, as of the date any Additional Balance is created,
the information set forth in the Mortgage Loan Schedule for such
Mortgage Loans is true and correct in all material respects;
(ii) The applicable Cut-Off Date Asset Balance has not been
assigned or pledged, and the Transferor is the sole owner and holder of
such Cut-Off Date Asset Balance free and clear of any and all liens,
claims, encumbrances, participation interests, equities, pledges,
charges or security interests of any nature, and has full right and
authority, under all governmental and regulatory bodies having
jurisdiction over the ownership of the applicable Mortgage Loan, to
sell, assign or transfer the same pursuant to the Purchase Agreement;
(iii) As of the Closing Date with respect to the Initial Mortgage
Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loan and any Eligible Substitute Mortgage Loan, the related
Mortgage Note and the Mortgage with respect to each Mortgage Loan have
not been assigned or pledged, and the Transferor is the sole owner and
holder of the Mortgage Loan free and clear of any and all liens,
claims, encumbrances, participation interests, equities, pledges,
charges or security interests of any nature, and has full right and
authority, under all governmental and regulatory bodies having
jurisdiction over the ownership of the applicable Mortgage Loans, to
sell and assign the same pursuant to the Purchase Agreement;
(iv) As of the Closing Date with respect to the Initial Mortgage
Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loan and any Eligible Substitute Mortgage Loan, the related
Mortgage is a valid and subsisting first or second lien, as set forth
on the Mortgage Loan Schedule with respect to each related Mortgage
Loan, on the property therein described, and as of the applicable
Cut-Off Date the related Mortgaged Property is free and clear of all
encumbrances and liens having priority over the first or second lien,
as applicable, of such Mortgage except for liens for (i) real estate
taxes and special assessments not yet delinquent; (ii) any first
mortgage loan secured by such Mortgaged Property and specified on the
Mortgage Loan Schedule; (iii) covenants, conditions and restrictions,
rights of way, easements and other matters of public record as of the
date of recording that are acceptable to mortgage lending institutions
generally; and (iv) other matters to which like properties are commonly
subject which do not materially interfere with the benefits of the
security intended to be provided by such Mortgage;
(v) As of the Closing Date with respect to the Initial Mortgage
Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loan and any Eligible Substitute Mortgage Loan, there is no
valid offset, defense or counterclaim of any obligor under any Loan
Agreement or Mortgage;
(vi) To the best knowledge of the Transferor, as of the Closing
Date with respect to the Initial Mortgage Loans and the applicable
Transfer Date with respect to any Subsequent Mortgage Loan and any
Eligible Substitute Mortgage Loan, there is no delinquent recording or
other tax or fee or assessment lien against any related Mortgaged
Property;
(vii) As of the Closing Date with respect to the Initial Mortgage
Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loan and any Eligible Substitute Mortgage Loan, there is no
proceeding pending or, to the best knowledge of the Transferor,
threatened for the total or partial condemnation of the related
Mortgaged Property, and such property is free of material damage;
(viii) To the best knowledge of the Transferor, as of the Closing
Date with respect to the Initial Mortgage Loans and the applicable
Transfer Date with respect to any Subsequent Mortgage Loan and any
Eligible Substitute Mortgage Loan, there are no mechanics' or similar
liens or claims which have been filed for work, labor or material
affecting the related Mortgaged Property which are, or may be, liens
prior or equal to the lien of the related Mortgage, except liens which
are fully insured against by the title insurance policy referred to in
clause (xiv);
(ix) No Minimum Monthly Payment is more than 89 days delinquent
(measured on a contractual basis); and with respect to the Mortgage
Loans no more than ___% (by Initial Cut-Off Date Pool Balance) were
30-59 days delinquent (measured on a contractual basis) and no more
than ____% (by Initial Cut-Off Date Pool Balance) were 60-89 days
delinquent (measured on a contractual basis);
(x) As of the Closing Date with respect to the Initial Mortgage
Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loan and any Eligible Substitute Mortgage Loan, for each
Mortgage Loan, the related Mortgage File contains each of the documents
and instruments specified to be included therein;
(xi) The related Mortgage Note and the related Mortgage at
origination complied in all material respects with applicable state and
federal laws, including, without limitation, usury, truth-in-lending,
real estate settlement procedures, consumer credit protection, equal
credit opportunity or disclosure laws applicable to the Mortgage Loan;
(xii) Either a lender's title insurance policy or binder was
issued on the date of origination of the Mortgage Loan and each such
policy is valid and remains in full force and effect, or a title search
or guaranty of title customary in the relevant jurisdiction was
obtained with respect to a Mortgage Loan as to which no title insurance
policy or binder was issued;
(xiii) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any
Subsequent Mortgage Loan and any Eligible Substitute Mortgage Loan,
none of the Mortgaged Properties is a mobile home or a manufactured
housing unit that is not considered or classified as part of the real
estate under the laws of the jurisdiction in which it is located;
(xiv) As of the Cut-Off Date for the Initial Mortgage Loans no
more than ____% of such Mortgage Loans (by Initial Cut-Off Date Pool
Balance), are secured by Mortgaged Properties located in one United
States postal zip code;
(xv) The Combined Loan-to-Value Ratio for each Mortgage Loan was
not in excess of ___%;
(xvi) No selection procedure reasonably believed by the
Transferor to be adverse to the interests of the Certificateholders or
the Credit Enhancer was utilized in selecting the Mortgage Loans;
(xvii) The Transferor has not transferred the Mortgage Loans to
the Transferor with any intent to hinder, delay or defraud any of its
creditors;
(xviii) The Minimum Monthly Payment with respect to any HELOC is
not less than the interest accrued at the applicable Loan Rate on the
average daily Asset Balance during the interest period relating to the
date on which such Minimum Monthly Payment is due;
(xix) Within 10 days of the Closing Date with respect to the
Initial Mortgage Loans and, to the extent not already included in such
filing, within 10 days of the applicable Transfer Date with respect to
any Subsequent Mortgage Loan and any Eligible Substitute Mortgage Loan,
the Transferor will file UCC-1 financing statements with respect to
such Mortgage Loans;
(xx) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any
Subsequent Mortgage Loan and any Eligible Substitute Mortgage Loan,
each Loan Agreement and each Mortgage Loan is an enforceable
obligation of the related Mortgagor, except as the enforceability
thereof may be limited by the bankruptcy, insolvency or similar laws
affecting creditors' rights generally;
(xxi) As of the Closing Date with respect to the Initial Mortgage
Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loan and any Eligible Substitute Mortgage Loan, the Transferor
has not received a notice of default of any senior mortgage loan
related to a Mortgaged Property that has not been cured by a party
other than the Servicer;
(xxii) The definition of "prime rate" in each Credit Line
Agreement relating to a HELOC does not differ materially from the
definition in the form of Credit Line Agreement in Exhibit F;
(xxiii) The weighted average remaining term to maturity of the
Initial Mortgage Loans on a contractual basis as of the Cut-Off Date is
approximately ___ months. On each date that the Loan Rates relating to
HELOCs have been adjusted, interest rate adjustments on the HELOCs were
made in compliance with the related Mortgages and Mortgage Notes and
applicable law. Over the term of each HELOC, the Loan Rate may not
exceed the related Loan Rate Cap, if any. With respect to the Initial
HELOCs, the Loan Rate Caps range between ____% and ___%. With respect
to the Initial HELOCs, the Margins range between ___% and ____% and the
weighted average Margin is approximately ____% as of the related
Cut-Off Date. The Loan Rates on the Initial Mortgage Loans range
between ___% and ____% and the weighted average Loan Rate is
approximately ___%;
(xxiv) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any
Subsequent Mortgage Loan and any Eligible Substitute Mortgage Loan,
each Mortgaged Property consists of a single parcel of real property
with a one-to-four unit single family residence erected thereon, or an
individual condominium unit, planned unit development unit or
townhouse;
(xxv) No more than ____% (by Initial Cut-Off Date Pool Balance)
of the Initial Mortgage Loans are secured by real property improved by
individual condominium units, planned development units, townhouses or
two-to-four family residences erected thereon, and at least ____% (by
Initial Cut-Off Date Pool Balance) of the Initial Mortgage Loans are
secured by real property with a detached one-family residence erected
thereon;
(xxvi) The Credit Limits on the Initial HELOCs range between
$________ and $_________ with an average of $_______. As of the
applicable Cut-Off Date, no Initial Mortgage Loan had a principal
balance in excess of approximately $___________ and the average
principal balance of the Initial Mortgage Loans is equal to
approximately $_______;
(xxvii) Approximately ____% and ___% of the Initial Mortgage
Loans, by aggregate principal balance as of the applicable Cut-Off
Date, are first and second liens, respectively;
(xxviii) Each Closed-End Loan is payable in equal monthly
installments of principal and interest which would be sufficient, in
the absence of late payments, to fully amortize such loan on the
maturity thereof and bears a fixed interest rate for the term of such
Closed-End Loan; and
(xxix) Either (A) this Agreement constitutes a valid transfer and
assignment to the Depositor of all right, title and interest of the
Transferor in and to the Cut-Off Date Asset Balances with respect to
the applicable Mortgage Loans, all monies due or to become due with
respect thereto (excluding payments in respect of accrued interest due
prior to the Cut-Off Date), and all proceeds of such Cut-Off Date Asset
Balances with respect to the Mortgage Loans and such funds as are from
time to time deposited in the Collection Account (excluding any
investment earnings thereon) and all other property specified in the
definition of "Trust" as being part of the corpus of the Trust conveyed
to the Trust, and upon payment for the Additional Balances, will
constitute a valid transfer and assignment to the Trustee of all right,
title and interest of the Transferor in and to the Additional Balances,
all monies due or to become due with respect thereto, and all proceeds
of such Additional Balances and all other property specified in the
definition of "Trust" relating to the Additional Balances or (B) this
Agreement constitutes a grant of a security interest (as defined in the
UCC as in effect in New York) in such property to the Trustee on behalf
of the Trust. If this Agreement constitutes the grant of a security
interest to the Trust in such property, and if the Trustee obtains and
maintains possession of the Mortgage File for each Mortgage Loan, the
Trust shall have a first priority perfected security interest in such
property, subject to the effect of Section 9-306 of the UCC with
respect to collections on the Mortgage Loans that are deposited in the
Collection Account in accordance with the next to last paragraph of
Section 3.02(b).
With respect to the representations and warranties set forth in this
Section 2.04 that are made to the best of the Transferor's knowledge or as to
which the Transferor has no knowledge, if it is discovered by the Transferor,
the Depositor, the Servicer or a Responsible Officer of the Trustee that the
substance of such representation and warranty is inaccurate and such inaccuracy
materially and adversely affects the value of the related Mortgage Loan then,
notwithstanding the Transferor's lack of knowledge with respect to the substance
of such representation and warranty being inaccurate at the time the
representation or warranty was made, such inaccuracy shall be deemed a breach of
the applicable representation or warranty.
(b) It is understood and agreed that the representations and warranties
set forth in this Section 2.04 shall survive delivery of the respective Mortgage
Files to the Trustee pursuant to Section 2.01 and the termination of the rights
and obligations of the Servicer pursuant to Section 7.04 or 8.02. Upon discovery
by the Transferor, the Depositor, the Servicer, the Credit Enhancer or a
Responsible Officer of the Trustee of a breach of any of the foregoing
representations and warranties, without regard to any limitation set forth
therein concerning the knowledge of the Transferor as to the facts stated
therein, which materially and adversely affects the interests of the Trust or
the Investor Certificateholders or the Credit Enhancer in the related Mortgage
Loan, the party discovering such breach shall give prompt written notice to the
other parties and the Credit Enhancer. Within 90 days of its discovery or its
receipt of notice of such breach, the Transferor shall use all reasonable
efforts to cure such breach in all material respects or shall, not later than
the Business Day next preceding the Distribution Date in the month following the
Collection Period in which any such cure period expired (or such later date that
is acceptable to the Trustee and the Credit Enhancer as evidenced by their
written consents), either (a) accept a transfer of such Mortgage Loan from the
Trust or (b) substitute an Eligible Substitute Mortgage Loan in the same manner
and subject to the same conditions as set forth in Section 2.02; provided,
however, that the cure for any breach of a representation and warranty relating
to the characteristics of the Mortgage Loans in the aggregate shall be a
repurchase of or substitution for only the Mortgage Loans necessary to cause
such characteristics to be in compliance with the related representation and
warranty. Upon accepting such transfer and making any required deposit into the
Collection Account or substitution of an Eligible Substitute Mortgage Loan, as
the case may be, the Transferor shall be entitled to receive an instrument of
assignment or transfer from the Trustee to the same extent as set forth in
Section 2.02 with respect to the transfer of Mortgage Loans under that Section.
It is understood and agreed that the obligation of the Transferor to
accept a retransfer of a Mortgage Loan as to which a breach has occurred and is
continuing and to make any required deposit in the Collection Account or to
substitute an Eligible Substitute Mortgage Loan, as the case may be, shall
constitute the sole remedy against the Transferor respecting such breach
available to Investor Certificateholders, the Trustee on behalf of Investor
Certificateholders and the Credit Enhancer; provided, however, that the
Transferor shall defend and indemnify the Trustee, the Credit Enhancer and the
Investor Certificateholders against all reasonable costs and expenses, and all
losses, damages, claims and liabilities, including reasonable fees and expenses
of counsel and the amount of any settlement entered into with the consent of the
Transferor (such consent not to be unreasonably withheld), which may be asserted
against or incurred by any of them as a result of any third-party action arising
out of any breach of any such representation and warranty. Notwithstanding the
foregoing, with regard to any breach of the representation and warranty set
forth in Section 2.04(a)(iv), the sale and assignment of the affected Mortgage
Loans to the Trust shall be deemed void and the Transferor shall pay to the
Trust the sum of (i) the amount of the related Asset Balances, plus unpaid
accrued interest on each such Asset Balance at the applicable Loan Rate to the
date of payment and (ii) the amount of any loss suffered by Certificateholders
or the Credit Enhancer with respect to the affected Mortgage Loans.
Section 2.05. Covenants of the Depositor and the Transferor. Each of
the Depositor and the Transferor hereby covenants that:
(a) Security Interests. Except for the transfer hereunder, neither the
Depositor nor the Transferor will sell, pledge, assign or transfer to any other
Person, or grant, create, incur, assume or suffer to exist any Lien on any
Mortgage Loan, whether now existing or hereafter created, or any interest
therein; each of the Depositor and the Transferor will notify the Trustee of the
existence of any Lien on any Mortgage Loan immediately upon discovery thereof;
and each of the Depositor and the Transferor will defend the right, title and
interest of the Trust in, to and under the Mortgage Loans, whether now existing
or hereafter created, against all claims of third parties claiming through or
under the Depositor or the Transferor, respectively; provided, however, that
nothing in this Section 2.05(a) shall prevent or be deemed to prohibit the
Depositor or the Transferor from suffering to exist upon any of the Mortgage
Loans any Liens for municipal or other local taxes and other governmental
charges if such taxes or governmental charges shall not at the time be due and
payable or if the Depositor or the Transferor shall currently be contesting the
validity thereof in good faith by appropriate proceedings and shall have set
aside on its books adequate reserves with respect thereto.
(b) Negative Pledge. The Transferor hereby agrees not to transfer,
assign, exchange, pledge, finance, hypothecate, grant a security interest in or
otherwise convey the Transferor Certificates except in accordance with Sections
6.05 and 7.02.
(c) Downgrading. Neither the Depositor nor the Transferor will engage
in any activity which would result in a downgrading of the Investor
Certificates.
(d) Amendment to Certificate of Incorporation. Neither the Depositor
nor the Transferor will amend its Certificate of Incorporation without prior
written notice to the Rating Agencies and the Credit Enhancer.
(e) Principal Place of Business. The Depositor's principal place of
business is in California and the Transferor's principal place of business is [
], and neither such party will change its principal place of business without
prior written notice to the Rating Agencies.
Section 2.06. Retransfers of Mortgage Loans at Election of Transferor.
Subject to the conditions set forth below, the Transferor may, but shall not be
obligated to, require the retransfer of Mortgage Loans from the Trust to the
Transferor as of the close of business on a Distribution Date (each, a
"Retransfer Date"). On the fifth Business Day (the "Retransfer Notice Date")
prior to the Retransfer Date designated in such notice, the Transferor shall
give the Trustee and the Servicer a notice of the proposed retransfer that
contains a list of the Mortgage Loans to be retransferred. Such retransfers of
Mortgage Loans shall be permitted upon satisfaction of the following conditions:
(i) The Rapid Amortization Period shall not have commenced;
(ii) On the Transfer Notice Date the Transferor Principal Balance
(after giving effect to the removal from the Trust of the Mortgage
Loans proposed to be retransferred) is at least equal to the Minimum
Transferor Interest;
(iii) The transfer of any Mortgage Loans on any Retransfer Date
during the Managed Amortization Period shall not, in the reasonable
belief of the Transferor, cause a Rapid Amortization Event to occur or
an event which with notice or lapse of time or both would constitute a
Rapid Amortization Event;
(iv) On or before the Retransfer Date, the Transferor shall have
delivered to the Trustee a revised Mortgage Loan Schedule, reflecting
the proposed transfer and the Retransfer Date, and the Servicer shall
have marked the Electronic Ledger to show that the Mortgages Loans
retransferred to the Transferor are no longer owned by the Trust;
(v) The Transferor shall represent and warrant that no selection
procedures reasonably believed by the Transferor to be adverse to the
interests of the Investor Certificateholders or the Credit Enhancer
were utilized in selecting the Mortgage Loans to be removed from the
Trust;
(vi) In connection with each such retransfer of Mortgage Loans
pursuant to this Section, each Rating Agency shall have received on or
prior to the related Retransfer Notice Date notice of such proposed
retransfer of Mortgage Loans and, prior to the Retransfer Date, shall
have notified the Trustee in writing that such retransfer of Mortgage
Loans would not result in a reduction or withdrawal of its then current
rating of the Investor Certificates without regard to the Policy; and
(vii) The Transferor shall have delivered to the Trustee and the
Credit Enhancer an Officer's Certificate certifying that the items set
forth in subparagraphs (i) through (vi), inclusive, have been performed
or are true and correct, as the case may be. The Trustee may
conclusively rely on such Officer's Certificate, shall have no duty to
make inquiries with regard to the matters set forth therein and shall
incur no liability in so relying.
Upon receiving the requisite information from the Transferor, the Servicer shall
perform in a timely manner those acts required of it, as specified above. Upon
satisfaction of the above conditions, on the Retransfer Date the Trustee shall
deliver, or cause to be delivered, to the Transferor the Mortgage File for each
Mortgage Loan being so transferred, and the Trustee shall execute and deliver to
the Transferor such other documents prepared by the Transferor as shall be
reasonably necessary to transfer such Mortgage Loans to the Transferor. Any such
retransfer of the Trust's right, title and interest in and to Mortgage Loans
shall be without recourse, representation or warranty by or of the Trustee or
the Trust to the Transferor.
Section 2.07. Execution and Authentication of Certificates. The
Trustee, on behalf of the Trust, has caused to be executed, authenticated and
delivered to or upon the order of the Depositor, in exchange for the Trust,
concurrently with the sale, assignment and conveyance to the Trustee of the
Trust, Investor Certificates in authorized denominations and the Transferor
Certificates, together evidencing the ownership of the entire Trust.
Section 2.08. Tax Treatment. It is the intention of the Depositor, the
Transferor and the Class A Certificateholders that the Class A Certificates will
be indebtedness of the Transferor for federal, state and local income and
franchise tax purposes and for purposes of any other tax imposed on or measured
by income. The Transferor, the Depositor, the Trustee and each Class A
Certificateholder (or Certificate Owner) by acceptance of its Class A
Certificate (or, in the case of a Certificate Owner, by virtue of such
Certificate Owner's acquisition of a beneficial interest therein) agrees to
treat the Class A Certificates (or beneficial interest therein), for purposes of
federal, state and local income or franchise taxes and any other tax imposed on
or measured by income, as indebtedness of the Transferor secured by the assets
of the Trust and to report the transactions contemplated by this Agreement on
all applicable tax returns in a manner consistent with such treatment. Each
Class A Certificateholder agrees that it will cause any Certificate Owner
acquiring an interest in an Class A Certificate through it to comply with this
Agreement as to treatment of the Class A Certificates as indebtedness for
federal, state and local income and franchise tax purposes and for purposes of
any other tax imposed on or measured by income. The Trustee will prepare and
file all tax reports required hereunder.
Section 2.09. Representations and Warranties of the Depositor. The
Depositor represents and warrants to the Trustee on behalf of the
Certificateholders and the Credit Enhancer as follows:
(i) This Agreement constitutes a legal, valid and binding
obligation of the Depositor, enforceable against the Depositor in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect affecting the enforcement of
creditors' rights in general and except as such enforceability may be
limited by general principles of equity (whether considered in a
proceeding at law or in equity);
(ii) Immediately prior to the sale and assignment by the
Depositor to the Trustee of each Mortgage Loan, the Depositor was the
sole beneficial owner of each Mortgage Loan (insofar as such title was
conveyed to it by the Transferor) subject to no prior lien, claim,
participation interest, mortgage, security interest, pledge, charge or
other encumbrance or other interest of any nature;
(iii) As of the Closing Date, the Depositor has transferred all
right, title and interest in the Mortgage Loans to the Trustee; and
(iv) The Depositor has not transferred the Mortgage Loans to the
Trustee with any intent to hinder, delay or defraud any of its
creditors.
Section 2.10. Conveyance of the Subsequent Mortgage Loans. (a) Subject
to the satisfaction of the conditions set forth in Section 2.01 and paragraph
(b) below, in consideration of the Trustee's delivery on a Subsequent Transfer
Date to or upon the order of the Transferor of all or a portion of the amount in
respect of Principal Collections in the Funding Account the Transferor shall, to
the extent of the availability thereof, on the related Subsequent Transfer Date
transfer, assign, set over and otherwise convey to the Trust without recourse
(subject to Sections 2.02 and 2.04) all of its right, title and interest in and
to the Asset Balances of the Subsequent Mortgage Loans and all Interest
Collections and Principal Collections in respect thereof received after the
Cut-Off Date for the Subsequent Mortgage Loans or, with respect to any
Additional Balances with respect thereto, on or after the date of transfer to
the Trust. Future advances made to a Mortgagor under a Loan Agreement relating
to a Subsequent Mortgage Loan shall be part of the related Asset Balance and
transferred to the Trust pursuant to this Section 2.10, and, therefore, part of
the Trust property upon the sale thereof to the Transferor under the Purchase
Agreement.
On each Subsequent Transfer Date, the Trustee shall acknowledge that
the Transferor has conveyed its right, title and interest in and to each
Subsequent Mortgage Loan and to the corresponding Related Documents and certain
other rights to the Trustee pursuant to this Agreement, and the Trustee shall
hold such documents hereunder for the benefit of the Certificateholders.
(b) The obligation of the Trustee to accept the transfer of the
Subsequent Mortgage Loans and the other property and rights related thereto
described in paragraph (a) above is subject to the satisfaction of each of the
following conditions on or prior to the Subsequent Transfer Date:
(i) the Trustee shall have been provided with a letter from the
Credit Enhancer consenting to such transfer of the Subsequent Mortgage
Loans (which consent shall not be unreasonably withheld or delayed);
(ii) the Trustee shall have been provided with a revised Mortgage
Loan Schedule, listing the Subsequent Mortgage Loans;
(iii) the Transferor shall have deposited in the Collection
Account all Principal Collections and Interest Collections in respect
of such Subsequent Mortgage Loans received after the Cut-Off Date for
the Subsequent Mortgage Loans;
(iv) the representations and warranties of the Transferor in
Section 2.04 hereof, to the extent such representations and warranties
do not pertain exclusively to the Initial Mortgage Loans, are true and
correct with respect to the Subsequent Mortgage Loans as of the related
Subsequent Transfer Date;
(v) the Trustee shall have been provided with a letter from each
Rating Agency confirming that the transfer of the Subsequent Mortgage
Loans shall not result in a reduction or withdrawal of its then-current
rating of the Investor Certificates;
(vi) the Servicer shall acknowledge in writing that it has
delivered the related Mortgage Files to the Trustee and complied with
all other requirements with respect to the assignment of the related
Mortgages specified therein;
(vii) the Servicer shall represent and warrant that no selection
procedures reasonably believed by the Servicer to be adverse to the
interests of the Investor Certificateholders or the Credit Enhancer
were utilized in selecting the Subsequent Mortgage Loans; and
(viii) the Transferor shall have delivered to the Trustee an
Officer's Certificate confirming the satisfaction of each condition
precedent specified in this paragraph (b).
(c) The obligation of the Trust to purchase any Subsequent Mortgage
Loans on a Subsequent Transfer Date is subject to the following requirements:
(i) each such Subsequent Mortgage Loan is a HELOC and the remaining term to
maturity of each such Subsequent Mortgage Loan may not exceed ___ months; (ii)
the weighted average Margin of the Subsequent Mortgage Loans (by aggregate
Cut-Off Date Asset Balance with respect to such Subsequent Mortgage Loans) plus
any Subsequent Mortgage Loans previously transferred to the Trust is at least
____%; (iii) the weighted average Combined Loan-to-Value Ratio of the Subsequent
Mortgage Loans (by aggregate Cut-Off Date Asset Balance with respect to such
Subsequent Mortgage Loans) plus any Subsequent Mortgage Loans previously
transferred to the Trust is not more than ___%; (iv) no such Subsequent Mortgage
Loan will have a Cut-Off Date Asset Balance in excess of $________; (v) no less
than ___% of the Subsequent Mortgage Loans plus any Subsequent Mortgage Loans
previously transferred to the Trust (by aggregate Cut-Off Date Asset Balance
with respect to such Subsequent Mortgage Loans) are in a first lien position;
(vi) at least ___% of such Subsequent Mortgage Loans plus any Subsequent
Mortgage Loans previously transferred to the Trust (by aggregate Cut-Off Date
Asset Balance with respect to such Subsequent Mortgage Loans) are not more than
30 days delinquent (on a contractual basis) in the payment of a Minimum Monthly
Payment as of the Cut-Off Date for such Subsequent Mortgage Loans; and (vii) any
Subsequent HELOC more than 30 days delinquent that is so purchased by the Trust
shall not have had its Credit Limit terminated or suspended prior to the
Subsequent Transfer Date with respect to such Mortgage Loan. On the last
Distribution Date of the Funding Period, the Transferor shall have provided the
Trustee, the Rating Agencies and the Credit Enhancer with an opinion of counsel
to the effect that such transfer constitutes a sale of the Trust Balances of the
Subsequent Mortgage Loans to the Transferor and a sale of or grant of a security
interest in the Subsequent Mortgage Loans to the Trustee; provided, however,
that in the event of a change of law during the Funding Period that materially
affects the method of perfecting the security interest in the Subsequent
Mortgage Loans, the Transferor shall either (i) provide the Trustee, the Rating
Agencies and the Credit Enhancer with an opinion of counsel to the effect that
such transfer constitutes a sale of the Asset Balances of the Subsequent
Mortgage Loans to the Transferor and a sale of or grant of a security interest
in the Subsequent Mortgage Loans to the Trustee, or (ii) take such action as is
necessary to perfect the interests of the Trust in the Subsequent Mortgage
Loans.
<PAGE>
ARTICLE III.
Administration and Servicing
of Mortgage Loans
Section 3.01. The Servicer. (a) The Servicer shall service and
administer the Mortgage Loans in a manner consistent with the terms of this
Agreement and with general industry practice and shall have full power and
authority, acting alone or through a subservicer, to do any and all things in
connection with such servicing and administration which it may deem necessary or
desirable, it being understood, however, that the Servicer shall at all times
remain responsible to the Trustee, the Certificateholders and the Credit
Enhancer for the performance of its duties and obligations hereunder in
accordance with the terms hereof. Any amounts received by any subservicer in
respect of a Mortgage Loan shall be deemed to have been received by the Servicer
whether or not actually received by it. Without limiting the generality of the
foregoing, the Servicer shall continue, and is hereby authorized and empowered
by the Trustee, to execute and deliver, on behalf of itself, the
Certificateholders and the Trustee, or any of them, any and all instruments of
satisfaction or cancellation, or of partial or full release or discharge and all
other comparable instruments, with respect to the Mortgage Loans and with
respect to the Mortgaged Properties. The Trustee shall, upon the written request
of a Servicing Officer, furnish the Servicer with any powers of attorney and
other documents necessary or appropriate to enable the Servicer to carry out its
servicing and administrative duties hereunder. The Servicer in such capacity may
also consent to the placing of a lien senior to that of any Mortgage on the
related Mortgaged Property, provided that
(i) such Mortgage succeeded to a first lien position after the
related Mortgage Loan was conveyed to the Trust and, immediately
following the placement of such senior lien, such Mortgage is in a
second lien position and the outstanding principal amount of the
mortgage loan secured by such subsequent senior lien is no greater than
the outstanding principal amount of the senior mortgage loan secured by
the Mortgaged Property as of the date the related Mortgage Loan was
originated; or
(ii) the Mortgage relating to such Mortgage Loan was in a second
lien position as of the Cut-Off Date and the new senior lien secures a
mortgage loan that refinances an existing first mortgage loan and the
outstanding principal amount of the replacement first mortgage loan
immediately following such refinancing is not greater than the
outstanding principal amount of such existing first mortgage loan at
the date of origination of such Mortgage Loan;
provided, further, that such senior lien does not secure a note that provides
for negative amortization.
The Servicer may also, without prior approval from the Rating Agencies
or the Credit Enhancer, increase the Credit Limits on HELOCs provided that (i)
new appraisals are obtained and the Combined Loan-to-Value Ratios of the
Mortgage Loans after giving effect to such increase are less than or equal to
the Combined Loan-to-Value Ratios or the Mortgage Loans as of the Cut-Off Date
and (ii) such increases are consistent with the Servicer's underwriting
policies.
In addition, the Servicer may agree to changes in the terms of a
Mortgage Loan at the request of the Mortgagor provided that such changes (i) do
not materially and adversely affect the interests of Certificateholders or the
Credit Enhancer and (ii) are consistent with prudent and customary business
practice as evidenced by a certificate signed by a Servicing Officer delivered
to the Trustee and the Credit Enhancer.
In addition to the foregoing, the Servicer may solicit Mortgagors to
change any other terms of the related Mortgage Loans, provided that such changes
(i) do not materially and adversely affect the interest of Certificateholders or
the Credit Enhancer and (ii) are consistent with prudent and customary business
practice as evidenced by a certificate signed by a Servicing Officer delivered
to the Trustee and the Credit Enhancer. Nothing herein shall limit the right of
the Servicer to solicit Mortgagors with respect to new loans (including mortgage
loans) that are not Mortgage Loans.
The relationship of the Servicer (and of any successor to the Servicer
as servicer under this Agreement) to the Trustee under this Agreement is
intended by the parties to be that of an independent contractor and not that of
a joint venturer, partner or agent.
(b) In the event that the rights, duties and obligations of the
Servicer are terminated hereunder, any successor to the Servicer in its sole
discretion may, to the extent permitted by applicable law, terminate the
existing subservicer arrangements with any subservicer or assume the terminated
Servicer's rights under such subservicing arrangements which termination or
assumption will not violate the terms of such arrangements.
Section 3.02. Collection of Certain Mortgage Loan Payments. (a) The
Servicer shall make reasonable efforts to collect all payments called for under
the terms and provisions of the Mortgage Loans, and shall, to the extent such
procedures shall be consistent with this Agreement, follow such collection
procedures as it follows with respect to mortgage loans in its servicing
portfolio comparable to the Mortgage Loans. Consistent with the foregoing, and
without limiting the generality of the foregoing, the Servicer may in its
discretion (i) waive any late payment charge or any assumption fees or other
fees which may be collected in the ordinary course of servicing such Mortgage
Loan and (ii) arrange with a Mortgagor a schedule for the payment of interest
due and unpaid; provided that such arrangement is consistent with the Servicer's
policies with respect to the mortgage loans it owns or services; provided,
further, that notwithstanding such arrangement such Mortgage Loans will be
included in the information regarding delinquent Mortgage Loans set forth in the
Servicing Certificate and monthly statement to Certificateholders pursuant to
Section 5.03.
(b) The Servicer shall establish and maintain a trust account (the
"Collection Account") titled "[___________________], as Trustee, in trust for
the registered holders of Home Equity Loan Asset-Backed Certificates, Series
199_-_." The Collection Account shall be an Eligible Account. The Servicer shall
on the Closing Date deposit any amounts representing payments on, and any
collections in respect of, the Initial Mortgage Loans received after the
applicable Cut-Off Date and prior to the Closing Date (exclusive of payments in
respect of accrued interest due on or prior to such Cut-Off Date), and
thereafter the Servicer, or the Transferor, as the case may be, shall deposit
within two Business Days following receipt thereof the following payments and
collections received or made by it (without duplication):
(i) all collections on and in respect of the Mortgage Loans;
(ii) the amounts, if any, deposited to the Collection Account
pursuant to Section 4.05;
(iii) Net Liquidation Proceeds net of any related Foreclosure
Profit;
(iv) Insurance Proceeds (including, for this purpose, any amount
required to be credited by the Servicer pursuant to the last sentence
of Section 3.04 and excluding the portion thereof, if any, that has
been applied to the restoration or repair of the related Mortgaged
Property or released to the related Mortgagor in accordance with the
normal servicing procedures of the Servicer); and
(v) any amounts required to be deposited therein pursuant to
Section 10.01;
provided, however, that with respect to each Collection Period, the Servicer
shall be permitted to retain from payments in respect of interest on the
Mortgage Loans, the Servicing Fee for such Collection Period. The foregoing
requirements respecting deposits to the Collection Account are exclusive, it
being understood that, without limiting the generality of the foregoing, the
Servicer need not deposit in the Collection Account amounts representing
Foreclosure Profits, fees (including annual fees) or late charge penalties
payable by Mortgagors, or amounts received by the Servicer for the accounts of
Mortgagors for application towards the payment of taxes, insurance premiums,
assessments, excess pay off amounts and similar items. The Servicer shall remit
all Foreclosure Profits to the Transferor.
The Trustee shall hold amounts deposited in the Collection Account as
trustee for the Certificateholders and for the Credit Enhancer. In addition, the
Servicer shall notify the Trustee and the Credit Enhancer in writing on each
Determination Date of the amount of payments and collections in the Collection
Account allocable to Interest Collections and Principal Collections for the
related Distribution Date. Following such notification, the Servicer shall be
entitled to withdraw from the Collection Account and retain any amounts that
constitute income and gain realized from the investment of such payments and
collections.
All income and gain realized from any investment in Eligible
Investments of funds in the Collection Account shall be for the benefit of the
Servicer and shall be subject to its withdrawal from time to time. The amount of
any losses incurred in respect of the principal amount of any such investments
shall be deposited in the Collection Account by the Servicer out of its own
funds immediately as realized.
Section 3.03. Withdrawals from the Collection Account. From time to
time, withdrawals may be made from the Collection Account by the Servicer for
the following purposes:
(i) To the Servicer as payment for its Servicing Fee pursuant to
Section 3.08;
(ii) To pay to the Servicer amounts on deposit in the Collection
Account that are not to be included in the distributions and payments
pursuant to Section 5.01 to the extent provided by the second to the
last and the last paragraph of Section 3.02(b);
(iii) To make or to permit the Paying Agent to make distributions
and payments pursuant to Section 5.01;
(iv) Prior to the Collection Period preceding the Rapid
Amortization Commencement Date, to pay to the Transferor, the amount of
any Additional Balances as and when created during the related
Collection Period, provided, that the aggregate amount so paid to the
Transferor in respect of Additional Balances at any time during any
Collection Period shall not exceed the amount of Principal Collections
theretofore received for such Collection Period minus the amount
determined pursuant to clause (x) of the definition of "Alternative
Principal Payment"; and
(v) To make deposits to the Funding Account pursuant to Section
5.05 hereof.
If the Servicer deposits in the Collection Account any amount not
required to be deposited therein or any amount in respect of payments by
Mortgagors made by checks subsequently returned for insufficient funds or other
reason for non-payment it may at any time withdraw such amount from the
Collection Account, and any such amounts shall not be included in the amounts to
be deposited in the Collection Account pursuant to Section 3.02(b), any
provision herein to the contrary notwithstanding.
Section 3.04. Maintenance of Hazard Insurance; Property Protection
Expenses. The Servicer shall cause to be maintained for each Mortgage Loan
hazard insurance naming the Servicer or the related subservicer as loss payee
thereunder providing extended coverage in an amount which is at least equal to
the lesser of (i) the maximum insurable value of the improvements securing such
Mortgage Loan from time to time or (ii) the combined principal balance owing on
such Mortgage Loan and any mortgage loan senior to such Mortgage Loan from time
to time. The Servicer shall also maintain on property acquired upon foreclosure,
or by deed in lieu of foreclosure, hazard insurance with extended coverage in an
amount which is at least equal to the lesser of (i) the maximum insurable value
from time to time of the improvements which are a part of such property or (ii)
the combined principal balance owing on such Mortgage Loan and any mortgage loan
senior to such Mortgage Loan at the time of such foreclosure or deed in lieu of
foreclosure plus accrued interest and the good-faith estimate of the Servicer of
related Liquidation Expenses to be incurred in connection therewith. Amounts
collected by the Servicer under any such policies shall be deposited in the
Collection Account to the extent called for by Section 3.02. In cases in which
any Mortgaged Property is located in a federally designated flood area, the
hazard insurance to be maintained for the related Mortgage Loan shall include
flood insurance. All such flood insurance shall be in such amounts as are
required under applicable guidelines of the Federal Flood Emergency Act. The
Servicer shall be under no obligation to require that any Mortgagor maintain
earthquake or other additional insurance and shall be under no obligation itself
to maintain any such additional insurance on property acquired in respect of a
Mortgage Loan, other than pursuant to such applicable laws and regulations as
shall at any time be in force and as shall require such additional insurance. If
the Servicer shall obtain and maintain a blanket policy consistent with prudent
industry standards insuring against hazard losses on all of the Mortgage Loans
in an aggregate amount prudent under industry standards, it shall conclusively
be deemed to have satisfied its obligations as set forth in the first sentence
of this Section 3.04 and there shall have been a loss which would have been
covered by such policy, deposit in the Collection Account, as the case may be,
the amount not otherwise payable under the blanket policy because of such
deductible clause.
Section 3.05. Assumption and Modification Agreements. In any case in
which a Mortgaged Property has been or is about to be conveyed by the Mortgagor,
the Servicer shall exercise its right to accelerate the maturity of such
Mortgage Loan consistent with the then current practice of the Servicer and
without regard to the inclusion of such Mortgage Loan in the Trust. If it elects
not to enforce its right to accelerate or if it is prevented from doing so by
applicable law, the Servicer (so long as such action conforms with the
underwriting standards generally acceptable in the industry at the time for new
origination) is authorized to take or enter into an assumption and modification
agreement from or with the Person to whom such Mortgaged Property has been or is
about to be conveyed, pursuant to which such Person becomes liable under the
Loan Agreement and, to the extent permitted by applicable law, the Mortgagor
remains liable thereon. The Servicer shall notify the Trustee that any
assumption and modification agreement has been completed by delivering to the
Trustee an Officer's Certificate certifying that such agreement is in compliance
with this Section 3.05 and by forwarding to the applicable Custodian, as agent
for the Trustee, the original copy of such assumption and modification
agreement. Any such assumption and modification agreement shall, for all
purposes, be considered a part of the related Mortgage File to the same extent
as all other documents and instruments constituting a part thereof. No change in
the terms of the related Loan Agreement may be made by the Servicer in
connection with any such assumption to the extent that such change would not be
permitted to be made in respect of the original Loan Agreement pursuant to the
fourth paragraph of Section 3.01(a). Any fee collected by the Servicer for
entering into any such agreement will be retained by the Servicer as additional
servicing compensation.
Section 3.06. Realization Upon Defaulted Mortgage Loans; Repurchase of
Certain Mortgage Loans. The Servicer shall foreclose upon or otherwise
comparably convert to ownership Mortgaged Properties securing such of the
Mortgage Loans as come into and continue in default when, in the opinion of the
Servicer based upon the practices and procedures referred to in the following
sentence, no satisfactory arrangements can be made for collection of delinquent
payments pursuant to Section 3.02; provided that if the Servicer has actual
knowledge or reasonably believes that any Mortgaged Property is affected by
hazardous or toxic wastes or substances and that the acquisition of such
Mortgaged Property would not be commercially reasonable, then the Servicer will
not cause the Trust to acquire title to such Mortgaged Property in a foreclosure
or similar proceeding. In connection with such foreclosure or other conversion,
the Servicer shall follow such practices (including, in the case of any default
on a related senior mortgage loan, the advancing of funds to correct such
default) and procedures as it shall deem necessary or advisable and as shall be
normal and usual in its general mortgage servicing activities. The foregoing is
subject to the proviso that the Servicer shall not be required to expend its own
funds in connection with any foreclosure or towards the correction of any
default on a related senior mortgage loan or restoration of any property unless
it shall determine that such expenditure will increase Net Liquidation Proceeds.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be issued to the Trustee, or to its nominee on behalf of
Certificateholders.
The Servicer, in its sole discretion, shall have the right to purchase
for its own account from the Trust any Mortgage Loan which is 91 days or more
delinquent at a price equal to the purchase price described below. The price for
any Mortgage Loan purchased hereunder (which shall be calculated in the same
manner set forth in Section 2.02) shall be deposited in the Collection Account
and the Trustee, upon receipt of a certificate from the Servicer in the form of
Exhibit L hereto, shall release or cause to be released to the Servicer the
related Mortgage File and shall execute and deliver such instruments of transfer
or assignment prepared by the Servicer, in each case without recourse, as shall
be necessary to vest in the purchaser of such Mortgage Loan any Mortgage Loan
released pursuant hereto and the Servicer shall succeed to all the Trustee's
right, title and interest in and to such Mortgage Loan and all security and
documents related thereto. Such assignment shall be an assignment outright and
not for security. The Servicer shall thereupon own such Mortgage Loan, and all
security and documents, free of any further obligation to the Trustee, the
Credit Enhancer or the Certificateholders with respect thereto.
Section 3.07. Trustee to Cooperate. On or before each Distribution
Date, the Servicer will notify the Trustee of the payment in full of the Asset
Balance of any Mortgage Loan during the preceding Collection Period, which
notification shall be by a certification (which certification shall include a
statement to the effect that all amounts received in connection with such
payment which are required to be deposited in the Collection Account pursuant to
Section 3.02 have been so deposited or credited) of a Servicing Officer. Upon
any such payment in full, the Servicer is authorized to execute, pursuant to the
authorization contained in Section 3.01, if the assignments of Mortgage have
been recorded as required hereunder, an instrument of satisfaction regarding the
related Mortgage, which instrument of satisfaction shall be recorded by the
Servicer if required by applicable law and be delivered to the Person entitled
thereto. It is understood and agreed that no expenses incurred in connection
with such instrument of satisfaction or transfer shall be reimbursed from
amounts deposited in the Collection Account. If the Trustee is holding the
Mortgage Files, from time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan, or in connection with the payment in full of
the Asset Balance of any Mortgage Loan, the Trustee shall, upon request of the
Servicer and delivery to the Trustee of a Request for Release substantially in
the form attached hereto as Exhibit J signed by a Servicing Officer, release the
related Mortgage File to the Servicer and the Trustee shall execute such
documents, in the forms provided by the Servicer, as shall be necessary to the
prosecution of any such proceedings or the taking of other servicing actions.
Such trust receipt shall obligate the Servicer to return the Mortgage File to
the Trustee when the need therefor by the Servicer no longer unless the Mortgage
Loan shall be liquidated, in which case, upon receipt of a certificate of a
Servicing Officer similar to that hereinabove specified, the trust receipt shall
be released by the Trustee or such Custodian to the Servicer.
In order to facilitate the foreclosure of the Mortgage securing any
Mortgage Loan that is in default following recordation of the assignments of
Mortgage in accordance with the provisions hereof, the Trustee shall, if so
requested in writing by the Servicer, execute an appropriate assignment in the
form provided to the Trustee by the Servicer to assign such Mortgage Loan for
the purpose of collection to the Servicer or to the related subservicer (any
such assignment shall unambiguously indicate that the assignment is for the
purpose of collection only), and, upon such assignment, the Servicer will
thereupon bring all required actions in its own name and otherwise enforce the
terms of the Mortgage Loan and deposit the Net Liquidation Proceeds, exclusive
of Foreclosure Profits, received with respect thereto in the Collection Account.
In the event that all delinquent payments due under any such Mortgage Loan are
paid by the Mortgagor and any other defaults are cured, then the Servicer shall
promptly reassign such Mortgage Loan to the Trustee and return the related
Mortgage File to the place where it was being maintained.
Section 3.08. Servicing Compensation; Payment of Certain Expenses by
Servicer. The Servicer shall be entitled to receive the Servicing Fee pursuant
to Section 3.03 as compensation for its services in connection with servicing
the Mortgage Loans. Moreover, additional servicing compensation in the form of
late payment charges or other receipts not required to be deposited in the
Collection Account (other than Foreclosure Profits) shall be retained by the
Servicer. The Servicer shall be required to pay all expenses incurred by it in
connection with its activities hereunder (including payment of all other fees
and expenses not expressly stated hereunder to be for the account of the
Certificateholders) and shall not be entitled to reimbursement therefor except
as specifically provided herein. Liquidation Expenses are reimbursable to the
Servicer solely from related Liquidation Proceeds.
Section 3.09. Annual Statement as to Compliance. (a) The Servicer will
deliver to the Trustee, the Credit Enhancer and the Rating Agencies, on or
before [month/day] of each year, beginning [date], an Officer's Certificate
stating that (i) a review of the activities of the Servicer during the preceding
fiscal year (or such shorter period as is applicable in the case of the first
report) and of its performance under this Agreement has been made under such
officer's supervision and (ii) to the best of such officer's knowledge, based on
such review, the Servicer has fulfilled all of its material obligations under
this Agreement throughout such fiscal year, or, if there has been a default in
the fulfillment of any such obligation, specifying each such default known to
such officer and the nature and status thereof.
(b) The Servicer shall deliver to the Trustee, the Credit Enhancer and
each of the Rating Agencies, promptly after having obtained knowledge thereof,
but in no event later than five Business Days thereafter, written notice by
means of an Officer's Certificate of any event which with the giving of notice
or the lapse of time or both, would become an Event of Servicing Termination.
Section 3.10. Annual Servicing Report. On or before [month/day] of each
year, beginning [date], the Servicer, at its expense, shall cause a firm of
nationally recognized independent public accountants (who may also render other
services to the Servicer) to furnish a report to the Trustee, the Credit
Enhancer and each Rating Agency to the effect that such firm has examined
certain documents and records relating to the servicing of mortgage loans during
the most recent fiscal year then ended under pooling and servicing agreements
(substantially similar to this Agreement, including this Agreement) that such
examination, was conducted substantially in compliance with the audit guide for
audits of non-supervised mortgagees approved by the Department of Housing and
Urban Development for use by independent public accountants (to the extent that
the procedures in such audit guide are applicable to the servicing obligations
set forth in such agreements) and that such examination has disclosed no items
of noncompliance with the provisions of this Agreement which, in the opinion of
such firm, are material, except for such items of noncompliance as shall be set
forth in such report.
Section 3.11. Annual Opinion of Counsel. On or before [month/day] of
each year, beginning [date], each of the Transferor and the Depositor, at its
expense, shall deliver to the Trustee and the Credit Enhancer the applicable
Opinion of Counsel specified in Exhibit E hereto.
Section 3.12. Access to Certain Documentation and Information Regarding
the Mortgage Loans. (a) The Servicer shall provide to the Trustee, the Credit
Enhancer, any Investor Certificateholders that are federally insured savings and
loan associations, the Office of Thrift Supervision, successor to the Federal
Home Loan Bank Board, the FDIC and the supervisory agents and examiners of the
Office of Thrift Supervision access to the documentation regarding the Mortgage
Loans required by applicable regulations of the Office of Thrift Supervision and
the FDIC (acting as operator of the SAIF or the BIF), such access being afforded
without charge but only upon reasonable request and during normal business hours
at the offices of the Servicer. Nothing in this Section 3.12 shall derogate from
the obligation of the Servicer to observe any applicable law prohibiting
disclosure of information regarding the Mortgagors and the failure of the
Servicer to provide access as provided in this Section 3.12 as a result of such
obligation shall not constitute a breach of this Section 3.12.
(b) The Servicer shall supply information in such form as the Trustee
shall reasonably request to the Trustee and the Paying Agent, on or before the
start of the Determination Date preceding the related Distribution Date, as is
required in the Trustee's reasonable judgment to enable the Paying Agent or the
Trustee, as the case may be, to make required distributions and to furnish the
required reports to Certificateholders and to make any claim under the Policy.
Section 3.13. Maintenance of Certain Servicing Insurance Policies. The
Servicer shall during the term of its service as servicer maintain in force (i)
a policy or policies of insurance covering errors and omissions in the
performance of its obligations as master servicer hereunder and (ii) a fidelity
bond in respect of its officers, employees or agents. Each such policy or
policies and bond together shall comply with the requirements from time to time
of the Federal National Mortgage Association for persons performing servicing
for mortgage loans purchased by such Association.
Section 3.14. Reports to the Securities and Exchange Commission. The
Trustee shall, on behalf of the Trust, cause to be filed with the Securities and
Exchange Commission any periodic reports required to be filed under the
provisions of the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Securities and Exchange Commission thereunder. Upon the
request of the Trustee, each of the Servicer, the Depositor and the Transferor
shall cooperate with the Trustee in the preparation of any such report and shall
provide to the Trustee in a timely manner all such information or documentation
as the Trustee may reasonably request in connection with the performance of its
duties and obligations under this Section.
Section 3.15. Tax Returns. In accordance with Section 2.08 hereof, the
Trustee shall prepare and file any Federal, State or local income and franchise
tax return for the Trust as well as any other applicable return and apply for a
taxpayer identification number on behalf of the Trust. The Transferor shall
treat the Mortgage Loans as its property for all Federal, State or local tax
purposes and shall report all income earned thereon (including amounts payable
as fees to the Servicer) as its income for income tax purposes. In the event the
Trust shall be required pursuant to an audit or administrative proceeding or
change in applicable regulations to file Federal, State or local tax returns,
the Trustee shall prepare and file or shall cause to be prepared and filed any
tax returns required to be filed by the Trust; the Trustee shall promptly sign
such returns and deliver such returns after signature to the Servicer and such
returns shall be filed by the Servicer. The Trustee shall also prepare or shall
cause to be prepared all tax information required by law to be distributed to
Investor Certificateholders. In no event shall the Trustee or the Servicer be
liable for any liabilities, costs or expenses of the Trust, the Investor
Certificateholders, the Transferor Certificateholders or the Certificate Owners
arising under any tax law, including without limitation Federal, state or local
income and franchise or excise taxes or any other tax imposed on or measured by
income (or any interest or penalty with respect thereto or arising from a
failure to comply therewith).
Section 3.16. Information Required by the Internal Revenue Service
Generally and Reports of Foreclosures and Abandonments of Mortgaged Property.
The Servicer shall prepare and deliver all federal and state information reports
when and as required by all applicable state and federal income tax laws. In
particular, with respect to the requirement under Section 6050J of the Code to
the effect that the Servicer shall make reports of foreclosures and abandonments
of any mortgaged property for each year beginning in 199_, the Servicer shall
file reports relating to each instance occurring during the previous calendar
year in which the Servicer (i) on behalf of the Trustee acquires an interest in
any Mortgaged Property through foreclosure or other comparable conversion in
full or partial satisfaction of a Mortgage Loan, or (ii) knows or has reason to
know that any Mortgaged Property has been abandoned. The reports from the
Servicer shall be in form and substance sufficient to meet the reporting
requirements imposed by Section 6050J.
<PAGE>
ARTICLE IV.
Servicing Certificate
Section 4.01. Servicing Certificate. Not later than each Determination
Date, the Servicer shall deliver (a) to the Trustee, the Statement to
Certificateholders required to be prepared pursuant to Section 5.03 and (b) to
the Trustee, the Transferor, the Depositor, the Paying Agent, the Credit
Enhancer and each Rating Agency a Servicing Certificate (in written form or the
form of computer readable media or such other form as may be agreed to by the
Trustee and the Servicer), together with an Officer's Certificate to the effect
that such Servicing Certificate is true and correct in all material respects,
stating the related Collection Period, Distribution Date, the series number of
the Certificates, the date of this Agreement, and:
(i) the aggregate amount of collections received on the Mortgage
Loans on or prior to the Determination Date in respect of such
Collection Period;
(ii) the aggregate amount of (a) Interest Collections and (b)
Principal Collections for such Collection Period;
(iii) the Investor Floating Allocation Percentage and the
Investor Fixed Allocation Percentage for such Collection Period;
(iv) the Investor Interest Collections and Principal Collections
allocated to the Investor Certificates for such Collection Period;
(v) the Transferor Interest Collections and Transferor Principal
Collections for such Collection Period;
(vi) Class A Certificate Interest, the Class A Certificate Rate
and the Class S Certificate Interest for the related Interest Period;
(vii) the amount, if any, of such Class A Certificate Interest or
Class S Certificate Interest that is not payable on account of
insufficient Investor Interest Collections;
(viii) the portion of the Unpaid Class A Certificate Interest
Shortfall and the portion of the Unpaid Class S Certificate Interest
Shortfall, if any, the amount of interest on such shortfall at the
Certificate Rate applicable from time to time (separately stated) to be
distributed on such Distribution Date;
(ix) the Unpaid Class A Certificate Interest Shortfall and the
Unpaid Class S Certificate Interest Shortfall, if any, to remain after
the distribution on such Distribution Date;
(x) the Accelerated Principal Distribution Amount and the portion
thereof that will be distributed pursuant to Section 5.01(a)(viii);
(xi) the Scheduled Principal Collections Distribution Amount,
separately stating the components thereof;
(xii) the amount of any Transfer Deposit Amount paid by the
Transferor or the Depositor pursuant to Section 2.02 or 2.04;
(xiii) any accrued and unpaid Servicing Fees for previous
Collection Periods and the Servicing Fee for such Collection Period;
(xiv) the Investor Loss Amount for such Collection Period;
(xv) the aggregate amount, if any, of Investor Loss Reduction
Amounts for previous Distribution Dates that have not been previously
reimbursed to Class A Certificateholders pursuant to 5.01(a)(vi);
(xvi) the Pool Balance as of the end of the preceding Collection
Period and as of the end of the second preceding Collection Period;
(xvii) the Invested Amount as of the end of the preceding
Collection Period;
(xviii) the Class A Certificate Principal Balance, the Class S
Notional Amount and Pool Factor after giving effect to the distribution
on such Distribution Date and to any reduction on account of the
Investor Loss Amount;
(xix) the Transferor Principal Balance after giving effect to the
distribution on such Distribution Date;
(xx) the aggregate amount of Additional Balances created during
the previous Collection Period;
(xxi) the number and aggregate Asset Balances of Mortgage Loans
(x) as to which the Minimum Monthly Payment is delinquent for 30-59
days, 60-89 days and 90 or more days, respectively and (y) that have
become REO, in each case as of the end of the preceding Collection
Period;
(xxii) whether a Rapid Amortization Event has occurred since the
prior Determination Date, specifying each such Rapid Amortization Event
if one has occurred;
(xxiii) whether an Event of Servicing Termination has occurred
since the prior Determination Date, specifying each such Event of
Servicing Termination if one has occurred;
(xxiv) the amount to be distributed to the Credit Enhancer
pursuant to Section 5.01(a)(vii) and Section 5.01(a)(ix)(ii), stated
separately;
(xxv) the amount to be distributed to the Spread Account pursuant
to Section 5.01(a)(ix)(i);
(xxvi) the Guaranteed Principal Distribution Amount for such
Distribution Date;
(xxvii) the Credit Enhancement Draw Amount, if any, for such
Distribution Date;
(xxviii) the amount to be distributed to the Transferor pursuant
to Section 5.01(a)(xi);
(xxix) the amount to be paid to the Servicer pursuant to Section
5.01(a)(x);
(xxx) the Maximum Rate for the related Collection Period and the
Weighted Average Net Loan Rate;
(xxxi) the total amount of funds on deposit in the Spread Account
and the applicable Spread Account Maximum;
(xxxii) the Overcollateralization Amount after giving effect to
the distribution to be made on such Distribution;
(xxxiii) the number and principal balances of any Mortgage Loans
retransferred to the Transferor pursuant to Section 2.06;
(xxxiv) the amount of Principal Collections to be deposited in
the Funding Account in respect of such Distribution Date;
(xxxv) the amount on deposit in the Funding Account as of such
Distribution Date; and
(xxxvi) the aggregate of the Asset Balances of the Subsequent
Mortgage Loans purchased on the related Subsequent Transfer Dates.
The Trustee shall conclusively rely upon the information contained in a
Servicing Certificate for purposes of making distributions pursuant to Section
5.01, shall have no duty to inquire into such information and shall have no
liability in so relying. The format and content of the Servicing Certificate may
be modified by the mutual agreement of the Servicer, the Trustee and the Credit
Enhancer. The Servicer shall give notice of any such change to the Rating
Agencies.
Section 4.02. Claims upon the Policy. (a) If, by the close of business
on the third Business Day prior to a Distribution Date, the sum of the funds
then on deposit in the Collection Account for the related Collection Period
which are payable to the Investor Certificateholders pursuant to Sections
5.01(a), (b) and (g) (after giving effect to the distribution of the Trustee Fee
and the Premium), the amounts on deposit in the Spread Account, amounts
transferred from the Funding Account to the Collection Account pursuant to
Sections 5.05(c)(ii) and 5.05(c)(iii)(B) and the amount, if any, deposited into
the Collection Account pursuant to Section 4.05 are insufficient to pay the
Guaranteed Distribution on such Distribution Date, then the Trustee shall give
notice to the Credit Enhancer by telephone or telecopy of the amount equal to
the Credit Enhancement Draw Amount. Such notice of such sum shall be confirmed
in writing to the Credit Enhancer at or before 10:00 a.m., New York City time,
on the second Business Day prior to such Distribution Date. Following receipt by
the Credit Enhancer of such notice in such form, the Credit Enhancer will pay
any amount payable under the Policy on the later to occur of (i) 12:00 noon, New
York City time, on the Business Day following such receipt and (ii) 12:00 noon,
New York City time, on the Distribution Date to which such deficiency relates.
(b) The Trustee shall keep a complete and accurate record of the amount
of interest and principal paid in respect of any Investor Certificate from
moneys received under the Policy. The Credit Enhancer shall have the right to
inspect such records at reasonable times during normal business hours upon one
Business Day's prior notice to the Trustee.
(c) The Trustee shall promptly notify the Credit Enhancer of any
proceeding or the institution of any action, of which a Responsible Officer of
the Trustee has actual knowledge, seeking the avoidance as a preferential
transfer under applicable bankruptcy, insolvency, receivership or similar law (a
"Preference Claim") of any distribution made with respect to the Investor
Certificates. Each Investor Certificateholder by its purchase of such
Certificates, the Servicer and the Trustee hereby agree that, the Credit
Enhancer (so long as no Credit Enhancer Default exists) may at any time during
the continuation of any proceeding relating to a Preference Claim direct all
matters relating to such Preference Claim, including, without limitation, (i)
the direction of any appeal of any order relating to such Preference Claim and
(ii) the posting of any surety, supersedeas or performance bond pending any such
appeal. In addition and without limitation of the foregoing, the Credit Enhancer
shall be subrogated to the rights of the Servicer, the Trustee, each Investor
Certificateholder in the conduct of any such Preference Claim, including,
without limitation, all rights of any party to an adversary proceeding action
with respect to any court order issued in connection with any such Preference
Claim.
Section 4.03. Spread Account. (a) The Trustee shall establish and
maintain a separate trust account (the "Spread Account") titled
"[__________________], as Trustee, in trust for the registered holders of Home
Equity Loan Asset Backed Certificates, Series 199_-_." The Spread Account shall
be an Eligible Account. Amounts on deposit in the Spread Account will, at the
direction of the Transferor, be invested in Eligible Investments maturing no
later than the day before the next Distribution Date.
All income and gain realized from any investment of funds in the Spread
Account shall be for the benefit of the Transferor and shall be subject to its
withdrawal from time to time. The amount of any losses incurred in respect of
the principal amount of any such investments shall be deposited in the Spread
Account by the Transferor out of its own funds immediately as realized.
(b) On each Determination Date the Trustee shall determine (i) the
extent to which Investor Interest Collections and the amounts, if any, deposited
into the Collection Account pursuant to Section 4.05 applied in the order
specified in Section 5.01(a) are insufficient to make distributions as provided
in clauses (iii), (iv) and (v) of Section 5.01(a) and (ii) the Guaranteed
Principal Distribution Amount for the related Distribution Date. On each
Distribution Date the Trustee shall withdraw from the Spread Account and deposit
into the Collection Account the lesser of the amount on deposit in the Spread
Account and an amount equal to the sum of the amounts, if any, determined in
clauses (i) and (ii) of the preceding sentence.
(c) Following the termination of the Trust pursuant to Section 10.01 or
11.02 hereof, the Trustee shall withdraw all amounts then on deposit in the
Spread Account and distribute such amounts first to any amounts due and owing to
the Credit Enhancer and then to the Transferor. If on any Distribution Date the
amount on deposit in the Spread Account exceeds the Spread Account Maximum, the
Trustee shall withdraw such excess and distribute it to the Transferor.
Section 4.04. Effect of Payments by the Credit Enhancer; Subrogation.
Anything herein to the contrary notwithstanding, any payment with respect to
principal of or interest on any of the Investor Certificates which is made with
moneys received pursuant to the terms of the Policy shall not be considered
payment of such Investor Certificates from the Trust and shall not result in the
payment of or the provision for the payment of the principal of or interest on
such Investor Certificates within the meaning of Section 5.01. The Depositor,
the Servicer and the Trustee acknowledge, and each Holder by its acceptance of
an Investor Certificate agrees, that without the need for any further action on
the part of the Credit Enhancer, the Depositor, the Servicer, the Trustee or the
Certificate Registrar (a) to the extent the Credit Enhancer makes payments,
directly or indirectly, on account of principal of or interest on any Investor
Certificates to the Holders of such Certificates, the Credit Enhancer will be
fully subrogated to the rights of such Holders to receive such principal and
interest from the Trust and (b) the Credit Enhancer shall be paid such principal
and interest but only from the sources and in the manner provided herein for the
payment of such principal and interest.
The Trustee and the Servicer shall cooperate in all respects with any
reasonable request by the Credit Enhancer for action to preserve or enforce the
Credit Enhancer's rights or interests under this Agreement without limiting the
rights or affecting the interests of the Holders as otherwise set forth herein.
<PAGE>
ARTICLE V.
Payments and Statements to
Certificateholders; Rights of Certificateholders
Section 5.01. Distributions.
(a) Distributions of Investor Interest Collections and Investment
Proceeds. Subject to Section 11.02(b), on each Distribution Date, the Trustee or
the Paying Agent, as the case may be, shall distribute out of the Collection
Account to the extent of (x) Investor Interest Collections collected during the
related Collection Period, (y) the amounts transferred from the Funding Account
pursuant to Section 5.05(c)(i) and (z) the amounts transferred from the Spread
Account as determined pursuant to Section 4.03(b), the following amounts and in
the following order of priority to the following Persons (based on the
information set forth in the Servicing Certificate):
(i) the Trustee Fee for such Distribution Date to the Trustee;
(ii) the premium pursuant to the Insurance Agreement to the
Credit Enhancer;
(iii) the Class A Certificate Interest for such Distribution Date
to the Class A Certificateholders and the Unpaid Class A Certificate
Interest Shortfall, if any, for such Distribution Date to the Class A
Certificateholders plus, to the extent legally permissible, interest
thereon at the Class A Certificate Rate;
(iv) the Class S Certificate Interest for such Distribution Date
to the Class S Certificateholders and the Unpaid Class S Certificate
Interest Shortfall, if any, for such Distribution Date plus, to the
extent legally permissible, interest thereon at the Class S Certificate
Rate;
(v) the Investor Loss Amount for such Collection Period to the
Class A Certificateholders as principal in reduction of the Class A
Certificate Principal Balance;
(vi) to Class A Certificateholders as principal in reduction of
the Class A Certificate Principal Balance the aggregate amount of the
Investor Loss Reduction Amounts, if any, for previous Distribution
Dates that have not been previously reimbursed to Class A
Certificateholders pursuant to this clause (vi);
(vii) to reimburse the Credit Enhancer for previously
unreimbursed Credit Enhancement Draw Amounts together with interest
thereon at the applicable rate set forth in the Insurance Agreement;
(viii) the Accelerated Principal Distribution Amount, if any, to
the Class A Certificateholders;
(ix) (i) to the Trustee to deposit to the Spread Account up to
the Spread Account Maximum and (ii) to the Credit Enhancer for any
amounts owed to the Credit Enhancer pursuant to the Insurance
Agreement;
(x) the amount, if any, of any Unpaid Class A Certificate Carry
Forward Interest Amount to the Class A Certificates;
(xi) any amount required to be paid to the Servicer pursuant to
Section 7.03 which has not been previously paid to the Servicer; and
(xii) any remaining amount to the Transferor.
(b) Distribution of Principal Collections. On each Distribution Date
during the Funding Period, the Scheduled Principal Collections Distribution
Amount shall be deposited into the Funding Account and shall not be distributed
to the Class A Certificateholders. On each Distribution Date following the
termination of the Funding Period, the Trustee shall, subject to Section
11.02(b) and except on the Distribution Date in [______________], distribute out
of the Collection Account to the Class a Certificateholders the Scheduled
Principal Collections Distribution Amount (together with amounts transferred to
the Collection Account from the Spread Account pursuant to Section 4.03(b)
relating to principal up to but not in excess of the Class A Certificate
Principal Balance. In addition, on the first Distribution Date following the end
of the Funding Period, the Trustee shall distribute out of the Collection
Account the amount required to be so distributed pursuant to Section
5.05(c)(iii)(C). On the Distribution Date in [_________], the Trustee shall
distribute to Class A Certificateholders Principal Collections up to the Class A
Certificate Principal Balance.
(c) Application of Transferor Subordinated Amount. If, after applying
Class a Interest Collections as provided in Section 5.01(a) above, any amounts
specified in clauses (i) through (vi) remain unpaid, the Trustee shall, based on
information set forth in the Servicing Certificate for such Distribution Date,
apply Transferor Available Funds to make such payments and the Transferor
Subordinated Amount shall be reduced in accordance with clause (i) of the
definition thereof to the extent of such application. If Transferor Available
Funds applied in the order specified in Section 5.01(a) are insufficient to
cover the aggregate Investor Loss Amount for such Distribution Date, then the
remaining aggregate Investor Loss Amount (but only to the extent of the
remaining Transferor Subordinated Amount) shall be reallocated to the Transferor
Principal Balance (after giving effect to the Transferor's portion of the
Investor Loss Amount) and shall not be allocated to the Class A Certificates and
the Transferor Subordinated Amount shall be reduced, as described in clause (ii)
of the definition thereof, by the amount so reallocated.
(d) Distribution of the Credit Enhancement Draw Amount. With respect to
any Distribution Date, to the extent that Investor Interest Collections and
amounts transferred from the Spread Account on the related Distribution Date in
respect of the amount determined pursuant to Section 4.03(b)(i) and any amounts,
if any, deposited to the Collection Account pursuant to Section 4.05 applied in
the order specified in Section 5.01(a) are insufficient to make distributions as
provided in clauses (iii) and (iv) of Section 5.01(a) above, the Trustee will
make such payments (the "Deficiency Amount") from the amount drawn under the
Policy for such Distribution Date pursuant to Section 4.02. For any Distribution
Date as to which there is a Guaranteed Principal Distribution Amount, the
Trustee shall distribute the Guaranteed Principal Distribution Amount to
Certificateholders from the amount drawn under the Policy for such Distribution
Date pursuant to Section 4.02.
The aggregate amount of principal distributed to the Class A
Certificateholders under this Agreement shall not exceed the Original Class A
Certificate Principal Balance.
(e) Method of Distribution. The Trustee shall make distributions in
respect of a Distribution Date to each Investor Certificateholder of record on
the related Record Date (other than as provided in Section 10.01 respecting the
final distribution) by check or money order mailed to such Investor
Certificateholder at the address appearing in the Certificate Register, or upon
written request by an Investor Certificateholder delivered to the Trustee at
least five Business Days prior to such Record Date, by wire transfer (but only
if such Certificateholder is the Depository or such Certificateholder owns of
record one or more Investor Certificates having principal denominations
aggregating at least $1,000,000), or by such other means of payment as such
Investor Certificateholder and the Trustee shall agree. Distributions among
Investor Certificateholders shall be made in proportion to the Percentage
Interests evidenced by the Investor Certificates held by such Investor
Certificateholders.
(f) Distributions on Book-Entry Certificates. Each distribution with
respect to a Book-Entry Certificate shall be paid to the Depository, which shall
credit the amount of such distribution to the accounts of its Depository
Participants in accordance with its normal procedures. Each Depository
Participant shall be responsible for disbursing such distribution to the
Certificate Owners that it represents and to each indirect participating
brokerage firm (a "brokerage firm" or "indirect participating firm") for which
it acts as agent. Each brokerage firm shall be responsible for disbursing funds
to the Certificate Owners that it represents. All such credits and disbursements
with respect to a Book-Entry Certificate are to be made by the Depository and
the Depository Participants in accordance with the provisions of the Investor
Certificates. None of the Trustee, the Paying Agent, the Certificate Registrar,
the Depositor, the Credit Enhancer or the Servicer shall have any responsibility
therefor except as otherwise provided by applicable law.
(g) Distributions to Holders of Transferor Certificates. On each
Distribution Date, the Trustee shall, based upon the information set forth in
the Servicing Certificate for such Distribution Date, distribute to the
Transferor (i) the Transferor Interest Collections for the related Collection
Period and (ii) the portion, if any, of Transferor Principal Collections for the
related Collection Period in excess of Additional Balances created during such
Collection Period to the extent such amounts are not required to be distributed
to the Class A Certificateholders pursuant to Section 5.01(c); provided that
collections allocable to the Transferor Certificates will be distributed to the
Transferor only to the extent that such distribution will not reduce the amount
of the Transferor Principal Balance as of the related Distribution Date below
the Minimum Transferor Interest. Amounts not distributed to the Transferor
because of such limitations will be retained in the Collection Account until the
Transferor Principal Balance exceeds the Minimum Transferor Interest, at which
time such excess shall be released to the Transferor. If any such amounts are
still retained in the Collection Account upon the commencement of the Rapid
Amortization Period, such amounts will be paid to the Class A Certificateholders
as a reduction of the Class A Certificate Principal Balance.
Section 5.02. Calculation of the Class A Certificate Rate. On the
second LIBOR Business Day immediately preceding each Distribution Date, the
Trustee shall determine LIBOR for the Interest Period commencing on such
Distribution Date and inform the Servicer (at the facsimile number given to the
Trustee in writing) of such rates. On each Determination Date, the Trustee shall
determine the applicable Class A Certificate Rate for the related Distribution
Date.
Section 5.03. Statements to Certificateholders. Concurrently with each
distribution to Investor Certificateholders, the Trustee shall forward to each
Investor Certificateholder, the Servicer and each Rating Agency a statement
prepared by the Servicer pursuant to Section 4.01 with respect to such
distribution setting forth:
(i) the Investor Floating Allocation Percentage for the preceding
Collection Period;
(ii) the Class A Certificate Distribution Amount;
(iii) the amount of Class A Certificate Interest in such
distribution, the related Class A Certificate Rate and the Class S
Certificate Interest;
(iv) the amount, if any, of any Unpaid Class A Certificate
Interest Shortfall or any Unpaid Class S Certificate Interest Shortfall
in such distribution;
(v) the amount, if any, of the remaining Unpaid Class A
Certificate Interest Shortfall after giving effect to such
distribution;
(vi) the amount, if any, of principal in such distribution,
separately stating the components thereof;
(vii) the amount, if any, of the reimbursement of previous
Investor Loss Reduction Amounts in such distribution;
(viii) the amount, if any, of the aggregate of unreimbursed
Investor Loss Reduction Amounts after giving effect to such
distribution;
(ix) the Servicing Fee for such Distribution Date;
(x) the Invested Amount, the Class A Certificate Principal
Balance and the Pool Factor, each after giving effect to such
distribution;
(xi) the Pool Balance as of the end of the preceding Collection
Period and the aggregate of the Asset Balances of the Mortgage Loans at
the close of business on the last day of the related Collection Period;
(xii) the Credit Enhancement Draw Amount, if any;
(xiii) the number and aggregate Asset Balances of Mortgage Loans
as to which the Minimum Monthly Payment is delinquent for 30-59 days,
60-89 days and 90 or more days, respectively, as of the end of the
preceding Collection Period;
(xiv) the book value (within the meaning of 12 C.F.R. ss. 571.13
or comparable provision) of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure;
(xv) the Class A Certificate Rate applicable to the distribution
on the following Distribution Date;
(xvi) the number and principal balances of any Mortgage Loans
retransferred to the Transferor pursuant to (a) Section 2.04 and (b)
Section 2.06;
(xvii) the amount of Transferor Available Funds, if any, included
in such distribution; and
(xviii) the Transferor Subordinated Amount for the following
Distribution Date.
In the case of information furnished pursuant to clauses (ii), (iii) in
respect of Class A Certificate Interest, (iv) and (viii) above, the amounts
shall be expressed as a dollar amount per Investor Certificate with a $1,000
denomination.
Within 60 days after the end of each calendar year, the Servicer shall
prepare or cause to be prepared and shall forward to the Trustee the information
set forth in clauses (iii) and (vi) above aggregated for such calendar year.
Such obligation of the Servicer shall be deemed to have been satisfied to the
extent that substantially comparable information shall be provided by the
Servicer or a Paying Agent pursuant to any requirements of the Code.
The Trustee shall prepare or cause to be prepared (in a manner
consistent with the treatment of the Class A Certificates as indebtedness of the
Transferor, or as may be otherwise required by Section 3.15) Internal Revenue
Service Form 1099 (or any successor form) and any other tax forms required to be
filed or furnished to Certificateholders in respect of distributions by the
Trustee (or the Paying Agent) on the Class A Certificates and shall file and
distribute such forms as required by law.
Section 5.04. Rights of Certificateholders. The Investor Certificates
shall represent fractional undivided interests in the Trust, including the
benefits of the Collection Account and the right to receive Investor Interest
Collections, Principal Collections, if any, and other amounts at the times and
in the amounts specified in this Agreement; the Transferor Certificates shall
represent the remaining interest in the Trust (other than the Spread Account,
the Policy and the Funding Account).
Section 5.05. Funding Account. (a) The Trustee shall establish and
maintain with itself a separate trust account (the "Funding Account") entitled
"[________________________] as Trustee, in trust for the registered holders of
Home Equity Loan Asset Backed Certificates, Series 199_-_ Funding Account." The
Funding Account shall be an Eligible Account. On each Distribution Date during
the Funding Period, the Trustee shall withdraw from the Collection Account and
deposit to the Funding Account the Scheduled Principal Collections Distribution
Amount for such Distribution Date.
(b) The Servicer may cause the institution maintaining the Funding
Account to invest any funds in the Funding Account in Eligible Investments which
shall mature or otherwise be available not later than the Business Day next
preceding the Distribution Date or, with the approval of the Credit Enhancer and
the Rating Agencies, on the Distribution Date next following the date of such
investment (except that any investment in an obligation of the institution with
which the Funding Account is maintained may mature on or before 12:00 noon, New
York time, on such Distribution Date) and shall not be sold or disposed of prior
to its maturity. At any time when the Trustee is maintaining the Funding
Account, any request by the Servicer to invest funds on deposit in the Funding
Account shall be in writing, shall be delivered to the Trustee at or before
10:30 A.M., New York time, if such investment is to be made on such day, and
shall certify that the requested investment is an Eligible Investment which
matures at or prior to the time required hereby. Any such investment shall be
registered in the name of the Trustee as trustee hereunder or in the name of its
nominee, and to the extent such investments are certificated they shall be
maintained in the possession of the Trustee in the state of its Corporate Trust
Office. All income and gain realized from any such investment shall be for the
benefit of the Investor Certificateholders and shall be subject to withdrawal by
the Trustee for distribution to the Investor Certificateholders as provided in
subsection (c)(i) below. The amount of any losses incurred in respect of the
principal amount of any such investment shall be deposited in the Funding
Account by the Servicer out of its own funds immediately as realized. Any
investment earnings on the Funding Account shall be treated as owned by the
Transferor for federal and state income tax purposes.
(c) From time to time withdrawals shall be made from the Funding
Account by the Trustee as follows:
(i) on each Distribution Date during the Funding Period, to
deposit to the Collection Account all income realized from Eligible
Investments during the related Interest Period on Principal Collections
on deposit in the Funding Account for distribution as Investor Interest
Collections in accordance with Section 5.01(a);
(ii) on each Distribution Date prior to the last Distribution
Date during the Funding Period, any amounts in respect of Principal
Collections on deposit in the Funding Account shall be withdrawn and
applied to purchase the Subsequent Mortgage Loans, if any, transferred
to the Trust pursuant to Section 2.10; and
(iii) on the last Distribution Date of the Funding Period, any
amounts in respect of Principal Collections on deposit in the Funding
Account shall be withdrawn and applied in the following order:
(A) to purchase the Subsequent Mortgage Loans, if
any, transferred to the Trust pursuant to Section 2.10;
(B) to the Transferor, in payment for Additional
Balances, in a maximum amount equal to the excess, if any, of
the aggregate of Draws during the related Collection Period
over Principal Collections received during such Collection
Period; and
(C) to the Collection Account, any remaining
amounts on deposit in the Funding Account in respect of
Principal Collections, for distribution to the Class A
Certificateholders pursuant to Section 5.01(b).
<PAGE>
ARTICLE VI.
The Certificates
Section 6.01. The Certificates. The Class A Certificates, Class S and
Transferor Certificates shall be substantially in the forms set forth in
Exhibits A-1, A-2 and B, respectively, and shall, on original issue, be
executed, authenticated and delivered by the Trustee to or upon the order of the
Depositor concurrently with the sale and assignment to the Trustee of the Trust.
The Class A Certificates shall be initially evidenced by one or more
certificates representing the entire Original Class A Certificate Principal
Balance and shall be held in minimum dollar denominations of $1,000 and
multiples of one dollar in excess thereof, except that one Class A Certificate
may be in a denomination of less than $1,000 so that the sum of the
denominations of all outstanding Class A Certificates shall equal the Original
Class A Certificate Principal Balance. The Class S Certificates shall be
initially evidenced by one or more certificates representing the entire original
Class S Notional Amount and shall be held in minimum notional amounts of $1,000
and multiples of one dollar in excess thereof, except that one Class S
Certificate may be in a notional amount of less than $1,000 so that the sum of
the denominations of all outstanding Class S Certificates shall equal the Class
S Notional Amount on the Closing Date. The Transferor Certificates shall be
issuable as one or more certificates representing the entire interest in the
assets of the Trust other than that represented by the Investor Certificates and
shall initially be issued to the Transferor.
The Certificates shall be executed by manual or facsimile signature on
behalf of the Trustee by an authorized officer under its seal imprinted thereon.
Certificates bearing the manual or facsimile signatures of individuals who were,
at the time when such signatures were affixed, authorized to sign on behalf of
the Trustee shall bind the Trust, notwithstanding that such individuals or any
of them have ceased to be so authorized prior to the authentication and delivery
of such Transferor Certificates or did not hold such offices at the date of such
Transferor Certificate. No Certificate shall be entitled to any benefit under
this Agreement, or be valid for any purpose, unless such Certificate shall have
been manually authenticated by the Trustee substantially in the form provided
for herein, and such authentication upon any Certificate shall be conclusive
evidence, and the only evidence, that such Certificate has been duly
authenticated and delivered hereunder. All Certificates shall be dated the date
of their authentication. Subject to Section 6.02(c), the Investor Certificates
shall be Book-Entry Certificates. The Transferor Certificates shall not be
Book-Entry Certificates.
Section 6.02. Registration of Transfer and Exchange of Investor
Certificates; Appointment of Registrar. (a) The Certificate Registrar shall
cause to be kept at the Corporate Trust Office a Certificate Register in which,
subject to such reasonable regulations as it may prescribe, the Certificate
Registrar shall provide for the registration of Investor Certificates and of
transfers and exchanges of Investor Certificates as herein provided. The Trustee
shall initially serve as Certificate Registrar for the purpose of registering
Investor Certificates and transfers and exchanges of Investor Certificates as
herein provided.
Upon surrender for registration of transfer of any Investor Certificate
at any office or agency of the Certificate Registrar maintained for such purpose
pursuant to the foregoing paragraph, the Trustee on behalf of the Trust shall
execute, authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Investor Certificates of the same aggregate
Percentage Interest.
At the option of the Investor Certificateholders, Investor Certificates
may be exchanged for other Investor Certificates in authorized denominations and
the same aggregate Percentage Interests, upon surrender of the Investor
Certificates to be exchanged at any such office or agency. Whenever any Investor
Certificates are so surrendered for exchange, the Trustee shall execute and
authenticate and deliver the Investor Certificates which the Investor
Certificateholder making the exchange is entitled to receive. Every Investor
Certificate presented or surrendered for transfer or exchange shall (if so
required by the Trustee or the Certificate Registrar) be duly endorsed by, or be
accompanied by a written instrument of transfer in form satisfactory to the
Trustee and the Certificate Registrar duly executed by, the Holder thereof or
his attorney duly authorized in writing.
(b) Except as provided in paragraph (c) below, the Book-Entry
Certificates shall at all times remain registered in the name of the Depository
or its nominee and at all times: (i) registration of the Investor Certificates
may not be transferred by the Trustee except to another Depository; (ii) the
Depository shall maintain book-entry records with respect to the Certificate
Owners and with respect to ownership and transfers of such Investor
Certificates; (iii) ownership and transfers of registration of the Investor
Certificates on the books of the Depository shall be governed by applicable
rules established by the Depository; (iv) the Depository may collect its usual
and customary fees, charges and expenses from its Depository Participants; (v)
the Trustee shall deal with the Depository as representative of the Certificate
Owners of the Investor Certificates for purposes of exercising the rights of
Holders under this Agreement, and requests and directions for and votes of such
representative shall not be deemed to be inconsistent if they are made with
respect to different Certificate Owners; and (vi) the Trustee may rely and shall
be fully protected in relying upon information furnished by the Depository with
respect to its Depository Participants and furnished by the Depository
Participants with respect to indirect participating firms and Persons shown on
the books of such indirect participating firms as direct or indirect Certificate
Owners.
All transfers by Certificate Owners of Book-Entry Certificates shall be
made in accordance with the procedures established by the Depository Participant
or brokerage firm representing such Certificate Owners. Each Depository
Participant shall only transfer Book-Entry Certificates of Certificate Owners
that it represents or of brokerage firms for which it acts as agent in
accordance with the Depository's normal procedures. The parties hereto are
hereby authorized to execute a Letter of Representations with the Depository or
take such other action as may be necessary or desirable to register a Book-Entry
Certificate to the Depository. In the event of any conflict between the terms of
any such Letter of Representation and this Agreement the terms of this Agreement
shall control.
(c) If (i) (x) the Depository or the Depositor advises the Trustee in
writing that the Depository is no longer willing or able to discharge properly
its responsibilities as Depository, and (y) the Trustee or the Depositor is
unable to locate a qualified successor, (ii) the Depositor, at its sole option,
with the consent of the Trustee, elects to terminate the book-entry system
through the Depository or (iii) after the occurrence of an Event of Servicing
Termination, the Depository, at the direction of Certificate Owners representing
Percentage Interests aggregating not less than 51% advises the Trustee in
writing that the continuation of a book-entry system through the Depository to
the exclusion of definitive, fully registered Investor Certificates (the
"Definitive Certificates") to Certificate Owners is no longer in the best
interests of the Certificate Owners. Upon surrender to the Certificate Registrar
of the Investor Certificates by the Depository, accompanied by registration
instructions from the Depository for registration, the Trustee shall execute and
authenticate the Definitive Certificates. Neither the Depositor nor the Trustee
shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Certificates, all references herein to
obligations imposed upon or to be performed by the Depository shall be deemed to
be imposed upon and performed by the Trustee, to the extent applicable with
respect to such Definitive Certificates, and the Trustee, the Certificate
Registrar, the Servicer and the Depositor shall recognize the Holders of the
Definitive Certificates as Certificateholders hereunder.
No service charge shall be made for any registration of transfer or
exchange of Investor Certificates, but the Certificate Registrar may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer or exchange of Certificates.
All Investor Certificates surrendered for registration of transfer or
exchange shall be cancelled by the Certificate Registrar and disposed of
pursuant to its standard procedures.
Section 6.03. Mutilated, Destroyed, Lost or Stolen Certificates. If (i)
any mutilated Certificate is surrendered to the Certificate Registrar or the
Certificate Registrar receives evidence to its satisfaction of the destruction,
loss or theft of any Certificate, and (ii) there is delivered to the Trustee,
the Depositor and the Certificate Registrar such security or indemnity as may be
required by them to save each of them harmless, then, in the absence of notice
to the Trustee or the Certificate Registrar that such Certificate has been
acquired by a bona fide purchaser, the Trustee shall execute, authenticate and
deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or
stolen Certificate, a new Certificate of like tenor and Percentage Interest.
Upon the issuance of any new Certificate under this Section 6.03, the Trustee or
the Certificate Registrar may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation thereto and
any other expenses (including the fees and expenses of the Trustee and the
Certificate Registrar) connected therewith. Any duplicate Certificate issued
pursuant to this Section 6.03, shall constitute complete and indefeasible
evidence of ownership in the Trust, as if originally issued, whether or not the
lost, stolen or destroyed Certificate shall be found at any time.
Section 6.04. Persons Deemed Owners. Prior to due presentation of a
Certificate for registration of transfer, the Servicer, the Depositor, the
Trustee, the Certificate Registrar, any Paying Agent and any agent of the
Servicer, the Depositor, the Trustee, any Paying Agent or the Certificate
Registrar may treat the Person, including a Depository, in whose name any
Certificate is registered as the owner of such Certificate for the purpose of
receiving distributions pursuant to Section 5.01 and for all other purposes
whatsoever, and none of the Servicer, the Depositor, the Trustee, the
Certificate Registrar, any Paying Agent or any agent of any of them shall be
affected by notice to the contrary.
Section 6.05. Restrictions on Transfer of Transferor Certificates. (a)
The Transferor Certificates shall be assigned, transferred, exchanged, pledged,
financed, hypothecated or otherwise conveyed (collectively, for purposes of this
Section 6.05 and any other Section referring to the Transferor Certificates,
"transferred" or a "transfer") only in accordance with this Section 6.05.
(b) No transfer of a Transferor Certificate 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. Except for the initial issuance of the
Transferor Certificate to the Transferor, the Trustee shall require (i) the
transferee to execute an investment letter acceptable to and in form and
substance satisfactory to the Trustee certifying to the Trustee the facts
surrounding such transfer, which investment letter shall not be an expense of
the Trustee or (ii) if the investment letter is not delivered, a written Opinion
of Counsel acceptable to and in form and substance satisfactory to the Trustee
and the Depositor that such transfer may be made pursuant to an exemption,
describing the applicable exemption and the basis therefor, from said Act or is
being made pursuant to said Act, which Opinion of Counsel shall not be an
expense of the Trustee or the Depositor. The Holder of a Transferor Certificate
desiring to effect such transfer shall, and does hereby agree to, indemnify the
Transferor against any liability that may result if the transfer is not so
exempt or is not made in accordance with such federal and state laws.
(c) The Transferor Certificates and any interest therein shall not be
transferred except upon satisfaction of the following conditions precedent: (i)
the Person that acquires a Transferor Certificate shall (A) be organized and
existing under the laws of the United States of America or any state or the
District of Columbia thereof, (B) expressly assume, by an agreement supplemental
hereto, executed and delivered to the Trustee, the performance of every covenant
and obligation of the Transferor hereunder and (C) as part of its acquisition of
a Transferor Certificate, acquire all rights of the Transferor or any transferee
under this Section 6.05(c) to amounts payable to such Transferor or such
transferee under Sections 5.01(a)(xii) and 5.01(g); (ii) the Holder of the
Transferor Certificates shall deliver to the Trustee an Officer's Certificate
stating that such transfer and such supplemental agreement comply with this
Section 6.05(c) and that all conditions precedent provided by this subsection
6.05(c) have been complied with and an Opinion of Counsel stating that all
conditions precedent provided by this subsection 6.05(c) have been complied
with, and the Trustee may conclusively rely on such Officer's Certificate, shall
have no duty to make inquiries with regard to the matters set forth therein and
shall incur no liability in so relying; (iii) the Holder of the Transferor
Certificates shall deliver to the Trustee a letter from each Rating Agency
confirming that its rating of the Investor Certificates, after giving effect to
such transfer, will not be reduced or withdrawn without regard to the Policy;
(iv) the transferee of the Transferor Certificates shall deliver to the Trustee
an Opinion of Counsel to the effect that (a) such transfer will not adversely
affect the treatment of the Investor Certificates after such transfer as debt
for federal and applicable state income tax purposes, (b) such transfer will not
result in the Trust being subject to tax at the entity level for federal or
applicable state tax purposes, (c) such transfer will not have any material
adverse impact on the federal or applicable state income taxation of an Investor
Certificateholder or any Certificate Owner and (d) such transfer will not result
in the arrangement created by this Agreement or any "portion" of the Trust,
being treated as a taxable mortgage pool as defined in Section 7701(i) of the
Code; (v) all filings and other actions necessary to continue the perfection of
the interest of the Trust in the Mortgage Loans and the other property conveyed
hereunder shall have been taken or made and (vi) the transferee shall have
assumed the obligations of the Transferor pursuant to Section 7.07 hereof.
Notwithstanding the foregoing, the requirement set forth in subclause (i) (A) of
this Section 6.05(c) shall not apply in the event the Trustee shall have
received a letter from each Rating Agency confirming that its rating of the
Investor Certificates, after giving effect to a proposed transfer to a Person
that does not meet the requirement set forth in subclause (i) (A), shall not be
reduced or withdrawn. Notwithstanding the foregoing, the requirements set forth
in this paragraph (c) shall not apply to the initial issuance of the Transferor
Certificates to the Transferor.
(d) Except for the initial issuance of the Transferor Certificate to
the Transferor, no transfer of a Transferor Certificate shall be made unless the
Trustee shall have received either (i) a representation letter from the
transferee of such Certificate, acceptable to and in form and substance
satisfactory to the Trustee, to the effect that such transferee is not an
employee benefit plan subject to Section 406 of ERISA, nor a Person acting on
behalf of any such plan, which representation letter shall not be an expense of
the Trustee, (ii) if the purchaser is an insurance company, a representation
that the purchaser is an insurance company which is purchasing such Certificates
with funds contained in an "insurance company general account" (as such term is
defined in Section V(e) of Prohibited Transaction Class Exemption 95-60 ("PTCE
95-60")) and that the purchase and holding of such Certificates are covered
under PTCE 95-60, or (iii) in the case of any Transferor Certificate presented
for registration in the name of an employee benefit plan subject to ERISA, and
Section 4975 of the Code (or comparable provisions of any subsequent
enactments), or a trustee of any such plan, an Opinion of Counsel to the effect
that the purchase or holding of such Certificate will not result in the assets
of the Trust being deemed to be "plan assets" and subject to the prohibited
transaction provisions of ERISA and the Code and will not subject the Trustee to
any obligation in addition to those undertaken in this Agreement, which Opinion
of Counsel shall not be an expense of the Trustee or the Depositor.
Section 6.06. Appointment of Paying Agent. (a) The Paying Agent shall
make distributions to Investor Certificateholders from the Collection Account
pursuant to Section 5.01 and shall report the amounts of such distributions to
the Trustee. The duties of the Paying Agent may include the obligation (i) to
withdraw funds from the Collection Account pursuant to Section 3.03 and for the
purpose of making the distributions referred to above and (ii) to distribute
statements and provide information to Certificateholders as required hereunder.
The Paying Agent hereunder shall at all times be a corporation duly incorporated
and validly existing under the laws of the United States of America or any state
thereof, authorized under such laws to exercise corporate trust powers and
subject to supervision or examination by federal or state authorities. The
Paying Agent shall initially be the Trustee. The Trustee may appoint a successor
to act as Paying Agent, which appointment shall be reasonably satisfactory to
the Depositor.
(b) The Trustee shall cause the Paying Agent (if other than the
Trustee) to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee that such Paying Agent shall hold all
sums, if any, held by it for payment to the Investor Certificateholders in trust
for the benefit of the Investor Certificateholders entitled thereto until such
sums shall be paid to such Certificateholders and shall agree that it shall
comply with all requirements of the Code regarding the withholding of payments
in respect of Federal income taxes due from Certificate Owners and otherwise
comply with the provisions of this Agreement applicable to it.
Section 6.07. Acceptance of Obligations. The Transferor, by its
acceptance of the Transferor Certificates, agrees to be bound by and to perform
all the duties of the Transferor set forth in this Agreement.
<PAGE>
ARTICLE VII.
The Servicer, the Transferor and the Depositor
Section 7.01. Liability of the Transferor, the Servicer and the
Depositor. The Transferor and the Servicer shall be liable in accordance
herewith only to the extent of the obligations specifically imposed upon and
undertaken by the Transferor or Servicer, as the case may be, herein. The
Depositor shall be liable in accordance herewith only to the extent of the
obligations specifically imposed upon and undertaken by the Depositor.
Section 7.02. Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer, the Transferor or the Depositor. Any corporation
into which the Servicer, the Transferor or the Depositor may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Servicer, the Transferor or the Depositor shall be a
party, or any corporation succeeding to the business of the Servicer, the
Transferor or the Depositor, shall be the successor of the Servicer, the
Transferor or the Depositor, as the case may be, hereunder, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding.
Section 7.03. Limitation on Liability of the Servicer and Others.
Neither the Servicer nor any of the directors or officers or employees or agents
of the Servicer shall be under any liability to the Trust or the
Certificateholders for any action taken or for refraining from the taking of any
action by the Servicer in good faith pursuant to this Agreement, or for errors
in judgment; provided, however, that this provision shall not protect the
Servicer or any such Person against any liability which would otherwise be
imposed by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties of the Servicer or by reason of reckless disregard of
obligations and duties of the Servicer hereunder. The Servicer and any director
or officer or employee or agent of the Servicer may rely in good faith on any
document of any kind prima facie properly executed and submitted by any Person
respecting any matters arising hereunder. The Servicer and any director or
officer or employee or agent of the Servicer shall be indemnified by the Trust
and held harmless against any loss, liability or expense incurred in connection
with any legal action relating to this Agreement or the Certificates, other than
any loss, liability or expense related to any specific Mortgage Loan or Mortgage
Loans (except as any such loss, liability or expense shall be otherwise
reimbursable pursuant to this Agreement) and any loss, liability or expense
incurred by reason of its willful misfeasance, bad faith or gross negligence in
the performance of duties hereunder or by reason of its reckless disregard of
obligations and duties hereunder. The Servicer shall not be under any obligation
to appear in, prosecute or defend any legal action which is not incidental to
duties to service the Mortgage Loans in accordance with this Agreement, and
which in its opinion may involve it in any expense or liability; provided,
however, that the Servicer may in its sole discretion undertake any such action
which it may deem necessary or desirable in respect of this Agreement, and the
rights and duties of the parties hereto and the interests of the
Certificateholders hereunder. In such event, the reasonable legal expenses and
costs of such action and any liability resulting therefrom shall be expenses,
costs and liabilities of the Trust and the Servicer shall only be entitled to be
reimbursed therefor pursuant to Section 5.01(a)(xi). The Servicer's right to
indemnity or reimbursement pursuant to this Section 7.03 shall survive any
resignation or termination of the Servicer pursuant to Section 7.04 or 8.01 with
respect to any losses, expenses, costs or liabilities arising prior to such
resignation or termination (or arising from events that occurred prior to such
resignation or termination).
Section 7.04. Servicer Not to Resign. Subject to the provisions of
Section 7.02, the Servicer shall not resign from the obligations and duties
hereby imposed on it except (i) upon determination that the performance of its
obligations or duties hereunder are no longer permissible under applicable law
or are in material conflict by reason of applicable law with any other
activities carried on by it or its subsidiaries or Affiliates, the other
activities of the Servicer so causing such a conflict being of a type and nature
carried on by the Servicer or its subsidiaries or Affiliates at the date of this
Agreement or (ii) upon satisfaction of the following conditions: (a) the
Servicer has proposed a successor servicer to the Trustee in writing and such
proposed successor servicer is reasonably acceptable to the Trustee; (b) each
Rating Agency shall have delivered a letter to the Trustee prior to the
appointment of the successor servicer stating that the proposed appointment of
such successor servicer as Servicer hereunder will not result in the reduction
or withdrawal of the then current rating of the Investor Certificates without
regard to the Policy; and (c) such proposed successor servicer is reasonably
acceptable to the Credit Enhancer, as evidenced by a letter to the Trustee;
provided, however, that no such resignation by the Servicer shall become
effective until the Trustee or successor servicer designated by the Servicer as
provided above shall have assumed the Servicer's responsibilities and
obligations hereunder or the Trustee shall have designated a successor servicer
in accordance with Section 8.02. Any such resignation shall not relieve the
Servicer of responsibility for any of the obligations specified in Sections 8.01
and 8.02 as obligations that survive the resignation or termination of the
Servicer. Any such determination permitting the resignation of the Servicer
pursuant to clause (i) above shall be evidenced by an Opinion of Counsel to such
effect delivered to the Trustee and the Credit Enhancer. The Servicer shall have
no claim (whether by subrogation or otherwise) or other action against any
Certificateholder for any amounts paid by the Servicer pursuant to any provision
of this Agreement.
Section 7.05. Delegation of Duties. In the ordinary course of business,
the Servicer at any time may delegate any of its duties hereunder to any Person,
including any of its Affiliates, or any subservicer referred to in Section 3.01,
who agrees to conduct such duties in accordance with standards comparable to
those with which the Servicer complies pursuant to Section 3.01. Such delegation
shall not relieve the Servicer of its liabilities and responsibilities with
respect to such duties and shall not constitute a resignation within the meaning
of Section 7.04.
Section 7.06. Indemnification of the Trust by the Servicer. The
Servicer shall indemnify and hold harmless the Trust and the Trustee from and
against any loss, liability, expense, damage or injury suffered or sustained by
reason of the Servicer's activities or omissions in servicing or administering
the Mortgage Loans that are not in accordance with this Agreement, including,
but not limited to, any judgment, award, settlement, reasonable attorneys' fees
and other costs or expenses incurred in connection with the defense of any
actual or threatened action, proceeding or claim. Any such indemnification shall
not be payable from the assets of the Trust. The provisions of this indemnity
shall run directly to and be enforceable by an injured party subject to the
limitations hereof. The provisions of this Section 7.06 shall survive
termination of this Agreement.
Section 7.07. Indemnification of the Trust by the Transferor.
Notwithstanding anything to the contrary contained herein, the Transferor (i)
agrees to be liable directly to the injured party for the entire amount of any
losses, claims, damages, liabilities and expenses of the Trust (other than those
attributable to an Investor Certificateholder in the capacity as an investor in
the Investor Certificates as a result of defaults on the Mortgage Loans) to the
extent that the Transferor would be liable if the Trust were a partnership under
the Delaware Revised Uniform Limited Partnership Act in which the Transferor was
a general partner and (ii) shall indemnify and hold harmless the Trust and the
Trustee from and against any loss, liability, expense, damage, claim or injury
(other than those attributable to an Investor Certificateholder in the capacity
as an investor in the Investor Certificates as a result of defaults on the
Mortgage Loans) arising out of or based on this Agreement by reason of any acts,
omissions, or alleged acts or omissions arising out of activities of the Trust
or the Trustee, or the actions of the Servicer including, but not limited to,
amounts payable to the Servicer pursuant to Section 7.03, any judgment, award,
settlement, reasonable attorneys' fees and other costs or expenses incurred in
connection with the defense of any actual or threatened action, proceeding or
claim; provided that the Transferor shall not indemnify the Trustee (but shall
indemnify any other injured party) if such loss, liability, expense, damage or
injury is due to the Trustee's willful malfeasance, bad faith or gross
negligence or by reason of the Trustee's reckless disregard of its obligations
hereunder. The provisions of this indemnity shall run directly to and be
enforceable by an injured party subject to the limitations hereof.
Section 7.08. Limitation on Liability of the Transferor. None of the
directors or officers or employees or agents of the Transferor shall be under
any liability to the Trust, the Trustee or the Certificateholders, it being
expressly understood that all such liability is expressly waived and released as
a condition of, and as consideration for, the execution of this Agreement and
the issuance of the Certificates; provided, however, that this provision shall
not protect any such Person against any liability which would otherwise be
imposed by reason of willful misfeasance, bad faith or gross negligence in the
performance of the duties hereunder. Except as provided in Section 7.07, the
Transferor shall not be under any liability to the Trust, the Trustee or the
Certificateholders for any action taken or for refraining from the taking of any
action in its capacity as Transferor pursuant to this Agreement whether arising
from express or implied duties under this Agreement; provided, however, that
this provision shall not protect the Transferor against any liability which
would otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of reckless disregard
of its obligations and duties hereunder. The Transferor and any director or
officer or employee or agent of the Transferor may rely in good faith on any
document of any kind prima facie properly executed and submitted by any Person
respecting any matters arising hereunder.
Section 7.09. Limitation on Liability of the Depositor. None of the
directors or officers or employees or agents of the Depositor shall be under any
liability to the Trust, the Trustee or the Certificateholders, it being
expressly understood that all such liability is expressly waived and released as
a condition of, and as consideration for, the execution of this Agreement and
the issuance of the Certificates; provided, however, that this provision shall
not protect any such Person against any liability which would otherwise be
imposed by reason of willful misfeasance, bad faith or gross negligence in the
performance of the duties hereunder. The Transferor and any director or officer
or employee or agent of the Transferor may rely in good faith on any document of
any kind prima facie properly executed and submitted by any Person respecting
any matters arising hereunder.
<PAGE>
ARTICLE VIII.
Servicing Termination
Section 8.01. Events of Servicing Termination. If any one of the
following events ("Events of Servicing Termination") shall occur and be
continuing:
(i) Any failure by the Servicer to deposit in the Collection
Account any deposit required to be made under the terms of this
Agreement which continues unremedied for a period of five Business Days
after the date upon which written notice of such failure shall have
been given to the Servicer by the Trustee or to the Servicer and the
Trustee by the Credit Enhancer or Holders of Investor Certificates
evidencing Percentage Interests aggregating not less than 25%; or
(ii) Failure on the part of the Servicer duly to observe or
perform in any material respect any other covenants or agreements of
the Servicer set forth in the Certificates or in this Agreement, which
failure continues unremedied for a period of 60 days after the date on
which written notice of such failure, requiring the same to be
remedied, and stating that such notice is a "Notice of Default"
hereunder, shall have been given to the Servicer by the Trustee or to
the Servicer and the Trustee by the Credit Enhancer or the Holders of
Investor Certificates evidencing Percentage Interests aggregating not
less than 25%; or
(iii) The entry against the Servicer of a decree or order by a
court or agency or supervisory authority having jurisdiction in the
premises for the appointment of a trustee, conservator, receiver or
liquidator in any insolvency, conservatorship, receivership,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or for 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 60 consecutive days; or
(iv) The consent by the Servicer to the appointment of a trustee,
conservator, receiver or liquidator in any insolvency, conservatorship,
receivership, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the Servicer or of
or relating to substantially all of its property; or the Servicer shall
admit in writing its inability to pay its debts generally as they
become due, file a petition to take advantage of any applicable
insolvency or reorganization statute, make an assignment for the
benefit of its creditors, or voluntarily suspend payment of its
obligations;
then, and in each and every such case, so long as an Event of Servicing
Termination shall not have been remedied by the Servicer, with respect to an
Event of Servicing Termination specified in (i) - (iv), above, either the
Trustee, the Credit Enhancer or the Holders of Investor Certificates evidencing
Voting Rights aggregating not less than 51%, by notice then given in writing to
the Servicer (and to the Trustee if given by the Credit Enhancer or the Holders
of Investor Certificates) may terminate all of the rights and obligations of the
Servicer as servicer under this Agreement. Any such notice to the Servicer shall
also be given to each Rating Agency and the Credit Enhancer. On or after the
receipt by the Servicer of such written notice, all authority and power of the
Servicer under this Agreement, whether with respect to the Certificates or the
Mortgage Loans or otherwise, shall pass to and be vested in the Trustee pursuant
to and under this Section 8.01; and, without limitation, the Trustee is hereby
authorized and empowered to execute and deliver, on behalf of the Servicer, as
attorney-in-fact or otherwise, any and all documents and other instruments, and
to do or accomplish all other acts or things necessary or appropriate to effect
the purposes of such notice of termination, whether to complete the transfer and
endorsement of each Mortgage Loan and related documents, or otherwise. The
Servicer agrees to cooperate with the Trustee in effecting the termination of
the responsibilities and rights of the Servicer hereunder, including, without
limitation, the transfer to the Trustee for the administration by it of all cash
amounts that shall at the time be held by the Servicer and to be deposited by it
in the Collection Account, or that have been deposited by the Servicer in the
Collection Account or thereafter received by the Servicer with respect to the
Mortgage Loans. All reasonable costs and expenses (including attorneys' fees)
incurred in connection with transferring the Mortgage Files to the successor
Servicer and amending this Agreement to reflect such succession as Servicer
pursuant to this Section 8.01 shall be paid by the predecessor Servicer (or if
the predecessor Servicer is the Trustee, the initial Servicer) upon presentation
of reasonable documentation of such costs and expenses.
Notwithstanding the foregoing, a delay in or failure of performance
under Section 8.01(i) for a period of ten Business Days or under Section
8.01(ii) for a period of 60 Business Days, shall not constitute an Event of
Servicing Termination if such delay or failure could not be prevented by the
exercise of reasonable diligence by the Servicer and such delay or failure was
caused by an act of God or the public enemy, acts of declared or undeclared war,
public disorder, rebellion or sabotage, epidemics, landslides, lightning, fire,
hurricanes, earthquakes, floods or similar causes. The preceding sentence shall
not relieve the Servicer from using its best efforts to perform its respective
obligations in a timely manner in accordance with the terms of this Agreement
and the Servicer shall provide the Trustee, the Transferor, the Credit Enhancer
and the Investor Certificateholders with an Officers' Certificate giving prompt
notice of such failure or delay by it, together with a description of its
efforts to so perform its obligations. The Servicer shall immediately notify the
Trustee in writing of any Events of Servicing Termination.
Section 8.02. Trustee to Act; Appointment of Successor. (a) On and
after the time the Servicer receives a notice of termination pursuant to Section
8.01 or 7.04, the Trustee shall be the successor in all respects to the Servicer
in its capacity as servicer under this Agreement and the transactions set forth
or provided for herein and shall be subject to all the responsibilities, duties
and liabilities relating thereto placed on the Servicer by the terms and
provisions hereof. Notwithstanding the above, if the Trustee becomes the
Servicer hereunder, it shall have no responsibility or obligation (i) of
repurchase or substitution with respect to any Mortgage Loan, (ii) with respect
to any representation or warranty of the Servicer, and (iii) for any act or
omission of either a predecessor or successor Servicer other than the Trustee.
As compensation therefor, the Trustee shall be entitled to such compensation as
the Servicer would have been entitled to hereunder if no such notice of
termination had been given. In addition, the Trustee will be entitled to
compensation with respect to its expenses in connection with conversion of
certain information, documents and record keeping, as provided in Section
7.04(b). Notwithstanding the above, (i) if the Trustee is unwilling to act as
successor Servicer, or (ii) if the Trustee is legally unable so to act, the
Trustee may (in the situation described in clause (i)) or shall (in the
situation described in clause (ii)) appoint or petition a court of competent
jurisdiction to appoint, any established housing and home finance institution,
bank or other mortgage loan or home equity loan servicer having a net worth of
not less than $15,000,000 as the successor to the Servicer hereunder in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Servicer hereunder; provided that any such successor Servicer shall be
acceptable to the Credit Enhancer, as evidenced by the Credit Enhancer's prior
written consent, which consent shall not be unreasonably withheld; and provided
further that the appointment of any such successor Servicer will not result in
the qualification, reduction or withdrawal of the ratings assigned to the
Certificates by the Rating Agencies without regard to the Policy. Pending
appointment of a successor to the Servicer hereunder, unless the Trustee is
prohibited by law from so acting, the Trustee shall act in such capacity as
hereinabove provided. In connection with such appointment and assumption, the
successor shall be entitled to receive compensation out of payments on Mortgage
Loans in an amount equal to the compensation which the Servicer would otherwise
have received pursuant to Section 3.08 (or such lesser compensation as the
Trustee and such successor shall agree). The Trustee and such successor shall
take such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession.
(b) Any successor, including the Trustee, to the Servicer as servicer
shall during the term of its service as servicer (i) continue to service and
administer the Mortgage Loans for the benefit of Certificateholders and the
Credit Enhancer and (ii) maintain in force a policy or policies of insurance
covering errors and omissions in the performance of its obligations as Servicer
hereunder and a fidelity bond in respect of its officers, employees and agents
to the same extent as the Servicer is so required pursuant to Section 3.12. The
appointment of a successor Servicer shall not affect any liability of the
predecessor Servicer which may have arisen under this Agreement prior to its
termination as Servicer (including, without limitation, any deductible under an
insurance policy pursuant to Section 3.04), nor shall any successor Servicer be
liable for any acts or omissions of the predecessor Servicer or for any breach
by such Servicer of any of their representations or warranties contained herein.
Section 8.03. Notification to Certificateholders. Upon any termination
or appointment of a successor to the Servicer pursuant to this Article VIII or
Section 7.04, the Trustee shall give prompt written notice thereof to the
Certificateholders at their respective addresses appearing in the Certificate
Register, the Credit Enhancer and each Rating Agency.
<PAGE>
ARTICLE IX.
The Trustee
Section 9.01. Duties of Trustee. The Trustee, prior to the occurrence
of an Event of Servicing Termination and after the curing or waiver of all
Events of Servicing Termination which may have occurred, undertakes to perform
such duties and only such duties as are specifically set forth in this
Agreement. If an Event of Servicing Termination has occurred (which has not been
cured or waived) of which a Responsible Officer has knowledge, the Trustee shall
exercise such of the rights and powers vested in it by this Agreement, and use
the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs;
provided, however, that if the Trustee is acting as Servicer it shall use the
same degree of care and skill as is required of the Servicer under this
Agreement.
The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform to the requirements of this Agreement.
No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct; provided, however, that:
(i) prior to the occurrence of an Event of Servicing Termination
of which a Responsible Officer of the Trustee has knowledge, and after
the curing or waiver of all such Events of Servicing Termination which
may have occurred, the duties and obligations of the Trustee shall be
determined solely by the express provisions of this Agreement, the
Trustee shall not be liable except for the performance of such duties
and obligations as are specifically set forth in this Agreement, no
implied covenants or obligations shall be read into this Agreement
against the Trustee and, in the absence of bad faith on the part of the
Trustee, the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
any certificates or opinions furnished to the Trustee and conforming to
the requirements of this Agreement;
(ii) the Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible Officer of the Trustee,
unless it shall be proved that the Trustee was negligent in
ascertaining or investigating the facts related thereto;
(iii) the Trustee shall not be personally liable with respect to
any action taken, suffered or omitted to be taken by it in good faith
in accordance with the consent or direction of the Credit Enhancer or
in accordance with the direction of the Holders of Investor
Certificates evidencing Voting Rights aggregating not less than 51%
relating to the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power
conferred upon the Trustee, under this Agreement; and
(iv) the Trustee shall not be charged with knowledge of any
failure by the Servicer to comply with the obligations of the Servicer
referred to in clauses (i) and (ii) of Section 8.01 or of the
occurrence of a Rapid Amortization Event unless a Responsible Officer
of the Trustee at the Corporate Trust Office obtains actual knowledge
of such failure or the Trustee receives written notice of such failure
from the Servicer, the Credit Enhancer or the Holders of Investor
Certificates evidencing Voting Rights aggregating not less than 51%.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if there is
reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it. None
of the provisions contained in this Agreement shall in any event require the
Trustee to perform, or be responsible for the manner of performance of, any of
the obligations of the Servicer under this Agreement, except during such time,
if any, as the Trustee shall be the successor to, and be vested with the rights,
duties, powers and privileges of, the Servicer in accordance with the terms of
this Agreement and in no event shall it be required to perform or accept
responsibility for the obligations of the Depositor or the Transferor.
Section 9.02. Certain Matters Affecting the Trustee. Except as
otherwise provided in Section 9.01:
(i) the Trustee may request and rely upon, and shall be protected
in acting or refraining from acting upon, any resolution, Officer's
Certificate, certificate of auditors or any other certificate,
statement, instrument, opinion, report, notice, request, consent,
order, appraisal, bond or other paper or document reasonably believed
by it to be genuine and to have been signed or presented by the proper
party or parties;
(ii) the Trustee may consult with counsel and any written advice
of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken or suffered
or omitted by it hereunder in good faith and in accordance with such
advice or Opinion of Counsel;
(iii) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Agreement, or to institute,
conduct or defend any litigation hereunder or in relation hereto, at
the request, order or direction of any of the Certificateholders or the
Credit Enhancer, pursuant to the provisions of this Agreement, unless
such Certificateholders or the Credit Enhancer shall have offered to
the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby; the
right of the Trustee to perform any discretionary act enumerated in
this Agreement shall not be construed as a duty, and the Trustee shall
not be answerable for other than its negligence or wilful misconduct in
the performance of any such act; nothing contained herein shall,
however, relieve the Trustee of the obligations, upon the occurrence of
an Event of Servicing Termination (which has not been cured or waived)
of which a Responsible Officer has knowledge, to exercise such of the
rights and powers vested in it by this Agreement, and to 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, unless it is acting as Servicer;
(iv) the Trustee shall not be personally liable for any action
taken, suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Agreement;
(v) prior to the occurrence of an Event of Servicing
Termination and after the curing or waiver of all Events of Servicing
Termination which may have occurred, the Trustee shall not be bound
to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, approval, bond or other paper or
documents, unless requested in writing to do so by Holders of
Investor Certificates evidencing Voting Rights aggregating not less
than 51%; provided, however, that if the payment within a reasonable
time to the Trustee of the costs, expenses or liabilities likely to
be incurred by it in the making of such investigation is, in the
opinion of the Trustee, not reasonably assured to the Trustee by the
security afforded to it by the terms of this Agreement, the Trustee
may require reasonable indemnity against such cost, expense or
liability as a condition to such proceeding. The reasonable expense
of every such examination shall be paid by the Servicer or, if paid
by the Trustee, shall be reimbursed by the Servicer upon demand.
Nothing in this clause (v) shall derogate from the obligation of the
Servicer to observe any applicable law prohibiting disclosure of
information regarding the Mortgagors;
(vi) the Trustee shall not be accountable, shall have no
liability and makes no representation as to any acts or omissions
hereunder of the Servicer until such time as the Trustee may be
required to act as Servicer pursuant to Section 8.02; and
(vii) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through an Affiliate, agents or attorneys or a custodian.
Section 9.03. Trustee Not Liable for Certificates or Mortgage Loans.
The recitals contained herein and in the Certificates (other than the
authentication of the Trustee on the Certificates) shall be taken as the
statements of the Depositor, and the Trustee assumes no responsibility for the
correctness of the same. The Trustee makes no representations as to the validity
or sufficiency of this Agreement or of the Certificates (other than the
signature and authentication of the Trustee on the Certificates) or of any
Mortgage Loan or Related Document. The Trustee shall not be accountable for the
use or application by the Depositor of any of the Certificates or of the
proceeds of such Certificates, or for the use or application of any funds paid
to the Depositor or the Servicer in respect of the Mortgage Loans or deposited
in or withdrawn from the Collection Account by the Servicer. The Trustee shall
at no time have any responsibility or liability for or with respect to the
legality, validity and enforceability of any Mortgage or any Mortgage Loan, or
the perfection and priority of any Mortgage or the maintenance of any such
perfection and priority, or for or with respect to the sufficiency of the Trust
or its ability to generate the payments to be distributed to Certificateholders
under this Agreement, including, without limitation: the existence, condition
and ownership of any Mortgaged Property; the existence and enforceability of any
hazard insurance thereon (other than if the Trustee shall assume the duties of
the Servicer pursuant to Section 8.02); the validity of the assignment of any
Mortgage Loan to the Trustee or of any intervening assignment; the completeness
of any Mortgage Loan; the performance or enforcement of any Mortgage Loan (other
than if the Trustee shall assume the duties of the Servicer pursuant to Section
8.02); the compliance by the Depositor, the Transferor or the Servicer with any
warranty or representation made under this Agreement or in any related document
or the accuracy of any such warranty or representation prior to the Trustee's
receipt of notice or other discovery of any non-compliance therewith or any
breach thereof; any investment of monies by or at the direction of the Servicer
or any loss resulting therefrom, it being understood that the Trustee shall
remain responsible for any Trust property that it may hold in its individual
capacity; the acts or omissions of any of the Depositor, the Servicer (other
than if the Trustee shall assume the duties of the Servicer pursuant to Section
8.02), any subservicer or any Mortgagor; any action of the Servicer (other than
if the Trustee shall assume the duties of the Servicer pursuant to Section
8.02), or any subservicer taken in the name of the Trustee; the failure of the
Servicer or any subservicer to act or perform any duties required of it as agent
of the Trustee hereunder; or any action by the Trustee taken at the instruction
of the Servicer (other than if the Trustee shall assume the duties of the
Servicer pursuant to Section 8.02); provided, however, that the foregoing shall
not relieve the Trustee of its obligation to perform its duties under this
Agreement. The Trustee shall have no responsibility for filing any financing or
continuation statement in any public office at any time or to otherwise perfect
or maintain the perfection of any security interest or lien granted to it
hereunder (unless the Trustee shall have become the successor Servicer) or to
prepare or file any Securities and Exchange Commission filing for the Trust or
to record this Agreement.
Section 9.04. Trustee May Own Certificates. The Trustee in its
individual or any other capacity may become the owner or pledgee of Certificates
with the same rights as it would have if it were not Trustee and may transact
any banking and trust business with the Transferor, the Servicer, the Credit
Enhancer or the Depositor.
Section 9.05. Servicer to Pay Trustee's Fees and Expenses; Servicer to
Indemnify. The Servicer covenants and agrees to pay to the Trustee from time to
time, and the Trustee shall be entitled to, reasonable compensation (which shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust) for all services rendered by it in the execution of
the trusts hereby created and in the exercise and performance of any of the
powers and duties hereunder of the Trustee, and the Servicer will pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any of the provisions of this Agreement (including the reasonable compensation
and the expenses and disbursements of its counsel and of all Persons not
regularly in its employ) except any such expense, disbursement or advance as may
arise from its negligence or bad faith or which is the responsibility of
Certificateholders hereunder. The Servicer covenants and agrees to indemnify the
Trustee from, and hold it harmless against, any and all losses, liabilities,
damages, claims or expenses other than those resulting from the negligence or
bad faith of the Trustee. This section shall survive termination of this
Agreement or the resignation or removal of any Trustee hereunder.
Section 9.06. Eligibility Requirements for Trustee. The Trustee
hereunder shall at all times be a corporation duly incorporated and validly
existing under the laws of the United States of America or any state thereof,
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. 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 9.06, 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. The principal office of the Trustee (other
than the initial Trustee) shall be in a state with respect to which an Opinion
of Counsel has been delivered to such Trustee at the time such Trustee is
appointed Trustee to the effect that the Trust will not be a taxable entity
under the laws of such state. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 9.06, the Trustee
shall resign immediately in the manner and with the effect specified in Section
9.07.
Section 9.07. Resignation or Removal of Trustee. The Trustee may at any
time resign and be discharged from the trusts hereby created by giving written
notice thereof to the Transferor, the Depositor, the Servicer, the Credit
Enhancer and each Rating Agency. Upon receiving such notice of resignation, the
Transferor shall promptly appoint a successor Trustee (approved in writing by
the Credit Enhancer, so long as such approval is not unreasonably withheld) by
written instrument, in duplicate, one copy of which instrument shall be
delivered to the resigning Trustee (who shall deliver a copy to the Servicer)
and one copy to the successor Trustee; provided, however, that any such
successor Trustee shall be subject to the prior written approval of the
Transferor. If no successor Trustee shall have been so appointed and have
accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 9.06 and shall fail to resign after written
request therefor by the Transferor or the Credit Enhancer, or if at any time the
Trustee shall be legally unable to act, or shall be adjudged a bankrupt or
insolvent, or a receiver of the Trustee or of its property shall be appointed,
or any public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, or if a tax is imposed or threatened with respect to the Trust Fund
by any state in which the Trustee or the Trust Fund is located (which tax cannot
be vacated by the appointment of a co-Trustee or separate trustee pursuant to
Section 9.10), then the Transferor or the Credit Enhancer may remove the
Trustee. If the Transferor or the Credit Enhancer removes the Trustee under the
authority of the immediately preceding sentence, the Transferor shall promptly
appoint a successor Trustee (approved in writing by the Credit Enhancer, which
approval shall not be unreasonably withheld) by written instrument, in
duplicate, one copy of which instrument shall be delivered to the Trustee so
removed and one copy to the successor trustee.
The Holders of Investor Certificates evidencing Percentage Interests
aggregating over 50% of all Investor Certificates may at any time remove the
Trustee by written instrument or instruments delivered to the Servicer, the
Transferor and the Trustee; the Transferor shall thereupon use its best efforts
to appoint a successor trustee in accordance with this Section.
Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section 9.07 shall
not become effective until acceptance of appointment by the successor Trustee as
provided in Section 9.08.
Section 9.08. Successor Trustee. Any successor Trustee appointed as
provided in Section 9.07 shall execute, acknowledge and deliver to the
Transferor, the Depositor, the Servicer, the Credit Enhancer and to its
predecessor Trustee an instrument accepting such appointment hereunder, and
thereupon the resignation or removal of the predecessor Trustee shall become
effective and such successor Trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with like effect as if originally
named as Trustee. The Transferor, the Depositor, the Servicer and the
predecessor Trustee shall execute and deliver such instruments and do such other
things as may reasonably be required for fully and certainly vesting and
confirming in the successor Trustee all such rights, powers, duties and
obligations.
No successor Trustee shall accept appointment as provided in this
Section 9.08 unless at the time of such acceptance such successor Trustee shall
be eligible under the provisions of Section 9.06.
Upon acceptance of appointment by a successor Trustee as provided in
this Section 9.08, the successor Trustee shall mail notice of the succession of
such Trustee hereunder to all Holders of Certificates at their addresses as
shown in the Certificate Register and to each Rating Agency. If the Servicer
fails to mail such notice within 30 days after acceptance of appointment by the
successor Trustee, the successor Trustee shall cause such notice to be mailed at
the expense of the Servicer.
Section 9.09. Merger or Consolidation of Trustee. Any Person into which
the Trustee may be merged or converted or with which it may be consolidated, or
any Person resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any Person succeeding to all or substantially all
of the business of the Trustee, shall be the successor of the Trustee hereunder,
provided such Person shall be eligible under the provisions of Section 9.06,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding.
Section 9.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust or any Mortgaged Property may at the time be located, the
Transferor and the Trustee acting jointly shall have the power and shall execute
and deliver all instruments necessary to appoint one or more Persons approved by
the Credit Enhancer to act as co-trustee or co-trustees, jointly with the
Trustee, or separate trustee or separate trustees, of all or any part of the
Trust, and to vest in such Person or Persons, in such capacity and for the
benefit of the Certificateholders, such title to the Trust, or any part thereof,
and, subject to the other provisions of this Section 9.10, such powers, duties,
obligations, rights and trusts as the Transferor and the Trustee may consider
necessary or desirable. Any such co-trustee or separate trustee shall be subject
to the written approval of the Servicer. If the Transferor shall not have joined
in such appointment within 15 days after the receipt by it of a request so to
do, or in the case an Event of Servicing Termination shall have occurred and be
continuing, the Trustee alone shall have the power to make such appointment. No
co-trustee or separate trustee hereunder shall be required to meet the terms of
eligibility as a successor trustee under Section 9.06 and no notice to
Certificateholders of the appointment of any co-trustee or separate trustee
shall be required under Section 9.08. The Servicer shall be responsible for the
fees of any co-trustee or separate trustee appointed hereunder.
Every separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or
co-trustee jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed
(whether as Trustee hereunder or as successor to the Servicer
hereunder), the Trustee shall be incompetent or unqualified to perform
such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Trust or any portion
thereof in any such jurisdiction) shall be exercised and performed
singly by such separate trustee or co-trustee, but solely at the
direction of the Trustee;
(ii) no trustee hereunder shall be held personally liable by
reason of any act or omission of any other trustee hereunder; and
(iii) the Servicer and the Trustee acting jointly may at any time
accept the resignation of or remove any separate trustee or co-trustee
except that following the occurrence of an Event of Servicing
Termination, the Trustee acting alone may accept the resignation or
remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article IX. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee and a copy thereof given to the
Transferor and the Servicer.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor Trustee.
Section 9.11. Limitation of Liability. The Certificates are executed by
the Trustee, not in its individual capacity but solely as Trustee of the Trust,
in the exercise of the powers and authority conferred and vested in it by the
Trust Agreement. Each of the undertakings and agreements made on the part of the
Trustee in the Certificates is made and intended not as a personal undertaking
or agreement by the Trustee but is made and intended for the purpose of binding
only the Trust.
Section 9.12. Trustee May Enforce Claims Without Possession of
Certificates. All rights of action and claims under this Agreement or the
Certificates may be prosecuted and enforced by the Trustee without the
possession of any of the Certificates or the production thereof in any
proceeding relating thereto, and such proceeding instituted by the Trustee shall
be brought in its own name or in its capacity as Trustee. Any recovery of
judgment shall, after provision for the payment of the reasonable compensation,
expenses, disbursement and advances of the Trustee, its agents and counsel, be
for the ratable benefit or the Certificateholders in respect of which such
judgment has been recovered.
Section 9.13. Suits for Enforcement. In case an Event of Servicing
Termination or other default by the Servicer, the Transferor, the Depositor or
the Transferor hereunder shall occur and be continuing, the Trustee, in its
discretion, may proceed to protect and enforce its rights and the rights of the
Investor Certificateholders under this Agreement by a suit, action or proceeding
in equity or at law or otherwise, whether for the specific performance of any
covenant or agreement contained in this Agreement or in aid of the execution of
any power granted in this Agreement or for the enforcement of any other legal,
equitable or other remedy, as the Trustee, being advised by counsel, shall deem
most effectual to protect and enforce any of the rights of the Trustee and the
Certificateholders.
<PAGE>
ARTICLE X.
Termination
Section 10.01. Termination. (a) The respective obligations and
responsibilities of the Servicer, the Depositor, the Transferor and the Trustee
created hereby (other than the obligation of the Trustee to make certain
payments to Certificateholders after the final Distribution Date and the
obligation of the Servicer to send certain notices as hereinafter set forth)
shall terminate upon the last action required to be taken by the Trustee on the
final Distribution Date pursuant to this Article X following the later of (A)
payment in full of all amounts owing to the Credit Enhancer and (B) the earliest
of (i) the transfer, under the conditions specified in Section 10.01(b), to the
Transferor of the Investor Certificateholders' interest in each Mortgage Loan
and all property acquired in respect of any Mortgage Loan remaining in the Trust
for an amount equal to the sum of (w) the Class A Certificate Principal Balance,
(x) the sum of accrued and unpaid Class A Certificate Interest and Class S
Certificate Interest through the day preceding the final Distribution Date, and
(y) interest accrued on any Unpaid Class A Certificate Interest Shortfall or
Class S Certificate Interest Shortfall, to the extent legally permissible, (ii)
the day following the Distribution Date on which the distribution made to Class
A Certificateholders has reduced the Class A Certificate Principal Balance to
zero, (iii) the final payment or other liquidation of the last Mortgage Loan
remaining in the Trust (including without limitation the disposition of the
Mortgage Loans pursuant to Section 10.02) or the disposition of all property
acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan
(iv) the Distribution Date in ______________; provided, however, that in no
event shall the trust created hereby continue beyond the expiration of 21 years
from the date of the last survivor descendants of Joseph P. Kennedy, the late
ambassador of the United States to the Court of St. James, living on the date
hereof. Upon termination in accordance with clause (i) or (ii) of this Section
10.01, the Trustee shall execute such documents and instruments of transfer
presented by the Transferor, in each case without recourse, representation or
warranty, and take such other actions as the Transferor may reasonably request
to effect the transfer of the Mortgage Loans to the Transferor.
(b) The Transferor shall have the right to exercise the option to
effect the transfer to the Transferor of each Mortgage Loan pursuant to Section
10.01(a) above on any Distribution Date on or after the Distribution Date
immediately prior to which the Class A Certificate Principal Balance is less
than ten percent (10%) of the Original Class A Certificate Principal Balance and
all amounts due and owing to the Credit Enhancer for unpaid premiums and
unreimbursed draws on the Policy and all other amounts due and owing to the
Credit Enhancer pursuant to the Insurance Agreement, together with interest
thereon as provided under the Insurance Agreement, have been paid.
(c) Notice of any termination, specifying the Distribution Date (which
shall be a date that would otherwise be a Distribution Date) upon which the
Investor Certificateholders may surrender their Investor Certificates to the
Trustee for payment of the final distribution and cancellation, shall be given
promptly by the Trustee (upon receipt of written directions from the Transferor,
if the Transferor is exercising its right to transfer of the Mortgage Loans,
given not later than the first day of the month preceding the month of such
final distribution) to the Credit Enhancer and to the Servicer by letter to
Investor Certificateholders mailed not earlier than the 15th day and not later
than the 25th day of the month next preceding the month of such final
distribution specifying (i) the Distribution Date upon which final distribution
of the Investor Certificates will be made upon presentation and surrender of
Investor Certificates at the office or agency of the Trustee therein designated,
(ii) the amount of any such final distribution and (iii) that the Record Date
otherwise applicable to such Distribution Date is not applicable, distributions
being made only upon presentation and surrender of the Investor Certificates at
the office or agency of the Trustee therein specified. In the event written
directions are delivered by the Transferor to the Trustee as described in the
preceding sentence, the Transferor shall deposit in the Collection Account on or
before the Distribution Date for such final distribution in immediately
available funds an amount which, when added to the funds on deposit in the
Collection Account that are payable to the Investor Certificateholders, will be
equal to the retransfer amount for the Mortgage Loans computed as above
provided, together with all amounts due and owing to the Credit Enhancer for
unpaid premiums and unreimbursed draws on the Policy and all other amounts due
and owing to the Credit Enhancer pursuant to the Insurance Agreement, together
with interest thereon as provided under the Insurance Agreement.
(d) Upon presentation and surrender of the Investor Certificates, the
Trustee shall cause to be distributed to the Holders of Investor Certificates on
the Distribution Date for such final distribution, in proportion to the
Percentage Interests of their respective Investor Certificates and to the extent
that funds are available for such purpose, an amount equal to (i) if such final
distribution is not being made pursuant to the transfer to the Transferor
pursuant to Section 10.01(a)(i), the amount required to be distributed to
Investor Certificateholders pursuant to Section 5.01 for such Distribution Date
and (ii) if such final distribution is being made pursuant to such retransfer,
the amount specified in Section 10.01(a)(i). The distribution on such final
Distribution Date pursuant to a retransfer pursuant to Section 10.01(a)(i) shall
be in lieu of the distribution otherwise required to be made on such
Distribution Date in respect of the Certificates. On the final Distribution Date
prior to having made the distributions called for above, the Trustee shall,
based upon the information set forth in the Servicing Certificate for such
Distribution Date, withdraw from the Collection Account and remit to the Credit
Enhancer the lesser of (x) the amount available for distribution on such final
Distribution Date, net of any portion thereof necessary to pay the amounts
described in clauses (d)(i) and (ii) above and (y) the unpaid amounts due and
owing to the Credit Enhancer for unpaid premiums and unreimbursed draws on the
Policy and all other amounts due and owing to the Credit Enhancer pursuant to
the Insurance Agreement, together with interest thereon as provided under the
Insurance Agreement.
(e) In the event that all of the Investor Certificateholders shall not
surrender their Investor Certificates for final payment and cancellation on or
before such final Distribution Date, the Trustee shall on such date cause all
funds in the Collection Account not distributed in final distribution to
Investor Certificateholders to be withdrawn therefrom and credited to the
remaining Investor Certificateholders by depositing such funds in a separate
escrow account for the benefit of such Investor Certificateholders and the
Transferor (if the Transferor has exercised its right to transfer the Mortgage
Loans) or the Trustee (in any other case) shall give a second written notice to
the remaining Investor Certificateholders to surrender their Investor
Certificates for cancellation and receive the final distribution with respect
thereto. If within one year after the second notice all the Investor
Certificates shall not have been surrendered for cancellation, the Trustee may
take appropriate steps, or may appoint an agent to take appropriate steps, to
contact the remaining Investor Certificateholders concerning surrender of their
Investor Certificates, and the cost thereof shall be paid out of the funds on
deposit in such escrow account.
<PAGE>
ARTICLE XI.
Rapid Amortization Events
Section 11.01. Rapid Amortization Events. If any one of the following
events shall occur during the Managed Amortization Period:
(a) failure on the part of the Transferor (i) to make any payment or
deposit required by the terms of this Agreement, on or before the date occurring
three Business Days after the date such payment or deposit is required to be
made herein, or (ii) duly to observe or perform in any material respect the
covenants of the Transferor set forth in Section 2.04(a) or (iii) duly to
observe or perform in any material respect any other covenants or agreements of
the Transferor set forth in this Agreement, which failure, in each case,
materially and adversely affects the interests of the Certificateholders or the
Credit Enhancer and which, in the case of clause (iii), continues unremedied and
continues to affect materially and adversely the interests of the
Certificateholders for a period of 60 days after the date on which written
notice of such failure, requiring the same to be remedied, shall have been given
to the Transferor by the Trustee, or to the Transferor and the Trustee by the
Holders of Investor Certificates evidencing Voting Rights aggregating not less
than 51%;
(b) any representation or warranty made by the Transferor or the
Depositor in this Agreement shall prove to have been incorrect in any material
respect when made, as a result of which the interests of the Investor
Certificateholders or the Credit Enhancer are materially and adversely affected
and which continues to be incorrect in any material respect and continues to
affect materially and adversely the interests of the Certificateholders or the
Credit Enhancer for a period of 60 days after the date on which written notice
of such failure, requiring the same to be remedied, shall have been given to the
Transferor or the Depositor, as the case may be, by the Trustee, or to the
Transferor, the Depositor and the Trustee by either the Credit Enhancer or the
Holders of Investor Certificates evidencing Voting Rights aggregating not less
than 51%; provided, however, that a Rapid Amortization Event pursuant to this
subparagraph (b) shall not be deemed to have occurred hereunder if the
Transferor has accepted retransfer of the related Mortgage Loan or Mortgage
Loans during such period (or such longer period (not to exceed an additional 60
days) as the Trustee may specify) in accordance with the provisions hereof;
(c) the Transferor or the Depositor shall voluntarily go into
liquidation, consent to the appointment of a conservator or receiver or
liquidator or similar person in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings of or relating to
the Transferor or the Depositor, or of or relating to all or substantially all
of such Person's property, or a decree or order of a court or agency or
supervisory authority having jurisdiction in the premises for the appointment of
a conservator, receiver, liquidator or similar person in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs, shall have
been entered against the Transferor or the Depositor and such decree or order
shall have remained in force undischarged or unstayed for a period of 30 days;
or the Transferor or the Depositor shall admit in writing its inability to pay
its debts generally as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for the
benefit of its creditors or voluntarily suspend payment of its obligations;
(d) the Trust shall become subject to registration as an "investment
company" under the Investment Company Act of 1940, as amended; or
(e) the aggregate of all draws under the Policy exceeds _% of the
Initial Cut-Off Date Pool Balance;
then, in the case of any event described in subparagraph (a) or (b) after the
applicable grace period, if any, set forth in such subparagraphs, either the
Trustee, the Credit Enhancer or the Holders of Investor Certificates evidencing
Voting Rights aggregating more than 51%, by notice given in writing to the
Transferor, the Depositor and the Servicer (and to the Trustee if given by
either the Credit Enhancer or the Investor Certificateholders) may declare that
an early amortization event (a "Rapid Amortization Event") has occurred as of
the date of such notice, and in the case of any event described in subparagraph
(c), (d) or (e), a Rapid Amortization Event shall occur without any notice or
other action on the part of the Trustee, the Credit Enhancer or the Investor
Certificateholders, immediately upon the occurrence of such event.
Section 11.02. Additional Rights Upon the Occurrence of Certain Events.
(a) If the Transferor voluntarily goes into liquidation or consents to the
appointment of a conservator or receiver or liquidator or similar person in any
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings of or relating to the Transferor or of or relating to all or
substantially all its property, or a decree or order of a court or agency or
supervisory authority having jurisdiction in the premises for the appointment of
a conservator or receiver or liquidator or similar person in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs, shall have
been entered against the Transferor and such decree shall have remained in force
undischarged or unstayed for a period of 30 days; or the Transferor shall admit
in writing its inability to pay its debts generally as they become due, file a
petition to take advantage of any applicable insolvency or reorganization
statute, make an assignment for the benefit of its creditors or voluntarily
suspend payment of its obligations (such voluntary liquidation, appointment,
entering of such decree, admission, filing, making, suspension or violation or
other event described above, an "Insolvency Event"), the Transferor shall on the
day of such appointment, voluntary liquidation, entering of such decree,
admission, filing, making, suspension or inability, as the case may be (the
"Appointment Day"), promptly give notice to the Trustee, the Servicer and the
Credit Enhancer of such Insolvency Event. Within 15 days of the receipt by the
Trustee of the Transferor's notice of an Insolvency Event, the Trustee shall (i)
publish a notice in Authorized Newspapers that an Insolvency Event has occurred
and that the Trustee intends to direct the Servicer to sell, dispose of or
otherwise liquidate the Mortgage Loans in a commercially reasonable manner and
(ii) send written notice to the Investor Certificateholders describing the
provisions of this Section 11.02, which notice shall inform Investor
Certificateholders that unless [Holders of Investor Certificates evidencing
Voting Rights aggregating not less than 51%] advise the Trustee in writing that
they wish the Trustee to instruct the Servicer not to sell, dispose of or
otherwise liquidate the Mortgage Loans within 90 days from the day notice
pursuant to clause (i) above is first published (the "Publication Date"), the
Trustee shall instruct the Servicer to proceed to sell, dispose of, or otherwise
liquidate the Mortgage Loans in a commercially reasonable manner and on
commercially reasonable terms, which shall include the solicitation of
competitive bids, and shall proceed to consummate the sale, liquidation or
disposition of the Mortgage Loans as provided above with the highest bidder for
the Mortgage Loans. The Transferor shall be permitted to bid for the Mortgage
Loans. The Trustee may obtain a prior determination from such conservator or
receiver that the terms and manner of any proposed sale, disposition or
liquidation are commercially reasonable. The provisions of Sections 11.01 and
11.02 shall not be deemed to be mutually exclusive.
(b) The proceeds from the sale, disposition or liquidation of the
Mortgage Loans pursuant to Section 11.02(a) above shall be treated as
collections on the Mortgage Loans received during the Rapid Amortization Period;
provided, however, that such proceeds will, based on amounts specified in
writing by the Servicer to the Trustee, first be paid to the Credit Enhancer to
reimburse the Credit Enhancer for previously unreimbursed Credit Enhancement
Draw Amounts and other amounts owing under the Insurance Agreement; and
provided, further, that the Investor Fixed Allocation Percentage of such
remaining proceeds shall be paid to Investor Certificateholders in the following
amounts and order of priority:
(i) all accrued and unpaid interest on the Class A Certificate
Principal Balance through the Interest Period immediately preceding the
Distribution Date on which such proceeds are distributed to the
Investor Certificateholders;
(ii) all accrued and unpaid interest on the Class S Notional
Amount through the Interest Period immediately preceding the
Distribution Date on which such proceeds are distributed to the
Investor Certificateholders; and
(iii) an amount of principal up to the Class A Certificate
Principal Balance.
The Policy shall cover any shortfall in the event such proceeds are insufficient
to make the distributions to Investor Certificateholders pursuant to Section
11.02(b). On the day following the Distribution Date on which such proceeds are
distributed to the Investor Certificateholders, the Trust shall terminate.
<PAGE>
ARTICLE XII.
Miscellaneous Provisions
Section 12.01. Amendment. This Agreement may be amended from time to
time by the Transferor, the Servicer, the Depositor and the Trustee, in each
case without the consent of any of the Certificateholders, but only with the
consent of the Credit Enhancer (which consent shall not be unreasonably
withheld), (i) to cure any ambiguity, (ii) to correct any defective provisions
or to correct or supplement any provisions herein that may be inconsistent with
any other provisions herein, (iii) to add to the duties of the Transferor or the
Servicer, (iv) to add any other provisions with respect to matters or questions
arising under this Agreement or the Policy, as the case may be, which shall not
be inconsistent with the provisions of this Agreement, (v) to add or amend any
provisions of this Agreement as required by any Rating Agency or any other
nationally recognized statistical rating organization in order to maintain or
improve any rating of the Investor Certificates (it being understood that, after
obtaining the ratings in effect on the Closing Date, neither the Trustee, the
Transferor, the Depositor nor the Servicer is obligated to obtain, maintain or
improve any such rating), (vi) to add or amend any provisions of this Agreement
to correct or cure any defective provision or ambiguity as a result of a
transfer of the Transferor Certificates pursuant to Section 6.05 or (vii) to
comply with any requirement imposed by the Code; provided, however, that such
action shall not, as evidenced by an Opinion of Counsel, materially and
adversely affect the interests of any Certificateholder or the Credit Enhancer;
and provided, further, that the amendment shall not be deemed to adversely
affect in any material respect the interests of the Certificateholders and no
opinion referred to in the preceding proviso shall be required to be delivered
if the Person requesting the amendment obtains a letter from each Rating Agency
stating that the amendment would not result in the downgrading or withdrawal of
the respective ratings then assigned to the Investor Certificates without regard
to the Policy. Notwithstanding the foregoing, any amendment pursuant to clause
(viii) above shall be permissible only upon receipt of a letter from each Rating
Agency stating that the amendment would not result in the downgrading or
withdrawal of the respective ratings then assigned to the Investor
Certificateholders without regard to the Policy.
This Agreement also may be amended from time to time by the Servicer,
the Transferor, the Depositor and the Trustee, and the Servicer and the Credit
Enhancer, may from time to time consent to the amendment of the Policy with the
consent of the Holders of the Investor Certificates evidencing Voting Rights
aggregating not less than 51%, and in the case of an amendment to this
Agreement, with the consent of the Credit Enhancer for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of modifying in any manner the rights of the
Certificateholders; provided, however, that no such amendment shall (i) reduce
in any manner the amount of, or delay the timing of, payments on the
Certificates or distributions or payments under the Policy which are required to
be made on any Certificate without the consent of the Holder of such Certificate
or (ii) reduce the aforesaid percentage required to consent to any such
amendment, without the consent of the Holders of all Certificates then
outstanding or (iii) adversely effect in any material respect the interests of
the Credit Enhancer.
Notwithstanding the foregoing, the Agreement may not be amended unless,
in connection with such amendment, an Opinion of Counsel is furnished to the
Trustee that such amendment will not (i) adversely affect the status of the
Investor Certificates as debt; (ii) result in the Trust being taxable at the
entity level; or (iii) result in the Trust being classified as a taxable
mortgage pool (as defined in Section 7701(i) of the Code).
Following the execution and delivery of any such amendment hereto or to
the Policy to which the Credit Enhancer was required to consent, either the
Transferor, if the Transferor requested the amendment, or the Servicer, if the
Servicer requested the amendment, shall reimburse the Credit Enhancer for the
reasonable out-of-pocket costs and expenses incurred by the Credit Enhancer in
connection with such amendment.
Prior to the execution of any such amendment, the party hereto
requesting any such amendment shall furnish written notification of the
substance of such amendment to each Rating Agency. In addition, promptly after
the execution of any such amendment made with the consent of the Investor
Certificateholders, the Trustee shall furnish written notification of the
substance of such amendment to each Investor Certificateholder and fully
executed original counterparts of the instruments effecting such amendment to
the Credit Enhancer.
It shall not be necessary for the consent of Investor
Certificateholders under this Section 12.01 to approve the particular form of
any proposed amendment or consent, but it shall be sufficient if such consent
shall approve the substance thereof. The manner of obtaining such consents and
of evidencing the authorization of the execution thereof by Certificateholders
shall be subject to such reasonable requirements as the Trustee may prescribe.
In executing any amendment permitted by this Section 12.01, the Trustee
shall be entitled to receive, and shall be fully protected in relying upon, an
Opinion of Counsel stating that such amendment is authorized or permitted hereby
and that all conditions precedent to the execution and delivery of such
amendment have been satisfied. The Trustee may, but shall not be obligated to,
enter into any such amendment which affects the Trustee's own rights, duties or
immunities under this Agreement or otherwise.
Section 12.02. Recordation of Agreement. This Agreement is subject to
recordation in all appropriate public offices for real property records in all
the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Trustee, but only upon direction of Investor Certificateholders accompanied by
an Opinion of Counsel to the effect that such recordation materially and
beneficially affects the interests of Investor Certificateholders. The Investor
Certificateholders requesting such recordation shall bear all costs and expenses
of such recordation. The Trustee shall have no obligation to ascertain whether
such recordation so affects the interests of the Certificateholders.
For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one and
the same instrument.
Section 12.03. Limitation on Rights of Certificateholders. The death or
incapacity of any Investor Certificateholder shall not operate to terminate this
Agreement or the Trust, nor entitle such Investor Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the Trust,
nor otherwise affect the rights, obligations and liabilities of the parties
hereto or any of them.
No Certificateholder shall have any right to vote (except as provided
in Sections 8.01, 9.01, 9.02, 11.01 and 12.01) or in any manner otherwise
control the operation and management of the Trust, or the obligations of the
parties hereto, nor shall anything herein set forth, or contained in the terms
of the Certificates, be construed so as to constitute the Certificateholders
from time to time as partners or members of an association; nor shall any
Investor Certificateholder be under any liability to any third person by reason
of any action taken by the parties to this Agreement pursuant to any provision
hereof.
No Certificateholder shall have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this Agreement,
unless such Holder previously shall have given to the Trustee a written notice
of default and of the continuance thereof, as hereinbefore provided, and unless
also the Holders of Investor Certificates evidencing Voting Rights aggregating
not less than 51% shall have made written request upon the Trustee to institute
such action, suit or proceeding in its own name as Trustee hereunder and shall
have offered to the Trustee such reasonable indemnity as it may require against
the costs, expenses and liabilities to be incurred therein or thereby, and the
Trustee, for 60 days after its receipt of such notice, request and offer of
indemnity, shall have neglected or refused to institute any such action, suit or
proceeding; it being understood and intended, and being expressly covenanted by
each Certificateholder with every other Certificateholder and the Trustee, that
no one or more Holders of Certificates shall have any right in any manner
whatever by virtue or by availing itself or themselves of any provisions of this
Agreement to affect, disturb or prejudice the rights of the Holders of any other
of the Certificates, or to obtain or seek to obtain priority over or preference
to any other such Holder, or to enforce any right under this Agreement, except
in the manner herein provided and for the equal, ratable and common benefit of
all Certificateholders. For the protection and enforcement of the provisions of
this Section 12.03, each and every Certificateholder and the Trustee shall be
entitled to such relief as can be given either at law or in equity.
By accepting its Investor Certificate, each Investor Certificateholder
agrees that unless a Credit Enhancer Default exists, the Credit Enhancer shall
have the right to exercise all rights of the Investor Certificateholders under
this Agreement without any further consent of the Investor Certificateholders.
Section 12.04. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS.
Section 12.05. Notices. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by certified mail, return receipt requested,
to (a) in the case of the Depositor, Headlands Mortgage Securities Inc., 700
Larkspur Landing Circle, Suite 240, Larkspur, California 94939, Attention:
_________________, (b) in the case of the Servicer, [ ], _____________,
Attention: _____________, (c) in the case of the Trustee, at the Corporate Trust
Office, (d) in the case of the Credit Enhancer, _______________,
__________________ _____, Attention: _____________ (telecopy number (___)
________ or (___) ________), (e) in the case of the Transferor, __________,
Attention: ________________ (telecopy number (___) ________), (f) in the case of
Moody's, Residential Loan Monitoring Group, 4th Floor, 99 Church Street, New
York, New York 10007, and (g) in the case of Standard & Poor's, 26 Broadway, New
York, New York 10004, or, as to each party, at such other address as shall be
designated by such party in a written notice to each other party. Any notice
required or permitted to be mailed to a Certificateholder shall be given by
first class mail, postage prepaid, at the address of such Holder as shown in the
Certificate Register. Any notice so mailed within the time prescribed in this
Agreement shall be conclusively presumed to have been duly given, whether or not
the Certificateholder receives such notice. Any notice or other document
required to be delivered or mailed by the Trustee to any Rating Agency shall be
given on a best efforts basis and only as a matter of courtesy and accommodation
and the Trustee shall have no liability for failure to deliver such notice or
document to any Rating Agency.
Section 12.06. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the Holders thereof.
Section 12.07. Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Sections 6.05, 7.02 and 7.04, this
Agreement may not be assigned by the Depositor or the Servicer without the prior
written consent of the Credit Enhancer and Holders of the Investor Certificates
evidencing Percentage Interests aggregating not less than 66%.
Section 12.08. Certificates Nonassessable and Fully Paid. The parties
agree that the Investor Certificateholders shall not be personally liable for
obligations of the Trust, that the beneficial ownership interests represented by
the Certificates shall be nonassessable for any losses or expenses of the Trust
or for any reason whatsoever, and that the Certificates upon execution,
authentication and delivery thereof by the Trustee pursuant to Section 2.08 or
6.02 are and shall be deemed fully paid.
Section 12.09. Third-Party Beneficiaries. This Agreement will inure to
the benefit of and be binding upon the parties hereto, the Certificateholders,
the Certificate Owners, the Credit Enhancer and their respective successors and
permitted assigns. Except as otherwise provided in this Agreement, no other
Person will have any right or obligation hereunder.
Section 12.10. 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 12.11. 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 12.12. Insurance Agreement. The Trustee is authorized and
directed to execute and deliver the Insurance Agreement and to perform the
obligations of the Trustee thereunder.
<PAGE>
IN WITNESS WHEREOF, the Depositor, the Transferor, the Seller,
the Servicer and the Trustee have caused this Agreement to be duly executed by
their respective officers all as of the day and year first above written.
J.P. MORGAN ACCEPTANCE CORPORATION I,
as Depositor
By
---------------------------------
Title:
[ ],
as Seller and Servicer
By
---------------------------------
Title:
[ ],
as Transferor
By
---------------------------------
Title:
[-------------------------]
as Trustee
By_________________________________
Title:
<PAGE>
State of ________ )
) ss.:
County of ________ )
On the ____ day of ________, 199_ before me, a notary public
in and for the State of ________, personally appeared _________________, known
to me who, being by me duly sworn, did depose and say that he resides at
______________________; that he is the _____________________ of J.P. Morgan
Acceptance Corporation I, a Delaware corporation, one of the parties that
executed the foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the Board of Directors of said corporation; and that he
signed his name thereto by like order.
----------------
Notary Public
[Notarial Seal]
<PAGE>
State of )
) ss.:
County of )
On the ____ day of __________, 199_ before me, a notary public
in and for the State of ________, personally appeared _____________________,
known to me who, being by me duly sworn, did depose and say that he resides at
_________________, ____________, ________ _____; that he is the ______________
of [Seller/Servicer], a [ ] corporation, one of the parties that executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation; and that he signed his name
thereto by like order.
-----------------
Notary Public
[Notarial Seal]
<PAGE>
State of )
) ss.:
County of )
On the ____ day of ______________, 199_ before me, a notary
public in and for the State of ________, personally appeared _________________,
known to me who, being by me duly sworn, did depose and say that he resides at
_______________, _______________ _____; that he is the _____________ of ________
____, a __________, one of the parties that executed the foregoing instrument;
and that he signed his name thereto by order of the Board of Directors of said
corporation.
----------------
Notary Public
[Notarial Seal]
<PAGE>
EXHIBIT A
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE TRUSTEE OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "REGULAR
INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE").
Certificate No. :
Cut-Off Date :
First Distribution Date :
Initial Class Principal Balance
of this Certificate
("Denomination") : $
Initial Class Principal
Balance : $
Pass-Through Rate : %
CUSIP :
Class : [A-__][S]
<PAGE>
HOME EQUITY LOAN TRUST 199_
Home Equity Loan Asset-Backed Certificates, Series 199_-_
Class [ ]
evidencing a percentage interest in the distributions allocable to the
Certificates of the above-referenced Class with respect to a trust (the
"Trust") consisting of [closed-end fixed] and [adjustable rate]
mortgage loans (the "Mortgage Loans")
J.P. MORGAN SECURITIES INC., as Depositor
Principal in respect of this Certificate is distributable monthly as
set forth herein. Accordingly, the Class Principal Balance of this Class
[A-_][S] Certificate at any time may be less than the Initial Class Principal
Balance set forth on the face hereof, as described herein. This Class [A-_][S]
Certificate does not evidence an obligation of, or an interest in, and is not
guaranteed by the Seller or the Trustee referred to below or any of their
respective affiliates. Neither this Class [A-_][S] Certificate nor the Mortgage
Loans are guaranteed or insured by any governmental agency or instrumentality.
This certifies that ____________ is the registered owner of the
Percentage Interest evidenced by this Class [A-_][S] Certificate (obtained by
dividing the Denomination of this Class [A-_][S] Certificate by the Class
Principal Balance) in certain monthly distributions with respect to a Trust
consisting primarily of the Mortgage Loans sold to the Trust by ___________ (the
"Seller"). The Trust was created pursuant to a Pooling and Servicing Agreement
dated as of the Cut-Off Date specified above (the "Agreement") between the
Depositor, the Seller, as seller and master servicer (in such capacities, the
"Seller" or the "Master Servicer," respectively), ______________, as transferor
(the "Transferor") and _______________, as trustee (the "Trustee"). To the
extent not defined herein, the capitalized terms used herein have the meanings
assigned in the Agreement. This Class [A-_][S] Certificate is issued under and
is subject to the terms, provisions and conditions of the Agreement, to which
Agreement the Holder of this Class [A-_][S] Certificate by virtue of the
acceptance hereof assents and by which such Holder is bound.
Reference is hereby made to the further provisions of this Class
[A-_][S] Certificate set forth on the reverse hereof, which further provisions
shall for all purposes have the same effect as if set forth at this place.
This Class [A-_][S] Certificate shall not be entitled to any benefit
under the Agreement or be valid for any purpose unless manually countersigned by
an authorized signatory of the Trustee.
* * *
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
Dated:
[ ], as Trustee
By _______________________________
This is one of the Class [A-_][S] Certificates
referenced in the within mentioned Agreement
By ___________________________
Authorized Signatory
<PAGE>
HOME EQUITY LOAN TRUST 199_-_
Home Equity Loan Asset-Backed Certificates,
Series 199_-_
This Certificate is one of a duly authorized issue of Certificates
designated as Home Equity Loan Trust 199_-_, Home Equity Loan Asset-Backed
Certificates, Series 199_-_ (herein collectively called the "Certificates"), and
representing a beneficial ownership interest in the Trust created by the
Agreement.
The Certificateholder, by its acceptance of this Certificate, agrees
that it will look solely to the funds on deposit in the Distribution Account for
payment hereunder and that the Trustee is not liable to the Certificateholders
for any amount payable under this Certificate or the Agreement or, except as
expressly provided in the Agreement, subject to any liability under the
Agreement.
This Certificate will have the benefit of an irrevocable and
unconditional certificate guaranty insurance policy issued by [ ] (the
"Certificate Insurer").
This Certificate does not purport to summarize the Agreement and
reference is made to the Agreement for the interests, rights and limitations of
rights, benefits, obligations and duties evidenced thereby, and the rights,
duties and immunities of the Trustee.
Pursuant to the terms of the Agreement, a distribution will be made on
the 25th day of each month or, if such 25th day is not a Business Day then the
first Business Day following such Distribution Date (the "Distribution Date"),
commencing on the first Distribution Date specified on the face hereof, to the
Person in whose name this Certificate is registered at the close of business on
the applicable Record Date in an amount equal to the product of the Percentage
Interest evidenced by this Certificate and the amount required to be distributed
to Holders of Certificates of the Class to which this Certificate belongs on
such Distribution Date pursuant to the Agreement. The Record Date applicable to
each Distribution Date is the last Business Day of the month preceding the month
of such Distribution Date.
Distributions on this Certificate shall be made by check or money order
mailed to the address of the person entitled thereto as it appears on the
Certificate Register or, upon the request of a Certificateholder owning
Certificates having the requisite aggregate denominations or Percentage
Interests specified in the Agreement, by wire transfer or otherwise, as set
forth in the Agreement. The final distribution on each Certificate will be made
in like manner, but only upon presentment and surrender of such Certificate at
the office or agency of the Trustee specified in the notice to
Certificateholders of such final distribution.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Trustee and the rights of the Certificateholders under the Agreement at any time
by the Seller and the Trustee with the consent of the Certificate Insurer and of
Holders of the requisite percentage of the Percentage Interests of each Class of
Certificates affected by such amendment, as specified in the Agreement. Any such
consent by the Holder of this Certificate shall be conclusive and binding on
such Holder and upon all future Holders of this Certificate and of any
Certificate issued upon the transfer hereof or in exchange therefor or in lieu
hereof whether or not notation of such consent is made upon this Certificate.
The Agreement also permits the amendment thereof, in certain limited
circumstances, without the consent of the Holders of any of the Certificates.
As provided in the Agreement and subject to certain limitations therein
set forth, the transfer of this Certificate is registrable in the Certificate
Register of the Trustee upon surrender of this Certificate for registration of
transfer at the office or agency maintained by the Trustee in New York, New
York, accompanied by a written instrument of transfer in form satisfactory to
the Trustee and the Certificate Registrar duly executed by the holder hereof or
such holder's attorney duly authorized in writing, and thereupon one or more new
Certificates of the same Class in authorized denominations and evidencing the
same aggregate Percentage Interest in the Trust will be issued to the designated
transferee or transferees.
The Certificates are issuable only as registered Certificates without
coupons in denominations specified in the Agreement. As provided in the
Agreement and subject to certain limitations therein set forth, Certificates are
exchangeable for new Certificates of the same Class in authorized denominations
and evidencing the same aggregate Percentage Interest, as requested by the
Holder surrendering the same.
No service charge will be made for any such registration of transfer or
exchange, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
The Seller and the Trustee and any agent of the Seller or the Trustee
may treat the Person in whose name this Certificate is registered as the owner
hereof for all purposes, and neither the Seller, the Trustee nor any such agent
shall be affected by any notice to the contrary.
On any Distribution Date on which the Pool Principal Balance is less
than [ ]% of the Cut-Off Date Pool Principal Balance, the Seller will have the
option to repurchase, in whole, from the Trust the Mortgage Loans at a purchase
price determined as provided in the Agreement. In the event that no such
optional termination occurs, the obligations and responsibilities created by the
Agreement will terminate upon the later of (A) payment in full of all amounts
owing to the Certificate Insurer unless the Certificate Insurer shall otherwise
consent and (B) the earliest of (i) the day following the Distribution Date on
which the Aggregate Class A Principal Balance has been reduced to zero, (ii) the
final payment or other liquidation of the last Mortgage Loan in the Trust and
(iii) the Distribution Date in [ ]. In no event, however, will the trust created
by the Agreement continue beyond the expiration of 21 years from the death of
the last survivor of the descendants living at the date of the Agreement of a
certain person named in the Agreement.
Capitalized terms used herein that are defined in the Agreement shall
have the meanings ascribed to them in the Agreement, and nothing herein shall be
deemed inconsistent with that meaning.
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto
-------------------------------
- -------------------------------
- -------------------------------
- -------------------------------
(Please print or typewrite name and address including postal zip code
of assignee)
the Percentage Interest evidenced by the within Certificate and hereby
authorizes the transfer of registration of such Percentage Interest to assignee
on the Certificate Register of the Trust.
I (We) further direct the Trustee to issue a new Certificate of a like
denomination and Class, to the above named assignee and deliver such Certificate
to the following address:
.
Dated:
------------------------------------
Signature by or on behalf of assignor
<PAGE>
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for purposes of distribution:
Distributions shall be made, by wire transfer or otherwise, in
immediately available funds to _______________________
,
,
for the account of ,
account number , or, if mailed by check, to .
Applicable statements should be mailed to ,
.
This information is provided by ,
----------------------------
the assignee named above, or ,
as its agent.
<PAGE>
EXHIBITS B THROUGH L ARE RESERVED
Exhibit 4.2
Form of Trust Agreement
TRUST AGREEMENT
among
J.P. MORGAN ACCEPTANCE CORPORATION I,
as Depositor,
[ ]
and
[ ],
as Owner Trustee
Dated as of ___________, 199_
Table of Contents
Page
ARTICLE I.
Definitions
Section 1.01. Capitalized Terms.............................. 1
Section 1.02. Other Definitional Provisions.................. 4
ARTICLE II.
Organization
Section 2.01. Name.......................................... 5
Section 2.02. Office........................................ 5
Section 2.03. Purposes and Powers........................... 5
Section 2.04. Appointment of Owner Trustee.................. 5
Section 2.05. Initial Capital Contribution of Owner
Trust Estate................................. 6
Section 2.06. Declaration of Trust........................... 6
Section 2.07. Title to Trust Property........................ 7
Section 2.08. Situs of Trust................................. 7
Section 2.09. Representations and Warranties of the
Depositor and the Company..................... 7
Section 2.10. Federal Income Tax Allocations................. 9
ARTICLE III.
Trust Certificates and Transfer of Interests
Section 3.01. Initial Ownership.............................. 10
Section 3.02. The Trust Certificates......................... 10
Section 3.03. Authentication of Trust Certificates........... 10
Section 3.04. Registration of Transfer and Exchange of
Trust Certificates.......................... 10
Section 3.05. Mutilated, Destroyed, Lost or Stolen
Trust Certificates.......................... 11
Section 3.06. Persons Deemed Owners.......................... 11
Section 3.07. Access to List of Certificateholders'
Names and Addresses......................... 12
Section 3.08. Maintenance of Office or Agency................ 12
Section 3.09. Appointment of Paying Agent.................... 12
Section 3.10. Ownership by Company of Trust Certificates..... 13
Section 3.11. Book-Entry Trust Certificates.................. 13
Section 3.12. Notices to Clearing Agency..................... 14
Section 3.13. Definitive Trust Certificates.................. 14
ARTICLE IV.
Actions by Owner Trustee
Section 4.01. Prior Notice to Owners with Respect to
Certain Matters.............................. 14
Section 4.02. Action by Owners with Respect to
Certain Matters.............................. 15
Section 4.03. Action by Owners with Respect to Bankruptcy.... 15
Section 4.04. Restrictions on Owners' Power................. 15
Section 4.05. Majority Control.............................. 16
ARTICLE V.
Application of Trust Funds; Certain Duties
Section 5.01. Establishment of Trust Account................. 16
Section 5.02. Application of Trust Funds..................... 16
Section 5.03. Method of Payment.............................. 17
Section 5.04. No Segregation of Moneys; No Interest.......... 17
Section 5.05. Accounting and Reports to the
Noteholders, Owners, the Internal
Revenue Service and Others.................. 17
Section 5.06. Signature on Returns; Tax Matters Partner...... 17
ARTICLE VI.
Authority and Duties of Owner Trustee
Section 6.01. General Authority.............................. 18
Section 6.02. General Duties................................. 18
Section 6.03. Action upon Instruction........................ 18
Section 6.04. No Duties Except as Specified in this
Agreement or in Instructions................. 19
Section 6.05. No Action Except Under Specified Documents
or Instructions.............................. 19
Section 6.06. Restrictions................................... 19
ARTICLE VII.
Concerning the Owner Trustee
Section 7.01. Acceptance of Trusts and Duties................ 20
Section 7.02. Furnishing of Documents........................ 21
Section 7.03. Representations and Warranties................. 21
Section 7.04. Reliance; Advice of Counsel................... 21
Section 7.05. Not Acting in Individual Capacity.............. 22
Section 7.06. Owner Trustee Not Liable for Trust
Certificates or Mortgage Loans.............. 22
Section 7.07. Owner Trustee May Own Trust
Certificates and Notes...................... 22
ARTICLE VIII.
Compensation of Owner Trustee
Section 8.01. Owner Trustee's Fees and Expenses.............. 23
Section 8.02. Indemnification................................ 23
Section 8.03. Payments to the Owner Trustee.................. 23
ARTICLE IX.
Termination of Trust Agreement
Section 9.01. Termination of Trust Agreement................. 23
Section 9.02. Dissolution upon Bankruptcy of the Company..... 24
ARTICLE X.
Successor Owner Trustees and Additional Owner Trustees
Section 10.01. Eligibility Requirements for Owner Trustee..... 25
Section 10.02. Resignation or Removal of Owner Trustee........ 25
Section 10.03. Successor Owner Trustee........................ 26
Section 10.04. Merger or Consolidation of Owner Trustee....... 26
Section 10.05. Appointment of Co-Trustee or Separate Trustee.. 27
ARTICLE XI.
Miscellaneous
Section 11.01. Supplements and Amendments..................... 28
Section 11.02. No Legal Title to Owner Trust Estate
in Owners................................... 29
Section 11.03. Limitations on Rights of Others................ 29
Section 11.04. Notices........................................ 29
Section 11.05. Severability................................... 29
Section 11.06. Separate Counterparts.......................... 30
Section 11.07. Successors and Assigns......................... 30
Section 11.08. Covenants of the Company....................... 30
Section 11.09. No Petition.................................... 30
Section 11.10. No Recourse................................... 30
Section 11.11. Headings....................................... 30
Section 11.12. GOVERNING LAW.................................. 30
Section 11.13. Depositor Payment Obligation................... 30
EXHIBIT A Form of Trust Certificate
EXHIBIT B Form of Certificate of Trust
EXHIBIT C Form of Certificate Depository Agreement
TRUST AGREEMENT (the "Trust Agreement") dated as of
________, 199_, among J.P. MORGAN ACCEPTANCE
CORPORATION I, a Delaware corporation, as depositor
(the "Depositor"), [_______________________], a
[_______] corporation (the "Company"), and
[____________], a [__________________], as owner
trustee (the "Owner Trustee").
WHEREAS, the Depositor and the Company have entered into a Mortgage
Loan Purchase Agreement dated as of ________, 199_ (the "Mortgage Loan
Purchase Agreement"), pursuant to which the Company will assign to the
Depositor any and all of the Company's rights and interests with respect to
the Mortgage Loans; and
WHEREAS, in connection therewith, the Company is willing to assume
certain obligations pursuant hereto;
NOW, THEREFORE, the Depositor, the Company and the Owner Trustee
hereby agree as follows:
ARTICLE I
Definitions
Section 1.01 Capitalized Terms. For all purposes of this Agreement,
the following terms shall have the meanings set forth below:
"Administration Agreement" shall mean the Administration Agreement
dated as of ________, 199_, among the Trust, the Indenture Trustee and
[_________________________], as Administrator.
"Agreement" shall mean this Trust Agreement, as the same may be
amended and supplemented from time to time.
"Assignment" shall mean the assignment of right, title and interest
of the Depositor in the Mortgage Loans to the Trust.
"Basic Documents" shall mean the Mortgage Loan Purchase Agreement,
Servicing Agreement, the Indenture, the Administration Agreement and the other
documents and certificates delivered in connection therewith.
"Benefit Plan" shall have the meaning assigned to such term in
Section 11.13.
"Book-Entry Trust Certificate" shall mean a beneficial interest in
the Trust Certificates, ownership and transfers of which shall be made through
book entries by a Clearing Agency as described in Section 3.11.
"Business Trust Statute" shall mean Chapter 38 of Title 12 of the
Delaware Code, 12 Del. Codess. 3801 et seq., as the same may be amended from
time to time.
"Certificate" shall mean any of the Book-Entry Trust Certificates or
Definitive Trust Certificates.
"Certificate Distribution Account" shall have the meaning assigned to
such term in Section 5.01.
"Certificate of Trust" shall mean the Certificate of Trust in the
form of Exhibit B filed for the Trust pursuant to Section 3810(a) of the
Business Trust Statute.
"Certificate Owner" shall mean, with respect to a Book-Entry Trust
Certificate, a Person who is the beneficial owner of such Book-Entry Trust
Certificate, as reflected on the books of the Clearing Agency, or on the books
of a Person maintaining an account with such Clearing Agency (directly as a
Clearing Agency Participant or as an indirect participant, in each case in
accordance with the rules of such Clearing Agency).
"Certificate Register" and "Certificate Registrar" shall mean the
register mentioned in and the registrar appointed pursuant to Section 3.04.
"Certificateholder" or "Holder" shall mean a Person in whose name a
Trust Certificate is registered.
"Clearing Agency" shall mean an organization registered as a
"clearing agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" shall mean a broker, dealer, bank,
other financial institution or other Person for whom from time to time a
Clearing Agency effects book-entry transfers and pledges of securities
deposited with the Clearing Agency.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
Treasury Regulations promulgated thereunder.
"Corporate Trust Office" shall mean, with respect to the Owner
Trustee, the principal corporate trust office of the Owner Trustee located at
[____________________________], or at such other address as the Owner Trustee
may designate by notice to the Owners, the Depositor and the Company, or the
principal corporate trust office of any successor Owner Trustee at the address
designated by such successor Owner Trustee by notice to the Owners, the
Depositor and the Company.
"Definitive Trust Certificates" shall have the meaning set forth in
Section 3.11.
"Depositor" shall mean Headlands Mortgage Securities Inc. in its
capacity as depositor hereunder.
"Eligible Distribution Account" shall mean an account that is (i)
maintained with a depository institution whose debt obligations at the time of
any deposit therein have the highest short-term debt rating by the Rating
Agencies, (ii) one or more accounts with a depository institution which
accounts are fully insured by either the Savings Association Insurance Fund or
the Bank Insurance Fund of the Federal Deposit Insurance Corporation
established by such fund, (iii) a segregated trust account maintained with the
Owner Trustee or an affiliate of the Owner Trustee in its fiduciary capacity
or (iv) otherwise acceptable to each Rating Agency as evidenced by a letter
from each Rating Agency to the Owner Trustee, without reduction or withdrawal
of their then currently ratings of the Certificates.
"ERISA" shall have the meaning assigned thereto in Section 11.13.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Expenses" shall have the meaning assigned to such term in Section
8.02.
"Indemnified Parties" shall have the meaning assigned to such term
in Section 8.02.
"Indenture" shall mean the Indenture dated as of ________, 199_
between the Trust and [_____________________________], as Indenture Trustee.
"Initial Certificate Balance" shall mean $__________.
"Mortgage Loan Purchase Agreement" shall mean the agreement between
[_______________], as seller, and Headlands Mortgage Securities Inc., as
purchaser, providing for the sale of the Mortgage Loans by the Seller to the
purchaser.
"Mortgage Loans" shall mean a pool of [adjustable] [fixed] rate home
equity revolving credit line loans made or to be made in the future.
"Owner" shall mean each Holder of a Trust Certificate.
"Owner Trust Estate" shall mean all right, title and interest of the
Trust in and to the property and rights assigned to the Trust pursuant to the
Assignment, all funds on deposit from time to time in the Trust Accounts and
the Certificate Distribution Account and all other property of the Trust from
time to time, including any rights of the Owner Trustee and the Trust pursuant
to the Servicing Agreement and the Administration Agreement.
"Owner Trustee" shall mean [____________________], a [_________]
banking corporation, not in its individual capacity but solely as owner
trustee under this Agreement, and any successor Owner Trustee hereunder.
"Paying Agent" shall mean any paying agent or co-paying agent
appointed pursuant to Section 3.09 and shall initially be [______________].
"Rating Agency" shall mean any nationally recognized statistical
rating organization asked to rate the Certificates.
"Record Date" shall mean, with respect to any Distribution Date, the
close of business on the day prior to such Distribution Date occurs or, if
Definitive Trust Certificates are issued pursuant to Section 3.14, the last
day of the month preceding such Distribution Date.
"Secretary of State" shall mean the Secretary of State of the State
of Delaware.
"Servicing Agreement" shall mean the Servicing Agreement dated as of
________, 199_, among the Trust, as issuer, the Depositor and [________], as
servicer, as the same may be amended or supplemented from time to time.
"Treasury Regulations" shall mean regulations, including proposed or
temporary Regulations, promulgated under the Code. References herein to
specific provisions of proposed or temporary regulations shall include
analogous provisions of final Treasury Regulations or other successor Treasury
Regulations.
"Trust" shall mean the trust established by this Agreement.
"Trust Account" shall mean any account set up by the Owner Trustee
pursuant to the provisions of Section 5.01.
"Trust Certificate" shall mean a certificate evidencing the
beneficial interest of an Owner in the Trust, substantially in the form
attached hereto as Exhibit A.
"Underwriters" shall mean those underwriters named in and parties to
the Certificate Underwriting Agreement dated ________, 199_, with the
Depositor, pursuant to which the Trust Certificates will be offered publicly.
Section 1.02 Other Definitional Provisions. (a) Capitalized terms
used and not otherwise defined herein have the meanings assigned to them in
the Servicing Agreement or, if not defined therein, in the Indenture.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate
or other document to the extent not defined, shall have the respective
meanings given to them under generally accepted accounting principles. To the
extent that the definitions of accounting terms in this Agreement or in any
such certificate or other document are inconsistent with the meanings of such
terms under generally accepted accounting principles, the definitions
contained in this Agreement or in any such certificate or other document shall
control.
(d) The words "hereof," "herein," "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement; Section and
Exhibit references contained in this Agreement are references to Sections and
Exhibits in or to this Agreement unless otherwise specified; and the term
"including" shall mean "including without limitation".
(e) The definitions contained in this Agreement are applicable
to the singular as well as the plural forms of such terms and to the masculine
as well as to the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or
instruments) references to all attachments thereto and instruments
incorporated therein; references to a Person are also to its permitted
successors and assigns.
ARTICLE II
Organization
Section 2.01. Name. The Trust created hereby shall be known as "Home
Equity Loan Trust 19 - ," in which name the Owner Trustee may conduct the
business of the Trust, make and execute contracts and other instruments on
behalf of the Trust and sue and be sued.
Section 2.02. Office. The office of the Trust shall be in care of
the Owner Trustee at the Corporate Trust Office or at such other address in
Delaware as the Owner Trustee may designate by written notice to the Owners,
the Depositor and the Company.
Section 2.03 Purposes and Powers. (a) The purpose of the Trust is to
engage in the following activities:
(i) to issue the Notes pursuant to the Indenture and the
Trust Certificates pursuant to this Agreement and to sell the Notes and the
Trust Certificates;
(ii) with the proceeds of the sale of the Notes and the
Trust Certificates, to purchase the Mortgage Loans, and to pay the
organizational, start-up and transactional expenses of the Trust and to pay
the balance to the Depositor pursuant to the Servicing Agreement;
(iii) to assign, grant, transfer, pledge, mortgage and
convey the Trust Estate pursuant to the Indenture and to hold, manage and
distribute to the Owners pursuant to the terms of the Servicing Agreement any
portion of the Trust Estate released from the Lien of, and remitted to the
Trust pursuant to, the Indenture;
(iv) to enter into and perform its obligations under the
Basic Documents to which it is to be a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith; and
(vi) subject to compliance with the Basic Documents, to
engage in such other activities as may be required in connection with
conservation of the Owner Trust Estate and the making of distributions to the
Owners and the Noteholders.
The Trust is hereby authorized to engage in the foregoing
activities. The Trust shall not engage in any activity other than in
connection with the foregoing or other than as required or authorized by the
terms of this Agreement or the Basic Documents.
Section 2.04. Appointment of Owner Trustee. The Depositor hereby
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein.
Section 2.05. Initial Capital Contribution of Owner Trust Estate.
The Depositor hereby sells, assigns, transfers, conveys and sets over to the
Owner Trustee, as of the date hereof, the sum of $[__]. The Owner Trustee
hereby acknowledges receipt in trust from the Depositor, as of the date
hereof, of the foregoing contribution, which shall constitute the initial
Owner Trust Estate and shall be deposited in the Certificate Distribution
Account. The Depositor shall pay organizational expenses of the Trust as they
may arise or shall, upon the request of the Owner Trustee, promptly reimburse
the Owner Trustee for any such expenses paid by the Owner Trustee.
Section 2.06. Declaration of Trust. The Owner Trustee hereby
declares that it will hold the Owner Trust Estate in trust upon and subject to
the conditions set forth herein for the use and benefit of the Owners, subject
to the obligations of the Trust under the Basic Documents. It is the intention
of the parties hereto that the Trust constitute a business trust under the
Business Trust Statute and that this Agreement constitute the governing
instrument of such business trust. It is the intention of the parties hereto
that, solely for income and franchise tax purposes, the Trust shall be treated
as a partnership, with the assets of the partnership being the Mortgage Loans
and other assets held by the Trust, the partners of the partnership being the
Certificateholders, and the Notes being debt of the partnership. The parties
agree that, unless otherwise required by appropriate tax authorities, the
Trust will file or cause to be filed annual or other necessary returns,
reports and other forms consistent with the characterization of the Trust as a
partnership for such tax purposes. Effective as of the date hereof, the Owner
Trustee shall have all rights, powers and duties set forth herein and in the
Business Trust Statute with respect to accomplishing the purposes of the
Trust.
Section 2.07. Liability of the Owners.(a) The Company shall be liable
directly to and will indemnify any injured party for all losses, claims,
damages, liabilities and expenses of the Trust (including Expenses, to the
extent not paid out of the Owner Trust Estate) to the extent that the Company
would be liable if the Trust were a partnership under the Delaware Revised
Uniform Limited Partnership Act in which the Company were a general partner;
provided, however, that the Company shall not be liable for any losses
incurred by a Certificateholder in the capacity of an investor in the Trust
Certificates, a Noteholder in the capacity of an investor in the Notes. In
addition, any third party creditors of the Trust (other than in connection
with the obligations described in the preceding sentence for which the Company
shall not be liable) shall be deemed third party beneficiaries of this
paragraph and paragraphbelow. The obligations of the Company under this
paragraph shall be evidenced by the Trust Certificates described in Section
3.10, which for purposes of the Business Trust Statute shall be deemed to be a
separate class of Trust Certificates from all other Trust Certificates issued
by the Trust; provided that the rights and obligations evidenced by all Trust
Certificates, regardless of class, shall, except as provided in this Section,
be identical.
(b) No Owner, other than to the extent set forth in paragraph
(a) , shall have any personal liability for any liability or obligation of the
Trust.
Section 2.08. Title to Trust Property. Legal title to all the Owner
Trust Estate shall be vested at all times in the Trust as a separate legal
entity except where applicable law in any jurisdiction requires title to any
part of the Owner Trust Estate to be vested in a trustee or trustees, in which
case title shall be deemed to be vested in the Owner Trustee, a co-trustee
and/or a separate trustee, as the case may be.
Section 2.09. Situs of Trust. The Trust will be located and
administered in the State of Delaware. All bank accounts maintained by the
Owner Trustee on behalf of the Trust shall be located in the State of Delaware
or the State of New York. The Trust shall not have any employees in any state
other than Delaware; provided, however, that nothing herein shall restrict or
prohibit the Owner Trustee from having employees within or without the State
of Delaware. Payments will be received by the Trust only in Delaware or New
York, and payments will be made by the Trust only from Delaware or New York.
The only office of the Trust will be at the Corporate Trust Office in
Delaware.
Section 2.10. Representations and Warranties of the Depositor and
the Company. (a) The Depositor hereby represents and warrants to the Owner
Trustee that:
(i) The Depositor is duly organized and validly existing
as a corporation in good standing under the laws of the State of Delaware,
with power and authority to own its properties and to conduct its business as
such properties are currently owned and such business is presently conducted.
(ii) The Depositor is duly qualified to do business as a
foreign corporation in good standing and has obtained all necessary licenses
and approvals in all jurisdictions in which the ownership or lease of its
property or the conduct of its business shall require such qualifications.
(iii) The Depositor has the power and authority to execute
and deliver this Agreement and to carry out its terms; the Depositor has full
power and authority to sell and assign the property to be sold and assigned to
and deposited with the Trust and the Depositor has duly authorized such sale
and assignment and deposit to the Trust by all necessary corporate action; and
the execution, delivery and performance of this Agreement have been duly
authorized by the Depositor by all necessary corporate action.
(iv) The consummation of the transactions contemplated by
this Agreement and the fulfillment of the terms hereof do not conflict with,
result in any breach of any of the terms and provisions of, or constitute
(with or without notice or lapse of time) a default under, the certificate of
incorporation or bylaws of the Depositor, or any indenture, agreement or other
instrument to which the Depositor is a party or by which it is bound; nor
result in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such indenture, agreement or other instrument
(other than pursuant to the Basic Documents); nor violate any law or, to the
best of the Depositor's knowledge, any order, rule or regulation applicable to
the Depositor of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Depositor or its properties.
(v) To the Depositor's best knowledge, there are no
proceedings or investigations pending or threatened before any court,
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over the Depositor or its properties: (A) asserting the
invalidity of this Agreement, (B) seeking to prevent the consummation of any
of the transactions contemplated by this Agreement or (C) seeking any
determination or ruling that might materially and adversely affect the
performance by the Depositor of its obligations under, or the validity or
enforceability of, this Agreement.
(vi) The representations and warranties of the Depositor
in Sections [___________] of the Mortgage Loan Purchase Agreement are true and
correct.
(b) The Company hereby represents and warrants to the Owner
Trustee that:
(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
[_________], with the power and authority to own its properties and to conduct
its business as such properties are currently owned and such business is
presently conducted.
(ii) The Company is duly qualified to do business as a
foreign corporation in good standing and has obtained all necessary licenses
and approvals in all jurisdictions in which the ownership or lease of its
property or the conduct of its business shall require such qualifications.
(iii) The Company has the power and authority to execute
and deliver this Agreement and to carry out its terms; the Company has full
power and authority to purchase the Trust Certificates that the Company has
agreed to purchase pursuant to Section 3.10; and the execution, delivery and
performance of this Agreement has been duly authorized by the Company by all
necessary corporate action.
(iv) The consummation of the transactions contemplated by
this Agreement and the fulfillment of the terms hereof do not conflict with,
result in any breach of any of the terms and provisions of, or constitute
(with or without notice or lapse of time) a default under, the [articles of
incorporation] [certificate of incorporation] or bylaws of the Company, or any
indenture, agreement or other instrument to which the Company is a party or by
which it is bound; nor result in the creation or imposition of any Lien upon
any of its properties pursuant to the terms of any such indenture, agreement
or other instrument (other than pursuant to the Basic Documents); nor violate
any law or, to the best of the Company's knowledge, any order, rule or
regulation applicable to the Company of any court or of any federal or state
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over the Company or its properties.
(v) There are no proceedings or investigations pending or,
to the Company's best knowledge, threatened before any court, regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Company or its properties: (A) asserting the invalidity
of this Agreement, (B) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement or (C) seeking any determination
or ruling that might materially and adversely affect the performance by the
Company of its obligations under, or the validity or enforceability of, this
Agreement.
(vi) The representatives and warranties of the Company in
Sections [_______] of the Mortgage Loan Purchase Agreement are true and
correct.
Section 2.11. Federal Income Tax Allocations. Net income of the
Trust for any month as determined for federal income tax purposes (and each
item of income, gain, loss and deduction entering into the computation
thereof) shall be allocated:
(a) among the Certificate Owners as of the first Record Date
following the end of such month, in proportion to their ownership of principal
amount of Trust Certificates on such date, net income in an amount up to the
sum of (i) the Certificateholders' Monthly Interest Distributable Amount for
such month, (ii) interest on the excess, if any, of the Certificateholders'
Interest Distributable Amount for the preceding Distribution Date over the
amount in respect of interest that is actually deposited in the Certificate
Distribution Account on such preceding Distribution Date, to the extent
permitted by law, at the Pass-Through Rate from such preceding Distribution
Date through the current Distribution Date, (iii) the portion of the market
discount on the Mortgage Loans accrued during such month that is allocable to
the excess, if any, of the initial aggregate principal amount of the Trust
Certificates over their initial aggregate issue price, (iv) any amount
expected to be distributed to the Certificateholders pursuant to the Servicing
Agreement (to the extent not previously allocated pursuant to this clause),
(v) any Certificateholders' Prepayment Premium distributable to the
Certificateholders with respect to such month and (vi) any other amounts of
income payable to the Certificateholders for such month; such sum to be
reduced by any amortization by the Trust of premium on Mortgage Loans that
corresponds to any excess of the issue price of Certificates over their
principal amount; and
(b) to the Company, to the extent of any remaining net income.
If the net income of the Trust for any month is insufficient for the
allocations described in clause (a) above, subsequent net income shall first
be allocated to make up such shortfall before being allocated as provided in
the preceding sentence. Net losses of the Trust, if any, for any month as
determined for federal income tax purposes (and each item of income, gain,
loss and deduction entering into the computation thereof) shall be allocated
to the Company to the extent the Company is reasonably expected to bear the
economic burden of such net losses, and any remaining net losses shall be
allocated among the Certificate Owners as of the first Record Date following
the end of such month in proportion to their ownership of principal amount of
Trust Certificates on such Record Date. The Company is authorized to modify
the allocations in this paragraph if necessary or appropriate, in its sole
discretion, for the allocations to fairly reflect the economic income, gain or
loss to the Company or to the Certificate Owners, or as otherwise required by
the Code.
ARTICLE III.
Trust Certificates and Transfer of Interests
Section 3.01. Initial Ownership. Upon the formation of the Trust by
the contribution by the Depositor pursuant to Section 2.05 and until the
issuance of the Trust Certificates, the Depositor shall be the sole
beneficiary of the Trust.
Section 3.02. The Trust Certificates. The Trust Certificates
shall be issued in minimum denominations of $[_______] and in integral
multiples of $1,000 in excess thereof; provided, however, that the Trust
Certificates issued to the Company pursuant to Section 3.10 may be issued in
such denomination as required to include any residual amount. The Trust
Certificates shall be executed on behalf of the Trust by manual or facsimile
signature of an authorized officer of the Owner Trustee. Trust Certificates
bearing the manual or facsimile signatures of individuals who were, at the
time when such signatures shall have been affixed, authorized to sign on
behalf of the Trust, shall be validly issued and entitled to the benefit of
this Agreement, notwithstanding that such individuals or any of them shall
have ceased to be so authorized prior to the authentication and delivery of
such Trust Certificates or did not hold such offices at the date of
authentication and delivery of such Trust Certificates.
A transferee of a Trust Certificate shall become a Certificateholder
and shall be entitled to the rights and subject to the obligations of a
Certificateholder hereunder upon such transferee's acceptance of a Trust
Certificate duly registered in such transferee's name pursuant to Section
3.04.
Section 3.03. Authentication of Trust Certificates. Concurrently
with the initial sale of the Mortgage Loans to the Trust pursuant to the
Servicing Agreement, the Owner Trustee shall cause the Trust Certificates in
an aggregate principal amount equal to the Initial Certificate Balance to be
executed on behalf of the Trust, authenticated and delivered to or upon the
written order of the Depositor, signed by its chairman of the board, its
president, any vice president, secretary or any assistant treasurer, without
further corporate action by the Depositor, in authorized denominations. No
Trust Certificate shall entitle its Holder to any benefit under this Agreement
or be valid for any purpose unless there shall appear on such Trust
Certificate a certificate of authentication substantially in the form set
forth in Exhibit A, executed by the Owner Trustee or [____________], as the
Owner Trustee's authenticating agent, by manual signature; such authentication
shall constitute conclusive evidence that such Trust Certificate shall have
been duly authenticated and delivered hereunder. All Trust Certificates shall
be dated the date of their authentication.
Section 3.04. Registration of Transfer and Exchange of Trust
Certificates. The Certificate Registrar shall keep or cause to be kept, at the
office or agency maintained pursuant to Section 3.08, a Certificate Register
in which, subject to such reasonable regulations as it may prescribe, the
Owner Trustee shall provide for the registration of Trust Certificates and of
transfers and exchanges of Trust Certificates as herein provided.
[___________] shall be the initial Certificate Registrar.
Upon surrender for registration of transfer of any Trust Certificate
at the office or agency maintained pursuant to Section 3.08, the Owner Trustee
shall execute, authenticate and deliver (or shall cause [ ] as its
authenticating agent to authenticate and deliver), in the name of the
designated transferee or transferees, one or more new Trust Certificates in
authorized denominations of a like aggregate amount dated the date of
authentication by the Owner Trustee or any authenticating agent. At the option
of a Holder, Trust Certificates may be exchanged for other Trust Certificates
of authorized denominations of a like aggregate amount upon surrender of the
Trust Certificates to be exchanged at the office or agency maintained pursuant
to Section 3.08.
Every Trust Certificate presented or surrendered for registration of
transfer or exchange shall be accompanied by a written instrument of transfer
in form satisfactory to the Owner Trustee and the Certificate Registrar duly
executed by the Holder or such Holder's attorney duly authorized in writing.
Each Trust Certificate surrendered for registration of transfer or exchange
shall be cancelled and subsequently disposed of by the Owner Trustee in
accordance with its customary practice.
No service charge shall be made for any registration of transfer or
exchange of Trust Certificates, but the Owner Trustee or the Certificate
Registrar may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer or
exchange of Trust Certificates.
The preceding provisions of this Section notwithstanding, the Owner
Trustee shall not make, and the Certificate Registrar shall not register
transfers or exchanges of, Trust Certificates for a period of 15 days
preceding the due date for any payment with respect to the Trust Certificates.
Section 3.05. Mutilated, Destroyed, Lost or Stolen Trust
Certificates. If (a) any mutilated Trust Certificate shall be surrendered to
the Certificate Registrar, or if the Certificate Registrar shall receive
evidence to its satisfaction of the destruction, loss or theft of any Trust
Certificate and (b) there shall be delivered to the Certificate Registrar and
the Owner Trustee such security or indemnity as may be required by them to
save each of them harmless, then in the absence of notice that such Trust
Certificate has been acquired by a bona fide purchaser, the Owner Trustee on
behalf of the Trust shall execute and the Owner Trustee or [ ], as the Owner
Trustee's authenticating agent, shall authenticate and deliver, in exchange
for or in lieu of any such mutilated, destroyed, lost or stolen Trust
Certificate, a new Trust Certificate of like tenor and denomination. In
connection with the issuance of any new Trust Certificate under this Section,
the Owner Trustee or the Certificate Registrar may require the payment of a
sum sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith. Any duplicate Trust Certificate issued
pursuant to this Section shall constitute conclusive evidence of ownership in
the Trust, as if originally issued, whether or not the lost, stolen or
destroyed Trust Certificate shall be found at any time.
Section 3.06. Persons Deemed Owners. Prior to due presentation of a
Trust Certificate for registration of transfer, the Owner Trustee, the
Certificate Registrar or any Paying Agent may treat the Person in whose name
any Trust Certificate is registered in the Certificate Register as the owner
of such Trust Certificate for the purpose of receiving distributions pursuant
to Section 5.02 and for all other purposes whatsoever, and none of the Owner
Trustee, the Certificate Registrar or any Paying Agent shall be bound by any
notice to the contrary.
Section 3.07. Access to List of Certificateholders' Names and
Addresses. The Owner Trustee shall furnish or cause to be furnished to the
Servicer and the Depositor, within 15 days after receipt by the Owner Trustee
of a written request therefor from the Servicer or the Depositor, a list, in
such form as the Servicer or the Depositor may reasonably require, of the
names and addresses of the Certificateholders as of the most recent Record
Date. If three or more Certificateholders or one or more Holders of Trust
Certificates evidencing not less than 25% of the Certificate Balance apply in
writing to the Owner Trustee, and such application states that the applicants
desire to communicate with other Certificateholders with respect to their
rights under this Agreement or under the Trust Certificates and such
application is accompanied by a copy of the communication that such applicants
propose to transmit, then the Owner Trustee shall, within five Business Days
after the receipt of such application, afford such applicants access during
normal business hours to the current list of Certificateholders. Each Holder,
by receiving and holding a Trust Certificate, shall be deemed to have agreed
not to hold any of the Depositor, the Company, the Certificate Registrar or
the Owner Trustee accountable by reason of the disclosure of its name and
address, regardless of the source from which such information was derived.
Section 3.08. Maintenance of Office or Agency. The Owner Trustee
shall maintain in the Borough of Manhattan, The City of New York, an office or
offices or agency or agencies where Trust Certificates may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Owner Trustee in respect of the Trust Certificates and the Basic Documents
may be served. The Owner Trustee initially designates
[_______________________________] as its office for such purposes. The Owner
Trustee shall give prompt written notice to the Company and to the
Certificateholders of any change in the location of the Certificate Register
or any such office or agency.
Section 3.09. Appointment of Paying Agent. The Paying Agent shall
make distributions to Certificateholders from the Certificate Distribution
Account pursuant to Section 5.02 and shall report the amounts of such
distributions to the Owner Trustee. Any Paying Agent shall have the revocable
power to withdraw funds from the Certificate Distribution Account for the
purpose of making the distributions referred to above. The Owner Trustee may
revoke such power and remove the Paying Agent if the Owner Trustee determines
in its sole discretion that the Paying Agent shall have failed to perform its
obligations under this Agreement in any material respect. The Paying Agent
initially shall be [___________], and any co-paying agent chosen by
[___________] and acceptable to the Owner Trustee. [ ] shall be permitted to
resign as Paying Agent upon 30 days' written notice to the Owner Trustee. In
the event that [___________] shall no longer be the Paying Agent, the Owner
Trustee shall appoint a successor to act as Paying Agent (which shall be a
bank or trust company). The Owner Trustee shall cause such successor Paying
Agent or any additional Paying Agent appointed by the Owner Trustee to execute
and deliver to the Owner Trustee an instrument in which such successor Paying
Agent or additional Paying Agent shall agree with the Owner Trustee that, as
Paying Agent, such successor Paying Agent or additional Paying Agent will hold
all sums, if any, held by it for payment to the Certificateholders in trust
for the benefit of the Certificateholders entitled thereto until such sums
shall be paid to such Certificateholders. The Paying Agent shall return all
unclaimed funds to the Owner Trustee and upon removal of a Paying Agent such
Paying Agent shall also return all funds in its possession to the Owner
Trustee. The provisions of Sections 7.01, 7.03, 7.04 and 8.01 shall apply to
the Owner Trustee also in its role as Paying Agent, for so long as the Owner
Trustee shall act as Paying Agent and, to the extent applicable, to any other
paying agent appointed hereunder. Any reference in this Agreement to the
Paying Agent shall include any co-paying agent unless the context requires
otherwise.
Section 3.10. Ownership by Company of Trust Certificates. The
Company shall on the Closing Date purchase from the Underwriters Trust
Certificates representing at least __% of the Initial Certificate Balance and
shall thereafter retain beneficial and record ownership of Trust Certificates
representing at least __% of the Certificate Balance. Any attempted transfer
of any Trust Certificate that would reduce such interest of the Company below
__% of the Certificate Balance shall be void. The Owner Trustee shall cause
any Trust Certificate issued to the Company to contain a legend stating "THIS
CERTIFICATE IS NON-TRANSFERABLE".
Section 3.11. Book-Entry Trust Certificates. The Trust Certificates,
upon original issuance, will be issued in the form of a typewritten Trust
Certificate or Trust Certificates representing Book-Entry Trust Certificates,
to be delivered to The Depository Trust Company, the initial Clearing Agency,
by, or on behalf of, the Trust; provided, however, that one Definitive Trust
Certificate may be issued to the Company pursuant to Section 3.10. Such Trust
Certificate or Trust Certificates shall initially be registered on the
Certificate Register in the name of Cede & Co., the nominee of the initial
Clearing Agency, and no Certificate Owner will receive a definitive Trust
Certificate representing such Certificate Owner's interest in such Trust
Certificate, except as provided in Section 3.13. Unless and until definitive,
fully registered Trust Certificates (the "Definitive Trust Certificates") have
been issued to Certificate Owners pursuant to Section 3.13:
(a) The provisions of this Section shall be in full force and
effect;
(b) The Certificate Registrar and the Owner Trustee shall be
entitled to deal with the Clearing Agency for all purposes of this Agreement
(including the payment of principal of and interest on the Trust Certificates
and the giving of instructions or directions hereunder) as the sole Holder of
the Trust Certificates and shall have no obligation to the Certificate Owners;
(c) To the extent that the provisions of this Section conflict
with any other provisions of this Agreement, the provisions of this Section
shall control;
(d) The rights of Certificate Owners shall be exercised only
through the Clearing Agency and shall be limited to those established by law
and agreements between such Certificate Owners and the Clearing Agency and/or
the Clearing Agency Participants. Pursuant to the Certificate Depository
Agreement, unless and until Definitive Trust Certificates are issued pursuant
to Section 3.13, the initial Clearing Agency will make book-entry transfers
among the Clearing Agency Participants and receive and transmit payments of
principal of and interest on the Trust Certificates to such Clearing Agency
Participants; and
(e) Whenever this Agreement requires or permits actions to be
taken based upon instructions or directions of Holders of Trust Certificates
evidencing a specified percentage of the Certificate Balance, the Clearing
Agency shall be deemed to represent such percentage only to the extent that it
has received instructions to such effect from Certificate Owners and/or
Clearing Agency Participants owning or representing, respectively, such
required percentage of the beneficial interest in the Trust Certificates and
has delivered such instructions to the Owner Trustee.
Section 3.12. Notices to Clearing Agency. Whenever a notice or other
communication to the Certificateholders is required under this Agreement,
unless and until Definitive Trust Certificates shall have been issued to
Certificate Owners pursuant to Section 3.13, the Owner Trustee shall give all
such notices and communications specified herein to be given to
Certificateholders to the Clearing Agency, and shall have no obligations to
the Certificate Owners.
Section 3.13. Definitive Trust Certificates. If (i) the
Administrator advises the Owner Trustee in writing that the Clearing Agency is
no longer willing or able to properly discharge its responsibilities with
respect to the Trust Certificates and the Administrator is unable to locate a
qualified successor, (ii) the Administrator at its option advises the Owner
Trustee in writing that it elects to terminate the book-entry system through
the Clearing Agency or (iii) after the occurrence of an Event of Default or a
Servicer Default, Certificate Owners representing beneficial interests
aggregating at least a majority of the Certificate Balance advise the Clearing
Agency in writing that the continuation of a book-entry system through the
Clearing Agency is no longer in the best interest of the Certificate Owners,
then the Clearing Agency shall notify all Certificate Owners and the Owner
Trustee of the occurrence of any such event and of the availability of the
Definitive Trust Certificates to Certificate Owners requesting the same. Upon
surrender to the Owner Trustee of the typewritten Trust Certificate or Trust
Certificates representing the Book-Entry Trust Certificates by the Clearing
Agency, accompanied by registration instructions, the Owner Trustee shall
execute and authenticate the Definitive Trust Certificates in accordance with
the instructions of the Clearing Agency. Neither the Certificate Registrar nor
the Owner Trustee shall be liable for any delay in delivery of such
instructions and may conclusively rely on, and shall be protected in relying
on, such instructions. Upon the issuance of Definitive Trust Certificates, the
Owner Trustee shall recognize the Holders of the Definitive Trust Certificates
as Certificateholders. The Definitive Trust Certificates shall be printed,
lithographed or engraved or may be produced in any other manner as is
reasonably acceptable to the Owner Trustee, as evidenced by its execution
thereof.
ARTICLE IV.
Actions by Owner Trustee
Section 4.01. Prior Notice to Owners with Respect to Certain
Matters. With respect to the following matters, the Owner Trustee shall not
take action unless at least 30 days before the taking of such action, the
Owner Trustee shall have notified the Certificateholders in writing of the
proposed action and the Owners shall not have notified the Owner Trustee in
writing prior to the 30th day after such notice is given that such Owners have
withheld consent or provided alternative direction:
(a) the initiation of any claim or lawsuit by the Trust (except
claims or lawsuits brought in connection with the collection of the Mortgage
Loans) and the compromise of any action, claim or lawsuit brought by or
against the Trust (except with respect to the aforementioned claims or
lawsuits for collection of the Mortgage Loans;
(b) the election by the Trust to file an amendment to the
Certificate of Trust (unless such amendment is required to be filed under the
Business Trust Statute);
(c) the amendment of the Indenture by a supplemental indenture
in circumstances where the consent of any Noteholder is required;
(d) the amendment of the Indenture by a supplemental indenture
in circumstances where the consent of any Noteholder is not required and such
amendment materially adversely affects the interest of the Owners;
(e) the amendment, change or modification of the Administration
Agreement, except to cure any ambiguity or to amend or supplement any
provision in a manner or add any provision that would not materially adversely
affect the interests of the Owners; or
(f) the appointment pursuant to the Indenture of a successor
Note Registrar, Paying Agent or Indenture Trustee or pursuant to this
Agreement of a successor Certificate Registrar, or the consent to the
assignment by the Note Registrar, Paying Agent or Indenture Trustee or
Certificate Registrar of its obligations under the Indenture or this
Agreement, as applicable.
Section 4.02. Action by Owners with Respect to Certain Matters.
The Owner Trustee shall not have the power, except upon the direction of the
Owners, to (a) remove the Administrator under the Administration Agreement
pursuant to Section [ ] thereof, (b) appoint a successor Administrator
pursuant to Section [ ] of the Administration Agreement, (c) remove the
Servicer under the Servicing Agreement pursuant to Section [ ] thereof or (d)
except as expressly provided in the Basic Documents, sell the Mortgage Loans
after the termination of the Indenture. The Owner Trustee shall take the
actions referred to in the preceding sentence only upon written instructions
signed by the Owners.
Section 4.03. Action by Owners with Respect to Bankruptcy. The Owner
Trustee shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Trust without the unanimous prior approval of all
Owners and the delivery to the Owner Trustee by each such Owner of a
certificate certifying that such Owner reasonably believes that the Trust is
insolvent.
Section 4.04. Restrictions on Owners' Power. The Owners shall
not direct the Owner Trustee to take or to refrain from taking any action if
such action or inaction would be contrary to any obligation of the Trust or
the Owner Trustee under this Agreement or any of the Basic Documents or would
be contrary to Section 2.03, nor shall the Owner Trustee be obligated to
follow any such direction, if given.
Section 4.05. Majority Control. Except as expressly provided herein,
any action that may be taken by the Owners under this Agreement may be taken
by the Holders of Trust Certificates evidencing not less than a majority of
the Certificate Balance. Except as expressly provided herein, any written
notice of the Owners delivered pursuant to this Agreement shall be effective
if signed by Holders of Trust Certificates evidencing not less than a majority
of the Certificate Balance at the time of the delivery of such notice.
ARTICLE V.
Application of Trust Funds; Certain Duties
Section 5.01. Establishment of Trust Account. The Owner Trustee, for
the benefit of the Certificateholders, shall establish and maintain in the
name of the Trust an Eligible Deposit Account (the "Certificate Distribution
Account"), bearing a designation clearly indicating that the funds deposited
therein are held for the benefit of the Certificateholders.
The Owner Trustee shall possess all right, title and interest in all
funds on deposit from time to time in the Certificate Distribution Account and
in all proceeds thereof. Except as otherwise expressly provided herein, the
Certificate Distribution Account shall be under the sole dominion and control
of the Owner Trustee for the benefit of the Certificateholders. If, at any
time, the Certificate Distribution Account ceases to be an Eligible Deposit
Account, the Owner Trustee (or the Depositor on behalf of the Owner Trustee,
if the Certificate Distribution Account is not then held by the Owner Trustee
or an affiliate thereof) shall within 10 Business Days (or such longer period,
not to exceed 30 calendar days, as to which each Rating Agency may consent)
establish a new Certificate Distribution Account as an Eligible Deposit
Account and shall transfer any cash and/or any investments to such new
Certificate Distribution Account.
Section 5.02. Application of Trust Funds. (a) On each Distribution
Date, the Owner Trustee will distribute to Certificateholders, on a pro rata
basis, amounts deposited in the Certificate Distribution Account.
(b) On each Distribution Date, the Owner Trustee shall send to
each Certificateholder the statement or statements provided to the Owner
Trustee by the Servicer pursuant to Section [____] of the Servicing Agreement
with respect to such Distribution Date.
(c) In the event that any withholding tax is imposed on the
Trust's payment (or allocations of income) to an Owner, such tax shall reduce
the amount otherwise distributable to the Owner in accordance with this
Section. The Owner Trustee is hereby authorized and directed to retain from
amounts otherwise distributable to the Owners sufficient funds for the payment
of any tax that is legally owed by the Trust (but such authorization shall not
prevent the Owner Trustee from contesting any such tax in appropriate
proceedings, and withholding payment of such tax, if permitted by law, pending
the outcome of such proceedings). The amount of any withholding tax imposed
with respect to an Owner shall be treated as cash distributed to such Owner at
the time it is withheld by the Trust and remitted to the appropriate taxing
authority. If there is a possibility that withholding tax is payable with
respect to a distribution (such as a distribution to a non-U.S. Owner), the
Owner Trustee may in its sole discretion withhold such amounts in accordance
with this paragraph.
Section 5.03. Method of Payment. Subject to Section 9.01(c),
distributions required to be made to Certificateholders on any Distribution
Date shall be made to each Certificateholder of record on the preceding Record
Date either by wire transfer, in immediately available funds, to the account
of such Holder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder shall have provided to the Certificate
Registrar appropriate written instructions at least five Business Days prior
to such Distribution Date and such Holder's Trust Certificates in the
aggregate evidence a denomination of not less than $[____________], or, if
not, by check mailed to such Certificateholder at the address of such holder
appearing in the Certificate Register.
Section 5.04. No Segregation of Moneys; No Interest. Subject to
Sections 5.01 and 5.02, moneys received by the Owner Trustee hereunder need
not be segregated in any manner except to the extent required by law or the
Servicing Agreement and may be deposited under such general conditions as may
be prescribed by law, and the Owner Trustee shall not be liable for any
interest thereon.
Section 5.05. Accounting and Reports to the Noteholders, Owners, the
Internal Revenue Service and Others. The Owner Trustee shall (a) maintain (or
cause to be maintained) the books of the Trust on a calendar year basis and
the accrual method of accounting, (b) deliver to each Owner, as may be
required by the Code and applicable Treasury Regulations, such information as
may be required (including Schedule K-1) to enable each Owner to prepare its
federal and state income tax returns, (c) file such tax returns relating to
the Trust (including a partnership information return, IRS Form 1065) and make
such elections as from time to time may be required or appropriate under any
applicable state or federal statute or any rule or regulation thereunder so as
to maintain the Trust's characterization as a partnership for federal income
tax purposes, (d) cause such tax returns to be signed in the manner required
by law and (e) collect or cause to be collected any withholding tax as
described in and in accordance with Section 5.02(c) with respect to income or
distributions to Owners. The Owner Trustee shall elect under Section 1278 of
the Code to include in income currently any market discount that accrues with
respect to the Mortgage Loans. The Owner Trustee shall not make the election
provided under Section 754 of the Code.
Section 5.06. Signature on Returns; Tax Matters Partner. (a) The
Owner Trustee shall sign on behalf of the Trust the tax returns of the Trust,
unless applicable law requires an Owner to sign such documents, in which case
such documents shall be signed by the Company.
(b) The Company shall be designated the "tax matters partner"
of the Trust pursuant to Section 6231(a)(7)(A) of the Code and applicable
Treasury Regulations.
ARTICLE VI.
Authority and Duties of Owner Trustee
Section 6.01. General Authority. The Owner Trustee is authorized and
directed to execute and deliver the Basic Documents to which the Trust is to
be a party and each certificate or other document attached as an exhibit to or
contemplated by the Basic Documents to which the Trust is to be a party and
any amendment or other agreement or instrument, in each case, in such form as
the Company shall approve, as evidenced conclusively by the Owner Trustee's
execution thereof. In addition to the foregoing, the Owner Trustee is
authorized, but shall not be obligated, to take all actions required of the
Trust pursuant to the Basic Documents. The Owner Trustee is further authorized
from time to time to take such action as the Administrator recommends with
respect to the Basic Documents.
Section 6.02. General Duties. It shall be the duty of the Owner
Trustee to discharge (or cause to be discharged) all of its responsibilities
pursuant to the terms of this Agreement and the Basic Documents to which the
Trust is a party and to administer the Trust in the interest of the Owners,
subject to the Basic Documents and in accordance with the provisions of this
Agreement. Notwithstanding the foregoing, the Owner Trustee shall be deemed to
have discharged its duties and responsibilities hereunder and under the Basic
Documents to the extent the Administrator has agreed in the Administration
Agreement to perform any act or to discharge any duty of the Owner Trustee
hereunder or under any Basic Document, and the Owner Trustee shall not be held
liable for the default or failure of the Administrator to carry out its
obligations under the Administration Agreement.
Section 6.03. Action upon Instruction. (a) Subject to Article IV and
in accordance with the terms of the Basic Documents, the Owners may by written
instruction direct the Owner Trustee in the management of the Trust. Such
direction may be exercised at any time by written instruction of the Owners
pursuant to Article IV.
(b) The Owner Trustee shall not be required to take any action
hereunder or under any Basic Document if the Owner Trustee shall have
reasonably determined, or shall have been advised by counsel, that such action
is likely to result in liability on the part of the Owner Trustee or is
contrary to the terms hereof or of any Basic Document or is otherwise contrary
to law.
(c) Whenever the Owner Trustee is unable to decide between
alternative courses of action permitted or required by the terms of this
Agreement or under any Basic Document, the Owner Trustee shall promptly give
notice (in such form as shall be appropriate under the circumstances) to the
Owners requesting instruction as to the course of action to be adopted, and to
the extent the Owner Trustee acts in good faith in accordance with any written
instruction of the Owners received, the Owner Trustee shall not be liable on
account of such action to any Person. If the Owner Trustee shall not have
received appropriate instruction within 10 days of such notice (or within such
shorter period of time as reasonably may be specified in such notice or may be
necessary under the circumstances) it may, but shall be under no duty to, take
or refrain from taking such action not inconsistent with this Agreement or the
Basic Documents, as it shall deem to be in the best interests of the Owners,
and shall have no liability to any Person for such action or inaction.
(d) In the event that the Owner Trustee is unsure as to the
application of any provision of this Agreement or any Basic Document or any
such provision is ambiguous as to its application, or is, or appears to be, in
conflict with any other applicable provision, or in the event that this
Agreement permits any determination by the Owner Trustee or is silent or is
incomplete as to the course of action that the Owner Trustee is required to
take with respect to a particular set of facts, the Owner Trustee may give
notice (in such form as shall be appropriate under the circumstances) to the
Owners requesting instruction and, to the extent that the Owner Trustee acts
or refrains from acting in good faith in accordance with any such instruction
received, the Owner Trustee shall not be liable, on account of such action or
inaction, to any Person. If the Owner Trustee shall not have received
appropriate instruction within 10 days of such notice (or within such shorter
period of time as reasonably may be specified in such notice or may be
necessary under the circumstances) it may, but shall be under no duty to, take
or refrain from taking such action not inconsistent with this Agreement or the
Basic Documents, as it shall deem to be in the best interests of the Owners,
and shall have no liability to any Person for such action or inaction.
Section 6.04. No Duties Except as Specified in this Agreement or in
Instructions. The Owner Trustee shall not have any duty or obligation to
manage, make any payment with respect to, register, record, sell, dispose of,
or otherwise deal with the Owner Trust Estate, or to otherwise take or refrain
from taking any action under, or in connection with, any document contemplated
hereby to which the Owner Trustee is a party, except as expressly provided by
the terms of this Agreement or in any document or written instruction received
by the Owner Trustee pursuant to Section 6.03; and no implied duties or
obligations shall be read into this Agreement or any Basic Document against
the Owner Trustee. The Owner Trustee shall have no responsibility for filing
any financing or continuation statement in any public office at any time or to
otherwise perfect or maintain the perfection of any security interest or lien
granted to it hereunder or to prepare or file any Securities and Exchange
Commission filing for the Trust or to record this Agreement or any Basic
Document. The Owner Trustee nevertheless agrees that it will, at its own cost
and expense, promptly take all action as may be necessary to discharge any
liens on any part of the Owner Trust Estate that result from actions by, or
claims against, the Owner Trustee that are not related to the ownership or the
administration of the Owner Trust Estate.
Section 6.05. No Action Except Under Specified Documents or
Instructions. The Owner Trustee shall not manage, control, use, sell, dispose
of or otherwise deal with any part of the Owner Trust Estate except (i) in
accordance with the powers granted to and the authority conferred upon the
Owner Trustee pursuant to this Agreement, (ii) in accordance with the Basic
Documents and (iii) in accordance with any document or instruction delivered
to the Owner Trustee pursuant to Section 6.03.
Section 6.06. Restrictions. The Owner Trustee shall not take any
action (a) that is inconsistent with the purposes of the Trust set forth in
Section 2.03 or (b) that, to the actual knowledge of the Owner Trustee, would
result in the Trust's becoming taxable as a corporation for federal income tax
purposes. The Owners shall not direct the Owner Trustee to take action that
would violate the provisions of this Section.
ARTICLE VII.
Concerning the Owner Trustee
Section 7.01. Acceptance of Trusts and Duties. The Owner Trustee
accepts the trusts hereby created and agrees to perform its duties hereunder
with respect to such trusts but only upon the terms of this Agreement. The
Owner Trustee also agrees to disburse all moneys actually received by it
constituting part of the Owner Trust Estate upon the terms of the Basic
Documents and this Agreement. The Owner Trustee shall not be answerable or
accountable hereunder or under any Basic Document under any circumstances,
except (i) for its own willful misconduct or negligence or (ii) in the case of
the inaccuracy of any representation or warranty contained in Section 7.03
expressly made by the Owner Trustee. In particular, but not by way of
limitation (and subject to the exceptions set forth in the preceding
sentence):
(a) The Owner Trustee shall not be liable for any error of
judgment made by a Trust Officer of the Owner Trustee;
(b) The Owner Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in accordance with the instructions
of the Administrator or any Owner;
(c) No provision of this Agreement or any Basic Document shall
require the Owner Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of its rights or powers
hereunder or under any Basic Document if the Owner Trustee shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured or provided
to it;
(d) Under no circumstances shall the Owner Trustee be liable
for indebtedness evidenced by or arising under any of the Basic Documents,
including the principal of and interest on the Notes;
(e) The Owner Trustee shall not be responsible for or in
respect of the validity or sufficiency of this Agreement or for the due
execution hereof by the Depositor or the Company or for the form, character,
genuineness, sufficiency, value or validity of any of the Owner Trust Estate,
or for or in respect of the validity or sufficiency of the Basic Documents,
other than the certificate of authentication on the Trust Certificates, and
the Owner Trustee shall in no event assume or incur any liability, duty, or
obligation to any Noteholder or to any Owner, other than as expressly provided
for herein or expressly agreed to in the Basic Documents;
(f) The Owner Trustee shall not be liable for the default or
misconduct of the Administrator, the Seller or Depositor, the Company, the
Indenture Trustee or the Servicer under any of the Basic Documents or
otherwise and the Owner Trustee shall have no obligation or liability to
perform the obligations of the Trust under this Agreement or the Basic
Documents that are required to be performed by the Administrator under the
Administration Agreement, the Indenture Trustee under the Indenture or the
Servicer or the Seller or Depositor under the Servicing Agreement; and
(g) The Owner Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Agreement, or to institute,
conduct or defend any litigation under this Agreement or otherwise or in
relation to this Agreement or any Basic Document, at the request, order or
direction of any of the Owners, unless such Owners have offered to the Owner
Trustee security or indemnity satisfactory to it against the costs, expenses
and liabilities that may be incurred by the Owner Trustee therein or thereby.
The right of the Owner Trustee to perform any discretionary act enumerated in
this Agreement or in any Basic Document shall not be construed as a duty, and
the Owner Trustee shall not be answerable for other than its negligence or
willful misconduct in the performance of any such act.
Section 7.02. Furnishing of Documents. The Owner Trustee shall
furnish to the Owners promptly upon receipt of a written request therefor,
duplicates or copies of all reports, notices, requests, demands, certificates,
financial statements and any other instruments furnished to the Owner Trustee
under the Basic Documents.
Section 7.03. Representations and Warranties. The Owner Trustee
hereby represents and warrants to the Company, for the benefit of the Owners,
that:
(a) It is a banking corporation duly organized and validly
existing in good standing under the laws of the State of Delaware. It has all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement.
(b) It has taken all corporate action necessary to authorize
the execution and delivery by it of this Agreement, and this Agreement will be
executed and delivered by one of its officers who is duly authorized to
execute and deliver this Agreement on its behalf.
(c) Neither the execution nor the delivery by it of this
Agreement, nor the consummation by it of the transactions contemplated hereby
nor compliance by it with any of the terms or provisions hereof will
contravene any federal or Delaware law, governmental rule or regulation
governing the banking or trust powers of the Owner Trustee or any judgment or
order binding on it, or constitute any default under its charter documents or
bylaws or any indenture, mortgage, contract, agreement or instrument to which
it is a party or by which any of its properties may be bound.
Section 7.04. Reliance; Advice of Counsel. (a) The Owner Trustee
shall incur no liability to anyone in acting upon any signature, instrument,
notice, resolution, request, consent, order, certificate, report, opinion,
bond, or other document or paper believed by it to be genuine and believed by
it to be signed by the proper party or parties. The Owner Trustee may accept a
certified copy of a resolution of the board of directors or other governing
body of any corporate party as conclusive evidence that such resolution has
been duly adopted by such body and that the same is in full force and effect.
As to any fact or matter the method of determination of which is not
specifically prescribed herein, the Owner Trustee may for all purposes hereof
rely on a certificate, signed by the president or any vice president or by the
treasurer or other authorized officers of the relevant party, as to such fact
or matter and such certificate shall constitute full protection to the Owner
Trustee for any action taken or omitted to be taken by it in good faith in
reliance thereon.
(b) In the exercise or administration of the trusts hereunder
and in the performance of its duties and obligations under this Agreement or
the Basic Documents, the Owner Trustee (i) may act directly or through its
agents or attorneys pursuant to agreements entered into with any of them, and
the Owner Trustee shall not be liable for the conduct or misconduct of such
agents or attorneys if such agents or attorneys shall have been selected by
the Owner Trustee with reasonable care, and (ii) may consult with counsel,
accountants and other skilled Persons to be selected with reasonable care and
employed by it. The Owner Trustee shall not be liable for anything done,
suffered or omitted in good faith by it in accordance with the written opinion
or advice of any such counsel, accountants or other such Persons and not
contrary to this Agreement or any Basic Document.
Section 7.05. Not Acting in Individual Capacity. Except as provided
in this Article VII, in accepting the trusts hereby created
[_____________________] acts solely as Owner Trustee hereunder and not in its
individual capacity, and all Persons having any claim against the Owner
Trustee by reason of the transactions contemplated by this Agreement or any
Basic Document shall look only to the Owner Trust Estate for payment or
satisfaction thereof.
Section 7.06. Owner Trustee Not Liable for Trust Certificates or
Mortgage Loans. The recitals contained herein and in the Certificates (other
than the signature and countersignature of the Owner Trustee on the Trust
Certificates) shall be taken as the statements of the Depositor and the
Company, and the Owner Trustee assumes no responsibility for the correctness
thereof. The Owner Trustee makes no representations as to the validity or
sufficiency of this Agreement, of any Basic Document or of the Trust
Certificates (other than the signature and countersignature of the Owner
Trustee on the Trust Certificates) or the Notes, or of any Mortgage Loan or
related documents. The Owner Trustee shall at no time have any responsibility
or liability for or with respect to the legality, validity and enforceability
of any Mortgage Loan, or for or with respect to the sufficiency of the Owner
Trust Estate or its ability to generate the payments to be distributed to
Certificateholders under this Agreement or the Noteholders under the
Indenture, including, without limitation: the existence, condition and
ownership of any property securing a Mortgage Loan; the existence and
enforceability of any insurance thereon; the validity of the assignment of any
Mortgage Loan to the Trust or of any intervening assignment; the performance
or enforcement of any Mortgage Loan; the compliance by the Depositor, the
Company or the Servicer with any warranty or representation made under any
Basic Document or in any related document or the accuracy of any such warranty
or representation, or any action of the Administrator, the Indenture Trustee
or the Servicer or any subservicer taken in the name of the Owner Trustee.
Section 7.07. Owner Trustee May Own Trust Certificates and Notes.
The Owner Trustee in its individual or any other capacity may become the owner
or pledgee of Trust Certificates or Notes and may deal with the Depositor, the
Company, the Administrator, the Indenture Trustee and the Servicer in banking
transactions with the same rights as it would have if it were not Owner
Trustee.
ARTICLE VIII.
Compensation of Owner Trustee
Section 8.01. Owner Trustee's Fees and Expenses. The Owner Trustee
shall receive as compensation for its services hereunder such fees as have
been separately agreed upon before the date hereof between the Depositor and
the Owner Trustee, and the Owner Trustee shall be entitled to be reimbursed by
the Depositor for its other reasonable expenses hereunder, including the
reasonable compensation, expenses and disbursements of such agents,
representatives, experts and counsel as the Owner Trustee may employ in
connection with the exercise and performance of its rights and its duties
hereunder.
Section 8.02. Indemnification. The Depositor shall be liable as
primary obligor for, and shall indemnify the Owner Trustee and its successors,
assigns, agents and servants (collectively, the "Indemnified Parties") from
and against, any and all liabilities, obligations, losses, damages, taxes,
claims, actions and suits, and any and all reasonable costs, expenses and
disbursements (including reasonable legal fees and expenses) of any kind and
nature whatsoever (collectively, "Expenses") which may at any time be imposed
on, incurred by, or asserted against the Owner Trustee or any Indemnified
Party in any way relating to or arising out of this Agreement, the Basic
Documents, the Owner Trust Estate, the administration of the Owner Trust
Estate or the action or inaction of the Owner Trustee hereunder, except only
that the Depositor shall not be liable for or required to indemnify an
Indemnified Party from and against Expenses arising or resulting from any of
the matters described in the third sentence of Section 7.01. The indemnities
contained in this Section shall survive the resignation or termination of the
Owner Trustee or the termination of this Agreement. In any event of any claim,
action or proceeding for which indemnity will be sought pursuant to this
Section, the Owner Trustee's choice of legal counsel shall be subject to the
approval of the Depositor, which approval shall not be unreasonably withheld.
Section 8.03. Payments to the Owner Trustee. Any amounts paid to the
Owner Trustee pursuant to this Article VIII shall be deemed not to be a part
of the Owner Trust Estate immediately after such payment.
ARTICLE IX.
Termination of Trust Agreement
Section 9.01. Termination of Trust Agreement. (a) This Agreement
(other than Article VIII) and the Trust shall terminate and be of no further
force or effect (i) upon the final distribution by the Owner Trustee of all
moneys or other property or proceeds of the Owner Trust Estate in accordance
with the terms of the Indenture, the Servicing Agreement and Article V or (ii)
at the time provided in Section 9.02. The bankruptcy, liquidation,
dissolution, death or incapacity of any Owner, other than the Company as
described in Section 9.02, shall not (x) operate to terminate this Agreement
or the Trust or (y) entitle such Owner's legal representatives or heirs to
claim an accounting or to take any action or proceeding in any court for a
partition or winding up of all or any part of the Trust or Owner Trust Estate
or (z) otherwise affect the rights, obligations and liabilities of the parties
hereto.
(b) Except as provided in Section 9.01(a), none of the
Depositor, the Company or any Owner shall be entitled to revoke or terminate
the Trust.
(c) Notice of any termination of the Trust, specifying the
Distribution Date upon which Certificateholders shall surrender their Trust
Certificates to the Paying Agent for payment of the final distribution and
cancellation, shall be given by the Owner Trustee by letter to
Certificateholders mailed within five Business Days of receipt of notice of
such termination from the Servicer stating (i) the Distribution Date upon or
with respect to which final payment of the Trust Certificates shall be made
upon presentation and surrender of the Trust Certificates at the office of the
Paying Agent therein designated, (ii) the amount of any such final payment and
(iii) that the Record Date otherwise applicable to such Distribution Date is
not applicable, payments being made only upon presentation and surrender of
the Trust Certificates at the office of the Paying Agent therein specified.
The Owner Trustee shall give such notice to the Certificate Registrar (if
other than the Owner Trustee) and the Paying Agent at the time such notice is
given to Certificateholders. Upon presentation and surrender of the Trust
Certificates, the Paying Agent shall cause to be distributed to
Certificateholders amounts distributable on such Distribution Date pursuant to
Section 5.02.
In the event that all of the Certificateholders shall not surrender
their Trust Certificates for cancellation within six months after the date
specified in the above mentioned written notice, the Owner Trustee shall give
a second written notice to the remaining Certificateholders to surrender their
Trust Certificates for cancellation and receive the final distribution with
respect thereto. If within one year after the second notice all the Trust
Certificates shall not have been surrendered for cancellation, the Owner
Trustee may take appropriate steps, or may appoint an agent to take
appropriate steps, to contact the remaining Certificateholders concerning
surrender of their Trust Certificates, and the cost thereof shall be paid out
of the funds and other assets that shall remain subject to this Agreement. Any
funds remaining in the Trust after exhaustion of such remedies shall be
distributed by the Owner Trustee to the Company.
(d) Upon the winding up of the Trust and its termination, the
Owner Trustee shall cause the Certificate of Trust to be cancelled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3810 of the Business Trust Statute.
Section 9.02. Dissolution upon Bankruptcy of the Company. In the
event that an Insolvency Event shall occur with respect to the Company, this
Agreement shall be terminated in accordance with Section 9.01 90 days after
the date of such Insolvency Event, unless, before the end of such 90-day
period, the Owner Trustee shall have received written instructions from
Holders of Certificates (other than the Company) representing more than 50% of
the Certificate Balance (not including the Certificate Balance of the Trust
Certificates held by the Company), to the effect that each such party
disapproves of the liquidation of the Mortgage Loans and of the Trust.
Promptly after the occurrence of any Insolvency Event with respect to the
Company, (A) the Company shall give the Indenture Trustee and the Owner
Trustee written notice of such Insolvency Event, (B) the Owner Trustee shall,
upon the receipt of such written notice from the Company, give prompt written
notice to the Certificateholders and the Indenture Trustee, of the occurrence
of such event and (C) the Indenture Trustee shall, upon receipt of written
notice of such Insolvency Event from the Owner Trustee or the Company, give
prompt written notice to the Noteholders of the occurrence of such event;
provided, however, that any failure to give a notice required by this sentence
shall not prevent or delay, in any manner, a termination of the Trust pursuant
to the first sentence of this Section 9.02. Upon a termination pursuant to
this Section, the Owner Trustee shall direct the Indenture Trustee promptly to
sell the assets of the Trust (other than the Trust Accounts and the
Certificate Distribution Account) and, on behalf of the Company, in a
commercially reasonable manner and on commercially reasonable terms. The
proceeds of such a sale of the assets of the Trust shall be treated as
collections under the Servicing Agreement.
ARTICLE X.
Successor Owner Trustees and Additional Owner Trustees
Section 10.01. Eligibility Requirements for Owner Trustee. The Owner
Trustee shall at all times be a corporation satisfying the provisions of
Section 3807(a) of the Business Trust Statute; authorized to exercise
corporate trust powers; having a combined capital and surplus of at least
$50,000,000 and subject to supervision or examination by federal or state
authorities; and having (or having a parent that has) a rating of at least
[____] by [__________]. If such corporation shall publish reports of condition
at least annually pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purpose of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published. In case at any time the Owner Trustee shall cease to
be eligible in accordance with the provisions of this Section, the Owner
Trustee shall resign immediately in the manner and with the effect specified
in Section 10.02.
Section 10.02. Resignation or Removal of Owner Trustee. The Owner
Trustee may at any time resign and be discharged from the trusts hereby
created by giving written notice thereof to the Administrator. Upon receiving
such notice of resignation, the Administrator shall promptly appoint a
successor Owner Trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the resigning Owner Trustee and one copy to
the successor Owner Trustee. If no successor Owner Trustee shall have been so
appointed and have accepted appointment within 30 days after the giving of
such notice of resignation, the resigning Owner Trustee may petition any court
of competent jurisdiction for the appointment of a successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 10.01 and shall fail to resign after
written request therefor by the Administrator, or if at any time the Owner
Trustee shall be legally unable to act, or shall be adjudged bankrupt or
insolvent, or a receiver of the Owner Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Owner
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Administrator may remove the Owner
Trustee. If the Administrator shall remove the Owner Trustee under the
authority of the immediately preceding sentence, the Administrator shall
promptly appoint a successor Owner Trustee by written instrument, in
duplicate, one copy of which instrument shall be delivered to the outgoing
Owner Trustee so removed and one copy to the successor Owner Trustee, and
shall pay all fees owed to the outgoing Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section
shall not become effective until acceptance of appointment by the successor
Owner Trustee pursuant to Section 10.03 and payment of all fees and expenses
owed to the outgoing Owner Trustee. The Administrator shall provide notice of
such resignation or removal of the Owner Trustee to each of the Rating
Agencies.
Section 10.03. Successor Owner Trustee. Any successor Owner Trustee
appointed pursuant to Section 10.02 shall execute, acknowledge and deliver to
the Administrator and to its predecessor Owner Trustee an instrument accepting
such appointment under this Agreement, and thereupon the resignation or
removal of the predecessor Owner Trustee shall become effective, and such
successor Owner Trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor under this Agreement, with like effect as if originally named as
Owner Trustee. The predecessor Owner Trustee shall upon payment of its fees
and expenses deliver to the successor Owner Trustee all documents and
statements and monies held by it under this Agreement; and the Administrator
and the predecessor Owner Trustee shall execute and deliver such instruments
and do such other things as may reasonably be required for fully and certainly
vesting and confirming in the successor Owner Trustee all such rights, powers,
duties and obligations.
No successor Owner Trustee shall accept appointment as provided in
this Section unless at the time of such acceptance such successor Owner
Trustee shall be eligible pursuant to Section 10.01.
Upon acceptance of appointment by a successor Owner Trustee pursuant
to this Section, the Administrator shall mail notice thereof to all
Certificateholders, the Indenture Trustee, the Noteholders and the Rating
Agencies. If the Administrator shall fail to mail such notice within 10 days
after acceptance of such appointment by the successor Owner Trustee, the
successor Owner Trustee shall cause such notice to be mailed at the expense of
the Administrator.
Section 10.04. Merger or Consolidation of Owner Trustee. Any
corporation into which the Owner 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 Owner Trustee shall be a party, or
any corporation succeeding to all or substantially all of the corporate trust
business of the Owner Trustee, shall be the successor of the Owner Trustee
hereunder, without the execution or filing of any instrument or any further
act on the part of any of the parties hereto, anything herein to the contrary
notwithstanding; provided, that such corporation shall be eligible pursuant to
Section 10.01 and, provided, further, that the Owner Trustee shall mail notice
of such merger or consolidation to the Rating Agencies.
Section 10.05. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any
part of the Owner Trust Estate may at the time be located, the Administrator
and the Owner Trustee acting jointly shall have the power and shall execute
and deliver all instruments to appoint one or more Persons approved by the
Administrator and Owner Trustee to act as co-trustee, jointly with the Owner
Trustee, or as separate trustee or separate trustees, of all or any part of
the Owner Trust Estate, and to vest in such Person, in such capacity, such
title to the Trust or any part thereof and, subject to the other provisions of
this Section, such powers, duties, obligations, rights and trusts as the
Administrator and the Owner Trustee may consider necessary or desirable. If
the Administrator shall not have joined in such appointment within 15 days
after the receipt by it of a request so to do, the Owner Trustee alone shall
have the power to make such appointment. No co-trustee or separate trustee
under this Agreement shall be required to meet the terms of eligibility as a
successor Owner Trustee pursuant to Section 10.01 and no notice of the
appointment of any co-trustee or separate trustee shall be required pursuant
to Section 10.03.
Each separate trustee and co-trustee shall, to the extent permitted
by law, be appointed and act subject to the following provisions and
conditions:
(a) All rights, powers, duties and obligations conferred or
imposed upon the Owner Trustee shall be conferred upon and exercised or
performed by the Owner Trustee and such separate trustee or co-trustee jointly
(it being understood that such separate trustee or co-trustee is not
authorized to act separately without the Owner Trustee joining in such act),
except to the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed, the Owner Trustee shall be
incompetent or unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations (including the holding of title to the
Owner Trust Estate or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or co-trustee, but
solely at the direction of the Owner Trustee;
(b) No trustee under this Agreement shall be personally liable
by reason of any act or omission of any other trustee under this Agreement;
and
(c) The Administrator and the Owner Trustee acting jointly may
at any time accept the resignation of or remove any separate trustee or
co-trustee.
Any notice, request or other writing given to the Owner Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement
and the conditions of this Article. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Owner Trustee or separately, as may be provided therein, subject to all the
provisions of this Agreement, specifically including every provision of this
Agreement relating to the conduct of, affecting the liability of, or affording
protection to, the Owner Trustee. Each such instrument shall be filed with the
Owner Trustee and a copy thereof given to the Administrator.
Any separate trustee or co-trustee may at any time appoint the Owner
Trustee as its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its
estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Owner Trustee, to the extent permitted by law, without the
appointment of a new or successor co-trustee or separate trustee.
ARTICLE XI.
Miscellaneous
Section 11.01. Supplements and Amendments. This Agreement may be
amended by the Depositor, the Company and the Owner Trustee, with prior
written notice to the Rating Agencies, without the consent of any of the
Noteholders or the Certificateholders, to cure any ambiguity, to correct or
supplement any provisions in this Agreement or for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
in this Agreement or of modifying in any manner the rights of the Noteholders
or the Certificateholders; provided, however, that such action shall not, as
evidenced by an Opinion of Counsel, adversely affect in any material respect
the interests of any Noteholder or Certificateholder.
This Agreement may also be amended from time to time by the
Depositor, the Company and the Owner Trustee, with prior written notice to the
Rating Agencies, with the consent of the Holders (as defined in the Indenture)
of Notes evidencing not less than a majority of the Principal Balance of the
Notes and the consent of the Holders of Certificates evidencing not less than
a majority of the Certificate Balance, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of this Agreement or of modifying in any manner the rights of the Noteholders
or the Certificateholders; provided, however, that no such amendment shall (a)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on Mortgage Loans or distributions that
shall be required to be made for the benefit of the Noteholders or the
Certificateholders or (b) reduce the aforesaid percentage of the Principal
Balance of the Notes and the Certificate Balance required to consent to any
such amendment, without the consent of the holders of all the outstanding
Notes and Certificates.
Promptly after the execution of any such amendment or consent, the
Owner Trustee shall furnish written notification of the substance of such
amendment or consent to each Certificateholder, the Indenture Trustee and each
of the Rating Agencies.
It shall not be necessary for the consent of Certificateholders,
Noteholders or the Indenture Trustee pursuant to this Section to approve the
particular form of any proposed amendment or consent, but it shall be
sufficient if such consent shall approve the substance thereof. The manner of
obtaining such consents (and any other consents of Certificateholders provided
for in this Agreement or in any other Basic Document) and of evidencing the
authorization of the execution thereof by Certificateholders shall be subject
to such reasonable requirements as the Owner Trustee may prescribe.
Promptly after the execution of any amendment to the Certificate of
Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State.
Prior to the execution of any amendment to this Agreement or the
Certificate of Trust, the Owner Trustee shall be entitled to receive and rely
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement. The Owner Trustee may, but shall
not be obligated to, enter into any such amendment that affects the Owner
Trustee's own rights, duties or immunities under this Agreement or otherwise.
Section 11.02. No Legal Title to Owner Trust Estate in Owners. The
Owners shall not have legal title to any part of the Owner Trust Estate. The
Owners shall be entitled to receive distributions with respect to their
undivided ownership interest therein only in accordance with Articles V and
IX. No transfer, by operation of law or otherwise, of any right, title or
interest of the Owners to and in their ownership interest in the Owner Trust
Estate shall operate to terminate this Agreement or the trusts hereunder or
entitle any transferee to an accounting or to the transfer to it of legal
title to any part of the Owner Trust Estate.
Section 11.03. Limitations on Rights of Others. Except for Section
2.07, the provisions of this Agreement are solely for the benefit of the Owner
Trustee, the Depositor, the Company, the Owners, the Administrator and, to the
extent expressly provided herein, the Indenture Trustee and the Noteholders,
and nothing in this Agreement (other than Section 2.07), whether express or
implied, shall be construed to give to any other Person any legal or equitable
right, remedy or claim in the Owner Trust Estate or under or in respect of
this Agreement or any covenants, conditions or provisions contained herein.
Section 11.04. Notices. (a) Unless otherwise expressly specified or
permitted by the terms hereof, all notices shall be in writing and shall be
deemed given upon receipt by the intended recipient or three Business Days
after mailing if mailed by certified mail, postage prepaid (except that notice
to the Owner Trustee shall be deemed given only upon actual receipt by the
Owner Trustee), if to the Owner Trustee, addressed to the Corporate Trust
Office; if to the Depositor, addressed to J.P. Morgan Securities Inc., 60 Wall
Street, New York, New York 10260-0060, Attention: [______________]; if to the
Company, addressed to [_____________________________], Attention:
[____________]; or, as to each party, at such other address as shall be
designated by such party in a written notice to each other party.
(b) Any notice required or permitted to be given to a
Certificateholder shall be given by first-class mail, postage prepaid, at the
address of such Holder as shown in the Certificate Register. Any notice so
mailed within the time prescribed in this Agreement shall be conclusively
presumed to have been duly given, whether or not the Certificateholder
receives such notice.
Section 11.05. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
Section 11.06. Separate Counterparts. This Agreement may be executed
by the parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
Section 11.07. Successors and Assigns. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, each of
the Depositor, the Company, the Owner Trustee and its successors and each
Owner and its successors and permitted assigns, all as herein provided. Any
request, notice, direction, consent, waiver or other instrument or action by
an Owner shall bind the successors and assigns of such Owner.
Section 11.08. Covenants of the Company. The Company will not at any
time institute against the Trust any bankruptcy proceedings under any United
States federal or state bankruptcy or similar law in connection with any
obligations relating to the Trust Certificates, the Notes, the Trust Agreement
or any of the Basic Documents.
Section 11.09. No Petition. The Owner Trustee, by entering into this
Agreement, each Certificateholder, by accepting a Trust Certificate, and the
Indenture Trustee and each Noteholder, by accepting the benefits of this
Agreement, hereby covenant and agree that they will not at any time institute
against the Company or the Trust, or join in any institution against the
Company or the Trust of, any bankruptcy proceedings under any United States
federal or state bankruptcy or similar law in connection with any obligations
relating to the Trust Certificates, the Notes, this Agreement or any of the
Basic Documents.
Section 11.10. No Recourse. Each Certificateholder by accepting a
Trust Certificate acknowledges that such Certificateholder's Trust
Certificates represent beneficial interests in the Trust only and do not
represent interests in or obligations of the Depositor, the Servicer, the
Company, the Administrator, the Owner Trustee, the Indenture Trustee or any
Affiliate thereof and no recourse may be had against such parties or their
assets, except as may be expressly set forth or contemplated in this
Agreement, the Trust Certificates or the Basic Documents.
Section 11.11. Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
Section 11.12. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 11.13. Depositor Payment Obligation. The Depositor shall be
responsible for payment of the Administrator's fees under the Administration
Agreement and shall reimburse the Administrator for all expenses and
liabilities of the Administrator incurred thereunder.
* * * * * *
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Trust Agreement to be duly executed by their respective officers
hereunto duly authorized, as of the day and year first above written.
J.P. MORGAN ACCEPTANCE CORPORATION I,
d as Depositor,
by:
Name:
Title:
[_____________________________],
by:
Name:
Title:
[_____________________________],
not in its
individual capacity but
solely as Owner Trustee,
by:
Name:
Title:
[_____________________________],
EXHIBIT A
FORM OF TRUST CERTIFICATE
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
NUMBER $_________
R-___________ CUSIP NO. _________
HOME EQUITY LOAN TRUST 199__-__
[_____]% HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 199__-__
evidencing a fractional undivided beneficial ownership interest in the Trust,
as defined below, the property of which includes a pool of [fixed-rate]
[adjustable rate] home equity revolving credit line loans caused to be sold to
the Trust by [_______________] pursuant to the Mortgage Loan Purchase
Agreement.
(This Trust Certificate does not represent an interest in or obligation of
J.P. Morgan Securities Inc., [ ] or any of their respective affiliates, except
to the extent described below.)
THIS CERTIFIES THAT [________________________] is the registered
owner of [____________________] DOLLARS nonassessable, fully paid, fractional
undivided interest in HOME EQUITY LOAN TRUST 199__-__ (the "Trust") formed by
J. P. .Morgan Securities Inc., a Delaware corporation (the "Depositor"), and
[_______________], a [__________] corporation (the "Company").
OWNER TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Trust Certificates referred to in the within-mentioned
Trust Agreement.
[________________________],
[______________________________],
as Owner Trustee or as Owner Trustee
by: by:
[ ],
Authorized Signatory as Authenticating Agent
by:
Authorized Signatory
The Trust was created pursuant to a Trust Agreement, dated as of ,
199__ (the "Trust Agreement"), among the Depositor, the Company and
[____________], as owner trustee (the "Owner Trustee"), a summary of certain
of the pertinent provisions of which is set forth below. To the extent not
otherwise defined herein, the capitalized terms used herein have the meanings
assigned to them in the Trust Agreement or the Servicing Agreement dated as of
___________, 199__ (as amended and supplemented from time to time, the
"Servicing Agreement"), among the Trust, the Depositor and [_______________],
as servicer (the "Servicer"), as applicable.
This Certificate is one of a duly authorized issue of Home Equity
Loan Asset-Backed Certificates, Series 199__-__ (herein called the "Trust
Certificates"). Also issued under the Indenture dated as of ___________, 199__
between the Trust and [________________], as indenture trustee, are the
[_______] classes of Notes designated as [_________________________
______________________________________________________________________________
______________________________________________] (collectively, the "Notes").
This Trust Certificate is issued under and is subject to the terms, provisions
and conditions of the Trust Agreement, to which Trust Agreement the Holder of
this Trust Certificate by virtue of its acceptance hereof assents and by which
such Holder is bound. The property of the Trust consists of a pool of
[adjustable-] [fixed-] rate home equity loan revolving credit line loans made
or to be made int he future (the "Mortgage Loans"), under certain home equity
revolving credit line loan agreements and secured primarily by second [deeds
of trust] [mortgages] on residential properties that are primarily one- to
four-family properties (the "Mortgaged Properties"); the collections in
respect of the Mortgage Loans received after the Cut-Off Date; property that
secured a Mortgage Loan which has been acquired by foreclosure or deed in lieu
of foreclosure; [a surety bond] [a letter of credit]; an assignment of the
Depositor's rights under the Mortgage Loan Purchase Agreement; rights under
certain hazard insurance policies covering the Mortgaged Properties; and
certain other property. [The rights of the Holders of the Trust Certificates
are subordinated to the rights of the Holders of the Notes, as set forth in
the Servicing Agreement.]
Under the Trust Agreement, there will be distributed on the
[_______] day of each month or, if such [_______] day is not a Business Day,
the next Business Day (each, a "Distribution Date"), commencing on
___________, 199__, to the Person in whose name this Trust Certificates is
registered at the close of business on the first day of the month or, if
Definitive Certificates are issued, the [_______] day of the prior month (the
"Record Date"), such Certificateholder's fractional undivided interest in the
amount to be distributed to Certificateholders on such Distribution Date. No
distributions of principal will be made on any Certificate until all of the
Notes have been paid in full.
[The Holder of this Trust Certificate acknowledges and agrees that
its rights to receive distributions in respect of this Trust Certificate are
subordinated to the rights of the Noteholders as described in the Servicing
Agreement and the Indenture.]
It is the intent of the Depositor, the Company, the Servicer and the
Certificateholders that, for purposes of federal income, state and local
income and single business tax and any other income taxes, the Trust will be
treated as a partnership and the Certificateholders (including the Company)
will be treated as partners in that partnership. The Company and the other
Certificateholders, by acceptance of a Trust Certificate, agree to treat, and
to take no action inconsistent with the treatment of, the Trust Certificates
for such tax purposes as partnership interests in the Trust.
Each Certificateholder or Certificate Owner, by its acceptance of a
Trust Certificate or, in the case of a Certificate Owner, a beneficial
interest in a Trust Certificate, covenants and agrees that such
Certificateholder or Certificate Owner, as the case may be, will not at any
time institute against the Company, or join in any institution against the
Company of, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings under any United States federal
or state bankruptcy or similar law in connection with any obligations relating
to the Trust Certificates, the Notes, the Trust Agreement or any of the Basic
Documents.
Distributions on this Trust Certificate will be made as provided in
the Trust Agreement by the Owner Trustee by wire transfer or check mailed to
the Certificateholder of record in the Certificate Register without the
presentation or surrender of this Trust Certificate or the making of any
notation hereon, except that with respect to Trust Certificates registered on
the Record Date in the name of the nominee of the Clearing Agency (initially,
such nominee to be Cede & Co.), payments will be made by wire transfer in
immediately available funds to the account designated by such nominee. Except
as otherwise provided in the Trust Agreement and notwithstanding the above,
the final distribution on this Trust Certificate will be made after due notice
by the Owner Trustee of the pendency of such distribution and only upon
presentation and surrender of this Trust Certificate at the office or agency
maintained for that purpose by the Owner Trustee in the Borough of Manhattan,
The City of New York.
Reference is hereby made to the further provisions of this Trust
Certificate set forth on the reverse hereof, which further provisions shall
for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Owner Trustee, by manual signature,
this Trust Certificate shall not entitle the Holder hereof to any benefit
under the Trust Agreement or the Servicing Agreement or be valid for any
purpose.
THIS TRUST CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and
not in its individual capacity, has caused this Trust Certificate to be duly
executed.
J.P. MORGAN SECURITIES INC.
by:
[_____________________],
not in its
individual capacity but solely as Owner Trustee
Dated: by:
Authorized Signatory
[REVERSE OF TRUST CERTIFICATE]
The Trust Certificates do not represent an obligation of, or an
interest in, the Depositor, the Servicer, the Company, the Owner Trustee or
any affiliates of any of them and no recourse may be had against such parties
or their assets, except as expressly set forth or contemplated herein or in
the Trust Agreement or the Basic Documents. In addition, this Trust
Certificate is not guaranteed by any governmental agency or instrumentality
and is limited in right of payment to certain collections and recoveries with
respect to the Mortgage Loans (and certain other amounts), all as more
specifically set forth herein and in the Servicing Agreement. A copy of each
of the Servicing Agreement and the Trust Agreement may be examined by any
Certificateholder upon written request during normal business hours at the
principal office of the Depositor and at such other places, if any, designated
by the Depositor.
The Trust Agreement permits, with certain exceptions therein
provided, the amendment thereof and the modification of the rights and
obligations of the Depositor and the Company and the rights of the
Certificateholders under the Trust Agreement at any time by the Depositor, the
Company and the Owner Trustee with the consent of the Holders of the Trust
Certificates and the Notes, each voting as a class, evidencing not less than a
majority of the Certificate Balance and the outstanding principal balance of
the Notes of each such class. Any such consent by the Holder of this Trust
Certificate shall be conclusive and binding on such Holder and on all future
Holders of this Trust Certificate and of any Trust Certificate issued upon the
transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent is made upon this Trust Certificate. The Trust
Agreement also permits the amendment thereof, in certain limited
circumstances, without the consent of the Holders of any of the Trust
Certificates.
As provided in the Trust Agreement and subject to certain
limitations therein set forth, the transfer of this Trust Certificate is
registerable in the Certificate Register upon surrender of this Trust
Certificate for registration of transfer at the offices or agencies of the
Certificate Registrar maintained by the Owner Trustee in the Borough of
Manhattan, The City of New York, accompanied by a written instrument of
transfer in form satisfactory to the Owner Trustee and the Certificate
Registrar duly executed by the Holder hereof or such Holder's attorney duly
authorized in writing, and thereupon one or more new Trust Certificates of
authorized denominations evidencing the same aggregate interest in the Trust
will be issued to the designated transferee. The initial Certificate Registrar
appointed under the Trust Agreement is [_________________], New York, New
York.
Except as provided in the Trust Agreement, the Trust Certificates
are issuable only as registered Trust Certificates without coupons in
denominations of $[__________] and in integral multiples of $[_______] in
excess thereof. As provided in the Trust Agreement and subject to certain
limitations therein set forth, Trust Certificates are exchangeable for new
Trust Certificates of authorized denominations evidencing the same aggregate
denomination, as requested by the Holder surrendering the same. No service
charge will be made for any such registration of transfer or exchange, but the
Owner Trustee or the Certificate Registrar may require payment of a sum
sufficient to cover any tax or governmental charge payable in connection
therewith.
The Owner Trustee, the Certificate Registrar and any agent of the
Owner Trustee or the Certificate Registrar may treat the Person in whose name
this Certificate is registered as the owner hereof for all purposes, and none
of the Owner Trustee, the Certificate Registrar or any such agent shall be
affected by any notice to the contrary.
The obligations and responsibilities created by the Trust Agreement
and the Trust created thereby shall terminate upon the payment to
Certificateholders of all amounts required to be paid to them pursuant to the
Trust Agreement and the Servicing Agreement and the disposition of all
property held as part of the Owner Trust Estate. The Servicer of the Mortgage
Loans may at its option purchase the Owner Trust Estate at a price specified
in the Servicing Agreement, and such purchase of the Mortgage Loans and other
property of the Trust will effect early retirement of the Trust Certificates;
however, such right of purchase is exercisable only as of the last day of any
Collection Period as of which the Pool Balance is less than or equal to
[____]% of the Original Pool Balance.
The Trust Certificates may not be acquired by (a) an employee
benefit plan (as defined in Section 3(3) of ERISA) that is subject to the
provisions of Title I of ERISA, (b) a plan described in Section 4975(e)(1) of
the Code or (c) any entity whose underlying assets include plan assets by
reason of a plan's investment in the entity (each, a "Benefit Plan"). By
accepting and holding this Trust Certificate, the Holder hereof shall be
deemed to have represented and warranted that it is not a Benefit Plan.
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
(Please print or type name and address, including postal zip code, of assignee)
the within Trust Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
to transfer said Trust Certificate on the books of the Certificate Registrar,
with full power of substitution in the premises.
Dated:
___________________________________________*/
Signature Guaranteed:
____________________________*/
- -----------------
*/ NOTICE: The signature to this assignment must correspond with the name as
it appears upon the face of the within Trust Certificate in every particular,
without alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial
bank or trust company.
EXHIBIT B
CERTIFICATE OF TRUST OF
HOME EQUITY LOAN TRUST 199___
THIS Certificate of Trust of HOME EQUITY LOAN TRUST 199__-__
(the "Trust"), dated , 199__, is being duly executed and filed by
[_____________________], a [___________________________], as trustee, to form
a business trust under the Delaware Business Trust Act (12 Del. Code, ss. 3801
et seq.).
1. Name. The name of the business trust formed hereby is HOME EQUITY
LOAN TRUST 199__-__.
2. Delaware Trustee. The name and business address of the
trustee of the Trust in the State of Delaware is [______________],
[______________], [______________], Delaware [_____], Attention:
[_______________________________].
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust as of the date first above
written.
[___________________],
not in its
individual capacity but solely as
owner trustee under a Trust
Agreement dated ________________, 199__
By:
Name:
Title:
EXHIBIT C
[Form of Certificate Depository Agreement]
Exhibit 4.3
Form of Indenture
HOME EQUITY LOAN TRUST 199_-__,
Issuer
AND
[__________________]
INDENTURE TRUSTEE
_____________________________________________
INDENTURE
Dated as of _________, 199_
_____________________________________________
HOME EQUITY LOAN NOTES
SERIES 199__-__
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
Definitions
Section 1.01. Definitions....................................................7
Section 1.02. Incorporation by Reference of Trust Indenture Act........... ..8
Section 1.03. Rules of Construction........................................ .8
ARTICLE II
Original Issuance of Notes
Section 2.01. Form...........................................................9
Section 2.02. Execution, Authentication and Delivery.........................9
Section 2.03. Opinions of Counsel...........................................10
ARTICLE III
Covenants
Section 3.01. Collection of Payments on Mortgage Loan Accounts..............11
Section 3.02. Maintenance of Office or Agency...............................11
Section 3.03. Money for Payments To Be Held in Trust; Paying Agent;
Certificate Paying Agent......................................11
Section 3.04. Existence.....................................................13
Section 3.05. Payment of Principal and Interest; Defaulted Interest.........13
Section 3.06. Protection of Trust Estate....................................16
Section 3.07. Opinions as to Trust Estate...................................16
Section 3.08. [Reserved]....................................................17
Section 3.09. Performance of Obligations; Servicing Agreement...............17
Section 3.10. Negative Covenants............................................19
Section 3.11. Annual Statement as to Compliance.............................19
Section 3.12. Recording of Assignments......................................19
Section 3.13. Representations and Warranties Concerning the
Mortgage Loans................................................19
Section 3.14. Indenture Trustee's Review of Related Documents...............20
Section 3.15. Trust Estate; Related Documents...............................20
Section 3.16. Amendments to Servicing Agreement.............................22
Section 3.17. Master Servicer as Agent and Bailee of Indenture Trustee......22
Section 3.18. Investment Company Act........................................22
Section 3.19. Issuer May Consolidate, etc., Only on Certain Terms...........22
Section 3.20. Successor or Transferee.......................................24
Section 3.21. No Other Business.............................................24
Section 3.22. No Borrowing..................................................24
Section 3.23. Guarantees, Loans, Advances and Other Liabilities.............24
Section 3.24. Capital Expenditures..........................................25
Section 3.25. [Reserved]....................................................25
Section 3.26. Restricted Payments...........................................25
Section 3.27. Notice of Events of Default...................................25
Section 3.28. Further Instruments and Acts..................................25
Section 3.29. Statements to Noteholders.....................................25
Section 3.30. [Reserved] [Grant of the Additional Loans.....................25
Section 3.31. Determination of Note Rate and Certificate Rate...............26
Section 3.32. Payments under the Credit Enhancement Instrument..............26
Section 3.33. Replacement Credit Enhancement Instrument.....................27
ARTICLE IV
The Notes; Satisfaction and Discharge of Indenture
Section 4.01. The Notes[; Increase of Maximum Variable
Funding Balance; Additional Variable
Funding Notes]................................................29
Section 4.02. Registration of and Limitations on Transfer and
Exchange of Notes; Appointment of
Certificate Registrar.........................................31
Section 4.03. Mutilated, Destroyed, Lost or Stolen Notes....................32
Section 4.04. Persons Deemed Owners.........................................33
Section 4.05. Cancellation..................................................33
Section 4.06. Book-Entry Notes..............................................34
Section 4.07. Notices to Depository.........................................34
Section 4.08. Definitive Notes..............................................35
Section 4.09. Tax Treatment.................................................35
Section 4.10. Satisfaction and Discharge of Indenture.......................35
Section 4.11. Application of Trust Money....................................36
Section 4.12. Subrogation and Cooperation...................................36
Section 4.13. Repayment of Moneys Held by Paying Agent......................37
ARTICLE V
Remedies
Section 5.01. Events of Default.............................................38
Section 5.02. Acceleration of Maturity; Rescission and Annulment............38
Section 5.03. Collection of Indebtedness and Suits for Enforcement
by Indenture Trustee..........................................39
Section 5.04. Remedies; Priorities..........................................41
Section 5.05. Optional Preservation of the Trust Estate.....................42
Section 5.06. Limitation of Suits...........................................43
Section 5.07. Unconditional Rights of Noteholders To Receive
Principal and Interest........................................43
Section 5.08. Restoration of Rights and Remedies............................44
Section 5.09. Rights and Remedies Cumulative................................44
Section 5.10. Delay or Omission Not a Waiver................................44
Section 5.11. Control by Noteholders........................................44
Section 5.12. Waiver of Past Defaults.......................................45
Section 5.13. Undertaking for Costs.........................................45
Section 5.14. Waiver of Stay or Extension Laws..............................45
Section 5.15. Sale of Trust Estate..........................................46
Section 5.16. Action on Notes...............................................47
Section 5.17. Performance and Enforcement of Certain Obligations............47
ARTICLE VI
The Indenture Trustee
Section 6.01. Duties of Indenture Trustee...................................49
Section 6.02. Rights of Indenture Trustee...................................50
Section 6.03. Individual Rights of Indenture Trustee........................50
Section 6.04. Indenture Trustee's Disclaimer................................50
Section 6.05. Notice of Event of Default....................................51
Section 6.06. Reports by Indenture Trustee to Holders.......................51
Section 6.07. Compensation and Indemnity....................................51
Section 6.08. Replacement of Indenture Trustee..............................52
Section 6.09. Successor Indenture Trustee by Merger.........................52
Section 6.10. Appointment of Co-Indenture Trustee or Separate
Indenture Trustee.............................................53
Section 6.11. Eligibility; Disqualification.................................54
Section 6.12. Preferential Collection of Claims Against Issuer..............54
Section 6.13. Representation and Warranty...................................54
Section 6.14. Directions to Indenture Trustee...............................54
Section 6.15. No Consent to Certain Acts of Depositor.......................55
ARTICLE VII
Noteholders' Lists and Reports
Section 7.01. Issuer To Furnish Indenture Trustee Names and Addresses
of Noteholders................................................56
Section 7.02. Preservation of Information; Communications to Noteholders....56
Section 7.03. Reports by Issuer.............................................56
Section 7.04. Reports by Indenture Trustee..................................57
ARTICLE VIII
Accounts, Disbursements and Releases
Section 8.01. Collection of Money...........................................58
Section 8.02. Trust Accounts................................................58
Section 8.03. Opinion of Counsel............................................59
Section 8.04. Termination Upon Distribution to Noteholders..................59
Section 8.05. Release of Trust Estate.......................................60
Section 8.06. Surrender of Notes Upon Final Payment.........................60
ARTICLE IX
Supplemental Indentures
Section 9.01. Supplemental Indentures Without Consent of Noteholders........61
Section 9.02. Supplemental Indentures With Consent of Noteholders...........62
Section 9.03. Execution of Supplemental Indentures..........................63
Section 9.04. Effect of Supplemental Indenture..............................63
Section 9.05. Conformity with Trust Indenture Act...........................64
Section 9.06. Reference in Notes to Supplemental Indentures.................64
ARTICLE X
[Reserved]
ARTICLE XI
Miscellaneous
Section 11.01. Compliance Certificates and Opinions, etc.....................66
Section 11.02. Form of Documents Delivered to Indenture Trustee..............67
Section 11.03. Acts of Noteholders...........................................68
Section 11.04. Notices, etc., to Indenture Trustee, Issuer,
Credit Enhancer and Rating Agencies...........................69
Section 11.05. Notices to Noteholders; Waiver................................70
Section 11.06. Alternate Payment and Notice Provisions.......................70
Section 11.07. Conflict with Trust Indenture Act.............................70
Section 11.08. Effect of Headings............................................70
Section 11.09. Successors and Assigns........................................71
Section 11.10. Separability..................................................71
Section 11.11. Benefits of Indenture.........................................71
Section 11.12. Legal Holidays................................................71
Section 11.13. GOVERNING LAW.................................................71
Section 11.14. Counterparts..................................................71
Section 11.15. Recording of Indenture........................................71
Section 11.16. Issuer Obligation.............................................71
Section 11.17. No Petition...................................................72
Section 11.18. Inspection....................................................72
Section 11.19. Authority of the Administrator................................72
Signatures and Seals .........................................................81
Acknowledgments ..............................................................82
EXHIBITS
Exhibit A-1 - Form of Term Notes
Exhibit A-2 - Form of Variable Funding Notes
Exhibit B - Mortgage Loan Schedule
Exhibit C - Form of Opinion to be delivered pursuant
to Section 4.01(b)(ii)
Exhibit D - Form of Opinion to be delivered pursuant
to Section 4.01(b)(iii)
Exhibit E - Loan Agreement
Exhibit F - Investment Letter
<PAGE>
This Indenture, dated as of ______, 199_, between HOME EQUITY LOAN TRUST
199_-_, a Delaware business trust, as Issuer (the "Issuer"), and
[________________], as Indenture Trustee (the "Indenture Trustee"),
WITNESSETH THAT:
Each party hereto agrees as follows for the benefit of the other party
and for the equal and ratable benefit of the Holders of the Issuer's Series
199__-__ Asset Backed Term Notes (the "Notes").
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Trustee at the Closing Date, as
Indenture Trustee for the benefit of the Holders of the Notes, all of the
Issuer's right, title and interest in and to whether now existing or hereafter
created (a) the Mortgage Loans and all monies and proceeds due thereon after
the Cut-off Date, (b) the Servicing Agreement and the Mortgage Loan Purchase
Agreement, (c) all funds on deposit in the Funding Account, including all
income from the investment and reinvestment of funds therein, (d) all funds on
deposit from time to time in the Collection Account allocable to the Mortgage
Loans; (e) all funds on deposit from time to time in the Payment Account and
in all proceeds thereof; (f) the Policy; and (g) all present and future
claims, demands, causes and chooses in action in respect of any or all of the
foregoing and all payments on or under, and all proceeds of every kind and
nature whatsoever in respect of, any or all of the foregoing and all payments
on or under, and all proceeds of every kind and nature whatsoever in the
conversion thereof, voluntary or involuntary, into cash or other liquid
property, all cash proceeds, accounts, accounts receivable, notes, drafts,
acceptances, checks, deposit accounts, rights to payment of any and every
kind, and other forms of obligations and receivables, instruments and other
property which at any time constitute all or part of or are included in the
proceeds of any of the foregoing (collectively, the "Trust Estate" or the
"Collateral").
The foregoing Grant is made in trust to secure the payment of principal
of and interest on, and any other amounts owing in respect of, the Notes,
equally and ratably without prejudice, priority or distinction, and to secure
compliance with the provisions of this Indenture, all as provided in this
Indenture.
The Indenture Trustee, as Indenture Trustee on behalf of the Holders of
the Notes, acknowledges such Grant, accepts the trust under this Indenture in
accordance with the provisions hereof and agrees to perform its duties as
Indenture Trustee as required herein.
ARTICLE I
Definitions
Section 1.01. Definitions. For all purposes of this Indenture, except as
otherwise expressly provided herein or unless the context otherwise requires,
capitalized terms not otherwise defined herein shall have the meanings
assigned to such terms in the Definitions attached hereto as Appendix A which
is incorporated by reference herein. All other capitalized terms used herein
shall have the meanings specified herein.
Section 1.02. Incorporation by Reference of Trust Indenture Act. Whenever
this Indenture refers to a provision of the TIA, the provision is incorporated
by reference in and made a part of this Indenture. The following TIA terms
used in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Indenture
Trustee.
"obligor" on the indenture securities means the Issuer and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule have
the meaning assigned to them by such definitions.
Section 1.03. Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in the plural
include the singular; and
(vi) any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection
herewith means such agreement, instrument or statute as from time to time
amended, modified or supplemented and includes (in the case of agreements
or instruments) references to all attachments thereto and instruments
incorporated therein; references to a Person are also to its permitted
successors and assigns.
<PAGE>
ARTICLE II
Original Issuance of Notes
Section 2.01. Form. The Term Notes [and the Variable Funding Notes, in
each case] together with the Indenture Trustee's certificate of
authentication, shall be in substantially the forms set forth in Exhibit[s]
A-1 [and A-2, respectively,] with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may, consistently herewith,
be determined by the officers executing such Notes, as evidenced by their
execution of the Notes. Any portion of the text of any Note may be set forth
on the reverse thereof, with an appropriate reference thereto on the face of
the Note.
The Notes shall be typewritten, printed, lithographed or engraved or
produced by any combination of these methods (with or without steel engraved
borders), all as determined by the Authorized Officers executing such Notes,
as evidenced by their execution of such Notes.
The terms of the Notes set forth in Exhibits A-1[, A-2] and A-3 are part
of the terms of this Indenture.
Section 2.02. Execution, Authentication and Delivery. The Notes shall be
executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who were
at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
The Indenture Trustee shall upon Issuer Request authenticate and deliver
Term Notes for original issue in an aggregate initial principal amount of
$[______________] [and Variable Funding Notes for original issue in an
aggregate initial principal amount of $[_____________]]. [The Security Balance
of the Variable Funding Notes in the aggregate may not exceed the Maximum
Variable Funding Balance.] The aggregate principal amount of Notes outstanding
at any time may not exceed [the sum of] $[_____________] [and the Security
Balance of Additional Variable Funding Notes issued pursuant to the terms of
Section 4.01 hereof].
Each Note shall be dated the date of its authentication. The Notes shall
be issuable as registered Notes and the Term Notes shall be issuable in the
minimum initial Security Balances of $[________] and in integral multiples of
$[______] in excess thereof.
[Each Variable Funding Note shall be initially issued with a Security
Balance of $[______] or, if applicable, with a Security Balance in the amount
equal to the Additional Balance Differential for the Collection Period related
to the Payment Date following the date of issuance of such Variable Funding
Note pursuant to Section 4.01(c).]
No Note shall be entitled to any benefit under this Indenture or be valid
or obligatory for any purpose, unless there appears on such Note a certificate
of authentication substantially in the form provided for herein executed by
the Indenture Trustee by the manual signature of one of its authorized
signatories, and such certificate upon any Note shall be conclusive evidence,
and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
Section 2.03. Opinions of Counsel. On the Closing Date, the Indenture
Trustee shall have received: (i) an Opinion of Counsel, in form and substance
reasonably satisfactory to the Indenture Trustee and its counsel, with respect
to securities law matters; (ii) an Opinion of Counsel, in form and substance
reasonably satisfactory to the Indenture Trustee and its counsel, with respect
to the tax status of the arrangement created by the Indenture; and (iii) an
Opinion of Counsel to the Issuer, in form and substance reasonably
satisfactory to the Indenture Trustee and its counsel, with respect to the due
authorization, valid execution and delivery of this Indenture and with respect
to its binding effect on the Issuer.
<PAGE>
ARTICLE III
Covenants
Section 3.01. Collection of Payments on Mortgage Loan Accounts. The
Indenture Trustee shall establish and maintain with itself a trust account
(the "Payment Account") in which the Indenture Trustee shall, subject to the
terms of this paragraph, deposit, on the same day as it is received from the
Master Servicer, each remittance received by the Indenture Trustee with
respect to the Mortgage Loans. The Indenture Trustee shall make all payments
of principal of and interest on the Notes, subject to Section 3.03 as provided
in Section 3.05 herein from moneys on deposit in the Payment Account.
Section 3.02. Maintenance of Office or Agency. The Issuer will maintain
in the Borough of Manhattan, The City of New York, an office or agency where,
subject to satisfaction of conditions set forth herein, Notes may be
surrendered for registration of transfer or exchange, and where notices and
demands to or upon the Issuer in respect of the Notes and this Indenture may
be served. The Issuer hereby initially appoints the Indenture Trustee to serve
as its agent for the foregoing purposes. If at any time the Issuer shall fail
to maintain any such office or agency or shall fail to furnish the Indenture
Trustee with the address thereof, such surrenders, notices and demands may be
made or served at the Corporate Trust Office, and the Issuer hereby appoints
the Indenture Trustee as its agent to receive all such surrenders, notices and
demands.
Section 3.03. Money for Payments To Be Held in Trust; Paying Agent;
Certificate Paying Agent. (a) As provided in Section 3.01, all payments of
amounts due and payable with respect to any Notes that are to be made from
amounts withdrawn from the Payment Account pursuant to Section 3.01 shall be
made on behalf of the Issuer by the Indenture Trustee or by the Paying Agent,
and no amounts so withdrawn from the Payment Account for payments of Notes
shall be paid over to the Issuer except as provided in this Section 3.03.
The Issuer will cause each Paying Agent other than the Indenture Trustee
to execute and deliver to the Indenture Trustee an instrument in which such
Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent, it hereby so agrees), subject to the provisions
of this Section 3.03, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts due with
respect to the Notes 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;
(ii) give the Indenture Trustee notice of any default by the Issuer
of which it has actual knowledge in the making of any payment required to
be made with respect to the Notes;
(iii) at any time during the continuance of any such default, upon
the written request of the Indenture Trustee, forthwith pay to the
Indenture Trustee all sums so held in trust by such Paying Agent;
(iv) immediately resign as Paying Agent and forthwith pay to the
Indenture Trustee all sums held by it in trust for the payment of Notes
if at any time it ceases to meet the standards required to be met by a
Paying Agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on any Notes of any applicable
withholding taxes imposed thereon and with respect to any applicable
reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, by Issuer Request
direct any Paying Agent to pay to the Indenture Trustee all sums held in trust
by such Paying Agent, such sums to be held by the Indenture Trustee upon the
same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any money
held by the Indenture Trustee or any Paying Agent in trust for the payment of
any amount due with respect to any Note and remaining unclaimed for two years
after such amount has become due and payable shall be discharged from such
trust and be paid to the Issuer on Issuer Request; and the Holder of such Note
shall thereafter, as an unsecured general creditor, look only to the Issuer
for payment thereof (but only to the extent of the amounts so paid to the
Issuer), and all liability of the Indenture Trustee or such Paying Agent with
respect to such trust money shall thereupon cease; provided, however, that the
Indenture Trustee or such Paying Agent, before being required to make any such
repayment, shall at the expense and direction of the Issuer cause to be
published once, in an Authorized Newspaper published in the English language,
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be repaid
to the Issuer. The Indenture Trustee shall also adopt and employ, at the
expense and direction of the Issuer, any other reasonable means of
notification of such repayment (including, but not limited to, mailing notice
of such repayment to Holders whose Notes 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 the Indenture
Trustee or of any Paying Agent, at the last address of record for each such
Holder).
The Issuer hereby appoints [__________________] as Certificate Paying
Agent and Residual Ownership Interest Paying Agent to make payments to
Certificateholders and holders of the Residual Ownership Interest on behalf of
the Issuer in accordance with the provisions of the Certificates, Section 3.05
hereof and the provisions of the Trust Agreement, and $[_______________]
hereby accepts such appointment and further agrees that it will be bound by
the provisions of the Trust Agreement relating to the Certificate Paying Agent
and Residual Ownership Interest Paying Agent and will:
(i) hold all sums held by it for the payment of amounts due with
respect to the Certificates and the Residual Ownership Interest 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 as
provided in the Trust Agreement and pay such sums to such Persons as
herein and therein provided;
(ii) give the Owner Trustee notice of any default by the Issuer of
which it has actual knowledge in the making of any payment required to be
made with respect to the Certificates;
(iii) at any time during the continuance of any such default, upon
the written request of the Owner Trustee forthwith pay to the Owner
Trustee on behalf of the Issuer all sums so held in Trust by such
Certificate Paying Agent;
(iv) immediately resign as Certificate Paying Agent and forthwith
pay to the Owner Trustee on behalf of the Issuer all sums held by it in
trust for the payment of Certificates and the Residual Ownership Interest
if at any time it ceases to meet the standards required to be met by the
Certificate Paying Agent or the Residual Ownership Interest Paying Agent
at the time of its appointment;
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on any Certificates or the
holders of the Residual Ownership Interest of any applicable withholding
taxes imposed thereon and with respect to any applicable reporting
requirements in connection therewith; and
(vi) deliver to the Owner Trustee a copy of the report to
Certificateholders and holders of Residual Ownership Interest prepared
with respect to each Payment Date by the Master Servicer pursuant to
Section 4.01 of the Servicing Agreement.
Section 3.04. Existence. The Issuer will keep in full effect its
existence, rights and franchises as a business trust under the laws of the
State of Delaware (unless it becomes, or any successor Issuer hereunder is or
becomes, organized under the laws of any other state or of the United States
of America, in which case the Issuer will keep in full effect its existence,
rights and franchises under the laws of such other jurisdiction) and will
obtain and preserve its qualification to do business in each jurisdiction in
which such qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes, the Mortgage Loans and each other
instrument or agreement included in the Trust Estate.
Section 3.05. Payment of Principal and Interest; Defaulted Interest. (a)
On each Payment Date from amounts on deposit in the Payment Account after
making (x) any deposit to the Funding Account pursuant to Section 8.02(b) and
(y) any deposits to the Payment Account pursuant to Section 8.02(c)(ii) and
Section 8.02(c)(i)(2), the Indenture Trustee, on behalf of the Issuer shall
pay to the Noteholders and the Certificate Paying Agent, on behalf of the
Issuer shall pay to the Certificateholders and the Certificate Paying Agent,
on behalf of the Issuer shall pay to the holders of the Residual Ownership
Interest, and the Indenture Trustee, in its capacity as agent for the Issuer
shall pay to other Persons, the amounts to which they are entitled as set
forth below:
(i) The sum of (x) to the Noteholders the sum of (a) one month's
interest at the Note Rate on the Security Balances of Notes immediately
prior to such Payment Date and (b) any previously accrued and unpaid
interest for prior Payment Dates and (y) to the Certificateholders, the
Certificate Distribution Amount for such Payment Date;
(ii) [if such Payment Date is after the Funding Period, to the
Noteholders and the Certificateholders as the case may be,] as principal
on the Term Notes[, Variable Funding Notes,] and the Certificates, the
applicable Security Percentage of the Principal Collection Distribution
Amount [and if such Payment Date is the first Payment Date following the
end of the Funding Period (if ending due to an Amortization Event) or the
Payment Date on which the Funding Period ends, to the Noteholders and
Certificateholders as principal on the Term Notes, Variable Funding
Notes, and Certificates the applicable Security Percentage of the amount
deposited from the Funding Account in respect of Security Principal
Collections];
(iii) to the Noteholders and the Certificateholders, as the case may
be, as principal on the Term Notes[, Variable Funding Notes] and the
Certificates, pro rata, based on the Security Balances from the amount
remaining on deposit in the Payment Account, up to the applicable
Security Percentage of Liquidation Loss Amounts for the related
Collection Period;
(iv) to the Noteholders and the Certificateholders, as the case may
be, as principal on the Term Notes[, Variable Funding Notes] and the
Certificates, pro rata, based on the Security Balances from the amount
remaining on deposit in the Payment Account, up to the applicable
Security Percentage of Carryover Loss Amounts;
(v) to the Credit Enhancer, in the amount of the premium for the
Credit Enhancement Instrument [and for any Additional Credit Enhancement
Instrument];
(vi) to the Credit Enhancer, to reimburse it for prior draws made on
the Credit Enhancement Instrument [and on any Additional Credit
Enhancement Instrument] (with interest thereon as provided in the
Insurance Agreement);
(vii) to the Noteholders and the Certificateholders, as the case may
be, as principal on the Term Notes[, Variable Funding Notes] and the
Certificates, pro rata, based on the Security Balances from Security
Interest Collections, up to the Accelerated Principal Distribution Amount
for such Payment Date (such amount, if any, paid pursuant to this clause
(vii) being referred to herein as the "Accelerated Principal Payment
Amount");
(viii) to the Credit Enhancer, any other amounts owed to the Credit
Enhancer pursuant to the Insurance Agreement;
(ix) [Reserved];
(x) to reimburse the Administrator for expenditures made on behalf
of the Issuer with respect to the performance of its duties under the
Indenture; and
(xi) any remaining amounts to the holders of the Residual Ownership
Interest as described in Section 5.01 of the Trust Agreement;
provided, however, in the event that on a Payment Date a Credit Enhancer
Default shall have occurred and be continuing then the priorities of
distributions described above will be adjusted such that payments of the
Certificate Distribution Amount and all other amounts to be paid in respect of
principal on the Certificates will not be paid until the full amount of
interest and principal in accordance with clauses (i)(x) and (ii) through (iv)
above that are due on the Notes on such Payment Date have been paid and
provided, further, that on the Final Scheduled Payment Date or other final
Payment Date, the amount to be paid pursuant to clause (ii) above shall be
equal to the Security Balances of the Securities immediately prior to such
Payment Date.
The amounts paid to Noteholders shall be paid to each Class in accordance
with the Class Percentage as set forth in paragraph (b) below. Interest will
accrue on the Notes during an Interest Period on the basis of the actual
number of days in such Interest Period and a year assumed to consist of 360
days.
Any installment of interest or principal, if any, payable on any Note or
Certificate that is punctually paid or duly provided for by the Issuer on the
applicable Payment Date shall, if such Holder holds Notes or Certificates
other than the Designated Certificate of an aggregate initial Principal
Balance of at least $[___________] be paid to each Holder of record on the
preceding Record Date, by wire transfer to an account specified in writing by
such Holder reasonably satisfactory to the Indenture Trustee as of the
preceding Record Date or in all other cases or if no such instructions have
been delivered to the Indenture Trustee, by check to such Noteholder mailed to
such Holder's address as it appears in the Note Register the amount required
to be distributed to such Holder on such Payment Date pursuant to such
Holder's Securities; provided, however, that the Indenture Trustee shall not
pay to such Holders any amount required to be withheld from a payment to such
Holder by the Code.
(b) The principal of each Note shall be due and payable in full on the
Final Scheduled Payment Date for such Note as provided in the related form of
Note set forth in Exhibits A-1 [and A-2]. All principal payments on each Class
of Notes shall be made to the Noteholders of such Class entitled thereto in
accordance with the Percentage Interests represented by such Notes. Upon
notice to the Indenture Trustee by the Issuer, the Indenture Trustee shall
notify the Person in whose name a Note is registered at the close of business
on the Record Date preceding the Final Scheduled Payment Date or other final
Payment Date. Such notice shall be mailed no later than five Business Days
prior to such Final Scheduled Payment Date or other final Payment Date and
shall specify that payment of the principal amount and any interest due with
respect to such Note at the Final Scheduled Payment Date or other final
Payment Date will be payable only upon presentation and surrender of such Note
and shall specify the place where such Note may be presented and surrendered
for such final payment.
Section 3.06. Protection of Trust Estate. (a) The Issuer will from time
to time execute and deliver all such supplements and amendments hereto and all
such financing statements, continuation statements, instruments of further
assurance and other instruments, and will take such other action necessary or
advisable to:
(i) maintain or preserve the lien and security interest (and the
priority thereof) of this Indenture or carry out more effectively the
purposes hereof;
(ii) perfect, publish notice of or protect the validity of any Grant
made or to be made by this Indenture;
(iii) enforce any of the Mortgage Loans; or
(iv) preserve and defend title to the Trust Estate and the rights of
the Indenture Trustee and the Noteholders in such Trust Estate against
the claims of all persons and parties.
(b) Except as otherwise provided in the Servicing Agreement or this
Indenture, the Indenture Trustee shall not remove any portion of the Trust
Estate that consists of money or is evidenced by an instrument, certificate or
other writing from the jurisdiction in which it was held at the date of the
most recent Opinion of Counsel delivered pursuant to Section 3.06 (or from the
jurisdiction in which it was held as described in the Opinion of Counsel
delivered at the Closing Date pursuant to Section 3.07(a), if no Opinion of
Counsel has yet been delivered pursuant to Section 3.07(b) unless the Trustee
shall have first received an Opinion of Counsel to the effect that the lien
and security interest created by this Indenture with respect to such property
will continue to be maintained after giving effect to such action or actions.
The Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required to be executed pursuant to this Section 3.06.
Section 3.07. Opinions as to Trust Estate. (a) On the Closing Date, the
Issuer shall furnish to the Indenture Trustee, the Owner Trustee and to the
Administrator an Opinion of Counsel either stating that, in the opinion of
such counsel, such action has been taken with respect to the delivery of the
Mortgage Notes, the recording of the Assignments of Mortgage, the recording
and filing of this Indenture, any indentures supplemental hereto, and any
other requisite documents, and with respect to the execution and filing of any
financing statements and continuation statements, as are necessary to perfect
and make effective the lien and security interest of this Indenture 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 December 31 in each calendar year, beginning in 199_,
the Issuer shall furnish to the Indenture Trustee and to the Administrator an
Opinion of Counsel at the expense of the Issuer either stating that, in the
opinion of such counsel, such action has been taken with respect to the
recording of the Assignments of Mortgage, the recording, filing, re-recording
and refiling of this Indenture, any indentures supplemental hereto and any
other requisite documents and with respect to the execution and filing of any
financing statements and continuation statements as is necessary to maintain
the lien and security interest created by this Indenture 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 Indenture, any indentures supplemental hereto and any other
requisite documents and the execution and filing of any financing statements
and continuation statements that will, in the opinion of such counsel, be
required to maintain the lien and security interest of this Indenture until
December 31 in the following calendar year.
Section 3.08. [Reserved]
Section 3.09. Performance of Obligations; Servicing Agreement. (a) The
Issuer will punctually perform and observe all of its obligations and
agreements contained in this Indenture, the Basic Documents and in the
instruments and agreements included in the Trust Estate. Except as otherwise
expressly provided therein, the Issuer shall not waive, amend, modify,
supplement or terminate any Basic Document, including without limitation the
Servicing Agreement or any provision thereof without the consent of the
Indenture Trustee or the Holders of at least a majority of the Security
Balances of the Notes, the Master Servicer and the Credit Enhancer. Upon the
taking of any such action with respect to any Basic Document the Issuer shall
give written notice thereof to the Rating Agencies.
(b) The Issuer may contract with other Persons to assist it in performing
its duties under this Indenture, and any performance of such duties by a
Person identified to the Indenture Trustee in an Officer's Certificate of the
Issuer shall be deemed to be action taken by the Issuer. Initially, the Issuer
has contracted with the Administrator to assist the Issuer in performing its
duties under this Indenture.
(c) The Issuer will not take any action or 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 documents relating to the Mortgage Loans or
under any instrument included in the Trust Estate, or which would result in
the amendment, hypothecation, subordination, termination or discharge of, or
impair the validity or effectiveness of, any of the documents relating to the
Mortgage Loans or any such instrument, except such actions as the Master
Servicer is expressly permitted to take in the Servicing Agreement.
(d) If the Issuer shall have knowledge of the occurrence of an Event of
Servicing Termination, the Issuer shall promptly notify the Indenture Trustee
thereof, and shall specify in such notice the action, if any, the Issuer is
taking in respect of such Event of Servicing Termination. If such Event of
Servicing Termination arises from the failure of the Master Servicer to
perform any of its duties or obligations under the Servicing Agreement with
respect to the Mortgage Loans, the Issuer may remedy such failure, provided
that if such Event of Servicing Termination arises from the failure by the
Master Servicer to comply with requirements imposed upon it under Section 3.04
of the Servicing Agreement with respect to hazard insurance for the Mortgaged
Properties securing the Mortgage Loans, the Issuer shall promptly, as the case
may be, pay such premiums or obtain substitute insurance coverage meeting the
requirements of said Section 3.04. So long as any such Event of Servicing
Termination shall be continuing, the Indenture Trustee may exercise its
remedies set forth in Section 7.01 of the Servicing Agreement. Unless granted
or permitted by the Credit Enhancer or the Holders of Securities to the extent
provided above, the Issuer may not waive any such Event of Servicing
Termination or terminate the rights and powers of the Master Servicer under
the Servicing Agreement.
(e) Upon any termination of the Master Servicer's rights and powers
pursuant to Section 7.01 of the Servicing Agreement, all rights, powers,
duties and responsibilities of the Master Servicer with respect to the
Mortgage Loans shall vest in and be assumed by the Indenture Trustee, and the
Indenture Trustee shall be the successor in all respect to the Master Servicer
in its capacity as servicer with respect to the Mortgage Loans under the
Servicing Agreement. Upon any such termination, the Indenture Trustee is
hereby authorized, and the Indenture Trustee hereby agrees, to mail a notice
to each Mortgagor directing each such Mortgagor to mail all payments in
respect of the related Mortgage Loan to the Indenture Trustee or its agent at
the address specified in such notice. The Indenture Trustee may resign as the
Master Servicer by giving written notice of such resignation to the Issuer and
the Credit Enhancer and in such event will be released from such duties and
obligations, such release to be effective on the date a new servicer enters
into a servicing agreement with the Issuer as provided below. Upon delivery of
any such notice to the Issuer, the Issuer shall obtain a new servicer,
satisfactory in all respects to the Indenture Trustee and the Credit Enhancer,
which shall enter into a servicing agreement with the Issuer and the Indenture
Trustee, such agreement to be not less favorable to the Credit Enhancer in its
reasonable judgment, or the Noteholders if a Credit Enhancer Default shall
have occurred and be continuing, than the Servicing Agreement in any material
respect. If, within 30 days after the delivery of the notice referred to
above, the Issuer shall not have obtained such new servicer, the Indenture
Trustee may appoint, or may petition a court of competent jurisdiction to
appoint, a successor servicer acceptable to the Credit Enhancer to service the
Mortgage Loans. In connection with any such appointment, the Indenture Trustee
may make such arrangements for the compensation of such successor as it and
such successor shall agree, and the Issuer shall enter into an agreement with
such successor for the servicing of the Mortgage Loans, such agreement to be
substantially similar to the Servicing Agreement or otherwise acceptable to
the Credit Enhancer; provided that any such compensation of the successor
servicer unless otherwise agreed to by the Credit Enhancer, shall not be in
excess of the Servicing Fee payable to the Master Servicer under the Servicing
Agreement. If the Indenture Trustee shall succeed to the Master Servicer's
duties as servicer of the Mortgage Loans as provided herein, it shall do so in
its individual capacity and not in its capacity as Indenture Trustee.
(f) The Issuer shall at all times retain an Administrator (approved by
the Credit Enhancer under the Administration Agreement) and may enter into
contracts with other Persons for the performance of the Issuer's obligations
hereunder, and performance of such obligations by such Persons shall be deemed
to be performance of such obligations by the Issuer.
Section 3.10. Negative Covenants. So long as any Notes are Outstanding,
the Issuer shall not:
(i) except as expressly permitted by this Indenture, sell, transfer,
exchange or otherwise dispose of the Trust Estate, unless directed to do
so by the Indenture Trustee;
(ii) claim any credit on, or make any deduction from the principal
or interest payable in respect of, the Notes (other than amounts properly
withheld from such payments under the Code) or assert any claim against
any present or former Noteholder by reason of the payment of the taxes
levied or assessed upon any part of the Trust Estate; or
(iii) (A) permit the validity or effectiveness of this Indenture to
be impaired, or permit the lien of this Indenture to be amended,
hypothecated, subordinated, terminated or discharged, or permit any
Person to be released from any covenants or obligations with respect to
the Notes under this Indenture except as may be expressly permitted
hereby, (B) permit any lien, charge, excise, claim, security interest,
mortgage or other encumbrance (other than the lien of this Indenture) to
be created on or extend to or otherwise arise upon or burden the Trust
Estate or any part thereof or any interest therein or the proceeds
thereof or (C) permit the lien of this Indenture not to constitute a
valid first priority security interest in the Trust Estate.
Section 3.11. Annual Statement as to Compliance. The Issuer will deliver
to the Indenture Trustee, within 120 days after the end of each fiscal year of
the Issuer (commencing with the fiscal year 199_), an Officer's Certificate
stating, as to the Authorized Officer signing such Officer's Certificate,
that:
(i) a review of the activities of the Issuer during such year and of
its performance under this Indenture has been made under such Authorized
Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge, based on
such review, the Issuer has complied with all conditions and covenants
under this Indenture throughout such year, or, if there has been a
default in its compliance with any such condition or covenant, specifying
each such default known to such Authorized Officer and the nature and
status thereof.
Section 3.12. Recording of Assignments. The Issuer shall exercise its
right under the Mortgage Loan Purchase Agreement with respect to the
obligation of the Seller to submit or cause to be submitted for recording all
Assignments of Mortgages on or prior to _________, 199_ with respect to the
Initial Loans and within [__] days following the related Deposit Date with
respect to any Additional Loans.
Section 3.13. Representations and Warranties Concerning the Mortgage
Loans. The Issuer has pledged to the Indenture Trustee all of its right under
the Mortgage Loan Purchase Agreement and the Indenture Trustee has the benefit
of the representations and warranties made by the Seller in Section [_____]
thereof, Section [____] thereof and Section [__] thereof concerning the
Mortgage Loans and the right to enforce any remedy against the Seller provided
in such Section [_____] or Section [_____] to the same extent as though such
representations and warranties were made directly to the Indenture Trustee.
Section 3.14. Indenture Trustee's Review of Related Documents. (a) The
Indenture Trustee agrees, for the benefit of the holders of the Notes, to
review, or the related Custodian shall review, unless the Indenture Trustee or
such Custodian made such review prior to the Closing Date, on or prior to
________, 199_ the Related Documents delivered to it on or prior to the
Closing Date and within 90 days of the related Deposit Date, the Related
Documents delivered to it in connection with any Additional Loan, in each case
in connection with the Grant of the Mortgage Loan listed on the Schedule of
Mortgage Loans as security for the Notes. Such review shall be limited to a
determination that all documents referred to in the definition of the term
Related Documents have been executed and are appropriately endorsed in the
manner called for in the Mortgage Loan Purchase Agreement and that the Related
Documents have been delivered with respect to each such Mortgage Loan (other
than the documents related to (i) any Mortgage Loan so listed which has been
subject to a Prepayment in full and termination of related Mortgage Loan, the
proceeds of which have been deposited in the Collection Account in lieu of
delivery of the applicable Related Documents, (ii) any Mortgage Loan with
respect to which the related Mortgaged Property was foreclosed, repossessed or
otherwise converted subsequent to the Cut-Off Date and prior to the Closing
Date or with respect to which foreclosure proceedings have been commenced and
for which the related Related Documents are required in connection with the
prosecution of such foreclosure proceedings and for which the Issuer has
delivered a trust receipt called for by Section 3.15(c) and (iii) any Mortgage
Loan as to which the original Assignment of Mortgage has been submitted for
recording), that all such documents have been executed, and that all such
documents relate to the Mortgage Loans listed on the Schedule of Mortgage
Loans. In performing such review, the Trustee may rely upon the purported
genuineness and due execution of any such document and on the purported
genuineness of any signature thereon.
(b) If any Related Document is defective in any material respect which
may materially and adversely affect the value of the related Mortgage Loan,
the interest of the Indenture Trustee or the Noteholders in such Mortgage
Loan, or if any document required to be delivered to the Indenture Trustee has
not been delivered, the Indenture Trustee or the related Custodian on behalf
of the Indenture Trustee shall notify the Issuer, the Seller, the Credit
Enhancer and the Master Servicer immediately after obtaining knowledge thereof
and the Indenture Trustee, as assignee of the Issuer's rights under the
Mortgage Loan Purchase Agreement, shall exercise its remedies in respect of
any such defect against the Seller as provided in the Mortgage Loan Purchase
Agreement.
Section 3.15. Trust Estate; Related Documents. (a) When required by the
provisions of this Indenture, the Indenture Trustee shall execute instruments
to release property from the lien of this Indenture, or convey the Indenture
Trustee's interest in the same, in a manner and under circumstances which are
not inconsistent with the provisions of this Indenture. No party relying upon
an instrument executed by the Indenture Trustee as provided in this Article
III shall be bound to ascertain the Indenture Trustee's authority, inquire
into the satisfaction of any conditions precedent or see to the application of
any moneys.
(b) In order to facilitate the servicing of the Mortgage Loans, the
Master Servicer is hereby authorized in the name and on behalf of the
Indenture Trustee and the Issuer, to execute assumption agreements,
substitution agreements, and instruments of satisfaction or cancellation or of
partial or full release or discharge, or any other document contemplated by
the Servicing Agreement and other comparable instruments with respect to the
Mortgage Loans and with respect to the Mortgaged Properties subject to the
Mortgages (and the Indenture Trustee and the Owner Trustee shall promptly
execute any such documents on request of the Master Servicer), subject to the
obligations of the Master Servicer under the Servicing Agreement. If from time
to time the Master Servicer shall deliver to the Indenture Trustee or the
related Custodian copies of any written assurance, assumption agreement or
substitution agreement or other similar agreement pursuant to Section 3.05 of
the Servicing Agreement, the Indenture Trustee or the related Custodian shall
check that each of such documents purports to be an original executed copy (or
a copy of the original executed document if the original executed copy has
been submitted for recording and has not yet been returned) and, if so, shall
file such documents, and upon receipt of the original executed copy from the
applicable recording office or receipt of a copy thereof certified by the
applicable recording office shall file such originals or certified copies with
the Related Documents. If any such documents submitted by the Master Servicer
do not meet the above qualifications, such documents shall promptly be
returned by the Indenture Trustee or the related Custodian to the Master
Servicer, with a direction to the Master Servicer to forward the correct
documentation.
(c) Upon Issuer Request accompanied by an Officers' Certificate of the
Master Servicer pursuant to Section 3.07 of the Servicing Agreement to the
effect that a Mortgage Loan has been the subject of a final payment or a
prepayment in full and the related Mortgage Loan has been terminated or that
substantially all Liquidation Proceeds which have been determined by the
Master Servicer in its reasonable judgment to be finally recoverable have been
recovered, and upon deposit to the Collection Account of such final monthly
payment, prepayment in full together with accrued and unpaid interest to the
date of such payment with respect to such Mortgage Loan or, if applicable,
Liquidation Proceeds, the Indenture Trustee and the Issuer shall promptly
release the Related Documents to the Master Servicer upon the order of the
Issuer, along with such documents as the Master Servicer or the Mortgagor may
request as contemplated by the Servicing Agreement to evidence satisfaction
and discharge of such Mortgage Loan. If from time to time and as appropriate
for the servicing or foreclosure of any Mortgage Loan, the Master Servicer
requests the Indenture Trustee or the related Custodian to release the Related
Documents and delivers to the Indenture Trustee or the related Custodian a
trust receipt reasonably satisfactory to the Indenture Trustee or the related
Custodian and signed by a Responsible Officer of the Master Servicer, the
Issuer and the Indenture Trustee or the related Custodian shall release the
Related Documents to the Master Servicer. If such Mortgage Loans shall be
liquidated and the Indenture Trustee or the related Custodian receives a
certificate from the Master Servicer as provided above, then, upon request of
the Issuer, the Indenture Trustee or the related Custodian shall release the
trust receipt to the Master Servicer upon the order of the Issuer.
(d) The Indenture Trustee shall, at such time as there are no Notes
Outstanding and no amounts due to the Credit Enhancer, release all of the
Trust Estate to the Issuer (other than any cash held for the payment of the
Notes pursuant to Section 3.03 or 4.11), subject, however, to the rights of
the Indenture Trustee under Section 6.07.
Section 3.16. Amendments to Servicing Agreement. The Indenture Trustee
may enter into any amendment or supplement to the Servicing Agreement only in
accordance with Section 8.01 of the Servicing Agreement. The Indenture 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 3.17. Master Servicer as Agent and Bailee of Indenture Trustee.
Solely for purposes of perfection under Section 9-305 of the Uniform
Commercial Code or other similar applicable law, rule or regulation of the
state in which such property is held by the Master Servicer, the Indenture
Trustee hereby acknowledges that the Master Servicer is acting as agent and
bailee of the Indenture Trustee in holding amounts on deposit in the
Collection Account pursuant to Section 3.02 of the Servicing Agreement, as
well as its agent and bailee in holding any Related Documents released to the
Master Servicer pursuant to Section 3.15(c), and any other items constituting
a part of the Trust Estate which from time to time come into the possession of
the Master Servicer. It is intended that, by the Master Servicer's acceptance
of such agency pursuant to Section 3.02 of the Servicing Agreement, the
Trustee, as a secured party, will be deemed to have possession of such Related
Documents, such moneys and such other items for purposes of Section 9-305 of
the Uniform Commercial Code of the state in which such property is held by the
Master Servicer.
Section 3.18. Investment Company Act. The Issuer shall not become an
"investment company" or under the "control" of an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended (or any
successor or amendatory statute), and the rules and regulations thereunder
(taking into account not only the general definition of the term "investment
company" but also any available exceptions to such general definition);
provided, however, that the Issuer shall be in compliance with this Section
3.18 if it shall have obtained an order exempting it from regulation as an
"investment company" so long as it is in compliance with the conditions
imposed in such order.
Section 3.19. Issuer May Consolidate, etc., Only on Certain Terms. (a)
The Issuer shall not consolidate or merge with or into any other Person,
unless:
(i) the Person (if other than the Issuer) formed by or surviving
such consolidation or merger 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 Indenture Trustee, in
form reasonably satisfactory to the Indenture Trustee, the due and
punctual payment of the principal of and interest on all Notes and
Certificates and the performance or observance of every agreement and
covenant of this Indenture on the part of the Issuer to be performed or
observed, all as provided herein;
(ii) immediately after giving effect to such transaction, no Event
of Default shall have occurred and be continuing;
(iii) the Rating Agencies shall have notified the Issuer that such
transaction shall not cause the rating of the Notes or the Certificates
to be reduced, suspended or withdrawn or to be considered by either
Rating Agency to be below investment grade without taking into account
the Credit Enhancement Instrument;
(iv) the Issuer shall have received an Opinion of Counsel (and shall
have delivered copies thereof to the Indenture Trustee) to the effect
that such transaction will not have any material adverse tax consequence
to the Issuer, any Noteholder or any Certificateholder;
(v) any action that is necessary to maintain the lien and security
interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Indenture Trustee an
Officer's Certificate and an Opinion of Counsel each stating that such
consolidation or merger and such supplemental indenture comply with this
Article III and that all conditions precedent herein provided for
relating to such transaction have been complied with (including any
filing required by the Exchange Act).
(b) The Issuer shall not convey or transfer any of its properties or
assets, including those included in the Trust Estate, to any Person, unless:
(i) the Person that acquires by conveyance or transfer the
properties and assets of the Issuer the conveyance or transfer of which
is hereby restricted shall (A) be a United States citizen or a Person
organized and existing under the laws of the United States of America or
any state, (B) expressly assumes, by an indenture supplemental hereto,
executed and delivered to the Indenture Trustee, in form satisfactory to
the Indenture Trustee, the due and punctual payment of the principal of
and interest on all Notes and the performance or observance of every
agreement and covenant of this Indenture on the part of the Issuer to be
performed or observed, all as provided herein, (C) expressly agrees by
means of such supplemental indenture that all right, title and interest
so conveyed or transferred shall be subject and subordinate to the rights
of Holders of the Notes, (D) unless otherwise provided in such
supplemental indenture, expressly agrees to indemnify, defend and hold
harmless the Issuer against and from any loss, liability or expense
arising under or related to this Indenture and the Notes and (E)
expressly agrees by means of such supplemental indenture that such Person
(or if a group of Persons, then one specified Person) shall make all
filings with the Commission (and any other appropriate Person) required
by the Exchange Act in connection with the Notes;
(ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing;
(iii) the Rating Agencies shall have notified the Issuer that such
transaction shall not cause the rating of the Notes or the Certificates
to be reduced, suspended or withdrawn;
(iv) the Issuer shall have received an Opinion of Counsel (and shall
have delivered copies thereof to the Indenture Trustee) to the effect
that such transaction will not have any material adverse tax consequence
to the Issuer, any Noteholder or any Certificateholder;
(v) any action that is necessary to maintain the lien and security
interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Indenture Trustee an
Officer's Certificate and an Opinion of Counsel each stating that such
conveyance or transfer and such supplemental indenture comply with this
Article III and that all conditions precedent herein provided for
relating to such transaction have been complied with (including any
filing required by the Exchange Act).
Section 3.20. Successor or Transferee. (a) Upon any consolidation or
merger of the Issuer in accordance with Section 3.19(a), the Person formed by
or surviving such consolidation or merger (if other than the Issuer) shall
succeed to, and be substituted for, and may exercise every right and power of,
the Issuer under this Indenture with the same effect as if such Person had
been named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of the
Issuer pursuant to Section 3.19(b), the Issuer will be released from every
covenant and agreement of this Indenture to be observed or performed on the
part of the Issuer with respect to the Notes immediately upon the delivery of
written notice to the Indenture Trustee that the Issuer is to be so released.
Section 3.21. No Other Business. The Issuer shall not engage in any
business other than financing, purchasing, owning and selling and managing the
Mortgage Loans in the manner contemplated by this Indenture and the Basic
Documents and all activities incidental thereto.
Section 3.22. No Borrowing. The Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes.
Section 3.23. Guarantees, Loans, Advances and Other Liabilities. Except
as contemplated by this Indenture, the Issuer shall not make any loan or
advance or credit to, or guarantee (directly or indirectly or by an instrument
having the effect of assuring another's payment or performance on any
obligation or capability of so doing or otherwise), endorse or otherwise
become contingently liable, directly or indirectly, in connection with the
obligations, stocks or dividends of, or own, purchase, repurchase or acquire
(or agree contingently to do so) any stock, obligations, assets or securities
of, or any other interest in, or make any capital contribution to, any other
Person.
Section 3.24. Capital Expenditures. The Issuer shall not make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty).
Section 3.25. [Reserved]
Section 3.26. Restricted Payments. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or
security in or of the Issuer, (ii) redeem, purchase, retire or otherwise
acquire for value any such ownership or equity interest or security or (iii)
set aside or otherwise segregate any amounts for any such purpose; provided,
however, that the Issuer may make, or cause to be made, (w) distributions to
the Owner Trustee and the Certificateholders as contemplated by, and to the
extent funds are available for such purpose under the Trust Agreement, (x)
payment to the Master Servicer pursuant to the terms of the Servicing
Agreement and (y) payments to the Indenture Trustee pursuant to Section
1(a)(ii) of the Administration Agreement and (z) make distributions to the
holders of the Residual Ownership Interest as contemplated by the Trust
Agreement. The Issuer will not, directly or indirectly, make payments to or
distributions from the Collection Account except in accordance with this
Indenture and the Basic Documents.
Section 3.27. Notice of Events of Default. The Issuer shall give the
Indenture Trustee the Credit Enhancer and the Rating Agencies prompt written
notice of each Event of Default hereunder and under the Trust Agreement.
Section 3.28. Further Instruments and Acts. Upon request of the Indenture
Trustee, the Issuer will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
Section 3.29. Statements to Noteholders. The Indenture Trustee and the
Certificate Registrar shall forward by mail to each Noteholder and
Certificateholder, respectively, the Statement delivered to it pursuant to
Section 4.01 of the Servicing Agreement.
Section 3.30. [Reserved] [Grant of the Additional Loans. (a) In
consideration of the delivery on each Deposit Date to or upon the order of the
Issuer of all or a portion of the amount in respect of Security Principal
Collections on deposit in the Funding Account, the Issuer shall, to the extent
of the availability thereof, on such Deposit Date during the Funding Period
Grant to the Indenture Trustee all of its right, title and interest in the
Additional Loans and simultaneously with the Grant of the Additional Loans the
Issuer will deliver the related Related Documents to the Indenture Trustee or
the related Custodian.
(b) The obligation of the Indenture Trustee to accept the Grant of the
Additional Loans and the other property and rights related thereto described
in paragraph (a) above is subject to the satisfaction of each of the following
conditions on or prior to each Deposit Date:
(i) the Indenture Trustee shall not have received written notice
from any Rating Agency or the Credit Enhancer to the effect that such
transfer of Additional Loans would adversely affect the then current
rating of the Notes or cause the rating assigned to the Securities to be
below investment grade without taking into account the Credit Enhancement
Instrument;
(ii) the Indenture Trustee shall have received a revised Mortgage
Loan Schedule, listing the Additional Loans;
(iii) the Master Servicer shall confirm to the Indenture Trustee
that it has deposited in the Collection Account all Principal Collections
and Interest Collections in respect of such Additional Loans on or after
the related Deposit Date for the Additional Loans;
(iv) the Indenture Trustee shall have received a duly completed and
executed Transfer Certificate in the form of Exhibit 1 to the Mortgage
Loan Purchase Agreement;
(v) the Seller at its expense and the Issuer at its expense, as
appropriate, shall have provided the Rating Agencies and the Credit
Enhancer with an opinion of counsel relating to the sale of the
Additional Loans to the Issuer and the Grant of the Additional Loans to
the Indenture Trustee which opinion shall be in the form of Exhibit 2 to
the Mortgage Loan Purchase Agreement; and
(vi) the Issuer shall have delivered to the Indenture Trustee an
Officer's Certificate and an Opinion of Counsel confirming the
satisfaction of each condition precedent specified in this paragraph (b).
(c) The obligation of the Indenture Trustee to accept the Grant of an
Additional Loan on the related Deposit Date is subject to each Additional Loan
and the Additional Loans in the aggregate, as the case may be, satisfying the
conditions set forth in the Mortgage Loan Purchase Agreement.]
Section 3.31. Determination of Note Rate and Certificate Rate. On the
second LIBOR Business Day immediately preceding (i) the Closing Date in the
case of the first Interest Period and (ii) the first day of each succeeding
Interest Period, the Indenture Trustee shall determine LIBOR and the Note Rate
and the Certificate Rate for such Interest Period and shall inform the Issuer,
the Master Servicer and the Depositor at their respective facsimile numbers
given to the Indenture Trustee in writing thereof.
Section 3.32. Payments under the Credit Enhancement Instrument. (a) On
any Payment Date, other than a Dissolution Payment Date, the Indenture Trustee
on behalf of the Noteholders, and in its capacity as Certificate Paying Agent
on behalf of the Certificateholders shall make a draw on the Credit
Enhancement Instrument in an amount if any equal to the sum of (x) the amount
by which the sum of (i) interest accrued at the Note Rate on the Security
Balance of the Notes plus (ii) the Certificate Distribution Amount exceeds the
amount on deposit in the Payment Account available to be distributed therefor
on such Payment Date and (y) the Guaranteed Principal Payment Amount (the
"Credit Enhancement Draw Amount").
(b) The Indenture Trustee shall submit, if a Credit Enhancement Draw
Amount is specified in any Statement to Holders prepared by the Master
Servicer pursuant to Section 4.01 of the Servicing Agreement, the Notice for
Payment (as defined in the Credit Enhancement Instrument) in the amount of the
Credit Enhancement Draw Amount to the Credit Enhancer no later than 2:00 P.M.,
New York City time, on the second Business Day prior to the applicable Payment
Date. Upon receipt of such Credit Enhancement Draw Amount in accordance with
the terms of the Credit Enhancement Instrument, the Indenture Trustee shall
deposit such Credit Enhancement Draw Amount in the Payment Account for
distribution to Holders pursuant to Section 3.05.
In addition, a draw may be made under the Credit Enhancement Instrument
in respect of any Avoided Payment (as defined in and pursuant to the terms and
conditions of the Credit Enhancement Instrument) and the Indenture Trustee
shall submit a Notice for Payment with respect thereto together with the other
documents required to be delivered to the Credit Enhancer pursuant to the
Credit Enhancement Instrument in connection with a draw in respect of any
Avoided Payment.
(c) In the event that any Additional Credit Enhancement Instruments are
issued pursuant to Section 4.01 and Section 2.02(B) of the Insurance
Agreement, the Indenture Trustee shall be authorized to make draws thereon
subject to the terms and conditions therein.
Section 3.33. Replacement Credit Enhancement Instrument. In the event of
a Credit Enhancer Default or if the claims paying ability rating of the Credit
Enhancer is downgraded and such downgrade results in a downgrading of the then
current rating of the Securities (in each case, a "Replacement Event"), the
Issuer, at its expense, in accordance with and upon satisfaction of the
conditions set forth in the Credit Enhancement Instrument, including, without
limitation, payment in full of all amounts owed to the Credit Enhancer, may,
but shall not be required to, substitute a new surety bond or surety bonds for
the existing Credit Enhancement Instrument or may arrange for any other form
of credit enhancement; provided, however,that in each case the Notes and the
Certificates shall be rated no lower than the rating assigned by each Rating
Agency to the Notes and the Certificates immediately prior to such Replacement
Event and the timing and mechanism for drawing on such new credit enhancement
shall be reasonably acceptable to the Indenture Trustee and provided further
that the premiums under the proposed credit enhancement shall not exceed such
premiums under the existing Credit Enhancement Instrument. It shall be a
condition to substitution of any new credit enhancement that there be
delivered to the Indenture Trustee (i) an Opinion of Counsel, acceptable in
form to the Indenture Trustee, from counsel to the provider of such new credit
enhancement with respect to the enforceability thereof and such other matters
as the Indenture Trustee may require and (ii) an Opinion of Counsel to the
effect that such substitution would not (a) adversely affect in any material
respect the tax status of the Notes and the Certificates or (b) cause the
Issuer to be subject to a tax at the entity level or to be classified as a
taxable mortgage pool within the meaning of Section 7701(i) of the Code. Upon
receipt of the items referred to above and payment of all amounts owing to the
Credit Enhancer and the taking of physical possession of the new credit
enhancement, the Indenture Trustee shall, within five Business Days following
receipt of such items and such taking of physical possession, deliver the
replaced Credit Enhancement Instrument to the Credit Enhancer. In the event of
any such replacement the Issuer shall give written notice thereof to the
Rating Agencies.
<PAGE>
ARTICLE IV
The Notes; Satisfaction and Discharge of Indenture
Section 4.01. The Notes[; Increase of Maximum Variable Funding Balance;
Additional Variable Funding Notes]. (a) The Term Notes shall be registered in
the name of a nominee designated by the Depository. Beneficial Owners will
hold interests in the Term Notes through the book-entry facilities of the
Depository in minimum initial Principal Balances of $[________] and integral
multiples of $[_________] in excess thereof. [The Capped Funding Notes will be
issuable in minimum initial Principal Balances of $[_______] and integral
multiples of $[________] in excess thereof, together with any additional
amount necessary to cover the aggregate initial Principal Balance of the
Capped Funding Notes surrendered at the time of the initial denominational
exchange thereof (with such initial Principal Balance in each case being
deemed to be the Principal Balance of the Capped Funding Notes at the time of
such initial denominational exchange thereof).]
The Indenture Trustee may for all purposes (including the making of
payments due on the Notes) deal with the Depository as the authorized
representative of the Beneficial Owners with respect to the Term Notes for the
purposes of exercising the rights of Holders of Term Notes hereunder. Except
as provided in the next succeeding paragraph of this Section 4.01, the rights
of Beneficial Owners with respect to the Term Notes shall be limited to those
established by law and agreements between such Beneficial Owners and the
Depository and Depository Participants. Except as provided in Section 4.08,
Beneficial Owners shall not be entitled to definitive certificates for the
Term Notes as to which they are the Beneficial Owners. Requests and directions
from, and votes of, the Depository as Holder of the Term Notes shall not be
deemed inconsistent if they are made with respect to different Beneficial
Owners. The Indenture Trustee may establish a reasonable record date in
connection with solicitations of consents from or voting by Noteholders and
give notice to the Depository of such record date. Without the consent of the
Issuer and the Indenture Trustee, no Term Note may be transferred by the
Depository except to a successor Depository that agrees to hold such Note for
the account of the Beneficial Owners.
In the event the Depository Trust Company resigns or is removed as
Depository, the Indenture Trustee with the approval of the Issuer may appoint
a successor Depository. If no successor Depository has been appointed within
30 days of the effective date of the Depository's resignation or removal, each
Beneficial Owner shall be entitled to certificates representing the Notes it
beneficially owns in the manner prescribed in Section 4.08.
The Notes shall, on original issue, be executed on behalf of the Issuer
by the Owner Trustee, not in its individual capacity but solely as Owner
Trustee, authenticated by the Note Registrar and delivered by the Indenture
Trustee to or upon the order of the Issuer.
[(b) So long as no Amortization Event has occurred the Maximum Variable
Funding Balance on the Closing Date may be increased from time to time by an
aggregate amount not to exceed $[______________] and Additional Variable
Funding Notes may be issued upon satisfaction of the following conditions:
(i) the Indenture Trustee shall have received an Additional Credit
Enhancement Instrument pursuant to the terms and conditions of the
Insurance Agreement, including without limitation Section 2.02(B)
thereof;
(ii) the Indenture Trustee shall have received an Opinion of Counsel
to the Credit Enhancer in the form attached hereto as Exhibit C;
(iii) the Indenture Trustee shall have received an Opinion of
Counsel in the form attached hereto as Exhibit D;
(iv) the Indenture Trustee shall have received the documents
specified in Section 11.01(a) (other than clause (iii) thereof).
The Security Balance of such Additional Variable Funding Notes in the
aggregate will reflect the sum of (i) the related Excess Additional Balance
Differential and (ii) the Additional Balance Differential for each Collection
Period from the Collection Period during which the Additional Variable Funding
Notes are issued until the new Maximum Variable Funding Balance is reached.
Notwithstanding the foregoing, the Security Balance of each specific
Additional Variable Funding Note will be limited to the Maximum Individual
Variable Funding Balance as provided in subsection (c) below.
The Additional Variable Funding Notes issued in connection with the first
increase in the Maximum Variable Funding Balance pursuant to this subsection
will bear the designation "A" (in addition to the numerical designation
pursuant to subsection (c) below) and any subsequent Additional Variable
Funding Notes issued in connection with any subsequent increases in the
Maximum Variable Funding Balance will bear alphabetical designations in the
order of their issuance.
Any Additional Variable Funding Notes shall be in the form of Exhibit A-2
hereof and for all purposes shall be Notes issued pursuant to this Indenture
and all references to Variable Funding Notes herein shall include Additional
Variable Funding Notes issued pursuant to this Section 4.01(b).
Upon the issuance of any Additional Variable Funding Notes the Issuer
will deliver written notice thereof to the Rating Agencies.
(b) Subject to the Maximum Variable Funding Balance at such time as the
Security Balance of any Variable Funding Note reaches the Maximum Individual
Variable Funding Balance no subsequent amounts in respect of the Additional
Balance Differential shall be added to the Security Balance of such Variable
Funding Note and instead a new Variable Funding Note shall be issued and
executed on behalf of the Issuer by the Owner Trustee, not in its individual
capacity but solely as Owner Trustee, authenticated by the Note Registrar and
delivered by the Indenture Trustee to or upon the order of the Issuer. All
subsequent amounts in respect of the Additional Balance Differential shall be
added to the Security Balance of such new Variable Funding Note (subject to
the Maximum Variable Funding Balance) until the Security Balance thereof
reaches the Maximum Individual Variable Funding Balance.
The Variable Funding Note issued on the Closing Date shall bear the
Designation "1" and each new Variable Funding Note will bear sequential
numerical designations in the order of their issuance. On each Payment Date on
or after the Accelerated Amortization Date a new Variable Funding Note will be
issued on each Payment Date in a principal amount equal to the lesser of (a)
the Maximum Individual Variable Funding Balance and (b) the Additional Balance
Differential for such Payment Date, but in no event will the Principal Balance
of the Variable Funding Notes exceed the Maximum Variable Funding Balance
without satisfying the conditions of Section 4.01 hereof.]
Section 4.02. Registration of and Limitations on Transfer and Exchange of
Notes; Appointment of Certificate Registrar. The Note Registrar shall cause to
be kept at its Corporate Trust Office a Note Register in which, subject to
such reasonable regulations as it may prescribe, the Note Registrar shall
provide for the registration of Notes and of transfers and exchanges of Notes
as herein provided.
Subject to the restrictions and limitations set forth below, upon
surrender for registration of transfer of any Note at the Corporate Trust
Office, the Indenture Trustee shall execute and the Note Registrar shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes in authorized initial Security Balances
evidencing the same aggregate Percentage Interests.
[No Variable Funding Note, other than any Capped Funding Notes, may be
transferred. Subject to the provisions set forth below Capped Funding Notes
may be transferred, provided that with respect to the initial transfer thereof
by the Seller prior written notification of such transfer shall have been
given to the Rating Agencies and to the Credit Enhancer by the Seller along
with an Opinion of Counsel to the effect that such transfer will not
constitute a fraudulent conveyance under the laws of the relevant
jurisdiction.
No transfer of a Capped Funding Note 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 of any such transfer, (i) unless such
transfer is made in reliance upon Rule 144A under the 1933 Act, the Indenture
Trustee or the Issuer may, require a written Opinion of Counsel (which may be
in-house counsel) acceptable to and in form and substance reasonably
satisfactory to the Indenture Trustee and the Issuer that such transfer may be
made pursuant to an exemption, describing the applicable exemption and the
basis therefor, from said Act and laws or is being made pursuant to said Act
and laws, which Opinion of Counsel shall not be an expense of the Indenture
Trustee or the Issuer and (ii) the Indenture Trustee shall require the
transferee to execute an investment letter (in substantially the form attached
hereto as Exhibit F) acceptable to and in form and substance reasonably
satisfactory to the Issuer and the Indenture Trustee certifying to the Issuer
and the Indenture Trustee the facts surrounding such transfer, which
investment letter shall not be an expense of the Indenture Trustee or the
Issuer. The Holder of a Variable Funding Note desiring to effect such transfer
shall, and does hereby agree to, indemnify the Indenture Trustee the Credit
Enhancer and the Issuer against any liability that may result if the transfer
is not so exempt or is not made in accordance with such federal and state
laws. Notwithstanding the foregoing, the restriction of transfer specified in
this paragraph is not applicable to any Capped Funding Notes that have been
registered under the Securities Act of 1933 pursuant to Section 2.5 of the
Mortgage Loan Purchase Agreement.]
Subject to the foregoing, at the option of the Noteholders, Notes may be
exchanged for other Notes of like tenor or, in each case in authorized initial
Principal Balances evidencing the same aggregate Percentage Interests upon
surrender of the Notes to be exchanged at the Corporate Trust Office of the
Note Registrar. [With respect to any surrender of Capped Funding Notes for
exchange the new Notes delivered in exchange therefor will bear the
designation "Capped" in addition to any other applicable designations.]
Whenever any Notes are so surrendered for exchange, the Indenture Trustee
shall execute and the Note Registrar shall authenticate and deliver the Notes
which the Noteholder making the exchange is entitled to receive. Each Note
presented or surrendered for registration of transfer or exchange shall (if so
required by the Note Registrar) be duly endorsed by, or be accompanied by a
written instrument of transfer in form reasonably satisfactory to the Note
Registrar duly executed by, the Holder thereof or his attorney duly authorized
in writing. Notes delivered upon any such transfer or exchange will evidence
the same obligations, and will be entitled to the same rights and privileges,
as the Notes surrendered.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Note Registrar shall require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes.
All Notes surrendered for registration of transfer and exchange shall be
cancelled by the Note Registrar and delivered to the Indenture Trustee for
subsequent destruction without liability on the part of either.
The Issuer hereby appoints [___________________] as Certificate Registrar
to keep at its Corporate Trust Office a Certificate Register pursuant to
Section 3.09 of the Trust Agreement in which, subject to such reasonable
regulations as it may prescribe, the Certificate Registrar shall provide for
the registration of Certificates Residual Ownership Interests and of transfers
and exchanges thereof pursuant to Section 3.05 of the Trust Agreement.
[___________________] hereby accepts such appointment.
Section 4.03. Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture
Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, and (ii) there is delivered to the Indenture Trustee such
security or indemnity as may be required by it to hold the Issuer and the
Indenture Trustee harmless, then, in the absence of notice to the Issuer, the
Note Registrar or the Indenture Trustee that such Note has been acquired by a
bona fide purchaser, and provided that the requirements of Section 8-405 of
the UCC are met, the Issuer shall execute, and upon its request the Indenture
Trustee shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Note, a replacement Note of the same
Class; provided, however, that if any such destroyed, lost or stolen Note, but
not a mutilated Note, shall have become or within seven days shall be due and
payable, instead of issuing a replacement Note, the Issuer may pay such
destroyed, lost or stolen Note when so due or payable without surrender
thereof. If, after the delivery of such replacement Note or payment of a
destroyed, lost or stolen Note pursuant to the proviso to the preceding
sentence, a bona fide purchaser of the original Note in lieu of which such
replacement Note was issued presents for payment such original Note, the
Issuer and the Indenture Trustee shall be entitled to recover such replacement
Note (or such payment) from the Person to whom it was delivered or any Person
taking such replacement Note from such Person to whom such replacement Note
was delivered or any assignee of such Person, except a bona fide purchaser,
and shall be entitled to recover upon the security or indemnity provided
therefor to the extent of any loss, damage, cost or expense incurred by the
Issuer or the Indenture Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section 4.03, the
Issuer may require the payment by the Holder of such Note 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 Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section 4.03 in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute
an original additional contractual obligation of the Issuer, whether or not
the mutilated, destroyed, lost or stolen Note shall be at any time enforceable
by anyone, and shall be entitled to all the benefits of this Indenture equally
and proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section 4.03 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 Notes.
Section 4.04. Persons Deemed Owners. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Indenture Trustee and
any agent of the Issuer or the Indenture Trustee may treat the Person in whose
name any Note is registered (as of the day of determination) as the owner of
such Note for the purpose of receiving payments of principal of and interest,
if any, on such Note and for all other purposes whatsoever, whether or not
such Note be overdue, and neither the Issuer, the Indenture Trustee nor any
agent of the Issuer or the Indenture Trustee shall be affected by notice to
the contrary.
Section 4.05. Cancellation. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly cancelled by the Indenture Trustee. The Issuer may at
any time deliver to the Indenture Trustee for cancellation any Notes
previously authenticated and delivered hereunder which the Issuer may have
acquired in any manner whatsoever, and all Notes so delivered shall be
promptly cancelled by the Indenture Trustee. No Notes shall be authenticated
in lieu of or in exchange for any Notes cancelled as provided in this Section
4.05, except as expressly permitted by this Indenture. All cancelled Notes may
be held or disposed of by the Indenture Trustee in accordance with its
standard retention or disposal policy as in effect at the time unless the
Issuer shall direct by an Issuer Request that they be destroyed or returned to
it; provided, that such Issuer Request is timely and the Notes have not been
previously disposed of by the Indenture Trustee.
Section 4.06. Book-Entry Notes. The Term Notes, upon original issuance,
will be issued in the form of typewritten Notes representing the Book-Entry
Notes, to be delivered to The Depository Trust Company, the initial
Depository, by, or on behalf of, the Issuer. Such Term Notes shall initially
be registered on the Note Register in the name of Cede & Co., the nominee of
the initial Depository, and no Beneficial Owner will receive a definitive Note
representing such Beneficial Owner's interest in such Note, except as provided
in Section 4.08. Unless and until definitive, fully registered Notes (the
"Definitive Notes") have been issued to Beneficial Owners pursuant to Section
4.08:
(i) the provisions of this Section 4.06 shall be in full force and
effect;
(ii) the Note Registrar and the Indenture Trustee shall be entitled
to deal with the Depository for all purposes of this Indenture (including
the payment of principal of and interest on the Notes and the giving of
instructions or directions hereunder) as the sole holder of the Term
Notes, and shall have no obligation to the Owners of Term Notes;
(iii) to the extent that the provisions of this Section 4.06
conflict with any other provisions of this Indenture, the provisions of
this Section 4.06 shall control;
(iv) the rights of Beneficial Owners shall be exercised only through
the Depository and shall be limited to those established by law and
agreements between such Owners of Term Notes and the Depository and/or
the Depository Participants pursuant to the Note Depository Agreement.
Unless and until Definitive Term Notes are issued pursuant to Section
4.08, the initial Depository will make book-entry transfers among the
Depository Participants and receive and transmit payments of principal of
and interest on the Notes to such Depository Participants; and
(v) whenever this Indenture requires or permits actions to be taken
based upon instructions or directions of Holders of Term Notes evidencing
a specified percentage of the Security Balances of the Term Notes, the
Depository shall be deemed to represent such percentage only to the
extent that it has received instructions to such effect from Beneficial
Owners and/or Depository Participants owning or representing,
respectively, such required percentage of the beneficial interest in the
Term Notes and has delivered such instructions to the Indenture Trustee.
Section 4.07. Notices to Depository. Whenever a notice or other
communication to the Term Note Holders is required under this Indenture,
unless and until Definitive Term Notes shall have been issued to Beneficial
Owners pursuant to Section 4.08, the Indenture Trustee shall give all such
notices and communications specified herein to be given to Holders of the Term
Notes to the Depository, and shall have no obligation to the Beneficial
Owners.
Section 4.08. Definitive Notes. If (i) the Administrator advises the
Indenture Trustee in writing that the Depository is no longer willing or able
to properly discharge its responsibilities with respect to the Term Notes and
the Administrator is unable to locate a qualified successor, (ii) the
Administrator at its option advises the Indenture Trustee in writing that it
elects to terminate the book-entry system through the Depository or (iii)
after the occurrence of an Event of Default, Owners of Term Notes representing
beneficial interests aggregating at least a majority of the Security Balances
of the Term Notes advise the Depository in writing that the continuation of a
book-entry system through the Depository is no longer in the best interests of
the Beneficial Owners, then the Depository shall notify all Beneficial Owners
and the Indenture Trustee of the occurrence of any such event and of the
availability of Definitive Term Notes to Beneficial Owners requesting the
same. Upon surrender to the Indenture Trustee of the typewritten Term Notes
representing the Book-Entry Notes by the Depository, accompanied by
registration instructions, the Issuer shall execute and the Indenture Trustee
shall authenticate the Definitive Term Notes in accordance with the
instructions of the Depository. None of the Issuer, the Note Registrar or the
Indenture Trustee shall be liable for any delay in delivery of such
instructions and may conclusively rely on, and shall be protected in relying
on, such instructions. Upon the issuance of Definitive Notes, the Indenture
Trustee shall recognize the Holders of the Definitive Notes as Noteholders.
Section 4.09. Tax Treatment. The Issuer has entered into this Indenture,
and the Notes will be issued, with the intention that, for federal, state and
local income, single business and franchise tax purposes, the Notes will
qualify as indebtedness of the Issuer. The Issuer, by entering into this
Indenture, and each Noteholder, by its acceptance of its Note (and each
Beneficial Owner by its acceptance of an interest in the applicable Book-Entry
Note), agree to treat the Notes for federal, state and local income, single
business and franchise tax purposes as indebtedness of the Issuer.
Section 4.10. Satisfaction and Discharge of Indenture. This Indenture
shall cease to be of further effect with respect to the Notes except as to (i)
rights of registration of transfer and exchange, (ii) substitution of
mutilated, destroyed, lost or stolen Notes, (iii) rights of Noteholders to
receive payments of principal thereof and interest thereon, (iv) Sections
3.03, 3.04, 3.06, 3.10, 3.19, 3.21 and 3.22, (v) the rights, obligations and
immunities of the Indenture Trustee hereunder (including the rights of the
Indenture Trustee under Section 6.07 and the obligations of the Indenture
Trustee under Section 4.11) and (vi) the rights of Noteholders as
beneficiaries hereof with respect to the property so deposited with the
Indenture Trustee payable to all or any of them, and the Indenture Trustee, on
demand of and at the expense of the Issuer, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture with respect to the
Notes, when
(A) either
(1) all Notes theretofore authenticated and delivered
(other than (i) Notes that have been destroyed, lost or stolen
and that have been replaced or paid as provided in Section 4.03
and (ii) Notes 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 3.03) have been delivered to
the Indenture Trustee for cancellation; or
(2) all Notes not theretofore delivered to the Indenture
Trustee for cancellation
a. have become due and payable, or
b. will become due and payable at the Final Scheduled
Payment Date within one year,
and the Issuer, in the case of a. or b. above, has irrevocably deposited
or caused to be irrevocably deposited with the Indenture Trustee cash or
direct obligations of or obligations guaranteed by the United States of
America (which will mature prior to the date such amounts are payable),
in trust for such purpose, in an amount sufficient to pay and discharge
the entire indebtedness on such Notes and Certificates then outstanding
not theretofore delivered to the Indenture Trustee for cancellation when
due on the Final Scheduled Payment Date;
(B) the Issuer has paid or caused to be paid all other sums
payable hereunder and under the Insurance Agreement by the Issuer;
and
(C) the Issuer has delivered to the Indenture Trustee and the
Credit Enhancer an Officer's Certificate, an Opinion of Counsel and
(if required by the TIA or the Indenture Trustee) an Independent
Certificate from a firm of certified public accountants, each
meeting the applicable requirements of Section 11.01 and, subject to
Section 11.01 each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this
Indenture have been complied with and, if the Opinion of Counsel
relates to a deposit made in connection with Section 4.10(A)(2)b.
above, such opinion shall further be to the effect that such deposit
will not have any material adverse tax consequences to the Issuer,
any Noteholders or any Certificateholders.
Section 4.11. Application of Trust Money. All moneys deposited with the
Indenture Trustee pursuant to Section 4.10 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent or
Certificate Paying Agent, as the Indenture Trustee may determine, to the
Holders of Securities, of all sums due and to become due thereon for principal
and interest; but such moneys need not be segregated from other funds except
to the extent required herein or required by law.
Section 4.12. Subrogation and Cooperation. (a) The Issuer and the
Indenture Trustee acknowledge that (i) to the extent the Credit Enhancer makes
payments under the Credit Enhancement Instrument on account of principal of or
interest on the Notes or the Certificates, the Credit Enhancer will be fully
subrogated to the rights of such Holders to receive such principal and
interest from the Issuer, and (ii) the Credit Enhancer shall be paid such
principal and interest but only from the sources and in the manner provided
herein and in the Insurance Agreement for the payment of such principal and
interest.
The Indenture Trustee shall cooperate in all respects with any reasonable
request by the Credit Enhancer for action to preserve or enforce the Credit
Enhancer's rights or interest under this Indenture or the Insurance Agreement
without limiting the rights of the Noteholders as otherwise set forth in the
Indenture, including, without limitation, upon the occurrence and continuance
of a default under the Insurance Agreement, a request to take any one or more
of the following actions:
(i) institute Proceedings for the collection of all amounts then
payable on the Notes, or under this Indenture in respect to Notes and all
amounts payable under the Insurance Agreement enforce any judgment
obtained and collect from the Issuer moneys adjudged due;
(ii) sell the Trust Estate or any portion thereof or rights or
interest therein, at one or more public or private Sales called and
conducted in any manner permitted by law;
(iii) file or record all Assignments that have not previously been
recorded;
(iv) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture; and
(v) 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 Credit Enhancer hereunder.
Section 4.13. Repayment of Moneys Held by Paying Agent. In connection
with the satisfaction and discharge of this Indenture with respect to the
Notes, all moneys then held by any Administrator other than the Indenture
Trustee under the provisions of this Indenture with respect to such Notes
shall, upon demand of the Issuer, be paid to the Indenture Trustee to be held
and applied according to Section 3.05 and thereupon such Paying Agent shall be
released from all further liability with respect to such moneys.
<PAGE>
ARTICLE V
Remedies
Section 5.01. Events of Default. "Event of Default," wherever used
herein, shall have the meaning provided in Appendix A; provided, however, that
no Event of Default will occur under clause (i) or clause (ii) of the
definition of "Event of Default" if the Issuer fails to make payments of
principal of and interest on the Notes so long as the Credit Enhancer makes
payments sufficient therefore under the Credit Enhancement Instrument.
The Issuer shall deliver to the Indenture Trustee and the Credit
Enhancer, within five days after the occurrence of an Event of Default,
written notice in the form of an Officer's Certificate of any event which with
the giving of notice and the lapse of time would become an Event of Default
under clause (iii) of the definition of "Event of Default", its status and
what action the Issuer is taking or proposes to take with respect thereto.
Section 5.02. Acceleration of Maturity; Rescission and Annulment. If an
Event of Default should occur and be continuing, then and in every such case
the Indenture Trustee or the Holders of Notes representing not less than a
majority of the Security Balances of all Notes may declare the Notes to be
immediately due and payable, by a notice in writing to the Issuer (and to the
Indenture Trustee if given by Noteholders), and upon any such declaration the
unpaid principal amount of such Class of Notes, together with accrued and
unpaid interest thereon through the date of acceleration, shall become
immediately due and payable. Unless the prior written consent of the Credit
Enhancer shall have been obtained by the Indenture Trustee, the Payment Date
upon which such accelerated payment is due and payable shall not be a Payment
Date under the Credit Enhancement Instrument and the Indenture Trustee shall
not be authorized under Section 3.32 to make a draw therefor.
At any time after such 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 Indenture Trustee as hereinafter in this Article V provided,
the Holders of Notes representing a majority of the Security Balances of all
Notes, by written notice to the Issuer and the Indenture Trustee, may rescind
and annul such declaration and its consequences if:
(i) the Issuer has paid or deposited with the Indenture Trustee a
sum sufficient to pay:
(A) all payments of principal of and interest on the Notes and
all other amounts that would then be due hereunder or upon the Notes
if the Event of Default giving rise to such acceleration had not
occurred; and
(B) all sums paid or advanced by the Indenture Trustee
hereunder and the reasonable compensation, expenses, disbursements
and advances of the Indenture Trustee and its agents and counsel;
and
(ii) all Events of Default, other than the nonpayment of the
principal of the Notes that has become due solely by such acceleration,
have been cured or waived as provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
Section 5.03. Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee. (a) The Issuer covenants that if (i) default is made in the
payment of any interest on any Note when the same becomes due and payable, and
such default continues for a period of five days, or (ii) default is made in
the payment of the principal of or any installment of the principal of any
Note when the same becomes due and payable, the Issuer will, upon demand of
the Indenture Trustee, pay to it, for the benefit of the Holders of Notes and
of the Credit Enhancer, the whole amount then due and payable on the Notes for
principal and interest, with interest upon the overdue principal, 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 Indenture Trustee and its agents and
counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon such
demand, the Indenture Trustee, in its own name and as trustee of an express
trust, subject to the provisions of Section 11.17 hereof 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 other obligor upon the Notes and collect in the manner provided
by law out of the property of the Issuer or other obligor the Notes, wherever
situated, the moneys adjudged or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee subject to the provisions of Section 11.17 hereof may, as more
particularly provided in Section 5.04, in its discretion, proceed to protect
and enforce its rights and the rights of the Noteholders and the Credit
Enhancer, by such appropriate Proceedings as the Indenture Trustee shall deem
most effective to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this 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 Indenture Trustee by this
Indenture or by law.
(d) In case there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership interest
in the Trust Estate, Proceedings 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 Person, or in case of any other comparable judicial Proceedings
relative to the Issuer or other obligor upon the Notes, or to the creditors or
property of the Issuer or such other obligor, the Indenture Trustee,
irrespective of whether the principal of any Notes shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective
of whether the Indenture Trustee shall have made any demand pursuant to the
provisions of this Section, shall be entitled and empowered, by intervention
in such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole amount of
principal and interest owing and unpaid in respect of the Notes and to
file such other papers or documents as may be necessary or advisable in
order to have the claims of the Indenture Trustee (including any claim
for reasonable compensation to the Indenture Trustee and each predecessor
Indenture Trustee, and their respective agents, attorneys and counsel,
and for reimbursement of all expenses and liabilities incurred, and all
advances made, by the Indenture Trustee and each predecessor Indenture
Trustee, except as a result of negligence or bad faith) and of the
Noteholders allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations, to vote on
behalf of the Holders of Notes in any election of a trustee, a standby
trustee or Person performing similar functions in any such Proceedings;
(iii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute all amounts received
with respect to the claims of the Noteholders and of the Indenture
Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the
Indenture Trustee or the Holders of Notes allowed in any judicial
proceedings relative to the Issuer, its creditors and its property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee, and, in the event that the Indenture
Trustee shall consent to the making of payments directly to such Noteholders,
to pay to the Indenture Trustee such amounts as shall be sufficient to cover
reasonable compensation to the Indenture Trustee, each predecessor Indenture
Trustee and their respective agents, attorneys and counsel, and all other
expenses and liabilities incurred, and all advances made, by the Indenture
Trustee and each predecessor Indenture Trustee except as a result of
negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any
Noteholder in any such proceeding except, as aforesaid, to vote for the
election of a trustee in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this Indenture, or
under any of the Notes, may be enforced by the Indenture Trustee without the
possession of any of the Notes or the production thereof in any trial or other
Proceedings relative thereto, and any such action or proceedings instituted by
the Indenture Trustee shall be brought in its own name as trustee of an
express trust, and any recovery of judgment, subject to the payment of the
expenses, disbursements and compensation of the Indenture Trustee, each
predecessor Indenture Trustee and their respective agents and attorneys, shall
be for the ratable benefit of the Holders of the Term Notes or the Variable
Funding Notes, as applicable.
(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Holders of the Notes, and it shall not be necessary
to make any Noteholder a party to any such Proceedings.
Section 5.04. Remedies; Priorities. (a) If an Event of Default shall have
occurred and be continuing, the Indenture Trustee subject to the provisions of
Section 11.17 hereof may do one or more of the following (subject to Section
5.05):
(i) institute Proceedings in its own name and as trustee of an
express trust for the collection of all amounts then payable on the Notes
or under this Indenture with respect thereto, whether by declaration or
otherwise, and all amounts payable under the Insurance Agreement, enforce
any judgment obtained, and collect from the Issuer and any other obligor
upon such Notes moneys adjudged due;
(ii) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture with respect to the Trust Estate;
(iii) exercise any remedies of a secured party under the UCC and
take any other appropriate action to protect and enforce the rights and
remedies of the Indenture Trustee, the Holders of the Notes and the
Credit Enhancer; and
(iv) sell the Trust Estate or any portion thereof or rights or
interest therein, at one or more public or private sales called and
conducted in any manner permitted by law;
provided, however, that the Indenture Trustee may not sell or otherwise
liquidate the Trust Estate following an Event of Default, other than a default
in the payment of any principal or interest on the Notes for thirty (30) days
or more, unless (A) the Holders of 100% of the Security Balances of the
Securities and the Credit Enhancer, which consent will not be unreasonably
withheld consent thereto, (B) the proceeds of such sale or liquidation
distributable to Holders are sufficient to discharge in full all amounts then
due and unpaid upon the Securities for principal and interest and to reimburse
the Credit Enhancer for any amounts drawn under the Credit Enhancement
Instrument and any other amounts due the Credit Enhancer under the Insurance
Agreement or (C) the Indenture Trustee determines that the Mortgage Loans will
not continue to provide sufficient funds for the payment of principal of and
interest on either the Notes or the Certificates, as they would have become
due if the Notes had not been declared due and payable, and the Indenture
Trustee obtains the consent of the Credit Enhancer, which consent will not be
unreasonably withheld, and of the Holders of not less than 66-2/3% of the
Security Balances of the Securities. In determining such sufficiency or
insufficiency with respect to clause (B) and (C), the Indenture Trustee may,
but need not, obtain and rely upon an opinion of an Independent investment
banking or accounting firm of national reputation as to the feasibility of
such proposed action and as to the sufficiency of the Trust Estate for such
purpose. Notwithstanding the foregoing, so long as an Event of Servicer
Termination has not occurred, any Sale of the Trust Estate shall be made
subject to the continued Servicing of the Mortgage Loans by the Master
Servicer as provided in the Servicing Agreement.
(b) If the Indenture Trustee collects any money or property pursuant to
this Article V, it shall pay out the money or property in the following order:
FIRST: to the Indenture Trustee for amounts due under Section 6.07;
SECOND: to each Class of Noteholders for amounts due and unpaid on the
related Class of Notes for interest and to each Noteholder of such Class
in each case, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Class of Notes for
interest from amounts available in the Trust Estate for such Noteholders;
THIRD: to Holders of each Class of Notes for amounts due and unpaid on
the related Class of Notes for principal, from amounts available in the
Trust Estate for such Noteholders, and to each Noteholder of such Class
in each case ratably, without preference or priority of any kind,
according to the amounts due and payable on such Class of Notes for
principal, until the Security Balances of each Class of Notes is reduced
to zero;
FOURTH: to the Issuer for amounts required to be distributed to the
Certificateholders in respect of interest and principal pursuant to the
Trust Agreement;
FIFTH: [Reserved] [To the payment of all amounts due and owing to the
Credit Enhancer under the Insurance Agreement];
SIXTH: to the Issuer for amounts due under Article VIII of the Trust
Agreement; and
SEVENTH: to the payment of the remainder, if any to the Issuer or any
other person legally entitled thereto.
The Indenture Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section 5.04. At least 15 days before
such record date, the Issuer shall mail to each Noteholder and the Indenture
Trustee a notice that states the record date, the payment date and the amount
to be paid.
Section 5.05. Optional Preservation of the Trust Estate. If the Notes
have been declared to be due and payable under Section 5.02 following an Event
of Default and such declaration and its consequences have not been rescinded
and annulled, the Indenture Trustee may, but need not, elect to maintain
possession of the Trust Estate. It is the desire of the parties hereto and the
Noteholders that there be at all times sufficient funds for the payment of
principal of and interest on the Securities and other obligations of the
Issuer including payment to the Credit Enhancer, and the Indenture Trustee
shall take such desire into account when determining whether or not to
maintain possession of the Trust Estate. In determining whether to maintain
possession of the Trust Estate, the Indenture Trustee may, but need not,
obtain and rely upon an opinion of an Independent investment banking or
accounting firm of national reputation as to the feasibility of such proposed
action and as to the sufficiency of the Trust Estate for such purpose.
Section 5.06. Limitation of Suits. No Holder of any Note shall have
any right to institute any Proceeding, judicial or otherwise, with respect to
this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless and subject to the provisions of Section 11.17
hereof:
(i) such Holder has previously given written notice to the Indenture
Trustee of a continuing Event of Default;
(ii) the Holders of not less than 25% of the Security Balances of
the Notes have made written request to the Indenture Trustee to institute
such Proceeding in respect of such Event of Default in its own name as
Indenture Trustee hereunder;
(iii) such Holder or Holders have offered to the Indenture Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in complying with such request;
(iv) the Indenture Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute such
Proceedings; and
(v) no direction inconsistent with such written request has been
given to the Indenture Trustee during such 60-day period by the Holders
of a majority of the Security Balances of the Notes.
It is understood and intended that no one or more Holders of Notes shall
have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Notes or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this
Indenture, except in the manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of
Notes, each representing less than a majority of the Security Balances of the
Notes, the Indenture Trustee in its sole discretion may determine what action,
if any, shall be taken, notwithstanding any other provisions of this
Indenture.
Section 5.07. Unconditional Rights of Noteholders To Receive Principal
and Interest. Notwithstanding any other provisions in this Indenture, the
Holder of any Note shall have the right, which is absolute and unconditional,
to receive payment of the principal of and interest, if any, on such Note on
or after the respective due dates thereof expressed in such Note or in this
Indenture 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 5.08. Restoration of Rights and Remedies. If the Indenture
Trustee or any Noteholder has instituted any Proceeding to enforce any right
or remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee or to such Noteholder, then and in every such case the Issuer, the
Indenture Trustee and the Noteholders 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 Indenture
Trustee and the Noteholders shall continue as though no such Proceeding had
been instituted.
Section 5.09. Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Indenture Trustee or to the Noteholders 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 5.10. Delay or Omission Not a Waiver. No delay or omission of the
Indenture Trustee or any Holder of any Note 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 V or by law to the Indenture
Trustee or to the Noteholders may be exercised from time to time, and as often
as may be deemed expedient, by the Indenture Trustee or by the Noteholders, as
the case may be.
Section 5.11. Control by Noteholders. The Holders of a majority of the
Security Balances of Notes shall have the right to direct the time, method and
place of conducting any Proceeding for any remedy available to the Indenture
Trustee with respect to the Notes or exercising any trust or power conferred
on the Indenture Trustee; provided that:
(i) such direction shall not be in conflict with any rule of law or
with this Indenture;
(ii) subject to the express terms of Section 5.04, any direction to
the Indenture Trustee to sell or liquidate the Trust Estate shall be by
Holders of Notes representing not less than 100% of the Security Balances
of Notes;
(iii) if the conditions set forth in Section 5.05 have been
satisfied and the Indenture Trustee elects to retain the Trust Estate
pursuant to such Section, then any direction to the Indenture Trustee by
Holders of Notes representing less than 100% of the Security Balances of
Notes to sell or liquidate the Trust Estate shall be of no force and
effect; and
(iv) the Indenture Trustee may take any other action deemed proper
by the Indenture Trustee that is not inconsistent with such direction.
Notwithstanding the rights of Noteholders set forth in this Section,
subject to Section 6.01, the Indenture Trustee need not take any action that
it determines might involve it in liability or might materially adversely
affect the rights of any Noteholders not consenting to such action.
Section 5.12. Waiver of Past Defaults. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.02, the
Holders of Notes of not less than a majority of the Security Balances of the
Notes may waive any past Event of Default and its consequences except an Event
of Default (a) with respect to payment of principal of or interest on any of
the Notes or (b) in respect of a covenant or provision hereof which cannot be
modified or amended without the consent of the Holder of each Note or (c) the
waiver of which would materially and adversely affect the interests of the
Credit Enhancer or modify its obligation under the Credit Enhancement
Instrument. In the case of any such waiver, the Issuer, the Indenture Trustee
and the Holders of the Notes shall be restored to their former positions and
rights hereunder, respectively; but no such waiver shall extend to any
subsequent or other Event of Default or impair any right consequent thereto.
Upon any such waiver, any Event of Default arising therefrom shall be
deemed to have been cured and not to have occurred, for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Event of
Default or impair any right consequent thereto.
Section 5.13. Undertaking for Costs. All parties to this Indenture agree,
and each Holder of any Note by such Holder's 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 Indenture, or in
any suit against the Indenture Trustee for any action taken, suffered or
omitted by it as Indenture 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 5.13 shall not apply to (a) any suit instituted by
the Indenture Trustee, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than 10% of the
Security Balances of the Notes or (c) any suit instituted by any Noteholder
for the enforcement of the payment of principal of or interest on any Note on
or after the respective due dates expressed in such Note and in this
Indenture.
Section 5.14. 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, that may affect the covenants or the performance of this
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 Indenture Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
Section 5.15. Sale of Trust Estate. (a) The power to effect any sale or
other disposition (a "Sale") of any portion of the Trust Estate pursuant to
Section 5.04 is expressly subject to the provisions of Section 5.05 and this
Section 5.15. The power to effect any such Sale shall not be exhausted by any
one or more Sales as to any portion of the Trust Estate remaining unsold, but
shall continue unimpaired until the entire Trust Estate shall have been sold
or all amounts payable on the Notes and under this Indenture and under the
Insurance Agreement shall have been paid. The Indenture Trustee may from time
to time postpone any public Sale by public announcement made at the time and
place of such Sale. The Indenture Trustee hereby expressly waives its right to
any amount fixed by law as compensation for any Sale.
(b) The Indenture Trustee shall not in any private Sale sell the Trust
Estate, or any portion thereof, unless
(i) the Holders of all Securities and the Credit Enhancer consent to
or direct the Indenture Trustee to make, such Sale, or
(ii) the proceeds of such Sale would be not less than the entire
amount which would be payable to the Noteholders under the Notes,
Certificateholders under the Certificates and the Credit Enhancer in
respect of amounts drawn under the Credit Enhancement Instrument and any
other amounts due the Credit Enhancer under the Insurance Agreement, in
full payment thereof in accordance with Section 5.02, on the Payment Date
next succeeding the date of such Sale, or
(iii) The Indenture Trustee determines, in its sole discretion, that
the conditions for retention of the Trust Estate set forth in Section
5.05 cannot be satisfied (in making any such determination, the Indenture
Trustee may rely upon an opinion of an Independent investment banking
firm obtained and delivered as provided in Section 5.05, and the Credit
Enhancer consents to such Sale, which consent will not be unreasonably
withheld and the Holders representing at least 66-2/3% of the Security
Balances of the Securities consent to such Sale.
The purchase by the Indenture Trustee of all or any portion of the Trust
Estate at a private Sale shall not be deemed a Sale or other disposition
thereof for purposes of this Section 5.15(b).
(c) Unless the Holders and the Credit Enhancer have otherwise consented
or directed the Indenture Trustee, at any public Sale of all or any portion of
the Trust Estate at which a minimum bid equal to or greater than the amount
described in paragraph (2) of subsection (b) of this Section 5.15 has not been
established by the Indenture Trustee and no Person bids an amount equal to or
greater than such amount, the Indenture Trustee shall bid an amount at least
$1.00 more than the highest other bid.
(d) In connection with a Sale of all or any portion of the Trust Estate
(i) any Holder or Holders of Notes may bid for and with the consent
of the Credit Enhancer purchase the property offered for sale, and upon
compliance with the terms of sale may hold, retain and possess and
dispose of such property, without further accountability, and may, in
paying the purchase money therefor, deliver any Notes or claims for
interest thereon in lieu of cash up to the amount which shall, upon
distribution of the net proceeds of such sale, be payable thereon, and
such Notes, in case the amounts so payable thereon shall be less than the
amount due thereon, shall be returned to the Holders thereof after being
appropriately stamped to show such partial payment;
(ii) the Indenture Trustee may bid for and acquire the property
offered for Sale in connection with any Sale thereof, and, subject to any
requirements of, and to the extent permitted by, applicable law in
connection therewith, may purchase all or any portion of the Trust Estate
in a private sale, and, in lieu of paying cash therefor, may make
settlement for the purchase price by crediting the gross Sale price
against the sum of (A) the amount which would be distributable to the
Holders of the Notes and Holders of Certificates and amounts owing to the
Credit Enhancer as a result of such Sale in accordance with Section
5.04(b) on the Payment Date next succeeding the date of such Sale and (B)
the expenses of the Sale and of any Proceedings in connection therewith
which are reimbursable to it, without being required to produce the Notes
in order to complete any such Sale or in order for the net Sale price to
be credited against such Notes, and any property so acquired by the
Indenture Trustee shall be held and dealt with by it in accordance with
the provisions of this Indenture;
(iii) the Indenture 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;
(iv) the Indenture 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; and
(v) no purchaser or transferee at such a Sale shall be bound to ascertain
the Indenture Trustee's authority, inquire into the satisfaction of any
conditions precedent or see to the application of any moneys.
Section 5.16. Action on Notes. The Indenture Trustee's right to
seek and recover judgment on the Notes or under this Indenture shall not be
affected by the seeking, obtaining or application of any other relief under or
with respect to this Indenture. Neither the lien of this Indenture nor any
rights or remedies of the Indenture Trustee or the Noteholders shall be
impaired by the recovery of any judgment by the Indenture 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. Any money or
property collected by the Indenture Trustee shall be applied in accordance
with Section 5.04(b).
Section 5.17. Performance and Enforcement of Certain Obligations. (a)
Promptly following a request from the Indenture Trustee to do so and at the
Administrator's expense, the Issuer shall take all such lawful action as the
Indenture Trustee may request to compel or secure the performance and
observance by the Seller and the Master Servicer, as applicable, of each of
their obligations to the Issuer under or in connection with the Mortgage Loan
Purchase Agreement and the Servicing Agreement, and to exercise any and all
rights, remedies, powers and privileges lawfully available to the Issuer under
or in connection with the Mortgage Loan Purchase Agreement and the Servicing
Agreement to the extent and in the manner directed by the Indenture Trustee,
including the transmission of notices of default on the part of the Seller or
the Master Servicer thereunder and the institution of legal or administrative
actions or proceedings to compel or secure performance by the Seller or the
Master Servicer of each of their obligations under the Mortgage Loan Purchase
Agreement and the Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, thE Indenture
Trustee subject to the rights of the Credit Enhancer under the Servicing
Agreement may, and at the direction (which direction shall be in writing or by
telephone (confirmed in writing promptly thereafter)) of the Holders of
66-2/3% of the Security Balances of the Notes shall, exercise all rights,
remedies, powers, privileges and claims of the Issuer against the Seller or
the Master Servicer under or in connection with the Mortgage Loan Purchase
Agreement and the Servicing Agreement, including the right or power to take
any action to compel or secure performance or observance by the Seller or the
Master Servicer, as the case may be, of each of their obligations to the
Issuer thereunder and to give any consent, request, notice, direction,
approval, extension or waiver under the Mortgage Loan Purchase Agreement and
the Servicing Agreement, as the case may be, and any right of the Issuer to
take such action shall not be suspended.
<PAGE>
ARTICLE VI
The Indenture Trustee
Section 6.01. Duties of Indenture Trustee. (a) If an Event of Default has
occurred and is continuing, the Indenture Trustee shall exercise the rights
and powers vested in it by this Indenture and use the same degree of care and
skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture
against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the Indenture Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Indenture Trustee and conforming to the
requirements of this Indenture; however, the Indenture Trustee shall
examine the certificates and opinions to determine whether or not they
conform to the requirements of this Indenture.
(c) The Indenture Trustee may not be relieved from liability for
its own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(d) (i) this paragraph does not limit the effect of paragraph of this
Section 6.01;
(ii) the Indenture Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer unless it is proved
that the Indenture Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Indenture Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it (A) pursuant to Section 5.11 or (B) from the
Credit Enhancer, which it is entitled to give under any of the Basic
Documents.
(e) Every provision of this Indenture that in any way relates to the
Indenture Trustee is subject to paragraphs (a), (b), (c) and (g) of this
Section 6.01.
(f) The Indenture Trustee shall not be liable for interest on any money
received by it except as the Indenture Trustee may agree in writing with the
Issuer.
(g) Money held in trust by the Indenture Trustee need not be segregated
from other funds except to the extent required by law or the terms of this
Indenture.
(h) No provision of this Indenture shall require the Indenture Trustee to
expend or risk its own funds or otherwise incur 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 to believe that
repayment of such funds or adequate indemnity against such risk or liability
is not reasonably assured to it.
(i) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of
the TIA.
Section 6.02. Rights of Indenture Trustee. (a) The Indenture Trustee may
rely on any document believed by it to be genuine and to have been signed or
presented by the proper person. The Indenture Trustee need not investigate any
fact or matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel. The Indenture
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on an Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee, and the Indenture Trustee shall
not be responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent, attorney, custodian or nominee appointed with
due care by it hereunder.
(d) The Indenture Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Indenture Trustee's conduct does
not constitute willful misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture
and the Notes shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder
in good faith and in accordance with the advice or opinion of such counsel.
Section 6.03. Individual Rights of Indenture Trustee. The Indenture
Trustee in its individual or any other capacity may become the owner or
pledgee of Notes and may otherwise deal with the Issuer or its Affiliates with
the same rights it would have if it were not Indenture Trustee. Any
Administrator, Note Registrar, co-registrar or co-paying agent may do the same
with like rights. However, the Indenture Trustee must comply with Sections
6.11 and 6.12.
Section 6.04. Indenture Trustee's Disclaimer. The Indenture Trustee shall
not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, it shall not be accountable for the
Issuer's use of the proceeds from the Notes, and it shall not be responsible
for any statement of the Issuer in the Indenture or in any document issued in
connection with the sale of the Notes or in the Notes other than the Indenture
Trustee's certificate of authentication.
Section 6.05. Notice of Event of Default. If an Event of Default occurs
and is continuing and if it is known to a Responsible Officer of the Indenture
Trustee, the Indenture Trustee shall give notice thereof to the Credit
Enhancer. The Trustee shall mail to each Noteholder notice of the Event of
Default within 90 days after it occurs. Except in the case of an Event of
Default in payment of principal of or interest on any Note, the Indenture
Trustee may withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding the notice is
in the interests of Noteholders.
Section 6.06. Reports by Indenture Trustee to Holders. The Indenture
Trustee shall deliver to each Noteholder such information as may be required
to enable such holder to prepare its federal and state income tax returns. In
addition, upon the Issuer's written request, the Indenture Trustee shall
promptly furnish information reasonably requested by the Issuer that is
reasonably available to the Indenture Trustee to enable the Issuer to perform
its federal and state income tax reporting obligations.
Section 6.07. Compensation and Indemnity. The Issuer shall or shall cause
the Administrator to pay to the Indenture Trustee on each Payment Date
reasonable compensation for its services. The Indenture Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Issuer shall or shall cause the Administrator to reimburse the
Indenture Trustee for all reasonable out-of-pocket expenses incurred or made
by it, including costs of collection, in addition to the compensation for its
services. Such expenses shall include the reasonable compensation and
expenses, disbursements and advances of the Indenture Trustee's agents,
counsel, accountants and experts. The Issuer shall or shall cause the
Administrator to indemnify the Indenture Trustee against any and all loss,
liability or expense (including attorneys' fees) incurred by it in connection
with the administration of this trust and the performance of its duties
hereunder. The Indenture Trustee shall notify the Issuer and the Administrator
promptly of any claim for which it may seek indemnity. Failure by the
Indenture Trustee to so notify the Issuer and the Administrator shall not
relieve the Issuer or the Administrator of its obligations hereunder. The
Issuer shall or shall cause the Administrator to defend any such claim, and
the Indenture Trustee may have separate counsel and the Issuer shall or shall
cause the Administrator to pay the fees and expenses of such counsel. Neither
the Issuer nor the Administrator need reimburse any expense or indemnify
against any loss, liability or expense incurred by the Indenture Trustee
through the Indenture Trustee's own willful misconduct, negligence or bad
faith.
The Issuer's payment obligations to the Indenture Trustee pursuant to
this Section 6.07 shall survive the discharge of this Indenture. When the
Indenture Trustee incurs expenses after the occurrence of an Event of Default
specified in Section 5.01(iv) or (v) with respect to the Issuer, the expenses
are intended to constitute expenses of administration under Title 11 of the
United States Code or any other applicable federal or state bankruptcy,
insolvency or similar law.
Section 6.08. Replacement of Indenture Trustee. No resignation or removal
of the Indenture Trustee and no appointment of a successor Indenture Trustee
shall become effective until the acceptance of appointment by the successor
Indenture Trustee pursuant to this Section 6.08. The Indenture Trustee may
resign at any time by so notifying the Issuer and the Credit Enhancer. The
Holders of a majority of Security Balances of the Notes may remove the
Indenture Trustee by so notifying the Indenture Trustee and the Credit
Enhancer and may appoint a successor Indenture Trustee. The Issuer shall
remove the Indenture Trustee if:
(i) the Indenture Trustee fails to comply with Section 6.11;
(ii) the Indenture Trustee is adjudged a bankrupt or insolvent;
(iii) a receiver or other public officer takes charge of the
Indenture Trustee or its property; or
(iv) the Indenture Trustee otherwise becomes incapable of acting.
If the Indenture Trustee resigns or is removed or if a vacancy exists in
the office of Indenture Trustee for any reason (the Indenture Trustee in such
event being referred to herein as the retiring Indenture Trustee), the Issuer
shall promptly appoint a successor Indenture Trustee.
A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee and to the Issuer. Thereupon the
resignation or removal of the retiring Indenture Trustee shall become
effective, and the successor Indenture Trustee shall have all the rights,
powers and duties of the Indenture Trustee under this Indenture. The successor
Indenture Trustee shall mail a notice of its succession to Noteholders. The
retiring Indenture Trustee shall promptly transfer all property held by it as
Indenture Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Holders of a majority of Security
Balances of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to this
Section, the Issuer's and the Administrator's obligations under Section 6.07
shall continue for the benefit of the retiring Indenture Trustee.
Section 6.09. Successor Indenture Trustee by Merger. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another
corporation or banking association, the resulting, surviving or transferee
corporation without any further act shall be the successor Indenture Trustee;
provided, that such corporation or banking association shall be otherwise
qualified and eligible under Section 6.11. The Indenture Trustee shall provide
the Rating Agencies prior written notice of any such transaction.
In case at the time such successor or successors by merger, conversion or
consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not
delivered, any such successor to the Indenture Trustee may adopt the
certificate of authentication of any predecessor trustee, and deliver such
Notes so authenticated; and in case at that time any of the Notes shall not
have been authenticated, any successor to the Indenture Trustee may
authenticate such Notes either in the name of any predecessor hereunder or in
the name of the successor to the Indenture Trustee; and in all such cases such
certificates shall have the full force which it is anywhere in the Notes or in
this Indenture provided that the certificate of the Indenture Trustee shall
have.
Section 6.10. Appointment of Co-Indenture Trustee or Separate Indenture
Trustee. (a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Trust Estate may at the time be located, the Indenture
Trustee shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as a co-trustee or co-trustees, or separate
trustee or separate trustees, of all or any part of the Trust, and to vest in
such Person or Persons, in such capacity and for the benefit of the
Noteholders, such title to the Trust Estate, or any part hereof, and, subject
to the other provisions of this Section, such powers, duties, obligations,
rights and trusts as the Indenture Trustee may consider necessary or
desirable. No co-trustee or separate trustee hereunder shall be required to
meet the terms of eligibility as a successor trustee under Section 6.11 and no
notice to Noteholders of the appointment of any co-trustee or separate trustee
shall be required under Section 6.08 hereof.
(b) Every separate trustee and co-trustee shall, to the extent permitted
by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or imposed
upon the Indenture Trustee shall be conferred or imposed upon and
exercised or performed by the Indenture Trustee and such separate trustee
or co-trustee jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Indenture
Trustee joining in such act), except to the extent that under any law of
any jurisdiction in which any particular act or acts are to be performed
the Indenture Trustee shall be incompetent or unqualified to perform such
act or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Trust Estate or any portion
thereof in any such jurisdiction) shall be exercised and performed singly
by such separate trustee or co-trustee, but solely at the direction of
the Indenture Trustee;
(ii) no trustee hereunder shall be personally liable by reason of
any act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the resignation
of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement
and the conditions of this Article VI. Each separate trustee and co-trustee,
upon its acceptance of the trusts conferred, shall be vested with the estates
or property specified in its instrument of appointment, either jointly with
the Indenture Trustee or separately, as may be provided therein, subject to
all the provisions of this Indenture, specifically including every provision
of this Indenture relating to the conduct of, affecting the liability of, or
affording protection to, the Indenture Trustee. Every such instrument shall be
filed with the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee, its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or
in respect of this Agreement on its behalf and in its name. If any separate
trustee or co-trustee shall die, become incapable of acting, resign or be
removed, all of its estates, properties, rights, remedies and trusts shall
vest in and be exercised by the Indenture Trustee, to the extent permitted by
law, without the appointment of a new or successor trustee.
Section 6.11. Eligibility; Disqualification. The Indenture Trustee shall
at all times satisfy the requirements of TIA ss. 310(a). The Indenture Trustee
shall have a combined capital and surplus of at least $50,000,000 as set forth
in its most recent published annual report of condition and it or its parent
shall have a long-term debt rating of [____] or better by [______]. The
Indenture Trustee shall comply with TIA ss. 310(b), including the optional
provision permitted by the second sentence of TIA ss. 310(b)(9); provided,
however, that there shall be excluded from the operation of TIA ss. 310(b)(1)
any indenture or indentures under which other securities of the Issuer are
outstanding if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met.
Section 6.12. Preferential Collection of Claims Against Issuer. The
Indenture Trustee shall comply with TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). An Indenture Trustee who has resigned
or been removed shall be subject to TIA ss. 311(a) to the extent indicated.
Section 6.13. Representation and Warranty. The Indenture Trustee
represents and warrants to the Issuer, for the benefit of the Noteholders,
that this Indenture has been executed and delivered by one of its Responsible
Officers who is duly authorized to execute and deliver such document in such
capacity on its behalf.
Section 6.14. Directions to Indenture Trustee. The Indenture Trustee is
hereby directed:
(a) to accept assignment of the Mortgage Loans and hold the assets of the
Trust in trust for the Noteholders;
(b) to issue, execute and deliver the Notes substantially in the form
prescribed by Exhibit A in accordance with the terms of this Indenture; and
(c) to take all other actions as shall be required to be taken by the
terms of this Indenture.
Section 6.15. No Consent to Certain Acts of Depositor. The Indenture
Trustee shall not consent to any action proposed to be taken by the Depositor
pursuant to Article [_______________] of the Depositor's Certificate of
Incorporation.
<PAGE>
ARTICLE VII
Noteholders' Lists and Reports
Section 7.01. Issuer To Furnish Indenture Trustee Names and Addresses of
Noteholders. The Issuer will furnish or cause to be furnished to the Indenture
Trustee (a) not more than five days after each Record Date, a list, in such
form as the Indenture Trustee may reasonably require, of the names and
addresses of the Holders of Notes as of such Record Date, (b) at such other
times as the Indenture Trustee and the Credit Enhancer 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 Indenture
Trustee is the Note Registrar, no such list shall be required to be furnished.
Section 7.02. Preservation of Information; Communications to Noteholders.
(a) The Indenture Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Indenture Trustee as
provided in Section 7.01 and the names and addresses of Holders of Notes
received by the Indenture Trustee in its capacity as Note Registrar. The
Indenture Trustee may destroy any list furnished to it as provided in such
Section 7.01 upon receipt of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA ss. 312(b) with other
Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall have
the protection of TIA ss. 312(c).
Section 7.03. Reports by Issuer. (a) The Issuer shall:
(i) file with the Indenture 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) that the Issuer may be required
to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act;
(ii) file with the Indenture 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 Indenture as may be required from time to time by such rules and
regulations; and
(iii) supply to the Indenture Trustee (and the Indenture Trustee
shall transmit by mail to all Noteholders described in TIA ss. 313(c))
such summaries of any information, documents and reports required to be
filed by the Issuer pursuant to clauses (i) and (ii) of this Section
7.03(a) and by rules and regulations prescribed from time to time by the
Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of the Issuer
shall end on December 31 of each year.
Section 7.04. Reports by Indenture Trustee. If required by TIA ss.
313(a), within 60 days after each January 1 beginning with ___________, 199_,
the Indenture Trustee shall mail to each Noteholder as required by TIA ss.
313(c) and to the Credit Enhancer a brief report dated as of such date that
complies with TIA ss. 313(a). The Indenture Trustee also shall comply with TIA
ss. 313(b).
A copy of each report at the time of its mailing to Noteholders shall be
filed by the Indenture Trustee with the Commission and each stock exchange, if
any, on which the Term Notes are listed. The Issuer shall notify the Indenture
Trustee if and when the Term Notes are listed on any stock exchange.
<PAGE>
ARTICLE VIII
Accounts, Disbursements and Releases
Section 8.01. Collection of Money. Except as otherwise expressly provided
herein, the Indenture 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 Indenture Trustee pursuant to this Indenture. The Indenture
Trustee shall apply all such money received by it as provided in this
Indenture. Except as otherwise expressly provided in this Indenture, if any
default occurs in the making of any payment or performance under any agreement
or instrument that is part of the Trust Estate, the Indenture Trustee may take
such action as may be appropriate to enforce such payment or performance,
including the institution and prosecution of appropriate Proceedings. Any such
action shall be without prejudice to any right to claim a Default or Event of
Default under this Indenture and any right to proceed thereafter as provided
in Article V.
Section 8.02. Trust Accounts. (a) On or prior to the Closing Date, the
Issuer shall cause the Indenture Trustee to establish and maintain, in the
name of the Indenture Trustee, for the benefit of the Noteholders and the
Certificateholders and the Credit Enhancer, the Payment Account as provided in
Section 3.01 of this Indenture.
(b) All moneys deposited from time to time in the Payment Account
pursuant to the Servicing Agreement and all deposits therein pursuant to this
Indenture are for the benefit of the Noteholders, the Certificateholders and
the holders of the Residual Ownership Interest and all investments made with
such moneys including all income or other gain from such investments are for
the benefit of the Master Servicer as provided by the Servicing Agreement.
On each Payment Date during the Funding Period the Indenture Trustee
shall withdraw Net Principal Collections from the Payment Account and deposit
Net Principal Collections to the Funding Account.
On each Payment Date, the Indenture Trustee shall distribute all amounts
on deposit in the Payment Account (after giving effect to the withdrawal
referred to in the preceding paragraph) to Noteholders in respect of the Notes
and in its capacity as Certificate Paying Agent to Certificateholders in the
order of priority set forth in Section 3.05 (except as otherwise provided in
Section 5.04(b)).
The Master Servicer may direct the Indenture Trustee to invest any funds
in the Payment Account in Eligible Investments maturing no later than the
Business Day preceding each Payment Date and shall not be sold or disposed of
prior to the maturity. Unless otherwise instructed by the Master Servicer, the
Indenture Trustee shall invest all funds in the Payment Account in its
[__________] Short Term Investment Fund so long as it is an Eligible
Investment.
[(c) On or before the Closing Date the Issuer shall open, at the
Corporate Trust Office, an account which shall be the "Funding Account". The
Master Servicer may direct the Indenture Trustee to invest any funds in the
Funding Account in Eligible Investments maturing no later than the Business
Day preceding each Payment Date and shall not be sold or disposed of prior to
the maturity. Unless otherwise instructed by the Master Servicer, the
Indenture Trustee shall invest all funds in the Payment Account in its
Corporate Trust Short Term Investment Fund so long as it is an Eligible
Investment. During the Funding Period, any amounts received by the Indenture
Trustee in respect of Net Principal Collections for deposit in the Funding
Account, together with any Eligible Investments in which such moneys are or
will be invested or reinvested during the term of the Notes, shall be held by
the Indenture Trustee in the Funding Account as part of the Trust Estate,
subject to disbursement and withdrawal as herein provided.
(i) Amounts on deposit in the Funding Account in respect of Net
Principal Collections may be withdrawn on each Deposit Date and (1) paid
to the Issuer in payment for Additional Loans by the deposit of such
amount to the Collection Account and (2) at the end of the Funding Period
any amounts remaining in the Funding Account after the withdrawal called
for by clause (1) shall be deposited in the Payment Account to be
included in the payment of principal on the Payment Date that is the last
day of the Funding Period.
(ii) Amounts on deposit in the Funding Account in respect of
investment earnings shall be withdrawn on each Payment Date and deposited
in the Payment Account and included in the amounts paid to Noteholders
and Certificateholders.
(c) (i) Any investment in the institution with which the Funding Account
is maintained may mature on such Payment Date and (ii) any other investment
may mature on such Payment Date if the Indenture Trustee shall advance funds
on such Payment Date to the Funding Account in the amount payable on such
investment on such Payment Date, pending receipt thereof to the extent
necessary to make distributions on the Notes and the Certificates) and shall
not be sold or disposed of prior to maturity.]
Section 8.03. Opinion of Counsel. The Indenture Trustee shall receive at
least seven days notice when requested by the Issuer to take any action
pursuant to Section 8.05(a), accompanied by copies of any instruments to be
executed, and the Indenture Trustee shall also require, as a condition to such
action, an Opinion of Counsel, in form and substance satisfactory to the
Indenture Trustee, stating the legal effect of any such action, outlining the
steps required to complete the same, and concluding that all conditions
precedent to the taking of such action have been complied with and such action
will not materially and adversely impair the security for the Notes or the
rights of the Noteholders in contravention of the provisions of this
Indenture; provided, however, that such Opinion of Counsel shall not be
required to express an opinion as to the fair value of the Trust Estate.
Counsel rendering any such opinion may rely, without independent
investigation, on the accuracy and validity of any certificate or other
instrument delivered to the Indenture Trustee in connection with any such
action.
Section 8.04. Termination Upon Distribution to Noteholders. This
Indenture and the respective obligations and responsibilities of the Issuer
and the Indenture Trustee created hereby shall terminate upon the distribution
to Noteholders, Certificateholders, holders of the Residual Ownership Interest
and the Indenture Trustee of all amounts required to be distributed pursuant
to Article III; provided, however, that in no event shall the trust created
hereby continue beyond the expiration of 21 years from the death of the
survivor of the descendants of Joseph P. Kennedy, the late ambassador of the
United States to the Court of St. James, living on the date hereof.
Section 8.05. Release of Trust Estate. (a) Subject to the payment of its
fees and expenses, the Indenture Trustee may, and when required by the
provisions of this Indenture shall, execute instruments to release property
from the lien of this Indenture, or convey the Indenture Trustee's interest in
the same, in a manner and under circumstances that are not inconsistent with
the provisions of this Indenture. No party relying upon an instrument executed
by the Indenture Trustee as provided in Article IV hereunder shall be bound to
ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent, or see to the application of any moneys.
(b) The Indenture Trustee shall, at such time as (i) there are no Notes
Outstanding, (ii) all sums due the Indenture Trustee pursuant to this
Indenture have been paid, and (iii) all sums due the Credit Enhancer have been
paid, release any remaining portion of the Trust Estate that secured the Notes
from the lien of this Indenture. The Indenture Trustee shall release property
from the lien of this Indenture pursuant to this Section 8.05 only upon
receipt of an request from the Issuer accompanied by an Officers' Certificate,
an Opinion of Counsel, and (if required by the TIA) Independent Certificates
in accordance with TIA ss. 314(c) and 314(d)(1) meeting the applicable
requirements as described herein, and a letter from the President or any Vice
President or any Secretary of the Credit Enhancer, if any, stating that the
Credit Enhancer has no objection to such request from the Issuer.
Section 8.06. Surrender of Notes Upon Final Payment. By acceptance of any
Note, the Holder thereof agrees to surrender such Note to the Indenture
Trustee promptly, prior to such Noteholder's receipt of the final payment
thereon.
<PAGE>
ARTICLE IX
Supplemental Indentures
Section 9.01. Supplemental Indentures Without Consent of
Noteholders. (a) Without the consent of the Holders of any Notes but with the
consent of the Credit Enhancer and prior notice to the Rating Agencies and the
Credit Enhancer, the Issuer and the Indenture Trustee, when authorized by an
Issuer Request, at any time and from time to time, may enter into one or more
indentures supplemental hereto (which shall conform to the provisions of the
Trust Indenture Act as in force at the date of the execution thereof), in form
satisfactory to the Indenture Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property at any
time subject to the lien of this Indenture, or better to assure, convey
and confirm unto the Indenture Trustee any property subject or required
to be subjected to the lien of this Indenture, or to subject to the lien
of this Indenture additional property;
(ii) to evidence the succession, in compliance with the applicable
provisions hereof, of another person to the Issuer, and the assumption by
any such successor of the covenants of the Issuer herein and in the Notes
contained;
(iii) to add to the covenants of the Issuer, for the benefit of the
Holders of the Notes, or to surrender any right or power herein conferred
upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any property to
or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any provision
herein or in any supplemental indenture that may be 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
Indenture or in any supplemental indenture; provided, that such action
shall not adversely affect the interests of the Holders of the Notes;
(vi) to evidence and provide for the acceptance of the appointment
hereunder by a successor trustee with respect to the Notes and to add to
or change any of the provisions of this Indenture as shall be necessary
to facilitate the administration of the trusts hereunder by more than one
trustee, pursuant to the requirements of Article VI; or
(vii) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar
federal statute hereafter enacted and to add to this Indenture such other
provisions as may be expressly required by the TIA;
provided, however, that no such indenture supplements shall be entered into
unless the Indenture Trustee shall have received an Opinion of Counsel that
entering into such indenture supplement will not have any material adverse tax
consequences to the Noteholders.
The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, when authorized by an Issuer
Request, may, also without the consent of any of the Holders of the Notes but
with the consent of the Credit Enhancer and prior notice to the Rating
Agencies and the Credit Enhancer, 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 Indenture or of
modifying in any manner the rights of the Holders of the Notes under this
Indenture; provided, however, that such action shall not, as evidenced by an
Opinion of Counsel, (i) adversely affect in any material respect the interests
of any Noteholder or (ii) cause the Issuer to be subject to an entity level
tax or be classified as a taxable mortgage pool within the meaning of Section
7701(i) of the Code.
Section 9.02. Supplemental Indentures With Consent of Noteholders. The
Issuer and the Indenture Trustee, when authorized by an Issuer Request, also
may, with prior notice to the Rating Agencies and, with the written consent of
the Credit Enhancer and with the consent of the Holders of not less than a
majority of the Security Balances of each Class of Notes, by Act of such
Holders delivered to the Issuer and the Indenture Trustee, 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 Indenture or of modifying in any manner the rights of the Holders of
the Notes under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Holder of each Note affected
thereby:
(i) change the date of payment of any installment of principal of or
interest on any Note, or reduce the principal amount thereof or the
interest rate thereon, change the provisions of this Indenture relating
to the application of collections on, or the proceeds of the sale of, the
Trust Estate to payment of principal of or interest on the Notes, or
change any place of payment where, or the coin or currency in which, any
Note or the interest thereon is payable, or impair the right to institute
suit for the enforcement of the provisions of this Indenture requiring
the application of funds available therefor, as provided in Article V, to
the payment of any such amount due on the Notes on or after the
respective due dates thereof;
(ii) reduce the percentage of the Security Balances of the Notes,
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 Indenture or certain
defaults hereunder and their consequences provided for in this Indenture;
(iii) modify or alter the provisions of the proviso to the
definition of the term "Outstanding" or modify or alter the exception in
the definition of the term "Holder";
(iv) reduce the percentage of the Security Balances of the Notes
required to direct the Indenture Trustee to direct the Issuer to sell or
liquidate the Trust Estate pursuant to Section 5.04;
(v) modify any provision of this Section 9.02 except to increase any
percentage specified herein or to provide that certain additional
provisions of this Indenture or the Basic Documents cannot be modified or
waived without the consent of the Holder of each Note affected thereby;
(vi) modify any of the provisions of this Indenture in such manner
as to affect the calculation of the amount of any payment of interest or
principal due on any Note on any Payment Date (including the calculation
of any of the individual components of such calculation); or
(vii) permit the creation of any lien ranking prior to or on a
parity with the lien of this Indenture with respect to any part of the
Trust Estate or, except as otherwise permitted or contemplated herein,
terminate the lien of this Indenture on any property at any time subject
hereto or deprive the Holder of any Note of the security provided by the
lien of this Indenture; and provided, further, that such action shall
not, as evidenced by an Opinion of Counsel, cause the Issuer to be
subject to an entity level tax or be classified as a taxable mortgage
pool within the meaning of Section 7701(i) of the Code.
The Indenture Trustee may in its discretion determine whether or not any
Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon the Holders of all Notes, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith.
It shall not be necessary for any Act of Noteholders under this Section
9.02 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 Indenture Trustee of
any supplemental indenture pursuant to this Section 9.02, the Indenture
Trustee shall mail to the Holders of the Notes to which such amendment or
supplemental indenture relates a notice setting forth in general terms the
substance of such supplemental indenture. Any failure of the Indenture Trustee
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 9.03. Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02, 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 Indenture. The Indenture Trustee
may, but shall not be obligated to, enter into any such supplemental indenture
that affects the Indenture Trustee's own rights, duties, liabilities or
immunities under this Indenture or otherwise.
Section 9.04. Effect of Supplemental Indenture. Upon the execution of any
supplemental indenture pursuant to the provisions hereof, this Indenture shall
be and shall be deemed to be modified and amended in accordance therewith with
respect to the Notes affected thereby, and the respective rights, limitations
of rights, obligations, duties, liabilities and immunities under this
Indenture of the Indenture Trustee, the Issuer and the Holders of the Notes
shall thereafter be determined, exercised and enforced hereunder subject in
all respects to such modifications and amendments, and all the terms and
conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.
Section 9.05. Conformity with Trust Indenture Act. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as
then in effect so long as this Indenture shall then be qualified under the
Trust Indenture Act.
Section 9.06. Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee
shall, bear a notation in form approved by the Indenture Trustee as to any
matter provided for in such supplemental indenture. If the Issuer or the
Indenture Trustee shall so determine, new Notes so modified as to conform, in
the opinion of the Indenture Trustee and the Issuer, to any such supplemental
indenture may be prepared and executed by the Issuer and authenticated and
delivered by the Indenture Trustee in exchange for Outstanding Notes.
<PAGE>
ARTICLE X
[Reserved]
<PAGE>
ARTICLE XI
Miscellaneous
Section 11.01. Compliance Certificates and Opinions, etc. (a) Upon any
application or request by the Issuer to the Indenture Trustee to take any
action under any provision of this Indenture, the Issuer shall furnish to the
Indenture Trustee and to the Credit Enhancer (i) an Officer's Certificate
stating that all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with, (ii) an Opinion of
Counsel stating that in the opinion of such counsel all such conditions
precedent, if any, have been complied with and (iii) (if required by the TIA)
an Independent Certificate from a firm of certified public accountants meeting
the applicable requirements of this Section 11.01, 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 Indenture, 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 Indenture shall include:
(1) a statement that each signatory of such certificate or
opinion has read or has caused to be 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 signatory,
such signatory has made such examination or investigation as is
necessary to enable such signatory 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
signatory, such condition or covenant has been complied with; and
(5) if the Signer of such Certificate or Opinion is required to
be Independent, the Statement required by the definition of the term
"Independent".
(b) (i) Prior to the deposit of any Collateral or other property or
securities with the Indenture Trustee that is to be made the basis for the
release of any property or securities subject to the lien of this Indenture,
the Issuer shall, in addition to any obligation imposed in Section 11.01(a) or
elsewhere in this Indenture, furnish to the Indenture Trustee an Officer's
Certificate certifying or stating the opinion of each person signing such
certificate as to the fair value (within 90 days of such deposit) to the
Issuer of the Collateral or other property or securities to be so deposited.
(ii) Whenever the Issuer is required to furnish to the Indenture
Trustee an Officer's Certificate certifying or stating the opinion of any
signer thereof as to the matters described in clause (i) above, the
Issuer shall also deliver to the Indenture Trustee an Independent
Certificate as to the same matters, if the fair value to the Issuer of
the securities to be so deposited and of all other such securities made
the basis of any such withdrawal or release since the commencement of the
then-current fiscal year of the Issuer, as set forth in the certificates
delivered pursuant to clause (i) above and this clause (ii), is 10% or
more of the Security Balances of the Notes, but such a certificate need
not be furnished with respect to any securities so deposited, if the fair
value thereof to the Issuer as set forth in the related Officer's
Certificate is less than $25,000 or less than one percent of the Security
Balances of the Notes.
(iii) Whenever any property or securities are to be released from
the lien of this Indenture, the Issuer shall also furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the
opinion of each person signing such certificate as to the fair value
(within 90 days of such release) of the property or securities proposed
to be released and stating that in the opinion of such person the
proposed release will not impair the security under this Indenture in
contravention of the provisions hereof.
(iv) Whenever the Issuer is required to furnish to the Indenture
Trustee an Officer's Certificate certifying or stating the opinion of any
signer thereof as to the matters described in clause (iii) above, the
Issuer shall also furnish to the Indenture Trustee an Independent
Certificate as to the same matters if the fair value of the property or
securities and of all other property, other than property as contemplated
by clause (v) below or securities released from the lien of this
Indenture since the commencement of the then-current calendar year, as
set forth in the certificates required by clause (iii) above and this
clause (iv), equals 10% or more of the Security Balances of the Notes,
but such certificate need not be furnished in the case of any release of
property or securities if the fair value thereof as set forth in the
related Officer's Certificate is less than $25,000 or less than one
percent of the then Security Balances of the Notes.
(v) Notwithstanding any provision of this Indenture, the Issuer may,
without compliance with the requirements of the other provisions of this
Section 11.01, (A) collect, sell or otherwise dispose of Mortgage Loans
and Mortgaged Properties as and to the extent permitted or required by
the Basic Documents or (B) make cash payments out of the Payment Account
as and to the extent permitted or required by the Basic Documents, so
long as the Issuer shall deliver to the Indenture Trustee every six
months, commencing __________, 199_, an Officer's Certificate of the
Issuer stating that all the dispositions of Collateral described in
clauses (A) or (B) above that occurred during the preceding six calendar
months were in the ordinary course of the Issuer's business and that the
proceeds thereof were applied in accordance with the Basic Documents.
Section 11.02. Form of Documents Delivered to Indenture 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 other
such Persons as to other matters, and any such Person may certify or give an
opinion as to such matters in one or several documents.
Any certificate or opinion of an Authorized 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 of an Authorized Officer
or Opinion of Counsel may be based, insofar as it relates to factual matters,
upon a certificate or opinion of, or representations by, an officer or
officers of the Seller, the Issuer or the Administrator, stating that the
information with respect to such factual matters is in the possession of the
Seller, the Issuer or the Administrator, unless such counsel knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations 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 this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application
or at the effective date of such certificate or report (as the case may be),
of the facts and opinions stated in such document shall in such case be
conditions precedent to the right of the Issuer to have such application
granted or to the sufficiency of such certificate or report. The foregoing
shall not, however, be construed to affect the Indenture Trustee's right to
rely upon the truth and accuracy of any statement or opinion contained in any
such document as provided in Article VI.
Section 11.03. Acts of Noteholders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents 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 Indenture 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 Noteholders 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
Indenture and (subject to Section 6.01) conclusive in favor of the Indenture
Trustee and the Issuer, if made in the manner provided in this Section 11.03.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of
every Note 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 Indenture Trustee or the Issuer in reliance thereon, whether or not
notation of such action is made upon such Note.
Section 11.04. Notices, etc., to Indenture Trustee, Issuer, Credit
Enhancer and Rating Agencies. Any request, demand, authorization, direction,
notice, consent, waiver or Act of Noteholders or other documents provided or
permitted by this Indenture shall be in writing and if such request, demand,
authorization, direction, notice, consent, waiver or act of Noteholders is to
be made upon, given or furnished to or filed with:
(i) the Indenture Trustee by any Noteholder or by the Issuer shall
be sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Indenture Trustee at the Corporate Trust
Office, or
(ii) the Issuer by the Indenture Trustee or by any Noteholder shall
be sufficient for every purpose hereunder if in writing and mailed
first-class, postage prepaid to the Issuer addressed to: Home Equity Loan
Trust 199_-__ in care of [_____________], [______________] Attention of
[_________] with a copy to the Administrator at [______________],
Attention: [_____________], or at any other address previously furnished
in writing to the Indenture Trustee by the Issuer or the Administrator.
The Issuer shall promptly transmit any notice received by it from the
Noteholders to the Indenture Trustee, or
(iii) the Credit Enhancer by the Issuer, the Indenture Trustee or by
any Noteholders shall be sufficient for every purpose hereunder to in
writing and mailed, first-class postage pre-paid, or personally delivered
or telecopied to: [_______________], Attention: [______________],
Telephone: [_____________], Telecopier: [___________].
Notices required to be given to the Rating Agencies by the Issuer, the
Indenture Trustee or the Owner Trustee shall be in writing, personally
delivered or mailed by certified mail, return receipt requested, to [(i) in
the case of Duff & Phelps, at the following address: [________________];]
[and] [(ii) in the case of Fitch Investors Service, L.P., at the following
address: [______________];] [and] [(iii) in the case of Moody's, at the
following address: Moody's Investors Service, ABS Monitoring Department, 99
Church Street, New York, New York 10007]; [and] [(iv) in the case of Standard
& Poor's, at the following address: Standard & Poor's Corporation, 26 Broadway
(15th Floor), New York, New York 10004, Attention of Asset Backed Surveillance
Department;] or as to each of the foregoing, at such other address as shall be
designated by written notice to the other parties.
Section 11.05. Notices to Noteholders; Waiver. Where this Indenture
provides for notice to Noteholders 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 Noteholder affected by such
event, at his address as it appears on the Note 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 Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner
herein provided shall conclusively be presumed to have been duly given.
Where this 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 Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a result
of a strike, work stoppage or similar activity, it shall be impractical to
mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed
to be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies, failure
to give such notice shall not affect any other rights or obligations created
hereunder, and shall not under any circumstance constitute an Event of
Default.
Section 11.06. Alternate Payment and Notice Provisions. Notwithstanding
any provision of this Indenture or any of the Notes to the contrary, the
Issuer may enter into any agreement with any Holder of a Note providing for a
method of payment, or notice by the Indenture Trustee or any Administrator to
such Holder, that is different from the methods provided for in this Indenture
for such payments or notices. The Issuer will furnish to the Indenture Trustee
a copy of each such agreement and the Indenture Trustee will cause payments to
be made and notices to be given in accordance with such agreements.
Section 11.07. Conflict with Trust Indenture Act. If any provision hereof
limits, qualifies or conflicts with another provision hereof that is required
to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.
The provisions of TIA ss.ss. 310 through 317 that impose duties on any
person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
Section 11.08. Effect of Headings. The Article and Section headings
herein are for convenience only and shall not affect the construction hereof.
Section 11.09. Successors and Assigns. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee
in this Indenture shall bind its successors, co-trustees and agents.
Section 11.10. Separability. In case any provision in this Indenture or
in the Notes 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 11.11. Benefits of Indenture. The Credit Enhancer and its
successors and assigns shall be a third-party beneficiary to the provisions of
this Indenture. Nothing in this Indenture or in the Notes, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, and the Noteholders, and any other party secured hereunder, and any
other Person with an ownership interest in any part of the Trust Estate, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
Section 11.12. Legal Holidays. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this 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 date on which nominally due, and no interest
shall accrue for the period from and after any such nominal date.
Section 11.13. GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 11.14. Counterparts. This Indenture 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 11.15. Recording of Indenture. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Indenture Trustee or any other counsel reasonably
acceptable to the Indenture Trustee) to the effect that such recording is
necessary either for the protection of the Noteholders or any other Person
secured hereunder or for the enforcement of any right or remedy granted to the
Indenture Trustee under this Indenture.
Section 11.16. Issuer Obligation. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee
or the Indenture Trustee on the Notes or under this Indenture or any
certificate or other writing delivered in connection herewith or therewith,
against (i) the Indenture Trustee or the Owner Trustee in its individual
capacity, (ii) any owner of a beneficial interest in the Issuer or (iii) any
partner, owner, beneficiary, agent, officer, director, employee or agent of
the Indenture Trustee or the Owner Trustee in its individual capacity, any
holder of a beneficial interest in the Issuer, the Owner Trustee or the
Indenture Trustee or of any successor or assign of the Indenture Trustee or
the Owner Trustee in its individual capacity, except as any such Person may
have expressly agreed (it being understood that the Indenture Trustee and the
Owner Trustee have no such obligations in their individual capacity) and
except that any such partner, owner or beneficiary shall be fully liable, to
the extent provided by applicable law, for any unpaid consideration for stock,
unpaid capital contribution or failure to pay any installment or call owing to
such entity. For all purposes of this Indenture, in the performance of any
duties or obligations of the Issuer hereunder, the Owner Trustee shall be
subject to, and entitled to the benefits of, the terms and provisions of
Article VI, VII and VIII of the Trust Agreement.
Section 11.17. No Petition. The Indenture Trustee, by entering into this
Indenture, and each Noteholder, by accepting a Note, hereby covenant and agree
that they will not at any time institute against the Depositor or the Issuer,
or join in any institution against the Depositor or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations relating to the
Notes, this Indenture or any of the Basic Documents.
Section 11.18. Inspection. The Issuer agrees that, on reasonable prior
notice, it will permit any representative of the Indenture Trustee, during the
Issuer's normal business hours, to examine all the books of account, records,
reports and other papers of the Issuer, to make copies and extracts therefrom,
to cause such books to be audited by Independent certified public accountants,
and to discuss the Issuer's affairs, finances and accounts with the Issuer's
officers, employees, and Independent certified public accountants, all at such
reasonable times and as often as may be reasonably requested. The Indenture
Trustee shall and shall cause its representatives to hold in confidence all
such information except to the extent disclosure may be required by law (and
all reasonable applications for confidential treatment are unavailing) and
except to the extent that the Indenture Trustee may reasonably determine that
such disclosure is consistent with its obligations hereunder.
Section 11.19. Authority of the Administrator. Each of the parties to
this Indenture acknowledges that the Issuer and the Owner Trustee have each
appointed the Administrator to act as its agent to perform the duties and
obligations of the Issuer hereunder. Unless otherwise instructed by the Issuer
or the Owner Trustee, copies of all notices, requests, demands and other
documents to be delivered to the Issuer or the Owner Trustee pursuant to the
terms hereof shall be delivered to the Administrator. Unless otherwise
instructed by the Issuer or the Owner Trustee, all notices, requests, demands
and other documents to be executed or delivered, and any action to be taken,
by the Issuer or the Owner Trustee pursuant to the terms hereof may be
executed, delivered and/or taken by the Administrator pursuant to the
Administration Agreement.
<PAGE>
IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
their names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
HOME EQUITY LOAN TRUST 199_-__
as Issuer
By: [______________________],
not in its individual capacity
but solely as Owner Trustee
By:___________________________________
Name:
Title:
[______________________________________],
as Indenture
Trustee, as Certificate Paying Agent and as
Certificate Registrar
By:____________________________________
Name:
Title:
[_______________]
hereby accepts the appointment
as Certificate Paying Agent
pursuant to Section 3.03
hereof and as Certificate
Registrar pursuant to Section
4.02 hereof.
____________________________
By:
Title:
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of __________, before me personally appeared
______________, to me known, who being by me duly sworn, did depose and say,
that he resides at _________________, __________________ _____, that he is the
of the Owner Trustee, one of the corporations described in and which executed
the above instrument; that he knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal; that it was so affixed
by order of the Board of Directors of said corporation; and that he signed his
name thereto by like order.
_____________________________
Notary Public
[NOTARIAL SEAL]
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of __________, before me personally appeared
______________________ , to me known, who being by me duly sworn, did depose
and say, that he resides at __________________________________________________
, that he is the ______________ of ________________, as Indenture Trustee, one
of the corporations described in and which executed the above instrument; that
he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation; and that he signed his name thereto by
like order.
_____________________________
Notary Public
[NOTARIAL SEAL]
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of __________, before me personally appeared
______________________ , to me known, who being by me duly sworn, did depose
and say, that he resides at __________________________________________________
, that he is an ________________ of _______________, as Indenture Trustee, one
of the corporations described in and which executed the above instrument; that
he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation; and that he signed his name thereto by
like order.
_____________________________
Notary Public
[NOTARIAL SEAL]
<PAGE>
[EXHIBIT C
[FORM OF OPINION]
[Date]
To: The Persons Listed On the Attached Schedule
Re: HOME EQUITY LOAN TRUST 199_-__
Home Equity Loan Asset-Backed Securities
Series 199__-__
Ladies and Gentlemen:
We have acted as counsel to [____________________] ("[_____]") in
connection with the issuance by [________] of its Surety Bond Number [SB___]
(the "Surety Bond") issued pursuant to the [ ___________ ], dated as of
______________, 199_ among ["________"], J.P. Morgan Securities Inc., as
Depositor (the "Depositor"), [_____________] ("[___]"), as Seller and Master
Servicer and Home Equity Loan Trust 199_-__ (the "Issuer") (the "Insurance
Agreement") with respect to the Additional Variable Funding Notes issued
pursuant to the Indenture, dated as of ____________, 199_ between the Issuer
and [_______________], as Indenture Trustee.]
For the purposes of this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction of
[(i) the [Articles of Incorporation] [Certificate of Incorporation] [Articles
of Association] and the By-Laws of [____]; (ii) resolutions adopted by the
Board of Directors of [____] relevant to the issuance of the Surety Bond;
(iii) the Surety Bond; (iv) the Insurance Agreement; (v) the certificate of
the Secretary of [_____] dated as of the date hereof (the "Certificate");] and
(vi) such other documents that we have deemed necessary or appropriate as a
basis for the opinion set forth below.
Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to them in the [Definitions incorporated in and attached as
an Appendix to the Indenture.]
In our examination we have assumed the genuineness of all signatures and
the legal capacity of natural persons (other than with respect to officers of
[_____]), the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies and the authenticity of the originals of such copies. We
have relied upon the certificates, statements and representations of officers
and other representatives of [_____] with regard to all facts (but not
conclusions of law) material to the opinions set forth below and have not
conducted an independent inquiry as to such matters. Based upon and subject to
the foregoing, we are of the opinion that:
1. [____] is a corporation validly existing, in good standing and
licensed to transact the business of surety and financial guaranty
insurance under the laws of the State of New York.
2. [____] has the corporate power to execute and deliver, and to
take all action required of it under the Surety Bond.
3. Except as have already been obtained, no authorization, consent,
approval, license, formal exemption, or declaration from, nor any
registration or filing with, any court or governmental agency or body of
the United States of America or the State of New York, which if not
obtained would affect or impair the validity or enforceability of the
Surety Bond is required in connection with the execution and delivery by
[____] of the Surety Bond or in connection with [____]'s performance of
its obligations thereunder.
4. The Surety Bond has been duly authorized, executed and delivered
by [____] and constitutes the legally valid and binding obligation of
[____], enforceable in accordance with its terms subject, as to
enforcement, to (a) bankruptcy, reorganization, insolvency, moratorium
and other similar laws relating to or affecting the enforcement of
creditors' rights generally, including, without limitation, laws relating
to fraudulent transfers or conveyances, preferential transfers and
equitable subordination, presently or from time to time in effect, and
general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law), as such laws may be
applied in any such proceeding with respect to [_____] and (b) the
qualification that the remedy of specific performance may be subject to
equitable defenses and to the discretion of the court before which any
proceedings with respect thereto may be brought.
5. The Surety Bond is not required to be registered under the
Securities Act of 1933, as amended.
We express no opinion as to the laws of any jurisdiction other than the
federal laws of the United States of America and the laws of the State of New
York. This opinion is limited to the laws of New York and the United States of
America as in effect on the date hereof and, in rendering this opinion, we
assume no obligation to revise or supplement this opinion should the present
laws, or the interpretation thereof, be changed.
This opinion has been furnished solely for the benefit of the persons
listed on the attached Schedule A in connection with the transactions
described herein and on the condition that the opinions expressed herein may
not be published or otherwise communicated to any other party, or relied upon
by any other party, without prior written approval in each instance.
Very truly yours,]
<PAGE>
Schedule A
Opinion of [Date]
Re: HOME EQUITY LOAN TRUST 199__-__
Home Equity Loan Asset-Backed Securities
Series 199__-__
----------------------------------------
J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260-0060
[_______________________],
as Seller and Servicer
[_______________________]
[Duff & Phelps Credit Rating Co.]
[__________________________________]
[Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007]
[Fitch Investors Service, L.P.]
[ ]
[Standard & Poor's Ratings Group
26 Broadway, 15th Floor
New York, New York 10007]
[________________________],
as Indenture Trustee
[________________________]
[________________________],
as Owner Trustee
[________________________]
<PAGE>
[EXHIBIT D
__________, 199_
J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260-0060
[_______________________]
[_______________________]
[_______________________]
[_______________________]
[_______________________]
[_______________________]
Re: Home Equity Loan Trust 199_-__
Ladies and Gentlemen:
We have acted as counsel to J.P. Morgan Securities Inc., a Delaware
corporation (the "Depositor"), in connection with (i) the purchase of certain
adjustable rate home equity revolving credit line loans (the "Mortgage Loans")
pursuant to a mortgage loan purchase agreement, dated as of __________, 199_
(the "Mortgage Loan Purchase Agreement") between [_____________________], as
seller (the "Seller") and the Depositor, dated as of __________, 199_ (the
"Agreement"), and (ii) the sale by the Depositor of the Mortgage Loans to Home
Equity Loan Trust 199_-__, a Delaware business trust (the "Issuer"), created
by a Trust Agreement dated as of ____________, 199_ (the "Trust Agreement")
among the Depositor, and [___________] as owner trustee (the "Owner Trustee").
In exchange for the Mortgage Loans, the Issuer has issued Home Equity Loan
Asset-Backed Term Notes, Series 199__-__ (the "Term Notes"), Home Equity Loan
Asset-Backed Variable Funding Notes, Series 199__-__ (the "Variable Funding
Notes", and together with the Term Notes, the "Notes") and Home Equity Loan
Asset-Backed Certificates, Series 199__-__ (the "Certificates", and together
with the Notes, the "Securities"). The Issuer wishes to increase the Maximum
Variable Funding Balance of the Variable funding Notes in excess of
$[___________] as provided for in Section 4.01 of the Indenture. Capitalized
terms not otherwise defined herein shall (unless otherwise specifically set
forth herein) have the meanings ascribed to such terms in the Trust Agreement.
This opinion is rendered pursuant to Section 4.01(b)(iii) of the
Indenture.
In arriving at the opinions expressed below, we have examined such
documents and records as we have deemed appropriate, including the following:
1. A signed copy of the Indenture.
2. A signed copy of the Trust Agreement.
3. Specimens of the Notes.
As to any facts material to the following opinions which we did not
independently establish or verify, we have relied upon statements and
representations of the responsible officers and other representations of the
Depositor and of public officials and agencies.
Based upon the foregoing and consideration of such other matters as we
have deemed appropriate, we are of the opinion that:
1. For federal income tax purposes, as a result of the increase in the
Maximum Variable Funding Balance of the Variable Funding Notes in excess of
$[____________], the Issuer will not be classified as an association or a
publicly traded partnership taxable as a corporation, or as a taxable mortgage
pool within the meaning of section 7701(i) of the Code.
2. The Variable Funding Notes will be treated as debt for federal income
tax purposes and will not affect the Classification as debt of any other class
of Notes.
We do not express any opinion as to any laws other than the federal tax
law of the United States of America.
The opinions set forth herein are expressly subject to there being no
additional facts that would materially affect the validity of the assumptions
and conclusions set forth herein or upon which this opinion is based.
No one other than you shall be entitled to rely on the opinions expressed
herein. This opinion letter is not intended to be employed in any transaction
other than the one described above and is being delivered to you on the
understanding that neither it nor its contents may be published, communicated
or otherwise made available, in whole or in part, to any other party or entity
without, in each instance, our specific prior written consent.
Very truly yours,]
Exhibit 5.1
[Brown & Wood LLP Letterhead]
October 22, 1999
J.P. Morgan Acceptance Corporation I
60 Wall Street
New York, New York 10260
Re: J.P. Morgan Acceptance Corporation I
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for J.P. Morgan Acceptance Corporation I, a
Delaware corporation (the "Company"), in connection with the preparation of the
registration statement No. 333-77275 on Form S-3 (the "Registration Statement")
relating to the issuance from time to time in one or more series (each, a
"Series") of up to $1,656,379,452 aggregate principal amount of asset-backed
securities (the "Securities"). The Securities may be issued in the form of
Asset-Backed Notes (the "Notes") or Asset-Backed Certificates (the
"Certificates"). Pursuant to Rule 429 under the Securities Act of 1933, as
amended (the "1933 Act"), the Registration Statement also constitutes
Post-Effective Amendment No. 1 to registration statements No. 33-23597 and No.
33-23761. The Registration Statement has been filed with the Securities and
Exchange Commission (the "Commission") under the 1933 Act. As set forth in the
Registration Statement, each Series of Securities will be issued by a separate
trust to be formed by the Company (each, a "Trust") under and pursuant to the
conditions of a separate pooling and servicing agreement, trust agreement or
indenture (each, an "Agreement"), each to be identified in the prospectus
supplement for such Series of Securities.
We have examined copies of the Company's Restated Certificate of
Incorporation, the Company's By-laws, the form of each Agreement filed as an
exhibit to the Registration Statement, the forms of Securities included in the
Agreements so filed, and such other agreements, records and documents as we have
deemed necessary for purposes of this opinion. As to factual matters, we have
relied upon statements, certificates and other assurances of public officials
and of officers or other representatives of the Company and upon such other
certificates or representations as we deemed appropriate for purposes of our
opinion, which factual matters have not been independently established or
verified by us. We have assumed, without independent verification, the
genuineness of all signatures, the accuracy of the representations contained in
the reviewed documents, the authenticity of all documents submitted to us as
originals and the conformity to the originals of all documents submitted to us
as copies.
Based upon such examinations and our consideration of such questions of
law as we have deemed relevant in the circumstances, and subject to the
assumptions, qualifications and limitations set forth herein, we are of the
opinion that when the Securities of a Series have been duly executed,
authenticated and delivered in accordance with the terms of the related
Agreements and issued and delivered against payment therefor as described in the
Registration Statement, the Certificates of such Series will be legally and
validly issued, fully paid and nonassessable, and the holders thereof will be
entitled to the benefits of the related Agreement, and the Notes of such Series
will be valid and legally binding obligations of the related Trust, subject to
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally and to general principles of equity (regardless of
whether enforceability is sought in a proceeding in equity or at law).
In rendering the foregoing opinions, we express no opinion as to the
laws of any jurisdiction other than the laws of the State of New York (excluding
choice of law principles therein) and the federal laws of the United States of
America.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the heading
"Legal Matters" in the Prospectus forming a part of the Registration Statement,
without admitting that we are "experts" within the meaning of the 1933 Act or
the Rules and Regulations of the Commission issued thereunder, with respect to
any part of the Registration Statement, including this exhibit.
Very truly yours,
Brown & Wood LLP
Exhibit 8.1
[Brown & Wood LLP Letterhead]
October 22, 1999
J.P. Morgan Acceptance Corporation I
60 Wall Street
New York, New York 10260
Re: J.P. Morgan Acceptance Corporation I
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as special tax counsel for J.P. Morgan Acceptance
Corporation I, a Delaware corporation (the "Company"), in connection with the
preparation of the registration statement No. 333-77275 on Form S-3 (the
"Registration Statement") relating to the issuance from time to time in one or
more series (each, a "Series") of up to $1,656,379,452 aggregate principal
amount of asset-backed securities (the "Securities"). Pursuant to Rule 429 under
the Securities Act of 1933, as amended (the "1933 Act"), the Registration
Statement also constitutes Post-Effective Amendment No. 1 to registration
statements No. 33-23597 and No. 33-23761. The Registration Statement has been
filed with the Securities and Exchange Commission (the "Commission") under the
1933 Act. As set forth in the Registration Statement, each Series of Securities
will be issued under and pursuant to the conditions of a separate pooling and
servicing agreement, trust agreement or indenture (each an "Agreement") among
the Company, a trustee (the "Trustee") and, where appropriate, a servicer (the
"Servicer"), each to be identified in the prospectus supplement for such Series
of Securities.
We have examined the prospectus contained in the Registration Statement
(the "Prospectus") and such other documents, records and instruments as we have
deemed necessary for the purposes of this opinion.
In arriving at the opinion expressed below, we have assumed that each
Agreement will be duly authorized by all necessary corporate action on the part
of the Company, the Trustee, the Servicer (where applicable) and any other party
thereto for such Series of Securities and will be duly executed and delivered by
the Company, the Trustee, the Servicer and any other party thereto substantially
in the applicable form filed as an exhibit to the Registration Statement, that
each Series of Securities will be duly executed and delivered in substantially
the forms set forth in the related Agreement filed as an exhibit to the
Registration Statement, and that the Securities will be sold as described in the
Registration Statement.
As special tax counsel to the Company, we have advised the Company with
respect to the material federal income tax aspects of the proposed issuance of
each Series of Securities pursuant to the related Agreement. Such advice has
formed the basis for the description of selected federal income tax consequences
for holders of such Securities that appears under the heading "Federal Income
Tax Consequences" in the Prospectus forming a part of the Registration
Statement. Such description does not purport to discuss all possible federal
income tax ramifications of the proposed issuance of the Securities, but with
respect to those federal income tax consequences which are discussed, in our
opinion, the description is accurate in all material respects. We hereby confirm
and adopt each of our opinions stated under the heading "Federal Income Tax
Consequences" in the Prospectus forming a part of the Registration Statement.
This opinion is based on the facts and circumstances set forth in the
Registration Statement and in the other documents reviewed by us. Our opinion as
to the matters set forth herein could change with respect to a particular Series
of Securities as a result of changes in fact or circumstances, changes in the
terms of the documents reviewed by us, or changes in the law subsequent to the
date hereof. Because the Prospectus contemplates Series of Securities with
numerous different characteristics, you should be aware that the particular
characteristics of each Series of Securities must be considered in determining
the applicability of this opinion to a particular Series of Securities.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the heading
"Federal Income Tax Consequences" in the Prospectus forming a part of the
Registration Statement, without admitting that we are "experts" within the
meaning of the 1933 Act or the Rules and Regulations of the Commission issued
thereunder, with respect to any part of the Registration Statement, including
this exhibit.
Very truly yours
/s/Brown & Wood LLP
Exhibit 10.1
Form of Mortgage Loan Purchase Agreement
[ ]
---------------
Seller of the Mortgage Loans,
and
J.P. MORGAN ACCEPTANCE CORPORATION I
Purchaser of the Mortgage Loans
--------------------
MORTGAGE LOAN PURCHASE AGREEMENT
Dated as of ___________, 199_
--------------------
<PAGE>
MORTGAGE LOAN PURCHASE AGREEMENT
Mortgage Loan Purchase Agreement (the "Agreement") dated as of
__________, 199_ between [__________________] (the "Seller") and J.P. Morgan
Acceptance Corporation I (the "Purchaser").
Background
The following statements are the mutual representations of the parties
with respect to certain factual matters forming the basis for this Agreement and
are an integral part of this Agreement.
A. Mortgage Loans. The Seller possesses (i) the notes or other evidence
of indebtedness (the "Mortgage Notes") under the home equity lines of credit so
indicated on Schedule I hereto referred to below (the "Mortgage Loans"), (ii)
the mortgages (the "Mortgages") on the properties (the "Mortgaged Properties")
securing such Mortgage Loans, including rights to (a) any property acquired by
foreclosure or deed in lieu of foreclosure or otherwise, and (b) the proceeds of
any insurance policies covering the Mortgage Loans or the Mortgaged Properties
or the obligors on the Mortgage Loans.
B. Sale of Mortgage Loans. The parties desire that the Seller sell the
Mortgage Loans ([inclusive][exclusive] of the obligation to fund future advances
under each Loan Agreement after the Closing Date) to the Purchaser pursuant to
the terms of this Agreement. Pursuant to the terms of a [__________] Agreement
dated as of ________, 199_ (the "[_________] Agreement") among the Purchaser, as
depositor, [________], as servicer, and [__________], as trustee (the
"Trustee"), the Purchaser will convey the Mortgage Loans ([inclusive][exclusive]
of the obligation to fund future advances under each Loan Agreement after the
Closing Date) to Home Equity Loan Trust 199__ (the "Trust").
C. Definitions. Capitalized terms not specifically defined in this
Agreement which are defined in the [_____________ _____] Agreement shall have
the same meaning when used herein as when used in the
[____________________].
Statement of Agreement
The parties, each in consideration of the promises of the other and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, hereby agree as follows:
SECTION 1. Sale of Mortgage Loans. (a) The Seller, concurrently with
the execution and delivery of this Agreement, does hereby sell, assign, set
over, and otherwise convey to the Purchaser, without recourse, all of its right,
title and interest in, to and under the following, whether now existing or
hereafter acquired and wherever located: (i) the Mortgage Loans, including the
Asset Balance (including all Additional Balances) and all collections of
interest and principal in respect thereof received on or after the Cut-off Date
(except collections in respect of interest for the period from [_____________]
to [_____________]); (ii) property which secured a Mortgage Loan and which has
been acquired by foreclosure or deed in lieu of foreclosure; (iii) the interest
of the Seller in any insurance policies in respect of the Mortgage Loans; (iv)
the Seller's rights under the [_________ _________]; and (v) all proceeds of the
foregoing[; provided, however, that the Purchaser does not assume the obligation
under each Loan Agreement (including, without limitation, such obligation under
the Loan Agreement for each Mortgage Loan after the Closing Date) to fund future
advances to the Mortgagor thereunder, and the Purchaser shall not be obligated
to fund any such future advances]. [Future advances made to a Mortgagor under a
Loan Agreement (each an "Additional Balance") shall be part of the related Asset
Balance. The Seller shall give the Purchaser monthly notice of such advances on
or prior to each Determination Date.]
In connection with such conveyance, the Seller further agrees, at its
own expense, on or prior to the date of this Agreement (a) to indicate in its
books and records that the Mortgage Loans have been sold to the Purchaser
pursuant to this Agreement and (b) to deliver to the Purchaser a computer file
or microfiche list containing a true and complete list of all such Mortgage
Loans specifying for each such Mortgage Loan, as of the Cut-off Date, (i) its
account number, (ii) its delinquency status, and (iii) the aggregate amount
outstanding under the Mortgage Loan as of the Cut-off Date. Such file, which
forms a part of Exhibit __ to the [_________] Agreement, shall also be marked as
Schedule I to this Agreement and is hereby incorporated into and made a part of
this Agreement.
In connection with such sale and assignment by the Seller to the
Purchaser, the Seller on or prior to the Closing Date shall deliver to the
Purchaser the following documents or instruments with respect to each Mortgage
Loan so transferred and assigned:
(i) The original Mortgage Note endorsed without recourse to
[____________________];
(ii) the original recorded Assignment of Mortgage from
[____________________] in recordable form[, which, in the case of any
Mortgage Loan secured by Mortgaged Property located in the State of New
York, shall state that such Assignment of Mortgage is not subject to
the requirements of Section 275 of the Real Property Law because it is
an assignment within the secondary mortgage market];
(iii) the original recorded Mortgage with an evidence of a
recording indicated thereon or, if, in connection with any Mortgage
Loan, the Seller cannot deliver the original Mortgage with evidence of
recording thereon on or prior to the Closing Date because such original
Mortgage has been lost, the Seller shall deliver or cause to be
delivered to the Purchaser a true and correct copy of such Mortgage,
together with a certificate by the appropriate county recording office
where such Mortgage is recorded;
(iv) the title search, and either a full appraisal or a
drive-by inspection, obtained by the originator at the time the
Mortgagor applied for the Mortgage Loan;
(v) with respect to each Mortgage Loan listed on Schedule II, a
title policy;
(vi) the original of any guaranty executed in connection with the
Mortgage Note;
(vii) the original of each assumption, modification,
consolidation or substitution agreement, if any, relating to the
Mortgage Loan; and
(viii) any security agreement, chattel mortgage or equivalent
instrument executed in connection with the Mortgage.
The Seller further hereby confirms to the Purchaser that it has caused
the portions of the Electronic Ledger relating to the Mortgage Loans maintained
by the Servicer to be clearly and unambiguously marked to indicate that the
Mortgage Loans have been sold to the Purchaser.
The Purchaser hereby acknowledges its acceptance of all right, title
and interest to the property, now existing and hereafter created, conveyed to it
pursuant to this Section 1.
The parties hereto intend that the transaction set forth herein be a
sale by the Seller to the Purchaser of all the Seller's right, title and
interest in and to the Mortgage Loans and other property described above. In the
event the transaction set forth herein is deemed not to be a sale, the Seller
hereby grants to the Purchaser a security interest in all of the Seller's right,
title and interest in, to and under the Mortgage Loans whether now existing or
hereafter created, all monies due or to become due on the Mortgage Loans and all
proceeds of any thereof; and this Agreement shall constitute a security
agreement under applicable law.
In connection with such sale, assignment, and conveyance, the Seller
has filed, in the appropriate office in the State of [______], a UCC-1 financing
statement executed by the Seller as seller, naming the Purchaser as purchaser
and listing the Mortgage Loans and the other property described above as
collateral. In connection with such filing, the Seller agrees that it shall
cause to be filed all necessary continuation statements thereof and to take or
cause to be taken such actions and execute such documents as are necessary to
perfect and protect the Purchaser's interest in the Mortgage Loans and the other
property described above.
(b) [No assignment from the Seller of any Mortgage Loan shall be
required to be recorded in any public real property or other records so long as
no Assignment Event shall have occurred. Upon the occurrence of an Assignment
Event, at the request of the Purchaser, the Seller shall as promptly as
practicable, (a) endorse, or cause to be endorsed, each Mortgage Note without
recourse to the order of the Trustee, on behalf of the Certificateholders, and
(b) prepare and execute, or cause to be prepared and executed, an assignment to
the Trustee in recordable form for each Mortgage Loan sold by the Seller
hereunder and deliver such endorsed Mortgage Notes and assignments to the
Purchaser.]
SECTION 2. Payment of Purchase Price for Cut-off Date Asset Balances
[and Additional Balances].
(a) [The purchase price ("Purchase Price") for each Mortgage Loan, and
for each Additional Balance, shall be the Cut-off Date Asset Balance thereof (or
the principal amount of the draw under the Credit Line Agreement, in the case of
an Additional Balance) on the due date for payment for such Mortgage Loan, in
the case of a Mortgage Loan, or the date of the creation of the Additional
Balance, in the case of an Additional Balance. In consideration of the sale of
the Mortgage Loans (including Additional Balances) from the Seller to the
Purchaser on the Closing Date, the Purchaser agrees to pay to the Seller on the
date of this Agreement, by book-entry transfer or otherwise on the books and
records of the Purchaser and the Seller, an amount equal to $[_____________].
The remainder of the Purchase Price of the Mortgage Loans sold to the Purchaser
as of the Closing Date shall be contributed as capital by the Seller to the
Purchaser.
(b) The Purchase Price for Mortgage Loans and Additional Balances shall
be paid or provided for on the Closing Date and each subsequent date on which
Additional Balances are drawn on the Credit Line Agreements in either of the
following ways: (i) by payment in cash of immediately available funds; or (ii)
in the event that the total Purchase Price is not paid in full in cash by the
Purchaser on the date of purchase, the Seller shall convey the amount of such
cash shortfall as a capital contribution to the Purchaser. The monthly notice
delivered by the Seller to the Purchaser pursuant to Section 1 of this Agreement
shall indicate the amount of the Purchase Price for Additional Balances paid by
the Purchaser during the prior month in cash and the amount of capital
contributions by the Seller to the Purchaser.]
SECTION 3. Representations and Warranties of the Seller. The Seller
hereby makes to and for the benefit of the Purchaser each of the following
representations and warranties:
(i) The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of
[______________] and has the power to own its property and to conduct
its business as it is presently owned and as such business is presently
conducted;
(ii) The Seller is neither required to qualify nor to register
as a foreign corporation in any state in order to conduct its business,
and is not required under federal or state law to obtain any licenses
or approvals with respect to such business except such as have been
obtained prior to the Closing Date;
(iii) The Seller has the power and authority to make, execute,
deliver and perform its obligations under this Agreement and all of the
transactions contemplated under this Agreement, and has taken all
necessary corporate action to authorize the execution, delivery and
performance of this Agreement;
(iv) The Seller is not required to obtain the consent of any
other party or any consent, license, approval or authorization from, or
registration or declaration with, any governmental authority, bureau or
agency in connection with the execution, delivery, performance,
validity or enforceability of this Agreement, except such as have been
obtained or filed, as the case may be, prior to the Closing Date;
(v) The execution, delivery and performance of this Agreement
by the Seller will not violate or conflict with any provision of any
existing law or regulation or any order or decree of any court
applicable to the Seller or any provision of the [Certificate of
Incorporation] [Articles of Incorporation] [Articles of Association] or
By-laws of the Seller, or constitute a material breach of any mortgage,
indenture, contract or other agreement to which the Seller is a party
or by which the Seller may be bound;
(vi) There are no proceedings or investigations pending or, to
the best knowledge of the Seller, threatened, before any court,
regulatory body, administrative agency, arbitrator or other tribunal or
governmental instrumentality (i) asserting the invalidity of this
Agreement, (ii) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement, (iii) seeking any
determination or ruling that, in the reasonable judgment of the Seller,
would materially and adversely affect the transactions contemplated by
this Agreement or the performance by the Seller of its obligations
under this Agreement, (iv) seeking any determination or ruling that
would materially and adversely affect the validity or enforceability of
this Agreement, (v) seeking to affect adversely the Federal income tax
attributes of the Trust, or (vi) seeking to impose any tax upon the
Seller as a result of the sale of the Mortgage Loans pursuant to this
Agreement; and
(vii) The Seller is not insolvent and will not be insolvent
following the consummation on the Closing Date of the transactions
contemplated by this Agreement and has not entered into such
transactions, including the transfer by the Seller to the Purchaser of
the property specified in Section 1, in contemplation of insolvency or
with a view to hindering its creditors.
The representations and warranties set forth in this Section 3 shall
survive the sale of the Mortgage Loans to the Purchaser and the transfer of the
Mortgage Loans by the Purchaser to the Trust and the delivery of the Mortgage
Files to the Trustee. Upon discovery by the Seller or the Purchaser of a breach
of any of the foregoing representations and warranties, the party discovering
such breach shall give prompt written notice thereof to the other party.
SECTION 4. Representations and Warranties of the Seller Regarding this
Agreement and the Mortgage Loans: Repurchase of Certain Mortgage Loans. (a) The
Seller represents and warrants to the Purchaser as of the Transfer Date with
respect to each Mortgage Loan sold to the Purchaser (except as otherwise
expressly stated) that, as to each Mortgage Loan or its related Asset Balance:
(i) this Agreement constitutes a legal, valid and binding
obligation of the Seller, enforceable against the Seller in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect affecting the enforcement of creditors'
rights in general and except as such enforceability may be limited by
general principles of equity (whether considered in a proceeding at law
or in equity);
(ii) this Agreement constitutes a valid sale and assignment to
the Purchaser of all right, title and interest of the Seller in and to
the Mortgage Loans, all monies due or to become due with respect
thereto, and all proceeds of such Mortgage Loans;
(iii) the information set forth with respect to each Mortgage
Loan on Schedule I hereto was true and correct in all material respects
as of the date or dates respecting which such information is furnished;
(iv) immediately prior to the sale of the Mortgage Loans to
the Purchaser, the Seller was the sole owner and holder of the Mortgage
Loans, free and clear of any and all liens, pledges, participations,
charges or security interests of any nature whatsoever, and had full
right and authority, subject to no interest or participation of, or
agreement with, any other party, to sell and assign the same;
(v) each Mortgage evidences a valid, subsisting and
enforceable first or second lien on the Mortgaged Property therein
described, which lien secures the indebtedness outstanding under the
Mortgage Loan as of the Cut-off Date and the indebtedness thereafter
incurred as a result of any Additional Balances created under such
Mortgage Loan subsequent to the Cut-off Date; such Mortgaged Property
is free and clear of all encumbrances and liens having priority over
the lien of the related Mortgage except for (A) if such lien is a
second lien, the first lien on such Mortgaged Property and (B) such
other encumbrances and liens to which like properties are commonly
subject and that are commonly acceptable to home equity mortgage
lenders in the jurisdiction where the related Mortgaged Property is
located that do not individually or in the aggregate materially affect
the benefits of the security intended to be provided by the Mortgage;
with respect to each Mortgage Loan secured by Mortgaged Property
located in the State of Connecticut, subsequent to the recording of the
related original Mortgage, the Seller has not received written notice
of any mortgage, lien, attachment, lis pendens, legal proceedings or
adjudication against such Mortgaged Property; with respect to each
Mortgage Loan secured by Mortgaged Property located in the State of New
York, subsequent to the recording of the related original Mortgage, the
Seller has not received written notice of any mechanic's lien filed
against the property pursuant to the New York Lien Law; any security
agreement, chattel mortgage or equivalent document related to, and
delivered to the Purchaser in connection with, such Mortgage Loan
establishes a valid and subsisting first or second lien on the property
described therein; and the terms of the Mortgage, and any security
agreement, chattel mortgage or equivalent document relating to such
Mortgage, may be enforced by the Purchaser and its successors and
assigns;
(vi) the Seller has not impaired, waived, altered or modified
the related Mortgage or Mortgage Note in any material respect, except
by a written instrument that has been recorded, or satisfied, canceled
or subordinated such Mortgage in whole or in part, released the
Mortgaged Property in whole or in part from the lien of such Mortgage,
or executed any instrument of release, cancellation, modification or
satisfaction with respect to such Mortgage;
(vii) there are no defaults in complying with the terms of any
Mortgage, and all taxes, governmental assessments, insurance premiums,
and water, sewer and municipal charges, if applicable, that previously
became due and owing have been paid; the Seller has not advanced funds,
or induced, solicited or knowingly received any advance of funds by a
party other than the Mortgagor, directly or indirectly, for the payment
of any amount required by the Mortgage;
(viii) there is no proceeding pending or threatened for the
total or partial condemnation of any Mortgaged Property; each Mortgaged
Property is undamaged by waste, fire, earthquake or earth movement,
windstorm, flood, tornado or other casualty, so as to have a material
adverse effect on the value of the related Mortgaged Property as
security for the related Mortgage Loan or the use for which the
premises were intended; and no Mortgaged Property is located on a
hazardous or toxic waste site;
(ix) each Mortgaged Property is free and clear of all
mechanics' and materialmen's liens, or other similar liens, that are
prior to or equal to the lien of the related Mortgage; and there are no
rights outstanding that could result in any such prior or equal
mechanics' or materialmen's lien or similar lien being imposed on a
Mortgaged Property;
(x) each Mortgaged Property consists of a fee simple estate in
real property; all of the improvements that are included for the
purpose of determining the Appraised Value of the Mortgaged Property
lie wholly within the boundaries and building restriction lines of such
property (and, if the related Mortgaged Property is a condominium unit,
such improvements lie wholly within the project); and, [based upon a
"drive-by" inspection, with respect to Credit Limits of up to and
including $___, or an appraisal, with respect to Credit Limits of over
$___, made in connection with the application for the related Mortgage
Loan,] no improvements on adjoining property that encroach on the
Mortgaged Property have been revealed by such "drive-by" inspection or
appraisal, unless Federal Housing Administration or Veterans'
Administration regulations, or FNMA or FHLMC guidelines, permit such an
encroachment;
(xi) each Mortgage Loan meets, or is exempt from, applicable
state or federal laws, regulations or other requirements pertaining to
usury, and no Mortgage Loan is usurious;
(xii) no improvement located on or being part of a Mortgaged
Property is in violation of any applicable zoning law or regulation;
all inspections licenses and certificates required to be made or issued
with respect to all occupied portions of the Mortgaged Property and,
with respect to the use and occupancy of the same including, but not
limited to, certificates of occupancy and fire underwriting
certificates, have been made or obtained from the appropriate
authorities;
(xiii) the Seller and every other holder of each Mortgage, if
any, were authorized to transact business in the jurisdiction in which
the related Mortgaged Property is located at all times when such party
held such Mortgage;
(xiv) no payment required to be made on any Mortgage Loan
under the terms of the related Mortgage Note is more than 90 days
delinquent;
(xv) each Mortgage Note and the related Mortgage are genuine
and each is the valid and binding obligation of the maker thereof,
enforceable in accordance with its terms, except as such enforcement
may be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally
and by general equity principles (regardless of whether such
enforcement is considered in a proceeding in equity or at law); all
parties to each Mortgage Note and the related Mortgage had legal
capacity to execute such Mortgage Note and such Mortgage, and each
Mortgage Note and Mortgage has been duly and properly executed by the
Mortgagor;
(xvi) any and all requirements of any federal, state or local
law, including, without limitation, truth-in-lending, real estate
settlement procedures, consumer credit protection, equal credit
opportunity or disclosure laws, applicable to the Mortgage Loan have
been complied with;
(xvii) all improvements securing each Mortgage Loan are
insured, by a generally acceptable insurance company licensed to do
business in the jurisdiction where the Mortgaged Property is located,
against loss by fire and such hazards as are customarily covered under
a standard extended coverage endorsement in the area where the related
Mortgaged Property is located, in an amount that is not less than the
amount required pursuant to the [____________________] Agreement. If
the Mortgaged Property is a condominium unit, it is included under the
coverage afforded by a blanket policy for the project to the extent not
covered by an individual unit insurance policy consistent with the
immediately preceding sentence. If, upon origination of the Mortgage
Loan, the Mortgaged Property was in an area identified in the Federal
Register by the Federal Emergency Management Agency as having special
flood hazards (and such flood insurance has been made available), a
flood insurance policy meeting the requirements of the guidelines of
the Federal Insurance Administration is in effect with a generally
acceptable insurance carrier, in an amount that is not less than the
amount required pursuant to the [_________ _________] Agreement. Each
Mortgage obligates the Mortgagor thereunder to maintain all such
insurance at the Mortgagor's cost and expense; and each of the
foregoing insurance policies contains a standard mortgagee clause that
names the originator and its successors and assigns as first or second
mortgagee, as the case may be. Each of the hazard insurance policies is
the valid and binding obligation of the related insurer, is in full
force and effect, and will be in full force and effect and insure to
the benefit of the Purchaser upon the consummation of the transactions
contemplated by this Agreement. The Seller has not engaged in, and has
no knowledge of the Mortgagor's having engaged in, any act or omission
that would impair the coverage of any such policy, the benefits of the
endorsement provided for herein, or the validity and binding effect of
either;
(xviii) there is no default, breach, violation or event of
acceleration existing under any Mortgage or the related Mortgage Note
and no event that, with the passage of time or with notice and the
expiration of any grace or cure period, would constitute a default,
breach, violation or event of acceleration; and the Seller has not
waived any default, breach, violation or event of acceleration.
(xix) no Mortgage Note is subject to any right of rescission,
set-off, counterclaim or defense, including the defense of usury, nor
will the operation of any of the terms of any Mortgage Note, or the
exercise of any right thereunder, render such Mortgage Note
unenforceable, in whole or in part, or subject it to any right of
rescission, set-off, counterclaim or defense, including the defense of
usury, and no such right of rescission, setoff, counterclaim or defense
has been asserted with respect thereto;
(xx) each Mortgage Note is not and has not been secured by any
collateral except the lien of the corresponding Mortgage and the
security interest of any applicable security agreement, chattel
mortgage or equivalent document referred to in subparagraph (v) above;
(xxi) each Mortgage contains customary and enforceable
provisions such as to render the rights and remedies of the holder
thereof adequate for the realization against the Mortgaged Property of
the benefits of the security provided thereby, including, without
limitation, (i) in the case of a Mortgage designated as a deed of
trust, by trustee's sale and (ii) otherwise by judicial foreclosure;
and there is no exemption available to the Mortgagor that would
interfere with such right to foreclose or sell the Mortgaged Property
at a trustee's sale;
(xxii) no Mortgagor is a debtor in any state or federal
bankruptcy or insolvency proceeding;
(xxiii) the Mortgaged Properties are located in the States of
[____________________]; each Mortgaged Property consists of a single
parcel of real property with a one-to-four-family residence erected
thereon, a townhouse, an individual condominium unit, or an individual
unit in a planned unit development, provided, however, that any such
condominium unit or planned unit development is either (i) located in a
project that has been approved by, or would otherwise be acceptable to,
FNMA or FHLMC or (ii) the Combined Loan-to-Value Ratio of the Mortgage
Loan secured by such condominium unit or unit in a planned unit
development is [____]% or less as of the Cut-off Date; and no such
parcel has erected thereon a mobile home or manufactured dwelling;
(xxiv) as of the Closing Date, each Mortgage Loan meets the
requirements set by the OTS for investment by a federal savings and
loan association, subject to such association's charter and bylaws and
applicable governmental regulation regarding percentage of assets
limitations;
(xxv) the Seller maintains either a blanket hazard insurance
policy or a mortgage impairment insurance policy providing coverage
for, among other things, fire and the extended coverage hazards, with
respect to the Mortgage Loans and, as of the Closing Date, any such
policy is in full force and effect;
(xxvi) each Mortgaged Property is either an owner-occupied
primary residence, a second home or a residential investor property;
(xxvii) with respect to each Mortgage Loan, the Loan Rate as
of the Cut-off Date, net of the premium payable on any related credit
life insurance policy, was either [____]%, [____]%, or [____]% per
annum and the weighted average of the Loan Rates as of the Cut-off Date
was [____]% per annum;
(xxviii) each Mortgage Loan contains a "due-on-sale" clause
permitting the mortgagee to accelerate the payment of the indebtedness
evidenced thereby upon the sale of the related Mortgaged Property;
(xxix) no Mortgage Loan had a Combined Loan-to-Value Ratio
in excess of [___]%;
(xxx) upon the Seller's transfer of the Mortgage Loans to the
Purchaser in accordance with the terms hereof, the Purchaser became the
sole owner of all the right, title and interest in, to and under the
Mortgage Loans, including all principal amounts thereof outstanding as
of the Cut-off Date and all principal amounts that may hereafter be
outstanding thereunder as a result of future Draws or the
capitalization of interest due and unpaid thereon, free and clear of
all liens, pledges, charges and encumbrances whatsoever;
(xxxi) no Mortgage Note has been prepared on a form other than
the forms of Mortgage Notes attached hereto as Exhibit A, no Mortgage
has been prepared on a form other than the forms of Mortgages attached
hereto as Exhibit B and no riders were appended to any Mortgage at the
time of execution thereof;
(xxxii) each Mortgage Loan was originated by a savings and
loan association, savings bank, commercial bank, credit union,
insurance company, or similar institution which is supervised and
examined by a federal or state authority, or by a mortgagee approved by
the Secretary of Housing and Urban Development pursuant to sections 203
and 211 of the National Housing Act;
(xxxiii) the Mortgage Note for each Mortgage Loan provides
that the Loan Rate is [fixed][adjusted monthly on each Interest Rate
Adjustment Date to equal the sum of the Index and the Gross Margin,
subject to any Rate Cap]; the Mortgage Note is payable monthly on each
Due Date in amounts calculated in the manner set forth therein, with
interest calculated and payable in arrears; no Mortgage Note contains
provisions permitting negative amortization (other than the provision
for Capitalized Interest); and the average Cut-off Date Asset Balance
was approximately $[_______________];
(xxxiv) the Mortgaged Property is lawfully occupied under
applicable law; and all inspections, licenses and certificates required
to be made or issued with respect to all occupied portions of the
Mortgaged Property and, with respect to the use and occupancy of the
same, including but not limited to certificates of occupancy and fire
underwriting certificates, have been made or obtained from the
appropriate authorities;
(xxxv) in the event the Mortgage constitutes a deed for trust,
a trustee, duly qualified under applicable law to serve as such, has
been properly designated, currently so serves and is named in the
Mortgage, and no fees or expenses are or will become payable by the
Purchaser to the trustee under the deed of trust, except in connection
with a trustee's sale after default by the Mortgagor; and
(xxxvi) the Mortgage Note, the Mortgage, and any other
documents required to be delivered under the Pooling and Servicing
Agreement with respect to the Mortgage Loans have been delivered to the
Trustee or the Custodian; and the Trustee or the Custodian is in
possession of a complete, true and accurate Mortgage File.
The representations and warranties set forth in this Section 4 shall
survive the sale of the Mortgage Loans to the Purchaser and the transfer of the
Mortgage Loans by the Purchaser to the Trust and the delivery of the Mortgage
Files to the Trustee. Upon discovery by the Seller or the Purchaser of a breach
of any of the representations and warranties set forth in this Section 4, the
party discovering such breach shall give prompt written notice thereof to the
other party. Within 60 days of its discovery or its receipt of notice of breach,
the Seller shall use all reasonable efforts to cure such breach in all material
respects or shall, not later than the Business Day immediately preceding the
Distribution Date in the month following the Collection Period in which any such
cure period expired, repurchase such Mortgage Loan from the Purchaser in the
same manner and subject to the same conditions as set forth in Section 5, other
than with respect to breaches solely related to the representations and
warranties set forth in clause (i) or (ii) of this Section 4. Upon making such
repurchase and sending any required payment to the Purchaser, the Seller shall
be entitled to receive an instrument of assignment or transfer, without
recourse, representation or warranty, from the Purchaser to the same extent as
set forth in Section 5 with respect to the repurchase of the Mortgage Loans
under that Section. It is understood and agreed that the obligation of the
Seller to repurchase a Mortgage Loan as to which a breach has occurred and is
continuing and to make any required payment to the Purchaser shall constitute
the sole remedy respecting such breach available to the Purchaser against the
Seller; provided, however, that the Seller shall defend and indemnify the
Purchaser against all costs, expenses, losses, damages, claims and liabilities,
including reasonable fees and expenses of counsel, which may be asserted against
or incurred by the Purchaser as a result of any breach of any such
representation or warranty. Notwithstanding the foregoing, with regard to any
breach of the representation and warranty set forth in clause (iv) of this
Section 4, the sale and assignment of the affected Mortgage Loans shall be
deemed void and the Seller shall pay to the Purchaser the sum of (i) the amount
of the related Asset Balances and (ii) the amount of any losses suffered with
respect to the affected Mortgage Loans.
In the event of a breach of any of the representations and warranties
in clause (i) or clause (ii) of this Section 4 that materially and adversely
affects the interests of the Purchaser, the Purchaser by written notice to the
Seller, may direct the Seller to repurchase all of the Mortgage Loans within 60
days of such notice. The Seller shall repurchase such Mortgage Loans on the
Distribution Date immediately succeeding the expiration of such applicable
period; provided that such repurchase will not be required to be made if on the
Business Day prior to such Distribution Date, such representation and warranty
shall then be true and correct in all material respects or the breach of such
representations and warranties no longer materially and adversely affects the
interests of the Purchaser. The Seller shall pay to the Purchaser an amount
equal to the aggregate Asset Balances of the Mortgage Loans on the Distribution
Date on which the repurchase is scheduled to be made plus an amount equal to all
interest accrued but unpaid on such Mortgage Loans through the end of the
related Collection Period. If the Purchaser gives a notice as provided above,
the obligation of the Seller to make any such deposit will constitute the sole
remedy respecting a breach of the representations and warranties available to
the Purchaser against the Seller.
SECTION 5. Acceptance by the Purchaser: Repurchase of Mortgage Loans.
The Purchaser hereby acknowledges its acceptance of the sale and assignment of
the Mortgage Notes and the Mortgages, and its receipt of the Mortgage Files
delivered pursuant to Section 1. If the time to cure any defect in respect of
any Mortgage Loan of which the Purchaser has notified the Seller following the
Purchaser's review of the Mortgage Files has expired or if at any time any loss
is suffered by the Purchaser in respect of any Mortgage Loan as a result of (i)
a defect in any document constituting a part of its Mortgage File, (ii) an
assignment of the related Mortgage not having been recorded as required by
Section 1(a), or (iii) the failure by the Seller to satisfy its obligation under
Section 1(b), then on the next succeeding Business Day, the Seller shall be
obligated to repurchase all right, title and interest of the Purchaser in and to
such Mortgage Loan, without recourse, representation or warranty, on such
Business Day; provided, however, that interest accrued on the Asset Balance of
such Mortgage Loan to the end of the Collection Period during which the date of
repurchase occurs shall be the property of the Purchaser. Within two Business
Days after the Business Day on which such repurchase arises the Seller shall pay
to the Purchaser an amount in immediately available funds equal to the Asset
Balance of such Mortgage Loan (the "Repurchase Price"). Upon receipt of the
Repurchase Price for such Mortgage Loan, the Purchaser shall execute such
documents and instruments of transfer presented by the Seller, and take such
other actions as shall reasonably be requested by the Seller to effect the
repurchase by the Seller of such Mortgage Loan pursuant to this Section. It is
understood and agreed that the obligation of the Seller to repurchase such a
Mortgage Loan shall constitute the sole remedy respecting such defect available
to the Purchaser against the Seller.
SECTION 6. Covenants of the Seller. The Seller hereby covenants that:
(a) Security Interests. Except for the conveyances hereunder and the
[____________________] Agreement, the Seller will not sell, pledge, assign or
transfer to any other Person, or grant, create, incur, assume or suffer to exist
any Lien on any Mortgage Loan or the related Mortgaged Property, whether now
existing or hereafter created, or any interest therein; and the Seller will
defend the right, title and interest of the Purchaser in, to and under the
Mortgage Loans and the related Mortgaged Property, whether now existing or
hereafter created, against all claims of third parties claiming through or under
the Seller; provided, however, that nothing in this Section 6(a) shall prevent
or be deemed to prohibit the Seller from suffering to exist upon any Mortgage
Loans or the related Mortgaged Property any Liens for municipal or other local
taxes and other governmental charges if such taxes or governmental charges shall
not at the time be due and payable or if the Seller shall currently be
contesting the validity thereof in good faith by appropriate proceedings and
shall have set aside on its books adequate reserves with respect thereto.
(b) Notice of Liens. The Seller shall notify the Purchaser promptly
after becoming aware of the existence of any Lien on any Mortgage Loans or the
related Mortgaged Property other than the conveyances hereunder and the
[____________________] Agreement.
(c) Delivery of Collections. In the event that the Seller receives
payments or other proceeds with respect to the Mortgage Loans conveyed
hereunder, the Seller agrees to remit to the Purchaser or its designee all such
payments or other proceeds as soon as practicable after receipt thereof by the
Transferor, but in no event later than [__] Business Days after the receipt by
the Seller thereof.
SECTION 7. Termination. The respective obligations and responsibilities
of the Seller and the Purchaser created hereby shall terminate, except for the
Seller's indemnity obligations as provided herein, upon the termination of the
Trust as provided in Article [__] of the [____________________] Agreement.
SECTION 8. Amendment. (a) This Agreement may be amended from time to
time by the Purchaser and the Seller, without the consent of any of the
Certificateholders, to cure any ambiguity, to correct or supplement any
provisions herein which may be inconsistent with any other provisions herein, or
to add any other provisions with respect to matters or questions arising under
this Agreement which shall not be inconsistent with the provisions of this
Agreement or the [____________________] Agreement; provided, however, that such
action shall not, (i) as evidenced by a letter from each Rating Agency rating
the Investor Certificates delivered to the Trustee, adversely affect the rating
on the Investor Certificates, or (ii) as evidenced by an opinion of counsel
satisfactory to the Trustee, cause the Trust to be characterized for federal
income tax purposes as an association taxable as a corporation or a taxable
mortgage pool or adversely affect the treatment of the Certificates as debt for
federal income tax purposes.
(b) This Agreement may also be amended from time to time by the
Purchaser and the Seller with the consent of the Holders of Investor
Certificates evidencing Percentage Interests aggregating not less than 51%, for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Agreement or modifying in any manner the rights of
the Certificateholders hereunder; provided, however, that no such amendment
shall (i) reduce in any manner the amount of, or delay the timing of,
collections of payments on Mortgage Loans or distributions which are required to
be made on any Certificate without the consent of the Holder of such Certificate
or (ii) reduce the aforesaid percentage required to consent to any such
amendment, without the consent of Holders of all Certificates then outstanding.
(c) Promptly after the execution of any such amendment made with the
consent of the Investor Certificateholders, the Purchaser shall furnish, or
cause to be furnished, written notification of the substance of such amendment
to each Investor Certificateholder. The Purchaser shall give, or cause to be
given, to each Rating Agency ten Business Days' notice of any proposed amendment
pursuant to this Section 8, and the Purchaser shall give, or cause to be given,
to each Rating Agency notice of any amendment adopted pursuant to this Section.
(d) Not less than 10 days prior to the execution of any amendment to
this Agreement under subsection 8(b), the Purchaser shall furnish written notice
of such amendment including a copy of the text of the proposed amendment to each
Investor Certificateholder and to the Rating Agencies. Promptly after the
execution of any amendment the Purchaser shall furnish, or cause to be
furnished, written notification of the substance of such amendment to each
Investor Certificateholder and to the Rating Agencies.
(e) It shall not be necessary for the consent of Investor
Certificateholders under this Section 8 to approve the particular form of any
proposed amendment, but it shall be sufficient if such Certificateholders shall
approve the substance thereof. The manner of obtaining such consents and of
evidencing the authorization of the execution thereof by Certificateholders
shall be subject to such reasonable requirements as the Trustee may prescribe.
SECTION 9. Assignment. Notwithstanding anything to the contrary
contained herein, this Agreement may not be assigned by the Purchaser or the
Seller except as contemplated by this Section 9; provided, however, that
simultaneously with the execution and delivery of this Agreement, the Purchaser
shall assign all of its right, title and interest herein to the Trustee for the
benefit of the Certificateholders as provided in the [____________________]
Agreement, to which the Seller hereby expressly consents. The Seller agrees to
perform its obligations hereunder for the benefit of the Trust and that the
Trustee may enforce the provisions of this Agreement, exercise the rights of the
Purchaser and enforce the obligations of the Seller hereunder without the
consent of the Purchaser and to the same effect as if the Trustee was a party
hereto.
SECTION 10. Third-Party Beneficiaries. This Agreement will inure to the
benefit of and be binding upon the parties hereto, the Trustee, and the
Certificateholders, which shall be considered to be third-party beneficiaries
hereof. Except as otherwise provided in this Agreement, no other person will
have any right or obligation hereunder.
SECTION 11. Purchaser Indemnification. The Seller shall pay, indemnify
and hold harmless the Purchaser, the Trust, the Trustee and each Investor
Certificateholder from and against any loss, liability, expense, damage or
injury (except, in the case of indemnification of any Certificateholder, to the
extent that they arise from any action by such Investor Certificateholder)
suffered or sustained pursuant to this Agreement, including, but not limited to,
any judgment, award, settlement, reasonable attorneys' fees and other costs or
expenses incurred in connection with the defense of any actual or threatened
action, proceeding or claim; provided, however, that the Seller shall not
indemnify the Purchaser, the Trust, the Trustee or the Investor
Certificateholders if such loss, liability, expense, damage or injury is due to
the gross negligence or willful misconduct of the Purchaser or the Trustee and
provided further that the Seller shall not indemnify the Trust or the Investor
Certificateholders for any liabilities, costs or expenses of the Trust or the
Investor Certificateholders arising under any tax law, including, without
limitation, Federal, State or local or franchise taxes. The provisions of this
indemnity shall run directly to and be enforceable by an injured party subject
to the limitations hereof.
SECTION 12. Merger or Consolidation of, or Assumption of the
Obligations of, the Seller. (a) The Seller shall not consolidate with or merge
into any other corporation or convey or transfer its properties and assets
substantially as an entirety to any Person, unless:
(i) The corporation formed by such consolidation or into which
the Seller is merged or the Person which acquires by conveyance or
transfer the properties and assets of the Seller 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, if the
Seller is not the surviving entity, shall expressly assume, by an
agreement supplemental hereto, executed and delivered to the Purchaser
and the Trustee, in form satisfactory to the Purchaser and the Trustee,
the performance of every covenant and obligation of the Seller, as
applicable hereunder and shall benefit from all the rights granted to
the Seller, as applicable hereunder; and
(ii) The Seller shall have delivered to the Purchaser and the
Trustee an Officer's Certificate signed by a Vice President (or any
more senior officer) of the Seller and an Opinion of Counsel each
stating that such consolidation, merger, conveyance or transfer and
such supplemental agreement comply with this Section 12 and that all
conditions precedent herein provided for relating to such transaction
have been complied with.
(b) The obligations of the Seller hereunder shall not be assignable nor
shall any Person succeed to the obligations of the Seller hereunder except in
each case in accordance with the provisions of the foregoing paragraph and of
Section 9.
SECTION 13. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HERETO SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS.
SECTION 14. Entire Agreement. This Agreement contains the entire
agreement and amends, restates and supersedes any prior agreement between the
parties relating to the subject matter hereof, and there are no other
representations, endorsements, promises, agreements or understandings, oral,
written or inferred, between the parties relating to the subject matter hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first set forth above.
[ ]
----------------------------
Name:
Title:
J.P. MORGAN ACCEPTANCE CORPORATION I
----------------------------
Name:
Title:
<PAGE>
SCHEDULE I
Mortgage Loan Information
<PAGE>
SCHEDULE II
<PAGE>
Exhibit A
Forms of Mortgage Note
<PAGE>
Exhibit B
Forms of Mortgage
EXHIBIT 10.2
MASTER SERVICING AGREEMENT
Dated as of [ ]
among
Home Equity Loan Trust 199_, Issuer
and
[_________________], Seller and Master Servicer
and
[ ], Trustee
Relating to the Mortgage Loans
Pledged as Collateral for the Issuer's
Asset Backed Notes and Asset Backed Certificates,
Series 199_,
in the Aggregate Initial
Principal Amount of $[ ]
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
PRELIMINARY STATEMENT.............................................................................................7
1. Defined Terms.........................................................................................7
Advance.........................................................................................7
Additional Balance..............................................................................8
Additional Loans................................................................................8
Administration Agreement........................................................................8
Administrator...................................................................................8
Agreement.......................................................................................8
Appraised Value.................................................................................8
Asset Balance...................................................................................8
Assignment of Mortgage..........................................................................8
Bankruptcy Code.................................................................................9
Basic Documents.................................................................................9
Billing Cycle...................................................................................9
Business Day....................................................................................9
Certificateholder...............................................................................9
Certificates....................................................................................9
Class...........................................................................................9
Closing Date....................................................................................9
Code............................................................................................9
Collateral......................................................................................9
Collection Account.............................................................................10
Collection Period..............................................................................10
Combined Loan-to-Value Ratio...................................................................10
Corporate Trust Office.........................................................................10
Credit Limit...................................................................................10
Custodial Agreement............................................................................10
Custodian......................................................................................10
Cut-Off Date...................................................................................10
DCR............................................................................................10
Deleted Mortgage Loan..........................................................................11
Deposit Date...................................................................................11
Deposit Date Asset Balance.....................................................................11
Determination Date.............................................................................11
Distribution Date..............................................................................11
Draw...........................................................................................11
Due Date.......................................................................................11
Eligible Account...............................................................................11
Eligible Substitute Mortgage Loan..............................................................11
Escrow Account.................................................................................12
Excess Proceeds................................................................................12
FDIC...........................................................................................12
FHLMC..........................................................................................12
FIRREA.........................................................................................12
Fitch..........................................................................................13
FNMA...........................................................................................13
Gross Margin...................................................................................13
Holder.........................................................................................13
Increased Senior Lien Limitation...............................................................13
Indenture......................................................................................13
Insurance Agreement............................................................................13
Insurance Policy...............................................................................13
Insurance Proceeds.............................................................................13
Interest Period................................................................................13
Issuer.........................................................................................14
Issuer Request.................................................................................14
Lien...........................................................................................14
Lifetime Rate Cap..............................................................................14
Liquidated Mortgage Loan.......................................................................14
Liquidation Expenses...........................................................................14
Liquidation Loss Amounts.......................................................................14
Liquidation Proceeds...........................................................................15
Loan Agreement.................................................................................15
Loan Rate......................................................................................15
Loan-to-Value Ratio............................................................................15
Margin.........................................................................................15
Master Servicer................................................................................15
Master Servicer Advance Date...................................................................15
Master Servicing Fee...........................................................................15
Master Servicing Fee Rate......................................................................15
Moody's........................................................................................15
Mortgage.......................................................................................16
Mortgage File..................................................................................16
Mortgage Loan Schedule.........................................................................16
Mortgage.......................................................................................16
Mortgage File..................................................................................16
Mortgage Loans.................................................................................16
Mortgage Note..................................................................................16
Mortgaged Property.............................................................................16
Mortgagor......................................................................................16
Net Liquidation Proceeds.......................................................................16
Net Loan Rate..................................................................................16
Nonrecoverable Advance.........................................................................17
Notes..........................................................................................17
Noteholder or Holder...........................................................................17
Officer's Certificate..........................................................................17
Opinion of Counsel.............................................................................17
Outstanding....................................................................................17
Owner Trust Estate.............................................................................17
Owner Trustee..................................................................................18
Paying Agent...................................................................................18
Payment Account................................................................................18
Payment Account................................................................................18
Payment Account Deposit Date...................................................................18
Payment Date...................................................................................18
Percentage Interest............................................................................18
Permitted Investments..........................................................................18
Person.........................................................................................19
Policy.........................................................................................19
Pool Balance...................................................................................19
Prepayment Period..............................................................................19
Principal Balance..............................................................................20
Principal Prepayment...........................................................................20
Principal Prepayment in Full...................................................................20
Prospectus Supplement..........................................................................20
Purchase Price.................................................................................20
Qualified Insurer..............................................................................20
Rating Agency..................................................................................20
Realized Loss..................................................................................21
Relief Act.....................................................................................21
Relief Act Reductions..........................................................................21
REO Property...................................................................................21
Repurchase Price...............................................................................21
Request for Release............................................................................22
Required Insurance Policy......................................................................22
SAIF...........................................................................................22
S&P............................................................................................22
Securities Act.................................................................................22
Security.......................................................................................22
Securityholder or Holder.......................................................................22
Seller.........................................................................................22
Servicer Advance...............................................................................22
Servicing Account..............................................................................22
Servicing Advances.............................................................................22
Servicing Default..............................................................................22
Servicing Fee..................................................................................23
Servicing Fee Rate.............................................................................23
Servicing Officer..............................................................................23
Subservicer....................................................................................23
Subservicing Agreement.........................................................................23
Subservicing Fee...............................................................................23
Substitute Mortgage Loan.......................................................................23
Substitution Adjustment Amount.................................................................23
Trust Agreement................................................................................24
Trustee........................................................................................24
Trustees.......................................................................................24
Trust Estate...................................................................................24
UCC............................................................................................24
Withdrawal Date................................................................................24
2. Conveyance of Mortgage Loans; Representations and Warranties.........................................24
(a) Conveyance of Mortgage Loans; Retention of Obligation to
Fund Advances Under Credit Line Agreements.................................................24
(b) Acceptance by Trustee; Retransfer of Mortgage Loans........................................28
(c) Documents, Records and Funds in Possession of Master Servicer
to be Held for Trustee.....................................................................29
(d) Representations, Warranties and Covenants of the Seller and
the Master Servicer........................................................................30
(e) Covenants of the Master Servicer...........................................................32
(f) Covenants of [________]....................................................................32
3. Administration and Servicing of Mortgage Loans.......................................................32
(a) Master Servicer to Service Mortgage Loans..................................................33
(b) Subservicing; Enforcement of the Obligations of Servicers..................................35
(c) Successor Servicers........................................................................35
(d) Liability of the Master Servicer...........................................................36
(e) No Contractual Relationship Between Subservicers and the Trustees..........................36
(f) Rights of [________] and the Trustees in Respect of the Master Servicer....................36
(g) Trustee to Act as Master Servicer..........................................................37
(h) Collection of Mortgage Loan Payments; Collection Accounts;
Payment Account............................................................................37
(i) Collection of Taxes, Assessments and Similar Items; Escrow Accounts........................40
(j) Access to Certain Documentation and Information Regarding
the Mortgage Loans.........................................................................40
(k) Permitted Withdrawals from the Note Account................................................41
(l) Maintenance of Hazard Insurance;
Maintenance of Primary Insurance Policies..................................................42
(m) Enforcement of Due-On-Sale Clauses; Assumption Agreements..................................43
(n) Realization Upon Defaulted Mortgage Loans; Repurchase of Certain Mortgage Loans...........45
(o) Access to Certain Documentation............................................................47
(p) Annual Statement as to Compliance..........................................................47
(q) Annual Independent Public Accountants'Servicing Statement;
Financial Statements.......................................................................48
(r) Errors and Omissions Insurance; Fidelity Bonds.............................................48
(s) Master Servicer Monthly Data...............................................................49
4. Advances.............................................................................................49
5. Servicing Compensation...............................................................................49
6. The Master Servicer..................................................................................49
(a) Respective Liabilities of [________] and the Master Servicer...............................49
(b) Merger or Consolidation of [________] or the Master Servicer...............................50
(c) Limitation on Liability of [________], the Seller, Master Servicer
and Others.................................................................................50
(d) Limitation on Resignation of the Master Servicer...........................................51
7. Default..............................................................................................51
(a) Events of Default..........................................................................51
(b) Trustee to Act; Appointment of Successor...................................................53
(c) Notification to Securityholders............................................................54
8. Miscellaneous........................................................................................54
(a) Term of Master Servicing Agreement.........................................................54
(b) Assignment.................................................................................54
(c) Notices....................................................................................54
(d) Inspection and Audit Rights................................................................55
(e) Governing Law..............................................................................56
(f) Amendment..................................................................................56
(g) Severability of Provisions.................................................................57
(h) No Joint Venture...........................................................................57
(i) Recordation of Agreement; Counterparts.....................................................58
(j) Limitation of Liability of [owner trustee].................................................58
(k) Nonpetition Covenants......................................................................58
SCHEDULE I Mortgage Loan Schedule.....................................................................60
SCHEDULE II Home Equity Loan Trust 199_ Asset Backed Notes and Asset Backed Certificates Series 199_...61
SCHEDULE III [________] Home Equity Loan Trust 199_ Asset Backed Notes and Asset Backed
Certificates Series 199_...................................................................63
SCHEDULE IV Home Equity Loan Trust 199_ Asset Backed Notes and Asset Backed Certificates
Series 199_................................................................................68
EXHIBIT A FORM OF INITIAL CERTIFICATION OF TRUSTEE...................................................70
EXHIBIT B FORM OF FINAL CERTIFICATION OF TRUSTEE.....................................................72
EXHIBIT C REQUEST FOR RELEASE (for Trustee)..........................................................74
EXHIBIT D REQUEST FOR RELEASE OF DOCUMENTS...........................................................76
</TABLE>
<PAGE>
MASTER SERVICING AGREEMENT
THIS MASTER SERVICING AGREEMENT is made and entered into as of [ ], by
and among Home Equity Loan Trust 199_, a statutory business trust formed under
the laws of the State of [Delaware] (the "Issuer"), [__________], a
[_____________ banking] corporation (the "Master Servicer" or, in its capacity
as seller, the "Seller") and [ ], a [ ] corporation (in its capacity as
trustee under the Indenture referred to below, the "Trustee").
PRELIMINARY STATEMENT
The Issuer was formed for the purpose of issuing asset backed notes and
asset backed certificates secured by mortgage collateral. The Issuer has
entered into a trust indenture, dated as of [ ] (the "Indenture"), between the
Issuer and the Trustee, pursuant to which the Issuer intends to issue its Home
Equity Loan Asset Backed Notes and Home Equity Loan Asset Backed Certificates,
Series 199_, in the aggregate initial principal amount of $[ ] (the
"Securities"). Pursuant to the Indenture, as security for the indebtedness
represented by such Securities, the Issuer is and will be pledging to the
Trustee, or granting the Trustee a security interest in, among other things,
certain Mortgage Loans and Additional Balances, its rights under this
Agreement, the Payment Account, the Collection Account [and certain Insurance
Policies] (as each such term is defined herein).
The parties desire to enter into this Agreement to provide, among other
things, for the servicing of the Mortgage Loans by the Master Servicer. The
Master Servicer acknowledges that, in order further to secure the Securities,
the Issuer is and will be granting to the Trustee a security interest in,
among other things, its rights under this Agreement, and the Master Servicer
agrees that all covenants and agreements made by the Master Servicer herein
with respect to the Mortgage Loans shall also be for the benefit and security
of the Trustee and Holders of the Securities. For its services hereunder, the
Master Servicer will receive a Master Servicing Fee (as defined herein) with
respect to each Mortgage Loan serviced hereunder.
1. Defined Terms.
Except as otherwise specified or as the context may otherwise require,
the following terms have the respective meanings set forth below for all
purposes of this Agreement, and the definitions of such terms are applicable
to the singular as well as the plural forms of such terms and to the masculine
as well as to the feminine and neuter genders of such terms:
Advance: The payment required to be made by the Master Servicer with
respect to any Distribution Date pursuant to Section 4, the amount of any such
payment being equal to the aggregate of payments of principal and interest
(net of the Master Servicing Fee and net of any net income in the case of any
REO Property) on the Mortgage Loans that were due on the related Due Date and
not received as of the close of business on the related Determination Date,
less the aggregate amount of any such delinquent payments that the Master
Servicer has determined would constitute a Nonrecoverable Advance if advanced.
Additional Balance: With respect to any Mortgage Loan, any future Draw
made by the related Mortgagor pursuant to the related Loan Agreement after the
Cut-off Date in the case of an Initial Loan, or after the Deposit Date in the
case of an Additional Loan; provided, however, that if an Amortization Event
occurs, then any Draw after such Amortization Event shall not be acquired by
the Issuer and shall not be an Additional Balance.
Additional Loans: All home equity line of credit loans sold by [________]
to the Issuer after the Closing Date.
Administration Agreement: The Administration Agreement dated as of
___________, 199_ among the Issuer, the Trustee and [______________], as
Administrator, as it may be amended from time to time.
Administrator: [______________], as administrator under the
Administration Agreement or any successor Administrator appointed pursuant to
the terms of the Administration Agreement.
Agreement: Means this Master Servicing Agreement, as the same may be
amended or supplemented from time to time.
Appraised Value: With respect to any Mortgaged Property, either (x) the
value set forth in an appraisal of such Mortgaged Property made to establish
compliance with the underwriting criteria then in effect in connection with
the later of the application for the Mortgage Loan secured by such Mortgaged
Property or any subsequent increase or decrease in the related Credit Limit or
to reduce or eliminate the amount of any primary insurance, or (y) if the
sales price of the Mortgaged Property is considered in accordance with the
underwriting criteria applicable to the Mortgage Loan, the lesser of (i) the
appraised value referred to in (x) above and (ii) the sales price of such
Mortgaged Property.
Asset Balance: With respect to any Mortgage Loan, other than a Liquidated
Mortgage Loan, and as of any day, the related Cut-off Date Asset Balance or
Deposit Date Asset Balance, [plus (i) any Additional Balances in respect of
such Mortgage Loan conveyed to the Issuer,] minus [(ii)] all collections
credited as principal in respect of any such Mortgage Loan in accordance with
the related Loan Agreement (except for any such collections that are allocable
to the Excluded Amount) and applied in reduction of the Asset Balance thereof.
For purposes of this definition, a Liquidated Mortgage Loan shall be deemed to
have an Asset Balance equal to the Asset Balance of the related Mortgage Loan
immediately prior to the final recovery of all related Liquidation Proceeds
and an Asset Balance of zero thereafter.
Assignment of Mortgage: With respect to any Mortgage, an assignment,
notice of transfer or equivalent instrument, in recordable form, sufficient
under the laws of the jurisdiction in which the related Mortgaged Property is
located to reflect the conveyance of the Mortgage, which assignment, notice of
transfer or equivalent instrument may be in the form of one or more blanket
assignments covering the Mortgage Loans secured by Mortgaged Properties
located in the same jurisdiction.
Bankruptcy Code: Means the United States Bankruptcy Reform Act of 1978,
as amended.
Basic Documents: The Trust Agreement, the Certificate of Trust, the
Indenture, the Insurance Agreement, the Administration Agreement, the Master
Servicing Agreement, the Custodial Agreement and the other documents and
certificates delivered in connection with any of the above.
Billing Cycle: With respect to any Mortgage Loan and Due Date, the
calendar month preceding such Due Date.
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a day
on which banking institutions in the State of New York, [_______________] or
[_____________] are required or authorized by law to be closed.
Certificateholder: The Person in whose name a Certificate is registered
in the Certificate Register except that, any Certificate registered in the
name of the Issuer, the Owner Trustee or the Trustee or any Affiliate of any
of them shall be deemed not to be outstanding and the registered holder will
not be considered a Certificateholder or a holder for purposes of giving any
request, demand, authorization, direction, notice, consent or waiver under the
Indenture or the Trust Agreement provided that, in determining whether the
Trustee or the Owner Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Certificates that the Trustee or the Owner Trustee knows to be so owned shall
be so disregarded. Owners of Certificates that have been pledged in good faith
may be regarded as Holders if the pledgee establishes to the satisfaction of
the Trustee or the Owner Trustee, as the case may be, the pledgee's right so
to act with respect to such Certificates and that the pledgee is not the
Issuer, any other obligor upon the Certificates or any Affiliate of any of the
foregoing Persons.
Certificates: The Home Equity Loan Asset Backed Certificates, Series
199_-_, each evidencing undivided beneficial interests in the Issuer and
executed by the Owner Trustee in substantially the form set forth in Exhibit A
to the Trust Agreement.
Class: The Notes or the Certificates, as the case may be.
Closing Date: ___________, 199_.
Code: The Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder.
Collateral: The meaning specified in the Granting Clause of the
Indenture.
Collection Account: Means the Eligible Account or Accounts established
and maintained by the Master Servicer in accordance with Section 3(h)(iii).
Collection Period: With respect to any Mortgage Loan and Payment Date
other than the first Payment Date, the calendar month preceding any such
Payment Date and with respect to the first Payment Date, the period from
_____________ through [___________].
Combined Loan-to-Value Ratio: With respect to any Mortgage Loan and any
date, the percentage equivalent of a fraction, the numerator of which is the
sum of (i) the greater of (x) the Credit Limit and (y) the Cut-off Date Asset
Balance of such Mortgage Loan and (ii) the outstanding principal balance as of
the date of the origination of such Mortgage Loan (or any subsequent date as
of which such outstanding principal balance may be determined in connection
with an increase or decrease in the Credit Limit or to reduce the amount of
primary insurance for such Mortgage Loan) of any mortgage loan or mortgage
loans that are secured by liens on the Mortgaged Property that are senior or
subordinate to the Mortgage and the denominator of which is the Appraised
Value of the related Mortgaged Property.
Corporate Trust Office: The designated office of the Trustee in the State
of ________ at which at any particular time its corporate trust business with
respect to this Agreement shall be administered, which office at the date of
the execution of this Agreement is located at
__________________________________ (Attn:
____________________________________, facsimile no. ________________, and
which is the address to which notices to and correspondence with the Trustee
should be directed.
Credit Limit: With respect to any Mortgage Loan, the maximum Asset
Balance permitted under the terms of the related Loan Agreement.
Custodial Agreement: Any Custodial Agreement between the Custodian, the
Trustee, the Issuer and the Master Servicer relating to the custody of the
Mortgage Loans and the Related Documents.
Custodian: With respect to the Mortgage Loans, [______________], a
[_______________], and its successors and assigns.
Cut-Off Date: With respect to the Initial Loans ________, 199_.
DCR: Means Duff & Phelps Credit Rating Company, or any successor thereto.
If DCR is designated as a Rating Agency in the Indenture, for purposes of
Section 8(c) the address for notices to DCR shall be Duff & Phelps Credit
Rating Company, 55 E. Monroe Street, 35th Floor, Chicago, Illinois 60603,
Attention: MBS Monitoring, or such other address as DCR may hereafter furnish
to the Issuer and the Master Servicer.
Deleted Mortgage Loan: Has the meaning ascribed thereto in Section 5.
[Deposit Date: The applicable date as of which any Additional Loan is
sold to the Issuer.
Deposit Date Asset Balance: With respect to any Additional Loan, the
Asset Balance thereof as of the Deposit Date.]
Determination Date: As to any Distribution Date, the ____ day of each
month or if such ____ day is not a Business Day the next preceding Business
Day; provided, however, that if such ____ day or such Business Day, whichever
is applicable, is less than two Business Days prior to the related
Distribution Date, the Determination Date shall be the first Business Day
which is two Business Days preceding such Distribution Date.
Distribution Date: The ____ day of each calendar month after the initial
issuance of the Certificates, or if such ____ day is not a Business Day, the
next succeeding Business Day, commencing in ____________, 199_.
Draw: With respect to any Mortgage Loan, a borrowing by the Mortgagor
under the related Loan Agreement.
Due Date: With respect to the Mortgage Loans, the [__]th day of the
month.
Eligible Account: Any of (i) an account or accounts maintained with a
federal or state chartered depository institution or trust company the
short-term unsecured debt obligations of which (or, in the case of a
depository institution or trust company that is the principal subsidiary of a
holding company, the debt obligations of such holding company) have the
highest short-term ratings of each Rating Agency at the time any amounts are
held on deposit therein, or (ii) an account or accounts in a depository
institution or trust company in which such accounts are insured by the FDIC
(to the limits established by the FDIC) and the uninsured deposits in which
accounts are otherwise secured such that, as evidenced by an Opinion of
Counsel delivered to the Trustee and to each Rating Agency, the
Securityholders have a claim with respect to the funds in such account or a
perfected first priority security interest against any collateral (which shall
be limited to Permitted Investments) securing such funds that is superior to
claims of any other depositors or creditors of the depository institution or
trust company in which such account is maintained, or (iii) a trust account or
accounts maintained with (a) the trust department of a federal or state
chartered depository institution or (b) a trust company, acting in its
fiduciary capacity or (iv) any other account acceptable to each Rating Agency.
Eligible Accounts may bear interest, and may include, if otherwise qualified
under this definition, accounts maintained with the Trustee.
Eligible Substitute Mortgage Loan: A Mortgage Loan substituted by
[________] for a Deleted Mortgage Loan which must, on the date of such
substitution, as confirmed in an Officers' Certificate delivered to the
Trustee, (i) have an outstanding principal balance, after deduction of the
principal portion of the monthly payment due in the month of substitution (or
in the case of a substitution of more than one Mortgage Loan for a Deleted
Mortgage Loan, an aggregate outstanding principal balance, after such
deduction), not in excess of the outstanding principal balance of the Deleted
Mortgage Loan (the amount of any shortfall to be deposited by the Seller in
the Collection Account in the month of substitution); (ii) have a Loan Rate
not less than the Loan Rate of the Deleted Mortgage Loan and not more than __%
in excess of the Loan Rate of such Deleted Mortgage Loan; (iii) have a Loan
Rate based on the same index with adjustments to such Loan Rate made on the
same interest rate adjustment date as that of the Deleted Mortgage Loan; (iv)
have a Margin that is not less than the Margin of the Deleted Mortgage Loan
and not more than _____ basis points higher than the Margin for the Deleted
Mortgage Loan; (v) have a mortgage of the same or higher level of priority as
the mortgage relating to the Deleted Mortgage Loan; (vi) have a remaining term
to maturity not more than ____ months earlier and not more than ____ months
later than the remaining term to maturity of the Deleted Mortgage Loan; (vii)
comply with each representation and warranty as to the Mortgage Loans set
forth herein (deemed to be made as of the date of substitution); (viii) in
general, have an original Combined Loan-to-Value Ratio not greater than that
of the Deleted Mortgage Loans; and (ix) satisfy certain other conditions
specified in the Purchase Agreement. To the extent the Principal Balance of an
Eligible Substitute Mortgage Loan is less than the Principal Balance of the
related Deleted Mortgage Loan, the Seller will be required to make a deposit
tot he Collection Account equal to such difference; and (x) not be __ days or
more delinquent.
Escrow Account: Means the Eligible Account or Accounts established and
maintained pursuant to Section 3(i) hereof.
Excess Proceeds: With respect to any Liquidated Mortgage Loan, the
amount, if any, by which the sum of any Liquidation Proceeds of such Mortgage
Loan received in the calendar month in which such Mortgage Loan became a
Liquidated Mortgage Loan, net of any amounts previously reimbursed to the
Master Servicer as Nonrecoverable Advance(s) with respect to such Mortgage
Loan pursuant to Section 3(k)(i)(C), exceeds (i) the unpaid principal balance
of such Liquidated Mortgage Loan as of the Due Date in the month in which such
Mortgage Loan became a Liquidated Mortgage Loan plus (ii) accrued interest at
the Mortgage Rate from the Due Date as to which interest was last paid or
advanced (and not reimbursed) to Securityholders up to the Due Date applicable
to the Distribution Date immediately following the calendar month during which
such liquidation occurred.
FDIC: The Federal Deposit Insurance Corporation, or any successor
thereto.
FHLMC: The Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created and existing under Title III of
the Emergency Home Finance Act of 1970, as amended, or any successor thereto.
FIRREA: The Financial Institutions Reform, Recovery, and Enforcement Act
of 1989.
Fitch: Fitch Investors Service, L.P., or any successor thereto. If Fitch
is designated as a Rating Agency in the Preliminary Statement, for purposes of
Section 8(c) the address for notices to Fitch shall be Fitch Investors
Service, L.P., One State Street Plaza, New York, New York 10004, Attention:
_______________________________________, or such other address as Fitch may
hereafter furnish to [________] and the Master Servicer.
FNMA: The Federal National Mortgage Association, a federally chartered
and privately owned corporation organized and existing under the Federal
National Mortgage Association Charter Act, or any successor thereto.
Gross Margin: With respect to any Mortgage Loan, the percentage set forth
as the "Gross Margin" for such Mortgage Loan on the Mortgage Loan Schedule, as
adjusted from time to time with respect to any [______________] Loan in
accordance with the terms of this Agreement.
Holder: Any of the Noteholders or Securityholders.
Increased Senior Lien Limitation: shall have the meaning set forth in
Section 3(a).
Indenture: Means the trust indenture, dated as of the date hereof,
between the Issuer and the Trustee, as such Indenture may be amended or
supplemented from time to time in accordance with its terms.
[Insurance Agreement: The insurance and reimbursement agreement dated as
of ______________, 199_ among the Master Servicer, the Seller, [________], the
Issuer and the Credit Enhancer, including any amendments and supplements
thereto.]
Insurance Policy: Means, with respect to any Mortgage Loan, any insurance
policy, including all riders and endorsements thereto in effect, including any
replacement policy or policies for any Insurance Policies.
Insurance Proceeds: Proceeds paid by any insurer pursuant to any
insurance policy covering a Mortgage Loan which are required to be remitted to
the Master Servicer, or amounts required to be paid by the Master Servicer
pursuant to the last sentence of Section [ ] of the Master Servicing
Agreement, net of any component thereof (i) covering any expenses incurred by
or on behalf of the Master Servicer in connection with obtaining such
proceeds, (ii) that is applied to the restoration or repair of the related
Mortgaged Property, (iii) released to the Mortgagor in accordance with the
Master Servicer's normal servicing procedures or (iv) required to be paid to
any holder of a mortgage senior to such Mortgage Loan.
Interest Period: With respect to any Payment Date other than the first
Payment Date, the period beginning on the preceding Payment Date and ending on
the day preceding such Payment Date, and in the case of the first Payment
Date, the period beginning on the Closing Date and ending on the day preceding
the first Payment Date.
Issuer: Home Equity Loan Trust 199_-_, a Delaware business trust, or its
successor in interest.
Issuer Request: A written order or request signed in the name of the
Issuer by any one of its Authorized Officers and delivered to the Trustee.
Lien: Any mortgage, deed of trust, pledge, conveyance, hypothecation,
assignment, participation, deposit arrangement, encumbrance, lien (statutory
or other), preference, priority right or interest or other security agreement
or preferential arrangement of any kind or nature whatsoever, including,
without limitation, any conditional sale or other title retention agreement,
any financing lease having substantially the same economic effect as any of
the foregoing and the filing of any financing statement under the UCC (other
than any such financing statement filed for informational purposes only) or
comparable law of any jurisdiction to evidence any of the foregoing; provided,
however, that any assignment pursuant to Section [ ] of the Master Servicing
Agreement shall not be deemed to constitute a Lien.
Lifetime Rate Cap: With respect to each Mortgage Loan with respect to
which the related Mortgage Note provides for a lifetime rate cap, the maximum
Loan Rate permitted over the life of such Mortgage Loan under the terms of
such Mortgage Note, as set forth on the Mortgage Loan Schedule and initially
as set forth on Exhibit A to the Master Servicing Agreement.
Liquidated Mortgage Loan: With respect to any Payment Date, any Mortgage
Loan in respect of which the Master Servicer has determined, in accordance
with the servicing procedures specified in the Master Servicing Agreement, as
of the end of the related Collection Period that substantially all Liquidation
Proceeds which it reasonably expects to recover with respect to the
disposition of the related REO have been recovered.
Liquidation Expenses: Out-of-pocket expenses (exclusive of overhead)
which are incurred by or on behalf of the Master Servicer in connection with
the liquidation of any Mortgage Loan and not recovered under any insurance
policy, such expenses including, without limitation, legal fees and expenses,
any unreimbursed amount expended (including, without limitation, amounts
advanced to correct defaults on any mortgage loan which is senior to such
Mortgage Loan and amounts advanced to keep current or pay off a mortgage loan
that is senior to such Mortgage Loan) respecting the related Mortgage Loan and
any related and unreimbursed expenditures for real estate property taxes or
for property restoration, preservation or insurance against casualty loss or
damage.
Liquidation Loss Amounts: With respect to any Payment Date and any
Mortgage Loan that became a Liquidated Mortgage Loan during the related
Collection Period, the unrecovered portion of the related Asset Balance
thereof at the end of such Collection Period, after giving effect to the Net
Liquidation Proceeds applied in reduction of the Asset Balance.
Liquidation Proceeds: Proceeds (including Insurance Proceeds [but not
including amounts drawn under the Credit Enhancement Instrument]) received in
connection with the liquidation of any Mortgage Loan or related REO, whether
through trustee's sale, foreclosure sale or otherwise.
Loan Agreement: With respect to any Mortgage Loan, the credit line
account agreement executed by the related Mortgagor and any amendment or
modification thereof.
Loan Rate: With respect to any Mortgage Loan and any day, the sum of the
Index Rate and the Margin.
Loan-to-Value Ratio: With respect to any Mortgage Loan and as to any date
of determination, (i) the principal balance of such Mortgage Loan divided by
(ii) the Collateral Value of the related Mortgaged Property.
Margin: The [spread].
Master Servicer: Means [___________________], a [___________ banking]
corporation, and its successors and assigns, in its capacity as master
servicer hereunder.
Master Servicer Advance Date: Means as to any Distribution Date, 12:30
p.m. Pacific time on the Business Day immediately preceding such Distribution
Date.
Master Servicing Fee: As to each Mortgage Loan and any Distribution Date,
an amount payable out of each full payment of interest received on such
Mortgage Loan and equal to one-twelfth of the Master Servicing Fee Rate
multiplied by the Stated Principal Balance of such Mortgage Loan as of the Due
Date in the month of such Distribution Date (prior to giving effect to any
Scheduled Payments due on such Mortgage Loan on such Due Date), subject to
reduction as provided in Section 5.
Master Servicing Fee Rate: Means with respect to each Mortgage Loan, [ ]%
per annum.
Moody's: Moody's Investors Service, Inc., or any successor thereto. If
Moody's is designated as a Rating Agency in the Preliminary Statement, for
purposes of Section 8(c) the address for notices to Moody's shall be Moody's
Investors Service, Inc., 99 Church Street, New York, New York 10007,
Attention: ___________________________________, or such other address as
Moody's may hereafter furnish to [________] or the Master Servicer.
Mortgage: The mortgage, deed of trust or other instrument creating a
first or second lien on an estate in fee simple interest in real property
securing a Mortgage Loan.
Mortgage File: The file containing the Related Documents pertaining to a
particular Mortgage Loan and any additional documents required to be added to
the Mortgage File pursuant to the Master Servicing Agreement.
Mortgage Loan Schedule: With respect to any date, the schedule of
Mortgage Loans included in the Trust Estate on such date. The initial schedule
of Mortgage Loans as of the Cut-Off Date is the schedule set forth in Exhibit
A of the Master Servicing Agreement, which schedule sets forth as to each
Mortgage Loan (i) the Cut-Off Date Trust Balance, (ii) the Credit Limit, (iii)
the Gross Margin, (iv) the name of the Mortgagor, (v) the Lifetime Rate Cap,
if any, (vi) the loan number, (vii) an indication as to the applicable
Mortgage Loan Group, and (viii) the lien position of the related Mortgage. The
Mortgage Loan Schedule will be amended from time to time by annex to reflect
Additional Loans.
Mortgage: Means the mortgage, deed of trust or other instrument creating
a first lien on an estate in fee simple or leasehold interest in real property
securing a Mortgage Note.
Mortgage File: The mortgage documents listed in Section 2(a)(i) hereof
pertaining to a particular Mortgage Loan and any additional documents
delivered to the Trustee to be added to the Mortgage File pursuant to this
Agreement.
Mortgage Loans: At any time, collectively, all Initial Loans [and
Additional Loans, in each case including Additional Balances, if any, that
have been sold transferred to the Trust,] in each case together with the
Related Documents, and that remain subject to the terms thereof. Such schedule
shall also set forth the total of the amounts described under (iv) and (v)
above for all of the Mortgage Loans.
Mortgage Note: With respect to a Mortgage Loan, the Loan Agreement
pursuant to which the related mortgagor agrees to pay the indebtedness
evidenced thereby and secured by the related Mortgage as modified or amended.
Mortgaged Property: The underlying property, including real property and
improvements thereon, securing a Mortgage Loan.
Mortgagor: The obligor or obligors under a Loan Agreement.
Net Liquidation Proceeds: With respect to any Liquidated Mortgage Loan,
Liquidation Proceeds net of Liquidation Expenses.
Net Loan Rate: With respect to any Mortgage Loan and any day, the related
Loan Rate less the related Servicing Fee Rate.
Nonrecoverable Advance: Any portion of an Advance previously made or
proposed to be made by the Master Servicer that, in the good faith judgment of
the Master Servicer, will not be ultimately recoverable by the Master Servicer
from the related Mortgagor, related Liquidation Proceeds or otherwise.
Notes: The Notes designated as the "Notes" in the Indenture.
Noteholder or Holder: Means the Person in whose name a Note is registered
in the Note Register (as defined in the Indenture).
Officer's Certificate: A certificate (i) signed by the Chairman of the
Board, the Vice Chairman of the Board, the President, a Managing Director, a
Vice President (however denominated), an Assistant Vice President, the
Treasurer, the Secretary, or one of the Assistant Treasurers or Assistant
Secretaries of [________] or the Master Servicer, or (ii), if provided for in
this Agreement, signed by a Servicing Officer, as the case may be, and
delivered to [________] and the Trustee, as the case may be, as required by
this Agreement.
Opinion of Counsel: A written opinion of counsel, who may be counsel for
______________ or the Master Servicer, including, in-house counsel, reasonably
acceptable to the Trustee; provided, however, that with respect to the
interpretation or application of the REMIC Provisions, such counsel must (i)
in fact be independent of ______________ and the Master Servicer, (ii) not
have any direct financial interest in ______________ or the Master Servicer or
in any affiliate of either, and (iii) not be connected with ______________ or
the Master Servicer as an officer, employee, promoter, underwriter, trustee,
partner, director or person performing similar functions.
Outstanding: With respect to the Certificates as of any date of
determination, all Certificates theretofore executed and authenticated under
this Agreement except:
(i) Certificates theretofore canceled by the Trustee or delivered to
the Trustee for cancellation; and
(ii) Certificates in exchange for which or in lieu of which other
Certificates have been executed and delivered by the Trustee pursuant to
this Agreement.
Owner Trust Estate: The corpus of the Issuer created by the Trust
Agreement which consists of the Mortgage Loans, such assets as shall from time
to time be deposited in the Collection Account and/or the Payment Account
allocable to the Mortgage Loans in accordance with the Trust Agreement,
property that secured a Mortgage Loan and that has become REO, certain hazard
insurance policies maintained by the Mortgagors or by or on behalf of the
Master Servicer in respect of the Mortgage Loans, [the Credit Enhancement
Instrument,] and the obligation of ______________ to purchase Additional
Balances and all proceeds of each of the foregoing.
Owner Trustee: [______________], and its successors and assigns or any
successor owner trustee appointed pursuant to the terms of the Trust
Agreement.
Paying Agent: Any paying agent or co-paying agent appointed pursuant to
Section 3.03 of the Indenture, which initially shall be [______________].
Payment Account: The account established by the Trustee pursuant to
Section 8.02 of the Indenture and Section [ ] of the Master Servicing
Agreement. The Payment Account shall be an Eligible Account.
Payment Account: The separate Eligible Account created and maintained by
the Trustee pursuant to Section 3(h) in the name of the Trustee for the
benefit of the Securityholders and designated "_________________________ in
trust for registered holders of Home Equity Loan Trust Asset Backed
Certificates, Series 199_-_." Funds in the Payment Account shall be held in
trust for the Securityholders for the uses and purposes set forth in this
Agreement.
Payment Account Deposit Date: As to any Distribution Date, 12:30 p.m.
Pacific time on the Business Day immediately preceding such Distribution Date.
Payment Date: The [___] day of each month, or if such day is not a
Business Day, then the next Business Day.
Percentage Interest: With respect to any Note, the percentage obtained by
dividing the Security Balance of such Note by the aggregate of the Security
Balances of all Notes of the same Class. With respect to any Certificate, the
percentage obtained by dividing the denomination specified on such Certificate
by the Initial Principal Balance of the Certificates.
Permitted Investments: At any time, any one or more of the following
obligations and securities: (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 or the District of Columbia receiving the
highest long-term debt rating of each Rating Agency rating the related Series
of Securities, or such lower rating as will not result in the downgrading or
withdrawal of the ratings then assigned to the Securities by each such Rating
Agency; (iii) commercial or finance company paper (including, without
limitation, commercial paper issued by _____________________ or any of its
affiliates) which is then receiving the highest commercial or finance company
paper rating of each such Rating Agency, or such lower rating as will not
result in the downgrading or withdrawal of the ratings then assigned to the
Securities by each such Rating Agency; (iv) certificates of deposit, demand or
time deposits, or bankers' acceptances issued by any depository institution or
trust company incorporated under the laws of the United States or of any state
thereof and subject to supervision and examination by federal and/or state
banking authorities, provided that the commercial paper and/or long term
unsecured debt obligations of such depository institution or trust company (or
in the case of the principal depository institution in a holding company
system, the commercial paper or long-term unsecured debt obligations of such
holding company, but only if Moody's Investors Service, Inc. ("Moody's") is
not a Rating Agency) are then rated one of the two highest long-term and the
highest short-term ratings of each such Rating Agency for such securities, or
such lower ratings as will not result in the downgrading or withdrawal of the
rating then assigned to the Securities by any such Rating Agency; (iv) demand
or time deposits or certificates of deposit issued by any bank or trust
company or savings institution to the extent that such deposits are fully
insured by the FDIC; (v) guaranteed reinvestment agreements issued by any
bank, insurance company or other corporation containing, at the time of the
issuance of such agreements, such terms and conditions as will not result in
the downgrading or withdrawal of the rating then assigned to the Securities by
any such Rating Agency; (vi) repurchase obligations with respect to any
security described in clauses (i) and (ii) above, in either case entered into
with a depository institution or trust company (acting as principal) described
in clause (iv) above; (vii) securities (other than stripped bonds, stripped
coupons or instruments sold at a purchase price in excess of 115% of the face
amount thereof) bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States or any state
thereof which, at the time of such investment, have one of the two highest
ratings of each Rating Agency (except if the Rating Agency is Moody's, such
rating shall be the highest commercial paper rating of Moody's for any such
securities), or such lower rating as will not result in the downgrading or
withdrawal of the rating then assigned to the Securities by any such Rating
Agency, as evidenced by a signed writing delivered by each such Rating Agency;
and (viii) such other investments having a specified stated maturity and
bearing interest or sold at a discount acceptable to each Rating Agency as
will not result in the downgrading or withdrawal of the rating then assigned
to the Securities of such Series by any such Rating Agency, as evidenced by a
signed writing delivered by each such Rating Agency; provided that no such
instrument shall be a Permitted Investment if such instrument evidences the
right to receive interest only payments with respect to the obligations
underlying such instrument.
Person: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government, or any agency or political subdivision thereof.
[Policy: The irrevocable and unconditional limited financial guaranty
insurance policy number [__________], dated as of the Closing Date, issued by
the Credit Enhancer to the Trustee for the benefit of the Noteholders and to
the Certificate Paying Agent as agent for the Issuer for the benefit of the
Securityholders.]
Pool Balance: With respect to any date, the aggregate of the Asset
Balances of all Mortgage Loans as of such date.
Prepayment Period: As to any Distribution Date, the period from the __th
day of the calendar month preceding the month of such Distribution Date (or,
in the case of the first Distribution Date, from the Cut-off Date) through the
__th of the month of such Distribution Date.
Principal Balance: With respect to any Payment Date, the Initial
Principal Balance thereof, reduced by all distributions of principal thereon
prior to such Payment Date.
Principal Prepayment: Any payment of principal by a Mortgagor on a
Mortgage Loan that is received in advance of its scheduled Due Date and is not
accompanied by an amount representing scheduled interest due on any date or
dates in any month or months subsequent to the month of prepayment. Partial
Principal Prepayments shall be applied by the Master Servicer in accordance
with the terms of the related Mortgage Note.
Principal Prepayment in Full: Any Principal Prepayment made by a
Mortgagor of the entire principal balance of a Mortgage Loan.
Prospectus Supplement: Means the Prospectus Supplement dated [ ] relating
to the Notes.
Purchase Price: With respect to any Mortgage Loan required to be
purchased by the Seller pursuant to Section 2(a)(ii) or 2(d)(iv) hereof or
purchased at the option of the Master Servicer pursuant to Section 3(n), an
amount equal to the sum of (i) 100% of the unpaid principal balance of the
Mortgage Loan on the date of such purchase, and (ii) accrued interest thereon
at the applicable Mortgage Rate (or at the applicable Adjusted Mortgage Rate
if (x) the purchaser is the Master Servicer or (y) if the purchaser is the
Seller and the Seller is the Master Servicer) from the date through which
interest was last paid by the Mortgagor to the Due Date in the month in which
the Purchase Price is to be distributed to Securityholders.
Qualified Insurer: A mortgage guaranty insurance company duly qualified
as such under the laws of the state of its principal place of business and
each state having jurisdiction over such insurer in connection with the
insurance policy issued by such insurer, duly authorized and licensed in such
states to transact a mortgage guaranty insurance business in such states and
to write the insurance provided by the insurance policy issued by it, approved
as a FNMA-approved mortgage insurer and having a claims paying ability rating
of at least "AA" or equivalent rating by a nationally recognized statistical
rating organization. Any replacement insurer with respect to a Mortgage Loan
must have at least as high a claims paying ability rating as the insurer it
replaces had on the Closing Date.
Rating Agency: Any nationally recognized statistical rating organization,
or its successor, that rated the Securities at the request of [________] at
the time of the initial issuance of the Securities. Initially, [________] or
[__________]. If such organization or a successor is no longer in existence,
"Rating Agency" shall be such nationally recognized statistical rating
organization, or other comparable Person, designated by [________], notice of
which designation shall be given to the Trustee. References herein to the
highest short term unsecured rating category of a Rating Agency shall mean
[___] or better in the case of [__________]and [___] or better in the case of
[_____] and in the case of any other Rating Agency shall mean such equivalent
ratings. References herein to the highest long-term rating category of a
Rating Agency shall mean "[___]" in the case of [__________] and [_____] in
the case of [________] and in the case of any other Rating Agency, such
equivalent rating.
Realized Loss: With respect to each Liquidated Mortgage Loan, an amount
(not less than zero or more than the Stated Principal Balance of the Mortgage
Loan) as of the date of such liquidation, equal to (i) the Stated Principal
Balance of the Liquidated Mortgage Loan as of the date of such liquidation,
plus (ii) interest at the Adjusted Net Mortgage Rate from the Due Date as to
which interest was last paid or advanced (and not reimbursed) to
Securityholders up to the Due Date in the month in which Liquidation Proceeds
are required to be distributed on the Stated Principal Balance of such
Liquidated Mortgage Loan from time to time, minus (iii) the Liquidation
Proceeds, if any, received during the month in which such liquidation
occurred, to the extent applied as recoveries of interest at the Adjusted Net
Mortgage Rate and to principal of the Liquidated Mortgage Loan. With respect
to each Mortgage Loan which has become the subject of a Deficient Valuation,
if the principal amount due under the related Mortgage Note has been reduced,
the difference between the principal balance of the Mortgage Loan outstanding
immediately prior to such Deficient Valuation and the principal balance of the
Mortgage Loan as reduced by the Deficient Valuation. With respect to each
Mortgage Loan which has become the subject of a Debt Service Reduction and any
Distribution Date, the amount, if any, by which the principal portion of the
related Scheduled Payment has been reduced.
Relief Act: The Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.
Relief Act Reductions: With respect to any Distribution Date and any
Mortgage Loan as to which there has been a reduction in the amount of interest
collectible thereon for the most recently ended calendar month as a result of
the application of the Relief Act, the amount, if any, by which (i) interest
collectible on such Mortgage Loan for the most recently ended calendar month
is less than (ii) interest accrued thereon for such month pursuant to the
Mortgage Note.
REO Property: A Mortgaged Property acquired by the Issuer through
foreclosure or deed-in-lieu of foreclosure in connection with a defaulted
Mortgage Loan.
Repurchase Price: With respect to any Mortgage Loan required to be
repurchased on any date pursuant hereto or purchased by the Master Servicer
pursuant to the Master Servicing Agreement, an amount equal to the sum of (i)
100% of the Asset Balance thereof (without reduction for any amounts charged
off) and (ii) unpaid accrued interest at the Loan Rate on the outstanding
principal balance thereof from the Due Date to which interest was last paid by
the Mortgagor to the first day of the month following the month of purchase.
No portion of any Repurchase Price shall be included in the Excluded Amount
for any Payment Date.
Request for Release: The Request for Release submitted by the Master
Servicer to the Trustee, substantially in the form of Exhibits C and D, as
appropriate.
Required Insurance Policy: With respect to any Mortgage Loan, any
insurance policy that is required to be maintained from time to time under
this Agreement.
SAIF: Means the Savings Association Insurance Fund, or any successor
thereto.
S&P: Means Standard & Poor's Ratings Group, a division of McGraw-Hill
Inc. If S&P is designated as a Rating Agency in the Indenture, for purposes of
Section 8(c) the address for notices to S&P shall be Standard & Poor's Ratings
Group, 26 Broadway, 15th Floor, New York, New York 10004, Attention: Mortgage
Surveillance Monitoring, or such other address as S&P may hereafter furnish to
the Issuer and the Master Servicer.
Securities Act: The Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
Security: Any of the Certificates or Notes.
Securityholder or Holder: Any Noteholder or any Certificateholder.
Seller: [__________________], and its successors and assigns.
Servicer Advance: Means the meaning ascribed to such term in Section
3(h)(iv).
Servicing Account: Means the separate Eligible Account or Accounts
created and maintained pursuant to Section 3(h)(ii).
Servicing Advances: All customary, reasonable and necessary "out of
pocket" costs and expenses incurred in the performance by the Master Servicer
of its servicing obligations, including, but not limited to, the cost of (i)
the preservation, restoration and protection of a Mortgaged Property, (ii) any
expenses reimbursable to the Master Servicer pursuant to Section 3(n) and any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of any REO Property and (iv) compliance with the
obligations under Section 3(l).
Servicing Default: Means a servicing default as described under Section
7(a) of this Agreement.
Servicing Fee: Means, as to each Mortgage Loan and any Distribution Date,
an amount equal to one month's interest at the applicable Servicing Fee Rate
on the Stated Principal Balance of such Mortgage Loan.
Servicing Fee Rate: Means, with respect to any Mortgage Loan, the per
annum rate set forth in the Mortgage Loan Schedule for such Mortgage Loan.
Servicing Officer: Any officer of the Master Servicer involved in, or
responsible for, the administration and servicing of the Mortgage Loans whose
name and facsimile signature appear on a list of servicing officers furnished
to the Trustee by the Master Servicer on the Closing Date pursuant to this
Agreement, as such list may from time to time be amended.
Subservicer: Any Person with whom the Master Servicer has entered into a
Subservicing Agreement as a Subservicer by the Master Servicer pursuant to
Section 3(b).
Subservicing Agreement: The written contract between the Master Servicer
and any Subservicer relating to servicing and administration of certain
Mortgage Loans as provided in Section [ ] of the Master Servicing Agreement.
Subservicing Fee: With respect to any Mortgage Loan and any Collection
Period, the fee retained monthly by the Subservicer (or, in the case of a
nonsubserviced Mortgage Loan, by the Master Servicer) equal to the product of
(i) the Subservicing Fee Rate divided by 12 and (ii) the aggregate Asset
Balance of the Mortgage Loans as of the first day of such Collection Period.
Substitute Mortgage Loan: A Mortgage Loan substituted by the Seller for a
Deleted Mortgage Loan which must, on the date of such substitution, as
confirmed in a Request for Release, substantially in the form of Exhibit C,
(i) have a Stated Principal Balance, after deduction of the principal portion
of the Scheduled Payment due in the month of substitution, not in excess of,
and not more than 10% less than the Stated Principal Balance of the Deleted
Mortgage Loan; (ii) be accruing interest at a rate no lower than and not more
than 1% per annum higher than, that of the Deleted Mortgage Loan; (iii) have a
Loan-to-Value Ratio no higher than that of the Deleted Mortgage Loan; (iv)
have a remaining term to maturity no greater than (and not more than one year
less than that of) the Deleted Mortgage Loan; and (v) comply with each
representation and warranty set forth in Section 2(d) hereof.
Substitution Adjustment Amount: The meaning ascribed to such term
pursuant to Section 2(d)(iv).
Trust Agreement: Means the Trust Agreement, dated as of [ ], between
[________] and the Owner Trustee, as such Trust Agreement may be amended or
supplemented from time to time.
Trustee: Shall mean [______________], and its successors and assigns or
any successor trustee appointed pursuant to the terms of the Indenture.
Trustees: Shall mean the Trustee and the Owner Trustee.
Trust Estate: Shall have the meaning ascribed to such term in the
Indenture.
UCC: The Uniform Commercial Code, as amended from time to time, as in
effect in any specified jurisdiction.
Withdrawal Date: Means the ____ day of each month, or if such day is not
a Business Day, the next preceding Business Day.
2. Conveyance of Mortgage Loans; Representations and Warranties.
(a) Conveyance of Mortgage Loans; Retention of Obligation to
Fund Advances Under Credit Line Agreements.
[________], concurrently with the execution and delivery of this
Agreement, does hereby transfer, assign, set over and otherwise convey to the
Trust without recourse (subject to Sections 2(b)and 2(d) all of its right,
title and interest in and to (i) each Mortgage Loan, including its Asset
Balance (including all Additional Balances) and all collections in respect
thereof received on or after the Cut-off Date (excluding payments in respect
of accrued interest due prior to the Cut-off Date or due in the month of
____________); (ii) property that secured a Mortgage Loan that is acquired by
foreclosure or deed in lieu of foreclosure; (iii) [[________]'s rights under
the hazard insurance policies,] (iv) the Collection Account (excluding net
earnings thereon); (vii) the Policy, (viii) the Payment Account and (ix) all
other assets included or to be included in the Trust for the benefit of
Securityholders; provided, however, neither the Trustee nor the Trust assumes
the obligation under any Credit Line Agreement that provides for the funding
of future advances to the Mortgagor thereunder, and neither the Trust nor the
Trustee shall be obligated or permitted to fund any such future advances.
Additional Balances shall be part of the related Asset Balance and are hereby
transferred to the Trust on the Closing Date pursuant to this Section 2(a),
and therefore part of the Trust property. In addition, on or prior to the
Closing Date, [________] shall cause the Credit Enhancer to deliver the Policy
to the Trustee for the benefit of the Securityholders. The foregoing transfer,
assignment, set-over and conveyance to the Trust shall be made to the Trustee,
on behalf of the Trust, and each reference in this Agreement to such transfer,
assignment, set-over and conveyance shall be construed accordingly.
[________] agrees to take or cause to be taken such actions and execute
such documents (including without limitation the filing of all necessary
continuation statements for the UCC-1 financing statements filed in the State
of __________ (which shall have been filed within 90 days of the Closing Date)
describing the Cut-off Date Asset Balances and Additional Balances and naming
[________] as debtor and the Trustee as secured party and any amendments to
UCC-1 financing statements required to reflect a change in the name or
corporate structure of [________] or the filing of any additional UCC-1
financing statements due to the change in the principal office of [________]
(within 90 days of any event necessitating such filing) as are necessary to
perfect and protect the Securityholders' and Credit Enhancer's interests in
each Cut-off Date Asset Balance and Additional Balances and the proceeds
thereof (other than maintaining possession by the Trustee of the Mortgage
Loans and the Mortgage Files, which possession will, subject to the terms
hereof, be maintained by the Master Servicer as custodian and bailee of the
Trustee).
In connection with such transfer and assignment by [________], the Master
Servicer acknowledges that it is holding as custodian and bailee for the
Trustee the following documents or instruments (the "Related Documents") with
respect to each Mortgage Loan:
(A) the original Mortgage Note endorsed in blank;
(B) an original Assignment of Mortgage in blank in recordable form;
(C) the original recorded Mortgage or, if, in connection with any
Mortgage Loan, the original recorded Mortgage with evidence of recording
thereon cannot be delivered on or prior to the Closing Date because of a delay
caused by the public recording office where such original Mortgage has been
delivered for recordation or because such original Mortgage has been lost,
[________], shall deliver or cause to be delivered to the Custodian, as agent
for the Trustee, a true and correct copy of such Mortgage, together with (i)
in the case of a delay caused by the public recording office, an Officer's
Certificate of [________] stating that such original Mortgage has been
dispatched to the appropriate public recording official or (ii) in the case of
an original Mortgage that has been lost, a certificate by the appropriate
county recording office where such Mortgage is recorded;
(D) if applicable, the original intervening assignments, if any
("Intervening Assignments"), with evidence of recording thereon, showing a
complete chain of title to the Mortgage from the originator to [________] or,
if any such original Intervening Assignment has not been returned from the
applicable recording office or has been lost, a true and correct copy thereof,
together with (i) in the case of a delay caused by the public recording
office, an Officer's Certificate of the Seller stating that such original
Intervening Assignment has been dispatched to the appropriate public recording
official for recordation or (ii) in the case of an original Intervening
Assignment that has been lost, a certificate by the appropriate county
recording office where such Mortgage is recorded;
(E) either (1) for each Mortgage Loan with a Credit Limit in excess
of $_________, a title policy or (2) for all other Mortgage Loans, either a
title policy, a title search or guaranty of title with respect to the related
Mortgaged Property;
(F) the original of any guaranty executed in connection with the
Mortgage Note;
(G) the original of each assumption, modification, consolidation or
substitution agreement, if any, relating to the Mortgage Loan; and
(H) any security agreement, chattel mortgage or equivalent
instrument executed in connection with the Mortgage;
provided, however, that as to any Mortgage Loan, if (a) as evidenced by an
Opinion of Counsel delivered to and in form and substance satisfactory to the
Trustee and the Credit Enhancer, (x) an optical image or other representation
of the related documents specified in clauses (i) through (viii) above are
enforceable in the relevant jurisdictions to the same extent as the original
of such document and (y) such optical image or other representation does not
impair the ability of an owner of such Mortgage Loan to transfer its interest
in such Mortgage Loan, and (b) the retention of such documents in such format
will not result in a reduction in the then current rating of the Notes or
Certificates, without regard to the Policy, such optical image or other
representation may be held by the Master Servicer, as custodian for the
Trustee or assignee in lieu of the physical documents specified above.
The Seller hereby confirms to the Trustee that it has caused the portions
of its electronic ledgers relating to the Mortgage Loans to be clearly and
unambiguously marked, and has made the appropriate entries in its general
accounting records, to indicate that such Mortgage Loans have been transferred
to the Trust at the direction of [________]. The Master Servicer hereby
confirms to the Trustee that it has clearly and unambiguously made appropriate
entries in its general accounting records indicating that such Mortgage Loans
constitute part of the Trust and are serviced by it on behalf of the Trust in
accordance with the terms hereof.
The parties hereto intend that the transaction set forth herein be a sale
by [________] to the Trust of all [________]'s right, title and interest in
and to the Mortgage Loans and other property described above. In the event the
transaction set forth herein is deemed not to be a sale, [________] hereby
grants to the Trust a security interest in all of [________]'s right, title
and interest in, to and under the Mortgage Loans whether now existing or
hereafter created, all monies due or to become due on the Mortgage Loans and
all proceeds of any thereof; and this Agreement shall constitute a security
agreement under applicable law.
Except as hereinafter provided, the Master Servicer shall be entitled to
maintain possession of all of the foregoing documents and instruments and
shall not be required to deliver any of them to the Trustee or the Owner
Trustee. In the event, however, that possession of any of such documents or
instruments is required by any Person (including any such Trustee) acting as
successor servicer pursuant to Section 6(d) or 7(b) in order to carry out the
duties of Master Servicer hereunder, then such successor shall be entitled to
request delivery, at the expense of the Master Servicer, of such documents or
instruments by the Master Servicer and to retain such documents or instruments
for servicing purposes; provided that the Trustee or such servicers shall
maintain such documents at such offices as may be required by any regulatory
body having jurisdiction over such Mortgage Loans.
The Master Servicer's right to maintain possession of the documents
enumerated above shall continue so long as the long term unsecured debt of [ ]
is assigned ratings of at least "____" by __________________ and "____" by
_______________. At such time as the condition specified in the preceding
sentence is not satisfied, as promptly as practicable but in no event more
than __ days in the case of clause (i) below and __ days in the case of clause
(ii) below following the occurrence of such event (a "Delivery Event"), the
Master Servicer shall, at its expense, (i) either (x) record an assignment of
Mortgage in favor of the Trustee (which may be a blanket assignment if
permitted by applicable law) in the appropriate real property or other records
or (y) deliver to the Trustee the assignment of such Mortgage in favor of the
Trustee in form for recordation, together with an Opinion of Counsel addressed
to the Trustee and the Credit Enhancer to the effect that recording is not
required to protect the Trustee's right, title and interest in and to the
related Mortgage Loan or, in case a court should recharacterize the sale of
the Mortgage Loans as a financing, to perfect a first priority security
interest in favor of the Trustee in the related Mortgage Loan, which Opinion
of Counsel also shall be reasonably acceptable to each of the Rating Agencies
(as evidenced in writing) and the Credit Enhancer, and (ii) unless an Opinion
of Counsel, reasonably acceptable to the Trustee, the Rating Agencies (as
evidenced in writing) and the Credit Enhancer, is delivered to the Trustee and
the Credit Enhancer to the effect that delivery of the Mortgage Files is not
necessary to protect the Trustee's right, title and interest in the related
Mortgage Loans; provided that the lack of delivery will not result in a
reduction in the then current rating of the "Notes or Certificates", without
regard to the Policy, deliver the related Mortgage Files to the Trustee or to
a custodian located in the State of [California] appointed by the Trustee and
acceptable to the Rating Agencies and the Credit Enhancer to be held by the
Custodian on behalf of the Trustees in trust, upon the terms herein set forth,
for the use and benefit of all present and future Securityholders and the
Custodian on behalf of the Trustee shall retain possession thereof except to
the extent the Master Servicer requires any Mortgage Files for normal
servicing as contemplated by Section _____. The Trustee is hereby appointed as
the attorney-in-fact of the Master Servicer with the power to prepare, execute
and record Assignments of Mortgages in the event that the Master Servicer
fails to do so on a timely basis as provided in this paragraph.
Within 90 days following delivery, if any, of the Mortgage Files to the
Trustee pursuant to the preceding paragraph, the Trustee shall review each
such Mortgage File to ascertain that all required documents set forth in this
Section 2(a) have been executed and received, and that such documents relate
to the Mortgage Loans identified on the Mortgage Loan Schedule and in so doing
the Trustee may rely on the purported due execution and genuineness of any
signature thereon. If within such 90-day period the Trustee finds any document
constituting a part of a Mortgage File not to have been executed or received
or to be unrelated to the Mortgage Loans identified in said Mortgage Loan
Schedule or, if in the course of its review, the Trustee determines that such
Mortgage File is otherwise defective in any material respect, the Trustee
shall promptly upon the conclusion of its review notify the Issuer and the
Credit Enhancer, and the Seller shall have a period of 90 days after such
notice within which to correct or cure any such defect.
The Trustee shall have no responsibility for reviewing any Mortgage File
except as expressly provided in this Section 2(a). In reviewing any Mortgage
File pursuant to this Section, the Trustee shall have no responsibility for
determining whether any document is valid and binding, whether the text of any
assignment or endorsement is in proper or recordable form (except, if
applicable, to determine if the Trustee is the assignee or endorsee), whether
any document has been recorded in accordance with the requirements of any
applicable jurisdiction, or whether a blanket assignment is permitted in any
applicable jurisdiction, whether any Person executing any document is
authorized to do so or whether any signature thereon is genuine, but shall
only be required to determine whether a document has been executed, that it
appears to be what it purports to be, and, where applicable, that it purports
to be recorded.
(b) Acceptance by Trustee; Retransfer of Mortgage Loans.
The Trustee hereby acknowledges its receipt of the Policy and the
Mortgage Loans, and declares that the Trustee holds and will hold such
instrument, and to the extent that any documents are delivered to it pursuant
to Section 2(a), will hold such documents, and all amounts received by it
thereunder and hereunder, in trust, upon the terms herein set forth, for the
use and benefit of all present and future Securityholders and the Credit
Enhancer. If the time to cure any defect in respect of any Mortgage Loan of
which the Trustee has notified the Issuer and Provient, following the review
pursuant to Section 2(a) has expired or if at any time any loss is suffered by
the Trustee on behalf of the Securityholders or the Credit Enhancer, in
respect of any Mortgage Loan as a result of (i) a defect in any document
constituting a part of its Mortgage File or (ii) an Assignment of Mortgage to
the Trustee not having been recorded as required by Section 2(a),then on the
next succeeding Business Day upon satisfaction of the applicable conditions
described herein, all right, title and interest of the Trust in and to such
Mortgage Loan shall be deemed to be retransferred, reassigned and otherwise
reconveyed, without recourse, representation or warranty, to [________] on
such Business Day and the Asset Balance of such Mortgage Loan shall be
deducted from the Pool Balance; provided, however, that interest accrued on
the Asset Balance of such Mortgage Loan to the end of the related Collection
Period shall be the property of the Trust. Upon receipt of any Eligible
Substitute Mortgage Loan or then as promptly as practicable following such
deemed transfer, the Trustee shall execute such documents and instruments of
transfer presented by the Seller, in each case without recourse,
representation or warranty, and take such other actions as shall reasonably be
requested by the Seller to effect such transfer by the Trust of such Defective
Mortgage Loan pursuant to this Section.
The Master Servicer, promptly following the transfer of a Defective
Mortgage Loan from or to the Trust pursuant to this Section, shall amend the
Mortgage Loan Schedule and make appropriate entries in its general account
records to reflect such transfer. The Master Servicer shall, following such
retransfer, appropriately mark its records to indicate that it is no longer
servicing such Mortgage Loan on behalf of the Trust. The Seller, promptly
following such transfer, shall appropriately mark its electronic ledger and
make appropriate entries in its general account records to reflect such
transfer.
As to any Eligible Substitute Mortgage Loan or Loans, the Seller shall,
if a Delivery Event has occurred, deliver to the Trustee with respect to such
Eligible Substitute Mortgage Loan or Loans such documents and agreements as
are required to be held by the Trustee in accordance with Section 2(a). For
any Collection Period during which the Seller substitutes one or more Eligible
Substitute Mortgage Loans, the Master Servicer shall determine the
Substitution Adjustment Deposit Amount which amount shall be deposited by the
Seller in the Collection Account at the time of substitution. All amounts
received in respect of the Eligible Substitute Mortgage Loan or Loans during
the Collection Period in which the circumstances giving rise to such
substitution occur shall not be a part of the Issuer and shall not be
deposited by the Master Servicer in the Collection Account. All amounts
received by the Master Servicer during the Collection Period in which the
circumstances giving rise to such substitution occur in respect of any
Defective Mortgage Loan so removed by the Issuer shall be deposited by the
Master Servicer in the Collection Account. Upon such substitution, the
Eligible Substitute Mortgage Loan or Loans shall be subject to the terms of
this Agreement in all respects, and the Seller shall be deemed to have made
with respect to such Eligible Substitute Mortgage Loan or Loans, as of the
date of substitution, the covenants, representations and warranties set forth
in Section 2(d). The procedures applied by the Seller in selecting each
Eligible Substitute Mortgage Loan shall not be materially adverse to the
interests of the Trustees, the Securityholders and the Credit Enhancer.
(c) Documents, Records and Funds in Possession of Master Servicer
to be Held for Trustee.
(i) Notwithstanding any other provisions of this Agreement, the
Master Servicer shall transmit to the Trustee as required by this Agreement
all documents and instruments in respect of a Mortgage Loan coming into the
possession of the Master Servicer from time to time and shall account fully to
the Trustees for any funds received by the Master Servicer or which otherwise
are collected by the Master Servicer as Liquidation Proceeds or Insurance
Proceeds in respect of any Mortgage Loan. All Mortgage Files and funds
collected or held by, or under the control of, the Master Servicer in respect
of any Mortgage Loans, whether from the collection of principal and interest
payments or from Liquidation Proceeds, including but not limited to, any funds
on deposit in the Collection Account, shall be held by the Master Servicer for
and on behalf of the Trustees and shall be and remain the sole and exclusive
property of the Trustees, subject to the applicable provisions of this
Agreement. The Master Servicer also agrees that it shall not create, incur or
subject any Mortgage File or any funds that are deposited in the Collection
Account, Payment Account or any Escrow Account, or any funds that otherwise
are or may become due or payable to the Trustee for the benefit of the
Securityholders, to any claim, lien, security interest, judgment, levy, writ
of attachment or other encumbrance, or assert by legal action or otherwise any
claim or right of setoff against any Mortgage File or any funds collected on,
or in connection with, a Mortgage Loan, except, however, that the Master
Servicer shall be entitled to set off against and deduct from any such funds
any amounts that are properly due and payable to the Master Servicer under
this Agreement.
(ii) The Master Servicer hereby acknowledges that concurrently with
the execution of this Agreement, the Trustee has acquired and holds a security
interest in the Trustee Mortgage Files and in all Mortgage Loans represented
by such Mortgage Files and in all funds now or hereafter held by, or under the
control of, the Master Servicer that are collected by the Master Servicer in
connection with the Mortgage Loans, whether as Scheduled Payments, as
Principal Prepayments, or as Liquidation Proceeds or Insurance Proceeds, and
in all proceeds of the foregoing and proceeds of proceeds (but excluding any
Master Servicing Fees, Servicing Fees, Trustee Fees and any other amounts or
reimbursements to which the Master Servicer is entitled under this Agreement).
The Master Servicer agrees that so long as the Mortgage Loans are assigned to
the Trustee, all Master Servicer Mortgage Files and Trustee Mortgage Files
(and any documents or instruments constituting a part of such files), and such
funds which come into the possession or custody of, or which are subject to
the control of, the Master Servicer shall be held by the Master Servicer for
and on behalf of the Trustee as the Trustee's agent and bailee for purposes of
perfecting the Trustee's security interest therein, as provided by Section
9-305 of the Uniform Commercial Code of the state in which such property is
located, or by other laws, as specified in Section _____ of the Indenture. The
Master Servicer hereby accepts such agency and acknowledges that the Trustee,
as secured party, will be deemed to have possession at all times of all
Mortgage Files and any other documents or instruments constituting a part of
such files, such funds and other items for purposes of Section 9-305 of the
Uniform Commercial Code of the state in which such property is held by the
Master Servicer.
(d) Representations, Warranties and Covenants of the Seller and the Master
Servicer.
(i) [_________________-], in its capacities as Seller and Master
Servicer, hereby makes the representations and warranties set forth in
Schedule II hereto, and by this reference incorporated herein, to [________]
and the Trustee, as of the Closing Date, or if so specified therein, as of the
Cut-off Date.
(ii) The Seller, in its capacity as Seller, hereby makes the
representations and warranties set forth in Schedule III hereto, and by this
reference incorporated herein, to [________] and the Trustee, as of the
Closing Date, or if so specified therein, as of the Cut-off Date.
(iii) Upon discovery by any of the parties hereto of a breach of a
representation or warranty made pursuant to Section 2(d)(ii) that materially
and adversely affects the interests of the Securityholders in any Mortgage
Loan, the party discovering such breach shall give prompt notice thereof to
the other parties. The Seller hereby covenants that within 90 days of the
earlier of its discovery or its receipt of written notice from any party of a
breach of any representation or warranty made pursuant to Section 2(d)(ii)
which materially and adversely affects the interests of the Securityholders in
any Mortgage Loan, it shall cure such breach in all material respects, and if
such breach is not so cured, shall, (i) if such 90-day period expires prior to
the second anniversary of the Closing Date, remove such Mortgage Loan (a
"Deleted Mortgage Loan") from the Issuer and substitute in its place a
Substitute Mortgage Loan, in the manner and subject to the conditions set
forth in this Section; or (ii) repurchase the affected Mortgage Loan or
Mortgage Loans from the Trustee at the Purchase Price in the manner set forth
below; provided, however, that any such substitution pursuant to (i) above
shall not be effected prior to the delivery to the Trustees of the Opinion of
Counsel required by [Section ____ {delivery of opinion}] hereof, if any, and
any such substitution pursuant to (i) above shall not be effected prior to the
additional delivery to the Trustee of a Request for Release substantially in
the form of Exhibit D and the Mortgage File for any such Substitute Mortgage
Loan. The Seller shall promptly reimburse the Master Servicer and the Trustee
for any expenses reasonably incurred by the Master Servicer or any Trustee in
respect of enforcing the remedies for such breach. With respect to the
representations and warranties described in this Section which are made to the
best of the Seller's knowledge, if it is discovered by either [________], the
Seller or any Trustee that the substance of such representation and warranty
is inaccurate and such inaccuracy materially and adversely affects the value
of the related Mortgage Loan or the interests of the Securityholders therein,
notwithstanding the Seller's lack of knowledge with respect to the substance
of such representation or warranty, such inaccuracy shall be deemed a breach
of the applicable representation or warranty.
With respect to any Substitute Mortgage Loan or Loans, the Seller shall
deliver to the Trustee for the benefit of the Securityholders the Mortgage
Note, the Mortgage, the related assignment of the Mortgage, and such other
documents and agreements as are required by Section 2(a), with the Mortgage
Note endorsed and the Mortgage assigned as required by Section 2(a). No
substitution is permitted to be made in any calendar month after the
Determination Date for such month. Scheduled Payments due with respect to
Substitute Mortgage Loans in the month of substitution shall not be part of
the Issuer and will be retained by the Seller on the next succeeding
Distribution Date. For the month of substitution, distributions to
Securityholders will include the monthly payment due on any Deleted Mortgage
Loan for such month and thereafter the Seller shall be entitled to retain all
amounts received in respect of such Deleted Mortgage Loan. The Master Servicer
shall amend the Mortgage Loan Schedule for the benefit of the Securityholders
to reflect the removal of such Deleted Mortgage Loan and the substitution of
the Substitute Mortgage Loan or Loans and the Master Servicer shall deliver
the amended Mortgage Loan Schedule to the Trustees. Upon such substitution,
the Substitute Mortgage Loan or Loans shall be subject to the terms of this
Agreement in all respects, and the Seller shall be deemed to have made with
respect to such Substitute Mortgage Loan or Loans, as of the date of
substitution, the representations and warranties made pursuant to Section
2(d)(ii) with respect to such Mortgage Loan. Upon any such substitution and
the deposit to the Collection Account of the amount required to be deposited
therein in connection with such substitution as described in the following
paragraph, the Trustee shall release the Mortgage File held for the benefit of
the Securityholders relating to such Deleted Mortgage Loan to the Seller and
shall execute and deliver at the Seller's direction such instruments of
transfer or assignment prepared by the Seller, in each case without recourse,
as shall be necessary to vest title in the Seller, or its designee, the
Trustee's interest in any Deleted Mortgage Loan substituted for pursuant to
this Section 2(d).
For any month in which the Seller substitutes one or more Substitute
Mortgage Loans for one or more Deleted Mortgage Loans, the Master Servicer
will determine the amount (if any) by which the aggregate principal balance of
all such Substitute Mortgage Loans as of the date of substitution is less than
the aggregate Stated Principal Balance of all such Deleted Mortgage Loans
(after application of the scheduled principal portion of the monthly payments
due in the month of substitution). The amount of such shortage (the
"Substitution Adjustment Amount") plus an amount equal to the aggregate of any
unreimbursed Advances with respect to such Deleted Mortgage Loans shall be
deposited in the Collection Account by the Seller on or before the Payment
Account Deposit Date for the Distribution Date in the month succeeding the
calendar month during which the related Mortgage Loan became required to be
purchased or replaced hereunder.
In the event that the Seller shall have repurchased a Mortgage Loan, the
Purchase Price therefor shall be deposited in the Collection Account pursuant
to Section 3(h) on or before the Payment Account Deposit Date for the
Distribution Date in the month following the month during which the Seller
became obligated hereunder to repurchase or replace such Mortgage Loan and
upon such deposit of the Purchase Price, the delivery of the Opinion of
Counsel required by Section 2(d) and receipt of a Request for Release in the
form of Exhibit D hereto, the Trustee shall release the related Mortgage File
held for the benefit of the Securityholders to such Person, and the Trustee
shall execute and deliver at such Person's direction such instruments of
transfer or assignment prepared by such Person, in each case without recourse,
as shall be necessary to transfer title from the Trustee. It is understood and
agreed that the obligation under this Agreement of any Person to cure,
repurchase or replace any Mortgage Loan as to which a breach has occurred and
is continuing shall constitute the sole remedy against such Persons respecting
such breach available to Securityholders, [________] or the Trustees on their
behalf.
The representations and warranties made pursuant to this Section 2(d)
shall survive delivery of the respective Mortgage Files to the Trustee for the
benefit of the Securityholders.
(e) Covenants of the Master Servicer.
The Master Servicer hereby covenants to [________] and the Trustees as
follows:
(i) the Master Servicer shall comply in the performance of its
obligations under this Agreement with all reasonable rules and requirements of
the insurer under each Required Insurance Policy; and
(ii) no written information, certificate of an officer, statement
furnished in writing or written report delivered to [________], any affiliate
of [________] or any Trustee and prepared by the Master Servicer pursuant to
this Agreement will contain any untrue statement of a material fact or omit to
state a material fact necessary to make such information, certificate,
statement or report not misleading.
(f) Covenants of [________].
[________] hereby covenants that, except for the transfer under the
Indenture, [________] will not sell, pledge, assign or transfer to any other
Person, or grant, create, incur, assume or suffer to exist any Lien on any
Mortgage Loan, whether now existing or hereafter created, or any interest
therein; [________] will notify the Trustee of the existence of any Lien on
any Mortgage Loan immediately upon discovery thereof; and [________] will
defend the right, title and interest of the Trust in, to and under the
Mortgage Loans, whether now existing or hereafter created, against all claims
of third parties claiming through or under [________]; provided, however, that
nothing in this Section 2(e) shall prevent or be deemed to prohibit [________]
from suffering to exist upon any of the Mortgage Loans any Liens for municipal
or other local taxes and other governmental charges if such taxes or
governmental charges shall not at the time be due and payable or if [________]
shall currently be contesting the validity thereof in good faith by
appropriate proceedings and shall have set aside on its books adequate
reserves with respect thereto.
3. Administration and Servicing of Mortgage Loans.
The parties agree that, subject to the provisions of Section 7
hereof, the Master Servicer shall service the Mortgage Loans in the manner and
on the terms and conditions set forth below:
(a) Master Servicer to Service Mortgage Loans.
(i) The Master Servicer shall service and administer the Mortgage
Loans in a manner consistent with the terms of this Agreement and with general
industry practice and shall have full power and authority, acting alone or
through a subservicer, to do any and all things in connection with such
servicing and administration which it may deem necessary or desirable, it
being understood, however, that the Master Servicer shall at all times remain
responsible to the Trustees, the Securityholders and the Credit Enhancer for
the performance of its duties and obligations hereunder in accordance with the
terms hereof. Any amounts received by any subservicer in respect of a Mortgage
Loan shall be deemed to have been received by the Master Servicer whether or
not actually received by it. Without limiting the generality of the foregoing,
the Master Servicer shall continue, and is hereby authorized and empowered by
the Trustee, to execute and deliver, on behalf of itself, the Securityholders
and the Trustee, or any of them, any and all instruments of satisfaction or
cancellation, or of partial or full release or discharge and all other
comparable instruments, with respect to the Mortgage Loans and with respect to
the Mortgaged Properties. The Trustee shall, upon the written request of a
Servicing Officer, furnish the Master Servicer with any powers of attorney and
other documents necessary or appropriate to enable the Master Servicer to
carry out its servicing and administrative duties hereunder. The Master
Servicer in such capacity may also consent to the placing of a lien senior to
that of any Mortgage on the related Mortgaged Property, provided that
(x) such Mortgage succeeded to a first lien position after
the related Mortgage Loan was conveyed to the Trust and, immediately
following the placement of such senior lien, such Mortgage is in a
second lien position and the outstanding principal amount of the
mortgage loan secured by such subsequent senior lien is no greater
than the outstanding principal amount of the senior mortgage loan
secured by the Mortgaged Property as of the date the related
Mortgage Loan was originated; or
(y) the Mortgage relating to such Mortgage Loan was in a
second lien position as of the Cut-off Date and the new senior lien
secures a mortgage loan that refinances an existing first mortgage
loan and the outstanding principal amount of the replacement first
mortgage loan immediately following such refinancing is not greater
than the outstanding principal amount of such existing first
mortgage loan at the date of origination of such Mortgage Loan;
provided, further, that such senior lien does not secure a note that provides
for negative amortization. Notwithstanding the foregoing, the Master Servicer
can consent to the placing of liens senior to that of a Mortgage on the
related Mortgaged Property which have a principal balance in excess of the
principal balance of the senior lien it replaces on Mortgage Loans having in
the aggregate Asset Balances not in excess of ___% of the Cut-off Date Pool
Balance; provided, however, that, with respect to Mortgage Loans which as of
the Cut-off Date had Combined Loan-to-Value Ratios in excess of ___%, the
aggregate Asset Balance of such Mortgage Loans with respect to which the
senior lien may be so modified shall not exceed _____% of the Cut-off Date
Pool Balance (such ___% and _____% herein referred to as the "Increased Senior
Lien Limitation"). Any such increase to the principal balance of the senior
lien shall not exceed the greater of $_______ and _____% of the principal
balance of the senior lien prior to such increase.
The Master Servicer may also, without prior approval from the Rating
Agencies or the Credit Enhancer, increase the Credit Limits on Mortgage Loans
provided that (i) new appraisals are obtained and the Combined Loan-to-Value
Ratios of the Mortgage Loans after giving effect to such increase are less
than or equal to the Combined Loan-to-Value Ratios or the Mortgage Loans as of
the Cut-off Date and (ii) such increases are consistent with the Master
Servicer's underwriting policies. In addition, the Master Servicer may
increase the Credit Limits on Mortgage Loans having aggregate balances of up
to ____% of the aggregate Cut-off Date Pool Balance, without obtaining new
appraisals provided that (i) the increase in the Credit Limit does not cause
the Combined Loan-to-Value Ratios of the Mortgage Loans to exceed _____% and
(ii) the increase is consistent with the Master Servicer's underwriting
policies.
Furthermore, the Master Servicer may, without prior approval from the
Rating Agencies and the Credit Enhancer solicit Mortgagors for a reduction in
Loan Rates; provided that the Master Servicer can only reduce such Loan Rates
on up to ____% of the Mortgage Loans by Cut-off Date Pool Balance. Any such
solicitations shall not result in a reduction in the weighted average Gross
Margin of the Mortgage Loans in the pool by more than ____ basis points taking
into account any such prior reductions.
In addition, the Master Servicer may agree to changes in the terms of a
Mortgage Loan at the request of the Mortgagor provided that such changes (i)
do not materially and adversely affect the interests of Securityholders or the
Credit Enhancer and (ii) are consistent with prudent and customary business
practice as evidenced by a certificate signed by a Servicing Officer delivered
to the Trustee and the Credit Enhancer.
In addition to the foregoing, the Master Servicer may solicit Mortgagors
to change any other terms of the related Mortgage Loans, provided that such
changes (i) do not materially and adversely affect the interest of
Securityholders or the Credit Enhancer and (ii) are consistent with prudent
and customary business practice as evidenced by a certificate signed by a
Servicing Officer delivered to the Trustee and the Credit Enhancer. Nothing
herein shall limit the right of the Master Servicer to solicit Mortgagors with
respect to new loans (including mortgage loans) that are not Mortgage Loans.
The relationship of the Master Servicer (and of any successor to the
Master Servicer as servicer under this Agreement) to the Trustee under this
Agreement is intended by the parties to be that of an independent contractor
and not that of a joint venturer, partner or agent.
(ii) In the event that the rights, duties and obligations
of the Master Servicer are terminated hereunder, any successor to
the Master Servicer in its sole discretion may, to the extent
permitted by applicable law, terminate the existing subservicer
arrangements with any subservicer or assume the terminated Master
Servicer's rights under such subservicing arrangements which
termination or assumption will not violate the terms of such
arrangements.
(b) Subservicing; Enforcement of the Obligations of Servicers.
(i) The Master Servicer may arrange for the subservicing of any
Mortgage Loan by a Subservicer pursuant to a subservicing agreement; provided,
however, that such subservicing arrangement and the terms of the related
subservicing agreement must provide for the servicing of such Mortgage Loans
in a manner consistent with the servicing arrangements contemplated hereunder.
Unless the context otherwise requires, references in this Agreement to actions
taken or to be taken by the Master Servicer in servicing the Mortgage Loans
include actions taken or to be taken by a Subservicer on behalf of the Master
Servicer. Notwithstanding the provisions of any subservicing agreement, any of
the provisions of this Agreement relating to agreements or arrangements
between the Master Servicer and a Subservicer or reference to actions taken
through a Subservicer or otherwise, the Master Servicer shall remain obligated
and liable to [________], the Trustees and the Securityholders for the
servicing and administration of the Mortgage Loans in accordance with the
provisions of this Agreement without diminution of such obligation or
liability by virtue of such subservicing agreements or arrangements or by
virtue of indemnification from the Subservicer and to the same extent and
under the same terms and conditions as if the Master Servicer alone were
servicing and administering the Mortgage Loans. All actions of each
Subservicer performed pursuant to the related subservicing agreement shall be
performed as an agent of the Master Servicer with the same force and effect as
if performed directly by the Master Servicer.
(ii) For purposes of this Agreement, the Master Servicer shall be
deemed to have received any collections, recoveries or payments with respect
to the Mortgage Loans that are received by a Subservicer regardless of whether
such payments are remitted by the Subservicer to the Master Servicer.
(iii) As part of its servicing activities hereunder, the Master
Servicer, for the benefit of the Trustees and the Securityholders, shall use
its best reasonable efforts to enforce the obligations of each Subservicer
under the related Subservicing Agreement, to the extent that the
non-performance of any such obligation would have material and adverse effect
on a Mortgage Loan. Such enforcement, including, without limitation, the legal
prosecution of claims, termination of Subservicing Agreements and the pursuit
of other appropriate remedies, shall be in such form and carried out to such
an extent and at such time as the Master Servicer, in its good faith business
judgment, would require were it the owner of the related Mortgage Loans. The
Master Servicer shall pay the costs of such enforcement at its own expense,
and shall be reimbursed therefor only (i) from a general recovery resulting
from such enforcement to the extent, if any, that such recovery exceeds all
amounts due in respect of the related Mortgage Loan or (ii) from a specific
recovery of costs, expenses or attorneys fees against the party against whom
such enforcement is directed.
(c) Successor Servicers.
The Master Servicer shall be entitled to terminate any Subservicing
Agreement that may exist in accordance with the terms and conditions of such
Subservicing Agreement and without any limitation by virtue of this Agreement;
provided, however, that in the event of termination of any Subservicing
Agreement by the Master Servicer or the Subservicer, the Master Servicer shall
either act as servicer of the related Mortgage Loan or enter into a
Subservicing Agreement with a successor Subservicer which will be bound by the
terms of the related Subservicing Agreement. If the Master Subservicer or any
affiliate of the Master Servicer acts as Subservicer, it will not assume
liability for the representations and warranties of the Subservicer which it
replaces. If the Master Subservicer enters into a Subservicing Agreement with
a successor Subservicer, the Master Servicer shall use reasonable efforts to
have the successor Subservicer assume liability for the representations and
warranties made by the terminated Subservicer in respect of the related
Mortgage Loans and, in the event of any such assumption by the successor
Subservicer, the Master Servicer may, in the exercise of its business
judgment, release the terminated Servicer from liability for such
representations and warranties.
(d) Liability of the Master Servicer.
Notwithstanding any Subservicing Agreement, any of the provisions of this
Agreement relating to agreements or arrangements between the Master Servicer
or a Subservicer or references to actions taken through a Subservicer or
otherwise, the Master Servicer shall remain obligated and liable to the
Trustees and Securityholders for the servicing and administering of the
Pledged Mortgages in accordance with the provisions of Section 3(a) without
diminution of such obligation or liability by virtue of such Subservicing
Agreements or arrangements or by virtue of indemnification from the
Subservicer and to the same extent and under the same terms and conditions as
if the Master Servicer alone were servicing and administering the Pledged
Mortgages. The Master Servicer shall be entitled to enter into any agreement
with a Subservicer for indemnification of the Master Servicer and nothing
contained in this Agreement shall be deemed to limit or modify such
indemnification.
(e) No Contractual Relationship Between Subservicers and the Trustees.
Any Servicing Agreement that may be entered into and any other
transactions or services relating to the Mortgage Loans involving a Servicer
in its capacity as such and not as an originator shall be deemed to be between
the Subservicer and the Master Servicer alone and the Trustees and
Securityholders shall not be deemed parties thereto and shall have no claims,
rights, obligations, duties or liabilities with respect to the Subservicer in
its capacity as such except as set forth in Section 3(g).
(f) Rights of [________] and the Trustees in Respect of the Master
Servicer.
[________] may, but is not obligated to, enforce the obligations of the
Master Servicer hereunder and may, but is not obligated to, perform, or cause
a designee to perform, any defaulted obligation of the Master Servicer
hereunder and in connection with any such defaulted obligation to exercise the
related rights of the Master Servicer hereunder; provided that the Master
Servicer shall not be relieved of any of its obligations hereunder by virtue
of such performance by [________] or its designee. Neither the Trustees nor
[________] shall have any responsibility or liability for any action or
failure to act by the Master Servicer nor shall the Trustees or [________] be
obligated to supervise the performance of the Master Servicer hereunder or
otherwise.
(g) Trustee to Act as Master Servicer.
In the event that the Master Servicer shall for any reason no longer be
the Master Servicer hereunder (including by reason of an Event of Default),
the Trustee or its successor shall thereupon assume all of the rights and
obligations of the Master Servicer hereunder arising thereafter (except that
the Trustee shall not be (i) liable for losses of the Master Servicer pursuant
to Section 3(l) hereof or any acts or omissions of the predecessor Master
Servicer hereunder), (ii) obligated to make Advances if it is prohibited from
doing so by applicable law, (iii) obligated to effectuate repurchases or
substitutions of Mortgage Loans hereunder including, but not limited to,
repurchases or substitutions of Mortgage Loans pursuant to Section 2(c)(ii) or
2(d) hereof, (iv) responsible for expenses of the Master Servicer pursuant to
Section 2(d) or (v) deemed to have made any representations and warranties of
the Master Servicer hereunder). Any such assumption shall be subject to
Section 7(b) hereof. If the Master Servicer shall for any reason no longer be
the Master Servicer (including by reason of any Event of Default), the Trustee
or its successor shall succeed to any rights and obligations of the Master
Servicer under each subservicing agreement.
The Master Servicer shall, upon request of the Trustee, but at the
expense of the Master Servicer, deliver to the assuming party all documents
and records relating to each subservicing agreement or substitute subservicing
agreement and the Mortgage Loans then being serviced thereunder and an
accounting of amounts collected or held by it and otherwise use its best
efforts to effect the orderly and efficient transfer of the substitute
subservicing agreement to the assuming party.
(h) Collection of Mortgage Loan Payments; Collection Accounts; Payment
Account.
(i) The Master Servicer shall make reasonable efforts in accordance with
the customary and usual standards of practice of prudent mortgage servicers to
collect all payments called for under the terms and provisions of the Mortgage
Loans to the extent such procedures shall be consistent with this Agreement
and the terms and provisions of any related Required Insurance Policy.
Consistent with the foregoing, the Master Servicer may in its discretion (i)
waive any late payment charge or any prepayment charge or penalty interest in
connection with the prepayment of a Mortgage Loan and (ii) extend the due
dates for payments due on a Mortgage Note for a period not greater than 180
days; provided, however, that the Master Servicer cannot extend the maturity
of any such Mortgage Loan past the date on which the final payment is due on
the latest maturing Mortgage Loan as of the Cut-off Date. In the event of any
such arrangement, the Master Servicer shall make Advances on the related
Mortgage Loan in accordance with the provisions of Section 4 during the
scheduled period in accordance with the amortization schedule of such Mortgage
Loan without modification thereof by reason of such arrangements. The Master
Servicer shall not be required to institute or join in litigation with respect
to collection of any payment (whether under a Mortgage, Mortgage Note or
otherwise or against any public or governmental authority with respect to a
taking or condemnation) if it reasonably believes that enforcing the provision
of the Mortgage or other instrument pursuant to which such payment is required
is prohibited by applicable law.
(ii) The Master Servicer shall establish and maintain a Collection
Account into which the Master Servicer shall deposit or cause to be deposited
on a daily basis within one Business Day of receipt, except as otherwise
specifically provided herein, the following payments and collections remitted
by Subservicers or received by it in respect of Mortgage Loans subsequent to
the Cut-off Date (other than in respect of principal and interest due on the
Mortgage Loans on or before the Cut-off Date) and the following amounts
required to be deposited hereunder:
(A) all collections on account of principal on the Mortgage Loans;
(B) all collections on account of interest on the Mortgage Loans,
net of the related Master Servicing Fee;
(C) all Insurance Proceeds and Liquidation Proceeds, other than
proceeds to be applied to the restoration or repair of the Mortgaged Property
or released to the Mortgagor in accordance with the Master Servicer's normal
servicing procedures;
(D) any amount required to be deposited by the Master Servicer
pursuant to Section 3(h)(v) in connection with any losses on Permitted
Investments;
(E) any amounts required to be deposited by the Master Servicer
pursuant to Section 3(l)(ii), 3(l)(iv), and in respect of net monthly rental
income from REO Property pursuant to Section 3(n) hereof;
(F) all Substitution Adjustment Amounts;
(G) all Advances made by the Master Servicer pursuant to Section 4;
and
(H) any other amounts required to be deposited hereunder.
The foregoing requirements for remittance by the Master Servicer shall be
exclusive, it being understood and agreed that, without limiting the
generality of the foregoing, payments in the nature of prepayment penalties,
late payment charges or assumption fees, if collected, need not be remitted by
the Master Servicer. In the event that the Master Servicer shall remit any
amount not required to be remitted, it may at any time withdraw or direct the
institution maintaining the Collection Account to withdraw such amount from
the Collection Account, any provision herein to the contrary notwithstanding.
Such withdrawal or direction may be accomplished by delivering written notice
thereof to the Trustee or such other institution maintaining the Collection
Account which describes the amounts deposited in error in the Collection
Account. The Master Servicer shall maintain adequate records with respect to
all withdrawals made pursuant to this Section. All funds deposited in the
Collection Account shall be held in trust for the Securityholders until
withdrawn in accordance with Section 3(k).
(iii) The Trustee shall establish and maintain, on behalf of the
Securityholders, the Payment Account. The Trustee shall, promptly upon
receipt, deposit in the Payment Account and retain therein the following:
(A) the aggregate amount remitted by the Master Servicer to the
Trustee pursuant to Section 3(k)(i)(I);
(B) any amount deposited by the Master Servicer pursuant to Section
3(h)(iv) in connection with any losses on Permitted Investments; and
(C) any other amounts deposited hereunder which are required to be
deposited in the Payment Account.
In the event that the Master Servicer shall remit any amount not required
to be remitted, it may at any time direct the Trustee to withdraw such amount
from the Payment Account, any provision herein to the contrary
notwithstanding. Such direction may be accomplished by delivering an Officer's
Certificate to the Trustee which describes the amounts deposited in error in
the Payment Account. All funds deposited in the Payment Account shall be held
by the Trustee in trust for the Securityholders until disbursed in accordance
with this Agreement or withdrawn in accordance with Section 3(k). In no event
shall the Trustee incur liability for withdrawals from the Payment Account at
the direction of the Master Servicer.
(iv) Each institution at which the Collection Account or the Payment
Account is maintained shall invest the funds therein as directed in writing by
the Master Servicer in Permitted Investments, which shall mature not later
than (i) in the case of the Collection Account, the second Business Day next
preceding the related Payment Account Deposit Date (except that if such
Permitted Investment is an obligation of the institution that maintains such
account, then such Permitted Investment shall mature not later than the
Business Day next preceding such Payment Account Deposit Date) and (ii) in the
case of the Payment Account, the Business Day next preceding the Distribution
Date (except that if such Permitted Investment is an obligation of the
institution that maintains such fund or account, then such Permitted
Investment shall mature not later than such Distribution Date) and, in each
case, shall not be sold or disposed of prior to its maturity. All such
Permitted Investments shall be made in the name of the Trustee, for the
benefit of the Securityholders. All income and gain net of any losses realized
from any such investment of funds on deposit in the Collection Account or the
Payment Account shall be for the benefit of the Master Servicer as servicing
compensation and shall be remitted to it monthly as provided herein. The
amount of any realized losses in the Collection Account or the Payment Account
incurred in any such account in respect of any such investments shall promptly
be deposited by the Master Servicer in the Collection Account or paid to the
Trustee for deposit into the Payment Account, as applicable. The Trustee in
its fiduciary capacity shall not be liable for the amount of any loss incurred
in respect of any investment or lack of investment of funds held in the
Collection Account or the Payment Account and made in accordance with this
Section 3(h).
(v) The Master Servicer shall give notice to the Trustee, the
Seller, each Rating Agency and [________] of any proposed change of the
location of the Collection Account prior to any change thereof. The Trustee
shall give notice to the Master Servicer, the Seller, each Rating Agency and
[________] of any proposed change of the location of the Payment Account prior
to any change thereof.
(i) Collection of Taxes, Assessments and Similar Items; Escrow Accounts.
(i) To the extent required by the related Mortgage Note and not
violative of current law, the Master Servicer shall establish and maintain one
or more accounts (each, an "Escrow Account") and deposit and retain therein
all collections from the Mortgagors (or advances by the Master Servicer) for
the payment of taxes, assessments, hazard insurance premiums or comparable
items for the account of the Mortgagors. Nothing herein shall require the
Master Servicer to compel a Mortgagor to establish an Escrow Account in
violation of applicable law.
(ii) Withdrawals of amounts so collected from the Escrow Accounts
may be made only to effect timely payment of taxes, assessments, hazard
insurance premiums, condominium or PUD association dues, or comparable items,
to reimburse the Master Servicer out of related collections for any payments
made pursuant to Sections 3(a) hereof (with respect to taxes and assessments
and insurance premiums) and 3(l) hereof (with respect to hazard insurance), to
refund to any Mortgagors any sums determined to be overages, to pay interest,
if required by law or the terms of the related Mortgage or Mortgage Note, to
Mortgagors on balances in the Escrow Account or to clear and terminate the
Escrow Account at the termination of this Agreement in accordance with Section
8(a) hereof. The Escrow Accounts shall not be a part of the Issuer.
(iii) The Master Servicer shall advance any payments referred to in
Section 3(i)(i) that are not timely paid by the Mortgagors on the date when
the tax, premium or other cost for which such payment is intended is due, but
the Master Servicer shall be required so to advance only to the extent that
such advances, in the good faith judgment of the Master Servicer, will be
recoverable by the Master Servicer out of Insurance Proceeds, Liquidation
Proceeds or otherwise.
(j) Access to Certain Documentation and Information Regarding
the Mortgage Loans.
The Master Servicer shall afford [________] and the Trustee reasonable
access to all records and documentation regarding the Mortgage Loans and all
accounts, insurance information and other matters relating to this Agreement,
such access being afforded without charge, but only upon reasonable request
and during normal business hours at the office designated by the Master
Servicer.
Upon reasonable advance notice in writing, the Master Servicer will
provide to each Securityholder which is a savings and loan association, bank
or insurance company certain reports and reasonable access to information and
documentation regarding the Mortgage Loans sufficient to permit such
Securityholder to comply with applicable regulations of the OTS or other
regulatory authorities with respect to investment in the Certificates;
provided that the Master Servicer shall be entitled to be reimbursed by each
such Securityholder for actual expenses incurred by the Master Servicer in
providing such reports and access.
(k) Permitted Withdrawals from the Note Account.
(i) The Master Servicer may from time to time make withdrawals from
the Collection Account for the following purposes:
(A) to pay to the Master Servicer (to the extent not previously
retained by the Master Servicer) the servicing compensation to which it is
entitled pursuant to Section 5, and to pay to the Master Servicer, as
additional servicing compensation, earnings on or investment income with
respect to funds in or credited to the Collection Account;
(B) to reimburse the Master Servicer for unreimbursed Advances made
by it, such right of reimbursement pursuant to this subclause (ii) being
limited to amounts received on the Mortgage Loan(s) in respect of which any
such Advance was made;
(C) to reimburse the Master Servicer for any Nonrecoverable Advance
previously made;
(D) to reimburse the Master Servicer for Insured Expenses from the
related Insurance Proceeds;
(E) to reimburse the Master Servicer for (a) unreimbursed Servicing
Advances, the Master Servicer's right to reimbursement pursuant to this clause
(a) with respect to any Mortgage Loan being limited to amounts received on
such Mortgage Loan(s) which represent late recoveries of the payments for
which such advances were made pursuant to Section 3(a) or Section 3(i) and (b)
for unpaid Master Servicing Fees as provided in Section 3(n) hereof;
(F) to pay to the purchaser, with respect to each Mortgage Loan or
property acquired in respect thereof that has been purchased pursuant to
Section 2(c)(ii), 2(d) or 3(n), all amounts received thereon after the date of
such purchase;
(G) to reimburse the Seller, the Master Servicer or [________] for
expenses incurred by any of them and reimbursable pursuant to Section 6(c)
hereof;
(H) to withdraw any amount deposited in the Collection Account and
not required to be deposited therein;
(I) on or prior to the Payment Account Deposit Date, to withdraw an
amount equal to the related Available Funds and the Trustees Fees for such
Distribution Date and remit such amount to the Trustee for deposit in the
Payment Account; and
(J) to clear and terminate the Collection Account upon termination
of this Agreement pursuant to Section 8 (a) hereof.
The Master Servicer shall keep and maintain separate accounting, on a
Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any
withdrawal from the Collection Account pursuant to such subclauses (i), (ii),
(iv), (v) and (vi). Prior to making any withdrawal from the Collection Account
pursuant to subclause (iii), the Master Servicer shall deliver to the Trustee
an Officer's Certificate of a Servicing Officer indicating the amount of any
previous Advance determined by the Master Servicer to be a Nonrecoverable
Advance and identifying the related Mortgage Loans(s), and their respective
portions of such Nonrecoverable Advance.
(ii) The Trustee shall withdraw funds from the Payment Account for
distributions to Securityholders in the manner specified in this Agreement
(and to withhold from the amounts so withdrawn, the amount of any taxes that
it is authorized to withhold pursuant to the last paragraph of [Section
8.11/trustee]). In addition, the Trustee may from time to time make
withdrawals from the Payment Account for the following purposes:
(A) to pay to itself the Trustee Fee for the related Distribution
Date;
(B) to pay to the Master Servicer as additional servicing
compensation earnings on or investment income with respect to funds in the
Payment Account;
(C) to withdraw and return to the Master Servicer any amount
deposited in the Payment Account and not required to be deposited therein; and
(D) to clear and terminate the Payment Account upon termination of
the Agreement pursuant to 8(a) hereof.
(l) Maintenance of Hazard Insurance; Maintenance of Primary Insurance
Policies.
(i) The Master Servicer shall cause to be maintained, for each
Mortgage Loan, hazard insurance with extended coverage in an amount that is at
least equal to the lesser of (i) the maximum insurable value of the
improvements securing such Mortgage Loan or (ii) the greater of (y) the
outstanding principal balance of the Mortgage Loan and (z) an amount such that
the proceeds of such policy shall be sufficient to prevent the Mortgagor
and/or the mortgagee from becoming a co-insurer. Each such policy of standard
hazard insurance shall contain, or have an accompanying endorsement that
contains, a standard mortgagee clause. Any amounts collected by the Master
Servicer under any such policies (other than the amounts to be applied to the
restoration or repair of the related Mortgaged Property or amounts released to
the Mortgagor in accordance with the Master Servicer's normal servicing
procedures) shall be deposited in the Collection Account. Any cost incurred by
the Master Servicer in maintaining any such insurance shall not, for the
purpose of calculating monthly distributions to the Securityholders or
remittances to the Trustee for their benefit, be added to the principal
balance of the Mortgage Loan, notwithstanding that the terms of the Mortgage
Loan so permit. Such costs shall be recoverable by the Master Servicer out of
late payments by the related Mortgagor or out of Liquidation Proceeds to the
extent permitted by Section 3(k) hereof. It is understood and agreed that no
earthquake or other additional insurance is to be required of any Mortgagor or
maintained on property acquired in respect of a Mortgage other than pursuant
to such applicable laws and regulations as shall at any time be in force and
as shall require such additional insurance. If the Mortgaged Property is
located at the time of origination of the Mortgage Loan in a federally
designated special flood hazard area and such area is participating in the
national flood insurance program, the Master Servicer shall cause flood
insurance to be maintained with respect to such Mortgage Loan. Such flood
insurance shall be in an amount equal to the least of (i) the original
principal balance of the related Mortgage Loan, (ii) the replacement value of
the improvements which are part of such Mortgaged Property, and (iii) the
maximum amount of such insurance available for the related Mortgaged Property
under the national flood insurance program.
(ii) In the event that the Master Servicer shall obtain and maintain
a blanket policy insuring against hazard losses on all of the Mortgage Loans,
it shall conclusively be deemed to have satisfied its obligations as set forth
in the first sentence of this Section, it being understood and agreed that
such policy may contain a deductible clause on terms substantially equivalent
to those commercially available and maintained by comparable servicers. If
such policy contains a deductible clause, the Master Servicer shall, in the
event that there shall not have been maintained on the related Mortgaged
Property a policy complying with the first sentence of this Section, and there
shall have been a loss that would have been covered by such policy, deposit in
the Collection Account the amount not otherwise payable under the blanket
policy because of such deductible clause. In connection with its activities as
Master Servicer of the Mortgage Loans, the Master Servicer agrees to present,
on behalf of itself, [________], and the Trustee for the benefit of the
Securityholders, claims under any such blanket policy.
(iii) The Master Servicer shall not take any action which would
result in non-coverage under any applicable Primary Insurance Policy of any
loss which, but for the actions of the Master Servicer, would have been
covered thereunder. The Master Servicer shall not cancel or refuse to renew
any such Primary Insurance Policy that is in effect at the date of the initial
issuance of the Notes and the Certificates and is required to be kept in force
hereunder unless the replacement Primary Insurance Policy for such canceled or
non-renewed policy is maintained with a Qualified Insurer. The Master Servicer
shall not be required to maintain any Primary Insurance Policy with respect to
any Mortgage Loan with a Loan-to-Value Ratio less than or equal to 80% as of
any date of determination or, based on a new appraisal, the principal balance
of such Mortgage Loan represents 80% or less of the new appraised value. The
Master Servicer agrees to effect the timely payment of the premiums on each
Primary Insurance Policy, and such costs not otherwise recoverable shall be
recoverable by the Master Servicer from the related liquidation proceeds.
(iv) In connection with its activities as Master Servicer of the
Mortgage Loans, the Master Servicer agrees to present on behalf of itself, the
Trustee and Securityholders, claims to the insurer under any Primary Insurance
Policies and, in this regard, to take such reasonable action as shall be
necessary to permit recovery under any Primary Insurance Policies respecting
defaulted Mortgage Loans. Any amounts collected by the Master Servicer under
any Primary Insurance Policies shall be deposited in the Collection Account.
(m) Enforcement of Due-On-Sale Clauses; Assumption Agreements.
(i) Except as otherwise provided in this Section, when any property
subject to a Mortgage has been conveyed by the Mortgagor, the Master Servicer
shall to the extent that it has knowledge of such conveyance, enforce any
due-on-sale clause contained in any Mortgage Note or Mortgage, to the extent
permitted under applicable law and governmental regulations, but only to the
extent that such enforcement will not adversely affect or jeopardize coverage
under any Required Insurance Policy. Notwithstanding the foregoing, the Master
Servicer is not required to exercise such rights with respect to a Mortgage
Loan if the Person to whom the related Mortgaged Property has been conveyed or
is proposed to be conveyed satisfies the terms and conditions contained in the
Mortgage Note and Mortgage related thereto and the consent of the mortgagee
under such Mortgage Note or Mortgage is not otherwise so required under such
Mortgage Note or Mortgage as a condition to such transfer. In the event that
the Master Servicer is prohibited by law from enforcing any such due-on-sale
clause, or if coverage under any Required Insurance Policy would be adversely
affected, or if nonenforcement is otherwise permitted hereunder, the Master
Servicer is authorized, subject to Section 3(m)(ii), to take or enter into an
assumption and modification agreement from or with the person to whom such
property has been or is about to be conveyed, pursuant to which such person
becomes liable under the Mortgage Note and, unless prohibited by applicable
state law, the Mortgagor remains liable thereon, provided that the Mortgage
Loan shall continue to be covered (if-so covered before the Master Servicer
enters such agreement) by the applicable Required Insurance Policies. The
Master Servicer, subject to Section 3(m)(ii), is also authorized with the
prior approval of the insurers under any Required Insurance Policies to enter
into a substitution of liability agreement with such Person, pursuant to which
the original Mortgagor is released from liability and such Person is
substituted as Mortgagor and becomes liable under the Mortgage Note.
Notwithstanding the foregoing, the Master Servicer shall not be deemed to be
in default under this Section by reason of any transfer or assumption which
the Master Servicer reasonably believes it is restricted by law from
preventing, for any reason whatsoever.
(ii) Subject to the Master Servicer's duty to enforce any
due-on-sale clause to the extent set forth in Section 3(m)(i) hereof, in any
case in which a Mortgaged Property has been conveyed to a Person by a
Mortgagor, and such Person is to enter into an assumption agreement or
modification agreement or supplement to the Mortgage Note or Mortgage that
requires the signature of the Trustee, or if an instrument of release signed
by the Trustee is required releasing the Mortgagor from liability on the
Mortgage Loan, the Master Servicer shall prepare and deliver or cause to be
prepared and delivered to the Trustee for signature and shall direct, in
writing, the Trustee to execute the assumption agreement with the Person to
whom the Mortgaged Property is to be conveyed and such modification agreement
or supplement to the Mortgage Note or Mortgage or other instruments as are
reasonable or necessary to carry out the terms of the Mortgage Note or
Mortgage or otherwise to comply with any applicable laws regarding assumptions
or the transfer of the Mortgaged Property to such Person. In connection with
any such assumption, no material term of the Mortgage Note may be changed. In
addition, the substitute Mortgagor and the Mortgaged Property must be
acceptable to the Master Servicer in accordance with its underwriting
standards as then in effect. Together with each such substitution, assumption
or other agreement or instrument delivered to the Trustee for execution by it,
the Master Servicer shall deliver an Officer's Certificate signed by a
Servicing Officer stating that the requirements of this subsection have been
met in connection therewith. The Master Servicer shall notify the Trustee that
any such substitution or assumption agreement has been completed by forwarding
to the Trustee the original of such substitution or assumption agreement,
which in the case of the original shall be added to the related Mortgage File
and shall, for all purposes, be considered a part of such Mortgage File to the
same extent as all other documents and instruments constituting a part
thereof. Any fee collected by the Master Servicer for entering into an
assumption or substitution of liability agreement will be retained by the
Master Servicer as additional servicing compensation.
(n) Realization Upon Defaulted Mortgage Loans;
Repurchase of Certain Mortgage Loans.
The Master Servicer shall use reasonable efforts to foreclose upon
or otherwise comparably convert the ownership of properties securing such of
the Mortgage Loans as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments.
In connection with such foreclosure or other conversion, the Master Servicer
shall follow such practices and procedures as it shall deem necessary or
advisable and as shall be normal and usual in its general mortgage servicing
activities and meet the requirements of the insurer under any Required
Insurance Policy; provided, however, that the Master Servicer shall not be
required to expend its own funds in connection with any foreclosure or towards
the restoration of any property unless it shall determine (i) that such
restoration and/or foreclosure will increase the proceeds of liquidation of
the Mortgage Loan after reimbursement to itself of such expenses and (ii) that
such expenses will be recoverable to it through Liquidation Proceeds
(respecting which it shall have priority for purposes of withdrawals from the
Collection Account). The Master Servicer shall be responsible for all other
costs and expenses incurred by it in any such proceedings; provided, however,
that it shall be entitled to reimbursement thereof from the liquidation
proceeds with respect to the related Mortgaged Property, as provided in the
definition of Liquidation Proceeds. If the Master Servicer has knowledge that
a Mortgaged Property which the Master Servicer is contemplating acquiring in
foreclosure or by deed in lieu of foreclosure is located within a one mile
radius of any site listed in the Expenditure Plan for the Hazardous Substance
Clean Up Bond Act of 1984 or other site with environmental or hazardous waste
risks known to the Master Servicer, the Master Servicer will, prior to
acquiring the Mortgaged Property, consider such risks and only take action in
accordance with its established environmental review procedures.
With respect to any REO Property, the deed or certificate of sale
shall be taken in the name of the Trustee for the benefit of the
Securityholders, or its nominee, on behalf of the Securityholders. The
Trustee's name shall be placed on the title to such REO Property solely as the
Trustee under the Indenture and not in its individual capacity. The Master
Servicer shall ensure that the title to such REO Property references the
Indenture and the Trustee's capacity thereunder. Pursuant to its efforts to
sell such REO Property, the Master Servicer shall either itself or through an
agent selected by the Master Servicer protect and conserve such REO Property
in the same manner and to such extent as is customary in the locality where
such REO Property is located and may, incident to its conservation and
protection of the interests of the Securityholders, rent the same, or any part
thereof, as the Master Servicer deems to be in the best interest of the
Securityholders for the period prior to the sale of such REO Property. The
Master Servicer shall prepare for and deliver to the Trustee a statement with
respect to each REO Property that has been rented showing the aggregate rental
income received and all expenses incurred in connection with the management
and maintenance of such REO Property at such times as is necessary to enable
the Trustee to comply with the reporting requirements of the REMIC Provisions.
The net monthly rental income, if any, from such REO Property shall be
deposited in the Collection Account no later than the close of business on
each Determination Date. [The Master Servicer shall perform the tax reporting
and withholding required by Sections 1445 and 6050J of the Code with respect
to foreclosures and abandonments, the tax reporting required by Section 6050H
of the Code with respect to the receipt of mortgage interest from individuals
and any tax reporting required by Section 6050P of the Code with respect to
the cancellation of indebtedness by certain financial entities, by preparing
such tax and information returns as may be required, in the form required, and
delivering the same to the Trustee for filing.]
In the event that the Issuer acquires any Mortgaged Property as
aforesaid or otherwise in connection with a default or imminent default on a
Mortgage Loan, the Master Servicer shall dispose of such Mortgaged Property
prior to two years after its acquisition by the Issuer unless the Trustee
shall have been supplied with an Opinion of Counsel to the effect that the
holding by the Issuer of such Mortgaged Property subsequent to such two-year
period will not result in the imposition of taxes on "prohibited transactions"
of the REMIC defined in Section 860F of the Code or cause the REMIC to fail to
qualify as a REMIC at any time that any Notes or Certificates are outstanding,
in which case the Issuer may continue to hold such Mortgaged Property (subject
to any conditions contained in such Opinion of Counsel). Notwithstanding any
other provision of this Agreement, no Mortgaged Property acquired by the
Issuer shall be rented (or allowed to continue to be rented) or otherwise used
for the production of income by or on behalf of the Issuer in such a manner or
pursuant to any terms that would (i) cause such Mortgaged Property to fail to
qualify as "foreclosure property" within the meaning of Section 860G(a)(8) of
the Code or (ii) subject the REMIC to the imposition of any federal, state or
local income taxes on the income earned from such Mortgaged Property under
Section 860G(c) of the Code or otherwise, unless the Master Servicer has
agreed to indemnify and hold harmless the Issuer with respect to the
imposition of any such taxes.
The decision of the Master Servicer to foreclose on a defaulted
Mortgage Loan shall be subject to a determination by the Master Servicer that
the proceeds of such foreclosure would exceed the costs and expenses of
bringing such a proceeding. The income earned from the management of any REO
Properties, net of reimbursement to the Master Servicer for expenses incurred
(including any property or other taxes) in connection with such management and
net of unreimbursed Master Servicing Fees, Advances and Servicing Advances,
shall be applied to the payment of principal of and interest on the related
defaulted Mortgage Loans (with interest accruing as though such Mortgage Loans
were still current) and all such income shall be deemed, for all purposes in
this Agreement, to be payments on account of principal and interest on the
related Mortgage Notes and shall be deposited into the Collection Account. To
the extent the net income received during any calendar month is in excess of
the amount attributable to amortizing principal and accrued interest at the
related Mortgage Rate on the related Mortgage Loan for such calendar month,
such excess shall be considered to be a partial prepayment of principal of the
related Mortgage Loan.
The proceeds from any liquidation of a Mortgage Loan, as well as any
income from an REO Property, will be applied in the following order of
priority: first, to reimburse the Master Servicer for any related unreimbursed
Servicing Advances and Master Servicing Fees; second, to reimburse the Master
Servicer for any unreimbursed Advances; third, to reimburse the Collection
Account for any Nonrecoverable Advances (or portions thereof) that were
previously withdrawn by the Master Servicer pursuant to Section 3(k)(i)(C)
that related to such Mortgage Loan; fourth, to accrued and unpaid interest (to
the extent no Advance has been made for such amount or any such Advance has
been reimbursed) on the Mortgage Loan or related REO Property, at the Adjusted
Net Mortgage Rate to the Due Date occurring in the month in which such amounts
are required to be distributed; and fifth, as a recovery of principal of the
Mortgage Loan. Excess Proceeds, if any, from the liquidation of a Liquidated
Mortgage Loan will be retained by the Master Servicer as additional servicing
compensation pursuant to Section 5.
The Master Servicer, in its sole discretion, shall have the right to
purchase for its own account from the Issuer any Mortgage Loan which is 91
days or more delinquent at a price equal to the Purchase Price. The Purchase
Price for any Mortgage Loan purchased hereunder shall be deposited in the
Collection Account and the Trustee, upon receipt of a certificate from the
Master Servicer in the form of Exhibit D hereto, shall release or cause to be
released to the purchaser of such Mortgage Loan the related Mortgage File and
shall execute and deliver such instruments of transfer or assignment prepared
by the purchaser of such Mortgage Loan, in each case without recourse, as
shall be necessary to vest in the purchaser of such Mortgage Loan any Mortgage
Loan released pursuant hereto and the purchaser of such Mortgage Loan shall
succeed to all the Trustee's right, title and interest in and to such Mortgage
Loan and all security and documents related thereto. Such assignment shall be
an assignment outright and not for security. The purchaser of such Mortgage
Loan shall thereupon own such Mortgage Loan, and all security and documents,
free of any further obligation to the Trustee or the Securityholders with
respect thereto.
(o) Access to Certain Documentation.
The Master Servicer shall provide to the OTS and the FDIC and to
comparable regulatory authorities supervising Holders of subordinated Notes or
Certificates and the examiners and supervisory agents of the OTS, the FDIC and
such other authorities, access to the documentation regarding the Mortgage
Loans required by applicable regulations of the OTS and the FDIC. Such access
shall be afforded without charge, but only upon reasonable and prior written
request and during normal business hours at the offices designated by the
Master Servicer. Nothing in this Section shall limit the obligation of the
Master Servicer to observe any applicable law prohibiting disclosure of
information regarding the Mortgagors and the failure of the Master Servicer to
provide access as provided in this Section as a result of such obligation
shall not constitute a breach of this Section.
(p) Annual Statement as to Compliance.
The Master Servicer shall deliver to [________] and the Trustees on or
before 120 days after the end of the Master Servicer's fiscal year, commencing
with its 199_ fiscal year, an Officer's Certificate stating, as to the signer
thereof, that (i) a review of the activities of the Master Servicer during the
preceding calendar year and of the performance of the Master Servicer under
this Agreement has been made under such officer's supervision and (ii) to the
best of such officer's knowledge, based on such review, the Master Servicer
has fulfilled all its obligations under this Agreement throughout such year,
or, if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officer and the nature and status
thereof. The Trustee shall forward a copy of each such statement to each
Rating Agency.
(q) Annual Independent Public Accountants'
Servicing Statement; Financial Statements.
On or before 120 days after the end of the Master Servicer's fiscal year,
commencing with its 199_ fiscal year, the Master Servicer at its expense shall
cause a nationally or regionally recognized firm of independent public
accountants (who may also render other services to the Master Servicer, the
Seller or any affiliate thereof) which is a member of the American Institute
of Certified Public Accountants to furnish a statement to the Trustees and
[________] to the effect that-such firm has examined certain documents and
records relating to the servicing of the Mortgage Loans under this Agreement
or of mortgage loans under pooling and servicing agreements substantially
similar to this Agreement (such statement to have attached thereto a schedule
setting forth the pooling and servicing agreements covered thereby) and that,
on the basis of such examination, conducted substantially in compliance with
the Uniform Single Attestation Program for Mortgage Bankers or the Audit
Program for Mortgages serviced for FNMA and FHLMC, such servicing has been
conducted in compliance with such pooling and servicing agreements except for
such significant exceptions or errors in records that, in the opinion of such
firm, the Uniform Single Attestation Program for Mortgage Bankers or the Audit
Program for Mortgages serviced for FNMA and FHLMC requires it to report. In
rendering such statement, such firm may rely, as to matters relating to direct
servicing of mortgage loans by Subservicers, upon comparable statements for
examinations conducted substantially in compliance with the Uniform Single
Audit Program for Mortgage Bankers or the Audit Program for Mortgages serviced
for FNMA and FHLMC (rendered within one year of such statement) of independent
public accountants with respect to the related Subservicer. Copies of such
statement shall be provided by the Trustee to any Securityholder upon request
at the Master Servicer's expense, provided such statement is delivered by the
Master Servicer to the Trustee.
(r) Errors and Omissions Insurance; Fidelity Bonds.
The Master Servicer shall for so long as it acts as master servicer under
this Agreement, obtain and maintain in force (a) a policy or policies of
insurance covering errors and omissions in the performance of its obligations
as Master Servicer hereunder and (b) a fidelity bond in respect of its
officers, employees and agents. Each such policy or policies and bond shall,
together, comply with the requirements from time to time of FNMA or FHLMC for
persons performing servicing for mortgage loans purchased by FNMA or FHLMC. In
the event that any such policy or bond ceases to be in effect, the Master
Servicer shall obtain a comparable replacement policy or bond from an insurer
or issuer, meeting the requirements set forth above as of the date of such
replacement.
(s) Master Servicer Monthly Data.
On or before noon California time on the Determination Date, the Master
Servicer shall provide by modem to the Trustee with respect to the Mortgage
Loans, an electronic data file (accompanied by a hardcopy report) in a format
which is mutually agreed upon by the Master Servicer and the Trustee. The
Trustee shall be under no duty to recalculate, verify or recompute the
information provided to it by the Master Servicer hereunder.
4. Advances.
The Master Servicer shall determine on or before each Master Servicer
Advance Date whether it is required to make an Advance pursuant to the
definition thereof. If the Master Servicer determines it is required to make
an Advance, it shall, on or before the Master Servicer Advance Date, deposit
into the Collection Account an amount equal to the Advance. The Master
Servicer shall be entitled to be reimbursed from the Collection Account for
all Advances of its own funds made pursuant to this Section as provided in
Section 3(k). The obligation to make Advances with respect to any Mortgage
Loan shall continue if such Mortgage Loan has been foreclosed or otherwise
terminated and the related Mortgaged Property has not been liquidated.
5. Servicing Compensation.
As compensation for its activities hereunder, the Master Servicer shall
be entitled to retain or withdraw from the Collection Account an amount equal
to the Master Servicing Fee for each Mortgage Loan, provided that the
aggregate Master Servicing Fee with respect to any Distribution Date shall be
reduced (i) by an amount equal to the aggregate of the Prepayment Interest
Shortfalls, if any, with respect to such Distribution Date, but not below an
amount equal to one-half of the aggregate Master Servicing Fee for such
Distribution Date before reduction thereof in respect of such Prepayment
Interest Shortfalls, and (ii) with respect to the first Distribution Date, an
amount equal to any amount to be deposited into the Payment Account by
[________] pursuant to Section 2(a)(i) and not so deposited.
Additional servicing compensation in the form of Excess Proceeds,
Prepayment Interest Excess, prepayment penalties, assumption fees, late
payment charges and all income and gain net of any losses realized from
Permitted Investments shall be retained by the Master Servicer to the extent
not required to be deposited in the Collection Account pursuant to Section
3(h) hereof. The Master Servicer shall be required to pay all expenses
incurred by it in connection with its master servicing activities hereunder
(including payment of any premiums for hazard insurance and any Primary
Insurance Policy and maintenance of the other forms of insurance coverage
required by this Agreement) and shall not be entitled to reimbursement
therefor except as specifically provided in this Agreement.
6. The Master Servicer.
(a) Respective Liabilities of [________] and the Master Servicer.
The Master Servicer shall be liable in accordance herewith only to the
extent of the obligations specifically imposed upon and undertaken by it
herein.
(b) Merger or Consolidation of [________] or the Master Servicer.
[________] and the Master Servicer will each keep in full effect its
existence, rights and franchises as a corporation under the laws of the United
States or under the laws of one of the states thereof and will each obtain and
preserve its qualification to do business as a foreign corporation in each
jurisdiction in which such qualification is or shall be necessary to protect
the validity and enforceability of this Agreement, or any of the Mortgage
Loans and to perform its respective duties under this Agreement.
Any Person into which [________] or the Master Servicer may be merged or
consolidated, or any Person resulting from any merger or consolidation to
which [________] or the Master Servicer shall be a party, or any person
succeeding to the business of [________] or the Master Servicer, shall be the
successor of [________] or the Master Servicer, as the case may be, hereunder,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding;
provided, however, that the successor or surviving Person to the Master
Servicer shall be qualified to sell mortgage loans to, and to service mortgage
loans on behalf of, FNMA or FHLMC.
(c) Limitation on Liability of [________], the Seller, Master Servicer
and Others.
None of [________], the Seller, the Master Servicer or any of the
directors, officers, employees or agents of [________], the Seller or the
Master Servicer shall be under any liability to the Securityholders for any
action taken or for refraining from the taking of any action in good faith
pursuant to this Agreement, or for errors in judgment; provided, however, that
this provision shall not protect [________], the Seller, the Master Servicer
or any such Person against any breach of representations or warranties made by
it herein or protect [________], the Seller, the Master Servicer or any such
Person from any liability which would otherwise be imposed by reasons of
willful misfeasance, bad faith or gross negligence in the performance of
duties or by reason of reckless disregard of obligations and duties hereunder.
[________], the Seller, the Master Servicer and any director, officer,
employee or agent of [________], the Seller or the Master Servicer may rely in
good faith on any document of any kind prima facie properly executed and
submitted by any Person respecting any matters arising hereunder. [________],
the Seller, the Master Servicer and any director, officer, employee or agent
of [________], the Seller or the Master Servicer shall be indemnified by the
Issuer and held harmless against any loss, liability or expense incurred in
connection with any audit, controversy or judicial proceeding relating to a
governmental taxing authority or any legal action relating to this Agreement,
the Notes or the Certificates, other than any loss, liability or expense
related to any specific Mortgage Loan or Mortgage Loans (except as any such
loss, liability or expense shall be otherwise reimbursable pursuant to this
Agreement) and any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties
hereunder or by reason of reckless disregard of obligations and duties
hereunder. None of [________], the Seller or the Master Servicer shall be
under any obligation to appear in, prosecute or defend any legal action that
is not incidental to its respective duties hereunder and which in its opinion
may involve it in any expense or liability; provided, however, that any of
[________], the Seller or the Master Servicer may in its discretion undertake
any such action that it may deem necessary or desirable in respect of this
Agreement and the rights and duties of the parties hereto and interests of the
Trustees and the Securityholders hereunder. In such event, the legal expenses
and costs of such action and any liability resulting therefrom shall be
expenses, costs and liabilities of the Issuer, and [________], the Seller and
the Master Servicer shall be entitled to be reimbursed therefor out of the
Collection Account.
(d) Limitation on Resignation of the Master Servicer.
The Master Servicer shall not resign from the obligations and duties
hereby imposed on it except (a) upon appointment of a successor servicer and
receipt by the Trustee of a letter from each Rating Agency that such a
resignation and appointment will not result in a downgrading of the rating of
any of the Certificates, or (b) upon determination that its duties hereunder
are no longer permissible under applicable law. Any such determination under
clause (b) permitting the resignation of the Master Servicer shall be
evidenced by an Opinion of Counsel to such effect delivered to the Trustee. No
such resignation shall become effective until the Trustee or a successor
master servicer shall have assumed the Master Servicer's responsibilities,
duties, liabilities and obligations hereunder.
7. Default.
(a) Events of Default.
"Event of Default," wherever used herein, means any one of the following
events:
(i) any failure by the Master Servicer to deposit in the Collection
Account or remit to the Trustee any payment (other than a payment required to
be made under Section 4 hereof) required to be made with respect to any Class
of Certificates under the terms of this Agreement, which failure shall
continue unremedied for five days after the date upon which written notice of
such failure shall have been given to the Master Servicer by the Trustee or
[________] or to the Master Servicer, [________] and the Trustee by the
Holders of Notes or Certificates of such Class evidencing not less than 25% of
the total distributions allocated to such Class; or
(ii) any failure by the Master Servicer duly to observe or perform
in any material respect any other of the covenants or agreements on the part
of the Master Servicer contained in this Agreement, which failure shall
continue unremedied for a period of thirty days after the date on which
written notice of such failure shall have been given to the Master Servicer by
the Trustee or [________], or to the Master Servicer, [________] and the
Trustee by the Holders of Notes or Certificates of any Class evidencing not
less than 25% of the total distributions allocated to such Class; or
(iii) a decree or order of a court or agency or supervisory
authority having jurisdiction in the premises for the appointment of a
receiver or liquidator in any insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceeding, or for the winding-up or
liquidation of its affairs, shall have been entered against the Master
Servicer and such decree or order shall have remained in force undischarged or
unstayed for a period of 60 consecutive days; or
(iv) the Master Servicer shall consent to the appointment of a
receiver or liquidator in any insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings of or relating to the Master
Servicer or all or substantially all of the property of the Master Servicer;
or
(v) the Master Servicer shall admit in writing its inability to pay
its debts generally as they become due, file a petition to take advantage of,
or commence a voluntary case under, any applicable insolvency or
reorganization statute, make an assignment for the benefit of its creditors,
or voluntarily suspend payment of its obligations; or
[(vi) [ so long as the Master Servicer is the Seller, any failure by
the Seller to observe or perform in any material respect any other of the
covenants or agreements on the part of the Seller contained in this Agreement,
which failure shall continue unremedied for a period of 60 days after the date
on which written notice of such failure shall have been given to the Seller by
the Trustee or [________], or to the Seller and the Trustee by the Holders of
Notes or Certificates of any Class evidencing not less than 25% of the total
distributions allocated to such Class; or]
(vii) any failure of the Master Servicer to make any Advance in the
manner and at the time required to be made pursuant to Section 4 which
continues unremedied for a period of one Business Day after the date of such
failure.
If an Event of Default described in clauses (i) to (vi) of this Section
shall occur, then, and in each and every such case, so long as such Event of
Default shall not have been remedied, the Trustee may, or at the direction of
the Holders of Notes or Certificates of any Class evidencing not less than 25%
of the total distributions allocated to such Class, the Trustee shall by
notice in writing to the Master Servicer (with a copy to each Rating Agency),
terminate all of the rights and obligations of the Master Servicer under this
Agreement and in and to the Mortgage Loans and the proceeds thereof, other
than its rights as a Securityholder. If an Event of Default described in
clause (vii) hereof shall occur, the Trustee shall, by notice in writing to
the Master Servicer and [________], terminate all of the rights and
obligations of the Master Servicer under this Agreement and in and to the
Mortgage Loans and the proceeds thereof, other than its rights as a
Securityholder. On and after the receipt by the Master Servicer of such
written notice, all authority and power of the Master Servicer hereunder,
whether with respect to the Mortgage Loans or otherwise, shall pass to and be
vested in the Trustee. [The Trustee shall thereupon make any Advance described
in clause (vii) hereof subject to Section 3(g) hereof.] The Trustee is hereby
authorized and empowered to execute and deliver, on behalf of the Master
Servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement or assignment of the Mortgage Loans and
related documents, or otherwise. Unless expressly provided in such written
notice, no such termination shall affect any obligation of the Master Servicer
to pay amounts owed pursuant to Article VIII. The Master Servicer agrees to
cooperate with the Trustee in effecting the termination of the Master
Servicer's responsibilities and rights hereunder, including, without
limitation, the transfer to the Trustee of all cash amounts which shall at the
time be credited to the Collection Account, or thereafter be received with
respect to the Mortgage Loans.
Notwithstanding any termination of the activities of the Master Servicer
hereunder, the Master Servicer shall be entitled to receive, out of any late
collection of a Scheduled Payment on a Mortgage Loan which was due prior to
the notice terminating such Master Servicer's rights and obligations as Master
Servicer hereunder and received after such notice, that portion thereof to
which such Master Servicer would have been entitled pursuant to Sections
3(k)(i)(A) through (H),and any other amounts payable to such Master Servicer
hereunder the entitlement to which arose prior to the termination of its
activities hereunder.
(b) Trustee to Act; Appointment of Successor.
On and after the time the Master Servicer receives a notice of
termination pursuant to Section 7(a) hereof, the Trustee shall, subject to and
to the extent provided in Section 3(g), be the successor to the Master
Servicer in its capacity as master servicer under this Agreement and the
transactions set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the Master
Servicer by the terms and provisions hereof and applicable law including the
obligation to make Advances pursuant to Section 4. As compensation therefor,
the Trustee shall be entitled to all funds relating to the Mortgage Loans that
the Master Servicer would have been entitled to charge to the Collection
Account or Payment Account if the Master Servicer had continued to act
hereunder. Notwithstanding the foregoing, if the Trustee has become the
successor to the Master Servicer in accordance with Section 7(a) hereof, the
Trustee may, if it shall be unwilling to so act, or shall, if it is prohibited
by applicable law from making Advances pursuant to Section 4 hereof or if it
is otherwise unable to so act, appoint, or petition a court of competent
jurisdiction to appoint, any established mortgage loan servicing institution
the appointment of which does not adversely affect the then current rating of
the Securities by each Rating Agency as the successor to the Master Servicer
hereunder in the assumption of all or any part of the responsibilities, duties
or liabilities of the Master Servicer hereunder. Any successor to the Master
Servicer shall be an institution which is a FNMA and FHLMC approved
seller/servicer in good standing, which has a net worth of at least
$10,000,000, and which is willing to service the Mortgage Loans and executes
and delivers to [________] and the Trustees an agreement accepting such
delegation and assignment, which contains an assumption by such Person of the
rights, powers, duties, responsibilities, obligations and liabilities of the
Master Servicer (other than liabilities of the Master Servicer under Section
6(c) hereof incurred prior to termination of the Master Servicer under Section
7(a)), with like effect as if originally named as a party to this Agreement;
and provided further that each Rating Agency acknowledges that its rating of
the Securities in effect immediately prior to such assignment and delegation
will not be qualified or reduced as a result of such assignment and
delegation. Pending appointment of a successor to the Master Servicer
hereunder, the Trustee, unless the Trustee is prohibited by law from so
acting, shall, subject to Section 3(g) hereof, act in such capacity as
hereinabove provided. In connection with such appointment and assumption, the
Trustee may make such arrangements for the compensation of such successor out
of payments on Mortgage Loans as it and such successor shall agree; provided,
however, that no such compensation shall be in excess of the Master Servicing
Fee permitted the Master Servicer hereunder. The Trustee and such successor
shall take such action, consistent with this Agreement, as shall be necessary
to effectuate any such succession. Neither the Trustee nor any other successor
master servicer shall be deemed to be in default hereunder by reason of any
failure to make, or any delay in making, any distribution hereunder or any
portion thereof or any failure to perform, or any delay in performing, any
duties or responsibilities hereunder, in either case caused by the failure of
the Master Servicer to deliver or provide, or any delay in delivering or
providing, any cash, information, documents or records to it.
Any successor to the Master Servicer as master servicer shall give notice
to the Mortgagors of such change of servicer and shall, during the term of its
service as master servicer maintain in force the policy or policies that the
Master Servicer is required to maintain pursuant to 3(r).
(c) Notification to Securityholders.
(i) Upon any termination of or appointment of a successor to the
Master Servicer, the Trustee shall give prompt written notice thereof to
Securityholders and to each Rating Agency.
(ii) Within 60 days after the occurrence of any Event of Default,
the Trustee shall transmit by mail to all Securityholders notice of each such
Event of Default hereunder known to the Trustee, unless such Event of Default
shall have been cured or waived.
8. Miscellaneous.
(a) Term of Master Servicing Agreement.
The obligations to be performed by the Master Servicer under this
Agreement shall commence on and as of the date on which the Issuer issues the
Securities and shall terminate as to each Mortgage Loan upon (i) the payment
in full of all principal and interest due under such Mortgage Loan or other
liquidation of such Mortgage Loan as contemplated by this Agreement, (ii) the
termination of the Master Servicer's rights and powers under this Agreement by
the Trustee as provided in Section 7(a) of this Agreement, or (iii) the
release by the Trustee of its security interest in any Mortgage Loan.
(b) Assignment.
Notwithstanding anything to the contrary contained herein, except as
provided in Section 6(b), this Agreement may not be assigned by the Master
Servicer without the prior written consent of the Trustee and [________].
(c) Notices.
(i) The Trustee shall use its best efforts to promptly provide
notice to each Rating Agency with respect to each of the following of which it
has actual knowledge:
1. Any material change or amendment to this Agreement;
2. The occurrence of any Event of Default that has not been cured;
3. The resignation or termination of the Master Servicer or the
Trustee and the appointment of any successor;
4. The repurchase or substitution of Mortgage Loans pursuant to
Section 2(d); and
5. The final payment to Securityholders.
In addition, the Trustee shall promptly furnish to each Rating Agency
copies of the following:
1. Each report to Securityholders described in the Indenture;
2. Each annual statement as to compliance described in Section 3(p);
3. Each annual independent public accountants' servicing report
described in Section 3(q); and
4. Any notice of a purchase of a Mortgage Loan pursuant to Section
2(c)(ii), 2(d) or 3(n).
(ii) All directions, demands and notices hereunder shall be in
writing and shall be deemed to have been duly given when delivered to (a) in
the case of [________], [____________], ___________________, Attention:
_______________, (b) in the case of the Master Servicer,
_____________________________________________, Attention: _________________ or
such other address as may be hereafter furnished to [________] and the
Trustees by the Master Servicer in writing, (c) in the case of the Trustees,
_______________________________________________________, Attention:
__________________________________________________, or such other address as
the Trustee may hereafter furnish to [________] or Master Servicer and (d) in
the case of the Rating Agencies, the address specified therefor in the
definition corresponding to the name of such Rating Agency. Notices to
Securityholders shall be deemed given when mailed, first class postage
prepaid, to their respective addresses appearing in the Certificate Register.
(d) Inspection and Audit Rights.
The Master Servicer agrees that, on reasonable prior notice, it will
permit and will cause each Subservicer to permit any representative of
[________] or the Trustee during the Master Servicer's normal business hours,
to examine all the books of account, records, reports and other papers of the
Master Servicer relating to the Mortgage Loans, to make copies and extracts
therefrom, to cause such books to be audited by independent certified public
accountants selected by [________] or the Trustee and to discuss its affairs,
finances and accounts relating to the Mortgage Loans with its officers,
employees and independent public accountants (and by this provision the Master
Servicer hereby authorizes said accountants to discuss with such
representative such affairs, finances and accounts), all at such reasonable
times and as often as may be reasonably requested. Any out-of-pocket expense
incident to the exercise by [________] or the Trustee of any right under this
Section 8(d) shall be borne by the party requesting such inspection; all other
such expenses shall be borne by the Master Servicer or the related
Subservicer.
(e) Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED IN THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HERETO AND THE SECURITYHOLDERS SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
(f) Amendment.
This Agreement may be amended from time to time by the Issuer, the
Master Servicer and the Trustee without the consent of any of the
Securityholders to cure any ambiguity, or to correct or supplement any
provisions herein, or to make such other provisions with respect to matters or
questions arising under this Agreement as shall not be inconsistent with any
other provisions herein; provided that such action shall not, as evidenced by
an Opinion of Counsel (which Opinion of Counsel shall not be an expense of the
Trustee or the Issuer), adversely affect in any material respect the interests
of any Securityholder; provided, however, that the amendment shall not be
deemed to adversely affect in any material respect the interests of the
Securityholders if the Person requesting the amendment obtains a letter from
each Rating Agency stating that the amendment would not result in the
downgrading or withdrawal of the respective ratings then assigned to the
Securities; it being understood and agreed that any such letter in and of
itself will not represent a determination as to the materiality of any such
amendment and will represent a determination only as to the credit issues
affecting any such rating. The Trustee, [________] and the Master Servicer
also may at any time and from time to time amend this Agreement without the
consent of the Securityholders to modify, eliminate or add to any of its
provisions to such extent as shall be necessary or helpful to maintain the
qualification of the Issuer as a REMIC under the Code or to avoid or minimize
the risk of the imposition of any tax on the REMIC pursuant to the Code that
would be a claim at any time prior to the final redemption of the Securities,
provided that the Trustee has been provided an Opinion of Counsel, which
opinion shall be an expense of the party requesting such opinion but in any
case shall not be an expense of the Trustee or the Issuer, to the effect that
such action is necessary or helpful to maintain such qualification or to avoid
or minimize the risk of the imposition of such a tax.
This Agreement may also be amended from time to time by [________], the
Master Servicer and the Trustee with the consent of the Holders of a Majority
in Interest of each Class of Notes or Certificates affected thereby for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Agreement or of modifying in any manner the
rights of the Holders of Notes or Certificates; provided, however, that no
such amendment shall (i) reduce in any manner the amount of, or delay the
timing of, payments required to be distributed on any Certificate without the
consent of the Holder of such Note or Certificate, (ii) adversely affect in
any material respect the interests of the Holders of any Class of Notes or
Certificates in a manner other than as described in (i), without the consent
of the Holders of Notes or Certificates of such Class evidencing, as to such
Class, Percentage Interests aggregating 66%, or (iii) reduce the aforesaid
percentages of Notes or Certificates the Holders of which are required to
consent to any such amendment, without the consent of the Holders of all such
Notes or Certificates then outstanding.
[Notwithstanding any contrary provision of this Agreement, the Trustee
shall not consent to any amendment to this Agreement unless it shall have
first received an Opinion of Counsel, which opinion shall not be an expense of
the Trustee or the Issuer, to the effect that such amendment will not cause
the imposition of any tax on the REMIC or the Securityholders or cause the
Issuer to fail to qualify as a REMIC at any time that any Certificates are
outstanding.]
Promptly after the execution of any amendment to this Agreement requiring
the consent of Securityholders, the Trustee shall furnish written notification
of the substance or a copy of such amendment to each Securityholder and each
Rating Agency.
It shall not be necessary for the consent of Securityholders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent shall approve the substance thereof. The manner
of obtaining such consents and of evidencing the authorization of the
execution thereof by Securityholders shall be subject to such reasonable
regulations as the Trustee may prescribe.
Nothing in this Agreement shall require the Trustee to enter into an
amendment without receiving an Opinion of Counsel (which Opinion shall not be
an expense of the Trustee or the Issuer, satisfactory to the Trustee that (i)
such amendment is permitted and is not prohibited by this Agreement and that
all requirements for amending this Agreement have been complied with; and (ii)
either (A) the amendment does not adversely affect in any material respect the
interests of any Securityholder or (B) the conclusion set forth in the
immediately preceding clause (A) is not required to be reached pursuant to
this Section 8(f).
(g) Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be for any reason whatsoever held invalid, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and
shall in no way affect the validity or enforceability of the other provisions
of this Agreement.
(h) No Joint Venture.
The Master Servicer and the Issuer are not partners or joint venturers
with each other and nothing herein shall be construed to make them such
partners or joint venturers or impose any liability as such of either of them.
(i) Recordation of Agreement; Counterparts.
This Agreement is subject to recordation in all appropriate public
offices for real property records in all the counties or other comparable
jurisdictions in which any or all of the properties subject to the Mortgages
are situated, and in any other appropriate public recording office or
elsewhere, such recordation to be effected by the Master Servicer at its
expense, but only upon direction by the Trustee accompanied by an Opinion of
Counsel to the effect that such recordation materially and beneficially
affects the interests of the Securityholders.
For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one
and the same instrument.
(j) Limitation of Liability of [owner trustee].
It is expressly understood and agreed by the parties hereto that (a) this
Agreement is executed and delivered by [owner trustee], not individually or
personally but solely as owner trustee of Home Equity Loan Trust 199_ under
the Trust Agreement, in the exercise of the powers and authority conferred and
vested in it, (b) each of the representations, undertakings and agreements
herein made on the part of the Issuer is made and intended not as personal
representations, undertakings and agreements by [owner trustee] but is made
and intended for the purpose for binding only the Issuer, (c) nothing herein
contained shall be construed as creating any liability on [owner trustee],
other than any liability arising out of its gross negligence, bad faith or
willful misconduct, and (d) under no circumstances shall [owner trustee] be
personally liable for the payment of any indebtedness or expenses of the
Issuer or be liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaken by the Issuer under
this Agreement or the other Operative Documents.
(k) Nonpetition Covenants.
Notwithstanding any prior termination of this Agreement, the Master
Servicer shall not, prior to the date which is one year and one day after the
termination of this Agreement with respect to the Issuer or [________],
acquiesce, petition or otherwise invoke or cause the Issuer or [________] (or
any assignee) to invoke the process of any court or government authority for
the purpose of commencing or sustaining a case against the Issuer or
[________] under any federal or state bankruptcy, insolvency or similar law,
or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Issuer or [________] or any
substantial part of its property, or ordering the winding up or liquidation of
the affairs of the Issuer or [________].
<PAGE>
IN WITNESS WHEREOF, each party has caused this Master Servicing Agreement
to be executed by its duly authorized officer or officers as of the day and
year first above written.
Home Equity Loan Trust 199_,
as Issuer
By: [owner trustee]
not in its
individual capacity
but solely as
Owner Trustee
By:____________________________
Its:___________________________
[_____________________]
as Seller and Master Servicer
By:____________________________
Its:___________________________
[_____________________]
as Trustee
By:____________________________
Its:___________________________
<PAGE>
SCHEDULE I
Mortgage Loan Schedule
<PAGE>
SCHEDULE II
Home Equity Loan Trust 199_
Asset Backed Notes and Asset Backed Certificates
Series 199_
Representations and Warranties of the Master Servicer
-----------------------------------------------------
____________________________ ("Seller-Master Servicer") hereby makes the
representations and warranties set forth in this Schedule II to the Issuer,
[________] and the Trustees, as of the Closing Date, or if so specified
herein, as of the Cut-off Date. Capitalized terms used but not otherwise
defined in this Schedule II shall have the meanings ascribed thereto in the
Indenture (the "Indenture") relating to the above-referenced Series, among
Seller-Master Servicer, as seller and master servicer, and
_____________________, as trustee.
(i) The Master Servicer is a [______________ banking] corporation,
validly existing and in good standing under the laws of the State of
[______________], and has the corporate power to own its assets and to
transact the business in which it is currently engaged. The Master Servicer is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which the character of the business transacted by it
or any properties owned or leased by it requires such qualification and in
which the failure so to qualify would have a material adverse effect on the
business, properties, assets, or condition (financial or other) of the Master
Servicer;
(ii) The Master Servicer has the power and authority to make,
execute, deliver and perform this Agreement and all of the transactions
contemplated under the Agreement, and has taken all necessary corporate action
to authorize the execution, delivery and performance of this Agreement. When
executed and delivered, this Agreement will constitute the legal, valid and
binding obligation of the Master Servicer enforceable in accordance with its
terms, except as enforcement of such terms may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by the availability of
equitable remedies;
(iii) The Master Servicer is not required to obtain the consent of
any other party or any consent, license, approval or authorization from, or
registration or declaration with, any governmental authority, bureau or agency
in connection with the execution, delivery, performance, validity or
enforceability of this Agreement, except for such consent, license, approval
or authorization, or registration or declaration, as shall have been obtained
or filed, as the case may be, prior to the Closing Date;
(iv) The execution, delivery and performance of this Agreement by
the Master Servicer will not violate any provision of any existing law or
regulation or any order or decree of any court applicable to the Master
Servicer or any provision of the Certificate of Incorporation or Bylaws of the
Master Servicer, or constitute a material breach of any mortgage, indenture,
contract or other agreement to which the Master Servicer is a party or by
which the Master Servicer may be bound; and
(v) No litigation or administrative proceeding of or before any
court, tribunal or governmental body is currently pending, or to the knowledge
of the Master Servicer threatened, against the Master Servicer or any of its
properties or with respect to this Agreement or the Certificates which in the
opinion of the Master Servicer has a reasonable likelihood of resulting in a
material adverse effect on the transactions contemplated by this Agreement.
<PAGE>
SCHEDULE III
[________] Home Equity Loan Trust 199_
Asset Backed Notes and Asset Backed Certificates
Series 199_
Representations and Warranties as to the Mortgage Loans
-------------------------------------------------------
____________________________ ("Seller") hereby makes the representations
and warranties set forth in this Schedule III to [________] and the Trustee,
as of the Closing Date, or if so specified herein, as of the Cut-off Date.
apitalized terms used but not otherwise defined in this Schedule III shall have
the meanings ascribed thereto in the Indenture (the "Indenture") relating to
the above-referenced Series, among Seller, as seller and master servicer, and
________________________, as trustee.
(i) As of the Closing Date, this Agreement constitutes a legal,
valid and binding obligation of the Seller, enforceable against the Seller in
accordance with its terms, except as enforcement of such terms may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect affecting the enforcement of creditors' rights
generally and by the availability of equitable remedies;
(ii) As of the Closing Date with respect to the Mortgage Loans and
as of the applicable Transfer Date with respect to any Eligible Substitute
Mortgage Loan, either (A) the Purchase Agreement constitutes a valid transfer
and assignment to [________] of all right, title and interest of the Seller in
and to the Cut-off Date Asset Balances with respect to the applicable Mortgage
Loans, all monies due or to become due with respect thereto (excluding
payments in respect of accrued interest due prior to the Cut-off Date or due
in the month of _________), and all proceeds of such Cut-off Date Asset
Balances with respect to the Mortgage Loans and such funds as are from time to
time deposited in the Collection Account (excluding any investment earnings
thereon) and all other property specified in the definition of "Asset" as
being part of the corpus of the Trust conveyed to the Trust by the Seller, and
upon payment for the Additional Balances, will constitute a valid transfer and
assignment to the Trustee of all right, title and interest of the Seller in
and to the Additional Balances, all monies due or to become due with respect
thereto, and all proceeds of such Additional Balances and all other property
specified in the definition of "Asset" relating to the Additional Balances or
(B) the Purchase Agreement or this Agreement, as appropriate, constitutes a
grant of a security interest (as defined in the UCC as in effect in
California) in such property to the Trustee on behalf of the Trust. If this
Agreement constitutes the grant of a security interest to the Trust in such
property, and if the Trustee obtains and maintains possession of the Mortgage
File for each Mortgage Loan, the Trust shall have a first priority perfected
security interest in such property, subject to the effect of Section 9-306 of
the UCC with respect to collections on the Mortgage Loans that are deposited
in the Collection Account in accordance with the next to last paragraph of
Section _______; provided, however, that nothing in this clause (ii) shall be
construed to obligate the Master Servicer to deliver any Mortgage Files other
than as set forth in Section 2(a) hereof;
(iii) As of the Closing Date with respect to the Mortgage Loans and
the applicable Transfer Date with respect to any Eligible Substitute Mortgage
Loan and as of the date any Additional Balance is created, the information set
forth in the Mortgage Loan Schedule for such Mortgage Loans is true and
correct in all material respects;
(iv) The applicable Cut-off Date Asset Balance has not been assigned
or pledged, and the Seller is the sole owner and holder of such Cut-off Date
Asset Balance free and clear of any and all liens, claims, encumbrances,
participation interests, equities, pledges, charges or security interests of
any nature, and has full right and authority, under all governmental and
regulatory bodies having jurisdiction over the ownership of the applicable
Mortgage Loan, to sell, assign or transfer the same pursuant to the Purchase
Agreement;
(v) As of the Closing Date with respect to the Mortgage Loans and
the applicable Transfer Date with respect to any Eligible Substitute Mortgage
Loan, the related Mortgage Note and the Mortgage with respect to each Mortgage
Loan have not been assigned or pledged, and the Seller is the sole owner and
holder of the Mortgage Loan free and clear of any and all liens, claims,
encumbrances, participation interests, equities, pledges, charges or security
interests of any nature, and has full right and authority, under all
governmental and regulatory bodies having jurisdiction over the ownership of
the applicable Mortgage Loans, to sell and assign the same pursuant to the
Purchase Agreement;
(vi) As of the Closing Date with respect to the Mortgage Loans and
the applicable Transfer Date with respect to any Eligible Substitute Mortgage
Loan, the related Mortgage is a valid and subsisting first or second lien, as
set forth on the Mortgage Loan Schedule with respect to each related Mortgage
Loan, on the property therein described, and as of the applicable Cut-off Date
the related Mortgaged Property is free and clear of all encumbrances and liens
having priority over the first or second lien, as applicable, of such Mortgage
except for liens for (i) real estate taxes and special assessments not yet
delinquent; (ii) any first mortgage loan secured by such Mortgaged Property
and specified on the Mortgage Loan Schedule; (iii) covenants, conditions and
restrictions, rights of way, easements and other matters of public record as
of the date of recording that are acceptable to mortgage lending institutions
generally; and (iv) other matters to which like properties are commonly
subject which do not materially interfere with the benefits of the security
intended to be provided by such Mortgage;
(vii) As of the Closing Date with respect to the Mortgage Loans and
the applicable Transfer Date with respect to any Eligible Substitute Mortgage
Loan, there is no valid offset, defense or counterclaim of any obligor under
any Credit Line Agreement or Mortgage;
(viii) To the best knowledge of the Seller, as of the Closing Date
with respect to the Mortgage Loans and the applicable Transfer Date with
respect to any Eligible Substitute Mortgage Loan, there is no delinquent
recording or other tax or fee or assessment lien against any related Mortgaged
Property;
(ix) As of the Closing Date with respect to the Mortgage Loans and
the applicable Transfer Date with respect to any Eligible Substitute Mortgage
Loan, there is no proceeding pending or, to the best knowledge of the Seller,
threatened for the total or partial condemnation of the related Mortgaged
Property, and such property is free of material damage;
(x) To the best knowledge of the Seller, as of the Closing Date with
respect to the Mortgage Loans and the applicable Transfer Date with respect to
any Eligible Substitute Mortgage Loan, there are no mechanics' or similar
liens or claims which have been filed for work, labor or material affecting
the related Mortgaged Property which are, or may be, liens prior or equal to
the lien of the related Mortgage, except liens which are fully insured against
by the title insurance policy referred to in clause (xiv);
(xi) No Minimum Monthly Payment is more than 89 days delinquent
(measured on a contractual basis); and with respect to the Mortgage Loans no
more than _____% (by Cut-off Date Pool Balance) were 30-59 days delinquent
(measured on a contractual basis) and no more than _____% (by Cut-off Date
Pool Balance) were 60-89 days delinquent (measured on a contractual basis);
(xii) As of the Closing Date with respect to the Mortgage Loans and
the applicable Transfer Date with respect to any Eligible Substitute Mortgage
Loan, for each Mortgage Loan, the related Mortgage File contains each of the
documents and instruments specified to be included therein;
(xiii) The related Mortgage Note and the related Mortgage at
origination complied in all material respects with applicable state and
federal laws, including, without limitation, usury, truth-in-lending, real
estate settlement procedures, consumer credit protection, equal credit
opportunity or disclosure laws applicable to the Mortgage Loan;
(xiv) Either a lender's title insurance policy or binder was issued
on the date of origination of the Mortgage Loan and each such policy is valid
and remains in full force and effect, or a title search or guaranty of title
customary in the relevant jurisdiction was obtained with respect to a Mortgage
Loan as to which no title insurance policy or binder was issued;
(xv) As of the Closing Date with respect to the Mortgage Loans and
the applicable Transfer Date with respect to any Eligible Substitute Mortgage
Loan, none of the Mortgaged Properties is a mobile home or a manufactured
housing unit that is not considered or classified as part of the real estate
under the laws of the jurisdiction in which it is located;
(xvi) As of the Cut-off Date for the Mortgage Loans no more than
_____% of such Mortgage Loans, by aggregate principal balance, are secured by
Mortgaged Properties located in one United States postal zip code;
(xvii) The Combined Loan-to-Value Ratio for each Mortgage Loan was
not in excess of 100%;
(xviii) No selection procedure reasonably believed by the Seller to
be adverse to the interests of the Securityholders or the Credit Enhancer was
utilized in selecting the Mortgage Loans;
(xix) The Seller has not transferred the Mortgage Loans to the Trust
with any intent to hinder, delay or defraud any of its creditors;
(xx) The Minimum Monthly Payment with respect to any Mortgage Loan
is not less than the interest accrued at the applicable Loan Rate on the
average daily Asset Balance during the interest period relating to the date on
which such Minimum Monthly Payment is due;
(xxi) Within 90 days of the Closing Date with respect to the
Mortgage Loans and, to the extent not already included in such filing with
respect to the Mortgage Loans, the applicable Transfer Date with respect to
any Eligible Substitute Mortgage Loan, the Seller will file UCC-1 financing
statements with respect to the Mortgage Loans;
(xxii) As of the Closing Date with respect to the Mortgage Loans and
the applicable Transfer Date with respect to any Eligible Substitute Mortgage
Loan, each Credit Line Agreement and each Mortgage Loan is an enforceable
obligation of the related Mortgagor, except as the enforceability thereof may
be limited by the bankruptcy, insolvency or similar laws affecting creditors'
rights generally;
(xxiii) As of the Closing Date with respect to the Mortgage Loans
and the applicable Transfer Date with respect to any Eligible Substitute
Mortgage Loan, the Seller has not received a notice of default of any senior
mortgage loan related to a Mortgaged Property that has not been cured by a
party other than the Master Servicer;
(xxiv) The definition of Prime Rate in each Credit Line Agreement
relating to a Mortgage Loan does not differ materially from the definition in
the form of Credit Line Agreement in _________________;
(xxv) The weighted average remaining term to maturity of the
Mortgage Loans on a contractual basis as of the Cut-off Date for the Mortgage
Loans is approximately ___ months. On each date that the Loan Rates have been
adjusted, interest rate adjustments on the Mortgage Loans were made in
compliance with the related Mortgage and Mortgage Note and applicable law.
Over the term of each Mortgage Loan, the Loan Rate may not exceed the related
Loan Rate Cap, if any. The Loan Rate Caps range between ____% and ____%. The
Margins range between ____% and ____% and the weighted average Margin is
approximately ____% as of the Cut-off Date for the Mortgage Loans. The Loan
Rates on such Mortgage Loans range between ____% and _____% and the weighted
average Loan Rate is approximately _____%.
(xxvi) As of the Closing Date with respect to the Mortgage Loans and
the applicable Transfer Date with respect to any Eligible Substitute Mortgage
Loan, each Mortgaged Property consists of a single parcel of real property
with a one-to-four unit single family residence erected thereon, or an
individual condominium unit, planned unit development unit or townhouse;
(xxvii) No more than _____% (by Cut-off Date Pool Balance) of the
Mortgage Loans are secured by real property improved by individual condominium
units, planned development units, townhouses or two-to-four family residences
erected thereon, and at least _____% (by Cut-off Date Pool Balance) of the
Mortgage Loans are secured by real property with a detached one-family
residence erected thereon;
(xxviii) The Credit Limits on the Mortgage Loans range between
$________ and $__________ with an average of $_________. As of the Cut-off
Date for the Mortgage Loans, no Mortgage Loan had a principal balance in
excess of approximately $__________ and the average principal balance of the
Mortgage Loans is equal to approximately $_________; and
(xxix) Approximately ____% and _____% of the Mortgage Loans, by
aggregate principal balance as of the Cut-off Date for the Mortgage Loans, are
first and second liens, respectively.
<PAGE>
SCHEDULE IV
Home Equity Loan Trust 199_
Asset Backed Notes and Asset Backed Certificates
Series 199_
Representations and Warranties of the Issuer.
--------------------------------------------
Home Equity Loan Trust 199_ (the "Issuer") hereby makes the
representations and warranties set forth in this Schedule IV to the Master
Servicer and the Trustee, as of the Closing Date. Capitalized terms used but
not otherwise defined in this Schedule IV shall have the meanings ascribed
thereto in the Master Servicing Agreement (the "Master Servicing Agreement")
relating to the above-referenced Series, among [___________], as Master
Servicer, Home Equity Loan Trust 199_, as Issuer, and [ ], as Trustee.
(1) The Issuer is a statutory business trust duly organized,
validly existing and in good standing under the laws of the State of
[Delaware], and possesses all requisite authority, power, licenses,
permits and franchises to conduct any and all business contemplated by
the Master Servicing Agreement and to comply with its obligations under
the terms of this Agreement, the performance of which have been duly
authorized by all necessary action.
(2) Neither the execution and delivery of the Master Servicing
Agreement by the Issuer, nor the performance and compliance with the
terms thereof by the Issuer will (A) result in a material breach of any
term or provision of the instruments creating the Issuer or governing its
operations, or (B) materially conflict with, result in a material breach,
violation or acceleration of, or result in a material default under, the
terms of any other material agreement or instrument to which the Issuer
is a party or by which it may be bound, or (C) constitute a material
violation of any statute, order or regulation applicable to the Issuer of
any court, regulatory body, administrative agency or governmental body
having jurisdiction over the Issuer; and the Issuer is not in breach or
violation of any material indenture or other material agreement or
instrument, or in violation of any statute, order or regulation of any
court, regulatory body, administrative agency or governmental body having
jurisdiction over it which breach or violation may materially impair the
Issuer's ability to perform or meet any of its obligations under the
Master Servicing Agreement.
(3) This Agreement, and all documents and instruments
contemplated hereby, which are executed and delivered by the Issuer,
will, assuming due authorization, execution by and delivery to the other
parties hereto and thereto, constitute valid, legal and binding
obligations of the Issuer, enforceable in accordance with their
respective terms, except that (a) the enforceability thereof may be
limited by bankruptcy, insolvency, moratorium, receivership and other
similar laws relating to creditors' rights generally and (b) the remedy
of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought.
(4) No litigation is pending or, to the best of the Issuer's
knowledge, threatened against the Issuer that would materially and
adversely affect the execution, delivery or enforceability of the Master
Servicing Agreement or the ability of the Issuer to perform its
obligations thereunder.
(5) Immediately prior to the transfer and assignment of the
Mortgage Loans to the Trustee, the Issuer had good title to, and was the
sole owner of, each Mortgage Loan free and clear of any liens, charges or
encumbrances or any ownership or participation interests in favor of any
other Person.
<PAGE>
EXHIBIT A
FORM OF INITIAL CERTIFICATION OF TRUSTEE
[date]
[Master Servicer]
[Issuer]
____________________
____________________
Re: Master Servicing Agreement among Home Equity Loan Trust 199_,
as Issuer, [__________________], as Master Servicer, and [ ],
as Trustee, Asset Backed Notes and Asset Backed Certificates,
Series 199
-------------------------------------------------------------
Gentlemen:
In accordance with Section 2(b) of the above-captioned Master
Servicing Agreement (the "Master Servicing Agreement"), the undersigned, as
Trustee, hereby certifies that, as to each Mortgage Loan listed in the
Mortgage Loan Schedule (other than any Mortgage Loan listed in the attached
schedule), it has received:
(i) the original Mortgage Note, endorsed as provided in the
following form: "Pay to the order of ________, without recourse"; and
(ii) a duly executed assignment of the Mortgage (which may be
included in a blanket assignment or assignments).
Based on its review and examination and only as to the foregoing
documents, such documents appear regular on their face and related to such
Mortgage Loan.
The Trustee has made no independent examination of any documents
contained in each Mortgage File beyond the review specifically required in the
Master Servicing Agreement. The Trustee makes no representations as to: (i)
the validity, legality, sufficiency, enforceability or genuineness of any of
the documents contained in each Mortgage File of any of the Mortgage Loans
identified on the Mortgage Loan Schedule, (ii) the collectability,
insurability, effectiveness or suitability of any such Mortgage Loan or (iii)
the correctness of any information set forth in the Mortgage Loan Schedule,
other than the information specified in items (i) through (iv) and (vi)
thereof.
<PAGE>
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the Master Servicing Agreement.
[ ]
as Trustee
By:______________________________
Name:____________________________
Title:___________________________
<PAGE>
EXHIBIT B
FORM OF FINAL CERTIFICATION OF TRUSTEE
[date]
[Master Servicer]
[Issuer]
___________________
___________________
Re: Master Servicing Agreement among Home Equity Loan Trust 199_, as
Issuer, [_________________], as Master Servicer, and [ ], as Trustee,
Asset Backed Notes and Asset Backed Certificates, Series 199_
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Gentlemen:
In accordance with Section 2(b) of the above-captioned Master
Servicing Agreement (the "Master Servicing Agreement"), the undersigned, as
Trustee, hereby certifies that as to each Mortgage Loan listed in the Mortgage
Loan Schedule (other than any Mortgage Loan paid in full or listed on the
attached Document Exception Report) it has received:
(i) The original Mortgage Note, endorsed in the form provided in
Section 2(a) of the Master Servicing Agreement, with all intervening
endorsements showing a complete chain of endorsement from the originator to
the Issuer.
(ii) The original recorded Mortgage.
(iii) A duly executed assignment of the Mortgage in the form
provided in Section 2(a) of the Master Servicing Agreement, or, if the Master
Servicer has certified or the Trustee otherwise knows that the related
Mortgage has not been returned from the applicable recording office, a copy of
the assignment of the Mortgage (excluding information to be provided by the
recording office).
(iv) The original or duplicate original recorded assignment or
assignments of the Mortgage showing a complete chain of assignment from the
originator to the Issuer.
(v) The original or duplicate original lender's title policy and all
riders thereto or, any one of an original title binder, an original
preliminary title report or an original title commitment, or a copy thereof
certified by the title company.
Based on its review and examination and only as to the foregoing
documents, (a) such documents appear regular on their face and related to such
Mortgage Loan, and (b) the information set forth in items (i), (ii), (iii),
(iv), (vi) and (xi) of the definition of the "Mortgage Loan Schedule" in
Section 1 of the Master Servicing Agreement accurately reflects information
set forth in the Trustee Mortgage File.
The Trustee has made no independent examination of any documents
contained in each Mortgage File beyond the review specifically required in the
Master Servicing Agreement. The Trustee makes no representations as to: (i)
the validity, legality, sufficiency, enforceability or genuineness of any of
the documents contained in each Mortgage File of any of the Mortgage Loans
identified on the Mortgage Loan Schedule, or (ii) the collectability,
insurability, effectiveness or suitability of any such Mortgage Loan.
Notwithstanding anything herein to the contrary, the Trustee has made no
determination and makes no representations as to whether (i) any endorsement
is sufficient to transfer all right, title and interest of the party so
endorsing, as noteholder or assignee thereof, in and to that Mortgage Note or
(ii) any assignment is in recordable form or sufficient to effect the
assignment of and transfer to the assignee thereof, under the Mortgage to
which the assignment relates.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the Master Servicing Agreement.
[ ]
as Trustee
By:___________________________
Name:_________________________
Title:________________________
<PAGE>
EXHIBIT C
REQUEST FOR RELEASE
(for Trustee)
Home Equity Loan Trust 199_
Asset Backed Notes and Asset Backed Certificates
Series 199_
Loan Information
- ----------------
Name of Mortgagor: __________________________________________________
Servicer Loan No.: __________________________________________________
Trustee
Name: __________________________________________________
Address: __________________________________________________
Trustee Mortgage
File No.: __________________________________________________
The undersigned Master Servicer hereby acknowledges that it has
received from [ ], as Trustee for the Holders of Notes of the above-referenced
Series, the documents referred to below (the "Documents"). All capitalized
terms not otherwise defined in this Request for Release shall have the
meanings given them in the Master Servicing Agreement (the "Master Servicing
Agreement") relating to the above-referenced Series among the Trustee,
[_________________], as Master Servicer, and Home Equity Loan Trust 199_, as
Issuer.
( ) Mortgage Note dated ___________ , 19__, in the original principal sum of
$__________, made by _________________. payable to, or endorsed to the
order of, the Trustee.
( ) Mortgage recorded on _________________ as instrument no. _____________
in the County Recorder's Office of the County of ___________________,
State of _______________ in book/reel/docket ________________ of official
records at page/image ________________.
( ) Deed of Trust recorded on __________________ as instrument no. __________
in the County Recorder's Office of the County of ________________,
State of _______________ in book/reel/docket _______________ of official
records at page/image ________________.
( ) Assignment of Mortgage or Deed of Trust to the Trustee, recorded on
______________ as instrument no. ___________ in the County Recorder's
Office of the County of __________, State of ________________ in
book/reel/docket __________ of official records at page/image __________.
( ) Other documents, including any amendments, assignments or other
assumptions of the Mortgage Note or Mortgage.
( )
( )
( )
( )
The undersigned Master Servicer hereby acknowledges and agrees as
follows:
(1) The Master Servicer shall hold and retain possession of the
Documents in trust for the benefit of the Trustee, solely for the
purposes provided in the Agreement.
(2) The Master Servicer shall not cause or knowingly permit the
Documents to become subject to, or encumbered by, any claim, liens,
security interest, charges, writs of attachment or other impositions nor
shall the Master Servicer assert or seek to assert any claims or rights
of setoff to or against the Documents or any proceeds thereof.
(3) The Master Servicer shall return each and every Document
previously requested from the Mortgage File to the Trustee when the need
therefor no longer exists, unless the Mortgage Loan relating to the
Documents has been liquidated and the proceeds thereof have been remitted
to the Note Account and except as expressly provided in the Master
Servicing Agreement.
(4) The Documents and any proceeds thereof, including any proceeds
of proceeds, coming into the possession or control of the Master Servicer
shall at all times be earmarked for the account of the Trustee, and the
Master Servicer shall keep the Documents and any proceeds separate and
distinct from all other property in the Master Servicer's possession,
custody or control.
[_____________________]
By: __________________________
Its:__________________________
Date: ____________, 19
<PAGE>
EXHIBIT D
REQUEST FOR RELEASE OF DOCUMENTS
To: [Trustee] Attn: Mortgage Custody Services
Re: The Master Servicing Agreement dated [ ] among [___________]
("[_______]"), as Master Servicer, Home Equity Loan Trust 199_, as
Issuer, and [ ], as Trustee
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Ladies and Gentlemen:
In connection with the administration of the Mortgage Loans held by
you as Trustee for Home Equity Loan Trust 199_, as Issuer, we request the
release of the Mortgage File for the Mortgage Loan(s) described below, for the
reason indicated.
FT Account #: Pool #:
Mortgagor's Name, Address and Zip Code:
- --------------------------------------
Mortgage Loan Number:
- --------------------
Reason for Requesting Documents (check one)
- -------------------------------
_______1. Mortgage Loan paid in full ([_________] hereby certifies that all
amounts have been received.)
_______2. Mortgage Loan Liquidated ([_________] hereby certifies that all
proceeds of foreclosure, insurance, or other liquidation have been
finally received.)
_______3. Mortgage Loan in Foreclosure.
_______4. Other (explain): ____________________________________
If item 1 or 2 above is checked, and if all or part of the Trustee Mortgage
File was previously released to us, please release to us our previous receipt
on file with you, as well as an additional documents in your possession
relating to the above-specified Mortgage Loan. If item 3 or 4 is checked, upon
return of all of the above documents to you as Trustee, please acknowledge
your receipt by signing in the space indicated below, and returning this form.
<PAGE>
[____________________________] [address]
By:_________________________________________
Name:_______________________________________
Title:______________________________________
Date:_______________________________________
TRUSTEE CONSENT TO RELEASE AND
ACKNOWLEDGEMENT OF RECEIPT
By:_________________________________________
Name:_______________________________________
Title:______________________________________
Date:_______________________________________
